Art-Metal-USA, Inc. v. Solomon

Decision Date06 October 1978
Docket NumberCiv. A. No. 78-1660.
Citation473 F. Supp. 1
PartiesART-METAL—USA, INC., Plaintiff, v. Joel W. SOLOMON, Administrator, General Services Administration, and General Services Administration, Defendants.
CourtU.S. District Court — District of Columbia

Herbert L. Fenster, Kenneth W. Weinstein, Washington, D. C., for plaintiff.

Mary Elizabeth Medaglia, Asst. U. S. Atty., Washington, D. C., for defendants.

OPINION

HAROLD H. GREENE, District Judge.

Art Metal is the government's largest supplier of metal office furniture. It competes for government contracts by submitting bids as solicited by GSA under advertised competitive procurements which are awarded to the lowest priced responsible bidder. During the past few months, in the ordinary course of the government's procurement process, bids for a variety of metal furniture items have been solicited from Art Metal and others.

Several months ago, Art Metal began to achieve some notoriety when a series of local newspaper articles describing the government's broad-scale investigation into GSA operations1 began to focus on that agency's relationship with Art Metal. By the end of August, stories had appeared in both the Washington Post and the Washington Star concerning Art Metal's alleged failure to meet GSA specifications, inferior products, and possible abuses in contract dealings with GSA.2

On August 24, 1978, in the normal course of procurement operations, Art Metal received a formal notice of award of the government's October, 1978September, 1979 vertical file cabinet requirements contract worth approximately $9.4 million. Art Metal is the holder of the present file cabinet contract and was the lowest bidder by $5 million on next year's contract. That same day, however, a telegram was sent to Art Metal terminating the contract in its entirety, with no explanation other than "for the convenience of the government." Since then, the awards on four additional GSA contracts for which Art Metal had bid have been, and are being, held in abeyance beyond the time when they would have been made in the normal course of business.

On September 5, 1978, Art Metal filed this complaint alleging that the termination of the file cabinet contract implemented an unlawful debarment of it by GSA, without prior notice or hearing, in violation of the Constitution, the Administrative Procedure Act, and GSA's own regulations.3 The complaint requested a declaratory judgment as to the unlawful debarment, and preliminary and permanent injunctions enjoining defendants from taking any act in furtherance of the debarment from this contract, and ordering them to rescind all agency action taken to effectuate that debarment.

After hearing the arguments of counsel for both sides, the Court denied issuance of a temporary restraining order on September 6, 1978, and granted Art Metal leave to engage in discovery to enable the Court to ascertain whether the facts supported a finding of debarment as distinguished from a simple contract termination. The case is now before the Court on Art Metal's motion for preliminary injunction.

I

In determining whether Art Metal is entitled to a preliminary injunction, the relevant factors are: (1) whether plaintiff has demonstrated that it will suffer irreparable injury absent such relief, (2) whether there is a substantial likelihood that it will prevail on the merits, (3) whether the issuance of an injunction would substantially harm other parties interested in the proceedings, and (4) wherein lies the public interest. Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 182 U.S.App. D.C. 220, 559 F.2d 841, 843 (1977); Virginia Petroleum Jobbers Association v. F. P. C., 104 U.S.App.D.C. 106, 259 F.2d 921, 925 (1958). These factors are discussed below.

II

The question of irreparable injury to Art Metal may be disposed of rather summarily. Art Metal has produced credible evidence that the vast majority of its business for more than twenty years has been to supply office furniture to the GSA; that the file cabinet contract which was terminated on August 24 represents approximately one-third of its total government sales; that its present file cabinet contract expired on September 30, 1978, and most of its remaining GSA contracts shortly thereafter; and that absent an injunction, it will be put out of business.4 Defendants do not attempt to rebut this evidence but challenge its sufficiency on the grounds that the government is not under an obligation to award to Art Metal, or anyone else, any contract at all, and that there is no evidence that Art Metal could not find another market for its products.

These contentions are not well taken. As noted below, it is well settled that while no individual or corporation has a right to be awarded a specific government contract, one who has been dealing with the government on an ongoing basis may not be blacklisted from further contracting except for valid reasons and in conformity with the procedural safeguards established by law. Moreover, the Court would have to be blind to the realities to conclude that Art Metal would be able to shift its long-established commercial patterns to private purchasers on essentially a "moment's notice." The Court therefore finds that Art Metal has made the requisite showing of irreparable injury.

III

With respect to Art Metal's likelihood of success on the merits, it is clear at the outset that due process of law requires that before a contractor may be blacklisted (whether by debarment or suspension) he must be afforded specific procedural safeguards, including, inter alia, a notice of the charges against it, an opportunity to rebut those charges and, under most circumstances, a hearing. Gonzalez v. Freeman, 118 U.S.App.D.C. 180, 334 F.2d 570 (1964); Horne Brothers, Inc. v. Laird, 150 U.S.App. D.C. 177, 463 F.2d 1268 (1972); Myers & Myers, Inc. v. U. S. Postal Service, 527 F.2d 1252 (2d Cir. 1975); Pan American World Airways, Inc. v. Marshall, 439 F.Supp. 487 (S.D.N.Y.1977). GSA's own regulations (41 C.F.R. §§ 1-1.600 et seq.) embody these same principles. Inasmuch as defendants readily concede that Art Metal has been afforded none of these basic protections, plaintiff's chance of succeeding on the merits is extremely high if it has in fact been debarred or suspended.5

On the basis of the evidence6 in the record, there can be no doubt but that GSA did debar or suspend Art Metal for an indefinite period. Art Metal's file cabinet contract was summarily cancelled on August 24, 1978, under conditions relating not only to that particular contract, but to Art Metal's overall status as a GSA contractor. Since that time, Art Metal's bids on four additional contracts—on three of which it is the lowest bidder—have been held in "what is probably described as either status quo or suspended animation for a point in time which has not been set" (Deposition of Federal Supply Services Commissioner Robert Graham, p. 45).

GSA's managers candidly state in their depositions that they have no intention of awarding these or other contracts7 to Art Metal as long as that company "is being investigated"—a process they concede could continue for an unspecified period of time.8

Defendants' claims that none of this amounts to a debarment, and that other valid explanations exist for their actions, are not persuasive. One explanation offered is that GSA suspended only "contracts" and not "contractors" (i. e., Art Metal). While this construction would no doubt escape the consequences of GSA's own suspension regulations, it is clear from the record that the suspensions here were not the product of a general contract review program, but rather a decision to hold up those contracts on which Art Metal is a bidder.9 For purposes of the regulations, the suspension of these contracts is tantamount to the suspension of the company.10

Another explanation offered is that GSA's entire procurement process is being revised, and that the regulations concerning the delegation of authority (to review and approve contracts) were in the midst of revision on August 24 when Art Metal received the file cabinet contract. Thus, it is claimed, it was only through the error of a subordinate that Art Metal was given the contract at all.11 Not only is this inherently incredible in the context of this case and the deposition testimony of GSA's own officials, but it does not explain the continued blacklisting of Art Metal from receiving new contracts.

The final explanation offered by defendants is that the file cabinet contract was terminated "for the convenience of the government", and that GSA is presently looking into the "responsibility" of Art Metal. However, neither the Court nor Art Metal has been able to secure any factual elucidation as to what, if anything, Art Metal is supposed to have done, beyond a cryptic statement by counsel for the government at argument that "someone" in GSA knows the answer. Actually, it became apparent from the deposition testimony of GSA's top officials that the decision to terminate the file cabinet contract "for convenience of the government" was the result of their conclusion that no valid grounds for debarment could be found.12 In these circumstances, absent a factual basis in the record, the Court will not allow the government to hide behind the cloak of conclusory terms such as "convenience" and "responsibility" to justify its actions.13

Defendants alternatively argue that, at a minimum, it is not unlawful to hold up contract awards during the pendency of an investigation into wrongdoing. While this issue is not free from doubt, the Court is willing to assume that, although the regulations do not so provide, it may be lawful in exceptional circumstances to suspend a contractor temporarily pending an investigation. However, both case law and common sense dictate that the exception is a narrow one, and that a departure from the regulatory requirements may be...

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