United States ex rel. Sheet Metal Workers International Ass'n, Local Union 20 v. Horning Investments, LLC
828 F.3d 587
7th Cir.2016Background
- Horning Roofing subcontracted on a VA construction project in Dayton subject to the Davis-Bacon Act, which requires prevailing wages including specified fringe benefits.
- Horning paid the Davis-Bacon base wage but deducted $5.00/hour from payroll and deposited it into a company Trust for insurance-like fringe benefits; deductions applied uniformly regardless of employee eligibility.
- Horning’s payroll processor produced Certified Payroll Reports and eight payment applications certifying compliance with Davis-Bacon; those documents were submitted (via the prime contractor) to the government.
- The Union (Local 20) sued as a relator under the False Claims Act (FCA), alleging the payroll reports and payment applications were false or misleading because the $5 deductions did not provide the promised fringe benefits to some employees.
- District court granted summary judgment for Horning, finding insufficient evidence that Horning had the FCA’s required scienter (knowledge, deliberate ignorance, or reckless disregard). Union appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Jurisdiction / relator status and original-source rule | Union was not a public-source relator and its suit was timely; jurisdiction under §1331 exists | Horning argued the Union was not an original source and that DOL primary jurisdiction required deference | Court: §3730(e)(4) inapplicable because no public disclosure; primary jurisdiction not invoked because dispute centers on misrepresentation, not classification — federal court has jurisdiction |
| 2) FCA — presentation and causation | Certified Payroll Reports and payment applications were presented to obtain government payment | Horning conceded submission but argued the statements were not knowingly false | Court: Submission to obtain payment satisfied presentation element |
| 3) FCA — falsity / implied certification and materiality | Union: withholding compliance with Davis-Bacon made representations misleading under Escobar (implied false certification) | Horning: may have complied or at least ambiguity exists; not necessary to resolve falsity because knowledge lacking | Court: Did not decide definitively whether implied-certification applied; resolved case on knowledge — materiality discussion not necessary here |
| 4) FCA — scienter (knowledge / reckless disregard) | Union: uniform $5 deductions and lack of individualized valuation show Horning knew or recklessly disregarded that employees didn’t receive promised fringe benefits | Horning: acted on accountants’ advice, ambiguity in applicable DOL guidance, and employer contributions (not payouts) satisfy Davis-Bacon definitions; no evidence of knowing falsity | Court: Union failed to show Horning acted with the FCA required scienter; summary judgment for Horning affirmed |
Key Cases Cited
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (FCA liability can arise from implied false certifications and emphasizes demanding scienter and materiality standards)
- Thulin v. Shopko Stores Operating Co., LLC, 771 F.3d 994 (7th Cir. 2014) (FCA elements summarized: presentation, falsity, knowledge)
- Rockwell Int'l Corp. v. United States, 549 U.S. 457 (2007) (public-disclosure bar under §3730(e)(4) is jurisdictional)
- United States v. King-Vassel, 728 F.3d 707 (7th Cir. 2013) (FCA scienter includes actual knowledge, deliberate ignorance, or reckless disregard; negligence insufficient)
- United States ex rel. Wall v. Circle C Const., LLC, 697 F.3d 345 (6th Cir. 2012) (distinguishes classification disputes from misrepresentation claims under Davis-Bacon in FCA context)
- United States ex rel. Garbe v. Kmart Corp., 824 F.3d 632 (7th Cir. 2016) (FCA liability can attach to claims presented through intermediaries)