Diamond "D" Const. Corp. v. McGowan

Decision Date01 March 2002
Docket NumberDocket No. 01-7055.
Citation282 F.3d 191
PartiesDIAMOND "D" CONSTRUCTION CORP., Plaintiff-Appellee, v. James J. McGOWAN, Commissioner of Labor of the State of New York, Department of Audit and Control, State of New York, Michael J. O'Connell, Department of Audit and Control, State of New York, Ronald Kinn, individually and in his capacity as Public Work Wage Investigator employed by the DOL, Dale Stanley, individually and in his capacity as an employee of the DOL, Defendants-Appellants, New York State Department of Labor ("DOL"), Bureau of Public Works, Brian Robison, individually and in his capacity as Senior Public Work Wage Investigator employed by the DOL, Counter-Defendants-Appellants, County of Erie, Nancy Naples, Erie County Comptroller, Defendants.
CourtU.S. Court of Appeals — Second Circuit

Seth Kupferberg, Assistant Attorney General for Eliot Spitzer, Attorney General of the State of New York (Daniel Smirlock, Deputy Solicitor General, M. Patricia Smith, Assistant Attorney General in Charge of Labor Bureau, and Pico Paul

Ben-Amotz, Assistant Attorney General, of counsel) for Defendants-Appellants and Counter-Defendants-Appellants.

Henry W. Killeen, III, Killeen & Killeen, Orchard Park, NY (Anna Marie Richmond and Timothy J. Greenan, of counsel) (Brian P. Fitzgerald, Napier, Fitzgerald & Kirby, Buffalo, NY, on the brief) for Plaintiff-Appellee.

Nancie G. Marzulla, Defenders of Property Rights, Washington, DC, for Amicus Curiae Defenders of Property Rights.

Before: McLAUGHLIN, POOLER, Circuit Judges, and Sand, District Judge.*

McLAUGHLIN, Circuit Judge.

In this case we must apply bedrock principles of federalism, embodied in the Younger abstention doctrine. Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). We are asked to determine whether a federal court was empowered to enjoin ongoing state administrative proceedings brought by the New York State Department of Labor ("DOL") against a contractor, Diamond "D" Construction Corporation ("Diamond D"). More precisely, we must inquire whether the manner in which the DOL's investigation and administrative proceedings were conducted, coupled with the precarious financial position inflicted upon Diamond D, created sufficient circumstances to trigger either or both of the established exceptions to the Younger abstention doctrine. Because we hold that the DOL's conduct and its effects on Diamond D are not encompassed by either exception, we conclude that the district court was required by Younger to abstain from taking jurisdiction over this claim for injunctive relief.1 Therefore, we vacate the preliminary injunction and remand this case to the district court.

BACKGROUND
A. New York's Statutory Scheme

The New York Constitution and New York Labor Law provide that laborers employed by public works contractors must be paid the "prevailing rate of wages" for their trade in the New York locality where the work is done. N.Y. Lab. Law § 220(3) (McKinney 2001); see also N.Y. Const., Art. I, § 17. This is known as the "prevailing wage law." The DOL is empowered to investigate, either sua sponte or upon a worker's complaint, whether a contractor has complied with the prevailing wage law. N.Y. Lab. Law §§ 220(7), 220-b(2)(c).

If, upon investigation, the DOL determines that laborers have been paid less than the prevailing wage, the DOL may, prior to any hearing or administrative process, withhold payment on the contract in an amount sufficient to satisfy: (1) the payments that "appear to be due" to the workers; (2) interest of 16%, running from the date of the alleged underpayments; and (3) a civil penalty of up to 25% of the total alleged amount of underpayment. Id. § 220-b(2)(a), (c) & (d); N.Y. Banking Law § 14-a(1) (McKinney 2001). The amount of underpayment is approximated after examination of the contractor's payroll records, or if those records are not made available, the best available evidence. E.g., Alphonse Hotel Corp. v. Sweeney, 251 A.D.2d 169, 674 N.Y.S.2d 351, 352 (1st Dep't 1998). The withholding will be implemented when the DOL sends a "notice of withholding" to the financial officer of the public body sponsoring the contract. N.Y. Labor Law § 220-b(2)(a).

Once the DOL issues the notice of withholding, the contractor is entitled to an administrative hearing before the DOL to determine if, in fact, there have been underpayments. N.Y. Lab. Law § 220-b(2)(c). Such hearings "shall be expeditiously conducted." Id. § 220(8).

If the contractor does not get relief in the administrative hearing, it may challenge the administrative findings in an Article 78 proceeding before the Appellate Division of the New York State Supreme Court. Id. § 220-b(2)(e); N.Y. C.P.L.R. § 7803(4). The contractor may also mount constitutional challenges to the DOL investigation and administrative proceeding in the Article 78 action. N.Y. C.P.L.R. § 7803(3); c.f. Solnick v. Whalen, 49 N.Y.2d 224, 230-31, 425 N.Y.S.2d 68, 401 N.E.2d 190 (1980) (approving procedure of raising constitutional objections to administrative reimbursement rate decision in Article 78 proceeding). The administrative proceeding, in contrast, is limited solely to the determination of whether the prevailing wage law was violated.

B. Procedural History

As it considered this case, the district court published a troika of opinions, the last of which made exhaustive factual findings concerning the DOL's investigation of Diamond D and the subsequent administrative proceedings. Diamond "D" Constr. Corp. v. New York State Dep't of Labor Bureau of Pub. Works, 142 F.Supp.2d 377 (W.D.N.Y.2001) ("Diamond D III"). We presume familiarity with that opinion and the two that preceded it. See Diamond "D" Constr. Corp. v. New York State Dep't of Labor Bureau of Public Works, 110 F.Supp.2d 200 (W.D.N.Y. 2000) ("Diamond D II"); Diamond "D" Constr. Corp. v. New York State Dep't of Labor Bureau of Public Works, 105 F.Supp.2d 167 (W.D.N.Y.2000) ("Diamond D I"). Therefore, we need only offer an abbreviated version thereof, recounting just those facts and events necessary to understand our holding in this case.

Diamond D is a contractor that derives significant revenue from public contracts for road construction. Recently, Diamond D has served as the general contractor for several road construction projects in western New York, including the three projects at issue here. The New York State Department of Transportation ("DOT") was the sponsoring agency for two of these projects. The third was sponsored by the Erie County Department of Public Works.

1. The DOL Investigation

In June 1997, two Diamond D employees sent written complaints to the DOL alleging underpayment of wages by Diamond D. Eight months after receiving the complaints, the DOL assigned Ronald Kinn to investigate the allegations. Kinn requested payroll records from Diamond D for the three public works contracts called into question. Diamond D initially refused to comply with Kinn's request. Kinn therefore conducted his wage investigation using other available evidence.

From the DOT and Erie County, Kinn obtained most (but not all) of the certified Diamond D payroll records that it was required to submit for review pursuant to its contracts with the sponsoring agencies. However, Kinn apparently placed greater reliance on records kept by the on-site engineers and inspectors employed by the sponsoring agencies. These latter records generally included a count of the number of workers and pieces of equipment, tracked the volume of materials used and charted the progress of the project. They did not include a detailed list of the number of hours worked by individual employees or the classification of the work performed.

According to one of the on-site agency officials that Kinn consulted, these records amount to little more than a handy way for the sponsoring agency to get a rough idea of the men, equipment and material on a job. Nevertheless, Kinn relied extensively on agency records, even when they apparently conflicted with the certified payrolls he had obtained from the sponsoring agencies and even though several on-site officials expressly told him that the agency records could not be reliably used to determine accurately the number of hours worked by individual workers or the type of work performed. Rounding out his investigation, Kinn interviewed a few Diamond D employees, including the complainants, and obtained a smattering of pay stubs and W-2 forms. Kinn was rebuffed in his efforts to interview Diamond D management.

Kinn then set about estimating the amount of underpayments to Diamond D workers. Using the evidence he had gathered and drawing other inferences from his investigation, Kinn claimed to have constructed estimates of the number of workers on each job site on each day, the number of hours worked by each worker and the classification of work performed by each worker. Thus, Kinn supposedly reconstructed, on a daily basis, the events that took place on each project. However, the district court found that Kinn's methods of estimation were not nearly so precise.

• With regard to the number of workers, in addition to the people listed in the agency reports and the certified payrolls, Kinn assumed that there was at least one operator for each piece of equipment present on a job site. He made this assumption even though the on-site agency officials told him it was baseless, as a single worker could, and often did, operate more than one piece of equipment during the course of the day. If Kinn was not able to identify who the supposed operator of the equipment was, he dubbed the worker "unknown 1" or "unknown 2." Thus, for one day, based on the equipment present at the job site, Kinn concluded that there were six operators (including two "unknowns"), even though the certified payroll indicated two operators and the agency report showed only one operator.

• When it came to calculating the...

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