Wake Forest Law Review

Frontier-Kemper Constructors, Inc. v. Director

In this civil case, Frontier-Kemper appealed from a decision of the United States Department of Labor Benefits Review Board, which held Plaintiff was responsible for paying benefits to a coal miner under the Black Lung Benefits Act. Frontier-Kemper disputed its liability for the claim, but the Court concluded Frontier-Kemper was liable for payment. The main question was whether Frontier-Kemper was defined as an “operator” under the relevant statute, as only operators can be liable for black lung benefits claims. The Court concluded it was an “operator” for the purposes of this case and, therefore, affirmed.

Nardea v. Sessions 

This case pertained to a petition for review of an Order of Removal by the Department of Homeland Security. Nardea, a citizen of Argentina, was removed without receiving a hearing after entering the United States under the Visa Waiver Program and waiving his right to contest removal. He challenged his waiver status and the constitutionality of any waiver under the program. After considering the Visa Waiver Program and the facts surrounding Nardea’s entry, the Court determined that the evidence supported the conclusion that he waived his right to contest removal. Further, because Nardea could not show prejudice, he could not succeed on a procedural due process claim. Thus, his petition for review was denied.

Westmoreland Coal Co. v. Stallard

In this petition for review, Westmoreland Coal Company challeneged a final agency decision by the U.S. Department of Labor Benefits Review Board that awarded Stallard federal disability benefits under the Black Lung Benefits Act. The Court denied Westmoreland’s petition for review holding that there was substantial evidence to support the award of benefits and that the award accords with applicable law.

Penley v. McDowell County Board of Education

In this civil case, former McDowell County educator Penley appealed the District Court’s summary judgment and dismissal of his claim against the McDowell County Board of Education. The Fourth Circuit, finding no issue of material fact, affirmed the District Court’s summary judgment and held that Penley did not provide more than a speculation that the investigation into his behavior and recommendation of dismissal were in retaliation of his previous political speech. Summary judgment was affirmed for McDowell County.

By M. Allie Clayton

Today, in the civil case of Barton v. Constellium Rolled Products-Ravenswood, LLC., a published opinion, the Fourth Circuit affirmed the District Court in granting summary judgment for the company. The court stated that the governing collective bargaining agreement did not provide for vested retiree health benefits, and thus the former employer was within their power to unilaterally alter its retiree health benefits program.

Facts

A class of retirees and their union, The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industry & Service Workers International Union AFL-CIO/CLC (“The Union”), filed this action. The union had represented the retirees since 1988 and had negotiated collective bargain agreements with their previous employer—Constellium Rolled Products-Ravenswood, LLC (“Constellium”).

The Parties’ Agreement

There was a specific provision of their collective bargaining agreement (“CBA”) that governed group health insurance benefits: Article 15. The 2010 provision of Article 15 stated:

  1. The group insurance benefits shall be set forth in booklets entitled Employees’ Group Insurance Program and Retired Employees’ Group Insurance Program, and such booklets are incorporated herein and made a part of the 2005 Labor Agreement by such reference.
  2. It is understood that this agreement with respect to insurance benefits is an agreement on the basis of benefits and that the benefits shall become effective on July 15, 2010, except as otherwise provided in the applicable booklet, and further that such benefits shall remain in effect for the term of this 2010 Labor Agreement.

In addition to Article 15 and the various booklets incorporated by reference therein (which operated as summary plan description (“SPD”)), Constellium (or its predecessors) and retirees agreed to further parameters governing retiree health benefits that were contained in “Cap Letters.” The cap letters throughout the years governed how Constellium (or its predecessors) would allocate health care spending of employees based on pre- and post-January 2003 retirees. The third cap letter, which took effect on January 1, 2011, was unique in that it took effect after the concurrently-negotiated collective bargaining agreement did.

The Unilateral Change Leading to Litigation

While the parties were negotiating a new CBA in July 2012, Constellium proposed a change to Article 15 that would extend the cap on its contributions to retiree health benefits to those who retired before January 1, 2003, and freeze its Medicare Part B premium reimbursement amount for all hourly retirees at $99.90. The Union refused to bargain about this issue because it asserted that the retiree health benefits had already vested. Constellium notified the Union that it planned to make those changes on January 1, 2013, and made those changes on that day.

Procedural History

After discovery, the parties filed cross-motions for summary judgment. The district court granted the company’s motion and dismissed the case.

The Issue

Did Constellium’s unilateral alteration of those benefits breach its obligations under the CBA?

Reasoning

The Supreme Court in M&G Polymers USA, LLC v. Tackett stated that courts must “interpret collective-bargaining agreements, including those establishing ERISA plans, according to ordinary principles of contract law, at least when those principles are not inconsistent with federal labor policy.” Therefore, as this court was interpreting the collective bargaining agreement with the parties, it was bound by ordinary contract principles. Those ordinary contract principles included the rule that states that in order to find that the retiree health benefits vested, there must be unambiguous evidence that indicates that the parties intended that outcome.

The Fourth Circuit found that the plain language of the CBA and the SPD indicated that the benefits did not vest. They found that there was explicit durational language in the retiree health benefits SPDs. Bolstering that conclusion was the contrast of the retiree health benefits section with a different section of the SPD that stated unambiguously that the pension plans cannot be reduced and they are paid monthly for the participants. Because the language was unambiguous in another section, it clearly demonstrated that the parties knew how to express their intent that certain benefits should vest.

Disposition

Because there were clear temporal limitations on the employee health benefits, the retirees’ and the Union’s arguments that the benefits had already vested cannot be upheld. Therefore, the grant of summary judgment in favor of Constellium by the district court is affirmed.

metro

By Ashley Escoe

In Fraternal Order of Police v. WMATA, a published civil opinion released on March 10, 2015, the Fourth Circuit reversed a district court’s order of summary judgment for the appellee, the Fraternal Order of Police (FOP), holding that the appellant, the Washington Metropolitan Area Transit Authority (WMATA), complied with the arbitration award.

Officers Allege That Termination Violates Arbitration Award

This labor dispute arose when the WMATA fired two of its police officers for a second time, after an arbitration award required WMATA to rehire them. WMATA fired Mark Spencer and Sherman Benton initially for making untruthful statements during investigations into their alleged improper conduct. The FOP, the bargaining agent for officers, filed grievances for the two officers culminating in arbitration. The Board of Arbitration determined that a lengthy suspension was more appropriate than termination and ordered WMATA to rehire the officers.

When the two officers were fired, they lost their Maryland certification to work as police officers. Once reinstated, they had to apply for recertification with the Maryland Commission before resuming their police duties. The Maryland Commission denied the officers recertification. Because the two officers were not recertified, WMATA fired them a second time. The FOP filed this action in federal court, contending that WMATA violated the decision of the Arbitration Board. The district court held that WMATA failed to comply with the arbitration order and instructed WMATA to rehire Benton and Spencer.

Fourth Circuit Follows Seventh and Third Circuits

The decision in this case turns on whether firing the two officers the second time, when they were denied recertification, constitutes a violation of the arbitration order. There is no Fourth Circuit authority that addresses this issue directly. Therefore, the Court looked to the Seventh and Third Circuits, which had decided cases with similar facts. The Seventh Circuit in Chrysler Motors Corp. v. International Union, Allied Industrial Workers and the Third Circuit in United Food & Commercial Workers Union Local 1776 v. Excel Corp. held that an employee cannot challenge a second termination by seeking to enforce an arbitration award where an employee was terminated, ordered to be reinstated after arbitration, then fired again for independent reasons.

Second Termination was Based on Independent Grounds

The Fourth Circuit Found that that WMATA fired the officers the second time on independent grounds not related to the first termination. The reasons for the second termination, that the Maryland Commission denied recertification, was distinct from firing the officers for disciplinary infractions and was also never before the Arbitration Board.

The Court noted that WMATA provided the Maryland Commission with derogatory information seeking to discourage the officers’ recertification. While the Court does not condone that behavior, it concluded that it did not have jurisdiction to consider if WMATA’s actions violated the “just cause” provision of the collective bargaining agreement between the officers and WMATA. That issue, according to the agreement, must be settled by arbitration.

Summary Judgment Reversed

The Fourth Circuit held that the WMATA’s choice to fire the two officers after their recertification was denied, did not violate the arbitration award, reversing the district court’s order of summary judgment for the FOP.

By: Julia Di Vito

Introduction

On June 17, 2010, the United States Supreme Court overturned more than five-hundred decisions issued by the National Labor Relations Board (“Board”) with one decision.  In so doing, the Court also overturned a decision by the United States Court of Appeals for the Seventh Circuit and affected decisions made by federal courts of appeals in four other circuits.  While this decision is significant in the arena of labor law, it is more significant for its impact on the Court’s future philosophy toward statutory interpretation.

In New Process Steel, L.P. v. NLRB, the Court held that the National Labor Relations Act (“NLRA”)—the enabling statute for the Board—did not allow a two-member group of the Board’s members to exercise the Board’s power to decide cases.[1]  The Board had previously delegated its authority to a three-member group of the five-member Board, and that three-member group continued to decide cases when its membership decreased to two because the third member’s appointment expired.[2]  In New Process Steel, the five-justice majority of the Court held that under the NLRA, the delegated group could only exercise the Board’s authority with three (not two) members and held that all of the orders issued by the two-member group were invalid.[3]

The majority’s decision demonstrates the current trend of formalistic statutory interpretation.  This method of interpretation involves examining the text of a statute to interpret its meaning and ignoring congressional intent, even if the effect of the formalistic interpretation seems contrary to that congressional intent.[4]  The Court in New Process Steel chose to avoid a functionalistic interpretation, in which one interprets a statute by considering both the text and the impact of the interpretation and chose instead an interpretation that best accomplishes the apparent congressional intent.  Justice Stevens wrote the opinion for the majority, despite his personal history of functionalistic interpretation.[5]

This Note considers the impact of New Process Steel on the future interpretative philosophy of the United States Supreme Court.  Part I examines the majority and dissenting opinions of the New Process Steel decision.  Part II explores the historical background of the Board and the NLRA and the circuit split regarding the Board’s delegation policy before the Court’s decision in New Process Steel.  Part III explains three types of statutory interpretation: formalism, functionalism, and Chevron deference.  Part IV analyzes the interpretive methods used by the majority and the dissent in New Process Steel and considers the absence of the Chevron doctrine.  Finally, Part V concludes by examining Justice Stevens’s break from his history as a functionalist and a consideration of the impact of New Process Steel on future Supreme Court statutory interpretation.

I.  New Process Steel, L.P. v. NLRB

In New Process Steel, the United States Supreme Court held that two members of the Board could not exercise the Board’s delegated authority.[6]  This decision invalidated almost six-hundred cases previously decided by two members of the Board over a twenty-seven month period and resolved a split among the federal circuits.[7]

The Board consists of five members appointed for five-year terms by the President and confirmed by the Senate.[8]  The Board members’ terms are staggered, and because the Senate must confirm the President’s appointees, the Board sometimes consists of fewer than five members.[9]

Under the Board’s delegation clause, “[t]he Board is authorized to delegate to any group of three or more members any or all of the powers which it may itself exercise.”[10]  The Board’s enabling statute also provides as follows:

A vacancy in the Board shall not impair the right of the remaining members to exercise all of the powers of the Board, and three members of the Board shall, at all times, constitute a quorum of the Board, except that two members shall constitute a quorum of any group designated pursuant to the first sentence hereof.[11]

In 2007, the Board had four active members and one vacancy.[12]  On December 20, 2007, these four members delegated to the general counsel the ongoing authority to conduct litigation that would normally require the Board’s case-by-case approval.[13]  They also delegated to three Board members—Wilma Liebman, Peter Schaumber, and Peter Kirsnaow—“all of the Board’s powers, in anticipation of the adjournment of the 1st Session of the 110th Congress.”[14]  Peter Kirsanow’s recess appointment expired on December 31, 2007.[15]

From January 1, 2008 until March 27, 2010, Liebman and Schaumber were the only two members of the Board.[16]  Relying on the language of the Board’s enabling legislation and an opinion by the U.S. Department of Justice’s Office of Legal Counsel, these two members concluded that they constituted a two-member quorum of the three-member delegee group.[17]  Under this delegation, they exercised the Board’s authority and decided almost six-hundred cases.[18]

During this period, the Board issued decisions against New Process Steel, L.P., which challenged the Board’s orders in the U.S. Court of Appeals for the Seventh Circuit.[19]  New Process Steel claimed that two members did not constitute a valid quorum of the Board and thus the decisions against it were not proper; the court of appeals did not agree.[20]  Other employers had similarly challenged the validity of the Board’s decisions during this time period in other circuits, and the circuit courts had come to different conclusions.[21]  The United States Supreme Court granted certiorari to resolve the conflicting decisions.[22]

The Supreme Court held that the delegation to members Liebman, Schaumber, and Kirsanow terminated when Kirsanow’s term ended, and thus the two-member delegee group could not exercise the Board’s authority to decide cases.[23]  The Court reached this decision by interpreting the delegation clause of the NLRA, which is the Board’s enabling statute.  The Court concluded that there were two ways to interpret this clause: either read it to require only that a delegee group contain three members at the time of delegation (and not necessarily during the time the delegee group exercises its power), or read it to require that “the delegee group maintain a membership of three in order for the delegation to remain valid.”[24]

The Court concluded that the proper interpretation was to require the delegee group to maintain three members and supported its conclusion with three reasons.[25]  First, the Court determined that this interpretation was the only way to give meaningful effect to section 3(b) of the NLRA,[26] which is titled “Delegation of powers to members and regional directors; review and stay of actions of regional directors; quorum; seal.”[27]  Under this section, the quorum requirement mandates the participation of three members “at all times” for the Board to act.[28]  Further, this section provides that “[a] vacancy in the Board shall not impair the right of the remaining members to exercise all of the powers of the Board,”[29] which the Court held should be read in conjunction with the quorum clause, meaning that vacancies would not impair the Board from acting so long as the three-member quorum requirement was satisfied.[30]  The Court found that, as a whole, section 3(b) meant that a three-member delegee group could still issue decisions with only two members participating “so long as the delegee group was properly constituted.”[31]

Second, the Court reasoned that “if Congress had intended to authorize two members alone to act for the Board on an ongoing basis, it could have said so in straightforward language.”[32]  In 1947, Congress amended the NLRA to increase the membership of the Board from three to five.[33]  Congress also changed the NLRA’s original two-member Board-quorum provision to the current three-member quorum requirement.[34]  The Court found this change significant and noted that it would only contravene the three-member quorum requirement if it found evidence of congressional intent to do so.[35]

The Court’s third reason for choosing this interpretation was the lack of historical practice authorizing a two-member quorum.  Prior to the period at issue, the Board had not allowed two members to act as a quorum of the three-member delegee group.[36]  Previously, the Board’s practice was to reconstitute a delegee group when one group member’s term expired and to stop issuing decisions when the membership fell to two members.[37]  The Court reasoned that this past practice indicated that the two-member group did not possess the Board’s delegated authority.[38]

The Court also provided reasons why interpreting the delegation clause to allow delegation to a group of three members at the time of delegation only—without regard to the delegee group’s subsequent membership—was improper.  It examined the NLRA as a whole and concluded that allowing this type of delegation would undercut the significance of the quorum requirement by allowing two members to act as the Board ad infinitum.[39]  The majority wrote that this interpretation ignored the three-member requirement in the delegation clause, which allows the Board to delegate authority “to any group of three or more members,” because, in effect, the Board was delegating its authority to a group of two members.[40]

The Court also disagreed with the Board’s interpretation of the NLRA.  It recognized that while two members can act as a quorum of a properly delegated group and “participate to transact business in the name of the group,” this fact “does not establish that the group itself can exercise the Board’s authority when the group’s membership falls below three.”[41]  The Court noted that the quorum provisions and the vacancy clause are separate; it read “the quorum provisions merely to define the number of members who must participate in a decision,” and the vacancy clause to determine whether vacancies in excess of the number in the quorum provision have any effect on the entity’s authority to act.[42]  Thus, in the Court’s view, these provisions applied in different situations, and allowing two members to constitute a quorum of a delegee group did not mean that two members could exercise the powers of the Board.

Lastly, the Court dismissed the Board’s other arguments for allowing delegation under the circumstances.  It distinguished the NLRA’s membership group from appellate panels, for which the Court had previously allowed two out of three judges to decide cases in extreme circumstances.[43]  In so doing, it noted “the difference between a panel constituted to decide particular cases and the creation of a standing panel plenipotentiary, which will decide many cases arising long after the third member departs,” and it also noted the “longstanding practice” of allowing two appellate judges to hear cases.[44]  Finally, the Court reasoned that achieving a congressional objective of Board efficiency did not trump the change to the text of the NLRA that required a three-member quorum, and stated that “[i]f Congress wishes to allow the Board to decide cases with only two members, it can easily do so.”[45]

Justices Kennedy wrote the dissenting opinion, and was joined by Justices Ginsburg, Breyer, and Sotomayor.[46]  The dissenting Justices felt that “the statute’s plain terms permit a two-member quorum of a properly designated three-member group to issue orders” and that Congress intended to allow the sort of delegation that was at issue.[47]  The dissent relied on its interpretation of the vacancy clause and noted that the majority had “reject[ed] a straightforward reading that it acknowledge[d was] ‘textually permissible.’”[48]

The dissent disagreed with the Court’s interpretation of the NLRA, criticizing the majority for giving some provisions a greater weight than others.[49]  The dissent also noted that the delegation clause is distinct from the group-quorum provision,[50] but reasoned that allowing a two-member quorum of a delegee group did not render the delegation clause obsolete.[51]  Under the dissent’s interpretation, a quorum of the full Board—which is three or more members—may delegate its authority to a three-member group.  This three-member quorum is required by the Board-quorum provision, which applies “at all times” to the Board acting as a whole.[52]  A delegee group with two members present may act on behalf of the Board, as permitted by the group-quorum provision, which states that “two members shall constitute a quorum of any group designated pursuant to the first sentence hereof.”[53]

The dissent explained that its interpretation also gave effect to the vacancy provision.  The vacancy clause applies to Board members exercising all the powers of the Board and, as the dissent explained, “This clause thus instructs that a vacancy in the Board shall not impair the right of members to exercise the Board’s powers, an authority that members of delegee groups possess.”[54]  Furthermore, “[t]he delegation clause establishes what is required for delegation in the first instance, while the vacancy clause and the group quorum provision allow the delegee group to proceed in the event that a member’s term expires or a member resigns.”[55]  Thus, the dissent’s interpretation allowed three or more members of the Board to delegate authority to a group of three members and allowed two members of that three-member group to constitute a quorum, no matter what happened to the third member.

The dissent also noted that the majority’s interpretation of section 3(b) would allow two members of a delegee group to act for the Board as long as “they [were] part of a delegee group that ha[d] fallen to two members due to any reason other than vacancy.”[56]  The dissent criticized the Court’s conclusion that Congress did not intend to allow two members to act for the Board for extended periods of time but did intend to allow two members to act for the Board temporarily.  To counter the Court’s conclusion that Congress could have expressly allowed for a two-member quorum of a delegee group, the dissent stated that the vacancy clause is an explicit rejection of a three-member requirement in a delegee group.[57]  The dissent pointed out that “Congress could have required a delegee group to maintain three members, but it did not do so.”[58]  The dissent admitted that Congress likely did not intend to allow two members to act for the Board for an extended period but noted that section 3(b) allows two-member quorums of delegee groups in extraordinary circumstances.[59]

The dissent also countered the majority’s third reason in favor of disallowing this delegation—the Board’s historical practice—as the dissent did not find this practice to be significant.  While the dissent noted that the Board did reconstitute three-member panels when one member was absent, it only read from this history that the Board respects the superiority of three-member groups to two-member quorums of those groups.[60]  The dissent also examined the 1947 Taft-Hartley Act, which amended the NLRA to increase the Board’s membership from three to five members.  This amendment also allowed the Board to exercise its powers through three-member groups, which the dissent noted had the purpose of “increasing by 100 percent its ability to dispose of cases expeditiously.”[61]  The dissent concluded that allowing two members of a three-member delegee group to exercise the Board’s powers would further this congressional objective.[62]

II.  Historical Background and the Circuit Split

A. The National Labor Relations Act

The Board was first created in 1935 by the NLRA—also known as the Wagner Act—which was billed as an act “[t]o diminish the causes of labor disputes burdening or obstructing interstate and foreign commerce, to create a National Labor Relations Board, and for other purposes.”[63]  Under this legislation, the Board was “empowered . . . to prevent any person from engaging in any unfair labor practice . . . affecting commerce.”[64]  The Board could carry out this power by initiating and conducting hearings and by issuing orders.[65]

Under the original version of the NLRA, the Board was composed of three members, appointed for five-year staggered terms.[66]  The Act provided that “[a] vacancy in the Board [would] not impair the right of the remaining members to exercise all the powers of the Board, and [that] two members of the Board [would], at all times, constitute a quorum.”[67]  The Act did not include a delegation provision.

Congress amended the NLRA in 1947 with the Labor Management Relations Act, also known as the Taft-Hartley Act.  Congress passed this amendment “to provide additional facilities for the mediation of labor disputes affecting commerce, to equalize legal responsibilities of labor organizations and employers, and for other purposes.”[68]  This amendment changed the membership of the Board so that “the Board [would] consist of five instead of three members.”[69]  The amendment also gave the Board the power to delegate its authority, providing as follows:

The Board is authorized to delegate to any group of three or more members any or all of the powers which it may itself exercise.  A vacancy in the Board shall not impair the right of the remaining members to exercise all of the powers of the Board, and three members of the Board shall, at all times, constitute a quorum of the Board, except that two members shall constitute a quorum of any group designated pursuant to the first sentence hereof.[70]

From the perspective of the amendment’s drafters, the expansion of the Board’s membership was intended to “permit it to operate in panels of three, thereby increasing by 100 percent its ability to dispose of cases expeditiously.”[71]  Thus, the increased size of the Board, combined with its new power of delegation, allowed the Board to more efficiently prevent unfair labor practices.  The delegation and quorum provisions of the Board’s enabling legislation have not been amended since the enactment of the Taft-Hartley Act.[72]

B. Historical Precedent

In the early 1980s, the Board was exercising its authority through a three-member panel.[73]  However, in 1981, before issuing a decision about the employment practices of Photo-Sonics, Inc., one member of the three-member panel resigned.[74]  The remaining two members of the Board issued a decision against Photo-Sonics.[75]  Photo-Sonics challenged the decision, asserting that the decision was—in the words of the circuit court—“unenforceable because it was not made by a properly constituted three-member panel.”[76]

The U.S. Court of Appeals for the Ninth Circuit, in Photo-Sonics, Inc. v. NLRB, concluded that the decision was valid and enforceable.  The court reasoned that the resigning member, John Penello, concurred in the decision before his resignation, so the decision was made by all three members of the panel.[77]  However, the court went on to state that “[e]ven if Penello did not participate, a decision by two members of the panel would still be binding.”[78]  The court interpreted the group-quorum provision to provide that two members constituted a quorum of a delegated three-member panel, so a decision by two members of the three-member panel would be valid, since a “quorum” of two panel members supported the decision.[79]  It also cited cases allowing a quorum of two judges to issue decisions when the third died or became ill.[80]

C. The Circuit Split

After the Board’s membership dropped to two members in 2008, employers receiving unfavorable decisions began challenging the Board’s validity in the federal circuit courts of appeals.  The courts of appeals for the First, Second, Fourth, Seventh, and Tenth Circuits all held that a two-member panel constituted a valid quorum of the Board; only the Court of Appeals for the District of Columbia Circuit did not.  However, these courts relied on different reasons to come to these conclusions.

On March 13, 2009, the United States Court of Appeals for the First Circuit became the first circuit court to uphold the validity of the Board’s two-member panel in Northeastern Land Services, Ltd. v. NLRB.[81]  The court reasoned that the Board’s interpretation of its own enabling statute should be entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.,[82] and deferred to the Board’s interpretation of section 3(b) of the NLRA.[83]  The court held that section 3(b) expressly authorizes the delegation of decisional authority to a three-member group and that the vacancy clause means that a vacancy may not impair the right of the two-member quorum of the three-member group to exercise all of the powers of the Board.[84]  The First Circuit also found support for this interpretation in a DOJ memorandum and in the Ninth Circuit’s decision in Photo-Sonics.[85]  Finally, the court analogized the Board’s quorum to permissible quorums of other administrative agencies, such as the Securities and Exchange Commission (“SEC”) and the National Mediation Board.[86]

On May 1, 2009, the Court of Appeals for the Seventh Circuit became the next court to issue a decision about the Board’s two-member quorum, and also found the Board’s authority to be valid—in the case that was ultimately appealed to the United States Supreme Court.[87]  The court did not apply Chevron deference to the Board’s interpretation of section 3(b), but instead interpreted the statute itself.  The court first looked to the plain meaning of the text and concluded that the Board had the power to delegate its authority to a group of three members and that the Board could continue to conduct business with a quorum of three members.[88]  Based on this proposition, it held that two members constituted a quorum when the Board had delegated its authority to a group of three members.[89]  In applying these legal principles to the facts of the case, the court found that the Board had met these conditions during the time period at issue.[90]

New Process Steel, the employer challenging the Board’s authority, argued that this interpretation would deprive the NLRA’s delegation clause of its meaning by allowing the Board to delegate its authority to two, not three, members.[91]  The court disagreed, reasoning that the delegation clause and the quorum provisions had to be read independently and that New Process Steel’s interpretation “sap[ped] the quorum provision of any meaning because it would prohibit a properly constituted panel of three members from proceeding with a quorum of two.”[92]  The court noted that Northeastern Land Services, Photo-Sonics, and the DOJ memorandum all supported this interpretation.[93]

The Seventh Circuit then looked at the legislative history of the NLRA.  The court concluded that the purpose of the Taft-Hartley Amendment—which increased the Board’s membership from three to five members—was to allow the Board to hear more cases, so it reasoned that a court should not interpret the statute in a way that would hinder the Board’s ability to hear more cases.[94]  It then distinguished the case at hand from a prohibition on two-judge quorums in the Article III context that had been imposed by the United States Supreme Court in Nguyen v. United States.[95]  The court reasoned that the statute at issue in Nguyen, which gave authority to Article III judges, had no delegation or quorum clauses, and noted that the statute’s legislative history indicated that Congress did not intend to allow delegations to panels of two.[96]  It noted that the Board’s enabling legislation, on the other hand, did include delegation and quorum provisions, and that the legislative history of the Board demonstrated no animus against a two-member quorum.[97]

Finally, the Seventh Circuit analogized the New Process Steel case to other administrative law opinions that had allowed public boards to act despite vacancies.  The court reasoned that in this context, the public board—rather than the individual members—has the authority to act; therefore, so long as the quorum requirements are met, the public board should be able to act.[98]  The court also distinguished the case at hand from one in which an agency, the Interstate Commerce Commission (“ICC”), had asked Congress to amend its enabling legislation to allow a depleted board of members (six of eleven) to act with merely a quorum of its remaining members.[99]  The court noted that this precedent did not apply to the Board since the Board already had statutory authority to let two members act for a three-member group, and that it did not need to ask Congress for permission to do so.[100]  Thus, based on all these reasons, the Seventh Circuit upheld the authority of the Board’s two-member quorum.[101]

On the same day that the Seventh Circuit addressed the issue—May 1, 2009—the U.S. Court of Appeals for the District of Columbia issued a decision that came to the opposite conclusion.[102]  In Laurel Baye Healthcare of Lake Lanier, Inc. v. NLRB, the court disagreed with the Board’s interpretation of section 3(b) because it eschewed various portions of the statutory language.[103]  To the court, section 3(b) meant that a three-member Board could delegate its power to a three-member group and that this delegee group could act with two members “so long as the Board quorum requirement is, ‘at all times,’ satisfied.”[104]  The court reasoned that the word “except” in the group-quorum provision meant that the delegee group’s ability to act was “measured by a different numerical value,” and that “at all times” meant that there must be three members present before the Board could act.[105]  It went on to state, “Though the delegee group quorum provision is preceded by the prepositional phrase ‘except that,’ Congress’s use of differing object nouns within the two quorum provisions indicates clearly that each quorum provision is independent from the other.”[106]

The court found support for its interpretation in an analogy to agency law.  An agent’s delegated authority ceases “upon the resignation or termination of the delegating authority.”[107]  By extension of this principle, the power of a delegated group of Board members (the collective agent) ceases when vacancies or disqualifications on the Board reduce the Board’s membership below a quorum, terminating the delegating authority.  The court reasoned that section 3(b) confers no authority on the delegated group and that the only authority under which the group could act was that of the Board.[108]  Therefore, the court concluded that when the Board’s membership fell below three, it had no authority to act; thus, a delegee group could not act on its behalf.[109]

The D.C. Circuit distinguished the authorities on which the Seventh Circuit relied when coming to the opposite conclusion.  The court noted that the case allowing the National Mediation Board to act through only one member was very limited and did not apply to the Board, because the Board makes substantive adjudications.[110]  Further, the case allowing the SEC to create its own quorum rule was inapplicable to the Board, because Congress gave the SEC the power to create that rule.[111]  Finally, the First Circuit’s decision in Northeastern Land Services did not influence the court’s decision, because that court decided whether the delegee group was valid after one member left the Board, not whether the lack of a quorum on the Board as a whole invalidated the delegation.[112]  Thus, the D.C. Circuit found the failure to meet the overall Board-quorum requirement of three members to be dispositive and held the Board could not act with two members.[113]

The U.S. Court of Appeals for the Second Circuit tackled this issue on June 17, 2009, and held that the Board had the authority to act during the relevant time period.[114]  Like the First Circuit, this court applied the Chevron analysis and found that the text of section 3(b) was ambiguous regarding whether the properly constituted panel of three members retained jurisdiction when the Board lost its quorum of three members.[115]  The court found the circuit split over the meaning of this provision itself to be evidence of the ambiguity.[116]  Faced with an ambiguous statute, the Second Circuit turned to the statute’s legislative history, unlike the D.C. Circuit, which instead had looked to another area of law.

Like the Seventh Circuit, the Second Circuit noted that Congress increased the size of the Board with the Taft-Hartley Act for the purpose of increasing the Board’s efficiency.[117]  However, the court did not find that legislative history to be dispositive and went on to the second step of the Chevron analysis, which is to ask whether the Board’s interpretation was reasonable.[118]  The court concluded that the Board’s interpretation of section 3(b) was straightforward and promoted efficiency, and so was reasonable enough to be entitled to deference.[119]  Finally, the court critiqued the D.C. Circuit and noted that while that court’s interpretation is also reasonable, under Chevron, the administrative agency’s interpretation is entitled to deference as long as it is reasonable.[120]

On November 20, 2009, the U.S. Court of Appeals for the Fourth Circuit joined the First, Second, and Seventh Circuits in allowing the Board’s two-member delegee group to act.[121]  Like the Second Circuit, the Fourth Circuit applied the Chevron analysis, but it concluded that the text of section 3(b) was plain and unambiguous.[122]  Under the Fourth Circuit’s interpretation, the delegation provision means that the Board can delegate any or all of its power to a three-member group; the vacancy provision means that a vacancy shall not impair the authority of the remaining Board members to act; and the quorum provision means that three members constitute a quorum of the Board, except that two members constitute a quorum of any group designated under the delegation provision.[123]  The court concluded that the Board’s delegation to the three-member group was proper, and that two members made a quorum.

The court rejected the D.C. Circuit’s narrow construction of the statute’s language because “it [was] based on an overly narrow construction of the modifying phrase that directly follows the three-member quorum requirement.”[124]  The court disagreed with the D.C. Circuit’s interpretation of the statutory phrase “except that” and concluded that had Congress desired to write the statute as the D.C. Circuit had read it, then Congress “would have simply omitted the words” from section 3(b).[125]  Finally, the court noted that reading the statute to require the three-member group to cease to exist when one of the members leaves would mean that a two-member quorum could never exist.[126]  Therefore, the Fourth Circuit allowed the two-member group to act.[127]

On December 22, 2009, the U.S. Court of Appeals for the Tenth Circuit—the last circuit to rule on this issue—allowed the two-member group to act.[128]  Like the First, Second, and Fourth Circuits, this court used the Chevron analysis and concluded that the statutory language is not clear on its face.  The court looked at the prior decisions on the issue and concluded that “this very split ‘is evidence of [the statute’s] ambiguity.’”[129]

Proceeding to the second step of the Chevron analysis, the court held that the Board’s construction of section 3(b) was permissible.  It noted that the Board read the phrase, “except that,” as modifying the three-member quorum provision, which the court concluded was a permissible reading.[130]  Thus, the Tenth Circuit joined the First, Second, Fourth, and Seventh Circuits in holding that the Board’s two-member delegee group properly exercised the Board’s authority by continuing to decide cases.

III.  Methods of Statutory Interpretation

Scholars typically divide methods of statutory interpretation into two categories: formalism (also known as textualism) and functionalism (also known as realism).[131]  These types of statutory interpretation differ in their consideration or avoidance of congressional intent and in their adherence to or redrafting of statutory text.[132]  Even when applied to seemingly straightforward statutes, these approaches can yield completely opposite results.

Formalism has been defined as the interpretation of a statute using “deductive logic to derive the outcome of a case from premises accepted as authoritative.”[133]  Formalist judges believe they must adhere to the precise terms of statutory texts and do not look to “legislative intent” when the meaning of a statute is clearly expressed by the text.[134]  These judges do not think they should try to understand Congress’s intentions behind a statute and only support enforcing the clear terms of the statute.  The United States Supreme Court has applied this method of statutory interpretation in recent years, “emphasizing that legislation routinely has unintended consequences and that judges must give effect to the actual commands embedded in clearly worded statutes rather than to the apparent background intent of the legislators who voted for them.”[135]

On the other hand, realism, or functionalism,[136] is not just a blind application of the words of a statute, but enables judges to decide cases so that their outcomes will best promote public welfare and public policy.[137]  Functionalist judges view themselves as agents of Congress and strive to carry out congressional intentions.[138]  Like formalists, functionalist judges will adhere to the words of a statute if those words clearly convey Congress’s meaning.  However, if the statute does not clearly evince congressional intent—due to drafting errors, poor foresight, or limited resources—they will interpret a statute to achieve what they believe is the best result for society.[139]  Under this theory, “If a given statutory application sharply contradicts commonly held social values, then the Supreme Court presumes that this absurd result reflects imprecise drafting that Congress could and would have corrected had the issue come up during the enactment process.”[140]  In this situation, a functionalistic judge will interpret the statute in a way that avoids a socially harmful result—a result that he or she assumes could not be what Congress intended.

A common example used to illustrate the difference between these two approaches involves a local ordinance that states “no dogs in the park.”[141]  A formalist would interpret this ordinance literally and would prohibit a blind person’s guide dog from entering the park because the ordinance states that no dogs are allowed in the park.  However, this formalist would allow a pet tiger to enter the park (assuming there is no ordinance about jungle cats), because a tiger is not a dog.  On the other hand, a functionalist would look at the purpose behind the ordinance and would determine that the ordinance was intended to protect park goers from disruptive pets.[142]  Interpreting the ordinance with that purpose in mind, the functionalist would allow the guide dog to enter the park, but not the pet tiger, even though the guide dog is a dog and the tiger is not.  Therefore, even though the ordinance seems clear on its face, the formalist and the functionalist would interpret it differently.

The United States Supreme Court attempted to take the burden of statutory interpretation off the judiciary when the interpretation of a federal administrative agency’s statute is at issue.  In Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the Court set up a process under which courts can defer to an agency’s interpretation of its own statute.[143]  “If the intent of Congress is clear,” as evidenced through an unambiguous statute, then the court and the agency “must give effect to the unambiguously expressed intent of Congress.”[144]  However, if the statute is ambiguous and Congress’s intent is not clear, “the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”[145]  If the agency’s interpretation of the statute is reasonable and permissible, then the court should defer to the agency’s interpretation.[146]  Thus, even though a formalistic or functionalistic approach may factor into the reasonableness of an agency’s interpretation, the Chevron doctrine saves courts from deciding on a method of statutory interpretation when interpreting an administrative agency’s statute.

IV.  The Trend of Formalistic Statutory Interpretation

In New Process Steel, the majority and the dissent of the United States Supreme Court utilized several methods of statutory interpretation.  The majority’s method of interpretation also differed from the various circuit courts’ approaches.  The majority’s use of formalism—and the surprising absence of the Chevron doctrine in both the majority’s and the dissent’s opinions—signals a future of Supreme Court decisions using formalistic, rather than functionalistic, statutory interpretation.

A. Statutory Interpretation in New Process Steel

The majority opinion in New Process Steel is an example of formalistic statutory interpretation.  The majority looked to the text of the NLRA, specifically section 3(b), to determine the meaning of the delegation and quorum provisions.[147]  The Court concluded that its interpretation—prohibiting two members of the three-member delegee group from exercising the Board’s powers—was “the only way to harmonize and give meaningful effect to all of the provisions in § 3(b).”[148]  Thus, to determine the meaning of one provision of section 3(b), it looked at the language of section 3(b) as a whole, and came up with an interpretation based on the meaning of the statute derived from examining the text of the statute.

The majority also refused to infer congressional intent beyond what the text of the statute actually said.  The Court concluded that “if Congress had intended to authorize two members alone to act for the Board on an ongoing basis, it could have said so in straightforward language.”[149]  The majority supported the conclusion that the text of section 3(b) does not allow two members to act for the Board within the plain-meaning definition of “quorum” looking to both legal and English dictionaries.[150]  Furthermore, the majority rejected the argument that Congress amended the NLRA to “keep the Board operating at all costs” and definitively held that the text of section 3(b) does not allow two members of a three-member delegee group to exercise the authority of the Board.[151]

The dissent took the opposite approach by displaying a functionalistic interpretation of section 3(b).  This opinion started by looking at the text of section 3(b) and concluding that “the statute’s plain terms permit a two-member quorum of a properly designated three-member group to issue orders.”[152]  However, the dissent also looked at Congress’s purpose behind enacting section 3(b).  First, the dissent inferred that “Congress did not intend to allow two members to [exercise the powers of the Board] for protracted periods of time” but noted that “unintended consequences are typically the result of unforeseen circumstances.”[153]  Thus, even though Congress did not intend for two members to act for the Board all the time, it had created a mechanism by which two members could exercise the Board’s powers if the need arose.  The dissent also inferred that Congress did not intend for the Board to stop operating entirely for an extended period, even when the Board had only two members.[154]

The dissent next looked at Congress’s intent in amending the NLRA with the Taft-Hartley Act in 1947.  The purpose of this amendment, according to Justice Kennedy, was “to increase the Board’s efficiency by permitting multiple three-member groups to exercise the full powers of the Board.”[155]  The dissent concluded that its interpretation of section 3(b), which would allow the two members of the delegee group to act, furthered that congressional objective.  The dissent, in true functionalist fashion, stated:

[T]he new statutory language in § 153(b) complements the congressional intent to preserve the ability of two members of the Board to exercise the Board’s full powers, in limited circumstances, by permitting the Board to delegate “any or all” of its powers “to any group of three or more members,” two members of which would constitute a quorum.[156]

Therefore, the dissent not only looked at the plain meaning of the text of section 3(b), but also considered the intent of Congress and used an interpretation that was consistent with that congressional intent.

B. Where Is the Chevron Doctrine?

Neither the majority nor the dissent in New Process Steel even mentioned the Chevron doctrine.  This omission is very curious considering that this is a case in which a court is evaluating the validity of an administrative agency’s interpretation of its own statute—the prototypical Chevron case.[157]  Furthermore, four of the six circuit courts to address the two-member quorum of the Board’s delegee group used Chevron deference when deciding the issue.[158]  Counsel for the Board even relied on some of these circuit court decisions in their brief and argued that if the Court found the language of section 3(b) ambiguous, it “should defer to the Board’s understanding of that provision.”[159]

The missing Chevron analysis could indicate Chevron’s inapplicability to agency decisions when an agency is interpreting the reach of its own jurisdiction.[160]  It could also mean that the parties did not focus heavily on that argument.  Neither the Seventh Circuit, which heard the New Process Steel case before it went to the Supreme Court, nor the D.C. Circuit, which was the only circuit court to hold the two-member quorum to be invalid, addressed the Chevron issue.

Either way, the majority and the dissent used this case to illustrate formalistic and functionalistic interpretations, respectively, and neither appeared to find Chevron deference to be necessary or appropriate.  The conspicuous absence of the Chevron doctrine suggests a deliberate choice to use this case to display the Justices’ interpretative philosophies, instead of deferring to the Board’s judgment.  This choice could impact the Court’s future decisions on statutory interpretation, as the Chevron doctrine may continue to be absent from similar cases.

C. The Legacy of Justice Stevens

Justice Stevens, the author for the majority in New Process Steel, had previously been viewed as a functionalist judge.[161]  Historically, Justice Stevens believed that federal courts must discern and apply Congress’s intended meaning, that statutes are often poorly drafted, and if applied literally, may produce outcomes that appear unreasonable in light of the statutes’ purposes.[162]  He “presume[d] that Congress [was] (understandably) error prone in linguistic expression but quite coherent in the substantive framing of policies that serve some overarching purpose.”[163]  As a result of this presumption, Justice Stevens has interpreted statutes to avoid what he viewed as unintended results and has attempted to stay true to the congressional purposes behind statutes.[164]

Justice Stevens seems to have parted with his functionalist past when writing the New Process Steel majority opinion.  There is no doubt that the NLRA was not the most clearly drafted statute, as illustrated by the various interpretations of the statute by six circuit courts and the United States Supreme Court.  Stevens’s jurisprudential history indicates that when faced with a less-than-clear statute, like the NLRA, he would determine whether Congress had misspoken and inadvertently drafted a statute that produced a result contrary to its intent.[165]  One could imagine that, like the dissent from New Process Steel, Justice Stevens could have concluded that Congress did not intend for section 3(b) of the NLRA to prevent the Board from acting for more than two years and would have interpreted the statute in a way that would prevent this type of prolonged shutdown of the Board.

However, Justice Stevens did not follow his own interpretative legacy.  First, instead of inferring that Congress meant that two members could act for the Board under the circumstances presented, he would require Congress to “sa[y] so in straightforward language.”[166]  Next, he ignored the implication that with the Taft-Hartley Act, Congress intended “to preserve the ability of two members of the Board to exercise the Board’s full powers, in limited circumstances,” and that this purpose should be considered when interpreting the text of the NLRA.[167]  Finally, Justice Stevens stated that the majority was “not insensitive to the Board’s understandable desire to keep its doors open despite vacancies,”[168] but then ignored a reading of the text that was “textually permissible in a narrow sense,” which in fact would have helped the Board keep its doors open.[169]  Thus, while Justice Stevens may have a history as a functionalist,[170] he seems to have wanted to leave a final legacy as a formalist.

D. Impact on Future Cases

Because Justice Stevens retired shortly after the New Process Steel decision,[171] his inconsistent interpretative philosophy cannot help predict how he will decide cases in the future.  However, the New Process Steel decision does solidify a trend of formalistic statutory interpretation.  This decision illustrates that the United States Supreme Court will tend to interpret statutes or other documents by looking almost exclusively at the text without considering the impact of the interpretation or the context of the statutory language.  Even if the Court does not cite to New Process Steel when reaching that kind of conclusion, the case’s presence will still be felt.

This shift on the Court is illustrated by Free Enterprise Fund v. Public Company Accounting Oversight Board, decided by the Court eleven days after New Process Steel.[172]  In Free Enterprise Fund, the Court held unconstitutional a provision of the Sarbanes-Oxley Act.[173]  The challenged portion of the statute provided that members of the Public Company Accounting Oversight Board could not be removed at will but instead only “for good cause shown” and “in accordance with certain procedures.”[174]  The Court found that these removal procedures contravened the Constitution’s separation-of-powers requirement and contradicted Article II’s vesting of the executive power in the President.[175]  The Court noted that even if this removal structure was more efficient or convenient than any alternative, “the ‘fact that a given law or procedure is efficient, convenient, and useful in facilitating functions of government, standing alone, will not save it if it is contrary to the Constitution,’ for ‘[c]onvenience and efficiency are not the primary objectives—or the hallmarks—of democratic government.’”[176]  Thus, the Court ignored the practical benefits of upholding this statute and used a formalistic interpretation when determining the statute’s meaning.

As they did in New Process Steel, the dissenting justices engaged in a functionalistic interpretation.[177]  Justice Breyer, who also joined in the dissent in New Process Steel, wrote the dissenting opinion and stated that “if the Court were to look to the proper functional and contextual considerations, it would find the Accounting Board provision constitutional.”[178]  The dissent also noted that “[w]here a ‘for cause’ provision is so unlikely to restrict presidential power and so likely to further a legitimate institutional need, precedent strongly supports its constitutionality.”[179]  Therefore, the dissent found the statute to be constitutional not based on a reading of its text and the text of the Constitution, but by considering the impact of the statute and its necessity.  Although neither the majority nor the dissent referenced New Process Steel, both decisions were divided into a majority engaging in formalistic interpretation and a dissent engaging in functionalistic interpretation.

As New Process Steel and Free Enterprise Fund illustrate, the dominant interpretative philosophy of the Court will likely dictate how the Court will decide cases in the future.  Although Justice Stevens’s replacement, Justice Kagan, might follow the functionalist model,[180] and Justice Kennedy does not seem to know to which theory he subscribes,[181] formalistic interpretation appears to be the trend for the current Court.  The Court is likely to use formalistic interpretation in future cases requiring statutory interpretation, and these cases can be used to support the notion that statutes can be interpreted by looking only at their text and not considering their context, their impact, or congressional intent.

As a result, New Process Steel will affect more than the nearly six-hundred labor cases it overturned, because it solidified the formalistic approach of the Supreme Court.  It may also encourage independent statutory interpretation by the courts when Chevron deference would have been appropriate in the past.  Overall, New Process Steel may have started out as a case about the jurisdiction of the Board when it only had two members, but it ended up representing the prevailing interpretative philosophy of the current Court.

Conclusion

In New Process Steel v. NLRB, five Justices of the United States Supreme Court decided that the Board lacked the authority to decide cases with only two of its five members present.  The majority based this decision on its interpretation of the Board’s enabling statute, and did so without regard for the overall purpose of the Board, which is to resolve labor disputes.  The four dissenting Justices disagreed with the majority about the interpretation of the Board’s statute, but agreed with four circuit courts of appeals in arguing that the two Board members did have the authority to decide cases.

The present effects of the New Process Steel decision are significant: overturning almost six-hundred cases decided by the Board, reversing a circuit court of appeals decision, and affecting decisions from four other circuit courts of appeals.  However, the future impact of New Process Steel lies in its illustration of the Court’s views on methods of statutory interpretation.  The current majority of the Court prefers to engage in a formalistic approach to statutory interpretation, focusing on the text of the statute and ignoring the purpose of the statute or the impact of the interpretation.  Functionalistic justices are in the minority of the Court, indicating that the trend of formalistic interpretation will continue.  Therefore, this decision is more than just a labor law case; it instead signals a trend in Supreme Court jurisprudence and may be used by the formalistic majority to support statutory interpretations in the future.


[1]. New Process Steel, L.P. v. NLRB, 130 S. Ct. 2635, 2638 (2010).

[2]. Id. at 2638–39.

[3]. Id. at 2638, 2644.

[4]. See John F. Manning, Competing Presumptions About Statutory Coherence, 74 Fordham L. Rev. 2009, 2026 (2006) (discussing the Court’s approach of the past several decades with regard to statutory interpretation).

[5]. See id. at 2009–10.

[6]. New Process Steel, 130 S. Ct. at 2644.

[7]. See id. at 2638–39; see also infra Part II.C.

[8]. See 29 U.S.C. § 153(a) (2006).

[9]. See id. (“Of the two additional members so provided for, one shall be appointed for a term of five years and the other for a term of two years.  Their successors, and the successors of the other members, shall be appointed for terms of five years each . . . .”); see also National Labor Relations Act, Pub. L. No. 74-198, § 3(a), 49 Stat. 449, 451 (1935) (“One of the original members shall be appointed for a term of one year, one for a term of three years, and one for a term of five years, but their successors shall be appointed for terms of five years each . . . .”).

[10]. 29 U.S.C. § 153(b).

[11]. Id.

[12]. New Process Steel, 130 S. Ct. at 2638.

[13]. Id.

[14]. Id. (quoting Minutes of Board Action, Brief for Petitioner at 5a, New Process Steel, 130 S. Ct. 2635 (No. 08-1457)) (internal quotation marks omitted).

[15]. Id. at 2639.

[16]. Id.

[17]. Id. at 2638–39.

[18]. Id. at 2639.

[19]. Id.; New Process Steel, L.P. v. NLRB, 564 F.3d 840, 845 (7th Cir. 2009), rev’d, 130 S. Ct. 2635 (2010).

[20]. New Process Steel, 130 S. Ct. at 2639; New Process Steel, 564 F.3d at 845, 848.

[21]. See infra Part II.C.

[22]. New Process Steel, 130 S. Ct. at 2639.

[23]. Id. at 2640.

[24]. Id.

[25]. Id. at 2640–42.

[26]. Id. at 2640–41.

[27]. 29 U.S.C. § 153(b) (2006).

[28]. Id.

[29]. Id.

[30]. New Process Steel, 130 S. Ct. at 2640.

[31]. Id.

[32]. Id. at 2641.

[33]. Id. at 2638 (citing 29 U.S.C. § 153(a)).

[34]. See id. at 2641.

[35]. Id.

[36]. Id.

[37]. Id. at 2641 & n.3.

[38]. Id. at 2641–42 (citing Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 214 (1988)).

[39]. Id. at 2640–41.

[40]. 29 U.S.C. § 153(b) (2006); New Process Steel, 130 S. Ct. at 2640–41.

[41]. New Process Steel, 130 S. Ct. at 2642–43.

[42]. Id. at 2643.

[43]. Id. at 2643–44 (quoting Nguyen v. United States, 539 U.S. 69, 82 (2003) (allowing a two-judge “quorum to proceed to judgment when one member of the panel dies or is disqualified”)).

[44]. Id. at 2644.

[45]. Id. at 2644–45.

[46]. See id. at 2645 (Kennedy, J., dissenting).

[47]. Id.

[48]. Id. at 2646.

[49]. Id. at 2647.

[50]. The dissent divided the quorum provisions into two parts: (1) the Board-quorum provision, which states that “three members of the Board shall, at all times, constitute a quorum of the Board”; and (2) the group-quorum provision, which provides that “two members shall constitute a quorum of any group designated pursuant to the first sentence hereof.”  Id. at 2646.

[51]. Id. at 2648.

[52]. Id. at 2647 (quoting 29 U.S.C. § 153(b) (2006)).

[53]. 29 U.S.C. § 153(b); New Process Steel, 130 S. Ct. at 2647.

[54]. New Process Steel, 130 S. Ct. at 2648.

[55]. Id.

[56]. Id. at 2649.

[57]. Id. at 2648.

[58]. Id.

[59]. Id. at 2649.

[60]. Id. at 2650–52.

[61]. Id. at 2651 (quoting S. Rep. No. 80-105, at 8 (1947)).

[62]. Id.

[63]. National Labor Relations Act, Pub. L. No. 74-198, pmbl., 49 Stat. 449, 449 (1935).

[64]. § 10(a), 49 Stat. at 453.

[65]. See id. §§ 9(c)–(d), 10(b)–(c), 49 Stat. at 453–54.

[66]. See id. § 3(a), 49 Stat. at 451.

[67]. § 3(b), 49 Stat. at 451.

[68]. Labor Management Relations Act, Pub. L. No. 80-101, pmbl., 61 Stat. 136 (1947).

[69]. § 3(a), 61 Stat. at 139.

[70]. § 3(b), 61 Stat. at 139.

[71]. S. Rep. No. 80-105, at 8 (1947).

[72]. See 29 U.S.C. § 153(b) (2006).

[73]. See Photo-Sonics, Inc. v. NLRB, 678 F.2d 121, 122 (9th Cir. 1982).

[74]. Id.

[75]. Id.

[76]. Id.

[77]. Id.

[78]. Id.

[79]. Id. at 122–23.

[80]. Id. (citing TRW, Inc. v. NLRB, 654 F.2d 307 (5th Cir. 1981); Minniefield v. Alabama, 542 F.2d 947 (5th Cir. 1976); Litton Sys., Inc. v. Sw. Bell Tel. Co., 539 F.2d 418 (5th Cir. 1976); Wirth Ltd. v. S/S Acadia Forest, 537 F.2d 1272 (5th Cir. 1976); and United States v. Allied Stevedoring Corp., 241 F.2d 925 (2d Cir. 1957)).

[81]. 560 F.3d 36, 40–41 (1st Cir. 2009), vacated by Ne. Land Servs., Ltd. v. NLRB, 130 S. Ct. 3498 (2010).  This decision was appealed to the United States Supreme Court, but the Court chose instead to hear New Process Steel.

[82]. 467 U.S. 837 (1984); see infra Part III.

[83]. Ne. Land Servs., 560 F.3d at 40–41.

[84]. Id. at 41.

[85]. Id. at 41–42.

[86]. Id. at 42.

[87]. New Process Steel, L.P. v. NLRB, 564 F.3d 840, 848 (7th Cir. 2009), rev’d, 130 S. Ct. 2635 (2010).

[88]. Id. at 845–46.

[89]. Id.

[90]. Id. at 848.

[91]. Id. at 846 n.2.

[92]. Id.

[93]. Id. at 846.

[94]. Id. at 846–47.

[95]. 539 U.S. 69 (2003); New Process Steel, 564 F.3d at 847–48.

[96]. New Process Steel, 564 F.3d at 847–48.

[97]. Id. at 848.

[98]. Id.; see also Falcon Trading Grp., Ltd. v. SEC, 102 F.3d 579, 582 (D.C. Cir. 1996) (upholding SEC quorum rules permitting the SEC to operate with only two of five members); R.R. Yardmasters of Am. v. Harris, 721 F.2d 1332, 1344 (D.C. Cir. 1983) (upholding actions of National Mediation Board taken through only one of its three members).

[99]. New Process Steel, 564 F.3d at 848 (citing Assure Competitive Transp., Inc. v. United States, 629 F.2d 467 (7th Cir. 1980)).

[100]. Id.

[101]. Id.

[102]. Laurel Baye Healthcare of Lake Lanier, Inc. v. NLRB, 564 F.3d 469, 470, 476 (D.C. Cir. 2009).

[103]. Id. at 472.

[104]. Id. at 472–73 (quoting 29 U.S.C. § 153(b) (2006)).

[105]. Id.

[106]. Id. at 473 (citation omitted) (quoting 29 U.S.C. § 153(b)).

[107]. Id.

[108]. Id.

[109]. Id.

[110]. Id. at 474.

[111]. Id. at 474–75.

[112]. Id. at 475–76.

[113]. Id. at 476.  While it found the Board’s interpretation to be improper, the court did “acknowledge that the case before [it] present[ed] a close question, and that neither [the DOJ’s] interpretation nor the Board’s desire to continue to function is entirely indefensible.”  Id.

[114]. Snell Island SNF LLC v. NLRB, 568 F.3d 410, 410, 424 (2d Cir. 2009).

[115]. Id. at 419–20.  Even though the statute’s language was ambiguous, the court noted that the Board’s interpretation was entitled to deference.  Id. at 423–24.  It also noted that in light of the text of the statute, the initial delegation was proper, and it did not matter that the Board knew when it delegated to those three members that the panel’s membership would soon decrease to two members.  Id. at 419.

[116]. Id. at 420.

[117]. Id. at 422–23.

[118]. See Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 (1984).

[119]. Snell Island, 568 F.3d at 423–24.

[120]. Id. at 424.

[121]. Narricot Indus., L.P. v. NLRB, 587 F.3d 654, 660 (4th Cir. 2009), abrogated by New Process Steel, L.P. v. NLRB, 130 S. Ct. 2635 (2010).

[122]. Id. at 660 n.3.

[123]. Id. at 659–60.

[124]. Id. at 659.

[125]. Id. at 660.

[126]. Id.

[127]. Id. at 667.

[128]. Teamsters Local Union No. 523 v. NLRB, 590 F.3d 849, 850 (10th Cir. 2009), vacated, 131 S. Ct. 109 (2010).

[129]. Id. at 852 (alteration in original) (quoting State Ins. Fund v. S. Star Foods, Inc. (In re S. Star Foods, Inc.), 144 F.3d 712, 715 (10th Cir. 1998)).

[130]. Id.

[131]. See, e.g., Brian Z. Tamanaha, Beyond the Formalist-Realist Divide 1 (2010).

[132]. Id. at 1–2.

[133]. Richard A. Posner, Legal Formalism, Legal Realism, and the Interpretation of Statutes and the Constitution, 37 Case W. Res. L. Rev. 179, 181 (1987).

[134]. John F. Manning, The Absurdity Doctrine, 116 Harv. L. Rev. 2387, 2390 (2003).

[135]. Id.

[136]. See generally id. (noting that some scholars call this type of interpretation the absurdity doctrine).

[137]. See Posner, supra note 133, at 181.

[138]. See Manning, supra note 134, at 2389.

[139]. Id. at 2389–90.

[140]. Id. (footnote omitted).

[141]. See id. at 2396 & n.26.

[142]. Id.

[143]. Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842–43 (1984).

[144]. Id.

[145]. Id. at 843.

[146]. Id. at 844.

[147]. See New Process Steel, L.P. v. NLRB, 130 S. Ct. 2635, 2639–40 (2010).

[148]. Id. at 2640.

[149]. Id. at 2641.

[150]. Id. at 2642.

[151]. Id. at 2644.

[152]. Id. at 2645 (Kennedy, J., dissenting).

[153]. Id. at 2649.

[154]. Id.

[155]. Id. at 2651.

[156]. Id. (quoting 29 U.S.C. § 153(b) (2006)).

[157]. See William F. Funk, Sidney A. Shapiro & Russell L. Weaver, Administrative Procedure and Practice 145 (4th ed. 2010).

[158]. The circuits to apply Chevron were the First, Second, Fourth, and Tenth Circuits.  See supra Part II.C.

[159]. Brief for the NLRB at 32, New Process Steel, 130 S. Ct. 2635 (No. 08-1457).

[160]. See The Supreme Court, 2009 Term—Leading Cases, 124 Harv. L. Rev. 380, 380 (2010).

[161]. See Manning, supra note 4, at 2009–26.

[162]. Id. at 2009–10.

[163]. Id. at 2010.

[164]. See, e.g., Barnhart v. Sigmon Coal Co., Inc., 534 U.S. 438, 462–72 (2002) (Stevens, J., dissenting) (arguing that a narrow reading of the Coal Act produced an incoherent result, which was likely not what Congress intended); W. Va. Univ. Hosps., Inc. v. Casey, 499 U.S. 83, 134–43 (1991) (Stevens, J., dissenting) (arguing that denying the award of expert fees to the prevailing party in a § 1983 suit was contrary to the congressional purpose of making the prevailing party whole in such litigation); United States v. Locke, 471 U.S. 84, 117–29 (1985) (Stevens, J., dissenting) (arguing that it was understandable that the author of the statute might inadvertently use the words “prior to December 31” when that author intended to refer to the end of the calendar year).

[165]. See, e.g., Locke, 471 U.S. at 117–23.

[166]. New Process Steel, L.P. v. NLRB, 130 S. Ct. 2635, 2641 (2010).

[167]. Id. at 2644 n.6 (quoting id. at 2651 (Kennedy, J., dissenting)) (internal quotation marks omitted).

[168]. Id. at 2644–45.

[169]. Id. at 2641.

[170]. See, e.g., Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).

[171]. Robert Barnes, Justice Stevens To Step Down, Wash. Post, Apr. 10, 2010, at A1 (announcing Justice Stevens’s retirement less than one month after the New Process Steel decision).

[172]. Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 130 S. Ct. 3138 (2010).

[173]. Id. at 3147.

[174]. Id. at 3147–48 (quoting 15 U.S.C. § 7211(e)(6) (2006)) (internal quotation marks omitted).  Chief Justice Roberts wrote the majority decision, which was also joined by Justices Scalia, Kennedy, Thomas, and Alito.  Justice Stevens joined with the dissent.  See id. at 3146.

[175]. Id. at 3147.

[176]. Id. at 3156 (quoting Bowsher v. Synar, 478 U.S. 714, 736 (1986)) (internal quotation marks omitted).

[177]. The dissent was comprised of Justices Breyer, Stevens, Ginsburg, and Sotomayor.  Id. at 3146.  Unlike in New Process Steel, Justice Stevens joining the dissent seems consistent with his functionalistic track record.

[178]. Id. at 3184 (Breyer, J., dissenting).

[179]. Id. at 3175.

[180]. Brandon J. Almas, Note, From One [Expletive] Policy to the Next: The FCC’s Regulation of “Fleeting Expletives” and the Supreme Court’s Response, 63 Fed. Comm. L.J. 261, 286–87 (2010) (discussing the difficulty in predicting Justice Kagan’s interpretative philosophy).

[181]. Like Justice Stevens, Justice Kennedy switched sides in Free Enterprise Fund and wrote the dissenting opinion in New Process Steel, but joined with the majority in Free Enterprise Fund.

* J.D. Candidate 2011, Wake Forest University School of Law.  The author would like to thank her family, friends, and the members of the Wake Forest Law Review for their support.

Recognizing these economic realities, the Court nevertheless wisely concluded that the need for NFL teams to cooperate in order to survive economically in producing the sport of football should not shield their conduct from antitrust scrutiny.

I. The Intersection of Labor and Antitrust Law

In September 2010, the National Football League Players Association (“NFLPA”) sought authorization from players to decertify its union.[1]Since the announcement, players on more than half of the National Football League’s (“NFL”) thirty-two teams have voted in favor of vesting union leaders with the authority to seek decertification.[2] The NFLPA may resort to decertification as a labor-negotiation strategy if the union and NFL owners are unable to agree to a new collective bargaining agreement (“CBA”) prior to the expiration of the current CBA on March 3, 2011. As explained below, decertification is a bargaining maneuver that the NFLPA may employ to counteract an expected lockout by owners if the two sides are unable to agree to a new CBA.

The significance of union decertification lies at the core of the intersection of labor and antitrust law and the inherent conflict that permeates that relationship.  The conflict is derived from the competing purposes of the two bodies of law.  Antitrust laws seek to foster competition and forbid agreements between competitors that decrease competition.[3] Preserving a competitive marketplace is crucial to achieving another principal goal of antitrust laws: promoting consumer welfare.[4] In contrast, labor law assumes that its purposes—maximizing benefits for employees collectively and fostering industrial harmony—often can only be accomplished by agreements that are anticompetitive.[5] According to one commentator, “Organized labor limits competition because unions regularly seek agreements with employers that establish uniform terms and thereby limit the opportunity of any individual employee to sell his or her services for the most favorable terms.”[6] The Supreme Court has recognized the conflicting objectives of antitrust and labor law:

[W]e have two declared congressional policies which it is our responsibility to try to reconcile.  The one seeks to preserve a competitive business economy; the other to preserve the rights of labor to organize to better its conditions through the agency of collective bargaining.  We must determine here how far Congress intended activities under one of these policies to neutralize the results envisioned by the other.[7]

The antitrust and labor law conflict is revealed in section 1 of the Sherman Antitrust Act (“Sherman Act”), which prohibits agreements that unreasonably restrain interstate trade or commerce.[8] If applied literally, section 1 would prohibit much of the joint action between employers and employees that is instrumental to allowing employees to collectively bargain with employers and obtain the benefits that are a product of collective bargaining.  Under a literal application, unreasonable and therefore illegal restraints would include employer/employee agreements that result in player drafts, salary caps, and restrictions on free agency, as well as agreements regarding guaranteed minimum salaries and player pension benefits.

The application of the Sherman Act to restraints of trade in sports was fully realized beginning in the 1970s, when football and basketball players successfully prevailed in antitrust actions against their leagues on a range of owner-imposed restraints, such as restrictions on free agency[9] and on the entry-level player draft.[10] Thus players effectively used antitrust laws as a mechanism to ameliorate the severe imbalance in their relationship that had tilted heavily in favor of owners.  The result was a fundamental reordering in player and owner interaction from what had been a paradigm in which owners could largely dictate and unilaterally impose restrictions on important matters such as player mobility.

Notwithstanding this success in court, antitrust law was a tool that players in the NFL and other team sports leagues willingly relinquished when players’ unions entered into CBAs with league management.  Entering into CBAs imposed upon players’ unions and owners a duty to engage in good faith collective bargaining over mandatory subjects of wages, hours, and other terms and conditions of employment.[11] In addition, collective bargaining prevented restraints arising from union and management collective bargaining from constituting illegal restraints of trade.  The nonstatutory labor exemption is the legal concept that accomplished this end and partially reconciled the conflict between antitrust and labor law.

The nonstatutory labor exemption is a judicially created doctrine developed to foster “the strong labor policy favoring the association of employees to eliminate competition over wages and working conditions” through collective bargaining.[12] “[T]he implicit exemption recognizes that, to give effect to federal labor laws and policies and to allow meaningful collective bargaining to take place, some restraints on competition imposed through the bargaining process must be shielded from antitrust sanctions.”[13] As noted above, the nonstatutory exemption reconciles the conflict between labor law and antitrust laws by exempting from antitrust scrutiny concerted action between owners and unions relating to mandatory subjects of collective bargaining even though the end result is to restrain trade or inhibit competition.  Moreover, disputes between players and teams over various restraints are governed by labor law rather than antitrust law principles.  Indeed, the Court has observed that not only are courts ill-equipped to apply antitrust principles to matters that fall squarely within the auspices of labor law, but that allowing courts to do so would jeopardize the labor-related benefits of collective bargaining.[14]

The nonstatutory labor exemption is only operative, however, if a group of employees is organized as a union.  Players’ decisions to organize as a union and to collectively bargain with owners transform the mutually agreed upon restrictions (e.g., salary caps and player drafts) into allowable anticompetitive behavior that is shielded from antitrust scrutiny.[15] As it relates to the impending dispute between NFL players and owners, decertification would transform the NFLPA into a trade organization.  Consequently, actions taken by owners, which would constitute legitimate negotiation tactics under labor law (e.g., player lockouts), would become subject to antitrust scrutiny.

Decertification has only been used as a labor tactic by one players’ union, the NFLPA, when it renounced its status as the exclusive bargaining representative for NFL players after bargaining with the NFL reached an impasse in 1989.[16] Whether the NFLPA will exercise the authority players have begun to grant it remains uncertain.  The likelihood of decertification increased significantly, however, in the aftermath of the Supreme Court’s ruling in American Needle, Inc. v. National Football League.[17] The following discussion examines the antitrust and labor law implications of American Needle.

II. Analysis of American Needle

The events that cast American Needle, Inc., a relatively obscure apparel firm, into a prominent role in one of the most important sports law cases ever decided, arose from a contractual relationship between American Needle and NFL Properties (“NFLP”).  Prior to 1963, NFL teams profited from individually licensing their intellectual property and marketing trademarked apparel, including caps and jerseys.[18] In 1963, NFL teams formed the NFLP to develop, market, and license their intellectual property with a substantial portion of the considerable revenues generated from its licensing and marketing activities going toward charity or being equally divided among teams.[19] Between 1963 and 2000, the NFLP granted nonexclusive licenses to vendors permitting them to manufacture and sell apparel bearing team insignias.[20] American Needle was granted a nonexclusive license to manufacture caps bearing NFL team insignia.  In December 2000, however, American Needle’s status as an NFLP licensee ended after league owners voted to grant an exclusive ten-year license to Reebok to manufacture and sell headgear for all thirty-two NFL teams.[21] Consequently, the NFLP did not renew its contract with American Needle.[22]

In response to the NFLP’s termination of their contractual relationship, American Needle brought an antitrust action asserting that the NFLP’s exclusive licensing arrangement with Reebok violated sections 1 and 2 of the Sherman Act.  The NFL sought dismissal of the section 1 claim by asserting the “single-entity defense,” which if accepted would have provided that NFL teams and the NFLP constitute a single economic enterprise for antitrust purposes.  As such, the NFL would have been deemed incapable of conspiring, an essential element of a cognizable section 1 Sherman Act claim.  The trial court agreed with the NFL’s defense and held that with respect to the league’s exploitation of its intellectual property rights, “they have so integrated their operations that they should be deemed a single entity rather than joint venture cooperating for a common purpose.”[23]Affirming the trial court’s recognition and application of the single-entity defense, the Seventh Circuit agreed that the NFL operates as a collection of independently owned firms with respect to some of its business activities.  Focusing on the narrow issue before it, however, the Seventh Circuit concluded that the NFL operates as a single entity for purposes of exploiting its intellectual property.[24] Accordingly, it dismissed American Needle’s section 1 Sherman Act claim.[25]

Relying on its decision in Copperweld Corp. v. Independence Tube Corp.,[26] the Supreme Court narrowly framed the issue before it as “whether the alleged activity by the NFL respondents ‘must be viewed as that of a single enterprise for purposes of § 1.’”[27] The Court began its resolution of this issue by appropriately pointing out that the Sherman Act has never been literally interpreted because to do so would invalidate every agreement since, even the most simple contract restrains trade.[28] Rather, the focus of the Sherman Act is to invalidate agreements that unreasonably restrain trade.  Having articulated this important principle, the Court then considered a fundamental premise of section 1 of the Sherman Act, namely that it only subjects to antitrust scrutiny concerted action that restrains trade.  The Court noted that concerted action is more suspect as anticompetitive than is unilateral conduct given that the former is “‘inherently . . . fraught with anticompetitive risk’ insofar as it ‘deprives the marketplace of independent centers of decisionmaking that competition assumes and demands.’”[29] Moreover, stated the Court, only those arrangements that are the product of concerted action are subject to section 1’s prohibition on contracts, combinations, or conspiracies.[30]

Reaffirming the concerted action requirement of section 1, the Court next considered the standard for determining whether actors should be construed as a single entity for antitrust purposes.  Eschewing any notion that concerted action turns simply on whether parties constitute legally distinct entities, the Court rejected a formalistic approach in favor of one that turns on the substantive nature of the relationship between actors.[31] Adopting this functional approach,[32] the Court articulated the following standard for determining single entity status: “The relevant inquiry . . . is whether there is a ‘contract, combination . . . or conspiracy’ amongst ‘separate economic actors pursuing separate economic interests’ such that the agreement ‘deprives the marketplace of independent centers of decisionmaking,’ and therefore of ‘diversity of entrepreneurial interests,’ and thus of actual or potential competition.”[33]

Finding support for its functional approach in its Copperweld decision[34] and having established the governing standard, the Court provided a series of examples.  Joint action between the president and vice president of a company would fall outside of the scope of section 1 of the Sherman Act since such a relationship constitutes true “‘unilateral behavior flowing from decisions of a single enterprise.’”[35] Also falling outside the scope of section 1 would be the “‘internally coordinated conduct of a corporation and one of its unincorporated divisions’” given the common interests that the divisions pursue on behalf of the whole.[36] Adding that the competitive realities of relationships between actors are determinative, the Court reiterated that the mere fact that entities are legally distinct or that they have organized themselves as a joint venture[37] is not determinative of whether they are distinct for section 1 purposes.[38] In short, what controls is whether the agreement is a product of joint conduct by “‘independent centers of decisonmaking.’  If it does, the entities are capable of conspiring under section 1, and the court must decide whether the restraint of trade is an unreasonable and therefore illegal one.”[39]

Applying the standard to the operations of the NFL and the NFLP, the Court noted that teams do not engage in the type of unitary decision making that would immunize their conduct from section 1.  The Court stated as dictum that NFL teams compete with one another in a range of economic activities including for the interest of fans, for gate receipts, and for management and player personnel.  With respect to the narrow issue before it, the Court found that teams compete against each other in the market for intellectual property.  Explained the Court, “When each NFL team licenses its intellectual property, it is not pursuing the ‘common interests of the whole’ league but is instead pursuing interests of each ‘corporation itself,’ . . . teams are acting as ‘separate economic actors,’ and each team therefore is a potential ‘independent cente[r] of decisionmaking.’”[40]

Having explained the analytical framework, the Court’s inevitable conclusion was that NFL teams’ decisions to collectively license their independently owned trademarks to one vendor is subject to section 1 scrutiny given that the arrangement would “depriv[e] the marketplace of independent centers of decisionmaking.”[41] Relying on its determination that the organizational structure adopted by the defendants does not solely determine the presence of independent centers of decision making, the Court stated that to accept the NFL’s single-entity defense would allow parties to evade application of section 1 by creating organizational structures that in form appeared to constitute a single entity.  According to the Court, to allow such a result in the matter before it would be inappropriate because, while NFL teams have a common interest in marketing the NFL brand, their interests diverge when marketing the trademarks of individual teams.[42]

The Court was careful to articulate that single-entity status should not be rejected in all cases involving joint ventures.  Indeed, the Court went to great lengths to explain why it would not afford the NFL the presumption of independent action normally afforded agreements within a single firm.  Initially, the Court stated that such a presumption should not be sustained when parties to the challenged agreement act to promote interests that are separate and independent of the single firm.  Focusing specifically on the NFLP, the Court reasoned that the thirty-two individually owned teams that created and thus comprise the NFLP are competitors with economic interests that are distinct from the profit-generating interests of the NFLP.  In this regard, the Court stated,

Unlike typical decisions by corporate shareholders, NFLP licensing decisions . . . reflect[] not only an interest in NFLP’s profits but also an interest in the teams’ individual profits.  The 32 teams capture individual economic benefits separate and apart from NFLP profits as a result of the decisions they make for the NFLP.[43]

Responding to the NFL’s argument that the special characteristics of sports leagues justified affording the NFL single entity status, the Court reaffirmed the special treatment to be afforded sports leagues in antitrust actions.  The NFL argued that without a legally protected ability to cooperate, it could not produce football.[44] Indeed, competition and cooperation are inherent and necessary features of sports leagues.  Like other business enterprises, sports teams individually seek to maximize profit as they compete for fans and merchandising revenues.  It is not, however, in the self-interest of teams to drive each other out of business.[45] Indeed, a league’s constituent clubs are economically interdependent and thus must cooperate in order to survive.  Moreover, they must cooperate in order to maintain a competitive balance that ultimately helps to preserve fan interest.[46]

Recognizing these economic realities, the Court nevertheless wisely concluded that the need for NFL teams to cooperate in order to survive economically in producing the sport of football should not shield their conduct from antitrust scrutiny.  It emphasized, however, that the need for the constituent members of a sports league to cooperate is critical to assessing the legality of a challenged restraint.  The Court directed lower courts to continue to treat anticompetitive restraints that would amount to per se[47] antitrust violations in nonsports cases differently in sports cases where the rule-of-reason standard[48] should be applied.[49] As one commentator noted, “A high level of economic integration is a rationale for applying rule of reason scrutiny, not for granting single entity immunity.”[50]

Conclusion

In American Needle, the Court was careful to restrict its holding to the narrow issue before it.  The NFL and other sports leagues are likely to seize upon this holding in arguing that the Court rejected the single-entity defense only as it relates to the NFL’s agreements involving its intellectual property.  It is unlikely, however, that the leagues will prevail if the Court or lower courts are called on to respond to the single-entity defense in the future.  Scholars are likely to debate the extent to which American Needle provides guidance to courts regarding when joint ventures outside of the sports context constitute single entities.[51] In the sports context, however, American Needle likely settles the uncertainty regarding the availability of the single-entity defense as it relates to the four major sports leagues in the United States—the NFL, the National Basketball Association, the National Hockey League, and Major League Baseball—in matters that extend beyond leagues’ marketing and selling of their intellectual property.

In dictum, the American Needle Court stated that areas of competition between NFL teams include not only intellectual property but also “gate receipts and . . . contracts with managerial and playing personnel.”[52] Through its holding and dictum, the Court made a major step toward resolving an issue, the availability of single-entity status for sports leagues, the resolution of which had proved problematic for some lower courts.[53] The Court sided with the majority of lower-court decisions prior to American Needle, which had rejected the single-entity defense in cases involving sports leagues.[54] Thus, it is highly unlikely that any of the major professional sports leagues will be able to establish single-entity status with respect to a wide range of business activities.[55] This is particularly true given the similarity in structure of the NFL and other major professional sports leagues.  Teams are managed and owned separately, retain most of their own profits, and compete for players and management personnel.[56] Consequently, it becomes readily apparent that sports leagues are not fully integrated joint ventures—a characteristic essential to finding single entity status.[57]

When it was announced that the single entity-defense would be considered by the Court, much of the commentary centered around the impact of the decision on matters such as the NFL becoming a cartel that could engage in unilateral restraints ranging from imposing caps on coaches’ salaries to increasing prices for sports-related merchandise to limiting access to broadcast and webcast of games.[58] While a ruling favoring the NFL would have impacted intellectual property and these other matters,[59] my initial reaction to the case was to reflect on its potential either to upset or to maintain the balance between antitrust and labor law as it relates to the even more delicately balanced relationship between players and owners.  With respect to the latter, the Court’s rejection of the single entity defense does much to preserve this delicate balance.


[1]. Jason La Canfora, NFLPA Seeking Signatures for Possible Decertification, NFL.com (Sept. 12, 2010, 8:55 AM),  http://www.nfl.com/news
/story/09000d5d81a70089/article/nflpa-seeking-signatures-for-possible-decertification.

[2]. Associated Press, Broncos Agree to NFLPA Decertification, ESPN.com (Oct. 21, 2010, 9:31 PM), http://sports.espn.go.com/nfl/news/story?id=5712714; Mike Florio, As Labor Talks Languish, 25 Teams and Counting Have Voted To Decertify, Profootballtalk.com (Nov. 4, 2010, 5:27 PM) (reporting that as of November 4, 2010, players on twenty-five NFL teams had authorized decertification).

[3]. See Brown v. Pro Football, Inc., 518 U.S. 231, 241 (1996); Matthew J. Mitten, Timothy Davis, Rodney K. Smith & Robert C. Berry, Sports Law and Regulation: Cases, Materials, and Problems 238 (2d ed. 2009).

[4]. Mitten et al., supra note 3, at 421.

[5]. Brown, 518 U.S. at 241.

[6]. Robert A. McCormick, Labor or Antitrust? Let the Players Choose, 4 Vill. Sports & Entm’t L.J. 39, 41 (1997).

[7]. Allen Bradley Co. v. Local Union No. 3, Int’l Bhd. of Elec. Workers, 325 U.S. 797, 806 (1945).

[8]. Sherman Antitrust Act, 15 U.S.C. § 1 (2006).

[9]. See Mackey v. NFL, 543 F.2d 606, 622 (8th Cir. 1976) (holding that the rule requiring a team that entered into an agreement with a free agent to compensate the player’s former team violated antitrust law).

[10]. See Smith v. Pro Football, Inc., 593 F.2d 1173, 1185–86 (D.C. Cir. 1978) (holding that the entry-level player draft had an unreasonable anticompetitive impact on the market for players’ services).

[11]. Brown v. Pro Football, Inc., 518 U.S. 231, 236 (1996).

[12]. Connell Constr. Co. v. Plumbers & Steamfitters Local Union No. 100, 421 U.S. 616, 622 (1975).  It is important to differentiate collective bargaining between unions and employers from unilateral union activity such as group boycotts and picketing.  Unilateral union conduct of this nature does not violate antitrust laws because of an explicit statutory exemption that is drawn from the text of the Clayton Act, 15 U.S.C. § 17 (2006), 29 U.S.C. § 52 (2006), and the Norris-LaGuardia Act, 29 U.S.C. §§ 101–115 (2006).  The explicit statutory exemption’s scope is limited to unilateral union activity and thus would not encompass agreements that were the product of collective bargaining between unions and employers.  Connell Constr. Co., 421 U.S. at 621–22.

[13]. Brown, 518 U.S. at 237.

[14]. Id. at 240–41.

[15]. See Mitten et al., supra note 3, at 437–38; Mark T. Gould, Brown v. Pro Football, Inc.: To Decertify or Not To Decertify, Ent. & Sports Law., Summer 1996, at 9, 9.

[16]. See Mitten et al., supra note 3, at 451 (explaining decertification and the effect of the loss of antitrust immunity).

[17]. 130 S. Ct. 2201, 2215 (2010).

[18]. Id. at 2207.

[19]. Id.

[20]. Id.

[21]. Id.

[22]. Id.

[23]. Am. Needle, Inc. v. New Orleans La. Saints, 496 F. Supp. 2d 941, 943 (N.D. Ill. 2007), aff’d, 538 F.3d 736 (7th Cir. 2008), rev’d, 130 S. Ct. 2201 (2010).

[24]. Am. Needle Inc. v. NFL, 538 F.3d 736, 743 (7th Cir. 2008), rev’d, 130 S. Ct. 2201 (2010).

[25]. Id. at 744.

[26]. 467 U.S. 752, 767–68 (1984) (holding that section 1 only applies when there is concerted action by more than one actor).

[27]. Am. Needle, Inc. v. NFL, 130 S. Ct. 2201, 2208 (2010) (citations omitted).

[28]. Id.

[29]. Id. at 2209 (citations omitted).

[30]. Id.

[31]. Id.

[32]. Id.

[33]. Id. at 2212 (citations omitted).

[34]. Id. In Copperweld, the Court reexamined and rejected the intra-enterprise conspiracy doctrine, finding it inconsistent with the “distinction between concerted and independent action.”  Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 767 (1984) (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984)).  The Court noted that Copperweld, exemplifies a substantive rather than a formalistic approach to determining single entity status.

[35]. Am. Needle, 130 S. Ct. at 2212 (quoting Copperweld, 467 U.S. at 767).

[36]. Id. (quoting Copperweld, 467 U.S. at 770).

[37]. Michael A. McCann, American Needle v. NFL: An Opportunity To Reshape Sports Law, 119 Yale L.J. 726, 737–38 (2010) (defining joint ventures as associations of “two or more persons formed to carry out a single business enterprise for profit for which purpose they combine their property, money, effects, skill, and knowledge” (quoting 46 Am. Jur. 2d Joint Ventures § 1 (2006)).

[38]. Am. Needle, 130 S. Ct. at 2212.

[39]. Id. (quoting Copperweld, 467 U.S. at 769).

[40]. Id. at 2213 (quoting Copperweld, 467 U.S. at 769–70).

[41]. Id. (quoting Copperweld, 467 U.S. at 769).

[42]. Id.

[43]. Id. at 2215 (citations omitted).

[44]. Id. at 2214.

[45]. Mitten et al., supra note 3, at 422.

[46]. Id. at 423; McCann, supra note 37, at 730 (stating that the uniqueness of sports leagues resides in their need to compete and to collaborate in order to survive.  While teams must compete in games and off the field for players and management personnel, they must also collaborate in order to establish the rules of the game and address other matters fundamental to producing the relevant sport).

[47]. McCann, supra note 37, at 736–37 (observing that a per se standard allows courts to engage in a streamlined analysis in determining antitrust culpability because certain forms of conduct have such a “predictable and pernicious anticompetitive effect” that liability is presumed “regardless of precompetitive effects or motives” (citations omitted)).

[48]. Id. at 737 (stating that, in contrast to the truncated per se analysis, a rule-of-reason approach requires a fact-intensive inquiry that permits courts to balance the anticompetitive consequences and the procompetitive benefits of the challenged restraint).

[49]. Am. Needle, 130 S. Ct. at 2216.

[50]. M. Scott LeBlanc, American Needle, Inc. v. NFL: Professional Sports Leagues and “Single-Entity” Antitrust Exemption, 5 Duke J. Const. L. & Pub. Pol’y Sidebar 156, 158 (2010).

[51]. Gregory J. Werden, Initial Thoughts on the American Needle Decision, Antitrust Source, Aug. 2010, at 1, 1, available at http://www.abanet.org
/antitrust/at-source/10/08/Aug10-Werden8-2f.pdf.  But see Matthew Bester, The NFL’s Quest To Be Treated Like General Motors Should Stop at the Supreme Court, Entm’t & Sports Law., Winter 2010, at 1, 28, available at http://new.abanet.org/Forums/entsports/PublicDocuments/winter10.pdf (suggesting that the impact of American Needle on judicial determination of whether a joint venture is a single entity will extend beyond cases involving sports leagues); Matthew L. Cantor & Marlene Koury, Pleading Standards for Antitrust Plaintiffs Post-Twombly, Practising Law Inst., Sept. 2010, at 37, 43–44 (stating that American Needle may evince a greater willingness by courts to expose potential antitrust liability to the conduct of joint ventures); John J. Hamill, Health Care Antitrust Cases and Strategies for Lawyers, Aspatore, Aug. 2010, at 1, 2–3 (stating the same).

[52]. Am. Needle, 130 S. Ct. at 2212–13.

[53]. See Am. Needle, Inc. v. NFL, 538 F.3d 736, 741–42 (7th Cir. 2008) (noting the confusion among the circuits regarding the application of the single-entity defense to sports leagues).  For cases in which courts struggled with both adopting and with applying the appropriate standard to resolve questions relating to single-entity status as a defense to antitrust liability in sports cases, see Fraser v. Major League Soccer, L.L.C., 284 F.3d 47, 55 (1st Cir. 2002) (rejecting single-entity status); and Chicago Professional Sports Ltd. Partnership v. NBA, 95 F.3d 593, 599–600 (7th Cir. 1996) (signaling support for the single-entity notion in the sports context).

[54]. See, e.g., Sullivan v. NFL, 34 F.3d 1091, 1098 (1st Cir. 1994); Los Angeles Mem’l Coliseum Comm’n v. NFL, 726 F.2d 1381, 1390 (9th Cir. 1984); N. Am. Soccer League v. NFL, 670 F.2d 1249, 1256–57 (2d Cir. 1982).

[55]. See Derek Taylor, Splitting the Uprights: How the Seventh Circuit’s American Needle Holding Created a Circuit Court Split and Exempted the NFL from Antitrust Scrutiny, and Why the Supreme Court Should Overturn the Seventh Circuit, 6 DePaul J. Sports L. & Contemp. Probs. 143, 146–47 (2010). See generally McCann, supra note 37 (discussing how the Supreme Court’s rejection of the single-entity defense is likely to impact the other major professional sports leagues and the NCAA).

[56]. Bester, supra note 51, at 27.

[57]. Id.

[58]. Lester Munson, Antitrust Case Could Be Armageddon, ESPN.com (July 17, 2009), http://sports.espn.go.com/espn/columns/story?columnist=munson
_lester&id=4336261.

[59]. See McCann, supra note 37, at 764–65 (discussing what impact a decision recognizing the NFL’s single entity status would have on intellectual-property issues within the NFL).