Trifax Corp. v. District of Columbia

• Decision Date: 14 January 2003
• Docket Number: No. 01-7195.,01-7195.
• Citation: 314 F.3d 641
• Parties: TRIFAX CORP., Appellant, v. DISTRICT OF COLUMBIA, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 641

314 F.3d 641

TRIFAX CORP., Appellant, v. DISTRICT OF COLUMBIA, et al., Appellees.

No. 01-7195.

United States Court of Appeals, District of Columbia Circuit.

Argued November 21, 2002.

Decided January 14, 2003.

Appeal from the United States District Court for the District of Columbia (No.98cv02824).

Barbara E. Brown argued the cause and filed the briefs for appellant.

Edward E. Schwab, Assistant Corporation Counsel, Office of Corporation Counsel, argued the cause for appellee. With him on the brief was Charles L. Reischel, Deputy Corporation Counsel.

Before: SENTELLE, HENDERSON and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

In this case, a government contractor claims that the District of Columbia Inspector General, by releasing an allegedly defamatory audit report, deprived it of liberty to engage in its chosen business in violation of the Fifth Amendment's Due Process Clause. Because the contractor, though perhaps injured in some respects, cannot demonstrate broad preclusion from government contracting, as the law of this circuit requires, we affirm the district court's grant of summary judgment for the District of Columbia.

I.

Appellant Trifax Corporation supplies health care and nursing services to District and federal agencies. In May 1997, at the request of a D.C. Councilmember, the District of Columbia Office of Inspector General (OIG) opened an inquiry into Trifax's performance of its contracts with District agencies. After auditing two of Trifax's four contracts, the OIG released a highly critical report that was later described in a Washington Post article. According to the OIG report, Trifax "consistently violated the requirements of the contracts," as well as the federal Service Contract Act, 41 U.S.C. § 351 et seq., by both underpaying its employees and overcharging the District. See Review of the Department of Human Services and the District of Columbia General Hospital Contracts with the Trifax Corporation, OIG No. 9713-25 at 3 (Nov. 20, 1997). Although the report also found Trifax's misdeeds "sufficient to justify" a three-year debarment from bidding on District contracts, it recommended that the District defer formal action pending completion of a parallel investigation by the U.S. Department of Labor. Id. at 11.

For purposes of this case, the only important fact about the OIG's audit is that the OIG never offered Trifax an opportunity to comment on the unfavorable report before making it public. After the report's release, Trifax wrote two letters to the OIG calling the report factually inaccurate and requesting its withdrawal. Based on "additional information" from Trifax, the OIG released a revised report reaffirming that Trifax underpaid employees and overcharged the District, but lowering the estimate of total financial irregularities from $43,288, as found in the initial report, to $28,104. See Review of the Department of Human Services and the District of Columbia General Hospital Contracts with a Selected Vendor, No. OIG-9713-25 (Revised), OIG-00-2-02MA at 1-2 (Sept. 15, 2000). Unlike the initial report, the revised report did not recommend formal debarment.

Trifax brought suit in the United States District Court for the District of Columbia against the District of Columbia, various agencies, and various District officials in both their official and individual capacities alleging (1) deprivation of due process under 42 U.S.C. § 1983 and (2) defamation and negligence under D.C. law. Acting pursuant to Federal Rule of Civil Procedure 12(b)(6), the district court dismissed the negligence and defamation counts, citing public duty and absolute immunity doctrine, as well as the constitutional claim as to D.C. officials sued in their individual capacities, citing qualified immunity doctrine. Trifax Corp. v. Dist. of Columbia, 53 F.Supp.2d 20, 24-26, 28-31 (D.D.C. 1999) ("Trifax I"). The district court later granted summary judgment for the District of Columbia on the constitutional claim, finding Trifax unable to prove that District officials had deprived it of a liberty interest. Trifax Corp. v. Dist. of Columbia, No.98-2824, mem. op. at 8-19 (D.D.C. Nov. 2, 2001) ("Trifax II").

Trifax appeals. Bearing in mind that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief," Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957), and that "summary judgment will not lie ... if the evidence is such that a reasonable jury could return a verdict for the nonmoving party," Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986), we review the district court's decisions de novo, see Weyrich v. New Republic, Inc., 235 F.3d 617, 623 (D.C.Cir.2001) (dismissal for failure to state a claim reviewed de novo); Troy Corp. v. Browner, 120 F.3d 277, 281 (D.C.Cir.1997) (grant of summary judgment reviewed de novo).

II.

We begin our analysis of the constitutional claim with two due process principles that fit together somewhat uneasily in the circumstances of this case. First, a person's "right to ... follow a chosen profession free from unreasonable governmental interference comes within the `liberty' ... concept[] of the Fifth Amendment." Greene v. McElroy, 360 U.S. 474, 492, 79 S.Ct. 1400, 1411, 3 L.Ed.2d 1377 (1959); see also Kartseva v. Dep't of State, 37 F.3d 1524, 1529 (D.C.Cir.1994) (acknowledging a "constitutionally protected `right to follow a chosen trade or profession'" (quoting Cafeteria & Restaurant Workers Local 473 v. McElroy, 367 U.S. 886, 895-96, 81 S.Ct. 1743, 1749, 6 L.Ed.2d 1230 (1961))). Because this "liberty concept" protects corporations as well as individuals, formally debarring a corporation from government contract bidding constitutes a deprivation of liberty that triggers the procedural guarantees of the Due Process Clause. Old Dominion Dairy Prods., Inc. v. Sec'y of Defense, 631 F.2d 953, 961-62 (D.C.Cir.1980). Second, persons whose future employment prospects have been impaired by government defamation "lack ... any constitutional protection for the interest in reputation." Siegert v. Gilley, 500 U.S. 226, 234, 111 S.Ct. 1789, 1794, 114 L.Ed.2d 277 (1991). This principle derives from Paul v. Davis, 424 U.S. 693, 96 S.Ct. 1155, 47 L.Ed.2d 405 (1976), which held that police distribution of a flyer labeling the plaintiff an "Active Shoplifter[]," though "seriously impair[ing] his future employment opportunities," infringed no liberty interest because it harmed only the plaintiff's reputation. Id. at 697, 711-12, 96 S.Ct. at 1159, 1165-66. Reiterating this principle in Siegert v. Gilley, the Supreme Court held that a plaintiff whose former government employer sent an admittedly libelous letter of reference that "would undoubtedly ... impair his future employment prospects" stated no constitutional violation "so long as such damage flows from injury caused by the defendant to a plaintiff's reputation." 500 U.S. at 234, 111 S.Ct. at 1794.

The case before us reveals the tension between these two lines of due process cases. Had the District formally debarred Trifax from bidding on government contracts, that would have unquestionably constituted a deprivation of liberty. Conceding that it was not formally debarred, however, Trifax claims to have suffered "broad preclusion" from government contracting. Appellant's Rep. Br. at 8-11. In view of the fact that formal debarment would constitute a deprivation of liberty, it would be odd if broad preclusion, equivalent in every practical sense to formal debarment, did not also constitute a deprivation simply because the harm was reputational. For exactly this reason, and notwithstanding the strong language in Paul v. Davis and Siegert v. Gilley, we have held on several occasions that government stigmatization that broadly precludes individuals or corporations from a chosen trade or business deprives them of liberty in violation of the Due Process Clause.

For example, in Old Dominion Dairy Products, Inc. v. Secretary of Defense, a government contractor unfavorably audited by the government, though not formally debarred, was "effectively put ... out of business." 631 F.2d at 963. We held that "when the Government effectively bars a contractor from virtually all Government work due to charges that the contractor lacks honesty or integrity, due process requires that the contractor be given notice of those charges as soon as possible and some opportunity to respond to the charges before adverse action is taken." Id. at 955-56. We reached a similar result in Kartseva v. Department of State, where a government contractor fired a Russian translator after the State Department informed the contractor that employing the translator raised "`counterintelligence concerns.'" 37 F.3d at 1525 (internal citation omitted). We held that a liberty interest was implicated if the State Department's action (1) "formally or automatically excludes Kartseva from work," or (2) "does not have this binding effect, but nevertheless has the broad effect of largely precluding Kartseva from pursuing her chosen career as a Russian translator." Id. at 1528 (emphases in original). In still another due process employment case, Taylor v. Resolution Trust Corp., 56 F.3d 1497 (D.C.Cir.1995), we relied on Kartseva for the proposition that "government action precluding a litigant from future employment opportunities will infringe...