6th Circuit tosses $763K award to U.S. where electricians underpaid $10K in Davis-Bacon wages
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Monday, February 8, 2016

6th Circuit tosses $763K award to U.S. where electricians underpaid $10K in Davis-Bacon wages

By Brandi O. Brown, J.D. Tossing a damages award of $763,000 in favor of the U.S. government in a Davis-Bacon Act claim against a subcontractor who underpaid electricians on some Fort Campbell building projects by less than $10,000, the Sixth Circuit ruled that the large award was an abuse of discretion. Even with triple damages, the actual damages were less than $30,000. The court reversed the district court's judgment and remanded the case with instructions to enter judgment in favor of the government in an amount of just less than $15,000 (the difference between the trebled damages and a settlement payment it had already received). Judge Rogers concurred in the result (U.S. ex rel Wall v. Circle C Construction, LLC, February 4, 2016, Kethledge, R.). Underpaid electricians. A contractor that built over 40 warehouses on Fort Campbell used a subcontractor for the electrical work and that subcontractor underpaid two electricians by about three dollars per hour, based on the Davis-Bacon wages specified in the contract between the contractor and the Army. The underpayment was just less than $10,000 in total. Thus, the contractor became liable to the government under the False Claims Act. Under that Act, the government could recover three times its "actual damages." Using the "taint" theory, by which the government had argued that all of the electrical work in the warehouses was tainted by the underpayment and was, therefore, worthless, the district court concluded that the government's actual damages reached almost $260,000. That amount was the entire amount the government had paid for the electrical work on the warehouses. Trebled it equaled over $777,000. The district court subtracted an amount already paid to the government in settlement for the underpayment, leaving a net award of over $760,000. But they left the lights on. Awarding that amount, the appeals court concluded, was an abuse of discretion. "Actual damages," it explained, "are the difference in value between what the government bargained for and what the government received." In this case, the government had bargained for the buildings and the payment of Davis-Bacon wages. It got the former but not the entirety of the latter. The "shortfall" it experienced was just under $10,000 and that, the court concluded, was the government's actual damages. The "more creative" accounting used by the government was based on the argument that the work was "valueless" because it was tainted. Nevertheless, the court explained, that claim was "belied by the government's own conduct in using the buildings." And the taint, it explained, "washes out easily enough with money damages, particularly the treble-strength kind available" in this case. This case, the court added, was unlike cases involving defective parts wherein the "goods were worthless because they were dangerous to use." Nor was there an "unalterable moral taint" such as might be the case with child labor-produced uniforms. "In those cases no award of money damages could remedy the contractor's breach," the court opined. In this case, however, they could and "simply writing a check" could remedy the breach. Moreover, the regulations of the Davis-Bacon Act indicate that this is the desired approach. Under the regulations, when a contractor pays workers less than required, "the government 'must withhold from payments due the contractor an amount equal to the estimated age underpayment and estimated liquidated damages due the United States[.]'" In this case, that amount was approximately $9,900 and not $259,000. Thus concluding that the award was an abuse of discretion and that the actual damages were $9,916, which would be tripled to $29,748, the court found that the contractor was liable for $14,478, which represented the amount not covered by an earlier settlement payment. The district court's judgment was reversed. Judge Rogers' concurrence. In a separate concurrence, Judge Rogers concurred in the result, but demurred from the characterization offered by the majority that the key to the case was the fact that "the government turns on the lights every day" and continued to use the warehouses. Judge Rogers explained that there were "undoubtedly situations" where it would be impractical for the government to return goods or services that it had purchased even though provision of those goods or services "violated public interests in ways in which it is difficult or impossible to place a market value." In those cases, Judge Rogers explained, the government might still be able to claim that the "proper measure of damages" was the amounts it had wrongly paid, even though it was still taking advantage of the services or using the goods. In this case, it just so happened that the "market value of the public harm" could be "precisely ascertained" and paid.

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