Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-05144/USCOURTS-ca10-90-05144-0/pdf.json

Parties Involved:
Richard Cheney
Appellant
Francis E. Heydt Company
Appellee
United States of America
Appellant

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

FRANCIS E. HEYDT COMPANY, ) 

) 

Plaintiff-Appellee, ) 

) 

IJOV Ll 1991 

ROBERT L. HOECKER 

Clerk 

v. ) No. 90-5144 

) 

UNITED STATES OF AMERICA, and ) 

RICHARD CHENEY, Secretary of ) 

Defense, United States Depart- ) 

ment of Defense, ) 

) 

Defendants-Appellants. ) 

Appeal from the United states District Court 

For the Northern District of Oklahoma 

D.C. No. 87-C-974-E 

Timothy Sullivan, Washington, 

Washington, D.C., and Edwin s. 

briefs), for Plaintiff-Appellee. 

D.C. (Katherine s. Nucci, 

Hurst, Tulsa, Oklahoma, on the 

Michael E. Robinson, Department of Justice, Washington, D.C. 

{Stuart M. Gerson, Assistant Attorney General; Tony M. Graham, 

United States Attorney; William Kanter, Department of Justice, 

Washington, D.c.; and Judith Pullman Gever, Defense Industrial 

Supply Center, Philadelphia, Pennsylvania, on the briefs), for 

Defendants-Appellants. 

Before LOGAN, MOORE, and ANDERSON, Circuit Judges. 

MOORE, Circuit Judge. 

Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 1 
Francis E. Heydt Company, a manufacturer of military apparel, 

sought declaratory and injunctive relief to prohibit the Secretary 

of Defense, Richard Cheney, (the Secretary) from withholding 

payments on uniforms delivered under a contract with the 

Department of Defense (DOD). Although the district court found 

the claim for payment of invoices properly resided with the Claims 

Court, it held the Secretary's failure to afford notice and a 

hearing before taking the action under the Gratuities Act, 10 

u.s.c. § 2207, warranted an award of attorney fees under the Equal 

Access to Justice Act, 28 u.s.c. § 2412 (EAJA). We disagree and 

reverse. 

I. 

In 1985, Francis E. Heydt Company (the Company) was the low 

bidder on a contract solicited by the Defense Personnel Support 

Center (DPSC) of the DOD's Defense Logistics Agency (DLA) to 

manufacture 56,800 night camouflage desert trousers (Contract 

0527) • In September and October 1987, DPSC accepted the last two 

shipments from the Company even though it had earlier learned that 

Francis Heydt, the Company's sole owner, had paid a DPSC 

contracting official a $10,000 gratuity in exchange for obtaining 

Contract 0527. 1 Based on this information, DPSC notified the 

1In a broad investigation of procurement irregularities, DPSC 

discovered "clothing and textile - contractors have been paying 

bribes and/or giving gratuities to Government employees over a 

number of years in order to obtain access to inside information 

and other favorable treatment relating to the award and 

administration of DPSC military uniform contracts." Report and 

Recommendation for Termination of Contract Under Gratuities 

Clause. In February 1987, Donald Sherry, Chief of the DPSC 

(Continued to next page.) 

-2-

Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 2 
Company on September 30, 1987, of its Proposed Debarment or 

exclusion from conducting business with the government under 48 

2 C.F.R. § 9.405. Subsequently, on November 2, 1987, a DPSC 

I 

contracting officer recommended terminating Contract 0527 under 

the Gratuities clause found in the Contract as required by 10 

u.s.c. § 2207(1) 3 (the Gratuities Act) and Federal Acquisitions 

(Continued from prior page.) 

Clothing and Textile Branch, was indicted for conspiracy to 

defraud the United states and bribery. In testimony provided 

under a plea agreement, Sherry described how, on two separate 

occasions in the summer of 1985, Francis Heydt gave him $5,000 in 

cash in exchange for Sherry's cancelling the initial solicitation 

of the contract when the Company had been the high bidder. Sherry 

then reopened the bidding. Although the Company was the low 

bidder on the resolicited contract, Francis Heydt owned the other 

three companies also submitting bids. 

2subsection 9.405(a) states: 

Contractors debarred, suspended, or proposed for 

debarment are excluded from receiving contracts, and 

agencies shall not solicit offers from, award contracts 

to, or consent to subcontracts with those contractors, 

unless the acquiring agency's head or designee 

determines that there is a compelling reason for such 

action .•.• Contractors debarred are also excluded 

from conducting business with the Government as agents 

or representatives of other contractors. 

310 u.s.c. § 2207(1) provides: 

Money appropriated to the Department of Defense may 

not be spent under a contract other than a contract for 

personal services unless that contract provides that--

(1) the United States may, by written 

notice to the contractor, terminate the right 

of the contractor to proceed under the 

contract if the Secretary concerned or his 

designee finds, after notice and hearing, that 

the contractor, or his agent or other 

representative, offered or gave any gratuity, 

such as entertainment or a gift, to an 

officer, official, or employee of the United 

States to obtain a contract or favorable 

treatment in the awarding, amending, or making 

(Continued to next page.) 

-3-

Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 3 
4 Regulation (FAR) § 52.203-3, 48 C.F.R. § 52.203-3. A week later, 

the Company sent a demand for payment of the last two invoices 

totalling approximately $175,000. 

On November 18, 1987, the Company filed this lawsuit alleging 

the Secretary's action in suspending payment under Contract 0527 

without first affording notice and a hearing required by § 2207 

and FAR § 52.203-3 was arbitrary and capricious and contrary to 

law; and absent a temporary restraining order, the Company would 

be irreparably harmed. 5 The Magistrate denied immediate relief 

but set the motion for preliminary injunction for a hearing. 

(Continued from prior page.) 

of determinations concerning the performance, 

of a contract; •· .. 

448 C.F.R. § 52.203-3 states in part: 

Gratuities 

As prescribed in 3.202, insert the following clause 

in solicitations and contracts, except those for 

personal services and those between military departments 

or defense agencies and foreign governments that do not 

obligate any funds appropriated to the Department of 

Defense: 

GRATUITIES (APR 1984) 

(a) The right of the Contractor to proceed may be 

terminated by written notice if, after notice and 

hearing, the agency head or a designee determines that 

the Contractor, its agent, or another representative--

(1) Offered or gave a gratuity (e.g., an 

entertainment or gift) to an officer, official, or 

employee of the Government; . 

5The Company alleged, "Absent the requested relief, Plaintiff's 

ability to perform its ongoing contract obligations will be 

seriously, and perhaps fatally, threatened because Plaintiff's 

working capital depends exclusively on its receipt of payment in a 

timely manner from its customers for goods manufactured and 

delivered." The two unpaid invoices were attached to the 

complaint. The Company requested a 10-day temporary restraining 

order for the Secretary to comply with the requirements of 10 

u.s.c. § 2207 and to "immediately lift the suspension of 

(Continued to next page.) 

-4-

Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 4 
On March 14, 1988, the Magistrate recommended granting the 

Company's request for preliminary injunction. 6 Before ruling on 

the recommendation, however, the district court was informed the 

Secretary had sent the Company a Gratuities Clause Notice of 

Hearing, and the United States District Court for the District of 

Columbia had affirmed the Secretary's action debarring the 

Company. John F. Robinson. Trustee for the Francis E. Heydt 

Co. v. Frank c. Carlucci, (No. 88-5126), aff'd, Robinson v. 

Cheney, 876 F.2d 152 (D.C. Cir. 1989) .. Consequently, on June 30, 

1988, the district ordered the parties to submit responses to 

these events addressing the status and relevance of the activities 

and whether the relief recommended remained appropriate. 7 

As represented, the Secretary had sent a notice of 

Proceedings Pursuant to FAR Clause 52.203-3, Gratuities (APR 

1984), in which the Company was informed of a hearing to determine 

"whether or not gratuities were offered or given on behalf of the 

Francis E. Heydt Company. 118 On July 26, 1988, the DLA issued its 

decision finding that Mr. Heydt gave a gratuity of $10,000 to 

obtain Contract 0527. 

(Continued from prior page.) 

payments .•.. 11 The Company sought a declaration that the 

Secretary's action violated the statute and regulations and was 

arbitrary and capricious. Finally, the Company requested costs 

under the EAJA, 28 u.s.c. § 2412. 

6Having addressed the four-part showing for a preliminary 

injunction under Koerpel v. Heckler, 797 F.2d 858 (10th Cir. 

1986), the Magistrate concluded, "[T]he very heart of the dispute 

is failure to afford due process. May the Government suspend due 

process in the face of allegations of fraud?" 

7The responses appear in Document 14 in the record. 

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Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 5 
On November 30, 1988, the district court entered its order 

adopting the Magistrate's Report and Recommendation on the issue 

of directing the Secretary to provide notice and a hearing to the 

Company without taking further action on Contract 0527. However, 

the court rejected the recommendation on payment, finding that 

claim more properly before the Claims Court. The court postponed 

transfer of the case, however, until it could rule on the 

application for attorney fees. 

In a subsequent order, the court found the Company was a 

prevailing party under the EAJA, and the government was not 

substantially justified in its position. Permitting the Company 

to amend its application to reflect a cost of living increase 

affecting the fees, the court awarded $21,546.63 in attorney fees 

and $3,491.50 in costs. 

II. 

We begin by distilling the parties' arguments to appreciate 

the particular posture of this appeal. Essentially, the Secretary 

contends because the district court was powerless to grant the 

relief the Company ultimately sought, the Company cannot be deemed 

a prevailing party in the district court proceeding under the 

EAJA. The Secretary's argument relies on the Tucker Act, 28 

u.s.c. § 1491, which makes the Claims Court the exclusive forum 

for monetary claims over $10,000 against government agencies. In 

8The hearing, scheduled for May 5, 1988, was changed to May 19, 

1988, to accommodate the Company. 

-6-

Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 6 
contrast, the Company maintains it got what it wanted. The 

declaratory judgment action catalyzed a successful outcome, 

forcing the Secretary to follow his own regulations and afford the 

Company due process. Throughout the action, the Company 

maintains, the Secretary has searched for a theory to obfuscate 

the fact of its clear statutory duty. The Company urges the 

district court properly understood the ruse and afforded equitable 

relief. 

Nevertheless, because the Secretary has challenged the 

district court's jurisdiction in these proceedings, we must first 

be assured it was properly exercised. 9 Before the district court, 

the Company alleged jurisdiction under 28 u.s.c. §§ 1331 (federal 

ques t ion; ' ) lO 1361 ( ac t' ion t o compe 1 an o ff' icer o f th e Uni 't e d 

States to perform his duty); 2201 (Declaratory Judgment Act); 2202 

(further relief under Declaratory Judgment Act); and 10 u.s.c. 

§ 2207 (the Gratuities Act). As previously noted, the Company 

sought nonmonetary relief to compel the Secretary to provide 

notice and a hearing under the Gratuities Act; and monetary relief 

to lift the suspension of payments under the Gratuities Act 

permitting final payment of $175,154.07 still owing on its 

9Moreover, because the jurisdictional issue is dispositive, it is 

unnecessary to reach the questions of prevailing party status and 

whether the government's position was substantially justified. 

10The Company stated the action arose under 10 u.s.c. § 2207 and 

the Administrative Procedure Act, 5 u.s.c. §§ 701-706. 

-7-

Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 7 
$999,440.40 contract with the government. Although the Gratuities 

Act served as the basis of federal question jurisdiction, the 

Company's right to recover derives from the contract itself. 

Thus, the question before us is whether the district court, 

having transferred the monetary claim to the Claims Court, 

properly retained jurisdiction over the Company's nonmonetary 

claims as a predicate to its awarding attorney fees under the 

EAJA. 11 How we perceive the nature of this action and 

characterize the relief sought resolve the question. 

In State of New Mexico v. Regan, 745 F.2d 1318, 1322 (10th 

Cir. 1984), cert. denied, 471 U.S. 1065 (1985), we articulated a 

"prime objective" or "essential purpose" inquiry to decide whether 

the Claims Court has exclusive jurisdiction over a claim combining 

monetary and nonmonetary relief. New Mexico sought a declaration 

that the Secretary of the Treasury had improperly calculated state 

royalties to be paid by the federal government and a monetary 

11This inquiry is also mandated by the 

§ 2412(d) (1) (A), which states in part: 

EAJA, 28 u.s.c. 

Except as otherwise specifically provided by 

statute, a court shall award to a prevailing party other 

than the United States fees and other expenses, in any 

civil action (other than cases sounding in tort), 

including proceedings for judicial review of agency 

action, brought by or against the United States in any 

court having jurisdiction of that action, unless the 

court finds that the position of the United states was 

substantially justified or that special circumstances 

make an award unjust. 

(emphasis added). 

-8-

Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 8 
award of past royalties and prejudgment interest due based upon 

the Mineral Lands Leasing Act. New Mexico's claim exceeded 

$10,000. Finding the suit's primary objective was to recover 

money owed by the sovereign, we stated, "[T]he Claims Court's 

exclusive jurisdiction may not be avoided by framing a complaint 

in the district court as one seeking injunctive, declaratory, or 

mandatory relief when, in reality, the thrust of the suit is one 

seeking money from the United States." Id. (citations omitted). 

This analysis was applied in Hamilton Stores. Inc. v. Hodel, 

925 F.2d 1272 (10th Cir. 1991), in which a concessionaire in 

Yellowstone National Park sued the Secretary of the Interior for 

failure to obtain certain contractural and statutory rights. 

Scrutinizing the complaint to determine whether the action was, in 

fact, a disguised effort to obtain monetary damages from the 

United States, we concluded plaintiff principally sought an 

opportunity to protect its preferential right to provide services 

in the parks under the Concessions Policy Act of 1965. Id. at 

1279. The district court's federal question jurisdiction was 

therefore appropriately exercised. See also Rogers v. Ink, 766 

F.2d 430 (10th Cir. 1985), cert denied, 1490 U.S. 1034 (1989). 

Certainly, the Regan analysis, as applied, implicitly 

incorporates the principle the Company seems to advance here. Not 

only do the district courts have concurrent jurisdiction with the 

Claims Court over claims not exceeding $10,000, 28 u.s.c. § 1491, 

-9-

Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 9 
but also they "may properly assert jurisdiction over claims 

seeking declaratory relief even when those claims may later form 

the basis for money judgments." Com. of Mass. v. Departmental 

Grant Appeals Bd., 815 F.2d 778, 783 (1st Cir. 1987) (citing Duke 

Power Co. v. Carolina Environmental Study Group. Inc., 438 U.S. 

59, 71, n.15 (1978)). The Company, however, would explicitly 

supplement the Regan analysis to scrutinize the nature of the 

equitable relief sought to establish§ 1331 jurisdiction. 

In this case, the Company contends it succeeded in 

t bl ' h' ' t t d ' ht 12 

es a is ing an impor an ue process rig • Although the 

Secretary attempted to moot the procedural issue, "the District 

Court recognized that the Government's decision to issue notice 

and hold a hearing under the Gratuities Statute was causally 

connected to [the] lawsuit. " Without the lawsuit, the 

Company insists, the Secretary would not have afforded due 

process.

13 

12 In its brief, the Company states, "[Its] goal was to force the 

Government to provide due process to the Company and other 

Government contractors before depriving them of their property 

rights. In this respect, [it] was acting as a private attorney 

general in litigating against the Government and its victory in 

District Court furthered the public interest." 

13we note the district court made no finding that the lawsuit 

caused the government to change its behavior. During oral 

argument, in response to the panel's inquiry, the Company implied 

a specific finding was not necessary, citing Luethje v. Peavine 

School Dist. of Adair County, 872 F.2d 352 (10th Cir. 1989). 

However, in Peavine, the district court denied attorney fees under 

42 u.s.c. § 1988, specifically finding there was no causation 

between plaintiff's filing suit and the change of policy achieved. 

This case was not cited in the Company's brief. 

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Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 10 
In Hahn v. United States, 757 F.2d 581 (3d Cir. 1985), 

plaintiff class participants in the National Health Service Corps 

Scholarship Program sought a declaration of their entitlement to 

"constructive service credit" for time devoted to their 

professional education. The consequence of this ruling would be 

an award of back pay for class members that could only be 

adjudicated in the Claims Court. In deciding that the district 

court had jurisdiction over the nonmonetary claim, the Third 

Circuit cautioned its decision would not permit artful pleading to 

create district court jurisdiction for claims exceeding $10,000; 

or, "to 'split' their causes of action for money damages between 

the district court and Claims Court." Id. at 591. Instead, the 

Third circuit specified, "We hold only that '[i]f the declaratory 

or injunctive relief a claimant seeks has significant prospective 

effect or considerable value apart from merely determining 

monetary liability of the government, ... the district court may 

assume jurisdiction over the nonmonetary claims.'" Id. (quoting 

Minnesota by Noot v. Heckler, 718 F.2d 852, 858 (8th Cir. 1983) 

(emphasis added). Thus, a determination that the court's order 

would do more than assert a past position but was "prospectivelyoriented," affecting future action or ongoing relationships would 

serve as a basis to permit splitting a cause of action between the 

Claims Court and the district court. See also Com. of Mass. v. 

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Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 11 
Departmental Grant Appeals Bd., 815 F.2d at 784. 14 That the 

relief afforded has the concomitant effect of establishing a 

monetary judgment does not then necessarily oust district court 

jurisdiction. 

If we apply this analysis to glean the nature of declaratory 

relief sought here, we note the Secretary sent notice of the 

hearing under the Gratuities Act before the district court's 

ruling but after the Company initiated suit. After the Company 

filed suit but before the Magistrate's report and recommendation, 

the government's debarment action based on the alleged payment of 

a gratuity was upheld in the district court for the District of 

1 b . 15 Co um ia. Notice of the Gratuities Act proceeding was mailed a 

month after the District of Columbia's final order. 16 Final 

action under the Gratuities Act was taken on July 26, 1988, four 

months before the order appealed from here. 

14 In Com. of Mass. v. Departmental Grant Appeals Bd., 815 F.2d 778 

(1st Cir. 1987), the State sought a declaration that court-ordered 

abortions were reimbursable Medicaid expenses. However, the 

court, applying Hahn, found the only objective of the suit was 

reimbursement for past state expenditures. 

15while the Company states the debarment proceeding is irrelevant 

to this suit, it acknowledges the notice of debarment and 

subsequent proceedings were based on the same conduct involved in 

the Gratuities action. 

16The Secretary has explained the same DLA personnel handling the 

debarment action were also responsible for instituting the 

Gratuities Act proceedings. In its response to the District 

Court's June 30, 1988 order, the Company also acknowledged that on 

October 30, 1987, the Special Assistant for Contracting Integrity 

recommended terminating Contract 0527 and assessing exemplary 

damages for violating the Gratuities clause in the contract. 

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Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 12 
Consequently, under these circumstances, the equitable relief 

sought did not have any "significant prospective effect" or 

"considerable value" apart from the claim for monetary relief. 

Hahn, 757 F.2d at 591. Notice and a hearing resulting in action 

similar to that involved in the debarment proceeding were 

completed fully four months before the district court transferred 

the case to the Claims Court but retained jurisdiction under the 

EAJA. Moreover, the record establishes the Company's litigation 

was directed toward payment of a claim by enjoining the Secretary 

from withholding payment. 17 

Under these circumstances, the district court abused its 

discretion in granting declaratory relief. This conclusion is not 

only tethered to the Declaratory Judgment Act, which creates no 

independent jurisdictional ground, Skelly Oil Co. v. Phillips 

Petroleum Co., 339 U.S. 667 (1950), but also to settled judicial 

application. 

The two principal criteria guiding the policy in 

favor of rendering declaratory judgments are (1) when 

the judgment will serve a useful purpose in clarifying 

and settling the legal relations in issue, and (2) when 

it will terminate and afford relief from the 

uncertainty, insecurity, and controversy giving rise to 

the proceeding. 

17The Company had argued the proper procedure was for the 

Secretary, having accepted final shipments, to pay the full 

contract price and then seek the Gratuities Act remedies, 

including exemplary damages. There is deposition testimony 

supporting the Secretary's assertion the particular contracting 

division involved had not previously processed an alleged 

Gratuities Act violation. 

-13-

Appellate Case: 90-5144 Document: 010110096840 Date Filed: 11/04/1991 Page: 13 
E. Borchard, Declaratory Judgments 299 (2d ed. 1941), quoted in 

lOA C. Wright, A. Miller, & M. Kane, Federal Practice and 

Procedure§ 2759, pp. 647-48 (1983). 

Not only was the district court without jurisdiction to 

resolve the controversy between the parties, but in this case, its 

equitable relief was hollow. The DLA had clarified the legal 

relations and questions at issue already. Whatever procedural 

victory the Company believed it had achieved, thus, was without 

any legal foundation. 18 II [A] court must have jurisdiction over an 

action before it may award fees under the EAJA. II Montes v. 

Thornburgh, 919 F.2d 531, 534 (9th Cir. 1990). 19 

We conclude the district court erred in bifurcating this case 

and awarding attorney fees under the EAJA. 

therefore REVERSED. 

The judgment is 

18Although we do not reach the question of prevailing party 

status, our decision also reflects the current jurisprudence under 

the EAJA. The Supreme Court has stated, 11 [A] favorable judicial 

statement of law in the course of litigation that results in 

judgment against the plaintiff does not_suffice to render him a 

'prevailing party.' Any other result strains both the statutory 

language and common sense." Hewitt v. Helms, 482 U.S. 755, 763 

(1987). 

19Furthermore, the Claims Court has jurisdiction to award attorney 

fees under the EAJA. Essex Electro Engr's, Inc. v. United States, 

757 F.2d 247, 251 (Fed. Cir. 1985). 

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