Based on the evidence presented before it on a False Claims Act lawsuit brought by a labor union, the 7th Circuit Court of Appeals decided to affirm summary judgment in favor of the union member’s company. But the dissenting judge believed the record required remand for a trial.
Local 20 of the Sheet Metal Workers International Association sued Horning Investments LLC on behalf of members, claiming the company, which was subcontracted to work on an Ohio construction project for the U.S. Department of Veterans Affairs, paid its workers less than the Davis-Bacon Act requires. The act outlines the “prevailing wage” that workers must be paid when they work on projects for the federal government.
Workers classified as sheet metal workers were entitled to $26.41 per hour with the additional fringe benefit rate of an additional $16.82 an hour. This case involves the fringe benefits. Horning employees, relying on the advice of the company’s accountants, began deducting $5 per hour from employees’ paychecks to be deposited into a trust for health care. But the company didn’t determine what employees were eligible for the health care benefits and the deduction did not correspond to the actual monetary value of the benefits each individual employee received. The union claimed this arrangement violated the Davis–Bacon Act.
The company generated certified payroll reports based on this calculation and submitted them to Construct Solutions, the contractor on the project, which then submitted them to the government for payment.
The union did not sue under the Davis-Bacon Act, but instead filed a qui tam action under the False Claims Act, which is the statute at issue in Universal Health Servs. Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). But the majority did not rely on the recent U.S. Supreme Court decision in the instant case. Instead, Chief Judge Diane Wood and Frank Easterbrook noted there was not enough evidence to show Horning knew its statements were false. The Flase Claims Act requires the defendant to have acted with “actual knowledge,” “deliberate ignorance” or “reckless disregard” to the possibility the submitted claim was false, Wood wrote, noting the union has not met that standard.
The record doesn’t say whether Horning was contractually obligated to make the contributions to the trust during the 90-day waiting period for new employees before they receive health insurance, Wood wrote.
“We thus neither can nor do decide whether Horning violated the Davis-Bacon Act by deducting Trust contributions from the paychecks of employees whose rights to fringe benefits had not yet vested,” she wrote. “All that is relevant for present purposes is that there is enough ambiguity about this matter that we cannot infer that Horning either knew or must have known it was violating the Davis-Bacon Act.”
The union did not present enough evidence to survive summary judgment, so the majority affirmed the ruling in favor of Horning.
Judge Richard Posner dissented, believing the case needs to go to trial in order to understand the full scope and gravity of Horning’s conduct. The court needs to know how many people had to pay $5 to the trust from which they could not benefit, as well as evidence that Horning relied on the advice of its accountants and that the accountants had the necessary expertise and understood the act.
The case is United States of America ex rel. Sheet Metal Workers International Association, Local Union 20 v. Horning Investments LLC, 15-1004.