Opinion
No. 00-WM-495
December 1, 2000.
AMENDED ORDER
This order supplants my previous order issued on October 31, 2000.
Introduction
The plaintiffs seek review of an administrative decision of the Department of Housing and Urban Development (HUD), debarring the plaintiffs based on their interest in In Town Management Group (ITMG), a contractor which defaulted on HUD contracts. Upon review of the complaint, briefs, administrative record (containing twenty-nine volumes of material) and oral argument, I conclude that the administrative decision of HUD, debarring the plaintiffs, should be vacated and remanded for further proceedings.
Background
Some of these statements are disputed by the parties and should not be considered as a resolution of disputed facts.
The plaintiffs are a group of federal contractors that provides security and management services to various federal entities. On August 17, 1998, HUD solicited proposals for management and marketing contracts (M M contracts) for single family properties. On October 20, 1998, ITMG submitted its proposal to HUD for the M M contracts.
The proposal identified ITMG as a limited liability corporation formed by three "partners": In Town Properties, Larry Latham Auctioneers, and Gonzales Consulting Services. The three partners brought special expertise that would be crucial to the performance of the M M contracts. The proposal stated that Albert Gonzales was a vice-president of ITMG and that Mr. Gonzales would direct the small business subcontracting efforts, outreach programs, advantage training seminars, and disadvantaged business preference programs and would establish corporate policies and procedures for working with government organizations in revitalization areas. Mr. Gonzales signed the proposal, certifying that the representations in the proposal were correct. On February 1, 1999, the parties executed the proposal.
On March 4, 1999, HUD noted problems among the three "principals" of ITMG. In response, the "principals" submitted a signed letter indicating they had resolved their differences. The "principals" provided HUD with a copy of their amended operating agreement. The agreement stated that Mr. Gonzales could unilaterally require the submission of disputes for resolution by arbitration and provided for the operation of ITMG through a Board of Managers that initially included Mr. Gonzales. ITMG's subsequent default in its performance of the M M contracts ultimately led to the decision to debar the plaintiffs for their alleged involvement in ITMG.
On October 26, 1999, William C. Apgar, Assistant Security for Housing — Federal Housing Commissioner, acting as the designated "debarring official" (see 24 C.F.R. § 24.105 for definition of "debarring official"), sent plaintiffs a notice of proposed debarment pursuant to 24 C.F.R. § 24.311 and 24.312. Plaintiffs responded, pursuant to 24 C.F.R. § 24.313(a), by requesting a hearing on November 19, 1999, and filing "information and argument" in opposition to the proposed debarment on November 29, 1999, within the thirty days of notice allowed by regulation. See 24 C.F.R. § 24.313(a). In the interim, Apgar apparently appointed Mier Wolf as his "debarring official designee" on or about November 22, 1999. (Record, Vol. 29: 14741). Plaintiffs challenge Wolf's authority, but I need not decide that issue in light of my ruling. Acting in that capacity, Wolf scheduled a hearing on January 20, 2000, which Wolf classified as an informal hearing without witnesses to determine if there were material facts in dispute in accordance with 24 C.F.R. § 24.313(a) and (b). See Orders of December 21 and 23, 1999.
Plaintiffs do not seem to dispute that Apgar was so appointed by the agency head. (Record, Vol. 29: 14757).
Plaintiffs assert that, to the extent Wolf purported to decide the issue of whether there were genuine issues of material fact under 24 C.F.R. § 24.313(b), he acted without portfolio because the regulations expressly mandate that the debarring official decide whether there are genuine factual issues. See 24 C.F.R. § 24.313(b)(1) and 314(b)((1). Plaintiffs claim that only after the debarring official decides there are factual issues may the official refer the factual issues to his designee (24 C.F.R. § 314(b)(2)) or to a hearing officer for findings and conclusions (24 C.F.R. § 24.314(b)(2)(i)).
Wolf presided over a contentious, informal hearing on January 20, 2000. The record indicates he viewed the proceeding's function to allow both sides to present "information and argument," presumably as prelude to determining whether or not there were genuine disputes of material facts necessitating a further hearing pursuant to 24 C.F.R. § 24.313(b). The record is devoid of any such determination; instead it proceeds to Apgar's March 3, 2000 determination of debarment without any further hearing as contemplated by 24 C.F.R. § 24.313(b) to afford plaintiffs "an opportunity to appear with a representative, submit documentary evidence, present witnesses, and confront any witness the agency presents." (Record, Vol.: 14892). As a result, the plaintiffs filed this action, contending that HUD debarred the plaintiffs without factual support for its decision and in violation of HUD regulations.
Standard of Review
Although their amended complaint requests injunctive relief, the plaintiffs essentially seek review of agency action pursuant to the Administrative Procedure Act. 5 U.S.C. § 706. The agency's determination is entitled to a presumption of regularity; however, the court must still engage in a "substantial inquiry" to determine whether the agency's decision is unlawful. Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1574 (10th Cir. 1994). Informal agency action must be set aside if it fails to meet statutory, procedural or constitutional requirements, or is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. § 706; Olenhouse, at 1474-75. Thus, an agency must adhere to its own procedures in reaching an administrative determination. Id.; Sameena Inc. v. United States Air Force,
Strangely, the plaintiffs avoid elaborating on the standard of review. In any case, plaintiffs do not present an adequate basis for injunctive relief. For example, there is no showing or even argument that the legal remedy of review is inadequate, normally a precondition to injunctive relief. See 13 Moore's Federal Practice § 65.06[1].
In addition to these factors, formal agency action must be set aside if it is unsupported by substantial evidence in the hearing record. Olenhouse, at 1574.
147 F.3d 1148, 1153 (9th Cir. 1998). Discussion in this litigation, the definitive issue is whether HUD complied with its own regulations in the debarment of the plaintiffs. Olenhouse, 42 F.3d at 1574. Upon review of the administrative record, I conclude that HUD failed to adhere to its regulations. Accordingly, the decision to debar the plaintiffs should be vacated, and this matter should be remanded for further administrative proceedings.
Plaintiffs argue that the defendants' regulations are woefully inadequate. Nevertheless, the essence of the plaintiffs' complaint is that: (1) HUD reached its decision to debar the plaintiffs based on an erroneous understanding of the facts; and, (2) HUD failed to comply with its own regulations in making its decision to debar the plaintiffs. Because I conclude that HUD failed to adhere to its own regulations in its decision to debar the plaintiffs, I do not consider whether HUD's decision is bereft of factual support.
As an overview, debarment may be imposed for various reasons including violation of a public agreement. 24 C.F.R. § 24.305(b). See, e.g., Marshall v. Cuomo, 192 F.3d 473, 480-81 (4th Cir. 1999) (examining the regulatory process of debarment). Prior to issuing a notice of proposed debarment, the debarring official should first consider the investigation, report, and referral of potential causes of debarment, when appropriate. 24 C.F.R. § 24.311. In addition, HUD may not issue a notice of proposed debarment until HUD's general counsel (or a designee) has concurred. 63 Fed. Reg. 57134 (Oct. 26, 1998). Within thirty days of notice of proposed debarment, the respondent may submit "information and argument" in opposition to the proposed debarment and request a hearing. 24 C.F.R. § 24.313(a). Based on that submission, the debarring official must determine whether the "information and argument" raises genuine issues of material fact. 24 C.F.R. § 24.313(b), 24.314(a). If genuine issues of material fact exist, the respondent must be provided with an additional proceeding to include the opportunity to appear with a representative, submit documentary evidence, present witnesses, and confront agency witnesses. 24 C.F.R. § 24.313(b)(1). The debarring official must then prepare written findings of fact in support of his decision. 24 C.F.R. § 24.314(b)(1). He may also refer the disputed material facts to another official for findings which are subject to the debarring official's review (24 C.F.R. § 24.314(b)(2)) or refer the matter to a hearing officer for findings of fact and conclusions of law (24 C.F.R. § 24.313(b)(2)(i)).
Taking these steps sequentially, information on the existence of a cause of debarment shall be promptly reported, investigated, and referred, when appropriate, to the debarring official for consideration. 24 C.F.R. § 24.311 (emphasis added). In this matter, the debarring official concluded that ITMG defaulted on seven contracts and that Mr. Gonzales was a participant and/or principal in the default. (Complaint, Ex. 1). Because the regulation provides discretion as to the appropriateness of a report, investigation, and referral, and the level of consideration given by the debarring official, I conclude that the debarring official did not violate 24 C.F.R. § 24.311 in his issuance of a notice of proposed debarment. See, e.g., Kisser v. Cisneros, 14 F.3d 615, 621 (D.C. Cir. 1994) (stating that HUD regulations permit broad discretion with respect to pre-enforcement deliberations).
Next, HUD regulations require "in-house" concurrence by HUD's general counsel (or a designee) prior to the issuance of a notice of proposed debarment. 63 Fed. Reg. 57134 (Oct. 26, 1998). HUD interprets this regulation to contemplate concurrence prior to issuance of a notice of proposed debarment, not the issuance of the final debarment order. If the agency's interpretation of its own regulations does not violate the Constitution or a statute, then the agency's interpretation must be given controlling weight unless it is plainly erroneous, inconsistent with the regulation, or arbitrary, capricious, or an abuse of discretion, or unless the agency's interpretation of an ambiguous regulation is not reasonable under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Mission Group Kansas, Inc. v. Riley, 146 F.3d 775, 780-81 (10th Cir. 1998). In this case, there is no allegation that HUD's interpretation violates the law. Moreover, I find that HUD's interpretation comports with the language of the regulation. Likewise, to the extent the regulation is ambiguous, HUD's interpretation is reasonable and entitled to deference. Therefore, I conclude that HUD was only required to obtain an "in-house" concurrence prior to issuance of the notice of proposed debarment. This was done in this case. Accordingly, HUD did not violate its regulation for "in-house" concurrence.
HUD's general counsel delegated this duty to a subordinate.
The next step under the regulations was for plaintiffs as respondents to submit "information and argument" or to request a hearing for that purpose within thirty days of the proposed debarment. As indicated, Wolf (as designee) believed that was the purpose of the "informal meeting" on January 20, 2000. That is consistent with the placement of the right to request a hearing under the subheading "Submission in opposition." 24 C.F.R. § 24.313(a)(3). Thus, at least one purpose of the hearing is to determine whether respondent's submission raised genuine issues of material fact that would require a hearing pursuant to 24 C.F.R. § 24.313(b)(1).
As a matter of record, neither Wolf nor Apgar determined the existence or nonexistence of such issues of material fact and no evidentiary hearing with the right to confront witnesses pursuant to 24 C.F.R. § 24.313(b)(1) was ever scheduled or provided to plaintiffs even though plaintiffs formally requested such a hearing on December 6, 1999. Instead, and without hearing, Apgar, on March 3, 2000, issued findings of fact, purportedly based on the preponderance of the evidence. His actions implicitly suggest that he considered and resolved genuine issues of material fact without referral to an adjudicatory hearing prescribed by section 24.313(b)(1). (Record, Vol. 29: 14892); see, e.g., Sterlingwear of Boston, Inc. v. United States, 11 Cl. Ct. 879, 890 n. 9 (Cl.Ct. 1987) (stating that the debarring official erred, "given the existence of numerous genuine issues of material fact, in finding that the agency had carried its own burden, that of proving debarment by a preponderance of the evidence" which would have "naturally . . . require[d] the agency to rebut any evidence by the plaintiffs"). Likewise, although the debarring official specifically states that the plaintiffs did not submit evidence as to the relationship of Mr. Gonzales with respect to the management of ITMG, the debarring official refers to the declaration of Mr. Gonzales, which clearly places at the forefront — as an evidentiary issue — whether Mr. Gonzales had an ability to influence, control, or otherwise participate in the management of ITMG. (Record, Vol. 29: 14897); see Sterlingwear, at 885-86 (stating that disputed questions of fact were obvious due to the debarring official's reference to the contractor's arguments in the debarment decision, thus entitling the contractor to an evidentiary hearing).
I conclude defendant violated its own regulations and the law first by failing to determine whether there were genuine issues of fact and then by failing to hold an evidentiary hearing. Sameena Inc. v. United States Air Force, 147 F.3d 1148, 1154 (9th Cir. 1998) (holding in another regulatory context that a contractor must be afforded an evidentiary hearing if its submission in opposition raises a genuine dispute over facts material to the proposed debarment); see also, Sterlingwear, 11 Cl. Ct. at 888-89 (stating that the debarring official must make a finding as to whether the contractor's submission creates a genuine issue of material fact to require an evidentiary hearing).
HUD's sole response to these failures is to argue that, even though no such determination is found in the record, plaintiffs' submissions did not establish a genuine issue of fact requiring a hearing. In particular, HUD asserts that plaintiff failed to submit sufficient evidence to satisfy the standards for summary judgment pursuant to Fed.R.Civ.P. 56, standards which may be applied by analogy to the issue presented.
See, e. g., Robinson v. Cheney, 876 F.2d 152, 162 (D.C. Cir. 1989) (stating in a different regulatory context that the agency may evaluate the contractor's submission of "information and argument" pursuant to Rule 56); see also Sterlingwear, 11 Cl. Ct. at 884-85 (concluding in a similar regulatory context that the "standard is obviously patterned after, and somewhat analogous to, Rule 56").
Specifically, for a party to claim there exists a genuine factual issue, Rule 56(e) mandates that the party "may not rest upon mere allegations" and instead, "by affidavits or otherwise . . ., must set forth specific facts showing that there is a genuine issue for trial." HUD now claims that plaintiffs failed to provide any Rule 56 evidence to meet the summary judgment standard. (See Defs. § Resp. to Pls. § Opening Br. at 17).
In their response, plaintiffs dispute such standard, arguing that the plain language of the regulation prescribes that the respondent need only provide "information and argument" under 24 C.F.R. § 24.313(a) prior to the hearing to resolve disputes of fact (as opposed to an actual hearing when the regulations provide the opportunity to submit "evidence"). Plaintiffs contend that the regulations themselves distinguish between "information and argument" and "evidence" as might be required by Rule 56. Without resolving that issue, I decide this matter assuming that summary judgment standards do apply.
I reject HUD's argument that there was no showing of a genuine issue of material fact that required resolution pursuant to an evidentiary hearing process. The record, as submitted to me, includes verified statements of plaintiff Gonzales that he was not an officer, principal or participant in the ventures; findings to the contrary would be necessary to debar him or his companies. (See, e.g., Record, Vol. 1:00148; 29:14897 at ¶ 42). These statements are found both in his verified declaration dated February 28, 2000 (referred to as part of the record in Apgar's March 3, 2000 Debarring Official's Determination), and in the verified complaint filed on November 19, 1999. (Record, Vol. 1:00148; 29:14897 at ¶ 42; 29:14893 at ¶ 4). Gonzales's statements are precisely the sort of evidence contemplated by Rule 56(e) and present to the trier of fact issues to be determined after a full hearing of all the evidence. Such a hearing should allow for confrontation of witnesses and, to the extent necessary, resolution of evidentiary conflicts, by credibility determinations or otherwise. See Seamons v. Snow, 206 F.3d 1021, 1026 (10th Cir. 2000) (stating "[i]t is axiomatic that a judge may not evaluate the credibility of witnesses in deciding a motion for summary judgment"); see also Luckett v. Bethlehem Steel Corp., 618 F.2d 1373, 1377 (10th Cir. 1980) (stating "[w]here different ultimate inferences may properly be drawn, the case is not one for a summary judgment").
In addition, the government conceded on the record at the January 20, 2000 "informal meeting" that there are disputes of fact.
HUD, through its debarring official has, contrary to law, chosen to ignore this evidence or sought to avoid it. For example, the record discloses the curious circumstance that Mr. Gonzales's declaration, specifically referred to in the Debarring Official's Determination, was, pursuant to HUD's motion, subsequently stricken from the record on March 8, 2000. (Record, Vol. 29:14907). I am reluctant to assume that this was HUD's effort to avoid a record of genuine issue of fact. If it was, it was futile given the fact that the same verified information was present in the file by virtue of plaintiffs' verified complaint. (Record, Vol. 1:00148; 29:14893 at ¶ 4).
Strangely, the decision to strike the Gonzales declaration was made by the designee, not the debarring official (who specifically stated that his decision is based, at least in part, on the Gonzales declaration). (Record, Vol. 29:14893; 29:14897 at ¶ 42).
The debarring official cannot ignore this legitimate evidence which raises a genuine dispute of material fact. Sterlingwear, 11 Cl. Ct. at 885. To disregard this unequivocal sworn testimony is arbitrary, capricious, and an abuse of discretion. "An administration decision that fails to consider all relevant evidence is the essence of arbitrariness." Id. at n. 7. Although my review pursuant to 5 U.S.C. § 706 does not empower me to substitute my judgment for that of the agency, it appears beyond a good faith dispute that genuine issues of fact remain for evidentiary determination. Accordingly, additional proceedings are necessary to determine the disputed material facts pursuant to 24 C.F.R. § 24.313(b).
Although I might remand with instructions to first determine whether there are genuine issues of fact, I conclude that would be a meaningless exercise of deference given the unequivocal nature of the Gonzales evidence.
It is therefore ordered:
1. The debarment of plaintiffs is vacated and this matter is remanded to the United States Department of Housing and Urban Development for further proceedings consistent with this opinion. In particular, the debarring official shall hold necessary additional proceedings as to the disputed material facts identified above pursuant to 24 C.F.R. § 24.313(b) either before himself or by reference to another official or hearing officer pursuant to 24 C.F.R. § 24.314(b)(2).
2. All pending objections to magistrate orders are overruled as moot.
3. Pursuant to the parties' advice to the court, the plaintiffs' Freedom of Information Act claim remains pending to allow the defendants to provide the requested information by November 30, 2000. The court will assume that the requests have been met unless an objection or other appropriate notification is filed by December 22, 2000, and this case will be dismissed after that date without further notice.
4. Plaintiffs may have their costs as the prevailing parties.