Al Stewart v. Paragon Contractors Corp.

MILTON AL STEWART, ACTING SECRETARY OF LABOR,UNITED STATES DEPARTMENT OF LABOR, Plaintiff, v. PARAGON CONTRACTORS CORPORATION, JAMES JESSOP,BRIAN JESSOP, and PAR 2 CONTRACTORS, LLC, Defendants.

Case No. 2:06-cv-700-TC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION

February 5, 2021

ORDER AND MEMORANDUM DECISION FINDING PAR 2 CONTRACTORS, LLC LIABLE FOR BACKWAGE CONTEMPT REMEDY

On January 26, 2021, the court held a hearing in this contempt proceeding to address issues raised by its recent Order to Show Cause Issued to Par 2 Contractors (OSC).¹ The court gave Par 2 the opportunity to explain why it should not have to comply with the court's July 2, 2019 Order requiring payment of $1,012,960.90 in back wages (Back Wages Order)² to Plaintiff Secretary of the Department of Labor (Secretary or DOL).

The Back Wages Order was originally issued to Defendants Paragon Contractors Corporation and Brian Jessop to remedy their violation of the court's 2007 Permanent Injunction barring use of child labor. With only $200,000 paid toward the balance and Paragon essentiallydefunct, the Secretary seeks an order requiring Par 2 to pay the difference. As the basis for his motion, the Secretary says the court made findings in 2018 that require Par 2 to pay the back wages remedy.

For the reasons set forth below, the court agrees with the Secretary and finds that Par 2 has not satisfied its obligation to show cause why it should not be bound by the Back Wages Order.

PROCEDURAL AND FACTUAL BACKGROUND

In 2007, the court issued a permanent injunction in this child labor case that binds Paragon, Brian Jessop, and their co-defendant James Jessop. The 2007 Permanent Injunction³ (Injunction) provides that

Defendants shall not, contrary to Sections 12(c) and 15(a)(4) of the FLSA [Fair Labor Standards Act], employ, suffer or permit minors to work in commerce or in the production of goods for commerce, or in an enterprise engaged in commerce or in the production of goods for commerce, within the meaning of the FLSA under conditions constituting oppressive child labor as defined in § 3(l) of the FLSA, 29 U.S.C. § 203(l), and in occupations therein declared to be hazardous as defined in the regulations found at 29 C.F.R. Part 570 (Subparts C and E).

(Injunction at 2.)

A number of years later, the Secretary initiated contempt proceedings based on Paragon's recurring violation of the Injunction during the years 2008 to 2013. The court found Paragon and Brian Jessop in contempt for violating that provision. Since then, the court has issued a series of orders requiring Paragon and Brian Jessop to remedy harm done by their contempt.

This matter is a continuation of that process. The Secretary, armed with the court's 2018 order finding Par 2 to be a successor to Paragon and an instrumentality used to evade Paragon'sobligations under the Injunction, requests an order recognizing Par 2's liability for the unpaid back wages.

Paragon's Contempt and Liability for Back Wages

In June 2016, this court found that Paragon and Brian Jessop violated the Fair Labor Standards Act (FLSA)⁴ by using child labor to harvest pecans for the Southern Utah Pecan Ranch. Based on those findings, the court held Defendants in contempt for violating the Injunction. (See June 16, 2016 Findings of Fact & Conclusions of Law, ECF No. 99 (Contempt Order).)

As a sanction for Defendants' contempt, the court ordered them to make an initial $200,000 payment to create a fund to compensate the children who worked for Defendants in violation of the child labor laws (the Fund). (See Dec. 6, 2016 Order on Sanctions, ECF No. 109 (Sanction Order).) In the Sanction Order, the court noted that "$200,000 likely underestimates the amount necessary for a compensatory sanction. But this amount provides an adequate starting point, and Defendants may have to pay more if legitimate claims exceed $200,000[.]" (Id. at 14.)

Defendants appealed the Contempt Order and the Sanction Order. The Tenth Circuit Court of Appeals affirmed the orders in relevant part. See Acosta v. Paragon Contractors Corp., 884 F.3d 1225, 1229 (10th Cir. 2018).⁵

Ultimately, Defendants paid the $200,000 as an installment toward the full amount necessary to compensate the child laborers. To determine the full amount, the court ordered the Secretary to develop and manage a one-year claims process.

After a year of receiving claims from the workers, the Secretary, on April 18, 2018, proposed a schedule of payments necessary to satisfy the remainder of claims. (See DOL's Proposed Schedule of Payments, ECF No. 189.) Paragon objected, so the court scheduled an evidentiary hearing on back wages. (See Defs.' Objection to Pl.'s Proposed Schedule of Payments, ECF No. 190.) The court also directed Par 2, who had been added as a defendant,⁶ to attend. (See Oct. 25, 2018 Order at 2, ECF No. 222.) Par 2 attended the hearing and had the opportunity to be heard, although it did not actively participate. (See June 7, 2019 Tr. of Nov. 5, 2018 Evidentiary Hr'g at 2, 4, ECF No. 237. After the hearing, the court, in the Back Wages Order, found Defendants owed $1,012,960.90 in back wages and ordered them to supplement the $200,000 with an additional $812,960.90.

Paragon and Mr. Jessop appealed, but the Tenth Circuit affirmed that decision as well. See Scalia v. Paragon Contractors Corp., 957 F.3d 1156 (10th Cir. 2020).⁷ To date, Paragon and Brian Jessop have failed to pay the additional $812,960.90.

Contempt of Par 2

In the meantime, the DOL, while litigating the contempt action against Defendants, learned that Paragon had changed its name to Par 2 Contractors, LLC, and resumed using unlawful child labor in hazardous occupations in the construction industry. In September 2017,the Secretary filed another motion for an OSC alleging that Par 2, as a successor to Paragon, was bound by and in contempt of the Injunction. (See Sept. 25, 2017 Mot. for OSC, ECF No. 138.)

Paragon opposed the motion, and Par 2 moved to intervene so it too could file an opposition.⁸ The court granted Par 2's motion to intervene.⁹

During a status conference on November 14, 2017, which both Paragon and Par 2 attended, the court granted the motion for OSC. (See Minute Entry ECF No. 146.) The court also scheduled an evidentiary hearing and ordered supplemental briefing.

The Secretary, Paragon, and Par 2 filed declarations, briefs, and related motions. Par 2's opposition contained exhibits, including a declaration of Don Jessop and Par 2 business records.¹⁰ In February 2018, the court, United States District Court Judge David Nuffer presiding, held a two-day hearing that resulted in substantial witness testimony and exhibits. (See Minute Entries dated February 26-27, 2018, ECF Nos. 181-82.)

In September 2018, the court, in a detailed order with findings of fact and conclusions of law, found that Par 2, as a successor to Paragon, was bound by and in contempt of the Injunction. (See Sept. 10, 2018 Mem. Decision Including Findings of Fact & Conclusions Law and Contempt Order, ECF No. 209 ("2018 Order").)¹¹ As held by the court, "Par 2 is a successor to Paragon and Paragon's business was transferred to Par 2 to evade the Injunction and the related subpoena enforcement and contempt proceedings that followed in 2013 (and culminated in a finding of contempt and sanctions order)." (Id. at 25.) As part of the contempt remedy, the court joined Par 2 as a defendant to the action. (Id. at 35.)

Par 2, as well as Paragon and Brian Jessop, appealed. Par 2 contended that the district court violated its due process rights by finding it to be a successor to Paragon in a contempt proceeding rather than a new proceeding. "Specifically, Par 2 argue[d] it cannot be subject to liability for back wages from the pecan-harvest order and civil penalties from the administrative action absent a complaint, discovery, and a jury trial." Scalia v. Paragon Contractors Corp., 796 F. App'x 962, 966 (10th Cir. 2019).

On December 6, 2018, the Tenth Circuit affirmed the decision, but it declined to reach the merits of Par 2's due process argument because it was premature.

As Par 2 itself frames its argument, its being deemed a successor to Paragon in a contempt proceeding was improper because Par 2 "may be held liable for millions of dollars in penalties and claims being pursued against Paragon." (emphasis added). It is uncertain whether Par 2 will in fact be held liable in the manner it predicts.

Id. at 966-67 (footnote omitted). Instead, the appeals court affirmed on "the only question before [it]," finding that Par 2 and its agents were appropriately bound by the Injunction under Rule 65 as the instrumentality through which Paragon and Brian Jessop sought to evade the injunction. Id. at 968. The appeals court did not decide whether Par 2 is a successor to Paragon. Id.

Current Order to Show Cause

Given the 2018 finding that Par 2 is a disguised continuance of Paragon, and because Paragon and Brian Jessop have not paid the $812,960.90 balance to the Fund, the Secretary moved the court to issue an order to show cause to Par 2. In that motion, the Secretary asserted that Par 2 is bound by the Sanction Order and, consequently, is liable for the resulting back wages remedy.

The court issued an OSC requiring Par 2 to provide cause why it should not be required to comply with the Back Wages Order mandating payment of the $1,012,960.90. (Dec. 8, 2020OSC at 1, ECF No. 263.) Par 2 responded that granting the relief sought by the Secretary "without having afforded Par 2 the opportunity to conduct discovery or demand a jury trial as to the factual elements necessary to impose successor liability violates Par 2's due process rights." (Par 2's Response to Pl.'s Mot. OSC at 1, ECF No. 259.)

For the reasons set forth below, the court finds that Par 2 has not established cause to avoid payment of the remaining back wages.

ANALYSIS

The court's September 2018 findings of fact and conclusions of law directly apply to the...