Holstad v. U.S. Dep't of Labor
| Decision Date | 30 July 2021 |
| Docket Number | Case No. 20-cv-1867 (SRN/ECW) |
| Parties | Wayne B. Holstad and Northwest Title Agency, Inc., Petitioners, v. U.S. Department of Labor, Respondent. |
| Court | U.S. District Court — District of Minnesota |
Frederic W. Knaak, Holstad & Knaak PLC, 4501 Allendale Drive, St. Paul, MN 55127, for Petitioner Wayne B. Holstad.
Wayne B. Holstad, Holstad & Knaak PLC, 4501 Allendale Drive, St. Paul, MN 55127, for Petitioner Northwest Title Agency, Inc.
Sarah J. Starrett, Office of the Solicitor, U.S. Department of Labor, 200 Constitution Ave. NW, Suite N2716, Washington D.C. 20210, for Respondent.
This matter is before the Court on Petitioners Wayne B. Holstad ("Mr. Holstad") and Northwest Title Agency, Inc.'s ("Northwest Title") Petition for Review ("Petition") [Doc. No. 1] and Respondent U.S. Department of Labor's ("DOL") Motion to Dismiss or, in the Alternative, for Summary Judgment [Doc. No. 14]. Based on a review of the files, submissions, and proceedings herein, and for the reasons below, the Court DENIES the Petition, DENIES Respondent's Motion to Dismiss, and GRANTS Respondent's Motion for Summary Judgment.
This case centers on the McNamara-O'Hara Service Contract Act, 41 U.S.C. § 6701 et seq. ("SCA" or "Act"), and its implementing regulations. The SCA generally requires that all service contracts with the United States for amounts exceeding $2,500 include certain protections for the contractor's employees. See 41 U.S.C. §§ 6702-03. As relevant here, it requires contracts to contain provisions specifying the minimum wages and fringe benefits to be paid to each class of service employee. Id. § 6703(1) (minimum wages); id. § 6703(2) (fringe benefits). A contractor may satisfy its obligation to provide fringe benefits by paying, "in addition to the monetary wage required, a cash amount per hour in lieu of the specified fringe benefits, provided such amount is equivalent to the cost of the fringe benefits required." 29 C.F.R. § 4.177(c)(1); see 41 U.S.C. § 6703(2) ().
Contractors must provide fringe benefits "separate from and in addition to the specified monetary wages." 29 C.F.R. § 4.170(a). Further, "[a]n employer cannot offset an amount of monetary wages paid in excess of the wages required under the [wage] determination in order to satisfy his fringe benefit obligations under the Act, and must keep appropriate records separately showing amounts paid for wages and amounts paid for fringe benefits." Id. The SCA also requires contractors to deliver notice to their employees of the minimum wage and fringe benefits owed to them, or to post such notice at a prominent place at the worksite. 41 U.S.C. § 6703(4); 29 C.F.R. § 4.6(e).
Further, contractors must provide employees the minimum compensation required under the SCA for "each hour worked in performance of a covered contract." 29 C.F.R. § 4.178. A contractor will be liable for any underpayment of compensation due to any employee pursuant to the SCA. 41 U.S.C. § 6705(a)-(b). And under the SCA, liability extends to any "party responsible," which includes corporate officers "who actively direct[] and supervise[] the contract performance" and "corporate officers who control, or are responsible for control of, the corporate entity, as they, individually, have an obligation to assure compliance with the requirements of the Act, the regulations, and the contracts." 29 C.F.R. § 4.187(e)(1)-(2); accord 41 U.S.C. § 6705(a). In general, contractors that have been found to violate the SCA are barred from being awarded a federal government contract for three years. 41 U.S.C. § 6706.
Northwest Title is an insurance title firm that performs title searches and settlement services. (Pet. for Review [Doc. No. 1] at 3 ("ARB Decision").) In 2006, Mr. Holstad purchased Northwest Title, and he has held many positions at the firm, including Chief Executive Officer, President, and Chairman. (Id.) He is also its sole shareholder. (Id.) Mr. Holstad's brother, Joel Holstad, served as the firm's Chief Operating Officer and Chief Financial Officer in 2011 and 2012. (Id.)
On or around April 12, 2010, the U.S. Department of Housing and Urban Development ("HUD") awarded a contract to Northwest Title to "provide real estate property sales closing services" for certain properties owned by HUD. (Id.) The contract—in effect from April 19, 2010 through April 21, 2012—provided that it was subject to the SCA and its implementing regulations. (Id.) It also incorporated SCA Wage Determination 2005-2287, Revision 8, which detailed the minimum wages and fringe benefits owed to each employee who performed work under the contract. (Id.) This provision required Northwest Title to provide three fringe benefits in addition to the required hourly wage: (1) health and welfare benefits of $3.35 per hour; (2) certain paid vacation benefits that depended on length of service; and (3) certain paid holiday benefits. (Id.) In March 2011, this provision was updated, raising the hourly wage and increasing the health and welfare benefit to $3.50 per hour. (Id.)
In April 2012, Valerie Jacobson, an investigator within the DOL's Wage and Hour Division ("WHD"), began investigating Northwest Title's compliance with the SCA. (Id.) The investigation revealed violations of the SCA and its regulations, including Northwest Title's failure: (1) to pay required back wages; (2) to pay health and welfare benefits, or cash payments in lieu of such benefits; and (3) to keep and provide adequate records of wages, benefits, and hours worked. (Id. at 4.) She calculated that Northwest Title owed $70,243.04 in health and welfare benefits to ten employees for the period from May 15, 2010 to May 5, 2012, but this amount was later corrected to $67,893.78. (Id.)
On July 29, 2014, the Administrator of the WHD filed an administrative complaint against Northwest Title, Mr. Holstad, and Joel Holstad. (Aff. of Sarah Starrett ("Starrett Aff.") [Doc. No. 18-10] at 18.)1 On July 18, 2016, Joel Holstad—in his individual capacity—entered into a settlement agreement with the Administrator, wherein he agreed to pay $40,000, to be credited to the employees' unpaid back wages, and agreed to forego entering into contracts with the federal government for three years. (Id. at 20-21.) The settlement agreement disposed of all claims against Joel Holstad. (Id. at 21.)
On August 23 and 24, 2016, the ALJ conducted a hearing, and took testimony from Mr. Holstad, Joel Holstad, Ms. Jacobson, and two former employees of Northwest Title and received various exhibits. (See id. at 19-43.) Based on the evidence presented at the hearing, the ALJ made several findings of fact and conclusions of law that are relevant here: (1) Petitioners failed to pay required health and welfare benefits to ten employees; (2) Petitioners were not entitled to any offsets to the amount they owe; (3) the Administrator's claims were not barred by the statute of limitations; and (4) Mr. Holstad was personally liable for the amount owed.
First, the ALJ found that Petitioners had failed to pay required health and welfare benefits of $3.35 per hour during the first contract year and $3.50 per hour during the second year, resulting in a total of $67,893.78 owed to ten employees. (Id. at 45-51.) At the hearing, Mr. Holstad testified in defense that Northwest Title had a company policy of paying higher wages to those who declined fringe health and welfare benefits and hence made cash equivalent payments consistent with the law. (Id. at 46.) However, the ALJ found more credible the testimony of Ms. Jacobson that there was no evidence of such a company policy and that Petitioners' payroll records did not show that any cash equivalent payments were made in lieu of providing health and welfare benefits. (Id. at 46-49.) Indeed, the ALJ noted that:
none of the three Respondents offered into evidence any records other than those offered by Complainant and admitted in evidence. I must presume that if there were additional records showing that Northwest paid the ten employees at issue more in fringe benefits than shown by the records in evidence, such records would have been produced.
(Id. at 47.)
The ALJ also concluded that the regulations preclude Petitioners from counting wages paid in excess of the minimum wage toward the required health and welfare benefits. (Id. at 48-49 ().) Therefore, in the absence of any evidence of cash payments in lieu of fringe benefits, the ALJ found that the Petitioners owed $67,893.78. (Id. at 49.)2
Second, the ALJ found that the Petitioners could not offset the unpaid health and welfare benefits amount by Joel Holstad's $40,000 settlement amount or by a debt HUD allegedly owed Northwest Title.3 (Id. at 50-51.) He found that Joel Holstad's settlement amount only covered unpaid back wages. (Id. at 51.) Petitioners offered no argument or evidence to the contrary. (Id.)
Third, the ALJ considered Petitioners' argument that the two-year statute of limitations period under the Portal-to-Portal Act, 29 U.S.C. § 255, barred the Administrator's claims and concluded that this statute did not apply to claims arising...
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