Employment Law Daily City of LA was a market participant, not a regulator, in imposing ‘labor peace agreement’ at LAX
Friday, August 25, 2017

City of LA was a market participant, not a regulator, in imposing ‘labor peace agreement’ at LAX

By Ronald Miller, J.D.

As proprietor of Los Angeles International Airport (LAX), the City of Los Angeles could require businesses at the airport to accept a contractual condition imposing a “labor peace agreement” in licensing agreements for service providers, ruled a divided Ninth Circuit panel. A trade association representing service providers at LAX had standing to challenge the city’s actions, the appeals court determined. Nevertheless, because the city was acting as a market participant, and there was no indication that Congress intended to preempt actions taken by state and local governments in this capacity, the Ninth Circuit affirmed the district court’s dismissal of the complaint. Judge Tallman filed a separate opinion concurring in part and dissenting in part (Airline Service Providers Association v. Los Angeles World Airports, August 23, 2017, Friedland, M.).

Airlines operating out of LAX hire third-party businesses to refuel and load planes, take luggage and tickets, help disabled passengers, and similar services. The city licenses those service providers using a contract that imposes certain conditions. One condition, section 25, requires service providers to enter a labor peace agreement with any employee organization that requests one. If such an agreement is not finalized within 60 days, then the dispute must be submitted to mediation and if mediation is unsuccessful, to binding arbitration. Any labor peace agreement that results from this process must include provisions prohibiting picketing, boycotting, work stoppage, or any other economic interference.

Two trade associations with members that operate at LAX brought suit challenging section 25. The trade associations argued that, because the city operates LAX, the contractual conditions in LAX’s standard licensing agreement are effectively municipal regulations. They further contended that section 25 was preempted by the NLRA, the RLA, and the Airline Deregulation Act (ADA). The district court dismissed the complaint.

Standing. The Ninth Circuit concluded that one of the trade associations, the Airline Service Providers Association (ASPA), had standing to pursue all of its claims. An association like the ASPA had standing if (1) its individual members would have standing in their own right, (2) the interests at stake in the litigation are germane to the organization’s purpose, and (3) the case may be litigated without participation by individual members of the association. To have standing in their own right, an association’s members must have “suffered an injury in fact,” that injury must be “fairly traceable to the challenged conduct of the defendant,” and the injury must be “likely to be redressed by a decision in their favor.”

The appeals court found that the ASPA had alleged a sufficient injury in fact. It alleged that its members would be forced into unwanted negotiations that must terminate in either an agreement or arbitral award. The Ninth Circuit has recognized that “the economic costs of complying with a licensing scheme can be sufficient for standing.” Here, ASPA members will at least have to devote resources, to participate in negotiations, mediation, and possibly binding arbitration over a labor peace agreement which they would not otherwise be required to discuss. Moreover, the time spent in negotiations was itself a concrete injury.

Further, the ASPA has shown a sufficient “line of causation” between the city’s actions and this injury. The city has made section 25 a mandatory component of its standard licensing contract for service providers at LAX, and that provision will force service providers to spend time negotiating a labor peace agreement. Finally, the remedies ASPA sought would redress the harm alleged. Because the ASPA’s individual members would have standing in their own right, the first prong of the test for associational standing was satisfied.

The second and third prongs were satisfied as well. The ASPA asserted that it had an organizational interest “in the consistent enforcement of unitary federal regulation of airline industry labor relations.” As to the third prong, the parties have identified no reason that individual ASPA members must participate individually in this case. Accordingly, ASPA met all the requirements for associational standing.

Preemption. The appeals court next turned to ASPA’s preemption arguments. When a state or local government buys services or manages property as a private party would, the courts presume that its actions are not subject to preemption. Only if a statute evinces an intent to preempt proprietary actions by a state or local government is the presumption overcome. Here, the Ninth Circuit found that the city was acting as a market participant, and not a regulator, when it adopted section 25. And, because nothing in the NLRA, RLA, or ADA showed that Congress meant to preempt states and local governments from actions taken while participating in markets in a nonregulatory capacity, the appeals court concluded that section 25 was not preempted by those federal statutes.

In deciding whether a state or local government is acting as a market participant or as a regulator, the court applies the two-prong test articulated in Cardinal Towing & Auto Repair, Inc. v. City of Bedford. Here, the city satisfied both prongs of the Cardinal Towing test. First, the city was attempting to avoid disruption of its business, and so was acting as a market participant under the first prong of the test. Moreover, its actions independently qualified as market participation under Cardinal Towing’s second prong. That is, the decision to adopt section 25 was narrowly tied to a “specific proprietary problem”—service disruptions at LAX. Thus, the city satisfied the second prong. Consequently, the appeals court found the city was a market participant when it added section 25 to the LAX licensing contract.

Presumption not rebutted. Finally, the appeals court turned to consider whether Congress intended the NLRA, RLA, or ADA to preempt actions taken by states and local governments in their capacity as market participants. In Boston Harbor, the Supreme Court held that the NLRA does not preempt state or local government actions taken as a market participant, so the ASPA’s NLRA preemption theory failed. Likewise, as for preemption under the RLA. Finally, the appeals court determined that Congress did not intend the ADA to upset proprietary conduct like that at issue here. Thus, the ASPA failed to rebut the presumption that preemption applies only to regulatory conduct.

Partial concurrence and partial dissent. Judge Tallman agreed with the majority that the ASPA had standing to assert its claims. But he disagreed with the majority’s conclusion that the complaint failed to state a plausible claim that the city enacted section 25 as a regulatory measure rather than a proprietary one. He wrote that the complaint sufficiently alleged that section 25 was an overly broad and facially suspect regulation of labor relations that contravened the delicate congressional balancing of national labor relations policy affecting key facilities of interstate commerce.

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