United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 17, 1997 Decided January 16, 1998
No. 97-5061
Commercial Drapery Contractors, Inc. and
Milford Acquisition Corp., d/b/a Draperies Plus,
Appellants
v.
United States of America, et al.,
Appellees
Appeal from the United States District Court
for the District of Columbia
(96cv02818)
Alan M. Grayson argued the cause and filed the briefs for
appellants.
Nancy R. Page, Assistant U.S. Attorney, argued the cause
for appellees. With her on the brief were Mary Lou Leary,
U.S. Attorney, and R. Craig Lawrence, Assistant U.S. Attor-
ney. John D. Bates, Assistant U.S. Attorney, entered an
appearance.
Before: Edwards, Chief Judge, Wald and Randolph,
Circuit Judges.
Opinion for the Court filed by Circuit Judge Randolph.
Randolph, Circuit Judge: A grand jury returned an indict-
ment against a government contractor--Commercial Drapery
Contractors, Inc.--and its president, Jeffrey P. Goldstein, for
defrauding the government. The General Services Adminis-
tration then suspended contracting with Commercial until
completion of the criminal proceedings, and terminated an
ongoing contract with the company under a contractual provi-
sion allowing cancellation "for any reason." GSA also can-
celed an ongoing contract and suspended future contracting
with Milford Acquisition Corporation, d/b/a Draperies Plus, a
company Goldstein and his wife owned. The indictment
alleged that Milford was involved in the scheme to defraud.
Commercial and Milford brought suit in United States
district court, claiming that GSA's cancellation and suspen-
sion decisions violated multiple government procurement stat-
utes and regulations, and constituted "de facto debarment" or
"blacklisting," thereby depriving them of due process. The
district court converted GSA's motion to dismiss into a motion
for summary judgment, which it granted in GSA's favor. See
Commercial Drapery Contractors, Inc. v. United States, 967
F. Supp. 1 (D.D.C. 1997). Commercial and Milford appealed
the district court's judgment and the court's supposed failure
to grant their discovery request before ruling on GSA's
motion.
Facts. Commercial, a Maryland corporation, sells "window
treatments"--draperies, blinds, cubicle curtains and the like.
Before his indictment, Jeffrey Goldstein was in complete
control of Commercial. He was president and sole stockhold-
er of the corporation when the contracts involved in this case
were negotiated. In 1990, Goldstein incorporated Milford.
Like Commercial, Milford manufactures draperies and other
window treatments for sale to the government and to com-
mercial customers. The indictment alleged that Goldstein
owned forty-five percent of Milford's stock, while his wife
owned the remainder.
For the past 23 years Commercial has supplied its products
to the federal government under a series of "multiple award
schedule" contracts negotiated with GSA. Multiple award
schedule contracts allow the government to purchase supplies
from contractors on an "as needed" basis at a price schedule
previously determined through agreement with GSA. After
lengthy negotiations, GSA awarded Commercial such a con-
tract in February 1991. The price schedule was based upon
cost and pricing data submitted by Commercial during the
course of these negotiations. In 1993, GSA modified that
schedule to allow Commercial to increase its prices, again
relying on the cost and pricing data submitted by Commer-
cial.
The indictment, returned on June 11, 1996, alleged that
Commercial and Goldstein had falsified much of the informa-
tion that Commercial provided to the agency during the
course of these contract negotiations. According to the in-
dictment, Commercial: reported significant commercial sales
when the real numbers were much smaller; falsified its
commercial price lists to indicate that it charged higher prices
to its commercial customers than it in fact charged; submit-
ted price lists and invoices inflating the costs of their pur-
chase of fabric and other materials; and failed to disclose that
it obtained some of its supplies from Milford at substantially
lower prices than those reflected in the cost and pricing data
submitted to the agency. The indictment also mentioned that
Goldstein failed to disclose that he and his wife owned
Milford.
In an effort to forestall the likely consequences of indict-
ment, Commercial submitted a letter to GSA describing
changes to its corporate structure that it believed would
prevent future fraud. This effort--and others--failed. On
July 23, 1996, GSA suspended Commercial and Milford from
the receipt of new contracts. Four months later, GSA exer-
cised a termination clause in Commercial's and Milford's
existing contracts.
Jurisdiction. Before we get to the merits, we must spend
a moment on jurisdiction. This court cannot hear claims
"founded upon any express or implied contract with the
United States ... which are subject to sections 8(g)(1) and
10(a)(1) of the Contract Disputes Act of 1978." 1 28 U.S.C.
s 1346(a)(2). Such matters are exclusively within the juris-
diction of the Court of Federal Claims. See 28 U.S.C.
s 1346(a)(2); 41 U.S.C. ss 607(g), 609(a)(1); see also
Ingersoll-Rand Co. v. United States, 780 F.2d 74, 76-78 (D.C.
Cir. 1985). Among other things, Commercial and Milford
complain about the termination clause in their contracts.
That sounds like a claim founded on a contract. But "classifi-
cation of a particular action as one which is or is not 'at its
essence' a contract action depends both on the source of the
rights upon which the plaintiff bases its claim, and upon the
type of relief sought (or appropriate)." Megapulse, Inc. v.
Lewis, 672 F.2d 959, 968 (D.C. Cir. 1982). The basis of
Commercial and Milford's claim is that GSA's repeated at-
tempts to extricate the government from financial dealings
with them constituted unlawful "blacklisting." The dispute
over the termination clause in their contracts is embedded
within this broader claim, and is not an independent cause of
action. This is presumably why Milford and Commercial
seek only equitable relief, rather than damages for breach of
contract. The claim and the type of relief requested thus
reveal that this is not "at its essence" a contract action.
Accordingly, we have jurisdiction.
Suspension of Commercial's and Milford's contracts.
GSA has the authority to suspend contractors indicted
for defrauding the government.2 See 48 C.F.R. s 9.407-1(a),
__________
1 The Contract Disputes Act applies, inter alia, to contracts
entered into by an executive agency for the procurement of proper-
ty. See 41 U.S.C. s 602(a).
2 GSA's power to suspend Commercial and Milford from con-
tracting with the government is not, as they contend, limited by the
Small Business Act, 15 U.S.C. s 637(b)(7), or the Competition in
-2(a)(1). The controlling regulation, 48 C.F.R
s 9.407-2(a)(1), provides that the suspending official "may
suspend a contractor suspected, upon adequate evidence, of
... [c]ommission of a fraud or a criminal offense in connec-
tion with (i) obtaining, (ii) attempting to obtain, or (iii) per-
forming a public contract or subcontract...." Commercial's
indictment for the commission of such a criminal offense is
sufficient to support its suspension. See 48 C.F.R. s 9.407-
2(b) ("Indictment ... constitutes adequate evidence for sus-
pension."); see also Horne Bros. v. Laird, 463 F.2d 1268, 1271
(D.C. Cir. 1972). Counsel admitted as much in his letter to
GSA on behalf of Commercial in which he stated that "the
indictment alone constitutes adequate evidence for suspen-
sion." Milford's suspension was justified by its close affilia-
tion with Commercial. See 48 C.F.R. s 9.407-1(c) ("The
suspending official may extend the suspension decision to
include any affiliates of the contractor....").
Despite these regulations, Commercial and Milford ask us
to declare that the agency abused its discretion. They rely
on another provision of the Code of Federal Regulations
stating that GSA "may, but is not required to, consider
__________
Contracting Act, 41 U.S.C. s 253b. The Small Business Adminis-
tration is responsible for certifying the integrity and responsibility
of a small business concern prior to the award of a government
contract, see 15 U.S.C. s 647(b)(7). Once such an award is made,
GSA can rescind the contract or prevent future contracting based
upon evidence of the contractor's misconduct in the course of
performance. See 48 C.F.R. s 9.407-1(a); see also Electro-
Methods, Inc. v. United States, 728 F.2d 1471, 1476 (Fed. Cir. 1984).
The Small Business Administration's regulations acknowledge this
distinction. See 48 C.F.R. s 19.602-1(a)(2)(ii) (SBA need not be
involved in a contractor's suspension). The Competition in Con-
tracting Act requires that government contracts be awarded to
"responsible" bidders. From this, Commercial and Milford some-
how conclude that once a contractor is found responsible and
awarded a contract, the issue of the contractor's responsibility may
never be revisited. Nothing in the statute purports to limit GSA's
power to suspend or cancel the contract on the basis of new
information about a contractor's integrity.
remedial measures or mitigating factors" taken by a contrac-
tor under threat of suspension. 48 C.F.R. s 9.407-1(b)(2). If
the suspected contractor is found to be "presently responsi-
ble" such that it no longer presents a business risk to the
government, the agency may choose not to exercise its pre-
rogative to suspend. See 48 C.F.R. s 9.407-1(b)(2). The
argument is that GSA's suspension was unjustified because
Commercial had incorporated safeguards into its corporate
structure, ensuring its "present responsibility."
First in a letter to the agency, and then in a face-to-face
meeting with agency officials, Commercial listed a number of
the "remedial measures" the company had taken in order to
prove itself "presently responsible": Goldstein resigned from
his position as president of Commercial and executed an
"irrevocable proxy" for his shares of Commercial; a new
control board had taken over; the company adopted a written
"Code of Ethics"; and an "Ombudsman" would be appointed
to recognize, investigate and report future violations of the
law or of the code.3
Donald Suda, the GSA official in charge of making the
suspension decision, was not persuaded. In his written re-
sponse to Commercial, he explained that "the change in
management of Commercial is less than meets the eye."
Suda noted that Goldstein remained an employee at Commer-
cial, casting doubt on the independence of the new manage-
ment committee. The management committee consisted of
several longtime friends and associates of Goldstein. Gold-
stein's son, who had replaced him as Commercial's president,
headed the committee. The committee had not filled its
touted "Ombudsman" position. In response to GSA's inquiry,
counsel for Commercial "guessed" that he himself would
assume the role.
After Suda informed Commercial and Milford that he was
suspending them from future contracting, Commercial wrote
another letter proposing more changes and objecting to
Suda's skepticism of Commercial's new management struc-
__________
3 Milford did not submit materials to the agency to support its
claim of "present responsibility."
ture. Suda considered and rejected these arguments in a
five-page letter.
Suda's suspension order is significant for what it did not
decide. Suda frankly acknowledged that not all the facts
were known. Based on the allegations of fraud in the indict-
ment, and Commercial's toothless remedial measures, Suda
decided to suspend Commercial and Milford from future
contracting. But such suspensions are temporary measures,
available to the government so that it may protect itself from
suspect contractors. Although, as Commercial and Milford
correctly observe, the regulations do not require GSA to
suspend indicted contractors, the regulations also do not
require the agency to give targets of suspension a second
chance. We conclude that the suspension decision was sup-
ported by substantial evidence and was made in accordance
with GSA's regulatory procedures.
Cancellation of Commercial's and Milford's contracts.
Despite their suspension, Commercial and Milford continued
to do business with the government during the fall of 1996.
Before the indictment came down, both companies had been
awarded four-year multiple award schedule contracts under
which government agencies could order from them as need
for their products arose. As one might have expected, the
indictment and suspension prompted GSA to consider termi-
nating these ongoing contracts as well. At first, GSA official
Monica Gormley considered asking government agencies to
order from other multiple award schedule contractors.
Gormley quickly realized, however, that it would be difficult
to notify all concerned. In addition, she worried that restrict-
ing federal agencies from contracting with these companies
would hamper a process the multiple award scheduling sys-
tem had intended to streamline. In light of these consider-
ations, Gormley decided to exercise a clause present in the
contracts. The clause read: "Resultant contracts may be
canceled in whole or part by either party upon 30 calendar
days written notice."
Gormley acted within her discretion in exercising the can-
cellation clause. 48 C.F.R. s 9.405-1(a) states that "agencies
may continue contracts ... in existence at the time the
contractor was ... suspended" (emphasis added). A decision
to terminate an ongoing contract "should be made only after
review by agency contracting and technical personnel and by
counsel to ensure the propriety of the proposed action." Id.
Gormley properly reached her decision to terminate under
the cancellation clause after conferring with other contracting
officials and with counsel.
Although Commercial and Milford did not challenge the
thirty-day cancellation clause at the time of contracting, they
now insist that the clause is "invalid" because it is a "devia-
tion" from another contract provision--one allowing for "ter-
mination for convenience"--and therefore cannot be invoked
prior to its publication in the Federal Register. The Code of
Federal Regulations defines a "deviation," in relevant part, as
a clause that is "inconsistent with the intent, principle, or
substance" of the federal acquisition regulations. See 48
C.F.R. s 1.401. Commercial and Milford never bother to
explain why they think the two cancellation clauses are
inconsistent with one another; they just say again and again
that the two provisions perform different functions. GSA
tells us that there is no conflict: the thirty-day notice of
cancellation provision permits either party to cancel an entire
multiple award schedule contract with the requisite notice,
while the "termination for convenience" provision included in
most federal contracts permits either party to cancel individu-
al orders. We see no basis for disagreeing with GSA's view.
Commercial and Milford also contend that GSA violated its
own implementing regulation, 48 C.F.R. s 509.405-1(a)(2), by
cancelling their ongoing contracts without considering the five
factors listed in that regulation. They are mistaken. The
regulation does not apply here, and even if it did it would be
of no help to them. The regulation states that "[t]ermination
of current contracts should be considered" if the contractor
presents a "significant risk to the Government in completing
a current contract." See 48 C.F.R. s 509.405-1(a)(2) (empha-
sis added). The risk here is a different one: it is not the
inability of these companies to complete their contracts that
GSA fears, but rather their inability to do so honestly. The
regulation thus does not apply. Even if it did, it would
provide no comfort to Commercial or Milford. The regula-
tion's five factors all concern the potential harm to the
government of cancelling the contract.4 The regulation does
not curb GSA's discretion to cancel contracts; rather, it
encourages GSA to exercise its discretion to cancel when the
government's interests are put at risk.
Due Process. Commercial and Milford object not only to
the merits of GSA's decision to suspend them and cancel their
current contracts, but also to the method by which the
suspension and cancellation occurred. They argue that
GSA's actions constituted "blacklisting" or "de facto debar-
ment" in violation of due process.
Suspending a contractor is a serious matter. Disqualifica-
tion from contracting "directs the power and prestige of
government" at a single entity, and may cause economic
injury. See Horne Bros., 463 F.2d at 1271. An agency may
not impose even a temporary suspension without providing
the "core requirements" of due process: adequate notice and
a meaningful hearing. See Reeve Aleutian Airways, Inc. v.
United States, 982 F.2d 594, 595, 599-602 (D.C. Cir. 1992);
ATL, Inc. v. United States, 736 F.2d 677, 682-84 (Fed. Cir.
1984); Old Dominion Dairy Products, Inc. v. Secretary of
Defense, 631 F.2d 953, 967-69 (D.C. Cir. 1980); Art-Metal
U.S.A., Inc. v. Solomon, 473 F. Supp. 1, 4 (D.D.C. 1978).
Commercial and Milford received both notice and an infor-
mal hearing, but they are not satisfied. They requested, and
were denied, a formal hearing, and this they say violated the
Fifth Amendment. To evaluate this contention, we have been
instructed to consider the relative strength of three factors:
the private interest affected by government action; the risk
of erroneous deprivation without the requested safeguard;
__________
4 The five factors are: "(i) Seriousness of the cause for debar-
ment or suspension; (ii) Extent of contract performance; (iii)
Potential costs of termination and reprocurement; (iv) Urgency of
the requirement and the impact of the delay of reprocurement; (v)
Availability of other safeguards to protect the Government's inter-
est until completion of the contract." 48 C.F.R. s 509.405-1(a)(2).
and the government's interest in avoiding additional proce-
dures. See Mathews v. Eldridge, 424 U.S. 319, 335 (1976);
Reeve, 982 F.2d at 598; Old Dominion, 631 F.2d at 967.
Here the factors point against Commercial and Milford.
Suda considered their request for a formal hearing, conferred
with the Assistant United States Attorney in charge of the
criminal case,5 and concluded that a hearing could compro-
mise the ongoing criminal investigation. While the loss in-
curred by these companies from being suspended may have
been significant, we do not believe a formal hearing would
have provided them additional protection significant enough
to warrant the risk to the government's interests. We are
not the first court to reach the conclusion that suspended
contractors are not constitutionally entitled to a formal hear-
ing if providing one would risk impairing an ongoing criminal
investigation and prosecution. See Horne Bros., 463 F.2d at
1272; ATL, 736 F.2d at 686; Electro-Methods, Inc. v. United
States, 728 F.2d 1471, 1476 (Fed. Cir. 1984); Transco Sec.,
Inc. v. Freeman, 639 F.2d 318, 321-23 (6th Cir. 1981); see
also W. Noel Keyes, Government Contracts 211 (2d ed. 1996).
Discovery. The district court granted GSA's motion for
summary judgment based solely on the administrative record,
denying the discovery request of Commercial and Milford and
refusing to examine affidavits filed by the parties. See
Commercial Drapery, 967 F. Supp. at 5-6. The suspended
companies were not entitled to discovery of the agency's
decisionmaking process. Their claims that GSA's suspension
and cancellation decisions were arbitrary, capricious, and in
violation of federal regulations and statutes are reviewed
under the Administrative Procedure Act, see 5 U.S.C.
s 706(2)(A), (B), which limits review to the administrative
record, see Environmental Defense Fund, Inc. v. Costle, 657
F.2d 275, 284 (D.C. Cir. 1981), except when there has been a
"strong showing of bad faith or improper behavior" or when
__________
5 Communications between prosecutors and suspending officials
are not impermissible, as Commercial and Milford claim; indeed,
the governing regulations suggest that suspension officials confer
with the Justice Department before making the suspension decision.
See 48 C.F.R. s 9.407-3(c)(6).
the record is so bare that it prevents effective judicial review.
See Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402,
420 (1971); Community for Creative Non-Violence v. Lujan,
908 F.2d 992, 997-98 (D.C. Cir. 1990).
Commercial and Milford have not met their burden of
making either showing. See Fed. R. Civ. P. 56(e). The basis
for their claim of "bad faith" rests on a single affidavit written
by Stephen Bronstein, the new president of Commercial,
alleging that an employee had told him GSA had barred
Commercial from participating in a trade show in Germany,
and had said bad things about Commercial to its business
partners and potential customers. The employee himself
refused to submit an affidavit. According to Bronstein, this
was because the employee was afraid he would be "blacklist-
ed" by GSA if he did so.
An affidavit like this, consisting entirely of inadmissible
hearsay, is not sufficient to defeat summary judgment. See
Fed. R. Civ. P. 56(e); see also Garside v. Osco Drug, Inc., 895
F.2d 46, 49-50 (1st Cir. 1990). In any event, contrary to
assertions of the companies' counsel at oral argument, this
affidavit was not produced to support a specific discovery
request before the district court. As disclosed in counsel's
post-argument submissions to this court, the affidavit was
filed as an exhibit to Appellants' Reply in Support of Motion
for Preliminary Injunction Against Contract Cancellation.
Having failed to make a specific discovery request before the
district court, the companies cannot now complain that they
lack some unspecified set of documents that would support
their claims.
Commercial and Milford say that even if they failed to
make the requisite showing of bad faith or improper behavior
on the part of the agency, they should at least have been
granted discovery to pursue their so-called Bivens claim
against agency officials Monica Gormley and Donald Suda.
This argument goes nowhere. The complaint contains no
such claim; damages are not mentioned; and there is no
indication that these defendants were being sued in their
individual capacities.6 Counsel for the companies alluded to a
Bivens claim at the hearing on a temporary injunction. But
he never amended the complaint or even moved to do so. As
the case stood when the district court decided it, there was no
Bivens claim and thus no basis for allowing discovery to
fortify it.
We have considered the remainder of Commercial's and
Milford's claims and find no merit in them.
Judgment affirmed.
__________
6 Although the complaint names Suda and Gormley as defen-
dants, it gives their official address, as required when a person is
sued in an official capacity. See Rules of the United States
District Court for the District of Columbia, Rule 106(e); see also
Barbera v. Smith, 836 F.2d 96, 99 (2d Cir. 1987). In addition, Suda
and Gormley were served with copies of the summons and com-
plaint in accordance with Fed. R. Civ. P. 4(i), which governs service
upon officers of the United States sued in their official capacity.
See Armstrong v. Sears, 33 F.3d 182, 186-87 (2d Cir. 1994) ("[I]n a
Bivens case, personal service should be made upon the individual
defendant in accordance with Rule 4(e) instead of upon that individ-
ual as a government officer in accordance with Rule 4(i)(2)").