Opinion
No. C0-98-924.
Filed November 17, 1998.
Appeal from the Department of Transportation, File No. AC-C0-000924.
Steven K. Champlin, Richard W. Murphy, Dorsey Whitney, L.L.P., (for relator Sunram Construction, Inc.).
Hubert H. Humphrey III, Attorney General, Mary Al Balber, Assistant Attorney General, (for respondent Commissioner of Transportation).
Considered and decided by Randall, Presiding Judge, Foley, Judge, and Holtan, Judge.
Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. Art. VI, § 10.
Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. Art. VI, § 10.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1996).
UNPUBLISHED OPINION
Relator Sunram Construction, Inc. seeks review by writ of certiorari of respondent Deputy Commissioner of the Department of Transportation's default order debarring relator from public contracting opportunities for three years. Relator contends that respondent acted outside its legal authority in proceeding by default, that respondent's decision to impose the maximum three-year debarment without a hearing was an arbitrary and capricious abuse of agency discretion, and that respondent's dual-track approach is arbitrary and capricious insofar as it effectively foreclosed respondent's president's opportunity for a meaningful hearing on his personal debarment. We affirm in part, reverse in part, and remand.
FACTS
Relator Sunram Construction, Inc. and its president, Lee Sunram, pleaded guilty to mail fraud in U.S. District Court in January 1998.
Because the crime committed constituted a "contract crime," respondent Minnesota Department of Transportation began debarment proceedings against relator. Respondent served relator with a notice of proposed debarment and opportunity for hearing by letter dated February 17, 1998. Respondent had also begun debarment proceedings against relator's president, Lee Sunram, and it served him with a notice of proposed debarment and opportunity for hearing by letter dated February 12, 1998. Both notices stated [i]f you do not request a hearing within 20 days from the date of this notice, the allegations in this notice will be considered true and you will be debarred for a period from February 13, 1998 to February 13, 2001.
Lee Sunram served his response on respondent on March 5, 1998, and requested a hearing. Relator, however, did not serve its response on respondent until March 20, 1998, eleven days late. Relator asserted in its response that [relator] is filing its response after the stated response date in the Notice. Cheryl Sunram, upon whom the Notice was served, did not realize this Notice was different from the companion notice served upon her husband, Lee William Sunram. [Relator] did not intend to waive any of the company's rights. The response of Lee William Sunram was timely.
Citing relator's failure to make a timely request for a hearing, Deputy Commissioner Darryl E. Durgin debarred relator for three years by a default order dated April 29, 1998. Relator challenges the default order, claiming that respondent acted outside its legal authority in proceeding by default, abused its discretion in imposing the maximum sanction, and acted in an arbitrary and capricious manner by foreclosing any meaningful opportunity for a hearing for Lee Sunram.
DECISION
Judicial review of administrative proceedings is governed by Minn. Stat. § 14.69 (1996), which provides:
The court may affirm the decision of the agency or remand the case for further proceedings; or it may reverse or modify the decision if the substantial rights of the petitioners may have been prejudiced because the administrative finding, inferences, conclusion, or decisions are:
(a) * * * *
(b) In excess of the statutory authority or jurisdiction of the agency; or
(c) Made upon unlawful procedure; or
(d) Affected by other error of law; or
(e) Unsupported by substantial evidence in view of the entire record as submitted; or
(f) Arbitrary or capricious.
The party seeking review on appeal has the burden of proving that the agency decision meets one or more of the above-listed statutory criteria. See Markwardt v. State Water Resources Bd. , 254 N.W.2d 371, 374 (Minn. 1977); Casper v. Itasca County Human Servs. , 531 N.W.2d 506, 508 (Minn.App. 1995).
The administrative rule applicable to debarment provides that [a] business must be debarred by the Minnesota Department of Transportation when one or more of the grounds set forth in part 1230.3200 are established at a hearing or opportunity for hearing conducted under Minnesota Statutes, chapter 14.
Minn. R. 1230.3400, subpt. 1 (1997). Conviction of a "contract crime" is a ground for debarment. Minn. R. 1230.3200, subpt. 1 (1997); see also Minn. Stat. § 161.315, subd. 1(3) (1996) (privilege of doing business with department should be denied to persons convicted of "contract crime"). The definition of "contract crime" includes violation of federal fraud statutes. Minn. Stat. § 161.315, subd. 2(b) (1996); Minn. R. 1230.3100, subpt. 5 (1997).
Relator concedes that its mail fraud conviction is a ground for debarment. It contends, however, that the term of debarment should be one year rather than three years. Because relator does not contest that it must be debarred, we need not consider respondent's decision to debar relator by default. The question remains whether respondent's imposition of the maximum sanction without a hearing was justified.
This court reviews an administrative agency's assessment of penalties and sanctions under an abuse of discretion standard. In re Haugen , 278 N.W.2d 75, 80 n. 10 (Minn. 1979). However, an agency decision will be deemed arbitrary and capricious if the agency "relied on factors not intended by the legislature * * * [or] entirely failed to consider an important aspect of the problem * * *." In re Resolution of City of Austin , 567 N.W.2d 529, 533 (Minn.App. 1997) (quoting Minnegasco v. Minnesota Pub. Utils. Comm'n , 529 N.W.2d 413, 418 (Minn.App. 1995), rev'd on other grounds , 549 N.W.2d 904 (Minn. 1996)). A decision is also arbitrary and capricious when it represents an "agency's will rather than its judgment." Mammenga v. Department of Human Servs. , 442 N.W.2d 786, 789 (Minn. 1989) (citing Markwardt , 254 N.W.2d at 374). Factors to be considered in determining the term of debarment are:
[T]he seriousness of the offense; whether restitution has been made; whether the debarred person cooperated in civil or criminal lawsuits; the state's need to preserve the competitive bidding process; and whether the business is debarred or has been debarred in another jurisdiction.
Minn. R. 1230.3500 (1997).
Relator asserts that respondent's decision to debar relator by default and to impose the maximum three-year term, without considering its own rule to determine the period of debarment, was an arbitrary and capricious abuse of discretion. We agree.
Respondent based its decision to debar relator for the maximum three-year term solely upon relator's failure to answer respondent's notice of intent to debar. Respondent does not even purport to address the factors laid out in its own rule. See id. Instead, in its order of debarment memorandum respondent states:
[Relator] by its failure to request a hearing in a timely manner is subject to the default terms of the Notice. Having had reasonable notice and opportunity for hearing and having failed to timely request for a hearing, the [respondent] is justified in ordering [relator] debarred for a period of three (3) years * * *.
This decision does not represent a considered judgment on the part of respondent, but rather an exercise of its will to dispose of matters efficiently. As such, the decision is arbitrary and capricious. Mammenga , 442 N.W.2d at 789. In order for respondent to properly consider the factors relevant to the length of relator's debarment, relator must be given an opportunity for a hearing on that issue. Accordingly, we reverse and remand for a hearing to determine the length of relator's debarment.
Relator further contends that respondent's dual-track approach of moving to debar both relator and its president in separate proceedings is unreasonable, arbitrary, and capricious insofar as it forecloses relator's president's opportunity for a meaningful hearing.
The administrative rule dealing with debarment by affiliation provides as follows:
Subpart 1. Conviction of business imputed to person. The conviction of a business in any jurisdiction, for offenses listed in part 1230.3200 is imputed to any principal or other person associated with the business subject to debarment or suspension, who participated in, knew of, or had reason to know of the conduct.
Subp. 2. Debarment. A business must be debarred when it:
A. employs a former principal of a debarred or suspended business or person described in subpart 1 as an officer, director, manager, or in another significant decision-making capacity;
* * * *
Subp. 4. Duration. The period of debarment must be the same as that of the debarred former principal or business.
Minn. R. 1230.3600 (1997).
Relator argues that in debarring relator by default, respondent has effectively debarred Mr. Lee Sunram and rendered his hearing meaningless. It is clear, however, that the intent of rule 1230.3600 is that any principal would be effectively debarred when the business is debarred. That rule seems to reflect respondent's judgment that the principal is responsible for the actions of the business. It is completely consistent with that judgment that respondent would proceed against both the business and the principal. As such, that judgment was not arbitrary or capricious.