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VULCAN ARBOR HILL CORPORATION v. ROBERT B. REICH </h1> <p class="docCourt"> </p> <p> April 19, 1996 </p> <p class="case-parties"> <b>VULCAN ARBOR HILL CORPORATION, A/K/A ARBOR HILL ASSOCIATES, ET AL., APPELLANTS<br><br>v.<br><br>ROBERT B. REICH, SECRETARY, DEPARTMENT OF LABOR AND HENRY CISNEROS, SECRETARY, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, APPELLEES</b><br><br> </p> <div class="caseCopy"> <div class="facLeaderBoard"> <script type="text/javascript"><!-- google_ad_client = "ca-pub-1233285632737842"; /* FACLeaderBoard */ google_ad_slot = "8524463142"; google_ad_width = 728; google_ad_height = 90; //--> </script> <script type="text/javascript" src=""> </script> </div class="facLeaderBoard"> <div class="numbered-paragraph"><p><br> Appeal from the United States District Court for the District of Columbia (No. 87cv03540)</p></div> <div class="numbered-paragraph"><p> Before: Edwards, Chief Judge, Wald and Henderson, Circuit Judges.</p></div> <div class="numbered-paragraph"><p> Wald, Circuit Judge</p></div> <div class="numbered-paragraph"><p> FOR PUBLICATION</p></div> <div class="numbered-paragraph"><p> FOR THE DISTRICT OF COLUMBIA CIRCUIT</p></div> <div class="numbered-paragraph"><p> Argued February 5, 1996</p></div> <div class="numbered-paragraph"><p> Opinion for the Court filed by Circuit Judge Wald.</p></div> <div class="numbered-paragraph"><p> Dissenting opinion filed by Circuit Judge Henderson.</p></div> <div class="numbered-paragraph"><p> The developer of a project partially financed by the Department of Housing and Urban Development ("HUD") to rehabilitate 82 dilapidated row houses in inner-city Albany, New York appeals a determination by the Wage and Appeals Board of the Department of Labor ("Board") that it was required to pay "prevailing" wages as determined under the Davis-Bacon Act, 40 U.S.C. Section(s) 276a, to laborers who worked on the rehabilitation of the houses. The Board based its decision on section 110 of the Housing and Community Development Act, 42 U.S.C. 5310, which requires recipients of HUD grant funds to pay Davis-Bacon wages provided the property at issue "is designed for residential use for eight or more families." The developer, Arbor Hill, argued that section 110 did not apply because each separate building being renovated contained fewer than eight residential units. Arbor Hill also argued that HUD, not the Department of Labor, had primary responsibility for interpreting section 110. The Board, however, refused to accord HUD's interpretation of section 110 deference, and held that this project was covered by Davis-Bacon because the residential units in each of the 82 houses under rehabilitation must be aggregated for the purpose of applying the eight-unit threshold. The district court affirmed this decision, holding that the Department of Labor, not HUD, is principally charged with interpreting section 110, and that its interpretation was correct in this case. In addition, the district court agreed with two of the three members of the Board who, writing separately, had found that irrespective of section 110, Arbor Hill had contractually agreed to pay Davis-Bacon wages in a legally binding agreement with the City of Albany. We affirm the district court's judgment on this latter ground, finding that Arbor Hill did, in fact, contractually agree to pay Davis-Bacon wages. Thus we do not reach the issue of whether Arbor Hill was statutorily required to pay Davis-Bacon wages or which agency has been delegated authority to interpret section 110.</p></div> <div class="facAdFloatLeft"> <script type="text/javascript"><!-- google_ad_client = "ca-pub-1233285632737842"; /* FACContentLeftSkyscraperWide */ google_ad_slot = "1266897617"; google_ad_width = 160; google_ad_height = 600; //--> </script> <script type="text/javascript" src=""></script> </div class="facLeaderBoard"> <div class="numbered-paragraph"><p> I. Background</p></div> <div class="numbered-paragraph"><p> A. Statutory and Regulatory Framework</p></div> <div class="numbered-paragraph"><p> The Davis-Bacon Act, 40 U.S.C. Section(s) 276a, was passed during the Great Depression "to ensure that workers on federal construction projects would be paid the wages prevailing in the area of construction." Building & Const. Trades' Dep't, AFL-CIO v. Donovan, 712 F.2d 611, 613 (D.C. Cir. 1983), cert. denied, <a>464 U.S. 1069</a> (1984). The Act was aimed at preventing companies from competing for contracts by bringing in laborers from distant areas who would work for substandard wages. Under the Act, the Secretary of Labor sets "prevailing" minimum wage rates which contractors must pay to their employees on any construction project over $2,000 to which the United States is a party. See 40 U.S.C. Section(s) 276a(a).</p></div> <div class="numbered-paragraph"><p> Although the Davis-Bacon Act by its terms applies only to contracts to which the United States is a party, there are more than 50 other statutes which require contractors to pay Davis-Bacon wages under contracts to which the United States is not a party, but which are financed in whole or in part with federal funds. See 29 C.F.R. Part 1, App. A (1995) (collecting statutes). These statutes run the gamut of federal activities, from housing to highway construction to pollution control.</p></div> <div class="numbered-paragraph"><p> One of these Davis-Bacon related provisions, section 110 of the Housing and Community Development Act of 1974, 42 U.S.C. Section(s) 5310, is at the vortex of this dispute. At the time of the events here, section 110 provided:</p></div> <div class="numbered-paragraph"><p> All laborers and mechanics employed by contractors or subcontractors in the performance of construction work financed in whole or in part with assistance received under this chapter shall be paid wages at rates not less than those prevailing on similar construction in the locality as determined by the Secretary of Labor in accordance with the Davis-Bacon Act.... Provided, that this section shall apply to the rehabilitation of residential property only if such property is designed for residential use for eight or more families. The Secretary of Labor shall have, with respect to such labor standards, the authority and functions set forth in Reorganization Plan Number 14 of 1950. <a href="#D*fn1" name="S*fn1">*fn1</a></p></div> <div class="numbered-paragraph"><p> The "Reorganization Plan" referred to in section 110 was originally promulgated by President Truman, and confers on the Department of Labor the authority and responsibility to coordinate the enforcement not only of the Davis-Bacon Act itself, but also Davis-Bacon related statutes. The Plan provides:</p></div> <div class="numbered-paragraph"><p> In order to assure coordination of administration and consistency of enforcement of labor standards provisions of each of the following Acts by the Federal agencies responsible for the administration thereof, the Secretary of Labor shall prescribe appropriate standards, regulations and procedures, which shall be observed by these agencies....</p></div> <div class="numbered-paragraph"><p> Reorganization Plan No. 14 of 1950, reprinted at 5 U.S.C.A. App. at 242. Under this framework, the contracting agency (here, HUD) has the "initial responsibility for determining whether a particular contract is subject to the Davis-Bacon Act." Universities Research Ass'n v. Coutu, <a>450 U.S. 754</a>, 760 (1981); see also 29 C.F.R. Section(s) 5.5(a). If Davis-Bacon applies, the contracting agency determines the "prevailing" wages, either by consulting wage rates published in the Federal Register, or by requesting a project wage determination from the Wage and Hour Division of the Department of Labor. See Id. Section(s) 1.5, 1.6. The determination made by the contracting agency is "subject to administrative review" by the Department of Labor. Coutu, 450 U.S. at 760. The first step in the appeal process is to request a ruling from the Wage and Hour Administrator of the Department of Labor. Id. Section(s) 5.13. A dissatisfied party may then appeal further to the Board, which renders a final agency decision on the matter. See Id. Section(s) 7.1(d).</p></div> <div class="numbered-paragraph"><p> B. Factual and Procedural Background</p></div> <div class="numbered-paragraph"><p> This case involves a project in inner-city Albany to renovate 82 dilapidated residential rowhouses-a project financed in part by a grant from HUD to the City of Albany. The project developer, Arbor Hill, planned to purchase each of these 82 buildings prior to renovation, and then to hire mostly local, inner-city residents to do the rehabilitation work. After the renovations were completed, Arbor Hill would own and manage the buildings for at least 12 years before selling them back to individual buyers. The total cost of the project was estimated at $13 million.</p></div> <div class="caseAdCopy"> <script type="text/javascript"><!-- google_ad_client = "ca-pub-1233285632737842"; /* Fac2Copy2 */ google_ad_slot = "0998899327"; google_ad_width = 300; google_ad_height = 250; //--> </script> <script type="text/javascript" src=""> </script> </div> <div class="numbered-paragraph"><p> 1. Arbor Hill's Contractual Agreement</p></div> <div class="numbered-paragraph"><p> Prior to the city's securing the grant, Arbor Hill wrote to HUD's Washington, D.C. office on September 20, 1984, discussing the financing details of the project, the construction schedule, and then, in its concluding sentence stating that "Developer acknowledges that with the guidance of the Buffalo area office of the U.S. Dept. of Housing and Urban Development that if Davis-Bacon is required by the area office, such wages will be paid by the developer." Letter from Mark J. Simmons to Stanley Newman, reprinted in App. 510. This sentence, Arbor Hill would later contend, reflected its belief that it was not clear whether Davis-Bacon wages would be required and that it intended to pay them only if the Buffalo HUD office so required. See Affidavit of Mark Simmons, reprinted in App. 733.</p></div> <div class="numbered-paragraph"><p> Three months later, on December 27, 1984, HUD approved the $3.5 million grant to the City of Albany, under the Urban Development Action Grant program of the Housing and Community Development Act of 1974, 42 U.S.C. Section(s) 5301, et seq. <a href="#D*fn2" name="S*fn2">*fn2</a> Contemporaneously with the approval of the grant, HUD and the city signed a "Grant Agreement," which contemplated a starting date of July 1, 1985 for the rehabilitation work. The Grant Agreement also provided that "[p]articipating Parties will, prior to any use of grant funds for the Project, enter into legally binding agreements evidencing the commitments which were so relied upon by the Secretary." Grant Agreement Section(s) 10.01, reprinted in App. 112 (emphasis supplied). Thus, as a condition of the grant, Arbor Hill and the City of Albany were required to enter into a legally binding agreement before any funds could be expended.</p></div> <div class="numbered-paragraph"><p> Before Albany and Arbor Hill entered into their agreement, W. Vito Zambelli, the Director of Labor Relations for HUD's Buffalo Area Office, sent a letter to the Albany Urban Renewal Agency, the city agency in charge of the project. In his February 7, 1985 letter, Zambelli enclosed a copy of the "Wage Decision" issued by the Department of Labor for the Arbor Hill project, which set forth in minute detail the hourly rates, fringe benefits, and paid holidays required for each classification of worker, in accordance with Davis-Bacon. See App. at 465. Zambelli directed that "[t]his decision should be reproduced and incorporated into the contract specifications before release to prospective bidders." Id. (emphasis supplied). Although this letter put Arbor Hill on notice that the Department of Labor believed Davis-Bacon wages applied, and that HUD's Buffalo Office intended to enforce the application of Davis-Bacon, Arbor Hill lodged no protest at that time.</p></div> <div class="numbered-paragraph"><p> Instead, on April 1, 1985, Arbor Hill entered into the legally binding agreement with the City of Albany required under the Grant Agreement. That document, entitled "Legally Binding Commitment (LBC) City of Albany, Albany Local Development Corporation and Arbor Hill Associates," specified project details both large (e.g., how much money would be loaned) and small (e.g., that Arbor Hill would post a HUD-approved sign at the project). See LBC, reprinted in App. 354-60. The document included the following critical clause:</p></div> <div class="numbered-paragraph"><p> Arbor Hill Associates agrees that it will require its Construction Manager and those parties who are its prime and sub-contractors to comply with the provisions of the Davis-Bacon Act.</p></div> <div class="numbered-paragraph"><p> App. 357 (emphasis supplied).</p></div> <div class="numbered-paragraph"><p> 2. Arbor Hill's Protest</p></div> <div class="numbered-paragraph"><p> Arbor Hill first protested the Davis-Bacon wages almost two months after signing the Legally Binding Commitment, when it wrote a letter to HUD's Washington, D.C. office objecting both to the calculation of the wages (claiming they were inaccurate and substantially above actually prevailing rates) and also to the very applicability of the Davis-Bacon wage requirements. Letter of May 22, 1985, reprinted in App. 444-45. According to Arbor Hill, the proviso in section 110 that "this section shall apply to the rehabilitation of residential property only if such property is designed for residential use for eight or more families" (emphasis supplied) exempted this project from paying Davis-Bacon wages. In Arbor Hill's view, even though the project involved the rehabilitation of 82 houses, each of the houses was a separate property, with a separate deed, separate gas and electric meters, separate tax assessments, etc. Since none of the houses contained more than five residential units, Arbor Hill argued that the entire project fell within the section 110 exception.</p></div> <div class="numbered-paragraph"><p> HUD's Washington, D.C. office never replied to this letter, and Arbor Hill began a series of correspondence with HUD's Buffalo Area Office. In letters communicating increasing urgency, Arbor Hill asked Mr. Zambelli to rule that the project fell within the section 110 exception, and thus that Davis-Bacon wages need not be paid. See Letter of July 15, 1985, reprinted in App. 333; Letter of August 22, 1985, reprinted in App. 171. <a href="#D*fn3" name="S*fn3">*fn3</a> On September 27, 1985, Zambelli wrote to Arbor Hill, informing the developer that he had accepted its argument that the exception to section 110 applied to this project, and thus that Davis-Bacon wages were not required. Zambelli made no particular representation with respect to his authority to rule on the matter, but did say that "[t]his exemption has been consistently applied by the Department [of HUD] for the past twelve years for rehabilitation and new construction, whether the project consists of a single property with fewer than eight units or several properties each with fewer than eight units."</p></div> <div class="numbered-paragraph"><p> In the meantime Arbor Hill had signed a construction agreement with co-appellant Barry, Bette & Led Duke Residential, Inc. ("BBLR"), the general contractor. That agreement did not explicitly state whether Davis-Bacon wages were required, but instead said that the contractor agreed to pay Davis-Bacon wages "if applicable." In August, 1985, construction began on the project. The contractor was able to hire a large percentage of local, minority workers, but for wages below those required by Davis-Bacon.</p></div> <div class="numbered-paragraph"> <p> In December, 1985, HUD's Associate General Counsel in Washington repudiated Zambelli's interpretation of section 110. <a href="#D*fn4" name="S*fn4">*fn4</a> Relying on precedents for aggregating the units in a project to determine whether section 110 applied, the Associate General Counsel advised Arbor Hill that it was required to pay Davis-Bacon wages, retroactive to the start of construction. Arbor Hill was advised that it could present further ...</p> </div> </div> </div> <div id="caseToolTip" class="caseToolTip" style="display: none;"> <div class="toolTipHead"> </div> <div class="toolTipContent"> <p> Our website includes the first part of the main text of the court's opinion. To read the entire case, you must purchase the decision for download. 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