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Diamond "D" Construction Corp. v. New York State Dep't of Labor

March 24, 2006

DIAMOND "D" CONSTRUCTION CORP., PLAINTIFF,
v.
NEW YORK STATE DEPARTMENT OF LABOR, BUREAU OF PUBLIC WORKS; JAMES J. MCGOWAN, AS FORMER COMMISSIONER OF LABOR OF THE STATE OF NEW YORK; DEPARTMENT OF AUDIT AND CONTROL, STATE OF NEW YORK; LINDA ANGELLO, COMMISSIONER OF LABOR OF THE STATE OF NEW YORK; MICHAEL O'CONNELL, DEPARTMENT OF AUDIT AND CONTROL, STATE OF NEW YORK; RONALD KINN, INDIVIDUALLY AND IN HIS CAPACITY AS PUBLIC WORK WAGE INVESTIGATOR EMPLOYED BY THE DEPARTMENT OF LABOR; DALE STANLEY, INDIVIDUALLY AND IN HIS CAPACITY AS AN EMPLOYEE OF THE DEPARTMENT OF LABOR; BRIAN ROBISON, INDIVIDUALLY AND IN HIS CAPACITY AS SENIOR PUBLIC WORK WAGE INVESTIGATOR EMPLOYED BY THE DEPARTMENT OF LABOR, DEFENDANTS.



The opinion of the court was delivered by: John T. Curtin United States District Judge

Now pending for determination are plaintiff's motion (Item 201) for preliminary injunctive relief and defendants' motion (Item 219) to dismiss the "Amended and Supplemental Complaint," filed upon consent and order of the court on December 17, 2003 (Item 231). Oral argument was heard on January 5, 2004, and supplemental filings have been received and considered by the court. For the following reasons, plaintiff's motion is denied, defendants' motion is granted, and the action is dismissed.

BACKGROUND

Plaintiff Diamond "D" Construction Corp. ("Diamond 'D'") commenced this lawsuit on April 21, 2000 against the New York State Department of Labor ("DOL"), Department of Audit and Control ("DAC"), and various state employees, seeking injunctive relief and damages pursuant to 42 U.S.C. § 1983. The original complaint set forth five causes of action based on allegations that the DOL's administrative investigation and proceedings to enforce New York's prevailing wage law, see N.Y. Lab. Law § 220(3); see also N.Y. Const., Art. I, § 17, in connection with plaintiff's work as general contractor on several public road construction projects, resulted in violations of plaintiff's procedural and substantive due process rights as well as its rights under the Fourth Amendment. Plaintiff also alleged that the state statutory scheme allowing for the withholding of public contract payments, interest, and penalties pending final determination of the administrative proceedings is unconstitutional both on its face and as applied.

The original complaint was accompanied by a motion for a preliminary injunction seeking to enjoin the DOL proceedings and to release nearly $1.5 million in payments earned on the public contracts which had been withheld as a result of the DOL's wage investigation. Plaintiff claimed that the investigation was conducted in bad faith, resulting in multiple meritless claims of wage underpayments with no credible evidence to support the claims, and that the funds were withheld without adequate notice or opportunity to be heard. On June 20, 2000, after briefing and argument, this court denied plaintiff's motion for a preliminary injunction, finding that in the absence of a showing of bad faith or intent to harass on the part of the DOL, the Supreme Court's abstention doctrine set forth in Younger v. Harris, 401 U.S. 37 (1971), required the court to abstain from interfering with the DOL's ongoing administrative proceedings. Diamond "D" Const. Corp. v. New York State Dept. of Labor, 105 F. Supp. 2d 167, 175-78 (W.D.N.Y. 2000) ("Diamond 'D' I"). The court also found that plaintiff had failed to establish a likelihood of avoiding the Eleventh Amendment's bar against a claim for the release of the withheld funds, whether as a matter of retrospective monetary relief or prospective injunctive relief. Id. at 179-83.

Plaintiff moved for reconsideration, and on August 17, 2000, the court granted the motion and modified its prior ruling in part by scheduling evidentiary hearings to resolve the related issues as to whether the DOL acted in bad faith and whether the administrative investigation and proceedings violated plaintiff's substantive due process rights. Diamond "D" Const. Corp. v. New York State Dept. of Labor, 110 F. Supp. 2d 200, 209 (W.D.N.Y. 2000) ("Diamond 'D' II"). The court also revisited its Eleventh Amendment ruling and found that plaintiff was entitled to assert a claim for prospective injunctive relief from the DOL's investigation and enforcement action, even though ordering such relief would have the necessary and ancillary effect of causing the withheld funds to be released. Id. at 202-07.

The federal court hearings took place over the course of six days in late August and early September 2000. On January 5, 2001, after extensive post-hearing submissions and oral argument, this court issued its decision granting plaintiff's motion for a preliminary injunction. Diamond "D" Const. Corp. v. New York State Dept. of Labor, 142 F. Supp. 2d 377 (W.D.N.Y. 2001) ("Diamond 'D' III"). The court made detailed "preliminary" factual findings to support its conclusion that the DOL's administrative action against plaintiff was so arbitrary, and its impact on plaintiff so severe, that both of the established exceptions to the Younger abstention doctrine--"bad faith" and "extraordinary circumstances"--had been satisfied. Id. at 398-402. Specifically, the court focused on the conduct of DOL wage investigator Ronald Kinn, finding his investigation "fundamentally flawed, very often not grounded in fact, and conducted in an arbitrary fashion . . . ," id. at 403, and his assessment of withholding amounts (along with penalties and interest) exorbitant, speculative, and based in large part on the DOL's own delay and inaction. See id. at 395-96. Having found it appropriate not to abstain from assuming federal jurisdiction, the court concluded that plaintiff had established a likelihood of success on the merits of both its substantive due process and "unconstitutionally vague as applied" claims, and would suffer irreparable harm in the absence of an injunction. Id. at 402-06. The court thus enjoined the DOL's ongoing administrative proceedings and ordered the DOL to withdraw all the notices of withholding, resulting in the release of over $1.2 million to plaintiff. Id.

The DOL appealed, and on March 1, 2002, the Second Circuit Court of Appeals issued its decision finding that this court erred in concluding that the "bad faith" and the "exceptional circumstances" exceptions to the Younger doctrine applied in this case.

Diamond "D" Const. Corp. v. New York State Dept. of Labor, 282 F.3d 191 (2d Cir. 2002) ("Diamond 'D' IV"). According to the circuit court, even assuming the accuracy of the district court's findings of fact with respect to the DOL's investigation, plaintiff's financial condition, and the pace of the DOL administrative proceedings, "these circumstances do not come within either of the tightly defined exceptions to the Younger abstention doctrine." Id. at 197. Rather, in order to invoke the bad faith exception, the plaintiff must show that the state proceeding "was initiated with and is animated by a retaliatory, harassing, or other illegitimate motive." Id. at 199. As stated by the circuit court:

[I]t is uncontested that the DOL initiated its wage investigation in response to the written allegations of underpayments made by Diamond D employees, pursuant to its statutory duties under New York's valid prevailing wage law. And Diamond D has not demonstrated that the DOL singled it out for adverse treatment. To the contrary, the district court found, "there is no credible allegation that the DOL is incompetent by reason of bias to adjudicate the withholdings issue . . . ."

Id. at 200 (quoting Diamond "D" III, 142 F. Supp. 2d at 399).

As to "extraordinary circumstances," the circuit court noted that under the Supreme Court's holdings in Trainor v. Hernandez, 431 U.S. 434 (1977), and Kugler v. Helfant, 421 U.S. 117 (1975), the litigant seeking to invoke this exception must establish both (1) that there is no state process available to meaningfully and adequately remedy the alleged constitutional violation in a timely manner, and (2) that the litigant will suffer "great and immediate" harm if the federal court does not intervene. Id., 282 F.3d at 201. The circuit court stated:

It is significant that to the extent that the DOL was dragging its feet, Diamond D was free to file a mandamus proceeding in the Appellate Division to compel the DOL to provide expeditious post-deprivation review as required by the prevailing wage law. Indeed, the district court specifically noted that,

"[j]udicial review was available because Diamond D could have gone to the State courts at any time during the pendency of the DOL investigation and sought a writ of mandamus . . . ."

Id. at 202 (quoting Diamond "D" II, 110 F. Supp. 2d at 207). Based on the assumption that, since it was available, the state mandamus procedure would have afforded plaintiff an adequate remedy, the circuit court found no need to proceed to the second prong of the inquiry--i.e., to determine whether, absent the availability of state mandamus, the threat to plaintiff's survival would warrant federal court intervention by invoking the "exceptional circumstances" exception to Younger abstention. Accordingly, the circuit court vacated the injunction and remanded the case for further proceedings on plaintiff's remaining damages claims against the state official defendants in their individual capacities. Id.*fn1 The circuit court did not reach the issues of Eleventh Amendment immunity or defendants' challenge to the district court's conclusion that plaintiff had established a likelihood of success on the merits of its substantive due process and "constitutionally vague as applied" claims.

Subsequent to the Second Circuit's remand, this court conducted a series of meetings and conferences with the parties and counsel to address the appropriate steps to take in complying with the mandate and to explore the possibility of settlement in both the state administrative and federal court proceedings. The case was eventually referred to a magistrate judge to conduct settlement negotiations, to no avail. In the meantime, the state administrative hearings resumed, and the DOL issued revised withholding notices in the amount of $545,276.00, including interest and penalties (see Item 204, ¶ 122; Item 215, ¶ 22).

Plaintiff obtained new counsel,*fn2 and filed its "Amended and Supplemental Complaint" setting forth additional allegations of bad faith, improper motive, and bias in the investigative and adjudicative phases of the DOL proceedings which, according to plaintiff, have come to light since the Second Circuit's decision and mandate. The amended/supplemental complaint also contains allegations pertaining to the involvement of International Union of Operating Engineers Local 17 in the state proceedings before Mr. Kinn's wage investigation began. Based on these "new" allegations, plaintiff has renewed its request for preliminary injunctive relief*fn3 seeking an order directing the DOL to release the $545,276.00 withheld pursuant to the revised withholding notices, and enjoining any further administrative action against plaintiff pending the outcome of this litigation.*fn4

In response, defendants have filed memoranda, affidavits, and exhibits in opposition to the application for injunctive relief, as well as a cross-motion seeking dismissal of the action on the following grounds:

1. The claims against the DOL, DAC, and the state officers sued in their official capacities are barred by the Eleventh Amendment and the Younger doctrine.

2. The individual defendants are entitled to qualified immunity against suit for damages.

Because the injunctive relief sought by plaintiff is unavailable, and because the court agrees with defendants that the injunctive and declaratory relief sought by plaintiff is barred by the Younger doctrine and that the individual defendants are entitled to qualified immunity, plaintiff's motion is denied, defendants' motion is granted, and the case is dismissed.

DISCUSSION

I. Plaintiff's Motion for Preliminary Injunction

The primary issue to be addressed with respect to plaintiff's renewed application for injunctive relief is the argument raised by defendants that even assuming the truth of the facts set forth in the proposed amended/supplemental complaint, plaintiff still cannot avoid the basic principle of Younger that a federal court cannot enjoin or interfere with an ongoing state administrative proceeding where the state provides an adequate post-deprivation remedy. This is the underlying thrust of the Second Circuit's remand order, and it controls this court's analysis here.

As the circuit court decision emphasized, the Younger abstention doctrine is grounded on the deference owed by federal courts to the states, implemented by allowing the state to have the first opportunity to correct constitutional errors that infect its proceedings. "[I]t is only when the state proceeding is brought with no legitimate purpose that this state interest in correcting its own mistakes dissipates, and along with it, the compelling need for federal deference." Diamond "D" IV, 282 F.3d at 200. In this regard, it is "the subjective ...


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