Garcia v. Bd. of Regents of the Univ. of N.M.
| Decision Date | 29 March 2016 |
| Docket Number | No. S-1-SC-35865.,No. 34,167.,34,167.,S-1-SC-35865. |
| Citation | 373 P.3d 998 |
| Parties | Vincent R. GARCIA, Roberto Borbon, Mark Moran, and Kenneth A. Ziegler, on behalf of themselves and all others similarly situated, Plaintiffs–Appellants, v. The BOARD OF REGENTS OF the UNIVERSITY OF NEW MEXICO, Sandia Foundation, and Enterprise Builders, Inc., Defendants–Appellees. |
| Court | Court of Appeals of New Mexico |
Shane C. Youtz, Stephen Curtice, James A. Montalbano, Albuquerque, NM, for Appellants.
Rodey, Dickason, Sloan, Akin & Robb, P.A., Thomas L. Stahl, Edward Ricco, Albuquerque, NM, for Appellee Board of Regents of the University of New Mexico.
Modrall, Sperling, Roehl, Harris & Sisk, P.A., George R. McFall, Sarah M. Stevenson, Albuquerque, NM, for Appellee Sandia Foundation.
Bingham, Hurst & Apodaca, P.C., Wayne E. Bingham, Albuquerque, NM, for Appellee Enterprise Builders Corporation.
VANZI
, Judge.
{1} Plaintiffs are a class of workers who provided various electrical services on a construction project in which the Board of Regents of the University of New Mexico, Sandia Foundation, and Enterprise Builders (collectively, Defendants) were involved. They sued Defendants for statutory minimum wage violations, including violation of the Public Works Minimum Wage Act (PWMWA), NMSA 1978, §§ 13–4–10
to –17 (1937, as amended through 2011). They also asserted their rights as alleged third-party beneficiaries to a settlement agreement (the Agreement) between Defendants and the Department of Workforce Solutions (the Department). The Department has since (sua sponte, we are told) reversed the determination that led to the Agreement in the first place, and Plaintiffs' appeal of that decision was dismissed as untimely by the relevant agency, ultimately resulting in the dismissal of all statutory claims. See
Garcia v. Bd. of Regents of Univ. of N.M., 2014–NMCA–083, ¶¶ 6, 16, 331 P.3d 1003.
{2} In the present case, we are asked to consider a narrow issue: whether the district court properly granted summary judgment on the only remaining claim, which alleged breach of the Agreement. The sole ground for granting summary judgment was that the underlying Agreement was “void” for violation of federal tax law. We reverse. We hold that the Agreement indeed contains an unenforceable term, but the term can be properly severed. Accordingly, we reverse the district court's grant of summary judgment.
{3} The PWMWA serves “to ensure that employees of contractors working on state ... projects are protected from substandard earnings.” Universal Commc'ns Sys., Inc. v. Smith, 1986–NMSC–076, ¶ 4, 104 N.M. 754, 726 P.2d 1384
. “Under the PWMWA, every contract for construction or alteration of public buildings or public works in excess of sixty thousand dollars that involves mechanics or laborers or both must comply with minimum wage standards set by the Director of the Labor Relations Division” of the Department of Workforce Solutions (the Director). Garcia, 2014–NMCA–083, ¶ 2, 331 P.3d 1003.
{4} In April 2009, the Director certified that a joint project undertaken by Defendants constituted a public works project, subject to the PWMWA. Defendants appealed that determination but then settled with the Department, which withdrew its certification and agreed to take no further action against them. In exchange, Defendants agreed to (1) pay a designated amount of back wages and fringe benefits due each worker under the PWMWA, totaling $779,357.12; and (2) make separate “delay payments” to each worker, totaling $158,150.27.
{5} The Agreement distinguished between the two types of payments, presumably for tax purposes. The delay payments purported to represent “payment to settle a disputed claim for liquidated damages under the PWMWA and not wages.” They were to be issued separately from the payments for back wages and fringe benefits. The Agreement contained no instructions to withhold any payroll taxes from the delay payments.
{6} In contrast, the payments for back wages and fringe benefits were divided into two groups. Enterprise agreed to issue wage/benefit checks to its own employees “subject to payroll withholding in the normal course.” All other workers worked for various subcontractors who were not parties to the settlement negotiations. Wage/benefit checks made out to those workers, “i.e., those workers not employed by any [Defendant],” were to be issued “without such withholding.” The present appeal centers entirely on this no-withholding clause—a single provision that applies only to one type of payment made to one group of workers.
{7} Defendants agreed to make all checks to all workers payable to each worker individually. They would issue the checks to the Department by deadlines specified in the Agreement, and the Department would then “distribute said checks to each worker” who signed a document releasing Defendants from liability for future wage-related claims arising out of the project. Characterized broadly, the terms of the Agreement indicate that Defendants hoped to pay a total of $937,507.39 (the sum of wages and benefits owed plus delay compensation owed) over to the Department in exchange for a complete release of liability to the Department and to all workers identified to have worked on the project.
{8} But Defendants never made any of the agreed payments, which would have been due in full by the end of 2010. When they had not issued a single check by May 2011, Plaintiffs filed suit for breach of the Agreement and for other claims that have since been dismissed.
{9} Defendants moved for summary judgment, arguing, in relevant part, that the no-withholding provision called for a performance that violated the Internal Revenue Code, making the entire Agreement void as against public policy. Plaintiffs responded that there remained issues of disputed facts—mostly related to Defendants' efforts to comply with the Agreement, that there were alternatives to “straight payroll withholding” that would make the Agreement entirely consistent with the law, and that, in any event, the clause could be severed or reformed as a nonessential part of an otherwise valid wage claim settlement. The district court ultimately concluded that the term could not be enforced and that it was “central to the Agreement,” meaning that it could not be severed. The court also concluded that reformation was inappropriate. Summary judgment was granted to Defendants. Plaintiffs appealed, and we now reverse the district court.
{10} All issues raised in this appeal are subject to a de novo standard of review. Self v. United Parcel Serv., Inc., 1998–NMSC–046, ¶ 6, 126 N.M. 396, 970 P.2d 582
. This case involves a settlement agreement, which “is a species of contract.” Branch v. Chamisa Dev. Corp., 2009–NMCA–131, ¶ 33, 147 N.M. 397, 223 P.3d 942 (internal quotation marks and citation omitted). “New Mexico adheres to the contextual approach to contract interpretation, in recognition of the difficulty of ascribing meaning and content to terms and expressions in the absence of contextual understanding.” Id. (internal quotation marks and citation omitted). “Whether a contract is against public policy is a question of law for the court to determine from all the circumstances of each case.” K.R. Swerdfeger Constr., Inc. v. Bd. of Regents of Univ. of N.M., 2006–NMCA–117, ¶ 23, 140 N.M. 374, 142 P.3d 962 (internal quotation marks and citation omitted). Our analysis also requires us to construe several statutes. We do so to give effect to the intent of the Legislature, and our review is de novo. Romero Excavation & Trucking, Inc. v. Bradley Constr., Inc., 1996–NMSC–010, ¶¶ 5–6, 121 N.M. 471, 913 P.2d 659.
{11} Plaintiffs, who are not parties to the Agreement, have alleged that they are third-party beneficiaries entitled to enforce it. See Fleet Mortg. Corp. v. Schuster, 1991–NMSC–046, ¶ 4, 112 N.M. 48, 811 P.2d 81
(). While that may be true, our courts cannot enforce a provision—for anyone's benefit—that requires performance in violation of federal law. Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77, 102 S.Ct. 851, 70 L.Ed.2d 833 (1982)
().
{12} There is no dispute that back pay paid to employees in a settlement agreement is subject to social security and income taxes. The Internal Revenue Code defines “wages” for income tax purposes to mean “all remuneration ... for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash [.]” I.R.C. § 3401(a) (2012)
. There are a few exceptions to this definition, but they are not applicable here. See id. The definition of “wages” under I.R.C. § 3121(a) (2012) for social security and medicare (FICA) purposes contains similar language.1 The United States Supreme Court and the federal circuit courts of appeals have consistently concluded that back pay awarded pursuant to various employment, labor, and civil rights legislation constitutes “remuneration”—and therefore “wages” subject to income tax and FICA withholding. Soc., Sec. Bd. v. Nierotko, 327 U.S. 358, 364–65, 66 S.Ct. 637, 90 L.Ed. 718 (1946) (applying the National Labor Relations Act); Noel v. N.Y. State Office of Mental Health Cent. N.Y. Psychiatric Ctr., 697 F.3d 209, 213–14 (2d Cir.2012) (applying Title VII); Gerbec v. United States, 164 F.3d 1015, 1026 (6th Cir.1999) (discussing the Employee Retirement Income Security Act); see
Blim v. W. Elec. Co., 731 F.2d 1473, 1480 n. 2 (10th Cir.1984) (...
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