Richlin Security Service Company v. Chertoff

Error: Bad annotation destination
United States Court of Appeals for the Federal Circuit
05-1085
RICHLIN SECURITY SERVICE COMPANY,
Appellant,
v.
MICHAEL CHERTOFF, SECRETARY OF HOMELAND SECURITY,
Appellee.
Gilbert J. Ginsburg, Attorney & Counselor-at-Law, of Washington, DC, argued for
appellant.
Reginald T. Blades, Jr., Senior Trial Counsel, Commercial Litigation Branch, Civil
Division, United States Department of Justice, of Washington, DC, argued for appellee.
With him on the brief were Peter D. Keisler, Assistant Attorney General and David M.
Cohen, Director.
Appealed from: United States Department of Transportation Board of Contract Appeals
United States Court of Appeals for the Federal Circuit
05-1085
RICHLIN SECURITY SERVICE COMPANY,
Appellant,
v.
MICHAEL CHERTOFF, SECRETARY OF HOMELAND SECURITY,
Appellee.
___________________________
DECIDED: January 31, 2006
___________________________
Before MAYER, RADER, and DYK, Circuit Judges.
DYK, Circuit Judge.
Richlin Security Service Company (“Richlin”) appeals from a decision of the
Department of Transportation Board of Contract Appeals (the “Board”) denying Richlin’s
claim for $284,193.85 in interest under the Contract Disputes Act, 41 U.S.C. §§ 601 et.
seq. (“CDA”). In re Richlin Sec. Servs. Co., 04-2 BCA ¶ 32,670 (DOTBCA 2004)
(“Richlin IX”). We affirm.
BACKGROUND
In April 1990 and August 1991, Richlin and the Immigration and Naturalization
Service (“INS”) entered into two fixed-price contracts for private security guard services.
As a result of a mutual mistake, the contracts misclassified Richlin’s employees as
“Guard I” rather than “Guard II” under the wage classification scheme of the Service
Contract Act, 41 U.S.C. §§ 351, et seq. (“SCA”), resulting in underpayment of Richlin’s
employees. In February 1995, the Labor Department determined that the employees
were entitled to back wages under the SCA. In March 1996, Richlin filed a claim for the
back wages (and associated taxes) with the contracting officer. The contracting officer
denied Richlin’s claim, and Richlin appealed to the Board. In March 1997, the Board
granted in part and denied in part Richlin’s request for reformation of the contracts,
holding that while reformation was the appropriate remedy, the Board would not specify
the terms of the reformation until Richlin’s back wage liability was “formalized by
appropriate action of the Labor Department.” In re Richlin Sec. Serv. Co., 98-1 BCA ¶
29,651 (DOTBCA 1997) (“Richlin I”). The Board was concerned that prematurely
awarding Richlin the underpaid wages could result in a windfall to Richlin, as the
passage of years since Richlin performed the contracts might prevent Richlin from
locating and paying all its former employees. The Board thus invited Richlin to petition
for completion of the reformation “at such time as any liability of Richlin for back wages
becomes liquidated and satisfied.” Id. We affirmed. Meissner v. Richlin Sec. Serv. Co.,
155 F.3d 566, 1998 WL 228175 (Fed. Cir. 1998) (“Richlin II”) (unpublished table
decision).
On September 22, 1998, after a Labor Department audit, Richlin and the Labor
Department executed an agreement specifying: (1) that Richlin’s employees were owed
$636,818.72 in back wages; (2) that the back wages were to be paid into an escrow
account administered by Richlin’s counsel; (3) that any excess funds were to be
remitted to the Labor Department; and (4) that the Labor Department “agrees that, by
virtue of the obligations undertaken in this Agreement, the obligations to the former
employees of Richlin have been liquidated and satisfied.” J.A. at 123. The Board
05-1085 2
denied Richlin’s request to complete the reformation based on this agreement, holding
that the agreement was not “the equivalent of Richlin actually discharging its back wage
liability to some or all of its former employees prior to seeking reimbursement . . . .” In
re Richlin Sec. Serv. Co., 99-1 BCA ¶ 30,219 (DOTBCA 1999) (“Richlin III”). The Board
then denied Richlin’s motion for reconsideration. In re Richlin Sec. Serv. Co., 99-2 BCA
¶ 30,562 (DOTBCA 1999) (“Richlin IV”).
We reversed and remanded, noting that “[i]t is not disputed that INS owes
Richlin’s employees the underpaid wages,” and that “Richlin pointed out that its financial
condition [was] such that it ha[d] no funds to pay the former employees prior to
reimbursement, and thus that the employees will not be paid absent a modification of
the decision.” Richlin Sec. Serv. Co. v. Rooney, 18 Fed. Appx. 843, 844-45, 2001 WL
744463 (Fed. Cir. 2001) (“Richlin V”) (unpublished decision). We concluded, in the light
of Richlin’s financial troubles, that it was unnecessary to make Richlin pay its
employees before receiving funds from the INS because the terms of the Richlin-Labor
agreement “assure[d] that Richlin will receive no benefit from these payments.” Id.On remand, the Board awarded Richlin the amount of back wages specified in
the Richlin-Labor agreement. In re Richlin Sec. Serv. Co., 02-2 BCA ¶ 31,876(DOTBCA 2002) (“Richlin VI”). The Board then rejected Richlin’s claim for additional
labor costs because Richlin presented no evidence that it incurred any additional labor
costs that were not fully compensated by the unreformed contract price, and because
the Labor Department had determined that the amount specified in the Richlin-Labor
agreement was the full extent of Richlin’s back-wage liability. The Board also held that
Richlin was entitled to payroll taxes incurred as a result of distributing the back wages.
05-1085 3
In re Richlin Sec. Serv. Co., 03-1 BCA ¶ 32,301 (DOTBCA 2002) (“Richlin VII”). We
affirmed. Richlin Sec. Serv. Co. v. Ridge, 99 Fed. Appx. 906 (Fed. Cir. 2004) (“Richlin
VIII”) (unpublished decision). The escrow agent distributed the back wages, and Richlin
subsequently submitted proof of its associated tax liability to the Board. The majority of
the taxes incurred as a result of distributing the back wages were paid from the escrow
account, and the Board found INS liable for Richlin’s remaining tax liability. Richlin IX,
04-2 BCA ¶ 32,670. Presumably, INS will deposit the taxes into the escrow account for
disbursement to the taxing authorities by the escrow agent.
Richlin requested interest pursuant to the CDA’s interest provision, 41 U.S.C. §
611. The Board denied Richlin’s request, concluding that “there is nothing upon which
interest could accrue” because “[t]he Board’s award [in Richlin VI & VII] was not an
amount found due [Richlin] but was an amount found due [Richlin’s] former employees
and the taxing authorities,” and Richlin “did not advance its own funds to pay” the back
wages. Richlin IX, 04-2 BCA ¶ 32,670. This appeal followed. We have jurisdiction
pursuant to 28 U.S.C. § 1295(a)(10) and 41 U.S.C. § 607(g)(1)(A).
DISCUSSION
I
The only issue here is whether interest on the award to Richlin is allowable under
section 611. We review the Board’s conclusions of law without deference. 41 U.S.C. §
609(b) (2000); West v. All State Boiler, Inc., 146 F.3d 1368, 1371 (Fed. Cir. 1998); E.L.
Hamm & Assocs., Inc. v. England, 379 F.3d 1334, 1338 (Fed. Cir. 2004).
The Supreme Court has long held that “interest cannot be recovered in a suit
against the government in the absence of an express waiver of sovereign immunity from
05-1085 4
an award of interest.” Library of Congress v. Shaw, 478 U.S. 310, 311 (1986); see, e.g.,
United States ex rel. Angarica v. Bayard, 127 U.S. 251, 260 (1888) (applying the “well-
settled principle, that the United States are not liable to pay interest on claims . . . in the
absence of express statutory provision”).
This principle is equally applicable to the sovereign immunity waiver in section
611. That section provides
Interest on amounts found due contractors on claims shall be paid to the
contractor from the date the contracting officer receives the claim pursuant
to section 605(a) of this title from the contractor until payment thereof.
The interest provided for in this section shall be paid at the rate
established by the Secretary of the Treasury pursuant to Public Law 92-41
(85 Stat. 97) for the Renegotiation Board.
41 U.S.C. § 611 (2000). We have recognized that “[a]n allowance of interest on a claim
against the United States, absent constitutional requirements, requires an explicit
waiver of sovereign immunity by Congress.” Fidelity Constr. Co. v. United States, 700
F.2d 1379, 1383 (Fed. Cir. 1983), cert. denied 464 U.S. 826 (1983), (citing United
States v. N.Y. Rayon Co., 329 U.S. 654, 658-59 (1947)). Such an explicit waiver, where
found, must be strictly construed. Id. (citing N.Y. Rayon Co., 329 U.S. at 659). We
have also recognized that, with respect to section 611, “even a seemingly explicit
[waiver] will not be effective if the language used appears too sweeping and contrary to
the overall statutory scheme . . . .” Id.We have previously considered the types of awards that may accrue interest
under section 611 as “amounts found due contractors.” In Servidone Construction
Corp. v. United States, 931 F.2d 860 (Fed. Cir. 1991), we addressed the question
whether section 611 allowed a contractor to collect interest on an award of an equitable
increase in the total contract price when the contractor, at the time the initial claim was
05-1085 5
filed, had not yet incurred all the claimed costs, though all costs were subsequently paid
by the contractor. Relying on the plain language and legislative history of the statute,
we concluded that section 611 “sets a single, red-letter date for interest on all amounts
found due by a court without regard to when the contractor incurred the costs.”
Servidone, 931 F.2d at 862 (emphasis added). Put simply, we held that interest was
available for costs “found due” the contractor, even though payment had not been made
by the contractor on the claim date, because the contractor would ultimately be out of
pocket for some period of time. See also Caldera v. J.S. Alberici Constr. Co., 153 F.3d
1381, 1383 (Fed. Cir. 1998) (relying on Servidone to affirm an award of interest on the
full amount of an award of increase in the contract price made before the contractor
incurred all additional costs necessitating the increase).
We next addressed the issue in Raytheon Co. v. White, 305 F.3d 1354 (Fed. Cir.
2002), where a contract to produce missile guidance systems for the Army was
terminated for convenience by the government. The contractor filed a convenience
termination claim, and the Board awarded the contractor an equitable adjustment to the
total contract price plus interest on costs incurred. The Board denied interest on the
percentage of the award representing estimated costs to complete. Raytheon, 305 F.3d
at 1359, 1365. The contractor appealed to this court, challenging the Board’s decision
not to award interest under section 611 on the award of costs that the contractor would
have incurred but for termination of the contract.
While we recognized the principle, established in Servidone, that “interest may
not be denied merely because costs later found due had not been incurred at the time
the claim was filed,” id. at 1365, we distinguished Raytheon’s claim because termination
05-1085 6
of the contract meant that the contractor would never actually incur the prospective
costs. Observing that “[i]n both Servidone and J.S. Alberici . . . the contractors
completed their contracts and thus actually incurred the costs upon which interest was
later awarded,” id. (emphasis added), we affirmed the Board’s denial of interest on the
prospective costs because “[w]e have never held that section 611 permits interest to
accrue on costs that . . . were never actually incurred by the contractor.” Id.II
Richlin nevertheless insists that it is entitled to interest. Richlin argues that we
must apply the plain-meaning rule in construing section 611, and that the plain meaning
of “amounts found due contractors” in section 611 includes any amount (1) for which the
contractor was liable and (2) that was “awarded” to a contractor on a CDA claim.1 We
agree that Richlin was obligated by the contract to pay employees the amount required
by the Service Contracts Act, and to pay related tax amounts to the appropriate tax
authorities.2 If Richlin had advanced those amounts to the employees and the tax
1
In this connection, Richlin relies on a provision of the Federal Acquisition Regulation
(“FAR”) that defines “compensation for personal services” to include “all remuneration
paid currently or accrued, in whatever form and whether paid immediately or deferred,
for services rendered by employees to the contractor.” 48 C.F.R. § 31.001 (2003).
Richlin asserts that its liability for the back wages under the SCA constituted “accrued”
or “deferred” remuneration, and thus “compensation for personal services” that
constitutes a cost of the contracts under the FAR. See 48 C.F.R. § 31.103(b) (2003)
(“the contracting officer shall incorporate the cost principles and procedures in subpart
31.2 . . . in contracts with commercial organizations as the basis for . . . (4) Price
revision of fixed-price incentive contracts”); 48 C.F.R. § 31.205-6(h)(1) (2003) (backpay
is a form of “compensation for personal services” constituting “a retroactive adjustment
of prior years’ salaries or wages,” and is “unallowable except [that] [p]ayments to
employees resulting from underpaid work actually performed are allowable, if required
by a negotiated settlement, order, or court decree”).
2
See Richlin I, 98-1 BCA ¶ 29,651 (discussing provisions in the contract that
incorporate SCA requirements); 48 C.F.R. § 52.222-41(c)(1) (obligating contractors
05-1085 7
authorities pursuant to the contract, Richlin might have been entitled to interest. But
that is not what occurred. Richlin did not advance a penny of its own money, and
indeed claimed that it lacked the resources to make such advances. Rather, the
government paid the amounts awarded into an escrow account, and those funds were
used to pay the employees and the tax authorities. On the basis of these facts, the
Board denied Richlin’s request for interest on the award because Richlin did not actually
pay any of the back wages out of pocket. Richlin IX, 04-2 BCA ¶ 32,670.
We agree with the Board’s conclusion. As we have previously recognized, the
legislative history of section 611 establishes that in providing for interest on CDA
awards, “Congress was concerned with fully compensating contractors for additional
costs incurred in a continuing performance under a contract.” Fidelity Constr. Co., 700
F.2d at 1384. The Senate Report accompanying the bill that enacted section 611
explains
The rights of Government contractors who prevail upon claims against the
Government are unique since they have been required by language of the
contract . . . to perform the work directed by the Government without
stopping to litigate. . . . Since the contractor has been compelled to
perform the work with its own money -- in the total absence of contract
payments or progress payments -- there can be no equitable adjustment
to the contractor until the contractor recovers the entire cost of the
additional work. The cost of money to finance this additional work while
pursuing the administrative remedy, normally called interest, is a
legitimate cost of performing the additional work.
subject to the SCA to pay wages in accordance with SCA regulations); Richlin IX, 04-2
BCA ¶ 32,670 (discussing Richlin’s payroll tax liability in detail).
05-1085 8
S. Rep. No. 118, 95th Cong., 2d Sess. 32 (1978) (emphasis added).3 As the Board
recognized, this legislative history supports the view that interest is allowable only when
the contractor has incurred a “cost of money to finance [the] additional work.”
In keeping with the purpose of the statute, our prior decisions are clear that the
contractor can recover interest only on amounts it actually paid. In Servidone, we held
that interest accrued to all awards representing compensation for costs actually incurred
by the contractor, even if not incurred until after the claim was filed, because Congress
had adopted a bright-line rule for the computation of interest. Servidone, 931 F.2d at
862. But in Raytheon, we concluded section 611 did not authorize interest on costs
never actually paid by the contractor. Raytheon, 305 F.3d at 1365.
The reasoning of Raytheon is directly applicable to this case. The award of back
wages did not compensate Richlin for any past, present or future out-of-pocket
expense. Indeed, Richlin conceded at oral argument that it “was never out any money.”
The back wages and associated taxes were paid not by Richlin but by the government
through the escrow mechanism. Richlin acted merely as a conduit, and serving as a
conduit did not entitle Richlin to receive interest.
CONCLUSION
For these reasons, the decision of the Board is
3
Contrary to Richlin’s contention, the portion of the Senate Report relating to the
general purposes of section 611 is not made irrelevant by the fact that the text of the
statute was later altered to require that interest accrue from the date the claim is filed
with the contracting officer. See Servidone, 931 F.2d at 862-63 (describing the
alteration). The textual change did not alter the purposes of section 611, and
statements of legislative intent related to those purposes remain relevant to interpreting
the statute. Cf. Fidelity Constr. Co., 700 F.2d at 1385 (holding irrelevant legislative
history specifically related to effect previous version of the altered text).
05-1085 9
AFFIRMED.
COSTS
No costs.
05-1085 10