Irwin Co., Inc. v. 3525 Sage Street Associates, Ltd. ( 1994 )

United States Court of Appeals,
Fifth Circuit.
No. 92-2929.
IRWIN COMPANY, INC., Plaintiff-Appellant,
v.
3525 SAGE STREET ASSOCIATES, LTD., Defendant,
v.
Robert B. REICH, U.S. Department of Labor, Secretary of Labor,
Third-Party Defendant-Appellee.
Nov. 4, 1994.
Appeal from the United States District Court for the Southern
District of Texas.
Before POLITZ, Chief Judge, JONES, Circuit Judge, and FULLAM*,
District Judge.
EDITH H. JONES, Circuit Judge:
A subcontractor who underpaid employees appeals the district
court judgment ordering it to tender, to the Department of Labor
for distribution to the underpaid employees, monies that had been
withheld by the general contractor, 826 F. Supp. 1067. We affirm.
BACKGROUND
The facts in this case are undisputed. 3525 Sage Street
Associates, Ltd. (Sage) was the developer, and later prime
contractor, on a federally-assisted construction project, whose
loan was insured by the Department of Housing and Urban Development
(HUD). Irwin Company was hired as a plumbing and air conditioning
subcontractor. As part of its loan contract with the government,
*
District Judge of the Eastern District of Pennsylvania,
sitting by designation.
1
Sage agreed that laborers and mechanics would be paid prevailing
wages as determined by the Secretary of Labor pursuant to the
National Housing Act, 12 U.S.C. § 1715c(a) and the Davis-Bacon Act,
40 U.S.C. § 276a. Contractors and subcontractors hired by Sage
agreed in their contracts to pay prevailing wages under these
terms.
Irwin completed its contract May 23, 1986. On October 8,
1986, Sage paid off the HUD loan on the project. Pursuant to the
terms of Irwin's subcontract, however, Sage withheld approximately
ten percent of the contract price as retainage pending Sage's
approval of Irwin's work and its satisfaction that Irwin "ha[d]
fully performed [its] obligations," which included paying its
laborers the requisite prevailing wages. For present purposes, the
withheld payments equalled $107,522.
At some point—it is not clear when—the Department of Labor
investigated Irwin's employment practices under these subcontracts
and determined that Irwin had underpaid its employees. On May 12,
1988 that Department sent Irwin and Sage notification letters
regarding its findings. Sage, subject to joint and several
liability for Irwin's underpayments, did not request a hearing and
the investigation findings became final as to it. Significantly,
Sage agreed with DOL to release the retainage monies it was holding
on Irwin's subcontract, but Irwin resisted this solution. Irwin
requested an administrative hearing to contest the findings. On
November 1, 1990, the administrative law judge (ALJ) issued his
decision and order finding Irwin liable for underpayments in an
2
amount totalling $136,024.72. Irwin did not appeal this decision,
which is now final and unappealable.
Meanwhile, in December 1986 Irwin had filed an action in Texas
state court against Sage for release of the payments that Sage had
retained. Sage tendered the disputed monies to the court,
apparently in January 1988. Irwin then posted a combination of
bonds and a letter of credit (which later expired) and obtained
control of the tendered monies. In December 1991 Sage brought in
the Secretary of Labor as a third-party defendant. In January 1992
the Secretary removed the case to federal court.
In district court, Irwin and the Secretary presented cross
motions for summary judgment. The district judge held that Sage
had retained the disputed money for the benefit of Irwin employees,
that Irwin did not have a property interest in the money, and that
the instant case was therefore essentially a collection suit based
on liability found by the ALJ.
DISCUSSION
Irwin presents two grounds for reversal of the district
court's summary judgment. Irwin asserts that the Secretary is
barred from claiming this money by the statute of limitations, and
more broadly, that the Secretary has no statutory or regulatory
authority to pursue this action.
Statute of Limitations
Actions for unpaid minimum wages brought under the Davis-
Bacon Act are governed by section 6(a) of the Portal-to-Portal Act,
which requires that a claim be commenced within two years after the
3
cause of action accrued, except in a cause of action arising out of
a willful violation, which must be commenced within three years
after the cause of action accrued. 29 U.S.C. § 255(a). Because
Irwin completed its contract by May 23, 1986, Irwin contends that
any claim the Secretary had prescribed after May 23, 1989 at the
latest.
The Secretary asserts that this action technically is brought
not under the Davis-Bacon Act, but under the National Housing Act
pursuant to regulations issued by the Secretary. See 29 C.F.R. §
5.5 (1993). The Department issued these regulations pursuant to
Reorganization Plan No. 14, prepared by President Truman in 1950
pursuant to a declaration by Congress. Under the Reorganization
Plan, the President directed the Secretary to promulgate and
coordinate administrative matters for the Davis-Bacon Act and its
related statutes. This case arises under one of those Related
Acts, the National Housing Act of 1934. 12 U.S.C. § 1715c(a)
(requiring as a prerequisite to obtaining federal loan or mortgage
insurance that contractors certify that laborers and mechanics
"have been paid not less than the wages prevailing in the locality
... as determined by the Secretary of Labor, in accordance within
the Davis-Bacon Act.")
The only case cited to us discussing this issue is Glenn
Electric Co. v. Donovan, 755 F.2d 1028 (3d Cir.1985), which held
that the Portal-to-Portal Act applied to actions brought under the
Davis-Bacon Act, but not to actions brought under the Related Acts,
i.e., those that refer to prevailing wages as determined under the
4
Davis-Bacon Act. Glenn Electric rejected the argument that
reference in the Related Acts to the Davis-Bacon Act incorporated
the Davis-Bacon Act in toto and held that as a matter of statutory
construction, the limitations provisions in the Portal-to-Portal
Act did not extend to the Related Acts. Instead, the Third Circuit
held that actions brought under the Related Acts are subject to the
general limitations period for actions founded on contracts brought
by the government, 28 U.S.C. § 2415, which is ordinarily six years.
There is an exception to the six-year limitation where the
government raises a claim against an opposing party which has
itself brought a claim arising out of the same transaction or
occurrence. 28 U.S.C. § 2415(f). The Secretary contends that we
should follow the Third Circuit and apply § 2415.
Irwin presents sensible arguments for universal application of
the Portal-to-Portal Act limitation period in all cases contesting
Davis-Bacon prevailing wages. The regulations explicitly govern
both the Davis-Bacon Act and Related Acts. 29 C.F.R. § 5.1.
Moreover, the Supreme Court has recognized that the goal of
President Truman's reorganization plan "was to introduce
consistency into the administration and enforcement of the Act and
related statutes...." Universities Research Ass'n Inc. v. Coutu,
450 U.S. 754, 783, 101 S. Ct. 1451, 1468, 67 L. Ed. 2d 662 (1981). On
the other hand, the Third Circuit in Glenn Electric presents cogent
arguments for adopting the longer limitations period. As there is
much to be said for a uniform approach among the circuits, we
adhere to the Glenn Electric approach.
5
Irwin raises as a related question whether the Secretary has
even submitted a claim in this case. She has not filed a complaint
nor a formal cross-claim. In her answer, however, the
then-Secretary Lynn Martin stated "the only claim the Department of
Labor has to prosecute against Irwin Company, Inc. and 3525 Sage
Street is their joint and several liability for those back wages."
The answer went on in its final paragraph to state
WHEREFORE, having fully answered, [the Secretary] prays for
judgment in her favor in releasing the $107,552.01 paid into
the registry of the state court by [Sage] to her for back
wages owed due to Irwin['s] violations of the Davis-Bacon Act,
40 U.S.C. § 276a et seq. as determined by the Administrative
Law Judge ... and that she be awarded attorney's fees and
costs, [and] all other and further relief as may be necessary
and appropriate.
This is hardly a model of good legal draftsmanship, but it
suffices, under the liberal approach of the Federal Rules of Civil
Procedure, to assert the Secretary's request for affirmative
judicial relief.1
Existence of A Cause of Action
Irwin argues that under U.S. v. Capeletti Brothers, Inc., 621
F.2d 1309 (5th Cir.1980), the Davis-Bacon Act does not grant the
Secretary a right to pursue an action on behalf of underpaid
employees. In Capeletti, a class action was filed on behalf of
1
The Secretary also contends that the "claim" was
effectively filed with the issuance of a "charging letter" sent
prior to the administrative hearing. The terms of the statute of
limitations urged by the Secretary, however, bar an action
"unless the complaint is filed ... within one year after final
decisions have been rendered in applicable administrative
proceedings." 28 U.S.C. § 2415(a). These terms effectively
rebut the Secretary's argument that the charging letter served as
a complaint for limitations purposes.
6
ironworkers allegedly underpaid under a contract financed in part
by the federal government. The contract was subject to the Davis-
Bacon Act by virtue of the Federal Water Pollution Control Act, 33
U.S.C. § 1372. Thus, Capeletti was brought pursuant to a Related
Act just as is the instant case. The court analyzed the case as a
Davis-Bacon Act claim, found that Congress had expressly provided
a set of particular remedies under the Davis-Bacon Act, and held
that no private cause of action existed under that Act to sue
employers.
The district court agreed with the Secretary that under these
facts Capeletti is inapposite, and that this lawsuit is essentially
a collection suit based on violations previously found. In the
context of this case, we agree. We do not speculate further than
the facts before us.
Contrary to Irwin's assertions, the Secretary has engaged in
no bold, overreaching action by making a claim to Sage Street's
retainage held for Irwin. The Secretary pursued appropriate
administrative procedures against both Sage Street and Irwin, and
her adverse determinations were never appealed. As a result, Sage
Street became jointly and severally liable to the Secretary for
Irwin's underpayments of the prevailing wage. Rather than face
this liability alone, Sage Street employed its contractually
authorized right to withhold retainage from Irwin to cover a large
portion of the assessment. It is true that the Secretary, having
paid out all of the contract monies to Sage Street, could no longer
withhold payments from Sage Street on the challenged project
7
pursuant to 29 C.F.R. § 5.5(a)(2). The Secretary did, however,
have the power to offset Sage Street's liability against any other
government contracts in which Sage Street participated or to seek
debarment of Sage Street from further federal contract work until
the wages were properly paid. 29 C.F.R. § 5.5(a)(2); § 5.12.
Sage Street had every incentive to cooperate with the Secretary's
enforcement of her order. By withholding Irwin's retainage from
this project for Irwin's default under its contractual obligation
to comply with the Davis-Bacon wage rates, Sage Street availed
itself of a permissible state law contractual remedy. Sage Street
then impleaded the Secretary as the ultimate recipient of the funds
(for the benefit of the workers). The end result is no different
than would have occurred if the Secretary had more timely
investigated Irwin's practices and had herself effected a
withholding of Irwin's contract payments. That Sage Street rather
than the Secretary directly withheld the funds owed on the project
in question is immaterial.
Further, it is absurd to suggest that the Secretary, after
being hailed into court by Sage, was without authority to assert
her claim to the fund. Irwin contends that such action is not
available to the Secretary. By the same logic, however, if Irwin
had appealed the Secretary's adverse determination, she could not
have counterclaimed for enforcement of her order because there is
no regulation that specifically authorizes it. See Glenn Electric,
8
supra.2 On the contrary, we believe it is a necessary incident of
the Secretary's authority that she, like any other litigant, may
defend her position when she becomes a defendant in court on a
claim such as this.
As this discussion implies, Irwin's reliance on Capeletti is
misplaced. The Secretary is not a private litigant seeking an
implied remedy under the Davis-Bacon Act or related acts. Thus,
neither Capeletti nor the Supreme Court's decision in University
Research Association, Inc. v. Coutu, supra, directly applies. The
policies underlying the decision whether to imply a private right
of action to enforce a federal statute are entirely different than
those pertaining to the scope of a federal agency's enforcement of
its statutorily created duties. In Capeletti, the ironworkers
sought either to duplicate or circumvent the Secretary of Labor's
administrative proceeding, whereas in this case, the Secretary
seeks to enforce the outcome of an appealed administrative
determination. Further, as was previously noted, in defending her
position as a claimant to Irwin's retainage funds, the Secretary
did not overstep her regulations, because of her continuing
2
The Secretary also argues that Sage held the monies in a
constructive trust for the underpaid employees, and that Irwin
has no property interest in these monies. To support this
argument, the Secretary cites Pearlman v. Reliance Ins. Co., 371
U.S. 132, 83 S. Ct. 232, 9 L. Ed. 2d 190 (1962). Pearlman, however,
is distinguishable in three important respects. First, it
focused on a surety's right of subrogation for underpayments it
had paid to employees. Second, the underpaying bankrupt employer
in Pearlman never obtained control over the disputed monies,
which had been properly withheld by the government and tendered
to the bankruptcy trustee. Finally, there was never a question
whether the surety had a cause of action against the trustee.
9
authority over Sage. Sage was persuaded to withhold funds from
Irwin to reduce their joint liability to DOL on the project.
It is unfortunate that the Secretary did not expeditiously
determine Irwin's underpayment in the first place, so that DOL
initially could have withheld contract funds according to the
letter of the regulations. It is even more distasteful, however,
that Irwin contrived to put its hands on the impleaded retainage
funds by posting a bond that it later permitted to expire before
this lawsuit could be completed. Irwin's dissipation of the
retainage should not be allowed to prevent the Secretary from
obtaining a judgment for the underpayments. In short, while
Capeletti would have added an entirely new dimension to enforcement
of prevailing wage rates, the instant action, and the judgment to
which the Secretary has become entitled, are but an outgrowth of
the unusual procedural posture of this particular lawsuit.
For these reasons, the judgment of the district court is
AFFIRMED.
10