TRI-COUNTY CONTRACTORS, INC. et al v. THOMAS PEREZ
MEMORANDUM OPINION AND ORDER: Finding that this matter is not moot, but that the Secretary did not act arbitrarily or capriciously, the Court hereby GRANTS the Secretary's motion for summary judgment 9 and DENIES Tri-County's cross-motion for summary judgment 12 . See Memorandum Opinion and Order for details. Signed by Judge Randolph D. Moss on 2/23/2016. (lcrdm2, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
TRI-COUNTY CONTRACTORS, INC.;
JOHN KENNETH HUNTER,
Civil Action No. 13-1406 (RDM)
THOMAS E. PEREZ, Secretary of Labor,
MEMORANDUM OPINION AND ORDER
This is an action brought under the Administrative Procedure Act (“APA”), 5 U.S.C.
§ 702 et seq., by a minority-owned small business to challenge its debarment from participation
in federal contracting programs. From 2006 to 2007, plaintiff Tri-County Contractors, Inc., was
a contractor for the Federal Emergency Management Agency (“FEMA”) on the Gulf Coast,
where it repaired and inspected trailers used for temporary housing. During this period, the
Department of Labor conducted two investigations into whether Tri-County was complying with
the McNamara-O’Hara Service Contract Act (“SCA”) and the Contract Work Hours and Safety
Standards Act (“CWHSSA”), which collectively set wage standards for federal contractors in
their role as employers. The Department found statutory violations during both investigations,
and after the second investigation, it filed a formal complaint. In February 2009, an
Administrative Law Judge (“ALJ”) formally recommended that Tri-County be debarred for a
three-year period, and the Department’s Administrative Review Board affirmed the ALJ’s order
in July 2012. Tri-County was debarred from July 2012 to July 2015.
Tri-County brought this action under the APA seeking to set aside the debarment order.
The matter is before the Court on the parties’ cross-motions for summary judgment. See Dkts. 9,
12. Because the debarment period ended while this matter was pending, the Court ordered the
parties to submit supplemental briefs on whether the matter is moot. Finding that this matter is
not moot, because the expired debarment order is likely to impede Tri-County’s ability to obtain
federal contracts in the future, but that the ALJ did not act arbitrarily and capriciously in ordering
Tri-County debarred for willfully failing to record its employees’ hours accurately, the Court will
grant the Secretary’s motion for summary judgment and deny Tri-County’s cross-motion for
Congress enacted the SCA in 1965 in order to “provide wage and safety protection for
employees working under Government service contracts.” S. Rep. No. 92-1131, at 1 (1972),
reprinted in 1972 U.S.C.C.A.N. 3534, 3534. The Act requires every service contract with the
United States for an amount greater than $2,500 to include certain protections for the
contractor’s employees. See 41 U.S.C. § 6703; 29 C.F.R. § 4.6. Among other things, each such
contract must specify “the minimum wage to be paid to each class of service employee.” 41
U.S.C. § 6703(1). The contract must also provide for the payment of fringe benefits. Id. §
6703(2). And in order to facilitate the proper payment of wages and fringe benefits, the
contractor is required to “make and maintain for 3 years . . . records containing,” among other
information, “[t]he correct work classification or classifications, rate or rates of monetary wages
paid and fringe benefits provided, . . . daily and weekly compensation of each employee, [and]
[t]he number of daily and weekly hours so worked by each employee.” See 29 C.F.R. §
4.6(g)(1)(ii)– (iii). All federal contractors must also comply with the CWHSSA, which requires
them to pay their employees “at a rate not less than one and one-half times the basic rate of pay
for all hours worked in excess of 40 in the workweek.” 40 U.S.C. § 3702(a).
The Secretary of Labor is charged with the enforcement of the SCA and the CWHSSA,
see 40 U.S.C. § 3703(a); 41 U.S.C. § 6707(a), and is authorized to debar a federal contractor
found to be in violation of either statute—that is, to bar it from receiving federal contracts, see 41
U.S.C. § 6706(b); 29 C.F.R. § 5.12. The SCA goes farther—it requires the Secretary to
“forward to the Comptroller General . . . the name of [any] person or firm found to have
violated” the statute and requires a mandatory 3-year debarment period for such an entity
“[u]nless the Secretary recommends otherwise because of unusual circumstances.” 41 U.S.C.
§ 6706(b). Congress established such a “severe sanction” due to its concern that “employees of
government-service contractors historically ‘tended to be among the lowest paid people in the
economy.’” Summitt Investigative Serv., Inc. v. Herman, 34 F. Supp. 2d 16, 19 (D.D.C. 1998)
(quoting Hearing on H.R. 6244 and H.R. 6245 Before the H. Comm. on Educ. & Labor, 92d
Cong. 3 (1971) (statement of Rep. O’Hara)). Accordingly, the SCA makes the “debarment of
contractors who violate the SCA . . . the norm, not the exception.” Vigilantes, Inc. v. Adm’r of
Wage & Hour Div., 968 F.2d 1412, 1418 (1st Cir. 1992).
The SCA itself does not define the “unusual circumstances” that the Secretary must find
in order to exempt a contractor from debarment, but the Secretary has set forth a three-part test in
the Act’s implementing regulations to assess whether such circumstances exist. See 29 C.F.R.
§ 4.188(b)(3). The first prong of this test forecloses relief from debarment if certain aggravating
factors exist: for example, if the violation of the SCA was “willful” or “deliberate,” or if the
contractor “has a history of similar violations.” Id. § 4.188(b)(3)(i). Under the second prong of
the test, relief from debarment is permitted only if certain “prerequisites” are present, including,
among others, “cooperation in the investigation” and “repayment of moneys due.” Id.
§ 4.188(b)(3)(ii). If the first two prongs of the test are met, the Secretary finally considers “a
variety of factors,” such as the existence of “recordkeeping violations [that] impeded the
investigation” and “the impact of violations on unpaid employees.” Id.; see also Summitt, 34 F.
Supp. 2d at 20 (reciting this test); A to Z Maint. Corp. v. Dole, 710 F. Supp. 853, 855 (D.D.C.
1989) (describing this test as “a set of narrow, relatively demanding criteria”).
Facts and Proceedings Below
Tri-County is a corporation headquartered in Jackson, Mississippi. Dkt. 19-7 at 6 (Joint
App. 222) (“J.A.”). John Kenneth Hunter is its president and CEO. Id. In April 2006, TriCounty entered into a contract with FEMA to inspect and repair temporary trailers that housed
Gulf Coast residents whose homes had been destroyed by Hurricane Katrina. J.A. 221; see also
Dkt. 25-2 at 50 (Hr’g Tr. at 379) (“Tr.”). Under the terms of that contract, Tri-County was
obligated to follow the SCA and the CWHSSA, and it was therefore required to pay employees a
minimum wage rate. J.A. 62, 221; see also J.A. 324–30 (SCA terms as incorporated into the
contract). The contract provided a list of occupations and minimum wage rates, see J.A. 377–82,
but did not specifically provide wage rates for “preventative maintenance inspectors,” the trailer
inspectors whose wages are at the heart of this action.
Tri-County initially paid its inspectors a “piece rate” of $6.50 for every trailer inspected.
Tr. 56, 115, 158. (The “piece rate” was subsequently increased to $7. See id.) According to the
employees who testified at Tri-County’s debarment hearing, the use of a piece rate was common
in the developing market for FEMA trailer inspections. Tr. 40, 72. But Tri-County’s rate was
lower than the rate of $10 per trailer that many employees had previously been paid by another
company, Tr. 72, 158, and eventually one of Tri-County’s employees, Teresa Dabbs, reached out
to the Department of Labor to complain that she was not being paid an adequate wage, Tr. 25.
The Department began an investigation into Tri-County’s labor practices in December 2006. Tr.
The scope and emphasis of the Department’s first investigation are disputed by the
parties. But it is clear that the Department made at least three findings at the end of this
investigation. First, the Department found that Tri-County had failed to keep records of the
actual hours that its “piece rate” employees were working. J.A. 223; Tr. 287. Second, it found
that Tri-County had failed to pay its employees the fringe benefits required by law. Tr. 290–91.
Finally, it found that—based on the hours it estimated Tri-County’s “piece rate” employees had
worked—Tri-County had failed to pay those employees the equivalent of the minimum hourly
wage required under its contract and had failed to pay them time-and-a-half for all hours worked
over 40. J.A. 223; Tr. 287–90. Because the contract had not listed a specific wage rate for the
inspector position, the Department relied on a generic equivalent—“Laborer”—to calculate the
minimum hourly wage that it believed was required ($10.21). See Tr. 310–12 (“[W]hen [we]
don’t have a classification listed, we use the closest one . . . to match the type of work that was
being performed.”) (testimony of Ms. Van Etten); Tr. 319–20 (explaining that there was no
problem with using the $10.21 rate, because it was listed in the contract and it “closely matched
the type of work being performed”) (same). The Department ordered Tri-County to pay
$52,994.42 in unpaid wages and benefits to its employees, but did not seek debarment. J.A. 223;
What happened after the Department’s first investigation is the subject of even greater
dispute. Hunter testified that Tri-County made a concerted effort to come into compliance. Tr.
146. He testified that he required his employees to record the actual hours that they worked in
any given week. Tr. 171. He testified that he directed them not to work more than 40 hours per
week unless instructed. Id. And he testified that Tri-County began to pay its inspectors using a
formula that the Department’s investigator, Melissa Van Etten, had approved during a meeting
after the investigation had ended. Tr. 168. Using this formula, he explained, the inspectors
recorded the number of trailers that they had inspected each day; if they had inspected more
trailers than the “average” number calculated by Van Etten during the first investigation, they
would receive an additional check at a “supplemental rate.” Tr. 167–69. Hunter testified that he
had attempted to contact Van Etten in the weeks and months after the first investigation in order
to ensure that Tri-County’s new method of paying inspectors was compliant with the SCA, but
that Van Etten had not responded. Tr. 146.
The Tri-County employees who later testified at the debarment hearing told a different
story. According to the employees, although Tri-County instructed them to sign a document
stating that they would work only 40 hours each week, they in fact regularly worked between 50
and 60 hours each week, including weekends, in order to accomplish their assigned inspections.
Tr. 22–27, 60–64, 84–85, 96–97, 116–22. The inspectors testified that they were asked to record
the number of trailers that they had inspected, not the number of hours they worked; that
occasionally they were asked to sign timesheets that Tri-County had filled out recording the
number of hours worked in any given week as 40; but that in fact they were working more than
40 hours each week without receiving overtime pay. See, e.g., Tr. 61–62 (“Q. Did the time
sheets show a number of hours worked in your average week? A. Yes, sir. Q. And what was
the number it usually showed? A. Forty hours. Q. Did you work 40 hours a week? A. No,
In August 2007, the Department began a second investigation into Tri-County’s labor
practices. This investigation focused on the company’s failure to keep accurate records of the
hours worked by its inspectors, and the related failure to pay overtime and prevailing wages. Tr.
299–301. 1 At the end of the investigation, Van Etten recommended debarment “due to the
willful and repeated violations” of the SCA and CWHSSA. Tr. 303. The Department ordered
Tri-County to pay $49,015.39 in back wages and overtime, J.A. 224, and in September 2008 it
filed a formal complaint seeking Tri-County’s debarment, J.A. 230. The parties appeared for a
formal hearing before the ALJ in April 2010, and the ALJ ordered Tri-County debarred under the
SCA for a period of three years in October 2010. J.A. 221, 228. The ALJ found, among other
things, that Tri-County “had been instructed to record actual hours worked, had agreed to do so,
and did not do so.” J.A. 225. Instead, the ALJ found, Tri-County’s timesheets “never showed
more than forty hours worked per week, no matter how many hours each employee actually
worked.” J.A. 224. On the basis of these findings, as well as others, the ALJ concluded that TriCounty could not demonstrate the “unusual circumstances” required to excuse debarment,
because its violations were “the result of willful and deliberate action.” J.A. 226–227. Although
the ALJ was not required to proceed to the second and third prongs of the “unusual
circumstances” test, he explained that Tri-County would have failed those prongs as well. J.A.
Tri-County filed a timely petition for review with the Administrative Review Board
(“ARB”). J.A. 249. On June 29, 2012, the ARB entered a decision and order affirming the ALJ.
In June 2007, the Labor Department formally amended the wage tables associated with TriCounty’s contract to specify an hourly rate of $13.96 for “preventative maintenance inspectors.”
J.A. 445. The wage and overtime violations found during the second investigation were based
on this figure. Tr. 343.
J.A. 61. The ARB concluded that “the overwhelming evidence supports the ALJ’s conclusion
that the repetitive nature of Tri-County’s violations ‘can be seen as culpable conduct requiring
debarment under the Act.’” J.A. 64 (quoting J.A. 227). Accordingly, it directed the Secretary of
Labor to initiate debarment proceedings, and Tri-County became ineligible to receive federal
contracts for three years on July 18, 2012. Dkt. 1 at 8 (Compl. ¶ 23). Over a year later, TriCounty filed this action to challenge its debarment. Dkt. 1. The parties filed cross-motions for
summary judgment, which were fully briefed by May 30, 2014, Dkt. 16, and they filed the joint
appendix on November 5, 2014, Dkt. 17. Tri-County’s debarment period ended on July 17,
2015. Dkt. 1 at 8 (Compl. ¶ 23). Subsequently, the Court held a status conference and ordered
the parties to submit supplemental briefs regarding mootness. The parties did so, Dkts. 22, 26,
and Plaintiff filed a further declaration on February 12, 2016, addressing additional questions
posed by the Court, Dkt. 27. The motions for summary judgment, including the mootness issue,
are now fully briefed.
II. STANDARD OF REVIEW
Tri-County’s suit arises under Section 706(2)(A) of the APA, which precludes agency
action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with
law.” 5 U.S.C. § 706(2)(A). This provision directs a reviewing court to set aside agency action
that is not the product of “reasoned decisionmaking.” Motor Vehicle Mfrs. Ass’n of U.S. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 52 (1983). This standard of review is a “deferential” one.
Am. Radio Relay League, Inc. v. FCC, 524 F.3d 227, 233 (D.C. Cir. 2008); an agency action will
be set aside only if the agency has “failed to consider relevant factors or made a manifest error in
judgment,” Consumer Elecs. Ass’n v. FCC, 347 F.3d 291, 300 (D.C. Cir. 2003). That means that
courts will generally find an agency action “arbitrary and capricious” only “if the agency . . .
relied on factors which Congress has not intended it to consider, entirely failed to consider an
important aspect of the problem, offered an explanation for its decision that runs counter to the
evidence before the agency or is so implausible that it could not be ascribed to a difference in
view or the product of agency expertise.” State Farm, 463 U.S. at 43.
A court reviewing agency action under the APA will generally defer to findings of fact if
they are supported by “substantial evidence.” 5 U.S.C. § 706(2)(E). Here, however, because the
proceedings below were governed by the procedural provisions set out in Title 41, see 41 U.S.C.
§§ 6506–07, the Department argues that the standard of review set out in that title, rather than the
standard of review set out in the APA, applies. Under that title, the Secretary of Labor or his
representative may “hold hearings” upon a complaint that a federal contractor has violated the
law or the governing contract, and, “[a]fter notice and a hearing, . . . shall make findings of fact.”
41 U.S.C. § 6507(b), (e). “The findings are conclusive for agencies of the United States,” and
“[i]f supported by a preponderance of the evidence, . . . are conclusive in any court of the United
States.” Id. § 6507(e). As a result, every court to have considered the question has concluded
that the Act displaces the APA’s ordinary standard of review for findings of fact and establishes
its own standard of review for such findings.
As courts in several jurisdictions have noted, however, the Act leaves ambiguous exactly
what that standard of review is. As the First Circuit has explained:
In its normal iteration, the preponderance of the evidence standard, like “clear and
convincing” and “beyond a reasonable doubt,” establishes a quantum of proof to
be measured by the factfinder, not a standard for error-detection. When used to
describe appellate review, however, the phrase is at best an awkward locution, for
it connotes nothing about the degree of probability of error required before a
reviewing court may set aside a factual determination.
Dantran, Inc. v. U.S. Dep’t of Labor, 171 F.3d 58, 70 (1st Cir. 1999). Accordingly, courts are
divided on how to construe § 6507(e)’s standard of review. The First Circuit interprets it to
require courts to review the Department’s findings of fact for clear error, id. at 71; see Fed. R.
Civ. P. 52(a)(6), a standard of review “somewhat stricter (i.e., allowing somewhat closer judicial
review) than the APA’s,” Dickinson v. Zurko, 527 U.S. 150, 153 (1999). The First Circuit’s
conclusion stems from an analogy to the Multimember Pension Plan Amendments Act of 1980,
which sets up a “presumption, rebuttable only by a clear preponderance of the evidence, that the
findings of fact made by the arbitrator were correct.” 29 U.S.C. § 1401(c) (emphasis added); see
Dantran, 171 F.3d at 70. Because most circuits have interpreted that statute to require clear error
review, and because both statutes refer to a “preponderance of the evidence,” the First Circuit
reasoned that Congress intended reviewing courts to employ the familiar clear-error standard
when reviewing the factual findings made by the Department in debarment proceedings as well.
Dantran, 171 F.3d at 70–71.
Several district courts in other jurisdictions, by contrast—as well as the dissenting judge
in Dantran—have interpreted § 6507(e) to require a form of de novo review. See, e.g., Dantran,
171 F.3d at 77 (Cudahy, J., concurring in part and dissenting in part); Karawia v. U.S. Dep’t of
Labor, 627 F. Supp. 2d 137, 143–45 (S.D.N.Y. 2009); cf. J.N. Moser Trucking, Inc. v. U.S. Dep’t
of Labor, 306 F. Supp. 2d 774, 783–84 (N.D. Ill. 2004). As Judge Cudahy explained, “If the
finder of fact and the reviewing authority are bound by the same standard in establishing the
facts (preponderance of the evidence), the logic of the situation is that review is essentially de
novo.” Dantran, 171 F.3d at 77 (Cudahy, J., concurring in part and dissenting in part). Several
of these district courts have also opined that a better analogy is to the Individuals with
Disabilities Education Act (“IDEA”), which permits a district court to review an administrative
record, “hear additional evidence,” and “bas[e] its decision on the preponderance of the
evidence,” 20 U.S.C. § 1415(i)(2), and which many Courts of Appeals (including this Circuit’s)
have held sets a significantly less deferential standard of review. See Karawia, 627 F. Supp. 2d
at 143; J.N. Moser, 306 F. Supp. 2d at 784; see also Reid ex rel. Reid v. D.C., 401 F.3d 516, 522
(D.C. Cir. 2005) (describing IDEA’s “non-deferential standard”). The D.C. Circuit has not
resolved the standard of review that applies to findings of fact made pursuant to Title 41. See
Federal Food Serv., Inc. v. Donovan, 658 F.2d 830, 833 (D.C. Cir. 1981) (simply noting that
“the Secretary’s findings of fact must be supported by a preponderance of the evidence.”).
Although the Court finds Judge Cudahy’s understanding of the standard of review more
persuasive than the Dantran majority’s, it need not definitively resolve the question. Under
either standard of review, the Court would not overturn the findings of fact made by the ALJ and
upheld by the ARB because, as explained below, those findings of fact are amply supported by
the record. Accordingly, the Court will assume that it reviews the Department’s findings of fact
“essentially de novo” in order “to determine whether a preponderance of the evidence supports”
the agency’s factual findings. See Dantran, 171 F.3d at 77 (Cudahy, J., concurring in part and
dissenting in part) (quoting Vigilantes, 968 F.2d at 1418). If the Court concludes that those
factual findings are well supported, it must then review the Department’s exercise of its
discretion, if any, and its conclusions of law under the APA to determine whether its decision
was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5
U.S.C. § 706(2)(A).
The Court must first consider whether the case is moot in light of the fact that Tri-County
is no longer barred from participating in federal contracting programs. “[S]ubject matter
jurisdiction ‘is, of necessity, the first issue for an Article III court,’ for ‘[t]he federal courts are
courts of limited jurisdiction, and they lack the power to presume the existence of jurisdiction in
order to dispose of any case on any other ground.’” See Loughlin v. United States, 393 F.3d 155,
170 (D.C. Cir. 2004) (quoting Tuck v. Pan American Health Org., 668 F.2d 547, 549 (D.C. Cir.
1981)). “Even where litigation poses a live controversy when filed, the doctrine requires a
federal court to refrain from deciding it ‘if events have so transpired that the decision will neither
presently affect the parties’ rights nor have a more-than-speculative chance of affecting them in
the future.’” Clarke v. United States, 915 F.2d 699, 701 (D.C. Cir. 1990) (en banc) (quoting
Transwestern Pipeline Co. v. FERC, 897 F.2d 570, 575(D.C. Cir. 1990)). Here, the question is
whether the case is moot because the three-year debarment period that began in July 2012, when
the ARB entered its order affirming the ALJ’s determination that Tri-County should be debarred,
ended in July 2015.
Tri-County’s central argument is that although it is no longer barred from participating in
federal contracting programs, its 2012 debarment remains on its record and is likely to impede it
from obtaining federal contracts. As a general matter, an “injury to reputation can constitute a
cognizable injury sufficient for Article III standing.” Foretich v. United States, 351 F.3d 1198,
1211 (D.C. Cir. 2003); see also McBryde v. Comm. to Review Circuit Council Conduct, 264 F.3d
52, 57 (D.C. Cir. 2001). But because “claims of reputational injury” are at times “too vague and
unsubstantiated to preserve a case from mootness,” the Court must ask whether “some tangible,
concrete effect” of a challenged action remains in order to preserve a controversy. McBryde, 264
F.3d at 57–58 (quoting Penthouse Int’l Ltd. v. Meese, 939 F.2d 1011, 1019 (D.C. Cir. 1991)).
The D.C. Circuit has repeatedly held that the “concrete effect” that an expired debarment
order has on a government contractor’s reputation can satisfy that requirement. See, e.g., Kisser
v. Cisneros, 14 F.3d 615, 618 n.4 (D.C. Cir. 1994); Reeve Aleutian Airways, Inc. v. United
States, 889 F.2d 1139, 1143 (D.C. Cir. 1989); Caiola v. Carroll, 851 F.2d 395, 401 (D.C. Cir.
1988). In Reeve, for instance, an administrative board established by the Department of Defense
(“DOD”) suspended an air carrier from participating in a DOD airlift program. See 889 F.3d at
1141. The carrier filed suit to challenge the suspension, but DOD lifted the suspension while the
suit was pending. Id. On appeal, DOD argued that the suit was moot, but the D.C. Circuit held
that it was not. Id. at 1142–43. It explained that the carrier “has demonstrated the negative
effects of the suspension on its public and civilian traffic, and it claims that it is still ‘under a
cloud of suspicion for its suspension, evidenced by the significant and continuing drops in traffic
after the [administrative] decision.’” Id. at 1143 (quoting a brief). Other cases are to similar
effect. See Kisser, 14 F.3d at 618 n.4 (explaining that the case was not moot because the
sanction “will continue adversely to affect [the contractor] in future transactions with HUD”);
Caiola, 851 F.2d at 401 (“[T]he prospect of a lingering stigma or other adverse impact appears to
keep this case vital.”).
The Department argues that these cases are distinguishable on two related grounds. First,
the Department asserts that several of these cases turned on the existence of regulations that
required contracting officers to consider past debarments in awarding contracts—and no such
regulations exist in this case. Second, the government maintains, even in the absence of such a
regulation, it is the plaintiff’s burden to substantiate its assertions that the challenged debarment
will impact its ability to obtain future contracts. See O’Gilvie v. Corp. for Nat’l Cmty. Serv., 802
F. Supp. 2d 77, 82–83 (D.D.C. 2011) (finding a challenge to expired debarment moot on
substantially these grounds). The Court agrees that this is a close case, but concludes that it is
First, although the D.C. Circuit has on several occasions cited regulations that required
contracting officers to consider a contractor’s debarment record as evidence that a reputational
harm was sufficiently “concrete,” it has never treated such regulations as an essential condition
for a finding that a case is not moot. In Reeve, for example, the D.C. Circuit said nothing about
whether any DOD regulations would require future consideration of the aircraft carrier’s record
of past suspensions; it observed only that the contractor was “still ‘under a cloud of suspicion’”
as a result of the expired suspension. 889 F.2d at 1143. In any event, the relevant regulations
here permit—even if they do not require—a contracting officer to consider a contractor’s
debarment record. The Federal Acquisition Regulations (“FAR”), which govern the lion’s share
of federal contracting (and which both parties agree would apply to future contracts obtained by
Tri-County), require a contracting officer to “obtain information regarding the responsibility of
prospective contractors.” 48 C.F.R. § 9.105–1(b)(1). And while the regulations caution that an
expired debarment “may not be relevant to a determination of present responsibility,” see id. §
9.104–6(b), they also require contracting officers to consider “past performance information” in
making their determinations, id.; see also id. §§ 9.104–3(b), 9.105–1(c), 42.1501 (to similar
effect). As the government acknowledges, see Dkt. 26-2, information regarding Tri-County’s
debarment record is readily available online. This is thus not a case like O’Gilvie, in which the
relevant regulation (not part of the FAR) “d[id] not call for an evaluation of contractor
responsibility” at all. 802 F. Supp. 2d at 83; cf. Hickey v. Chadick, 649 F. Supp. 2d 770, 774–75
(S.D. Oh. 2009) (relying on the FAR provisions that would apply here to find a case not moot).
Second, Tri-County has demonstrated both that it intends to continue to operate
government contracting businesses and that the existence of a past debarment order poses an
ongoing impediment to its ability to do so. Hunter, Tri-County’s CEO, attests that, shortly after
his debarment ended in 2015, he “competed for and was awarded a federally-funded contract . . .
under the name of a new company.” Dkt. 27 at 1 (Supp. Hunter Decl. ¶ 4). He explains that he
did not bid for this contract as Tri-County Contractors because he was worried about the stigma
of the debarment order, but that he “would like to bid for new work” as Tri-County so he does
not “lose the benefit of name recognition and successful past performance.” Id. at 2 (Supp.
Hunter Decl. ¶ 5). Hunter attests that, if the debarment order is vacated, he would compete as
Tri-County “for an upcoming Blanket Purchase Agreement that will be issued by FEMA for
maintenance and deactivation services . . . in support of temporary housing units” in disaster
areas in Mississippi. Id. (Supp. Hunter Decl. ¶ 7). This provides a sufficient basis to conclude
that the lingering consequences of the debarment order will likely impact Tri-County’s ability to
compete for and to obtain federal contracts, especially in light of the FAR regulations that permit
contracting officers to consider contractors’ past performance.
Accordingly, the Court concludes that the prospect that Tri-County’s expired debarment
will impede it from obtaining federal contracts in the future is sufficiently “concrete” to preserve
this case as a live controversy. Because the case is not moot, the Court will proceed to its merits.
The ALJ concluded, and the ARB agreed, that Tri-County could not demonstrate the
“unusual circumstances” required to excuse debarment because its statutory violations were “the
result of willful and deliberate action.” J.A. 227. The ALJ wrote:
At the conclusion of the first investigation, Mr. Hunter was clearly informed of
his obligations to keep accurate hourly records and pay the agreed-upon hourly
rate. However, he instead chose to generate inaccurate timesheets through the use
of a computer program. The statements and testimonies of Respondents[’] former
employees establishes that these timesheets did not accurately reflect the hours
worked by each employee and were instead based on the number of trailers each
employee had inspected.
Id. As a result, he explained, Tri-County could not satisfy the first prong of the Department’s
test for “unusual circumstances,” which forecloses relief from debarment if the statutory
violations were “willful, deliberate, aggravated in nature, or the result of culpable conduct,” or if
the contractor has “a history of similar culpable conduct.” Id.; see 29 C.F.R. § 4.188(b)(3).
The ALJ’s conclusion was plainly reasonable. A contractor governed by the SCA and
CWHSSA is required to “make and maintain for 3 years . . . records containing,” among other
information, “[t]he number of daily and weekly hours . . .worked by each employee.” 29 C.F.R.
§ 4.6(g)(1)(iii). This is not merely a ministerial requirement. Under most labor laws, it is the
burden of the complainant to “prov[e] that he performed work for which he was not properly
compensated.” Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 687 (1946). But because
the employer, not the employee, “is in position to know and to produce the most probative facts
concerning the nature and amount of work performed,” the SCA, like most labor laws, charges
the employer with “keep[ing] proper records of wages, hours and other conditions and practices
of employment.” Id. An employer that fails to keep such records seriously impedes efforts by
employees—or, here, by the Secretary—to hold the employer accountable for violating federal
labor laws. Thus, an agency acts reasonably in concluding that a contractor that has been told to
keep accurate records, but has failed to do so, has willfully and deliberately violated one of the
SCA’s cornerstone provisions.
The factual record, even reviewed de novo, also amply supports the ALJ’s conclusion
that Tri-County had been admonished to comply with the relevant recordkeeping requirements.
Van Etten, the Labor Department investigator, testified that she told Hunter at the end of the
initial investigation that Tri-County was “required to keep records of actual hours worked for all
employees, including piece rate employees.” Tr. 292. Hunter gave the same testimony. See Tr.
163–64 (“Q. And did [Van Etten] tell you that, as part of her Wage and Hour investigation, you
would have to keep an accurate record of actual hours worked? A. Yes.”). Tri-County makes a
number of arguments as to why the ALJ’s debarment order should be set aside, which the Court
addresses below. But it does not contest that it was told at the end of the first investigation that it
would need to keep accurate records of the number of hours its employees actually worked—not
just the number of trailers they inspected.
It is just as clear from the record that, in spite of this admonition, Tri-County failed to
maintain the required records. Each of the employees who testified at the hearing stated that she
was never told to record her actual hours worked. Tr. 23–24, 61–63, 93–97, 115–17. Instead,
the employees explained, they were occasionally brought into Tri-County’s offices and told to
sign time sheets that stated they had worked 40 hours that week. Id. And the employees testified
that they in fact worked many more hours than that. Inspector Linda James kept her own time
sheets that accurately documented the number of hours she worked. Tr. 87–90. The Department
introduced those records into evidence at the hearing. James’s personal records showed, for
instance, that she had worked 60.75 hours during the week of June 21, 2007. Tr. 94. TriCounty’s records, in contrast, showed that she had worked exactly 40. Id. Inspector Donna
Carter was asked at the hearing whether she had ever “check[ed] the number of hours on the time
sheet[s]” she was told to initial. Tr. 116. She said: “No, because we knew that it was going to be
40.” Id. There is no ambiguity in the record. In spite of Van Etten’s admonition, Tri-County
failed to keep accurate records of the number of hours its employees worked.
Tri-County’s primary objection to this conclusion is that any failure accurately to record
its employees’ hours was, at most, the result of negligence rather than culpable conduct. But the
reasons that Tri-County offers in support of this argument fall flat. First, Tri-County argues that
it understood Van Etten’s instructions to require—or at least to allow—it to use a “formula” that
would estimate employees’ hours. Sabrina Fountain, who supervised the inspectors for TriCounty, testified that the inspectors would enter the number of trailers they inspected into a
spreadsheet, which would then calculate the number of hours they purportedly worked. See Tr.
214–23, 228–33. Fountain said that the employees were responsible for verifying that number.
Tr. 229 (“A. They are basically agreeing. Q. They are agreeing with the computer? A.
Tri-County’s argument suffers from several flaws. First, no employee testified that she
was ever asked to verify her actual hours worked on a spreadsheet. Second, even if Tri-County
used such a spreadsheet to approximate employees’ hours, as it claims, that would not relieve it
of its obligation to keep records of actual hours worked. See 29 C.F.R. § 4.6(g)(1)(iii). And the
record is clear that Tri-County made no real effort to do so. For one, even accepting its
contention that it intended its inspectors to use the approximations as a starting point—to be
revised upward if the inspectors worked more hours than were shown on the spreadsheets—it is
implausible that any properly written formula would uniformly produce figures of exactly 40
hours per week. See Tr. 229 (“Q. Now, there are many time sheets that are in evidence where it
says 40 hours for the employee, and the number of work orders could range from 75 to 125. A.
Uh-huh. Q. But it still takes the same 40 hours, you’re saying? A. Uh-huh.”). Nor is it
plausible that—had the inspectors been properly instructed to verify their hours worked—they
would have uniformly verified that they worked exactly 40 hours per week. It is possible that
some inspectors, in some weeks, spent exactly 40 hours inspecting trailers. But the evidence
casts grave doubt on Tri-County’s claim that it worked in good faith to establish a reporting
system that would permit it (or the Secretary) to determine with any degree of accuracy how
many hours its employees were actually working.
Nor is it plausible that Van Etten misled Tri-County into employing such a system. Van
Etten testified that she never discussed such a reporting system with Tri-County, Tr. 293; that
such a system would cause recordkeeping violations, Tr. 293–94; and that she had never, in 21
years of employment at the Labor Department, authorized an employer to use a spreadsheet that
would approximate actual hours worked, Tr. 296. In contrast, the record contains no credible
evidence that supports Tri-County’s claim that it reasonably believed it was complying with the
Act by generating its employees’ timesheets for them.
Second, and similarly, Tri-County attempts to shift responsibility for its failure to keep
accurate records to the Department, or, alternatively, to its employees. Tri-County argues that it
repeatedly attempted to contact Van Etten to confirm that its computer-generated recordkeeping
system was compliant with the Act. It also claims that, to the extent the inspectors worked over
40 hours each week without recording their hours, they did so in contravention of Tri-County’s
instructions not to do so. But even to the extent these arguments find support in the record (and
the second does not, see Tr. 27, 84), they are beside the point. The regulations are clear that it is
the employer’s responsibility to keep accurate records, 29 C.F.R. § 4.6(g)(1)(iii); it cannot escape
liability “by attempting to shift [its] responsibility to subordinate employees,” id. § 4.188(b)(5).
Cf. Caserta v. Home Lines Agency, Inc., 273 F.2d 943, 946 (2d Cir. 1959) (Friendly, J.) (“The
obligation is the employer’s and it is absolute. He cannot discharge it by attempting to transfer
his statutory burdens of accurate record keeping . . . and of appropriate payment, to the
employee.”). And to the extent that Tri-County was left with any good-faith confusion about the
meaning of Van Etten’s exit instructions after the first inspection, it cannot have been confused
about its obligation to keep records of actual hours worked, given the undisputed testimony of
both Van Etten and Hunter that such an instruction was provided. See Tr. 163–64, 292.
Tri-County raises a number of additional arguments about errors made by the Department
or the ALJ. It argues at length that the Department erred in concluding that it had failed to pay
its employees prevailing wages or overtime. It claims that the Department’s assessments of
unpaid wages were based on rates that were calculated on an ad hoc basis near the end of each
investigation and that Tri-County had no notice of those purported rates before the investigations
began. See Dkt. 11-1 at 11, 21–22. It argues that the Department calculated the unpaid wages
and fringe benefits on the basis of implausibly low estimates of the number of trailers each
inspector could visit in an hour, leading to overblown assessments. Id. at 6. And it argues that it
did provide its employees with fringe benefits, or the equivalent thereof—it simply failed to
separately document those benefits on its employees’ pay stubs and in its records. Id. at 19–20.
But Tri-County’s arguments are misdirected. The primary basis of the ALJ’s debarment
order was not Tri-County’s failure to pay prevailing wage rates and fringe benefits, but its willful
failure to accurately record its employees’ hours. See J.A. 227. As the Court described above,
that factual finding is amply supported by the record. That finding, moreover, standing alone,
provided the ALJ with a sufficient basis for a debarment determination. Indeed, without the
records that Tri-County was required (and had been admonished) to keep, neither the Secretary
nor the Court is in a position to even assess Tri-County’s contention that it paid its employees the
required amount. And to the extent that Tri-County argues that the Department’s calculations
were based on erroneous estimates of the hours its employees actually worked, such estimations,
too, are the necessary result of Tri-County’s own failure to keep accurate records of its
Tri-County’s contention that there was no “prevailing wage” rate to pay, moreover, see
Dkt. 11-1 at 5, misstates the record. Van Etten testified before the ALJ that in the course of the
first investigation, she concluded that the “appropriate prevailing wage rate” for the Tri-County
inspectors was $10.21 per hour, which was the contractual rate for a “laborer” specified in the
tables that had been attached to Tri-County’s contract. Tr. 285; J.A. 380. Such a determination
is entirely consistent with the governing regulations, which require contractors to “classify” any
“class of service employee . . . not listed” in the wage tables attached to their contracts “so as to
provide a reasonable relationship (i.e., appropriate level of skill comparison) between such
unlisted” roles and those roles “listed in the wage determination,” see 29 C.F.R. § 4.6(b)(2)(i),
and which authorize the Secretary to make such a classification upon discovery of a contractor’s
“failure to comply with” this requirement, id. § 4.6(b)(2)(vi). Tri-County protests that the
regulations provide for a formal process by which employees’ wages are “conformed” to the
wage tables, and that it is not clear from the regulations what a contractor is to do in the absence
of such a formal classification. But the regulations are clear that the process “shall be initiated
by the contractor,” id. § 4.6(b)(2)(ii), and that if the contractor fails to do so, the Department may
issue a classification that will “be retroactive to the date such class of employees commenced
contract work,” id. § 4.6(b)(2)(vi). That is exactly what Van Etten did here, as she testified: She
found “the closest” classification in the contract that “match[ed] the type of work that was being
performed,” see Tr. 310–12, and concluded that Tri-County had not paid its employees enough
to match it. Although the ALJ’s decision to debar Tri-County was not primarily based on its
failure to pay its employees a prevailing wage rate, the company’s argument that there was no
prevailing rate finds little support in the record.
For these reasons, the Court has no difficulty concluding that the ALJ and ARB properly
concluded that Tri-County’s “willful” and “deliberate” conduct rendered it ineligible for relief
from debarment under the first part of the regulatory test. See 29 C.F.R. § 4.188(b)(3)(i). For
similar reasons, it is also clear that the ALJ and ARB’s conclusions regarding the second and
third prongs of the test were supported by the record. The ALJ concluded that the company
failed to clear the second prong, which requires a “good compliance history, cooperation in the
investigation, repayment of moneys due, and sufficient assurances of future compliance.” J.A.
228. In particular, the ALJ found—and the ARB agreed—that Tri-County impeded the
investigation by failing to maintain accurate records and “by denying for several months that
employees’ hours had been computer-generated when this was in fact the case.” Id. Based on its
independent review of the record, the Court agrees that these findings are well founded. See,
e.g., Tr. 300–303. The ALJ and ARB also concluded that even if Tri-Country had met its burden
on the first two parts of the “unusual circumstances” test, it failed to satisfy the third
requirement, which requires the reviewing official to consider a “variety of factors,” including
“whether the contractor has previously been investigated for violations of the Act, whether the
contractor has committed recordkeeping violations which impeded the investigation, whether
liability was dependent upon resolution of a bona fide legal issue of doubtful certainty, the
contractor’s efforts to ensure compliance,” and more. 29 C.F.R. § 4.188(b)(3)(ii). To the extent
that this conclusion was premised on Tri-Country’s recordkeeping violations, unsupported
denials, and the serious nature of the company’s violations, J.A. 228, the Court again agrees that
the ALJ’s and ARB’s conclusions were supported by the evidence.
In short, even reviewed de novo, the record supports the ALJ’s factual findings. In turn,
the ALJ’s determination that Tri-County failed to carry its burden with respect to any of three
parts of the “unusual circumstances” test, see 29 C.F.R. § 4.188(b)(3), was neither arbitrary and
capricious nor contrary to law; indeed, it was eminently reasonable. Accordingly, the Court
concludes that the Secretary’s decision was well-grounded in both fact and law, and that he acted
well within his discretion in barring Tri-Country from federal contracting for three years.
For these reasons, the Court GRANTS the Department’s motion for summary judgment
and DENIES Tri-County’s motion for summary judgment.
SO ORDERED. The Clerk will enter judgment.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: February 23, 2016
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