Call Henry, Inc. v. United States, 2016-1732

• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit
• Writing for the Court: Reyna, Circuit Judge.
• Citation: 855 F.3d 1348
• Parties: CALL HENRY, INC., Plaintiff-Appellant v. UNITED STATES, Defendant-Appellee
• Docket Number: 2016-1732
• Decision Date: 28 April 2017

855 F.3d 1348

CALL HENRY, INC., Plaintiff-Appellant

v.UNITED STATES, Defendant-Appellee

2016-1732

United States Court of Appeals, Federal Circuit.

Decided: April 28, 2017

Brian Koji , Allen, Norton & Blue, PA, Tampa, FL, argued for plaintiff-appellant.

Robert Norway , Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Benjamin C. Mizer , Robert E. Kirschman, Jr. , Steven J. Gillingham ; James T. Mahoney , Office of Chief Counsel, National Aeronautics and Space Administration, Washington, DC; Macallister A. West , Cleveland, OH.Steven Michael Masiello , Dentons US LLP, Denver, CO, for amicus curiae Professional Services Council. Also represented by Thomas Antoine Lemmer , Joseph G. Martinez , III.

Before Reyna, Hughes, and Stoll, Circuit Judges.

Reyna, Circuit Judge.

Call Henry, Inc., appeals from a Court of Federal Claims ("COFC") decision dismissing its breach of contract claim against the United States government. The COFC correctly determined that Call Henry failed to state a claim for which relief could be granted, because the government has no contractual obligation to reimburse Call Henry's pension withdrawal liability costs that were incurred pursuant to the Multi-Employer Pension Plan Amendment Act of 1980, 29 U.S.C. § 1381, et seq . We therefore affirm.

BACKGROUND

On April 23, 2003, Call Henry entered into a contract with the National Aeronautics and Space Administration ("NASA") to provide inspection, maintenance, and testing services. This was a multi-year, fixed-price contract with a base performance period of three years and up to seven one-year option periods. Call Henry's contract was subject to the McNamara-O'Hara Service Contract Act of 1965 ("SCA"), 41 U.S.C. § 6701, et seq. , and its implementing regulations.

A. The Service Contract Act

As relevant here, the SCA requires that a service contract include provisions specifying the contract's "wage determination," which sets the wage rates and fringe benefits that must be paid to various classes of covered service employees. Covered service employees are entitled to a wage determination providing wages and fringe benefits equal to or greater than: (1) the minimum wage provided pursuant to the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 206 ; (2) the prevailing rates provided in the locality where the services are performed, as determined by the Department of Labor ("DOL"); or (3) the rates contained in the predecessor contract's collective bargaining agreement. 41 U.S.C. §§ 6703, 6704 ; 48 C.F.R. §§ 22.1002-2, 22.1002-3 ; see also Lear Siegler Servs., Inc. v. Rumsfeld , 457 F.3d 1262, 1266-67 (Fed. Cir. 2006).

Among other things, the SCA insures that service employees who were protected by a collective bargaining agreement with one contractor are not deprived of the wages and benefits negotiated in that collective bargaining agreement when the contract they work on is competitively awarded to a new contractor. Otherwise, if an incumbent contractor agreed to a collective bargaining agreement that provided for wages and benefits greater than the prevailing wage rate, a challenger could under-bid the incumbent for the follow-on contract by providing its employees with lower wages and less valuable benefits. By requiring a successor contractor to provide wages and fringe benefits of equal or greater value than the predecessor contractor, the government protects covered service employees from losing the protection of their collective bargaining agreements. The government also protects itself from successor contractors who might introduce performance risk in the form of underpaid or low-quality labor.

These requirements are reflected in Federal Acquisition Regulation ("FAR") clause 52.222-41 entitled Service Contract Labor Standards, which is incorporated by reference into Call Henry's NASA contract:

52.222-41, Service Contract Act of 1965, as Amended (May 1989).

(c) Compensation .

(1) Each service employee employed in the performance of this contract by the Contractor or any subcontractor shall be paid not less than the minimum monetary wages and shall be furnished fringe benefits in accordance with the wages and fringe benefits determined by the Secretary of Labor, or authorized representative, as specified in any wage determination attached to this contract.

....

(f) Successor contracts . If this contract succeeds a contract subject to the Act under which substantially the same services were furnished in the same locality and service employees were paid wages and fringe benefits provided for in a collective bargaining agreement, in the absence of the minimum wage attachment for this contract setting forth such collectively bargained wage rates and fringe benefits, neither the Contractor nor any subcontractor under this contract shall pay any service employee performing any of the contract work (regardless of whether or not such employee was employed under the predecessor contract), less than the wages and fringe benefits provided for in such collective bargaining agreement, to which such employee would have been entitled if employed under the predecessor contract, including accrued wages and fringe benefits and any prospective increases in wages and fringe benefits provided for under such agreement....

B. The Service Contract Act Price Adjustment Clause

One of the principal policy implications of the SCA is that the U.S. government, as a customer, is willing to pay a premium for services in return for its contractor's obligation to compensate service employees adequately and fairly. Accordingly, the government is willing to increase contract price when contractors incur increased costs as a result of complying with an increase in the wage determination applicable to their contract. In effect, the contractor is entitled to a price adjustment to reflect increased labor costs associated with complying with an increase in the FLSA minimum wage rate, DOL prevailing wage rate, or the predecessor contract's collective bargaining agreement. The mechanism for providing that price increase is the SCA Price Adjustment Clause.

For multi-year and option contracts, such as the one at issue in this case, the applicable SCA Price Adjustment Clause is FAR 52.222-43.¹ Paragraph (d) of that clause provides a framework for increasing the unit labor rates in a service contract when certain events occur that increase the costs of complying with an increased wage determination. Paragraph (d) acknowledges cost increases due to an increase in the FLSA minimum wage or DOL prevailing wage rate. It also recognizes cost increases that occur by operation of law, such as when a successor contract is bound by the wages and benefits provided in a predecessor contractor's collective bargaining agreement:

52.222-43 Fair Labor Standards Act and Service Contract Act—Price Adjustment (Multiple Year and Option Contracts) (May 1989).

(d) The contract price or contract unit price labor rates will be adjusted to reflect the Contractor's actual increase or decrease in applicable wages and fringe benefits to the extent that the increase is made to comply with or the decrease is voluntarily made by the Contractor as a result of:

(1) The Department of Labor wage determination applicable on the anniversary date of the multiple year contract, or at the beginning of the renewal option period ...;

(2) An increased or decreased wage determination otherwise applied to the contract by operation of law; or

(3) An amendment to the Fair Labor Standards Act of 1938 that is enacted after award of this contract, affects the minimum wage, and becomes applicable to this contract under law.

C. Call Henry's Successor Contracts, Collective Bargaining Agreements, Pension Withdrawal, and MPPAA Withdrawal Liability

The three-year base performance period of Call Henry's contract with NASA was a successor contract. By operation of law, the wage determination applicable to the base performance period was provided by the predecessor contractor's collective bargaining agreement. Under the predecessor contract, Call Henry's service employees were members of the International Brotherhood of Teamsters Local Union No. 416 ("the Teamsters"). Instead of providing wages and benefits through an alternative arrangement, Call Henry chose to negotiate a collective bargaining agreement with the Teamsters. The first such agreement was effective from 2003 to 2007 ("2003–2007 Teamsters Agreement"), and it required Call Henry to join and contribute to the Teamsters' Pension Plan.

The Teamsters' Pension Plan is a multi-employer pension plan, which is subject to the Multi-Employer Pension Plan Amendment Act ("MPPAA"). Among other things, the MPPAA protects employees receiving benefits under a multi-employer pension plan by requiring any employer who withdraws from the plan to pay withdrawal liability to the pension fund. This withdrawal liability is paid by the withdrawing employer in order "to fund its share of the [pension] plan obligations incurred during its association with the plan." Connolly v. Pension Benefit Guar. Corp. , 475 U.S. 211, 225, 106 S.Ct. 1018, 89 L.Ed.2d 166 (1986) ; 29 U.S.C. § 1381(b)(1) ("The withdrawal liability of an employer to a plan is the amount determined ... to be the allocable amount of unfunded vested benefits, ...").

In 2007, NASA executed the first option period. That option contract was a successor contract to the three-year base performance period. See 29 C.F.R. § 4.143(b) ; see also Lear , 457 F.3d at 1267. Therefore, by operation of law, the 2003-2007 Teamsters Agreement provided the wage determination applicable to the first option period.

It is critical to distinguish between: (1) Call Henry's obligations to its service employees pursuant to the 2003–2007 Teamsters Agreement, (2) Call Henry's contractual obligations to NASA, and (3) Call Henry's statutory obligations under the MPPAA to the Teamsters' Pension Plan....