Mainelli v. United States

• Decision Date: 06 June 1985
• Docket Number: Civ. A. No. 85-0293 P.
• Citation: 611 F. Supp. 606
• Parties: Hugo R. MAINELLI, Jr., et al., v. The UNITED STATES of America, et al.
• Court: U.S. District Court — District of Rhode Island

611 F. Supp. 606

Hugo R. MAINELLI, Jr., et al., v. The UNITED STATES of America, et al.

Civ. A. No. 85-0293 P.

United States District Court, D. Rhode Island.

June 6, 1985.

John Walsh, Joseph Kelly, Alden Harrington, Providence, R.I., for plaintiffs.

Everett C. Sammartino, Asst. U.S. Atty., Thomas Caruolo, Sp. Asst. Atty. Gen., Providence, R.I., for defendants.

OPINION AND ORDER

PETTINE, Senior District Judge.

On May 16, 1985, the Federal Highway Administration ("F.H.W.A.") of the United States Department of Transportation ("U.S.D.O.T.") suspended from any and all participation in U.S.D.O.T. financial assistance programs plaintiffs Hugo R. Mainelli, Jr., Mariano Jose Brown, Brenda Francis Brown, Aetna Bridge Holding Company ("Holding Company"), Aetna Bridge Company ("Aetna Bridge"), B&F Excavating, Inc., ("B&F"), Aetna Bridge-B&F Excavating Co., Inc., A Joint Venture ("Joint Venture"), and Aetna Bridge-B&F Excavating —Joint Venture II ("Joint Venture II"),¹ who are individuals and corporate entities engaged in the construction industry in Rhode Island. According to the letter suspending the plaintiffs, the U.S.D.O.T. acted in response to a Rhode Island grand jury indictment of the plaintiffs charging fraud in obtaining and performing state construction contracts partially funded by the U.S. D.O.T. On May 21, 1985, the plaintiffs brought suit in this Court, seeking a temporary restraining order, a preliminary injunction, and permanent injunctive and declaratory relief against the suspension and the federal regulations, 49 C.F.R. § 29 et seq. (1984), pursuant to which suspension was ordered.² Plaintiffs allege that the regulations violate their Fifth Amendment rights and, by their Amended Complaint filed on May 30, 1985, further allege that the U.S.D.O.T. is barred by the doctrines of res judicata and collateral estoppel from suspending the plaintiffs. No temporary restraining order issued but, in consideration of the exigent circumstances surrounding this matter—circumstances described infra—the Court set the matter down for an expedited hearing on the preliminary injunction. That hearing was held on May 30 and 31, 1985.

I. BACKGROUND

The sequence of events culminating in this lawsuit has been fully set forth in the plaintiffs' memoranda and at the hearing on the preliminary injunction. In view of the importance of a prompt decision in this matter, and the fact that this case turns largely on questions of law, the Court will recount here only the essential facts as it finds them.

In 1983, plaintiff Mainelli, president of Aetna Bridge, and plaintiff Brown, president of B&F, formed Joint Venture I to bid on, and, if successful, to perform, as a subcontractor, certain construction work on the Capital Center Project in Rhode Island. That project was administered primarily by Rhode Island Department of Transportation ("R.I.D.O.T.") officials, and was funded partly with federal monies. B&F is a 100% owned and controlled minority business enterprise, and has been certified by the state as a Minority Business Enterprise, ("M.B.E."), as that term is defined at 49 C.F.R. § 23, et seq. (1984). So certified, B&F is eligible to participate in federally financed projects that require contractors to set aside 10% of the work for such enterprises. Because B&F has a 95% interest, and Aetna Bridge a 5% interest, in the Joint Venture, that Joint Venture itself met federal eligibility requirements as an M.B.E.

In 1983, the Gilbane Construction Co. was awarded the general contract for the Capital Center Project and the Joint Venture was approved as a subcontractor. In early 1985, however, authorities received an anonymous letter suggesting that the Joint Venture had improperly subcontracted work to a non-minority enterprise and had violated federal regulations by so doing. In January, 1985, at the urging of local F.H.W.A. administrator Gordon G. Hoxie, R.I.D.O.T. conducted a review of the allegations in order to determine whether the Joint Venture was a bona fide M.B.E. In particular, R.I.D.O.T. was to determine whether, in light of the subcontracting to a non-minority firm, the Joint Venture was performing, as the federal regulations require, a "commercially useful function," 49 C.F.R. § 23.47(d)(1). Pursuant to its investigation, R.I.D.O.T. convened hearings, at which the parties were interviewed and documentary evidence was received. On March 8, 1985, R.I.D.O.T. issued its report, concluding that the Joint Venture had violated certain technical aspects of the M.B.E. regulations, and should accordingly be put on probation for a one year period. The panel concluded, however, that, in "reality," no violation had occurred and decertification would therefore be inappropriate. This report was delivered, inter alia, to Gordon Hoxie. By letter of March 13, 1985, Hoxie responded to the report by stating that he believed it appropriate to place the Joint Venture on probation, but that federal authorities had remaining questions as to certain of R.I.D.O.T.'s findings, as well as to the hearing procedures R.I.D.O.T. employed in its investigation.

On March 22, 1985, a Grand Jury sitting in the Rhode Island Superior Court returned a 59 count indictment against Mainelli, Mariano Brown, Brenda Francis Brown, the Holding Company and B&F. That indictment in substance charged the plaintiffs with creating a false and fraudulent joint M.B.E. in connection with the Capital Center Project, and with falsifying records as part of that fraud.

On May 16, 1985, the U.S.D.O.T., by letter of Rex C. Leathers, Initiating Official, advised the plaintiffs that the F.H.W.A. had determined

that there is adequate evidence that your company committed acts which, under Part 29 of Title 49, Code of Federal Regulations, constitute grounds for suspension and eventual debarment from participation in United States Department of Transportation (DOT) financial assistance programs.

Exhibits B-E to Plaintiffs' Verified Complaint.

The letter went on to describe the charges contained in the indictment, and to characterize the indictment as "supported by and resulting from an investigation conducted by the Rhode Island Attorney General's office in cooperation with the U.S.D.O.T.'s Inspector General's office." It further advised plaintiffs of the duration of the suspension and of their right, under 49 C.F.R. § 29.33, to a hearing within 30 days of a written request for same.

Within five days of receiving their respective notices, plaintiffs brought this suit. They sought immediate relief against the suspension because it would prevent them from obtaining other contracts for which R.I.D.O.T. had already found them to be the lowest responsible bidder, but which could not be finally awarded to them absent federal concurrence.³ In particular, the state was and is prepared to award B&F/Aetna Bridge Joint Venture II, as general contractor, a several-million dollar contract for the Civic Center Interchange Project. Even after the indictment in the Rhode Island Superior Court was returned, R.I.D.O.T. adhered to its belief that Joint Venture II should be awarded this contract and, on April 5, and May 16, 1985, respectively, R.I.D.O.T. wrote to the U.S.D.O.T. seeking the required concurrence. Immediately after suspending the plaintiffs, U.S. D.O.T. formally denied concurrence. R.I. D.O.T. has not yet awarded this contract to the next lowest bidder—whose bid is some $600,000 higher than that of Joint Venture II—but has taken the position throughout this litigation that various circumstances mandate that it award that contract immediately.

Similarly, B&F has also submitted, on its own, a bid to be a subcontractor on the Jamestown Bridge Project, another R.I.D. O.T. project funded partially by U.S.D.O.T. R.I.D.O.T. has approved Clark-Fitzpatrick, Inc., of New York, as the general contractor on that project and, absent this suspension, B&F was to have been an M.B.E. subcontractor for Clark-Fitzpatrick. As with the Interchange Project, R.I.D.O.T. is still prepared to award the contract to Clark-Fitzpatrick, with B&F as a subcontractor. The F.H.W.A., however, has notified R.I.D.O.T. that it will not concur in any award to B&F.⁴

Through their verified complaint and hearing testimony, the plaintiffs have stated that, given the nature of their work, loss of the two above-described contracts, coupled with loss of the ability to bid on any future contracts, will put each out of business. The Court has no reason to doubt plaintiffs' estimation of the consequences that will flow from continued suspension.

As these facts demonstrate, this case presents an unusual and anomalous situation —one in which a state agency is urging federal approval of contractors, in the face of a state grand jury indictment that triggered the federal suspension at issue. And this is a situation in which the consequences of federal suspension will be great. If the plaintiffs continue to be suspended, the result will be that the Interchange Project will cost at least an additional $600,000 to complete, and, a minority contractor may meet its demise. On the other hand, the Court must view these circumstances in the context of a federal scheme that is designed to encourage minority contracting, and to protect the integrity of the minority set-aside program. Moreover, in undertaking its duty, this Court is and must be controlled by established legal principles, and required to apply these principles dispassionately.

II. DISCUSSION

The standard that I must apply in determining whether to issue a preliminary injunction is well settled in this Circuit:

`In the First Circuit, a plaintiff must satisfy four criteria in order to be entitled to a preliminary injunction. The Court must find: (1) that plaintiff will suffer irreparable injury if the injunction is not granted; (2) that such injury outweighs any harm which granting injunctive relief would inflict on the defendant; (3) that plaintiff has exhibited a

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