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SOLER v. G & U

July 24, 1991

FRANCISCO SOLER, ET AL., PLAINTIFFS,
v.
G & U, INC., CHARLES GRATZ, D/B/A CHARLES GRATZ FARM, ET AL., DEFENDANTS. JANN S. FLING, ET AL., PLAINTIFFS, V. PEAT-GRO FARMS, INC., DEFENDANT. PABLO LIVAS, ET AL., PLAINTIFFS, V. BIERSTINE FARMS, INC., DEFENDANT. GILBERTO GONZALEZ, ET AL., PLAINTIFFS, V. CEDAR VALLEY GROWERS, INC., DEFENDANT. FREDDY VALENTIN, ET AL., PLAINTIFFS, V. RAYMOND MYRUSKI, DEFENDANT. CECILIO ENCARNACION, ET AL., PLAINTIFFS, V. W.K.W. FARMS, INC., DEFENDANT. SOLER, ET AL., PLAINTIFFS, V. U.S. SECRETARY OF LABOR, ET AL., DEFENDANTS. G & U, INC., ET AL., PLAINTIFFS, V. U.S. DEPARTMENT OF LABOR, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Tenney, District Judge.

  OPINION

Plaintiffs, approximately 100 migrant farmworkers ("migrant workers" or "workers"), instituted this consolidated action under the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq. (1988) ("FLSA"), against defendants, six farm owners in Orange County, New York ("owners").*fn1 The workers seek to recover "rent" deducted from their wages by the owners for the on-site housing which the owners provided during the 1978-83 growing seasons. The workers argue that in deducting the "rent" from their wages, the owners violated the minimum wage provisions of the FLSA. See 29 U.S.C. § 206.*fn2

In a prior decision, the court stayed the proceedings in this case, pending an administrative hearing before an Administrative Law Judge ("ALJ") and a final determination by the United States Department of Labor's Wages and Hour Administrator ("Administrator"). See Soler v. G & U, Inc., 477 F. Supp. 102 (S.D.N.Y. 1979). In November 1983, the Administrator issued his final decision, in which he found, inter alia, that the on-site housing was primarily for the benefit of the workers rather than the owners, and that its fair rental value was therefore deductible from the workers' wages. Administrator's Decision, Exh. E to Plaintiffs' Notice of Motion for Partial Summary Judgment ("Plaintiffs' Notice of Motion"). Thereafter, the workers and the owners sought judicial review of the Administrator's decision under the Administrative Procedure Act, 5 U.S.C. § 706(2) (1988) ("APA"), and cross-moved for summary judgment pursuant to Fed.R.Civ.P. 56(c).

This court found that the housing provided to the migrant workers was primarily for the benefit and convenience of the owners, and that, therefore, its costs could not be included as "wages" under § 203(m) of the FLSA.*fn3 After concluding that the Administrator failed to consider all the relevant factors, this court set aside — as arbitrary and capricious — his determination that the housing was primarily for the benefit of the workers, and granted summary judgment in favor of the plaintiffs. Soler v. G & U, Inc., 615 F. Supp. 736 (S.D.N.Y. 1985). The Second Circuit reversed, finding that this court had exceeded the scope of its review authority under the APA, and that the Administrator's decision was not arbitrary and capricious. The case was remanded for this court "to review the Administrator's determinations relating to the fair rental value of the housing facilities." Soler v. G & U, Inc., 833 F.2d 1104, 1105, 1111 (2d Cir. 1987), cert. denied, 488 U.S. 832, 109 S.Ct. 88, 102 L.Ed.2d 64 (1988). Once again, the migrant workers and the owners have cross-moved for summary judgment based on the administrative record.

For the reasons set forth below, the Administrator's decision is affirmed in part and reversed in part. In addition, the court's prior award of liquidated damages is replaced with an award of prejudgment interest.

BACKGROUND

Defendant owners are in the business of growing and harvesting crops such as onions, lettuce, and celery. In addition to their permanent employees, the owners hire migrant workers on a seasonal basis and pay them the hourly minimum wage. During the main growing season, the owners provide on-site housing to most of the migrant workers.*fn4 If housing were not provided, it is unlikely that the workers would be able to obtain off-site housing. Both sides agree that the migrant workers could not afford to work for the owners if housing were not provided. Soler, 615 F. Supp. at 739.

Prior to 1978, the on-site housing was provided to the migrant workers free of charge. In 1978, however, Congress amended the FLSA's minimum wage provisions to apply to agricultural workers.*fn5 Since the FLSA provides that the wage paid to an employee may include the reasonable cost to the employer of furnishing the employee with lodging, see 29 U.S.C. § 203(m), the owners began to charge the migrant workers for their housing. From 1978-83, the owners charged each worker between $8 and $12.50 a week for the lodging. In general, the owners withheld $.25 per hour from the wages of each worker for whom housing was provided.

Both appraisers agreed that their assignments were unique and that the "market data" approach was the only viable method of valuation in this case.*fn6 Administrator's Decision at 4. In using the market data approach, a fair rental value is determined by 1) comparing the property in question to similar property in the general geographic area, 2) determining the rental value of the similar property, and 3) making whatever adjustments are needed to the rental value, if any, to reflect the differences between the property in question and the comparable property. Id.; HUD Appraisal at 7-8, Exh. C to Plaintiffs' Notice of Motion.

In conducting his appraisal, the HUD appraiser examined fifteen low income housing units in the general area of the owners' farms. After eliminating both the high and low extremes of the rental spectrum, the HUD appraiser calculated that the typical rent for the rural housing was $20 per person, per week. HUD Appraisal at 11. This figure was based upon an average occupancy of two persons per bedroom and included adjustments for utilities.*fn7 Id. at 9.

The HUD appraiser recognized that the rural rental housing was superior to the workers' housing in several respects. To account for the differences, the appraiser made downward adjustments from the $20 rural rental baseline in three areas: 1) "market limitations," 2) "livability," and 3) "functional utility." Market limitations involved an adjustment primarily to reflect the remote location of the migrant housing, far removed from towns and villages. See Tr. 2971-71, 3028, 3093, 3730.*fn8 For two of the migrant worker camps, the downward adjustments for market limitations were 20% and 15%; for the remaining properties the downward adjustment was 10%. Livability focused on whether the housing satisfied a tenant's basic needs, with emphasis on sanitary facilities. See Tr. 2958-60. Deductions for livability were as high as 55%. See HUD Appraisal at 33. Functional utility related to the attractiveness and usefulness of the property, with emphasis on the layout, room and closet size, and the type of walls and floors. See Tr. 2959-60. Deductions for functional utility were as high as 40%. HUD Appraisal at 24.

Based upon his inspections of the on-site lodging, the HUD appraiser determined the percentage deduction for each individual housing unit under each of the three above mentioned categories. The sum of the three percentages was then subtracted from the $20 baseline figure to arrive at the weekly per person fair rental value of each of the units. The HUD appraiser calculated the fair rental values to range from $0 to $18, with twenty-six of the thirty-two sites having values of $10 or less.

Both the ALJ and the Administrator accepted the HUD appraiser's calculations with a few exceptions. First, both the ALJ and the Administrator rejected the appraiser's standard 10% deduction for market limitations. See ALJ's Recommended Decision at 38-39, Exh. G to Plaintiffs' Notice of Motion; Administrator's Decision at 12. As discussed supra, the HUD appraiser predicated the 10% market limitation deduction primarily on the fact that the migrant worker housing was located at a distance from towns and villages. However, since the comparable units used by the HUD appraiser in setting the $20 baseline were also rurally located, and because "the presence [of the housing] at the farm is a positive factor [for the migrant workers] at least with respect to transportation cost savings," the ALJ and the Administrator did not accept the HUD appraiser's standard 10% deductions.*fn9 Id. Second, the Administrator accepted the ALJ's recommendation that $1 be added to each weekly rental calculated by the HUD appraiser to reflect excessive maintenance costs. See Administrator's Decision at 12; ALJ's Recommended Decision at 41-43.

On March 31, 1982, the ALJ issued his Recommended Decision, which concluded, inter alia, that: 1) the housing primarily benefited the workers; 2) no deductions should be allowed for periods during which the housing was not in compliance with the New York law; 3) heating fuel is properly chargeable to the workers; and 4) the fair rental value of the housing sites in question ranged from $7 to $22 per person, per week. ALJ's Recommended Decision; Soler, 833 F.2d at 1106.

On February 9, 1983, the Administrator issued his decision, which he amended on November 15, 1983 in order to clarify certain issues raised by the parties. See Administrator's Decision; Amendment to Decision of the Administrator ("Amended Decision"), Exh. F to Plaintiffs' Notice of Motion. In his decision, the Administrator adopted most of the ALJ's findings. However, he rejected the ALJ's findings that heating costs were properly chargeable to the workers, and that "lodging, if legally permissible, anywhere in this country is worth no less than $1.00 per person, per day." Administrator's Decision at 14-15. The Administrator also found, contrary to the ALJ, that certain of the owners' housing units lacked heating facilities in violation of the New York State Sanitary Code, and that the owners should be denied wage deductions for those facilities. Administrator's Decision at 15; Amended Decision at 4; ALJ's Recommended Decision at 23-24. Thereafter, the Administrator adjusted the fair rental values to range from $3 to $21.*fn10 Administrator's Decision at 16.

The workers argue that the Administrator's determination of the fair rental value of the housing was arbitrary and was not supported by substantial evidence. Alternatively, the workers claim that the Administrator erred by disallowing the appraiser's 10% downward adjustment for "market limitations." Lastly, the workers urge the court to replace its prior award of liquidated damages with an award of prejudgment interest. The defendant owners contend that the Administrator erred by refusing to charge the migrant workers for the cost of heating fuel and in denying wage deductions for those housing facilities which he found to have been furnished in violation of state law. In all other respects, the owners argue that the Administrator's decision should be affirmed. The government contends that both motions for summary judgment should be denied, and that the Administrator's decision should be affirmed in all respects.

DISCUSSION

I. STANDARD OF REVIEW

A. Summary Judgment

B. The APA

Under the APA, an agency's decision may be set aside only if it is found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law." 5 U.S.C. § 706(2)(A). Thus, the scope of judicial review is narrow and the court may not substitute its judgment for that of the agency. Soler, 833 F.2d at 1107 (citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971)).

A successful challenge to an agency's decision under the arbitrary and capricious standard of review must ...


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