Opinion
Civil Action No. 01-1701 (HHK/JMF)
May 9, 2002
REPORT AND RECOMMENDATION
On May 24, 2000 Edward J. Kraus, Director of the Departmental Enforcement Center at the United States Department of Housing and Urban Development ("HUD"), sent a letter to the Eugene Burger Management Corporation ("EBMC"). The letter warned EBMC that HUD was proposing the debarment of EBMC for three years and that "[t]his action is in accordance with the procedures set forth at Title 24 Code of Federal Regulations . . ." AR at Tab 1. HUD charged that beginning in April, 1999 EBMC managed Consumnes River Apartments without obtaining HUD's prior approval and when Hediger Enterprises, Inc. ("Hediger") was the only entity HUD had approved to manage this property. The letter also charged that EBMC had performed management activities after HUD suspended it following its indictment on October 26, 1999.
"AR" is a reference to the Administrative Record.
Kraus then stated:
Mier Wolf is my designee in this matter. He has the authority to review any written submissions, conduct a hearing pursuant to 24 C.F.R. § 313(a), decide whether there are genuine issues over material facts, and to propose to me a recommended decision regarding this matter.
AR at Tab 1, Page 2.
The letter warned EBMC that it had to submit within 30 days what Kraus called "a written argument and/or hearing request" to challenge the proposed debarment. Id.
EBMC responded on June 20, 2000. It denied that there were any grounds for its debarment, challenged Wolf's designation, and insisted that any review of what Wolf did by his superiors within the Enforcement Center violated due process of law. AR at Tab 2. Specifically, EBMC said:
[W]e submit that there are genuine issues of material facts, and we ask for a hearing before an administrative law judge or other independent hearing officer to decide such disputes.Id. at Page 1.
HUD then submitted Government's Brief in Support of Debarment in which it argued that the proposed debarment was supported by a preponderance of the evidence. It appended to that brief the declarations of various HUD officials and the documents which supported its assertions. AR at Tab 6.
In response, EBMC filed its Motion to Dismiss or in the Alternative for an Evidentiary Hearing in which it sought either dismissal "or discovery . . . to resolve the factual issues described below." AR at Tab 7, Page 1. EBMC specifically indicated that there were genuine issues of material fact as to (1) the extent of EBMC's role managing the property in question, (2) the events that occurred at the March 25, 1999 meeting (EBMC claims that its representatives made a full and accurate disclosure of the actual relationship between EBMC and Hediger which established that EBMC was not managing the property) and (3) what EBMC and Hediger actually intended under the agreement HUD points to as proof that EBMC was managing the property even thought EBMC had not been approved and was under suspension. AR at Tab 7, Pages 7-8.
Wolf then presided at the hearing which was held on October 30, 2000. Wolf did not make a specific determination that there were any genuine issues of material fact or draft a proposed decision for Kraus to review. Instead, a man named John L. Gant issued HUD's final decision and made a finding of fact that EBMC had not secured the requisite approval to mange the property in question or serve as a management consultant. AR at Tab 11, Page 3, ¶ 8. Gant also found that EBMC had managed the property after its suspension. Id. at ¶ 2. He therefore ordered a three year debarment.
It is fundamental that an agency must follow its own regulations. The pertinent regulations here impose a specific responsibility upon the debarring official. Unless the debarring action is based upon a criminal conviction or a civil judgment, the debarring official must determine whether "respondent's submission in opposition raises a genuine issue over facts material to the proposed debarment." 24 C.F.R. § 24.313(4)(b) (2001). If it does, then "the respondent shall be afforded an opportunity to appear with a representative, submit documentary evidence, present witnesses, and confront any witness the agency presents." Id.
Brock v. Cathedral Bluffs Shale Oil Co., 796 F.2d 533, 536 (D.C. Cir. 1986).
Once genuine issues of material fact emerge and it becomes, in the language of the regulation, "necessary to determine disputed material facts," the debarring official must prepare written findings of fact. 24 C.F.R. § 24.314(b)(1) (2001). The official must then base his determination on the "facts as found." Id. She may refer the disputed material facts to "another official," and may reject the other official's findings only after specifically determining those findings to be arbitrary and capricious or clearly erroneous. 24 C.F.R. § 24.314(b)(2). If there are disputed material facts, the debarring official may also refer either the disputed material facts or issues of law, or both, to a hearing officer. 24 C.F.R. § 24.314(2)(i).
All subsequent references to 24 C.F.R. will be to the 2001 edition.
These regulations demarcate the boundary between two types of cases on the basis of whether the respondent's submission raises a genuine issue of material fact. If it does, then the road forks and the debarring official is obliged to make written findings of fact and base her ultimate legal determination upon the facts as she finds them, i.e, in the manner in which she resolves the factual issues. In other words, if she is confronted, let us say, by a case in which one party claimed a certain meeting took place and the other party denied that it did, the debarring official or the hearing officer must first determine whether the existence of the meeting was material to the issues presented. If it was, the debarring official must then afford the respondent the rights provided by 24 C.F.R. § 24.313(b), i.e., the opportunity to submit documentary evidence, present witnesses and confront the agency's witnesses. Once the debarring official hears the evidence, she must then resolve the factual issue presented, i.e, did the meeting take place? She must then make findings of facts as to that issue and base her ultimate legal determination on those findings.
Note that HUD's counsel at the hearing seems to have conceded that genuine issues of material fact existed. Transcript of hearing at 59.
None of this is revolutionary to anyone familiar with the proper practice under Fed.R.Civ.P. 56(c). The movant is required by local rule to identify those material facts as to which there is no genuine issue. Her opponent must then respond with a statement of all material facts as to which the opponent claims there is a genuine issue. See e.g. LCvR 56.1. It is indefensible error for the court to do any thing but first determine whether a genuine issue of material facts exists. If it does, the motion must be denied.
Similarly, under HUD regulations, the moment the debarring official finds that there is a genuine issue of fact, she must afford the respondent the rights provided by § 24.313(b) and fulfill her obligations to resolve those questions by issuing written findings of fact and predicating her legal conclusions on those findings. 24 C.F.R. § 314(b)(1). Since determining whether a genuine issue exists is crucial to the next stage, her specific finding that a genuine issue does or does not exist is critical to the process. If she does not specifically indicate whether or not a genuine issue of fact exists, it is impossible to ascertain whether she understood her obligation to make that determination before she did any thing else. Her leaping from a respondent's submission which asserts that genuine issues of fact exist to a final determination of debarment eliminates the crucial, intermediate step of first determining whether that submission and the rest of the record creates a genuine issue of material fact even. This is significant because different procedures follow a finding that there exists a genuine issue of material fact versus a finding that there does not. Therefore, as one court has specifically held, the failure to first determine whether there are genuine issues of fact is error under these very regulations. Gonzalez v. HUD, 2000 U.S. Dist. LEXIS 18935 *13-14 (D.Colo. 2000).
The Department of Justice, as HUD's counsel, would dismiss this analysis by relying on a single sentence in a 4th circuit opinion and claiming that "the Debarring Official may implicitly determine that there was not a genuine dispute over facts material to the proposed agency action." Reply Memorandum in Support of Defendants' Motion for Summary Judgment at 2. But, that claim ignores the fork in the road the regulations create. If the debarring official determines that there is no genuine issue of fact, she makes her decision based on the administrative record; she has no obligation to produce written findings of fact. 24 C.F.R. § 24.314(a). On the other hand, if she determines that such an issue does exist, she must produce written findings of fact. In this case, the debarring official made written findings of fact. Since he did, he must have implicitly determined that a genuine issue of fact did exist. He had no obligation to produce such findings if he determined, as the government now insists, that there were no genuine issues of material fact. Thus, like the Cheshire Cat, this records points in two directions simultaneously. The debarring official "implicitly" found that there was no genuine issue of fact and thus was relieved of the obligation to produce written findings of fact. Nevertheless, the debarring official did produce written findings of fact, thus suggesting that there were genuine issues of fact. Based on this apparent contradiction, it is impossible to determine what the debarring official actually did and thus his determination cannot possibly stand.
Marshall v. Cuomo, 192 F.3d 473, 480 (4th Cir. 1999).
Finally, whether implicit or explicit, an agency determination that a genuine issue of material fact did not exist cannot stand if it is arbitrary and capricious. Marshal, 192 F.3d at 480. Thus, even if the debarring official in fact considered whether a genuine issue of fact existed (which I am certain he did not) and, as HUD would argue, "implicitly" decided that it did, that determination is irrational.
These parties were divided on two central factual issues. First, HUD insisted that the information it was making part of the administrative record established that Wilma Wilson, who worked for EBMC, was functioning as a managing agent for the property. HUD pointed to her correspondence with HUD officials as indication that she was in fact functioning as a managing agent, and HUD pointed to what it claimed was role as a supervisor over James Shabazz, an individual who worked for the Heideger organization, HUD's authorized managing agent. HUD also argued to the consulting agreement between the Heideger organization and EBMC (that EBMC never volunteered and HUD had to demand) establishes that the contract imposed on EBMC managing agent responsibilities which Wilson fulfilled.
For her part, Wilson insisted in her declaration that she was functioning only as a consultant to the Heideger organization, and that her responsibilities were limited to the following: (1) coordinating communications between the Heideger organization and HUD and (2) providing expertise on HUD compliance and occupancy issues to James Shabazz, Heideger's resident manager. She insisted that she never was a managing agent and never considered herself one. AR at Tab7A. Instead, she claimed she reported to the Heidegger organization and received direction from them. Id.
Obviously, there was a genuine, dramatic and absolute dispute among HUD, EBMC and the Hediger representatives: was Wilson, an EBMC employee, functioning as managing agent of the property? On this record, it was irrational for any one to conclude that this factual issue did not exist in the teeth of two groups of witnesses providing diametrically opposed testimony as to Wilson's functions, responsibilities, and daily actions.
An equally genuine dispute exists as to the meeting that took place on March 25, 1999. The HUD officials who attended the meeting insisted that all they were told at the meeting that because of the personal friendship between Eugene Burger and Gary Hediger, Burger would "keep his eye" on the Sacramento project because Burger had a local presence and Hediger did not. The HUD official who provided a declaration on this issue insisted that no one told the HUD officials about any consulting agreement and that the meeting was hurried because Heidegger had to catch a plane. AR at Tab 6E, Declaration of Robin C. Thompson.
EBMC and Heidegger officials said the exact opposite, that there was a complete and thorough explanation of the nature of the consulting agreement between EBMC and the Hediger organization. AR at Tab 7A, ¶ 4; Tab 7L, ¶ 4; Tab 7M, ¶ 5.
This difference as to what occurred at the meeting is as material as it is genuine. As I pointed out at the hearing in this case, the law permits a finder of fact to draw an inference of guilt, for example, from a defendant's flight or deception. Conversely, full disclosure of certain facts is inconsistent with a belief that one has done something wrong. If one credits the HUD version of what happened at the meeting, then EBMC's not disclosing the actual agreement permits the inference that it was improper, that EBMC had "something to hide." Conversely, full disclosure of the consulting agreement permits the converse inference. Thus, there is crucial connection between the resolution of the factual dispute as to what happened at the meeting and acceptance or rejection of the thesis that EBMC acted in violation of HUD regulations. To find that the dispute as to what occurred at the meeting is neither genuine nor material is to make a determination that is utterly irrational.
CONCLUSION
I have concluded that HUD failed to comply with its own regulations by failing to determine whether the submissions by HUD and EBMC created a genuine issue of material fact. I therefore recommend that the debarment of EBMC be vacated and that this matter be remanded to the agency for proceedings consistent with this opinion and for a specific determination as to whether the parties' submissions created a genuine issue of material fact. If the agency concludes that they did, it must comply with its own regulations as what procedure must then take place.
I further recommend that Defendants' Motion for Summary Judgment [#19] be denied and that plaintiff's Motion for Stay, or in the Alternative, for Preliminary Injunction and Request for Expedited Ruling [#14] be denied as moot.
Failure to file timely objections to the findings and recommendations set forth in this report may waive your right of appeal from an order of the District Court adopting such findings and recommendations. See Thomas v. Arn , 474 U.S. 140 (1985).