Call Henry, Inc. v. United States

United States Court of Appeals
for the Federal Circuit
______________________
CALL HENRY, INC.,
Plaintiff-Appellant
v.
UNITED STATES,
Defendant-Appellee
______________________
2016-1732
______________________
Appeal from the United States Court of Federal
Claims in No. 1:14-cv-00989-LAS, Senior Judge Loren A.
Smith.
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Decided: April 28, 2017
______________________
BRIAN KOJI, Allen, Norton & Blue, PA, Tampa, FL,
argued for plaintiff-appellant.
ROBERT NORWAY, Commercial Litigation Branch, Civil
Division, United States Department of Justice, Washing-
ton, DC, argued for defendant-appellee. Also represented
by BENJAMIN C. MIZER, ROBERT E. KIRSCHMAN, JR.,
STEVEN J. GILLINGHAM; JAMES T. MAHONEY, Office of
Chief Counsel, National Aeronautics and Space Admin-
istration, Washington, DC; MACALLISTER A. WEST, Cleve-
land, OH.
2 CALL HENRY, INC. v. US
STEVEN MICHAEL MASIELLO, Dentons US LLP, Den-
ver, CO, for amicus curiae Professional Services Council.
Also represented by THOMAS ANTOINE LEMMER, JOSEPH G.
MARTINEZ, III.
______________________
Before REYNA, HUGHES, and STOLL, Circuit Judges.
REYNA, Circuit Judge.
Call Henry, Inc., appeals from a Court of Federal
Claims (“COFC”) decision dismissing its breach of con-
tract claim against the United States government. The
COFC correctly determined that Call Henry failed to state
a claim for which relief could be granted, because the
government has no contractual obligation to reimburse
Call Henry’s pension withdrawal liability costs that were
incurred pursuant to the Multi-Employer Pension Plan
Amendment Act of 1980, 29 U.S.C. § 1381, et seq. We
therefore affirm.
BACKGROUND
On April 23, 2003, Call Henry entered into a contract
with the National Aeronautics and Space Administration
(“NASA”) to provide inspection, maintenance, and testing
services. This was a multi-year, fixed-price contract with
a base performance period of three years and up to seven
one-year option periods. Call Henry’s contract was sub-
ject to the McNamara-O’Hara Service Contract Act of
1965 (“SCA”), 41 U.S.C. § 6701, et seq., and its implement-
ing regulations.
A. The Service Contract Act
As relevant here, the SCA requires that a service con-
tract include provisions specifying the contract’s “wage
determination,” which sets the wage rates and fringe
benefits that must be paid to various classes of covered
service employees. Covered service employees are enti-
tled to a wage determination providing wages and fringe
CALL HENRY, INC. v. US 3
benefits equal to or greater than: (1) the minimum wage
provided pursuant to the Fair Labor Standards Act
(“FLSA”), 29 U.S.C. § 206; (2) the prevailing rates provid-
ed in the locality where the services are performed, as
determined by the Department of Labor (“DOL”); or (3)
the rates contained in the predecessor contract’s collective
bargaining agreement. 41 U.S.C. §§ 6703, 6704; 48 C.F.R.
§§ 22.1002-2, 22.1002-3; see also Lear Siegler Servs., Inc.
v. Rumsfeld, 457 F.3d 1262, 1266−67 (Fed. Cir. 2006).
Among other things, the SCA insures that service
employees who were protected by a collective bargaining
agreement with one contractor are not deprived of the
wages and benefits negotiated in that collective bargain-
ing agreement when the contract they work on is competi-
tively awarded to a new contractor. Otherwise, if an
incumbent contractor agreed to a collective bargaining
agreement that provided for wages and benefits greater
than the prevailing wage rate, a challenger could under-
bid the incumbent for the follow-on contract by providing
its employees with lower wages and less valuable bene-
fits. By requiring a successor contractor to provide wages
and fringe benefits of equal or greater value than the
predecessor contractor, the government protects covered
service employees from losing the protection of their
collective bargaining agreements. The government also
protects itself from successor contractors who might
introduce performance risk in the form of underpaid or
low-quality labor.
These requirements are reflected in Federal Acquisi-
tion Regulation (“FAR”) clause 52.222-41 entitled Service
Contract Labor Standards, which is incorporated by
reference into Call Henry’s NASA contract:
52.222-41, Service Contract Act of 1965, as
Amended (May 1989).
(c) Compensation.
4 CALL HENRY, INC. v. US
(1) Each service employee employed in the
performance of this contract by the Con-
tractor or any subcontractor shall be paid
not less than the minimum monetary
wages and shall be furnished fringe bene-
fits in accordance with the wages and
fringe benefits determined by the Secre-
tary of Labor, or authorized representa-
tive, as specified in any wage
determination attached to this contract.
....
(f) Successor contracts. If this contract succeeds a
contract subject to the Act under which substan-
tially the same services were furnished in the
same locality and service employees were paid
wages and fringe benefits provided for in a collec-
tive bargaining agreement, in the absence of the
minimum wage attachment for this contract set-
ting forth such collectively bargained wage rates
and fringe benefits, neither the Contractor nor
any subcontractor under this contract shall pay
any service employee performing any of the con-
tract work (regardless of whether or not such em-
ployee was employed under the predecessor
contract), less than the wages and fringe benefits
provided for in such collective bargaining agree-
ment, to which such employee would have been
entitled if employed under the predecessor con-
tract, including accrued wages and fringe benefits
and any prospective increases in wages and fringe
benefits provided for under such agreement. . . .
B. The Service Contract Act Price Adjustment Clause
One of the principal policy implications of the SCA is
that the U.S. government, as a customer, is willing to pay
a premium for services in return for its contractor’s obli-
gation to compensate service employees adequately and
CALL HENRY, INC. v. US 5
fairly. Accordingly, the government is willing to increase
contract price when contractors incur increased costs as a
result of complying with an increase in the wage determi-
nation applicable to their contract. In effect, the contrac-
tor is entitled to a price adjustment to reflect increased
labor costs associated with complying with an increase in
the FLSA minimum wage rate, DOL prevailing wage rate,
or the predecessor contract’s collective bargaining agree-
ment. The mechanism for providing that price increase is
the SCA Price Adjustment Clause.
For multi-year and option contracts, such as the one
at issue in this case, the applicable SCA Price Adjustment
Clause is FAR 52.222-43. 1 Paragraph (d) of that clause
1 Although not outcome determinative in this case,
there is some confusion regarding which FAR price ad-
justment provisions and contract clauses apply to this
dispute. Because this contract was entered into on April
23, 2003, the contract is governed by the FAR provisions
and clauses that were in effect on that date. Accordingly,
Call Henry’s NASA contract is governed by the clauses
and provisions in effect as of April 23, 2003. 48 C.F.R. §§
1.108(d); BearingPoint, Inc. v. United States, 77 Fed. Cl.
189, 193–94 (2007).
Pursuant to the Christian doctrine, the mandatory
SCA clauses applicable to this contract are incorporated
by reference, as those clauses reflect congressionally
enacted, deeply ingrained procurement policy. G.L.
Christian & Assocs. v. United States, 312 F.2d 418, 426
(Ct. Cl. 1963); General Eng’g & Mach. Works v. O’Keefe,
991 F.2d 775, 779−780 (Fed. Cir. 1993); JOHN CIBINIC, JR.,
JAMES F. NAGLE & RALPH C. NASH, JR., ADMINISTRATION
OF GOVERNMENT CONTRACTS 23−24 (5th ed. 2016).
Accordingly, even though Call Henry’s contract with
NASA incorporates only FAR 52.222-44, which applies to
single-year contracts, this contract dispute is nevertheless
6 CALL HENRY, INC. v. US
provides a framework for increasing the unit labor rates
in a service contract when certain events occur that
increase the costs of complying with an increased wage
determination. Paragraph (d) acknowledges cost increas-
es due to an increase in the FLSA minimum wage or DOL
prevailing wage rate. It also recognizes cost increases
that occur by operation of law, such as when a successor
contract is bound by the wages and benefits provided in a
predecessor contractor’s collective bargaining agreement:
52.222-43 Fair Labor Standards Act and Service
Contract Act—Price Adjustment (Multiple Year
and Option Contracts) (May 1989).
(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 volun-
tarily made by the Contractor as a result of:
(1) The Department of Labor wage deter-
mination applicable on the anniversary
date of the multiple year contract, or at
the beginning of the renewal option peri-
od . . . ;
(2) An increased or decreased wage deter-
mination otherwise applied to the contract
by operation of law; or
governed by FAR 52.222-43, which applies to multi-year
and option contracts.
CALL HENRY, INC. v. US 7
(3) An amendment to the Fair Labor
Standards Act of 1938 that is enacted af-
ter award of this contract, affects the min-
imum wage, and becomes applicable to
this contract under law.
C. Call Henry’s Successor Contracts, Collective Bargain-
ing Agreements, Pension Withdrawal, and MPPAA
Withdrawal Liability
The three-year base performance period of Call Hen-
ry’s contract with NASA was a successor contract. By
operation of law, the wage determination applicable to the
base performance period was provided by the predecessor
contractor’s collective bargaining agreement. Under the
predecessor contract, Call Henry’s service employees were
members of the International Brotherhood of Teamsters
Local Union No. 416 (“the Teamsters”). Instead of provid-
ing wages and benefits through an alternative arrange-
ment, Call Henry chose to negotiate a collective
bargaining agreement with the Teamsters. The first such
agreement was effective from 2003 to 2007 (“2003–2007
Teamsters Agreement”), and it required Call Henry to
join and contribute to the Teamsters’ Pension Plan.
The Teamsters’ Pension Plan is a multi-employer
pension plan, which is subject to the Multi-Employer
Pension Plan Amendment Act (“MPPAA”). Among other
things, the MPPAA protects employees receiving benefits
under a multi-employer pension plan by requiring any
employer who withdraws from the plan to pay withdrawal
liability to the pension fund. This withdrawal liability is
paid by the withdrawing employer in order “to fund its
share of the [pension] plan obligations incurred during its
association with the plan.” Connolly v. Pension Benefit
Guar. Corp., 475 U.S. 211, 225 (1986); 29 U.S.C.
§ 1381(b)(1) (“The withdrawal liability of an employer to a
plan is the amount determined . . . to be the allocable
amount of unfunded vested benefits, . . .”).
8 CALL HENRY, INC. v. US
In 2007, NASA executed the first option period. That
option contract was a successor contract to the three-year
base performance period. See 29 C.F.R. § 4.143(b); see
also Lear, 457 F.3d at 1267. Therefore, by operation of
law, the 2003−2007 Teamsters Agreement provided the
wage determination applicable to the first option period.
It is critical to distinguish between: (1) Call Henry’s
obligations to its service employees pursuant to the
2003−2007 Teamsters Agreement, (2) Call Henry’s con-
tractual obligations to NASA, and (3) Call Henry’s statu-
tory obligations under the MPPAA to the Teamsters’
Pension Plan. Call Henry was bound by the 2003−2007
Teamsters Agreement as soon as that agreement was
implemented in 2003, but that collective bargaining
agreement did not serve as the wage determination
applicable to Call Henry’s contract with NASA until
NASA executed the first option period in 2007. Only then
was Call Henry contractually bound to NASA by FAR
52.222-41(f) to provide its service employees with wages
and benefits equal to or greater than those provided in
the 2003−2007 Teamsters Agreement. Similarly, as soon
as Call Henry enrolled in the Teamsters’ Pension Plan, it
was subject to the MPPAA and potential withdrawal
liability, but that statutory obligation existed inde-
pendently from Call Henry’s obligations under the
2003−2007 Teamsters Agreement and the NASA contract.
NASA continued to exercise option contracts, and Call
Henry continued to enter into new collective bargaining
agreements with the Teamsters. Each time a new collec-
tive bargaining agreement went into effect, it provided
the wage determination that would apply by operation of
law to the next option period executed by NASA. As Call
Henry negotiated new collective bargaining agreements,
its mandatory pension contributions were increased.
Each time a collective bargaining agreement with in-
creased pension contributions served as the wage deter-
mination for a new option contract, NASA provided a
CALL HENRY, INC. v. US 9
price adjustment pursuant to the SCA Price Adjustment
Clause reflecting the increased cost of providing service
employee pension benefits.
The increases to Call Henry’s pension contributions
were due to the fact that, in 2008, the Teamsters’ Pension
Plan reached “critical status,” as defined by the Pension
Protection Act of 2006. 2 The same statute required the
board of trustees of the Teamsters’ Pension Plan to adopt
a rehabilitation plan scaling back certain employee bene-
fits and mandating increased employer contributions. 26
U.S.C. § 432(e).
In 2012, the International Association of Machinists
and Aerospace Workers petitioned the National Labor
Relations Board (“NLRB”) to decertify the Teamsters as
the representative for Call Henry’s service employees.
Subsequently, Call Henry’s employees voted to associate
with a new union. As a result, on May 7, 2012, the NLRB
decertified the Teamsters as the representative for Call
Henry’s employees.
Based on the NLRB decertification order, Call Henry
was deemed to have withdrawn from the Teamster’s
Pension Plan pursuant to the MPPAA and Title IV of the
Employee Retirement Income Security Act of 1974, 29
U.S.C. § 1301, et seq. As a result, Call Henry was poten-
tially liable to pay approximately six million dollars of
MPPAA withdrawal liability to the Teamsters’ Pension
Plan. 29 U.S.C. § 1381(a). Call Henry disputed its with-
drawal liability determination in arbitration, and the
liability was reduced to less than two million dollars.
2 The Pension Protection Act describes four differ-
ent scenarios that constitute “critical status,” each of
which generally relates to deficient funding or liquidity.
See 26 U.S.C. § 432(b)(2). It is not clear from the record
why the Teamster’s Pension Plan reached critical status.
10 CALL HENRY, INC. v. US
D. Proceedings Below
On June 27, 2014, following the arbitration decision,
Call Henry submitted a certified claim to NASA seeking
reimbursement for the assessed MPPAA withdrawal
liability. The only legal authority Call Henry identified in
its claim was the SCA Price Adjustment Clause. Call
Henry characterized withdrawal liability as an increased
cost of providing pension benefits pursuant to its collec-
tive bargaining agreements with the Teamsters.
NASA denied the claim on September 11, 2014. The
Contracting Officer explained that MPPAA withdrawal
liability is not an increased cost of complying with the
collective bargaining agreements, but a result of with-
drawal from the pension fund. The Contracting Officer
also analogized the withdrawal liability to a retroactive
wage determination, which is not contemplated as a basis
for adjustment in the SCA Price Adjustment Clause.
On October 15, 2014, Call Henry filed a single-count
complaint at the COFC, alleging that the United States
breached its contract with Call Henry by refusing to
provide an upward adjustment in contract price to offset
Call Henry’s increased pension benefit costs. The gov-
ernment moved to dismiss for failure to state a claim on
the grounds that the government has no contractual duty
to provide a price adjustment covering Call Henry’s
MPPAA liability.
The COFC granted the government’s motion to dis-
miss based on two independent lines of reasoning. First,
the COFC reasoned that Call Henry’s contract only incor-
porates the “economic provisions” of the Teamsters
Agreement relevant to the SCA, such as the wages and
value of fringe benefits to be provided. Therefore, accord-
ing to the COFC, Call Henry’s NASA contract does not
require Call Henry to join the Teamsters’ Pension Plan.
CALL HENRY, INC. v. US 11
Second, the COFC held that MPPAA withdrawal lia-
bility is not a “fringe benefit” covered by the SCA, and
therefore not a cost covered by the SCA Price Adjustment
Clause. The COFC’s analysis turned on the premise that
the SCA limits its coverage to “fringe benefits not other-
wise required by Federal, State, or local law.” 41 U.S.C.
§ 6703. Based on that reading of the SCA, the COFC
reasoned that withdrawal liability is not a “fringe bene-
fit,” because it is specifically provided for by a federal
statute other than the SCA—i.e., the MPPAA. Having
explained that MPPAA withdrawal liability is not a fringe
benefit covered by the SCA, the COFC concluded that
MPPAA withdrawal liability is not a cost covered by the
SCA Price Adjustment Clause. See Call Henry, Inc. v.
United States, 125 Fed. Cl. 282, 285–86 (2016).
Call Henry appeals. This Court has jurisdiction over
appeals from final decisions of the COFC. 28 U.S.C.
§ 1295(a)(3).
STANDARD OF REVIEW
This court reviews the grant of a motion to dismiss de
novo. Bell/Heery v. United States, 739 F.3d 1324, 1330
(Fed. Cir. 2014). “To survive a motion to dismiss, a com-
plaint must contain sufficient factual allegations that, if
true, would state a claim to relief that is plausible on its
face. Id. The court must accept well-pleaded factual
allegations as true and must draw all reasonable infer-
ences in favor of the claimant. Id. However, we interpret
statutes, contracts, and regulations de novo. See id.; Lear,
457 F.3d at 1266.
“A breach of contract claim requires two components:
(1) an obligation or duty arising out of the contract and (2)
factual allegations sufficient to support the conclusion
that there has been a breach of the identified contractual
duty.” Bell/Heery, 739 F.3d at 1330. In this appeal, the
only question is whether Call Henry’s NASA contract
obligates NASA to adjust the contract price to account for
12 CALL HENRY, INC. v. US
Call Henry’s MPPAA withdrawal liability. We review the
COFC’s decision on that issue de novo, because it is a
question of law that requires interpretation of contract
terms, regulations, and statutory provisions.
DISCUSSION
Call Henry, with support of amicus curaie Profession-
al Services Council (“PSC”), presents two primary theories
to establish entitlement to a price adjustment. First, Call
Henry argues that, contrary to the COFC’s conclusion,
MPPAA withdrawal liability is a fringe benefit because
MPPAA liability represents the lump-sum value of pen-
sion benefits that have already accrued to Call Henry’s
employees.
Second, assuming MPPAA withdrawal liability is a
fringe benefit, Call Henry argues that it is entitled to a
price adjustment equal to the amount of its MPPAA
withdrawal liability pursuant to the SCA Price Adjust-
ment Clause, FAR 52.222-43(d). According to Call Henry,
MPPAA withdrawal liability is an increased cost made to
comply with its contractual obligation to continue to
provide its service employees the pension benefits provid-
ed in the agreements with the Teamsters. To support this
proposition, Call Henry relies on our decision in Lear, 457
F.3d at 1265.
In Lear, the collective bargaining agreement that ap-
plied by operation of law to Lear’s successor contract
provided for a defined benefit health plan, where employ-
ees were guaranteed certain benefits and employer con-
tributions were variable. Therefore, Lear’s contract with
the Air Force required Lear to provide its covered service
employees with defined health benefits of equal or greater
value than those provided in the predecessor contract’s
collective bargaining agreement. After Lear’s successor
contract was priced, actuarial analysis revealed that the
cost of Lear’s health plan contributions would have to
CALL HENRY, INC. v. US 13
increase in order to provide its employees with their
defined health benefits.
Lear sought a price adjustment pursuant to FAR
52.222-43(d) to account for its increased health plan
contribution costs. The Air Force denied Lear’s claim, and
the Armed Services Board of Contract Appeals affirmed,
reasoning that the SCA Price Adjustment Clause only
provides for adjustment when the value of the employees’
benefits change, not where a contractor’s costs of provid-
ing those benefits change. This court reversed, holding
that “the Price Adjustment Clause is triggered by changes
in an employer’s cost of compliance with the terms of a
wage determination. The fact that there has been no
nominal change in the mandated benefit—i.e., that there
has been no change in the level of benefit provided by the
defined-benefit plan—is simply irrelevant.” Id. at
1268−69 (emphasis omitted).
Call Henry and amicus curiae PSC devote considera-
ble attention to the issue of whether MPPAA withdrawal
liability is a “fringe benefit” covered by the SCA. But that
is not the dispositive question presented in this case.
Even if we held that MPPAA withdrawal liability may, in
some cases, be a cost of providing fringe benefits covered
by the SCA, Call Henry’s breach of contract claim would
still fail.
As relevant here, the SCA Price Adjustment Clause in
Call Henry’s NASA contract conditions an upward price
adjustment on increased costs made to comply with a
“wage determination otherwise applied to the contract.”
FAR 52.222-43(d)(2). Call Henry’s MPPAA withdrawal
liability is a not an increased cost of complying with a
wage determination applied to Call Henry’s NASA con-
tract. Therefore, it is not an increased cost covered by the
SCA Price Adjustment Clause.
This case is distinguishable from Lear. Lear was con-
tractually bound to the Air Force to make the contribu-
14 CALL HENRY, INC. v. US
tions necessary to provide its employees with certain
defined benefits. When the cost of those contributions
increased, that constituted an increased wage determina-
tion applied by operation of law to Lear’s contract with
the Air Force. In contrast, Call Henry’s contract with
NASA did not obligate Call Henry to pay MPPAA liability
in the event of withdrawal. Instead, FAR 52.222-41(f)
required Call Henry to provide its service employees with
wages and fringe benefits equal or greater in value to
those provided in the collective bargaining agreement
applicable to the predecessor contract.
When Call Henry independently chose to provide its
employees with benefits by negotiating a collective bar-
gaining agreement with the Teamsters and joining the
Teamsters’ multiemployer pension plan, Call Henry
independently assumed the risk of MPPAA withdrawal
liability. Under these circumstances, where NASA did
not require Call Henry to negotiate with the Teamsters or
join the Teamsters’ Pension Plan, and where NASA has
no contractual recourse if Call Henry fails to satisfy its
MPPAA withdrawal liability obligations, we do not read
the SCA Price Adjustment Clause to allocate the risk of
MPPAA liability to the government. Accordingly, the
COFC correctly dismissed Call Henry’s complaint for
failure to state a claim. We affirm.
AFFIRMED
COSTS
Each party to bear its own costs.