Major Construction Corp., Inc. and Michael J. Polites

Plain-English summary

Michael J. Polites sought $292,815.77 in attorney fees and expenses after the underlying citation against him individually was dismissed. The Secretary had attempted to hold him personally liable by piercing the corporate veil because corporations he owned or controlled had substantial unpaid OSHA penalties. The judge found that the evidence ultimately did not establish that Polites was an employer or that Major Construction was his alter ego. Even so, the Secretary's theory was reasonable in fact and law because of the unpaid-penalty history and the unsettled legal question of individual liability. The judge also found that an award would be unjust under the circumstances and denied the application.

Decision snapshot

• Cited standard(s): No specific OSHA standard is identified in the decision.
• Outcome: The application for $292,815.77 in attorney fees and expenses was denied.
• Key point: Dismissal of an individual citation does not support an EAJA award when the Secretary had a substantially justified, legally unsettled basis for seeking personal liability.

Full text (OSHRC public release)

Major Construction Corp.Inc.and Michael J. Polites, Docket No. 99-0943eaj

United States of America

OCCUPATIONAL SAFETY AND HEALTH REVIEW COMMISSION

1120 20th Street, N.W., Ninth Floor

Washington, DC 20036-3457

SECRETARY OF LABOR,

Complainant,

v.

OSHRC DOCKET No. 99-0943

MAJOR CONSTRUCTION CORP., INC.
And MICHAEL J. POLITES,

Respondents .

APPEARANCES:

Patricia M. Rodenhausen                                   Joseph P. Paranac, Esq.

New York, New York                                          Newark, New Jersey

For the Complainant                                             For the Respondents

BEFORE:         G. Marvin Bober

Administrative Law Judge

DECISION AND ORDER

Background and Procedural History

This matter comes before the Commission based on an Application for Award of
Fees and Expenses under the Equal Access to Justice Act, 5 U.S.C. Section 504 (“the
EAJA”). The underlying case arose as the result of an inspection initiated by the Secretary
of Labor (“Secretary”) on November 3, 1998 at a high-rise office building in Jersey City,
New Jersey. As a result of the inspection, the Secretary issued citations to Major
Construction Corp., (“Major”) and to company president, Michael J. Polites, in his
individual capacity. In a decision, issued on March 16, 2001, this judge dismissed the
citation against Polites. I held that the Secretary failed to submit evidence during the trial
sufficient to prove that Polites was an employer, as that term defined by Commission
precedent. (Decision p. 27-31)

.

Subsequent to issuance of the decision, Polites filed an application for fees and
expenses under the EAJA, requesting a total award of $292,815.77, on the grounds that
the Secretary was not substantially justified in citing Polites in his individual capacity.
Because the underlying case was directed for review before the full Commission, the
Commission stayed Polites application. The Commission issued its decision in the
underlying case on January26, 2005

. On April 22, 2005, the Commission lifted the stay
on this EAJA application, which was assigned to this judge for disposition.

Discussion

A party that prevails on a discrete portion of an adversary adjudication and
otherwise meets the size and financial criteria of the EAJA may be reimbursed for its
attorneys̓ fees and expenses unless the Secretary demonstrates by a preponderance of the
evidence that her position in the matter was substantially justified or that particular
circumstances would render an award unjust. 5 U.S.C. §504, Contour Erection and Siding
Systems Inc., 18 BNA OSHC 1714, 1716(No. 96-0063, 1999); WilliamB.HopkeCo.,
12BNAOSHC2158,2159(No. 81-206, 1986). The loss of a case is not determinative of
whether her position was substantially justified. Hadden v. Bowen, 851 F.2d 1266, 1267
(10th Cir. 1988); Contour Erection and Siding Systems Inc., 18 BNA OSHC at 1716.

The government̓s position can be “substantially justified” even though it is not
correct. Pierce v. Underwood, 487 U.S. 552 566, n.2. (1988); Morgan v. Perry, 142 F.3d
670, 687(3d Cir. 1998). The test of whether the Secretary̓s action is substantially justified
isessentially one of reasonableness in law and fact. Hanover Potato Products v. Shalala,
989F.2d 123, 128 (3d Cir. 1993); Hocking Valley Steel Erectors, Inc., 11 BNA OSHC
1492,1497 (No. 80-1463, 1983). The Secretary̓s position must be substantially justified to
adegree that must satisfy a reasonable person. Contour Erection and Siding Systems Inc.,
18BNA OSHC at 1716.

Reviewing this record, I conclude that, although I held that Polites should not have
been cited individually, the Secretary was substantially justified in issuing the citation. To
justify citing Polites in his individual capacity, it was necessary for the Secretary to
establish that the Commission should “pierce the corporate veil.” Piercing the corporate
veil is a remedy used when a corporation is an alter ego of another person or corporation
and the dominant entity is using the subservient corporation to perpetrate fraud, to
accomplish injustice, or to circumvent the law. Bd. of Trs. v. Foodtown, Inc., 296 F.3d
164, 171 (3d. Cir. 2002). Factors to be considered in determining whether to pierce the
corporate veil include gross undercapitalization, failure to observe corporate formalities,
non-payment of dividends, the insolvency of the debtor corporation at the time, siphoning
of funds of the corporation by the dominant stockholder, non-functioning of other officers
or directors, absence of corporate records, and the fact that the corporation is merely a
facade for the operations of the dominant stockholder or stockholders. Id. at 172.

At the time of the citation, corporations owned and/or controlled by Polites owed
the Secretary thousands of dollars in unpaid penalties

. Polites was president and a 4%
shareholder of Major. Moreover, the corporate offices were located on a floor of his
house. Given the history of unpaid penalties by companies in which Polites was a
principal, the Secretary was concerned that Major was a deliberately undercapitalized
corporation, whose identity was indistinguishable from Polites and that, absent citing
Polites in his individual capacity, a judgment issued against Major alone would be
unenforceable either in obtaining abatement or in collecting any assessed penalty.

In my decision in the underlying case, I determined that the Secretary failed to
adduce substantial evidence to establish to establish either that Polites exercised sufficient
control over the worksite to be considered an employer or that the corporation was little
more than an alter ego of Polites. However, that the government̓s case lacked “substantial
evidence” does not mandate a conclusion that its case was not “substantially justified.”
Hadden v. Bowen, 851 F.2d at 1267; Contour Erection and Siding Systems Inc., 18 BNA
OSHC at 1716. Also to be considered is the legal theory behind the Secretary̓s actions.
The government̓s actions may be justified where it argues for a novel or unsettled, but
credible interpretation of the law, even if it was not ultimately accepted by the courts. SEC
v. Fox, 855 F.2d 247,252(5th Cir. 1988); Washington v. Heckler, 756 F.2d 959 (3d Cir.
1985). I note that the issue of when it is proper to “pierce the corporate veil” and hold an
individual liable for OSHA violations committed by a corporation is currently before the
Commission on review in Altor, Inc. and/or Avcon, Inc., et al, Docket Nos. 98-0755 and
99-0958

.

Given the substantial history of non-payment of penalties by companies run by
Polites, and the Secretary̓s commensurate concern about her ability to enforce any
abatement order or collect any penalty assessment, I cannot find unreasonable the
Secretary̓s theory that Polites should be cited in his individual capacity. This is especially
true where, as here, the underlying issue of when an individual may be cited in his/her
individual capacity is currently before the Review Commission.

I also note that an EAJA award may also be denied where the particular circumstances
of the case would make an award unjust. Timothy Victory, 18 BNA OSHC 1023, 1025
(No. 93-3359, 1997). Even though he may not be personally liable, Polites is a principal
officer and/or shareholder of corporations with a history of not paying its OSHA penalties.
It was this failure that was the primary impetus in the Secretary̓s decision to seek to hold
Polites personally liable. To grant an EAJA award to Polites for defending against a
situation largely of his own making would, in this Judge̓s view, be unjust.

Order

Based on the foregoing, it is ORDERED that the Respondent̓s application for fees and
expenses under the EAJA is DENIED.

/s/

G. MARVIN BOBER

ADMINISTRATIVE LAW JUDGE

Dated: August 4, 2005