By Dave Strausfeld, J.D. A union’s qui tam action against a roofing contractor failed because there was no evidence the contractor’s Davis-Bacon violation was "knowing," held the Seventh Circuit. In fact, it was not even clear from the summary judgment record whether the contractor had actually misrepresented compliance with Davis-Bacon when it submitted invoices for roofing work on a Veterans Affairs medical center. While reliance on its accountants’ advice was not a proper defense here, such a defense was not necessary because there was insufficient evidence of a knowing violation in any case. Judge Posner wrote a separate dissenting opinion (U.S. ex rel. Sheet Metal Workers International Association, Local Union 20 v. Horning Investments, LLC, July 7, 2016, Wood, D.). Contractor certified Davis-Bacon compliance. The Davis-Bacon Act requires contractors who perform construction projects for the federal government to pay their workers the "prevailing wage" (including fringe benefits) in the location in which the work will be performed. Believing that a roofing contractor had paid its roofers less than the Davis-Bacon Act requires, a union filed a qui tam action under the False Claims Act, rather than pursing remedies under the Davis-Bacon Act itself. It alleged the roofing contractor falsely certified to the government that it was in compliance with Davis-Bacon when, in fact, it did not pay some roofers the full amount of prevailing wages. Certification allegedly false. The union’s argument was somewhat technical and had to do with paycheck deductions. The roofing contractor had decided to deduct a flat hourly fee, to be paid into an employee insurance benefits trust fund, from the paycheck of each employee working on the medical center project. Based on a "rounded figure" received from its accountants, the contractor deducted $5.00 per hour from those paychecks and deposited those funds into the insurance benefits trust. That amount was deducted regardless of whether the employee was eligible for any benefits at all (for instance, without differentiating between those roofers employed for more than 90 days and new hires). It was this arrangement, according to the union, that violated Davis-Bacon. Granting the contractor’s motion for summary judgment, the district court found that the roofing contractor had relied on the advice of its accountants and thus did not have the requisite knowledge that its certifications of Davis-Bacon compliance were false. The union appealed. Advice-of-accountant defense. The False Claims Act requires proof that the defendant knowingly submitted a false claim to the government for payment. The district court decided, and the roofing contractor argued on appeal, that reliance on its accountants was alone enough to negate its knowledge. "We do not agree with that flat statement," the Seventh Circuit responded. In some situations, the appeals court explained, reliance on the advice of a professional, such as an attorney or an accountant, "can negate the mental state required for some crimes." But a defendant may not rely on this type of advice unless she establishes that (1) before taking action (2) she in good faith sought the advice of the professional whom she considered competent, (3) about the lawfulness of her future conduct, (4) she made a "full and accurate report" of all relevant facts to the professional, and (5) she acted in "strict accordance" with the advice. Here, the roofing contractor did not develop the facts necessary to satisfy this test, because "We do not know precisely what it told its accountants, whether they provided all necessary details, or what exactly the accountants recommended," the appeals court observed. "We therefore cannot say whether any reliance that followed was reasonable and thus sufficient to negate any inference" that the roofing contractor knew its statements were false. No evidence of "knowing" conduct. But even without its "advice-of-accountant" defense, the roofing contractor prevailed on summary judgment because there was no evidence in the record that it acted with actual knowledge or deliberate ignorance or reckless disregard to the possibility that it was submitting false claims to the government. Under the FCA, innocent mistakes or negligence are not actionable. The fact that some of the employees from whose checks the $5.00 deductions were made were not yet eligible to receive fringe benefits "does not matter," the appeals court concluded. According to the DOL, the Davis-Bacon Act permits an employer to count contributions to an insurance plan for employees who are not yet eligible for coverage when the plan itself requires the employer to make that contribution during the waiting period. This interpretation is found in a DOL Field Operations Handbook, the appeals court noted, which "does not tell us" whether the rule applies to contributions to a trust rather than a plan. Nor was it clear from the summary judgment record here whether the roofing contractor was contractually obligated to make contributions to the insurance benefits trust during the 90-day waiting period for new employees. But all of this was beside the point. "All that is relevant for present purposes is that there is enough ambiguity about this matter that we cannot infer that the [roofing contractor] either knew or must have known that it was violating the Davis-Bacon Act." In sum, the union did not present enough evidence of a knowing false claim to survive summary judgment in its qui tam suit. Dissent. Judge Posner, dissenting, maintained it was "premature to exonerate" the contractor. The contractor was experienced on Davis-Bacon Act projects, he emphasized, so if management did not know they were supposed to match the $5.00 deductions for the insurance benefits trust to each employee’s eligibility to receive benefits, "it must have been because they closed their eyes to those requirements—a good example of ostrich behavior, itself a good example of deliberate indifference within the meaning of the False Claims Act." He also cited Universal Health Services, Inc. v. United States, handed down just last month, where the Supreme Court stated: When "a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements, those omissions can be a basis for liability if they render the defendant’s representations misleading" with respect to the goods or services provided. "That’s this case," Judge Posner wrote.
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