Group v. Sharp

• Decision Date: 21 March 2011
• Docket Number: No. 10–2365.,10–2365.
• Parties: TRI–M GROUP, LLCv.Thomas B. SHARP, Secretary, Delaware Department of Labor, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

638 F.3d 406

190 L.R.R.M. (BNA) 2518

17 Wage & Hour Cas.2d (BNA) 712

TRI–M GROUP, LLC

v.Thomas B. SHARP, Secretary, Delaware Department of Labor, Appellant.

No. 10–2365.

United States Court of Appeals, Third Circuit.

Argued Dec. 15, 2010.Opinion Filed: March 21, 2011.

OPINION TEXT STARTS HEREWest CodenotesHeld UnconstitutionalCode Del.Regs. 19 1000 1101Unconstitutional as Applied29 West's Del.C. § 6960(a, e); Code Del.Regs. 19 1000 1101 Linda M. Carmichael, Esq., Jennifer D. Oliva, Esq. [Argued], Department of Justice, Wilmington, DE, for Appellant.Alexander G. Bomstein, Esq., Stephen J. Sundheim, Esq. [Argued], Justin J. Williams, Esq., Pepper Hamilton, Philadelphia, PA, M. Duncan Grant, Esq., Pepper Hamilton, Wilmington, DE, for Appellee.Before: RENDELL, HARDIMAN and VANASKIE, Circuit Judges.

OPINION OF THE COURT

RENDELL, Circuit Judge.

In this appeal, we confront Tri–M Group, LLC's (“Tri–M”) challenge to the constitutionality of Delaware's regulatory scheme for the training and compensation of apprentices on construction projects. In the District Court, Tri–M sought a declaratory judgment and injunctive relief against enforcement of the Delaware Prevailing Wage Regulations (“DPWR”), 19–1000–1322 Del. Admin. Code § 1 et seq. (2010), and the Rules and Regulations Relating to Delaware Apprenticeship and Training Law (“ATRR”), 19–1000–1101 Del. Admin. Code § 1.0 et seq. (2010), alleging that the regulations discriminated against Tri–M and other out-of-state contractors in violation of the negative—or dormant—Commerce Clause. The District Court granted summary judgment to Tri–M, concluding that Delaware's refusal to recognize out-of-state registered apprentices facially discriminated against out-of-state contractors without advancing a legitimate state interest, and this appeal followed. See Tri–M Group, LLC v. Sharp, 705 F.Supp.2d 335 (D.Del.2010). We agree and will affirm.

Background & Procedural History

The facts of the underlying suit are undisputed. In response to passage of the National Apprentice Act (“Fitzgerald Act”), 29 U.S.C. § 50 et seq., Delaware enacted an apprentice regulatory scheme to “develop and conduct employee training and registered apprenticeship programs,” and to provide “for the establishment and furtherance of standards of apprenticeship and training to safeguard the welfare of apprentices and trainees.” 19 Del. C. § 201. ¹ The Delaware Prevailing Wage Law (“PWL”), 29 Del. C. § 6960 et seq. ,² provides that, for certain public works projects at least partially funded by the State, mechanics and laborers—including apprentices—shall be paid a prevailing wage set by the Delaware Department of Labor (“DDOL”).³ The implementing Delaware Prevailing Wage Regulations (“DPWR”) define mechanics and laborers as “those workers whose duties are manual or physical in nature, as distinguished from mental or managerial.” 19–1000– 1322 Del. Admin. Code § 3.1.3. Although apprentices are included within the definition of a mechanic, the regulations distinguish between the two, and define apprentices as “persons who are indentured and employed in a bona fide apprenticeship program and individually registered by the program sponsor with the [DDOL].” Id. §§ 3.1.3 & 3.1.4.1.1. The regulations further provide a detailed schedule of the “minimum wage progression” for registered apprentices, and establish that employers must pay apprentices a fraction of the wages earned by mechanics.⁴ 19–1000–1101 Del. Admin. Code §§ 6.2.6 & 6.2.7. The apprentice rate depends on the length of the project and the apprentice's progression, but is always a percentage of the mechanic's rate.⁵

Pursuant to the regulations, only a contractor that has registered its apprenticeship program in Delaware is eligible to pay the lower apprentice wage rate to registered apprentices. To qualify, a contractor

must be a “Delaware Resident Contractor” or hold and maintain a “Delaware Resident Business License.” The Registrant or Sponsor must hold and maintain a permanent place of business, not to include site trailers or other facilities serving only one contract or related set of contracts. To be eligible to be a Registrant or Sponsor, Employer/Business ... must have the training program and an adequate number of Journeypersons to meet the ratio requirements as stated for that particular apprenticeable occupation.

19–1000–1101 Del. Admin. Code § 3.1.⁶ Under this rubric, an out-of-state contractor cannot sponsor an apprentice program without setting up and maintaining a permanent office location within Delaware.⁷ Failure to abide by these conditions may result in financial penalties and bar an employer judicially determined to have violated the PWL from bidding on public construction contracts for three years. See 29 Del. C. § 6960(e). In this way, the Delaware regulations permit in-state contractors on public works projects to pay a reduced apprentice rate to their Delaware-registered apprentices, while requiring out-of-state contractors to pay the higher mechanic's rate to their non-Delaware-registered apprentices.⁸

Appellee Tri–M is a Pennsylvania-based electrical contracting company that successfully bid on a sub-contract for electrical and building automation work at the Delaware State Veterans Home (“the Project”) in Milford, Delaware, which was funded in part by Delaware state funds.⁹ Tri–M began work on the Project in August 2005, employing Pennsylvania-registered apprentices and fully-trained mechanic professionals, but paid its employees pursuant to the wage rates described in the DDOL prevailing wage determination for their respective classifications.

On March 26, 2009, a DDOL Labor Law Enforcement Officer conducted an on-site inspection of the Project site. The officer subsequently informed Tri–M that the DDOL had opened a case to verify Tri–M's compliance with the PWL, and requested and timely received Tri–M's daily logs and sworn payroll reports for employees working on the Project. He also confirmed with the Delaware Apprenticeship and Training Department that Tri–M did not have an apprentice program registered in Delaware. This necessarily meant that Tri–M's apprentices were not Delaware-registered apprentices. Tri–M's CFO inquired about registering Tri–M's apprentices in Delaware, but was informed that Delaware requires an apprentice program sponsor to maintain a permanent place of business in Delaware.¹⁰

Tri–M's records indicated that it paid its Pennsylvania-registered apprentices the Delaware-registered apprentice rate, rather than the mechanic's rate applicable to non-Delaware-registered apprentices. As a result, DDOL informed Tri–M that it was in violation of the PWL and DPWR for failing to pay the applicable higher prevailing wage rates. Tri–M was thus required to conduct a self-audit and pay any wage deficiencies to the Pennsylvania-registered apprentices who incorrectly received the lower apprentice rate, instead of the higher mechanic's rate. Tri–M provided DDOL with documentation regarding its self-audit, including the amounts needed to bring each employee's pay up to the mechanic's prevailing wage rate, and timely reimbursed the six Pennsylvania-registered apprentices working on the Project who were not recognized as apprentices under Delaware law.¹¹

Subsequently, Tri–M brought an action for declaratory and injunctive relief against then-Secretary of the Delaware Department of Labor Thomas Sharp, alleging that DDOL discriminated against Tri–M and other out-of-state contractors by refusing to recognize their out-of-state registered apprentices for purposes of the PWL and DPWR. At the conclusion of discovery, the District Court granted summary judgment to Tri–M, and this appeal followed.

DDOL raises three primary arguments on appeal. First, DDOL contends that the State's challenged procurement scheme—including the permanent place of business requirement—does not discriminate against interstate commerce, and is, therefore, not violative of the dormant Commerce Clause. Second, DDOL posits that the contested apprentice program regulations were explicitly authorized by Congress and approved by the United States Department of Labor, thus negating any conflict with the Commerce Clause. Finally, DDOL argues, for the first time on appeal, that even assuming arguendo that the challenged regulatory scheme is discriminatory, its attachment of prevailing wage conditions to State-funded public works contracts constitutes participation in the private market and does not run afoul of the dormant Commerce Clause.

Jurisdiction and Standard of Review

The District Court exercised federal subject matter jurisdiction over Tri–M's complaint pursuant to 28 U.S.C. § 1331. Our jurisdiction arises under 28 U.S.C. § 1291 over the State's appeal of the District Court's grant of summary judgment to Tri–M. We exercise plenary review of a district court's order granting or denying summary judgment, applying the same standard as the district court: “Summary Judgment is appropriate only where, drawing all reasonable inferences in favor of the nonmoving party, there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law.” Ruehl v. Viacom, Inc., 500 F.3d 375, 380 n. 6 (3d Cir.2007) (internal quotation and citation omitted).

Discussion

We are asked to decide whether Delaware's differentiated prevailing wage regulations interfere with interstate commerce in violation of the Commerce Clause. See U.S. Const. art. I, § 8, cl. 3. We cannot reach this question, however, without first resolving DDOL's contention that the imposition of prevailing wage conditions upon out-of-state contractors constituted permissible market participation by the State within the bounds of the dormant Commerce Clause. This is so because “courts treat the question of whether the state is acting as a market participant as a threshold question for dormant Commerce Clause analysis.” United Healthcare Ins. Co. v. Davis, 602 F.3d 618,...