Amicus Brief On BP Debarment

Case 4:13-cv-02349 Document 38 Filed in TXSD on 12/02/13 Page 1 of 5
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION ) ) ) ) ) ) ) ) ) ) ) ) ) )
BP EXPLORATION & PRODUCTION INC., et al.,
Plaintiffs, v. GINA McCARTHY, in her official capacity as Administrator, United States Environmental Protection Agency, et al., Defendants.
No. 4:13-cv-02349 Hon. Vanessa D. Gilmore
MOTION OF THE CHAMBER OF COMMERCE OF THE UNITED STATES, THE AMERICAN PETROLEUM INSTITUTE, THE NATIONAL ASSOCIATION OF MANUFACTURERS, THE NATIONAL OCEAN INDUSTRIES ASSOCIATION, THE ORGANIZATION FOR INTERNATIONAL INVESTMENT, AND TECHAMERICA FOR LEAVE TO FILE A BRIEF AMICUS CURIAE IN SUPPORT OF PLAINTIFFS MOTION FOR SUMMARY JUDGMENT
1. Amici the Chamber of Commerce of the United States, the American Petroleum Institute, the National Association of Manufacturers, the National Ocean Industries Association, the Organization for International Investment, and Techamerica respectfully move for leave to file a brief amicus curiae in support of plaintiffs motion for summary judgment. Amici sought consent for this filing from counsel for the plaintiffs and defendants. Counsel for plaintiffs has consented. Counsel for defendants has indicated that defendants reserve consent until after they review this motion and attached brief.
2. The prospective amici believe the issues in this case deserve close attention, and the proposed amicus brief will aid the Courts consideration. Amici, some of the largest trade and industry organizations in the world, represent members who contract with the government and perform work in connection with covered federal programs in a range of diverse industries from manufacturing to technology to oil and gas. Accordingly, amici have a vital interest in preserving the established principles governing exclusion from government contracting and covered federal programs. Amici submit this brief to inform the court of the serious
consequences for industry that will result from EPAs interpretation of its authority. 3. The substantive portion of the briefthe Introduction and Argumentis less than twenty pages. Amicis Statement Of Interest is lengthy, due to the many amici joining this single submission. To the extent amicis Statement Of Interest is viewed as counting against page limits, amici seek the courts indulgence to exceed those limits by a modest amount in light of the parties agreement to file briefs in excess of the limit. For all of the foregoing reasons, prospective amici respectfully request leave to file the attached brief amicus curiae.
Dated: December 2, 2013
Respectfully submitted, /s/ Bruce D. Oakley By: Bruce D. Oakley Attorney-in-Charge Texas SBN 15156900 SDTX Bar No. 11824 HOGAN LOVELLS US LLP Bank of America Center 700 Louisiana Street, Suite 4300 Houston, Texas 77002 T (713) 632-1400 D (713) 632-1420 F (713) 632-1401 2
bruce.oakley@hoganlovells.com Counsel for the Amici Curiae Of Counsel: Catherine E. Stetson Thomas L. McGovern III Jonathan D. Shaub* Katherine L. Morga* HOGAN LOVELLS US LLP 555 Thirteenth St., NW Washington, DC 20004 (T) (202) 637-5600 (F) (202) 637-5910 cate.stetson@hoganlovells.com thomas.mcgovern@hoganlovells.com jonathan.shaub@hoganlovells.com katherine.morga@hoganlovells.com *not admitted in D.C.; supervised by members of the firm
Rachel L. Brand Steven P. Lehotsky NATIONAL CHAMBER LITIGATION CENTER, INC. 1615 H Street, NW Washington, DC 20062 Counsel for Amicus Curiae the Chamber of Commerce of the United States Harry M. Ng Evelyn R. Nackman AMERICAN PETROLEUM INSTITUTE 1220 L Street, NW Washington, DC 20005-4070 Counsel for Amicus Curiae the American Petroleum Institute
Linda E. Kelly Quentin Riegel Patrick Forrest NATIONAL ASSOCIATION OF MANUFACTURERS 733 10th Street, NW, Suite 700 Washington, DC 20001 Counsel for Amicus Curiae the National Association of Manufacturers ORGANIZATION FOR INTERNATIONAL INVESTMENT 1225 Nineteenth Street, NW, Suite 501 Washington, DC 20036 Counsel for Amicus Curiae the Organization for International Investment Benjamin J. Aderson Rachel S. Wolkowitz TECHAMERICA 601 Pennsylvania Avenue, NW 3
NATIONAL OCEAN INDUSTRIES ASSOCIATION 1120 G Street, NW Suite 900 Washington, DC 20005 Counsel for Amicus Curiae the National Ocean Industries Association
North Building, Suite 600 Washington, DC 20004 Counsel for Amicus Curiae TechAmerica
CERTIFICATE OF CONFERENCE I hereby certify that on November 27, 2013, and December 2, 2013, counsel for amici had a conference by phone and e-mail with Angeline Purdy, counsel for defendants, regarding the filing of this brief and its length, who stated that defendants reserved a decision on whether to consent to the filing of the brief until after they had reviewed the motion and brief. Therefore, the motion should be treated as opposed at this time. /s/ Bruce D. Oakley Bruce D. Oakley
CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing document has been served on all counsel of record via CM/ECF on this the 2nd day of December, 2013, in accordance with the Federal Rules of civil Procedure.
/s/ Bruce D. Oakley Bruce D. Oakley
Case 4:13-cv-02349 Document 38-1 Filed in TXSD on 12/02/13 Page 1 of 60
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
) ) ) ) ) ) ) ) ) ) ) ) ) )
BRIEF OF THE CHAMBER OF COMMERCE OF THE UNITED STATES, THE AMERICAN PETROLEUM INSTITUTE, THE NATIONAL ASSOCIATION OF MANUFACTURERS, NATIONAL OCEAN INDUSTRIES ASSOCIATION, ORGANIZATION FOR INTERNATIONAL INVESTMENT, AND TECHAMERICA AS AMICI CURIAE IN SUPPORT OF PLAINTIFFS MOTION FOR SUMMARY JUDGMENT
TABLE OF CONTENTS
TABLE OF AUTHORITIES .......................................................................................................... ii STATEMENT OF INTEREST ........................................................................................................1 INTRODUCTION ...........................................................................................................................5 ARGUMENT ...................................................................................................................................7 I. EPA Cannot Designate A Corporate Headquarters As A Violating Facility If No Violation Occurred At That Facility ....................................................................7 A. B. II. EPAs Designation Of BPXPs Headquarters As A Violating Facility Is Precluded By The Plain Language Of The CWA ...........................7 Accepting The Designation Of BPXPs Headquarters As A Violating Facility Would Undermine The Intent Of The Statute...................................13
An Agency Cannot Suspend Multiple Worldwide Affiliates Of A Company Without Grounding Its Decision In The Public Interest Or Showing A Lack Of Present Responsibility. .................................................................................................17
CONCLUSION ..............................................................................................................................24 CERTIFICATE OF SERVICE APPENDIX
TABLE OF AUTHORITIES Pages CASES: Agility Def. & Govt Servs., Inc. v. U.S. Dept of Def., 2012 WL 2480484 (N.D. Ala. June 26, 2012) .........................................................................20 Auer v. Robbins, 519 U.S. 452 (1997) .................................................................................................................11 Caiola v. Carroll, 851 F.2d 395 (D.C. Cir. 1988) .................................................................................................17 Chevron USA, Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) ...................................................................................................................7 City of Arlington v. FCC, 133 S. Ct. 1863 (2013) .........................................................................................................7, 11 Commercial Drapery Contractors v. United States, 133 F.3d 1 (D.C. Cir. 1998) .......................................................................................................6 Gonzales v. Freeman, 344 F.2d 570 (D.C. Cir. 1964) .................................................................................................22 Kisser v. Kemp, 786 F. Supp. 38 (D.D.C. 1992), revd on other grounds sub nom Kisser v. Cisneros, 14 F.3d 615 (D.C. Cir. 1994) ...................................................................................................21 Lion Raisins, Inc. v. United States, 51 Fed. Cl. 238 (2001) .............................................................................................................22 Robinson v. Cheney, 876 F.2d 152 (D.C. Cir. 1989) .................................................................................................18 Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735 (1996) .................................................................................................................11 United States v. BP Exploration & Production, Inc., No. 2:12-cr-00292, Dkt. No. 2 (E.D. La. 2012) ...................................................................5, 12 United States v. Mix, No. 2:12-cr-00171 (E.D. La.)...................................................................................................20 United States v. Rainey, No. 2:12-cr-00291 (E.D. La.)...................................................................................................20
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TABLE OF AUTHORITIESContinued Page(s) STATUTES: 5 U.S.C. 706(2)(A)......................................................................................................................17 5 U.S.C. 890.1003 .......................................................................................................................16 5 U.S.C. 8902a ............................................................................................................................16 10 U.S.C. 983(a) .........................................................................................................................16 21 U.S.C. 350d(b)(1) ..................................................................................................................16 33 U.S.C. 1319(c) .........................................................................................................................9 33 U.S.C. 1319(c)(1)(A) ...............................................................................................................8 33 U.S.C. 1321 ..............................................................................................................................9 33 U.S.C. 1321(a)(2) .....................................................................................................................9 33 U.S.C. 1321(b)(3) ................................................................................................................8, 9 33 U.S.C. 1321(b)(3)(ii)................................................................................................................9 33 U.S.C. 1368 .................................................................................................................... passim 33 U.S.C. 1368(a) .........................................................................................................7, 8, 10, 12 41 U.S.C. 6706(b) .......................................................................................................................16 42 U.S.C. 7606 ............................................................................................................................10 42 U.S.C. 7606(a) .......................................................................................................................14 42 U.S.C. 1320a-7(b)(13) ...........................................................................................................16 42 U.S.C. 1320b-6 ......................................................................................................................16 REGULATIONS: 2 C.F.R. pt. 180 ..............................................................................................................................15 2 C.F.R. 180.125 .........................................................................................................................22 2 C.F.R. 180.125(c).....................................................................................................................18 iii
TABLE OF AUTHORITIESContinued Page(s) 2 C.F.R. 180.605 .........................................................................................................................18 2 C.F.R. 180.625 .........................................................................................................................19 2 C.F.R. 180.625(b) ..............................................................................................................18, 19 2 C.F.R. 180.630 .........................................................................................................................21 2 C.F.R. 180.630(a).....................................................................................................................21 2 C.F.R. 180.630(c).....................................................................................................................21 2 C.F.R. 180.700(c).....................................................................................................................18 2 C.F.R. 180.705 .........................................................................................................................18 2 C.F.R. 180.905 .........................................................................................................................18 2 C.F.R. 1532.1110 .....................................................................................................................13 2 C.F.R. 1532.1115 .....................................................................................................................14 2 C.F.R. 1532.1130 .....................................................................................................................13 2 C.F.R. 1532.1130(a).................................................................................................................17 2 C.F.R. 1532.1130(b) ..........................................................................................................14, 17 2 C.F.R. 1532.1600(b) ....................................................................................................10, 12, 15 7 C.F.R. 400.454(d)(3) ................................................................................................................17 32 C.F.R. 216.3(2) ...................................................................................................................16 48 C.F.R. 9.103 ...........................................................................................................................22 48 C.F.R. 9.104-1 ........................................................................................................................22 48 C.F.R. 9.403 ...........................................................................................................................18 48 C.F.R. 9.406-1(b) ...................................................................................................................18 30 Fed. Reg. 12,319 .......................................................................................................................16 38 Fed. Reg. 25,161 .......................................................................................................................13 iv
TABLE OF AUTHORITIESContinued Page(s) 53 Fed. Reg. 19161 (May 26, 1988) ........................................................................................18, 23 Executive Order No. 11,246, 209(6) (Sept. 28, 1965) ................................................................16 Executive Order No. 11,738, 1 (Sept. 10, 1973).........................................................................13 Executive Order No. 11,738 2 (1973) .........................................................................................13 LEGISLATIVE AUTHORITIES: H. Rep. No. 92-1465 (1972) ..........................................................................................................13 S. Rep. No. 92-414 (1972) .............................................................................................................13 OTHER AUTHORITIES: Robert F. Meunier, U.S. Environmental Protection Agency, EPA Final Policy Guidance: Listing of Persons Ineligible for Award Under Section 306 of the Clean Air Act and Section 508 of the Clean Water Act, American Law Institute, SK019 ALI-ABA 279 (1999) ....................................................................................................8 Steven D. Gordon, Suspension and Debarment from Federal Programs, 23 Pub. Cont. L.J. 573 (1994) ..................................................................................................19
STATEMENT OF INTEREST1 The Chamber of Commerce of the United States of America (Chamber) is the worlds largest business federation. It represents 300,000 direct members and indirectly represents the interests of more than 3 million companies and professional organizations of every size, in every industry sector, and from every region of the country. An important function of the Chamber is to represent the interests of its members in matters before Congress, the Executive Branch, and the courts. To that end, the Chamber regularly files amicus curiae briefs in cases that raise issues of concern to the nations business community. The American Petroleum Institute (API) represents over 550 oil and natural gas companies, leaders of a technology-driven industry that supplies most of Americas energy, supports more than 9.8 million jobs and 8 percent of the U.S. economy, and, since 2000, has invested nearly 2 trillion dollars in U.S. capital projects to advance all forms of energy. The National Association of Manufacturers (NAM) is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and every state. Manufacturing employs nearly 12 million men and women, contributes more than $1.8 trillion to the U.S. economy annually, has the largest economic impact of any major sector, and accounts for two-thirds of private-sector research and development. NAM is the voice of the manufacturing community and the leading advocate for policies that help manufacturers compete in the global economy and create jobs across the United States. The National Ocean Industries Association (NOIA) is the only national trade association which advocates solely on behalf of the offshore energy industry. It represents more than 300 member companies dedicated to the safe development of traditional and renewable offshore
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No partys counsel authored this brief in whole or in part. No party or any partys counsel contributed money intended to fund preparing or submitting this brief. No personother than the amici, their members, or their counselcontributed money that was intended to fund preparing or submitting this brief.
energy for the continued growth and security of the United States. NOIA members are engaged in activities including oil and natural gas exploration and production, equipment supply and fabrication, transportation, geological services, gas transmission, navigation, research and technology, shipping and shipyards, telecommunications, and environmental safeguards. The Organization for International Investment (OFII) is a non-profit association representing the U.S. operations of many of the world's leading global companies, which insource millions of American jobs. OFII advocates for fair, non-discriminatory treatment of foreign-based companies and works to promote policies that will encourage them to establish U.S. operations, increase American employment, and boost U.S. economic growth. OFII also guards against laws, regulations, and policies that fail to respect the separate corporate identities of its U.S.-incorporated members and their foreign-based parents or that discriminate against its members due to their corporate affiliations. TechAmerica is the leading association for the United States technology industrythe driving force behind productivity growth and job creation in the United States and the foundation of the global innovation economy. Representing premiere technology companies of all sizes, TechAmerica advocates for the Information and Communication Technology sector before decision makers at the state, federal, and international levels of government. Many of TechAmericas members are leading innovators in their fields. They are proud to make the most innovative and advanced products available to governments and consumers around the world. TechAmericas primary objectives include fostering an environment that will allow its members to continue developing new products and services and expanding market opportunities for the United States technology industry around the world.
The federal government relies heavily on the skills and expertise of amicis members to develop, produce, manufacture, and supply the nations energy resources, communication infrastructure, consumer and commercial goods, business services, and other resources. And amicis members contract with numerous federal and state agencies to perform this vital work. Amicis members operate numerous facilities engaged in work covering all aspects of business and industry, including the oil, natural gas, and renewable energy industries, and millions of employees work at these facilities on behalf of their employers. Many of amicis members are part of larger corporate families or engage in joint ventures with other companies that themselves are part of a larger corporate family. And each member of these corporate families (many of which also have international affiliates) may itself enter into contracts or do business with various federal and state agencies or other companies to perform a variety of work, including the production, refining, supply, support, and transport of our nations energy resources. All of these amici have joined this brief because they are significantly concerned about the statutory overreach EPA exhibited in this case. EPA asserted the authority to declare that a Clean Water Act violation occurring at one company facility results in the mandatory disqualification of the corporate headquarters from involvement in any federal program. And according to EPA, the discretionary suspension of a company based on the improper conduct of its employees automatically results in the indefinite suspension of multiple worldwide affiliates of that company, no matter their connection to or involvement in the improper conduct. The suspension also is not restricted to a single agency or a single industry; the affiliates are barred from entering into a contract with any government agency or working with any company involved in a federal program, even in an entirely unrelated industry. These expansive assertions
of authority, and EPAs actions pursuant to that authority, pose a grave threat to federal contractors and private industries with business touching on federal programs or federal lands. When a company commits a regulatory violation, agencies have discretion to exclude that company from federal contracting on a government-wide basis. But that discretion is not absolute. An agency must abide by the terms of the statutes and regulations that govern the exclusion of entities that have committed such violation. And an agency must exercise its discretion in a reasonable manner, demonstrating some connection between the violation the agency is addressing and the remedy it adopts. EPA followed neither of those dictates in this case. And the implications of that approach, should it be accepted by this court, are disturbing. Federal contractors compete to provide the best, most cost-effective services to the United States. In performing their work, contractors must comply with a wide variety of
standards. When, despite those standards, accidents happen, an agency can take action to protect against mistakes that may harm the public interest. An agency cannot, however, adopt sweeping punishments based on mere affiliation. Far from protecting the public interest, excluding a companys affiliates from all federal programs punishes entities that share no blame. And make no mistake: injuries caused by guilt-by-association exclusion would be
significant. If an entire corporate family is suspended or disqualified from federal programs, a cascade of impacts will follow. First will come the layoffs of hundreds or even thousands of employees whose performed jobs with any relation to federal programs. Second will come the impact on the economy from the loss of corporate value resulting from the entire companys exclusion from all federal contracting. Third will come the ripple effect: the broader impact on the economy as the industries involved in government programs struggle with the uncertainties introduced by the threat of suspension or disqualification of an entire corporate structure
stemming from the improper conduct of a few employees of one corporate affiliate. It is irresponsible for a single agency like EPA to take these actions without considering their consequences for U.S. industry. The harm of allowing the automatic extension of a suspension to all affiliates without a showing that the extension is necessary to protect the public interest extends beyond just government contracting. For example, because a federal oil or gas lease is a covered
transaction for the purposes of suspension and debarment, no federal leaseholderwhich includes a large majority of oil and gas companiesmay contract with a suspended or debarred affiliate. And other industries would similarly suffer; companies involved in federal programs in any way would be barred from doing business with the affiliates of suspended companies, whether or not the affiliates presented any risk of harm to the public interest. Thus, two private companies would be prevented from entering into a contract because a mere affiliate of one company had been suspended and the other company was, for example, a federal leaseholder. States, foreign countries, and private entities also often decline to do business with entities suspended by the federal government, and a company seeking a license to operate within a state or foreign country may be denied such a license because of a suspension or debarment. Companies that perform no contracts with the federal governmentsuch as an international affiliate of a U.S. companywould suffer serious consequences as a result of federal suspension because of these and other collateral effects of suspension and debarment. Amici submit this brief to protect the industry from those harms. INTRODUCTION The Deepwater Horizon blowout was an unprecedented event, and it was met with a forceful and immediate response by the federal government. In the aftermath of the accident, BP
Exploration & Production Inc. (BPXP) pleaded guilty to criminal violations, including a misdemeanor violation of the Clean Water Act (CWA). Plea Agreement, United States v. BP Exploration & Production Inc., No. 2:12-cr-00292, Dkt. No. 2, at 15-16 (E.D. La. 2012). The plea agreement triggered a reflexive response from EPA. In November 2012, and without prior notice, it suspended BP p.l.c., BPXP, and nineteen other BP p.l.c. affiliates, preventing all of those entities from entering into any new federal procurement contracts and non-procurement covered transactions. Revised Action Referral Memorandum, Complaint, Ex. D-2 (ARM). A couple of months later, EPA added another affiliate to the suspension list. Supplemental Action Referral Memorandum, Complaint, Exh. E-2 (Supp. ARM). And then, in February 2013, EPA disqualified BPXPs Houston corporate headquarters from federal contracting by designating that corporate headquarters a violating facility under the CWA. As a result of the disqualification, BPXP is ineligible to receive any new federal contracts or benefits for an indefinite period pending certification by EPA that the violation is corrected. Amici well understand the damage caused by the Deepwater Horizon blowout, and they do not seek to excuse the responsible parties from their actions. But EPAs headquarters-level disqualification and its decision to extend suspension to affiliated corporate entities without any showing of public need plainly exceeded its statutory authority. Suspending a contractor is a serious matter. Disqualification from contracting directs the power and prestige of government at a single entity, and may cause economic injury. Commercial Drapery Contractors, Inc. v. United States, 133 F.3d 1, 6 (D.C. Cir. 1998) (internal quotation marks and citations omitted). EPAs actions against BPXP, BP p.l.c., and BPs
worldwide affiliates demonstrate a disregard for the serious ramifications of suspension and disqualificationand an indifference to the statutory and regulatory provisions governing EPAs
suspension and disqualification authority. EPA may want to punish BPXP, but EPA, like all other federal agencies, may only respond to an incident within the bounds of the authority Congress has given it. ARGUMENT I. EPA CANNOT DESIGNATE A CORPORATE HEADQUARTERS AS A VIOLATING FACILITY IF NO VIOLATION OCCURRED AT THAT FACILITY. The CWA provides for the automatic disqualification from federal contracting of any person convicted of specified CWA violations if such contract is to be performed at any facility at which the violation which gave rise to such conviction occurred, and if such facility is owned, leased, or supervised by the convicted person. 33 U.S.C. 1368(a). EPAs determination that BPXPs Houston corporate headquarters was the facility at which the violation which gave rise to [its] conviction occurred contradicts the plain language of the statute, is inconsistent with the policy goals of the disqualification provision, and undermines established principles for exclusion from government contracting. EPAs designation of a headquarters as a violating facility despite the lack of any CWA violation at that location is not just unsupported by statute; it appears to be unprecedented. EPAs designation of the headquarters as a violating facility was therefore unlawful, unreasonable, arbitrary, and capricious. A. EPAs Designation Of BPXPs Headquarters As A Violating Facility Is Precluded By The Plain Language Of The CWA.
The Deepwater Horizon blowout occurred on an oil rig in the middle of the Gulf of Mexico. EPA nonetheless concluded that BPXPs corporate headquarters in Houston was the violating facility for the misdemeanor violation of the CWA to which BPXP pleaded guilty. EPAs interpretation is flatly inconsistent with the language of Section 1368.
When Congress has directly spoken to the precise question at issue, then the intent of Congress is clear, [and] that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. City of Arlington v. FCC, 133 S. Ct. 1863, 1868 (2013) (quoting Chevron USA, Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984)). The unambiguously expressed intent of Congress in Section 1368 is that a particular facility is automatically disqualified from contracting only if it is the facility at which the violation . . . occurred. That is the end of the matter here. Section 1368 mandates disqualification from a particular federal contract if three conditions are present. First, a person must be convicted of any offense under [S] ection 1319(c). 33 U.S.C. 1368(a). The pertinent part of Section 1319(c) makes it a crime to negligently violate 33 U.S.C. 1321(b)(3). Id. 1319(c)(1)(A). And Section 1321(b)(3), in turn, prohibits the discharge of hazardous substances into particular waters. Id. 1321(b)(3). Thus, the first condition is that a person must be convicted of negligently discharg[ing] hazardous substances into the defined waters. Second, the contract must be for the procurement of goods, materials, or services to be performed at any facility at which the violation which gave rise to such conviction occurred. 33 U.S.C. 1368(a). A person convicted of one of the listed crimes under Section 1319(c) is thus not automatically disqualified from receiving a contract if that contract will not be performed at the facility at which the violation which gave rise to such conviction occurred. And the statutory context makes clear that the violation is the CWA violation. See id. 1319(c)(1)(A). Finally, Section 1368 only disqualifies convicted persons from contracts to be performed at a violating facility if such facility is owned, leased, or supervised by such person. Id. 1368(a). See also Robert F. Meunier, U.S. Environmental Protection Agency, EPA Final Policy Guidance: Listing of Persons Ineligible for Award Under
Section 306 of the Clean Air Act and Section 508 of the Clean Water Act, American Law Institute, SK019 ALI-ABA 279, 282 (1999) (Listing Guidance). In its plea agreement, BPXP admitted that it did negligently discharge and cause to be discharged oil in connection with activities under the Outer Continental Shelf Lands Act . . . in such quantities as may be harmful in violation of [33 U.S.C. ] 1319(c)(1)(A) and 1321(b)(3). Plea Agreement 15-16. The first condition was thus satisfied. And BPXP certainly owns and supervises its corporate headquarters in Houston. But the designation of corporate headquarters as the facility at which the violation occurred defies the unambiguous language of the statute. The facility at which the CWA violation occurred was an oil rig in the Gulf of Mexico. BPXP was convicted of negligently violating 33 U.S.C. 1321(b)(3), which prohibits, among other things, the discharge of oil or hazardous substances . . . in connection with activities under the Outer Continental Shelf Lands Act. 33 U.S.C. 1321(b)(3)(ii). Section 1321 defines discharge as including, but not limited to, any spilling, leaking, pumping, pouring, emitting, emptying, or dumping of oil. 33 U.S.C. 1321(a)(2). The negligent conduct of spilling, leaking, or emitting oil in connection with activities under the Outer Continental Shelf Lands Act was the violation to which BPXP pleaded guilty. And that spilling occurred on an oil rig on the outer continental shelf in the Gulf of Mexico. The oil rig alone was the facility at which the [discharge] that gave rise to the conviction occurred. No spilling or emitting occurred at BPXPs corporate headquarters.2
The fact that the rig no longer exists does not change the analysis. In its guidance on how to apply the mandatory disqualification provision, EPA recognizes that convictions will almost always result in a listing unless circumstances are such that an ineligibility under the statute, despite a conviction, is essentially impossible. Listing Guidance 283. One example of when an ineligibility would be essentially impossible is where the violating facility no longer physically exists. Id. (emphasis added). This makes sense. If one of a companys plants is found to be in violation of the CWA, the company may choose to close that plant permanently. Under those circumstances, there is no longer any reason under the statute to bar contracting with that facility; no further, contracts would be performed
EPA never reconciled its contrary view with the plain statutory language. Instead, it relied on its regulation interpreting the statute, which defines violating facility for purposes of Section 1368 and the analogous provision of the Clean Air Act (CAA), 42 U.S.C. 7606: Violating facility means any building, plant, installation, structure, mine, vessel, floating craft, location or site of operations that gives rise to a CAA or CWA conviction, and is a location at which or from which a federal contract, subcontract, loan, assistance award or other covered transactions may be performed. If a site of operations giving rise to a CAA or CWA conviction contains or includes more than one building, plant, installation, structure, mine, vessel, floating craft, or other operational element, the entire location or site of operation is regarded as the violating facility unless otherwise limited by EPA. [2 C.F.R. 1532.1600(b).] The EPA reasoned that BPXPs headquarters was a location or site of operations within the meaning of the regulation and that the conditions giving rise to the conviction, i.e. management decisions regarding running the Rig, originated from the headquarters. EPA Decision,
Complaint, Dkt. 1, Exh. H, at 13-14 (EPA Decision). As a result, EPA concluded that the conditions that gave rise to the violation occurred at the [headquarters] and the Rig. Id. at 14. But this line of reasoning itself demonstrates EPAs error. The statute does not forbid contracts that will take place at the facility where the conditions that gave rise to the violation occurred. It restricts the disqualification to the facility at which the violation . . . occurred. 33 U.S.C. 1368(a) (emphasis added). The statute does use the gave rise languagebut it does so in requiring that the violation that forms the basis of the disqualification be the one that gave rise to such conviction. Id. (emphasis added). In other words, the excluded facility must be the one at which the violation occurred, and the conviction that leads to automatic disqualification must be based on that violation. The statute does not allow EPA to determine that a headquarters is the violating facility because
there. EPAs Listing Guidance correctly recognizes that a facility that has ceased to exist or to operate renders Section 1368 inapplicable as far as that facility is concerned. EPA departed from that guidance in this case.
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something happened there that gave rise to the violation. Instead, the statute requires that the violationthat is, the dischargeoccur at the facility. The preposition at is unequivocal. This is not a statute in which Congress left ambiguity to allow EPA discretion to define which facilities should be held responsible for a CWA violation. City of Arlington, 133 S. Ct. at 1868 (quoting Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 740-41 (1996)). Congress provided for the extreme sanction of mandatory disqualification only when three conditions were present. One of those conditions requires that the violation occur at the disqualified facility. EPA cannot, by regulation or interpretation, excise this unambiguous
statutory mandate and exclude a corporate headquarters from all government programs because some decisions may, down the line, have ultimately g[i]ve[n] rise to the violation. When Congress has expressed its intent clearly, EPA cannot grant itself more power by broadening the language of the statute beyond the meaning it will bear. Adherence to statutory constraints is especially important given the mandatory, indefinite nature of disqualification under the CWA. Even if one assumes, as EPA does, that the facility at which the violation . . . occurred is ambiguous and applies EPAs implementing regulation, the agencys decision that BPXPs corporate headquarters is a violating facility is plainly erroneous and inconsistent with the regulation. Auer v. Robbins, 519 U.S. 452, 461 (1997) (internal quotation marks omitted). As discussed, EPAs own regulatory definition requires that the excluded facility give[ ] rise to a CWA or CAA conviction, but none of the conduct charged in the Information or agreed to in the Plea Agreement occurred at BPXPs corporate headquarters. Indeed, all of the allegations in the Information and the facts agreed to in the Plea Agreement pertinent to the CWA count occurred on the rig itself.
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The Information charged that the two Well Site Leaders stationed on the rig acted negligently because they, among other things, failed to phone engineers onshore to advise them during the negative testing of the multiple indications that the well was not secure and accepted a nonsensical explanation for the abnormal readings during the testing, again without calling engineers onshore to consult[.] Information, United States v. BP Exploration &
Production, Inc., No. 2:12-cr-00292, Dkt. No. 1 21 (E.D. La. 2012). For the purposes of the Information, the employees negligent actions on the rig were imputed to BPXP, and BPXP admitted that those actions proximately caused the discharge into the Gulf. Id. 24; see Plea Agreement, Exh. A (factual allocution). The Information does not assert that any individuals located at BPXPs headquarters acted negligently in choosing to assign these two particular Well Site Leaders. Nor does it assert that management decisions made at the headquarters
location played any role in the spill by failing to supervise the leaders or to recognize the developing problem. In fact, the Information and Plea Agreement make clear that headquarters was not aware of the problem; the employees principal negligent acts consisted of failing to notify onshore engineers. Information 19, 20, 21; Plea Agreement, Exh. A. The imputation of certain employees conduct to their employer does not constitute an admi[ssion] that BPXPs corporate headquarters is the violating facility, as EPA would have it. EPA Decision 14-15. The triggering event for disqualification does not turn on the agency relationship to a person convicted. According to EPAs implementing regulation, the statute requires that the building, plant, mine, . . . location, or site of operations must be the location where conduct occurred that gives rise to the conviction. 2 C.F.R. 1532.1600(b); see 33 U.S.C. 1368(a). That a contractor pleads guilty to a violation on the basis of conduct that occurred at one facility does not mean that an entirely different facility (its headquarters) at
12
which none of the conduct giving rise to the conviction occurred is also disqualified from performing all government contracts and from participating in other covered federal programs. BPXPs corporate headquarters did not give rise to the discharge of oil into the Gulf, and the record of conviction contains no evidence that actions at headquarters gave rise to the violation. EPAs decision is thus contrary to the unambiguous text of the statute and also plainly erroneous and inconsistent with the text of the agencys own regulation. B. Accepting The Designation Of BPXPs Headquarters As A Violating Facility Would Undermine The Intent Of The Statute.
The CWAs automatic disqualification provision was intended to ensure[ ] that the Federal Government will not patronize or subsidize polluters through its procurement practices and policies. H. Rep. No. 92-1465, at 147 (1972). The exclusion from government contracting pursuant to Section 1368 is mandated by statute and occurs automatically. 2 C.F.R.
1532.1110, 1532.1130; see also Listing Guidance 282 (disqualification under Section 1368 is mandatory in nature and the automatic consequence of a criminal conviction). And this automatic disqualification assure[s] that each Federal agency empowered to enter into contracts . . . shall undertake such procurement and assistance activities in a manner that will result in effective enforcement of the CWA. Executive Order No. 11,738, 1 (Sept. 10, 1973), 38 Fed. Reg. 25, 161. But, as the Presidents Executive Order implementing Section 1368 recognized, once an agency determines that the condition which gave rise to a conviction has been corrected, [it] shall promptly remove the facility and the name and address of the person concerned from the list. Id. 2. The CWA, however, does not authorize the extension of disqualification to related facilities. As the contemporaneous legislative record recognized, Section 1368 is limited to contracts affecting only the facility not in compliance, rather than an entire corporate entity or 13
operating division. S. Rep. No. 92-414, at 84 (1972) (emphasis added). Where a second plant within a corporation . . . seek[s] a contract unrelated to the violation at the first plant[,] . . . . the unrelated facility should be permitted to bid and receive Federal contracts. Id. The concern of the statute is thus with the violationin this case the discharge of oilthat might be occurring at a particular location. The statute seals off that location from federal contracting until the cause of the violation has been corrected. Otherwise, the federal government, through its contractors or leaseholders, would be complicit in environmental violations. The CAA has a parallel provision to Section 1368 providing for automatic disqualification of the facility at which a CAA violation occurs. 42 U.S.C. 7606(a). But the CAA goes further: it not only provides for automatic disqualification of the particular facility at which the CAA violation occurred but also provies that the EPA Administrator may extend this prohibition to other facilities owned or operated by the convicted person. Id. (emphasis added). EPAs regulations in turn recognize that the CAA specifically authorizes EPA to extend a CAA disqualification to other facilities. 2 C.F.R. 1532.1115. But the CWA does not track the CAA in this respect. EPAs regulations state that it may also take discretionary suspension and debarment actions for violations of the CWA. 2 C.F.R. 1532.1115 (emphasis added). And another regulation asserts that if EPA determines that the risk presented to Federal procurement and nonprocurement activities on the basis of the misconduct which gives rise to a persons CAA or CWA convictions exceeds the coverage afforded by mandatory disqualification, EPA may use its discretionary authority to suspend or debar a person. 2 C.F.R. 1532.1130(b). But neither provides for the extension of automatic disqualification to other facilities.
14
In this case, the risks EPA attempted to address exceed[ed] the coverage afforded by mandatory disqualification, but EPA did not rely only on its discretionary authority to suspend or debar BPXP. Instead, it attempted to expand the coverage of mandatory disqualification under Section 1368 beyond the terms of the statute by designating a company headquarters as the violating facility. Such a designation, under EPA regulations, means that no federal contract may be performed by BPXP either at or from its Houston headquarters. See 2 C.F.R. 1532.1600(b). Excluding the facility at which a CWA violation occurred prevents federal complicity in an environmental violation. But the designation of a headquarters as a violating facility, the route taken by EPA here, punishes a company as a whole because it has the effect of disqualifying numerous related corporate facilities at which no CWA violation has occurred. EPA has essentially amended the text of the CWA to match that of the CAA. But EPA cannot expand its authority under the CWA by stretching its definition of violating facility to reach numerous facilities of a corporation by targeting one of its headquarters. If the agency wants to impute a CWA violation that occurred at one facility to other, non-violating facilities owned by that company, it must, as its own regulations provide, rely on its discretionary suspension and debarment authorityauthority that comes with a comprehensive set of procedural protections and implementing regulations. See 2 C.F.R. Part 180 (setting forth comprehensive procedures for government-wide suspension and debarment from nonprocurement contracts). Federal
contractors are extremely familiar with the traditional suspension and debarment process, but EPAs novel circumvention of that process through expansion of mandatory disqualification threatens to undermine its effectiveness.
15
Other contexts demonstrate the irrationality of designating a headquarters as a violating facility, and the massive expansion of power that such imputation entails. For example, the FDA has the authority to order the suspension of the registration of a facility engaged in, among other things, the manufacturing, processing, or packing of food if the Secretary finds that the food at that facility has a reasonable probability of causing serious adverse health consequences. 21 U.S.C. 350d(b)(1). It would be absurd under the statute for the FDA to suspend the registration of a headquarterssuspending the operation of all of its associated facilities as a resulton the basis of a contamination at one of the facilities without evidence that the contamination also infects the headquarters itself, even if it could arguably claim that the headquarters was involved in the manufacturing or processing of food since it oversaw the operations. Similarly, statutes and regulations that exclude health care providers from federal health care programs due to fraud or other health care violations should be read to exclude only the violating entity, not an entitys headquarters, unless the regulations specifically provide otherwise. See, e.g., 5 U.S.C. 8902a; 5 C.F.R. 890.1003; 42 U.S.C. 1320a-7(b)(13), 1320b-6; see also 10 U.S.C. 983(a) (denying federal funds to an institution of higher education (including any subelement of such institution) that has a policy discriminating against ROTC participation); 32 C.F.R. 216.3(c)(2) (clarifying that, as applied to an individual institution of education that is part of a single university system, the statute denies funds only to that individual institution within [a] university system that has the offending policy, not the broader university system). Numerous other statutes, regulations, and Executive Orders providing for the disqualification or exclusion of entities from federal contracting on the basis of some violation explicitly provide for the exclusion of the contractor itselfor, like the CAA, expressly allow
16
the agency to extend exclusion to other related entities. See, e.g., 41 U.S.C. 6706(b) (contract cannot be awarded to the person or firm found in violation of the prevailing wage law or to an entity in which the person or firm has a substantial interest); Executive Order No. 11,246, 209(6) (Sept. 28, 1965), 30 Fed. Reg. 12,319 (Secretary of Labor may exclude any noncomplying contractor until it adopts complying employment policies); 7 C.F.R. 400.454(d)(3) (in disqualification from the federal crop insurance program, the conduct of one organization in violation . . . may be imputed to another organization when the second organization has the power to direct, manage, control, or influence the activities of the organization responsible for the improper conduct). The CWA contains no such authorization. The intent of CWAs Section 1368 is clear: to eliminate federal involvement with the particular facilities responsible for criminal violations of the CWA. disqualification are immediate and severe. The consequences of
Unlike suspension or debarment, statutory
disqualification is indefinite, excluding all violating facilities until the agency, in its discretion, determines that the problem has been corrected. This Court should not countenance EPAs attempt to transform the word facility into a more encompassing term such as company or corporate entity and thereby augment the already powerful hammer it wields. II. AN AGENCY CANNOT SUSPEND MULTIPLE WORLDWIDE AFFILIATES OF A COMPANY WITHOUT GROUNDING ITS DECISION IN THE PUBLIC INTEREST OR SHOWING A LACK OF PRESENT RESPONSIBILITY. Unlike disqualification under the CWA, which is an exclusion[ ] mandated by statute, an agencys suspension or debarment decision is an exercise of the agencys discretionary authority. 2 C.F.R. 1532.1130(a)-(b). An agencys exercise of this discretion must be
reasonable. See 5 U.S.C. 706(2)(A); Caiola v. Carroll, 851 F.2d 395, 398 (D.C. Cir. 1988). In suspending nineteen worldwide BP affiliates on account of the conduct of four individuals
17
employed by BPXP or its parent BP p.l.c., EPA abused its discretion. An agency cannot extend a suspension to sweep in multiple worldwide affiliates without offering some justification grounded in the public interest. To suspend an entity from all government contracting, EPA must conclude that [i]mmediate action is necessary to protect the public interest, and the suspension must be supported by adequate evidence. 2 C.F.R. 180.700(c); see also 2 C.F.R. 180.605, 180.705; Robinson v. Cheney, 876 F.2d 152, 160 (D.C. Cir. 1989) ([T]he ultimate inquiry as to present responsibility relates directly to the contractor itself.). An exclusion is a serious action that a Federal agency may take only to protect the public interest. A Federal agency may not exclude a person or commodity for the purposes of punishment. 2 C.F.R. 180.125(c). Punishment, however, is the only explanation for EPAs delayed suspension of multiple worldwide BP affiliates without even an attempt to show that the suspensions were in the public interest or that the suspended entities lacked present responsibility. In amicis view, EPAs approach in this case threatens to undermine established principles of government contracting. An affiliate of a contracting entity may be included in a suspension or debarment action provided that the affiliate receives notice and an opportunity to contest the action. 2 C.F.R. 180.625(b). The regulations define affiliate broadly, providing that [p]ersons are affiliates of each other if, directly or indirectly, either one controls or has the power to control the other or a third person controls or has the power to control both. Id. 180.905. These provisions, which mirror those of the FAR, 48 C.F.R. 9.403, 9.406-1(b), were added out of concerns that the suspension or debarment of affiliates may be necessary to prevent a debarred person from participating in covered transactions through or under the guise of other entities that such person controls. 53 Fed. Reg. 19161, 19169 (May 26, 1988).
18
EPA never contended, however, that BP would use its subsidiary BP Singapore PTE Ltd. or BP Marine Global Investments Salalah Company LLC (based in the Sultanate of Oman), for example, to circumvent BPXPs suspension relating to the incident in the Gulf. EPA stated only that BP PLC is the owner of, and thus controls or has the power to control the following entities . . . . As such, these entities are all affiliates of each other . . . . Accordingly, any suspension or debarment of BP PLC or any of the entities named in this paragraph extends to all other entities named in this paragraph pursuant to 2 C.F.R. 180.625. ARM 19. And in
subsequently adding Castrol Marine Americas to the excluded company list, EPA did not offer any rationale other than the fact that it was a BP affiliate that EPA had overlooked previously. Supp. ARM 5-6. EPA repeated this logic in its decision rejecting BPs appeal, stating that [c]ontrol by the parent, in this case BP plc, is the sole consideration. EPA Decision 11. EPAs ipso facto reasoning is inherently flawed. Core principles of government
contracting establish that the automatic extension of a suspension to far-flung subsidiaries many of which have no dealings whatsoever with the federal government does not necessarily or [a]ccordingly follow based on the sole consideration of control. Section 180.625 provides that an affiliate may be suspended, requiring an exercise of discretionary authority by the agency. 2 C.F.R. 180.625(b). But EPA saw no need to support its exercise of this discretion with any reasoning; instead it extended the suspension to affiliates automatically because of shared control. Contrary to EPAs decision here, commentators interpreting the regulations and surveying the limited case law have recognized that [p]roper application of the affiliate provisions does not turn simply on whether the respondent fits within the definition of affiliate. Steven D. Gordon, Suspension and Debarment from Federal Programs, 23 Pub. Cont. L.J. 573, 588 (1994) (emphasis added). Because the combination of the broad definition of affiliate and
19
the wide discretion given to contracting agencies is potentially subject to abuse by an overzealous agency, suspension or debarment may be extended to an affiliate only if the facts of a particular case make such an extension appropriate. Id. (collecting cases). Just such abuse occurred here. Aside from the negligence of the two Well Site Leaders at the site of the explosion, see supra at 12, the alleged improper conduct that forms the basis for this worldwide suspension was (1) the deletion of text messages and voicemails by a BP drilling engineer and (2) certain statements made by BPs Deputy Incident Commander that underestimated the amount of oil spilling out of the Macondo well. See ARM 10-19; see also United States v. Mix, No. 2:12-cr-00171 (E.D. La.); United States v. Rainey, No. 2:12-cr-00291 (E.D. La.). The negligence occurred on the oil rig, and the other improper conductobstructing justice and making false statementsoccurred in the unique and isolated context of the subsequent investigation of the oil spill. There were no improper business practices by the parent company that might infect the entire BP conglomerate. In fact, the parent company itself, BP p.l.c., was not indicted on or convicted of any improper conduct; EPA imputed the conduct of two employees to it. See Agility Def. & Gov't Servs., Inc. v. U.S. Dept of Def., No. 5:11-cv0411-CLS, Slip Op. 22, 2012 WL 2480484, at *9 (N.D. Ala. June 26, 2012) ([T]he government may immediately suspend numerous affiliates on the basis of its suspicion of one of them, and then has a limited period of time in which to determine which affiliates actually participated in wrongdoing before it must terminate the suspensions of those not facing accusations. That arrangement allows the government to put an immediate stop to potential wrongdoing that it may not have been able to investigate fully, but it does not give the government the power to suspend an affiliate indefinitely without even suspicion of wrongdoing.). Here, EPA and BP were
20
engaged in dialogue for several months, and EPA could easily have determined which affiliates were not implicated in the misconduct. By employing the affiliate provisions but declining to base affiliate extension on complicity in the improper conduct, EPA has attempted a short-cut to side-step the more detailed and exacting imputation provisions. Kisser v. Kemp, 786 F. Supp. 38, 40-41 (D.D.C. 1992), revd on other grounds sub nom Kisser v. Cisneros, 14 F.3d 615 (D.C. Cir. 1994). EPA relied on 2 C.F.R. 180.630 to impute to BPXP the conduct of the negligent Well Site Leaders and to impute to BP p.l.c. the improper conduct of two employees indicted for obstruction of justice and making false statements. ARM 16-19. Section 180.630 allows an agency to impute the conduct of an individual to an organization when the improper conduct of the individual occurred in connection with the individuals performance of duties for or on behalf of that organization, or with the organizations knowledge, approval or acquiescence. Id. 180.630(a). EPA also imputed to BP p.l.c. the improper conduct of BPXP, as admitted in its plea agreement. ARM. 18-19. Section 180.630 allows the imputation of the conduct of one organization to another when the organization to whom the improper conduct is imputed has the power to direct, manage, control, or influence the activities of the organization responsible for the improper conduct. 2 C.F.R. 180.630(c). These imputation provisions move up the ladder of control, allowing an agency to impute an employee or organizations conduct to the entities that control them. But the imputation provisions do not allow an agency to move up the ladder of control to the parent and then back down to entities with no agency relationship to the improper conduct. The EPA cannot impute the improper conduct of BPXP, BP p.l.c., or any of their employees to other BP subsidiaries. See 2 C.F.R. 180.630. So EPA determined to reach them by exercising its discretion to suspend affiliates.
21
In support of this exercise of discretion, EPA found that there was an immediate need to suspend worldwide affiliates of BP because they bid for and are awarded federal contracts that appear to be worth millions of dollars every fiscal year and thus this flow of taxpayers funds to BP plc, or one of its many affiliates, is routine and constant. EPA Decision 12. But EPA never explained why it had to act to stem this flow immediately in order to protect the public interest, the only permissible reason for the drastic remedy of suspension. 2 C.F.R. 180.125. And EPA never reconciled the fact that BPXP itself, along with its affiliates, had been awarded numerous contracts since the oil spill, each requiring the awarding agency to determine at that time that BPXP or the affiliate was a responsible contractor. See 48 C.F.R. 9.103, 9.104-1; Complaint 41-45 (describing subsequent contract awards); Lion Raisins, Inc. v. United States, 51 Fed. Cl. 238, 247 (2001) (agency suspension decision not rational where it occurred almost two years after agency discovered conduct and during the intervening two years the agency had awarded numerous contracts to the plaintiff). In response to these arguments, EPA said that it did not have a clear and full understanding of the conduct until the plea agreement. EPA Decision 12. Even accepting that contention as true, however, the plea did not implicate other affiliates. EPA may not base a worldwide suspension of affiliates on actions that happened in the past merely because the agency realized the conduct was more egregious than it had previously thought without also showing that the new information demonstrates a potential risk to the public interest. If the individual who had engaged in misconduct had some control over affiliates or the agency had reason to believe that the misconduct extended to certain affiliates, then the extension of the suspension may be warranted. But retroactive action taken without any analysis of control or potential risk for recurrence is punishment, not action taken to protect the federal government
22
from the possibility of immediate harm. EPA paid no attention to the primary considerations that underlie all suspension and debarment decisions: present responsibility and the public interest. See Gonzales v. Freeman, 334 F.2d 570, 576-77 (D.C. Cir. 1964) (Notwithstanding its severe impact upon a contractor, debarment is not intended to punish but is a necessary means for accomplishing the congressional purpose[.]) (internal quotation marks omitted). EPA has conceded that [i]n the past, BP was allowed to continue to do business with the federal government after its affiliates were convicted of CAA and CWA violations that involved the loss of life and serious environmental damages. EPA Decision 12. That past practice extending the suspension or debarment only to the affiliates actually implicated in improper conductis typical. Affiliates not implicated in the wrongdoing may continue to contract with the government and work in federal programs. Such targeted suspension, tailored to address the problem and protect the government, has always been the norm. As to why this time is different, the final sentence of EPAs decision is telling. After recognizing that past suspensions had been more narrowly tailored to the entities at fault for improper conduct, EPA concluded: There is an immediate need to see that this does not happen again. EPA Decision 12. Perhaps this is another oil spill, although nothing in the decision states that any BP entity other than BPXP played any role in the spill. Perhaps this means covering up the spill, but, again, nothing in the decision indicates that the obstruction of justice or deception beyond the actions of two individual employees of BP in their responses to the accident. Regardless of the meaning of EPAs ambiguous statement, there is no reasoning in the decision that even suggests that any affiliate shared or played any role in the policies and improper conduct forming the basis for the suspension.
23
The last sentence of EPAs decision starkly confirms that EPA sought to use the fullest extent of its authority to send a punitive message to BP. But to use the affiliate provisions to accomplish that goal without any showing that such shared attribution is necessary to protect the public interest is unlawful. Agencies may not take advantage of the affiliate provisions to bypass the regulations governing imputation. As twenty-eight agencies recognized in enacting the affiliate provisions, they may be necessary to counteract subterfuge and ensure that the federal government is not contracting with an irresponsible party. But the fact that they are available for such use does not mean they apply automatically based on the sole consideration of control. EPA Decision 11. If EPA or any other agency wants to invoke these regulations, it must support their application with more than an argument that the regulations technically allow it: the agency must provide a justification grounded in the public interest. Otherwise, any suspension is arbitrary, capricious, and an unlawful abuse of the agencys discretion. And a worldwide suspension of multiple affiliates without justification exacerbates the problem by orders of magnitude. EPAs abdication of its responsibility to justify its actions threatens to undermine widely accepted principles of federal procurement and non-procurement programs by which amici and others abide. This court should uphold those principles and reject EPAs unprecedented and unlawful assertion of authority. CONCLUSION The Court should declare EPAs disqualification of BPXPs corporate headquarters contrary to law, and it should declare that EPAs unprecedented assertion of suspension power over affiliates is arbitrary, capricious, an abuse of the agencys discretion, and otherwise contrary to law. The designation of BPXPs corporate headquarters as a violating facility should be voided and the suspension of BP p.l.c.s affiliates lifted.
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Dated: December 2, 2013
Respectfully submitted, /s/ Bruce D. Oakley By: Bruce D. Oakley Attorney-in-Charge Texas SBN 15156900 SDTX Bar No. 11824 HOGAN LOVELLS US LLP Bank of America Center 700 Louisiana Street, Suite 4300 Houston, Texas 77002 T (713) 632-1400 D (713) 632-1420 F (713) 632-1401 bruce.oakley@hoganlovells.com Counsel for the Amici Curiae
Of Counsel: Catherine E. Stetson Thomas L. McGovern III Jonathan D. Shaub* Katherine L. Morga* HOGAN LOVELLS US LLP 555 Thirteenth St., NW Washington, DC 20004 (T) (202) 637-5600 (F) (202) 637-5910 cate.stetson@hoganlovells.com thomas.mcgovern@hoganlovells.com jonathan.shaub@hoganlovells.com katherine.morga@hoganlovells.com *not admitted in D.C.; supervised by members of the firm
Rachel L. Brand Steven P. Lehotsky NATIONAL CHAMBER LITIGATION CENTER, INC. 1615 H Street, NW
Linda E. Kelly Quentin Riegel Patrick Forrest NATIONAL ASSOCIATION OF MANUFACTURERS 733 10th Street, NW, Suite 700 25
Washington, DC 20062 Counsel for Amicus Curiae the Chamber of Commerce of the United States Harry M. Ng Evelyn R. Nackman AMERICAN PETROLEUM INSTITUTE 1220 L Street, NW Washington, DC 20005-4070 Counsel for Amicus Curiae the American Petroleum Institute NATIONAL OCEAN INDUSTRIES ASSOCIATION 1120 G Street, NW Suite 900 Washington, DC 20005 Counsel for Amicus Curiae the National Ocean Industries Association
Washington, DC 20001 Counsel for Amicus Curiae the National Association of Manufacturers ORGANIZATION FOR INTERNATIONAL INVESTMENT 1225 Nineteenth Street, NW, Suite 501 Washington, DC 20036 Counsel for Amicus Curiae the Organization for International Investment
Benjamin J. Aderson Rachel S. Wolkowitz TECHAMERICA 601 Pennsylvania Avenue, NW North Building, Suite 600 Washington, DC 20004 Counsel for Amicus Curiae TechAmerica
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CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing document has been served on all counsel of record via CM/ECF on this the 2nd day of December, 2013, in accordance with the Federal Rules of civil Procedure.
/s/Bruce D. Oakley Bruce D. Oakley
APPENDIX
Agility Def. & Gov't Servs., Inc. v. U.S. Dept of Def., No. 5:11-cv-0411-CLS, Slip Op., 2012 WL 2480484 (N.D. Ala. June 26, 2012) .................................................................1
CaseCase 4:13-cv-02349 5:11-cv-04111-CLS DocumentDocument 38-1 Filed 16 in TXSD Filed 06/26/12 on 12/02/13 Page Page 1 of 35 26 of 60
FILED
2012 Jun-26 AM 11:27 U.S. DISTRICT COURT N.D. OF ALABAMA
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ALABAMA NORTHEASTERN DIVISION AGILITY DEFENSE AND GOVERNMENT SERVICES, INC., et al., Plaintiffs, vs. UNITED STATES DEPARTMENT OF DEFENSE, et al., Defendants. ) ) ) ) ) ) ) ) ) ) ) ) )
Civil Action No. CV-11-S-4111-NE
MEMORANDUM OPINION AND ORDER Plaintiffs, Agility Defense and Government Services, Inc., and Agility International, Inc., commenced this action against the United States Department of Defense, Secretary of Defense Leon E. Panetta, the Defense Logistics Agency, and the Director of the Defense Logistics Agency, Vice Admiral Mark D. Harnitchek, seeking declaratory and injunctive relief to lift plaintiffs suspension from government contracting.1 Plaintiffs moved for summary judgment, and defendants filed a crossmotion for summary judgment.2 Upon consideration of the motions, briefs, and evidentiary submissions, the court has determined that summary judgment is due to
1 2
Doc. no. 1 (Complaint).
Doc. no. 6 (Plaintiffs Motion for Summary Judgment); doc. no. 9 (Defendants Motion for Summary Judgment).
be granted in favor of plaintiffs and against defendants. I. LEGAL STANDARD Federal Rule of Civil Procedure 56 provides that summary judgment should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).3 In other words, summary judgment is proper after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that partys case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine issue of material fact exists only if sufficient evidence is presented favoring the nonmoving party for a jury to return a verdict for that party. Farley v. Nationwide Mut. Ins. Co., 197 F.3d 1322, 1336 (11th Cir. 1999) (quoting Stewart v. Happy Herman's Cheshire Bridge, Inc., 117 F.3d 1278, 1284-85 (11th Cir. 1997)). In making this determination, the court must review all evidence and make all reasonable inferences in favor of the party opposing summary judgment. Chapman
Rule 56 was amended, effective December 1, 2010, in conjunction with a general overhaul of the Federal Rules of Civil Procedure. The Advisory Committee was careful to note, however, that the changes will not affect continuing development of the decisional law construing and applying these phrases. Adv. Comm. Notes to Fed. R. Civ. P. 56 (2010 Amends.). Consequently, cases interpreting the previous version of Rule 56 are equally applicable to the revised version. 2
v. AI Transport, 229 F.3d 1012, 1023 (11th Cir. 2000) (en banc) (quoting Haves v. City of Miami, 52 F.3d 918, 921 (11th Cir. 1995)). [A]n inference is not reasonable if it is only a guess or a possibility, for such an inference is not based on the evidence, but is pure conjecture and speculation. Daniels v. Twin Oaks Nursing Home, 692 F.2d 1321, 1324 (11th Cir. 1983). Moreover, [t]he mere existence of some factual dispute will not defeat summary judgment unless that factual dispute is material to an issue affecting the outcome of the case. The relevant rules of substantive law dictate the materiality of a disputed fact. A genuine issue of material fact does not exist unless there is sufficient evidence favoring the nonmoving party for a reasonable jury to return a verdict in its favor. Chapman, 229 F.3d at 1023 (quoting Haves, 52 F.3d at 921); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986) (asking whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law). When presented cross motions for summary judgment, [t]he court must rule on each partys motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the Rule 56 standard. 10A Wright, Miller & Kane, Federal Practice and Procedure: Civil 3d 2720, at 335-36 (1998) (footnote omitted). As another court within this Circuit has observed: Cross motions for summary judgment do not change the standard. Latin Am. Music Co. v. Archdiocese of San Juan of the Roman Catholic & Apostolic Church, 499 F.3d 32, 38 (1st Cir. 2007). Cross
3
motions for summary judgment are to be treated separately; the denial of one does not require the grant of another. Christian Heritage Acad. v. Okla. Secondary Sch. Activities Assn, 483 F.3d 1025, 1030 (10th Cir. 2007) (quoting Buell Cabinet Co. v. Sudduth, 608 F.2d 431, 433 (10th Cir. 1979)). Even where the parties file cross motions pursuant to Rule 56, summary judgment is inappropriate if disputes remain as to material facts. Id.; accord Monumental Paving & Excavating, Inc. v. Pa. Mfrs. Assn Ins. Co., 176 F.3d 794, 797 (4th Cir. 1999) (When considering motions from both parties for summary judgment, the court applies the same standard of review and so may not resolve genuine issues of material fact. Instead, [the court must] consider and rule upon each partys motion separately and determine whether summary judgment is appropriate as to each under the Rule 56 standard.) (citations omitted). Ernie Haire Ford, Inc. v. Universal Underwriters Insurance Co., 541 F. Supp. 2d 1295, 1297-98 (M.D. Fla. 2008). See also American Bankers Ins. Group v. United States, 408 F.3d 1328, 1331 (11th Cir. 2005) (This court reviews the district courts disposition of cross-motions for summary judgment de novo, applying the same legal standards used by the district court, viewing the evidence and all factual inferences therefrom in the light most favorable to the non-movant, and resolving all reasonable doubts about the facts in favor of the non-moving party.). II. BACKGROUND The facts in this case are not in dispute. Plaintiffs, Agility Defense and Government Services, Inc., and Agility International, Inc., are companies that have historically derived a significant portion of their operating revenue from contracts with the United States government. The genesis of this action lies in plaintiffs
4
corporate relationship to Public Warehousing Company, K.S.C. (PWC), a Kuwaiti corporation that specializes in logistics. PWC owns scores of subsidiary entities. Some of those companies are direct subsidiaries of PWC, and others are indirect subsidiaries, owned by the direct subsidiaries. Plaintiff Agility Defense and
Government Services, Inc. (DGS) is a Delaware corporation with its principal place of business in Madison County, Alabama, and an indirect subsidiary of PWC.4 There are three layers of subsidiaries between PWC and DGS.5 Plaintiff Agility
International, Inc. (Agility) is a Delaware corporation with its principal place of business in Alexandria, Virginia, and a direct subsidiary of DGS; therefore, it also is an indirect subsidiary of PWC.6 The Defense Logistics Agency (the Agency), is a combat support agency of the Department of Defense. 10 U.S.C. 193(f)(3). As its name suggests, the Agency is tasked with providing logistical support to the military and naval forces of the United States. Its Director is defendant Vice Admiral Mark D. Harnitchek.7 A. Suspension of Government Contractors
4 5
See doc. no. 1-1 (Organizational Chart).
Id. PWC directly owns Agility DGS Logistics Service Company, another Kuwaiti entity. That company, in turn, owns PWC Logistics Services Holding, a Dutch company. The Dutch company owns Agility DGS Holdings, Inc., an entity incorporated in an unspecified U.S. state. That holding company directly owns plaintiff DGS. Id.
6 7
See id. Doc. no. 5 (Answer) 8. 5
The regulations controlling government contracting are found in the Federal Acquisitions Regulation System, Title 48 of the Code of Federal Regulations. The regulations empower the suspending official of a government agency to prevent certain contractors from doing business with the government. If a determination that a contractor has engaged in certain prohibited activity is made, the suspending official can debar that contractor doing business with the government for a fixed period of time, lasting up to three years. See 48 C.F.R. 9.406-1-5. The suspending official also has the power to suspend a company or individual from government contracting pending determination of whether debarment is appropriate. See id. 9.407-1-5. A suspension can last up to eighteen months without any formal action being taken against the suspended contractor. See id. 9.407-4(b). However, once proceedings are initiated, the suspension can remain in effect until a final determination is made. Id. While suspended, a contractor is placed on the Excluded Parties List. See 48 C.F.R. 9.404. Those on the Excluded Parties List are ineligible for any new government contracts.8 Although a suspension may be issued by a single government
See, e.g., doc. no. 11 (Certified Administrative Record) at Bates 485 (PWC Suspension Letter) (stating that contracts will not be solicited from or awarded to the suspended company). The administrative record in this case contains scores of documents and hundreds of pages. The court will cite to the record by providing a name or description for the document cited, as well as the Bates numbers stamped at the top and bottom of each page, rather than the internal pagination used in each document. 6
8
agency, it prohibits all departments of the executive branch of the federal government from doing business with the suspended entity. Id. 9.407-1(d). Existing contracts generally are unaffected by suspension, and continue uninterrupted.9 The government may award new contracts to suspended contractors if compelling reasons justify[] continued business dealings, Id.: e.g., the contractor is the lone supplier of a vital commodity. B. Suspension of Plaintiffs In November of 2009, a grand jury in the Northern District of Georgia issued an indictment alleging that PWC defrauded the federal government of over $6 Billion dollars in relation to contracts to supply food to American military personnel stationed in the Middle East.10 As a result of that indictment, M. Susan Chadick, the suspending official at the Agency, suspended the government contracting privileges of PWC on November 16, 2009.11 Concurrent with that suspension, Chadick also suspended three PWC subsidiaries, including plaintiff DGS.12 During the following weeks, numerous other PWC subsidiaries were suspended, including plaintiff Agility on November 23,
Cf. PWC Suspension Letter, at Bates 485 (stating that existing contracts will not be renewed).
10 11 12
See Certified Administrative Record, at Bates 403-62 (Indictment). PWC Suspension Letter.
Certified Administrative Record, at Bates 481 (DGS Suspension Letter). At the time of suspension, plaintiff DGS was known as Taos Industries, Inc. See, e.g., doc. no. 1 13. 7
2009.13 The subsidiaries, including plaintiffs, were not accused of any involvement in the wrongdoing for which PWC was indicted; rather the sole basis for their suspension was their status as affiliates of PWC.14 1. Plaintiffs response to suspension
As permitted by the regulations, plaintiffs submitted written responses in opposition to their suspensions.15 In those submissions, plaintiffs argued that the suspensions were improper because they were not implicated in the indictment, which accused only PWC of wrongdoing.16 Moreover, they noted the extensive company policies in place to prevent fraud and other improprieties in government contracting.17 Plaintiffs also argued that suspension was particularly inappropriate as to DGS, because of a Special Security Agreement (SSA) regarding certain DGS contracts.18 An SSA is necessary whenever a contractor working with classified or other sensitive information has foreign ownership.19 The SSA prohibits PWC from
13 14
Certified Administrative Record, at Bates 735 (Agility Suspension Letter).
See, e.g., id. (stating that plaintiff Agility was suspended based on its affiliation to PWC, a criminally indicted company). Certified Administrative Record, at Bates 592-622 (Joint Response to Notices of Suspension); id. at Bates 783-99 (Supplemental Response of Plaintiff DGS).
16 17 18 19 15
Joint Response to Notices of Suspensions, at Bates 595. Id. at Bates 606-17. See generally Supplemental Response of Plaintiff DGS.
See id. at Bates 788 ([A]n SSA is a standard mitigation measure required by the [Defense Security Service] when it determines that such an agreement is necessary to enable the Federal Government to protect against the unauthorized disclosure of information related to national security.) (bracketed alterations supplied). 8
exercising control over DGS, limiting its participation to deliberations and decisions of the DGS board of directors, and allowing PWC to control only a minority of those directors.20 DGS applies the terms of its SSA to all government contracts, including those that do not involve sensitive information.21 Thus, plaintiffs argued, the SSA prevented PWC from controlling the contracting activities of DGS. The Agency rejected plaintiffs arguments in response to their suspensions on December 10, 2009.22 It noted that the compliance policies trumpeted by plaintiffs were identical to the policy that PWC had in effect, yet that company allegedly engaged in extensive fraud.23 Additionally, the Agency stated that the terms of the SSA made it clear that PWC had day-to-day interaction with DGS, undermining any argument that the SSA guaranteed the independence of DGS from PWC.24 The Agency found that protection of the Governments interests requires the continued exclusion [of plaintiffs] from contracting with the U.S. Government.25 2. Litigation in Washington, D.C.
20 21
Id. at Bates 788-89.
Id. at Bates 789 (In view of this broad language in the SSA, the exclusions of PWCs involvement extend beyond classified controls to encompass the operation of [DGSs] business affairs in general.) (bracketed alteration supplied). Certified Administrative Record, at Bates 1269-78 (Memorandum of Decision on the Request for Termination of Suspensions).
23 24 25 22
Id. at Bates 1273. Id. at Bates 1275. Id. at Bates 1278 (bracketed alteration supplied). 9
Case Case 4:13-cv-02349 5:11-cv-04111-CLS Document Document 38-1 Filed 16in Filed TXSD 06/26/12 on 12/02/13 Page Page 10 of 44 26 of 60
Concurrently with the submission of their responses to the Agency, plaintiffs filed suit in the United States District Court for the District of Columbia, seeking injunctive relief to prevent the suspension from taking effect. Judge Richard W. Roberts held a November 23, 2009 hearing on plaintiffs motion for a temporary restraining order, and denied that motion by oral order on December 11, 2009.26 The suspension went into effect, and plaintiffs remain suspended from government contracting.27 To date, their suspension has been in effect for thirty-one months. 3. Plaintiffs attempts to have their suspensions terminated
In November of 2010, DGS retained the services of Contractor Integrity Solutions, L.L.C., to act as in independent consultant, beginning in 2011.28 The purpose of the consulting agreement was to bolster the compliance system DGS already had in place.29 On the basis of the consulting agreement, DGS wrote to the Agency, and made an oral presentation, asking for the Agency to reconsider its suspension.30 The Agency denied that request, on the basis that it did not reflect material information about a change in the relationship between DGS, Inc. and
Certified Administrative Record, at Bates 623-728 (TRO Hearing Transcript); Certified Administrative Record, at Bates 1372-87 (Bench Ruling Transcript).
27 28 29 30
26
Doc. no. 6-1 (Affidavit of Richard Brooks). Certified Administrative Record, at Bates 1706-08 (Engagement Letters). Id.
Cf. Certified Administrative Record, at Bates 1710 (Letter Responding to Request for Reconsideration). 10
PWC.31 In June of 2011, after the suspension had been in effect for more than eighteen months, plaintiffs presented the Defense Logistics Agency the terms of a proposed management buyout of Agility.32 Under the terms of that proposal, management employees of Agility would form a new holding company.33 Those personnel would also resign their positions with PWC.34 The new company would then buy a 60% stake of Agility from DGS.35 PWC would ultimately retain a 40% stake in Agility through its indirect ownership of DGS, but the majority stake in the company would be held by the new company, whose employees would no longer be subject to PWC control. Moreover, PWC would not have any voting or management authority over Agility while PWC remained suspended.36 Although the management buyout would have eliminated the formal control PWC previously held over Agility, the Agency informed plaintiffs that effecting the buyout would not terminate the suspension of Agility.37 Accordingly, plaintiffs did not conduct the management buyout.
31 32 33 34
Id. Complaint, at Ex. 4 (Management Buyout Term Sheet). Id. at 1.
Certified Administrative Record, at Bates 1739 (Presentation of Management Buyout Terms to the Agency).
35 36 37
Management Buyout Term Sheet, at 1. Id. at 2.
Certified Administrative Record, at Bates 1755-56 (Letter in Response to Management Buyout Proposal). Chadick informed plaintiffs that it is not in the best interests of the Government to do business with any PWC . . . affiliate or subsidiary, regardless of the equity interest, until the 11
Although the Agency rejected plaintiffs proposed management buyout, it lifted the suspensions of other PWC subsidiaries in response to similar arrangements. At least two other companies had their suspensions terminated because they ceased to be affiliated with PWC. A company called LA3P was removed from the Excluded Parties List on December 17, 2009, [b]ased on removing all management and operational control over LA3P from DGS.38 Another company, AFH Fuel Services, L.L.C., had its suspension lifted on September 15, 2010.39 The suspension was terminated due to a change in the operating agreement governing the company.40 Under the initial operating agreement, DGS had a minority ownership stake of 44%, and the authority to appoint one of the three Managers of the company.41 Under the amended operating agreement, DGS maintained its ownership stake, but not its ability to appoint a Manager.42 Plaintiffs brought this action for injunctive and declaratory relief, seeking to
criminal case has been concluded. Id. at Bates 1756. Certified Administrative Record, at Bates 1395 (Termination of Suspension Letter, LA3P). The record does not indicate how that change was brought about. Certified Administrative Record, at Bates 1670 (Termination of Suspension Letter, AFH Fuel Services, L.L.C.).
40 41 39 38
Id.
Cf. Certified Administrative Record, at Bates 1656 (Letter of Counsel). The record does not actually contain the operating agreement under which DGS had that authority. However, the letter of counsel, and the amended operating agreements, demonstrate what the prior arrangement must have been.
42
Certified Administrative Record, at Bates 1662-69 (Amended Operating Agreement). 12
have the suspension lifted. At present, the prosecution of PWC is ongoing, but no allegations of any wrongdoing have ever been leveled againts either plaintiff. III. DISCUSSION Plaintiffs present four counts in their complaint. The first three counts are based upon the Administrative Procedure Act. In the first count, plaintiffs allege that the Defense Logistics Agency has provided an inadequate rationale for the suspensions. In the second count, plaintiffs allege that the suspensions are punitive. And in the third, they argue that the suspensions are excessive in duration. In the fourth count, plaintiffs allege that the continuing suspensions violate the Due Process Clause of the Fifth Amendment to the United States Constitution. A. The Administrative Procedure Act The Administrative Procedure Act (APA) provides that, when reviewing the action of an administrative agency, a court shall hold unlawful and set aside agency action, findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law . . . . 5 U.S.C. 706(2)(A). Under that standard, a courts review of an agency decision is deferential, even at the summary judgment stage. Kirkpatrick v. White, 351 F. Supp. 2d 1261, 1270 (N.D. Ala. 2004) (citing Preserve Endangered Areas of Cobbs History, Inc. v. U.S. Army Corps of Engineers, 87 F.3d 1242, 1246 (11th Cir. 1996)). To prove an agencys
13
decision was arbitrary and capricious, the challenging party must show the record is devoid of reasonable evidence supporting the agencys decision. Id. (citing
Organized Fishermen of Florida v. Franklin, 846 F. Supp. 1569, 1573 (S.D. Fla. 1994)). B. Justiciability of Plaintiffs Claims Defendants argue that the decision of the Agency to suspend plaintiffs, and to continue to hold them suspended, is not justiciable because those decisions are committed to agency discretion by law. 5 U.S.C. 701(a)(2). An agency decision is considered to fall within that exception to judicial review if the statute is drawn so that a court would have no meaningful standard against which to judge the agencys exercise of discretion. Heckler v. Chaney, 470 U.S. 821, 830 (1985). Defendants argue that, because the regulation governing suspension states that an agency may extend the suspension to an affiliate of the wrongdoer, there are no substantive guidelines, requirements, or criteria by which to measure whether an agency abused or did not abuse its discretion.43 Even so, plaintiffs have been able to identify cases that demonstrate that the debarment or suspension of an affiliate, not itself accused of wrongdoing, presents a justiciable controversy. See Cailoa v. Carroll, 851 F.2d 395 (D.C. Cir. 1988) (reviewing and reversing suspensions of individuals alleged to be
Doc. no. 10 (Brief in Support of Defendants Motion for Summary Judgment and in Opposition to Plaintiffs Motion for Summary Judgment), at 14. 14
43
affiliates of a debarred contractor). Cf. Gonzalez v. Freeman, 334 F.2d 570, 574-75 (D.C. Cir. 1964) (An allegation of facts which reveal an absence of legal authority or basic fairness in the method of imposing debarment presents a justiciable controversy in our view.). Thus, the court concludes that plaintiffs do present justiciable claims, and turns to the merits of those claims. C. Rationale for Initial Suspension Resolution of plaintiffs APA claims turns on the interpretation accorded to certain provisions of the Federal Acquisition Regulations System. In the first count of their complaint, plaintiffs allege that their suspension was not based on an adequate rationale and was, therefore, in violation of the APA.44 The regulations provide that, [t]he suspending official may, in the public interest, suspend a contractor for any of the causes in 9.407-2, using the procedures in 9.407-3. 48 C.F.R. 9.407-1(a)(b)(1). Section 9.407-2 enumerates nine offenses that serve as causes for suspension, such as fraud, bribery, antitrust violations, and commission of other offense[s] indicating a lack of business integrity or business honesty. Id. 9.407-2(9). Suspension of an individual contractor can lead to the suspension of others: Suspension constitutes suspension of all divisions or other organizational elements of the contractor, unless the suspension decision is limited by its terms to specific divisions, organizational elements, or commodities. The suspending official may extend the suspension decision to include
44
See doc. no. 1 51-61. 15
any affiliates of the contractor if they are (1) specifically named and (2) given written notice of the suspension and an opportunity to respond (see 9.407-3(c)). Id. 9.407-1(c) (emphasis supplied). That is, affiliates are not automatically considered suspended, but may be suspended based on the notice and response procedures found in 9.407-3(c). The regulations include a definition of affiliates. Business concerns, organizations, or individuals are affiliates of each other if, directly or indirectly, (1) either one controls or has the power to control the other, or (2) a third party controls or has the power to control both. Indicia of control include, but are not limited to, interlocking management or ownership, . . . shared facilities and equipment, [and] common use of employees . . . . Id. 9.403. There is no dispute that, through indirect ownership of several subsidiaries, plaintiffs are affiliates of PWC, as defined in the regulations. The regulatory language clearly allows for the suspension of affiliates without any allegations of wrongdoing against them. The suspending official has the power to extend the suspension to them, and is required only to specifically name the affiliate and provide it with notice and an opportunity to respond. To require a finding, or even an allegation, of wrongdoing, would render the language of 9.407-1(c) surplusage. That is, there would be no need for a provision specifically addressing the suspension of an affiliate if the government was required to apply the same procedures to affiliates as to principals. Judge Roberts reached the same conclusion when plaintiffs
16
attempted to enjoin their suspension at the outset, stating that if the determination necessary to suspend the contractor in the first instance and an affiliate of that contractor were the same, it might render Section 9.407(c) a nullity.45 Judge Roberts continued: [T]here must be some difference in the findings necessary to suspend a contractor in the first instance and to suspend an affiliate of that contractor. That difference appears to be that Section 9.407-1(c) authorizes a suspending official to suspend an affiliate on the basis of finding the affiliation alone without a finding of culpability.46 This court finds Judge Robertss rationale persuasive, and concludes that the initial suspension of plaintiffs, as affiliates of PWC, was valid. D. Excessive Duration of Suspension The third count of plaintiffs alleges that their suspension violates the APA because it has continued for a period greater than eighteen months.47 Although the plain language of the regulations supports the validity of the initial decision by the Agency to suspend plaintiffs contracting privileges, the question of the indeterminate duration of that suspension is murkier. The regulatory language regarding the duration of suspension does not draw a clear distinction between the suspensions of
45 46 47
Bench Ruling Transcript, at Bates 1380. Id. at Bates 1380-81.
See doc. no. 1 66-74. As noted in the beginning of Part III of this opinion, the second count of plaintiffs complaint alleges that their continued suspension is punitive. Id. 62-65. Consideration of that claim is rendered moot by the following discussion and resolution of the claim asserted in the third count. 17
principals and affiliates, nor does it clearly treat them alike. The relevant part of the regulation reads as follows: If legal proceedings are not initiated within 12 months after the date of the suspension notice, the suspension shall be terminated unless an Assistant Attorney General requests its extension, in which case it may be extended for an additional 6 months. In no event may a suspension extend beyond 18 months, unless legal proceedings have been initiated within that period. 48 C.F.R. 9.407-4(b) (emphasis supplied). The last sentence of that provision provides the nub of disagreement between the parties. Defendants argue that legal proceedings against the suspended principal contractor allow the continued suspension of its affiliates. In other words, they read the sentence as providing that: In no event may a suspension of an affiliate extend beyond 18 months, unless legal proceedings have been initiated against the principal within that period. Conversely, plaintiffs argue that legal proceedings must be initiated against the affiliate itself for the suspension to continue. That is, they read the sentence to as saying that: In no event may a suspension of an affiliate extend beyond 18 months, unless legal proceedings have been initiated against the affiliate itself within that period. The pivotal issue of whether the suspension of an affiliate may extend beyond 18 months merely on the basis of legal proceedings being brought against the principal appears to be unsettled. The parties have not identified a single judicial decision addressing the issue, nor has the courts independent research discovered
18
any.48 Defendants argue that the regulation allows for the indefinite suspension of an affiliate, because to hold otherwise would lead to absurd and illogical results, which regulations should be interpreted to avoid. See, e.g., Rhode Island Hospital v. Leavitt, 548 F.3d 29, 37 (1st Cir. 2008). Plaintiffs argue that to allow indefinite suspension on the basis of affiliation alone would contradict the structure of the regulation. 1. Arguments of the parties
Defendants note that subsidiaries may be initially suspended on the sole basis of their affiliation with a parent company accused of impropriety. They argue that, if suspension is based on affiliation, it is only logical that the period of suspension for the affiliate should be the same as for the primary contractor.49 They state that [o]ne purpose for suspending affiliates is to prevent the primary contractor from shifting business to its affiliates, thereby allowing the affiliates to bid on government contracts and avoid the consequences of suspension from government contracting.50 Defendants further argue that, if affiliation-based suspensions were limited to eighteen months, a suspended contractor could create new subsidiaries to sidestep suspension. After eighteen months, those new subsidiaries, which did not exist at the time of the
In fact, electronic searches of the West and Lexis databases returned only six cases in which 9.407-4 is mentioned at all, none of which address the question before the court. Doc. no. 15 (Reply Brief in Support of Defendants Motion for Summary Judgment and in Opposition to Plaintiffs Motion for Summary Judgment), at 7.
50 49
48
Id. at 4. 19
events leading to indictment of their parent, would be eligible for contracting. The suspended parent would profit from the subsidiaries contracts. That result, say defendants, would be absurd. They argue that it is only logical that a suspension on the basis of affiliation should last as long as the suspension of the primary contractor, and state that this is what occurs in practice. Rather than hypothecating circumstances under which primary how contractors might abuse the system, plaintiffs focus their arguments on the text of the regulation itself. Plaintiffs point out the distinctions between the language of 9.407-1 and that of 9.407-4. The former section establishes two bases for suspension: suspicion of any of the offenses listed in 9.407-2, or affiliation with a contractor suspected of any of the offenses listed in 9.407-2. 48 C.F.R. 9.407-1(a), (c).51 Conversely, 9.4074 simply states that a suspension may not last longer than eighteen months, unless
51
The full text of those subsections reads as follows:
(a) The suspending official may, in the public interest, suspend a contractor for any of the causes in 9.4072, using the procedures in 9.4073. ... (c) Suspension constitutes suspension of all divisions or other organizational elements of the contractor, unless the suspension decision is limited by its terms to specific divisions, organizational elements, or commodities. The suspending official may extend the suspension decision to include any affiliates of the contractor if they are (1) specifically named and (2) given written notice of the suspension and an opportunity to respond (see 9.4073(c)). 48 C.F.R. 9.407-1(a), (c). 20
legal proceedings have been initiated within that period. Id. 9.407-4(b).52 That section makes no distinction between suspensions on the basis on an enumerated cause and those on the basis of affiliation. Thus, argue plaintiffs, all suspended contractors must be treated equally under that provision, and cannot be suspended for longer than eighteen months unless legal proceedings have been brought against them. 2. Analysis
Plaintiffs interpretation, based on the text of the regulation itself, is sounder. Although the regulation establishes two different methods of commencing suspension, it contains only one provision regarding the expiration of suspension. That one provision must be applied to suspected wrongdoers and suspended affiliates in a consistent manner. Defendants concern that plaintiffs interpretation produces absurd results is mitigated by several factors. Although defendants state that one reason the regulation allows for the suspension of affiliates is to prevent the primary contractor from shifting business to them, that is but one reason. Another equally plausible reason is to allow the government adequate time to
52
The full text of 9.407-4(b) provides:
If legal proceedings are not initiated within 12 months after the date of the suspension notice, the suspension shall be terminated unless an Assistant Attorney General requests its extension, in which case it may be extended for an additional 6 months. In no event may a suspension extend beyond 18 months, unless legal proceedings have been initiated within that period. 48 C.F.R. 9.407-4(b). 21
investigate the affiliates for wrongdoing on their own part. That purpose becomes clear when 9.407-1 and 9.407-4 are read in conjunction; the government may immediately suspend numerous affiliates on the basis of its suspicion of one of them, and then has a limited period of time in which to determine which affiliates actually participated in wrongdoing before it must terminate the suspensions of those not facing accusations. That arrangement allows the government to put an immediate stop to potential wrongdoing that it may not have been able to investigate fully, but it does not give the government the power to suspend an affiliate indefinitely without even suspicion of wrongdoing. When the investigative purpose of the affiliation-based suspension is considered, the fundamental flaw in defendants interpretation is revealed. That interpretation would allow the government to issue a blanket
suspension against numerous contractors and, so long as proceedings were initiated against one of them, allow the government to sit on its hands, rather than taking steps to investigate and determine within a reasonable period of time whether the affiliates were guilty of misconduct, all while those affiliates suffered the loss of business.53 Another flaw in defendants argument is exposed upon a close reading of the regulatory definition of affiliate. Defendants argument is premised on the idea that
Because the court finds that plaintiffs interpretation of the statutory language is correct, it need not address the question of whether defendants interpretation violates the Due Process Clause. However, to allow the government to suspend a contractor indefinitely, without suspicion, raises due process concerns. 22
53
affiliates will necessarily be subsidiaries of the primary contractor, which will be their parent company. That is, in fact, the scenario here. However, affiliate is defined more broadly. Although control is integral to the definition, both the parent and the subsidiary are considered affiliates of each other. 48 C.F.R. 9.403 (Business concerns, organizations, or individuals are affiliates of each other if, directly or indirectly, (1) either one controls or has the power to control the other, or (2) a third party controls or has the power to control both.) (emphasis supplied). Thus, the regulation allows for the suspension of a parent company for the malefactions of its subsidiary, on the mere basis that the parent company is an affiliate of the subsidiary. In such a scenario, the danger of a primary contractor shifting business to its affiliates and, thereby, circumventing the consequences of suspension would seem to be much reduced. In addition to the possibility that a contractor will shift business to its subsidiaries if they are not suspended, defendants hypothesize that a suspended contractor could create new, wholly-owned subsidiaries in the wake of a suspension. Because those companies did not previously exist, they could not be tainted with the wrongdoing that led to the suspension of the primary contractor. Defendants argue that an eighteen month cap on affiliation-based suspensions would allow a suspended contractor to use such wholly-owned subsidiaries to engage in unfettered contracting.
23
That argument is seriously undermined by the regulatory scheme. In addition to the nine offenses enumerated as cause for suspension in 9.407-2, there is a catchall provision: The suspending official may upon adequate evidence also suspend a contractor for any other cause of so serious or compelling a nature that it affects the present responsibility of a Government contractor or subcontractor. 48 C.F.R. 9.407-2(c). The creation of wholly-owned subsidiaries in order to circumvent a suspension arguably fits within that catchall provision. Thus, plaintiffs interpretation of the regulation would not, as defendants assert, amount to carte blanche for suspended contractors seeking to continue to profit from government contracting, as the government would have cause to suspend new subsidiaries created for the purpose of abusing the system. Finally, the language of the catchall provision highlights another regulatory requirement that also protects the government from unscrupulous contractors. Before considering any bid for a contract, the government must determine whether the bidder is presently responsible. See 48 C.F.R. 9.103. No purchase or award shall be made unless the contracting officer makes an affirmative determination of responsibility. In the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer shall make a determination of nonresponsibility. Id. 9.103(b). To be found responsible, a contractor must have,
24
among other things a satisfactory record of integrity and business ethics . . . . Id. 9.104-1(d). The determination of responsibility must be made anew for each potential contract. See OSG Product Tankers, L.L.C. v. United States, 82 Fed. Cl. 570, 575 (Fed. Cl. 2008); Frequency Electronics, Inc. v. Department of the Air Force, 151 F.3d 1029 (Table), No. 97-1551, 1998 WL 377929, at *2 (4th Cir. July 1, 1998) (Responsibility is a present condition and not an indelible status.). The fact that a contractor is not suspended or debarred from contacting is no guarantee that it will be found presently responsible upon submitting a bid. A contractor that is a newlycreated, wholly-owned subsidiary of a suspended contractor would surely raise a red flag in the process of determining present responsibility. The court concludes that the interpretation of the regulation proposed by plaintiffs is the correct one. That is, no contractor may be suspended for greater than eighteen months unless legal proceedings are initiated against that contractor itself, regardless of the basis for the initial decision to suspend the company. The facts in the record are undisputed: plaintiffs were suspended on the sole basis of their affiliation with PWC; no legal proceedings have been initiated against them; and they have remained suspended for thirty-one months i.e., nearly twice the regulatory limit of eighteen months. Their continued suspension is contrary to law, in violation of the APA. Therefore, their suspensions must be terminated. Summary judgment is
25
due to be granted in favor of plaintiffs, and against defendants. IV. ORDERS AND INJUNCTION For the reasons stated herein, plaintiffs motion for summary judgment is GRANTED, and defendants motion for summary judgment is DENIED. It is DECLARED that defendants suspension of plaintiffs for greater than eighteen months, without the initiation of legal proceedings against plaintiffs, is contrary to law. Additionally, it is DECLARED that plaintiffs are eligible for government contracts, provided they are determined to meet the responsibility requirements of 48 C.F.R. 9.103. It is further ORDERED, ADJUDGED, and DECREED that defendants lift plaintiffs suspension from government contracting, and remove them from the Excluded Parties List. Costs are taxed to defendants. The clerk is directed to close this file. DONE and ORDERED this 26th day of June, 2012.
______________________________ United States District Judge
26
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION ) ) ) ) ) ) ) ) ) ) ) ) ) )
ORDER Pending before the Court is a Motion for Leave of Amici Curiae the Chamber of Commerce of the United States, the American Petroleum Institute, the National Association of Manufacturers, National Ocean Industries Association, Organization for International Investment, and Techamerica for Leave to File a Brief in Support of Plaintiffs Motion for Summary Judgment. Having considered the motion and the applicable law, the Court hereby GRANTS the motion. IT IS SO ORDERED. SIGNED at Houston, Texas, on this the ______ day of December, 2013. __________________________________ VANESSA D. GILMORE UNITED STATES DISTRICT JUDGE

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Case 4:13-cv-02349 Document 38 Filed in TXSD on 12/02/13 Page 1 of 5

BP EXPLORATION & PRODUCTION INC., et al.,

No. 4:13-cv-02349 Hon. Vanessa D. Gilmore

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Dated: December 2, 2013

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/s/ Bruce D. Oakley Bruce D. Oakley

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BP EXPLORATION & PRODUCTION INC., et al.,

No. 4:13-cv-02349 Hon. Vanessa D. Gilmore

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CONCLUSION ..............................................................................................................................24 CERTIFICATE OF SERVICE APPENDIX

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Unlike suspension or debarment, statutory

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Dated: December 2, 2013

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/s/Bruce D. Oakley Bruce D. Oakley

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2012 Jun-26 AM 11:27 U.S. DISTRICT COURT N.D. OF ALABAMA

Civil Action No. CV-11-S-4111-NE

Doc. no. 1 (Complaint).

See doc. no. 1-1 (Organizational Chart).

See id. Doc. no. 5 (Answer) 8. 5

Certified Administrative Record, at Bates 735 (Agility Suspension Letter).

Id. at Bates 788-89.

Id. Complaint, at Ex. 4 (Management Buyout Term Sheet). Id. at 1.

Management Buyout Term Sheet, at 1. Id. at 2.

Certified Administrative Record, at Bates 1662-69 (Amended Operating Agreement). 12

See doc. no. 1 51-61. 15

Bench Ruling Transcript, at Bates 1380. Id. at Bates 1380-81.

The full text of those subsections reads as follows:

The full text of 9.407-4(b) provides: