Ninth Circuit Invokes Equal Protection Clause to Strike Down California Economic Legislation

By David A. Schwarz, a Partner, and Michael Harbour, an Associate, with Irell & Manella LLP in its Los Angeles, CA office.

Howard Berman, the distinguished (former) Member of Congress, once summed up the essence of lawmaking as “open covenants, secretly arrived at.”¹  Notwithstanding his apt description of legislative compromise, post-New Deal courts have expressed little interest in learning “how the sausage is made” and generally do not question the recipe or the motives of the cooks.  For economic regulation, judicial scrutiny ends where there is a “reasonable conceivable state of facts that could provide a rational basis” for disparate treatment of groups or individuals, even if the legislative record reveals not even a hint of that rationale.² Outside of the infringement of fundamental rights or suspect class-based discrimination, the judicial invalidation of legislation is, as one court put it, “rare in the modern era.”³

The US Court of Appeal for the Ninth Circuit’s recent decision in Fowler Packing Company, Inc. v. Lanier ⁴ is one of those rare exceptions.  Fowler Packing held that two California agricultural employers properly alleged they were arbitrarily excluded from AB 1513, state legislation passed to give employers an affirmative defense to certain wage-and-hour lawsuits involving non-productive time claims for piece work.  And while the court chose not to examine legislative motives, its decision strongly suggests that the only possible reasons for the disparate treatment baked into a recent California wage-and-hour law were illegitimate ones.

Fowler Packing Company, Inc. and Gerawan Farming, Inc. claimed they were “carved out” from the law’s “Penalty Relief Plan” at the behest of the United Farmworkers of America (UFW), a politically influential union embroiled in organized labor disputes with both companies.  The carve-outs barred “safe harbor” protection as to pending class-action lawsuits against Fowler and Gerawan.  Both of these lawsuits had been filed by UFW’s General Counsel.

The carve-outs do not specifically name Fowler and Gerawan; instead, they exclude claims filed before (or after) certain dates.  There were three different carve-out dates in the statute.  Each matched (almost to the day) the filing date of lawsuits against Fowler, Gerawan, and a third grower (Delano Farms), all of which were defendants in wage-and-hour class actions filed by UFW’s General Counsel.

Fowler and Gerawan did not believe the choice of these dates was coincidental.  Neither did the author of the bill, who told the Sacramento Bee that the exclusion of these growers was the price demanded by UFW for its support of AB 1513.⁵  Fowler and Gerawan asserted that this kind of legislative targeting violated the US Constitution’s Bill of Attainder Clause and the Equal Protection Clause, as there was no rational basis for the punitive and discriminatory lines drawn by the legislature.

The district court dismissed the complaint, with prejudice, holding that if a line had to be drawn “somewhere,” it was not the court’s job to second-guess where, or how, that line was drawn.

The Ninth Circuit disagreed.  A three-judge panel (JJ. Gould, Clifton, and Watford) concluded that these hypothetical justifications could not be squared with the actual structure of the carve-outs or the purpose of the affirmative defense.  The court noted that the “Gerawan” carve-out seemed designed to exclude Gerawan specifically rather than to protect settled expectations, as the government had asserted.  The “Fowler” carve-out, which excluded employers alleged to have used “ghost workers” to lower piece-rate compensation, also failed rational-basis review.  “It would be no less rational,” the court observed, “to base the ability of a defendant to use the safe harbor on the grounds of whether that defendant has ever received a speeding ticket.”⁶  While the legislature may have a legitimate interest in not rewarding employers who engaged in the use of ghost workers, the carve-out did not achieve this purpose because it excluded employers based “on mere allegations … even if those allegations turn out to be completely frivolous.”⁷

Given the implausibility of the state’s proposed justifications, the court could “conceive of no other reason why the California legislature would choose to carve out these three employers” aside from the reason Plaintiffs alleged: “to respond to the demands of a political constituent.”⁸  That justification, however, cannot qualify as a rational basis, as the court concluded.⁹

The court was less sympathetic to the claim that the carve-outs constituted legislative punishment under the Bill of Attainder Clause.  The Ninth Circuit reasoned that withholding the benefits of a prospective legislative amnesty plan was different from imposing a new punishment based on prior conduct.  While the court agreed that “it is at least conceivable that the California legislature intended to punish Plaintiffs by carving them out of AB 1513’s safe harbor,” “political expediency” and “an intent to punish” are distinct, for purposes of the Bill of Attainder claim.¹⁰  While noting that the “novel issue” presented in Fowler Packing “is not clear cut,” the court concluded that “the weight of precedent leads us to conclude AB 1513 by its carve-outs imposes no punishment.”¹¹

Nonetheless, Fowler Packing stands as one of a handful of cases in which a court has struck down economic and social legislation where (as alleged) the legislature drew lines for the purpose of arbitrarily excluding individuals.¹²  As the Ninth Circuit concluded, “[t]his is exactly what AB 1513, as alleged, does to Plaintiffs,” because the “choice of cut-off dates can only be explained as a concession to the UFW in exchange for its support for AB 1513.”¹³

Like other protectionist efforts by powerful economic interest groups, AB 1513 reflects a “‘naked attempt to raise a fortress protecting [one subsection of an industry at the expense of another similarly situated].’”¹⁴  A recent report from California’s “Little Hoover Commission,” an independent state oversight agency, echoes the concerns over similar, arbitrary regulations:

[O]ccupational licensing hurts those at the bottom of the economic ladder twice:  first by imposing significant costs on them should they try to enter a licensed occupation and second by pricing the services provided by licensed professionals out of reach.  The Commission found that over time, California has enacted a thicket of occupational regulation that desperately needs untangling in order to ease barriers to entering occupations and ensure services are available to consumers of all income levels.¹⁵

Fowler Packing provides a rare reminder of the core purpose of the Equal Protection Clause:  to protect individuals and minorities from arbitrary discrimination at the hand of politically powerful majorities.  Or, as Ian Fleming’s arch villain, Auric Goldfinger put it:  “Mr. Bond, they have a saying in Chicago.  ‘Once is happenstance.  Twice is coincidence.  The third time it’s enemy action.’”  The Ninth Circuit’s decision suggests that saying also fits the facts of Fowler Packing.  Even though modern courts typically do not question the motives behind economic legislation, the targeted nature of the three carve-outs in AB 1513, allegedly demanded by the UFW, were just too arbitrary to ignore.

Notes

1. 2015 Federalist Society National Lawyers’ Convention, Washington, DC (Nov. 14, 2015) (http://www.fed-soc.org/multimedia/detail/showcase-panel-iii-roundtable-can-changes-in-incentives-significantly-address-congressional-dysfunction-event-audiovideo.)
2.  F.C.C. v. Beach Comms., Inc., 508 U.S. 307, 313 (1993).
3.  Craigmiles v. Giles, 312 F.3d 220, 224 (6th Cir. 2002).
4. 844 F.3d 809 (9th Cir. 2016).
5. Id. at 814.
6. Id. at 816.
7. Ibid.
8. Id. at 815.
9. Ibid.
10. Id. at 818.
11. Id. at 819.
12. See, e.g., St. Joseph Abbey v. Castille, 712 F.3d 215 (5th Cir. 2013); Merrifield v. Lockyer, 547 F.3d 978 (9th Cir. 2008); Craigmiles v. Giles, 312 F.3d 220 (6th Cir. 2002).
13. Fowler, 844 F.3d at 815.
14. Merrifield, 547 F.3d at 992 (quoting Craigmiles, 312 F.3d at 229).
15. Milton Marks “Little Hoover” Commission on California State Government Organization and Economy, “Jobs for Californians: Strategies to Ease Occupational Licensing Barriers,” at 1 (Oct. 2016).  David Schwarz served as a member of the Little Hoover Commission, and participated in this study.