Agility Defense & Government Services, Inc. v. U.S. Department of Defense ( 2013 )


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  •                Case: 13-10757        Date Filed: 12/31/2013      Page: 1 of 13
    [PUBLISH]
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE ELEVENTH CIRCUIT
    ________________________
    No. 13-10757
    ________________________
    D.C. Docket No. 5:11-cv-04111-CLS
    AGILITY DEFENSE & GOVERNMENT SERVICES,
    AGILITY INTERNATIONAL, INC.,
    Plaintiffs–Appellees,
    versus
    U.S. DEPARTMENT OF DEFENSE,
    SECRETARY OF DEFENSE,
    DEFENSE LOGISTICS AGENCY,
    DIRECTOR OF THE DEFENSE LOGISTICS AGENCY,
    Defendants–Appellants.
    ________________________
    Appeal from the United States District Court
    for the Northern District of Alabama
    _______________________
    (December 31, 2013)
    Before PRYOR and COX, Circuit Judges, and ROSENTHAL, ∗ District Judge.
    ∗
    Honorable Lee H. Rosenthal, United States District Judge for the Southern District of Texas,
    sitting by designation.
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    PRYOR, Circuit Judge:
    This appeal requires us to decide whether a federal agency may suspend two
    affiliates of an indicted government contractor for the duration of the legal
    proceedings against the indicted contractor under the Federal Acquisition
    Regulation. See 
    48 C.F.R. § 9.407-4
    (b) (2012). When an agency suspends a
    government contractor, the agency may also suspend an affiliate of the contractor
    based solely on its affiliate status. 
    Id.
     § 9.407-1(c). Suspensions are temporary,
    and in “no event may a suspension extend beyond 18 months, unless legal
    proceedings have been initiated within that period.” Id. § 9.407-4(b). We must
    determine whether the term “legal proceedings,” in this regulation, refers to
    proceedings against the indicted government contractor or against the suspended
    affiliates of that contractor. The district court interpreted the term to refer to
    proceedings against the suspended affiliates, not the indicted contractor, but we
    disagree. Because the suspension of an affiliate is “include[d]” as part of the
    suspension of the indicted government contractor, id. § 9.407-1(c), we conclude
    that legal proceedings initiated against the indicted government contractor tolled
    the 18-month time limit for the suspension of the affiliates. We reverse the
    summary judgment in favor of the affiliates and render a judgment in favor of the
    defendants.
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    I. BACKGROUND
    The Federal Acquisition Regulation governs the acquisition of supplies and
    services by all federal agencies. See Establishing the Federal Acquisition
    Regulation, 
    48 Fed. Reg. 42,102
    -01-A (Sept. 19, 1983). For example, the
    regulation governs the contracts between the Department of Defense and the
    appellants, Agility Defense & Government Services and Agility International, Inc.,
    which are government contractors. Under this regulation, a prospective
    government contractor must demonstrate its “responsibility” before an agency
    awards a government contract. 
    48 C.F.R. §§ 9.103
    , 9.104-1. When an existing
    contractor is deemed non-responsible, the regulation provides for the suspension
    and debarment of the non-responsible contractor and its affiliates. 
    Id.
     §§ 9.406-
    2, 9.407-2.
    An agency official may suspend a government contractor for various
    reasons, including the contractor’s commission of fraud or a criminal offense,
    unfair trade practices, or “other offense[s] indicating a lack of business integrity or
    business honesty that seriously and directly affects the present responsibility of a
    Government contractor or subcontractor.” Id. § 9.407-2(a). The agency official
    may extend the suspension of the indicted government contractor “to include any
    affiliate[] of the contractor if they are (1) specifically named and (2) given written
    notice of the suspension and an opportunity to respond.” Id. § 9.407-1(c); see also
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    id. § 9.403 (defining “affiliate”). A suspension of an indicted government
    contractor and its affiliates is a “temporary” remedy to “protect the Government’s
    interest.” Id. §§ 9.407-4(a), 9.407-1(b)(1). And “[i]n no event may a suspension
    extend beyond 18 months, unless legal proceedings have been initiated within that
    period.” Id. § 9.407-4(b).
    Based on this regulation, Agility Defense and Agility International were
    suspended in November 2009. A grand jury indicted the parent company of
    Agility Defense and Agility International, Public Warehousing Company, K.S.C.,
    for a multibillion-dollar fraud perpetrated against the United States in connection
    with its government contract to supply food to American military personnel in the
    Middle East. The Defense Logistics Agency, a combat support agency of the
    Department of Defense, suspended Public Warehousing on November 16, 2009, on
    the basis of the indictment. See id. § 9.407-1(c). On the same day, the agency
    extended the suspension to Agility Defense because it was an affiliate of Public
    Warehousing. And on November 23, 2009, the agency suspended Agility
    International on the same basis.
    The affiliates submitted written responses in opposition to their suspensions.
    They argued that they were not implicated in the indictment of Public
    Warehousing and that they had sufficient compliance procedures to guard against
    fraud. The agency rejected their requests to terminate the suspensions. Both
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    affiliates then sought a temporary restraining order to enjoin the agency from
    implementing the suspensions, which the District Court for the District of
    Columbia denied.
    The affiliates appealed to the agency to reconsider their suspensions, but the
    agency refused their requests. Agility Defense presented new evidence of
    improved compliance procedures, but the agency refused to terminate its
    suspension. The agency likewise refused to reconsider the suspension of Agility
    International after it proposed a management buyout, in which a new holding
    company would buy a 60-percent stake in Agility International, and Public
    Warehousing would indirectly retain only 40-percent ownership. The agency
    stated that the buyout would not affect its suspension, so Agility International did
    not complete the buyout.
    After the agency lifted the suspensions of other affiliates of Public
    Warehousing based on similar management buyout plans, Agility Defense and
    Agility International filed this action for injunctive and declaratory relief. Both
    parties agreed that there was no genuine dispute as to any material fact and moved
    for summary judgment. The district court granted summary judgment in favor of
    the affiliates and denied summary judgment in favor of the agency. The district
    court ruled that the agency did not have the power to suspend the affiliates
    indefinitely even if it initially had the power to suspend the affiliates based solely
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    on their affiliate status. Because neither the United States nor its agencies initiated
    legal proceedings against the affiliates within 18 months of their suspension
    notices, the district court declared the suspensions contrary to law and ordered the
    agency to terminate the suspensions.
    II. STANDARD OF REVIEW
    We review a grant of summary judgment de novo. See Citizens for Smart
    Growth v. Sec’y of the Dep’t of Transp., 
    669 F.3d 1203
    , 1210 (11th Cir. 2012).
    We apply the same legal standards as the district court when we review an agency
    action, and we set aside the agency action only if it is “arbitrary, capricious, an
    abuse of discretion, or otherwise not in accordance with the law.” Id.; see 
    5 U.S.C. § 706
    (2)(A).
    III. DISCUSSION
    We divide our discussion in two parts. First, we hold that the regulation
    permits the suspension of an affiliate of an indicted government contractor to
    exceed 18 months when legal proceedings have been initiated against the indicted
    government contractor. Second, we hold that the regulation does not
    unconstitutionally deprive the affiliates of their right of due process under the Fifth
    Amendment.
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    A. The Suspension of an Affiliate of an Indicted Government Contractor May
    Exceed 18 Months When Legal Proceedings Have Been Initiated Against the
    Indicted Government Contractor.
    The central issue in this appeal is whether the United States or its agencies
    must initiate legal proceedings against an affiliate of an indicted government
    contractor to toll the 18-month time limit on the suspension of the affiliate even
    though the affiliate was suspended solely on account of its affiliate status. The
    regulation states, “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).
    The agency argues that we must interpret “legal proceedings” as legal proceedings
    against the indicted government contractor. The affiliates argue that we must
    interpret “legal proceedings” as legal proceedings against the suspended affiliate of
    the indicted government contractor. We agree with the agency.
    We interpret the term “legal proceedings” in context with two related
    provisions in the regulation. See FDA v. Brown & Williamson Tobacco Corp.,
    
    529 U.S. 120
    , 132–33, 
    120 S. Ct. 1291
    , 1301 (2000) (“The meaning—or
    ambiguity—of certain words or phrases may only become evident when placed in
    context.”); Strickland v. Water Works and Sewer Bd. of City of Birmingham, 
    239 F.3d 1199
    , 1204–05 (11th Cir. 2001); see also Antonin Scalia & Bryan A. Garner,
    Reading Law: The Interpretation of Legal Texts 167–69 (2012) (“The text must be
    construed as a whole.”). First, the regulation clearly states that an agency can
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    suspend an affiliate based solely on its status as an affiliate of an indicted
    government contractor. 
    48 C.F.R. § 9.407-1
    (c). Second, the parallel provision
    governing debarment likewise permits an affiliate to be debarred solely based on
    its status as an affiliate. 
    Id.
     § 9.406-1(b). Together, these provisions make clear
    that the suspension and debarment of an affiliate derive solely from its status as an
    affiliate; no showing of wrongdoing by the affiliate is required for suspension or
    debarment.
    Because the regulation clearly establishes that the agency can suspend an
    affiliate without any showing of wrongdoing by the affiliate, we read “legal
    proceedings” as legal proceedings against the indicted government contractor. The
    agency must satisfy only three requirements to suspend an affiliate: (1) it must
    establish that the affiliate has the power to control the indicted government
    contractor or be controlled by the indicted government contractor; (2) it must
    specifically name the affiliate; and (3) it must provide notice of the suspension and
    notice of an opportunity for the affiliate to respond. Id. §§ 9.403, 9.407-1(c).
    Together, the suspensions of an indicted government contractor and its affiliate
    constitute one “suspension decision” because an affiliate is “include[d]” in the
    suspension of the indicted government contractor. Id. § 9.407-1(c). No cause
    precipitates the suspension of an affiliate except for its association with the
    indicted government contractor. The United States and its agencies have little
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    reason to initiate legal proceedings against an affiliate suspended solely on account
    of its affiliate status.
    The affiliates argue that an affiliate must be treated as an independent entity
    when an agency evaluates the duration of its suspension because an agency treats
    an affiliate as an independent entity when evaluating whether the affiliate is
    eligible to be a government contractor. See id. § 9.104-3(c). But the agency action
    before us is not a finding of present responsibility for the purpose of awarding a
    government contract. We are instead reviewing the suspensions of two affiliates,
    which all parties agree derive solely from their association with Public
    Warehousing following its indictment for a multibillion-dollar fraud committed
    against the United States. The whole text of the regulation provides that an
    affiliate can be suspended based solely on its affiliate status so long as the agency
    establishes that it is an affiliate, gives notice of the suspension, and provides an
    opportunity to respond to the suspension. The present responsibility of an affiliate
    is irrelevant.
    We also read the disputed text in context with the parallel provision of the
    regulation governing debarment. A suspension is the precursor to the more
    permanent remedy of debarment. See id. § 9.406-1. If the prosecution of a
    government contractor results in a conviction, for example, then that conviction
    can serve as the basis to debar the contractor. The agency may also debar an
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    affiliate of that contractor based solely on its affiliate status. Id. § 9.406-1(b). Like
    suspensions, an agency can debar an affiliate even if the affiliate has not engaged
    in wrongdoing. Id. § 9.406-1(b); see also Leitman v. McAusland, 
    934 F.2d 46
    , 48,
    48 n.2 (4th Cir. 1991); Robinson v. Cheney, 
    876 F.2d 152
    , 154 (D.C. Cir. 1989);
    Ciaola v. Carroll, 
    851 F.2d 395
    , 400 (D.C. Cir. 1988). Only one court has stated
    that the debarred affiliate “must have been involved in or affected by the
    contractor’s wrongdoing to be named in the debarment,” OSG Prod. Tankers LLC
    v. United States, 
    82 Fed. Cl. 570
    , 578 (2008), but this statement by the Court of
    Federal Claims was dicta. OSG Product Tankers involved a dispute about whether
    the company was eligible to be a government contractor, and the opinion included
    discussion of a previous debarment. This dicta about a requirement of wrongdoing
    by the affiliate in OSG Product Tankers is unpersuasive in the light of the whole
    text of the regulation and the decisions of our sister circuits, which allow the
    debarment of an affiliate based solely on its status as an affiliate.
    Our reading of the provisions governing debarment makes sense of the term
    “legal proceedings” in the provision governing suspension. If the legal
    proceedings against Public Warehousing were to result in a conviction and
    debarment, the agency could debar both Agility Defense and Agility International
    based solely on that conviction and debarment of Public Warehousing. It would be
    nonsensical to require the agency either to terminate the suspensions of the
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    affiliates or to initiate separate legal proceedings against the affiliates, only to
    debar them if the legal proceedings against Public Warehousing end in a
    conviction.
    B. A Suspension of an Affiliate that Exceeds 18 Months Is Not a Violation of Due
    Process Because the Regulation Affords an Affiliate Constitutionally Sufficient
    Process To Contest Its Suspension.
    To establish a violation of the Due Process Clause of the Fifth Amendment,
    the affiliates must prove that they have a constitutionally protected interest in
    liberty or property, that the government deprived them of that interest, and that the
    procedures accompanying that deprivation are constitutionally inadequate. See
    Bank of Jackson Cnty. v. Cherry, 
    980 F.2d 1362
    , 1366 (11th Cir. 1993). A
    contractor possesses no property interest in doing business with the United States.
    
    Id.
     But a contractor can establish that an agency deprived it of its liberty interest if
    it proves that an agency has made a stigmatizing allegation, the allegation has been
    disseminated or publicized, and the allegation has resulted in the loss of a tangible
    interest. 
    Id. at 1367
    .
    The district court erred when it stated that the suspensions of the affiliates,
    which exceeded 18 months, “raise[d] due process concerns” because the regulation
    guarantees constitutionally adequate process. It is unlikely that the regulation
    infringes on the liberty interests of the affiliates given that their suspensions were
    predicated solely on their status as affiliates of Public Warehousing and the agency
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    did not make any allegations of wrongdoing against them. But, even assuming that
    the suspension of the affiliates deprived them of their liberty, the regulation does
    not violate the Due Process Clause because it contains constitutionally adequate
    procedures. An agency must immediately notify a suspended affiliate of its
    suspension by certified mail. 
    48 C.F.R. § 9.407-3
    (c). That notification includes
    the basis of the suspension and advises the affiliate of its opportunity to respond in
    writing. 
    Id.
     These procedures—notification and an opportunity to respond—are
    constitutionally adequate procedures for multiyear suspensions. See Home Bros.,
    Inc. v. Laird, 
    463 F.2d 1268
    , 1271 (D.C. Cir. 1972) (“[A]n action that ‘suspends’ a
    contractor and contemplates that he may dangle in suspension for a period of one
    year or more . . . . requires that the bidder be given specific notice as to at least
    some charges alleged against him, and be given, in the usual case, an opportunity
    to rebut those charges.”).
    The affiliates contend that the continuation of their suspensions without
    additional process is “constitutionally dubious,” but the affiliates fail to recognize
    that the agency afforded them additional process when it twice considered their
    request to terminate their suspensions. In both instances, the agency ruled that the
    affiliates could not establish that they were no longer “affiliates” of Public
    Warehousing. See 
    48 C.F.R. § 9.403
    . So long as they are affiliates of Public
    Warehousing, they can be suspended. See 
    id.
     § 9.407-1(c). The affiliates have
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    conflated constitutionally adequate process with getting their way. That the
    agency refused to lift their suspensions is not the equivalent of constitutionally
    inadequate process.
    IV. CONCLUSION
    We REVERSE the summary judgment in favor of the affiliates, Agility
    Defense and Agility International, and RENDER a judgment in favor of the
    defendants.
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