Robinson v. Cheney, 88-5126

• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)
• Citation: 876 F.2d 152
• Docket Number: No. 88-5126,88-5126
• Parties: , 57 USLW 2724, 35 Cont.Cas.Fed. (CCH) 75,666 John F. ROBINSON, Trustee For the Francis E. Heydt Company, Appellant, v. Richard CHENEY, Secretary, U.S. Department of Defense, et al.
• Decision Date: 23 May 1989

Page 152

876 F.2d 152 277 U.S.App.D.C. 393, 57 USLW 2724,
35 Cont.Cas.Fed. (CCH) 75,666 John F. ROBINSON, Trustee For the Francis E. Heydt Company, Appellant,
v.
Richard CHENEY, Secretary, U.S. Department of Defense, et al. No. 88-5126. United States Court of Appeals,
District of Columbia Circuit. Argued Feb. 22, 1989.
Decided May 23, 1989.

Page 153

Appeal from the United States District Court for the District of Columbia (Civil Action No. 88-00049).

Timothy Sullivan, Washington, D.C., for appellant.

Charles Flynn, Asst. U.S. Atty., with whom Jay B. Stephens, U.S. Atty., John D. Bates, Washington, D.C., and R. Craig Laurence, Asst. U.S. Attys., were on the brief, for appellees.

Before STARR, WILLIAMS, and D.H. GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge D.H. GINSBURG.

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D.H. GINSBURG, Circuit Judge:

On December 24, 1987, the Defense Logistics Agency (DLA) debarred the Francis E. Heydt Company (FHC), a manufacturer of military apparel, from bidding on any contract or subcontract with any agency in the Executive Branch until September 29, 1990. John H. Robinson, trustee for FHC, brought this action in the district court challenging the DLA's order as arbitrary, capricious, and an abuse of discretion and the regulation pursuant to which it was issued as unconstitutional. The district court, Revercomb, J., granted the Government's motion for summary judgment and dismissed the action with prejudice. We affirm in all respects.

I. LEGAL FRAMEWORK

Under the Armed Forces Procurement Act of 1948, military agencies are generally required, in preparing for the procurement of property or services, to solicit bids or proposals and develop specifications in a manner designed to achieve "full and open competition," 10 U.S.C. Sec. 2305(a)(1)(A)(i) & (iii), and to award bids only to "responsible" bidders, 10 U.S.C. Sec. 2305(b)(1), (3). A bidder is responsible if, among other things, it "has a satisfactory record of integrity and business ethics." 10 U.S.C. Sec. 2302(3); 41 U.S.C. Sec. 403(8)(D).

The Federal Acquisition Regulations (FAR), which implement these statutory standards, permit an agency, for cause, to prohibit a contractor from bidding on government contracts or subcontracts for a period generally not to exceed three years. This sanction of "debarment" is to be imposed "only in the public interest for the Government's protection and not for purposes of punishment." 48 C.F.R. Sec. 9.402(b).

Under the FAR, an agency may debar a contractor that has been convicted of, or is the subject of a civil judgment for, (1) fraud in connection with obtaining, attempting to obtain, or performing a government contract; (2) a violation of federal or state antitrust law; (3) embezzlement, theft, bribery, falsification of records, making false statements, or receiving stolen property; or (4) any other offense that indicates a lack of business integrity that directly and seriously affects its present responsibility as a government contractor. 48 C.F.R. Sec. 9.406-2(a). A government agency may also debar a contractor if it finds "[a]ny other cause of so serious or compelling a nature that it affects the present responsibility" of the company. 48 C.F.R. Sec. 9.406-2(c). In order to act under the latter standard, the agency must prove the "other cause" for debarment by a preponderance of the evidence, 48 C.F.R. Sec. 9.406-3(d)(3), which the FAR define as "proof by information that, compared with that opposing it, leads to the conclusion that the fact at issue is more probably true than not." 48 C.F.R. Sec. 9.403.

The FAR permit an agency to impute to a contractor the "seriously improper conduct of any officer, director, shareholder, partner, employee, or other individual associated with [the] contractor ... when the conduct occurred in connection with the individual's performance of duties for or on behalf of the contractor, or with the contractor's knowledge, approval, or acquiescence." 48 C.F.R. Sec. 9.406-5(a). An agency may also extend a debarment order to any affiliate of a debarred contractor. 48 C.F.R. Sec. 9.406-1(b). "Business concerns or individuals are affiliates if, directly or indirectly ... one controls or can control the other...." 48 C.F.R. Sec. 9.043.

An agency proposing debarment must "afford the contractor ... an opportunity to submit, in person, in writing, or through a representative, information and argument in opposition to the proposed debarment." 48 C.F.R. Sec. 9.406-3(b). If the agency finds that the contractor's submissions raise a genuine issue of fact material to the proposed debarment, it must also "[a]fford the contractor an opportunity to appear with counsel, submit documentary evidence, present witnesses, and confront any person the agency presents...." 48 C.F.R. Sec. 9.406-3(b)(2)(i). Otherwise, the agency may make a decision on the basis of all information in the record, including any

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information submitted by the contractor. 48 C.F.R. Sec. 9.406-3(d)(2)(i).

The parties are in accord that the agency's decision is subject to judicial review under the standards set forth in Sec. 706(2)(A) of the Administrative Procedure Act, see 5 U.S.C. Sec. 706(2)(A) ("reviewing court shall ... hold unlawful and set aside agency action ... found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law"); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 413-16, 91 S.Ct. 814, 822-24, 28 L.Ed.2d 136 (1971), and we proceed accordingly.

II. BACKGROUND

In February 1987, a grand jury indicted a number of military clothing suppliers doing business with the Defense Personnel Support Center in Philadelphia (DPSC), along with several DPSC employees and former employees. Neither FHC nor Francis E. Heydt, who owns all of the stock in FHC, was indicted, but one of the indicted government employees, Donald F. Sherry, made statements to the government investigator that implicated Heydt. According to Sherry, Heydt (1) orchestrated the bids of five suppliers, three of which he controlled, on a contract for camouflage pants; and (2) paid Sherry $10,000, in two $5,000 installments, for his help in directing the contract to FHC.

During the summer of 1987, Heydt learned that the DLA was considering debarring both him and FHC. On the advice of counsel, Heydt executed an irrevocable trust agreement whereby he transferred to Robinson, as trustee, all of his right, title, and interest in the assets of FHC. The agreement empowers Robinson to manage the company, and directs him to distribute to Heydt, on a quarterly basis, all after-tax income of the trust and to retain all principal "unless [he] considers it necessary to distribute such principal to or for the benefit of [Heydt] for support, maintenance, or medical care that cannot be provided from the net accounting income of the Trust and any other financial resources available to [Heydt]." Unless extended by Heydt, the trust terminates in January 1992 or when FHC either ceases to do business as a manufacturer of military apparel or receives a determination from the DLA that it will not debar the company, whichever is earlier. Upon termination, the trustee is to distribute all of its assets to Heydt.

In late September 1987, the DPSC notified FHC that it had recommended that the DLA debar the company, and that it would therefore disregard a bid that FHC had submitted earlier that month. In response, FHC delivered to DPSC and to the DLA a copy of the trust agreement between Heydt and Robinson, along with a letter offering to answer any questions relating to the trust. Nonetheless, on September 30, 1987, the DLA notified FHC that it had initiated debarment proceedings based upon "information ... indicat[ing] that FHC lacks the business integrity and present responsibility to be a Government contractor...."

An explanatory memorandum, enclosed with the notice of proposed debarment, detailed the information provided by Sherry and, based thereon, charged that (1) Heydt participated in a scheme to make improper payments to a government official and to circumvent free and open competition for the award of a public contract; and (2) FHC and the other bidders on the contract participated in a scheme to circumvent free and open competition; and concluded that (3) Heydt's conduct would be imputed to FHC because it occurred in connection with his performance of his duties for or on behalf of FHC, or with the company's knowledge, approval, or acquiescence; and (4) FHC could be debarred as an affiliate of Heydt because, as the founder of, and as the owner of an equitable interest in, FHC, Heydt "does or can control FHC, either directly or indirectly...." The notice further provided:

Within thirty calendar days after receipt of this notice, a representative on FHC's behalf may submit, either in person or in writing, information and argument in opposition to the proposed debarment, including any additional specific information that raises a genuine dispute over

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facts material to the proposed debarment. If it is found that the information or argument submitted raises a genuine dispute over material facts, factfinding will be conducted to determine the disputed facts.

On October 20, FHC's counsel submitted to the DLA another copy of the trust agreement, along with the affidavits of Robinson, as trustee, and of four management employees of the company. In his affidavit, Robinson summarized his experience (principally as a banker), noted that his prior contact with Heydt had been limited and arm's-length, and summarized his current dealings with Heydt as follows:

Mr. Heydt explained to me before the trust was executed that he could no longer have any dealings with the company, and he has kept his distance.... While I have no direct experience in the textile and apparel industry, my general experience as a businessman and banker have aided me greatly in learning about this...