DATE: September 18, 1995
CASE NO. 90-CRA-1
IN THE MATTER OF
ACONI CONSTRUCTORS, INC.,
WILLIAM H. PADILLA,
JUAN F. YDROVO,
A/K/A JOHN F. YDROVO,
AND THEVARAJAH KANDAVANAM,
DEFENDANTS.
BEFORE: THE SECRETARY OF LABOR
FINAL DECISION AND ORDER
This case arises under the Program Fraud Civil Remedies Act
of 1986 (PFCRA), 31 U.S.C. §§ 3801-3812 (1988). PFCRA
subjects any person who makes . . . or causes to be made . . . a
written statement that . . . the person knows or has reason to
know . . . asserts a material fact which is false, with respect
to a government contract or program, to a civil penalty of not
more than $5,000 for each such statement. 31U.S.C. §
3802(a)(2). The Solicitor of Labor (Solicitor)[1] alleged that
defendant Aconi Constructors, Inc. (Aconi) and the individual
defendants filed false statements in connection with a government
construction contract certifying compliance with the prevailing
wage requirements of the Davis-Bacon Act, 40 U.S.C. §§
276a-c, and the overtime provisions of the Contract Work Hours
and Safety Standards Act (CWHSSA), 40 U.S.C. §§ 327-
333.
Background
The ALJ made detailed findings of fact in his Initial
Decision (I. D.) at pp. 1-6. Aconi held a prime contract with
the U.S. Postal Service to construct additions and make
alterations to a USPS facility in Miami, Florida. I. D. at 1-2.
The contract required Aconi to pay prevailing wages determined by
the Department of Labor under the Davis-Bacon Act for certain
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occupations and to pay overtime as required by CWHSSA. I. D. at
2. Aconi did not dispute that a few weeks after beginning work
on the contract it lowered the wages of laborers from those
required by the applicable wage determination, $9.83 an hour, to
$7.50 an hour.[2] I. D. at 3. In addition, Aconi did not pay
the overtime premium required by CWHSSA.[3] I. D. at 4.
Aconi s contract with the Postal Service required it to
submit a certification for each work week that employees had been
paid not less than the applicable wage determination rates.
I. D. at 3. Aconi kept two sets of records, one for internal use
which showed the actual wages paid and hours worked, and the
second contained the certified payrolls submitted to USPS with
the falsified information described above. I. D. at 6. From
January to June 1987, Aconi submitted 21 falsified certified
payrolls. I. D. at 6.
The ALJ Initial Decision
After a hearing, the Administrative Law Judge (ALJ) held
that Aconi violated the PFCRA when it submitted 21 false
certified payrolls and that each of the individual defendants
knew or had reason to know the payrolls were false. The ALJ
rejected all of Aconi s arguments for dismissal and recommended
assessment of a penalty of $5,000 for each false statement, a
total of $105,000. Defendants filed timely exceptions to the
ALJ s decision.
Discussion
Defendants assert that the ALJ should have dismissed this
case because the Department of Labor did not obtain the prior
approval of the Attorney General before initiating this
proceeding, as required by 31 U.S.C. § 3803. Statutes which
do not provide specific consequences for failure to comply with
internal administrative procedures do not provide a basis for
dismissal of a proceeding initiated without complying with those
procedures. The Supreme Court has stated clearly that:
We have long recognized that "many statutory
requisitions intended for the guide of officers in the
conduct of business devolved upon them . . . do not
limit their power or render its exercise in disregard
of the requisitions ineffectual." French v.
Edwards, 80 U.S. 506, 13 Wall. 506, 511 (1872). We
have held that if a statute does not specify a
consequence for noncompliance with statutory timing
provisions, the federal courts will not in the ordinary
course impose their own coercive sanction. See
United States v. Montalvo-Murillo, 495 U.S. 711,
717-721 (1990); Brock v. Pierce County, 476 U.S. 253, 259-262 (1986);
see alsoSt. Regis Mohawk Tribe v. Brock,
769 F.2d 37, 41 (CA2 1985) (Friendly, J.).
[PAGE 3]
United States v. James Daniel Good Real Property, 114 S. Ct
492, 509-10 (1993). See also Navistar Intern. Transp.
Corp. v. United States Environmental Protection Agency, 858
F.2d 282, 285-86 (1988) (failure of agency to comply with
regulation on contents of notice of noncompliance does not
deprive agency of jurisdiction.) The cases cited by defendants
are inapposite because they involve statutory prerequisites to
suit by private parties against the government or against other
private parties.
Defendants also claim that only the Postal Service may
initiate an enforcement action under PFCRA because the false
statements were submitted to USPS in connection with a contract
with that agency. Although defendants assert that investigation
and enforcement by the Department of Labor in these
circumstances violates explicit language of the statute, they
cite none other than the definition of the term authority.
PFCRA defines authority as, among other things, an executive
department, 31 U.S.C. § 3801(a)(1)(A), and the Department
of Labor is an executive agency. 29 U.S.C. § 551. Nothing
in the definition or elsewhere in the act restricts the meaning
of authority to an agency to which a false statement was
submitted.
In addition, one of the purposes of PFCRA was to deter the
making, presenting, and submitting of [false] claims and
statements in the future. Pub. L. 99-509, Title VI, Subtitle B,
§ 6102(b)(1). The Department of Labor, rather than the
Postal Service, is the agency with expertise in the Davis-Bacon
Act and the CWHSSA, as well as specific information on violation
of those acts by the defendants developed in the investigation by
the Department of Labor, Wage and Hour Administration. I. D. at
5. Because of the nature of the false statements, deliberate
misrepresentation of straight time and overtime wages paid in
violation of statutes administered by the Department of Labor, it
is logical and more effective for the Department of Labor to
enforce the PFCRA in this case.[4]
Defendants claim that they had no notice of what
constitutes a false statement is frivolous. The statute provides
that a false statement is one which the person submitting it
knows or has reason to know (i) asserts a material fact which is
false, fictitious, or fraudulent; or (ii)(I) omits a material
fact; and (II) is false, fictitious, or fraudulent as a result of
such omission . . . . 31 U.S.C. § 3802(a)(2)(A).
Defendants do not dispute that the certified payrolls in question
contained false information. I. D. at 5-6.
Defendants also claim that application of the PFCRA
constitutes an improper modification of the contract with the
Postal Service, but I reject this assertion. Congress authorized
[PAGE 4]
imposition of the civil penalties of the PFCRA whenever false
statements are submitted to the government independent of any
contractual obligations assumed by a contractor. 31 U.S.C.
§ 3802(a)(2) ( Any person who makes [or] presents [a false]
written statement . . . shall be subject to, in addition to
any other remedy that may be provided by law . . . a civil
penalty . . . . )
Defendants argue next that the civil money penalties
provided for in the PFCRA are excessive, thereby making them
criminal in nature and to which traditional criminal due process
protections should apply. To the extent Defendants imply that
PFCRA infringes upon their constitutional rights, I note only
that administrative agencies are not authorized or competent to
decide the constitutionality of statutes they administer.
Oestereich v. Selective Service Board, 393 U.S. 233, 242
(1958) (Harlan, J., concurring); Finnerty v. Cowan, 508
F.2d 979, 982 (2d Cir. 1974). Defendants also claim they did not
have notice that the PFCRA could be applied to false
statements as opposed to false claims for funds. As noted
above, the statute could not be more clear that both false claims
and false statements can incur civil money penalties. See
31 U.S.C. §§ 3802(a)(1) and (2).
The individual Defendants assert it was improper for the ALJ
to infer from their exercise of Fifth Amendment rights, refusal
of Defendants to testify, that they each had knowledge of the
submission of false statements. But the ALJ made other
independent findings from which he concluded that [t]he record
. . . compels the . . . inference that the three individual
defendants were parties to the fraudulent filing . . . . I. D.
at 9. In addition, the ALJ held that Defendant Thevarajah
Kandavanam (usually referred to in the record as Rajah ) had
actual knowledge of the fraud. Id. The record fully
supports these conclusions and I have not based my decision on
any inferences which may be drawn from the Defendants exercise of
their constitutional rights.
The individual Defendants also claim there was no proof that
each of them knowingly submitted false statements. But Defendant
Rajah admitted to investigators from the Department of Labor
Inspector General s (I.G.) Office that he had put incorrect
information on the certified payrolls and signed them. T.
(Transcript of hearing) 198-99; I. D. at 6. Defendants Padilla,
the owner and President of Aconi, and Ydrovo, the Vice President,
denied they knew the payrolls contained false information, but
they acknowledged to the I.G. that unforeseen problems on the
construction project increased their costs and forced them to
lower the wage rates. T. 145. This supports the ALJ s inference
that Padilla and Ydrovo knew the payrolls were falsified. In
addition, the statute imposes the common law standard of
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liability for false statements where a person knew or had
reason to know the statement was false. See 132 Cong.
Rec. S10,034 (daily ed. July 31, 1986) (statement of Sen.
Domenici):
In establishing liability under [PFCRA], the government
would not only have to prove that a claim or statement is
false, but also that the person "knows or has reason to
know" that the claim or statement is false. The amendment
defines this knowledge standard to cover those persons who
either have actual knowledge that a claim or statement
submitted is false, act in deliberate ignorance of the truth
or falsity of the claim or statement, or act in reckless
disregard of the truth or falsity of the claims or
statement. The "knows or has reason to know" standard for
establishing liability under this section is intended to
capture those persons who recklessly disregard facts which
are known or readily discoverable upon reasonable inquiry,
while excluding those persons who submit false claims or
make false statements through mistake, momentary
thoughtlessness, or inadvertence.
As the President and Vice President of the company with
knowledge of the unexpected costs of the USPS contract and the
reduction of wages as a result, it is reasonable to conclude that
Defendants Padilla and Ydrovo knew or had reason to know false
payrolls were being submitted and that they violated 31 U.S.C.
§ 3802(a)(2).
Defendants claim it was improper for the Department of Labor
to bring this enforcement action because the regulations under
which it was filed were not promulgated until after the alleged
violations. See 52 Fed. Reg. 48,492 (1987), codified at
29 C.F.R. Part 22 (1994). Procedural regulations adopted after
an alleged substantive violation of a statute do not violate the
general presumption against retroactive application of statutes
and regulations. The Supreme Court explained:
Changes in procedural rules may often be applied in
suits arising before their enactment without raising
concerns about retroactivity. For example, in Ex
parte Collett, 337 U.S. 55, 71 (1949), we held that
28 U.S.C. § 1404(a) governed the transfer of an
action instituted prior to that statute's enactment.
We noted the diminished reliance interests in matters
of procedure. Id., at 71, n28. Because rules of
procedure regulate secondary rather than primary
conduct, the fact that a new procedural rule was
instituted after the conduct giving rise to the suit
does not make application of the rule at trial
retroactive. Cf. McBurney v. Carson, 99 U.S.
567, 569 (1879), n.29.
[PAGE 6]
Landgraf v. USI Film Products, 114 S. Ct. 1483, 1502
(1994). The PFCRA regulations, which establish procedural rules
only and do not alter the obligations imposed by the statute, are
not an improper retroactive rule.
Finally, Defendants object to the amount of the penalty
recommended by the ALJ, $5,000 for each violation. They argue
that the ALJ improperly failed to consider each of the sixteen
factors enumerated in the regulations for determining the amount
of PFCRA penalties. 29 C.F.R. § 22.31(b).[5] The ALJ did
not explain how he arrived at his recommendation to impose the
full penalty of $5,000 for each of the 21 violations,. I. D. at
11, but the regulations explicitly characterize the factors as
among those that may influence the ALJ and the authority
head in determining the amount of penalties . . . . 29 C.F.R.
§ 22.31(b) (emphasis added).
Measuring Defendants conduct against the factors listed in
the regulations, I find that many of them strongly support
imposition of the maximum penalty for each violation. Defendants
submitted not one or two, but 21 false certified payrolls, 29
C.F.R. § 22.31(b)(1), over a six month period, (b)(2), in a
blatant attempt to mislead the government into accepting that
Defendants had complied with the Davis-Bacon Act and the CWHSSA.
One of the key factor's in this case is (b)(7), [t]he potential
impact of the misconduct upon . . . public confidence in the
management of Government programs and operations, including
particularly the impact on the intended beneficiaries of such
programs. (Emphasis added.) When Defendants encountered
unexpected problems at the USPS construction project which
increased their costs, rather than seeking to negotiate a
modification of the contract or absorbing the extra costs from
their profits, Defendants solution was unilaterally and
illegally to impose lower wages on its workers. A $5,000 penalty
for each violation will help restore public confidence that the
laws will be enforced to protect beneficiaries entitled to
specified wages and premium pay. It will also deter Defendants
and others from engaging in the same or similar misconduct in the
future. 29 C.F.R. § 22.31(b)(16).
I adopt the ALJ s recommendation that a penalty of $105,000
be assessed against the Defendants and they are ordered to pay
the penalty within 60 days of the date of service of this
decision. Defendants have the right to judicial review of this
decision as provided in 31 U.S.C. § 3805.
SO ORDERED.
________________________
Secretary of Labor
Washington, D.C.
[ENDNOTES]
[1] The Solicitor is the reviewing official authorized by
Department of Labor regulations to serve a complaint under PFCRA.
29 C.F.R. §§ 22.2(q); 22.7(a) (1994).
[2] Aconi cut the workers pay because it incurred extra costs
caused by unexpected drainage problems. I. D. at 3.
[3] Aconi paid workers for overtime at only the regular rate
with separate checks disguised as reimbursements for tools or
expenses. I. D. at 4.
[4] I note that there is no claim that the Department of Labor
hearing procedures did not adequately protect defendants due
process rights, another stated purpose of the statute. Pub. L.
99-509, § 6102(b)(2).
[5] The same on regulations which Defendants claim may not be
applied here.
