Allegations from an electrical workers' union that a contractor that used its members to fulfill contracts with SEPTA and the Delaware River Port Authority wrongly classified the workers in violation of the False Claims Act has survived a motion to dismiss.
U.S. District Judge Lawrence F. Stengel of the Eastern District of Pennsylvania ruled on several issues, including the sometimes murky intersection of the FCA and the Davis-Bacon Act, which requires that federal contracts for construction work on public infrastructure reflect the prevailing wage for various classes of workers.
The International Brotherhood of Electrical Workers, Local 98, alleged that the Farfield Co. misclassified electricians as groundsmen in order to get a bidding advantage for public works contracts with the Southeastern Pennsylvania Transportation Authority and the Delaware River Port Authority that were partly paid for with federal funds.
Although Stengel noted that violations of the DBA don't necessarily qualify as false claims under the FCA, he ruled that the union had sufficiently stated a claim under the FCA at the motion to dismiss phase.
Farfield had argued that its contracts with state agencies for work on projects partially funded by the federal government wouldn't violate the FCA because the contracts weren't made directly with the U.S. government, according to the opinion. It relied on the U.S. Supreme Court's 2008 decision in Allison Engine v. Sanders, saying that the high court "determined that the FCA did not apply to claims that were not made directly to the federal government, such as the ones at issue here," according to the opinion.
"A party can be subject to FCA liability even where the government suffers no monetary injury," he said, citing cases from the U.S. Court of Appeals for the Sixth Circuit, the Supreme Court and the District of New Jersey.
"In this case, even though the government paid less than it would have had it paid the fair market value, the federal Treasury still paid the amount, which could be considered a 'loss,'" Stengel said.
Beyond that, he said also that FCA claims can proceed under a theory of false certification.
"In these actions, the false certification of compliance creates liability when certification is a prerequisite to obtaining a government benefit," Stengel said, explaining that federal construction projects subject to the DBA require contractors to certify that each worker has been paid the appropriate wage rate.
"To recover damages under this theory, the plaintiff must show that the government has paid a 'claim' based on a certificate containing false information 'which has resulted in damages sustained by reason of the doing or committing the act,'" Stengel said, quoting from the Third Circuit's 1977 opinion in United States v. Hibbs.
The union has met that standard, he held.
On another important issue, Stengel held that his court had jurisdiction over the case, rather than the Department of Labor, as Farfield had argued.
If there remains a complex question of the prevailing wage for a specific type of labor or classification, it must be answered by the Department of Labor, according to the opinion.
"However, the DBA does not pre-empt the FCA," Stengel said. "Rather, where there is a determination by the Department of Labor concerning a classification, a district court may proceed with a case under the FCA."
He later explained, "Although the language is somewhat confusing, courts have drawn a distinction between a contractor's misrepresentation of wages and its misclassification of workers."
Stengel said that the dispute is primarily over whether the employees were properly classified, which doesn't pose a complex question and is properly before the district court.
"Although very muddled, the dispute here is simply whether the defendant misclassified the workers into categories, for which the DOL has previously determined the type of work within each classification," Stengel said.
"This misclassification allegedly resulted in the underpayment of workers. The parties dispute the appropriate payment for the classifications; however, I find that the alleged falsity of the false statement 'is not dependent on interpretation' of classifications and wage determinations. Therefore, jurisdiction is appropriate in the court system," rather than the Department of Labor, he concluded.
According to the union's lawyer, "Stengel's opinion was brilliant in that it addressed every single one of their arguments," said Richard Sigmond of Jennings Sigmond, referring to the defendant's arguments. "In doing so, the judge, in my view, wrote the seminal opinion in relation to the False Claims Act involving Davis-Bacon claims," he said.
Neither Susan Friedman nor Zachary Davis of Stevens & Lee, who represented Farfield, could be reached for comment.
(Copies of the 39-page opinion in International Brotherhood of Electrical Workers, Local 98 v. Farfield, PICS No. 13-1489, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)