Edward R. MADIGAN, Secty Dept. of Agriculture, Defendant-Appellee.
Argued and Submitted Sept. 12, 1991.
James Moody, Washington, D.C., and Thomas E. Campagne, A Professional Corporation, Fresno, Cal., for plaintiffs-appellees-appellants.
Mark W. Pennack, U.S. Dept. of Justice, Washington, D.C., for defendant-appellant-appellee.
Before CANBY and KOZINSKI, Circuit Judges, and CARROLL,** District Judge.
Procedure, not substance, is what most distinguishes our government from others. In the not-so-distant past, a government agency in the Soviet Union could impose controls on the production of commodities without bothering to involve the public in the decisionmaking process. By contrast, a government agency in the United States must usually give notice to, and accept comments from, the public before undertaking to place manacles on the invisible hand. 5 U.S.C. § 553. In this case, we address some of the details of this notice and comment requirement.
Plaintiffs are domestic "handlers" of navel oranges: they buy, sell, consign, transport, ship, or by other means place oranges in the current of commerce. 7 C.F.R. § 907.10 (1991). They challenge the procedure used by the Secretary of Agriculture to regulate the navel orange market. Plaintiffs contend that the regulatory system: (1) neither complies with the Administrative Procedure Act's notice and comment requirements nor falls within the good cause exception to those requirements; (2) eviscerates the requirement that the Secretary engage in reasoned decisionmaking; and (3) denies plaintiffs equity in marketing opportunity.
The Agricultural Marketing Agreement Act, 7 U.S.C. § 601 et seq., authorizes the Secretary of Agriculture to issue marketing orders limiting the quantity of commodities shipped into markets identified by the Secretary, thus protecting prices for producers and maintaining orderly marketing conditions. 7 U.S.C. § 602(1). Pursuant to the AMAA, the Secretary promulgated regulations in 1954 (Marketing Order 907, 7 C.F.R. Part 907) to govern the shipment of navel oranges from California and Arizona.1 For the most part, the regulations promulgated in this marketing order still govern the navel orange market.
The regulations divide California and Arizona into four districts and authorize the Secretary to limit the quantity of navel oranges shipped from these districts to points in the continental United States or Canada during the navel orange marketing season, which generally runs from the middle of fall until the middle of spring.
Pursuant to the regulations, the Navel Orange Administrative Committee (NOAC), an eleven-member committee composed of ten representatives of growers, handlers or cooperative marketing organizations and one non-industry representative, develops its annual Marketing Policy before the start of each season. See 7 C.F.R. §§ 907.20-.34; id. §§ 907.50-.51; Judicial Officer's Opinion, Finding of Fact No. 9(a), at 45-46. As part of this process, the NOAC notifies all handlers by letter and places advertisements in the newspaper before holding a public meeting concerning the proposed Policy. JO, Finding of Fact No. 14(d), at 70. The Policy estimates the weekly volume restrictions that will probably be needed during the upcoming navel orange season. JO, Finding of Fact No. 9(a), at 46. The Secretary then analyzes the NOAC recommendations in the Policy and issues a Position Paper indicating whether he intends to impose volume restrictions in the forthcoming year and what he intends those restrictions to be for each week during the season. JO, Finding of Fact No. 16, at 71-79.
Each Tuesday during the season, the NOAC holds a meeting to settle on a recommendation to give the Secretary for the following week's volume restrictions. Before each meeting, NOAC members usually notify growers and handlers of navel oranges in order to obtain their general views on market conditions. JO at 190. At the meeting, growers, handlers and any other members of the public may participate. JO, Finding of Fact No. 17, at 79. After the meeting, the NOAC makes a recommendation to the Secretary as to the volume of oranges he should authorize for shipment into the domestic market for the week beginning that Friday. Id. After making its recommendation, the NOAC provisionally calculates the quantity of oranges that may be handled by each district, and by each handler within the district, during the coming week, 7 C.F.R. § 907.54(a), and informs the handlers of their scheduled allotment. The Secretary then issues the actual rule, which seldom varies from the NOAC's recommendation. JO, Finding of Fact No. 20, at 86. The rule is published in the Federal Register on Friday and sets the volume restrictions for the upcoming week. When the Secretary issues the rule, he includes a finding that states: "It is further found that it is impracticable and contrary to the public interest to give preliminary notice, engage in public rulemaking, and postpone the effective date until 30 days after publication in the Federal Register." ALJ Decision, Finding of Fact No. 4(c), at 25.
* A. The Administrative Procedure Act ensures that the massive federal bureaucracy remains tethered to those it governs--or so the theory goes. When an agency decides to issue a rule, it must first publish a notice of proposed rulemaking in the Federal Register, which is the guide for those members of the public--usually special interest groups--who want to participate in the rulemaking process. The notice must contain "(1) a statement of the time, place, and nature of public rule making proceedings; (2) reference to the legal authority under which the rule is proposed; and (3) either the terms or substance of the proposed rule or a description of the subjects and issues involved." 5 U.S.C. § 553(b). Although the APA mandates no minimum comment period, some window of time, usually thirty days or more, is then allowed for interested parties to comment. Petry v. Block, 737 F.2d 1193, 1201 (D.C.Cir.1984). The public may comment "through submission of written data, views, or arguments with or without opportunity for oral presentation." 5 U.S.C. § 553(c). After "consideration of the relevant matter presented," the agency publishes the final rule, accompanied by a "concise general statement of [its] basis and purpose," in the Register. Id.
The gestation period from initial notice to final rule can be a couple of months, and often much longer depending on the time the agency allows for comments and the time it takes to digest those comments. In addition to the time required for the notice and comment procedures to run their course, an additional thirty days ordinarily must pass between the time the final rule is published and the time it takes effect. 5 U.S.C. § 553(d).
B. The APA contains a few exceptions to the notice and comment requirements for informal rulemaking. One of these is the good cause exception, which applies when an agency "for good cause finds ... that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest." 5 U.S.C. § 553(b)(B). The Secretary of Agriculture has relied on this exception for several decades and has never fully complied with the APA's notice and comment requirements before issuing weekly navel orange volume restrictions.
Plaintiffs, currently defendants in forfeiture proceedings for allegedly violating volume restrictions, argue that past volume restrictions are invalid because they were promulgated without observing the APA's notice and comment requirements. Plaintiffs argue that the good cause exception cannot justify the wholesale abandonment of the APA's requirements week in and week out, year in and year out, for the entire life of a regulatory program. The Secretary counters that the regulatory process simply could not be carried out if he were required to follow APA procedures (which often take weeks or months) for rules that must be put into effect almost immediately and that have an effective life of exactly one week. We agree with both parties.
At the same time, the good cause exception goes only as far as its name implies: It authorizes departures from the APA's requirements only when compliance would interfere with the agency's ability to carry out its mission. The agency thus must minimize conflict with the APA by complying with those APA requirements it is capable of complying with.
The procedures the Secretary has adopted do not, in fact, depart radically from those contemplated by the APA. Most significant is the fact that the Secretary gives interested parties an opportunity to appear and have their say at the weekly NOAC meetings, and that such input is received and considered by the NOAC in making its recommendation to the Secretary. The procedure departs from normal APA practice in only three respects: First, the Secretary does not publish a Federal Register notice of the proposed weekly volume restriction, which would advise the public that it could comment at the NOAC meeting to be held the Tuesday before the week in question. Second, there appears to be no opportunity for written comments--or indeed any comments other than by persons attending the NOAC meetings. Finally, the volume restrictions go into effect immediately, bypassing the normal 30-day delay in the effective date of a final rule.
The last of these departures is the easiest to justify. To analyze it, we must first recognize that the APA contains two good cause exceptions: One, as we have noted, excuses failure to abide by the notice and comment requirements, and the other allows an agency to forego the 30-day waiting period between publication of the final rule and its effective date. See 5 U.S.C. § 553(b)(B) & (d)(3). Although some courts have failed to distinguish the two good cause exceptions, commentators and some courts have correctly recognized that different policies underlie the exceptions, and that they can be invoked for different reasons. See U.S. Steel Corp. v. EPA, 605 F.2d 283, 289-90 (7th Cir.1979) (good cause more easily found as to 30-day waiting period), cert. denied, 444 U.S. 1035, 100 S.Ct. 710, 62 L.Ed.2d 672 (1980); Comment, 1980 B.Y.U.L.Rev., at 97 (30-day waiting period "in no way relates to the notice and comment requirement, but the federal courts have not always been careful to maintain the distinction"); G. Edles & J. Nelson, Federal Regulatory Process: Agency Practices and Procedures § 4.2.III, at 68 (2d ed. 1991) (two good cause exceptions are "conceptually different").
Unlike the notice and comment requirements, which are designed to ensure public participation in rulemaking, the 30-day waiting period is intended to give affected parties time to adjust their behavior before the final rule takes effect. This is sensible; until the final rule is published, the public is not sure of what the rule will be or when the rule will actually be promulgated. In addition, a window of time usually causes no harm.
Neither of these reasons for the waiting period is applicable to the navel orange regulatory system. The public knows the rule will take effect on Friday of the week in question and is given accurate, advance notice of what the rule is likely to be. See JO, Finding of Fact No. 18, at 83.3 More importantly, requiring this 30-day waiting period would cause great harm: It would force the Secretary to predict weekly volume restrictions more than thirty days in advance. The record convincingly establishes the impossibility of accomplishing that feat with any degree of accuracy: The NOAC is constantly revising projections right up until, and occasionally even during, the week in question. See JO, Finding of Fact No. 12(a), at 60; id. No. 13(a), at 67; id. No. 18, at 83. We cannot impose a 30-day waiting period, in essence requiring the Secretary to predict market and weather conditions more than a month in advance, without throwing the entire regulatory program out of kilter. We therefore hold that the Secretary has shown good cause for making the weekly restriction effective upon publication in the Federal Register.
More problematic are the Secretary's other two deviations from normal APA procedures. While the Secretary argues persuasively that interested parties have actual notice of the weekly meetings, such notice is defective in two ways. First, the APA contemplates notice to all members of the public--regardless of whether individual members have a particularized interest in the regulatory program--by means of publication in the Federal Register. While Federal Register publication may be unnecessary or duplicative in some, if not many, cases, its prophylactic effect ensures that agencies and reviewing courts need not make the difficult and necessarily ad hoc determinations of who has a sufficient interest (i.e., would they comment if given notice?) in a proposed rule. Second, any notice given to interested parties does not contain anything akin to a proposed rule: The Secretary gives no indication of the proposed volume restriction for that week. It is a fundamental tenet of the APA that the public must be given some indication of what the agency proposes to do so that it might offer meaningful comment thereon. 5 U.S.C. § 553(b)(3); K. Davis, 1 Administrative Law Treatise § 6.25, at 571 (2d ed. 1978).
The third deviation from the APA's normal practice is as troubling as the second: The Secretary allows only oral comments from those who attend the NOAC meetings. There may be persons interested in the navel orange market who are unable to attend, or have a representative attend, the weekly NOAC meeting, yet the Secretary has suggested no reason why he cannot accommodate the normal APA procedure of allowing the submission of written comments before promulgating weekly volume restrictions. It's clear that given even a few days' notice, members of the public would have sufficient opportunity to submit written comments to the NOAC before the weekly meeting.
We thus conclude that the Secretary's rulemaking fails to satisfy the APA's requirements because he has not demonstrated good cause for failing to give sufficient notice in the Federal Register of the weekly NOAC meeting and failing to allow the public to comment by means other than personal participation at the NOAC meeting.
This conclusion, though important for how the Secretary must regulate the navel orange markets in the future, does not answer the question of most concern to the parties in this case: the remedy. We must decide what effect the Secretary's failure to comply with notice and comment requirements carries for past weekly volume restrictions. If we invalidate past volume restrictions, plaintiffs would obviously succeed in the pending forfeiture proceedings brought against them by the Secretary. It's to that question we now turn.
Sagebrush exemplifies proper application of the harmless error rule. There, plaintiffs challenged the Secretary of the Interior's failure to give notice and hold hearings as required by the Federal Land Policy and Management Act (FLPMA). The Secretary had, however, held hearings pursuant to the National Environmental Policy Act. We agreed with the plaintiffs that "the notices did not comply in every respect with the terms of [the FLPMA]. However, we [found] the error harmless since the purposes of FLPMA's notice requirement were fully satisfied." 790 F.2d at 764. As to opportunity for comment, we similarly held that although the hearings were not in technical compliance with the statutory requirements the error was harmless because the hearings nevertheless "afforded the public a full and fair opportunity to be heard." Id. at 769.
Although Sagebrush dealt with the notice and comment requirements of the FLPMA, we find its reasoning dispositive here. As we explained earlier, all parties before us knew the ground rules: that there would be an annual position paper setting proposed weekly volume restrictions; that the NOAC would meet every Tuesday during the season;8 that the starting point for debate at those Tuesday meetings would be the figure listed for that week in the annual position paper (or in the NOAC's updated versions of it9); that there would be opportunity for public comment at the Tuesday meetings; and that the final volume restrictions would be issued by the Secretary soon afterwards. This system of regulation existed for decades without challenge; it was only after some handlers ran into trouble with the Department of Agriculture that, in looking for an escape, they came up with this challenge. While they are right that the Secretary must comply with some of the APA's technical requirements, their belated challenge is evidence of the lack of prejudice resulting from the Secretary's failure to do so in the past thirty-five years.
If the procedural error here is not harmless, it's hard to imagine a case where it would be. While some may argue that would be all for the good, we cannot and will not presume that Congress intended the APA's harmless error rule to be a nullity. The Secretary's failure to comply with the specific dictates of the APA's notice and comment requirements is harmless, and we therefore will not invalidate the volume restrictions issued in the past by the Secretary.
Some courts have held that agency action is arbitrary and capricious if "the agency has not really taken a 'hard look' at the salient problems and has not genuinely engaged in reasoned decision-making." Greater Boston Television Corp. v. FCC, 444 F.2d 841, 851 (D.C.Cir.1970) (footnote omitted), cert. denied, 403 U.S. 923, 91 S.Ct. 2233, 29 L.Ed.2d 701 (1971). Plaintiffs argue that all volume regulations for the years in question must be set aside because the Secretary did not engage in reasoned decision-making.
Plaintiffs base their argument on the fact that the Secretary regularly relied on the NOAC to collect data from the growers and make recommendations for the weekly volume restrictions. The parties agree that the Secretary normally adopts NOAC's recommendation, although he does not always do so. See JO, Finding of Fact No. 20, at 86-87.
We have no difficulty with the Secretary's decision to rely on the NOAC to filter and digest public comments and to make a recommendation. Subject to the requirements of the APA, the Federal Advisory Committee Act, 5 U.S.C.App. 2, and other procedural requirements, the Secretary is free to seek advice from whatever sources he deems appropriate, so long as he or his delegate in the Department retains ultimate authority to issue the regulation. See Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 399, 60 S.Ct. 907, 915, 84 L.Ed. 1263 (1940). Here, the record makes it clear that the Secretary does not rubber stamp the NOAC's recommendations. Although the Secretary normally follows the NOAC's suggestions, he retains the authority to depart from or ignore them altogether.
Plaintiffs argue that the Secretary's exemption of navel oranges shipped to markets outside the continental United States and Canada from the volume restrictions violates the statute's "uniform rule" requirement. 7 U.S.C. § 608c(6)(C). The easy answer to this contention is that the statute gives the Secretary discretion to do precisely what he does: He may designate certain markets to which handlers may ship limited quantities of navel oranges (they're the continental United States and Canada under the current regulations, see 7 C.F.R. § 907.18; id. § 907.67) and exempt other markets, thereby leaving them open for handlers to ship unlimited quantities. See 7 U.S.C. § 608c(6)(C) (allowing Secretary to restrict shipments to "any or all markets"). Shipments to markets other than the designated ones are simply irrelevant in determining whether the rule is uniform.
Plaintiffs also argue that the fact that weekly volume restrictions, calculated as percentages of each district's total crop, occasionally vary among districts is a violation of the uniform rule requirement. But the statute does not require that the Secretary limit every district every week to the same percentage of its crop as other districts. Rather, the Secretary has discretion to adjust allocations among districts during the course of the season; for purposes of the statute, the relevant time period is the season as a whole, not the weeks within it. See id.
It's true that during some weeks, and indeed some seasons, certain districts have been completely unrestricted. But those districts were obviously not going to, and did not, meet their full seasonal allotment to the continental United States and Canada. As the Judicial Officer concluded, "volume regulation may not be imposed in a district if it is obvious that the handlers in the district will not be able to use all of the allotments that otherwise would have been given to them." JO Finding of Fact No. 22, at 90. With a couple of de minimis exceptions, during no season has the Secretary allocated to any district a percentage of its total available crop greater than to any other district.
As governments elsewhere loosen their grip over commercial markets, the Secretary of Agriculture forges ahead with a government-mandated system of quantity restrictions adopted nearly four decades ago. Whatever the merits of that policy, our concern is procedure, not substance. Though we disapprove of the Secretary's continued reliance on the good cause exception to abandon APA procedures altogether, his failure to do so in the past cannot serve to invalidate old volume restrictions.
(2) allow parties to submit written comments to the NOAC and the Secretary in lieu of or in addition to permitting oral participation at the NOAC meeting.
AFFIRMED IN PART; REVERSED IN PART; REMANDED FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION.
Emergencies, though not the only situations constituting good cause, are the most common. See Northern Arapahoe Tribe v. Hodel, 808 F.2d 741, 751 (10th Cir.1987); Buschmann v. Schweiker, 676 F.2d 352, 357 (9th Cir.1982).


AN ACT TO AMEND TITLE 16, TITLE 24, TITLE 25, AND TITLE 29 OF THE DELAWARE CODE RELATING TO THE DIVISION OF LONG TERM CARE RESIDENTS PROTECTION.
When used in this subchapter the following words shall have the meaning herein defined. To the extent the terms are not defined herein, the words are to have their commonly-accepted meaning.
(3) "Division" shall mean the Division of Long-Term Care Consumer Protection; Health Care Quality.
§ 1134. State response to reports of adult abuse, neglect, mistreatment or financial exploitation.
(12) Appointment of special investigators; powers and duties.
a. The Secretary of the Department of Health and Social Services may shall appoint qualified persons to be special investigators for the Division of Long-Term Care Residents Protection. Health Care Quality. Such investigators shall hold office at the pleasure of the Secretary. Any person appointed pursuant to this section shall have a minimum of 10 years experience as a "police officer," as that term is defined in § 1911(a) of Title 11, significant investigatory experience while working as a police officer, shall be in good standing with the previous or present law-enforcement agency where such person is or was employed, and shall have such other qualifications deemed appropriate by the Secretary.
b. Special investigators appointed under this section may conduct investigations of abuse, neglect, mistreatment or financial exploitation of residents of long-term care facilities and adults who are impaired anywhere in this State as directed by the Director of the Division of Long-Term Care Residents Protection Health Care Quality and shall have the power to make arrests and serve writs anywhere in this State. In conducting such investigations, the special investigators shall have the statewide powers enumerated under § 1911 of Title 11 and such other powers as conferred by law on police officers, but such powers shall be limited to offenses involving abuse, neglect, mistreatment or financial exploitation of residents of long-term care facilities and adults who are impaired anywhere in this State as directed by the Director of the Division of Long-Term Care Residents Protection. Health Care Quality. To the extent possible, special investigators pursuant to this section shall consult with the police agency having jurisdiction and the Director or the Director's designee prior to making an arrest and shall do so in all cases after making such arrest.
(d) "Division" shall mean the Division of Long Term Care Residents Protection. Health Care Quality.
(f) An individual in a facility-sponsored training program who has completed all but the final 37.5 hours of requisite classroom and clinical training to become a CNA may be counted in the direct care hours and minimum staffing shift ratios under the CNA staffing requirements given in subsections (b), (c) and (e) of this section. The individual shall be referred to as a nursing assistant in training (NAIT). The Division of Long Term Care Residents Protection (Division) shall conduct a study of the certified nursing assistant training programs in Delaware, both those sponsored by facilities and those sponsored by educational institutions. It shall report its findings to the Nursing Home Quality Residents Assurance Commission (Commission). The factors to be studied include, but are not limited to, the percentage of each training program's graduates who passed the certified nursing assistant certification test and the number of attempts it took each graduate to become certified, along with the total number of hours, divided by classroom and clinical time, spent in the overall certified nursing assistant training program. The study shall encompass a period of 6 months commencing with the promulgation of the certified nursing assistant regulations. The report shall be issued no later than 2 months after the completion of the study period. Based on the results of its study, the Division shall recommend to the Commission whether a nursing assistant, while in training and prior to certification, should be counted as a CNA in the minimum staffing ratios, and, if so, at what point in the training program.
e. Requests for hospital records by the Division of Long Term Care Residents' Protection Health Care Quality pursuant to § 1212 of this title.
§ 1212. Disclosure of protected health information.
(4) Notwithstanding any contrary provision of Chapter 11 of this title or Chapter 85 of Title 11, the Department is authorized to obtain adult abuse registry information from the Division of Long-Term Care Residents Protection Health Care Quality pertaining to any person seeking to provide attendant services under this chapter.
(5) Notwithstanding any contrary provision of Chapter 11 of this title, the Department is authorized to obtain nurse aide registry information from the Division of Long-Term Care Residents Protection Health Care Quality pertaining to any person seeking to provide attendant services under this chapter.
§ 1730. Duty to report unprofessional conduct and inability to practice medicine.
(d) Every person to whom a certificate to practice medicine is issued has a duty to report, within 30 days of the day each such person becomes aware, of the existence of a report to the Department of Services for Children, Youth and Their Families under Chapter 9 of Title 16 against that person concerning child abuse or neglect or a report to the Division of Long-Term Care Residents Protection Health Care Quality under Chapter 85 of Title 11 against that person concerning adult abuse, neglect, mistreatment, or financial exploitation.
§ 7903. Powers, duties and functions of the Secretary.
§ 7907. Delaware Nursing Home Residents Quality Assurance Commission.
Commission and the Attorney General's office shall provide legal advice. [Repealed].
(4) The protection of the privacy of nursing home residents including following the guidelines for confidentiality of records to be established by the Division of Long-Term Care Resident Protection. Health Care Quality.
Section 13. This Act takes effect upon the enactment of House Bill No. 208 of the 149th General Assembly.
Section 14. Section 2 and Section 3 of this Act sunset upon the enactment of House Bill No. 195 of the 149th General Assembly.


Statement of Pamela Quigley Devata, Esq.
Chairwoman Berrien, Commissioners, thank you for this opportunity to provide written testimony in connection with the public meeting to provide information related to Employer Use of Credit History as a Screening Tool.1 I ask that these written comments be made part of the official record of proceedings.
My name is Pamela Devata, and I am an employment attorney and partner in the law firm Seyfarth Shaw. Seyfarth Shaw is a national firm with ten offices throughout the country, and one of the largest labor and employment practices in the United States. Nationwide, over 325 Seyfarth Shaw attorneys provide companies—including employers, consumer reporting agencies, and human resource professionals—with advice, counsel, best practices, training of managers and employees generally, and litigation defense representation in connection with equal employment opportunities, as well as other labor and employment matters affecting employees in their workplaces.
I have practiced in the areas of employment discrimination counseling and litigation defense for approximately nine years in Chicago, Illinois. I have a special area of emphasis relating to the application of the safeguards and pre-conditions contained in the Fair Credit Reporting Act (FCRA) and various state and local laws affecting background screening.2 I counsel both employers and background screening companies on a daily basis regarding their compliance requirements under the FCRA and related state laws, and also provide defense counsel when issues are raised regarding the appropriateness of certain practices. I am the chair of Seyfarth Shaw’s FCRA Litigation and Counseling Team, and am a past member of the Board of Directors of the National Association of Professional Background Screeners.
My testimony seeks to clear up some common misperceptions about what is contained in a credit report, and to provide practical insight into how employers generally use credit reports when making employment decisions.
The use of credit checks has been an acceptable employment screening tool for over 40 years, since prior to the passage of the FCRA in 1970. Indeed, “employment purposes” is listed as an express, specific delineated purpose under Section 604 of the FCRA.3 The original conference report discusses the purpose of the legislation as intending to balance the rights of consumers by providing them “the chance to correct inaccurate information in their credit file, to preserve the confidentiality of such information, and to prevent undue invasions into the individual’s right to privacy.”4 Notably, no one debated the appropriateness of credit reports in employment decisions during the FCRA’s original Congressional debate. Moreover, although the FCRA has been amended twice (first in 1997, with the passage of the Consumer Credit Reporting Reform Act, and again in 2003 by the Fair and Accurate Credit Transactions Act), the issue of whether employment is a proper and permissible purpose to obtain a credit report was again never a subject of debate. The issue arose just recently with the proposal of the Equal Employment for All Act, H.R. 3149 111th Cong (Jul. 9, 2009).
The Federal Government is and has been requiring credit checks on its employees as a condition of employment. 5 For those employees seeking access to “classified information,” applicants must provide “relevant financial records,” and “information the employing agency deems credibly indicates the employee or former employee has incurred excessive indebtedness or has acquired a level of affluence that cannot be explained by other information.”6 According to Acting Solicitor General Katyal, “Background checks are a standard way of doing business. The Government has required them for all civil service employees since 1953 and for contractors since 2005.”7 Clearly, the legislature had a compelling reason in mandating that credit checks be used as a criterion for hiring such employees.
Well, I -- I have to agree with the implication of Justice Ginsburg’s remark, at least what I imply from it. Look at the private employment sphere. It seems to me that for a sensitive position, a bank who has people taking care of -- its employees taking care of other people’s money, or the medical profession, that the employer could be sued and would be remiss if it not ask this question. Do you know anything adverse about this person whom we are going to hire for a very sensitive position? This is done all the time, and we do it with the -- a judge said below, with our law clerk.
There seems to be a common misperception that employment credit reports include a credit score. They do not. Thus, before an employer is able to make a decision based on a credit report, the employer must review the content of the full report to obtain credit information and assess whether it is positive, negative, or neutral. This requires more than a mere glance at a numeric score; rather, employers must conduct thoughtful analyses of the information contained in the report. In my experience, employers rarely, if ever, make hiring decisions based on information in a credit report without giving an applicant the opportunity to explain the information on the report. These may also be some of the reasons, as discussed below, that many employers use credit reports as a final step in the hiring decision inasmuch as evaluating credit reports and talking to applicants about their credit report takes additional time generally not conducive to early stages of the hiring process.
While those opposed to employers’ use of credit checks have sometimes opined that employers may not tell applicants that the reason they are being denied employment is based on a credit report, to not do so would both be contrary to federal and many state laws as well as my experience in working with employers large and small.
No employer could do so without leaving an informational trail of the credit search. Unlike a criminal record that has no research trail, every time a credit check is requested, it shows up as a “soft-hit” on a person’s credit history with the name of the entity requesting the report as well as the purpose for which it was requested. In my experience, employers are aware of this fact. They are also aware that if an applicant makes it to the final stages of the hiring process (for example, following completion of an application, an interview or conditional offer), and then is not hired, the applicant often assumes that the decision may have something to do with the final information received by an employer—oftentimes a background check.
Similarly, opponents have argued that employers often have a knee-jerk reaction when they see a Bankruptcy on a credit report. But, the Bankruptcy Act specifically prohibits an employer from terminating an employee for seeking bankruptcy protections.17 In my experience employers apply this same prohibition to applicants for employment.
Under Title VII, an employer may use any information in evaluating an applicant as long as the employer does not intend to discriminate against the applicant on the basis of a protected class or the employer’s use does not have a disproportionately negative effect on people in a protected group.18 In the latter case, the practice having a “disparate impact” is unlawful unless the employer can show “job-relatedness.” The analysis then turns to whether a less discriminatory alternative exists that meets the employer’s business need.19 As discussed more fully herein, it is my experience that there is no other alternative available to employers that shows an applicant’s judgment as it relates to handling money. If there were, the Federal Government would likely utilize that alternative rather than require credit checks on its employees.
Credit checks are useful to employers generally because they provide a variety of information not able to be confirmed by an employer by other sources and because they are viewed as a valid indicator of a person’s judgment and potential risk to the company. Employers are also extremely cognizant about possible claims of negligent retention and negligent hiring—a main reason they conduct employment screening in the first place. Employment credit reports contain an individual’s name (and other names associated with that person in credit files), social security number, past addresses, past employers, information related to past due accounts, accounts in collection, and charge offs.
Did one large event cause debt to be incurred, or were there multiple sources of debt over different time periods?
Has the applicant attempted to consolidate or pay back any of the debt?
Does the applicant have multiple accounts in collection?
Importantly, one must consider the timing of an employers’ use of credit reports in the hiring/promotion process. Overwhelmingly in my practice and based on other data, employers do not use credit checks as a litmus test for hiring or promotion.21 Rather, according to a recent study conducted by the Society for Human Resource Management, 87% of employers use credit reports after an interview is conducted or a conditional offer has been made.22 Additionally, the vast majority of employers in my experience use credit reports for a very limited number of positions such as jobs dealing with company finances, positions in accounting departments, high level executives or positions dealing with sensitive personal data of customers or employees. As such, it is my experience that employers more often than not do not request credit checks on applicants or employees unless they feel it is related to the position in question. Moreover, the vast majority of employers whom I counsel allow applicants to explain information contained in their credit report.
In Example Number 1 a company became concerned when a sales employee whose salary was approximately $80,000 began displaying lavish spending habits, including purchases of a new Mercedes, expensive jewelry, and exotic and lavish vacations, which the employee discussed at work. As part of a promotion, the company ran a credit check on the employee and learned she was heavily in debt. After an investigation, the company then learned that the employee was involved in a fraudulent scheme against the company that also involved two other company employees. The employees were stealing and selling company product on the black market. One of the employees was in quality control, and the other employees were in sales.
In Example Number 2 a financial services firm employed a security officer to monitor the activities of traders. A routine credit check that the company periodically ran on its security officers revealed that he had $800,000 in debt. The company then began monitoring his activities, and discovered that he was involved in a money laundering scheme with a rogue trader.
In Example Number 3, an applicant applied for a job as a student loan officer in the Financial Aid Department at a college. The employer ran a credit check on the applicant and saw large amounts of unpaid debt, some of which was attributed to his own student loans that were outstanding as well as other accounts in collections. The employer hired the individual only to learn that six months into employment, the employee had attempted to process fraudulent loans by stealing the identity of a student.
Another common argument raised is that an employer’s use of credit checks frequently results in a disparate impact on certain minority groups. However, as discussed earlier, 87% of employers utilize credit checks only after interviews and/or conditional offers.23 As such, a traditional adverse action analysis may not be appropriate given that: 1) credit reports are not generally used at the beginning of employment, and 2) the numbers of employees per employer on whom credit reports are run is small. Consumer reporting agencies with whom I work have also indicated that in their experience, as compared to total background checks requested, employers’ use of credit reports occurs in only approximately 7% of all checks.
After counseling employers daily on the use of credit histories in employment decisions, I believe that the ultimate answer to the question of why employers use credit checks for certain positions is that they are seeking insight into an applicant’s judgment as it relates to finances, and that information is unavailable from any other source. This seems reasonable especially since, if there was an alternative means of determining a person’s judgment as to finances, the Federal Government would likely be using such information in making its hiring decisions.
I greatly appreciate the opportunity to provide this testimony to you and would welcome any additional questions you may have.
1 I would like to formally thank my colleagues, Camille Olson and Bonnie Puckett, for their invaluable thoughts and research assistance.
2 The FCRA is a consumer protection statute that regulates an employer’s ability to obtain and use information relating to a consumer’s credit history, character, personal reputation and mode of living, while also proscribing obligations to the third-party consumer reporting agencies that provide such information.
4 116 Cong. Rec. 36941-35943 (1970).
5 See National Security Directive 63, Single Scope Background Investigations, signed by Pres. Bush (Sr.) (Oct. 21, 1991) (stating that applicants’ “financial status and credit habits” will be reviewed).
6 Exec. Order No. 12,968, 60 Fed. Reg. 40245 (Aug. 2, 1995).
7 General Neal K. Katyal, Esq., Acting Solicitor General, Department of Justice, Washington, D.C., arguing on behalf of Petitioners in Nasa v. Nelson, Docket No. 09-530, in oral argument October 5, 2010.
8 Letter from Dianna B. Johnston, Assistant Legal Counsel, EEOC, “Title VII: Employer Use of Credit Checks” (March 9, 2010), http://www.eeoc.gov/eeoc/foia/letters/2010/titlevii-employer-creditck.html.
9 EEOC v. American Nat’l Bank, No. 76-26-N, 1979 WL 25, 12, 33 (E.D.Va. June 25, 1979), rev’d in part on other grounds.
10 U.S. v. Commonwealth of VA, 454 F.Supp. 1077, 1103-04 (D.C. Va. 1978).
11 Employers who use credit information also must be aware of state law requirements on the specific use of credit checks in employment. These laws are in addition to the state and federal laws that exist covering background checks that also govern the receipt and use of credit checks. In addition, currently four states: Washington, Hawaii, Oregon, and Illinois – effective January 2011, have laws that also specifically regulate an employer’s use of credit information. Wash. Rev. Code §19.182.020, Hawaii Rev. Stat. §238.-1, Or. Rev. Stat. § 659A, Ill. Pub. Act 96-1426 (Aug. 10, 2010). All of these restrictions focus on job relatedness—similar to the EEOC’s Uniform Selection Criteria.
15 Society of Human Resources Management, Background Checking: Conducting Credit Background Checks, available at http://www.shrm.org/Research/SurveyFindings/Articles/Pages/BackgroundChecking.aspx (Jan. 22, 2010).
17 11 U.S.C. § 525(b).
18 42 U.S. C. §§2000e-2(k)(1)(A)(ii) & (k)(1)(C); Griggs v. Duke Power Co., 401 U.S. 424, 431 (1971).
20 Association of Certified Fraud Examiners’ “2010 Report to the Nation on Occupational Fraud and Abuse (citing “financial pressures” as a “key motivating factor” behind check tampering, theft, and fraudulent reimbursement).
21 In my experience, I have never seen a credit report used as a basis for compensation.
22 See Society of Human Resources Management, Background Checking: Conducting Credit Background Checks, available at http://www.shrm.org/Research/SurveyFindings/Articles/Pages/BackgroundChecking.aspx (Jan. 22, 2010).
23 See Society of Human Resources Management, Background Checking: Conducting Credit Background Checks, available at http://www.shrm.org/Research/SurveyFindings/Articles/Pages/BackgroundChecking.aspx (Jan. 22, 2010).


UNITED STATES OF AMERICA, Plaintiff-Appellee, v. CHRISTOPHER AMOS, Defendant-Appellant.
Before: KEITH, COOK, and DONALD, Circuit Judges.
Defendant Christopher Amos pleaded guilty to being a felon in possession of a firearm in violation of 18 U.S.C. § 922(g), which imposes a ten-year maximum sentence. See 18 U.S.C. § 924(a)(2). The district court determined that Amos qualified for an enhanced penalty under the Armed Career Criminal Act (ACCA), 18 U.S.C. § 924(e). The ACCA prescribes an enhanced fifteen-year mandatory minimum sentence for armed career criminals, i.e., felons in possession of a firearm who have three or more prior violent felonies committed on separate occasions. See id. § 924(e)(1).
Amos appealed. Amos argues that the district court erred in determining that he was an armed career criminal and that, consequently, his fifteen-year minimum sentence exceeds the otherwise applicable ten-year statutory maximum. The United States moved to dismiss on the ground that Amos's plea agreement has an appeal waiver barring his appeal. For the following reasons, we DENY AS MOOT the United States' motion to dismiss and AFFIRM the district court's judgment.
In September 2010, Amos entered into a plea agreement by which he pleaded guilty to being a felon in possession of a firearm. See R. at 229. The plea agreement provides that Amos would face a mandatory minimum sentence of fifteen years to life if the district court determined him to be an armed career criminal. By contrast, the plea agreement states that Amos would face a sentence of up to ten years if the district court did not determine him to be an armed career criminal.
"R." designates citations to the paginated record of the proceedings below. Thus, "R. at 234" refers to PageID 234, "R. at 235" refers to PageID 235, and so on.
In consideration of the concessions made by the United States in this agreement, . . . the defendant agrees not to file a direct appeal of the defendant's convictions(s) or sentence except the defendant retains the right to appeal a sentence imposed above . . . any applicable mandatory minimum sentence . . . determined by the district court.
On September 28, 2010, the district court held a plea colloquy under Rule 11 of the Federal Rules of Criminal Procedure. During the plea colloquy, the district judge asked Amos if he understood that he was waiving his right to appeal, and Amos responded affirmatively. R. at 626-27. The district judge further informed Amos that he would not be able to determine an appropriate sentence until receiving the presentence report. R. at 632.
The presentence report outlined Amos's qualifying prior violent felonies. According to the report, Amos was arrested on May 30, 1997 and, based on this arrest, pleaded no contest in Florida state court to "resisting an officer with violence." United States v. Amos, 496 F. App'x 517, 519 (6th Cir. 2012). The report further stated that Amos was arrested on December 15, 1997. In connection with this arrest, Amos pleaded nolo contendere in the same court to, among other offenses, (1) aggravated assault and (2) "aggravated assault on a law-enforcement officer." Id. The report concluded that the three abovementioned offenses constituted violent felonies under § 924(e). Id. at 520.
Amos objected to the determination that the two offenses stemming from his December 15 arrest were qualifying violent felonies. Amos asserted that there was no factual basis for the determination that he committed these two violent felonies on "occasions different from one another" as required for an ACCA enhancement to apply. Id. In Amos's estimation, there was no factual basis to determine that he committed these two felonies on separate occasions because the only potential basis for this determination was the probable cause affidavit that provided the factual foundation for his plea of nolo contendere in state court. Id. But, according to Amos, the district court could not consider the probable cause affidavit in sentencing him.
Amos based this argument on the Supreme Court's decision in Shepard v. United States, 544 U.S. 13 (2005). In Shepard, a plurality of the Court generally held that courts may consider only certain documents to determine whether prior felonies qualify under the ACCA. See id. at 26 (plurality opinion); Amos, 496 F. App'x at 520. These documents typically include "the statutory definition [of the offense], charging document, written plea agreement, transcript of plea colloquy, and any explicit factual finding by the trial judge to which the defendant assented." Amos, 496 F. App'x at 522 (internal quotation marks omitted) (citing Shepard, 544 U.S. at 16). The district court agreed with Amos that the probable cause affidavit was not a Shepard-approved document. Id. at 521. Accordingly, in March 2011, the district court sentenced Amos to 105 months in prison, fewer than the 120-month, or ten-year, statutory maximum for unenhanced felon-in-possession convictions. See R. at 316.
Courts generally refer to these documents as "Shepard-approved documents" or "Shepard documents."
The United States appealed this decision. We held that the probable cause affidavit qualified as a Shepard document. Amos, 496 F. App'x at 523-26. In so holding, we noted that Shepard plainly authorized transcripts of plea colloquies and "any explicit factual finding by the trial judge to which the defendant assented." Id. at 526. We reasoned that these definitions applied to the probable cause affidavit because Amos stipulated to its facts during the Florida plea colloquy. See id. at 524-26. Thus, we reversed the district court's judgment and remanded for resentencing. See id. at 526.
In April 2013, the district court held a resentencing hearing at which it considered the probable cause affidavit. According to the affidavit, on December 15, 1997, Amos stole a pickup truck while possessing a shotgun. R. at 273; see also Amos, 496 F. App'x at 519. Amos drove to a McDonalds parking lot and pointed his shotgun at Joe King, placing King in fear of his life. R. at 273. Deputy Sheriff Kelly Boone attempted to stop Amos, but Amos fled to a nearby RV park and got stuck in the mud. Id. Then, Amos displayed his shotgun to Boone, causing Boone to take cover. Id. Amos freed his vehicle from the mud and regained the roadway. Id. Sheriff Sergeant Clyde Nichols attempted to deploy stop sticks, but had to take cover when Amos recklessly fired the shotgun out of his window from twenty-five feet away. Id. Amos's vehicle came to a rest in a nearby wooded area, where he was apprehended after a five-hour standoff. R. at 273-74.
At the resentencing hearing, Amos argued that these undisputed facts failed to show that he committed the offenses against King (aggravated assault), Boone (resisting an officer with violence), and Clyde (aggravated assault on a law enforcement officer) on separate occasions for ACCA purposes. Rather, Amos argued that he committed these felonies during a single criminal episode. The district court rejected this argument and held that Amos committed these three offenses "on occasions different from one another" under § 924(e). R. at 599-604. Accordingly, the district court sentenced Amos to the ACCA's mandatory minimum fifteen-year term. R. at 549.
The district court held that three of Amos's convictions stemming from the December 15 arrest qualified as prior violent felonies under the ACCA (aggravated assault, resisting an officer with violence, and aggravated assault on a law enforcement officer). By contrast, the presentence report concluded that only two of the convictions based on the December 15 arrest were qualifying prior violent felonies (aggravated assault and aggravated assault on a law enforcement officer). This difference is immaterial to our analysis. Although Amos disputes whether he committed the offenses stemming from the December 15 arrest "on occasions different from one another" for ACCA purposes, Amos does not dispute that these offenses constitute predicate "violent felonies" within the meaning of § 924(e). Likewise, Amos does not dispute that his conviction for resisting an officer with violence based on the May 30 arrest qualifies as a predicate violent felony, or that he committed it on a different occasion from the December 15 offenses. Additionally, as further explained below, the undisputed facts in the probable cause affidavit show that Amos committed at least the offenses against King (aggravated assault) and Clyde (aggravated assault on a law enforcement officer) on separate occasions under the ACCA. Therefore, irrespective of whether Amos committed two or three qualifying prior violent felonies on December 15, the record establishes that Amos committed at least the required three prior violent felonies under § 924(e).
Amos appealed again. The United States filed a motion to dismiss based on the plea agreement's appeal waiver. The motion to dismiss was referred to the merits panel. We have jurisdiction pursuant to 28 U.S.C. § 1291.
Criminal defendants may waive the right to appeal. "Any right, even a constitutional right, may be surrendered in a plea agreement if that waiver was made knowingly and voluntarily." United States v. Ashe, 47 F.3d 770, 775-76 (6th Cir. 1995) (citations omitted). Thus, "[c]riminal defendants may waive their right to appeal as part of a plea agreement so long as the waiver is made knowingly and voluntarily." United States v. Swanberg, 370 F.3d 622, 625 (6th Cir. 2004) (citation omitted). To determine whether an appeal waiver is knowing and voluntary, we consider both the appeal waiver and the plea colloquy. See United States v. Apodaca, 512 F. App'x 509, 516 (6th Cir. 2013) (citations omitted). We review "whether a defendant waived his right to appeal his sentence in a valid plea agreement de novo." United States v. McGilvery, 403 F.3d 361, 362 (6th Cir. 2005) (citation omitted).
Rule 11 of the Federal Rules of Criminal Procedure sets forth the basic requirements for an appeal waiver to be knowing and voluntary. Under Rule 11, before accepting a plea of guilty or nolo contendere, the district court "must address the defendant personally in open court . . . [and] determine that the defendant understands . . . the terms of any plea-agreement provision waiving the right to appeal . . . ." Fed. R. Crim. P. 11(b)(1), (N). The district court may satisfy this standard by (1) expressly informing the defendant that he waives his right to appeal by pleading guilty, (2) ensuring that the defendant understands this consequence by his acknowledgement thereof, and (3) confirming that the defendant still desires to plead guilty. See United States v. Wilson, 438 F.3d 672, 674 (6th Cir. 2006).
Because they are terms of plea agreements, courts interpret appeal waivers under contract law principles. United States v. Mathews, 534 F. App'x 418, 424 (6th Cir. 2013) (citing United States v. Bowman, 634 F.3d 357, 360 (6th Cir. 2011)). Thus, as a general rule, we "give effect to the intent of the parties as expressed by the plain language in the [appeal waiver]." United States v. Beals, 698 F.3d 248, 256 (6th Cir. 2012) (citation omitted). Nevertheless, appeal waivers must be "interpreted strictly, with ambiguities construed against the government." See United States v. Caruthers, 458 F.3d 459, 470 (6th Cir. 2006) (citing cases). This strict construction reflects plea agreements'—and, by extension, appeal waivers'—"constitutional and supervisory implications" and the concerns appeal waivers raise "over and above those present in the traditional contract context." United States v. Freeman, 640 F.3d 180, 194 (6th Cir. 2011) (citation omitted) (internal quotation marks omitted).
Consistent with this supervisory responsibility, we have held that appeal waivers do not bar defendants from appealing a sentence above the statutory maximum for the underlying offense. Caruthers, 458 F.3d at 471 (citing cases). However, we have yet to settle whether a district court's error in determining a defendant to be an armed career criminal results in a supramaximal sentence, thereby barring an appeal waiver. See id. at 472; see also United States v. Stark, 307 F. App'x 935, 938 (6th Cir. 2009).
There are two basic views concerning this question. The first view proposes that appeal waivers do not bar a defendant from arguing on appeal that the district court erroneously determined him to be an armed career criminal, thus causing him to receive a sentence above the otherwise applicable ten-year statutory maximum. See Caruthers, 458 F.3d at 472. This view presupposes that convictions for being a felon in possession of a firearm and ACCA enhancements are different offenses. Id. at 472. A ten-year statutory maximum applies to felon-in-possession convictions under § 922(g)(1). See 18 U.S.C. § 924(a)(2). However, the ACCA imposes an enhanced fifteen-year mandatory minimum for armed career criminals. Id. § 924(e)(1). Consequently, if a district court erroneously determines that a defendant is an armed career criminal, the minimum fifteen-year sentence would exceed the ten-year maximum for felons in possession of a firearm.
The second view, by contrast, proposes that erroneous ACCA enhancements of felon-in-possession convictions do not bar appeal waivers unless the district court imposes a sentence above life imprisonment. See Caruthers, 458 F.3d at 472. This view presupposes that "being a felon in possession of a firearm and being an armed career criminal in possession of a firearm are not two separate offenses, but simply recidivism-contingent variants of the same offense." Id.; see also United States v. McMurray, 653 F.3d 367, 371 (6th Cir. 2011) (citing cases) ("That the ACCA is a sentence enhancement rather than a separate offense is well established."). Thus, under the second view, the "statutory maximum for purposes of the waiver inquiry is the life-imprisonment maximum for being an armed career criminal in possession of a firearm[.]" Caruthers, 458 F.3d at 472 (citations omitted).
Here, we assume, without deciding, that the first view is correct. Therefore, we decide Amos's claims on the merits. See id.; Stark, 307 F. App'x at 938-39.
Amos argues that the appeal waiver is unenforceable for two reasons. First, Amos contends that a Supreme Court decision decided after his resentencing proposes that courts may not use probable cause affidavits to determine whether defendants committed violent felonies on separate occasions for ACCA purposes. See generally Descamps v. United States, 133 S. Ct. 2276 (2013). Alternatively, Amos argues that, even if the district court could use the probable cause affidavit, it misapplied the applicable test in concluding that he committed the felonies stemming from the December 15 arrest on separate occasions within the meaning of the ACCA. See generally United States v. Hill, 440 F.3d 292 (6th Cir. 2006). This alleged error, according to Amos, caused him to receive a sentence that exceeded the 10-year statutory maximum that he otherwise would have received and below which he was originally sentenced.
Amos's first argument fails because Descamps lacks relevance to the issue at hand. The Descamps Court did not address what documents courts may use to decide if the defendant committed offenses on separate occasions for ACCA purposes. Rather, the issue in Descamps was whether the lower courts applied the proper test when determining that a burglary conviction under an indivisible burglary statute (i.e., one not containing alternative elements) was a "violent felony" under the ACCA. See 18 U.S.C. § 924(e)(1), (2)(B); see also Descamps, 133 S. Ct. at 2281. In this case, however, Amos does not dispute that his prior offenses are violent felonies under the ACCA. Amos, 496 F. App'x at 520 n.3. Amos counters that, even if Descamps did not explicitly address whether courts may use Shepard documents to determine whether the defendant committed offenses on separate occasions, its reasoning supports the inference that they may not. But such a broad reading would seemingly preclude courts from considering any category of documents to determine whether prior offenses are violent felonies under the ACCA. It also bears emphasis that we indicated in our prior opinion that courts may use Shepard documents in determining whether "two or more prior offenses occurred on occasions different from one another under the ACCA." Id. at 521 n.4 (citation omitted). Therefore, Amos's first argument lacks merit.
First, two offenses are "committed on occasions different from one another" under the ACCA, if it is possible to discern the point at which the first offense is completed, and the subsequent point at which the second offense begins. . . . Second, two offenses are committed for ACCA purposes if it would have been possible for the offender to cease his criminal conduct after the first offense, and withdraw without committing the second offense. . . . Finally, separate offenses are committed if the offenses are committed in different residences or business locations.
440 F.3d at 297-98; see also United States v. Jones, 673 F.3d 497, 503 (6th Cir. 2012) (citation omitted) ("Offenses are separate if they meet any of these three tests.").
Judging the undisputed facts in the probable cause affidavit against this test, see supra pp. 4-5, we find no error in the district court's conclusion that Amos committed the offenses in question on separate occasions for ACCA purposes.
We criticized Hill's disjunctive test in a recent opinion. See United States v. Mann, 552 F. App'x 464, 468 (6th Cir. 2014). However, Amos does not dispute that Hill applies in this case. Therefore, we have no occasion to revisit the Hill test.
For the foregoing reasons, we DENY AS MOOT the United States' motion to dismiss and AFFIRM the district court's judgment.


Argued May 12, 1971.Decided July 6, 1971.
Alvin A. Simon and Joseph Sachter for appellant.
Herbert L. Ortner and Joel Salon for respondent.
Judges BURKE, SCILEPPI and GIBSON concur with Chief Judge FULD; Judge BERGAN dissents and votes to affirm in a separate opinion in which Judges BREITEL and JASEN concur.
The defendant, Loral Corporation, seeks to recover payment for goods delivered under a contract which it had with plaintiff Austin Instrument, Inc., on the ground that the evidence establishes, as a matter of law, that it was forced to agree to an increase in price on the items in question under circumstances amounting to economic duress.
In July of 1965, Loral was awarded a $6,000,000 contract by the Navy for the production of radar sets. The contract contained a schedule of deliveries, a liquidated damages clause applying to late deliveries and a cancellation clause in case of default by Loral. The latter thereupon solicited bids for some  40 precision gear components needed to produce the radar sets, and awarded Austin a subcontract to supply 23 such parts. That party commenced delivery in early 1966.
In May, 1966, Loral was awarded a second Navy contract for the production of more radar sets and again went about soliciting bids. Austin bid on all 40 gear components but, on July 15, a representative from Loral informed Austin's president, Mr. Krauss, that his company would be awarded the subcontract only for those items on which it was low bidder. The Austin officer refused to accept an order for less than all 40 of the gear parts and on the next day he told Loral that Austin would cease deliveries of the parts due under the existing subcontract unless Loral consented to substantial increases in the prices provided for by that agreement — both retroactively for parts already delivered and prospectively on those not yet shipped — and placed with Austin the order for all 40 parts needed under Loral's second Navy contract. Shortly thereafter, Austin did, indeed, stop delivery. After contacting 10 manufacturers of precision gears and finding none who could produce the parts in time to meet its commitments to the Navy, Loral acceded to Austin's demands; in a letter dated July 22, Loral wrote to Austin that "We have feverishly surveyed other sources of supply and find that because of the prevailing military exigencies, were they to start from scratch as would have to be the case, they could not even remotely begin to deliver on time to meet the delivery requirements established by the Government. * * * Accordingly, we are left with no choice or alternative but to meet your conditions."
Loral thereupon consented to the price increases insisted upon by Austin under the first subcontract and the latter was awarded a second subcontract making it the supplier of all 40 gear parts for Loral's second contract with the Navy. Although Austin was granted until September to resume deliveries, Loral did, in fact, receive parts in August and was able to produce the radar sets in time to meet its commitments to the Navy on both contracts. After Austin's last delivery under the second subcontract  in July, 1967, Loral notified it of its intention to seek recovery of the price increases.
The applicable law is clear and, indeed, is not disputed by the parties. A contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will. (See Allstate Med. Labs. v. Blaivas, 20 N Y 2d 654; Kazaras v. Manufacturers Trust Co., 4 N Y 2d 930; Adams v. Irving Nat. Bank, 116 N.Y. 606, 611; see, also, 13 Williston, Contracts [3d ed., 1970], § 1603, p. 658.) The existence of economic duress or business compulsion is demonstrated by proof that "immediate possession of needful goods is threatened" (Mercury Mach. Importing Corp. v. City of New York, 3 N Y 2d 418, 425) or, more particularly, in cases such as the one before us, by proof that one party to a contract has threatened to breach the agreement by withholding goods unless the other party agrees to some further demand. (See, e.g., du Pont de Nemours & Co. v. Hass Co., 303 N.Y. 785; Gallagher Switchboard Corp. v. Heckler Elec. Co., 36 Misc 2d 225; see, also, 13 Williston, Contracts [3d ed., 1970], § 1617, p. 705.) However, a mere threat by one party to breach the contract by not delivering the required items, though wrongful, does not in itself constitute economic duress. It must also appear that  the threatened party could not obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate.
We find without any support in the record the conclusion reached by the courts below that Loral failed to establish that it was the victim of economic duress. On the contrary, the evidence makes out a classic case, as a matter of law, of such duress.
It is manifest that Austin's threat — to stop deliveries unless the prices were increased — deprived Loral of its free will. As bearing on this, Loral's relationship with the Government is most significant. As mentioned above, its contract called for staggered monthly deliveries of the radar sets, with clauses calling for liquidated damages and possible cancellation on default. Because of its production schedule, Loral was, in July, 1966, concerned with meeting its delivery requirements in September, October and November, and it was for the sets to be delivered in those months that the withheld gears were needed. Loral had to plan ahead, and the substantial liquidated damages for which it would be liable, plus the threat of default, were genuine possibilities. Moreover, Loral did a substantial portion of its business with the Government, and it feared that a failure to deliver as agreed upon would jeopardize its chances for future contracts. These genuine concerns do not merit the label "`self-imposed, undisclosed and subjective'" which the Appellate Division majority placed upon them. It was perfectly reasonable for Loral, or any other party similarly placed, to consider itself in an emergency, duress situation.
 Austin, however, claims that the fact that Loral extended its time to resume deliveries until September negates its alleged dire need for the parts. A Loral official testified on this point that Austin's president told him he could deliver some parts in August and that the extension of deliveries was a formality. In any event, the parts necessary for production of the radar sets to be delivered in September were delivered to Loral on September 1, and the parts needed for the October schedule were delivered in late August and early September. Even so, Loral had to "work * * * around the clock" to meet its commitments. Considering that the best offer Loral received from the other vendors it contacted was commencement of delivery sometime in October, which, as the record shows, would have made it late in its deliveries to the Navy in both September and October, Loral's claim that it had no choice but to accede to Austin's demands is conclusively demonstrated.
We find unconvincing Austin's contention that Loral, in order to meet its burden, should have contacted the Government and asked for an extension of its delivery dates so as to enable it to purchase the parts from another vendor. Aside from the consideration that Loral was anxious to perform well in the Government's eyes, it could not be sure when it would obtain enough parts from a substitute vendor to meet its commitments. The only promise which it received from the companies it contacted was for commencement of deliveries, not full supply, and, with vendor delay common in this field, it would have been nearly impossible to know the length of the extension it should request. It must be remembered that Loral was producing a needed item of military hardware. Moreover, there is authority for Loral's position that nonperformance by a subcontractor is not an excuse for default in the main contract. (See, e.g., McBride & Wachtel, Government Contracts, § 35.10, .) In light of all this, Loral's claim should not be held insufficiently supported because it did not request an extension from the Government.
Loral, as indicated above, also had the burden of demonstrating that it could not obtain the parts elsewhere within a reasonable time, and there can be no doubt that it met this burden. The 10 manufacturers whom Loral contacted comprised its entire list of "approved vendors" for precision gears, and none was  able to commence delivery soon enough. As Loral was producing a highly sophisticated item of military machinery requiring parts made to the strictest engineering standards, it would be unreasonable to hold that Loral should have gone to other vendors, with whom it was either unfamiliar or dissatisfied, to procure the needed parts. As Justice STEUER noted in his dissent, Loral "contacted all the manufacturers whom it believed capable of making these parts" (35 A D 2d, at p. 393), and this was all the law requires.
It is hardly necessary to add that Loral's normal legal remedy of accepting Austin's breach of the contract and then suing for damages would have been inadequate under the circumstances, as Loral would still have had to obtain the gears elsewhere with all the concomitant consequences mentioned above. In other words, Loral actually had no choice, when the prices were raised by Austin, except to take the gears at the "coerced" prices and then sue to get the excess back.
Austin's final argument is that Loral, even if it did enter into the contract under duress, lost any rights it had to a refund of money by waiting until July, 1967, long after the termination date of the contract, to disaffirm it. It is true that one who would recover moneys allegedly paid under duress must act promptly to make his claim known. (See Oregon Pacific R. R. Co. v. Forrest, 128 N.Y. 83, 93; Port Chester Elec. Constr. Corp. v. Hastings Terraces, 284 App. Div. 966, 967.) In this case, Loral delayed making its demand for a refund until three days after Austin's last delivery on the second subcontract. Loral's reason — for waiting until that time — is that it feared another stoppage of deliveries which would again put it in an untenable situation. Considering Austin's conduct in the past, this was perfectly reasonable, as the possibility of an application by Austin of further business compulsion still existed until all of the parts were delivered.
In sum, the record before us demonstrates that Loral agreed to the price increases in consequence of the economic duress  employed by Austin. Accordingly, the matter should be remanded to the trial court for a computation of its damages.
In summarizing the Special Term's decision and its own, the Appellate Division decided that "the conclusion that Loral acted deliberately and voluntarily, without being under immediate pressure of incurring severe business reverses, precludes a recovery on the theory of economic duress" (35 A D 2d 387, 391).
When the testimony of the witnesses who actually took part in the negotiations for the two disputing parties is examined, sharp conflicts of fact emerge. Under Austin's version the request for a renegotiation of the existing contract was based on Austin's contention that Loral had failed to carry out an understanding as to the items to be furnished under that contract and this was the source of dissatisfaction which led both to a revision of the existing agreement and to entering into a new one.
Moreover, critical to the issue of economic duress was the availability of alternative suppliers to the purchaser Loral. The demonstration is replete in the direct testimony of Austin's witnesses and on cross-examination of Loral's principal and purchasing agent that the availability of practical alternatives was a highly controverted issue of fact. On that issue of fact the  explicit findings made by the Special Referee were affirmed by the Appellate Division. Nor is the issue of fact made the less so by assertion that the facts are undisputed and that only the application of equally undisputed rules of law is involved.
 See, e.g., du Pont de Nemours & Co. v. Hass Co., 303 N.Y. 785, supra; Gallagher Switchboard Corp. v. Heckler Elec. Co., 36 Misc 2d 225, 226, supra; 30 East End v. World Steel Prods. Corp., 110 N. Y. S. 2d 754, 757.
 See, e.g., Kohn v. Kenton Assoc., 27 A D 2d 709; Colonie Constr. Corp. v. De Lollo, 25 A D 2d 464, 465; Halperin v. Wolosoff, 282 App. Div. 876; J. R. Constr. Corp. v. Berkely Apts., 259 App. Div. 830; Boss v. Hutchinson, 182 App. Div. 88, 92.
 The suggestion advanced that we are precluded from reaching this determination because the trial court's findings of fact have been affirmed by the Appellate Division ignores the question to be decided. That question, undoubtedly one of law (see Cohen and Karger, Powers of the New York Court of Appeals , § 115, p. 492), is, accepting the facts found, did the courts below properly apply the law to them.


Increasingly, courts are recognizing that arbitration clauses can encompass TCPA claims if the provisions are appropriately written, potentially saving companies significant time and resources just by ensuring consumer contracts include binding arbitration clauses.
Limiting exposure to an increasing number of TCPA claims, and in particular, class actions, may be possible with broad mandatory arbitration provisions in commercial contracts with customers. Three recent cases in California signal a new trend that arbitration is a viable way to resolve TCPA claims and potentially exclude class action litigation.
In O’Brien v. Gen. Elec. Capital Corp., Case No. 3:12-cv-01909 (S.D. Cal. 2013), plaintiff opened a credit card with defendant and subsequently defaulted on her payments. Plaintiff alleged that defendant made more 50 collection calls with an automatic telephone dialing system (“ATDS”) to her cell phone without prior express consent in violation of the TCPA, 47 U.S.C. § 227(b). Plaintiff sought to certify a class of persons who received calls to their cell phones from defendant without prior express consent.
While the court did not dismiss class allegations, it granted defendant’s motion to stay and compel contractual arbitration because plaintiff failed to opt-out of the arbitration clause when she opened the credit card account. The clause stated that all claims relating in any way to plaintiff’s account would be resolved by binding arbitration and plaintiff could not litigate or participate in a class action.
Although defendant avoided costly litigation with plaintiff, there is always the possibility that others that opened credit card accounts will come forward and litigate their TCPA claims and represent a class. However, it is likely those persons would be subject to the same arbitration clauses in their respective credit card agreements, unless they initially opted-out.
In an almost identical case, a court upheld the enforcement of a mandatory arbitration clause between a plaintiff who borrowed money for a student loan, but failed to make the required payments. Smith v. Citibank, Case No. 8:13-cv-00748 (C.D. Cal. 2013). Plaintiff filed a class action and alleged that defendant violated the TCPA by placing ATDS and prerecorded calls to his cell phone without prior express consent and continued to do so after he told them to stop calling. 47 U.S.C. § 227(b).
The court relied on strong public policy favoring arbitration and found the agreement’s language which included “any and all aspects of [plaintiff’s] Account, including without limitation the origination, establishment, terms, treatment, operation, handling, billing, servicing, limitations on or termination or acceleration of [plaintiff’s] Account” was broad enough to encompass the TCPA claims made by plaintiff. Once again, a broad arbitration clause saved defendant from litigation.
Finally, in Brown v. DirecTV, LLC, et al., Case No. 2:12-cv-08382 (C.D. Cal. 2013), defendant hired a third party to make collection calls to plaintiff after he failed to make his satellite television payments. Plaintiff alleged the calls violated the TCPA, 47 U.S.C. § 227(b), and sought to certify a class of persons who received prerecorded or ATDS calls to their cell phones from defendant without prior express consent. While plaintiff argued the TCPA claims did not “arise under or relate to” the terms and conditions of service that plaintiff accepted when he originally signed up for the service, the court held the collection calls for missed payments related to the contract, and the TCPA claims had to be resolved by binding arbitration.
Broad, mandatory arbitration provisions in consumer contracts are important to limit exposure to the increasing number of TCPA claims, and in particular, class actions. Courts are now recognizing that arbitration clauses can encompass TCPA claims if the provisions are appropriately written. This can potentially save companies significant time and resources just by ensuring consumer contracts include binding arbitration clauses.