P. S. Docket No. SUS 94-200
January 20, 1995
In the Matter of the Suspension )
of )
)
DAVID K. GILLETT )
)
and )
)
MAJESTIC AIRLINES ) P. S. Docket No. SUS 94-200
APPEARANCE FOR POSTAL SERVICE: Samuel J. Schmidt, Esq.
Western Area Office
448 East 6400 South, Suite 450
Salt Lake City, UT 84107-7591
APPEARANCE FOR RESPONDENT: Max D. Wheeler, Esq.
Snow, Christensen & Martineau
10 Exchange Place, Eleventh Floor
P. 0. Box 45000
Salt Lake City, UT 84145-5000
POSTAL SERVICE DECISION
David K. Gillett and Majestic Airlines, Inc. (Respondents or Majestic) have filed an appeal from a Notice of Suspension which advised Respondents that they have been suspended from contracting with the United States Postal Service because of serious irregularities in connection with the performance of their Postal Service contracts. Following the filing of the appeal and the setting of a hearing date requested by Respondents, the Postal Service filed a motion to amend the Notice of Suspension to add as an additional cause for the suspension a civil False Claims Act action filed against Respondents by a United States Attorney on behalf of the Defense Fuel Supply Center, a component of the Defense Logistics Agency. Over objection of Respondents, the Postal Service motion to amend the Notice of Suspension was granted.1/
The hearing was held on December 6, 1994, in Salt Lake City, UT. At the hearing the following threshold issues were identified as establishing the parameters for the presentation of evidence:
1. Whether the False Claims Act Complaint alone serves as a basis for the suspension and whether it is adequate evidence that falsification has occurred (Tr. 10).
2. Whether a course of conduct allowing substitution of aircraft, if proven, is a sufficient defense to a suspension from contracting with the Postal Service (Id.).
3. Whether a de facto debarment/suspension exceeding one year, If shown, precludes the present suspension action under Postal Service regulations (Id.).
After argument, the Judicial Officer ruled that the filing of the False Claims Act Complaint alone, in view of Rule 11 of the Federal Rules of Civil Procedure, is adequate evidence of the commission of falsification under §3.3.2.i.1(c) of the United States Postal Service Procurement Manual (PM) and therefore cause for suspension (Tr. 19). As a result of this ruling, evidence pertaining to a course of conduct allowing substitution of aircraft was considered unnecessary (Tr. 20). With respect to the de facto suspension issue, the Judicial Officer initially ruled that if Respondents could show the existence of a de facto debarment/suspension exceeding one year, they could prevail in this proceeding. However, prior to the presentation of evidence, Respondents were placed on notice that the ruling on this issue would also take into consideration the "prosecutive action" exception2/ to the one year requirement and the additional possible case law requirement that the de facto debarment/suspension be based on the same causes or events that are the basis for the current suspension action. Evidence on the de facto debarment/suspension issue was received at the hearing.
Findings of Fact
1. David K. Gillett is the sole shareholder of Majestic Holdings, Inc., a Utah Corporation. Majestic Holdings, Inc. is the sole shareholder of Majestic Airlines, Inc. (Stip. 1). Mr. Gillett has held the position of president of Majestic Airlines since February or March 1987 (Tr. 107).
2. By letter dated October 6, 1994, Respondents were notified they were suspended from contracting with the United States Postal Service. The Notice of Suspension as subsequently amended (hereafter referred to as the Notice of Suspension) advised Respondents that they were suspended from being awarded Postal Service contracts because of
"...numerous breaches of the Postal Service Air Taxi Contracts Identified above. Specifically, the suspension is based on evidence that David K. Gillett and Majestic Airlines, Inc., persistently substituted smaller, unregistered aircraft for aircraft required by the contracts, and on several occasions falsified PS Forms 1768, Aircraft Weight and Balance Data, and 2755, Air Taxi Mail Service Performed, to disguise that a smaller aircraft had been used.
In addition, on November 9, 1994, the Postal Service was advised that the United States Attorney for the District of Utah had filed a civil, False Claims Act action against David K. Gillett, for false claims submitted under a fuel supply contract with the Defense Logistics Agency. The filing of this action was based on evidence that David K. Gillett misrepresented the price paid for fuel supplied to the government.
The information provided to me in a Postal Inspection Service investigation memorandum and the complaint filed by the United States Attorney for the District of Utah, constitutes adequate evidence that the above-named individual and business entity have committed Irregularities of a serious nature in business dealings with the Postal Service, and have engaged in the commission of fraud incidental to performing a Government contract. PM § 3.3.2.i.1(a) and .2. These activities seriously reflect upon the propriety of the Postal Service having further business dealings with you and Majestic Airlines, Inc., since they reflect a lack of honesty and business integrity that seriously and directly affects present responsibility."
3. The Complaint in the False Claims Act suit referred to in the Notice of Suspension alleged that Gillett Airparts, Inc. d/b/a Majestic Air Service and David K. Gillett3/ , knowingly presented or caused to be presented to the United States false or fraudulent claims for payment under contracts with the Defense Fuel Supply Center. The false or fraudulent claims were alleged to have taken place on 69 separate occasions during the period October 1, 1988, through September 31, 1989, The Complaint further alleged that Respondents were liable to the United States for treble the amount of actual damages of $63,122.75 plus a $10,000 civil penalty for each false, fictitious or fraudulent claim (PS Exh. C).4/
4. The Complaint was signed on behalf of the United States by an Assistant United States Attorney on October 19, 1994 (Id.). An Answer to the Complaint was filed by Respondents denying that Respondents have violated the False Claims Act (Tr. 5).
5. Under Rule 11(b) of the Federal Rules of Civil Procedure an attorney presenting a pleading to a Federal court certifies that to the best of his knowledge, Information, and belief, formed after an inquiry reasonable under the circumstances, that:
"...
(2) the claims, defenses, and other legal contentions therein are warranted by existing law...
(3) the allegations and other factual contentions have evidentiary support or, If specifically so identified, are likely to have evidentiery support after a reasonable opportunity for further investigation or discovery;"
6. During the period 1987 to 1993, Majestic was awarded numerous air tax! contracts for the carriage of mail (Stip. 8; Notice of Suspension ¶3). In the Spring of 1991, the Postal Inspection Service initiated an investigation of Mr. Gillett and Majestic Airlines, Inc., based on allegations that Respondents were defrauding the Postal Service with regard to their air taxi contracts (Tr. 35; PS Exh. B). The Postal Inspection Service obtained a search warrant in connection with its investigation and executed that warrant to search Respondents premises on March 26, 1992 (PS Exh, B). Subsequent to the initiation of the investigation and the execution of the search warrant, Respondents continued to receive award of Postal Service air taxi contracts (Stip. 8; Tr. 77-8, 94-6). Respondents were awarded three contracts after the commencement of the investigation At least two of those contracts were awarded after the date of execution of the search warrant (Id.). The most recent award was made to Respondents in April, 1993 (Tr. 77-8, 129).
7. During the Spring or Summer of 1994, Majestic failed to receive award of four contracts on which it submitted either a bid or proposal (Tr. 32-3). The contracts are identified by their routes as Salt Lake City to Boise; Pocatello to Twin Falls to Salt Lake City; Pocatello to Salt Lake City; and Billings to Denver (Id.).
8. Majestic bid on, but was not awarded, the contract for air taxi service between Salt Lake City and Boise (Tr. 116-19). The evidence does not establish that Majestic was the low bidder on this contract (Tr. 118-19). Although Majestic was not awarded this contract, it did not protest the award to another bidder (Tr. 117).
9. Majestic was the low bidder on the contract for air taxi service between Pocatello, Twin Falls and Salt Lake City (Tr. 91, 120). Majestic was found nonresponsible and therefore not awarded the contract (Tr. 58-61, 72, 120). The nonresponsibility determination was based on a prior termination for default of Majestic's contract for the same route, recommendations by administrative officials who were unhappy with Majestic's prior performance and an assessment of Majestic's financial condition (Tr. 81-4). Majestic did not protest the rejection of its bid (Tr. 86).
10. Majestic was the low bidder on the contract for service between Pocatello and Salt Lake City (Tr. 120). Majestic's bid was rejected for being nonresponsive because of inadequate equipment (Tr. 59, 97-102, 120-22). The contract was for emergency services and the equipment Majestic proposed to use to provide the contract service was being overhauled and was not in a condition to be used on the route (Tr. 84-5, 97-100 ). Majestic did not protest the rejection of its bid for service on this route (Tr. 86, 127).
11. The Billings to Denver route was a negotiated procurement on which Majestic submitted an offer (Tr. 127-28). Majestic was the low offeror but did not receive award of this contract (Tr. 123-24). The award was based on payload with price having a major impact (Tr. 127). Majestic was not told why its proposal was rejected (Tr. 124) and the evidence does not,establish the reason it failed to obtain award of the contract for this route. Although others protested the award, Majestic did not protest the award to the successful offeror (Tr. 124, 127).
Discussion
I. False Claims Act Suit
Under PM §3.3.2.i, Causes for Suspension
"A department head may, when the interest of the Postal Service requires ... suspend any contractor:
1. Upon adequate evidence of or indictment for:
(a) Commission of fraud or a criminal offense incidental to obtaining, attempting to obtain, or performing a Government contract;
(c) Commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, receipt of stolen property, or any other offense indicating a lack of business integrity or business honesty that seriously and directly affects present responsibility as a contractor; or
2. For other cause of such serious and compelling nature, affecting responsibility as a contractor, as may be determined by the department head to warrant suspension. A pending hearing for debarment may be such a cause."
The civil False Claims Act suit initiated by the United States Attorney against Respondents alleges that during the period October 1, 1988 through September 31, 1989, Respondents knowingly presented or caused to be presented to the United States false or fraudulent claims for payment under a contract with the Defense Fuel Supply Center (FOF 3). By filing the suit the United States Attorney certified that to the best of his knowledge, information and belief found after an inquiry reasonable under the circumstances, the claims are warranted by existing laW and the allegations and other factual contentions have evidentiary support (FOF 5). In view of this certification, the suit constitutes adequate evidence of the commission of falsification of records on which the Vice President, Purchasing, could rely in concluding that cause for suspension exists under PM §3.3.2.i.1(c).
However, the acts on which the suit is based took place during the period October 1, 1988, through September 31, 1989, over five years before the initiation of this suspension proceeding (FOF 3). The occurrence of these acts, not just the filing of the suit, must be considered in determining whether Respondents are presently responsible and therefore whether discretion should be exercised to suspend Respondents. Although past wrongdoing may be the basis for determining that a contractor is not presently responsible, allegations of five year old misdeeds do not by themselves establish lack of present responsibility.5/ Thus, the False Claims Act suit alone does not support the exercise of discretion to suspend Respondents from contracting with the Postal Service.
Accordingly, the ruling with respect to this issue is modified to the extent stated herein. To fully adjudicate Respondents' appeal, evidence pertaining to the substitution of aircraft must be addressed. Such evidence, including evidence of a course of conduct, will be taken at a further hearing or by means of record submissions. A telephone conference with the parties will be initiated no later than January 27, 1995, to discuss the further processing of this proceeding.
II. De facto Debarment/Suspension
Respondents contend that since the initiation of the Postal Inspection Service investigation in the Spring of 1991, or at least as of the execution of the search warrant in March 1992, they have been informally excluded from contracting with the Postal Service. As a result, Respondents contend they have been the subject of a de facto debarment/suspension entitling them to some relief in this proceeding.
The evidence presented does not support Respondents' position. Majestic was awarded three contracts subsequent to the initiation of the investigation, at least two of which were awarded after the execution of the search warrant (FOF 6). While the record is not altogether clear, during the same period Majestic may also have been awarded a subcontract for the performance of air taxi service with Postal Service approval.6/
Although Respondents have identified four contracts on which they submitted a bid or proposal and on which they contend they did not receive an award because of the Postal Inspection Service investigation (see FOF 7), the evidence does not support their contention. Respondents were not the low bidder on one of the four contracts and therefore they have not shown that they were entitled to receive award of that contract (FOF 8). On another contract, Respondents were found to be nonresponsible for reasons unrelated to the Inspection Service investigation (FOF 9). On a third contract, the aircraft Respondents proposed for use for performance of the service was not operable when inspected by a Postal Service representative (FOF 10). Thus, it appears that the Postal Service properly rejected Respondents' bid to provide air taxi service under this contract. The fourth contract was a negotiated procurement which was not awarded to Respondents for reasons not explained in the record (FOF 11). While it is possible that rejection of Respondents' proposal may have been Improperly motivated, such a conclusion cannot be reached on the evidence presented.
Respondents did not protest any of the four rejections as it had a right to do under Postal Service procurement regulations. (See PM §4.5). Absent a bid protest adjudication of these actions or more probative evidence than was presented at the hearing, it cannot be concluded that Respondents' bids and offer were rejected and awards made to others for improper or unlawful reasons. Therefore, an the record presented, Respondents were not de facto debarred/suspended from contracting with the Postal Service.
Even If Respondents had shown that they were Improperly excluded from obtaining the four contracts for which bids or offers were solicited in the Spring or Summer of 1994, the exclusion has not exceeded the one year period allowed for extensions of a suspension under PM #167;3.3.2.k.3.7/. Therefore, a finding of a de facto debarment/suspension at this time would not preclude the present proceeding.
Additionally, when a de facto debarment/suspension has been alleged in a court proceeding, the courts have concluded that the alleged action does not preclude an appropriate agency debarment or suspension proceeding. Kiewit Sons Co. v. United States Army Corps of Engineers, 714 F.2d 163 (D.C. Cir. 1983). The remedy available to a contractor when a Court finds a de facto debarment/suspension is to have the case returned to the agency for initiation of a formal agency proceeding. See Leslie & Elliott Co. v. Garrett, 732 F. Supp. 191 (D.D.C. 1990). Such a formal agency proceeding has been held in this case.
Conclusion
The False Claims Act suit alone does not establish that Respondents are presently nonresponsible or that they should be suspended from contracting with the Postal Service based on that suit. Accordingly, the issue of the substitution of aircraft must be addressed as discussed herein. The evidence presented does not establish that Respondents have been de facto debarred/suspended from contracting with the Postal Service. Therefore, Respondents are not precluded from being suspended as the result of a prior de facto debarment/suspension.
James A. Cohen
Judicial Officer
1/ Respondents were offered an opportunity to obtain a postponement of the hearing If they needed additional time to prepare their case as the result of the amendment. However, Respondents elected to have the hearing held as scheduled. At the hearing, Respondents raised the question of the propriety of considering the False Claims Act Complaint because it was not included as a basis for suspension in the initial notice. However, the Judicial Officer affirmed his ruling that he could consider post-suspension information and events so long as the suspended parties were given notice and an opportunity to be heard (Tr. 20-21). See Recognition Equipment, Inc., P.S. Docket No. 32/62 at 3-5 and cases cited thereat (PSD Feb. 17, 1989).
2/ Under PM §3.3.2.k.3 a suspension plus its extensions may not "exceed in the aggregate a period of one year, unless a debarment proceeding or a prosecutive action is pending in which case successive additional periods of suspension may be imposed until the proceeding in question has been completed." (Emphasis added)
3/ At the times pertinent to the Complaint filed by the United States Attorney under the False Claims Act (PS Exh. C), Majestic Holdings, Inc. was the sole shareholder of Gillett Airparts, Inc., a Utah corporation d/b/a Majestic Air Service (Stip. 2).
4/ The Complaint included additional counts seeking actual damages on alternative theories of breach of contract, unjust enrichment, payment of money by mistake and conversion.
5/ See Recognition Equipment, Inc., P.S. Docket No. 32/62 at 28-9 (PSD Feb. 17, 1989). See also Sol Fisher, P.S. Docket No. 37/33 at 6 (PSD March 19, 1991); John R. Arnold, P.S. Docket No. 38/13 at 6-7 (PSD Oct. 2, 1991).
6/ See testimony of Mr. Kirkham, Tr. 94-6.
7/ This provision limits the period for suspension to 120 days, but permits extensions up to one year.