Lloyd T. Danielsen v. Burnside-Ott Aviation Training Center, Inc.Lloyd T. Danielsen v. Burnside-Ott Aviation Training Center, Inc.
Opinion for the Court filed by Circuit Judge SENTELLE.
Appellants, employees of service corporations contracting with the United States, brought suit against their employers and others in a five-count complaint alleging four claims for relief under the Racketeer Influenced and Corrupt Organizations Act (“RICO”),
I. Baokground
A. The Statutory and Regulatory Framework
Our disposition of this appeal involves the construction of two largely unrelated statutory schemes: the Service Contract Act,
1. The Service Contract Act
In 1965, prior to the enactment of the SCA, some statute establishing labor standards covered each major category of federal contracts except service contracts. The earliest example of this type of legislation is the Davis-Bacon Act,
In 1965, Congress determined that “the service contract is the only remaining category of Federal contracts to which no labor standards protection applies.” S.Rep. No. 798, 89th Cong., 1st Sess. 1 (1965), U.S.Code Cong. & Admin.News 1965, p. 3737. To correct this perceived omission, Congress enacted the McNamara-O’Hara Service Contract Act, a labor standards statute applicable to service contracts.
See
In pursuance of her duties under the statutory scheme, the Secretary of Labor has promulgated an extensive body of regulations. The whole of Part 1 of Title 29 of the Code of Federal Regulations and Appendices A-C thereto set the “Procedures for Predetermination of Wage Rates.”
Section 1.6 sets forth in detail (almost three pages, two columns each) the use and effectiveness of the wage determinations. Section 1.8 provides the procedure for any interested party to seek reconsideration of a wage determination by the Administrator of the Wage and Hour Division, Employment Standards Administration of the Department. Section 1.9 provides for an appeal from the Administrator’s decision to the Wage Appeals Board. Sections 4.50-4.55 review the methodology by which the Administrator makes the wage and fringe benefit determinations pursuant to §§ 1.1-1.7 and reconsiders the same under § 1.8. Several other subparts and sections of Title 29 C.F.R. apply to the relevant wage determinations, including §§ 8.2-8.6 concerning the review of wage determinations and §§ 8.7-8.9 providing further procedures for appeal of determinations.
The greater portion of Part 7 of Title 29 of the C.F.R., §§ 7.1-7.8 and §§ 7.11-7.18, governs the procedure and methodology for review by the Wage Appeals Board. Also, subpart C of subtitle A of
All contracts involved in the present litigation are within the scope of the SCA and the implementing regulations.
2. The Racketeer Influenced and Corrupt Organizations Act
Congress enacted the RICO statute,
The principal operative section of RICO,
The alleged applicability of RICO to the present case comes about through
[A]ny person injured in his business or property by reason of a violation ofsection 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee.
Each offense under
As will be set forth more fully in Part II of this opinion, plaintiffs’ complaint alleges purported claims under each of the subsections of
B. The History of the Litigation
1. Factual Allegations
Appellants are the three named plaintiffs in the District Court action suing individually and as representatives of a class of “all other persons ... who, during the period of approximately October 1, 1981 to the present, were or are service employees of either Dyncorp, Burnside-Ott, UNC Support, or UNC.” Appellants brought suit against five corporations: (1) Burnside-Ott Aviation Training Center, Inc.; (2) UNC Services, a wholly owned subsidiary of UNC, Inc.; (3) UNC, Inc.; (4) Dyncorp (formerly Dynalectron Corp.); and (5) BOC of Miami, Inc.; as well as four natural persons: William V. Ott, Robert C. Ott, Donald Burnside, and Marjorie Burnside, each sued “individually and as trustee to BOC of Miami, Inc.,” and all designated in the complaint as “the directors of BOC, and ... upon information and belief ... shareholders in Burnside-Ott prior to its sale to UNC, Inc.” Appellants’ Complaint at 7,
Danielsen v. Burnside-Ott Aviation Training Center, Inc.,
The factual allegations concern events surrounding five maintenance contracts, each of which the Department of the Navy awarded to one of the corporate defendants, and some of which one defendant obtained and subsequently assigned to another. According to the allegations of the complaint,
see Danielsen v. Burnside-Ott Aviation Training Center, Inc.,
Burnside-Ott performed the maintenance under the first TH-57 contract until December 1, 1984. From December 1, 1984 until December 1, 1985, an unrelated co-defendant, Dynalectron Corporation held and performed the second TH-57 contract. On December 1, 1985, BOC of Miami was awarded the third TH-57 maintenance contract through the competitive bidding process. On October 31, 1986, BOC of Miami assigned that contract to the Burnside-Ott Aviation, Inc., subsidiary of UNC Support Services, Inc., which continued to perform the third TH-57 contract at all other times relevant to this opinion. In the meantime, defendant Dynalectron, now known as Dyncorp, obtained maintenance contracts for the Navy’s T-2 and T-34/44 fixed-wing aircraft on February 4, 1985.
The litigation in this case concerns all five of the above contracts, that is, the three TH-57 maintenance contracts and the two contracts for maintenance of the T-2 and T-34/44 fixed-wing aircraft. The contracts are governed by the SCA, as “the principal purpose of ... [each] is to furnish services in the United States through the use of service employees.” Pursuant to the SCA, the contracts included provisions specifying “minimum monetary wages to be paid to various classes of service employees” involved in the performance of the contracts.
As we noted above, the regulations provide the means for “any interested person” to challenge such a wage determination and to obtain a reconsideration from the Administrator of the Wage and Hour Division, Employment Standards Administration, U.S. Department of Labor.
The other two service contracts, those covering the T-2 and T-34/44 aircraft, also generated administrative review. As to each, Dyncorp submitted performance requests proposing rates for classifications not contained in the wage determinations. The Administrator issued a ruling concerning classifications for both contracts on April 3, 1987. Again, a dispute arose over the classification of “technicians” proposed by the contractor for service employees performing aircraft maintenance. The Administrator increased wage rates for several classifications and directed Dyncorp to apply the conformed wage rates effective to the commencement date of each contract. On May 28, 1987, Dyncorp petitioned the Board of Service Contract Appeals for review of the Administrator’s determination. The Navy petitioned to intervene in the appeal in support of Dyncorp’s position and opposed the Administrator’s proposed rates. At the time of the filing of the litigation in the District Court and the issuance of the District Court’s opinion, the final decisions on the appeal in those matters had not yet been issued.
2. The Claims for Relief
On November 17, 1989, appellants commenced the present action.
2
Their complaint contains five counts. Each of the first four counts asserts a claim under one of the subsections of
Defendants moved to dismiss all counts for failure to state claims upon which relief could be granted. On August 27, 1990, the District Court filed a memorandum explaining its reasoning that the SCA had “preempted” this area of law to the exclusion of RICO so that the first four counts failed to state claims upon which relief could be granted.
Danielsen,
II. Analysis
A. The Exclusive Remedy
We agree with the District Court that the statutory scheme for administrative relief set forth by Congress in the SCA leaves no room for a RICO action on the present allegations. We have a slight semantic difficulty with the use of the word “preemption” for the concepts we discuss
Whatever the analysis is called, the question remains essentially: Does violation of the SCA give rise to a private civil action under RICO in addition to the remedies provided under the SCA? We agree with the District Court that it does not.
While prior litigation has not focused on RICO, other circuits previously have held that no private civil action will lie under the SCA. The Ninth Circuit faced the question in
Miscellaneous Service Workers, etc. v. Philco-Ford Corp.,
1.Is the plaintiff one of a class for whose especial benefit the statute was created?
2. Is there any indication of a legislative intent to fashion such a remedy?
3. Is it consistent with the underlying legislative scheme to apply such a remedy?
4. Is the cause of action one traditionally relegated to state law, so that an implied federal cause of action would be inappropriate?
MSW,
Applying the third test, the Ninth Circuit saw it as quite plain that the implication of a private right of action would be totally inconsistent with Congress’s intent; indeed, it would be so inconsistent with the legislative scheme underlying the right as to be unthinkable. As the Ninth Circuit stated, and as our discussion in Section IA, supra, reveals, “the Act envisions a comprehensive administrative rubric for the protection of federal service workers.” Id. The Ninth Circuit then reasoned that where Congress has established such a regulatory scheme, “the specification thereof normally excludes duplicative judicial jurisdiction.” Id. at 781 (citations omitted). This is especially true in a scheme such as the SCA where Congress provided the statutory right for a limited and governmental cause of action for underpayment. The SCA provides:
If the accrued payments withheld under the terms of the contract are insufficient to reimburse all service employees with respect to whom there has been a failure to pay the compensation required pursuant to this chapter, the United States may bring action against the contractor, subcontractor, or any sureties in any court of competent jurisdiction to recoverthe remaining amount of underpayments. Any sums thus recovered by the United States shall be held in the deposit fund and shall be paid, on order of the Secretary, directly to the underpaid employee or employees. Any sum not paid to an employee because of inability to do so within three years shall be covered into the Treasury of the United States as miscellaneous receipts.
We agree with the Ninth Circuit that the implication of a private right under the SCA would undercut the specific remedy prescribed by Congress. As that circuit asked, “what plaintiff will pursue his administrative remedies under the Act where more direct and expeditious relief is available in a private suit?”
MSW,
Indeed, appellants’ invocation of the RICO statute avails them of no meaningful distinction from
MSW.
The factual allegations are precisely the same. To call the violation of the SCA “a pattern of racketeering” does nothing to persuade this Court that Congress intended the SCA to create a private cause of action. As the Ninth Circuit held, no such implication exists. If there is no implied cause of action for damages, how much the less for treble damages? In fact, plaintiffs in
MSW,
while not attempting to assert a claim under RICO, did allege a second cause of action “for deceit and misrepresentation in falsely advising plaintiffs that the SCA did not apply to their contract,”
MSW,
When the Eleventh Circuit considered an attempted action by a union under the SCA, that court referred to
MSW
as “the Ninth Circuit’s in-depth analysis of the SCA, and its correct application of the
Cort
test, fully supporting] its conclusion that both before and after the 1972 amendments, Congress did not intend to authorize private suits to enforce the Act.”
District Lodge No. 166, International Association of Machinists & Aerospace Workers v. TWA Services, Inc.,
Not only is the Ninth Circuit’s application of the
Cort
test unassailable as a matter of logic, but its decision in
MSW
is consistent with our own precedent in a distinguishable but closely analogous application of the SCA. In
International Association of Machinists & Aerospace Workers v. Hodgson,
To frame the action for such remedy in terms of RICO adds nothing. In contending that it does, appellants argue that “the
B. The Elemental Failure of the Complaint
Our confidence in affirming the dismissal of this complaint rests not only on our firm conviction that the SCA affords no private remedy, but also on our conclusion that plaintiffs’ complaint does not allege the elements of a RICO claim for relief in any of its counts. We note with reference to all of the four RICO counts that each allegation of the required “racketeering activity” element is suspect for reasons implicit in our prior discussion of the exclusivity of the SCA remedy. Specifically, each count depends on the premise that alleging use of the mail to further an SCA contract activity when an improper wage classification is employed is sufficient to charge mail fraud. We doubt that it is.
True, racketeering activity encompasses “any act which is indictable under any of the following provisions of title 18, United States Code: ... section 1341 (relating to mail fraud).”
Furthermore, we question whether appellants come within the RICO requirement that a § 1964(c) plaintiff must be a “person injured in his business or property by reason of a violation of § 1962.” While the employees may have been entitled to higher paying job classifications than they received under the defendants’ employment schemes, each employee in fact received precisely the compensation bargained for in return for the agreed work. That the employees should have received more pay is a situation redressable under the SCA. The very fact that Congress enacted the SCA with its complex framework for administrative recovery suggests that Congress did not contemplate that violation of the SCA constituted the criminal felony of mail fraud. Although it is not imponderable that Congress would have deemed it both, it would seem likely that either the statute or at least the legislative history would have indicated as much. Nevertheless, even if we assume that racketeering, even a pattern of racketeering, is adequately alleged, all counts still fail. We discuss each count in turn.
1. Count I, § 1962(a)
In Count I, appellants attempt to allege a claim for violation of
Although there is some contrary authority to the effect that the predicate act injury is sufficient to provide standing to a claimant under
Appellants do not deal with this question in their briefs before this Court. While understandably their initial brief dealt with the grounds for dismissal asserted by the District Court, their reply brief does not respond to appellees’ argument that Count I must fail for want of an allegation of use or investment injury. In fact, they reply that “the sole issue presented on appeal on a single ground for dismissal below is a straightforward question of law.” (That is, the “legal standard of preemption [to] be invoked in a RICO action such as this case.”). Appellants’ Reply Brief at 2.
This reply ignores the well-established rule of law that in reviewing the decision of a lower court, an appellate court can affirm a correct decision even if on different grounds than those assigned in the decision under review.
See, e.g., SEC v. Chenery Corp.,
When questioned at oral argument, appellants’ counsel contended that the conduct of the affairs of the enterprise through the alleged pattern of racketeering activity should be sufficient to satisfy the requirements of
In short, we hold that to make out a claim under
2. Count II,
In Count II, appellants attempt to allege a claim for violation of
Plaintiffs do not allege that their purported injury (underpayments of wages and benefits) was caused by the acquisition of an enterprise. As with all their RICO claims, plaintiffs allege in Count II simply that their injuries result from “the intentional and continuous underpayment of legally required minimum wages and fringe benefits.” Appellants’ Complaint at 38. Therefore, even if a
3. Count III,
In Count III, appellants attempt to allege a claim for violation of
Under the RICO definitional section, “ ‘enterprise’ includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.”
Here, appellants allege that the enterprise is the United States Navy. Appellants never alleged that appellees, either through a pattern of racketeering activity or otherwise, participated in the operation or management of the United States Navy, nor is it likely that they could make such an allegation in good faith. The complaint in the present case renders incarnate a specter we raised in
Yellow Bus.
There we noted that if we held that a union attempting to gain recognition from a company was participating in the conduct of the company’s affairs, we would be establishing a precedent applicable to “any other
Without an allegation that appellants were participating in the operation or management of the United States Navy, the count does not state a claim for relief.
4. Count IV,
In the fourth count, appellants attempt to allege a claim for relief under
5. Count V, “Fraud and Deceit”
In Count V, entitled “Fraud and Deceit,” appellants leave the brave new world of RICO and descend to the more mundane landscape of common law fraud. As to this claim for relief, the complaint asserts no independent jurisdictional base. Both the complaint and appellants’ brief in this Court recite only the jurisdictional sections of RICO and
The District Court entertained the claim within its pendent jurisdiction. As is well known, “[pjendent jurisdiction, in the sense of judicial
power,
exists whenever there is a [federal] claim ... and the relationship between that claim and the state claim permits the conclusion that the entire action before the court comprises but one constitutional ‘case.’ ”
United Mine Workers v. Gibbs,
It may be credibly argued that appellants set forth no claim for relief in Count V in the first place. Any such claim may be barred by the exclusivity of remedy created in the SCA as we held in reference to the RICO claims and as the Ninth Circuit held in reference to all claims in
MSW, supra.
Moreover, it may be that the allegations of the complaint do not meet the heightened pleading requirement for fraud as set forth in
III. CONCLUSION
In summary, we hold: (1) the District Court correctly ruled that no private civil action (including a RICO action) will lie for breach of the Service Contract Act; (2) even if such action would lie, appellants have alleged no claim for relief in their present complaint; and (3) whether or not appellants’ common law action for fraud and deceit is barred by the exclusivity of remedy under the Service Contract Act, the District Court properly ruled that it had no jurisdiction over the claim on the present complaint. The judgment of the District Court is therefore
Affirmed.
Notes
. It appears from statements in the briefs before us that the Deputy Secretary may have ruled on the other matters since the filing of this appeal. As this is of no consequence to our decision, we will not pursue the inquiry further.
. On the same date, appellants commenced a companion suit against the Secretary of Labor and the Secretary of the Navy seeking a writ of mandamus compelling the departments to collect back wages from the same defense contractors sued in this litigation alleging the same SCA violations. The District Court dismissed that action on August 27, 1990, for failure to state a claim upon which relief could be granted.
Dan-ielsen v. Dole,
. Although the statute is not explicit on the question, this jurisdiction is nonexclusive. State courts enjoy concurrent jurisdiction over civil RICO claims.
Tafflin v. Levitt,