Facchiano v. U.S. Dept. of Labor, 88-3143

• Decision Date: 22 November 1988
• Docket Number: No. 88-3143,88-3143
• Citation: 859 F.2d 1163
• Parties: 28 Wage & Hour Cas. (BN 1529, 57 USLW 2275, 110 Lab.Cas. P 35,140, 35 Cont.Cas.Fed. (CCH) 75,572 Michael FACCHIANO, Jr., John Facchiano, and Facchiano Construction Company, Inc., Appellants, v. The UNITED STATES DEPARTMENT OF LABOR, The Secretary of Labor, William E. Brock, in his official capacity and James L. Valin, in his official capacity, Appellees.
• Court: U.S. Court of Appeals — Third Circuit

Page 1163

859 F.2d 1163

28 Wage & Hour Cas. (BN 1529, 57 USLW 2275,

110 Lab.Cas. P 35,140,

35 Cont.Cas.Fed. (CCH) 75,572

Michael FACCHIANO, Jr., John Facchiano, and Facchiano Construction Company, Inc., Appellants, v. The UNITED STATES DEPARTMENT OF LABOR, The Secretary of Labor, William E. Brock, in his official capacity and James L. Valin, in his official capacity, Appellees.

No. 88-3143.

United States Court of Appeals Third Circuit.

Argued July 19, 1988.

Decided Oct. 21, 1988.

Rehearing and Rehearing In Banc Denied Nov. 22, 1988.

Frederick J. Francis (argued), Thomas A. Berret, Meyer, Unkovic & Scott, Pittsburgh, Pa., for appellants.

J. Alan Johnson, U.S. Atty., Bonnie R. Schlueter (argued), Asst. U.S. Atty., Pittsburgh, Pa., for appellees.

Before HIGGINBOTHAM, BECKER and ROSENN, Circuit Judges.

OPINION OF THE COURT

BECKER, Circuit Judge.

Following an administrative proceeding, appellants, Facchiano Construction Company, Inc. ("Facchiano Construction") and one of its principals, Michael Facchiano, Jr., were debarred in 1986 by the Department of Housing and Urban Development ("HUD"), from participating for a period of 18 months in HUD-sponsored contracts. This debarment was based upon the conviction of Michael Facchiano and Facchiano Construction on mail fraud charges which arose out of the determination of the Department of Labor ("DOL") that they had falsified records to conceal violations of the Davis-Bacon Act, 40 U.S.C. Sec. 276a et seq. (1982), and the Contract Work Hours and Safety Standards Act, 40 U.S.C. Secs. 327-333 (1982) in connection with work on HUD-sponsored contracts.

DOL thereupon sought to debar appellants, Facchiano Construction, and its officers, Michael Facchiano, Jr., and John Facchiano, ¹ from all government contracts for a period of three years on the grounds of the underlying Davis-Bacon violations. Appellants responded with a suit in the district court for the Western District of Pennsylvania seeking to enjoin the administrative proceeding on the grounds that it was precluded by the previous debarment. The district court granted summary judgment for DOL. This appeal presents the question whether a suit for injunctive relief will lie in the district court under these circumstances, or whether appellants must instead, pursuant to the exhaustion of administrative remedies doctrine, present the preclusion defense in the administrative proceedings.

Although a court can enjoin administrative proceedings when an agency undertakes vexatious litigation, the district court found that not to be the case here, and its finding is supported. However, the district court failed to consider the well-established principle that administrative tribunals are fully capable of considering preclusion defenses, and it contravened the related exhaustion doctrine by reaching the merits and determining that the HUD debarment in fact had no preclusive effect on the DOL debarment proceeding. Therefore, while we will affirm the grant of summary judgment against appellants insofar as it denied injunctive relief, we will vacate the opinion of the district court insofar as it adjudicates the merits of the preclusion issue. The agency will be able therefore to resume its proceedings and address the issue itself.

I.

After Facchiano Construction had performed a number of construction projects sponsored by HUD's Community Development Block Grant program, DOL conducted an investigation which revealed that it had been falsely certifying the wages paid to the employees who were working on the HUD-sponsored projects. The investigation, completed in 1984, disclosed that the wages and overtime pay were below those required by the Davis-Bacon Act, 40 U.S.C. Sec. 276a et seq. (1982), and the Contract Work Hours and Safety Standards Act, 40 U.S.C. Secs. 327-332 (1982). Because of false wage certifications sent through the mails, Michael Facchiano, Jr. and Facchiano Construction were indicted for mail fraud. In February 1985, they waived indictment and pleaded guilty. The district court required them to make restitution of $126,000 to the employees and fined Michael Facchiano and the Facchiano Construction $2,000 each. Michael Facchiano also received a prison sentence of six months followed by five years probation.

In May 1985, following the mail fraud conviction, HUD initiated an administrative action to debar Michael Facchiano, Jr. and Facchiano Construction from HUD-sponsored contracts pursuant to 24 C.F.R. Sec. 24.6(a)(1), (4), and (9) (1985). Under these regulations, HUD can debar contractors who have been convicted of crimes committed in the pursuit, the attempt to pursue, or the performance of public or private contracts, where the conviction(s) have put the contractors' integrity in doubt or where the conduct involved is deemed "serious" by the Assistant Secretary of HUD. On May 15, 1985, HUD notified Michael Facchiano and Facchiano Construction of its proposed debarment and requested submission of briefs and supporting material in accordance with 24 C.F.R. Sec. 24.7(a) (1985). ² In a final order dated March 5, 1986, the HUD administrative law judge ordered an 18-month debarment from contracts awarded by HUD. This order was not appealed.

In December 1985, DOL notified appellants that it was initiating its own debarment proceeding under 29 C.F.R. Sec. 5.12(b)(1) (1985). This regulation enables DOL to debar contractors for willfully violating the Davis-Bacon Act and other regulatory labor standards. DOL sought to debar appellants from all government contracts for three years. Rather than avail themselves of the opportunity to contest this second debarment in the administrative forum, appellants immediately sued in the District Court for the Western District of Pennsylvania, seeking a permanent injunction or a writ of mandamus to prevent DOL's administrative proceedings. The district court issued a preliminary injunction staying the administrative proceedings pending the outcome of the suit. Both parties moved for summary judgment, and the district judge assigned the case to a magistrate for a report and recommendation.

In their summary judgment memorandum, appellants contended that the DOL's proposed debarment was founded on the same cause of action as the HUD debarment, and hence was barred by principles of claim preclusion. Acknowledging that the HUD debarment was based upon a conviction, and the DOL proceeding upon the underlying facts the concealment of which led to the conviction, appellants submitted that the distinction was without a difference and that the claims were essentially the same. In appellants' view, DOL and HUD were privies, as agencies in the executive branch, and hence, DOL's claim should have been raised in the prior debarment proceeding since otherwise the same government could repeatedly punish a contractor for the same conduct. ³ DOL, however, rejoined that the HUD debarment had no claim preclusive effect on the DOL debarment proceeding precisely because the mail fraud conviction and the underlying regulatory violations represented different causes of action.

The magistrate began by noting that exhaustion is not required when, by not observing the principles of preclusion, " 'the challenged agency action presents a clear and unambiguous violation of statutory or constitutional rights.' " App. at 147 (quoting Susquehanna Valley Alliance v. Three Mile Island, 619 F.2d 231, 245 (3d Cir.1980), cert. denied, 449 U.S. 1096, 101 S.Ct. 893, 66 L.Ed.2d 824 (1981). He found, however, that this case did not fall within this exception to the exhaustion doctrine. Then addressing the preclusion issue, he determined that the HUD and the DOL debarments were different in two respects: (1) the HUD debarment was limited to HUD contracts whereas the DOL debarment would be government wide; and (2) the HUD debarment was based on appellants' criminal conviction whereas the DOL debarment would be based on the conduct underlying the mail fraud, i.e., the violations of the Davis-Bacon Act. The magistrate believed that, because of these differences, the two separate agency actions arose from different causes of action and subsumed different issues, and that neither issue preclusion or claim preclusion should apply. The magistrate therefore recommended that injunctive relief be summarily denied on the grounds that no preclusive effect exists and that, as a consequence, appellants failed to meet the requirements for the exception to the exhaustion doctrine. Adopting the magistrate's recommendation and findings, the district court granted DOL's motion for summary judgment. This appeal followed.

II.

The doctrine of exhaustion of remedies requires that parties first use all prescribed administrative measures for resolving a conflict before they seek judicial remedies. See Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-52, 58 S.Ct. 459, 463-64, 82 L.Ed. 638 (1938). This doctrine serves judicial economy by preventing piecemeal judicial review of agency actions and facilitates judicial review by allowing the administrative tribunal to use its expertise to develop a complete factual record. See Cerro Metal Products v. Marshall, 620 F.2d 964, 970 (3d Cir.1980). Further, the doctrine serves to prevent the courts from frustrating congressional decisions to have certain disputes resolved originally in administrative forums. See Babcock & Wilcox Co. v. Marshall, 610 F.2d 1128, 1136 n. 21 (3d Cir.1979).

The doctrine of claim preclusion is important in the administrative as well as the judicial context, because of the "obvious principle that a controversy should be resolved once, not more than once." K. Davis, 4 Administrative Law Treatise Sec. 219 (2d Ed.1983). In general,

[w]here an administrative forum has the essential procedural characteristics of a court ... its determinations should be accorded the same finality that is accorded the judgment of a court. The importance of bringing a legal controversy...