No. 94-381 INTHE SUPFtEPE COURTOF THE STATEOF MONTANA 1985

DAVID L. HUNTER, Commissioner, Dept. of Labor and Industry, State of Montana, et al., Plaintiffand Respondent,

THE CITY 

### OF BOZEMAN, a Flunicipal corporation;THE 

### CITY OF BOZEMAN STREET DEPARTMENT,et al., Defendants and Appellants.

PEALFROM: District Court of the Eighteenth Judicial District, In and for The County of Gallatin, The Honorable Thomas Olson, Judgepresiding.

ForAppellants: Landoe, Brown, Planalp,Kommers & Johnstone;J. Robert Planalpargued, Bozeinan, Montana

For Respondent: William P. Richardson argued, Labor StandardsDiv., Helena, Montana

Submitted: April 16, 1985 Decided: May 30, 1985
Filed: 

### MAY3

## u1985

ClerkMr. JusticeFrank B. Morrison, Jr., delivered the Opinion of theCourt. This is an appeal from an award of $17,554.76, against theCity of Bozeman forunpaid wages mandated by §§ 18-2-401, et seq., MCA. David L. Hunter, Commissioner of Department of Labor, filed a complaint against the City of Bozeman on June 3, 1982, seeking the difference in those wages paid and those wages which should have been paid pursuant to Montana's Prevailing Wage Law, referred to as the Little Davis-Bacon Act. The City's motion todismiss based on the unconstitutionality of this Act was denied. Following a non-jury trial, theHonorable Thomas A. Olson entered findings of fact and conclusions of law on November 21, 1983, awardingdamages in theamount of $17,554.76, against theCity. During the summer of 1981, theCityof Bozeman submitted specifications for the construction of a vehicle storage building on land owned by the City. Advertisement forbids

on the project resulted in only one bid, which was rejected for being too costly. Thereafter, Pollard Finance, Inc., an Idaho corporation, approached the City of Bozeman proposing the lease of a building which Pollard would construct. On November 10, 1981, Pollard and the City of Bozeman entered intoa lease fortheproposed storagebuilding. Pollard negotiated a contract with W. R. Henderson for the construction of the building. All contractors and subcontractors were hired and paid by Henderson. The City of Bozeman was not a party to the construction contract. The lease agreement between Pollard and the City of Bozeman and thePollard-Henderson construction contractwere distinctand independent contracts. In sum, theCity of Bozeman owned theland 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 S5 18-2-401 through 18-2-405,MCA (1981),unconstitutional in that themethod devised by the Montana Legislature to set the prevailing wage for public contracts constitutes an improper delegationofpower 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 fromhearsay letters compiledby persons not called to testify in the case? 4. Did the trial court err in assessing penalties against the appellant? Appellant contends that theprevailing wage rate scheme established by the Montana Legislature involves an unconstitutional 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 isnot being performed in the county or locality, the standard prevailing rate ofwages, including fringebenefits for health and welfare and pension contributions and travel allowance provisions, shall be those rates established 

### by collective bargaining agreements 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 contributionsand travel allowance provisions, which are paid in the county or localityby 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 inwhich the contract is to be performed. The commissioner shall undertake to keep and maintain copies of collectivebargaining agre~ments and other information from which rates and jurisdictional areas applicable to public works contracts under this part may be ascertained (emphasis supplied)

# ." Statutes which make the union scale absolutely determinative of prevailing wages have been held to be invalid. Bradley v. Casey (Ill. 1953), 114N.E.2d 681; Wagner v. City of Milwaukee (Wisc. 1922), 188NW 487; Industrial Commission

v. C & 

### D Pipeline,Inc. (Ariz.App. 1979), 607~.2d 383. On 

### the other hand, a prevailingwage 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 arevested 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 therewas 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 atbar. 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 presented to the trial court. At the end of twenty years, the City acquires absolute ownership of the "leased"building for $10 and retains ownership 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 firstand second renewalperiods (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 thiswas in effect

apublicworks 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 witnesses. 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 trustworthinessdo not exist when documents are compiled for litigationpurposes. Respondent argues that the three letters in question were summaries ofpayroll records suppliedby the appropriate personnel in response to administrative subpoenas issued by the Department of Labor. As such, it is contended the documents possess the "comparable guarantees of trustworthiness" required by Rule 803(24)

### , M.R.Evid.

## , because a person responds truthfully and accurately to judicial requests knowing that anuntruthful response results inpenalty imposedby 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 shouldbe sparinglydenied.We find as a matter of law that the letters here admitted were hearsay and should not have been received in evidence. A substantial part of the damage award was based upon thishearsay evidence and therefore thejudgment must be vacated and thematter remanded fortrialon thedamage issue only.Appellant asserts error inthe trialcourt's assessment of a penalty. Section 39-3-206, MCA, provides that if an employer on a publicworks project isdelinquent, hisobligation to pay prevailing wages includes a civil penalty. Section 18-2-403, MCA, provides that if a provision for the payment of the prevailing wage rate is not included by the public contracting body in the contractwith the contractor, then theobligationtopay theprevailingwage rateison the public contracting agency and not on theprivate contractor. However, this statute is silentas tothe shifting of civil penalties. Penalties are imposed upon the culpable party as a deterrent to discourage repetition of unlawful practices. The purpose of Montana's LittleDavis-Bacon Act istoprotect laborers from wage cutting practices by public employers. Imposition of a penalty upon the culpable partywho failsto compensate with a standard prevailingwage rate deters other public contracting agencies similarly situated from committing the same error. This tends to fortify the underlying policy intended by theenactment of the statute. While § 18-2-403, MCA, is silent as tothe shifting of penalties, we find that an interpretation of the statute allowing civil penalties against the contracting agency accordswiththeunderlyingpurpose of the statute.Wevacate thejudgment and remand fora new trialon the damage question only. In all other respects the rulings of thetrial court areaffirmed.

We concur: