Sixth Circuit Reduces “Fairyland” Damages for Underpaid Davis-Bacon Wages from $763K to $15K

Yesterday, in an entertaining decision, the Sixth Circuit reversed an award to the government for $763,000 in a False Claims Act claim based on underpaid Davis-Bacon wages involving two electricians.  Wall v. Circle C Construction LLC, No. 14, 6150 (6^th Cir. 2-4-16).  In that case, the general contractor built 42 warehouses for the Army at Fort Campbell in Kentucky and those warehouses are still being used today.  The electrical subcontractor underpaid two electricians (by paying them $16/hour instead of $19/hour, for a total of $9,916) on that project.  That underpayment rendered false the contractor’s weekly compliance statements that all employees had been paid the mandatory prevailing wages.  The government had claimed that these false statements "tainted” the entire project and rendered them worthless.  Under the False Claims Act, the government is entitled to treble the amount of actual damages, which the government claimed was the amount paid for the electrical work on all 42 warehouses, or $777,895.  After the defendant received credit for the $15K paid by the subcontractor to settle the underlying wage claim, that amounted to $762,895.  However, the Sixth Court concluded that the “actual damage” was the amount of the unpaid wages (i.e, $9,916).  Even under an abuse of discretion standard, the Court referred to the damage award as “fairyland.”

Actual damages are the difference in value between what the government bargained for and what the government received. U.S. ex rel. Roby v. Boeing Co., 302 F.3d 637, 646 (6th Cir. 2002). Here, the government bargained for two things: the buildings, and payment of Davis- Bacon wages. It got the buildings but not quite all of the wages. The shortfall was $9,916. That amount is the government’s actual damages.

Distinguishing this case from those where the contractor’s work was defective or unsafe or morally suspect (i.e., child labor making uniforms), which would render the government’s product worthless, the breach in this case could be easily remedied by writing a check for damages.

In those cases no award of money damages could remedy the contractor’s breach. But here they can: the contract required Circle C to pay electricians $19 per hour, Phase Tec paid them only $16—and simply writing a check can make up the difference. Money damages provide a remedy for this sort of breach every day.

The government also argues that it should pay nothing for Phase Tec’s work because the government would have suspended its payments had it known that Phase Tec was underpaying its workers (or at least two of them, which is all the record shows here). In determining actual damages, however, the relevant question is not whether in some hypothetical scenario the government would have withheld payment, but rather, more prosaically, whether the government in fact got less value than it bargained for. And here the government has received almost of all of the value (all but $9,916, to be exact) that it bargained for with respect to the electrical work at its Kentucky warehouses.

The argument also fails on its own terms. The regulations for the Davis-Bacon Act themselves provide that, if a contractor pays its workers less than required by the Act, the government “must withhold from payments due the contractor an amount equal to the estimated wage underpayment and estimated liquidated damages due the United States[.]” 48 C.F.R. § 22.406-9(a) (emphasis added). Here that amount equals about $9,900, not $259,000. See also 48 C.F.R. § 22.406-9(b) (directing government to “suspend” contract payments “until the agency has withheld sufficient funds to compensate employees for back wages”). Even the relevant regulations thus refute the government’s argument.

Actual damages by definition are damages grounded in reality. And in the real world the government could not forever withhold all payments to a contractor for work on several dozen warehouses, and yet have the work continue to completion and the government continue to use the warehouses to this day. The damages the government seeks to recover here are fairyland rather than actual.

In concurring only with the result, one of the judges noted that the damage award was an abuse of discretion not because the government was still using the warehouses but because the damages could be easily ascertained under the Act.  

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.