Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-97-05061/USCOURTS-caDC-97-05061-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 17, 1997 Decided January 16, 1998 

No. 97-5061

COMMERCIAL DRAPERY CONTRACTORS, INC. AND 

MILFORD ACQUISITION CORP., D/B/A DRAPERIES PLUS,

APPELLANTS

v.

UNITED STATES OF AMERICA, ET AL.,

APPELLEES

Appeal from the United States District Court 

for the District of Columbia 

(96cv02818)

Alan M. Grayson argued the cause and filed the briefs for 

appellants.

Nancy R. Page, Assistant U.S. Attorney, argued the cause 

for appellees. With her on the brief were Mary Lou Leary,

U.S. Attorney, and R. Craig Lawrence, Assistant U.S. AttorUSCA Case #97-5061 Document #323812 Filed: 01/16/1998 Page 1 of 12
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ney. John D. Bates, Assistant U.S. Attorney, entered an 

appearance.

Before: EDWARDS, Chief Judge, WALD and RANDOLPH, 

Circuit Judges.

Opinion for the Court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge: A grand jury returned an indictment against a government contractorCommercial Drapery 

Contractors, Inc.and its president, Jeffrey P. Goldstein, for 

defrauding the government. The General Services Administration then suspended contracting with Commercial until 

completion of the criminal proceedings, and terminated an 

ongoing contract with the company under a contractual provision allowing cancellation "for any reason." GSA also canceled an ongoing contract and suspended future contracting 

with Milford Acquisition Corporation, d/b/a Draperies Plus, a 

company Goldstein and his wife owned. The indictment 

alleged that Milford was involved in the scheme to defraud.

Commercial and Milford brought suit in United States 

district court, claiming that GSA's cancellation and suspension decisions violated multiple government procurement statutes and regulations, and constituted "de facto debarment" or 

"blacklisting," thereby depriving them of due process. The 

district court converted GSA's motion to dismiss into a motion 

for summary judgment, which it granted in GSA's favor. See 

Commercial Drapery Contractors, Inc. v. United States, 967 

F. Supp. 1 (D.D.C. 1997). Commercial and Milford appealed 

the district court's judgment and the court's supposed failure 

to grant their discovery request before ruling on GSA's 

motion.

Facts. Commercial, a Maryland corporation, sells "window 

treatments"draperies, blinds, cubicle curtains and the like. 

Before his indictment, Jeffrey Goldstein was in complete 

control of Commercial. He was president and sole stockholder of the corporation when the contracts involved in this case 

were negotiated. In 1990, Goldstein incorporated Milford. 

Like Commercial, Milford manufactures draperies and other 

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window treatments for sale to the government and to commercial customers. The indictment alleged that Goldstein 

owned forty-five percent of Milford's stock, while his wife 

owned the remainder.

For the past 23 years Commercial has supplied its products 

to the federal government under a series of "multiple award 

schedule" contracts negotiated with GSA. Multiple award 

schedule contracts allow the government to purchase supplies 

from contractors on an "as needed" basis at a price schedule 

previously determined through agreement with GSA. After 

lengthy negotiations, GSA awarded Commercial such a contract in February 1991. The price schedule was based upon 

cost and pricing data submitted by Commercial during the 

course of these negotiations. In 1993, GSA modified that 

schedule to allow Commercial to increase its prices, again 

relying on the cost and pricing data submitted by Commercial.

The indictment, returned on June 11, 1996, alleged that 

Commercial and Goldstein had falsified much of the information that Commercial provided to the agency during the 

course of these contract negotiations. According to the indictment, Commercial: reported significant commercial sales 

when the real numbers were much smaller; falsified its 

commercial price lists to indicate that it charged higher prices 

to its commercial customers than it in fact charged; submitted price lists and invoices inflating the costs of their purchase of fabric and other materials; and failed to disclose that 

it obtained some of its supplies from Milford at substantially 

lower prices than those reflected in the cost and pricing data 

submitted to the agency. The indictment also mentioned that 

Goldstein failed to disclose that he and his wife owned 

Milford.

In an effort to forestall the likely consequences of indictment, Commercial submitted a letter to GSA describing 

changes to its corporate structure that it believed would 

prevent future fraud. This effortand othersfailed. On 

July 23, 1996, GSA suspended Commercial and Milford from 

the receipt of new contracts. Four months later, GSA exerUSCA Case #97-5061 Document #323812 Filed: 01/16/1998 Page 3 of 12
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cised a termination clause in Commercial's and Milford's 

existing contracts.

Jurisdiction. Before we get to the merits, we must spend 

a moment on jurisdiction. This court cannot hear claims 

"founded upon any express or implied contract with the 

United States ... which are subject to sections 8(g)(1) and 

10(a)(1) of the Contract Disputes Act of 1978." 128 U.S.C. 

§ 1346(a)(2). Such matters are exclusively within the jurisdiction of the Court of Federal Claims. See 28 U.S.C. 

§ 1346(a)(2); 41 U.S.C. §§ 607(g), 609(a)(1); see also 

Ingersoll-Rand Co. v. United States, 780 F.2d 74, 76-78 (D.C. 

Cir. 1985). Among other things, Commercial and Milford 

complain about the termination clause in their contracts. 

That sounds like a claim founded on a contract. But "classification of a particular action as one which is or is not 'at its 

essence' a contract action depends both on the source of the 

rights upon which the plaintiff bases its claim, and upon the 

type of relief sought (or appropriate)." Megapulse, Inc. v. 

Lewis, 672 F.2d 959, 968 (D.C. Cir. 1982). The basis of 

Commercial and Milford's claim is that GSA's repeated attempts to extricate the government from financial dealings 

with them constituted unlawful "blacklisting." The dispute 

over the termination clause in their contracts is embedded 

within this broader claim, and is not an independent cause of 

action. This is presumably why Milford and Commercial 

seek only equitable relief, rather than damages for breach of 

contract. The claim and the type of relief requested thus 

reveal that this is not "at its essence" a contract action. 

Accordingly, we have jurisdiction.

Suspension of Commercial's and Milford's contracts. 

GSA has the authority to suspend contractors indicted 

for defrauding the government.2See 48 C.F.R. § 9.407-1(a), 

__________

1 The Contract Disputes Act applies, inter alia, to contracts 

entered into by an executive agency for the procurement of property. See 41 U.S.C. § 602(a).

2 GSA's power to suspend Commercial and Milford from contracting with the government is not, as they contend, limited by the 

Small Business Act, 15 U.S.C. § 637(b)(7), or the Competition in 

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-2(a)(1). The controlling regulation, 48 C.F.R 

§ 9.407-2(a)(1), provides that the suspending official "may 

suspend a contractor suspected, upon adequate evidence, of 

... [c]ommission of a fraud or a criminal offense in connection with (i) obtaining, (ii) attempting to obtain, or (iii) performing a public contract or subcontract...." Commercial's 

indictment for the commission of such a criminal offense is 

sufficient to support its suspension. See 48 C.F.R. § 9.407-

2(b) ("Indictment ... constitutes adequate evidence for suspension."); see also Horne Bros. v. Laird, 463 F.2d 1268, 1271 

(D.C. Cir. 1972). Counsel admitted as much in his letter to 

GSA on behalf of Commercial in which he stated that "the 

indictment alone constitutes adequate evidence for suspension." Milford's suspension was justified by its close affiliation with Commercial. See 48 C.F.R. § 9.407-1(c) ("The 

suspending official may extend the suspension decision to 

include any affiliates of the contractor....").

Despite these regulations, Commercial and Milford ask us 

to declare that the agency abused its discretion. They rely 

on another provision of the Code of Federal Regulations 

stating that GSA "may, but is not required to, consider 

__________

Contracting Act, 41 U.S.C. § 253b. The Small Business Administration is responsible for certifying the integrity and responsibility 

of a small business concern prior to the award of a government 

contract, see 15 U.S.C. § 647(b)(7). Once such an award is made, 

GSA can rescind the contract or prevent future contracting based 

upon evidence of the contractor's misconduct in the course of 

performance. See 48 C.F.R. § 9.407-1(a); see also ElectroMethods, Inc. v. United States, 728 F.2d 1471, 1476 (Fed. Cir. 1984). 

The Small Business Administration's regulations acknowledge this 

distinction. See 48 C.F.R. § 19.602-1(a)(2)(ii) (SBA need not be 

involved in a contractor's suspension). The Competition in Contracting Act requires that government contracts be awarded to 

"responsible" bidders. From this, Commercial and Milford somehow conclude that once a contractor is found responsible and 

awarded a contract, the issue of the contractor's responsibility may 

never be revisited. Nothing in the statute purports to limit GSA's 

power to suspend or cancel the contract on the basis of new 

information about a contractor's integrity.

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remedial measures or mitigating factors" taken by a contractor under threat of suspension. 48 C.F.R. § 9.407-1(b)(2). If 

the suspected contractor is found to be "presently responsible" such that it no longer presents a business risk to the 

government, the agency may choose not to exercise its prerogative to suspend. See 48 C.F.R. § 9.407-1(b)(2). The 

argument is that GSA's suspension was unjustified because 

Commercial had incorporated safeguards into its corporate 

structure, ensuring its "present responsibility." 

First in a letter to the agency, and then in a face-to-face 

meeting with agency officials, Commercial listed a number of 

the "remedial measures" the company had taken in order to 

prove itself "presently responsible": Goldstein resigned from 

his position as president of Commercial and executed an 

"irrevocable proxy" for his shares of Commercial; a new 

control board had taken over; the company adopted a written 

"Code of Ethics"; and an "Ombudsman" would be appointed 

to recognize, investigate and report future violations of the 

law or of the code.3

Donald Suda, the GSA official in charge of making the 

suspension decision, was not persuaded. In his written response to Commercial, he explained that "the change in 

management of Commercial is less than meets the eye." 

Suda noted that Goldstein remained an employee at Commercial, casting doubt on the independence of the new management committee. The management committee consisted of 

several longtime friends and associates of Goldstein. Goldstein's son, who had replaced him as Commercial's president, 

headed the committee. The committee had not filled its 

touted "Ombudsman" position. In response to GSA's inquiry, 

counsel for Commercial "guessed" that he himself would 

assume the role.

After Suda informed Commercial and Milford that he was 

suspending them from future contracting, Commercial wrote 

another letter proposing more changes and objecting to 

Suda's skepticism of Commercial's new management struc-

__________

3 Milford did not submit materials to the agency to support its 

claim of "present responsibility."

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ture. Suda considered and rejected these arguments in a 

five-page letter.

Suda's suspension order is significant for what it did not

decide. Suda frankly acknowledged that not all the facts 

were known. Based on the allegations of fraud in the indictment, and Commercial's toothless remedial measures, Suda 

decided to suspend Commercial and Milford from future 

contracting. But such suspensions are temporary measures, 

available to the government so that it may protect itself from 

suspect contractors. Although, as Commercial and Milford 

correctly observe, the regulations do not require GSA to 

suspend indicted contractors, the regulations also do not 

require the agency to give targets of suspension a second 

chance. We conclude that the suspension decision was supported by substantial evidence and was made in accordance 

with GSA's regulatory procedures.

Cancellation of Commercial's and Milford's contracts. 

Despite their suspension, Commercial and Milford continued 

to do business with the government during the fall of 1996. 

Before the indictment came down, both companies had been 

awarded four-year multiple award schedule contracts under 

which government agencies could order from them as need 

for their products arose. As one might have expected, the 

indictment and suspension prompted GSA to consider terminating these ongoing contracts as well. At first, GSA official 

Monica Gormley considered asking government agencies to 

order from other multiple award schedule contractors. 

Gormley quickly realized, however, that it would be difficult 

to notify all concerned. In addition, she worried that restricting federal agencies from contracting with these companies 

would hamper a process the multiple award scheduling system had intended to streamline. In light of these considerations, Gormley decided to exercise a clause present in the 

contracts. The clause read: "Resultant contracts may be 

canceled in whole or part by either party upon 30 calendar 

days written notice."

Gormley acted within her discretion in exercising the cancellation clause. 48 C.F.R. § 9.405-1(a) states that "agencies 

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may continue contracts ... in existence at the time the 

contractor was ... suspended" (emphasis added). A decision 

to terminate an ongoing contract "should be made only after 

review by agency contracting and technical personnel and by 

counsel to ensure the propriety of the proposed action." Id.

Gormley properly reached her decision to terminate under 

the cancellation clause after conferring with other contracting 

officials and with counsel.

Although Commercial and Milford did not challenge the 

thirty-day cancellation clause at the time of contracting, they 

now insist that the clause is "invalid" because it is a "deviation" from another contract provisionone allowing for "termination for convenience"and therefore cannot be invoked 

prior to its publication in the Federal Register. The Code of 

Federal Regulations defines a "deviation," in relevant part, as 

a clause that is "inconsistent with the intent, principle, or 

substance" of the federal acquisition regulations. See 48 

C.F.R. § 1.401. Commercial and Milford never bother to 

explain why they think the two cancellation clauses are 

inconsistent with one another; they just say again and again 

that the two provisions perform different functions. GSA 

tells us that there is no conflict: the thirty-day notice of 

cancellation provision permits either party to cancel an entire 

multiple award schedule contract with the requisite notice, 

while the "termination for convenience" provision included in 

most federal contracts permits either party to cancel individual orders. We see no basis for disagreeing with GSA's view.

Commercial and Milford also contend that GSA violated its 

own implementing regulation, 48 C.F.R. § 509.405-1(a)(2), by 

cancelling their ongoing contracts without considering the five 

factors listed in that regulation. They are mistaken. The 

regulation does not apply here, and even if it did it would be 

of no help to them. The regulation states that "[t]ermination 

of current contracts should be considered" if the contractor 

presents a "significant risk to the Government in completing 

a current contract." See 48 C.F.R. § 509.405-1(a)(2) (emphasis added). The risk here is a different one: it is not the 

inability of these companies to complete their contracts that 

GSA fears, but rather their inability to do so honestly. The 

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regulation thus does not apply. Even if it did, it would 

provide no comfort to Commercial or Milford. The regulation's five factors all concern the potential harm to the 

government of cancelling the contract.4 The regulation does 

not curb GSA's discretion to cancel contracts; rather, it 

encourages GSA to exercise its discretion to cancel when the 

government's interests are put at risk.

Due Process. Commercial and Milford object not only to 

the merits of GSA's decision to suspend them and cancel their 

current contracts, but also to the method by which the 

suspension and cancellation occurred. They argue that 

GSA's actions constituted "blacklisting" or "de facto debarment" in violation of due process.

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. See Horne Bros., 463 F.2d at 1271. An agency may 

not impose even a temporary suspension without providing 

the "core requirements" of due process: adequate notice and 

a meaningful hearing. See Reeve Aleutian Airways, Inc. v. 

United States, 982 F.2d 594, 595, 599-602 (D.C. Cir. 1992); 

ATL, Inc. v. United States, 736 F.2d 677, 682-84 (Fed. Cir. 

1984); Old Dominion Dairy Products, Inc. v. Secretary of 

Defense, 631 F.2d 953, 967-69 (D.C. Cir. 1980); Art-Metal 

U.S.A., Inc. v. Solomon, 473 F. Supp. 1, 4 (D.D.C. 1978).

Commercial and Milford received both notice and an informal hearing, but they are not satisfied. They requested, and 

were denied, a formal hearing, and this they say violated the 

Fifth Amendment. To evaluate this contention, we have been 

instructed to consider the relative strength of three factors: 

the private interest affected by government action; the risk 

of erroneous deprivation without the requested safeguard; 

__________

4 The five factors are: "(i) Seriousness of the cause for debarment or suspension; (ii) Extent of contract performance; (iii) 

Potential costs of termination and reprocurement; (iv) Urgency of 

the requirement and the impact of the delay of reprocurement; (v) 

Availability of other safeguards to protect the Government's interest until completion of the contract." 48 C.F.R. § 509.405-1(a)(2).

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and the government's interest in avoiding additional procedures. See Mathews v. Eldridge, 424 U.S. 319, 335 (1976); 

Reeve, 982 F.2d at 598; Old Dominion, 631 F.2d at 967. 

Here the factors point against Commercial and Milford. 

Suda considered their request for a formal hearing, conferred 

with the Assistant United States Attorney in charge of the 

criminal case,5and concluded that a hearing could compromise the ongoing criminal investigation. While the loss incurred by these companies from being suspended may have 

been significant, we do not believe a formal hearing would 

have provided them additional protection significant enough 

to warrant the risk to the government's interests. We are 

not the first court to reach the conclusion that suspended 

contractors are not constitutionally entitled to a formal hearing if providing one would risk impairing an ongoing criminal 

investigation and prosecution. See Horne Bros., 463 F.2d at 

1272; ATL, 736 F.2d at 686; Electro-Methods, Inc. v. United 

States, 728 F.2d 1471, 1476 (Fed. Cir. 1984); Transco Sec., 

Inc. v. Freeman, 639 F.2d 318, 321-23 (6th Cir. 1981); see 

also W. NOEL KEYES, GOVERNMENT CONTRACTS 211 (2d ed. 1996).

Discovery. The district court granted GSA's motion for 

summary judgment based solely on the administrative record, 

denying the discovery request of Commercial and Milford and 

refusing to examine affidavits filed by the parties. See 

Commercial Drapery, 967 F. Supp. at 5-6. The suspended 

companies were not entitled to discovery of the agency's 

decisionmaking process. Their claims that GSA's suspension 

and cancellation decisions were arbitrary, capricious, and in 

violation of federal regulations and statutes are reviewed 

under the Administrative Procedure Act, see 5 U.S.C. 

§ 706(2)(A), (B), which limits review to the administrative 

record, see Environmental Defense Fund, Inc. v. Costle, 657 

F.2d 275, 284 (D.C. Cir. 1981), except when there has been a 

"strong showing of bad faith or improper behavior" or when 

__________

5 Communications between prosecutors and suspending officials 

are not impermissible, as Commercial and Milford claim; indeed, 

the governing regulations suggest that suspension officials confer 

with the Justice Department before making the suspension decision. 

See 48 C.F.R. § 9.407-3(c)(6).

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the record is so bare that it prevents effective judicial review. 

See Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 

420 (1971); Community for Creative Non-Violence v. Lujan,

908 F.2d 992, 997-98 (D.C. Cir. 1990).

Commercial and Milford have not met their burden of 

making either showing. See FED. R. CIV. P. 56(e). The basis 

for their claim of "bad faith" rests on a single affidavit written 

by Stephen Bronstein, the new president of Commercial, 

alleging that an employee had told him GSA had barred 

Commercial from participating in a trade show in Germany, 

and had said bad things about Commercial to its business 

partners and potential customers. The employee himself 

refused to submit an affidavit. According to Bronstein, this 

was because the employee was afraid he would be "blacklisted" by GSA if he did so.

An affidavit like this, consisting entirely of inadmissible 

hearsay, is not sufficient to defeat summary judgment. See 

FED. R. CIV. P. 56(e); see also Garside v. Osco Drug, Inc., 895 

F.2d 46, 49-50 (1st Cir. 1990). In any event, contrary to 

assertions of the companies' counsel at oral argument, this 

affidavit was not produced to support a specific discovery 

request before the district court. As disclosed in counsel's 

post-argument submissions to this court, the affidavit was 

filed as an exhibit to Appellants' Reply in Support of Motion 

for Preliminary Injunction Against Contract Cancellation. 

Having failed to make a specific discovery request before the 

district court, the companies cannot now complain that they 

lack some unspecified set of documents that would support 

their claims.

Commercial and Milford say that even if they failed to 

make the requisite showing of bad faith or improper behavior 

on the part of the agency, they should at least have been 

granted discovery to pursue their so-called Bivens claim 

against agency officials Monica Gormley and Donald Suda. 

This argument goes nowhere. The complaint contains no 

such claim; damages are not mentioned; and there is no 

indication that these defendants were being sued in their 

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individual capacities.6 Counsel for the companies alluded to a 

Bivens claim at the hearing on a temporary injunction. But 

he never amended the complaint or even moved to do so. As 

the case stood when the district court decided it, there was no 

Bivens claim and thus no basis for allowing discovery to 

fortify it.

We have considered the remainder of Commercial's and 

Milford's claims and find no merit in them.

Judgment affirmed.

__________

6 Although the complaint names Suda and Gormley as defendants, it gives their official address, as required when a person is 

sued in an official capacity. See RULES OF THE UNITED STATES 

DISTRICT COURT FOR THE DISTRICT OF COLUMBIA, RULE 106(e); see also 

Barbera v. Smith, 836 F.2d 96, 99 (2d Cir. 1987). In addition, Suda 

and Gormley were served with copies of the summons and complaint in accordance with FED. R. CIV. P. 4(i), which governs service 

upon officers of the United States sued in their official capacity. 

See Armstrong v. Sears, 33 F.3d 182, 186-87 (2d Cir. 1994) ("[I]n a 

Bivens case, personal service should be made upon the individual 

defendant in accordance with Rule 4(e) instead of upon that individual as a government officer in accordance with Rule 4(i)(2)").

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