Free Motion for Partial Summary Judgment - District Court of Federal Claims - federal

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 1 of 12

UNITED STATES COURT OF FEDERAL CLAIMS ______________________________________ ) MULTISERVICE JOINT VENTURE, LLC, ) ) Plaintiff, ) ) No. 06-312C -against) (Judge Wheeler) ) UNITED STATES OF AMERICA, ) ) Defendant. ) ______________________________________) PLAINTIFF'S MEMORANUDM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT I. INTRODUCTION Plaintiff Multiservice Joint Venture, LLC ("MJV"), through its undersigned counsel, respectfully submits its Memorandum of Points and Authorities in Support of its Motion for Partial Summary Judgment in the above-captioned Complaint. As discussed below, no question

of disputed fact exists as to the following: (1) the Price Adjustment Clause required the defendant to compensate the plaintiff for the escalating costs of providing its employees with a defined-benefit health plan; and (2) the Price Adjustment Clause similarly required the defendant to compensate the plaintiff for the wage increases paid to its employees pursuant to the applicable Collective Bargaining Agreement ("CBA") and corresponding Wage Determination ("WD"). II. UNDISPUTED MATERIAL FACTS The plaintiff is a Maryland domestic limited liability company with its principal office in Upper Marlboro, MD. Uncontroverted Facts ("Statement"), ¶ 1. Statement of

On or about February 14,

2003, the United States Navy awarded MJV Contract No. N62447-02-D-0558, to perform janitorial services at the Naval Academy in Annapolis, MD. Statement, ¶ 2. MJV commenced operations at the Naval Academy

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 2 of 12

on March 1, 2003.

Id.

The predecessor contractor, EPES Building Maintenance Co., Inc. ("EPES"), entered into a five year collective bargaining agreement with the U.S. Naval Academy Cleaning Employees Bargaining Unit ("NACE") on or about September 11, 1998. Statement, ¶ 3. Under

the EPES CBA, the janitorial employees received $11.79/hour during the last year of the EPES CBA. Statement, ¶ 4. Additionally, the

EPES CBA provided that all of the janitorial employees would receive a "universal" defined-benefit health care insurance plan (without requiring any employee contributions or plan deductibles). Id.

The United States Department of Labor ("DOL") recognized the EPES CBA as the basis of its May 24, 2000 Wage Determination ("WD") for the CBA's five year term, i.e., October 1, 1998 to September 30, 2003. Statement, ¶ 5. However, the $2.15/hour contribution unilaterally allocated by the Navy for said fringe benefits did not cover the escalating cost of providing this level of health care insurance during MJV's first year of operations. Statement, ¶ 6. In order to maintain the

same level of health and welfare benefits, MJV had to contribute $2.68/hour to cover the costs. Id. The Navy, however, refused to

reimburse the MJV for the additional expenditures for maintaining the employees' health care coverage during this period. Id.

The shortfall between what MJV had to pay for fringe benefits and what the Navy reimbursed MJV for these benefits resulted in MJV experiencing a $53,105.24 loss. Statement, ¶ 7. In denying the 2

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 3 of 12

plaintiff reimbursement for the cost differential, the defendant rationalized its position by explaining: Multiservice was not required to furnish employees with specific defined benefits or identical defined benefits provided for in the predecessor's CBA. As set forth in section 2(a)(2) of SCA and discussed in section 4.163(j) of Regulations, 29 CFR Part 4, a contractor may discharge its fringe benefit obligations by furnishing any equivalent combinations or [sic] fringe benefits or by making equivalent or differential payments in cash. Statement, ¶ 8. In addition, on or about March 5, 2003, MJV recognized NACE as the exclusive agent for its full-time and part-time janitorial workers at the Naval Academy. Statement, ¶ 9. After engaging in

extensive labor negotiations spanning the ensuing eight months, the parties executed the MJV collective bargaining agreement on January 27, 2004. Id. The DOL duly recognized the MJV CBA as the basis of

its revised February 9, 2004 Wage Determination for the CBA's entire term. Statement, ¶ 10. Under the MJV CBA, the janitorial workers' wages rose from $11.79/hour to $12.49/hour on March 1, 2004. Statement, ¶ 11. The

health and welfare contribution simultaneously rose from $2.15/hour to $2.85/hour. Id. On March 1, 2005, the employees' wages increased to $12.81/hour and their health and welfare contribution increased to $3.05/hour. Id.

In light of the MJV CBA and the 2004 Wage Determination, on February 24, 2004 MJV submitted a $326,629.47 price adjustment proposal to the Navy reflecting the aforementioned increases in labor 3

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 4 of 12

and health care costs during the period from March 1, 2004 to February 28, 2005 (the first option year under the Contract and the first year of the MJV CBA). Statement, ¶ 12. However, the Navy only paid MJV $184,975.35 of the aforementioned increased labor and benefit costs for this twelve month period in 2004-05. Id. As a result,

MJV suffered a loss of $141,653.92 in un-reimbursed labor and fringe benefits costs for this twelve month period. Id.

In denying the plaintiff the $141,653.92, the defendant has contended that the 1998 EPES CBA effectively controlled the wages and benefits for this twelve month period in 2004-05, despite the inarguable fact the MJV CBA and the February 9, 2004 Wage Determination required a superseding wage and benefit scale for this period. Statement, ¶ 13.

The plaintiff timely initiated the instant action seeking redress for breach of contract under the Contract Disputes Act of 1978 ("CDA"), 41 U.S.C. §§ 601 et seq., against the defendant over the 2003-04 Increased Health Insurance Costs; the 2004-05 Increased Labor and Benefits Costs; the Failure to Allow Re-Performance Costs; the Hurricane Isabel Expenses; and the Additional Costs for Stripping and Refinishing Bancroft Hall. As no dispute of material fact exists concerning the plaintiff's claims concerning the 2003-04 Increased Health and Welfare Costs and the 2004-05 Increased Labor and Benefits Costs, the Court should grant the plaintiff partial summary judgment with respect to these claims.

4

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 5 of 12

III. DISCUSSION A. Summary Judgment Standard

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ P. 56(c). The movant must carry

the burden of demonstrating the absence of any genuine issue as to any material fact, and the party opposing the motion is entitled to all favorable inferences deducible from the parties' evidentiary representations. In deciding a summary judgment motion, the Court's function is not to resolve any such factual disputes, but only to ascertain whether any such disputes exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 91 L.Ed.2d 202, 106 S.Ct. 2505 (1986); Addickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608 (1970); U.S. v. Diebold, Inc., 369 U.S. 654, 655, 822 S.Ct. 993, 994 (1962); Pikholtz v. Rainbow Technologies, 284 F.3d 1365, 1371 (Fed. Cir. 2002); Bouchard v. Washington, 514 F.2d 824, 827 (D.C. Cir. 1975). B. The 2000 WD Obligated the Navy to Compensate MJV for the Escalating Costs of Maintaining its Employees' Health Insurance in 2003-04

In a directly analogous case, the United States Court of Appeals for the Federal Circuit recently reaffirmed that a CBA-based Wage Determination essentially required the government to reimburse a contractor for what it increasingly paid to meet its obligations 5

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 6 of 12

to its employees in light of the rising costs of providing them with an agreed-upon level of health care benefits. Lear Siegler Services, Inc., v. Rumsfeld, 457 F.3d 1262, 1268-69 (Fed. Cir. 2006). The Lear Siegler Services Court explained: Here we must determine whether a "wage determination" (i.e., the CBA) required an "actual increase . . . in . . . fringe benefits. . ." 48 C.F.R. § 52.222-43. We conclude that it did, thereby by triggering the government's obligations under the Price Adjustment Clause. For several reasons, we find no merit in the argument that the Price Adjustment Clause is triggered only by enlarged benefits rather than enlarged costs of providing those benefits. First, the language of the clause itself is instructive. See 48 C.F.R. § 52.222-43(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 . . . .")(emphasis added). The Clause does not address increase in the nature of the contract's requirements, but rather the effect on the Contractor, which logically can only refer to changes in costs. Second, the construction is consistent with other provisions of the regulatory scheme, which provide for the "equivalency" of fringe benefits to be measured not in terms of value to the employee, but cost to the employer. See 29 C.F.R. § 4.177(a)(3)("When a contractor discharges his fringe benefit obligation by furnishing, in lieu of those benefits specified in the applicable fringe benefit determination, other "bona fide" fringe benefits, cash payments, or a combination thereof, the substituted fringe benefits and/or cash payments must be "equivalent" to the benefits specified in the determination. As used in this subpart, the terms equivalent fringe benefit and cash equivalent mean equal in terms of monetary costs to the contractor.")(emphasis added). Third, this court's precedent in United States v. Service Ventures, Inc., leads to this conclusion. See 889 F.2d 1 (Fed. Cir. 1990). In that case, the applicable wage determinations required that employees be given specified amounts of vacation time, depending on their seniority. Id. at 2 (requiring Service Ventures to pay "2 weeks paid vacation after 1 year of service with a contractor or successor; 3 weeks after 5 years"). During the first option 6

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 7 of 12

year, a greater number of employees were entitled to vacation benefits under the language of the wage determination. Accordingly, Service Ventures had to pay more in order to comply with the mandate of the wage determination, and it therefore sought to receive a price adjustment. Id. As in this case, the actual language of the wage determination had not changed. Service Venture's obligations had remained nominally the "same" in that it was still required to provide a specified level of benefits to each employee in a specified class. However, its costs of compliance had changed because of changes in the numbers of employees in each vacation benefit "class." Far from adopting a narrow view of what constituted a "change" to a wage determination, in Service Ventures we held that the "benefits were due entirely to the [wage determination] applicable at the beginning of the renewal option period and were required to be paid in accordance with the [Price Adjustment] clause." Id. at 3. Lear Siegler Services, Inc., v. Rumsfeld, supra, 457 F.3d at 1268-69. As was the case in Lear Siegler Services, "the employer's costs of compliance [here] changed in a manner not known in advance with certainty" by virtue of the increased expense in purchasing the same level of universal health care coverage. Inc., supra, 457 F.3d at 1269. Lear Siegler Services,

Moreover, the 2000 WD required MJV

to provide "whatever was necessary to meet its obligations to its employees, in light of changes in the costs of providing them with an agreed-upon level of health care benefits." Id.; see United States v. Service Ventures, Inc., supra, 889 F.2d at 4-6. Additionally, the Federal Circuit Court explicitly rejected the defendant's manifestly flawed contention that the plaintiff could possibly have minimized its surging insurance costs by providing the employees with supposed "lesser" equivalent benefits and/or cash in lieu of the health care benefits consistent with the SCA: Finally, we address the government's argument that the Price 7

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 8 of 12

Adjustment Clause does not apply because LSI can somehow satisfy its fringe-benefit obligations by making equivalent payments directly to its employees. See e.g., 41 U.S.C. § 351(A)(2)(stating that "[t]he obligation to provide fringe benefits . . . may be discharged by furnishing any equivalent combinations of fringe benefits or by making equivalent or differential payments in cash under rules and regulations established by the Secretary"). We can see no merit in this argument. If LSI pays its employees the "equivalent" of the fringe benefit, then applicable regulations would require it to pay them an amount equal to its own costs of providing the benefit. See 28 C.F.R. § 4.177(a)(3) ("[E]quivalent means equal in terms of monetary cost to the contractor.") The extent of LSI's CBA-based obligations would remain unchanged. Lear Siegler Services, Inc., supra, 457 F.3d at 1269. Similarly, MJV could not have reduced its financial obligations in this instance by providing its employees with "equivalent combinations" of benefits and/or cash, as the defendant suggested. Even if the plaintiff had chosen to pursue this route, it would have remained obligated to provide its employees with an equivalent combination equal to the pro rata share of the increasingly expensive health care insurance. Id. In the end, the plaintiff would not have contained any of its burgeoning costs, and the employees would not have received the level of health care benefits mandated under the WD and the EPES CBA. 1 Accordingly, in light of (1) MJV's unassailable responsibilities under the 2000 WD to maintain the same level of health insurance benefits for its employees and (2) the government's
1

Following the government's flawed prescription, the plaintiff would still have had to provide the employees with an equivalent combination worth $2.68/hour. However, even if the plaintiff had given the employees this amount in cash, they would not have been able to purchase comparable health care insurance coverage on an individual basis. Thus, in this instance, the cash would have had far less utility for the employees in terms of maintaining their coverage.

8

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 9 of 12

baseless rationale for refusing to reimburse MJV for its corollary costs, the Court should grant the plaintiff partial summary judgment with respect to its unreimbursed expenses for said benefits. See

Lear Siegler Services, Inc., supra, 457 F.3d at 1268-69; United States v. Service Ventures, Inc., supra, 889 F.2d at 4-6. C. The 2004 WD Obligated the Navy to Compensate MJV for its Increased Wages and Benefits in 2004-05 pursuant to the MJV CBA

The Navy's Contract with MJV incorporated by reference the Price Adjustment Clause which provides, in relevant part: (a) This clause applies to both contracts subject to area prevailing wage determinations and contracts subject to collective bargaining agreements. . . . (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. 48 C.F.R. § 52.222-43 (emphasis added); see Lear Siegler Services, Inc., supra, 457 F.3d at 1267-68. For the period from March 1, 2004 to February 28, 2005, MJV increased its employees' wages from $11.79 to $12.49/hour and increased the contributions for their fringe benefits from $2.15 to $2.85/hour pursuant to the MJV CBA. DOL duly recognized the MJV CBA as the basis for its February 9, 2004 WD. 9 However, instead of

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 10 of 12

reimbursing MJV the increased expenses associated with raising the employees' wages and benefits consistent with the 2004 WD and the MJV CBA, the Navy inexplicably shortchanged MJV by $141,653.92. The defendant's "explanation" for not reimbursing the plaintiff frankly defies logic. The Navy apparently reasoned that since MJV

had to adhere to the 2000 WD during the period from March 1, 2003 to February 29, 2004, its first twelve months of operations, then the Navy did not have to reimburse MJV for its increased obligations under the 2004 WD during the subsequent twelve month period. government inexplicably refuses to acknowledge or otherwise recognize that MJV had a SCA responsibility to pay its employees the higher wages and benefits set forth in the MJV CBA and sanctioned by the 2004 WD during this subsequent twelve month period. Under The

these circumstances, the plaintiff's SCA obligations during its base year of operations would not at all affect its superseding obligations during the first option year. Compare Fort Hood Barbers Ass'n v.

Herman, 137 F.3d 302, 308-12 (5th Cir. 1998)(per curiam)(refusing to prospectively apply the prior employer's wages under the expired WD based on the former CBA in light of the superseding WD based on prevailing wage data); District Lodge No. 166 v. TWA Service, Inc., 1982 U.S. Dist. LEXIS 9861 (M.D. Fla. 1982)(holding the employees were entitled to prospective wage and benefit increases accorded them under the WD). Accordingly, considering MJV's corresponding obligation to pay wages and benefits pursuant to the 2004 WD during this 2004-05 period, 10

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 11 of 12

the Court should grant the plaintiff partial summary judgment with respect to its unreimbursed expenses for said wages and benefits. See Lear Siegler Services, Inc., supra, 457 F.3d at 1268-69; United States v. Service Ventures, Inc., supra, 889 F.2d at 4-6. IV. CONCLUSION For all the foregoing reasons and the record herein, the Respondents respectfully request that their Motion for Partial Summary Judgment be granted forthwith. Respectfully submitted,

s/Janice Davis____ _ Janice Davis Davis & Steele 1100 - 15th Street, N.W. Suite 300 Washington, DC 20005-1720 Telephone: 202-530-5828 Email: [email protected] Counsel to the Plaintiff Dated: October 22, 2007

11

Case 1:06-cv-00312-TCW

Document 17

Filed 10/22/2007

Page 12 of 12

CERTIFICATE OF SERVICE I hereby certify that, on the 22nd of October 2007, a copy of the plaintiff's Memorandum of Points and Authorities to the

Defendant's First Set of Interrogatories was served, via electronic mail, on: Brian T. Edmunds, Esq. Trial Attorney Commercial Litigation Branch Civil Division -- Classification Unit United States Department of Justice 1100 L Street, N.W., 8th Floor Washington, DC 20530 Counsel for the Defendant

s/Janice Davis________________ Janice Davis

12