Mitchell v. SOUTHWEST ENGINEERING COMPANY, INC.

• Decision Date: 10 November 1959
• Docket Number: No. 16240.,16240.
• Citation: 271 F.2d 427
• Parties: James P. MITCHELL, Secretary of Labor, United States Department of Labor, Appellant, v. SOUTHWEST ENGINEERING COMPANY, Inc., a corporation, Paul H. Anderson and Robert E. Cloepfil, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

271 F.2d 427 (1959)

James P. MITCHELL, Secretary of Labor, United States Department of Labor, Appellant, v. SOUTHWEST ENGINEERING COMPANY, Inc., a corporation, Paul H. Anderson and Robert E. Cloepfil, Appellees.

No. 16240.

United States Court of Appeals Eighth Circuit.

November 10, 1959.

Jacob I. Karro, Atty., U. S. Dept. of Labor, Washington, D. C. (Harold C. Nystrom, Acting Solicitor of Labor, Bessie Margolin, Asst. Solicitor, and B. Harper Barnes, Regional Atty., Washington, D. C., were with him on the brief), for appellant.

William A. Wear, Springfield, Mo. (Wear & Wear, and Sam M. Wear, Springfield, Mo., were with him on the brief), for appellees.

Before WOODROUGH and MATTHES, Circuit Judges, and MICKELSON, District Judge.

WOODROUGH, Circuit Judge.

This action was brought on June 25, 1958, by the Secretary of Labor under Section 17 of the Fair Labor Standards Act of 1938 as amended¹ to enjoin appellees, Southwest Engineering Company, Inc., Paul Anderson and Robert Cloepfil, from violating the Act's overtime and record-keeping provisions. On the trial of the case defendants conceded that they had not complied with the provisions in fulfilling certain construction contracts for the government described in the complaint but contended that the Act was not applicable to those contracts. The court held that the Act applied and found defendants to be in violation but denied the injunction. Mitchell v. Southwest Engineering Co., D.C., 170 F.Supp. 310. The Secretary appeals from the denial.

It appears that appellee Southwest Engineering Company is a corporation engaged in the construction business. Appellee Anderson was its president and principal stockholder at the time of the events in question, and still is. He was and is in control of the company's personnel practices and policies. Appellee Cloepfil was and is its vice president and superintendent of construction, and actively supervised the employees on the projects here in question.

In 1957 and 1958, appellee Southwest was engaged in seventeen construction projects for the Federal Government, under contracts with the Civil Aeronautics Administration, at a total contract price of almost $440,000. The contracts called for the construction of facilities for the guidance and control of airplane traffic over established airways. The facilities included approach light landing system, radar towers, Variable Course Omni Range Stations (commonly called VOR stations), Variable Course Omni Range Tactical Air Navigation Stations (commonly called VORTAC stations), and Peripheral Stations. Appellees contended below that the Act was not applicable to employment on these projects. The trial court determined, however, that "there can be no reasonable question" that the new structures constituted "an improvement of an existing facility of interstate commerce", to wit, the existing system for the guidance and control of air traffic. It found that "the conclusion is inescapable", upon the decided cases, that the employees were covered by the Act. 170 F.Supp. 313-314.

Appellees have not appealed from these conclusions.

Concerning the charged violations, the facts are in the main stipulated. Appellees concede that they did not pay overtime rates for overtime work described in the complaint and found to be covered by the Act, and that they kept false records which concealed all instances of overtime work. They admit that "many" of the employees in "many, if not most, of the workweeks" worked more than the statutory base period of forty hours (and "many" of them more than 48 hours and as much as 56 hours) without being paid at overtime rates. The amount of overtime pay thus withheld, it is agreed, is "substantial and may well amount to several thousand dollars."

As to the falsification of records, it is stipulated that appellees received "accurate and true" time-and-work reports from the employees and their foremen, but that their own "method of recording time" from these reports was to show only the first 40 hours worked by each employee in the week and to mislabel the wage payments for the additional work as "expense allowance". When the Wage-and-Hour investigator, toward the end of December, 1957, asked to see the basic time records, which would have revealed the falsification, they were not furnished to him. On January 27, 1958, when he repeated his request he was told by appellee Anderson that they were not available, but that it was Anderson's practice, as he made up the respective payrolls for the Civil Aeronautics Administration, to discard the underlying time records.

On January 31, 1958, Anderson told the Regional Director of the Wage-Hour Administration that the cards had been destroyed all at one time by Anderson's father-in-law who was "in charge of cleaning up the premises".

In August 1957, appellee Anderson saw a letter sent by the local office of the Civil Aeronautics Administration to its field engineer, which he borrowed for photostating. The letter directed that "particular attention should be given to the terms of the Eight-Hour Law 40 U.S.C.A. § 321 et seq.", which was applicable to the C.A.A. contracts independently of the Fair Labor Standards Act. The letter noted that "the Eight-Hour Law * * * requires contractors to pay overtime for any hours in excess of eight hours in any one day". (The Fair Labor Standards Act, on the other hand, is not concerned with the number of hours worked in the day, but requires overtime for any hours in excess of forty in the week; see Section 7(a). Still referring to the Eight-Hour Law the C.A.A. letter continued: "Contractors are not, however, limited to a five-day work week. For example, a contractor could work his employees seven eight-hour days per week without overtime pay." The letter made no reference to the Fair Labor Standards Act. The law was clear at the time, and had been since 1950, that the overtime provisions of the Fair Labor Standards Act and those of the public-contracts statutes were not mutually exclusive. Powell v. United States Cartridge Co., 339 U.S. 497, 515-520, 70 S.Ct. 755, 94 L.Ed. 1017.

When this letter was first seen by Anderson, the major portion of the work here in question had already been completed.

Anderson testified that he had made and retained a photostat of the letter because "there had been rumors and questions" about the application of the Fair Labor Standards Act. "One employee of the Government would talk about 40 hours a week and we the appellees would hear just bits of conversation here and there." Appellees had heard that "in one region the contracts were held to 40 hours a week," but "it wasn't clear in everybody's mind". The defendants had not, however, sought clarification from their attorneys, taking legal counsel only after administrative proceedings to correct their violations were begun in December, 1958. There had accordingly been no reliance, Anderson testified, on advice of counsel in adopting their practices held by the court to be violations of the Act.

In arriving at the denial of injunction the court concluded that defendants had "acted in good faith on the advice of counsel where there was some room for reasonable doubt that the construction of the stations were within the scope of the Act" and that "more important" they had "indicated a good faith willingness to comply fully with the Act should the decision on the merits here be adverse to them." (170 F.Supp. at page 315).

The Government takes the position on the appeal that the court's basic premise of good faith on the part of the contractor defendants is untenable upon the admitted facts and so divergent from applicable equitable principles that denial of the injunction was not within the limits of sound judicial discretion. It freely concedes that the granting of an injunction lies within the discretion of the trial court but it urges that this discretion "must be a legal discretion, not merely the individual view or will of the particular chancellor," (Winchester Repeating Arms Co. v. Olmstead, 7 Cir., 203 F. 493, 494) and where conceded or indisputable facts would warrant the equitable relief prayed for, such relief may be denied "only on general equitable principles which would constitute established equitable defenses" (United States v. Austin, D.C., 100 F.Supp. 33, 41).

Here the admitted facts are that a large amount of overtime work (work over forty hours per week) was being performed by the defendants' employees, that overtime rates were not being paid for that (as required by the Act), that appellees falsified their books in such a manner as to conceal the performance of the overtime work and then about the time the administrative investigation was begun they...