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[1] WAGE APPEALS BOARD
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
STRUCTURAL CONCEPTS, INC., WAB Case No. 95-02
Prime Contractor and
GEORGE MOUTIS, President
BEFORE: David A. O'Brien, Chair
Karl J. Sandstrom, Member
Joyce D. Miller, Alternate Member
DATE: November 30, 1995
DECISION OF THE WAGE APPEALS BOARD
This matter is before the Wage Appeals Board pursuant to the
Decision and Order (D. and O.) of an Administrative Law Judge
(ALJ) issued in this case that arises under the provisions of the
Davis-Bacon Act (Act), 40 U.S.C. [sec] 276a et seq. Following an
investigation of Structural Concepts, Inc. (Structural), its
President George Moutis (Moutis) (collectively Petitioners), and
a subcontractor, Bonafide Construction, Inc. (Bonafide), the Wage
and Hour Division of the Department of Labor (Wage and Hour)
determined that Bonafide violated the Act by failing to pay its
employees prevailing wage rates and falsifying certified
payrolls. Wage and Hour also concluded that Petitioners
disregarded their obligations under the Act because, even though
they allegedly knew of Bonafide's violations, no action was taken
to ensure that Bonafide's employees were paid the appropriate
wage.
Bonafide and its principals did not contest Wage and Hour's
findings. Petitioners did not contest their liability for back
pay owed to Bonafide's employees due to violation of the Act.
Petitioners did contest Wage and Hour's conclusion that they
should be debarred. In the D. and O. issued on February 23,
1995, the ALJ rejected Petitioners' argument and recommended that
they be [1][2] debarred under the Act. In addition to the briefs
of the parties, the Associated Builders & Contractors, Inc.
(ABC), filed a brief in support of Petitioners. Oral argument
was held on August 31, 1995. For the following reasons, the
ALJ's D. and O. is reversed and Petitioners, Structural and
Moutis, are not debarred.
I. BACKGROUND
In September, 1990, Structural entered into a construction
contract with the United States that was admittedly subject to
the provisions of the Act. D. and O. at 2. Moutis hired John
Zaferiou (Zaferiou) as Structural's project supervisor. D. and
O. at 2. Zaferiou was told that his duties as project supervisor
would include "compliance with the labor standard requirements."
Transcript (T.) 212. Zaferiou suggested that Bonafide be awarded
the subcontract to perform the work after disclosing that his
brother was involved with Bonafide. Moutis gave Zaferiou "what
we had estimated in our bid for this type of work, what our
prices were," and authorized him to negotiate the subcontract
with "his brother or any other subcontractor." T. 213.
The relationship between Zaferiou and Bonafide involved more
than just Zaferiou's brother -- his wife, Despina Zaferiou, was
Bonafide's president and his daughter, Eva Zaferiou, was a
corporate officer. Moutis was aware of the involvement of
Despina Zaferiou because she signed the subcontract, Petitioner's
Exhibit (PX) 3, and the certified payrolls on behalf of Bonafide.
T. 138. Moutis visited the work site on occasion, T. 215, and
even though Zaferiou was given primary responsibility for the
review of Bonafide's certified payrolls, T. 219, Moutis reviewed
the payrolls "in a cursory fashion." Statement of the
Administrator, July 20, 1995 (Administrator's Statement), at 19.
The record reflects that the first time Petitioners had
actual knowledge of the underpayment of Bonafide's employees is
when the contracting officer, Bonnie Price, informed Moutis of
some employee complaints in June, 1992. T. 220. Moutis
terminated Bonafide's contract after finding out about the
employee complaints. T. 221. Wage and Hour initiated its
investigation in August, 1991. T. 117.
Bonafide's employees were paid less than prevailing wages.
The ALJ found and the Board agrees that "John Zaferiou was aware
of the violations of the Act with respect to the employees of
Bonafide." D. and O. at 5. The ALJ then concluded that since
Structural was aware of the wrongful acts of Bonafide through its
employee, Zaferiou, debarment as to Structural is appropriate.
Id. The ALJ went on to conclude that Moutis should also be
debarred because he had the [2][3] opportunity to "review[ ]
Bonafide's certified payrolls, discover[ ] the underpayment and
insure[ ] that the correct wages were paid." Id. at 6.
II. DISCUSSION
The only question before the Board is whether Structural and
Moutis should be debarred. Pursuant to the Act and 29 C.F.R.
[sec]5.12(a)(2) the Petitioners should be debarred if they are
"found to have disregarded their obligations to employees." The
Administrator states that "Structural's action through John
Zaferiou and inaction on the part of Moutis triggers the
debarment penalty in this case." Administrator's Statement at
18.
The Board has repeatedly held that violations such as
misclassification of employees or failure to pay prevailing wage
rates, coupled with falsification of certified payrolls,
constitutes disregard of Davis-Bacon Act obligations. E.g., R.J.
Sanders, Inc., WAB Case No. 90-25, Jan. 31, 1991; Marvin E.
Hirchert, WAB Case No. 77-17, Oct. 16, 1978. In this case
neither Structural nor Moutis misclassified or underpaid
employees, nor did they falsify certified payrolls. The ALJ
found that Petitioners disregarded their obligations under the
Act by imputing the wrongful acts of Zaferiou to Structural, D.
and O. at 5, and by finding that Moutis "knew of the violations
of the Act which were manifest in Bonafide's false certified
payrolls." Id.
The Board has never debarred a contractor for an act or
omission that did not include an element of intent and we decline
to do so here. In Killeen Electric Co., Inc., WAB Case No.
87-49, Mar. 21, 1991, slip op. at 7, the Board held that in the
absence of a finding that certified payrolls were falsified,
Copeland Act kickback violations committed by petitioners were
sufficient to show the intent necessary to find that petitioners
disregarded their obligations to employees under the Davis-Bacon
Act. In Sealtite Corp., WAB Case No. 87-06, Oct. 4, 1988, the
Board debarred a contractor for wage and overtime violations,
even though no false certified payrolls were submitted. The
Board did however, find a "willful" violation because the
contractor failed to submit certified payrolls, after specific
notice, as required by 29 C.F.R. [sec] 5.5(a)(3)(ii). Id. at 4.
In determining whether a corporation or its officers should
be debarred for violation of the Act, the Board has never
interpreted the Act or the regulations to impose a strict
liability standard. Although the Board has consistently found
prime contractors to be liable for back wages owed to underpaid
employees, regardless of whether the prime contractor
participated in or was aware of the underlying violation, we have
not extended this strict liability standard to debarment. The
[3][4] Board has not found a contractor to have disregarded its
obligations under the Act without a showing that the contractor
participated in the violation of the Act.
In this case the record contains no evidence of a willful
violation of the Act by anyone other than Bonafide and its
principals. The Wage and Hour investigator specifically
testified that Moutis was not involved in preparing Bonafide's
false certified payrolls. T. 138.
The ALJ's conclusion that Moutis knew of Bonafide's false
certified payrolls is not supported by the record. Zaferiou was
assigned the responsibility for reviewing Bonafide's payrolls.
T. 218-219. Moutis's review of Bonafide's payrolls is described
by the Administrator as "cursory." Administrator's Statement at
19. The Administrator points to a few discrepancies on the face
of Bonafide's certified payrolls that allegedly should have been
noticed by Moutis. T. 185. But, these discrepancies are minor.
One is a math error, T. 193 -194, and another involves the wrong
date on a payroll record. T. 189-190. The third involves a
misclassification of workers, T. 197, but does not support a
finding that Moutis knew or should have known of Bonafide's
violations. The Board cannot conclude, on the basis of the
evidence presented, that Moutis knew or should have known of
Bonafide's false certified payrolls because of these
discrepancies.
When Petitioners found out about the violations they took
action and cancelled Bonafide's contract. T. 220-221. Thus,
Petitioners exhibited an appropriate concern for compliance with
the Act and took reasonable action upon learning of a violation
committed by a subcontractor. The Board finds no evidence in
this record that Structural or Moutis acted in disregard of
their obligations under the Act.
Our inquiry does not end at this point because John Zaferiou
was an employee of Structural and therefore, Structural and its
principals could be debarred based upon his wrongful conduct.
The record here does not reflect that Zaferiou committed any
unlawful act on behalf of Structural. The ALJ found that
Zaferiou "was aware of the violations of the Act with respect to
the employees of Bonafide." D. and O. at 5. The record
certainly supports the conclusion that Zaferiou knew of
Bonafide's violations of the Act. However, the law and
regulations do not support the conclusion of the ALJ that a
corporation and its principal should be debarred because an
agent, acting for his own benefit, did not disclose the wrongful
acts of another.
The only case cited in the D. and O., or in the
Administrator's Statement, in support of the position that
Petitioners should be debarred is American Society of Mechanical
Engineers, Inc. v. Hydrolevel Corp., 456 U. S. 556 (1982). In
that case the Supreme Court held that a corporation is civilly
liable for antitrust violations committed by its agent acting
with apparent authority. The Court's [4][5] analysis in
Hydrolevel is based upon sections of the Restatement (Second) of
Agency that are limited in scope to specific types of torts:
"[sec]247 (defamation); [sec]248 (interference with business
relations); [sec]257 (misrepresentation); and [secs] 261 and 262
(fraud)." See Hydrolevel Corp. v. Am. Soc. of Mech. Engineers,
635 F.2d 118, 125 (2d Cir. 1980). The appellate court reasoned
that the antitrust violation committed by the agent in Hydrolevel
is far closer to these torts than to a "conventional tort." Id.
As noted by the Second Circuit, a principal can be held liable
for conventional torts committed by an agent only if it ratified
the wrongful act, or if the agent acted to advance the principals
interest. See Restatement (Second) of Agency [secs] 235, 236.
The reason for the distinction between the intentional torts
specifically identified above and conventional torts is that
"[s]uch torts arise from and are enhanced by the agent's
appearance of authority." Hydrolevel Corp. v. Am. Soc. of Mech.
Engineers, 635 F.2d at 118. The Supreme Court noted that:
Under an apparent authority theory, "liability is based
upon the fact that the agent's position facilitates the
consummation of the fraud, in that from the point of
view of the third person the transaction seems regular
on its face and the agent appears to be acting in the
ordinary course of the business confided to him."
[Restatement (Second) of Agency] [sec] 261, Comment a,
p. 571.... In other words, "one who appears to have
authority to make statements for the [principal] gives
to his statements the weight of the [principal's]
reputation." [Restatement (Second) of Agency [sec]
247, Comment c, p. 545].... See generally W. Prosser,
Law of Torts 467 (4th ed. 1971).
Hydrolevel, supra, 456 U.S. at 566-567. In this case, Zaferiou's
position with Structural did not facilitate the consummation of a
fraud. He made no statement nor engaged in any wrongful act
within the apparent authority granted to him by Petitioners that
induced an innocent third party to be defrauded. The wrongful
act committed by Zaferiou in this case is not similar to those
intentional torts that render a principal liable for the acts of
an agent even when the agent is acting outside the scope of his
employment and for his own purposes.
Here, Zaferiou's wrongful conduct consisted of failing to
act. The ALJ and the Administrator impute Zaferiou's failure to
act to Structural. But, the Hydrolevel case does not support
such an imputation. Section 232 of the Restatement (Second) of
Agency states that "[t]he failure of a servant to act may be
conduct within the scope of employment," but there is no
liability placed upon the principal "[w]here the servant acts for
his own purposes." Id. Comment c; Also see [sec]235 (principal
not liable for conduct not for purpose of serving master).
[5][6] Here, Zaferiou acted on behalf of Bonafide and since there
is no allegation that the subcontract was underbid, T. 139-140,
he acted detrimentally to the interests of Structural.
Therefore, his wrongful conduct should not be imputed to
Structural.
The ALJ's D. and O. is reversed.
BY ORDER OF THE BOARD:
David A. O'Brien, Chair
Karl J. Sandstrom, Member
Joyce D. Miller, Alternate Member
Gerald F. Krizan, Esq.
Executive Secretary[6]
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