No. 94-381
IN THE SUPFtEPE COURT OF THE STATE OF MONTANA
1985
DAVID L. HUNTER, Commissioner,
Dept. of Labor and Industry,
State of Montana, et al.,
Plaintiff and Respondent,
THE CITY OF BOZEMAN, a Flunicipal
corporation; THE CITY OF BOZEMAN
STREET DEPARTMENT, et al.,
Defendants and Appellants.
PEAL FROM: District Court of the Eighteenth Judicial District,
In and for The County of Gallatin,
The Honorable Thomas Olson, Judge presiding.
For Appellants:
Landoe, Brown, Planalp, Kommers & Johnstone; J. Robert
Planalp argued, Bozeinan, Montana
For Respondent:
William P. Richardson argued, Labor Standards Div.,
Helena, Montana
Submitted: April 16, 1985
Decided: May 30, 1985
Filed: MAY 3 u 1985
Clerk
Mr. J u s t i c e F r a n k B. Morrison, J r . , d e l i v e r e d t h e Opinion o f
t h e Court.
This i s an appeal from an award o f $ 1 7 , 5 5 4 . 7 6 , against
t h e C i t y o f Bozeman f o r u n p a i d wages mandated by §§ 18-2-401,
e t seq., MCA.
David L. Hunter, Commissioner o f Department of Labor,
filed a complaint against the City of Bozeman on June 3,
1982, s e e k i n g t h e d i f f e r e n c e i n t h o s e wages p a i d and t h o s e
wages which should have been paid pursuant to Montana's
P r e v a i l i n g Wage Law, referred t o a s t h e L i t t l e Davis-Bacon
Act. The C i t y ' s motion t o d i s m i s s b a s e d on t h e u n c o n s t i t u -
tionality of this Act was denied. Following a non-jury
t r i a l , t h e Honorable Thomas A. Olson e n t e r e d f i n d i n g s o f f a c t
and c o n c l u s i o n s o f law on November 21, 1 9 8 3 , a w a r d i n g damages
i n t h e amount o f $17,554.76, against the City.
D u r i n g t h e summer o f 1981, t h e C i t y o f Bozeman s u b m i t t e d
specifications for the construction of a vehicle storage
b u i l d i n g on l a n d owned by t h e C i t y . Advertisement f o r b i d s
on t h e p r o j e c t r e s u l t e d i n o n l y one b i d , which was r e j e c t e d
for being too costly. Thereafter, Pollard Finance, Inc., an
Idaho corpora t i o n , a p p r o a c h e d t h e C i t y o f Bozeman p r o p o s i n g
the lease of a b u i l d i n g which P o l l a r d would c o n s t r u c t . On
November 10, 1981, Pollard and t h e C i t y o f Bozeman e n t e r e d
i n t o a l e a s e f o r t h e proposed s t o r a g e b u i l d i n g .
P o l l a r d n e g o t i a t e d a c o n t r a c t w i t h W. R. Henderson f o r
the construction of t h e building. A l l c o n t r a c t o r s and sub-
c o n t r a c t o r s were h i r e d and p a i d by Henderson. The C i t y o f
Bozeman was n o t a p a r t y t o t h e c o n s t r u c t i o n c o n t r a c t . The
l e a s e a g r e e m e n t between P o l l a r d and t h e C i t y o f Bozeman and
t h e Pollard-Henderson c o n s t r u c t i o n c o n t r a c t were d i s t i n c t and
independent c o n t r a c t s . I n sum, t h e C i t y o f Bozeman owned t h e
land upon which Henderson constructed the storage warehouse,
which Pollard owned and leased back to the City.
The following issues are presented on appeal.
1. Is the Little Davis-Bacon Act, contained in
S 5 18-2-401 through 18-2-405, MCA (1981), unconstitutional in
that the method devised by the Montana Legislature to set the
prevailing wage for public contracts constitutes an improper
delegation of power to private groups?
2. Is there substantial credible evidence to support
the finding of the trial court that the lease between the
City of Bozeman and Pollard Finance, Inc., is a public works
contract for the purposes of SS 18-2-401 through 18-2-405,
MCA (1981)?
3. Did the trial court err in allowing proof of wages
from hearsay letters compiled by persons not called to testi-
fy in the case?
4. Did the trial court err in assessing penalties
against the appellant?
Appellant contends that the prevailing wage rate scheme
established by the Montana Legislature involves an unconsti-
tutional delegation of authority from the Legislature to
private parties. The crux of this argument is that, since
the Little Davis-Bacon Act as it exists in Montana, mandates
that the prevailing wage rate be determined by collective
bargaining agreements, it is unconstitutional.
Reliance is placed upon S 18-2-401(5) (b), MCA, which
provides :
"(b) When work of a similar character is not being
performed in the county or locality, the standard
prevailing rate of wages, including fringe benefits
for health and welfare and pension contributions
and travel allowance provisions, shall be those
rates established by collective bargaining agree-
ments in effect in the county or locality for each
craft, classification, or type of worker needed to
complete the contract."
The section quoted above is not applicable to the facts
at bar. This case is governed by S 18-2-401(5) (a), MCA,
which provides:
"(5) (a) 'Standard prevailing rate of wages,
including fringe benefits for health and welfare
and pension contributions and travel allowance
provisions applicable to the county or locality in
which the work is being performed,' means those
wages, including fringe benefits for health and
welfare and pension contributions and travel allow-
ance provisions, which are paid in the county or
locality by other contractors for work of a similar
character performed in that county or locality by
each craft, classification, or type of worker
needed to complete a contract under this part."
The following statute, $$ 18-2-402(1), MCA, provides
guidelines for establishing the prevailing rate of wages.
The section states:
"Standard prevailing rate of wages. (1) The
Montana commissioner of labor may determine the
standard prevailing rate of wages in the county or
locality in which the contract is to be performed.
The commissioner shall undertake to keep and main-
tain copies of collective bargaining agre~mentsand
other information from which rates and jurisdic-
tional areas applicable to public works contracts
under this part may be ascertained (emphasis
supplied) ".
Statutes which make the union scale absolutely determi-
native of prevailing wages have been held to be invalid.
Bradley v. Casey (Ill. 1953), 114 N.E.2d 681; Wagner v. City
of Milwaukee (Wisc. 1922), 188 NW 487; Industrial Commission
v. C & D Pipeline, Inc. (Ariz.App. 1979), 607 ~ . 2 d383.
On the other hand, a prevailing wage law with a union
scale provision has been held constitutional where the union
rate of wages merely assists in ascertaining the prevailing
wages and the public authorities are vested with the ultimate
determination as to what constitutes prevailing wages.
Baughn v. Gorrell & Riley (Ky. 1949), 224 S.W.2d 436; Union
School District of Keene v. Commissioner of Labor (N.H.
Montana's Little Davis-Bacon Act authorizes the
Commissioner of Labor to establish standard prevailing rates
using union contracts and "other information" as guidelines.
Therefore, collective bargaining agreements are advisory, but
not compulsory where there is other evidence of prevailing
wage rates in the community as there was in the Bozeman area.
No unconstitutional delegation of authority has occurred in
§ 18-2-401 (5)(a), MCA. We do not reach a decision with
respect to the constitutionality of (b) of the same statute,
as it is not applicable to the facts at bar.
In its second issue, appellant attacks the trial court's
finding that the lease was in fact a public works contract.
This is a substantial credible evidence question. Robinson v.
Schrade (Mont . 1985) , P. 2d - I ,
- 42 St.Rep. 401,
403. We must view the evidence in a light most favorable to
respondent, Mountain West Farm Bureau Mutual Ins. Co. v.
Girton (Mont. 1985), P. 2d -I -8 42 St.Rep. 500,
501, and determine whether or not a factual issue was pre-
sented to the trial court.
At the end of twenty years, the City acquires absolute
ownership of the "leased" building for $10 and retains owner-
ship of the land. Pollard, at the end of the 20-year term,
must transfer it to the City for $10. Furthermore, the
penalty provision for nonrenewal of the lease is highly
suggestive of a sale to the City. Provision 23 of the lease
contains a provision for liquidated damages in the event that
the City failed to exercise five-year renewal options running
the full term of the lease to 20 years. That provision
states:
". . . in the event the Tenant fails to renew the
lease at the end of the original term of the lease
or after the first and second renewal periods (five
years each), the Tenant shall deposit with the
escrow agent the sum of $175,000 cash as liquidated
damages for the failure of the Tenant to renew said
lease. 'I
There is substantial credible evidence to support the
finding by the trial court that the "lease" was in fact a
sale of the building to the City and that this was in effect
a public works project.
Appellant claims error in the trial court's admission of
certain documentary evidence. Of the total $8,777.39 damage
award, only $1,365.27 was based upon oral testimony of wit-
nesses. The balance was proven by evidence admitted under
exceptions to the hearsay rule. The Commissioner introduced
unverified letters of Henderson Construction, Lipka Door
Company and McBride Construction pursuant to the "catch-all"
exception to the hearsay rule found in Rule 803(24),
M.R.Evid. These letters are not business records as they
were not kept in the ordinary course of business, but were
compiled for litigation purposes. Sufficient guarantees of
trustworthiness do not exist when documents are compiled for
litigation purposes.
Respondent argues that the three letters in question
were summaries of payroll records supplied by the appropriate
personnel in response to administrative subpoenas issued by
the Department of Labor. As such, it is contended the docu-
ments possess the "comparable guarantees of trustworthiness"
required by Rule 803 (24), M. R. Evid. , because a person re-
sponds truthfully and accurately to judicial requests knowing
that an untruthful response results in penalty imposed by the
court. This same argument could be made in support of other
forms of inadmissible hearsay. Cross-examination serves a
useful purpose in testing the credibility of evidence. It
should be sparingly denied.
We find as a matter of law that the letters here
a d m i t t e d w e r e h e a r s a y and s h o u l d n o t h a v e been received in
evidence. A s u b s t a n t i a l p a r t o f t h e damage award was b a s e d
upon t h i s h e a r s a y e v i d e n c e and t h e r e f o r e t h e judgment must b e
v a c a t e d and t h e m a t t e r remanded f o r t r i a l on t h e damage i s s u e
only.
Appellant a s s e r t s e r r o r i n t h e t r i a l c o u r t ' s assessment
of a penalty. Section 39-3-206, MCA, provides that i f an
employer on a p u b l i c works p r o j e c t i s d e l i n q u e n t , h i s o b l i g a -
tion to pay prevailing wages includes a civil penalty.
S e c t i o n 18-2-403, MCA, provides t h a t i f a provision f o r t h e
payment o f t h e p r e v a i l i n g wage r a t e i s n o t i n c l u d e d by t h e
p u b l i c c o n t r a c t i n g body i n t h e c o n t r a c t w i t h t h e c o n t r a c t o r ,
t h e n t h e o b l i g a t i o n t o p a y t h e p r e v a i l i n g wage r a t e i s on t h e
p u b l i c c o n t r a c t i n g a g e n c y and n o t on t h e p r i v a t e c o n t r a c t o r .
However, t h i s s t a t u t e is s i l e n t a s t o the shifting of civil
penalties.
Penalties are imposed upon the culpable party as a
deterrent to discourage repetition of unlawful practices.
The p u r p o s e o f M o n t a n a ' s L i t t l e Davis-Bacon Act i s t o p r o t e c t
laborers from wage cutting practices by public employers.
I m p o s i t i o n o f a p e n a l t y upon t h e c u l p a b l e p a r t y who f a i l s t o
compensate w i t h a s t a n d a r d p r e v a i l i n g wage r a t e d e t e r s o t h e r
public contracting agencies similarly situated from commit-
t i n g t h e same e r r o r . This tends t o f o r t i f y t h e underlying
p o l i c y i n t e n d e d by t h e e n a c t m e n t o f t h e s t a t u t e .
While § 18-2-403, MCA, is s i l e n t a s t o t h e shifting of
penalties, we find that an interpretation of the statute
allowing civil penalties against the contracting agency
accords with t h e underlying purpose of t h e s t a t u t e .
W e v a c a t e t h e judgment and remand f o r a new t r i a l on t h e
damage q u e s t i o n o n l y . I n a l l other respects t h e rulings of
t h e t r i a l court a r e affirmed.
W e concur: