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.

Sixth Circuit Affirms Dismissal of FMLA Claims Without Actual Damages

Last month, the Sixth Circuit affirmed dismissal of FMLA interference and retaliation claims brought by a terminated warehouse worker, but remanded for the court to consider her state law claims.  Thiess v. Walgreen Company, No. 14-3892 (6^th Cir. 12-7-15).  The plaintiff could not show that she suffered any compensable harm from the alleged FMLA interference.  Her allegation “that she would have taken more absences if her request had been granted in no way proves that [the employer] interfered with her request in any way.”  She also could not show unlawful retaliation when the employer had an honest belief following its internal investigation that she was properly terminated in accordance with company policy for fabricating assault allegations against a co-worker and assaulting him.  Finally, the Court remanded the case for resolution of her remaining claims.

According to the Court’s opinion, the plaintiff failed to provide medical certification to support her request for intermittent FMLA leave despite many opportunities and reminders.  In the meantime, the employer provisionally issued disciplinary actions for her unexcused absences that she alleged should have been covered by her FMLA request.   A few months later, she alleged that a co-worker assaulted her and filed a criminal complaint against him.  Following separate investigations by the police and the employer, which included video evidence, both the police and the employer determined that the plaintiff had falsely accused her co-worker and had actually assaulted him.  Accordingly, she was terminated. 

The plaintiff brought suit in state court alleging sexual harassment, discrimination and retaliation, and violation of the FMLA.   The employer removed to federal court on the basis of diversity jurisdiction.  After dismissing the FMLA claims on summary judgment, the trial court remanded the remaining claims back to state court. 

The Court of Appeals found that the plaintiff could not show FMLA interference because she suffered no financial harm from the employer’s failure to approve her FMLA leave.  Although she alleged that she would have taken more time off work than she actually did if it had been approved and if she had not been provisionally disciplined, she suffered no compensable damages from this alleged harm. “[T]he FMLA does not provide a remedy “unless the employee has been prejudiced by the violation.”  

The FMLA provides that an employee whose rights are interfered with is entitled to

damages equal to the amount of any wages, salary, employment benefits, or other compensation denied or lost to such employee by reason of the violation; or in a case in which wages, salary, employment benefits, or other compensation have not been denied or lost to the employee, any actual monetary losses sustained by the employee as a direct result of the violation.

29 U.S.C. § 2617(a)(1)(A)(i). If an employee does not suffer any damages, then the FMLA does not provide a remedy.

The Court also rejected the FMLA retaliation claim because the plaintiff could not show that the employer lacked on honest belief that she had violated company policy by fabricating assault allegations against a co-worker and assaulting him.  Therefore, there was insufficient evidence that it terminated her on account of her FMLA requests instead of its proffered reasons:

In deciding whether an employer reasonably relied on the particularized facts then before it, we do not require that the decisional process used by the employer be optimal or that it left no stone unturned.” . . . In reviewing Walgreens’s decision to fire Theiss, we are looking for “error on the part of the employer that is too obvious to be unintentional.”  . . . In light of this standard, we find nothing in the record showing any gross deficiency or oversight in Walgreens’s investigation. There is no evidence showing that Walgreens’s reasons for firing Theiss were dishonest, pretextual, not sincerely held, or discriminatory. On the contrary, Walgreens had a specific policy that provided for immediate termination in cases of “harassment or horseplay” and “falsifying . . . documents.” Since Walgreens determined—after due investigation—that this is precisely what Theiss had done, her termination was directly in line with a clearly established company policy.

Finally, the Court found that the case had been improperly remanded back to the state court after the dismissal of the FMLA claims.  The case had been removed to federal court on the basis of diversity jurisdiction, not just federal question jurisdiction.  Accordingly, the court had jurisdiction over the state law claims on the basis of diversity of citizen between the parties.

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.

Ohio Court of Appeals Dismisses Supervisor’s Defamation Claims Against Union Officer.

The Trumball County Court of Appeals affirmed the dismissal of a libel suit brought by a beleaguered night-shift supervisor against a local union officer arising out of statements made about the manager in the union newsletter more than ten years ago. Jacobs v. Budak, No. 2007-T-0033 (6/9/08). In the article, the supervisor was referred to as the “midnight cowgirl” and was accused of not following the collective bargaining agreement in assigning overtime opportunities. The Court ultimately affirmed dismissal of the lawsuit because the supervisor could not show with clear and convincing evidence that she suffered actual harm from the article or that the union officer acted with actual malice (i.e., actual knowledge of the falsity, or reckless disregard for the truth, of the statements).

Following the publication of the union newsletter, the supervisor “was subjected to callow harassment by her employees and fellow co-workers. [She] testified that the harassment lasted for a period of two to three months following the publication of the article and that she was subjected to numerous cat-calls and “mooing” sounds as she walked or drove her scooter through the plant. She received prank phone calls where unidentified persons would yell such quips as “yippy-ti-yi-o,” “moo-ooo”, and “got your spurs on.” In addition, cow horns and a cowboy hat were placed on her work scooter subjecting her to further ridicule as she drove through the plant.”

Because the dispute arose out of a “labor dispute” (i.e., a dispute between management and a union over the bargaining agreement and other terms and conditions of employment), the supervisor was required to prove her claim by clear and convincing evidence (which is a higher standard of proof than the regular preponderance of the evidence or more likely than not standard used in most civil cases). She was also required to prove that the allegedly false and defamatory statements were made with actual malice without privilege to a third party and that she suffered actual damage from the statements. “A statement is published with actual malice when it is made with the ‘the knowledge that it was false or with reckless disregard of whether it was false or not.” The Ohio Supreme Court has previously noted that “[a]ctual malice ‘cannot be implied from the character and content of a publication. *** It is not sufficient for a libel plaintiff to show that an interpretation of facts is false; rather, he must prove with convincing clarity that defendant was aware of the high probability of falsity.’”

Therefore, “[m]ere negligence is not enough to establish actual malice . . . Thus, ‘reckless conduct is not measured by whether a reasonably prudent man *** would have investigated before publishing. There must be sufficient evidence to permit the conclusion that the defendant in fact entertained serious doubts as to the truth of his publication.’” In fact, courts have been clear that the failure to investigate has been found to constitute malice only “where the defendant has serious doubts that the statement is true.”

In this case, the union officer was able to show that he conducted an investigation and there was some factual basis for his allegations against the supervisor. Although the supervisor alleged that the union officer conducted his investigation negligently, even if that were true, the court found “no evidence that [the union officer] had any serious doubts as to the veracity of the statements.”

“It is clear that access to equalization records was an ongoing debate as the issue was discussed in union-management meetings before, during, and after the article was released. Indeed, [the defendant union officer] was not even familiar with Ms. Jacobs until he was ordered to investigate [an employee’s] complaints in early May of 1997 by his supervisor. Although the statements were certainly negligently made, we cannot say that they were made with such reckless disregard or knowledge as to their falsity.”

The Court also concluded that the supervisor was required to prove actual damages from the allegedly defamatory statement because it arose out of a union dispute and that she failed to do so. “As evidenced by the numerous medical records that were entered into the record, [the supervisor] has a long history of physical and mental distress that may or may not have been exacerbated by this incident. According to her employment evaluations and her own testimony, her employment was unaffected. Indeed, following the release of the article she was given a six percent raise and has been consistently rated in her job performance as “satisfactory” or above. The testimony and medical records [the supervisor] did submit failed to evidence that the article was the proximate cause for the stress she was facing at that time. Indeed, [her] own physician, Dr. Meyers, could not differentiate between the stress that was caused by the article and the stress that resulted from the ensuing legal battle.”

Insomniacs can read the full decision at http://www.sconet.state.oh.us/rod/docs/pdf/11/2008/2008-ohio-2756.pdf.

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 change or be 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