77-522-DB
In the Matter of: JOHN HARRIS KILLINGSWORTH and KAYE HOME BUILDERS OF
DUBLIN, GEORGIA
March, 10, 1978
780310
Jean S. Cooper
By letter dated July 21, 1977, the Assistant Secretary for Housing,
U.S. Department of Housing and Urban Development (hereinafter "HUD),
notified Appellant, John Harris Killingsworth, of HUD's intent to debar
Appellant, Kaye Home Builders, and any other companies in which
Appellant had a substantial interest from participation in HUD programs.
(Government Exhibit 1). Appellant was also suspended from participation
in all departmental programs pending resolution of the debarment action.
The ground for the suspension and proposed debarment was Appellant's
alleged serious lack of responsibility in failing to prevent or correct
the criminal conduct of Robert Eugene Killingsworth. Robert Eugene
Killingsworth was convicted in the United States District Court for the
Middle District of Georgia on October 26, 1976, for violation of 18
U.S.C. 1010 as a result of preparing false verifications of deposit and
employment forms which were submitted to HUD by the Blanchard & Calhoun
Bank in mortgage insurance packages. (Stipulation 1)1/ Robert Eugene
Killingsworth was an employee of Kaye Home Builders, a business owned by
Appellant. (Stipulation 3; Appellant's Exhibit 1; Tr. 18, 31 and 33).
Appellant requested an opportunity to be heard on the suspension and
proposed debarment and on October 7, 1977, a hearing was held in
Augusta, Georgia, to determine whether John Harris Killingsworth and
Kaye Home Builders should be debarred.
The HUD regulation governing Appellant's debarment, 24 C.F.R. Part
24, 42 Fed. Reg. 5304 (1977) provides in pertinent part:
Section 24.4 Definitions
(a) "Debarment" means exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
# # #
(f) "Contractors or Grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources including, but not limited
to + + + real estate agents and brokers + + + or those in a
business relationship with such recipients including, but not
limited to + + + all participants + + + in programs where HUD is
the guarantor or insurer + + +.
Section 24.6 Causes and conditions applicable to determination
of debarment
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes + + + (4) Any other cause of such serious compelling
nature, affecting responsibility, as may be determined by the
appropriate Assistant Secretary, to warrant debarment.
At the time of his suspension, Appellant had been a home builder for
22 years (Tr. 30-31) and has been doing business as Kaye Home Builders
since late 1974 or early 1975. (Tr. 31). Most of the homes built and
sold by Kaye Home Builders have mortgages insured or guaranteed by the
Federal Housing Administration (FHA) or the Veterans Administration
(VA). (Tr. 17). Appellant supervised the building of homes on the job
site (Tr. 18) and he employed his brother, Robert Eugene Killingsworth,
as the office manager to handle the paperwork (Tr. 18 and 33), a task
Appellant did not enjoy. (Tr. 38).
When Robert Eugene Killingsworth first went to work for Appellant in
the mid to late 1960's, Appellant requested that some mortgage companies
instruct both men in the proper way to process government insurance
forms. (Tr. 41). It was made clear to them that verifications of deposit
and verifications of employment were not to be filled out by either the
real estate companies or mortgagees but were to be sent directly by the
mortgagee to employers and banks. (Tr. 34). The only task the real
estate company could or should perform was to obtain an authorization of
release signature from the buyer so that the employer or bank would
release the information sought. (Tr 34).2/
Although Appellant was familiar with these forms, he did not process
them himself but left that duty to his brother. (Tr. 33). He would
periodically look at the forms but would not see them filled out. (Tr.
42). Appellant testified that he believed the forms were being handled
in a proper manner (Tr. 34 and 35), and his suspicions were never
aroused either in the office (Tr. 42) or by notification of
irregularities from any mortgagees. (Tr. 43 and 46).
In actuality, Robert Eugene Killingsworth was filling out the
verifications of deposit and employment forms himself with forged
signatures and financial information (Tr. 21) for one mortgagee,
Blanchard & Calhoun Bank, in contravention of HUD requirements. It is
important to note that there would have been no external evidence of
this practice unless Appellant or another employee with knowledge of the
proper practice had walked in on Robert Eugene Killingsworth while he
was actually typing out the forms.
The record is unambiguous in showing that Appellant was not aware of
the illegal activities of his brother and Blanchard & Calhoun Bank. The
legal issue is rather, what could or should he have done to prevent such
activity. The record draws a picture of a man who detests office work to
the point that he delegated all day-to-day responsibility for it to his
brother. He would walk through the office from time to time looking at
forms but did not take an active role as supervisor. He brought his
brother to be instructed in the handling of HUD forms and then assumed
that they were being processed correctly when he heard nothing to the
contrary.
To remain deliberately ignorant of the day-to-day running of a
business is to court disaster and certainly in this case Appellant's
hands-off attitude toward office work established an unsupervised area
of the business where fraud, illegal activity, and negligence could
operate freely. Even if Appellant did not actually do the paperwork, he
should have assured himself that he had at least seen every document
that went out. He did testify that he now sees all forms that are sent
out. (Tr. 44). Additionally, it is troubling to note that Appellant went
to local mortgagees for instruction on HUD procedures but never
consulted HUD itself. (Tr. 34).
Whereas it is impossible to say whether the criminal activity of
Robert Eugene Killingsworth could have been prevented if Appellant had
exercised supervisory control over the office work at Kaye Home
Builders, it is clear that the utter lack of control he exercised made
it all too easy for irregularities to occur. This is particularly
significant in light of the certification Appellant made to HUD that no
irregularities or deviations would take place or be permitted under his
controlling supervision. (Tr. 39).3/ Furthermore, owners of businesses
and corporate officers are ultimately responsible for the acts of their
employees. In the Matter of Gerald Sands, No. 77-357A-DB (July 18,
1977).
I find that Appellant showed a serious lack of responsibility in
failing to exercise supervisory control over the operation of Kaye Home
Builders. Although Appellant was innocent of any knowledge of the
criminal activities being conducted at Kaye Home Builders, this does not
lesson the risk to the Government in doing business with a company whose
owner chooses to remain deaf, dumb, and blind to the overall operation
of his business. I find that until Appellant is able to accept the
responsibility of controlling all aspects of his business and
familiarizes himself with HUD practices by consultation with the local
area office, irregularities may continue to occur.
Appellant has been suspended from all HUD programs since July 21,
1977. I find that he is a sincere individual who wants to operate his
business properly and a period of more than eighteen months for
debarment and suspension would not be necessary to protect the public
interest.
Upon consideration of the entire record in this matter and the best
interests of the Government, Appellant and Kaye Home Builders shall be
debarred from all participation in HUD programs up to and including
January 21, 1979.
in all HUD programs until May 6, 1982, by Order dated January 6, 1978,
No. 77-495-DB.
policy. It is the duty of mortgagees to obtain buyer release signatures
and a third party such as a seller should not be handling verification
forms at all.
18, 1964, to August 20, 1971, based on a conviction for certification of
receipt of downpayment. (Stipulation 2). While I do not find the prior
debarment relevant to this action which is based on nonfeasance rather
than commission, the certification Appellant made to HUD to get
reinstated is binding.
79-377-D28 77-521-DB
In the Matter of: LINDA MARY RODRIGUEZ
April 10, 1980
800410
Jean S. Cooper
By Determination and Order dated April 19, 1978, Linda Mary
Rodriguez, "Appellant" herein, was debarred from participation in all
programs of the Department of Housing and Urban Development up to and
including April 14, 1981, for business irregularities indicating a
serious lack of responsibility. On March 8, 1979, Appellant filed a
request for a hearing on reinstatement pursuant to 24 C.F.R. 24.11. A
hearing was scheduled for April 11, 1979, but was continued at the
request of Appellant. On February 21, 1980, a hearing was held in New
Orleans, Louisiana to determine whether Appellant should be reinstated
to participation in HUD programs and her debarment be rescinded.
The departmental regulation applicable to reinstatement, 24 C.F.R.
24.11, provides in pertinent part:
(a) Request for reinstatement. Six months after the date of the
final determination, any contractor or grantee against whom an
administrative sanction has been invoked may in writing request
reinstatement by the official who invoked the administrative
sanction.
(b) Reinstatement procedures. + + + the presiding official must
be satisfied that it is in the best interest of the Government to
reinstate and also be persuaded from the assurances of the party
concerned that he understands the requirements of the statutes and
the administrative rules and regulations and that he will comply
with them in the future.
(c) Grounds. Except as otherwise provided by statute, a party
may be reinstated subject to this 24.11 upon the submission of an
application, supported by documentary evidence, setting forth
appropriate grounds for the granting of relief such as newly
discovered material evidence, reversal of a conviction, bona fide
change of ownership or management, or the elimination of the
causes for which the debarment was imposed.
Appellant is a licensed real estate broker in New Orleans, Louisiana.
She was debarred from participation in HUD programs based on a finding
of serious lack of responsibility as a HUD contractor. Appellant and
her partner had been submitting unauthorized bids on behalf of clients
for the purchase of HUD-owned homes. This was accomplished by tracing
the signatures of clients onto bid forms and submitting them to HUD
without the knowledge or consent of the clients. Appellant had also
failed to check with the local HUD office about the proper procedures to
follow in such sales or otherwise familiarize herself with HUD
requirements and regulations. She violated her suspension both before
and after her hearing on debarment by attempting to sell homes being
purchased with HUD-FHA financing (Determination, dated April 18, 1978).
Since Appellant's debarment in April 1978, she has sold no homes at
all (Transcript at 4) because she has been sick "since this thing
happened" (T. 5, 23). She states that she now realizes that it was
improper for her to sign bids for her clients (T. 6) and won't do it
again (T. 7). Appellant offered an explanation of why she had violated
her suspension by attempting to participate in a HUD-insured house sale.
It is her testimony that her attorney told her to go back to selling
houses (T. 7, 18). She attempted to sell a home owned by her brother
that was to be purchased with HUD-FHA financing. She stated that she
informed the prospective buyers that she was suspended from HUD programs
but she was hopeful the sale would go through because another sale had
been approved by HUD after Appellant's suspension (T. 7, 14-16, 17).
The contract of sale was signed after Appellant's hearing on debarment
but before issuance of the decision debarring her (T. 9). Appellant's
participation in the sale was discovered by the mortgage company and the
sale was stopped (T. 18). Appellant states that she did not understand
the full scope of her suspension (or debarment) until a Mr. Armstrong at
the HUD Area Office told her it applied to direct or indirect
participation in all HUD programs (T. 7, 21). When asked by Government
counsel if she understood after her debarment hearing that she was not
to process any FHA applications, Appellant responded:
You have to ask my attorney about that + + + I am taking the
advice of my attorney who is an expert in the field + + +. I do
get my information from my attorneys, my advice. (T. 18).
Although Appellant had requested a hearing on reinstatement in March
1979, she waited until January 10, 1980 to write or ask HUD for
information about its regulations or Handbooks applicable to the
programs in which she participated. (T. 14). She stated that she waited
so long because she was sick (T. 23). In her letter of January 10, 1980,
Appellant did not specify what handbooks she wanted because she did not
know which ones to request (T. 33). When HUD wrote her back, explaining
they could not send her handbooks without more information from her (G
#1), she made no attempt to respond (T. 12). HUD did send Appellant a
current report on changes in HUD bulk sales procedures and Appellant
stated she understood the procedural differences noted (T. 23-24).
When asked how she has become responsible since her original
debarment hearing, Appellant stated that she will contact her attorney
in all cases (T. 25). She also testified that she would abide by HUD's
rules and regulations in the future and if she had any questions, she
will speak with the Director of the HUD area office, not a mere clerk
(T. 27).
The ground for Appellant's debarment was serious lack of
responsibility. Responsibility is a term of art in public contract law.
It has been defined to include the ability to perform a contract in
accordance with its terms, including all rules and regulations
applicable to performance, and the integrity and honesty of a
contractor. 34 Comp. Gen. 86 (1954); 39 Comp. Gen. 468 (1959); 49
Comp. Gen. 132 (1969). The test for reinstatement is two-fold. First, a
debarred contractor must establish a ground for reinstatement in
accordance with 24 C.F.R. 24.11(c). Appellant has based her request for
reinstatement on the ground that she no longer lacks responsibility.
Second, the debarred contractor must assure the Hearing Officer that he
or she understands the requirements of the statutes, rules and
regulations of HUD and will comply with them in the future. 24 C.F.R.
24.11(b). The reinstatement must be in the best interest of the
Government. Ibid.
I find that in the two and a half years since Appellant's hearing on
debarment, she has failed to establish a record of responsibility. She
violated her suspension on at least two occasions and otherwise made no
attempt to learn how to be a responsible contractor. She finally wrote
HUD for information six weeks before her hearing on reinstatement, and
then she did so upon advice of counsel. If Appellant had been a
responsible contractor, she would have checked with HUD as soon as she
was suspended to determine the scope of the suspension.
Two of the significant findings in the original debarment action were
Appellant's failure to consult with HUD before taking action and her
failure to follow HUD procedures. She lives in New Orleans and could
have gone to the Area Office in person for a consultation session. This
probably would have solved the "mystery" of which HUD Handbooks and
regulations would be applicable to her. It also would have shown that
she was indeed serious in her attempts to correct some of the reasons
why she was debarred in the first place. Although I do not believe that,
if reinstated, Appellant would submit unauthorized bids on behalf of her
clients, I also am far from convinced that she could be relied upon to
follow or understand the purpose of HUD procedures that appear to
Appellant to be burdensome and unnecessary. The violation of the
suspension is a case in point. It shows an insensitivity to the purposes
of the HUD regulation on suspension and debarment and, more importantly,
a lack of interest until caught in a violation.
Appellant's stated past reliance on her attorney and her intent to
continue consulting with her attorney rather than HUD raises serious
problems. A responsible contractor must be able to make good decisions
independently and to know when a problem or question should be brought
to HUD. Appellant has hidden behind her attorney's advice and
effectively used that as an excuse for activities showing a lack of
responsibility. It is Appellant's responsibility that is at issue; not
her attorney's.
I, therefore, find that Appellant has failed to set forth evidence
that she is now a responsible contractor or that she understands or will
abide by HUD rules and regulations in the future. Therefore, I do not
find that it is in the best interest of the Government or the public
that she be reinstated at this time.
For the foregoing reasons and based on the record considered as a
whole, I recommend that Appellant's debarment not be rescinded and she
not be reinstated to participation in Departmental programs at this
time.
77-521-DB
In the Matter of: LINDA MARY RODRIGUEZ
April 19, 1978
780419
Jean S. Cooper
By letter dated July 18, 1977, the Assistant Secretary for Housing,
U.S. Department of Housing and Urban Development (herein after "HUD"),
notified Appellant, Linda Mary Rodriguez, of HUD's intent to debar her
from participation in all HUD programs. Appellant was suspended from
participation in all HUD programs pending resolution of the debarment
action. (Government Exhibit 2). The ground for the suspension and
proposed debarment was Appellant's alleged participation in the making
of false statements to HUD in the submission of Form 9551's, "Offer to
Purchase and Broker's Tender" by submitting bids in the names of nine
(9) individuals who did not sign the form or give prior authorization
during 1975. These individuals are Tyrone J. Lawrence, Joseph McCollum,
Eugene J. Pierce, Sr., Henry L. Sundermeyer, Jr., Gustave J. Hart, III,
Nancy Jean Babbitt, Leonard J. Dazet, Idalia Pineda and Diana Dersone.
Appellant requested an opportunity to be heard on the suspension and
proposed debarment. On November 14-15, 1977, a hearing was held in New
Orleans, Louisiana, to determine whether Linda Mary Rodriguez should be
debarred from participation in HUD programs.
The HUD regulation governing Appellant's proposed debarment, 24 C.F.
R. Part 24, 42 Fed. Reg. 5304 (1977) provides in pertinent part:
Section 24.4 Definitions
(a) "Debarment" means exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
# # #
(f) "Contractors or Grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources including, but not limited
to + + + real estate agents and brokers + + + or those in a
business relationship with such recipients including, but not
limited to + + + all participants + + + in programs where HUD is
the guarantor or insurer + + +.
# # #
Section 24.6 Causes and conditions applicable to determination
of debarment
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes + + + (4) Any other cause of such serious compelling
nature, affecting responsibility, as may be determined by the
appropriate Assistant Secretary, to warrant debarment.
# # #
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
Appellant is a broker and partner1/ in the real estate firm of Bright
Star Realty, New Orleans, Louisiana. (Tr. 301-302). In that capacity,
she would submit bids on behalf of clients to purchase houses which HUD
was selling at auction. HUD acquires such houses from various mortgage
bankers after loans on them go into default. (Tr. 31). HUD would then
repair the houses and sell them by sealed bid. (Tr. 35-37). All such
bids must be submitted on behalf of prospective purchasers through
brokers. (Tr. 38). A bid can be accepted, rejected or kept as a back-up
offer. (Tr. 47). A real estate broker submits a bid on behalf of a
client by an Offer to Purchase on HUD Form 9551 (Tr. 4, Government
Exhibit 1) which contains both the Offer to Purchase by the bidder and
the Broker's Tender. (Tr. 43). HUD retains not only a winning bid but
three back-up offers on each property. (Tr. 47). If a winning bidder
decides not to purchase a property, it is offered to the back-up bidders
in order. If none of the bidders purchase the property, it then is
treated as a new offering by readvertisement for the next bid session.
(Tr. 50). In reliance upon a winning bid, HUD withdraws a property from
the market and holds it for the winning bidder. (Tr. 49). During this
holding period, HUD is financially responsible for repairs of vandalism
and holding costs such as management fees, maintenance, property taxes
and depreciation costs. (Tr. 63). If a property should have to be
readvertised, HUD also incurs the cost of readvertising. (Tr. 65). A
property is generally held for 90 days before it is readvertised. (Tr.
73).
The Form 9551 (Offer to Purchase) is not a binding contract but an
agreement. (Tr. 69-70). HUD Handbook 4310.5 requires the signature of
the bidder on Form 9551 (Tr. 143-144) and the form itself also requires
it. (Tr. 68). The purpose of the bidder's signature is two-fold: (1) it
indicates the applicant himself entered into the agreement and is aware
of its provisions, and (2) it is some indication of the sincerity of the
bidder's intention to purchase the property bid upon. (Tr. 70). HUD
places great reliance on the Form 9551 bid although it is not a binding
contract. A Departmental representative testified that if too many bids
fall through in the property disposition program, it reflects badly on
the entire operation and a lot of people potentially are harmed by
winning bidders who do not intend to purchase. (Tr. 73).
The Government's factual grounds for debarment of Appellant are based
on an allegation that Appellant would ask clients to sign blank Form
9551's and would fill in these forms at a later time, submitting bids
that were sometimes contrary to her client's wishes or without their
knowledge. The Government further contends that when Appellant could not
get a client's signature on a blank 9551, either she or her partner,
Marvin Burns, would forge signatures without the client's approval or
knowledge.
Appellant admits that signatures were routinely traced or "carboned"
onto Form 9551's (Tr. 305, 308, 319, 324, 328, 331, 337, 350-351 and
353) and that no client had specifically authorized Appellant or Marvin
Burns to sign such forms for them. (Tr. 359). Appellant, however,
maintains that at no time did she submit an unauthorized bid on behalf
of a client and no bid amount, earnest money or down payment information
was ever placed on a 9551 Offer to Purchase that was not authorized by
the client bidder. (Tr. 304 and 339).
1. Bid Submitted on Behalf of Joseph C. McCollum
A bid for a property located at 3441 West Loyola Drive, Kenner,
Louisiana, was submitted on behalf of Joseph C. McCollum by Bright Star
Realty. (Government Exhibit 10). The Form 9551 Broker's Tender is signed
by Marvin D. Burns. This bid was accepted by HUD on May 6, 1975. It had
been designated Back-Up Offer No. 1. A sworn statement by McCollum
(Government Exhibit 20) indicated that his only contact with Appellant
was by telephone and that Marvin Burns showed him all the houses he saw.
McCollum further states that the signature on the Form 9551 for the
property at 3441 West Loyola Drive is not his signature. The implication
of his statement is that he was unaware a bid would be submitted on his
behalf for the West Loyola Drive property. However, in an Affidavit
dated November 14, 1977, McCollum stated that it was possible he might
have made statements to either Appellant or Marvin Burns which could
have been construed as authorization for them to submit a bid on his
behalf. (Appellant Exhibit 11).
It is the testimony of Appellant that Marvin Burns placed McCollum's
signature on the Form 9551 by tracing it through carbon paper. (Tr.
305). Appellant testified that it was Mrs. McCollum who asked her to
place a bid on the West Loyola Drive property and told Appellant how
much she wished to bid. (Tr. 306). Appellant's contact was almost
exclusively with Mrs. McCollum. (Tr. 307). Appellant testified, however,
that she was sure Mrs. McCollum told her husband that a bid was being
submitted in his name by Bright Star for the West Loyola Drive house.
Tr. 355-356).
2. Bid Submitted on Behalf of Tyrone J. Lawrence
A bid for a property located at 9432 E. Claiborne Parkway, Westwego,
Louisiana, was submitted on behalf of Tyrone J. Lawrence by Bright Star
Realty. (Government Exhibit 16). The Form 9551 Broker's Tender is signed
by Marvin Burns. This bid was first designated as Back-Up No. 1 by HUD
but was later accepted when the winning bidder withdrew his offer.
Lawrence never followed through on the purchase. (Tr. 137). A sworn
statement by Lawrence (Government Exhibit 25) indicates that his only
contact with Appellant was by telephone and that Marvin Burns actually
showed him the houses.
Lawrence stated that the signature on the Form 9551 for the property
at 9432 E. Claiborne Parkway is not his signature and that he told
Marvin Burns he did not approve of any of the HUD houses and, therefore,
did not wish to bid. (Government Exhibit 25). His statement also denies
any discussions with Appellant concerning purchase price, down payment,
or earnest money on the E. Claiborne Parkway property.
However, in an Affidavit dated August 28, 1977, Lawrence stated that
it was possible he might have made statements to either Appellant or
Marvin Burns which could have been construed as authorization for them
to submit a bid on his behalf. (Appellant Exhibit 13). This Affidavit is
identical in wording to the one signed by Joseph McCollum. (Appellant
Exhibit 11).
It is the testimony of Appellant that Lawrence asked her to submit a
bid for the house on Claiborne Parkway and that he discussed the bid
amount, earnest money and down payment with Appellant and Marvin Burns.
(Tr. 303). She further testified that they obtained Tyrone Lawrence's
signature on a blank Form 9551 (Tr. 304), but this was apparently a form
which was later torn up (Appellant Exhibit 14) and the signature on the
form submitted to HUD was a tracing.
3. Bid Submitted on Behalf of Eugene J. Pierce, Sr.
A bid for a property located at 432 Cherrywood Drive, Gretna,
Louisiana, was submitted on behalf of Eugene J. Pierce, Sr., by Bright
Star Realty. (Government Exhibit 11). The Form 9551 Broker's Tender is
signed by Marvin Burns. This bid was not accepted by HUD.
Appellant testified that the signature on the Form 9551 submitted to
HUD on behalf of Pierce was traced through carbon by Marvin Burns. (Tr.
308). However, Appellant contends that Mrs. Pierce gave Appellant
"authorization" to bid on the Cherrywood Drive property and discussed
with Appellant the amount of the bid. (Tr. 309). This testimony is
corroborated by the handwritten statement at the bottom of an Affidavit
signed by Mr. and Mrs. Pierce that is otherwise identical to the
Affidavits signed by McCollum and Lawrence. (Appellant Exhibit 15).
4. Bid Submitted on Behalf of Henry L. Sundermeyer, Jr.
A bid for a property located at 3929 Arizona Avenue, Kenner,
Louisiana, was submitted on behalf of Henry L. Sundermeyer, Jr., by
Bright Star Realty. (Government Exhibit 17). The Form 9551 Broker's
Tender is signed by Appellant. The bid was accepted by HUD but
Sundermeyer rejected the property and refused to purchase it. (Tr. 105
and 138). The property was then offered to the first back-up bidder but
there was a delay from June 17, 1975, to July 3, 1975, until it closed.
(Tr. 139).
Sundermeyer testified that although his signature appears on bid Form
9551, he signed it before the sale price or other financial information
was filled in. (Tr. 178). He maintained that he neither approved nor
authorized a sale price of over $20,000 on any bid. (Tr. 178).
Sundermeyer also had a bid placed on his behalf for a property at 708
Saxony Lane, Kenner, Louisiana. (Appellant Exhibit 2). Although
Sundermeyer could not positively identify his signature on bid Form 9551
for the Saxony Lane property (Tr. 183), Appellant stated that
Sundermeyer did sign the form himself. (Tr. 315-316). The bid amount for
Saxony Lane was $20,900. (Appellant Exhibit 2).
Appellant stated that Sundermeyer's wife Barbara authorized the
amount of bid, earnest money and down payment for both the Arizona
Avenue and Saxony Lane properties over the telephone. (Tr. 311,
315-316). It is Appellant's theory that Sundermeyer was extremely
disappointed because he did not win the bid on the Saxony Lane property
and it was this disappointment that led him to reject the Arizona Avenue
property. (Tr. 317). Appellant admits that she never talked to
Sundermeyer about the monetary information for either bid (Tr. 364) but
dealt exclusively with his wife. (Tr. 362-364). Barbara Sundermeyer
signed an Affidavit identical in wording to those signed by McCollum and
Lawrence which admits she might have "authorized" the bids. (Appellant
Exhibit 4). In her testimony, however, Barbara Sundermeyer stated that
she signed the Affidavit because Appellant was harassing her (Tr.
191-192) and that her husband only authorized a bid of $20,000 to Bright
Star. (Tr. 189). Both bids submitted for the Sundermeyers were over
$20,000. (Government Exhibit 17; Appellant Exhibit 2). Mrs.
Sundermeyer also testified that Appellant called her a week before the
hearing in this matter and offered to find her a house if she promised
to say nothing bad about Bright Star. (Tr. 192). Even though Mrs.
Sundermeyer was always present during Mr. Sundermeyer's discussions with
Appellant and Marvin Burns (Tr. 186), Mr. Sundermeyer apparently knew
nothing of his wife's contacts with Appellant or the Affidavit she
signed. (Tr. 187, 363-364).
5. Bid Submitted on Behalf of Gustave J. Hart, III
A bid for a property located at 2112 Kingfisher Drive, Poydras,
Louisiana, was submitted on behalf of Gustave J. Hart, III, by Bright
Star Realty. (Government Exhibit 13). The Form 9551 Broker's Tender is
signed by Marvin Burns. The bid was rated as Back-Up Offer No. 2 by HUD.
A sworn statement by Hart (Government Exhibit 21) indicates that he
never authorized such a bid nor did he sign bid Form 9551 for the
Kingfisher Drive property. Prior to the bid on the Kingfisher Drive
property, Hart indicated that he had authorized Marvin Burns to submit a
bid on his behalf for a property located at 2321 Riverbend Drive,
Violet, Louisiana. His bid on that property was rated as Back-Up No. 1
but by the time the winning bidder decided not to purchase the property,
Hart had bought a mobile home and states that he told Bright Star he was
no longer interested in purchasing a house. (Government Exhibit 21). He
also states that he would not have considered the house on Kingfisher
Drive in any event because he did not like the neighborhood. (Government
Exhibit 21).
Appellant corroborated that Hart did not sign the Form 9551 for the
Kingfisher Drive property. (Tr. 319). However, she contends that she did
discuss the possibility of a bid on that property with Hart and that he
told her to put in the bid. (Tr. 320). She also testified that the
neighborhoods for the Kingfisher Drive and Riverbend Drive properties
are only about a half mile apart and have substantially the same
character. (Tr. 318 and 367).
6. Bid Submitted on Behalf of Nancy Jean Babbitt
A bid for a property located at 2112 Kingfisher Drive, Poydras,
Louisiana, was submitted on behalf of Nancy Jean Babbitt by Bright Star
Realty. (Government Exhibit 12). The Form 9551 Broker's Tender is signed
by Marvin Burns. The bid was rated by HUD as No. 3 Back-Up Offer. In an
interview with William L. Campbell, Federal Bureau of Investigation, Ms.
Babbitt allegedly stated that she never authorized the bid on the
Kingfisher Drive property and did not sign a Form 9551 for that bid.
(Tr. 253, 269 and 276). Mr. Campbell testified that Babbitt told him she
had authorized a bid to be made on a property at 1948 Heights Drive,
Poydras, Louisiana, and that she had signed a Form 9551 for that bid.
(Tr. 269). She told Campbell that she dealt with Appellant on the
telephone but that Marvin Burns showed her the house on Heights Drive.
(Tr. 254). It is unclear whether Babbitt had ever seen the Kingfisher
Drive property.
Appellant corroborated Babbitt's statement to Campbell that she did
not sign the Form 9551 for the Kingfisher Drive property. (Tr. 324).
Appellant was not sure whether she or Marvin Burns had traced Babbitt's
signature on the document. However, Appellant contends that Nancy
Babbitt did authorize the bid on Kingfisher Drive over the telephone
with Appellant and further discussed the terms of the bid with her.
(Tr. 324 and 328).
7. Bid Submitted on Behalf of Leonard J. Dazet
Two bids were submitted on behalf of Leonard J. Dazet by Bright Star
Realty for properties located at 612 Vanderbuilt Drive, Kenner,
Louisiana (Government Exhibit 14), and 500 Pat Drive, Avondale,
Louisiana. (Appellant Exhibit 5). Dazet testified that he did not sign
Form 9551 for the Vanderbuilt Drive property but that he had
"authorized" Appellant to place a bid on the property for him. (Tr.
223). On further reflection, Dazet testified that he is not sure he
authorized the bid because it happened a long time ago and he had looked
at many houses (Tr. 234), but that recently Appellant had helped him get
a house and was very helpful. (Tr. 235-236). He reaffirmed his sworn
statement dated March 11, 1976 (Government Exhibit 19), that he did not
sign either the Form 9551 for the Pat Drive property or the 9551 for
Vanderbuilt Drive (Tr. 230) that was submitted on his behalf by Bright
Star.
Appellant concurred that Dazet's signature does not appear on either
Form 9551 submitted on his behalf. (Tr. 328). She could not recall
whether the tracing had been made by her or Marvin Burns. However, she
testified that both bids were authorized by Dazet (Tr. 328 and 330) and
that he left it up to Appellant to decide how much to bid on his behalf.
(Tr. 328).
8. Bid Submitted on Behalf of Idalia Pineda
A bid was submitted on behalf of Idalia Pineda by Bright Star Realty
for a property located at 3029 Lillie Drive, Marrero, Louisiana.
(Government Exhibit 15). The Form 9551 Broker's Tender is signed by
Marvin Burns. The bid was accepted by HUD but Pineda did not purchase
the house. (Tr. 134). Gregory Alcott, a special agent for the Federal
Bureau of Investigation, testified2/ that Pineda told him she authorized
a bid on a house but it was not the one submitted to HUD. (Tr. 205).
Alcott further testified that Pineda claimed she never saw the Lillie
Drive property and that her dealings were with Appellant. (Tr. 205).
Alcott admitted that Pineda did not speak or understand English well
enough to be interviewed, although a neighbor was present to assist with
translation. (Tr. 203 and 204).
Appellant testified that the signature on bid Form 9551 for the
Lillie Drive property appears to be a carbon tracing. (Tr. 337).
However, Appellant maintained that Pineda did authorize the bid and told
her the amounts to offer. Appellant also admitted Pineda's English was
poor but she believed that Pineda understood her. (Tr. 337).
9. Bid Submitted on Behalf of Diana Dersone
Two bids were submitted on behalf of Diana Dersone by Bright Star
Realty for properties located at 9440 Cabildo Lane, Westwego, Louisiana
(Government Exhibit 8), and 656 Phyllis Drive, Avondale, Louisiana.
(Government Exhibit 7). The Form 9551 Broker's Tender for both bids is
signed by Marvin Burns. The bid on the Cabildo Lane property was not
accepted by HUD but the bid on the Phyllis Drive house was accepted.
Dersone rejected the Phyllis Drive property (Tr. 161) and reported
Bright Star Realty to HUD for making unauthorized bids. (Tr. 163).
The bid in Dersone's name for the Cabildo Lane property was cancelled
by HUD because a bid on the same property had been submitted in her
husband's name by another realtor. (Government Exhibit 9; Tr. 161). It
is against HUD policy to permit husbands and wives to submit separate
bids for the same property, and when such dual bids occur, both are
cancelled. (Tr. 95).
Dersone testified that at no time did she authorize Appellant or
Bright Star Realty to submit a bid on her behalf for either property.
(Tr. 149, 150-151, 152 and 153). It is Dersone's testimony that the only
bid she or her husband ever authorized was through Bounty Real Estate
for the Cabildo Lane property. (Tr. 154). Dersone also stated that she
did not sign either Form 9551 submitted in her name by Bright Star
Realty. (Tr. 148-149 and 151).
Appellant corroborated Dersone's testimony that the signatures on
both Form 9551's had been carbon traced by Marvin Burns. (Tr. 331).
However, Appellant stated that Dersone authorized both bids (Tr. 331)
and even reminded Appellant to put in a bid for her. (Tr. 333).
The secondary facts surrounding this transaction are particularly
confusing because Dersone and Appellant agree on none of the material
facts. Dersone testified that Appellant did not show her any houses
personally (Tr. 156 and 160) but left keys in a mailbox with a list of
properties on a yellow pad. Dersone was to visit the properties and then
check off those she was interested in so they could discuss the
properties further. (Tr. 157). The key to 9440 Cabildo Lane did not fit
the lock and Dersone tried to get Appellant to show her the house at
another time or get a key that worked. (Tr. 160). Dersone testified that
she signed Appellant's list of houses and indicated she wanted to talk
further about two houses. (Tr. 158). She stated she did not realize any
of these actions could constitute an authorization to submit a bid. (Tr.
157).
Dersone further testified that when Appellant refused to show her the
Cabildo Lane property, she and her husband had a heated exchange with
Appellant and informed her they were going to go to another real estate
broker who would take the time to show them houses. (Tr. 160).
Thereafter, the Dersones went to Bounty Realty and submitted a bid on
the Cabildo Lane property through Bounty. (Tr. 154). When Dersone found
out that Bright Star had submitted a bid on Cabildo Lane in her name and
thus caused the double bid cancellation, Dersone called Bright Star. She
stated that a woman called "Linda" who sounded like Appellant but denied
being so, told her that "Mary," the name Appellant uses, thought she was
doing Dersone a favor by putting in the bid for her. (Tr. 164-166).
In contrast, Appellant testified that Dersone signed a Form 9551 but
listed both the Cabildo Lane and Phyllis Lane properties on one bid form
so that it had to be destroyed. (Tr. 334). Appellant denies representing
herself as "Linda" (Tr. 337) rather than "Mary" in a telephone
conversation with Dersone, and stated that Dersone told her she and her
husband had submitted two bids to have a better chance at winning the
bid on Cabildo Lane. (Tr. 336 and 374-375).
The purpose of debarment is to assure the Government that "awards be
made only to responsible contractors + + +" and "shall be used for the
purpose of protecting the public and + + + not for punitive purposes."
24 C.F.R. 24.0, 24.5(a). A debarment decision is to be "rendered in the
best interest of the Government." 24 C.F.R. 24.5(b), 24.6(b). In the
instant case, the debarment action is predicated upon a lack of
responsibility on the part of Appellant.
"Responsibility" is a term of art in Government contract law and the
Comptroller General has defined it as follows:
"Responsible" imports something more than pecuniary ability,
and + + + public officers are required to consider not only the
financial resources of the bidder, but also his integrity,
fitness, capacity, and ability successfully to fulfill the
contract requirements. (Citations omitted). 34 Comp. Gen. 86
(1954).
Responsibility, therefore, concerns a contractor's integrity as much
as his tenacity and perseverance in performing a business duty toward
the Government. 39 Comp. Gen. 468 (1959), 49 Comp. Gen. 139 (1969). In
both, the concept of responsibility is as relevant to the Government's
business relationship to a real estate broker in a debarment context as
it is in a pure contract situation. In both the areas of integrity and
perseverance, I find that Appellant has shown a serious lack of
responsibility.
In the seven years Appellant has worked in the real estate business,
she never checked with HUD to find out what rules and regulations were
applicable to the bidding process. (Tr. 402). She testified that she did
not consider a bid to be a serious act because it wasn't binding. (Tr.
379). Both she and her partner told clients that they would submit bids
on their behalf even if the client was not sure he or she wanted the
property in question or had even seen it. (Tr. 383). Appellant
apparently saw this as a service to her clients. It was the practice at
Bright Star Realty to obtain client signatures, when possible, on blank
Form 9551's which would be filled out later by Appellant or Marvin
Burns. (Tr. 304). When a blank signed 9551 was not available, Appellant
or Burns would either trace the signature of a client onto a HUD bid
form or otherwise forge it. Sometimes Appellant would get
"authorization" over the telephone from a spouse of a client to place a
bid and at other times, a show of general interest in a property or
neighborhood would be sufficient "authorization" for Appellant to
believe she could submit a bid.
Both the HUD Handbook and Form 9551 itself require the signature of
the bidder. (Handbook 4310.5, paragraph 275(a)). Although there is no
Handbook prohibition against an authorized agent signing for a bidder
(Tr. 147), authorization over the telephone without any notation on the
form itself that the signature is not that of the bidder is tantamount
to fraud. Furthermore, the purpose of the bidder's signature is to
assure HUD that the bidder wants a bid placed and knows the terms of the
bid. Burns testified that they now get signatures in blank from all
clients (Tr. 387), but such a procedure renders the signature
meaningless and does not constitute authorization. Neither Appellant nor
her partner show the slightest comprehension of the purpose of the
signature, which is to ratify and verify the bid. HUD must be able to
rely on the information provided on Form 9551 bids in order for its
property disposition program to function efficiently and serve the
public. Even though bids are not binding contracts to purchase, HUD has
to be able to assume that bidders not only know and want a bid to be
submitted on a particular property but know all the terms and details of
their bid. Such knowledge can never be assumed if bidders are signing
forms in blank.
Appellant's difficulties with her clients who have accused her of
forgery and unauthorized actions could have been averted if she had
followed HUD procedures in filling out the bid forms. The small
expediencies Appellant and her partner indulged in have resulted in harm
to HUD, other bidders who were "shut-out" by non-authorized bids
submitted by Appellant, other brokers and her own embarrassed and angry
clients. The business integrity of those who enjoy a business
relationship with the Government must be of the highest order and to
misrepresent compliance with Governmental procedures is to show lack of
responsibility. See, Comp. Gen. Rep. B-168801, (April 8, 1970,
Unpublished).
The record reflects that Bright Star had a higher rate of withdrawal
of their clients' bids than other brokers and this fact is directly
related to the way in which Appellant submitted bids. Although the
actual monetary loss to HUD by virtue of Appellant's actions may be
small, degree of monetary loss does not define the seriousness of an
action. Rather, the economic impact on the Government is not actual loss
but cost to the public of conducting a program. Preuit v. U.S., 382 F.
2d 277 (9th Cir. 1967); U.S. v. Markham, 537 F. 2d 187 (5th Cir. 1976);
In the Matter of Robert H. Casseday, Docket No. 77-491-DB (Sept. 27,
1977). In the instant case, the way in which bids were placed by Bright
Star caused a measurable and, therefore, serious loss to the public.
The issue is whether Appellant possesses enough honesty and integrity
to participate in Government programs at public expense. Debarment is
not a penalty but a way for the Government to insure that it effectively
executes its statutory obligations. L. P. Steuart & Bros., Inc. v.
Bowles, 322 U.S. 398 (1944); Copper Plumbing & Heating Co. v. Campbell,
290 F. 2d 368 (D.C. Cir. 1961); Gonzales v. Freeman, 334 F. 2d 570
(D.C. Cir. 1964). The test for debarment is present responsibility but
prior performance failures may be grounds for a present finding of
non-responsibility. Schlesinger v. Gates, 249 F. 2d 111 (D.C. Cir.
1957), 37 Comp. Gen. 756 (1958).
A particularly troubling part of this record is the fact that
Appellant has apparently violated Bright Star's suspension from HUD
programs on numerous occasions by submitting bids through her brother,
Ronald Rodriguez. (Government Exhibits 34, 35, 40, 41, 42 and 43, A, B,
C-1, C-2, D and E). Even if the earlier violations were occasioned by a
misunderstanding of the scope of the suspension, the record reflects
that Bright Star and Appellant have continued to commit violations even
after the hearing in this case. (Government Exhibits A, B, C-1, C-2, D
and E). Such action in and of itself reflects a serious lack of
responsibility and total disregard for Governmental enforcement
procedures.
Therefore, I find that, based on the record considered as a whole,
Appellant poses a present and future business risk to the Department
because of her serious lack of responsibility and a period of debarment
of three years is warranted. She has personally been suspended from
participation in HUD programs from September 14, 1977, until the
present. (Government Exhibit 2). However, no consideration shall be
given to the period of suspension in setting the duration of debarment
because of the continued violations of suspension.
Upon consideration of the entire record in this matter and the best
interests of the Government and the public, Linda Mary Rodriguez shall
be debarred from all participation in HUD programs up to and including
April 14, 1981.
violation of 18 U.S.C. 1012 by the United States District Court for the
Eastern District of Louisiana on December 13, 1976, for making false
statements on HUD Form 9551. (Government Exhibit 31).
evidentiary weight because Pineda was available for testimony and the
government did not attempt to reach her by mail or otherwise obtain her
testimony.
77-514-DB 77-230-D52
In the Matter of: THOMAS SAULSBERRY
September 26, 1978
780926
Jean S. Cooper
By letter dated June 30, 1977, (Joint Exhibit No. 4), the Assistant
Secretary for Housing of the Department of Housing and Urban Development
(hereinafter "HUD") notified Appellant, Thomas Saulsberry d/b/a Duke's
Carpet Company, that HUD intended to debar him from participation in all
HUD programs. The ground for the proposed debarment was based on
evidence that Appellant had violated the Davis-Bacon Act, 40 U.S.C.
276(a), by knowingly submitting falsified payrolls to HUD. Appellant was
not suspended pending resolution of the debarment action. Appellant
requested an opportunity to be heard on the proposed debarment and
thereafter a hearing was held on October 12-13, 1977, in Kansas City,
Missouri, to determine whether Appellant should be debarred from
participation in HUD programs.
The HUD regulation governing Appellant's proposed debarment, 24 C.F.
R. Part 24, 42 Fed. Reg. 5304 (1977), provides in pertinent part:
Section 24.4 Definitions.
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
# # #
(f) "Contractors or Grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources + + +.
# # #
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes + + + (3) Violation of contract provisions, as set
forth below, of a character which is regarded by the Department to
be so serious as to justify debarment action:
(i) Willful failure to perform in accordance with the
specifications or within the time limit provided in the contract.
# # #
(4) Any other cause of such serious compelling nature,
affecting responsibility, as may be determined by the appropriate
Assistant Secretary, to warrant debarment.
(5) Violation of any law, regulation, or procedure relating to
the application for financial assistance, insurance or guarantee
or to the performance of obligations incurred pursuant to a grant
of financial assistance, or conditional or final commitment to
insure or guarantee:
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
The Davis-Bacon Act states in pertinent part that:
+ + + subcontractor shall pay all mechanics and laborers
employed directly upon the site of the work + + + at wage rates
not less than those stated in the advertised specification,
regardless of any contractual relationship which may be alleged to
exist between the contractor or subcontractor and such laborers
and mechanics + + + 40 U.S.C. 276(a).
Appellant is the president of Duke's Carpet Company, a small business
which has been in existence for about five and one-half years. On
December 16, 1974, Pool and Canfield, Inc., a general contractor,
entered into a contract with Georgian Court Apartments, HUD Project No.
084-44153-LD-PR, insured by HUD pursuant to 236 of the National Housing
Act, to construct and refurbish the Georgian Court Apartments. (Joint
Exhibit No. 2). On April 3, 1975, Duke's Carpet Company entered into a
subcontract agreement with Pool and Canfield, Inc., to lay the
carpeting, ceramic and tile work on the project for $46,000.00 (Joint
Exhibit No. 1).
The contract and "Supplementary Conditions of the Contract for
Construction" (Joint Exhibit No. 3) mandate compliance with the
Davis-Bacon Act, a statute governing wage rates for workers on
Government funded or guaranteed construction projects. Appellant was not
present at the pre-construction conference in December 1974, when the
legal requirements and applicable regulations were explained to the
general contractor by HUD Wage Requirement Clerk, Arlone Grier. The
general contractor apparently failed to instruct Appellant concerning
HUD filing requirements or Davis-Bacon Act wage scales. However,
Appellant signed the contract which expressly refers to Davis-Bacon in
section 12(f).
Duke's Carpet Company, in turn, subcontracted the tile and ceramic
work on Georgian Courts to Robert's Floor Service by oral agreement. In
November 1975, Duke's Carpet Company began laying carpet at the project
with the regular three man crew of Leonard Gay, Dale Green, and Wadell
Savage. However, they soon began to run behind schedule and Appellant
thereafter orally subcontracted with Arnold's Carpet Company to install
the remaining carpets.1/ On November 21, 1975, Arnold's Carpet and
Installation Company began work on the fifth floor of the project with a
crew composed of Kenneth Arnold, Donald Arnold, Mike Bramell, Kenneth
Faulkner and Richard Montgomery. Renee Godshall also worked with
Arnold's crew, although she had apparently not been formally hired by
Arnold. Shortly after Arnold's crew began work on the Georgian Courts
project, Kenneth Arnold had a disagreement with Appellant and left the
job site. He returned briefly but thereafter left the site permanently.
All of the carpet layers were supervised by Leonard Gay of Appellant's
crew. (Government Exhibit No. 25).
When the work on the fifth floor was completed, an invoice on
Arnold's Carpet's stationary was submitted to Duke's Carpet Company for
$662.34, which was paid by Appellant. The bill was based on an oral
agreement to lay the carpet for $1.25 per square yard, with Duke's
Carpet Company furnishing the carpet, pad, tacks and tack strips. In
addition to the fifth floor work, Richard Montgomery completed the
fourth floor carpet and Appellant paid Montgomery directly, based on
directions from Kenneth Arnold of Arnold's Carpets.2/
Appellant was required to submit weekly payroll forms (HUD Form No.
347) to show compliance with the Davis-Bacon wage rates referred to in
the contract. HUD Form No. 347 was filled out by Mary Saulsberry,
Secretary of Duke's Carpet Company. Form 347 has a certification at the
bottom stating that Duke Saulsberry, President, "paid the full weekly
wages earned" by "all persons employed on said project." The form also
contains a paragraph in the certification section that "+ + + the wage
rates for laborer and mechanics contained therein are not less than the
applicable wage rates contained in any wage determination incorporated
into the contract + + +." The applicable wage rate for soft floor layers
published by the Secretary of Labor in Wage Decision No. AO-44, Fed.
Reg. dated November 16, 1973, is an hourly wage of $7.09.
Mary Saulsberry listed only Leonard Gay, Dale Green, and Wadell
Savage on the first three payroll reports. (Government Exhibits 1-3).
On the fourth payroll report (Government Exhibit 4), she wrote in a
lump-sum payment to Arnold's Carpet and Installation Company in the
amount of $662.34 and a payment to Richard Montgomery. The amount listed
as paid to Arnold's is the sum for which Arnold's billed Duke's Carpet
Company. (Appellant Exhibit 2). Duke Saulsberry's name was not signed to
the first certifications even though a signature is required and a
warning on the certification states that "a willful falsification" of
information subjects the certifier to prosecution for making false
statements.
The fourth payroll report was rejected by HUD wage requirements clerk
Arlone Grier because it indicated a lump-sum payment to Arnold's Carpet
and Installation Company. Upon receiving the rejected payroll report,
the contractor and Appellant went to HUD to find out how to correct
payroll number four. Ms. Grier instructed Appellant that the lump-sum
payment to Arnold's Carpets could not be shown as such because Appellant
had not filed HUD Form 2482A, which is a HUD prerequisite to
establishing a sub- sub-contract relationship that HUD will recognize.
Moreover, Ms. Grier stated that there was no sub- sub-contractor
relationship because of the failure to file form 2482A, and all of
Arnold's employees were, in fact, Duke's Carpet Company employees.
Ms. Grier prepared a sample payroll form for Appellant (Appellant
Exhibit No. 1), listing each of the carpet layers who were originally on
Arnold's crew as employees of Appellant. She indicated to Appellant that
he had to redo the payroll, showing daily hours worked, rate of pay,
gross amount, deductions and net wages for each of these workers.
Appellant told Ms. Grier that he did not pay Arnold's workers
individually or make deductions for them because they were "not his
employees" but that he had paid Arnold's invoice. Thereafter, Mary
Saulsberry was directed by Ms. Grier to make up a new payroll form in
accordance with the sample payroll prepared by Ms. Grier. The payroll
report, marked Government Exhibit 7, was then prepared according to the
sample.
Parties agree that Appellant fulfilled the contract with Georgian
Court Apartments. There is no evidence that Appellant was ever told
prior to the incident with payroll 4, by either the prime contractor or
anyone from HUD of the Form 2482A requirement that is a prerequisite to
recognition of a sub- sub-contract. However, some time after the initial
oral sub-contract was entered into between Duke's and Arnold's, Arnold
left the job and Arnold's employees continued to work on the project
under the exclusive direction of Leonard Gay, Appellant's supervisor on
the project. The hours actually worked by five of these individuals is
in dispute. Certified statements by these workers indicate hours worked
that are far in excess of those testified to by Appellant (Government
Exhibits 8, 9, 10 and 12). Furthermore, the worksheet prepared by Renee
Godshall, her testimony at trial, and the testimony of Leonard Gay are
at odds with Appellant's testimony that Ms. Godshall (now Montgomery)
did not lay carpet. Appellant later reached an agreement with Ms.
Godshall to pay her $200.00 for the work she did as a carpet layer. On
payrolls filed by Appellant, it is shown that Appellant paid Ms.
Godshall $347.80 plus fringe benefits for this work. (Government
Exhibits 6 and 7). There is no dispute that this information is false.3/
The purpose of debarment is to assure the Government that "awards be
made only to responsible contractors + + +" and shall be used for the
purpose of protecting the public and + + + not for punitive purposes."
24 C.F.R. 24.0, 24.5(a). A debarment decision is to be "rendered in the
best interest of the Government." 24 C.F.R. 24.5(b), 24.6(b). In the
instant case, debarment is predicated upon violation of HUD regulation
24 C.F.R. 24.6(a)(3)(i), (4), (5) and (6), all arising out of alleged
violation of the Davis-Bacon Act.
I find as a matter of law that technically all of the workers from
Arnold's Carpets were employees of Appellant because of his failure to
file HUD Form 2482A. Furthermore, under the common law test of an
employment relationship, the critical fact that Leonard Gay supervised
and controlled all of these workers leads to a conclusion that they were
employees of Duke's Carpet Company. Avis Rent a Car System, Inc. v.
United States, 503 F. 2d 423 (2nd Cir. 1974). In the cases of Renee
Godshall and Richard Montgomery, the fact that Duke's Carpet Company
paid these workers directly and were considered employees of Duke's
after a certain date further supports this finding.
It is clear that none of the workers originally placed on the job as
"Arnold's crew" were paid in accordance with the prevailing wage rates
under the Davis-Bacon Act. However, Appellant is charged with willful
and knowing violation of the statute. I find no evidence in the record
that Appellant was either aware of the requirements of the Davis-Bacon
Act or that he consciously avoided compliance with it. His technical
violations were compounded and in large part caused by the instructions
given him by Arlone Grier. The conduct of the HUD payroll office as
shown in this record created confusion, secrecy and a total lack of
information which resulted in the debacle over payrolls 4 through 7.
However, Appellant's treatment of Renee Godshall stands apart from
the way in which the other members of "Arnold's crew" were paid and
raises a separate issue. Ms. Godshall was not sent by Arnold but joined
the work crew independently. The payroll notations on payrolls 6 and 7
do clearly falsify the amount actually paid Ms. Godshall and I do not
find that these entries were related to the directions given Mr.
Saulsberry by Arlone Grier in relation to payroll 4. There is some
indication of intent and knowledge of making false statements on the
part of Appellant in relation to the payroll entry concerning Renee
Godshall. However, it is not necessary to decide this essentially
criminal charge in this proceeding.
"Responsibility" is at the heart of government contract law. It is a
term of art which means not only the ability of a contractor to
successfully fulfill the contract requirements but the integrity and
conscientiousness of the contractor. 34 Comp. Gen. 86 (1954); 39 Comp.
Gen. 486 (1959); 49 Comp. Gen. 139 (1969). In the instance case,
Appellant signed a contract which made specific reference to compliance
with the Davis-Bacon Act and yet he failed to make any effort to find
out what the Act required. Duke's Carpet Company submitted payroll
reports to HUD which made specific reference to "applicable wage rates"
though there is no evidence that either Duke or Mary Saulsberry ever
understood this reference. Such obliviousness is negligent business
practice and poses a business risk to the Government.
Debarment is not a penalty but a way for the Government to insure
that it effectively executes its statutory obligations. L. P. Steuart &
Bros., Inc. v. Bowles, 332 U.S. 398 (1944); Gonzales v. Freeman, 334 F.
2d 570 (D.C. Cir. 1964). The test for debarment is present
responsibility but prior performance failures may be grounds for a
present finding of non-responsibility. Schlesinger v. Gates, 249 F. 2d
111 (D.C. Cir. 1957), 37 Comp. Gen. 756 (1958).
At the hearing, it was not apparent that Appellant had even yet found
out what the Davis-Bacon Act required. As for HUD procedures, he did
learn that to have a recognized sub- sub-contract, one must file a
special form. Beyond this limited awareness, Appellant probably has
apprised himself of no more information about being a government
contractor than he had when he left Arlone Grier's office. For this
reason, I find that Appellant poses a present business risk to the
Government for his lack of responsibility in familiarizing himself with
the laws and regulatory requirements that are basic to being a
government contractor. 24 C.F.R. 24.6(a)(4). Debarment is therefore
warranted.
Appellant has not been suspended during the pendency of this
proceeding. Due to the sincerity and concern of the Appellant, I find
that a brief debarment of one year will be sufficient for him to educate
himself so that he can be a responsible contractor in the future.
Upon consideration of the entire record in this matter and the best
interests of the Government and the public, Thomas "Duke" Saulsberry,
d/b/a Duke's Carpets, shall be debarred from all participation in HUD
programs up to and including September 26, 1979.
contracted with Appellant individually to lay carpet and if he was able
to get other workers, Appellant would pay them. Appellant believed he
had subcontracted the entire job.
Arnold states he was never paid and that Richard Montgomery took the
invoice to Appellant and received payment for it. None of the other
workers were paid by Arnold's Carpets and Appellant initially refused to
pay them, believing the invoice he paid covered their work.
least in part to be based on his incorrect understanding of the law.
Appellant testified that he believed it was illegal for a female to be a
carpet layer.
77-226-D48 77-512-DB
In the Matter of: JEROME WILLIAMS
October 13, 1978
781013
Jean S. Cooper
By letter dated May 20, 1977, Appellant was notified that he was
suspended from participation in all programs of the Department of
Housing and Urban Development pending resolution of an indictment for
violation of 18 U.S.C. 1623, 1010 and 2 (Government Exhibit 2). Counsel
for Appellant requested a hearing on the suspension but elected to hold
the suspension appeal in abeyance until the outcome of Appellant's
trial. Appellant pleaded guilty to one count of the indictment and was
thereafter notified by the Department of Housing and Urban Development
of its intent to debar him on the basis of his plea. Appellant's appeal
from suspension was consolidated with the debarment action and counsel
were ordered to file written submissions no later than July 21, 1978.
No submission was filed on behalf of Appellant. Thereafter, an Order to
Show Cause directed Appellant to submit a brief within ten days of
receipt of the order or an initial determination would issue.
Appellant's counsel failed to respond to the Order to Show Cause and
this Determination is, therefore, based on a written record submitted by
the Government.
The HUD regulation governing Appellant's proposed debarment, 24 C.F.
R. Part 24, provides in pertinent part:
Section 24.4 Definitions
(a) "Debarment" means exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
# # #
(f) "Contractors or Grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources including, but not limited
to + + + real estate agents and brokers + + + or those in a
business relationship with such recipients including, but not
limited to + + + all participants + + + in programs where HUD is
the guarantor or insurer + + +.
Section 24.6 Causes and conditions applicable to determination
of debarment
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
(5) Violation of any law, regulation, or procedure relating to
the application for financial assistance, insurance, or guarantee
or to the performance of obligations incurred pursuant to a grant
of financial assistance, or conditional or final commitment to
insure or guarantee.
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
(9) Conviction under the Organized Crime Control Act of 1970,
18 U.S.C. 1961 et seq. or conviction for the commission of the
offense of embezzlement, theft, forgery, bribery, falsification or
destruction of records, receiving stolen property, fraudulent use
of the mail in connection with commission of such offenses, or
conviction for any other offense indicating a lack of business
integrity or honesty, which seriously and directly affects the
question of present responsibility.
Appellant was a real estate salesman employed by Astro Real Estate
and Investment Company. On February 22, 1977, a Federal Grand Jury for
the Western District of Washington returned a six count indictment
charging Appellant and Astro Realty with violation of 18 U.S.C. 1623,
1010 and 2. (Government Exhibit No. 1). Appellant pleaded guilty to
count 3 of the indictment which charged that he violated 18 U.S.C. 1010
and 2 by submitting to HUD-FHA an application for mortgage insurance
containing information that Appellant knew to be false in order to
induce FHA to approve the application. In May 1974, when these
violations occurred, HUD had a rapid sales program to sell repossessed
homes that gave priority to bidders who planned to occupy the homes on
which they bid. Investors' bids were only accepted if no occupant bids
were received within a ten day period. (Government Exhibit 8).
Respondent paid a couple to pose as occupant bidders in this program,
purchase a house, apply for FHA insurance on the mortgage, and quit
claim the property to Appellant immediately after purchase (Government
Exhibit 1).
There is no doubt that Appellant is a "contractor or grantee", 24 C.
F.R. 24.4(f), and conviction of a criminal offense is ground for
debarment, 24 C.F.R. 24.6(a)(1). The purpose of debarment is to assure
the Government that "awards be made only to responsible contractors + +
+" and "shall be used for the purpose of protecting the public + + +."
24 C.F.R. 24.0, 24.5(a). "Responsibility" is a term of art in Government
contract law that imports integrity and honesty as much as an ability to
complete a contract. 34 Comp. Gen. 86 (1954); 39 Comp. Gen. 468
(1959); 49 Comp. Gen. 139 (1969).
Appellant used his knowledge of real estate sales to subvert by fraud
the purposes of both the rapid sales program and FHA mortgage insurance.
Moreover, his goal was personal enrichment and benefited no one but
himself. Although HUD may not have suffered any direct monetary loss as
a result of Appellant's scheme, the cost of the public of conducting a
governmental program is a factor of economic impact. Preuitt v. U.S.,
382 F. 2d 277 (9th Cir. 1967); U.S. v. Markham, 537 F. 2d 187 (5th Cir.
1976). In the instant case, Appellant showed a serious lack of
responsibility and his actions impacted on two governmental programs
designed to benefit the public.
The issue is whether Appellant possesses sufficient responsibility at
present to participate in Government programs at public expense.
Debarment is not a penalty but a way for the Government to insure that
it can effectively execute its statutory obligations to the public. L.
P. Steuart Bros., Inc. v. Bowles, 322 U.S. 398 (1944). Gonzales v.
Freeman, 334 F. 2d 570 (D.C. Cir. 1964). Appellant has presented no
evidence in mitigation of his actions and I find that the seriousness of
his offense militates against permitting him to do business with the
Government in the immediate future. For the same reasons, no
consideration shall be given to the period of suspension in setting
debarment.
Upon consideration of the entire record in this matter and the best
interests of the Government and the public, Jerome Williams, Appellant,
shall be debarred from participation in HUD programs for a period of
three years up to and including October 13, 1981.
77-511-DB
In the Matter of: CLAUDELL TYSON
March 7, 1978
780307
Jean S. Cooper
By letter dated May 20, 1977, the Assistant Secretary for Housing,
U.S. Department of Housing and Urban Development (hereinafter "HUD"),
notified Appellant of HUD's intent to debar him from participation in
departmental programs based on his conviction for violation of 18 U.S.
C. 641, 2(a) and (b). Appellant was also notified that he was suspended
from participation in HUD programs pending determination of the
debarment action.
Appellant requested an opportunity to be heard on the proposed
debarment. The departmental regulation concerning debarment states that
in debarment actions based on conviction, an appeal is limited to
submission of documentary evidence and written briefs to the hearing
officer, 24 C.F.R. 24.5(c). However, Appellant raised an unusual defense
to debarment1/ that could not be decided on written submissions alone
and, in the interest of due process, it was agreed by parties that a
full hearing would be conducted on this appeal. Thereafter, on October
17, 1977, a hearing in the above matter was held in Los Angeles,
California, at which both the government and Appellant were given full
opportunity to present testimony and submit documentary evidence.
The HUD regulation governing Appellant's debarment, 24 C.F.R. Part
24, Fed. Reg. 5304 (1977) provides in pertinent part:
Section 24.4 Definitions
(a) "Debarment" means exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +
# # #
(f) "Contractors or Grantees." Individuals + + +that are direct
recipients of HUD funds or that receive HUD funds indirectly
through non-Federal sources including, but not limited to + + +
real estate agents and brokers + + + or those in a business
relationship with such recipients including, but not limited to +
+ + all participants + + + in programs where HUD is the guarantor
or insurer + + +.
# # #
Section 24.6 Causes and conditions applicable to determination
of debarment
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such a contract or subcontract.
# # #
(9) + + + conviction for the commission of the offense of + + +
bribery, falsification or destruction of records + + + or
conviction for any other offense indicating a lack of business
integrity or honesty, which seriously and directly affects the
question of present responsibility.
# # #
(b) Conditions + + +. (2) The existence of a cause set forth in
paragraphs (a)(1) and (2) of this section shall be established by
criminal conviction by a court of competent jurisdiction at the
discretion of the appropriate official.
Appellant is a data processing supervisor who also develops real
estate properties for rental income and sale. (Transcript 70). At the
time of his hearing, he owned three such properties. Appellant sought to
purchase a property located at 1652 West 56th Street, Los Angeles,
California, from a Mr. Pryor. Appellant was depending on proceeds from
the sale of another property in order to have the funds to close the
Pryor sale. (Transcript 60). Pryor was depending on the sale of property
to Tyson in order to purchase another property which was also going to
closing. The financial bind that Pryor was in compelled Appellant to
seek financing as quickly as possible because Appellant felt an
obligation to Pryor. (Transcript 75-76).
Appellant testified that he went to the three major savings and loan
institutions in Los Angeles for conventional financing and was told by
all three that there were "no funds at all" for properties located in
the area where Appellant intended to purchase the property owned by
Pryor. (Transcript 71-72). He did not go to more lending institutions in
search of conventional financing because of the uniformly negative
responses of the three banks he had contacted.
Appellant then applied to the mortgage company for a loan insured by
the Federal Housing Administration (FHA). Appellant testified that he
believed at the time that owner occupancy was a prerequisite to an
FHA-insured mortgage. (Transcript 65-68). The mortgagee did not advise
him otherwise. (Transcript 68). Therefore, on February 4, 1976,
Appellant certified on FHA Form 2900-1 that he would occupy the property
even though he did not intend to do so. (Transcript 46, 67-68). Based
upon this false certification of occupancy, Appellant pled guilty to a
charge of violation of 18 U.S.C. 641, 2(a) and (b). (Government Exhibit
7).
Appellant testified that now he understands the severity of his false
certification (Transcript 62) but that he believed at the time it was
justified by his commitment to the seller to go to early closing
(Transcript 74-75) and also by the unavailability of conventional
financing due to redlining. Redlining is a discriminatory pattern of
lending by banking institutions based on geographic locations of
properties rather than the economic reliability of the borrower. It is
directed at inner-city neighborhoods of lower socio-economic standing
where many lending institutions have refused to finance purchases of
houses.2/
Appellant testified that he told prosecuting attorney Robert Newell
about the alleged redlining but he never made a formal complaint to the
Department of Justice or to HUD. (Transcript 65).
Numerous documents concerning market data information for real estate
transactions were placed in evidence and government counsel stipulated
that all loans made for properties in the same area where Appellant's
property was located were government insured loans (Transcript 29) and
that contiguous neighborhoods showed properties that were heavily, but
not totally, government insured. (Transcript 32). The evidence tended to
show that for those loans which were not insured by the government,
abnormally high down payments had been made. (Transcript 33-34). The
evidence in the record documents the absence of conventionally financed
housing in the neighborhood where Appellant sought to purchase the
property in question. (Government Exhibits 1-5). I find that these
documents and Appellant's testimony of experiences in attempting to
obtain conventional financing for inner-city properties (Transcript 69,
71-72) support Appellant's contention that the practice of redlining was
prevalent among lending institutions in Los Angeles during 1975-1976.
Appellant contends that his false certification to FHA must be
considered in light of the discriminatory lending patterns in Los
Angeles. However, despite the existence of redlining, Appellant's
solution to his financing difficulty was wholly inappropriate in that he
resorted to making a false certification to obtain financing for his
purchase. Appellant's assumption that FHA required owner-purchasers to
occupy FHA-insured houses was incorrect and the false certification was,
in fact, unnecessary. Appellant should have raised the redlining problem
with the proper authorities and asked for assistance and redress. If he
had followed this proper course of action, he would probably have found
out that he would have qualified for a government-insured loan without
resorting to fraud.
Today, Appellant is a hard working, contributing member of society.
In the opinion of his probation officer, he is an asset to the
community, a man of high ethical standards and will not intentionally
violate the law in the future. (Transcript 52-55). Appellant is
committed to the improvement of his community and uses his real estate
business to accomplish this end. (Transcript 61). The false
certification he made to FHA was not for personal profit but to help a
business acquaintance he believed was in financial trouble. Appellant's
testimony indicates his understanding that violations of the law
committed even with the best intentions are not justified. Furthermore,
discriminatory practices and civil rights abuses should be reported to
the proper authority and are also not grounds for committing illegal
acts, although they may indicate mitigating circumstances that should be
considered in evaluating future risk. The purpose of debarment is to
protect the government from future business risk and although a
conviction for commission of a criminal offense incident to obtaining a
contract is prima facie grounds for debarment, 24 C.F.R. 24.6(a), it is
not mandatory. Rather, the underlying purpose for the debarment program
is of first consideration. Therefore, I find that, based on the record
considered as a whole, Appellant poses no future business risk to the
Department because of his basically strong character and understanding
of the wrong he did. Appellant has been suspended for almost ten months,
and I do not find justification for any period of debarment.
Upon consideration of the entire record in this matter and the best
interests of the Government, it is hereby determined that Appellant
Claudell Tyson shall not be debarred and the suspension is hereby
removed.
government-insured financing to purchase a property because systematic
redlining in Los Angeles County prevented him from obtaining a
conventional mortgage. Appellant falsely certified to FHA that he
intended to occupy the property. He contends he believed it was required
by FHA that he certify he intended to occupy the property or he would
not be eligible for an FHA insured loan.
Federal Home Loan Bank Board has announced its opposition to redlining
as a lending practice and policy statements of officials at HUD have
concurred with the announced policy of the Federal Home Loan Bank Board.
77-510-DB
In the Matter of: FRANK ESPOSITO
December 30, 1977
771230
Jean S. Cooper
By letter dated December 12, 1975, the Assistant Secretary for
Housing, U.S. Department of Housing and Urban Development (hereinafter
"HUD"), suspended Appellant, Frank Esposito, from participation in HUD
programs based on an indictment returned by a Federal Grand Jury
convened in the District of New Jersey charging Appellant with violation
of Title 18, Section 371, 201(c) and 201(g) of the United States Code.
(Government Exhibits 1 and 2). The suspension was imposed pursuant to
the departmental regulations governing debarment, suspension, and
ineligibility of contractors and grantees, 24 C.F.R. Part 24, 42 F.R.
5304 (1977). Appellant did not request an opportunity to be heard in
regard to the suspension.
Subsequent to the suspension notice, on January 6, 1976, a second
indictment charging 12 additional violations of 18 U.S.C. 201(c) and (g)
was returned against Appellant (Gov't. Ex. 3). Appellant was tried on
both indictments and on March 22, 1977, he was found guilty as charged
on thirteen counts of violations of 18 U.S.C. 201(c).1/ On May 10, 1976,
he was sentenced to one year in prison, of which he was ordered to be
incarcerated for 60 days. The remainder of the sentence was suspended
and Appellant was placed on probation for the 10 months of his sentence.
(Gov't. Ex. 4).
On May 20, 1977, HUD notified Appellant by letter of its intent to
debar him from participation in HUD programs based on his conviction for
multiple violations of 18 U.S.C. 201(c). Appellant requested an
opportunity to be heard on the proposed debarment (Gov't. Ex. 6) and
submissions on a written record were made by both Appellant and the
Government.
At the time of his indictment, Appellant was an independent fee
appraiser employed by the Federal Housing Administration (FHA) of the
Department of Housing and Urban Development (HUD) to inspect houses and
determine their value. The FHA will insure mortgages in order to
encourage lenders to grant mortgages to prospective home buyers who
might not otherwise qualify for a mortgage. However, the FHA will not
insure a mortgage if such a mortgage exceeded the value of the house
which secured it. The primary purpose of the appraisals made by
Appellant was to ensure that the houses evaluated were sufficient
security for the FHA-insured mortgages.
In his official capacity as a fee appraiser for HUD, Appellant
solicited and received bribes from at least two real estate brokers in
return for misrepresenting the value of thirteen houses to be purchased
with mortgages insured by the FHA.
The HUD regulations governing Appellant's debarment, 24 C.F.R. Part
24, 42 F.R. 5304 (1977) provides in pertinent part:
Section 24.4 Definitions
(a) "Debarment" means exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
(f) "Contractors or Grantees". Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources including, but not limited
to + + + real estate agents and brokers + + + or those in a
business relationship with such recipients including, but not
limited to + + + all participants + + + in programs where HUD is
the guarantor or insurer + + +.
Section 24.6. Causes and conditions applicable to determination
of debarment
Subject to the following conditions, the Department may bar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such a contract or subcontract.
(9) + + + Conviction for the commission of the offense of + + +
bribery, falsification or destruction records + + + or conviction
for any other offense indicating a lack of business integrity or
honesty, which seriously and directly affects the question of
present responsibility.
(6) Conditions + + + (2) The existence of a cause set forth in
paragraphs (a)(1) and (2) of this section shall be established by
criminal conviction by a court of competent jurisdiction at the
discretion of the appropriate official.
Appellant is clearly a "contractor or grantee" within the meaning of
Section 24.4(f) of the regulation and thus is subject to debarment for
commission of a criminal offense as an incident to his employment. The
thirteen count conviction for bribery emphasizes the systematic and
deliberate nature of the scheme Appellant used to undermine public
confidence in the honesty of HUD officials. Although Appellant was not a
permanent HUD employee, he was paid for his services with HUD funds and
did represent HUD on the appraisals he made. Thus, any criminal actions
committed by him in this capacity as a representative of HUD would
reflect on the reliability of the entire FHA mortgage insurance program.
Furthermore, HUD is placed in the position of suffering possible
financial loss due to Appellant's false appraisals of the homes in the
event that any of the mortgages are defaulted.
The fact that Appellant committed these acts for personal enrichment
adds another dimension to the overall risk inherent in doing business
with him.2/ The character letters submitted by Appellant in support of
his request that he not be debarred do not meet the issue of either the
seriousness of Appellant's criminal actions or the myriad questions of
his future responsibility such actions naturally raise. The only
evidence of rehabilitation and responsibility is the certification of
the probation officer, which lacks supporting facts or reasons that
could give some guidance in determining the risk that would or would not
be posed by permitting Appellant to do business with HUD. Therefore, I
conclude that the seriousness of Appellant's past acts have not been
outweighed by other evidence.
The purpose of the debarment regulation is to protect HUD from
involvement with business entities or individuals whose actions are
detrimental to the public interest. Section 24.0 of the debarment
regulation provides that "Department policy requires, therefore, that
awards may be made only to responsible contractors and grantees."
Furthermore, the Comptroller General has defined the term "responsible"
to be,
"+ + + something more than pecuniary ability, and in the
selection of the lowest responsible bidder, public officers are
required to consider not only the financial resources of the
bidder, but also his integrity (and) fitness + + +." 34 Comp.
Gen. 86 (1950).
Thus, debarment is not a penalty, but rather a sanction imposed to
insure that HUD effectively executes its statutory mandate. Cf. L.P.
Steuart Bro., Inc. v. Bowles, 322 U.S. 398 (1944); Copper Plumbing &
Heating Co. v. Campbell, 290 F. 2d 368, (D.C. Cir. 1961); Gonzales v.
Freeman, 334 F. 2d 570 (D.C. Cir. 1964).
Subsections 24.6(a)(1) and (b)(2) of the debarment regulation make
Appellant's conviction ground for debarment per se. In light of the
terms of the regulation and the record in this matter, the imposition of
a period of debarment is clearly warranted in the best interest of the
Government and the public at large. However, in determining an
appropriate period of debarment, it is noted that Appellant has been
suspended for over two years at the time of this decision. In view of
this long suspension, a three-year period of debarment is deemed
reasonable to protect the public interest. If Appellant believes he has
established the level of integrity required of a Government contractor
or grantee prior to the expiration of the debarment period, he may apply
for reinstatement in accordance with the procedure set forth in 24
C.F.R. 24.11, 42 Fed. Reg. 3507 (1977).
Upon consideration of the entire record in this matter and the best
interests of the Government, it is hereby determined that Appellant
Frank Esposito shall be debarred for a period of three years commencing
December 30, 1977 and ending December 30, 1980.
person selected to be a public official, directly or indirectly,
corruptly asks, demands, exacts, solicits, seeks, accepts, receives, or
agrees to receive anything of value for himself or for any other persons
or entity in return for: 1) being influenced in his performance of any
official act; or 2) being influenced to commit or aid in committing, or
to collude in, or allow, any fraud, or make opportunity for the
commission of any fraud on the United States; or 3) being induced to do
or omit to do any act in violation of his official duty + + + shall be
fined not more than $20,000, or 3 times the monetary value of the thing
of value + + + or imprisoned for not more than fifteen years, or both."
Determination since February 12, 1976. Because of this, HUD will reject
any applications for mortgage insurance made by Appellant. (Attachment
to Appellant's Brief)
77-508-DB 77-223-D45
In the Matter of: CECELIA BREMAN GRAY
September 21, 1978
780921
Jean S. Cooper
By letter dated May 27, 1977, Appellant was notified that she was
suspended from participation in all HUD programs pending resolution of
an indictment issued against her on April 13, 1977, for violation of 18
U.S.C. 1010 (Government Exhibit 2). On October 4, 1977, a superseding
information was filed, charging Appellant with one count of 18 U.S.C.
1012 and 2(b) (Government Exhibit 4). On October 11, 1977, Appellant
pleaded guilty to violation of 18 U.S.C. 1012 and 2(b) and was sentenced
to one year on probation. On May 12, 1978, HUD notified Appellant that,
on her conviction, it intended to debar her for a period of three years
(Government Exhibit 6). Appellant made a timely request to submit
written documents in support of her position.
Thereafter, the Government filed a brief in support of debarment,
requesting a period of debarment that would terminate on October 12,
1978. The Government stated that the reasons for the short debarment
were that Appellant's involvement in submitting fraudulent mortgage
insurance applications to HUD had been minimal and that she cooperated
in the subsequent investigation. Appellant filed an Affidavit dated
September 7, 1978, that she was agreeable to this proposed period of
debarment (Appellant Exhibit 1).
Conviction for commission of a criminal offense as an incident to
obtaining or attempting to obtain a public or private contract and
violation of any law or regulation relating to an application for
insurance are causes for debarment 24 C.F.R. 24.6(a)(1) and (5).
Appellant had pleaded guilty to participation in a scheme to induce HUD
to insure mortgages for homebuyers who did not otherwise qualify for
such insurance by submitting false information. These actions raise a
serious issue of responsibility and business integrity.
The purpose of debarment is to assure the Government that "awards be
made only to responsible contractors + + +" 24 C.F.R. 24.0.
Responsibility concerns a contractor's integrity as much as ability to
perform on a contract. 39 Comp. Gen. 468 (1959). However, debarment
"shall be used for the purpose of protecting the public and + + + not
for punitive purposes." 24.5(a). The test for debarment is the present
responsibility of Appellant, although prior failures may be grounds for
a present finding of nonresponsibility. Schlesinger v. Gates, 249 F. 2d
111 (D.C. Cir. 1957), 37 Comp. Gen. 756 (1958). In the instant case,
Appellant's involvement in the overall scheme to defraud HUD had been
minimal and the Government cited both this fact and her cooperation with
the United States Attorney during the investigation as mitigating
factors. Also, in her Affidavit, Appellant acknowledges the seriousness
of the acts she committed. Appellant has been suspended since May 27,
1977. Inasmuch as both parties are in agreement that a period of
debarment up to and including October 27, 1978, is fair and will fulfill
the purposes of the debarment regulation, I find that this period of
debarment is appropriate.
Upon consideration of the record in this matter and the best
interests of the public and the Government, Cecelia Breman Gray shall be
debarred from participation in HUD programs up to and including October
27, 1978.
77-507-DB
In the Matter of: MARVIN D. BURNS and BRIGHT STAR REALTY
June 8, 1978
780608
James W. Mast
On September 14, 1976, James L. Young, then Assistant
Secretary-Housing, Department of Housing and Urban Development, herein
the Department, served Marvin D. Burns, herein Respondent Burns, with a
letter of suspension pursuant to the Department's Rules and Regulations,
24 C.F.R. 24.5, herein the Rules, because of his indictment by the Grand
Jury of the United States District Court, Eastern District of Louisiana
on charges of violations of 18 U.S.C. 1010. On May 16, 1977, Lawrence
B. Simons, Assistant Secretary-Housing of the Department served
Respondent Burns with notice of intention to debar him and Bright Star
Realty, herein Respondent Bright Star pursuant to the Department's Rules
because of his conviction in the same United States District Court of
violation of 18 U.S.C. 1012. On May 20, 1977, Respondent Burns requested
a hearing. On July 26, 1977, the undersigned was designated to hear and
consider the case. On July 29, 1977, the parties were directed to submit
documentary evidence and briefs pursuant to 24 C.F.R. 24.5(c)(2). This
was extended to September 23, 1977, at the request of the Department.
Both parties submitted documentary evidence and briefs. Because of
substantial questions of fact and credibility which could best be
determined on the basis of oral testimony, a hearing was directed
pursuant to the standard enunciated in Thomas J. Sedgewick,
77-HUD(JD)-40 (July 27, 1977). On December 12, 1977, the parties entered
into a stipulation providing for consideration and decision of the case
on the basis of the transcript and exhibits of the hearing in the case
of Linda Mary Rodriguez, Docket No. 77-521-DB. The transcript and
exhibits in that case together with supplemental briefs in the present
case were ultimately received. On April 28, 1978, the Parties moved to
reopen the record and to submit additional evidence.
That motion is granted and the further evidence is considered herein.
Upon the entire record, I make the following:
Marvin D. Burns was a principal in Bright Star Realty. Respondent
Bright Star was originally a partnership of Linda Mary Rodriguez and
Respondent Burns. Subsequently, Respondent Bright Star was incorporated.
The two individuals remained the sole shareholders of the corporation.
Respondent Burns was named president and Linda Mary Rodriguez,
secretary-treasurer of the corporation. Respondent Bright Star was
engaged in the real estate business in the New Orleans Louisiana area.
Respondent Bright Star through its agents Respondent Burns and Linda
Mary Rodriguez participated in the sale of Department owned houses to
individual purchasers.
On July 15, 1976, Respondent Burns and Linda Mary Rodriguez doing
business as Bright Star Realty were indicted by the Grand Jury for the
United States District Court for the Eastern District of Louisiana on 11
Counts of violation of 18 U.S.C. 1010. On December 13, 1976, the
indictment was dismissed as to both Respondent Burns and Linda Mary
Rodriguez. The same day the United States Attorney issued an information
alleging 4 counts of violation of 18 U.S.C. 1012 by Respondent Burns
doing business as Bright Star. On December 13, 1976, Respondent Burns
entered a plea of guilty to all counts of the information. The Court
placed Respondent Burns on active probation for a period of two years
and fined him $2,000.
The conviction was as a result of a series of transactions involving
the sale of Department owned houses. The procedure used by the
Department was to advertise the availability of houses. Real estate
brokers such as Respondents could then solicit bids from individual
purchasers. If an individual was interested, the real estate broker
could submit the prospective purchaser's bid to the Department. The bid
was submitted on HUD Form 9551. The form provided for the signature of
the individual prospective purchaser who made the bid. On the scheduled
date appearing in the original advertisement the Department opened the
bids at a public bid opening and named the successful bidder and
alternate bidders in descending order of the amount of their respective
bids. The Department had not attempted to enforce the bids, as contracts
to purchase the property at the bid price, in case of default by the
prospective purchaser. Nevertheless, a default often did result in the
Department having to hold the property and readvertise for bids.
As alleged in Count 1, Respondents submitted a bid to the Department
on May 1, 1975, which purported to be the bid of Joseph E. McCollum and
which was purportedly signed by Mr. McCollum. The bid was for property
located at 3441 West Loyola Drive, Kenner, Louisiana. The HUD Form 9551
was not signed or authorized to be signed by Mr. McCollum.
As alleged in Count 2, Respondents submitted a bid to the Department
on June 2, 1975, which purported to be the bid of Eugene J. Pierce, Sr.
and which purportedly was signed by Mr. Pierce. The bid was for property
located at 432 Cherrywood Drive, Gretna, Louisiana. The HUD Form 9551
was not signed or authorized to be signed by Mr. Pierce.
As alleged in Count 3, Respondents submitted a bid to the Department
on June 16, 1975, which purported to be the bid of Gustave J. Hart, III,
and which purportedly was signed by Mr. Hart. The bid was for property
located at 2112 Kingfisher Drive, Poydras, Louisiana. The HUD Form 9551
was not signed or authorized to be signed by Mr. Hart.
As alleged in Count 4, Respondents submitted a bid to the Department
on June 24, 1975, which purported to be the bid of Idalia Pineda. The
bid was for property located at 3029 Lille Drive, Marrero, Louisiana.
The HUD Form 9551 was not signed or authorized to be signed by Mrs.
Pineda.
Respondents offered evidence that the practice of submitting HUD Form
9551's which had not been signed or authorized by the prospective
purchasers was customarily followed by real estate brokers in the area.
Further, Respondents offered evidence, that despite absence of evidence
of specific authorization in most cases, that they "felt (they) had
authority to turn + + + bids in" for the prospective purchasers.
Additionally, evidence of some authorization or tacit authorization of
bids was offered. Finally, Respondents offered evidence of their
subsequent compliance with the Department's requirements on submission
of bids, their services to their clients and to the community in which
they did business, and their lack of intent to defraud.
Respondents are contractors as direct and indirect recipients of
funds from the Department derived from the sale of Department owned
properties and from the sale of properties where the mortgages were
insured by the Department. Upon the conviction of Respondent Burns of
crimes involving his business with the Department the basic requirements
of debarment are established.
The Department seeks a three year period of debarment; Respondent
argues "+ + + that adequate sanctions (are presently) imposed by virtue
of the suspension to this date and the Federal sentence imposed upon
Respondent Burns."
It would be inappropriate not to debar Respondents in view of the
serious misconduct involving their business with the Department. Here,
the evidence of the conviction is buttressed by Respondent Burns' own
testimony as follows:
I entered a guilty plea because, as it turned out, I was guilty
of writing these peoples' names in, and at the time, even though
at the time we did not realize we were wrong, as it turned out, we
were, and that is the reason I pleaded guilty.
Further, a conviction of a criminal offense in District Court is prima
facie evidence that the defendant, as Respondent in a debarment action,
has engaged in the violations as alleged in the indictment, and
Respondent is collaterally estopped to now deny the acts. Cf. State of
Illinois v. Huckaba & Sons Construction Co., 442 F. 2d 56, 57-59 (S.D.
I11. 1977). Accordingly, the evidence of actual authorizations and tacit
authorizations is rejected. In the absence of condonation or even
knowledge on the part of the Department of the alleged common practice
as submitting false bids, such is also rejected as a defense or in
mitigation in this case. Finally, the evidence of subsequent compliance
is rejected as justifying no debarment. Such is concluded to be no more
than the act of a rational person upon being brought to law by his
confrontation by the Federal Bureau of Investigation in the
investigation of the related criminal case. Accordingly, its value as
evidence of good faith compliance is substantially discounted.
Under the circumstances of this case including the evidence of
pattern or practice of such misconduct, the impact of practice on the
operations of the Department, and the conviction of Respondent by the
District Court, a three year period of debarment is appropriate.
Respondents will be debarred for a period of three years beginning May
16, 1977, and ending May 15, 1980.
1. Respondents are contractors within the meaning of the Department's
Rules, 24 C.F.R. 24.4(f).
2. By their conduct resulting in the conviction of Respondent Burns
of violation of 18 U.S.C. 1012, Respondents violated the Department's
Rules, 24 C.F.R. 24.6(a)(4), (5) and (9).
It is ordered that Marvin D. Burns and Bright Star Realty are
debarred for a period of three years beginning May 16, 1977, and ending
May 15, 1980. Department funds shall not be expended for financial
assistance to Marvin D. Burns and Bright Star Realty or to any concern
in which they have a substantial interest. Bids and proposals shall not
be solicited therefrom, and subcontracts with Marvin D. Burns and Bright
Star Realty will not be approved unless determined to be in the best
interests of the Government.
77-222-D44 77-506-DB
In the Matter of: NICHOLAS D'ANDREA
July 22, 1980
800722
B. Paul Cotter, Jr.
By letter dated July 16, 1976, the Department of Housing and Urban
Development notified Nicholas D'Andrea that he was suspended from
participation in Departmental programs based on an indictment charging
him with violating 18 U.S.C. 371 (1970). (Exh. G-1). Subsequently, on
January 14, 1977, the United States District Court for the Northern
District of Indiana convicted and sentenced Appellant to serve four
years in the custody of the Attorney General and to pay a $9,000.00 fine
set off by the costs of his defense. (Exh. G-2). HUD notified Appellant
by letter dated May 16, 1977 of the Department's intention to debar him
for a period of five years because of the conviction.
Although Appellant did not appeal the notice of suspension, he did
file a timely request for a hearing on the proposed debarment.
(Documents File, Tabs 1-3). In the case of a proposed debarment based on
conviction for a criminal offense, the appeal is limited by regulation
to submission of briefs and documentary evidence. 24 C.F.R. 24.5(c)(2)
(1979). On September 22, 1977, the Government submitted documents and a
brief advocating debarment of Appellant for five years. Rather than
file a brief or documents at that time, Appellant requested an extension
until after the appeal of the conviction was decided.
On October 26, 1977, the Hearing Officer granted Appellant's request
to delay the proceedings until the United States Court of Appeals for
the Seventh Circuit reached a decision on his appeal from the
conviction. On November 2, 1978 a divided court affirmed Appellant's
conviction. United States v. D'Andrea, 585 F. 2d 1351 (1978), cert.
den. 99 S. Ct. 1795 (1979). Appellant submitted for the record the
Circuit Court's decision which included a lengthy dissent, and renewed
his request for an extension of time. The Seventh Circuit opinion is the
only document Appellant has submitted on his behalf.
On January 19, 1979, the Hearing Officer granted Appellant's request
for continuance pending the Supreme Court's decision whether to grant
certiorari. The Supreme Court denied certiorari on April 2, 1979, though
Appellant never notified the Hearing Officer of the decision. Appellant
failed to respond to an Order dated January 8, 1980 to Show Cause why
the decision should not be issued. The following determination is based
on the written record submitted by the Government and the Circuit
Court's decision in United States v. D'Andrea, supra. ("Decision").
At the time of the operative events, late 1963 to mid 1971 "and
thereafter," Appellant was a New Jersey contractor and bondsman. (Exh.
G-2). To participate in HUD's nonprofit multifamily housing program,
Appellant organized H. Rupert and Company to serve as general contractor
for construction of the Bishop Freeman Project in Gary, Indiana. The
project was approved by the Federal Housing Administration (FHA) for
mortgage insurance in April 1970 and construction began that summer. The
project was shut down in June 1979 and, as a result, the FHA paid claims
of nearly $2,000,000.00. (Exh. G-1; Decision (Dissenting Opinion),
1358).
The Seventh Circuit sustained Appellant's conviction for violation of
18 U.S.C. 371 based on evidence that Appellant assisted the project
sponsor in acquiring Federal insurance for mortgage funds through
willful misrepresentations to the FHA concerning the financial
arrangements between the sponsor and Appellant and on evidence that
Appellant acquired payments for construction costs through false
statements submitted to the FHA, such as line juggling on requisition
orders. (Decision, 1354-5).
The Government seeks to debar Appellant for a period of five years on
the ground that HUD should protect itself and the public from
contractors such as the Appellant who disregard the law and Departmental
regulations.
The Government relies on section 24.6 of the debarment regulation
which provides in pertinent part:
24.6 Causes and conditions applicable to determination of
debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # #
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
The purpose of the Department's debarment regulation is to protect
the public. 24 C.F.R. 24.5(a). Section 24.0 of the regulation provides
that, as a matter of Department policy, contracts may only be awarded to
"responsible contractors or grantees." Appellant is a contractor within
the meaning of the Departmental regulation because he was a contractor
with a participant in a program insured by HUD. 24 C.F.R. 24.4(f).
The term "responsible" is a term of art as applied to Government
contractors. The term refers not only to pecuniary ability, but includes
some consideration of the contractor's "integrity, fitness, capacity and
ability to successfully fulfill the contract requirements." Roemer v.
Hoffman, 419 F. Supp. 130 (D.D.C. 1976); 34 Comp. Gen. 86 (1954).
Appellant's conviction for violation of 18 U.S.C. 371, the very
serious offense of conspiring to defraud the Government, has been
affirmed on appeal. This conviction is not only sufficient ground for
debarment under 24.6(a)(1) but also particularly strong evidence of lack
of integrity and, therefore, of a lack of responsibility.
Debarment is not to be imposed as a penalty, but rather, as a
sanction to insure that HUD effectively executes its statutorily
mandated missions. Copper Plumbing and Heating Co. v. Campbell, 290 F.
2d 368 (D.C. Cir. 1961); Carol E. Patterson, 80-1 BCA Paragraph 14,224
(HUDBCA No. 78-325-D54, 1979).
The test for debarment is present responsibility, Roemer v. Hoffman,
supra, although a finding of a present lack of responsibility can be
based on past acts. Schlesinger v. Gates, 249 F. 2d 111 (D.C. Cir.
1957); Onofrio Vincent Bertolini. HUDBCA No. 79-390-D33 (Decided
November 13, 1979). The real question is whether Appellant "possesses
the requisite honesty and integrity to participate in Government
programs that expend public funds." Carol E. Patterson, supra.
In Roemer, the Court remanded the case to the debarring officer for
consideration of mitigating factors presented by the Appellant including
his character before and after the offense occurred, the circumstances
surrounding the offense, the deterrent effect of the prior suspension
and conviction, payment of restitution, and the length of time since the
offense and since the conviction. Section 24.6(b)(1) of the HUD
regulation, consonant with the Roemer decision, provides that "all
mitigating factors may be considered in determining the seriousness of
the offense + + + and in deciding whether the Administrative Sanction is
warranted." 24 C.F.R. 24.6(b).
However, Appellant has offered no evidence of mitigating factors
indicating present responsibility other than Judge Swygert's dissenting
opinion from the decision of the Seventh Circuit Court of Appeals
sustaining D'Andrea's conviction. We note that the operative events
leading to Appellant's conviction occurred over nine years ago and that
there is no evidence of any other wrong doing by D'Andrea prior or
subsequent to those events. Finally, Appellant has been suspended for
nearly four years.
The serious nature of Appellant's offense warrants imposition of a
five-year period of debarment. See Albert Demeter and Demeter Constr.
Co., HUDBCA No. 79-372-D25 (Decided April 17, 1980). That result has
already been accomplished in part by the unusual fact of Appellant's
four year suspension. In view of the time which has elapsed since the
offense occurred, Appellant's present responsibility can be adequately
established within the meaning of the debarment regulation by imposition
of a one year period of debarment.
Upon consideration of the public interest and the entire record in
this matter, it is hereby determined that Appellant Nicholas D'Andrea
should be debarred from doing business with this Department for a period
of one year from July 22, 1980, up to and including July 21, 1981.
77-503-DB
In the Matter of: JOSEPH HOOD
November 8, 1977
771108
Michael F. Burke
By letter dated May 4, 1977, Assistant Secretary Simons advised Mr.
Joseph Hood of Inglewood, California (hereinafter Appellant) that the
Department had been advised of Appellant's conviction in the United
States District Court for the Central District of California. Appellant
had pled guilty to a violation of Title 18 U.S.C. Section 371. As a
result of this conviction Appellant was advised by the Department of his
suspension from further participation in HUD programs and that the
Government was proposing his debarment. Appellant was advised of his
right to a hearing and to submit documentary evidence, written briefs
and to be represented by Counsel in accordance with the provisions of 24
C.F.R. 24.5(c)(2) and 24 C.F.R. 24.7. Appellant was furnished with a
copy of the applicable Department regulations, 24 C.F.R. 24, which
establishes the procedures to be followed in suspensions and debarments.
By letter dated May 13, 1977, Appellant, through his attorney, requested
the opportunity to submit documentary evidence and written briefs in
accordance with the regulations. By letter dated June 23, 1977, the
Hearing Officer advised the Government to submit its position regarding
the basis of the proposed debarment action no later than July 22, 1977.
The Appellant was requested to furnish its written position regarding
the matter together with any documentary evidence of a mitigating nature
no later than August 23, 1977. On July 25, 1977, the Government
submitted its written brief. Appellant was given an extension until
September 9, 1977, to make its submission, which it did on that date.
By letter dated May 5, 1977, Appellant was notified of its suspension
and proposed debarment by the Department. (Gov't. Exhibit No. 1) The
Government bases its action on the fact that on February 2, 1977,
Appellant pled guilty to one count to a forty count indictment. (Gov't.
Exhibit No. 2) Appellant submitted a plea to the conspiracy count in
this indictment. (Title 18 U.S.C. Section 371) Appellant was charged
with two other defendants, co-conspirators, Messrs. Perez and Fagot
(these individuals were the subject of separate Administrative actions
by the Department). Appellant was charged in the indictment with working
together with the co-conspirators to deceive and trick the Department.
The indictment alleged that with the assistance of an employee of a
mortgagee the Appellant together with the co-conspirators were able to
assure that the Department would extend mortgage insurance coverage
regardless of applicants' qualifications for such insurance or their
economic ability to pay for same. The gist of the conspiracy was
devising a scheme to defraud HUD-FHA, whereby false information was
submitted for the purpose of obtaining federally insured loans for the
purchase of residential property. The false information that was
submitted to HUD-FHA related to background and financial condition of
prospective purchasers of residential property and was fraudulently
designed so that the prospective purchasers would appear to qualify for
federally-insured loans. The result of such a scheme was to burden
unwitting mortgagors with mortgage payments which were beyond their
means to satisfy. As a result of the plea submitted to the indictment,
Appellant received a suspended sentence, was placed on probation for
three years, ordered to spend eight hours per week over a nine-month
period in volunteer community work, and fined the amount of $3,000.
(Gov't. Exhibit No. 3)
It is the position of the Department that Appellant should be
debarred for a period of four years. It maintains that the scheme to
which Appellant has pleaded guilty was fraudulent in nature. It had the
effect of putting individuals into assuming mortgages that they were
unable to afford. In those instances where the mortgagors default, the
Department must purchase the mortgage and expand the FHA insurance fund.
The Government asserts that, when a mortgagor is unable to keep his
home, under the pressure of mortgage payments beyond his means, the
public is burdened by the use of public funds which are paid under the
insurance claim. Further in this conspiracy, Appellant received
commissions from the sales of these properties involved in this scheme.
It is Appellant's position, as stated in his Counsel's brief, that he
should not be debarred. (Appellant's Exhibit No. 1) Counsel states on
his behalf that Appellant has lived an honorable life in the service of
this country and community, and that with the sole exception of his
involvement in this criminal transaction in 1972 he is a person of
integrity and dignity. (The conspiracy to which Appellant entered a
guilty plea occurred from November 30, 1971 and continued through August
30, 1972.) The brief cites all the hardships that have resulted to
Appellant because of his involvement in this criminal scheme, i.e.,
extensive legal fees, loss of employment with the City of Long Beach,
California, in March of 1977. Moreover, Appellant has been required to
serve eight (8) hours each week in community service. Appellant's
Counsel points out that Appellant has already suffered a great deal
already because of this matter in regard to his self-esteem and
reputation, and that he has worked hard to make amends for his
indiscretion. Furthermore, it is stated that Appellant can be expected
to act with honor and integrity in his future endeavors. During the past
five years, Appellant has a record of community service,
self-improvement and of law abiding.
Appellant submitted a letter to the Hearing Officer which he outlined
in detail the remedial steps he has taken since 1972 to improve himself
and to make amends for his violation of the law. (Appellant Exhibit No.
2) A letter was also submitted by the probation officer on behalf of
Appellant in which he stated that prior to the Federal criminal offense
in 1972 he was without a felony arrest record and his personal
background was exceptional. Moreover, the probation officer stated that
Appellant's adjustment since the time of his period of probation has
been exceptional and that he has performed volunteer work in community
services. The probation officer expresses the opinion that it is
doubtful that Appellant will ever perform any act which would place his
freedom in jeopardy. (Appellant Exhibit No. 3)
Several other letters, in the nature of character references, were
submitted on behalf of Appellant, from leaders of his community which
attest to his excellent reputation and constructive activity in
community affairs. (Appellant Exhibit Nos. 4, 5, 6 & 7)
The pertinent portions of the regulations governing the disposition
of this matter are as follows:
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense of the failure or inadequacy
of performance generally not to exceed five years."
(f) "Contractors or grantees." "Individuals, state and local
governments and public or private organizations that are direct
recipients of HUD funds or that receive HUD funds indirectly
through non-Federal sources including, but not limited to,
borrowers, builders, mortgagees, real estate agents and brokers, +
+ +." (Emphasis added.)
Section 24.6 Causes and Conditions Applicable to Determination
of Debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
"(a) Causes. (1) Conviction for commission of a criminal
offense as an incident to obtaining or attempting to obtain a
public or private contract, or subcontract thereunder, or in the
performance of such contract or subcontract.
(b) Conditions + + +. (2) The existence of a cause set forth in
paragraph (a)(1) and (2) of the section shall be established by
criminal conviction by a court of competent jurisdiction at the
discretion of the appropriate official.
In the instant matter, Appellant, along with the other co-defendants,
falsely applied for FHA contracts of insurance. Therefore, since
Appellant applied for a "contract of insurance" from FHA, he was a
contractor or grantee as defined in the regulations (24 C.F.R. 24.4(
f)). Hence, the matter of Appellant's proposed debarment is properly a
matter for administrative determination under the regulations, and is
subject to the jurisdiction of the Hearing Officer to issue a
determination (24 C.F.R. 24.8).
Appellant's conviction under Title 18, U.S.C. Section 371
(conspiracy) is a cause under the regulation for which debarment may be
imposed. The Government urges that Appellant be debarred for a term of
four years. In the administrative proceedings involving Appellant's
co-conspirators, Messrs. Perez and Fagot, the Government recommended
periods of debarment of 2-1/2 and 3 years, respectively.1/ Here the
record discloses that Appellant has pled guilty to a crime of falsifying
loan applications to HUD-FHA. This fraudulent activity strikes at the
integrity of the HUD-FHA Housing Program because it denies FHA insurance
to mortgagors who are sometimes legitimately entitled to FHA insurance
by diverting insurance coverage to mortgagors who were qualified for
insurance coverage by fraudulent means. Therefore, Appellant has
demonstrated by his criminal and fraudulent conduct a lack of business
integrity and responsibility in his conduct with the Department. The
purpose of the Department's regulation concerning suspension and
debarment is to protect the public interest. (24 C.F.R. 24.0)
Therefore, the imposition of a debarment sanction against Appellant is
warranted, based upon the evidence in the record. Accordingly, it is my
determination that debarment of Appellant is in the best interest of the
Government.
In determining an appropriate period of debarment, consideration is
given to the Government's recommendation for a four-year period of
debarment. However, it is recognized that the criminal conspiracy, in
which Appellant was involved, ended five years ago. The evidence clearly
indicates that since that time Appellant has led a constructive life.
Thus, to impose an unreasonable period of debarment would be to impose a
penalty in contradiction of the purpose of the regulation which is to
protect the public interest. Therefore, based upon the entire record of
this matter, an eighteen month period of debarment is deemed reasonable
to protect the public interest. In establishing this period of
debarment, consideration is given to the fact that Appellant has been
suspended for a period of six months.
Upon consideration of the evidence in the record in its entirety, and
pursuant to the authority vested in me as the Hearing Officer, it is my
Determination that it would be in the best interest of the Government
that Appellant be debarred for a period of 18 months commencing November
8, 1977 and ending May 8, 1979.
17, 1977, Mr. Perez was debarred for the period through October 17,
1978. The administrative determination involving Mr. Fagot has not been
issued as of this date.
77-502-DB
In the Matter of: HENRY RYLES, JR.
January 6, 1978
780106
Michael F. Burke
By letter dated May 2, 1977, Henry Ryles, Jr., Long Beach, California
(hereinafter Appellant) was advised by Assistant Secretary Simons of his
suspension from further participation in HUD activities. (Government
Ex. No. 1) In that letter, Appellant was advised that based upon his
conviction for violation of Title 18, U.S.C. Section 2(b) in the United
States District Court for the Central District of California, the
Department was instituting debarment action against him. Appellant was
notified of his right to submit documentary evidence and written briefs
and to be represented by counsel regarding this proposed action in
accordance with 24 C.F.R. 24.5(c)(2). Subsequently, on May 16, 1977,
Appellant, through his attorney, requested the opportunity to submit
written evidence. By letter from the Hearing Officer of June 24, 1977,
Appellant was requested to submit his written brief to the Hearing
Officer no later than October 20, 1977. The Government was requested to
submit its written brief on or before September 22, 1977. Subsequently,
Appellant advised the Hearing Officer that because of certain
administrative proceedings in the State of California, regarding the
matter of Appellant's real estate license, he requested that the
Department proceedings be held in abeyance until the proceedings in
California were completed. This request was granted by the Hearing
Officer on July 19, 1977, and Appellant was given until November 18,
1977, to file his written brief in this matter. Appellant submitted its
written brief on November 17, 1977, while the Government submitted its
brief on October 27, 1977.
The Government has brought this proposed debarment action against
Appellant based upon Appellant's guilty plea on February 2, 1977, to one
count of a forty count indictment. (Government Exhibit No. 2) Count 3 of
that indictment, to which Appellant entered the plea of guilty, charged
Appellant with falsifying mortgagors income so that the mortgagors could
qualify to purchase homes which were to be insured by FHA. The Judgment
of Conviction issued by the United States District Court for the Central
District of California on February 2, 1977, indicates that Appellant
received a suspended sentence, fined $1,000, and was placed on probation
for three years. (Government Exhibit No. 3) Included in this sentence
was a provision that during the first six months of probation, Appellant
would serve seven hours each week participating in the program of the
Community Volunteer Office in Long Beach, California.
The Government charges that the fraud that Appellant committed
results in causing a mortgagor who otherwise would be unqualified for
FHA insurance to be encumbered with mortgage payments beyond the
person's ability to make payments. In such instances, the likelihood of
a default on a mortgage is significantly increased. When there is a
default by a mortgagor, the Department must repurchase the mortgage and
expend the insurance fund. This type of transaction results in depleting
the FHA insurance fund from the proper purposes for which it was
established. The Department recommends that Appellant be debarred for a
period of four years from the date of the Hearing Officer's
Determination.
Appellant, through his counsel, charges that he cannot be debarred
because the applicable regulations governing this matter, 24 C.F.R. 24,
were issued on January 27, 1977, and Appellant points out that the
incident involved in this matter occurred on February 1972. Therefore,
to retroactively restrict the Appellant for acts committed prior to
issuance of the regulations would be an unconscionable denial of
administrative due process. Further, Appellant charges that the facts do
not warrant the recommendations of the Department for debarment.
Appellant alleges that at the time of the criminal violation, Appellant
was only a part-time real estate salesman and not a full-time real
estate salesman. In support of this contention, that Appellant was a
part-time salesman at the time of the offense, Appellant introduced a
statement by the Administrative Law Judge in the State of California who
conducted the hearing for the Real Estate Commissioner of that State
concerning the revocation of Appellant's license for a real estate
agency. (Appellant Exhibit No. 1) That proposed decision stated in part:
"The aforementioned violations arose out of the activities of
respondent wherein he was engaged as a novice salesman in a real
estate office engaging in a substantial amount of HUD FHA sales.
The evidence clearly reflects that respondent was not a moving
party in the filing of fraudulent documents who was merely caught
up in the illegal activities of his broker."
Finally, Appellant points out that Appellant is no longer a novice in
the real estate business and now all his real estate activities would
have to be reviewed and initialed by the employing broker. Thus, there
exists no facts or circumstances in Appellant's view under which the
type of criminal offense involved in this matter could occur in the
future.
Pertinent provisions of 24 C.F.R. 24 applicable to the resolution in
this matter are as follows:
"Section 24.4 Definitions
(a) "Debarment" means exclusion from participation in HUD
programs for a reasonable specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years.
(f) "Contractors or grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources including, but not limited
to + + + real estate agents and brokers, + + + or contractors with
participants in programs where HUD is the insurer.
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # #
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department."
Initially, the question raised by Appellant's Counsel concerning the
applicability of 24 C.F.R 24, issued on January 27, 1977, to these
proceedings must be addressed. These regulations apply to administrative
hearings, and the regulations impose administrative sanctions, not
criminal penalties. The Courts have held that administrative regulations
whose purpose was not penal have been applied to conduct occurring
before the date of the regulation. See Thompson v. Whittier, 185 F.
Supp. 306, (D. D.C. 1960). Moreover, there was a regulation in effect at
the time of Appellant's violation which would have been applicable to
Appellant, 24 C.F.R. 24, Federal Register, Vol. 36, No. 246, Wednesday,
December 22, 1971.
Appellant was involved in attempting to obtain a contract of
insurance, i.e., FHA insurance on the mortgage on the property involved
in this matter. Thus, Appellant comes within the definition of
"Contractors or grantees," as defined in the regulation (24 C.F.R.
24.4(f)). Accordingly, the matter of this proposed debarment action is
properly before a Hearing Officer for administrative determination.
The offense to which Appellant entered a guilty plea involved a false
certification to the Department which represented that a certain
individual was employed by the C. Madden Painting Company and had a
monthly income of $675 from said employment, when in truth and in fact
Appellant knew that the person was not so employed and did not have a
monthly income of $675 from said employment. The offense committed by
Appellant is a cause for debarment within the meaning of the regulations
(24 C.F.R. 24.6(a)(1)). In mitigation of the offense, it is recognized
that Appellant was inexperienced in real estate at the time of the
offense and has made representations that the offense will not occur
again. However, this fraudulent act is the type of activity that is very
detrimental to the soundness of the FHA insurance fund in that false
representations of the income and employment of mortgagors places
persons in HUD insured homes who do not have the financial means to make
the mortgage payments. This often results in foreclosure and the
necessity of HUD to repurchase the property with all of the costs
involved in such a transaction, which can cause a potential loss to the
public treasury. (Cf. Preuit v. U.S. 382 F. 2d 277 (9th Cir. 1967).
Based upon the evidence of the record, there exists cause for
debarment within the purview of 24 C.F.R. 24. Accordingly, it is my
determination that Appellant be debarred. In establishing the period of
debarment, consideration is given to the time that Appellant has already
been suspended and the fact that the criminal offense was committed in
1972. Additionally, the finding of the State of California
Administrative Law Judge that Appellant was a novice in the real estate
business at the time of the offense and that he was not a moving party
in the scheme is given credence. Therefore, it is determined that a
period of one-year debarment is in the public interest.
Upon consideration of the entire record in this matter, it is my
Determination that it is in the public interest that Appellant be
debarred for a period of one year from the date of this Determination,
and ending January 6, 1979.
77-501-DB
In the Matter of: NORRIS B. PEREZ
October 17, 1977
771017
B. Paul Cotter, Jr.
By letter dated May 2, 1977, the Assistant Secretary for Housing -
Federal Housing Commissioner suspended appellant Norris B. Perez from
participation in Department ("HUD") programs and notified him that the
Department was considering his debarment. The suspension was based on
the conviction of Mr. Perez in the United States District Court for the
Central District of California. (Government Exhibits 1 and 3). The
suspension and debarment actions were initiated pursuant to the
Department's regulation governing debarment, suspension and
ineligibility of contractors and grantees 24 C.F.R. Part 24, 42 Fed.
Reg. 5304 (1977) ("the regulation"). Mr. Perez (or "appellant") filed a
timely request for a hearing. (Appellant Exhibit 1).
On November 5, 1976, an indictment was filed in the United States
District Court for the Central District of California in Docket Number
CR76-1355 charging Mr. Perez (and four real estate salesmen with whom he
worked as well as a loan processor for a mortgage company) with
conspiracy to defraud the United States Government by submitting loan
applications and supporting documentation containing false information
to the Federal Housing Administration ("FHA"). The conspiracy itself was
alleged to continue from November 30, 1971, through August 30, 1972.
Although the indictment contained 40 counts, Mr. Perez was only charged
in connection with one housing transaction taking place in February
1972. (Government Exhibit 2).
Mr. Perez pled guilty as charged in count one of the indictment on
February 2, 1977, and was convicted of the offense of conspiracy in
violation of 18 U.S.C. Section 371 (1970). Mr. Perez was given a
suspended sentence, placed on probation for 18 months, and ordered to
pay a fine in the sum of $250.00. On the Government's motion, counts 5,
6, and 7 were dismissed. (Government Exhibit 3). Thereafter HUD issued
its debarment letter, and, following appellant's timely appeal, the
parties submitted evidence in the form of copies of the indictment, the
conviction and other materials pursuant to section 24.5(c) of the
regulation.
In its brief, the Government recommends that Mr. Perez be debarred
for a period of 2-1/2 years from the date of the Hearing Officer's
decision. In support of its recommendation, the Government points out
that the deception and trickery at the heart of the conspiracy are more
than sufficient causes for debarment, particularly when taken with the
financial injury which could flow to the mortgagor, the mortgagee, and
the public. (Government Exhibit 4).
Counsel for appellant submitted copies of a decision by a California
Administrative Law Judge following a license revocation hearing
conducted before the California Department of Real Estate. Appellant's
counsel points out that the Administrative Law Judge found that:
The aforementioned violation arose out of various office
practices in a real estate office where respondent was employed.
Numerous employees in said office engaged in various deceptive
practices in order to secure qualification for FHA loans for low
income families. Respondent was low in the echelon of the
conspiracy and is contrite for his behavior. (Emphasis added).
(Appellant Exhibit 2).
As a result of that proceeding, Mr. Perez's real estate salesman's
license was revoked, but the revocation was stayed, and Mr. Perez was
placed on probation for five years.
Appellant's counsel also submitted a letter dated August 25, 1977,
from James C. Strozier, Mr. Perez's probation officer. Mr. Strozier
wrote that Mr. Perez
+ + + is considered a minimum supervision case due to his lack
of any prior criminal record and from all indications, he is a
productive and law-abiding citizen. Prognosis for Mr. Perez
successfully completing his probationary period appears excellent.
(Appellant Exhibit 3).
Appellant's counsel represents that Perez did not prepare any false
documents himself although he knew that such documentation would result
from information he furnished others. Appellant has no other criminal
record and has not been subject to HUD sanction. Of the six persons
indicted, Perez received the lightest sentence, 18 months probation.
Those portions of the regulation governing appellant's suspension and
debarment provide in pertinent part:
# # #
Section 24.4 Definitions.
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
(b) "Suspension" means a disqualification from participation in
HUD programs for a temporary period of time because a contractor
or grantee is suspected upon adequate evidence of engaging in
criminal, fraudulent, or seriously improper conduct.
# # #
(f) "Contractors or grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources including, but not limited
to + + + real estate agents and brokers + + +. (Emphasis added).
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # #
(b) Conditions + + +. (2) The existence of a cause set forth in
paragraphs (a)(1) and (2) of this section shall be established by
criminal conviction by a court of competent jurisdiction at the
discretion of the appropriate official.
# # #
Section 24.13 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries may, in the interest of the
Government, suspend a contractor or grantee:
(1) Suspected, upon adequate evidence, of
(i) Commission of fraud or a criminal offense as an incident to
obtaining, attempting to obtain a public contract, or in the
performance of Government business or contractual dealings.
# # #
(c) An outstanding indictment of a contractor or grantee, or
the naming of a contractor or grantee as an unindicted
con-conspirator is adequate evidence of suspected criminal conduct
and may be the basis for imposition of a suspension. Conviction
of a contractor or grantee is adequate evidence to warrant
imposition of a suspension pending debarment.
Appellant is a "contractor or grantee" within the meaning of Section
24.4(f) of the regulation, 42 Fed. Reg. 5305 (1977). There was clearly
adequate evidence to warrant suspension of appellant under Section
24.13, supra, because he had been convicted. Cf., Bernstein v. Romney,
Civil No. 72-C-1643 (E.D. N.Y., filed July 26, 1973). See also, Trap
Rock Industries, Inc. v. Kohl, 284 A. 2d 161 (N.J. 1971). Consequently,
appellant was properly suspended by the Government pursuant to the
regulation.
Appellant's conviction stemmed from conduct incident to obtaining a
public contract, that is a contract of mortgage insurance from FHA.
Consequently, appellant's conviction is cause for debarment per se,
pursuant to subsections 24.6(a)(1) and (b)(2) of the regulation. In
light of the terms of the regulation and the record in this matter, the
imposition of some period of debarment is in the public interest.
Under the circumstances here, the Government argues that appellant's
conviction is more than sufficient cause for debarment and warrants a
term of 2-1/2 years from the date of this decision. The Government
points out the harm that could flow to mortgagors and mortgagees from
the scheme in which appellant was involved. That harm in turn could
injure the public when it is "unjustly charged for appellant's lack of
responsibility when public funds are paid on an insurance claim."
(Government Exhibit 4).
The public interest at stake here is to insure the proper expenditure
of public funds. Section 24.0 of the regulation provides that
"Department policy requires, therefore, that awards may be made only to
responsible contractors and grantees." (Emphasis added). The Comptroller
General has defined the word "responsible" as a term of art applicable
to Government contractors, in the following manner:
+ + + the word "responsible" imports something more than
pecuniary ability, and in the selection of the lowest responsible
bidder, public officers are required to consider not only the
financial resources of the bidder, but also his integrity (and)
fitness + + +. (Emphasis added). 34 Comp. Gen. 86 (1950).
The count of the indictment to which appellant pled guilty charges
him with participating in a conspiracy to knowingly and willfully
falsify facts to defraud HUD-FHA, an agency of the United States.
Imposition of the debarment sanction is clearly warranted as being in
the best interest of the Government. 24 C.F.R. 24.6(b)(1), 42 Fed. Reg.
5306 (1977).
Counsel for appellant states that Mr. Perez "recognizes that his
actions resulted in an unjust charge against public funds." However,
counsel points out that Mr. Perez was involved in only a single
transaction and had no intention to harm the home purchasers. It is
noted that appellant did not "get rich from commissions resulting from
the conspiracy." (Appellant Exhibit 4). Nevertheless, appellant's
willful conduct detrimentally influenced the exercise of a governmental
function and may have caused financial loss to the public treasury.
Cf., Preuit v. U.S., 382 F. 2d 277 (9th Cir. 1967) and U.S. v. Markham,
537 F. 2d 187 (5th Cir. 1976).
In the last analysis, the issue is more accurately stated by the
Government. The question presented is whether the appellant is
responsible, that is, possesses the requisite honesty and integrity to
participate in Government programs that expend public funds. The
debarment of appellant here is not a penalty, but rather it is a
sanction imposed to insure that HUD effectively executes its statutorily
mandated missions. Cf., L. P. Steuart & Bro., Inc. v. Bowles, 322 U.S.
398 (1944); Copper Plumbing & Heating Co. v. Campbell, 290 F. 2d 368,
(D.C. Cir. 1961); Gonzalez v. Freeman, 334 F. 2d. 570 (D.C. Cir.
1964).
In determining the appropriate period of debarment, it is noted that
the proscribed conduct occurred 5-1/2 years ago and that there is no
evidence of wrongdoing on appellant's part before or since. Mr. Perez's
probation officer has submitted a positive prognosis for Mr. Perez's
future, and the California Administrative Law Judge who observed
appellant personally proposed an effective sentence limited to 45 days
suspension.
In view of the entire record in this matter, a one year period is
deemed reasonable to protect the public interest. The one year period
takes into consideration the five and one-half month period that has
elapsed since appellant was first suspended from doing business with
this Department.
Upon consideration of the best interests of the Government and the
entire record in this matter, it is hereby determined that appellant
Norris B. Perez should be debarred for a period of one year commencing
October 17, 1977, and ending October 17, 1978.
77-500-DB
In the Matter of: ARNOLD H. OKUM and OKUM REAL ESTATE
January 20, 1978
780120
B. Paul Cotter, Jr.
By letter dated April 29, 1977, the Assistant Secretary for Housing
notified Arnold H. Okum ("Okum" or "Appellant") of his suspension and
proposed debarment pursuant to the Department's regulation governing
debarment and suspension of contractors, 24 C.F.R. Part 24 (1977) ("the
regulation"). The notice advised Okum that the actions were based on
information that he had been convicted in the United States District
Court for the Central District of California of violating 18 U.S.C.
1010 (1970). (Government Exhibit 1).
Okum filed a timely appeal and was granted a hearing on the written
record in accordance with 24 C.F.R. 24.5(c) (1977). (Appellant Exhibit
1). Both parties submitted documentation in support of their respective
positions.
The record discloses that Okum was charged in two counts of a nine
count indictment, filed December 15, 1976, alleging conspiracy to commit
several offenses against the United States as well as the commission of
certain substantive offenses in violation of 18 U.S.C. 371, 656, 1001,
1010, and 1014 (1977). The activities took place during a four and
one-half month period from August 15 to December 31, 1974 (Government
Exhibit 2).
The indictment charged that Okum participated in a scheme to purchase
properties with loans from a bank issued in the name of fictitious
persons. The homes purchased either were HUD insured or were sold from
HUD inventory. The participants included Okum, another real estate
broker, and a loan officer in a Los Angeles bank. The names of nine
fictitious couples were used in numerous "false and forged" documents.
(Government Exhibit 2).
On February 7, 1977, Okum plead guilty to Count 7 of the indictment.
Okum was sentenced to two years in prison, all but 60 days of which were
suspended, and he was placed on probation for five years. He was fined
$2,000.00 and ordered to contribute 1200 hours to a charitable
organization and to give five speeches to real estate groups. On the
Government's motion the Court dismissed, Count 1 of the indictment,
charging Okum with conspiracy. (Government Exhibit 3).
The count to which Okum plead guilty charged that he and another
falsely and fraudulently stated in a Standard Retail Sales Contract, FHA
Form 2384, the names of fictitious purchasers to influence the FHA and
obtain the property in question for their own use and benefit. Okum's
conduct violated 18 U.S.C. 1010 (1970), the crime of issuing false
statements to obtain a loan or credit from the Department of Housing and
Urban Development.
Based on these circumstances, the Government urges that Okum's guilty
plea and conviction demonstrate a degree of dishonesty and lack of
responsibility sufficient to warrant debarment for a period of five
years. The Government bases its position on Sections 24.6(a)(1), (6),
and (9) of the regulation which provide in pertinent part:
24.6 Causes and conditions applicable to determination of
debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an indictment to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # #
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
# # #
(9) Conviction under the Organized Crime Control Act of 1970,
18 U.S.C. 1961 et seq., or conviction for the commission of the
offense of embezzlement, theft, forgery, bribery, falsification or
destruction of records, receiving stolen property, fraudulent use
of the mail in connection with commission of such offenses, or
conviction for any other offense indicating a lack of business
integrity or honesty, which seriously and directly affects the
question of present responsibility.
In opposition to the Government's position, Appellant argues that no
period of debarment should be imposed because the regulation does not
make debarment mandatory for the offense for which Okum was convicted,
Okum's character before and since the offense does not warrant so severe
a sanction, and Okum has rectified the wrong done. (Appellant Exhibit
2). Appellant attached to its memorandum an affidavit in support of its
opposition to debarment. (Appellant Exhibit 3).
The affidavit, which is uncontested, represents that Okum has been a
realtor for 11 years and has an otherwise unblemished record before and
after his conviction. Okum states that he has served his 60-day term of
imprisonment, paid $350.00 of his $2,000.00 fine, and completed 148
hours of the 1200 to be contributed to charitable purposes. Finally, he
avers that he has assisted the bank in recovery of all sums loaned for
the purchase of homes.
Appellant is a "contractor or grantee" within the meaning of Section
24.4(f) of the regulation which, by its terms, applies to "real estate
brokers and agents," 24 C.F.R. 24.4(f) (1977). There was clearly
adequate evidence to warrant suspension of Appellant under Section 24.12
and 24.13. The latter section provides that an Assistant Secretary may
suspend a contractor "suspected upon adequate evidence of - - (i)
commission of + + + a criminal offense as an incident to obtaining,
attempting to obtain a public contract + + +." Subsection (c) of section
24.13 provides that an outstanding indictment satisfies the adequate
evidence requirement. Consequently, Assistant Secretary Simons' April
29, 1977 suspension of Appellant is supported by the record and was
properly invoked in accordance with the regulation.
The regulation implements the Department's policy of protecting the
public interest by insuring the proper expenditure of public funds.
That policy is effected by permitting those contractors deemed
"responsible" to participate in Department programs. 24 C.F.R. 24.0
(1977). In O'Brien v. Carney, 6 F. Supp. 761 (D. Mass. 1934), the Court
defined the word responsible as a term of art. That term was applied to
Government contractors by the Comptroller General, as follows:
+ + + the word "responsible" imports something more than
pecuniary ability, and in the selection of the lowest responsible
bidder, public officers are required to consider not only the
financial resources of the bidder, but also his integrity (and)
fitness + + + 34 Comp. Gen. 86 (1950). (Emphasis added).
Appellant here has been convicted of a crime the essence of which is
fraud and falsification. Consequently, the conviction strongly evidences
a lack of integrity and fitness within the meaning of the term
responsible. The count of the indictment to which Appellant plead guilty
charged him with "knowingly and willfully" making false statements to an
agency of the United States for the purpose of influencing its action.
Appellant's crime goes to the essence of Department policy and warrants
a substantial period of debarment.
In response to the Government's request that Appellant should be
debarred for 5 years, Counsel argues that
+ + + because Okum has been punished for his offense and
because he has seen to it that the bank has been repaid, there no
longer exists any circumstances which would make debarment
logical, reasonable or fair.
This argument and the representations as to Okum's character go to the
question of mitigation in fixing the period of debarment.
In the last analysis, the issue is more accurately stated by the
Government. The question presented is whether the Appellant is
responsible, that is, possesses the requisite honesty and integrity to
participate in Government programs that expend public funds. The
debarment of Appellant here is not a penalty or punishment, but rather
it is a sanction imposed to insure that HUD effectively executes its
statutorily mandated missions. Cf. L. P. Steuart & Bro., Inc. v.
Bowles, 322 U.S. 398 (1944); Copper Plumbing & Heating Co. v.
Campbell, 290 F.2d 368, (D.C. Cir. 1961); Gonzalez v. Freeman, 334 F.
2d 570 (D. C. Cir. 1964).
In determining the appropriate period of debarment, it is noted that
the proscribed conduct took place three years ago and that there is no
other evidence of wrongdoing on Appellant's part. Appellant's efforts in
performing the sentence imposed by the Court as well as his suspension
since April 29, 1977, are also taken into consideration.
In view of the entire record in this matter a three year period is
determined reasonable and necessary to protect the public interest.
That period of time should be sufficient for Appellant to demonstrate
the necessary qualities of integrity and fitness required of one who
contracts with this Department.
The April 29, 1977 suspension notice advised that consideration was
also being given to debarring Okum Real Estate and any other companies
in which Appellant has a substantial interest. The Department's brief
does not request any period of debarment for Okum Real Estate, nor has
any evidence been offered to show that the firm is an affiliate of
Appellant within the meaning of Section 24.4(d) of the regulation. In
view of the absence of any evidence relating to Okum Real Estate, no
period of debarment will be imposed.
Upon consideration of the best interest of the Government and the
entire record in this matter, it is hereby determined that Appellant
Arnold H. Okum should be debarred for a period of three years commencing
January 20, 1978, and ending January 19, 1981.
77-499-DB
In the Matter of: ADAM ATSUMU MARUYAMA
August 8, 1977
770808
James W. Mast
On May 4, 1977, Lawrence B. Simons, Assistant Secretary, Department
of Housing and Urban Development, herein the Department, served
Respondent with a letter of suspension and intent to debar pursuant to
the Department's Rules and Regulations 24 C.F.R. 24, herein the Rules,
because of his conviction in the United States District Court for the
Central District of California of violation of 18 U.S.C. 1010 and 2(b).
On May 17, 1977, Respondent requested that he be allowed to submit
documentary evidence with respect to the case. June 16, 1977, the
undersigned was designated as hearing officer. On June 22, 1977, the
parties were requested to submit documentary evidence and written briefs
by the close of business July 18, 1977. On July 15, 1977, Respondent's
submittal was received. On July 21, 1977, the Department's written brief
and documentary evidence were received.
Upon the entire record, I make the following:
Adam Atsumu Maruyama was, at all times material, a partner in ABCO
Realty Company, a real estate broker business in Huntington Park,
California.
On February 24, 1977, a three count information was issued against
Respondent by the United States attorney for the United States District
Court for the Central District of California. On March 21, 1977,
Respondent pleaded guilty to count one charging Respondent with making a
false statement to the Department and causing an act to be done in
violation of 18 U.S.C. 1010 and 2(b). The United States District Court
suspended the sentence on count one and placed the Respondent on one
year's probation on the conditions that he pay a fine of $2,500, that he
obey all Federal, state, and local laws, and that he obey all rules and
regulations of the probation officer.
The conviction was a result of a real estate transaction in which
Respondent made false statements to the Department to obtain a mortgage
loan insured by the Department. Specifically, Respondent made and passed
a fraudulent document, "Real Estate Purchase Contract and Receipt for
Deposit," in which he stated that the purchasers of a certain lot of
property had deposited $800 in cash as a deposit at ABCO when Respondent
well knew that the purchasers did not have $800 on deposit at ABCO.
In mitigation, Respondent explained that at the time ABCO owed one of
the property purchasers $650 for services rendered. The purchaser
requested that the money be applied to the $800 deposit and that the
balance of $150 be a loan to him. ABCO acquiesced and deposited the $800
to escrow. Subsequently, the purchaser did additional work by which he
paid off the $150 advance. Respondent contends that for these reasons he
did not act intentionally and with criminal intent to give false
information to the Department.
Respondent is a contractor as the indirect recipient of Department
funds which are derived as a result of a mortgage insured by the
Department. Upon the conviction of a crime involving a business
transaction with the Department, the requirements of debarment are
established.
It would be inappropriate not to debar Respondent because of his
conviction of a crime involving his business with the Department. The
commission of a fraud upon the Department must be regarded seriously.
The Department requested a three year debarment.
Respondent gave a factual summary of the transaction which identified
the $800 deposit as consisting of the cancellation of $650 of an account
payable to the purchaser and $150 as an advance to the purchaser on
future work. It is this latter $150 which constituted a loan and thus a
violation when it was not disclosed. There is no reason apparent on its
face to disbelieve Respondent's statement.
The Department elected to proceed under 24 C.F.R. 24.5(c)(2) in this
case. The procedure contemplates submission of documents without an oral
hearing or an opportunity for cross examination. Nevertheless, in 24
C.F.R. 24.5(c)(2) proceedings, such cross examination as may be required
for a full and true disclosure of all the material facts would often be
appropriate. Under the circumstances where the Department has chosen to
proceed under 24 C.F.R. 24.5(c)(2), I am constrained to credit
Respondent's presentation of the facts where the facts have the
appearance of reliability and stand uncontradicted in the record.
The technical nature of this violation can be considered in
determining the seriousness of the violation. There is no evidence of a
pattern or practice of such conduct by Respondent. No reliance can be
placed on the second and third counts of the information; by their
dismissal Respondent was found not guilty of these offenses. Further,
the Department in proceeding under 24 C.F.R. 24.5(c)(2) relies solely on
the conviction. There is no evidence of other misconduct by Respondent.
It is important to consider that the District Court placed Respondent on
one year probation and fined him $2500. Such a punishment negates the
egregiousness of the violation.
Under the circumstances, a one year, period of debarment beginning
May 4, 1977, the date of the letter of suspension, and terminating May
3, 1978 is appropriate.
1. Respondent is a contractor within the meaning of the Rules, 24 C.
F.R. 24.4(f).
2. By his conduct resulting in his conviction of violating 18 U.S.C.
1010 and 2(b), Respondent violated the Rules 24 C.F.R. 24.6(a)(6) and
(a)(9).
It is ordered that Adam Atsumu Maruyama is debarred from
participation in Department programs for a period of one year beginning
May 4, 1977 and ending May 3, 1978. Department funds shall not be
expended for financial assistance to Adam Atsumu Maruyama or to any
other concerns in which he has a substantial interest. Bids or proposals
shall not be solicited therefrom, and subcontractors with him will not
be approved unless it is determined to be in the best interests of the
government.
77-497-DB 77-498-DB
In the Matter of: JOHN L. FAGOT In the Matter of: ERNEST D. CHRISTEN
December 16, 1977
October 28, 1977
771216 771028
Michael F. Burke Michael F. Burke
By letter dated May 2, 1977, John L. Fagot (hereinafter Appellant),
of Long Beach, California was notified by the Department that it had
received information of Appellant's conviction in the United States
District Court for the Central District of California for violation of
Title 18, U.S.C. Sections 1001 and 2(b), as charged in Count 3 of a 40
Count indictment. (Gov't. Exhibit No. 1) Based upon this conviction,
Appellant was notified of his suspension from further participation in
programs of the Department, and also of the Department's intention to
initiate debarment action against him based upon the conviction. By
letter of May 5, 1977, Mr. Fagot requested a hearing. My letter to
Appellant on June 20, 1977, notified him of my appointment as Hearing
Officer in this matter and the designation of Mark Zimmermann of the HUD
Office of General Counsel as Department Attorney. Appellant was notified
of his right to submit a written statement or brief in accordance with
Section 24(c) of the regulations on or before August 26, 1977. In that
letter, the Government Counsel was requested to submit its written
position to the Hearing Officer no later than July 25, 1977. On July 25,
1977, Government Counsel submitted the Department's case. On November 3,
1977, Appellant was requested by the Hearing Officer to submit its
written statement or brief in this matter. Appellant was further
notified that if no reply was received by November 21, 1977, that the
written determination would be issued by the undersigned without taking
into consideration Appellant's position. No communication has been
received from Appellant in reply to the above-requests.
Appellant was charged with four other defendants, and
co-conspirators, in a forty count indictment returned by the Federal
Grand Jury for the Central District of California. The indictment
charged the defendants with working together to deceive and trick the
Department of Housing and Urban Development. The indictment alleged that
with the assistance of an employee of a mortgagee the defendants were
able to assure that the Department would extend mortgage insurance
coverage regardless of the applicants' qualifications for such
insurance. Appellant was employed as a real estate salesman with these
co-conspirators. (They devised a scheme to defraud HUD whereby false
information was submitted to the Department concerning prospective
mortgagors employment records for the purpose of obtaining fraudulently
Federally-insured loans for the purchase of residential property.) False
information was submitted by Appellant with his co-conspirators and was
designed in such a manner that the prospective purchasers would appear
to qualify for Federally-insured loans by FHA when in fact these
mortgagors were not qualified within the meaning of the regulations.
Appellant was named in this forty count indictment and entered a plea of
guilty to Count 5 of this indictment (Government Ex. 2). Count 5 of the
indictment charged a violation of 18 U.S.C. 1001 and 2(b). The gist of
the offense was that Appellant knowingly submitted a false statement to
HUD on a document entitled "Mortgagees Application for Mortgagor
Approval" for prospective purchasers in which they represented that
these purchasers had a monthly income of $568 from employment, and that
they had cash on hand in the sum of $600. Appellant together with his
co-conspirators knew that the purchaser was not so employed nor did he
have a monthly income in the amount of $568 from said employment and did
not have cash on hand in the sum of $600. As a result of Appellant's
plea, he received a suspended sentence and was placed on probation for a
period of two years and fined $750 (Gov't Exhibit 3).
The Government recommends that Appellant be debarred for a period of
three years. The Government contends that the scheme to which Appellant
was a party and to which he entered a guilty plea, was fraudulent in
nature. Such fraudulent activity as involved here has the effect of
placing individuals into assuming Federally covered mortgagees which the
purchasers are unable to afford. In those instances where there is
default on such mortgagee the Department must purchase the mortgagee and
expend the FHA insurance fund. Appellant, as noted above, despite
several requests from the Hearing Officer, failed to submit a written
brief.
The pertinent provisions of 24 C.F.R. 24 applicable to this matter
are as follows:
Section 24.4 Definitions
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
(f) "Contractors and grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-federal sources including, but not limited
to + + + real estate agents and brokers + + + all participants or
contractors with participants, in programs where HUD is the
guarantor or insurer + + +.
Section 24.6 " Causes and conditions applicable to
determination of debarment"
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
(b) Conditions + + +. (2) The existence of a cause set forth in
paragraph (a)(1) and (2) of this section shall be established by
criminal conviction by a court of competent jurisdiction at the
discretion of the appropriate official.
Appellant entered a guilty plea to making false certifications to the
Department in order to obtain contracts of FHA-HUD insurance.
Therefore, Appellant comes under the meaning of "Contractors and
grantees," as set forth in 24.4(f), and thus is subject to the
regulation. In addition, Appellant's pleas of guilty to a crime,
incident to obtaining a contract of insurance is a cause for debarment,
24.6(a)(1) and 24.6(a)(6).
The Government recommends that Appellant be debarred for a period of
three years. It points out that fraudulent activity as committed there
exposes the FHA insurance fund to unnecessary risks. Appellant's
misrepresentation caused unqualified purchasers to obtain HUD-insured
homes, and thereby caused a potential loss to the public treasury. Cf.
Preuit v. U.S., 382 F. 2d 277 (9th Cir. 1967). Appellant did not avail
himself of the opportunity, as provided in the regulation, to submit
documentary evidence in his own behalf. Therefore, the record contains
no mitigating evidence on Appellant's behalf that could be persuasive
that debarment not be imposed.
Based on the evidence in the record, it is my determination that it
is in the public interest that Appellant be debarred. However, the
record indicates the Judge in the criminal trial placed Appellant on
probation for two years and fined him $750. Therefore, in the Judge's
opinion, the crime by Appellant did not warrant a severe sentence. The
regulation, of course, are not to be for punitive purposes but for the
protection of the public 24.5. Thus, in determining the proper term of
debarment Appellant's past conduct should not be the only criteria.
Rather, the protection of the public interest in the future must be
considered and whether a party is likely to be a responsible party with
whom the Department can confidently carry out business. Here, Appellant
was involved in criminal activity which occurred five years ago. From
the relatively light criminal sentence, the crime was not considered
very serious by the Judge. Appellant has also been suspended since May
2, 1977. Thus, a period of debarment of one year is deemed warranted and
reasonable to protect the public interest.
Upon review of the evidence in the record of this matter, it is my
determination that it is in the public interest that Appellant be
debarred for a period of one year from the date of this determination,
December 16, 1977, and ending December 16, 1978.
By letter dated May 2, 1977, Assistant Secretary Simons advised
Ernest D. Christen (hereinafter Appellant) of LaCresenta, California, of
his suspension from further participation in HUD programs and of the
Department's intention to initiate debarment proceedings against him.
The basis for the Department's action was that it had been informed that
Appellant had been convicted in the United States District Court for the
Central District of California for violations of Title 18 U.S. C.
Sections 1001 and 1014. In that letter Appellant was advised of his
right to submit documentary evidence and written briefs on his behalf
and to be represented by Counsel in accordance with 24 C.F.R. 24.5(c)(
2) and 24 C.F.R. 24.7. A copy of the HUD Regulations regarding the
hearing procedure as set forth in 24 C.F.R. 24 was enclosed in that
letter. Subsequently, on May 17, 1977, through his attorney, Appellant
requested a hearing.
On June 23, 1977, the Hearing Officer by letter to the parties,
explained the procedures under 24 C.F.R. 24 and in particular 24 C.F.R.
24.5(c) which provides that a hearing on the proposed debarment based
upon a conviction is limited to submission of documentary evidence and
written briefs. The Hearing Officer advised Department Counsel to submit
its position regarding the proposed debarment action by July 26, 1977.
Appellant was requested to file its written brief together with any
supporting documentary evidence on or before Augst 25, 1977. The nature
of the mitigating factors to be submitted by Appellant was explained in
that letter. On August 12, 1977, the Government submitted its brief to
support the proposed debarment action. On September 16, 1977, the
Hearing Officer advised Appellant that its written submission was due on
or before August 25, 1977, and had not been received. The time for
submission was extended to September 27, 1977. Appellant was further
advised in that communication that if it was not received by that date a
written determination based upon the record as it existed at the time
would be issued. As of today no written submission has been submitted on
behalf of Appellant.
On December 15, 1976, Appellant along with two co-defendants was
indicted by the United States Grand Jury for the Central Division of
California on nine separate accounts. The indictment charged the
Appellant along with the other two co-defendants with violation of 18
U.S.C. 371 (conspiracy to defraud the U.S. Government), 18 U.S.C. 2
(aiding and abbetting in the embezzlement of bank funds), 18 U.S.C.
1010 (submission of false statements to HUD), 18 U.S.C. 1001 (submission
of false statements to a Federal Agency), 18 U.S.C. 2 (aiding and
abbetting in the submission of false statements to a bank) and 18 U.S.C.
1014 (submission of a false statement to a bank). (Government Exhibit
No. 1) On January 12, 1977, the Government filed a superseding
information against Appellant charging Appellant with two violations of
18 U.S.C. 1001 and two violations of 18 U.S.C. 1014. (Government
Exhibit No. 2) On February 7, 1977, Appellant entered a plea of guilty
to the four counts in the superseding information. The gist of the
offenses was that Appellant submitted false statements to the Department
to fraudulently obtain FHA Insurance; as well as submitting false
statements to the Veterans Administration for a loan guaranty. Appellant
was sentenced by United States District Judge Manuel L. Real for a
period of two years on the first two counts, and ordered to be
imprisoned for a period of five years on two of the other counts. The
sentences were to run concurrently. He was ordered to be commited to a
jail type institution on consecutive weekends to serve the first sixty
days of this sentence. The balance of his term of imprisonment was
suspended and he was placed on probation for a period of five years.
Furthermore, Appellant was fined the sum of $2,000 and was ordered to
contribute 1200 hours to a charitable organization performing services
as directed by a probation officer. In addition, the judge directed
Appellant to give five speeches to real estate groups as directed by the
probation officer. (Government Exhibit No. 3).
Appellant despite requests from the Hearing Officer to do so, elected
not to submit a written brief in support of its position or to offer any
circumstances which would mitigate against the imposition of a period of
debarment in this matter. The Government in its brief points out that by
submitting a plea of guilty to the four counts of the information,
Appellant admitted its active participation in a scheme to purchase HUD
repossessed homes in the names of fictitious individuals. The money to
finance the purchase of the HUD possessed homes was obtained through
embezzlement from Manufacturers Bank, Los Angeles, California. Appellant
and the other co-defendants named in the original indictment created
fictitious names of non-existing individuals in whose names they applied
for loans. These co-defendants prepared loan applications and financial
statements of the fictitious home buyers and then submitted these
fraudulent prepared documents to another co-defendant and co-conspirator
who was an employer of the Bank. It was the intent of the defendant to
resell the HUD repossessed homes which they illegally purchased with
embezzled funds. The scheme of the conspiracy was to divide the profits
of the resell of the properties which they acquired, together with
brokers commissions from HUD for representing the fictitious
non-existing purchasers. The Government urges that Appellant be debarred
for a period of five years. They maintain the issue of Appellant's
responsibility is of primary importance in this proceeding and points
out that it must rely on responsible parties to conduct its business.
They point out that Appellant's conduct as evidenced by his plea of
guilty to the charges of fraud establishes unacceptable conduct which
cannot be tolerated under Federal laws or the Department's Regulations.
The applicable regulations concerning the disposition of this matter
provide in pertinent part:
Section 24.4
"(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period fo time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years. However, the
hearing officer may exclude a party for an indefinite period
because of egregious and willful improper conduct. Debarment also
means exclusion from participation by reason of ineligibility
under regulations of the Secretary of Labor pursuant to Executive
Order 11246, which exclusion continues pending elimination of the
circumstances for which it was imposed.
# # #
(f) "Contractors or grantees." Individuals, state and local
governments and public or private organizations that are direct
recipients of HUD funds or that receive HUD funds indirectly
through non-Federal sources including, but not limited to,
borrowers, builders, mortgagees, real estate agents and brokers,
area management brokers, management and marketing agents, or those
in a business relationship with such recipients including, but not
limited to consultants, architects, engineers and attorneys; all
participants, or contractors with participants, in programs where
HUD is the guarantor or insurer; and Federally assisted
construction contractors."
Sectin 24.6 "Causes and conditions applicable to determination
of debarment."
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # #
(b) Conditions. (2) The existence of a cause set forth in
paragraph (a)(1) and (2) of this section shall be established by
criminal conviction by a court of competent jurisdiction at the
discretion of the appropriate official."
Appellant submitted an application for a FHA contract of insurance on
the properties involved in the transactions which were the basis for the
criminal action. Thus, Appellant is a "contractor or grantee" as defined
in 24 C.F.R. 24.4(F), which includes "all participants, or contractors
with participants, in programs where HUD is the guarantor or insurer."
Hence, the proposed debarment of Appellant comes within the scope of 24
C.F.R 24 et seq. for an administrative determination.
As noted above, Appellant failed to submit any written statement to
explain his participation in this matter. However, the documentation
submitted by the Government into the record clearly establishes that
Appellant has pleaded guilty to a crime which is a cause and condition
under which debarment may be imposed (24 C.F.R. 24.6(a)). The substance
of the charges against defendant is that he engaged in conduct which was
fraudulent in nature. The scheme in which he participated represents a
pattern of conduct that clearly was unlawful and demonstrated a lack of
business integrity and responsibility. The violations of the law to
which Appellant has entered a plea of guilty represent a scheme to
defraud the Government and are in clear violation of the criminal
statutes and of the HUD Regulations.
The facts in this matter clearly establishes substantial evidence of
violations of these laws and regulations to such a degree as to warrant
debarment. Section 24.0 of the regulations provides that "Department
policy requires, therefore, that awards may be made only to responsible
contractors and grantees. The crimes acknowledged by Appellant display
he is not a responsible contractor. In defining "responsible"
contractor, the Supreme Court of New Jersey has stated:
"+ + + that a bidder be 'responsible' embraces moral integrity
just as surely as it embraces a capacity to supply labor and
materials. The relevancy of moral responsibility is evident. It
assumed honest performance. It meets the citizens expectations
that his government will do business only with men of integrity."
Trap Rock Industries v. Kohl, 284 A. 2d 161 (N.J. 1971) at 166.
The Government urges Appellant be debarred for five years. Normally,
before imposing a term of debarment for five years, serious
consideration must be given to whether or not a period of debarment for
that length of time would in fact be imposing an administrative sanction
which, in effect, would be the penalty for punitive purposes and as
such, contrary to the letter and spirit of the applicable regulations
(Section 24.5). However, here the facts and circumstances of this matter
clearly demonstrate that a five-year term of debarment is warranted.
This term of debarment does not impose a penalty but it is determined in
light of the criminal conduct to which Appellant has pleaded guilty. The
Department has established these regulations for the protection of the
public, and the conduct of the Appellant clearly establishes that he is
not a responsible party and that his conduct is of such a grave nature
that he has clearly demonstrated that the Government should not deal
with persons of his character. Thus, the debarment of Appellant here is
not a penalty, but is rather a sanction imposed to insure that HUD
effectively executes its statutorily mandated missions. L. P. Steuart &
Bro., Inc. v. Bowles, 322 U.S. 398 (1944)
Accordingly, it is the Determination of the Hearing Officer in
accordance with the authority invested in me by the Secretary and based
upon an entire review of this matter to debar Appellant. It is the
Determination of the Hearing Officer that Appellant be debarred for a
period from the date of this Determination through May 2, 1982.
77-496-DB
In the Matter of: RICHARD K. EHRLICH
November 28, 1977
771128
Michael F. Burke
By letter dated April 22, 1977, Richard K. Ehrlich of Beverly Hills,
California (hereinafter Appellant) was advised by Assistant Secretary
Simons of his suspension from further participation in HUD programs1/
Further, he was advised in that letter that the Department intended to
propose debarment. (Gov't Exhibit No. 1) The basis for the Department's
action against Appellant was that it had received information that
Appellant had been convicted in the U.S. District Court for the Central
District of California for violations of Title 18 U.S. Code, Sections
1001 and 2(b). In that letter Appellant was advised of his right to
submit documentary evidence and written briefs and to be represented by
counsel in this matter pursuant to 24 C.F.R. 24.5(c)(2) and 24 C.F.R.
24.7.
On May 2, 1977, Appellant, through his attorney, requested a hearing.
In reply to the hearing request, on June 21, 1977, Appellant was advised
of its rights under 24 C.F.R. 24 and informed that since the proposed
debarment action was based upon a conviction that the hearing was
limited to submission of documentary evidence and written briefs. In
that letter, Government Counsel was requested to submit its written
position to the Hearing Officer on or before July 25, 1977, and
Appellant was requested to submit its written brief and supporting
documentary evidence on or before August 26, 1977. On July 25, 1977, the
Government submitted its brief on behalf of the Department. On August
18, 1977, Appellant requested an extension of time until September 7,
1977, to file a brief in response to the Government. Appellant's brief
was received on September 12, 1977. The Government filed a reply brief
to the Appellant's submission on September 29, 1977.
Appellant was named in a 30 count indictment returned by the Grand
Jury for the Central District of California in the United States
District Court in March 1975. (Government exhibit No. 2) The gist of the
offenses set forth in the indictment was that Appellant had submitted
false statements to the Department. Subsequently, on September 22, 1975,
Appellant entered a plea of guilty to Counts Nos. 11 and 29 of the
indictment. Count 11 of the indictment charged Appellant with knowingly
and willfully making a false certification to the Department on an FHA
document entitled "Contractors Certificate of Actual Costs." Appellant
certified in that document that the actual cost incurred in the
completion of electrical work and construction of Lurline Gardens
Housing Project was approximately $189,176.71 when in fact Appellant
knew that the actual cost for the electrical work was approximately
$138,669.49. Further, Count 29 of the indictment charged Appellant with
knowingly and willfully making a false certification on an FHA document
entitled "Mortgagors Certificate of Actual Costs." Appellant had
certified that the actual costs incurred in the completion of
construction of Lurline Gardens with allowable builder's profits were
$276,525.00 when in fact appellant knew the actual costs incurred in the
completion of the construction of Lurline Gardens for allowable
builder's profit were substantially less. The Judgment and Probationary
order filed against Appellant on September 22, 1975, in the United
States District Court for the Central District of California discloses
that Appellant was placed on probation for five years, that he refinance
any mortgage due if the Government requests him to do so, and was fined
the sum of $10,000 on each count. (Government Exhibit No. 3)
The Government assets that the false certification charged in Count
11 of the indictment would have resulted in the Department providing
mortgage insurance in the amount of more than $50,000 greater than
actually justified by the actual cost of the electrical work. The false
certification charged in Count 29 of the indictment would also have
resulted in the Department providing mortgage insurance in an amount
greater than the actual costs of the construction project. Government
counsel points out that when the Department provides insurance in an
amount greater than the actual cost of construction, the result can be a
serious and significant exposure of the Department's insurance fund. If
a project later is foreclosed and becomes a Department-owned property,
the excess insurance amount is completely lost. The potential exposure
of this kind to the Department can result in exposure of millions of
dollars. The Department points to the severe fines imposed by the judge
in the criminal case here, as well as the extensive period of probation
as indications of the gravity, in the judge's view, of the offenses
involved. The Government argues that Appellant's actions indicate
willful and improper conduct, and therefore under 24 C.F.R. 24, moved
that Appellant be debarred from participation in HUD programs for a
minimum period of five years and for an indefinite period beyond that
time based on the willful nature of the activities of Appellant.
Appellant asserts that debarment is not warranted under the
circumstances involved here. Appellant states it is the owner of a 91.4%
interest as a limited partner, in the limited partnership, which owns
Lurline Gardens. As a general contractor, Appellant has built various
apartment houses in Southern California and is presently the property
manager for over 250 apartments and has over 20 years experience in
property management. Appellant managed Lurline Gardens from its
completion in 1971 through December 1, 1975. Appellant maintains that
debarment is not mandatory under 24 C.F.R. 24 and points to 24.6(a)(1)
which provides that the existence of any causes for debarment does not
"necessarily" require that a contractor or grantee be excluded from
departmental programs and that the decision to debar shall be made wthin
the discretion of the department and shall be rendered in the best
interest of the Government. Further, it is urged by Appellant that all
mitigating factors may be considered in determining the seriousness of
the offense and in deciding whether administrative sanctions are
warranted.
Appellant points out that it was suspended on April 30, 1975.
Appellant pled guilty to the subject offenses on July 14, 1975, and was
sentenced on September 23, 1975. The notice of proposed debarment was
not issued until April 22, 1977 (almost 2 years after the suspension
letter). Appellant states the Department never offered any reasonable
explanation as to the reason for the approximately 2-year delay between
the notice of interim suspension and the notice of proposed debarment,
notwithstanding the fact that 24.12 states "suspension is a drastic
action" and 24.14 provides that all suspensions shall be for a
"temporary period." Moreover, the proposed debarment action was not
instituted until April 22, 1977, only after Appellant's attorney made
demands upon the Department for initiation of such proceedings.
(Appellant's exhibit No. 4)
Appellant assets that the delay in initiating debarment proceedings
here is significant for two reasons: I. The debarment regulations were
amended January 27, 1977, and until that date under the previous
regulations the Department had no regulatory power to prevent Appellant
from managing the Lurline property.
Appellant points out that prior to January 27, 1977, the Regulation
(24 C.F.R. 24) defined "contractors or grantees," 24.4(g) as follows:
"Individuals and public or private organizations that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-federal sources; all participants or
contractors with participants, in programs where HUD is the
grantor or insurer; and Federally assisted contractors."
Reference is then made by Appellant to the amended Regulation of January
27, 1977, where in 24.4(f), "contractors or grantees" are defined as:
Individuals, state and local governments, and public or private
organizations that are direct recipients of HUD funds or that
receive HUD funds indirectly through non-federal sources,
including, but not be limited to, borrowers, builders, mortgagees,
real estate agents and brokers, area management brokers,
management and marketing agents + + +." (Emphasis added.)
Since Appellant was a "management agent" at the time the suspension
occured in April 1975, Appellant maintains it was not subject to
debarment action under 24 C.F.R. 24. Indeed, Appellant urges "management
agents were impliedly excluded from the definitions, since the then
24.4(g) was silent with respect to "management agents." It states that a
"management agent" whose contract is with the owner of the property and
who is compensated by the owner is not a "contractor" with HUD, nor the
recipients of any HUD funds as the income of the management agent is
based upon actual rental income and does not include subsidies.
Appellant cites Harms v. Federal Housing Administration, 256 F. Supp.
757 (1966), where the court had to decide whether a civil engineer could
be "debarred" from "participation" in FHA projects. The question
involved in that case was whether an engineer was a "participant" under
the regulation. The Court held that he was not, and stated that it it
was intended to include engineers wthin the definition of "participant"
the Department could have easily included them. Appellant states that
the holding in Harms is applicable here as the regulation could have
easily included "management agent," if it were so intended. Moreover,
Appellant continues, since the 1977 revision did specifically include
"management agent," it is fair to infer that "management agent" was not
intended to be included in the previous regulation. Therefore, Appellant
concludes, to apply the post-January 27, 1977 definition of contractors
or grantees to this matter would in its view constitute an ex-post facto
application of the new definition and would violate Appellant's
constitutional rights of substantive and procedural due process. II. The
action by HUD in denying Appellant's right to manage Lurline was
punitive.
Appellant states that it managed the project from its completion in
1971 until December 1975. Appellant relates that as a result of his
conviction, the Department required Appellant to appoint another
management agent who it maintains was appointed on the basis of a
recommendation by the Department. Appellant, although not questioning
the propriety of the interim suspension, nevertheless contends that the
notice of interim suspension should not have been interpreted by the
Department as precluding Appellant's right to manage the project.
Appellant argues that although 24.14 of the regulation, in effect prior
to 1977, and reissued substantially as 24.15, prohibits the solicitation
of bids and proposals from suspended contractors or grantees, it in no
manner suggests that a suspended contractor is not eligible to manage
what is, in effect, its own property.
Moreover, Appellant relates another inequity it experienced because
of the Government delay in promptly issuing the notice of proposed
debarment. It points to the provision for "Reinstatement" contained in
the regulation, which allows debarred contractors or grantees to request
reinstatement from the Department six months from the date of the
debarment determination. Thus, if the Department, in this instance,
initiated debarment proceedings within a reasonable time after the plea
of guilty or sentencing in September 1975, Appellant, if the Department
had issued a determination of debarment, would have been eligible to
apply for reinstatement in the middle of 1976. However, only after
Appellant's repeated urging was debarment action initiated by the
Department in April of 1977. Appellant states that although the term
"punitive" as set forth in 24.5 is not defined, it would appear to be
applicable to the Department's actions in this matter.
In reply to Appellant's positions which are summarized above, the
Government, in its reply brief, admits its own delay in initiating the
debarment action against Appellant. Hence, it acknowledges the delay has
raised the likelihood that Appellant could be debarred for a longer
period under the January 1977 regulation than had the debarment action
been initiated prior to that time. Therefore, the Government concedes
that any period of debarment against Appellant should not be in excess
of three years, which would be the maximum period of debarment under the
regulation in effect prior to January of 1977.
The Government denies, however, Appellant's assertion that it was not
a "contractor or grantee" as defined in the previous 24.4(g), or that it
was a "participant" under the regulation in effect in 1975. The
Government states that Appellant, being a management agent, is a clear
example of "contractors with participants in programs where HUD is the
guarantor or insurer," as included in the previous 24.4(g). It asserts
that a management agent contracts directly with the owner of a
Federally-insured housing project to provide necessary management
services. Therefore, it states that the management agent is central to
the continued success of any such housing project. The Government,
additionally states that the addition of the term "management and
marketing agents" to the revised regulation (January 1977) does not mean
that management agents were not covered under the previous regulation.
It is the Government's position that Appellant was a "contractor with a
participant" under the previous regulation. In this regard, the
Government distinguishes the holding in the Harms case which held that
an engineer was not a participant, as the Department does not base the
matter of Appellant being within the purview of 24 C. F.R. 24 on the
grounds that he was a participant, but rather a "contractor with a
participant."
The Government also denies Appellant's position that the proposed
debarment action is punitive. It contends that in view of the
seriousness of the crime to which Appellant entered a plea and the heavy
sentence imposed by the judge, that the Department's action was taken to
protect the Department's resources and program.
The pertinent provisions of the regulation concerning the disposition
of this matter are:
Section 24.4 Definitions (January 27, 1977 revision)
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
(b) "Suspension" means a disqualification from participation in
HUD programs for a temporary period of time because a contractor
or grantee is suspected upon adequate evidence of engaging in
criminal, fraudulent, or seriously improper conduct.
(f) "Contractors or grantees." Individuals, state and local
governments and public or private organizations that are direct
recipients of HUD funds or that receive HUD funds indirectly
through non-Federal sources including but not limited to,
borrowers, builders, mortgagees, real estate agents and brokers,
area management brokers, management and marketing agents, or those
in a business relationship with such recipients including, but not
limited to consultants, architects, engineers and attorneys; all
participants, or contractors with participants, in programs where
HUD is the guarantor or insurer; and Federally assisted
construction contractors.
Section 24.6 Causes and conditions applicable to determination
of debarment
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
(a)(4) Any other cause of such serious compelling nature,
affecting responsibility, as may be determined by the appropriate
Assistant Secretary, to warrant debarment.
1971 Regulation 24 C.F.R. 24
Section 24.4(g) "Contractors or grantees" Individuals and
public or private organizations that are direct recipients of HUD
funds or that receive HUD funds indirectly through non-Federal
sources; all participants, or contractors with participants, in
programs where HUD is the guarantor or insurer; and Federally
assisted construction contractors.
The evidence in the record discloses that Appellant was a management
agent on an FHA-insured project, known as Lurline Gardens. In fact, the
crimes to which Appellant entered a plea of guilty were false statements
made to the Government concerning the construction costs of this
project. Clearly, Lurline Gardens was a "participant in programs where
HUD is the guarantor or insurer." Therefore, it follows that Appellant,
as a management agent for this project, was a "contractor with
participant," as defined in the definition of "contractors or grantees."
This definition of "contractors with participants" is included in both
the previous and present regulation. Hence, Appellant, applying the
definition under either the previous or the existing regulation comes
within the purview of 24 C.F.R. 24 et seq.
Since Appellant is subject to the regulation, the record has been
reviewed to determine whether debarment is warranted. Appellant pled
guilty to two violations of Title 18, U.S.C. Sections 1001 and 2(d).
These violations constitute cause for debarment as they involve
conviction for commission of a criminal offense as an incident to
obtaining a contract with the Department, 24.6(a)(11). The false
statements by Appellant involved large amounts of money; these
fraudulent acts caused unnecessary exposure of the FHA insurance fund.
Appellant's violations wrongfully influenced the exercise of a
governmental function which may have caused a loss to the public
treasury. Cf. Preuit v. U.S., 382 F. 2d 277, 9th Cir. (1967). These
crimes by Appellant clearly show a lack of integrity and responsibility
on his part and therefore sufficent cause to warrant debarment. Section
24.0 of the regulation provides that "Department policy requires,
therefore, that awards may be made only to responsible contractors and
grantees," the lack of responsibility on the part of Appellant is in
violation of that policy.
In mitigation against any debarment action, Appellant has
acknowledged his guilt, represents that he has shown an appreciation for
the wrongful nature of his conduct, had demonstrated remorse, candor and
cooperation, entered a plea of guilty, paid the fine imposed on him, and
is complying with the terms of probation. Further, he states that he has
experienced public disgrace and has been disbarred as an attorney by the
State of California.
A review of the record in its entirety discloses substantial evidence
of violation of the regulation, 24 C.F.R. 24, as evidenced by
Appellant's guilty plea to two felonies, to warrant debarment.
Appellant, in its Counsel's brief, addresses the matter of discretion
that the Department may exercise under the regulation before imposing
debarment. Moreover, Appellant points out that the Government should
consider as well all mitigating factors mentioned above. These matters
have been considered, but here the offenses involved are of a serious
nature indicating willful and fraudulent acts committed against the
Department.
In establishing the period of debarment, careful consideration is
given to Appellant's argument that the delay in initiating proposed
debarment action until April 1977 was punitive. It should be noted, in
its original "Submission of Department's Case." July 25, 1977,
Government Counsel moved that Appellant be debarred for a period of five
years and for an indefinite period. However, in the Government's reply
brief, it acknowledges the delay in bringing the debarment action and in
addition, the fact that Appellant could possibly be debarred for a
longer period under the January 27, 1977 revised regulation. Hence, the
Government concedes that the debarment period should not exceed three
years from the date of Appellant's original suspension. The Hearing
Officer is in agreement with the Government. Here the record indicates
that the delay in initiating debarment proceedings was clearly the
result of the Government's inaction. The record shows the debarment
action was only started after Appellant's attorneys urging. Thus, to
determine a period of debarment for a longer time than provided in the
pre-1977 regulation would be fundamentally unfair to Appellant.
Accordingly, in determining the proper period of debarment,
consideration is given to the length of time that Appellant has already
been suspended, April 30, 1975, the regulation in effect at that time,
and therefore determines that a three-year period of debarment would be
in the public interest, less the time already suspended.
It is my Determination that it is in the public interest that
Appellant be debarred from further participation in the programs of the
Department. Consideration is given to the period under which Appellant
has been suspended since April 30, 1975, and the Government's delay in
promptly initiating debarment action. The Appellant's period of
debarment is effective as of today through April 30, 1978.
that suspension was still in effect in April 1977.
77-495-DB
In the Matter of: ROBERT EUGENE KILLINGSWORTH and KAY HOME BUILDERS
January 6, 1978
780106
B. Paul Cotter, Jr.
By letter dated April 28, 1977, the Assistant Secretary for Housing
suspended Robert Eugene Killingsworth (hereinafter "appellant") from
participating in all HUD programs and advised appellant that
consideration was being given to debarring him, Kaye Home Builders of
Dublin, Georgia, and any other companies in which he had a substantial
interest. (Government Exhibit 3). The basis for the suspension and
proposed debarment was appellant's guilty plea in the United States
District Court for the Middle District of Georgia, Macon Division, to a
one count information charging violation of 18 U.S.C. 1010 (1970).
(Government Exhibits 1 and 2).
By letter dated June 24, 1977, HUD notified appellant that his
proposed debarment would also be based upon his admitted involvement in
the knowing and willful submission of false documents in three
additional mortgage insurance application packages. These admissions
were made by appellant to Special Agent John R. Maurer of the Federal
Bureau of Investigation in interviews conducted June 15 and 16, 1976.
(Government Exhibit No. 6).
The suspension and proposed debarment were initiated pursuant to the
Department's regulation governing debarment, suspension and
ineligibility of contractors and grantees, 24 C.F.R. Part 24, 42 Fed.
Reg. 5304 (1977) ("the regulation"). Appellant timely petitioned for a
hearing on the proposed debarment of Kaye Home Builders, but not as the
himself. (Appellant Exhibit No. 1). By subsequent letter dated July 22,
1977, appellant waived his right to a hearing and agreed to submit the
appeal on the written record. (Appellant Exhibit No. 2).
The indictment which led to appellant's conviction charged appellant
with willfully forging, uttering and passing as true an instrument,
knowing said instrument to have been forged and false, for the purpose
of influencing the action of HUD. The substance of this charge grew out
of the submission of a FHA Form No. 2004-F, dated January 15, 1976,
verifying a $3,000 savings account deposit by Leroy Scott with the
Central State Hospital Employees Credit Union, Milledgeville, Georgia.
Appellant pled guilty on October 26, 1976, and he was sentenced to a
one year period of imprisonment. All but 48 hours of the sentence were
suspended, and appellant was placed on probation for five years.
(Government Exhibit No. 2).
The other three cases in which Appellant admitted to illegal acts are
as follows:
1) Willie H. Underwood, FHA No. 101-237802. Appellant admitted
to forging the signature of a bank official on a Verification of
Deposit Form.
2) Tommie Lee Wilson, FHA No. 101-237926. Appellant admitted to
forging the signature of a bank official on a Verification of
Deposit Form.
3) William D. Brantley, FHA No. 101-240505. Appellant admitted
to forging the signature of a personnel manager on a Verification
of Employment Form.
The Hud regulation governing appellant's and Kaye Home Builder's
suspension and debarment, 24 C.F.R. Part 24, 42 Fed. Reg. 5304 (1977),
provide in pertinent Part:
# # #
Section 24.4 Definitions.
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
(b) "Suspension" means a disqualification from participation in
HUD programs for a temporary period of time because a contractor
or grantee is suspected upon adequate evidence of engaging in
criminal, fraudulent, or seriously improper conduct.
# # #
(f) "Contractors or grantees." Individuals, + + + (who) receive
HUD funds indirectly through non-Federal sources including, but
not limited to + + + real estate agents and brokers, area
management brokers, management and marketing agents, or those in a
business relationship with such recipients + + + or contractors
with participants, in programs where HUD is the guarantor or
insurer + + +.
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # #
(b) Conditions + + +. (2) The existence of a cause set forth in
paragraph (a)(1) and (2) of this section shall be established by
criminal conviction by a court of competent jurisdiction at the
discretion of the appropriate official.
Section 24.13 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries may, in the interest of the
Government, suspend a contractor or grantee:
(1) Suspected, upon adequate evidence, of
(i) Commission of fraud or a criminal offense as an incident to
obtaining, attempting to obtain a public contract, or in the
performance of Government business or contractural dealings.
# # #
(c) An outstanding indictment of a contractor or grantee, or
the naming of a contractor or grantee as an unindicted
co-conspirator is adequate evidence of suspected criminal conduct
and may be the basis for imposition of a suspension. Conviction of
a contractor or grantee is adequate evidence to warrant imposition
of a suspension pending debarment.
Appellant does not contest HUD's proposal to debar him personally and
has submitted no evidence which would tend to mitigate the seriousness
of the crime for which he was convicted. It is appellant's contention,
however, that his criminal activity should not be imputed to Kaye Home
Builders because he had no ownership or control of that company. In
support of this position appellant submitted fourteen affidavits from
various businessment who have dealt with Kaye Home Builders, all
testifying that J. H. Killingsworth was and has been, to the best of
their knowledge, the sole proprietor and owner of Kaye Home Builders.
(Appellant Exhibits 3A - M).
The Government argues that appellant was half-owner of Kaye Home
Builders as evidenced by the affidavit of Special Agent John Maurer of
the Federal Bureau of Investigation which states that appellant told Mr.
Maurer that he was half-owner in interviews on June 15 and 16, 1976, at
the office of Kaye in Dublin, Georgia (Government Exhibit No. 6). This
affidavit also states that at the time of the interviews appellant
seemed to have extensive control over the office operations of Kaye.
Additionally, the Government points out that it requested appellant to
provide it with tax returns of Kaye, that appellant promised to do so,
and that these tax returns were never made available. The Government
intimates that appellant failed to produce these tax returns because of
their potentially harmful effect on the Kaye appeal.
In the alternative, the Government argues that even if appellant had
no ownership interest in Kaye, he had such actual control as to justify
that company's debarment, at least until appellant severs all ties with
the company. In support of this position the Government points to
Special Agent Maurer's allegations concerning appellant's control of
Kaye's office operations. I. Robert E. Killingsworth
Appellant is clearly a "contractor or grantee" within the meaning of
Section 24.4(f) of the regulation, 42 Fed. Reg. 5305 (1977).
Appellant's criminal conviction and admission of other wrongful acts was
certainly adequate evidence to warrant suspension under Section
24.12(a), supra. Moreover, Subsections 24.6(a)(1) and (b)(2) of the
regulation pertaining to debarment make Appellant's conviction cause for
debarment per se. The Government urges that the maximum sanction of a
five-year debarment be imposed against appellant in order to protect HUD
from assaults against the public interest which result from activities
such as those engaged in by appellant, i.e., the improper expenditure of
public funds.
Appellant was convicted of a crime the essence of which is fraud,
falsification and scheme or trick. As noted, section 24.0 of the
regulation provides that as a matter of Department policy contracts may
be awarded only to "responsible contractors."
The Department's policy is intended to protect the public interest by
insuring the proper expenditure of public funds. The Comptroller General
has defined the word "responsible" as a term of art applicable to
Government Contractors in the following manner:
+ + + the word "responsible" imports something more than
pecuniary ability, and in the selection of the lowest responsible
bidder, public officers are required to consider not only the
financial resources of the bidder, but also his integrity (and)
fitness + + +. 34 Comp. Gen. 86 (1950). (Emphasis added).
The conviction of, and admissions by, appellant clearly demonstrate a
lack of integrity. Moreover, no evidence has been offered tending to
mitigate against application of the maximum debarment sanction.
Nevertheless, consideration will be given to the period for which
appellant has been suspended. II. Kaye Home Builders
If appellant is half owner in Kaye as the Government contends, then
his criminal activity could properly be imputed to that company. The
threshold question is whether the Government could carry its burden of
proof solely on the strength of Agent Maurer's statement as to
appellant's assertion of ownership, where, as here, the appellant's
tendency to prevaricate has already been established. Appellant has
subsequently denied any ownership interest. In addition, Kaye has
offered affidavits from credible members of the business community to
the effect that appellant Killingsworth had no interest in Kaye.
However, for the reasons set forth below, the determination concerning
Kaye will be deferred to the proceeding addressing the proposed
debarment of John H. Killingsworth.
The ultimate responsibility for the management of the affairs of the
company must rest upon the owner who is in this case John H.
Killingsworth, appellant's brother. And the issue of whether John H.
Killingsworth's failure to exercise control over the management of the
affairs of Kaye justifies debarment of that company is the subject of a
separate administrative proceeding in Docket No. 77-522-DB. (See
transcript of hearing, pages 6 to 10). Consequently, this issue will not
be passed upon in this determination, and evidence in this appeal
pertinent to the proposed debarment of Kaye Home Builders of Dublin will
be considered in the determination issued in Docket No. 77-522-DB.
Upon consideration of the entire record in this matter and the best
interests of the Government, it is hereby determined that appellant
Robert Eugene Killingsworth be debarred for a period of four years and
four months commencing January 6, 1978, and ending May 6, 1982.
77-494-DB
In the Matter of: W. RICHARD RENSHAW
March 5, 1979
790305
James W. Mast
On December 15, 1978, W. Richard Renshaw, herein
Respondent-Applicant, filed with the undersigned a request with the
Department of Housing and Urban Development, herein the Department, for
reinstatement from debarred status pursuant to 24 C.F.R. 24.11. On
January 11, 1979, the Department administratively took the position that
it would not informally grant the application for reinstatement. On the
same date the parties were requested to submit their positions in
writing and the hearing was scheduled for February 2, 1979. By agreement
of the parties the hearing was rescheduled to February 2, 1979. By
agreement of the parties the hearing was rescheduled to February 5,
1979, and the parties waived issuance of formal notice of hearing. The
hearing was held as scheduled; both parties participated.
On the entire record, I make the following:
1. W. Richard Renshaw, the Respondent-Applicant was employed as an
office manager of Bagley, Hunting and Reese, Inc., a mortgage banking
firm. In this capacity Respondent-Applicant was responsible for
processing applications for persons seeking mortgage insurance from the
Department and the U.S. Veterans Administration, herein VA.
2. On August 19, 1977, Respondent-Applicant was debarred by the
Department for a period of three years beginning April 29, 1977 and
terminating April 28, 1980. W. Richard Renshaw 77-HUD(JD)-43 (August 19,
1977). The debarment was grounded on the criminal conviction where
Respondent-Applicant was fined $2500, and placed on 2 year probation.
The debarment Determination stated as follows:
The convictions were a result of a scheme where Respondent
prepared and submitted to the Department and the VA letters
purportedly signed by mortgage insurance applicants knowing the
letters to be altered, forged and counterfeited. The letters were
submitted to influence the action of the Department and the VA
Based in part on these forged letters, the mortgages were
approved.
In concluding that debarment was appropriate the Determination stated as
follows:
In a proceedings under 24 C.F.R. 24.5(c)(2), where a
determination is based on written submissions without on oral
hearing or an opportunity for cross-examination, the Respondent's
presentation of the facts must be credited where the facts have
the appearance of reliability and stand uncontradicted in the
record. Such is the situation here.
The conduct of the Respondent in submitting forged letters to
the Department resulting in his criminal convictions is evidence
of irresponsible and unacceptable business practices by the
Respondent. Whether the intent was to defraud the Department or to
expedite the processing of the mortgage insurance applications,
the Department cannot tolerate such practices by the contractors
or grantees with which Department transacts business. Furthermore,
the conduct of the Respondent did not constitute an isolated
incident; as established in the judgment of conviction there was
a pattern or practice of such conduct by the Respondent in his
business transactions with the Department. Respondent was not
young and inexperienced; on the contrary, with his 13 years
experience in mortgage banking, he should have known the
seriousness of his misconduct.
The purpose of debarment, of course, is not punitive. The
period of debarment should extend until the Department has
restored confidence in the responsibility of contractors and
grantees to properly utilize its funds. Respondent has had no
other prior criminal convictions. The embarrassment to the
Respondent and his family that resulted from the present
convictions should prove to be a deterrent from similar behavior
in the future. This should be especially true where the Respondent
has the reputation of a respected businessman and member of the
community. Furthermore, the sentence imposed by the District Court
Judge is an indication of the lack of egregiousness of the
Respondent's conduct. The Respondent was placed on two years
probation and was fined $2500. Under the circumstances, the letter
of suspension, and terminating April 28, 1980 is appropriate.
3. On November 29, 1978, R. Dixon Herman, United States District
Judge for the District Court for the Middle District of Pennsylvania
discharged Respondent-Applicant from probation in the criminal
proceedings and the case was terminated. The action was taken well
before completion of the probation term. This was an advise of Edward J.
Kosheba, U.S. Probation Officer that Respondent-Applicant, "+ + + has
complied with the rules and regulations of probation and is no longer in
need of probation supervision."
4. Respondent-Applicant is presently employed by VNB Mortgage
Corporation (formerly Bogley, Harting & Reese, Inc.) as a consultant.
His personal earnings have been reduced approximately 45% since his
conviction and debarment. During the debarment period he has served as
an instructor before the Greater Harrisburg Board of Realtors on FHA
mortgage processing. Unless reinstated his contract with VNB will
terminate April 15, 1979.
5. There is substantial evidence of Respondent-Applicant's reputation
in the business community and in his residential community as a law
abiding, trustworthy, and honest citizen who has contributed to the well
being and stability of the real estate business and social community of
the Harrisburg, Pennsylvania area. Respondent-Applicant also has the
reputation as a truthful person of integrity and uprightness.
6. Respondent-Applicant clearly understands the error and serious
natures of his prior conduct. He exhibited honest contriteness for the
misconduct. He now understands the seriousness and importance of rigid
adherence to the statutory, regulatory and procedural requirements
applicable to all Departmental, FHA, and VA procedures. He stated
without equivocation as follows:
Q. (by Mr. Pomerantz) Well what exists today that would allow
you, in the exercise of your business judgment, to more critically
evaluate procedure or a requirement that did not exist two years
ago?
A. (By Mr. Renshaw) Well, just the experience itself has taught
me that the procedure, proper procedure, and following regulations
is important as substance that is being submitted; and I would
say of equal importance as material itself, that the proper
procedure and not taking shortcuts, proper (procedure) must be
followed.
# # #
Q. Is there any question in your mind that you would, in fact,
adhere to a stated procedure and not judge the procedure in terms
of substance?
A. No question in my mind that I would definitely follow the
procedure to the letter.
Respondent-Applicant has no other accusation or conviction of
misconduct except that related to the present criminal-debarment
situation. There was apparently no monitary loss to the Department and
Respondent-Applicant has agreed to reimburse the mortgage lender for any
loss.
7. The Department offered no evidence.
The present debarment-reinstatement action arose out of the
regulatory scheme which derives from the National Housing Act, 12 U.S.
C. 1703 et seq. Hammer, et al., 78-HUD(JD)-27 (August 31, 1978), Cook,
79-(HUD)JD-1 (January 11, 1979) and Sahni, et al., 79-HUD(JD)-4
(February 11, 1979). It is implicit that in granting benefits through
the insurance of mortgages the Act imposes on the Department a public
trust obligation to enforce the recipient's compliance with the Act and
the Department's Rules and procedures established thereunder.
Respondent-Applicant is debarred as of August 17, 1977, for a period
of three years beginning April 29, 1977; he, thus, seeks approximately
a 14-month reduction of the debarment period. Jurisdiction in this
proceedings is established by the debarment and the subsequent
application for reinstatement.
Respondent-Applicant argues, 1) that it would be in the best
interests of the Government to reinstate Respondent-Applicant because of
his extensive knowledge and experience in FHA and VA procedures; 2)
that Respondent-Applicant fully understands the requirements of the
statutes, rules and regulations and that he will comply with them in the
future; and 3) that because of his experience and the sanctions imposed
upon him.
Respondent-Applicant is aware of his responsibility and potential
liability and will be a good risk for future compliance with the
Department's mandates. Thus, Respondent-Applicant argues that the causes
for which debarment were imposed have been eliminated. The Department
opposes the reinstatement for "policy" reasons. The policy is
unexplained.
The standards for reinstatement are established in the Rules at
24.11. These include as follows:
(b) Reinstatement procedures. The procedures for reinstatement
are substantially similar to those invoked in the initial
proceedings. Conduct of the reinstatement proceedings under 24.11
of this part shall be the responsibility of the official who
imposed the sanction.
# # #
(c) "Grounds." Except as otherwise provided by statute, a party
may be reinstated subject to this 24.11 upon the submission of an
application, supported by documentary evidence, setting forth
appropriate grounds for the granting of relief such as newly
discovered material evidence, reversal of a conviction, bona fide
change of ownership or management, or the elimination of the
causes for which the debarment was imposed.
(d) "Consultation by Field Officers and Assistant Secretaries."
Following reinstatement proceedings, the presiding official shall
promptly submit a recommendation concerning the reinstatement. The
appropriate Field Officer and Assistant Secretary shall confer
with regard to the merits of reinstatement. If there is
disagreement between the Assistant Secretary and the Field
Officer, the issue shall be referred to the Secretary for final
resolution of the request for reinstatement. (emphasis supplied)
In Jones, et al., 78-HUD(JD)-4 (January 23, 1978) the Department on
the basis of a release from probation agreed to reinstatement. It was
stated as follows:
+ + + Respondent + + + (was) fully aware of the statutes and
regulations applicable to him as a contractor of the Department
and that Respondent + + + (has assured) the Department of his
future compliance + + + (and it, therefore, appeared) that the
circumstances which led to Respondent's debarment have been
eliminated with the assurances of future compliance, (Respondent
is) concluded to have sufficient responsibility to be (an)
acceptable contractor of the Department.
Section 24.11(d) contemplates consultation by field offices and
assistant secretaries on the post hearing determination on
reinstatement. Initially this appears to be violative of 5 U.S.C. 554(
d), 556 557 and 706, and the policy of the Rules at 24.8 (a) and (c) and
24.11(b). The statutory references preclude ex parte communications with
the designee assigned responsibility to decide the case, participation
in the decision by employees of agencies who are engaged in
investigative and prosecutorial functions, and consideration of matters
outside the record in the case being decided. As noted, above, 24.11(b)
requires that reinstatement procedures be substantially similar to the
initial proceedings under 24.7 and 8. Section 24.8(a) provides that,
"After the contractor has been afforded an opportunity to be heard. The
Hearing Officer shall make a written determination on the evidence
presented. "Section 24.8(c) applicable to decisions on review states
that, "where review is granted, the determination + + + shall be based
on the record of the initial hearing and shall fully recite the
evidentiary grounds upon which the + + + determination is made."
It becomes apparent that the provisions at 24.11(d) were not intended
to allow extra-adjudicatorial evidence or argument to be considered by
the Assistant Secretary in making the decision on reinstatement.
There can be no doubt of the seriousness of Respondent-Applicant's
conduct which led to his debarment. This does not, however, dispose of
the case. The Department's argument of policy is not further supported
by evidence or explained by argument. Despite the seriousness of the
offense, which was similar to the grounds for original debarment in
Jones, supra, Respondent-Applicant has marshaled substantial evidence of
good character and reputation. Further, the U.S. District Court is
sufficiently impressed with his rehabilitation to dismiss
Respondent-Applicant from probation in advance of the scheduled date.
Further, it appears that Respondent-Applicant is now fully aware of his
responsibility to the Department, FHA and VA, and that in the future he
will comply fully with the agencies' requirements. Further, there is no
evidence of any other misconduct by Respondent-Applicant. Finally, it
cannot be ignored that the Department offered no evidence and did not
explain the policy reasons for opposition to reinstatement.
Accordingly, it is concluded that Respondent-Applicant has by
substantial evidence established by the Department in the settlement in
Jones, supra. It is concluded that Respondent-Applicant has shown
sufficient responsibility to be considered an acceptable contractor of
the Department. Nevertheless, Respondent-Applicant is cautioned that any
similar or related misconduct by him in Department programs would
mandate a substantial period of debarment.
1. Respondent-Applicant is a contractor within the meaning of the
Rules, 24.4(f).
2. Respondent-Applicant has met the burden of proof by substantial
evidence for reinstatement by the elimination of the causes for which
debarment was imposed with the meaning of the Rules, 24.11(c).
3. Respondent-Applicant has established by substantial evidence that
it is in the best interests of the Department to reinstate
Respondent-Applicant as an acceptable contractor or grantee.
It is ordered that the final determination of debarment issued
against Respondent-Applicant, W. Richard Renshaw, is reopened, revoked
and terminated. Respondent-Applicant is reinstated as eligible for
participation as a contractor or grantee in Department programs.
77-493-DB
In the Matter of: W. P. CHERRY, JR.
October 13, 1977
771013
James W. Mast
On or about April 23, 1977, Lawrence B. Simons, Assistant
Secretary-Housing, Department of Housing and Urban Development, herein
the Department, served W. P. Cherry, Jr., herein the Respondent, with
notice of debarment pursuant to 24 C.F.R. 24, 24.5(c)(2) and 24.7 of the
Department's Rules and Regulations, herein the Rules, because "+ + +
construction funds relating to this project which were FHA insured were
divested for purposes other than project related costs." On May 2, 1977,
Respondent requested a hearing. On June 3, 1977, the undersigned was
designated to hear and decide the case. On June 10, 1977, the
undersigned requested the parties to submit their positions in writing
and tentatively scheduled the hearing for July 14, 1977, in Washington,
D.C. On June 27, 1977, Counsel for the Department requested a
continuance and change of venue in the case. On June 28, 1977, the
hearing was postponed to August 18, 1977, and transferred to Columbia,
South Carolina. The hearing was held as scheduled. Both parties
appeared. After the hearing, the Department filed a memorandum of
position.
Upon the entire record, I make the following:
W. P. Cherry, Jr., the Respondent, is engaged in the business of tile
contracting in the building and construction industry under the trade
name of W. P. Cherry and Son. W. P. Cherry is the sole proprietor.
At all times material herein, Respondent was a partner with Broadus
Thomasson in the partnership Cherry-Thomasson Construction Company,
herein the Construction Company. The entity was formed to build Cherry
Grove Apartments at Rockhill, South Carolina, herein Cherry Grove.
Cherry Grove was owned and sponsored by Cherry Grove Apartments Limited
Partnership, herein the Limited Partnership. Respondent and Broadus
Thomasson were the partners. Cherry Grove was built with funds obtained
under a mortgage insured by the Department's Federal Housing
Administration, herein FHA, pursuant to Section 236 of the National
Housing Act, 12 U.S.C. 1701. This was the first FHA project of both
Respondent or Broadus Thomasson. Respondent served as construction
superintendent of the Construction Company on the project. Broadus
Thomasson, who customarily was engaged in the real estate business, "got
all the package together, and handled all the details with FHA, and
secured the land; and then + + + handled the management of the
project." The project was begun in 1970 and completed in 1972; final
certification to FHA was June 19, 1972. The amount of the insured
mortgage was $1,128,500. There has been no foreclosure on Cherry Grove.
In the Summer of 1970, Williams Grading Service, Inc., herein
Williams, performed grading services as a subcontractor for the
Construction Company on the Yorkshire Apartments and the Herlong
Apartments. These were conventionally financed projects. John Jerry
Williams was told by either Respondent or Broadus Thomasson to bill
Cherry Grove, where Williams was also a subcontractor. Williams billed
Cherry Grove $2,936 for the work in June 1971. Williams was eventually
paid $2,995 including interest on September 20, 1971 from Limited
Partnership funds. Williams also performed $38,481 in grading work at
Cherry Grove; the amount was paid in full.
In the Summer of 1971, Parkline Contracting Company, herein Parkline,
performed tile work at the home of Broadus Thomasson. The charge for the
tile work was $827. The amount was billed to Cherry Grove on
instructions of Broadus Thomasson. Respondent knowingly authorized
payment from Limited Partnership funds dedicated to the construction of
Cherry Grove. Parkline was a subcontractor of the construction company
or Cherry Grove; the value of its subcontract was $12,038.
Respondent filed with FHA an FHA Form No. 2330-A, Contractor's
Certificate of Actual Cost on Cherry Grove on June 19, 1972. This was
the final certification. The certificate was certified to by Respondent
on June 6, 1972. The amounts certified as actual costs included the
amounts paid to Parkline and Williams cited above. Respondent knew that
the figures certified to were false.
Respondent was not prosecuted criminally because of his conduct; in
1977, the U.S. Attorney for the District of South Carolina declined
prosecution. Prosecution was refused because of the lapse of time since
the incidents.
Respondent submitted that since Cherry Grove incident, he has
performed satisfactorily for the Department as a contractor on three
Section 8 program projects. Further, he had three Section 8 program
projects pending in about May 1975, which failed to be approved because
of the investigation and suspension herein. Respondent has been in
business for 31 years. There is no evidence of any other misconduct.
Respondent is a contractor as the direct recipient of funds derived
as a result of a mortgage insured by FHA. There is no doubt of the
seriousness of the diversion of funds and false certification of costs
in connection with an FHA insured project.
The action was initiated because of diversion of funds under 24 C.F.
R. 24, 24.5(c)(2) and 24.7. This was erroneous because there was no
indictment or conviction alleged or involved. Properly, the action
should have been brought under 24.6(a)(4) "Any cause of a serious or
compelling nature, affecting responsibility, as may be determined by the
appropriate Assistant Secretary to warrant debarment;" (5) "Violation of
any law, regulation, or procedure relating to the application for
financial assistance, insurance, or guarantee or to the performance of
obligations incurred pursuant to a grant of financial assistance, or
conditional or final commitment to insure or guarantee;" and (6) "Making
or procuring to be made any false statement for the purpose of
influencing in any way the action of the Department." These sections
would include conduct such as diversion of funds and false
certifications. It is noted that only diversion of funds was alleged.
Nevertheless, these matters were fully litigated at the hearing and will
be considered as if they had been raised in the pleadings. Cf. Federal
Rules of Civil Procedure, Rule 15(b).
The primary issue in this case is whether debarment is appropriate in
view of the lapse of time since the transactions involved. In both
situations, the scheme to divert funds from and to falsely bill items to
Cherry Grove occurred in 1970 and 1971. The final certification
including the fraudulent billings was executed on June 6, 1972 and filed
June 19, 1972. This action was initiated April 23, 1977. There is no
evidence that Respondent was beyond jurisdiction or engaged in acts of
concealment of the fraud during this period. In fact, all evidence
necessary for disclosure of the crime was reasonably subject to
development by the Department from June 19, 1972. The Department
concedes that the "wrongful conduct of the Respondent was not
substantiated until the Inspector General (of the Department) released
its report on May 25, 1975." It is not known when the information first
came to the knowledge of the Department, however, it is noted that the
U.S. Attorney declined criminal prosecution of Respondent because of the
remoteness of the transaction. The time for commencing such criminal
action would be five years from the date of the offense. 18 U. S.C.
3282.
The Department argues that there is no limitation on debarment
actions either by statute or rule. The Department concedes that there is
a limitation of reasonableness and due process implicit in all debarment
situations. As an analogue on action by the Government for civil fine,
penalty, or forfeiture must be initiated within five years of the date
when the claim first accrued. 28 U.S.C. 2462. Under the circumstances of
this case, this appears to be a fair limitation on a reasonable period
to initiate a debarment action. Absent criminal indictment or
conviction, a debarment action should be initiated within five years
from the time of the transaction where the allegations under 24 C.F.R.
24.6(a)(4), (5), or (6) are of conduct which could constitute a crime.
This, of course, would be subject to extension for a reasonable period
in cases of substantial justification. The failure of the Department to
initiate the investigation, as here, should not constitute substantial
justification.
It is concluded that the present case was not initiated within the
limitation period on the allegations of the diversion in 1970 and 1971.
It is further concluded that the present case was initiated within the
limitation period on the allegations of false certification to FHA on
June 19, 1972.
The Department seeks a three-year period of debarment. Respondent
argues that he should not be debarred because of his 31 years of
legitimate performance and also because of his satisfactory performance
on three Department projects since the Cherry Grove project. Debarment,
of course, is for the protection of the public and the Government. It is
not intended for punitive purposes, but should be commensurate with the
seriousness of the offense, and only for periods of unreliability.
Because FHA must, as a practical matter, rely on the certifications of
contractors, false certifications must be viewed as serious and an
indication of unreliability. Nevertheless, since the false
certifications, Respondent has performed satisfactorily on other
Department projects. There is no evidence of any false certifications in
connection with those projects. Further, it is noted that three other
projects in initial stages of processing were apparently withheld since
the Inspector General's report on May 25, 1975.
It is concluded that debarment is appropriate because of the
seriousness of false certification of costs. In view of the absence of
criminal conviction, the substantial passage of time since the
fraudulent transaction, the isolated nature of the misconduct,
Respondent's satisfactory performance on three subsequent projects, the
subsequent withholding of other projects since May 1975, and
Respondent's otherwise good record as a reliable contractor, a one year
period of debarment is appropriate. In determination of the period of
withdrawal, it is noted that the Department has apparently effectively
suspended Respondent informally from approval as a contractor or sponsor
for about 18 months since May 1975. Considering the period of debarment,
Respondent is cautioned that any future misconduct on Department
projects should be viewed as indicative of proclivity to such
misconduct. The debarment period shall begin April 23, 1977 and end
April 22, 1978.
1. Respondent is a contractor within the meaning of the Department's
Rules, 24 C.F.R. 24.4(f).
2. By his conduct in filing a false FHA Form No. 2330-A with the
Department, Respondent violated the Department's Rules, 24 C.F.R. 24.6(
a)(4), (5), and (6).
3. Other allegations of violations by diversion of funds and by
indictment or conviction under the Department's Rules, 24 C.F.R. 24.5(
c)(2), are dismissed.
It is ordered that W. P. Cherry, Jr. is debarred from participation
in Department programs for a period of one year beginning April 23,
1977, and terminating April 22, 1978. Department funds shall not be
expended for financial assistance to W. P. Cherry, Jr., or to any
concerns in which W. P. Cherry, Jr. has a substantial interest. Bids and
proposals shall not be solicited therefrom, and subcontracts with him
will not be approved unless it is determined to be in the best interests
of the Government.
77-491-DB
In the Matter of: ROBERT H. CASSEDAY
September 26, 1977
770926
B. Paul Cotter, Jr.
By letter dated March 30, 1977, the Action Deputy Assistant Secretary
for Assisted Housing suspended appellant, Robert H. Casseday, from
participation in HUD programs and advised Mr. Casseday that the
Department was considering his debarment. The suspension was based on a
conviction returned in the United States District Court for the District
of Delaware for violation of 18 U.S.C. 2 and 1010 (1970). (Government
Exhibits 1 and 2). The suspension and debarment actions were initiated
pursuant to the Department's regulation governing debarment, suspension
and ineligibility of contractors and grantees, 24 C.F.R. Part 24, 42
Fed. Reg. 5304 (1977) ("the regulation"). Mr. Casseday (or "appellant")
timely petitioned for a hearing. (Appellant Exhibit 1).
The indictment charged appellant in 16 counts of knowingly and
willfully making or conspiring to be made false statements and of
concealing or failing to disclose financial information concerning the
purchases of six properties in Wilmington, Delaware. The acts charged
were committed in the course of seeking FHA mortgage insurance for the
properties, and, in one instance, filing a claim for benefits under the
FHA insurance program.
The acts charged took place during the ten month period between April
1, 1971, and January 28, 1972. (Government Exhibit 1). Mr. Casseday was
a real estate salesman employed by a licensed broker, Wesley E. Thawley.
Mr. Thawley was convicted of similar activity and debarred for one year.
(Appellant Exhibit 4).
On July 14, 1976, Mr. Casseday pled guilty to Count Ten of the
indictment and was convicted, in that he did
"+ + + willfully and knowingly make, pass, utter and publish,
and caused to be made, passed, uttered and published, a false
statement, knowing the same to be false, that is, a representation
in a Firm Commitment for mortgage insurance under the National
Housing Act which representation was false, as the defendant then
and there well knew, all in violation of Title 18, U.S.C. 1010 and
2." (Government Exhibit 3).
Mr. Casseday was sentenced to thirty days imprisonment and ordered to
pay a $500.00 fine.
Nine months later, on March 30, 1977, the Department notified Mr.
Casseday of its intention to debar him. Mr. Casseday timely appealed
from that notice and requested a hearing by letter dated April 26, 1977.
Pursuant to 24 C.F.R. 24.5(f) of the regulation, the Secretary appointed
the undersigned to hear the appeal by memorandum dated June 1, 1977.
Evidence in the form of copies of the indictment, the judgment and
probation/commitment order and other information, as well as position
statements were submitted for the record by the parties.
Counsel for appellant submitted two letters attesting to appellant's
integrity. By letter dated July 26, 1977, George Fantini, realtor, and
appellant's current employer, stated on the basis of 15 years
acquaintance that Mr. Casseday was efficient, honest and a credit to the
real estate profession. Samuel Spiller, a member of the law firm of
Kimmel and Spiller wrote on June 14, 1977, that on the basis of ten
years of acquaintance he found appellant to be completely honest and
that he never sought to take unfair advantage of the other contracting
party. Mr. Spiller stated further that "there is no question in my mind
that his services to the public in the future will be of the highest
integrity." Counsel for appellant states that Mr. Casseday "related to
the FBI in the full spirit of cooperation his complete activity
involving FHA back in 1971" and that he also testified to those facts
before the Grand Jury that ultimately indicted him. Counsel pointed out
that appellant received a very short sentence and was not placed on
probation after it was completed. (Appellant Exhibits 2, 3, and 4).
In addition to the indictment and conviction, the Government filed
three exhibits showing that the Department had to reacquire and resell
the property which was the subject matter of the count of the indictment
to which appellant pled guilty. The resale was completed by contract
effective January 9, 1973. (Government Exhibits 4, 5, and 6).
The HUD regulation governing appellant's suspension and debarment, 24
C.F.R. Part 24, 42 Fed. Reg. 5304 (1977), provides in pertinent part:
# # #
Section 24.4 Definitions
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specific period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
(b) "Suspension" means a disqualification from participation in
HUD programs for a temporary period of time because a contractor
or grantee is suspected upon adequate evidence of engaging in
criminal, fraudulent, or seriously improper conduct.
# # #
(f) "Contractors or grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources including, but not limited
to + + + real estate agents and brokers + + + or those in a
business relationship with such recipients including, but not
limited to + + + all participants + + + in programs where HUD is
the guarantor or insurer + + +.
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # #
(b) Conditions + + + (2) The existence of a cause set forth in
paragraphs (a)(1) and (2) of this section shall be established by
criminal conviction by a court of competent jurisdiction at the
discretion of the appropriate official.
# # #
Section 24.13 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries may, in the interest of the
Government, suspend a contractor or grantee:
(1) Suspected, upon adequate evidence, of
(i) Commission of fraud or a criminal offense as an incident to
obtaining, attempting to obtain a public contract, or in the
performance of Government business or contractual dealings.
# # #
(c) An outstanding indictment of a contractor or grantee, or
the naming of a contractor or grantee as an unindicted
co-conspirator is adequate evidence of suspected criminal conduct
and may be the basis for imposition of a suspension. Conviction of
a contractor or grantee is adequate evidence to warrant imposition
of a suspension pending debarment.
Appellant is a "contractor or grantee" within the meaning of Section
24.4(f) of the regulation, 42 Fed. Reg. 5305 (1977). There was clearly
adequate evidence to warrant suspension of appellant under Section
24.13, supra, in that an indictment had been returned against him. See,
Bernstein v. Romney, Civil No. 72-C-1643 (E.D. N.Y., filed July 26,
1973). See also, Trap Rock Industries, Inc. v. Kohl, 284 A. 2d 161 (N.
J. 1971). Consequently, appellant was properly suspended by the
Government pursuant to the regulation.
Appellant's conviction stemmed from conduct incident to obtaining a
public contract, that is a contract of mortgage insurance from FHA.
Consequently, appellant's conviction is cause for debarment per se,
pursuant to subsections 24.6(a)(1) and (b)(2) of the regulation. In
light of the terms of the regulation and the record in this matter, the
imposition of some period of debarment is in the public interest.
Under the circumstances here the Government asserts that appellant
should be debarred for a period of five years. The Government argues
that the guilty plea evidences dishonesty and irresponsibility. The
Government represents further that the Department has already suffered
losses as a result of appellant's actions.
The Government correctly states that the purpose of the regulation is
to permit the Department:
+ + + to protect itself from assaults against the public
interest by debarring those whose involvement in the Department's
programs would be detrimental to the public interest. (Government
Exhibit 7, p. 3.)
Consequently, the Government asserts that appellant's demonstrated
lack of responsibility and honesty warrant imposition of the maximum
period of debarment specified in the regulation.
The public interest to be protected here is insuring the proper
expenditure of public funds. Section 24.0 of the regulation provides
that "Department policy requires, therefore, that awards may be made
only to responsible contractors and grantees." (Emphasis added). The
Comptroller General has defined the word "responsible" as a term of art
applicable to Government contractors, in the following manner:
+ + + the word "responsible" imports something more than
pecuniary ability, and in the selection of the lowest responsible
bidder, public officers are required to consider not only the
financial resources of the bidder, but also his integrity (and)
fitness + + +. (Emphasis added). 34 Comp. Gen. 86 (1950).
The count of the indictment to which appellant pled guilty charges
him with "willfully and knowingly" causing a false statement to be made
to an agency of the United States Government for the purpose of
influencing its action. Imposition of the debarment sanction is clearly
warranted as in the best interest of the Government. 24 C.F.R. 24.6(b)(
1), 42 Fed. Reg. 5306 (1977).
Counsel argues that Mr. Casseday's conduct involved small amounts of
money and should, therefore, be treated as de minimis when weighing the
appropriate sanctions. That argument is defective on two grounds.
Firstly, the actual amounts of money misrepresented ranged from $100.00
to well over $4,000, not an insignificant sum. However, the economic
impact on the Government program here does not stem from those amounts
but rather from the value of the housing involved and the cost to the
Department, and thus the public, of conducting the program. Appellant's
willful conduct detrimentally influenced the exercise of a Governmental
function causing financial loss to the public treasury. Cf. Preuit v.
U.S., 382 F. 2d 277 (9th Cir. 1967) and U.S. v. Markham, 537 F. 2d 187
(5th Cir. 1976).
In the last analysis, the issue is more accurately stated by the
Government. The question presented is whether the appellant is
responsible, that is, possesses the requisite honesty and integrity to
participate in Government programs that expend public funds. The
debarment of appellant here is not a penalty, but rather it is a
sanction imposed to insure that HUD effectively executes its statutorily
mandated missions. Cf. L. P. Steuart & Bros., Inc. v. Bowles, 322 U.S.
398 (1944); Copper Plumbing & Heating Co. v. Campbell, 290 F. 2d 368,
(D.C. Cir. 1961); Gonzalez v. Freeman, 334 F. 2d 570 (D. C. Cir.
1964).
In determining the appropriate period of debarment, it is noted that
the proscribed conduct occurred five years ago and that there is no
evidence of wrongdoing on appellant's part before or since. Two
respected members of the community have submitted favorable opinions of
appellant's character. Appellant has apparently made a sincere effort to
make amends for this criminal conduct as evidenced by his more recent
cooperation with the FBI and the testimony before the Grand Jury that
led to his conviction.
In view of the entire record in this matter, a one year period is
deemed reasonable to protect the public interest. The one year period
takes into consideration the six month period that has elapsed since
appellant was first suspended from doing business with this Department.
Upon consideration of the best interests of the Government and the
entire record in this matter, it is hereby determined that appellant
Robert H. Casseday should be debarred for a period of one year
commencing September 26, 1977, and ending September 26, 1978.
77-490-DB
In the Matter of: GEORGE A. MULLEN
March 23, 1978
780323
Michael F. Burke
By letter dated March 31, 1977, Deputy Assistant Secretary Baruch
notified George Mullen of Detroit, Michigan (hereinafter Appellant) that
the Department had been advised of Appellant's conviction in the United
States District Court for the Eastern District of Michigan for violation
of Title 26 7206 (1), Title 18 U.S.C. Section 201 (g) (Gov't. Ex. No.
1). As a result of this conviction, Appellant was advised of his
suspension from further participation in programs of the Department and
of the Department's intent to initiate debarment action on him.
Appellant was further advised of his opportunity to a hearing and to
submit written evidence, if so requested within 10 days from the date of
receipt of the letter. By letter dated April 7, 1977, Appellant replied
to the Department's letter (Appellant Ex. No. 1). In that letter
Appellant did not specifically request a hearing but he inquired as to
what steps could be taken by him in order to obtain employment in a
company doing business with the Department.
By letter dated June 20, 1977, the undersigned advised Appellant of
my designation as Hearing Officer in this matter and of his right to
submit written briefs to outline his position concerning the proposed
debarment action of the Department. Appellant was advised that his brief
should be submitted to the undersigned on or before August 26, 1977. The
Government, in the same letter, was requested to submit their written
brief no later than July 25, 1977. The Government submitted its written
brief on the date requested. Appellant has failed to respond to the
opportunity to submit a written brief although twice requested to do so.
Accordingly, this determination is issued based upon the material
available in the record.
Appellant was named in a 41 Count Indictment returned by the Federal
Grand Jury for the Eastern District of Michigan on January 1, 1976. The
Indictment alleged that from the period commencing in late 1970 up to
and including October 1972, Appellant was then employed in the HUD Area
Office in Detroit, Michigan. The Indictment discloses that Appellant was
a mortgage credit examiner of the Department. The Indictment charged
Appellant with conspiracy, bribery and Income Tax evasion. (Government
Ex. 2) On July 15, 1976, Appellant entered a plea of guilty. The
Judgment/Probation/Commitment Order of July 15, 1976, indicates
Appellant pleaded guilty to the offense of "fraud of statements with
regard to tax in violation of U.S.C. Title 26, Section 7206 (1) and
accepting gratuities by a government official in violation of U.S.C.,
Title 18, Section 201 (g)." (Government Ex. No. 3) Appellant was
sentenced to three years, provided that execution of all but the first
six months of the sentence would be suspended, and that a period of
probationary supervision for two years would follow Appellant's release.
Pertinent provisions of 24 C.F.R. 24 regarding the proposed debarment
of Appellant are as follows:
Section 24.3 Applicability
(a) This part applies to (5) former HUD employees.
# # #
Section 24.4 Definitions
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
# # #
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
(5) Violation of any law, regulation, or procedure relating to
the application for financial assistance, insurance, or guarantee
or to the performance of obligations incurred pursuant to a grant
of financial assistance, or conditional or final commitment to
insure or guarantee.
Appellant, at the time he was involved in the criminal activities, to
which he has entered a plea of guilty, was an employee of the
Department. Appellant was removed from his employment with the
Department on April 8, 1975. Accordingly, Appellant is a "former HUD
employee" and is, therefore, subject to its regulation within the
meaning of Section 24.3. In addition, the crimes for which Appellant
entered a plea of guilty constitute "a violation of any law, etc. etc.,
relating to the application for financial assistance, or insurance or
guarantee + + +:" as defined in 24 C.F.R. 24.6(a)(5). Therefore, cause
exists under the regulation for the debarment of Appellant.
Although requested on two occasions to submit a written brief or
statement to explain his participation in this matter and to perhaps
offer evidence of any mitigating circumstances, Appellant failed to do
so. The Government, in its brief, states that the letter of proposed
debarment issued by the Department declared two grounds for proposed
debarment, bribery and Income Tax Evasion. Of the two grounds, the
Department considers the most serious ground to be Appellant's
conviction for violation of Title 18 U.S.C. 201(g), i.e., bribery. The
Government maintains that corruption of a public official strikes at the
very integrity of the Department, and its programs, and that it
encourages those who transact business with the Department to subvert
Department procedures and incriminate themselves by complying with the
corrupt official's demands. By his plea of guilty to a bribery charge,
Appellant, in the Government's view, has demonstrated his lack of
responsibility and trustworthiness in carrying out the Department's
business. Because of Appellant's disgraceful conduct, the Department
urges that Appellant be debarred for a five year period.
Although not submitting a written brief, in his letter of April 7,
1977, which has been construed by the Hearing Officer as a request for a
hearing, Appellant described in some detail the circumstances
surrounding his participation in this matter. Appellant stated that he
had been employed by the Department but he was removed from that
position on April 8, 1975, and has been unemployed since that time.
Furthermore, he pleaded guilty to the charges of the indictment in July
1976, and served 2-1/2 months commencing July 15, 1976. Upon his release
from incarceration in October 1976, he was promised employment with a
mortgage company in Michigan. However, since his name had been placed on
the U.R.D. List by the Department he could not obtain the position until
he had his name removed from that list. He is now attempting to obtain
other employment with a mortgage company in the Detroit Area, in a
company where he would be an employee and not a principal. However,
Appellant stated that the company would be doing business with the
Department.
The record discloses that Appellant is guilty of the commission of
serious crimes; bribery and income tax evasion. The crime of bribery,
being of special significance since it occurred in connection with his
employment with the Department. Further, Appellant falsified his income
tax by failing to state the amount of bribe money he received as a
result of his criminal acts. Commission of these criminal acts clearly
disclose a lack of responsibility on his part. When a HUD employee is
involved in criminal behavior of this nature, it can cause a loss of
confidence by the public in the Department and in its programs.
Acceptance of a bribe by a HUD employee is a betrayal of a public trust.
However, the purpose of this administrative proceeding is not to pass
judgment of the seriousness or the criminality of these acts involved
here; that was the function of the Federal Judge and he sentenced
Appellant to serve 6 months. The purpose of this administrative
proceeding is not to impose a penalty on Appellant but to determine
whether or not Appellant is a responsible person with whom the
Department can entrust business in the future. L. P. Steuart & Bro.,
Inc. v. Bowles, 322 U.S. 398 (1944). The record shows that there was a
total lack of responsibility on the part of the Appellant and,
therefore, the Department should not do business with him. Accordingly,
it is my determination that Appellant should be debarred. In assessing
the period of debarment, consideration is given to the fact that
Appellant has not been employed since 1975. Moreover, the criminal acts
to which Appellant pled guilty, occurred in 1970 to 1972. Mindful of the
fact that the purpose of the Regulation is to insure that HUD
effectively carries out its statutorily mandated missions and not to
impose a penalty, it is determined that a period of debarment of two
years from the date of this Determination would be in the public
interest.
Upon consideration of the entire record in this matter, it is my
Determination that it is in the public interest that Appellant be
debarred for a period of two years from the date of this determination
and ending March 23, 1980.
77-487-DB 77-488-DB
In the Matter of: IRVING T. NELSON and THOMAS J. SEDGEWICK
October 31, 1977
771031
James W. Mast
On or about April 13, 1977, Lawrence B. Simons, Assistant
Secretary-Housing of the Department of Housing and Urban Development,
herein the Department, served Irving Thomas Nelson, herein Respondent
Nelson, with a notice of suspension and notice of intent to debar
pursuant to the Department's Rules or Regulations, herein the Rules, 24
C.F.R. 24.5(c)(2) and 24.7, because of his conviction in the United
States District Court for the Eastern District of Michigan, herein the
District Court, of violation of 18 U.S.C. 1012 and 2(b). On April 18,
1977, Respondent Nelson requested a hearing. On May 6, 1977, the
undersigned was designated to consider and decide the case. On May 18,
1977, the Parties in case Number 77-487-DB were requested to submit
their positions in writing. On June 20, 1976, a Notice of Hearing was
issued. On June 21, 1977, the Department moved to set aside the Notice
of Hearing and to limit the case to consideration on the basis of
documentary evidence. No response was filed by Respondent Nelson. On
July 7, 1977, the hearing was cancelled, and the Parties in case Number
77-487-DB were directed to file their written submissions by July 25,
1977. On or about April 13, 1977, Mr. Simons served Thomas J.
Sedgewick, herein Respondent Sedgewick, with a notice of suspension and
notice of intent to debar pursuant to the Rules, 24 C.F.R. 24.5(c)(2)
and 24.7 because of his conviction in the District Court of violation of
18 U.S.C. 1012 and 2(b). On April 19, 1977, Respondent Sedgewick
requested a hearing. On May 6, 1977, the undersigned was designated to
consider and decide the case. On May 18, 1977, the Parties in case
Number 77-488-DB were requested to submit their positions in writing.
On June 21, 1977, the time for filing responses was extended to June 24,
1977. On June 20, 1977, the Department and Respondent Sedgewick
submitted their positions. In its response, the Department moved to set
aside the notice of hearing and to limit the case to consideration on
the basis of documentary evidence. No response was filed. On July 7,
1977, the hearing was cancelled and the Parties in case Number 77-488-DB
were directed to file their written submissions by July 25, 1977. On
July 13, 1977, Respondent Sedgewick moved for an oral hearing. The
Department did not oppose the motion. On July 27, 1977, the motion was
granted and the hearing was scheduled for August 30, 1977.1/ On July 26,
1977, Respondent Nelson moved to consolidate the cases, 77-487-DB and
77-488-DB; the Department agreed to the consolidation. On August 5,
1977, the cases were consolidated for purposes of hearing and decision.
The hearing was held as scheduled; all parties appeared and
participated. After the hearing, Respondent Sedgewick and the Department
filed briefs.
On the entire record, I make the following:
Respondent Nelson is an attorney licensed in the state of Michigan.
He is engaged in the practice of law in Flint, Michigan.
Respondent Sedgewick is an architect registered in the state of
Michigan. He is engaged in business as a professional architect in
Flint, Michigan.
Respondents Nelson and Sedgewick, among others, were participants in
Flint Housing, Inc. Flint Housing, Inc. was a corporation formed to
develop Rollingwood Manor, a multifamily project pursuant to Section 236
of the National Housing Act, 12 U.S.C. 1701. The project was originally
developed by Mr. Sellers, Respondent Sedgewick's partner in the
architectural firm. The funds to develop the project were obtained
through a mortgage insured by the Federal Housing Administration, herein
FHA.
On September 8, 1977, informations were issued by John Patrick
Conley, Assistant United States Attorney against Respondents Nelson and
Sedgewick under 18 U.S.C. 1012 and 2. The information alleged that from
on or about July 15, 1971 until April 24, 1972, Respondents Nelson and
Sedgewick "+ + + for the purpose of influencing the action of the
Department + + + to enter into a contract to endorse a mortgage for
insurance for FHA Project No. 048-44012-LD + + + Rollingwood Manor
Associates, a section 236 multifamily HUD project + + +, did willfully
and knowingly fail to disclose the special benefit which (each) + + +
expected to receive as a result of such contract + + + (a $7,000 and a
$22,500 check, respectively) such check(s) dated July 13, 1970, as an
expense of said project + + + (for professional fees) drawn upon the
account of R.M. Construction, Inc. + + + (where Respondents Nelson and
Sedgewick) knew that no portion of said funds were a legitimate expense
of the project, but rather were intended as a premium payment which
would otherwise not be cost Certifiable by the + + + Department."
Respondents Nelson and Sedgewick entered pleas of nolo contendere before
a United States Magistrate to the informations on November 10, 1976;
they were placed on probation for one year and required to make
restitution of $7,000 and $22,500, respectively. By the terms of the
judgment, the probations terminated upon completion of payments of the
restitution. Restitution was made within 30 days. The convictions were
defined by Federal law as for minor crimes, in common legal parlance -
misdemeanors.
The convictions were as a result of transactions involving Flint
Housing, Inc. and Rollingwood Manor. The project was originated in 1966.
Because of the death of Mr. Sellers and other problems, the shareholders
of Flint Housing, Inc. decided that they could not complete the project.
They arranged to sell outright the project to Charles Danto and Paul
Balanowski. Messrs. Danto and Balanowski formed Rollingwood Manor
Associates and R.M. Construction, Inc. The sale occurred in early 1970.
The terms of the transaction were renegotiated. Under the sale
agreement as finally negotiated, a portion of the sale price which was
to represent distributions to Respondents Nelson and Sedgewick was
represented as expenses in development of the project. The amounts
shown were for work already performed with an additional amount
representing the difference between what they would have paid as capital
gains on the outright sale and their income tax liability under the
amended terms. The amounts were $7,000 and $22,500 to Respondents Nelson
and Sedgewick, respectively. At some time after the transfer, Messrs.
Danto and Balanowski were convicted and imprisoned, apparently for
diversion of funds and false certification to FHA. It was concluded in
the criminal prosecution of Respondents Nelson and Sedgewick that the
amounts paid to them were improper premiums. The prosecutions resulted.
In their defense, Respondents explained the transaction in the same
manner as used by Respondent Nelson's attorney before the U.S.
Magistrate. This was as follows:
So then there began negotiations for the sale of the project.
Now, at that point, the project consisted of land on which some
work had been done and the tentative FHA commitments, which had
been obtained for the project - - in other words, the sale now was
of a project, a package, and a purchaser was found, a price was
agreed upon and there was what everyone considered to be a final
closing of this sale in February of 1970.
I think we should point out that the sale price was such that
Mr. Nelson and his associates realized the profit. It wasn't the
profit contemplated if they'd been able to go through with the
project as they originally thought, but in other words, there was
a modest profit involved.
I think it's important to note that the profit at this point
would have involved a capital gain to these people and would have
been taxable as capital gain. However, some of the money was paid
over, but before all of the purchase money was paid over to the
group, the purchasers came back to Mr. Nelson and his associates
and they had at that point a tale of woes. Because of the setup of
an FHA commitment, the purchasers found themselves unable to draw
from the government the balance of the agreed purchase price. They
had exceeded the amount allotted in the FHA commitment to the
project or the land acquisition purely.
In other words, it's divided up into categories, pigeon holes
if you will, and they had withdrawn all they could from that
pigeon hole and they still didn't have enough money to pay the
people. So the purchasers suggested, and this came from the
purchasers, that if part of this agreed purchase price could be
pigeon holed under the heading attorney fees, under architects
fees and construction and so forth, but as to Mr. Nelson, attorney
fees, and I would point out that attorney fees in connection with
the government, is a legitimate reimbursable item through FHA.
THE COURT: Excuse me.
MR. MILLIKEN: So if part of the funds could be pigeon holed
into attorney fees, then the deal could be completed as
contemplated. Mr. Nelson obviously had no objection to this
method, although he specifically said if it's all right, if it's
over and above board, and if it's proper. And as a safeguard, Irv
consulted an attorney in Detroit, a James Draper.
Mr. Draper is part of a very well known and highly regarded
firm of Dykema, Gossett, Spencer, et cetera, and Mr. Draper is
their FHA specialist. He's supposed to have particular expertise
in that area. So he was consulted and Draper did assure Mr.
Nelson that this proposed arrangement was perfectly legitimate, as
long as there had been legal services performed and as long as the
charge for them was proper and reasonable.
Well, this wasn't a problem because Mr. Nelson's legal services
with this group had extended over a period of some three and a
half years and had obviously been very substantial. That part
didn't seem to present a problem. There was one problem. If Mr.
Nelson and the associates - - the people in this group - - were to
receive this money as fees rather than as profit, then it would be
taxable as ordinary income and not as capital gain and the people
would just not realize what they had expected to realize out of
the project.
So this matter was discussed again, quite openly, and it was
understood by everybody then the purchasers would pay an
additional sum, part of which would be pigeon holed as attorney
fees and part of which would be the profits to which the group - -
for which the group expected.
So as a result of these discussions and this openly arrived at
agreement, out of the balance of the purchase price, which
remained at that time unpaid, seven thousand dollars of it was
paid to Mr. Nelson as attorney fees, and was set up in the FHA
commitment by the purchasers. Not by Mr. Nelson, but certified by
the purchasers as attorney fees, and I might say an attorney fee
that was well and amply earned by Mr. Nelson.
As I say, this was done openly after consulting counsel and
there was no thought on the part of Mr. Nelson or his associates
that anyone was doing wrong, that there was any kind of fraud
involved.
However, we are then presented with the information in this
case, and this information says in effect, "You, Mr. Nelson,
didn't originally charge your associates any attorney fees. So
when these purchasers changed the method by which they certified
to the government, and sat up attorney fees all of a sudden to
you, you've received what we call a premium, money somehow of
which you are not entitled, and this, Mr. Nelson, is a violation
of the third paragraph, section 1012."
So upon the fact of the information, it is made to appear that
although it was done unwittingly, although it was done quite
openly, although it was done without any thought of wrong, Mr.
Nelson stands here charged with a technical violation of that
statute. And to that technical violation, if the Court please, for
the reasons that I've indicated in the opening part of these
remarks, Mr. Nelson has pleaded nolo contendere.
And I would like to call the Court's attention to the fact that
in whatever form this transaction was presented to the government
by the purchasers in their certifications, Mr. Nelson didn't
pocket any money that he hadn't earned. The government was at no
point short-changed. The project received full value. The attorney
fees, if they had been set up right from the beginning as attorney
fees to be paid to Mr. Nelson, would have been reimbursable by FHA
without any question.
The distribution to Respondent Sedgewick was similarly explained as
development work contributed to the project, in addition to cash
contributions by Mr. Sellers and Respondent Sedgewick. In turn,
Respondent Sedgewick made a distribution of Mr. Sellers' share to his
estate. Respondent Sedgewick's actions were based upon advice of
Respondent Nelson, as attorney to Flint Housing, Inc., Mr. Draper, as
outside counsel, and a certified public accountant.
Respondent Sedgewick is 49 years old. He has been a registered
architect in Michigan since 1957. Except for one year in Detroit, his
entire professional career has been spent in Flint. He has never been
subject to any other criminal prosecution or disciplinary action. He has
made substantial contributions to his community in his professional
capacity.
Respondent Nelson has been licensed in Michigan since 1957. He has
never been subject to any other criminal prosecution or disciplinary
proceedings. He has made substantial contributions to his community in
his professional capacity.
Respondents Nelson and Sedgewick are contractors as indirect
recipients of funds received by Flint Housing, Inc., the corporation in
which they were participants, as a result of a mortgage insured by the
Department.2/ Upon their conviction as a result of their business
transactions involving the subject of the insured mortgage, the basic
requirements of debarment were established.
The Department seeks a two year period of debarment because of the
conviction. Respondents argue that they should not be debarred because
of the absence of intent to defraud. Further, Respondents argue that the
nolo contendere pleas were not convictions. Participants on the basis of
Fayer and Horms. Finally, both argue that the grounds for debarment are
insufficient in view of their prior good records.
The policy of the Department as stated at 24 C.F.R. 24.0 states, "+ +
+ it is necessary that grants and contracts awarded by the Department
and by those entities with whom it does business be made only to those
contractors and grantees which can demonstrate that Government funds
will be properly utilized. Department policy requires, therefore, that
awards may be made only to responsible contractors and grantees." Under
24.4(a), it is specified that debarment should be for a "+ + + period of
time commensurate with the seriousness of the offense + + +." Further,
at 24.5(a), it is stated that, "These measures shall be used for the
purpose of protecting the public and are not for punitive purposes."
The present debarment actions were as a result of convictions on a
plea of nolo contendere to minor crimes of misdemeanors. The convictions
were the result of a sales transaction. There is no evidence of a scheme
by Respondents to defraud the Department. The sale of Rollingwood Manor
was already agreed to by Respondents and the purchasers. Subsequently,
as an accommodation to the purchasers, special arrangements on the sales
transaction were devised. There is no indication that these arrangements
were motivated by personal avarice on the part of Respondents. On the
contrary, the consideration to Flint Housing, Inc. and Respondents was
previously agreed to by the parties. The arrangement was to accomplish
the financial aims of the purchasers. The arrangement was taken upon
advice of independent outside counsel approving the distribution of
amounts. Additionally, a certified public accountant agreed to the
fiscal acceptability of the distribution. There is, however, no
question that their approval of the transaction was not accepted by the
U.S. Magistrate.
Under all the circumstances of the case, including the nature of the
transactions, the independent legal and CPA advice approving the
transactions, the minor crimes classification of the convictions, the
limited punishment exacted by the U.S. Magistrate against Respondents,
this is not regarded as the type of situation warranting a substantial
period of debarment. Respondents have made restitution for the claimed
amounts which terminated their probations. In view of their previous
good records as legitimate businessmen, the one transgression of this
type does not seriously impair their responsibility as potential
contractors. It is concluded that a two year period of debarment would
be excessive. It is determined that a six month period of debarment
beginning the date of the debarment letter April 13, 1977, which also
suspended Respondents, and ending October 12, 1977, is commensurate with
the seriousness of the offense and sufficient to protect the public and
the Department. Since this would predate the final determination in this
case, the period will be extended to the effective date of the final
determination. Extension of the debarment period beyond the effective
date of the final determination would under the circumstances of this
case be punitive.
1. Respondents Nelson and Sedgewick are contractors within the
meaning of the Department's Rules, 24 C.F.R. 24.4(f).
2. By their conduct resulting in their conviction of a minor crime in
violating 18 U.S.C. 1012 and 2, Respondents Nelson and Sedgewick
violated the Department's Rules, 24 C.F.R. 24.6(a)(4) (5) and (9).
It is ordered that Irving T. Nelson and Thomas J. Sedgewick are
debarred from participation in Department programs for a period of six
months beginning April 13, 1977 and ending the date the determination
becomes final thirty days from the date of issuance herein. Department
funds shall not be expended for financial assistance to Irving T.
Nelson and Thomas J. Sedgewick or to any other concern in which either
has a substantial interest. Bids or proposals shall not be solicited
therefrom, and subcontracts with them will not be approved unless it is
determined to be in the best interests of the Government.
of fact or credibility as to material issues which can best be
determined by oral testimony at a hearing on the record, it does not
appear that it was the intent of the Department (in 24 C.F.R. 24.5(c)(
2)) to prohibit the exercise of discretion by the Hearing Officer in
granting a hearing.
256 F. Supp. 757 (1966) cited by Respondents are concluded to be
inapposite. In both those cases, the actions were against professionals
who had only performed professional services in connection with projects
where deficiencies had occurred. Here Respondents Nelson and Sedgewick
were participants in the entity which was the contractor of the
Department. Their professional services were integrated with their
status of incorporators and stockholders of Flint Housing, Inc.
77-486-DB
In the Matter of: JAMES A. DUFFY and TRI-COUNTY REALTY
January 10, 1978
780110
B. Paul Cotter, Jr.
On November 4, 1975, the Assistant Secretary for Housing notified
James A. Duffy that he and Tri-County Realty, Inc., were suspended from
participation in Department programs pending resolution of an indictment
returned against Duffy. (Government Exhibit 1). The indictment was
returned in the United States District Court for the District of New
Jersey and charged Duffy with violations of 18 U.S.C. 2, 371 and 1010
(1970). (Government Exhibit 3).
On June 25, 1976, Mr. Duffy plead guilty and was sentenced to two
years imprisonment, but the sentence was suspended and he was placed on
probation for three years and ordered to pay a fine of $500.00 during
that period. (Government Exhibit 4).
Thereafter, on April 4, 1977, the Acting Deputy Assistant Secretary
pursuant to 24 C.F.R. Part 24, notified Mr. Duffy of the Department's
intention to debar him, Tri-County Realty and any other companies in
which he had a substantial interest. The proposed debarment was based on
Mr. Duffy's conviction. (Government Exhibit 2). A timely appeal was
filed. (Appellant Exhibit 1).
The record discloses that the actions for which Duffy was indicted in
eight counts took place during the period from February 1971 to
September 1973. Mr. Duffy was charged, inter alia, with conspiracy to
defraud the Federal Housing Administration ("FHA") in violation of 18
U.S.C. 371 (1970) and various counts of false statements concerning
mortgage applicant's income, employment, and deposits on purchases in
violation of 18 U.S.C. 2 and 1010 (1970). Mr. Duffy's guilty plea was
entered on Count II of the indictment which charged that he knowingly
and falsely represented to the FHA the income of an applicant for the
purchase of a property in New Brunswick, N.J. (Government Exhibit 3).
In accordance with 24 C.F.R. 24.5(c)(2), Mr. Duffy's appeal has been
limited to submission of documentary evidence and written briefs.
Submissions have been filed on behalf of both Mr. Duffy and the
Department.
Appellant is a contractor or grantee within the meaning of Section
24.4(f) of the regulation, 42 Fed. Reg. 5305 (1977) which applies, inter
alia, to real estate agents and brokers. There was clearly adequate
evidence to warrant suspension of appellant under Section 24.13 of the
regulation in that an indictment had been returned. See, Bernstein v.
Romney, Civil No. 72-C-1643 (E.D.N.Y., filed July 26, 1973).
Consequently, appellant was properly suspended in accordance with the
regulation.
The Government urges that under 24 C.F.R. 24.6(a)(1) and (a)(6), the
seriousness of appellant's conduct warrants imposition of a three year
period of debarment effective from June 25, 1976, the date of Mr.
Duffy's guilty plea and conviction. Those sections of the regulation
provide in pertinent part:
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # #
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
In mitigation of the sanction sought by the Government, Mr. Duffy
states that he has been rehabilitated to the satisfaction of the New
Jersey State Board of Realtors and that his real estate broker's license
was restored some time prior to April 7, 1977. (Appellant Exhibits 1 and
6).
Mr. Duffy submitted six character references bearing dates from
October 19, 1976, through November 22, 1976, from several business
associates, the Mayor of the Borough of Highland Park and the Pastor of
Mr. Duffy's church. (Appellant Exhibits 3A - E and 4). All of these
persons attested to Mr. Duffy's current good character, a history of
service to the community, and a long standing good reputation in
professional and social community circles. In addition, Mr. Duffy
submitted letters from his U.S. District Court Probation Officer, the
most recent of which was dated December 2, 1976, and stated that
"It is my judgment that James A. Duffy has achieved a degree of
rehabilitation which indicates his employment as a real estate
broker would not be incompatible with the welfare of society."
Mr. Duffy himself states that he is a rehabilitated alcoholic, that he
had no other involvement with the law and that he will cooperate with
the Department in any way necessary. Mr. Duffy requests that he be
permitted to handle closings under Department programs.
Sections 24.6(a)(1) and (b)(2) of the regulation make appellant's
conviction under 18 U.S.C. 371 grounds for debarment. Furthermore, under
Section 24.0 of the regulation "Department policy requires + + + that
awards be made only to responsible contractors and grantees." (Emphasis
added). The purpose of that policy is to protect the public interest in
maintaining full and free competition in the expenditure of public
funds. See, Section 24.5(a), 42 Fed. Reg. 5306 (1977).
A "responsible" contractor or grantee is one who has not only the
financial resources but also the integrity and fitness required to
perform a contract. 34 Comp. Gen. 86 (1950), and see, Trap Rock
Industries Inc. v. Kohl, 284 A. 2d 161, at 166 (N.J. 1971). In contrast
to that standard, the essence of the crime to which appellant pled
guilty is fraud and deceit. See, U.S. v. Sweig, 316 F. Supp. 1148, at
1156 (S.D.N.Y. 1970) and cases cited therein.
In appellant's favor the actions for which he was indicted took place
more than 4-1/2 years ago and his record appears unblemished since that
time. In addition, appellant has been suspended and consequently unable
to participate in Department programs since November 5, 1975, more than
two years ago.
Appellant has otherwise established a very good record with respect
to his personal character and business integrity in the community.
There is no evidence of any other wrongdoing by appellant either prior
or subsequent to the events leading to his conviction. This is
appellant's first offense, a fact that the United States District Court
appears to have taken into consideration in suspending sentence. These
circumstances mitigate in favor of a period of debarment less than the
five year maximum possible under the regulation.
Should appellant continue in his stated intention of avoiding any
prohibited activity in the future, he would establish the level of
integrity required of a responsible Government contractor sufficiently
to protect the public interest and the integrity of the system whereby
HUD expends public funds. In view of the entire record in this matter, a
six month period of debarment is judged appropriate to protect the
public interest.
With respect to the proposed debarment of Tri-County Realty, on April
7, 1977, Mr. Duffy submitted a copy of his resignation, dated October
19, 1973, as an officer and director of that firm. (Appellant Exhibit
1). Given the relationship between Duffy and Tri-County, the federal
indictment furnished adequate evidence on which to base the suspension
of Tri-County.
However, the record is otherwise devoid of evidence on which to base
a debarment of Tri-County in accordance with the Acting Deputy Assistant
Secretary's notice of April 4, 1977. There has been no showing on which
Duffy's actions could be imputed to Tri-County, and, in fact, the
Department has not requested in its memorandum that any period of
debarment be imposed. Accordingly, the suspension of Tri-County Realty,
Inc., is terminated effective April 14, 1977, and no period of debarment
will be imposed.
Upon consideration of the entire record in this matter, it is hereby
determined that appellant, James A. Duffy, shall be debarred for a
period commencing January 10, 1978, and ending July 10, 1978, and the
suspension of Tri-County Realty is terminated effective April 14, 1977.
77-485-DB
In the Matter of: JOHN W. CLARK d/b/a CLARK'S PEST CONTROL COMPANY
July 20, 1977
770720
B. Paul Cotter, Jr.
Appellant, John W. Clark, doing business as Clark's Pest Control
Company, was suspended from participation in HUD programs effective
April 5, 1977, by letter bearing that date from Lawrence B. Simons,
Assistant Secretary for Housing. The suspension was based on an
indictment returned in the U.S. District Court for the Southern District
of Georgia charging that appellant conspired with one Alfred J. McGuire,
Jr., and others, in violation of 18 U.S.C. 201(a), 201(b), and 371
(1970). (Government Exhibits 1 and 2). The suspension was imposed
pursuant to the Department's regulation governing suspension and
debarment ("the regulation"), 24 C.F.R. Part 24, 42 Fed. Reg. 5304
(1977). Appellant, by counsel, timely petitioned for a hearing.
(Appellant Exhibit 1).
Count XVI of the indictment charged that during the period from May
1971 through January 1975 Clark conspired with McGuire and several other
co-conspirators to pay kickbacks in violation of 18 U.S.C. 201(a) and
(b) and 371. The only overt act charged against Clark was the conspiracy
itself. Clark was not charged with the substantive offense of making a
kickback payment. However, the indictment charged McGuire in 15 courts
of obtaining kickbacks in connection with repair contracts for
HUD-acquired properties under McGuire's management. The kickbacks
specifically alleged were obtained during a period commencing in April
1972 and ending in January 1975. (Government Exhibit 2).
On April 4, 1977, Mr. Clark pled guilty to Count XVI of the
indictment and was convicted of the offense of conspiracy to commit
certain offenses against the United States in violation of 18 U.S.C.
371 (1970). The imposition of sentence was suspended, and Mr. Clark was
placed on probation for a period of three years. As a condition of his
probation, Mr. Clark was ordered to pay a fine of $2,500.00 within 30
days. (Government Exhibit 3).
Appellant has stipulated that this proceeding determine the causes
and conditions applicable to both the suspension and proposed debarment,
although appellant had not received formal notification of debarment as
of June 23, 1977. (Appellant Exhibit 5). On July 19, 1977, the Assistant
Secretary for Housing issued a notice of intention to debar Mr. Clark,
Clark's Pest Control Company, and any other companies in which Mr. Clark
had a substantial interest based on the conviction. (Government Exhibit
6). Evidence in the form of copies of the indictment, the judgment and
probation/commitment order, an affidavit, character references, and Mr.
Clark's prior record as well as position statements were submitted for
the record by appellant and the Government.
John W. Clark, presently doing business as Clark's Pest Control
Company, in Augusta, Georgia, states by affidavit that he has been an
independent contractor since January of 1969. Prior to that time, he had
been employed for over 20 years in the pest control business. Shortly
after initiating his own business in 1969, Clark was listed on the FHA
and VA approved bidders list. A Georgia real estate broker, Alfred
McGuire, contacted Clark who initially performed VA termite inspections
and subsequently VA repair work for McGuire. Clark continued to perform
such work for McGuire on VA, FHA and conventional homes. (Appellant
Exhibit 2).
The Clark affidavit states that: "It is standard procedure in the
pest control business to give a ten per cent (10%) discount or rebate to
private real estate brokers for termite and pest control inspections and
repairs." The affidavit states further that the new homeowner usually
continues to employ the company performing the initial work.
When McGuire became the area management broker for Augusta in 1971,
the ten per cent rebate practice was continued. Clark stated that he was
told by his bookkeeper at the time Clark wrote his first "rebate" check
to McGuire in 1971 that the company could not be charged for the expense
and that Clark would have to pay it out of his own pocket. He stated
that he did not do much work for McGuire for the balance of 1971 and
1972 but returned to doing business with McGuire in 1973. Clark stated
that he did not want to pay the rebates but was forced to by economic
circumstances. Subsequently, he sought to avoid making the payments by
contracting directly with the Atlanta Regional Office. As a result, he
obtained a grass cutting contract for the Augusta area directly from the
Atlanta Regional Office in 1975. This contract was apparently performed
satisfactorily.
Clark argues in essence that he was at the mercy of the area
management brokers, most of whom demanded the ten per cent commission.
Clark states that "there was no one that I could report to on these
wrongdoings, because I could see that each additional Management Broker
continued to use the same practice as Mr. McGuire." (Appellant Exhibit
2, p. 5).
In his submission, Clark requested that he be given as short a period
of debarment as possible. In support of his request, he submitted 14
character references from such persons as a clergyman, bankers, the
Columbia County sheriff, attorneys, and friends and neighbors in the
Augusta, Georgia area. (Appellant Exhibit 4). Clark has no other
criminal record aside from two traffic violations.
The HUD regulation governing appellant's suspension and debarment, 24
C.F.R. Part 24, 42 Fed. Reg. 5304 (1977), provides in pertinent part:
Section 24.4 Definitions.
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
(b) "Suspension" means a disqualification from participation in
HUD programs for a temporary period of time because a contractor
or grantee is suspected upon adequate evidence of engaging in
criminal, fraudulent, or seriously improper conduct.
# # #
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # #
(b) + + + (2) The existence of a cause set forth in paragraph
(a)(1) and (2) of this section shall be established by criminal
conviction by a court of competent jurisdiction at the discretion
of the appropriate official.
# # #
In considering appellant's suspension and proposed debarment, it is
clear that appellant is a contractor or grantee within the meaning of
Section 24.4(f) of the regulation. With respect to Clark's suspension,
subsection (a)(1)(i) of Section 24.13 provides that a contractor or
grantee may be suspended if suspected of "commission of a fraud or a
criminal offense as an incident to obtaining or attempting to obtain a
public contract, or in the performance of Government business or
contractual dealings." Subsection (c) provides that an indictment "is
adequate evidence of suspected criminal conduct + + +." Accordingly,
appellant's suspension, based on the indictment, was duly authorized by
the regulation.
Based on Clark's subsequent conviction, the Government asserts that
he and his company should be debarred for a period of five years. The
Government argues that appellant's guilty plea was an admission that
appellant actually paid kickbacks to McGuire in return for which
appellant knew he would receive repair contracts for FHA-acquired
property. The Government concludes that "Mr. Clark's cavalier attitude
toward Departmental programs and Federal law demonstrates his
irresponsibility (sic)." Consequently, the Government advocates
imposition of the maximum specified period of debarment.
Appellant disputes the Government contention, pointing out that the
indictment does not allege that Clark paid any kickbacks to McGuire but
rather that the sole offense charged was conspiracy to make such
payments. Therefore, appellant concludes that his guilty plea is an
admission of conspiracy only.
Appellant argues that a custom of the trade in Augusta, the
"discount" to realtors, begun as a private practice, was continued, in
effect inadvertently, in the performance of VA and FHA repair work. In
addition, appellant argues that it was forced to continue the practice
to get sorely needed business during and before the 1974 recession.
Appellant attempts to lay some of the blame on the Department on the
theory that HUD's area management broker system reposes great economic
power in a few hands and that the Department does not adequately police
those to whom it grants such economic power. Finally, appellant urges
that any period of debarment should be minimal in view of his otherwise
good character and the economic hardship debarment would work on him.
Sections 24.6(a)(1) and (b)(2) of the regulation makes appellant's
conviction under 18 U.S.C. 371 cause for debarment per se. Furthermore,
under Section 24.0 of the regulation "Department policy requires + + +
that awards be made only to responsible contractors and grantees."
(Emphasis added) The purpose of that policy is to protect the public
interest in maintaining full and free competition in the expenditure of
public funds. See, Section 24.5(a), 42 Fed. Reg. 5306 (1977).
A "responsible" contractor or grantee is one who has not only the
financial resources but also the integrity and fitness required to
perform a contract. 34 Comp. Gen. 86 (1950) and see, Trap Rock
Industries Inc. v. Kohl, 284 A. 2d 161, at 166 (N.J. 1971). In contrast
to that standard, the essence of the crime to which appellant pled
guilty is fraud and deceit. See, U.S. v. Sweig, 316 F. Supp. 1148, at
1156 (S.D.N.Y. 1970) and cases cited therein.
Appellant's activities during the period from May 1971 to January
1975 clearly evidence a lack of that integrity essential to a
responsible contractor participating in HUD programs. That the
indictment did not charge appellant with the substantive offense of
paying a kickback is immaterial. The admission of the conspiracy alone
is sufficient to demonstrate a lack of responsibility. Moreover,
appellant has implicitly admitted that he did, in fact, make kickback
payments, although the affidavit euphemistically characterizes such
payments as "discounts" or "commissions." This is an administrative and
not a criminal proceeding. Consequently, the admission of payment of a
gratuity (by whatever name) evidences a lack of responsibility. Cf. 24
C.F.R. 24.6(a)(4).
Certain of the grounds presented by appellant in support of a minimum
period of debarment are not persuasive. For example, the Clark affidavit
states that appellant had no one to report the violations to because
most of the management brokers followed the same practice. That
representation is both an admission that appellant knew the practice was
wrong and an admission that the only reason for not reporting the
wrongdoing was potential economic loss. Others in the same position as
appellant have cooperated with Government authorities in halting such
practices. See, In the Matter of John Anthony Woerner, Docket No.
76-445-DB, decided December 6, 1976. Potential loss of business to
appellant is no excuse; it is merely the prescribed consequence of
proscribed actions. The debarment of appellant here is not a penalty,
but rather it is a sanction imposed in the public interest. Cf. L. P.
Steuart & Bro. Inc. v. Bowles, 322 U.S. 398 (1944); Copper Plumbing &
Heating Co. v. Campbell, 290 F. 2d 368, 372 (D.C. Cir. 1961).
However, two and a half years have passed since the occurrence of the
proscribed conduct. Since that time appellant apparently completed a two
year, area wide grass cutting contract to the Department's satisfaction.
It also appears that the "commission" practice that led to appellant's
current involvement has been discontinued.
Appellant has otherwise established a very good record with respect
to his personal character and business integrity in the community. In
addition, there is no evidence of any other wrongdoing by appellant
either prior or subsequent to the events leading to his conviction.
This is appellant's first offense, a fact that the Court appears to have
taken into consideration in suspending sentence. These circumstances
mitigate in favor of a period of debarment less than the five year
maximum possible under the regulation.
Should appellant continue in his stated intention of avoiding any
such activity in the future, he would establish the level of integrity
required of a responsible Government contractor sufficiently to protect
the public interest and the integrity of the system whereby HUD expends
public funds. In view of the entire record in this matter, a two year
period of debarment is judged appropriate to protect the public
interest.
The Government's suspension and proposed debarment of appellant's
company stands essentially uncontested. The record is devoid of any
evidence of mitigating circumstances specifically related to Clark's
Pest Control Company. In fact, there is every indication in the record
that the company and appellant are one and the same. Consequently, a
like period of debarment will be imposed.
Upon consideration of the entire record in this matter, it is hereby
determined that appellant, John W. Clark, and Clark's Pest Control
Company, shall be debarred for a period commencing July 20, 1977, and
ending July 20, 1979.
77-484-DB
In the Matter of: GLEN SMITH and MIRICAR, INC.
July 20, 1977
770720
James W. Mast
On March 25, 1977, Morton A. Baruch, Deputy Assistant Secretary of
the Department of Housing and Urban Development, herein the Department,
served Glen Smith and Miricar, Inc., herein the Respondents, with
written notice that debarment pursuant to 24 C.F.R. 24.0 of the
Department's Rules and Regulations, herein the Rules, was being
considered because of the conviction of Glen Smith by the United States
District Court of the Southern District of Mississippi on violation of
18 U.S.C. 1012. On April 7, 1977, Respondent by Counsel requested an
opportunity to submit evidence. On April 12, 1977, Jon Will Pitts,
Director of Participation and Compliance Division, informed Respondents
that the matter was referred to the General Counsel for hearing. On May
5, 1977, the undersigned requested the parties to submit their positions
in writing. On May 11, 1977, the Department requested that no hearing be
scheduled because of the agreement of the parties to submit the case
through written documents. On May 19, 1977, Respondents agreed to the
procedure. On May 25, 1977, the parties were given until July 15, 1977,
to submit documentary evidence and arguments. On July 14, 1977, both
parties submitted their evidence and briefs.
Upon the entire record,1/ I make the following:
Glen Smith is president and business manager of Miricar, Inc. Glen
Smith and Miricar, Inc., Respondents herein, are engaged in the business
of electrical construction in the Vicksburg, Mississippi area.
Respondent employs five or six employees. Respondents were
subcontractors on the Parkwood South Apartments and the Hub of
Vicksburg, Inc., projects. The projects were financed through the
Department programs.
An information of two counts alleging violations of 18 U.S.C. 1012
was issued November 5, 1976, against Glen Smith by Robert E. Hareberg,
United States Attorney for the Southern District of Mississippi. On
November 15, 1976, Glen Smith entered a plea of guilty to a misdemeanor
in the United States District Court for the Southern District of
Mississippi. The Court fined Glen Smith $750 on each count but suspended
$550 of each fine. Respondent was placed on nonreporting probation for
one year.
The conviction was as a result of two projects supported through
Department services in Vicksburg, Mississippi. Respondents were
subcontractors on both projects. On the Parkwood South project,
Respondent submitted false certifications of pay scales paid to one
employee. The total amount of underpayment was $60.80 on the Parkwood
South project. On the Hub project, Respondent submitted false
certifications of pay scales paid employees for three weeks. The total
amount of underpayment was $1944.95 on the Hub project.
In their defense, Respondents submitted that the payments on the
Parkwood South project were consistent with their understanding of
instructions by the Department's Compliance Specialist from the Atlanta,
Georgia office. The employee in question was a dual-capacity employee
who worked both as an electrician and as a general laborer. Respondents
paid the employee half of his hours at electrician's scale and half of
his hours at the lower scale.
On the Hub project, Respondents submitted that underscale payments
were made by Mrs. Smith who was working in her husband's business as
bookkeeper. These payments were apparently made without Mr. Smith's
knowledge. Mrs. Smith's actions were pursuant to an unnamed person's
advice. The total amount of underpayments was $2005.75. The employees
have since been paid the amounts due.
Further, Respondent submits that he had never been in trouble with
the law before and had never been convicted of a crime. Mr. Smith admits
to prior financial troubles which continued to the present time.
Respondents claim their misconduct was a result of inexperience,
ignorance of laws and regulations, and lack of sophistication. Mr.
Smith states, "Debarment will have a grave effect on my ability to
continue to do business."
Respondents are contractors as the principal and corporation engaged
in the electrical construction business since they derive funds
indirectly from projects supported by the Department. Upon the
conviction of Mr. Smith, the basic requirements of debarment were
established.
The Department seeks a two-year period of debarment because of
irresponsibility and dishonesty. Respondents argue that there should be
no debarment because the technical violation resulted from ignorance and
bad advice.
It would be inappropriate not to debar Respondents in view of Mr.
Smith's conviction of a crime involving his business dealings supported
by the Department. Mr. Smith submitted false certifications to the
Department which overstated the amounts paid employees. Although the
false statements did not result in a loss to the government, the
employees were denied payment in full for their services by this device.
The offense is serious because the Department must rely on the
responsibility of contractors to assure proper distribution of
Departmental funds.
In mitigation, there is no evidence of any other wrongdoing by
Respondents. Mr. Smith has never previously been in trouble with the
law. The amounts involved were in gross not substantial; no doubt,
however, the amounts were considered substantial by Respondents'
employees. As a result of the criminal action, restitution was made to
the employees. It is apparent that debarment will result in a
substantial financial hardship on the Smiths and their small business.
In considering the case, it is appropriate to note that the Court fined
Mr. Smith only $400 and placed him on one year unsupervised probation.
This is a very light punishment. Under all the circumstances, including
especially the judgment of the Court in the criminal case, a one-year
period of debarment is appropriate. Respondents will be debarred for one
year beginning March 25, 1977, and ending March 24, 1978. Respondent
should be cautioned that the short period of debarment should not
mislead him on the seriousness of false statements. Any further
misconduct on Department sponsored projects would probably result in a
substantial period of debarment.
1. Respondents are contractors within the meaning of the Rules, 24
C.F.R. 24.4(f).
2. By the conduct resulting in the conviction of violating 18 U.S.C.
1012, Respondents violated the Rules, 24 C.F.R. 24.6(a)(6) and (9).
On the entire record, it is ordered that Glen Smith and Miricar, Inc.
are debarred from participation in Department of Housing and Urban
Development programs for a period of one year beginning March 25, 1977
and ending March 24, 1978. During the period above, no Department funds
shall be expended for financial assistance to Glen Smith and Miricar,
Inc. or to any concerns, corporations, partnerships, or associations in
which they have a substantial interest. Bids and proposals shall not be
solicited therefrom, and subcontracts will not be approved unless it is
determined to be in the best interests of the Government.
consists of the formal documents and the transcript and evidence
introduced either at the hearing or pursuant to a stipulation of the
parties. Here the formal documents are:
Formal Exhibit #1: Letter of suspension and intent to debar dated
March 25, 1977 from Morton A. Baruch to Glen Smith.
Formal Exhibit #2: Request to submit documentary evidence and
written briefs dated March 31, 1977 from William M. Bost, Jr. to Morton
A. Baruch.
Formal Exhibit #3: Letter in response to request dated April 12,
1977 from Julian B. McKay to William M. Bost, Jr.
Formal Exhibit #4: Letter requesting the positions of the parties
dated May 5, 1977 from Judge James W. Mast to William M. Bost, Jr. and
Michael B. Hirsch.
Formal Exhibit #5: Letter requesting that hearing be cancelled dated
May 17, 1977 from Michael B. Hirsch to Judge James W. Mast.
Formal Exhibit #6: Letter requesting extension of date for filing
written submissions dated May 19, 1977 from William M. Bost, Jr. to
Judge James W. Mast.
Formal Exhibit #7: Notice of Hearing issued on May 20, 1977 by Judge
James W. Mast.
Formal Exhibit #8: Order cancelling hearing issued on May 25, 1977
by Judge James W. Mast.
Formal Exhibit #9: Departmental Brief submitted July 12, 1977 by
Michael B. Hirsch.
Formal Exhibit #10: Brief of Respondent submitted July 14, 1977 by
William M. Bost, Jr. There was no hearing by agreement of the parties.
The evidence introduced by stipulation was limited to:
(1) For the Department:
Government Exhibit #1: Letter of suspension and intent to debar
dated March 25, 1977 from Morton A. Baruch to Glen Smith (Formal Exhibit
#1).
Government Exhibit #2: Indictment returned against Glen Smith in The
United States District Court in the Southern District of Mississippi.
Government Exhibit #3: Judgment and Probation/Commitment Order dated
November 15, 1976 for Glen Smith issued by the United States District
Court in the Southern District of Mississippi.
Government Exhibit #4: Request to submit documentary evidence and
written briefs dated March 31, 1977 from William M. Bost, Jr. to Morton
A. Baruch. (Formal Exhibit #2)
Government Exhibit #5: Letter requesting the positions of the
parties dated May 5, 1977 from Judge James W. Mast to William M. Bost,
Jr. and Michael B. Hirsch. (Formal Exhibit #4)
Government Exhibit #6: Letter requesting that hearing be cancelled
dated May 17, 1977 from Michael B. Hirsch to Judge James W. Mast.
(Formal Exhibit #5)
Government Exhibit #7: Letter requesting extension of date for
filing written submissions dated May 19, 1977 from William M. Bost, Jr.
to Judge James W. Mast. (Formal Exhibit #6)
Government Exhibit #8: Order cancelling hearing issued on May 25,
1977 by Judge James W. Mast. (Formal Exhibit #8)
(2) For the Respondent:
Affidavit of Glen Smith dated July 12, 1977.
Affidavit of Shirley Smith dated July 12, 1977.
The Rules 24.8(a) require that the Hearing Office (and ultimately the
Secretary) "+ + + shall make a determination on the evidence presented."
(Emphasis supplied) Thus, consideration in reaching a decision can only
be given to evidence contained in the record.
77-482-DB
In the Matter of: DARRELYN L. CLUFF
January 18, 1978
780118
B. Paul Cotter, Jr.
By letter dated March 31, 1977, the Deputy Assistant Secretary for
Housing notified Ms. Darrelyn L. Cluff ("Cluff" or "appellant") that she
was suspended from participation in Department programs and that her
debarment was being considered. Cluff was advised that the actions were
taken pursuant to 24 C.F.R. Part 24 (1977), the Department's regulation
governing debarment and suspension of contractors ("the regulation").
The actions were based on Cluff's conviction of violation of 18 U.S.C.
2(b) and 1012 (1970). (Government Exhibit 1).
Cluff filed a timely appeal, and a hearing based on written
submissions was granted in accordance with section 24.5(c) (1977) of the
regulation. (Appellant Exhibit 1). At the request of the parties, the
dates for submission of briefs and documentary evidence were extended to
September 30, 1977, for the Government and October 31, 1977, for
appellant. (Government Exhibit 2).
The record discloses that on September 23, 1976, a Complaint was
filed in the United States District Court for the Southern District of
California charging that Cluff knowingly and fraudulently caused false
statements to be made to the Department. (Government Exhibit 3).
Attached to the Complaint was the affidavit of FBI Specialist Agent John
Charles Jones. (Government Exhibit 3).
The affidavit recites that pursuant to information received from the
State of California Department of Real Estate, Agent Jones interviewed
Cluff who appeared voluntarily at his office on September 10, 1976.
Cluff told Jones in the interview that she had arranged the sale of a
single family dwelling to one Talt Coldiron and obtained FHA mortgage
insurance on the property although another person, one Reynolds, was
intended to, and ultimately did, occupy the dwelling. A HUD
representative told Jones that the Department would not insure a
mortgage loan for the property if the mortgagor was not going to occupy
the dwelling. Attached to the affidavit was a copy of Coldiron's
mortgage application form. That document shows a purchase price of
$27,950.00, a mortgage of $26,450.00, and a monthly mortgage payment,
including principal, interest, taxes and insurance, of $268.38.
(Government Exhibit 4).
On September 24, 1976, Cluff plead guilty to a misdemeanor under 18
U.S.C. 2(b) and 1010 (1970), "aiding and abetting the making of a false
statement to the Department of Housing and Urban Development." She
received a suspended sentence and was fined $250.00. (Government Exhibit
5).
Appellant, by counsel, submitted evidence of the circumstances
surrounding the transaction and her cooperation with state and federal
authorities. Appellant avers that she knew of the arrangement between
Coldiron and Reynolds from the outset but did not learn that her conduct
was improper or illegal until the close of escrow. Cluff avers that the
transaction was her first with FHA and that she immediately advised the
appropriate authorities when she learned of the relevant facts. She
states that she pled guilty to the misdemeanor because she could not
deny her actions but, at least implicitly, argues that she did not know
that her acts were wrong or in violation of any law or regulation at the
time such acts were performed. Finally, she concludes that her
suspension since March 31, 1977, has been adequate to protect the public
interest.
In addition, counsel for appellant argues that the regulation should
not be applied retroactively. The regulation became effective January
27, 1977, while appellant's plea to a misdemeanor was made on September
24, 1976. (Appellant Exhibit 3).
Conversely, the Government contends that appellant's conviction is
sufficient cause for debarment and suggests a term of two years. The
Department's position is based on section 24.6(a)(1) and (6) of the
regulation. Those sections provide in pertinent part as follows:
24.6 Causes and conditions applicable to determination of
debarment.
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
Appellant is a "contractor or grantee" within the meaning of section
24.4(f) of the regulation which, by its terms, applies to "real estate
brokers and agents," 24 C.F.R. 24.4(f) (1977). There was clearly
adequate evidence to warrant suspension of appellant under section 24.12
and 24.13. The latter section provides that an Assistant Secretary may
suspend a contractor "suspected upon adequate evidence of - - (i)
commission of + + + a criminal offense as an incident to obtaining,
attempting to obtain a public contract + + +." Subsection (c) of section
24.13 provides that an outstanding indictment satisfies the adequate
evidence requirement.
Appellant's argument that the regulation as enacted in January of
1977 was not made retroactive and therefore cannot apply to acts
performed prior to that date is without merit. The argument is based in
essence on the principles which prohibit ex post facto laws. However,
that prohibition has principal application to criminal law; the
Department's regulation is not of a criminal nature, that is, it is a
sanction and not a penalty. See, Gonzalez v. Freeman, 334 F. 2d 570 (D.
C. Cir. 1964). The stated purpose of the regulation is to protect the
best interest of the public by preventing contractors found not to be
"responsible" from participating in Department programs. The question
presented in this proceeding under the regulation is appellant's present
qualifications for doing business with the Government. The regulation
does not penalize contractors for past conduct. See, De Veau v.
Braistead, 363 U.S. 144 (1960); U.S. v. Nasser, 476 F. 2d 1111 (7th
Cir. 1973). Accordingly, the regulation as revised in January of 1977
applies to this proceeding.
The Department's policy is intended to protect the public interest by
insuring the proper expenditure of public funds. Appellant was convicted
of a crime the essence of which is fraud and falsification. Section
24.0 of the regulation provides that as a matter of Department policy,
contracts may be awarded only to "responsible contractors." The
Comptroller General has defined the word "responsible" as a term of art
applicable to Government contractors in the following manner:
+ + + the word "responsible" imports something more than
pecuniary ability, and in the selection of the lowest responsible
bidder, public officers are required to consider not only the
financial resources of the bidder, but also his integrity (and)
fitness + + +. 34 Comp. Gen. 86 (1950). (Emphasis added).
Based on these principles, the Department argues that the complaint
and conviction show that appellant attempted to fraudulently deceive the
Department. The Government points to the rationale supporting the sale
of single family homes to owner occupants. It is noted that owner
occupants are considered a better insurance risk and more beneficial to
the community where the home is located.
However, certain factors mitigate in appellant's favor. Taken as a
whole, the circumstances of the case substantially undercut a finding of
criminal intent. There has been no affirmative showing that appellant
knew of the Department's owner-occupant rule. There has been no
affirmative showing that appellant concealed the relationship between
the purchaser and the occupant. The transaction was the appellant's
first with the FHA, and there is no evidence of any wrongdoing on
appellant's part before of after the evidence in question.
Perhaps most importantly, the record reflects complete cooperation by
appellant with state and federal authorities. This fact appears to have
lead to the guilty plea to a misdemeanor rather than the felony charged
and the very modest sentence imposed by the court. Appellant has been
suspended for more than nine months, a fact under the circumstances of
this case which warrants consideration. Accordingly, only a short period
of debarment appears warranted.
Upon consideration of the best interest of the Government and the
entire record in this matter, it is hereby determined that appellant
Darrelyn L. Cluff should be debarred for a period of 30 days commencing
January 18, 1978, and ending February 16, 1978.
77-481-DB
In the Matter of: JACK COHEN
October 17, 1977
771017
Michael F. Burke
By letter dated April 20, 1977, Assistant Secretary Simons advised
Jack Cohen of Phoenix, Arizona (hereinafter Appellant) that the
Department was proposing debarment action against him. The Department
had previously notified Appellant of his suspension from further
participation in HUD programs on February 20, 1977, pending resolution
of an indictment charging violation of the Arizona Statutes, ARS 13-281
and 13-281.03. Appellant was subsequently acquitted under these charges.
Upon review of the entire matter, however, the Department advised
Appellant that it had determined to initiate debarment proceedings
against him. The letter advised Appellant that, in the Department's
view, his conduct in connection with the alleged attempted bribery under
the Arizona Statutes was of such a serious and compelling nature as to
require the conclusion that he was an unsatisfactory risk for further
participation in programs of the Department and that he was considered
not to be a responsible participant in HUD programs (24 C.F. R.
24.6)(4)). Appellant was advised of his right to a hearing and to be
represented by counsel in accordance with 24 C.F.R. 24.7. Pending the
hearing, Appellant was notified of his suspension from further
participation in programs of the Department. Subsequently, Appellant
requested a hearing. The hearing was conducted in Tucson, Arizona on
June 7, 1977. Allen B. Bickart and James J. Farley appeared on behalf of
Appellant while William S. Jordan of the HUD Office of General Counsel
represented the Government.
At the hearing Government Counsel stated that the Department would
propose debarment of Appellant pursuant to 24 C.F.R. 24.9 Subsection
(a)(4) based upon conduct by Appellant of "such serious nature,
affecting responsibility as may be determined in writing by the
appropriate Assistant Secretary to warrant debarment." Government
Counsel stated it was not the intent of the Department to establish at
that hearing whether or not Appellant had committed a crime, but rather,
when taking into account all of Appellant's actions, that he was not a
responsible person to whom the department could entrust in the
performance of public business.
The Government cited two instances on which it based its actions:
I. Appellant's dealings with Mr. Walter Durant of the Phoenix,
HUD Area Office; and
II. Appellant's dealings with Mr. Jack Hammitt of the Arizona
Real Estate Department.
I. Appellant's dealings with Mr. Durant - Phoenix, HUD Area Office
Walter Durant is the Deputy Chief Underwriter of the HUD Area Office
at Phoenix, Arizona. His position is to coordinate the efforts of
various section chiefs in issuing conditional commitments on properties,
firm commitments on subdivision analyses and multifamily projects. In
the course of his employment he met Appellant in January or February
1975. After that initial meeting, Appellant and Mr. Durant met on
several occasions in the HUD Area Office for various business reasons.
Usually, Appellant initiated these business contracts and called upon
Mr. Durant. In those meetings Appellant normally asked for assistance
from Mr. Durant in expediting matters.
On August 22, 1975, Appellant was waiting for Mr. Durant in the HUD
Office. The Government introduced into evidence a memorandum prepared by
Mr. Durant of the contents of that meeting with Appellant on that date
(Government Ex. No. 1). That memorandum in pertinent part states as
follows:
"at 8:15 a.m. August 22, 1975, I was visited in my office by
Jack Cohen of Cashlin Land and Development Company. Mr. Cohen
remarked that he wanted to visit me on August 1, but found I was
in Tucson that day. He asked about the trip was it business or
pleasure. He was informed that it was a business trip. He then
replied look you can't work all the time you need some time off
you should relax on a boat. I have a condo at Rocky Point, Mexico.
I also have a car and a boat there. I will rent the condo to you
for $10.00 a week; the car for $2.00 a week and a boat for a
dollar a week. I only do this for my friends."
Mr. Durant stated that he was startled by this conversation and thought
that he was probably being set up for something - as he suspected that
it was a bribe. Mr. Durant did not respond to Appellant's offer. After
that conversation, Mr. Durant testified that he and Appellant discussed
some business matters. After the conversation ended Mr. Durant discussed
this matter with his supervisor who advised him to put the content of
the conversation in writing, which he did. Mr. Durant further testified
that several days prior to the August 22nd meeting, Appellant had
mentioned to him that he was a personal friend of a U.S. Senator, and
that he had told the Senator about Mr. Durant and there was a
possibility he would be getting a letter expressing his appreciation for
the matter in which Mr. Durant had been dealing with Appellant.
Mr. Durant stated that Appellant never asked for anything specific in
return for the favors he had offered to him. After the above-meeting,
Mr. Durant stated that he withdrew in his business dealings with
Appellant, because he did not want to be accused of doing anything
beneficial for Appellant or for doing anything adverse to him.
On cross-examination Mr. Durant acknowledged that Appellant never
asked him to do anything unusual or with respect to his job
responsibilities, nor had he ever asked Mr. Durant to perform any act
which was contrary to law. Mr. Durant further acknowledged that
Appellant never tried to influence him by giving him anything of value.
Mr. Durant testified that Appellant had implied that being friendly to
him would be to Mr. Durant's advantage. Mr. Durant acknowledged that he
had no idea of what would be a reasonable price for the rental of a
condominium or the car which Appellant had referred to in their August
22nd conversation.
Appellant produced as a witness, J. Dole Williams, an agent of the
FBI. His records indicated that on September 2, 1975, he interviewed Mr.
Durant. In the course of that interview he prepared an FBI report
(Government Ex. 2). In that report the following is noted:
"Durant said that while he felt Cohen probably meant what he
said and that the offer may well have been a voluntary gesture
with no particular thought in mind to cause him to do any special
favors for Cohen, he decided to make the conversation a matter of
record and to report the matter to the FBI through J. Stribling,
Assistant Director of HUD in Phoenix."
The FBI report further stated:
"Durant observed that Cohen's request to expedite action to
approve his applications was not an unusual request for his
office, in that in lieu of some official reason not to expedite
the administrative processing of Cohen's applications he probably
would have agreed to grant the request."
Mr. Williams testified that the United States Attorney declined
prosecution of Mr. Durant's complaint because of the apparent small
amount of money that appeared to be involved at this point. (Tr. 120)
Appellant's Dealings with Earl Jack Hammitt
Mr. Hammitt was an investigator for the Arizona Department of Real
Estate and he had the responsibility to administer the real estate code
for the industry and to assist in the investigation of criminal cases.
In his position, he was also involved in obtaining subdivision approval
from the Real Estate Department of the State of Arizona.
Mr. Hammitt first had occasion to talk to Appellant in September of
1975. He related he telephoned Appellant at his office. Mr. Hammitt was
involved in divorce proceedings at that time and his wife was employed
by Appellant. He telephoned Appellant to request his assistance in
attempting a reconciliation of the marriage. Appellant's advice to Mr.
Hammitt was not to attempt to reconcile his marriage. During the course
of that conversation no discussions were conducted regarding any real
estate matters. At the end of the conversation Mr. Hammitt told
Appellant, thank you, "I owe you one." By that he meant Appellant had
did him a favor and that in the future he would do him a favor if the
opportunity presented himself. (Tr. 46)
On February 9, 1976, Appellant telephoned Mr. Hammitt at his office.
Appellant related to Mr. Hammitt that he was getting ready to file
necessary papers on a real estate project for Deer Valley Estates, Unit
3, and he did not want to file a bond on this project and he would
appreciate it if Mr. Hammitt would take care of this for him. Further in
the conversation, Appellant allegedly told Mr. Hammitt that he would
take care of him if he would take care of the bond. Mr. Hammitt had no
independent knowledge of whether a bond was required on the property
involved. In any event, Mr. Hammitt told Appellant he was to speak to
Mr. Taylor, the individual in charge of recommending to the Commissioner
the amount of the bond to be required for the subdivision. Mr. Hammitt
testified that he interpreted Appellant's offer of help, "I'll take care
of you," to mean that he was offering him a bribe (Tr. 49). After
Appellant left Mr. Hammitt's office, he wrote a memorandum to Mr.
Taylor, which was routed through his immediate supervisor Mr. David,
the Assistant Commissioner. After he wrote the memorandum, Mr. David
inquired of Mr. Hammitt what did Appellant meant to offer to him. Mr.
Hammitt replied, nothing specific. Mr. David felt that there was nothing
he could do about the matter, and in fact threw the memorandum in the
trash can (Tr. 51).
Two days later, on February 11, 1976, Appellant met with Mr. Hammitt
at the offices of the real estate department. Mr. Hammitt stated he met
Appellant in the reception area of his office since he did not want to
meet him at his desk and as he testified "I didn't want him offering me
another bribe" (Tr. 54). When he met Appellant, Appellant remarked
"Didn't you say you needed some upholstery for your car? I own an
upholstery shop" (Tr. 55). Mr. Hammitt stated he did not need any
upholstery. Mr. Hammitt testified that he understood the offer of
furnishing car upholstery to be another attempted bribe. Mr. Hammitt
stated he was uncomfortable in Appellant's company and just wanted to
get rid of him. After Appellant left the office, Mr. Hammitt took
Appellant's business card to Mr. David and stated "well, he offered me
something specific, he offered me an upholstery job on my car" (Tr. p.
57). Mr. David advised him to speak to the Assistant Attorney General
about the matter. He discussed the matter with the Assistant Attorney
General who didn't know what to do about it.
Ultimately, Mr. Hammitt reported this matter to the Phoenix Police
Department. This action was taken because it appeared to Mr. Hammitt
that the Real Estate Department was not going to take any action against
Appellant. In his meeting with the Phoenix Police, it was decided that
Mr. Hammitt should call Appellant and give him the opportunity to try to
bribe him again.
On the morning of March 3, 1976, Mr. Hammitt telephoned Appellant.
At that time, pursuant to his understanding with the Phoenix Police
Department, Mr. Hammitt had a recording device available and his
conversation with Appellant was recorded. This recording was introduced
into evidence (Gov't. Ex. No. 3). In addition, on March 3, 1977, Mr.
Hammitt visited Appellant at his office. At that time Mr. Hammitt had a
radio transmitter taped to his person and his conversation with
Appellant was recorded (Gov't. Ex. No. 5). Mr. Hammitt stated in his
testimony the purpose of his meeting with Appellant was to have
Appellant offer him a bribe again and give him the opportunity to do so.
During the course of that conversation, Appellant agreed to pay a bribe
of $75.00 to Mr. Hammitt if he could arrange to have the bond
requirement on the subdivision waived by the State of Arizona. In
addition, Appellant offered to assist Mr. Hammitt in obtaining a better
position as an investigator with the Attorney General for the State of
Arizona. The conversation between the parties indicates that the matter
of a bribe was explicitly discussed and Appellant assured Mr. Hammitt
that there was very little likelihood that he would ever be caught for
doing it (Gov't. Ex. No. 5, pp. 2-3).
COHEN: If, if, if we, if you can help get that out of there
and get, you know, her in, and he waives that which he likely
ought to should do anyway. Because basically I've got a letter in
that committing 700,000 to him, to that project from Southwest
Savings, you know + + +.
HAMMITT: Uh huh.
C: And then I would, it, I just looked at it, it cost me $100.
Let me put a price on it now.
H: I looked it over, and I think I can take care of it. I
wouldn't have called you back if I hadn't looked it over and
decided that, you know + + +.
C: If we can take care of it pretty soon + + +.
H: Yeah. What I want to know + + +.
C: Six bits to you if you get it out of there for me. It's
real simple, if I've got to buy the bond, I'll buy the bond. If I
don't have to buy the bond, well it six bits.
H: How much is "six bits"?
C: $75
H: Oh.
C: Costs me $100. I'll give you $75.
Moreover, Appellant advised Mr. Hammitt that since they are both
involved in the bribery scheme, Appellant could never be prosecuted
because of entrapment. During the conversation, Appellant discussed the
many friends he had in both the Federal and State Governments and of the
favors that he had performed for them.
On 16 March 1977, Appellant again called Mr. Hammitt at his office
and he asked him what the progress was on his business before the
office. Mr. Hammitt replied that he had done nothing to expedite the
matter.
In cross examination, Mr. Hammitt acknowledged that there was nothing
illegal in expediting an application for a subdivision approval which
Appellant had requested. Mr. Hammitt further acknowledged that in fact
Deer Valley Estates, Unit 3, did not require the bond because his
previous bond had been posted, but Appellant was apparently unaware of
that fact. Mr. Hammitt also acknowledged that as of February 12, 1976,
there had not been any specific bribe offered him by Appellant, but that
Appellant had expressed his concern about having the matter expedited.
Mr. Hammitt also testified that it was his intention and desire to
prosecute Appellant notwithstanding the decision of his superiors not to
do so (Tr. p. 91).
Victor Carter testified that he was with Appellant when he visited
Mr. Hammitt in the reception area of the HUD Office in February 1976.
He was with them when Appellant made the remark to Mr. Hammitt that he
owned an upholstery shop. Mr. Carter stated in his opinion that
Appellant's remarks could not be construed as a bribe.
Government's Position
The Government points out that the Government's suspension action and
proposed debarment was initially based upon the Appellant's indictment
in the State Court of Arizona based upon alleged bribery. That
indictment was resolved by the criminal trial, in which Appellant was
granted a judgment of acquittal on March 7, 1977, because of entrapment.
The proposed debarment action against Appellant is now based upon the
facts in the aforesaid indictment as set out in the Department's letter
of April 20, 1977, that is, Appellant's conduct in the alleged bribery
was of such a serious and compelling nature so as to show a lack of
responsibility and an unsatisfactory risk for future participation in
HUD programs (24 C.F.R. 24.6(4)). The Government asserts its proposed
debarment action is based upon Appellant's efforts to exert undue
influence or improperly obtain favor with two government officials;
Walter B. Durant and E. Jack Hammitt.
The Government is bringing the debarment action under 24 C.F.R.
24.6(a)(4) which provides that the Department may debar a contractor or
grantee for:
(4) Any other cause of such serious compelling nature,
affecting responsibility, as may be determined by the appropriate
Assistant Secretary, to warrant debarment.
In bringing this debarment action under that provision, the Government
asserts that it is not bound by the responsibility standard alone set
forth in that section, but may be guided by the other more specific
causes set out in Section 24.6 and by the other provisions of Part 24.
In particular, the Government points to Section 24.0 of Part 24 which
establishes the Department policy on suspension and debarment and which
states in pertinent part that the Department should do business:
"only with those contractors and grantees which can demonstrate
that Government funds will be properly utilized."
The Government then summarizes the various grounds upon which debarment
action can be maintained, one of which is Sub-paragraph 24.6(a)(9):
"conviction for the commission of the offense of + + + bribery
+ + + or for any other offense indicating a lack of business
integrity or honesty, which seriously and directly affects the
question of present responsibility."
Although, as the Government acknowledges, Appellant was not convicted of
bribery, the quoted section demonstrates that the offense of bribery and
other actions indicating lack of business integrity or honesty are
appropriate to be considered as causes of a serious and compelling
nature to show lack of responsibility and, therefore, sufficient cause
to warrant debarment.
The Government maintains that the Department's Standard of Conduct
set out in 24 C.F.R. 0.735.201 provides that:
" + + + the avoidance of any involvement that tends to damage +
+ + is a responsibility of exceptional importance for all
employees who participate in or influence official operating
determinations that affect the interests of those with whom the
Department does business."
Section 0.735-202 requires the Department's employees to avoid any
action which might result in, or create the appearance of, giving
preferential treatment to any person, losing complete independence or
impartiality, or affecting the confidence of the public in the integrity
of the Government. The Government asserts that these provisions must be
considered as standards by which the Department determines whether
debarment is appropriate under 24 C.F.R. 24.6(a)(4). The Government
urges that Appellant's actions in attempting to influence the actions of
Mr. Durant warrant debarment. In their view, the offering of a gratuity
to Mr. Durant showed a lack of business integrity or honesty on the part
of Appellant. The Government contends Appellant was too sophisticated to
directly bribe Mr. Durant; rather, he would make a friendly offer in
the circumstances described at the hearing and let it be understood by
Mr. Durant that he wanted special consideration.
The Government also maintains that Appellant's actions with Mr.
Hammitt justifies debarment pursuant to 24 C.F.R. 24.6(a)(4), both on
the basis of the attempted bribe itself and on the basis of Appellant's
admissions of his efforts and apparent success in gaining undue
influence with officials of the State of Arizona and with HUD officials.
The Government states it is not retrying the bribery charge, rather it
submits that Appellant's conduct indicates a lack of business integrity
or honesty which seriously affects the matter of Appellant's present
responsibility.
Next, the Government asserts that the presence of entrapment in the
criminal case does not bar the Department from considering the facts
surrounding the attempted bribe. The Government states that Appellant's
acquittal in the criminal case does not prevent the use of the same
evidence at an administrative proceeding. This is because the purposes
of the proceedings are different. The purpose of the criminal proceeding
was to inflict a punishment upon Appellant. Here, the purpose of the
administrative proceeding is to protect the Department's integrity and
the public purse, and not to penalize those against whom debarment
actions are brought. The Government cites in support of this position,
Helvering v. Mitchell 303 U.S. 391 (1938) which held that acquittal in
the criminal matter does not prevent a subsequent civil action based
upon the same facts. Because of the different burden of proof, the court
held that there was no resjudicata or collateral estoppel to bar the
civil proceeding.
In rebuttal to Appellant's position, that Mr. Durant's testimony be
stricken, the Government asserts that Mr. Durant's testimony may be
considered although the Department's proposed debarment grounds as
stated in their April 20, 1977, letter failed to mention him. It bases
its position on the ground that it is relevant and significant
background to Appellant's transactions with Mr. Hammitt. Moreover, it is
pointed out that Appellant had advance knowledge of Mr. Durant's
testimony from the criminal trial. In addition, it did not raise any
objection to Mr. Durant's testimony at the hearing and, hence, Appellant
is deemed to have consented to the consideration of Mr. Durant as a
witness.
The Government maintains that the Standard for Debarment established
by 24 C.F.R. 24.6(a)(4) is not unconstitutionally vague as argued by
Appellant but the language of that section must be considered as part of
the overall regulation, all of which establishes the standards under
which the debarment action is proposed.
Next, the Government urges that Mr. Hammitt's testimony may be
considered in determining whether Appellant should be debarred as the
debarment action serves a different purpose than the criminal action.
In this proceeding, the criminal or other intent of Appellant is not an
issue as it would be in a criminal case. The Government denies
Appellant's position that it would violate due process of law to
consider Mr. Hammitt's testimony as a basis for the debarment action
since Mr. Hammitt acted improperly in entrapping Appellant. The
Government cites several cases where the courts have refused to exclude
evidence on the grounds that improper actions by Government agents had
violated the due process rights of a defendant United States v.
Russell, 411 U.S. 423 (1973), Hampton v. United States, 425 U.S. 484
(1976). In this matter, the Government charges Mr. Hammitt's involvement
and encouraging of criminal acts by Appellant were minimal. Appellant's
Position
Appellant states its position as follows:
The scope of the hearing should be limited only to the reception of
evidence concerning the alleged bribe attempt leading up to the
indictment of Appellant under the Arizona Revised Statutes, ARS 13-281
and 13-281.03. Appellant maintains that the Department's letter of April
20, 1977, served the procedural requirements under the regulations to
notify Appellant of the charges against him. Those charges were
specifically that Appellant's conduct regarding the alleged bribery was
the issue upon which the Department attempted to debar him. Appellant
contends this communication framed the issues and, therefore, the
Department by its own procedural rules and regulations limited itself as
to the evidence which would be relevant to the issues in this matter.
Therefore, at the hearing, the testimony of Mr. Durant who testified to
an event occurring in August 1975 and not mentioned in the Department's
letter of April 20, 1977, should be excluded from the record and not be
accorded any probative value whatsoever.
Appellant argues that 24 C.F.R. 24.6 is unconstitutionally vague
because it places too much discretion in the hands of the "appropriate"
Assistant Secretary and can lead to arbitrary and capricious decisions.
Appellant points out that 24 C.F.R. 24.6(4) permits HUD to debar an
individual from engaging in programs of the Department for any other
cause of such serious and compelling nature affecting responsibility
that may be determined by the appropriate Assistant Secretary.
Appellant argues that this language is pervasively vague and does not
serve the purpose for which the regulations were purported. The
regulations, in particular 24 C.F.R. 24.6, should give notice as to
exactly what type of conduct is "serious and compelling" and bears upon
responsibility. It points out that valuable substantive rights of an
individual can hinge upon the appropriate Assistant Secretary's
determination and what he considered to be serious and compelling.
Appellant cites Gonzalez v. Freeman 344 F. 2d 570, 578 (1964), for the
proposition that debarment imposes such serious economic injury on a
party that it can only be imposed by a procedure which comports with
constitutional standards of due process which it maintains is not
present here.
Appellant contends evidence obtained by improper conduct of a
Government official or his agent, if tainted should not be used for any
purpose, whether imposing criminal penalty or administrative sanction.
To do otherwise would violate due process of law and encourage further
governmental improprieties. This exclusionary rule is based upon
fundamental fairness. Based on this rule, Appellant argues that the
Hearing Officer in compliance with the rule of fair play should consider
as relevant only that testimony of the witness Mr. Hammitt, which
relates to matters which occurred between Appellant and Mr. Hammitt
prior to March 3, 1976, the date when the conversations were recorded.
Appellant then points to the opinion of the Judge in the Arizona State
Court in the criminal case who found that Appellant was entrapped in a
criminal proceeding which held:
"The police department cannot have its agents solicit a bribe
from a person and then have the state prosecute that person for
offering a bribe to its agent instead of providing the opportunity
for Mr. Cohen to offer a bribe. Mr. Hammitt solicited the bribe."
Appellant proceeds to summarize the transcript of the hearing and the
happenings between Mr. Hammitt and Appellant. Appellant maintains that
prior to March 3, 1976, conversations between the parties were not
improper or illegal and that as far as Appellant's involvement in these
transactions were concerned the matter would have been dormant, but for
the fact that Mr. Hammitt pursued the matter further. Appellant states
that there were three conversations between Mr. Hammitt and Appellant
that are important to this adjudication. The first one was that
initiated by Mr. Hammitt who stated that if Appellant ever needed a
favor he would be happy to accommodate him. Appellant did not
immediately take Mr. Hammitt up on this offer but in six months later
Appellant called Mr. Hammitt and requested his assistance in expediting
an application for a subdivision report which was not unlawful to do.
The next conversation between the parties was in the receptionist area
in Mr. Hammitt's office. Appellant urges that the site of the
conversation would indicate that Appellant was not offering a bribe to
Mr. Hammitt or indicate that he was an untruthful or dishonest person of
bad reputation.
The testimony of the witnesses, Durant and Hammitt in Appellant's
view, does not constitute substantial evidence in order to support an
order of debarment. Appellant points to the case of Camero v. United
States 345 F. 2d 798 (1965), which defines substantial evidence "as more
than a scintilla" and it must be relevant so that a reasonable mind
might accept it as adequate to support a conclusion. The case further
points out "mere uncorroborated hearsay or rumor does not constitute
substantial evidence." Appellant points to Mr. Durant's testimony on
cross-examination in which he acknowledged that Appellant never asked
him to do anything improper or unusual or to initiate any unlawful acts.
Appellant urges that there is nothing in the record to indicate that
Appellant's conversation with Durant demonstrated any dishonesty,
untruthfulness or lack of responsibility on his part. Rather, it
demonstrates that Appellant was a man of some compassion for his fellow
human beings.
Before determining the issues involved in this matter on their
merits, there are several legal issues of a jurisdictional nature raised
by Appellant which must be addressed.
I. THE SCOPE OF THE HEARING SHOULD BE LIMITED ONLY TO THE RECEPTION
OF EVIDENCE CONCERNING THE ALLEGED BRIBE ATTEMPT LEADING TO AN
INDICTMENT OF APPELLANT UNDER ARIZONA REVISED STATUTES (ARS) 13-281 and
13-281.03.
The Appellant's position is not persuasive. In the Hearing Officer's
opinion, Mr. Durant's testimony is relevant to the matter here. As the
Government points out, Appellant was not surprised by the Government
calling Mr. Durant as a witness, since he was a witness at the previous
criminal trial. Next, his testimony is relevant in determining
Appellant's conduct in dealing with Government employees. Of more
importance is the fact that Appellant did not object to Mr. Durant's
appearance at the hearing. Therefore, if Appellant had the right to
object to Mr. Durant's appearance he waived it. II. 24 C.F.R. 24.6 IS
UNCONSTITUTIONALLY VAGUE AS IT PLACES TOO MUCH DISCRETION IN THE HANDS
OF THE "APPROPRIATE" ASSISTANT SECRETARY AND CAN LEAD TO ARBITRARY AND
CAPRICIOUS DECISIONS.
The Government replies that 24 C.F.R. 24.6(a)(4) meets the
constitutional challenge. It cites a number of cases where the Supreme
Court has upheld, in cases similar to the matter here, language which
establishes general standards as a basis for Government action. In
Arnett v. Kennedy, 416 U.S. 134 (1973), the Court was faced with a
probationary employee under the competitive Civil Service who had been
discharged for having made recklessly false and deflamatory statements
about other Government employees. He had been dismissed pursuant to 5
U.S.C. 7501(a) which states:
"1. An individual in the competitive service may be removed or
suspended without pay only for such cause as will promote the
efficiency of the service. The Court upheld that language in that
it did not create unconstitutionally vague standard for dismissal
of employees from the competitive Civil Service."
In interpreting that language, the Court held:
"The root of the vagueness doctrine is a rough idea of
fairness. It is not a principle designed to convert into a
constitutional dilemma the practical difficulties in drawing
criminal statutes both general enough to take into account a
variety of human conduct and sufficiently specific to provide,
fair warning that certain kinds of conduct are prohibited."
(Arnett, supra)
Therefore, "the idea of fairness" is present here. Although 24 C.F.R.
24.6(a)(4) does not enumerate all those transactions which could be
considered "Any other cause of such serious compelling nature, affecting
responsibility," the Department's letter advised Appellant of the basis
of the proposed debarment action, that is, alleged bribery. Thus,
Appellant had notice of the Government's basis for the proposed action.
Moreover, Appellant had a full hearing under 24 C.F.R. 24. These
regulations when read in their entirety e.g. 24.0 et seq. establishes
criteria under which the Department promulgates the standards in
selecting parties with whom it does business:
"it is necessary that grants and contracts awarded by the
Department and by those entities with whom it does business be
made only to those contractors and grantees which can demonstrate
that Government funds will be properly utilized."
Thus, a standard for responsibility is established, and the Department
has pronounced a policy of dealing only with those persons it believes
can act in a responsible manner. Here, the Government in its basis for
proposed debarment and at its presentation of its case at the hearing
indicated the acts it believed indicated lack of responsibility. As the
Court ruled in Gonzalez, supra, at p. 578:
"Consideration of basic fairness require administrative
regulations establishing standards for debarment and procedures
which will include notice of specific charges, opportunity to
present evidence and to cross-examine adverse witnesses, all
culminating in administrative findings and conclusions based upon
the record so-made."
In this proceeding, the Government has met that test by issuing the
Regulations set forth in 24 C.F.R. 24 et seq. Therefore, the standard
set forth in 24 C.F.R. 24.6(a)(4) is not so vague as to deprive
Appellant of administrative due process. III. EVIDENCE OBTAINED BY
IMPROPER CONDUCT OF A GOVERNMENT OFFICE OR HIS AGENT, IF TAINTED, SHOULD
NOT BE USED FOR THE PURPOSE OF IMPOSING CRIMINAL PENALTY OR CRIMINAL
SANCTION. TO DO OTHERWISE WOULD VIOLATE DUE PROCESS OF LAW AND ENCOURAGE
FURTHER GOVERNMENTAL IMPROPRIETY.
The purpose of a criminal trial and the administrative hearing here
is different. In a criminal trial, the issue of defendant's guilt beyond
a reasonable doubt is the criteria. In a debarment proceeding, the issue
is whether the individual or entity is a responsible party with whom the
public business can be entrusted. Moreover, our rules do not require
that the formal rules of evidence be followed (24 C.F.R. 24.7(c)(8)).
Thus, the opinion in the criminal case does not bar the proceedings
here, nor should Mr. Hammitt's testimony be disregarded. The Government
in its Reply Brief sets forth a number of cases indicating the trend in
the Courts to disallow the defense of entrapment unless the Government
agents act rendered the evidence inadmissible. Hampton v. United States,
425 U.S. 484 (1976). Here, as mentioned above, we are not limited by the
strict rules applicable to a criminal case but at the same time, the
Appellant's right to administrative due process cannot be ignored.
Nevertheless, I find that when looked at Appellant's relations with Mr.
Hammitt in their entirety the defense of entrapment should not be
allowed to exclude Mr. Hammitt's testimony. As stated in Hampton; "it
is only when the Government deception actually implants the criminal
design in the mind of the Defendant that the defense of entrapment comes
into play." The evidence here indicates Appellant initiated the chain of
transactions; i.e., requesting Hammitt to look into waiving the bond,
which culminated in the discussion of a bribe.
Appellant in his dealing with Mr. Durant at the HUD Office was
seeking HUD-FHA insurance on the subdivisions he had submitted to that
office for conditional commitments. Accordingly, Appellant is a
"contractor or grantee" as defined in 24 C.F.R. 24.4(f), which includes
"all participants, or contractors with participants, in programs where
HUD is the guarantor or insurer." Therefore, the matter of Appellant's
proposed debarment action properly comes within the purview of 24 C.F.
R. 24 et seq. for a hearing. Pursuant to those regulations, the
Government has proposed debarment of Appellant:
24 C.F.R. 24.4 Definitions (a) "Debarment" means exclusion from
participation in HUD programs for a reasonable, specified period
of time commensurate with the seriousness of the offense or the
failure or inadequacy of performance generally not to exceed five
years.
The basis for the proposed debarment action is 24 C.F.R. 24.6(a)(4)
which provides that the Department may debar a contractor or grantee in
the public interest for any of the following causes:
"(4) Any other cause of such serious compelling nature,
affecting responsibility, as may be determined by the appropriate
Assistant Secretary, to warrant debarment."
In light of these provisions, Appellant's conduct with Mr. Durant is
considered. Although Appellant did not offer a bribe to a HUD employee,
he did, in the opinion of the Hearing Officer make an offer of vacation
facilities at a reduced value which was an offer of a gratuity.
Appellant's offer of the gratuity is evidence of a lack of business
integrity on his part as it was offered to obtain the favor of a HUD
employee. Moreover, the HUD Employee's Standards of Conduct set forth in
24 C.F.R. 0.735-203, Gifts, entertainment and favors provides in
pertinent part as follows:
(a) Except as provided in paragraphs (b) and (e) of this section,
an employee shall not solicit or accept, directly or indirectly, any
gifts, gratuity, favor entertainment, loan, or any other thing of
monetary value, from a person who:
(1) Has, or is seeking to obtain contractual or other business
or financial relations with the Department;
(2) Conducts operations or activities that are regulated by the
Department + + +.
Therefore, Appellant attempted to cause Mr. Durant to violate Department
Regulations. These regulations are directed at the maintenance of high
standards of honesty, integrity, impartiality, and conduct by Government
employees in order to assure the proper performance of the Government
business and the maintenance of confidence by citizens in their
Government (24 C.F.R. 0.735-101).
With regard to Appellant's dealings with Mr. Hammitt, reference need
only be made to the transcript of their conversation. (Gov't. Ex. No.
5). That conversation revealed that Appellant directly offered a bribe,
$75.00 in exchange for waiver of the $100 bond. Moreover, the
conversation dealt directly with Appellant's discussion as to why
possible prosecution could not result from the bribe transaction because
of the defense of entrapment. Moreover, Appellant's own words in that
conversation acknowledge that he deals in favors with Government
personnel.
The crucial factor here is whether Appellant's dealings with Messrs.
Durant and Hammitt indicate responsible conduct on his part. The term
"responsibility" has been defined by the Comptroller General relative to
Government contracts as follows:
"Responsible" imports something more than pecuniary ability,
and in the selection of the lowest responsible bidder, public
officers are required to consider not only the financial resources
of the bidder, but also his integrity, fitness, capacity, and
ability to successfully fulfill the contract requirements." 34
Comp. Gen. 86 (1950)
In addition, in a previous decision where it was determined that a party
was not responsible, the following ruling by the New Jersey Supreme
Court was quoted:
" + + + that a bidder be 'responsible,' embraces moral
integrity just as surely as it embraces a capacity to supply labor
and materials. The relevancy of moral responsibility is evident.
It assumes honest performance. It meets the citizen's expectation
that his government will do business only with men of integrity."
Trap Rock Industries v. Kohl, 284 F. 2d 161 (N.J. 1971) at 166; cited
In the Matter of William C. Winchell and Melton-Winchell and Associates,
Inc., Docket No. 75-313, decided May 15, 1975.
A review of the evidence in the record discloses that there is
substantial evidence to warrant Appellant's debarment. Offering a
gratuity to a HUD employee is a "cause of such serious compelling nature
affecting responsibility" to support this decision. Moreover, the offer
of a bribe to Mr. Hammitt reveals a lack of business integrity that is
inconsistent with the concept of a responsible individual with whom the
Department can entrust its business. The contents of the taped
conversation between Mr. Hammitt and Appellant are a convincing
admission of Appellant's improper conduct and further evidence to
warrant debarment.
Government Counsel urges a five-year period of debarment for
Appellant and for an indefinite period beyond the date of Initial
Determination until Appellant can establish that he is a responsible
individual with whom the Department can trust the public's business.
Appellant's Counsel states that although Appellant may be an impetuous
man in the manner that he conducts his business affairs, he is not a
dishonest man. Further, as a result of the publicity surrounding the
trial of Appellant, any future dealing between Appellant and the
Government would be carefully examined. As Appellant's Counsel stated in
his closing statement:
"As a matter of fact, I don't think he can candidly do one act
without arousing the ire or suspicion of somebody within the
Department. And so be it. He's then burdened in doing his business
in this manner. Let him do business in that manner, but don't
bebar him." (Tr. 25).
It is the Initial Determination that it is in the public interest
that Appellant be debarred from further participation in the programs of
the Department. In establishing the term of debarment consideration is
given to the fact that Appellant has been suspended since February 20,
1977. The period of debarment is effective as of today through February
20, 1982. It is my determination that this period of debarment is
sufficient to protect the public interest.
77-479-DB
In the Matter of: ROBERT M. DEPEDRO
July 20, 1977
770720
James W. Mast
On February 24, 1977, Joseph S. Crane for John J. Tuite, Acting
Deputy Assistant Secretary, Department of Housing and Urban Development,
herein the Department, served Robert M. DePedro, herein Respondent, with
written notice of debarment pursuant to 24 C.F.R. 24 of the Department's
Rules and Regulations, herein the Rules, because of his conviction in
the United States District Court, Providence, Rhode Island, of violation
of 18 U.S.C. 1001. On or about March 1, 1977, Respondent requested a
hearing in the matter. On May 5, 1977, the undersigned requested the
parties to submit their positions in writing. On May 20, 1977, the
Department responded and moved that the hearing be cancelled on the
basis of 24 C.F.R. 24.5(c)(2). No response to the letter of May 5, 1977,
on the Department's motion was received. On June 10, 1977, the hearing
was cancelled and the parties were allowed until July 5, 1977 to submit
documentary evidence and briefs. The Department submitted the evidence
and brief on July 14, 1977. Respondent submitted nothing. On the basis
of the entire record,1/ I make the following: making a decision can
only be given to evidence contained in the
Robert M. DePedro, Respondent, was, at all times material, Executive
Director of the Redevelopment Agency of Woonsocket, Rhode Island. The
Redevelopment Agency of Woonsocket was the applicant and recipient of
grants from the Department.
Respondent was indicted by the Grand Jury of the United States
District Court for the District of Rhode Island on one count of
violation of 18 U.S.C. 1001. On December 19, 1975, Respondent entered a
plea of guilty. On June 14, 1976, Respondent was sentenced to one year
probation conditioned on restitution.
The conviction arose out of a transaction on May 8, 1972, where
Respondent in his official capacity submitted a Requisition for Capital
Grant Payment, Relocation Grant Payment, or Rehabilitation Grant
Reimbursement Form to the Department. The form claimed the Redevelopment
Agency of Woonsocket had made relocation payments to site occupants in
the amount of $84,615.00. Respondent knew that the amount certified
included $1,601.00 which was not expended for that purpose.
Respondent offered nothing in his own defense.
Respondent was an agent of the Redevelopment Agency of Woonsocket, a
grantee of the Department. As an agent of grantee, Respondent is within
the definition of grantee at 24 C.F.R. 24.4(f). Lanny DeMoss, 76-HUD(
JD)-53 (November 15, 1973). The applicability of 24 C.F.R. 24 to these
proceedings is not avoided by the 24.3(b)(2) exclusion of "relocation
payments to eligible displaced persons." Respondent was not an eligible
displaced person, but on the contrary was an agent of a grantee engaged
in processing claims for such payments. Upon his conviction of a crime,
the basic requirements for debarment were established.
The Department seeks a five year debarment. Respondent has taken no
position.
It would be improper not to debar Respondent in view of his
conviction of a crime involving official misconduct in transactions with
the Department. Respondent submitted false claims to the Department
which would have resulted in overpayment by the Department of the actual
expenses for relocation. The offense is especially serious because of
Respondent's position of public trust. There is, however, no evidence
that the false claim was for personal gain. Further, there is no
evidence of any other than the one false claim, or evidence of a pattern
of such conduct by Respondent. In the absence of such evidence, this
must be concluded to be a single isolated instance of misconduct.
Finally, there is no evidence in mitigation of Respondent's official
misconduct.
As is noted above, the decision shall be made on the evidence
presented, which here consists only of the indictment and conviction of
the one offense. Under the circumstances, a three-year period of
debarment appears appropriate. Respondent will be debarred for three
years beginning February 24, 1977 and ending February 23, 1980.
1. Robert M. DePedro is a grantee within the meaning of the
Department's Rules, 24 C.F.R. 24.4(f).
2. By Robert M. DePedro's conduct resulting in his conviction of
violating 13 U.S.C. 1001, Respondent violated Department's Rules 24 C.
F.R. 24.6(a)(6) and (a)(q).
On the entire record, it is ordered that Robert M. DePedro is
debarred from participation in Department of Housing and Urban
Development programs for a period of three years beginning February 24,
1977, and terminating February 23, 1980. During the period above, no
Department funds shall be expended for financial assistance to Robert M.
DePedro or to any concerns, partnerships, or associations in which he
has a substantial interest. Bids or proposals shall not be solicited
therefrom, and subcontracts will not be approved unless it is determined
to be in the best interests of the Government.
consists of the formal documents and the transcript and evidence
introduced either at the hearing or pursuant to a stipulation of the
parties. Here the formal exhibits are:
Formal Exhibit 1: Letter of intent to debar dated February 24, 1977
from John J. Tuite to Robert M. DePedro.
Formal Exhibit 2: Request for an opportunity to submit evidence
dated March 1, 1977 from Robert M. DePedro to John J. Tuite.
Formal Exhibit 3: Request for the parties to submit their positions
dated May 5, 1977 from Judge James W. Mast to Robert M. DePedro and
William Jordan.
Formal Exhibit 4: Notice of Hearing issued on May 20, 1977 by Judge
James W. Mast.
Formal Exhibit 5: Response by William Jordan to letter of May 5,
1977.
Formal Exhibit 6: Order that hearing is cancelled issued on June 10,
1977 by Judge James W. Mast.
Formal Exhibit 7: Submission of the Department's case by William
Jordan.
There was no hearing by agreement of the parties; the evidence
introduced by stipulation was limited to:
(1) By the Department:
Government Exhibit 1: Letter of intent to debar dated February 24,
1977 from John J. Tuite to Robert M. DePedro. (Formal Exhibit 1)
Government Exhibit 2: Judgment and Probation/Commitment Order of
Robert M. DePedro.
Government Exhibit 3: Indictment of Robert M. DePedro by the Grand
Jury of the United States District Court for the District of Rhode
Island.
(2) By the Respondent:
Nothing was submitted.
The Rules 24.8(a) require that "+ + + the Hearing Officer (and
ultimately the Secretary) shall make a + + + determination on the
evidence presented." (Emphasis supplied) Thus, consideration in record.
77-476-DB
In the Matter of: MARVEL TYRONE MORGAN, d/b/a MTM ENTERPRISES
November 4, 1977
771104
B. Paul Cotter, Jr.
By letter dated September 17, 1976, the Assistant Secretary for
Housing suspended appellant, Marvel Tyrone Morgan, from participating in
Department ("HUD") programs and notified him that the Department was
considering his debarment. The Assistant Secretary's action was based on
Mr. Morgan's conviction in the United States District Court for the
Western District of Washington. (Government Exhibits 1 and 3). The
suspension and proposed debarment were initiated pursuant to the
Department's regulation governing debarment, suspension and
ineligibility of contractors and grantees, 24 C.F.R. Part 24 (1976). By
letter dated September 29, 1976, Mr. Morgan requested a hearing in
accordance with 24 C.F.R. 24.10 (1976). The request was acknowledged by
HUD a week later. (Apellant Exhibits 7 and 9).
During the course of the next four months, the Department's
regulation governing suspension and debarment was revised an issued in
final form on January 27, 1977, 24 C.F.R. Part 24, 42 Fed. Reg. 5304
(1977) ("the regulation"). The parties have stipulated that this
proceeding is governed by the regulation as revised. (Tr. 4).
A Hearing Officer was designated on March 31, 1977, and by letter
dated April 4, 1977, appellant was furnished with a copy of the revised
regulation, and the matter was set for hearing in Washington, D.C.
(Government Exhibit 4). In response to a request by appellant's counsel,
the location of the hearing was changed to Seattle, Washington, and held
on May 17, 1977.
The record discloses that appellant was indicted in July 1976 on
three counts charging payment of a kickback, falsification of documents,
and conspiracy in violation fo 18 U.S.C. 2, 1001 and 1006 (1970).
(Government Exhibit 2; Appellant Exhibit 6A). In 1971 appellant served
as a broker in the purchase and sale of a cemetary. While acting as
broker, appellant was also working temporarily for Greenwood Savings and
Loan Association ("Greenwood"), a federally insured corporation.
Appellant's father was President and part owner of Greenwood. (Tr. 16,
75-76). Greenwood made the permanent loan necessary to finance the
cemetary purchase, and appellant received a broker's fee of
approximately $7,200. That fee was paid to appellant at his home in cash
from a brown paper bag. (Tr. 80).
The indictment charged Appellant with paying his father a $500
kickback in the transaction and with falsifying the escrow statement.
An entry on the escrow statement concerning Mr. Morgan's broker's fee
was apparently changed sometime after closing, between August 27, 1971,
and March 9, 1973. (Tr. 19, 35-36; Government Exhibit 2). Appellant's
father, who had been convicted of other offenses, was granted immunity
in the cemetary transaction and testified against appellant at his
trial. (Tr. 17-18).
A jury found appellant guilty on Counts I and II, unlawful payments
and false statements, and not guilty on Count III, the conspiracy
charge. (Tr. 14-15). On August 13, 1976, Mr. Morgan was adjudged guilty
as charged on the two counts and ordered to pay fines of $2,500 on each
count. Neither a jail term nor a period of probation were imposed.
(Government Exhibit 1; Appellant Exhibit 6C).
At the hearing appellant submitted character references from five
business associates and presented testimony in his favor by his defense
counsel in the criminal trial and his accountant. (Appellant Exhibits 1,
2, 3, 4, and 5; Tr. 13-49). Appellant himself testified as to his
personal and financial injury and his desire to continue participating
in HUD programs. Subsequent to the hearing, appellant's counsel also
submitted a character reference. (Appellant Exhibit 11).
It appears further from the record that Mr. Morgan is a general
partner in MTM Enterprises which is part owner of Cascadian Apartments
in Wenatchee, Washington ("Cascadian"). Cascadian is a multi-family
housing project for the elderly insured under Section 221(d)(3) of the
National Housing Act. The project was begun in 1973 and involved the
conversion of an existing hotel into an 84 unit apartment for the
elderly with a 100 percent rent supplement. Upon completion of the
rehabilitation, management of the complex was assumed by Investment
Resource Company, a corporation wholly owned by Mr. Morgan. Appellant's
interest in Cascadian Apartments, a limited partnership, which is the
entity holding title to the Cascadian project is apparently limited. It
would appear that the partnership is comprised of one limited partner,
L.E.L. Corporation, which is the investor in Cascadian, and three
general partners, Mr. Morgan individually, MTM Enterprises and Security
Pacific, Inc., the syndicator. Morgan testified that under the
partnership arrangement his percentage ownership of the apartment is
approximately two and one half percent. (Tr. 39-47, 84-87). It appears
that although the notice of suspension was addressed to Mr. Morgan in
September 1976, his continued participation in Cascadian Apartments
individually and through MTM Enterprises and Investment Resource Company
has not been interrupted.
At the outset of the hearing, counsel for appellant moved to dismiss
the proceeding and reinstate appellant on the ground that the Department
violated 24 C.F.R. 24.7(b)(2) by failing to grant appellant a timely
hearing. Counsel also moved to dismiss the proceeding on the merits of
the case. Decision on the motions was reserved for this determination.
The grounds raised in appellant's motion to dismiss on the merits,
and thus the motion itself, are addressed within.
The thrust of appellant's motion to dismiss for failure to convene a
hearing promptly is that the six month lapse of time between Morgan's
September 29, 1976, notice of appeal and the Hearing Officer's letter of
April 4, 1977, violates Section 24.7(b)(2) of the regulation, which
provides in pertinent part:
Notice of Hearing. Upon receipt of a request for an opportunity
to be heard, the Hearing Officer shall arrange a prompt and timely
hearing.
A strict reading of the language of the regulation does not support
appellant's contention. The record indicates that a Hearing Officer was
not designated until March 31, 1977, and that a hearing date was set
four days thereafter by the Hearing Officer's letter of April 4, 1977.
The language of the regulation refers to prompt action by the Hearing
Officer, and prompt action was taken.
Even a broader reading of the spirit of the regulation as requiring a
prompt and timely hearing following the notice of appeal would find the
regulation satisfied. Appellant points to the time limits specified for
suspension in the regulation, in particular, the characterization of
suspensions as being for a "temporary period." The time limits
authorized for suspension are 12 to 18 months when a Department of
Justice investigation is involved. While no Department of Justice
investigation was involved here, and while the Department may be perhaps
criticised for not designating a Hearing Officer earlier, six months is
not an unreasonable length of time in view of the normal Departmental
workload in this area.
Moreover, appellant's suspension was based on his conviction of
crimes the essence of which are fraud and falsehood. These two qualities
are the antithesis of responsibility, and Department policy has always
required "that awards may be made only to responsible contractors + +
+." 24 C.F.R. 24.0.
Those portions of the 1976 regulation governing Mr. Morgan's
suspension provide in pertinent part:
Section 24.4 Definitions.
# # #
(b) "Suspension" means a disqualification from participation in
HUD programs for a temporary period of time because a contractor
of grantee is suspected upon adequate evidence of engaging in
criminal, fraudulent, or seriously improper conduct.
# # #
(g) "Contractors or grantees." Individuals and public or
private organizations that are direct recipients of HUD funds or
that receive HUD funds indirectly through non-Federal sources;
all participants, or contractors with participants, in programs
where HUD is the guarantor or insurer; and Federally assisted
construction contractors.
# # #
Section 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(1) Suspected, upon adequate evidence, of
(i) Commission of fraud or a criminal offense as an incident to
obtaining, attempting to obtain, or in the performance of a pulbic
contract;
# # #
Appellant is a "contractor or grantee" within the meaning of Section
24.4(g) of the 1976 regulation and 24.4(f) of the 1977 revision. There
was clearly adequate evidence to warrant suspension of appellant under
Section 24.12(a)(1)(i), supra, because he had been convicted. Cf.,
Bernstein v. Romney, Civil No. 72-C-1643 (E.D. N.Y., filed July 26,
1973). See also, Trap Rock Industries, Inc. v. Kohl, 284 A. 2d 161 (N.
J. 1971). Consequently, appellant was properly suspended by the
Government pursuant to the 1976 regulation and the 1977 revision.
Those portions of the 1977 regulation governing Mr. Morgan's proposed
debarment provide in pertinent part:
Section 24.4 Definitions.
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
# # #
(f) "Contractors or grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources including, but not limited
to + + + real estate agents and brokers + + +. (Emphasis added).
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # #
(b) Conditions + + +. (2) The existence of a cause set forth in
paragraph (a)(1) and (2) of this section shall be established by
criminal conviction by a court of competent jurisdiction at the
discretion of the appropriate official.
# # #
Appellant was convicted of crimes the essence of which are fraud,
falsification and scheme or trick. As noted, section 24.0 of the
regulation provides that as a matter of Department policy contracts may
be awarded only to "responsible contractors."
The Department's policy is intended to protect the public interest by
insuring the proper expenditure of public funds. The Comptroller General
has defined the word "responsible" as a term of art applicable to
Government contractors in the following manner:
+ + + the word "responsible" imports something more than
pecuniary ability, and in the selection of the lowest responsible
bidder, public officers are required to consider not only the
financial resources of the bidder, but also his integrity (and)
fitness + + +. 34 Comp. Gen. 86 (1950). (Emphasis added).
The crimes of which appellant was convicted strongly evidence a lack
of integrity. The Hearing Officer cannot question the conclusiveness of
the jury's finding. The convictions evidence a lack of responsibilty on
the part of appellant. Were it not for the mitigating factors present in
this case, a five year period of debarment would be warranted. In light
of the terms of the regulation and the record in this matter, the
imposition of some period of debarment is in the public interest.
In mitigation of appellant's convictions, counsel argues that others
involved in the transaction with Morgan were more culpable and that
Morgan himself was young and inexperienced at the time. Relative
culpability is not a mitigating circumstance because the question
presented is what period of debarment, if any, is necessary to protect
the public from a contractor found to be not responsible. At the time
the events occurred, Mr. Morgan was approximately 30 years of age and
could hardly be viewed as young and inexperienced. Moreover, the
surreptitious method of paying appellant's brokerage fee undercuts any
claim to relative innocence.
Appellant argues more persuasively that the transaction leading to
his conviction occurred nearly six years ago and that his record is
otherwise unblemished. In support of this argument, appellant points to
the Court's comments at the time of sentencing. The Court noted Mr.
Morgan's "clean background" and did not impose either a term of
confinement or a period of probation. However, the Court did impose the
substantial sum of $5,000 in fines. Mr. Morgan's defense counsel noted
that the total absence of any probationary period from the sentence was
unusual. Appellant also points to his development of the Cascadian
Apartments and the continuing success of that project. Appellant offered
evidence of the quality of his work in Departmental programs, and
concluded that the project and other efforts evidence his capabilities
and value to Departmental programs. Additionally, letters from business
associates and potential competitors attest to appellant's good
reputation in the community over the last ten years.
In determining an appropriate period of debarment, it is noted that
the Government did not request any particular period, and that
apparently the Regional Office continued to permit appellant's limited
partnership and wholly owned corporation to continue ownership and
management, respectively, of the Cascadian Apartments. It is also noted
that there has been no showing of financial loss to the public treasury
flowing from the transaction in question.
Should appellant continue in his present course of conduct, he would
demonstrate the level of integrity required of a responsible Government
contractor sufficiently to protect the public interest in HUD's
expenditure of public funds. In view of the entire record in this
matter, a one year period is determined sufficient to make such a
showing. That period takes into consideration the 13-1/2 months that
have elapsed since appellant was first suspended from doing business
with this Department.
MTM Enterprises, in which appellant is a general partner is a
contractor within the meaning of section 24.4(f). In addition,
Investment Resource Company is an affiliate of MTM Enterprises within
the meaning of section 24.4(d). In view of Morgan's close identification
with and ability to exercise control over the affairs of both entities,
a like period of debarment for both organizations is in the best
interest of the Government.
Upon consideration of the best interests of the Government and the
entire record in this matter, it is hereby determined that appellant,
Marvel Tyrone Morgan, should be debarred for a period of one year
commencing November 4, 1977, and ending November 3, 1978.
It is further determined that Mr. Morgan's affiliates, MTM
Enterprises and Investment Resource Company, shall be debarred for a
like period of time, provided that, if the Assistant Secretary for
Housing - Federal Housing Commissioner determines in writing on or
before December 4, 1977, that the continued participation of MTM
Enterprises and Investment Resource Company in the ownership and
management of the Cascadian Apartments in Wenatchee, Washington, is in
the best interest of the Government, this determination shall not apply
to that project.
77-475-DB
In the Matter of: ROCCO FLAMMIA
July 14, 1977
770714
James W. Mast
On February 23, 1977, Joseph Burstein, Acting Deputy Assistant
Secretary, Department of Housing and Urban Development, herein the
Department, served Rocco Flammia, herein Respondent, with written notice
of suspension pursuant to Part 24 of the Department's Rules and
Regulations, herein the Rules, because of his indictment by the Grand
Jury of the United States District Court for the District of New Jersey
on violation of Title 18 United States Code, Sections 201(b), 1010, and
2. On March 3, 1977, Respondent requested a hearing on the suspension.
On March 31, 1977, the undersigned was designated as Hearing Officer in
the case. On April 8, 1977, the hearing was set for May 26, 1977.
Thereafter, the Department and Respondent agreed to consolidate the
suspension hearing and the debarment appeal based on Respondent's plea
of guilty to the third count of the indictment. Accordingly, on May 19,
1977, the hearing was cancelled and the parties were directed to submit
documents, statements, and arguments for consideration. On June 2, 1977,
by agreement of the parties, the time for submittal of documentary
evidence and written briefs was extended to June 17, 1977, to allow time
for the parties to concur on a settlement. However, documentary evidence
and written briefs were submitted by the Respondent and the Department.
Thereafter, formal written notice of intent to debar was sent by the
Department to the Respondent.
Upon the entire record, I make the following:
Rocco Flammia is engaged in the business of rehabilitating real
estate as a contractor. His rehabilitation contracts are with the
Department. Respondent was issued mortgage insurance by the Department
for the purchase of a dwelling purportedly to be occupied by the
mortgagor as authorized by Section 221(d)(2) of the National Housing
Act.
An indictment of three counts alleging violations of Title 18
Sections 201(b), 1010, and 2 of the United States Code was returned
against Respondent in Case Number CR-76-541 by the Grand Jury of the
United States District Court for the District of New Jersey. On March
28, 1977, Respondent entered a plea of guilty to Count three of the
indictment. The other two counts were dismissed. On May 31, 1977, the
court suspended sentence on Count three and placed Respondent on
probation for two years. The third count of the indictment and the
conviction were based on false statements made by Respondent in an
application to finance the purchase of a four-family residential
building in Newark, New Jersey with a mortgage insured by the
Department. Respondent knowingly and willfully certified that he would
reside in the dwelling, when, in fact, he did not intend to live in the
house. The building was purchased under a Department program to provide
insurance on property purchased for the personal residence of the
purchaser. The misstatements constituted fraudulent falsifications to
obtain Departmental action since the Secretary was precluded by the
statute from insuring rental or investment property mortgages. Upon the
subsequent default by Respondent the Secretary was responsible on the
mortgage loan. The alleged loss to the Department was $23,150, the
difference between the unpaid principal balance of the mortgage at the
time of foreclosure ($29,300) and the amount received by the Government
at the sale of the dwelling ($6,150). The amount of the loss was not
fully litigated.
In his defense, Respondent noted that while the first two counts of
the indictment pertained to Respondent's business dealings with the
Department, the third count pertained to a personal commercial
transaction with the Department. He further noted that the criminal
conviction was "technical" in nature. Respondent maintained that he
fully and competently carried out his contracts in the Department
programs in which he participated, and he never received any complaints
on his work. He indicated that the source of his income over the last
three years was almost entirely from his participation in the Department
programs. Since his suspension, he was forced to collect unemployment
compensation for the first time in his life. Furthermore, Respondent is
married and has three children; he lives with his family in an
apartment having lost his home in a 1973 bankruptcy proceeding.
Respondent, in his business, is a contractor within the meaning of
the Rules, 24 C.F.R. 24.4(f) as the direct recipient of funds from the
Department for work performed on Department contracts. Respondent was
also a grantee within the meaning of 24 C.F.R. 24.4(f) as the recipient
of funds from the Department indirectly through non-Federal sources, the
mortgagees, and as the participant in a program where the Department is
the guarantor. Upon his conviction, the basic requirements for debarment
were established.
The Department seeks a three-year debarment. Respondent submits that
in lieu of debarment he should be reinstated conditionally and allowed
to make restitution for any loss to the Department over a reasonable
period of time.
It would be inappropriate not to debar Respondent in view of his
conviction of a crime involving a commercial transaction with the
Department. Respondent made false statements to the Department for the
purpose of influencing the action of the Department. The false
statements apparently resulted in a loss to the Government. The offense,
a fraudulent act, although not directly related to his business as a
contractor of the Department is such that it raises a substantial
question as to his reliability as a contractor. This offense is
particularly serious because the Department must rely on the
responsibility of contractors and grantees to be sure that Government
funds will be properly utilized. In mitigation, no evidence of previous
wrong doing in Respondent's other transactions as a contractor with the
Department was presented. It is apparent that debarment will result in
financial hardship to Respondent and his family. Furthermore, the
District Court Judge suspended the Respondent's sentence and placed
Respondent on two years probation. Debarment is not for punitive
purposes, but should only extend until the Department's confidence is
restored in the responsibility of the contractor or grantee. Under these
circumstances, Respondent will be debarred for a period of three years
beginning February 23, 1977, the date of the original suspension notice
and terminating February 22, 1980.
The debarment letter makes no reference to seeking reimbursement for
losses to the Department. Since the Department did not seek
reimbursement for these alleged losses and since the issue was not
litigated, it is inappropriate to require reimbursement as a remedy in
this case. Further, it is questionable whether the Rules as presently
constituted contemplate litigation of this issue in a debarment case.
1. Rocco Flammia is a contractor within the meaning of the
Department's Rules, Part 24, Section 24.4(f).
2. At the time of his conduct alleged as the ground for debarment,
Rocco Flammia was a grantee within the meaning of the Department's
Rules, Part 24, Section 24.4(f).
3. By Rocco Flammia's conduct resulting in his conviction of
violating Title 18, Sections 1010 and 2, United States Code, Respondent
violated Department's Rules, Part 24, Sections 24.6(a)(6) and (a)(9).
On the entire record, it is ordered that Rocco Flammia is debarred
from participation in Department of Housing and Urban Development
programs for a period of three years beginning February 23, 1977 and
terminating February 22, 1980. During the period above, no Department
funds shall be expended for financial assistance to Rocco Flammia or to
any concerns, corporations, partnerships, or associations in which he
has a substantial interest. Bids and proposals shall not be solicited
therefrom, and subcontracts will not be approved unless it is determined
to be in the best interests of the Government.
77-474-DB
In the Matter of: LARRY ROEHR
July 25, 1977
770725
James W. Mast
On April 2, 1976, Michael T. Savage for David S. Cook, the Department
of Housing and Urban Development, herein the Department, served
Respondent with a letter of suspension pursuant to Department Rules and
Regulations 24 C.F.R. 24.5, herein Rules, because of his indictment by
the Grand Jury for the United States District Court for the District of
Kansas on charges of violation of 18 U.S.C. 1010. On February 23, 1977,
Joseph Burstein, Acting Deputy Assistant Secretary, the Department,
served Respondent with a letter of intent to debar pursuant to the
Rules, Part 24, because of Respondent's plea of guilty in the United
States District Court for the District of Kansas of violation of 18
U.S.C. 1012. On March 4, 1977, the undersigned was designated as Hearing
Officer in the case. On April 8, 1977, the parties were requested to
state their positions by the close of business May 6, 1977. On May 5,
1977, Respondent submitted a written statement. On May 6, 1977, the
hearing was set for May 25, 1977. Thereafter, the parties entered a
stipulation to present the case by written documents and briefs, and to
waive an oral hearing. On May 25, 1977, the hearing was cancelled. On
June 17, 1977, General Counsel, the Department, herein Counsel,
submitted documentary evidence and a written brief. Respondent did not
submit anything further.
Upon the entire record, I make the following:
Larry Roehr is president of Roehr Construction Company, a general
contractor for housing construction projects. Several of the housing
construction projects were insured by the Department under the authority
of 221(d)(4) of the National Housing Act. One such project was the
Summit East Plaza, FHA Project No. 084-35064-PM, Lee's Summit, Missouri.
An indictment of one count alleging violation of 18 U.S.C. 1010 was
returned against Larry Roehr in Case No. 76-20-CR2 by the Grand Jury of
the United States District Court for the District of Kansas. The
indictment charged that Larry Roehr willfully and knowingly submitted to
the Department a supplement to the cost certification submitted for FHA
Project No. 084-35064-PM, Summit East Plaza, which supplement was false
in that payments to Keller Building Products, Aero Drapery Company, L.
D. Brinkman & Co., Helt Sod Company, and Parkville Sod Company were not
made in the amounts set forth in the supplement and for FHA Project No.
084-35064-PM, Summit East Apartments. On June 21, 1976, Respondent
entered a plea of guilty to a one count information and was convicted as
charged of the offense of false statements in violation of 18 U.S.C.
1012. There is no evidence as to the particulars of the offense; the
information was not submitted in evidence. However, 18 U.S.C. 1012
states, in pertinent part, "Whoever, with intent to defraud, + + + makes
any false report or statement to + + + such Department (of Housing and
Urban Development) + + + (s)hall be fined not more than $1,000 or
imprisoned not more than one year, or both."1/ On June 22, 1976, the
court fined the Respondent $1,000, suspended the sentence, and placed
him on one year's supervised probation.
Although not entirely clear in view of the failure to introduce the
information, it appears that the conviction of Respondent was a result
of his submitting a supplemental cost certification for Summit East
Plaza which contained false statements. The false statements were
submitted to influence the action of the Department. Had the Department
not discovered Respondent's false statement, Counsel contends that Roehr
Construction Co. would have received $11,377 in additional mortgage
proceeds to which it was not entitled.
To support the position of the Department, Counsel submitted a copy
of the report of the Regional Inspector General for Audit, the
Department, dated May 20, 1974 which contained findings as to false
statements in the supplemental cost certification submitted by
Respondent. These findings were incorporated in full in the report of
the Regional Inspector for Investigation dated May 2, 1975. The findings
are as follows:
A. Keller Building Products - $3,943 + + +.
The supplemental certification included a charge of $3,943 for
windows. The payee was shown as Keller Building Products.
Support for this charge at Roehr Construction Company was a
copy of an invoice from Keller Building Projects which states,
"Replacement of Screens and Windows $3,942.80" + + +.
We showed a copy of the invoice to the sales manager and
bookkeeper at Keller Building Products. The bookkeeper, who said
she prepares all billings, stated she didn't prepare this invoice.
Both the bookkeeper and sales manager said the invoice wasn't
prepared by anyone at Keller Building Products.
Keller uses a peg board one-write billing system that records
in summary the amount of each invoice billed to each customer. We
reviewed the Roehr - Summit East ledger sheet and did not find an
amount equal to the $3,942.80 invoice + + +.
B. Aero Drapery Company - $1,174 + + +.
The supplemental certification included an expense of $1,174
for blinds and shades, and artwork. Aero Drapery Company was shown
as the payee.
As support for the charge, Roehr Construction provided us with
a copy of an invoice from Aero Drapery. The invoice, dated
November 2, 1973, showed Order No. 71-2856, shipped to Summit East
Plaza, for draperies and rods at a cost of $1,173.74 + + +.
We visited Aero Drapery Company and reviewed their copy of the
invoice for Order No. 71-2856 + + +. Aero's invoice was dated
August 21, 1971, showed the order was shipped to North Winn
Apartments, and was for draperies and rods at a cost of $2,525.10.
Aero Drapery did have an invoice charged to Roehr Construction for
1,173.74 but the order number was 71-3718, the invoice was dated
October 26, 1971 and the invoice showed the order shipped to North
Winn Apartments + + +.
We discussed the differences in the invoices with the general
manager and bookkeeper at Aero Drapery but they couldn't explain
the differences. They said their records were correct because they
reflected correct payments.
C. L. D. Brinkman & Co. - $1,788 + + +.
Included as a carpet item on the supplemental certification was
a charge for $1,788. The payee was shown as L.D. Brinkman & Co.
Roehr Construction, Inc. provided copies of two invoices from
Brinkmans as support for this charge. Invoice No. 09767, dated
September 5, 1973 + + + was for $1,277.29 and Invoice No. 09766,
dated September 5, 1973, + + + for $510.78. Both invoices showed
shipment to Summit East.
We visited the L.D. Brinkman Company and reviewed their copies
of Invoice Nos. 09767 + + + and 09766 + + +. Both invoices showed
they were for 'Knight's Bridge Project' + + +.
D. Parkville Sod Co. - $3,117 + + +.
The supplemental cost certification included a charge of $3,117
for lawns and planting. Parkville Sod Co. was shown as the payee.
Roehr Construction, Inc. provided us with a copy of an invoice
from Parkville Sod Company for $3,116.98 + + +. The invoice stated
the sodding was for Summit East.
We visited the Parkville Sod Company and, though they had a
copy of lien waiver and evidence of payment from Roehr
Construction in the amount of the invoice + + + they didn't have
any evidence of where the work was performed. We were told by the
owner's son that, whenever they had a payment but no record of the
job, it usually meant they had subcontracted the job. The owner's
son said he didn't have any recollection of work at Summit East +
+ +.
We contacted the subcontractor and he signed a confirmation
statement that he had not performed any work at Summit East + + +.
F. Helt Sod Co. - $1,200
Included on the supplemental cost certification was a $1,200
item for lawns and plantings. The payee was shown at Helt Sod Co.
Support for the change was a cancelled check and a contract + +
+. We recommend disallowance because of inadequate supporting
documentation. The real reason for recommending disallowance was
that the contract had obviously been altered and we had no proof
the expense was applicable to Summit East. We were not able to
contact anyone from Helt Sod Co + + +."
There has been no litigation of the amount of loss which the Department
may have suffered if the Department had not discovered the false
statements underlying the Respondent's conviction.
In his defense, Respondent submitted that his action was one of
failure to exercise good judgment rather than one of willfully
contriving to commit fraud. He stated that the cost certifications for
the other Department projects contracted by Roehr Construction Company
were under the cost budget allocated by the Department. Although the
Department had challenged the profits due to the subcontractor on three
projects, Respondent alleges that the Department later found them to be
within the guidelines.
In this case, Respondent was surprised to be notified that the letter
of credit that had been placed for the assurance of completion of Summit
East Plaza was going to be called cost overrun. He then stated:
I ordered my people to reevaluate and research the situation,
and the supplement containing the invoice + + + was produced.
During the period of time the new audit was being made for the
supplement, interest rates were skyrocketing, the economy was
beginning to get shakey, and my emotional attitude was at one of
its lowest points; getting the old business and old projects that
had been under construction closed and behind us, and further
reducing overhead was my paramount goal. Therefore, when the
supplement was brought to me and I suspected that some of the
invoices may not have been related to the Summit East project, my
desire to get the project closed and get the matter behind us
overcame my better judgment and I allowed the supplement to go
out. I, frankly, had hoped HUD would just simply disallow the
costs and that would end the matter + + +."
Larry Roehr, as president of the Roehr Construction Company, is a
contractor within the meaning of the Rules, 24 C.F.R. 24.4(f) because he
is the agent of the indirect recipient of the Department's funds. Upon
his conviction of a crime involving his business with the Department,
the requirements for debarment were established.
It would be inappropriate not to debar Respondent in view of his
conviction of a crime involving his business with the Department.
Respondent willfully and knowingly submitted false statements to the
Department to influence the action of the Department. Had the Department
not discovered the false statements, the Department might have suffered
a substantial loss. Counsel seeks a three-year period of debarment.
In mitigation, Respondent contends that his actions resulted from the
failure to exercise good judgment in his attempt to quickly close the
Summit East Plaza project and wind down the business of Roehr
Construction Company. There is no evidence of previous wrongdoing in
Respondent's other transactions with the Department, other than the
challenge to the subcontractor's profits which allegedly has been
resolved. Furthermore, the District Court fined Respondent $1,000, but
suspended the sentence and placed Respondent on supervised probation.
The circumstances of the offense for which Respondent was convicted
are particularly important. These show that, in a pressurized business
atsmosphere, Respondent acted irresponsibly and fraudulently by
willfully and knowingly submitting false statements to the Department.
Nevertheless, the Department must be able to rely on its contractors to
properly utilize the Department funds at all times. It is appropriate
that Respondent be debarred from participation in the Department's
programs for a period of two years beginning April 2, 1976 and
terminating April 1, 1978.
1. Larry Roehr is a contractor within the meaning of the Rules, 24
C.F.R. 24.4 (f).
2. By Larry Roehr's conduct resulting in his conviction of violating
18 U.S.C. 1012, Respondent violated the Rules, 24 C.F.R. 24.6(a)(6) and
(a)(9).
On the entire record, it is ordered that Larry Roehr is debarred from
participation in the Department of Housing and Urban Development
programs for a period of two years beginning April 2, 1976 and
terminating April 1, 1978. During that period, no Department funds shall
be expended for financial assistance to Larry Roehr or to any concerns,
corporations, partnerships, or associations in which he has a
substantial interest. Bids and proposals shall not be solicited
therefrom, and subcontracts will not be approved unless it is determined
to be in the best interests of the Government.
U.S.C. 1010 is a fine not more than $5,000 or imprisonment not more than
two years, or both. The Respondent pled guilty to a lesser offense than
was charged in the indictment.
77-467-DB 77-466-DB 77-470-DB
In the Matter of: JUNIOR PERKINS In the Matter of: RAYMOND L. TATE,
JR. In the Matter of: THOMAS EUGENE MARTIN
April 11, 1977 June 2, 1978 July 22, 1977
770411 780602 770722
Michael F. Burke Jean S. Cooper B. Paul Cotter, Jr.
This matter having been presented on the record, I, Michael
F. Burke, as duly-appointed Hearing Officer, upon consideration of the
By letter dated September 15, 1976, The Assistant Secretary for
record in its entirety, issue this Initial Determination containing
By letter dated January 14, 1977, the Assistant Secretary for Housing
notified Appellant that he was suspended from participation in the
following order with my Findings and Conclusions attached and made
Housing suspended appellant, Raymond L. Tate, Jr., from participation in
HUD Programs. The suspension was based on an indictment returned a part
hereof, pursuant to the authority delegated to Hearing Officers all HUD
programs pending resolution of an indictment issued against him in
October 1976 for violation of 18 U.S.C. 1010, 1001 and 2(b). of the
Department of Housing and Urban Development under 24 in the United
States District Court for the Northern District of Georgia charging
appellant with conspiracy and certain substantive C.F.R. 24.10(b)(3) and
24.15(a)(5). (Appellant Exhibit A). On January 11, 1977, Appellant was
convicted and sentenced to two years imprisonment, of which he was
required to
As provided in Section 24.10(b)(3), this Initial Determination is
acts in violation of 18 U.S.C. 2, 371, 1001 (1970). (Government Exhibits
1 and 2). The suspension was imposed pursuant to the final unless
reversed or modified within thirty (30) days by the serve 45 days. In
addition, Appellant was fined $3,000.00 and placed on probation for
three years. (Government Exhibit 1). By letter Assistant Secretary for
Housing - Federal Housing Commissioner. Department's regulation
governing debarment, suspension and ineligibility of contractors and
grantees, 24 C.F.R. Part 24, 42 Notice of Final Determination, which is
conclusive, will be given in dated January 28, 1977, Appellant requested
an opportunity to be heard on the Departmental suspension.1/ writing and
transmitted by registered mail by the Assistant Secretary. Fed. Reg.
5304 (1977) ("the regulation"). Mr. Tate (or "appellant") timely
petitioned for a hearing. (Appellant Exhibit 1).
IT IS ORDERED THAT:
Junior Perkins be debarred from particiation in programs of the
The indictment charged appellant in 74 counts. Count one charged
appellant and the other named defendants with conspiracy to defraud
Department of Housing and Urban Development for the period of December
16, 1976 through June 17, 1977. the United States by submitting false
statements to the Departments of
Conviction for commission of criminal offense as an incident to
obtaining or attempting to obtain a public or private contract is a
Housing and Urban Development ("HUD") and the Veterans Administration
By letter dated December 22, 1976, Mr. Junior Perkins of to obtain
mortgages insured or guaranteed by those agencies. Mr. Tate cause for
debarment. 24 C.F.R. 24.6(a)(1). Although Appellant was convicted before
the letter of suspension was issued, the Department was a loan officer
at Baker Mortgage Company at the time of the Indianapolis, Indiana
(hereinafter referred to as the Appellant) was advised by the then
Acting Assistant Secretary for Housing that the conspiracy which began
on or about September, 1974 and continued until failed to
administratively convert this action to a proposed debarment. By Order
dated December 21, 1977, all parties were on or about April, 1975. The
remaining 73 counts charged Mr. Tate Department was in receipt of
information indicating irregularities of a serious nature in the conduct
of his business dealings with the with violations of 18 U.S.C. Sections
2 and 1001 in submitting or notified by the Administrative Judge that
consideration would be given to debarment in accordance with 24 C.F.R.
24.6 and 24.14(a). causing to be submitted false credit reports, false
verification of Government. The information to which the Government
referred indicated that in open court at the trial of Mr. Jack Griffin,
a deposit forms, and false verification of employment forms to HUD and
Thereafter, written briefs were filed on behalf of the Government and
Appellant in accordance with the Departmental regulation that limits the
Veterans Administration. At least 20 applications for mortgage former
Area Management Broker for the Department, that Appellant admitted
giving bribes to Mr. Griffin in return for being awarded insurance loans
were involved. an Appellant's right to be heard on a proposed debarment
to written submissions in a case of conviction for commission of a
criminal
On January 31, 1977, Mr. Tate pled quilty to Counts Eight, Nine,
contracts for the repair of HUD acquired properties. Appellant was
advised that because of the serious nature of the alleged offense, the
and Ten of the indictment and was convicted of the offense of: offense.
24 C.F.R. 24.5(c)(2).
As a threshold issue, Appellant has challenged the applicability of
Knowingly and willfully making, using, and causing to be made
Department was considering the debarment of Appellant in accordance with
HUD Regulation, 24 C.F.R. 24.9(a)(4). In addition, in that
and used, false, fictitious and fraudulent statements and
24 C.F.R. 24.5(c)(2), which limits a debarment action in a conviction
case to written submissions. On its face, the Regulation does not
representations to an agency of the United States in violation
letter, Appellant was notified of his right to a hearing prior to any
proposed determination of debarment, in accordance with 24
of Sections 1001 and 2, Title 18 United States Code.
give discretion to the Hearing Officer to remove this limitation and
hold an oral hearing. See, 24 C.F.R. 24.5(c)(2). Furthermore,
(Government Exhibit 4).
C.F.R. 24.10.
By letter dated January 5, 1977, Appellant, through his attorney,
Mr. Tate was sentenced to three years imprisonment on Count Eight
Appellant has set forth in his brief all of the circumstances
surrounding his conviction which he believes are mitigating factors and
three years each on Counts Nine and Ten, all to be served requested a
hearing. Pursuant to this request, a hearing was tentatively scheduled
for March 30, 1977 in Indianapolis, Indiana. concurrently. (Government
Exhibit 4). Mr. Tate's sentence was applicable to his proposed
debarment. Therefore, written submissions have not so limited
Appellant's presentation that he is denied due subsequently reduced to
two years (Appellant Exhibit 4). Prior to that date, on March 21, 1977,
attorney for Appellant notified the undersigned that he withdrew the
request for a hearing in this
Thereafter, on March 31, 1977, the Department notified Mr. Tate of
process. I find that I am bound by the limitations set forth in the
Regulation and, in any event, do not find that Appellant will be matter.
This request was based upon an agreement entered into with its intention
to debar him. (Government Exhibit 3). Mr. Tate timely appealed from that
notice and requested a hearing by letter dated the Government.
Subsequently, by letter dated March 29, 1977, denied his due process
rights by application of the regulatory provision in question. April 8,
1977. Pursuant to 24 C.F.R. 24.5(f) of the regulation, the Government
Counsel advised the Hearing Officer that based upon Appellant's
agreement with the Department the period of debarment of Secretary
appointed the undersigned to hear the appeal by memorandum
Appellant is a licensed real estate agent and broker in the State of
California and from 1974 until February 14, 1977, he was president dated
May 17, 1977. Evidence in the form of copies of the indictment,
Appellant should be for six month period. the judgment and commitment
order and other information, as well as
of American Marketing and Development Corporation, Sacramento,
California. Appellant's familiarity with VA and FHA requirements is 24
C.F.R. 24.4(g) defines: position statements were submitted for the
record by the parties.
Mr. Tate submitted a biographical sketch showing that he had
Contractors or grantees. Individuals and public or private
to be assumed from the fact that almost all of the thousands of homes he
has sold during his career have been obtained with loans insured or
organizations that are direct recipients of HUD funds or that
attended Bronx Community College for two years and then served in the
United States Air Force as a medical specialist from 1966 to 1968. He
receive HUD funds indirectly through non-Federal sources all
guaranteed by the Government. (Appellant's Brief, at 3.).
On May 10, 1974, Appellant entered into a contract to purchase a
participants, or contractors with participants, in programs
received an honorable discharge. Mr. Tate moved to Atlanta, Georgia, in
1971. He has been a mortgage loan officer since 1972, working for
where HUD is the guarantor or insurer; and Federally assisted
house located at 9018 Drury Court, Sacramento, California (Appellant
Exhibit D), and applied through Mason-McDuffie Investment Company for
construction contractors
four mortgage companies in the Atlanta area from that time until
October, 1976. (Appellant Exhibit 4). Appellant, as a subcontractor to
an Area Management Broker was a an FHA-insured loan at the rate of 96.8%
of the purchase price. At the time of his application for the FHA loan,
Appellant stated that he "contractor" within the meaning of the
above-definition, and therefore
Mr. Tate states that his primary motive in committing the offenses
charged "was helping a few families obtain homes, which in my opinion,
the proposed debarment action was properly initiated under 24 intended
to occupy the house himself. The record indicates that in all
probability Appellant was sincere in his belief at the time he C.F.R.
24. were good candidates, but did not meet FHA's credit requirements."
He asserts he "was driven by a sincere feeling to help those people not
The parties have entered an agreement whereby in view of the
originally made the statement.2/ However, by the time Appellant went to
settlement on purchase of the house he was aware that his plans had
Appellant's cooperation in the prosecution of the Area Management to
monetarially (sic) gain from them." He states that his motive did not
excuse what he did, and he admits that he violated the law. Broker, who
received the bribe, Jack Griffin, the Government has changed and he
would not be occupying the property. He did not reveal his change of
intent to FHA and further compounded the fraud by moving agreed to a six
month period of debarment. (Appellant Exhibit 3).
As further evidence of his sincerity, Mr. Tate describes his
Since the purpose of C.F.R. 24 is to protect the public and not to a
cot into the property to give the appearance of occupancy. He rented the
property to James and Judy Wunsch in October 1974 and on be invoked for
punitive purposes, the Government's recommendation efforts in varius
community projects in the Atlanta area. He has been active in the
Atlanta and Riverbend chapters of the United States concerning the terms
of the period of debarment is accepted. January 26, 1976, he sold the
property to the Wunsches. Between the time Appellant bought and sold the
property, he never spent one night
Jaycees, and he has joined the Jaycee chapter in the federal prison camp
in Montgomery, Alabama, where he is incarcerated. He is a new
Accordingly, it is the Initial Determination of the Hearing Officer
in it. Furthermore, in his dealings with James Wunsch during the rental
period, he kept emphasizing the need for Wunsch to make it that
Appellant be debarred for a six-month period. The term of the editor for
a newspaper there, and he works in the education department and
maintains the library. He states that he has received an debarment shall
be from December 16, 1976 through June 17, 1977. appear that Appellant
lived on the premises in order to protect his FHA loan. (Government
Exhibit 2; Sworn Statement of James Wunsch, at excellent progress
report and that the institution recommends parole when he meets with the
parole board in July. 5.).
The HUD regulation governing appellant's suspension and debarment, 24
C.F.R. Part 24, 42 Fed. Reg. 5304 (1977), provides in pertinent part:
Section 24.4 Definitions.
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +.
(b) "Suspension" means a disqualification from participation
The purpose of debarment is to assure the Government that "awards
in HUD programs for a temporary period of time because a
contractor or grantee is suspected upon adequate evidence of
be made only to responsible contractors + + +." and "shall be used for
the purpose of protecting the public and + + + not for punitive
engaging in criminal, fraudulent, or seriously improper conduct.
# # #
purposes." 24 C.F.R. 24.0, 24.5(a).
"Responsibility" is a term of art in Government contract law and
(f) "Contractors or grantees." Individuals, state and local
governments and public or private organizations that are direct
the Comptroller General has defined it as follows:
"Responsible" imports something more than pecuniary ability,
recipients of HUD funds or that receive HUD funds indirectly
through non-Federal sources including, but not limited to, and + +
+ public officers are required to consider not only the financial
resources of the bidder, but also his integrity + + + borrowers,
builders, mortgagees, real estate agents and brokers, area
management brokers, management and marketing agents, or (Citations
omitted). 34 Comp. Gen. 86 (1954).
Responsiblity therefore concerns a contractor's integrity as much as
those in a business relationship with such recipients including,
but not limited to, consultants, architects, engineers and
his ability to complete performance on a contract, as such. 39 Comp.
Gen. 468 (1959), 49 Comp. Gen. 139 (1969). The concept of
attorneys; all participants, or contractors with participants, in
programs where HUD is the guarantor or insurer; and Federally
responsibility and integrity is as relevant to the Government's business
relationship with a real estate broker in a debarment context
assisted contruction contractors.
# # #
as it is in a pure contract setting. Appellant's difficulties apparently
stemmed from his unwillingness to deal honestly with FHA
when his plans for occupancy of the Drury Court property changed. What
he should have done was inform FHA of the change and apply for
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
the slightly lower FHA loan available for a rental property. Rather,
Appellant chose to use his expertise in the real estate business to
following causes:
(a) Causes. (1) Conviction for commission of a criminal
create an elaborate fraud to preserve the higher loan amount. Not only
did Appellant show an egregious lack of responsibility and
offense as an incident to obtaining or attempting to obtain a
public or private contract, or subcontract thereunder, or in the
integrity in creating this scheme, but he cost the Government the
difference between the lower and higher loan rate it was induced to
performance of such contract or subcontract.
# # #
give Appellant by this masquerade.
The issue is whether Appellant possesses enough honesty and
(b) Conditions + + +. (2) The existence of a cause set forth in
paragraph (a)(1) and (2) of this section shall be
integrity to participate in Government programs at public expense.
Debarment is not a penalty but a way for the Government to insure that
established by criminal conviction by a court of competent
jurisdiction at the discretion of the appropriate official.
it effectively executes its statutory obligations. L. P. Steuart & Bros.
Inc., v. Bowles, 322 U.S. 398 (1944); Copper Plumbing & Heating
# # #
Co. v. Campbell, 290 F.2d 368 (D.C. Cir. 1961); Gonzalez v. Freeman,
334 F.2d 570 (D.C. Cir. 1964). The test for debarment is present
contractors or grantees may be suspended.
(a) The Assistant Secretaries may, in the interest of the
responsibility but prior performance failures may be grounds for a
present finding of nonresponsibility. Schlesinger v. Gates, 249 F.2d
Government, suspend a contractor or grantee:
(1) Suspected, upon adequate evidence, of
111 (D.C. Cir. 1957), 37 Comp. Gen. 756 (1958). Certainly, in the
instant case where there has been a guilty plea and conviction,
(i) commission of fraud or a criminal offense as an incident to
obtaining, attempting to obtain a public contract, or in the
whatever the circumstances of that plea may have been, there are
automatic and present grounds for debarment. 24 C.F.R. 24.6(a)(1) and
performance of Government business or contractual dealings.
# # #
(b)(2). That regulation provides that the Department may debar a
contractor or grantee in the public interest for
(c) An outstanding indictment of a contractor or grantee, or
the naming of a contractor or grantee as an unindicated
+ + + (1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting to obtain a public or
co-conspirator is adequate evidence of suspected criminal conduct
and may be the basis for imposition of a suspension. private
contract + + +. 24 C.F.R. 24.6(a)(1).
Proof of such cause is established by the criminal conviction. 24
Conviction of a contractor or grantee is adequate evidence to
warrant imposition of a suspension pending debarment.
C.F.R. 24.6(b)(2).
Furthermore, Appellant has also made a "+ + + false statement for
# # #
the purpose of influencing + + + the action of the Department," 24 C.F.
R. 24.6(a)(6), and has violated the law and "+ + + procedure
Appellant is a "contractor or grantee" within the meaning of relating
to the application for financial assistance, insurance or guarantee + +
+ ." 24 C.F.R. 24.6(a)(5). Section 24.4(f) of a regulation, 42 Fed. Reg.
5305 (1977). There was clearly adequate evidence to warrant suspension
of appellant under
Almost no mitigating factors have been set forth by Appellant other
than the fact that he was given a relatively harsh sentence by the
Section 24.12(a), supra, in that an indictment had been returned against
him, 24 C.F.R. 24.13(c), 42 Fed. Reg. 5308 (1977), and see, criminal
trial judge who accepted his plea. Despite the many letters attesting to
Appellant's apparently good record in the industry, Bernstein v. Romney,
Civil No. 72-C-1643 (E.D. N.Y., filed July 26, 1973). See also, Trap
Rock Industries, Inc. v. Kohl, 284 A, 2d 161 nowhere is any
understanding shown of the seriousness of Appellant's action. I find
that the Government has met its burden of proof to (N.J. 1971).
Consequently, appellant was properly suspended by the Government
pursuant to the regulation. show cause for debarment and I further find
that the criminal sentence is irrelevant to the present consideration
before me of the
Subsections 24.6(a)(1) and (b)(2) of the regulation pertaining to
Government's future business risk in doing business with Appellant.
Appellant has been suspended since January 14, 1977, a period of
debarment make appellant's conviction cause for debarment per se. In
light of the terms of the regulation and the record in this matter,
nearly eighteen months. I find that an appropriate period of debarment
in light of the extended duration of suspension is eighteen the
imposition of some period of debarment is in the public interest.
Under these circumstances the Government urges that appellant months.
should be debarred for a period of five years. The Government argues
that the guilty plea is an admission of participation in an illegal
Upon consideration of the entire record in this matter and the best
interests of the Government and the public, Thomas Eugene Martin shall
scheme; that argument is not contested. The Government represents
further that the Department has already suffered losses as a result of
be debarred from participation in HUD programs up to and including
December 2, 1979. appellant's schemes and that additional losses are
anticipated in the future.
The Government states that the purpose of the regulation is to permit
the Department:
+ + + to protect itself from these assaults against public
interest by debarring those whose involvement in the Department's
programs would be detrimental to the public interest. (Government
Exhibit 3, p.2.)
The Government asserts that appellant has demonstrated a lack of
responsiblity and honesty and advocates imposition of the maximum period
of debarment specified in the regulation.
The public interest to be protected here is insuring the proper
expenditure of public funds. Section 24.0 of the regulation provides
that "Deparment policy requires, therefore, that awards may be made only
to responsible contractors and grantees." (Emphasis added). The
Comptroller General has defined the word "responsible" as a term of art
applicable to Government contractors, in the following manner:
+ + + the word "responsible" imports something more than
pecuniary ability, and in the selection of the lowest responsible
bidder, public officers are required to consider not only the
financial resources of the bidder, but also his integrity (and)
fitness + + +. (Emphasis added). 34 Comp. Gen. 86 (1950).
The three counts of the indictment to which appellant pled quilty
charge him with "knowingly and willfully" causing "false, fictitious,
and fraudulent statements and representations" to be made to agencies of
the United States Government. Imposition of the debarment sanction is
clearly warranted as in the best interest of the Government. 24 C.F. R.
24.6(b)(1), 42 Fed. Reg. 5306 (1977).
Appellant's admission of guilt undermines his contention that his
motives were altruistic. Appellant knew he was violating the law, yet he
participated repeatedly in the execution of an elaborate scheme to do
so. Appellant's wilful and fraudulent actions detrimentally influenced
the exercise of a Governmental function causing financial loss to the
public treasury. Cf. Preuit v. U.S., 382 F. 2d 277 (9th Cir. 1967) and
U.S. v. Markham, 537 F. 2d 187 (5th Cir. 1976). Under the circumstances
of the case, the assertion of good intentions has little mitigating
effect.
Neither does the potential economic loss to which appellant adverts
mitigate in his favor. The debarment of appellant here is not a penalty,
but rather it is a sanction imposed to insure that HUD effectively
executes its statutorily mandated missions. Cf. L.P. Steuart and Bro.,
Inc. v. Bowles, 322 U.S. 398 (1944); Copper Plumbing & Heating Co. v
Campbell, 290 F. 2d 368, (D.C. Cir. 1961); Gonzalez v. Freeman, 334 F.
2d. 570 (D.C. Cir. 1964).
In determining the appropriate period of debarment, it is noted that
the proscribed conduct occurred two years ago and that there is no
evidence of wrongdoing on appellant's part before or since. Appellant
has apparently made a sincere effort to make amends for this criminal
conduct, and he may obtain his parole this year. In view of the entire
record in this matter, a three year period is deemed reasonable to
protect the public interest. Should appellant establish the level of
integrity required of a responsible Government contractor or grantee
prior to the expiration of the debarment period, he may apply for
reinstatement in accordance with the procedure set forth in 24 C.F.R.
24.11, 42 Fed. Reg. 5307 (1977).
Upon consideration of the entire record in this matter and the best
interests of the Government, it is hereby determined that appellant
Raymond L. Tate, Jr., should be debarred for a period of three years
commencing July 22, 1977, and ending July 22, 1980.
letter was undeliverable. When Appellant was finally recontacted in
September 1977, his attorney again requested a hearing.
occupancy statement he intended to live with his parents at the Drury
Court house. Within a short time thereafter, he became aware that his
parents would not move in with him. He then attempted a reconciliation
with his former wife and indicated to her that he wished to live with
her and his children in the Drury Court property. The reconciliation
attempt failed in late July 1974. (Appellant Exhibit E).
77-465-DB 77-464-DB
In the Matter of: MARION LEE CAUGHEY In the Matter of: HUBERT C.
ROBINSON
April 20, 1977 April 24, 1978
770420 780424
Michael F. Burke Jean S. Cooper
This matter having been presented on the record, I, Michael
F. Burke, as duly-appointed Hearing Officer, upon consideration of the
record in its entirety, issue this Initial Determination containing
By letter dated December 17, 1976, Appellant, Hubert C. Robinson, was
notified by the U.S. Department of Housing and Urban Development the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers
(herein after "HUD") of its intent to debar Appellant from participation
in HUD programs based on an admission by Appellant under of the
Department of Housing and Urban Development under 24 C.F.R. 24.10(b)(3)
and 24.15(a)(5). oath in open court that he gave bribes to Jack Griffin,
an Area Management Broker for HUD, in return for awards of contracts to
repair
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
HUD-acquired properties. Appellant was also suspended from participation
in all departmental programs pending resolution of the Assistant
Secretary for Housing - Federal Housing Commissioner. Notice of Final
Determination, which is conclusive, will be given in debarment action.
Appellant requested a hearing on the proposed debarment but since
writing and transmitted by registered mail by the Assistant Secretary.
IT IS ORDERED THAT:
that time Appellant has failed to respond to repeated requests and
orders of the hearing officers assigned his case, including an Order
Marion Lee Caughey be debarred from participation in programs of the
Department of Housing and Urban Development for the period of to Show
Cause and a warning that failure to respond would constitute waiver of
his right to a hearing.1/ Return receipts in the December 16, 1976
through June 17, 1977.
Administrative File show that Appellant was served with this
correspondence and order.
By letter dated December 22, 1976, Mr. Marion Lee Caughey of Lizton,
Indiana (hereinafter referred to as the Appellant) was advised by the
then Acting Assistant Secretary for Housing that the Department was in
receipt of information indicating irregularities of a serious nature in
the conduct of his business dealings with the Government. (Government
Exhibit No. 1) The information to which the Government referred
indicated that in open court at the trial of Mr. Jack Griffin, a former
Area Management Broker for the Department, that Appellant admitted
giving bribes to Mr. Tiffin in return for being awarded contracts for
the repair of HUD acquired properties. Appellant was advised that
because of the serious nature of the alleged offense, the Department was
considering the debarment of Appellant in accordance with HUD
Regulations, 24 C.F.R. 24.9(a)(4). In addition, in that letter,
Appellant was notified of his right to a
A hearing is not a prerequisite to debarment but rather an elective
hearing prior to any proposed determination of debarment, in accordance
with 24 C.F.R. 24 C.F.R. 24.10. procedure that is initiated by a timely
request of a contractor or grantee. See, 24 C.F.R. 24.7. The Hearing
Officer, furthermore, has
By letter dated December 28, 1976, Appellant, through his attorney,
requested a hearing. Prior to a hearing date being established, the the
authority to control all aspects of the hearing from the hearing
procedures to written submissions, and in pursuance of that authority,
parties undertook discussions for the purpose of agreeing to a
settlement of this matter. An agreement was subsequently entered into
may "impose appropriate sanctions against any party or person failing to
obey an order under these procedures." 24 C.F.R. 24.9. Appellant by the
parties. Government Counsel has advised that based upon Appellant's
cooperation in the prosecution of Mr. Jack Griffin the has been on
notice since receipt of the April 12, 1977, letter of warning that
further non-response to correspondence would constitute Government has
agreed to a six-month period of debarment (Government Exhibit No.2).
This agreement has been acknowledged by Appellant waiver of hearing.
Such a sanction is within the letter and spirit of the regulation
applicable to Authority of the Hearing Officer, 24 (Appellant's Exhibit
No. 1).
C.F.R. 24.9(h)(1), (2), and (3).
Therefore, I find that Appellant has waived his right to further 24
C.F.R. 24.4(g) defines:
Contractors or grantees. Individuals and public or private
participation in a hearing as sanction for willful disregard of requests
and orders of both Hearing Officers assigned to hear his case.
organizations that are direct recipients of HUD funds or that
receive HUD finds indirectly through non-Federal sources all
The HUD regulation applicable to Debarment, Suspension, and
Ineligibility of Contractors and Grantees, 24 C.F.R., Part 24, defines
participants, or contractors with participants, in programs where
HUD is the guarantor or insurer; and Federally assisted
debarment as "exclusion from participation in HUD programs for a
reasonable, specified period of time commensurate with the seriousness
construction contractors
Appellant, as a subcontractor to an Area Management Broker was a of the
offense or failure or inadequacy of performance generally not to exceed
five years + + +." The purpose of debarment is to assure "contractor:
within the meaning of the above-definition, and therefore the proposed
debarment action was properly initiated under 24 the Government that
awards are made "to responsible contractors + + +" and "shall be used
for the purpose of protecting the public C.F.R. 24.
The parties have entered an agreement whereby in view of the + + +."
24 C.F.R. 24.0, 24.5(a) (emphasis added). Furthermore, the departmental
regulation applicable to debarment provides that "any Appellant's
cooperation in the prosecution of the Area Management Broker, who
received the bribe, Jack Griffin, the Government has other cause of such
serious and compelling nature, affecting responsibility + + +" is a
cause for debarment. Responsibility is a agreed to a six-month period of
debarment.
Since the purpose of 24 C.F.R. 24 is to protect the public and not
term of art in Government contract law and it has been defined to
include "integrity," "fitness," and a capacity." 34 Comp. Gen. 86 to be
invoked for punitive purposes, the Government's recommendation
concerning the terms of the period of debarment is accepted. (1954).
See also, 39 Comp. Gen. 468 (1959), 49 Comp. Gen. 139 (1969). The
professional integrity of those who enjoy a business
Accordingly, it is the Initial Determination of the Hearing Officer
relationship with the Government must be of the highest order and
bribery, by its very nature, shows serious lack of integrity, that
Appellant be debarred for a six-month period. The term of the debarment
shall be from December 16, 1976 through June 17, 1977. responsibility,
and fitness. Thus, Appellant's admission to bribing a HUD official
constitutes ground for debarment. 24 C.F.R. 24.6(a)(4).
Based upon the documents in the Administrative File and written
submissions which constitute the record in this case, I find that a
period of debarment of three years is appropriate. Appellant shall be
debarred from participation in HUD programs up to and including April
21, 1981.
case from January 19, 1977, to September 14, 1977. Thereafter, the case
was reassigned to Jean S. Cooper for determination. Appellant ignored
three letters from Judge Burke concerning a hearing. Judge Burke then
notified Appellant by letter dated April 12, 1977, that a failure to
respond to correspondence concerning a hearing date would be considered
a waiver of Appellant's request for a hearing. Appellant also failed to
respond to an Order to Show Cause why an Initial Determination should
not be issued, dated September 8, 1977, by the undersigned
Administrative Judge. Based on non-response of Appellant, the Government
moved that an Initial Determination be issued.
77-453-DB
In the Matter of: WILLIAM B. RISMAN and ROBERT R. RISMAN
October 17, 1977
771017
James W. Mast
On November 19, 1976, Elmer C. Binford, Area Director, Detroit
Office, Department of Housing and Urban Development, herein the
Department, issued a letter of unsatisfactory risk determination, herein
U.R.D., to the Appellants.1/ The letter effectively foreclosed
application for mortgage insurance under the Department programs by the
Appellants or by any firm which the Appellants are principals or in
which the Appellants have an interest considered by the Department to be
substantial. The determination was made after the Appellants met with
the Area Director on August 6, 1976 to discuss the matter.2/ On January
7, 1977, Appellants applied to the Secretary for a review of the U.R.D.
On January 17, 1977, Julian B. McKay, Director, Office of Mortgage
Activities and Participant Compliance, the Department, responded to the
request; he stated that Appellants were entitled to a rehearing under
24 C.F.R. 200.350 (1971).3/
On February 1, 1977, the undersigned notified Appellants and General
Counsel, the Department, that he had been designated to act as hearing
officer in the case. The parties were requested to state their positions
and the hearing was set for April 13, 1977. The hearing was rescheduled
for April 22, June 1, and July 18, 1977, the date on which the hearing
was held. At the hearing, Appellants were represented by counsel;
William B. Risman appeared, but Robert R. Risman did not. The Department
was represented by General Counsel. After the hearing, the parties filed
briefs by August 22, 1977.
On August 9, 1977, General Counsel moved to supplement the record to
include the Regulatory Agreement for Westchester Tower Apartments;4/
subsequently, Appellants opposed the motion. For reasons stated herein,
the motion is granted.
Upon the entire record, I make the following:
Appellants, William B. and Robert R. Risman, are in the business of
building, owning, and managing multifamily housing projects. Many of the
projects are financed through mortgages insured by the Department's
Federal Housing Administration, herein FHA.
This proceeding primarily involved Appellant's participation in two
multifamily housing projects, Westchester Tower Apartments, Project No.
044-03032, herein Westchester Towers, and Westland Towers Apartments,
Project No. 044-35225-PM, herein Westland Towers. The owner of
Westchester Towers is a partnership, Westchester Towers Apartments,
herein Westchester, consisting of Ambassador Club Apartment, Inc.,
Donald E. Horace, and Metro Place Company. Ambassador Club Apartments,
Inc. is a corporation owned 50 percent each by W.B. Risman and R.R.
Risman. Metro Place Company is a partnership consisting of Gerald Hyatt,
Nelson Hyatt, and John Carlo. Westchester is the mortgagor for the
project insured under Section 220, Title II, National Housing Act, 12
U.S.C. 1715k. The owner of Westland Towers is a partnership, Westland
Towers Apartments, herein Westland, consisting of W.B. Risman, R.R.
Risman, Donald E. Horace, Harry Grenader, and Charles Grenader.
Westland is the mortgagor for the project insured under Section 221 (d)
(4), Title II, National Housing Act, 12 U.S.C. 1715 (1).
Westchester Towers and Westland Towers were managed by Consolidated
Management Company, herein Consolidated. Consolidated is principally
owned by W.B. and R.R. Risman. Consolidated manages approximately twelve
projects. The construction contractor for Westchester Towers and
Westland Towers was Realtek Industries, Inc., herein Realtek, owned by
the Appellants. W.B. Risman is Chairman of the board and a principal
stockholder. The identity of interests of the Appellants in the
construction, ownership, and management of the two projects facilitated
the action which formed the basis of the Area Director's U.R.D.
The letter dated November 19, 1976, from Elmer C. Binford, Area
Director, Detroit Office, the Department, stated "(T)he Department's
experience with (Apellants) in mortgage insurance transactions has been
unsatisfactory, and + + + future mortgage transaction would be
unacceptable from the underwriting standpoint of an insurer." He stated
that the weight of the evidence substantiated the determination. The
determination was made after Appellants met with the Area Director and
submitted correspondence and documents on matters that formed the basis
of the U.R.D.
In the letter, the Area Director' supported the U.R.D. on three
bases. One, upon default and assignment of Westchester Towers and
Westland Towers mortgages, the Department paid insurance benefits to the
projects' mortgagees. The total dollar outflow from the FHA Mortgage
Insurance Fund caused by assignment exceeded $10,000,000.
Two, Westchester and Westland did not comply with the terms of the
Regulatory Agreements5/ and the rules and regulations of the Department.
Specifically, the tenant security deposits were not segregated in a
trust account; $50 per unit move-out fees for cleaning carpets and
drapes were charged; and rents and receipts were not deposited in the
name of the project. In addition, financial reporting requirements had
not been met. Financial reports were untimely submitted, and the opinion
of the auditor was qualified to an extent not acceptable.
Three, disbursements of project funds were made from other than
surplus cash. Appellants failed to show clearly that disbursements were
for operating expenses after the cost cut-off date for construction
related expenses. Further, substantial sums were paid to the Appellants
from the operating account when there was no surplus cash. Despite the
contention by Appellants that these were repayments for prior advances
to the projects, the payments were in violation of the Regulatory
Agreement, mortgage and note, and may additionally be a violation of
federal law, 31 U.S.C., 191 and 192.6/ The mortgage and note do not
allow the unilateral creation of a priority position for the benefit of
the owners as is created by the repayment of advances to the project
owners during default.
Westchester Towers and Westland Towers suffered fiscal default and
were assigned to the Secretary. Fiscal default is the failure of the
mortagor to make any payment due under, or provided to be paid by, the
terms of an insured mortgage.7/ Westchester Towers was in default for
April, May, June, July and August of 1975 in an amount totaling
$170,295. The amount of the insured mortgage was $3,752,700 and the
mortgage balance at that time was the same. On November 13, 1975, the
mortgage was assigned to the Secretary.
In mitigation, W.B. Risman testified that Appellants invested up to
$2,000,000 in the two projects. Money was advanced from the start of the
projects until the present. A schedule of advances by the Westchester
partners to Westchester Towers and the repayments thereof, for the
period of July 1, 1974 to February 29, 1976,8/ was prepared from the
unaudited books of Westchester Towers by the projects' accountants. It
showed that $377,450 was advanced by W.B. and R.R. Risman and $233,600
was repaid, leaving a net increase of $143,850. The Westchester partners
borrowed $225,162 at final closing on February 7, 1975. The total
increase in advances by all partners was $369,012.
The same information was prepared from the unaudited books of
Westland Towers for the period of December 16, 1974 to February 29,
1976./9 It showed that $726,082 was advanced by W.B. and R.R. Risman and
$466,549 was repaid, leaving a net increase of $259,533. The Grenaders
advanced $126,000 and the Westland partners borrowed $250,947. The total
increase in advances by all partners was $636,480. W.B. Risman
testified that there was litigation pending between the Westchester
partners and between the Westland partners; the issues are the refusal
of the other partners to make financial contributions to the projects.
W.B. Risman testified that the feasibility estimates of the projects'
costs were grossly inadequate. He cited the real estate taxes for the
completed building, Westchester Towers, to have been estimated at
$45,000, when in actuality they were over $100,000. Feasibility studies
are submitted at the initial stages of application for a Department
commitment to a mortgagee to insure a mortgage. The estimates are
submitted by the project sponsors with input from the Department.
Appellants attempted to arrange work-outs with the Department. A
work-out is an arrangement whereby the Secretary holds the mortgage in
default to afford a deserving owner time to effect reinstatement of the
loan. The Department never accepted a work-out on Westchester Towers.
On September 28, 1976, the Department agreed to terminate a foreclosure
action on Westland Towers, if Westland would agree to pay the Department
the project revenues escrowed by the court; to replace its management
with management approved by the Department; and to attempt to arrange a
plan acceptable by the Department for reinstatement of the mortgage.
Although the first two conditions were met, a work-out arrangement was
not forthcoming. Currently, Westland is paying approximately $45,000 per
month of their $62,119 monthly mortgage payments for Westland Towers.
The Department performed an audit on the books of Consolidated based
on the suspicions of the Area Office that operating funds were being
repaid to W.B. and R.R. Risman. Ledgers for Westchester Towers and
Westland Towers were examined, but the projects' books were not audited.
A cash flow audit was performed to test receipts of the projects as well
as disbursements. Consolidated handled receipts and disbursements for
the projects. The monthly excess of receipts over disbursements was
posted on the projects' ledgers as accounts receivable from
Consolidated. The receipts from operating income included income from
rents, miscellaneous receipts, and security deposits that were applied
when the tenants moved out. For disbursements, the auditor obtained and
examined cancelled checks. Consolidated was requested to provide
invoices, contracts, or other documents to support individual
disbursements. For Westland Towers, the audit period extended from
December 16, 1974 to February 29, 1976. For Westchester Towers, the
audit period extended from July 1, 1974 to February 29, 1976.
There was no separate trust account maintained for tenant security
deposits for Westchester Towers or Westland Towers. The tenant security
deposits were commingled with other funds in the Consolidated cash
account. The tenants' security deposits were funded by cash statutory
bonds, but the amount was not sufficient to cover all the deposits. W.
B. Risman testified that the tenants' security deposits for Westland
Towers are presently funded and for Westchester Towers are partially
funded, besides both having 100 percent cash bonds guaranteeing the
security.
Westchester and Westland violated Paragraph 6(g) of the Regulatory
Agreements. It requires:
6. Owners shall not without prior written approval of the
Secretary:
(g) Require, as a condition of the occupancy or leasing of any
unit in the project any consideration or deposit than the
prepayment of the first month's rent plus a security deposit in an
amount not in excess of one month's rent to guarantee the
performance of the covenants of the lease. Any funds collected as
security deposits shall be kept separate and apart from all other
funds of the project in a trust account the amount of which shall
at all times equal or exceed the aggregate of all outstanding
obligations under said account.
Rents and other receipts were not deposited in the name of the
projects. Norman Hulfcher, the Department auditor who supervised the
audit, testified:
By Mr. Zimmerman
Q. In what condition were the books? How were the accounts
kept?
A. Consolidated Management Company had one account through
which they managed approximately 12 projects. There was an
individual ledger system maintained which identified disbursements
- - receipts and disbursements for individual projects.
Q. Was this method of accounting in conformance with the
regulatory agreement?
A. In our opinion, no. The commingling of the project funds
with those of other projects is not in conformance with the
regulatory agreement which calls for a separate account in the
name of the project.
Westchester and Westland violated Paragraph 9(g) of the Regulatory
Agreement. Paragraph 9(g) requires:
9(g) All rents and other receipts of the project shall be
deposited in the name of the project in a bank, whose deposits are
insured by the F.D.I.C. Such funds shall be withdrawn only in
accordance with the provisions of this Agreement for expenses of
the project or for distributions of surplus cash as permitted by
paragraph 6(e) above. Any Owner receiving funds of the project
other than by such distribution of surplus cash shall immediately
deposit such funds in the project bank account and failing so to
do in violation of this agreement shall hold such funds in trust.
Any owner receiving property of the project in violation of this
Agreement shall immediately deliver such property to the project
and failing so to do shall hold such property in trust. At such
time as the owners shall have lost control and/or possession of
the project, all funds held in trust shall be delivered to the
mortgagee to the extent that the mortgage indebtedness has not
been satisfied.
The audit disclosed several questionable payments made from the
operating accounts of the projects after cost cut-off. The questionable
expenditures totalled $52,613 for Westchester Towers and $86,792 for
Westland Towers. The documents submitted by the Appellants to support
the disbursements were reviewed by Frank Malone, Loan Specialist Realty,
Detroit Office, the Department. As the loan servicer, he determined
whether an item was a reasonable operating expense or a necessary repair
to be paid from the operating account. Other project expenditures must
be paid from surplus funds or mortgagor equity. This requirement is
stated in Paragraphs 6(b) and (e) of the Regulatory Agreements. The
relevant terms are defined in Paragraph 13(f), (g), and (h). These
paragraphs provide as follows:
6. Owners shall not without prior approval of the Secretary:
(b) Assign, transfer, dispose of, or encumber any personal
property of the project, including rents, or pay out any funds
except from surplus cash, except for reasonable operating expenses
and necessary repairs.
(e) Make, or receive and retain, any distribution of assets or
any income of any kind of the project except surplus cash and
except on the following conditions:
(1) All distributions shall be made only as of and after the
end of a semiannual or annual fiscal period, and only as permitted
by the law of the applicable jurisdication;
(2) No distribution shall be made from borrowed funds, prior to
the completion of the project or when there is any default under
this Agreement or under the note or mortgage;
(3) Any distribution or any funds of the project, which the
party receiving such funds is not entitled to retain hereunder,
shall be held in trust separate and apart from any other funds;
and
(4) There shall have been compliance with all outstanding
notices of requirements for proper maintenance of the project.
(f) "Surplus Cash" means any cash remaining after:
(1) the payment of:
(i) All sums due or currently required to be paid under the
terms of any mortgage or note insured or held by the Secretary;
(ii) All amounts required to be deposited in the reserve fund
for replacements;
(iii) All obligation of the project other than the insured
mortgage unless funds for payment are set aside or deferment of
payment has been approved by the Secretary; and
(2) the segregation of:
(i) An amount equal to the aggregate of all special funds
required to be maintained by the project;
(ii) All tenant security deposits held;
(g) "Distribution" means any withdrawal or taking of cash or
any assets of the project, including the segregation of cash or
assets for subsequent withdrawal within the limitations of
Paragraph 6(e) hereof, and excluding payment for reasonable
expenses incident to the operation and maintenance of the project.
(h) "Default" means a default declared by the Secretary when a
violation of this Agreement is not corrected to his satisfaction
within the time allowed by this Agreement or such further time as
may be allowed by the Secretary after written notice;
In a limited of cases, the documents submitted by Appellants met the
objections raised, but the majority did not. Frank Malone explained the
criteria he used to allow and disallow each of the questionable
expenses. Expenditures were rejected because they were not properly
invoiced. This included receipts not properly or sufficiently designated
as belonging to the project or as being for the purpose suggested by
Appellants. Where expenditures had been extrapolated from lump sums, the
allocations were often determined to be arbitrary classifications made
by Appellants.
Construction expenses were disallowed. Expenses invoiced before cost
cut-off, the date through which operating costs during construction are
figured in the cost certification, fall in this category. Expenses
normally included in original specifications were rejected. Contract
guarantee items, those items guaranteed by contractors and
subcontractors under the contract for one year, were rejected. However,
the loan servicer did not review the specifications or the plans of the
project, but he did review the cost certifications.
Capital expenditures were distinguished from operating expenses and
necessary repairs to existing amenities, and rejected. Capital
expenditures were rejected because they are potentially mortgageable
improvements that increase the replacement cost of the projects or
generate more income for the projects. If a capital expenditure is
mortgageable, then it should be paid from mortgage proceeds. If it is
not mortgageable, then it is a cost of doing business. Further, change
orders may be submitted for the Department's approval to increase the
mortgage to cover expenditures from oversight or from changes in the
regulation of local authorities. Likewise, expenditures for items that
could have been submitted on change orders were rejected.
Substantial sums were repaid to W.B. Risman and R.R. Risman from the
operating account during a period when there was no surplus cash. The
projects' ledgers reflect funds from Consolidated to the partnerships,
from the partnerships to W.B. and R.R. Risman, and from the Rismans to
the partnership. As shown by the projects' accountants, W.B. and R.R.
Risman were repaid $233,600 from Westchester Towers during the audit
period. The Appellants were also repaid $466,549 from Westland Towers
during the audit period. These repayments violated Paragraph 6(b) and
6(e) of the Regulatory Agreements.
The Department audit determined that the excess receipts over
disbursements for Westchester Towers was $310,930; an escrow account
contained $58,685, but the rest remained unaccounted. For Westland
Towers, exesss receipts over disbursements totalled $448,862, with an
escrow account of $32,00; the rest remained unaccounted. It was
impossible to trace these funds because the Department did not audit the
books of Westchester Towers or Westland Towers.
Frank Malone testified to the effect on the projects of the
unaccountable funds:
By Mr. Zimmerman:
Q. Now, can the money Mr. Hulfcher could not find been
available to the project - - could it have made those mortgage
payments?
A. Yes.
Q. And is that the same for the other projects - - Government's
Exhibit no. 13(Westchester Towers)?
A. No. The reason they could make - - with the unaccounted for
or with the money which was excess over disbursements which were
verified by Mr. Hulfcher would have been adequate on Westland
Towers because of the existence of an operating letter of credit
in the amount of $250,000. With that and with the excess over
accounted for disbursements, the project could have been
maintained current for approximately a twelve-month period after
final endorsement. Instead, it went into default the first month
after final endorsement.
On Westchester Towers, there was no operating deficit letter of
credit, and that and the poor occupancy the project was
experiencing at the time of final endorsement meant that default
was probably inevitable; however, the default was aggravated by
the fact that the payments were made to the Rismans during this
period of time.
Q. So what was the impact on the projects if these were
payments?
A. Negative.
Section 211, Title II, National Housing Act of 1934, 12 U.S.C.
1715b, directs the Secretary to make such rules and regulations as may
be necessary to carry out the provisions of the National Housing Act,
the mortgage insurance programs. Pursuant to this section, 24 C.F.R.
200.200 (1971) was enacted. It enabled the Field Office Director to make
a determination of unsatisfactory risk as to any mortgage insurance
applicant. The decision of the Field Office Director was appealable by
the applicant. 24 C.F.R. 200.350(1976).
Although the Unsatisfactory Risk Determination (24 C.F.R. 200.200)
was repealed effective January 27, 1977 by 24 C.F.R. 24.17 (1977), it
does not affect this proceeding initiated by Appellants before the
effective date of the new regulations. The new regulations at 24 C.F.R.
24.17 (b), provide the following:
(b) Limitations on participation of a contractor or grantee
imposed prior to the effective date of these regulations under an
ancillary procedure shall not be modified unless a final
determination under 24.8(c) so requires. However, such contractor
or grantee may petition for reconsideration or for reduction of
the sanction term under procedures provided by 24.18 (a) (5).
The Appellants were afforded an informal meeting with the Area
Director;10/ this is similar to the procedures provided by 24.18(a) (5)
.11/ The Appellants were advised by the Department on January 17, 1977
that they were entitled to a rehearing under 24 C.F.R. 200.350 (1971).
This hearing pursuant to 200.350, meets the procedural requirements for
an appeal from an Area Director's decision under the new regulations.
12/
The General Counsel submitted a motion to supplement the record with
the Westchester Regulatory Agreement, having submitted the Westland
Regulatory Agreement into evidence at the hearing. These proceedings
involves identical issues as they pertain to Westchester Towers and
Westland Towers. The Westchester and Westland Regulatory Agreements
contain identical provisions. The effect of the Regulatory Agreements on
the conduct of the Appellants was fully litigated by both parties, and
counsel for Appellants had an opportunity for cross-examination at that
time. There is no prejudice to Appellants. Therefore, to assure a full
and fair administrative determination based on all the facts, the
Westchester Regulatory Agreement is admitted to supplement the record.
13/
The Area Director may reject an application for mortgage insurance on
the grounds of unsatisfactory past experience. "Applications will be
rejected where past experience with the proposed borrower, builder, or
other participant in the mortgage transaction indicates that his
previous conduct or method of doing business has been such that his
participation in the transaction would make it unacceptable from the
underwriting standpoint of an insurer." 24 C.F.R. 200.200 (1971). There
is substantial evidence to support the determination of the Area
Director that Appellants are an unsatisfactory risk from the
underwriting standpoint of an unsurer.14/
Westchester and Westland defaulted on their mortgage payments for
many months before the assignment of the mortgages to the Secretary.
The amounts of the mortgages were $3,752,700 and $6,797,700,
respectively.
During the period of default, the Appellants received repayments of
substantial sums of money that they had invested in the projects.
Although there was a net increase of the investments by Appellants for
the audit period, the repayments from Westchester Towers and Westland
Towers of $233,600 and $466,549, respectively, were in violation of
Paragraphs 6(b) and (e) of the Regulatory Agreements. The repayment of
advances during default evidences the unilateral creation of a priority
position for the benefit of the Appellants. The Appellants' arguments,
that they advanced far more than they recouped and that they invested
the money in the projects rather than abandon the uncompleted projects,
are firmly rejected in United States v. Thompson, 15/ 272 F. Supp. 774
(E.D. Ark. 1967), aff'd 408 F. 2d 1075 (8th Cir. 1969). The court stated
at p. 787:
"While the partnership was not required to advance funds to the
project, it is clear that in the absence of such advances the
project would never have been able to get off the ground. The
advances were made by the partnership not to protect the insurance
company (the mortgagee) or the Government or to enhance the
security but to promote the interests and expectations of the
partners. The Government never guaranteed the partnership that the
+ + + operation would be successful or profitable, and the
Government never assumed the risk of loss should the project fail,
except that the Government was willing to insure a loan which had
for its security only the property itself, there being no personal
recourse against the borrower."
The operating accounts of Westchester and Westland were further
depeleted by the improper categorization of capital expenditures and
construction expenses as reasonable operating expenses and necessary
repairs. In some cases, invoices were not available to support
expenditures. The determinations of the loan servicer were based on
articulated standards and are supported in the Department's publication
of valuation standards.16/ The disbursements of capital expenditures,
construction expenses, and unverified expenditures from the operating
income account violated Paragraph 6(b) and (e) of the Regulatory
Agreements.
Other violations of the Regulatory Agreements were the failure to
segregate tenant security deposits in a separate trust account as
required by Paragraph 6(g), and the failure to deposit the rents and
receipts of the projects in separate accounts in the name of the
projects as required by Paragraph 9(g).
Although it is highly speculative that default of the projects could
have been averted, the conduct of Appellants aggravated the financial
condition of the projects and precipitated default. The identity of
interests of the Appellants in the construction, ownership, and
management of Westchester Towers and Westland Towers facilitated the
Appellants' access to the projects' funds which were used in disregard
of the Secretary's interest. Appellants; conduct and methods of doing
business are such that their participation as a mortage insurance
applicant is unacceptable from the underwriting standpoint of an
insurer.
1. William B. Risman and Robert R. Risman are borrowers,
builders, or other participants in mortgage transactions within the
meaning of 24 C.F.R. 200.200 (1971).
2. William B. Risman and Robert R. Risman were determined to be
unsatisfactory risks by the Area Director of the Detroit Office of the
Department on November 19, 1976, within the meaning of 24 C.F.R.
200.200 and 200.202 (1971).
3. The unsatisfactory risk determination issued to William
B. Risman and Robert R. Risman by the Area Director is affirmed by the
findings from the rehearing within the meaning of 24 C.F.R. 200.350
(1971).
It is ordered that the unsatisfactory risk determination
issued by Elmer C. Binford, Area Director, Detroit Office, to William B.
Risman and Robert R Risman is affirmed. Any applications for mortgage
insurance under the programs of the Department submitted by William B.
Risman, Robert R. Risman, or any concerns, corporations, partnerships,
or associations in which they have a substantial interest, may be
rejected by the Detroit Area Office on the basis of Unsatisfactory Risk
Determination.
had authority to issue a U.R.D. pursuant to 24 C.F.R. 200.200 (1971,
repealed January 27, 1977). The section provided as follows: Any Field
Office Director may reject an application for mortgage insurance on the
grounds of unsound credit or unsatisfactory past experience.
Applications will be rejected where past experience with the proposed
borrower, builder, or other participant in the mortgage transaction
indicates that his previous conduct or method of doing business has been
such that his participation in the transaction would make it
unacceptable from the underwriting standpoint of an insurer. The
Unsatisfactory Risk Determination action is usually temporary in nature
and may be followed in aggravated cases by the application of section
512 procedures as set forth in 200.190 et seq.
purpose of the application of Unsatisfactory Risk Determination
procedure is to obtain a correction of the conditions giving rise to the
administrative action. Accordingly, a person against whom administrative
action is being considered is usually extended an invitation to discuss
the matter with the Director looking toward corrective action on the
part of those involved. Such an invitation is not extended if action is
taken during investigation or pending court proceedings.
written application, a complainant or a person, firm or other entity
against which a complaint has been filed under the regulations may apply
to the Commissioner for a rehearsing or a readjudication of the action
taken by the Field Office Director. Upon receiving such application, the
Commissioner may designate a representative to conduct a hearing and to
make a report of findings. The Commissioner may, after a review of the
record on appeal, reverse an action taken by the Field Office Director.
herein Westchester Regulatory Agreement, was entered into on August 8,
1972, between the owners of Westchester Towers Apartments and the
Secretary.
Housing Projects, herein Westland Regulatory Agreement, was entered into
on November 7, 1972 between Westland and the Secretary.
indebted to the United States is insolvent, or whenever the estate of
any deceased debtor, in the hands of the executors or administrators, is
insufficient to pay all the debts due from the deceased, the debts due
to the United States shall be first satisfied; and the priority
established shall extend as well to cases in which a debtor, not having
sufficient property to pay all his debts, makes a voluntary assignment
thereof, or in which the estate and effects of an absconding, concealed,
or absent debtor are attached by process of law, as to cases in which an
act of bankruptcy is committed; and 192 provides: Every executor,
administrator, or assignee, or other person, who pays, in whole or in
part, any debt due by the person or estate for whom or for which he acts
before he satisfies and pays the debts due to the United States from
such person or estate, shall become answerable in his own person and
estate to the extent of such payments for the debts so due to the United
States, or for so much thereof as may remain due and unpaid.
Supp. 1, Chapter 5, Section 1, p. 1 (September 1970).
Department on the books of Consolidated and the ledgers of Westchester
Towers.
Department on the books of Consolidated and the ledgers of Westland
Towers.
C.F.R. 200.201 (1971).
(5) Informal Hearing. (i) Upon receipt of a request for an informal
hearing seeking reconsideration, the official imposing the action shall
promptly arrange such a hearing with the contractor or grantee to
reconsider the order. (ii) The contractor or grantee may be represented
by counsel and may present all relevant materials to the official.
(iii) After consideration of the materials presented, the official shall
in writing advise the contractor or grantee of his decision to withdraw,
modify or affirm his order. (iv) Where the decision is to affirm the
order, the contractor or grantee may appeal in accordance with
provisions of 24.7(b), except that the request shall be addressed to the
Assistant Secretary having jurisdiction of the program concerned.
the decision is to affirm the order, the contractor or grantee may
appeal in accordance with provisions of 24.7(b), except that the request
shall be addressed to the Assistant Secretary having jurisdiction of the
program concerned. Part 24, C.F.R. 24.7(b) (1977) provides: (1) Request
for hearing. Any contractor or grantee that has been notrified of a
proposed action is entitled to request an opportunity to be heard and to
be represented by counsel. A hearing request shall be made in writing
addressed to the official proposing the action. If at the end of such
ten day period, no request has been received, it may be assumed that an
opportunity to be heard is not desired, and such official may proceed to
make a final determination and so notify the interested party. (2)
Notice of Hearing. Upon receipt of a request for an opportunity to be
heard, the Hearing Officer shall arrange a prompt and timely hearing.
Notice of the time and place of such hearing shall be in writing,
transmitted by certified or registered mail, return receipt requested,
and shall include a statement indicating the nature of the proceedings
and their purpose. It shall be within the discretion of the Hearing
Officer to determine the hearing place. In determining the hearing
place, the Hearing Officer shall consider the convenience of the parties
and the public interest.
supplement the record is granted. The Westchester Regulatory Agreement
is made part of the record and is given full consideration in the
administrative determination.
Housing and Urban Development, In the Matter of Sun Homes Builders,
Inc.,Docket No. 75-291 (1975), the U.R.D. was upheld as being supported
by the record.
action on a multifamily housing project insured by a Government mortgage
after the owner defaulted on the mortgage payments. The relevant issue
was the personal liability of the parties of the partnership/owner for a
$45,000 repayment of advances made during the period of default when far
more had been advanced ($199,000) to the project than had been recouped
($60,000) by the partners.
HUIS, HUD Handbook No. 4480.1, p 2264-5 through 12 (August 1975)
77-461-DB
In the Matter of: GEORGE TAYLOR and GEORGE TAYLOR & SONS
July 11, 1977
770711
Michael F. Burke
This matter having been presented on the record, I, Michael F.
Burke, as duly-appointed Hearing Officer, upon consideration of the
record in its entirety, issue this Initial Determination containing the
following order, with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3).
As provided under 24 C.F.R. 24.10(b)(3), this Initial Determination
is final unless reversed or modified within thirty (30) days by The
Assistant Secretary for Housing - Federal Housing Commissioner. Notice
of Final Determination, which is conclusive, will be given in writing
and transmitted by registered mail by the Assistant Secretary.
George Taylor and George Taylor & Sons be debarred from participation
in the programs of the Department of Housing and Urban Development
through the period ending January 1, 1979.
By letter dated November 16, 1976, Mr. George Taylor of Wilmington,
Delaware (hereinafter referred to as Appellant), was advised by the
Assistant Secretary for Housing that the Department was in receipt of
information indicating irregularities of a serious nature in the course
of his business dealings with the Government. The letter stated that the
Government had information in its files that Appellant allegedly gave
kickbacks to Mr. Rudolph Rubini of Rubini Realtors, Inc., a former Area
Management Broker, as compensation for being awarded contracts for work
on FHA acquired properties. Appellant was advised that because of the
serious nature of the offense, the Department was suspending Appellant
from further participation in HUD programs and was considering debarment
in accordance with HUD regulations 24 C.F.R. 24.9(a)(4) and 24.4(g). In
the above-letter, Appellant was notified of his right to a hearing prior
to any proposed determination of debarment, in accordance with 24 C.F.R.
24.10.
By letter dated November 24, 1976, Appellant, through his attorney,
requested a hearing. Subsequently, by letter of February 28, 1977,
Appellant, through his attorney, withdrew the request and agreed to
submit the matter on the record. Briefs were submitted by both parties
and the Appellant submitted additional comments thereafter. This matter
is being determined under 24 C.F.R. 24 et seq., December 22, 1971, as
promulgated on that date.
Appellant is an exterminator doing business as George Taylor and Sons
Exterminating Service. The improprieties upon which his suspension and
proposed debarment are based consist of giving kickbacks totalling $75
to a HUD Area Management Broker (AMB), Mr. Rubini, in exchange for
obtaining contracts on HUD properties. Criminal charges were brought
against Mr. Rubini but subsequently dropped when confusion arose as to
whether the courts would accept the plea bargaining agreement reached
between Mr. Rubini and the U.S. Attorney. In light of the Government's
disposition of the criminal case against Mr. Rubini no prosecutive
action was taken against Appellant. However, the sworn statement of Mr.
Rubini, in which he testified that he was given kickbacks by Appellant,
has not been challenged. (Government Exhibit No. 2) When an attempt was
made to obtain a statement from Appellant he refused and invoked his 5th
Amendment right.
The Government moves for Appellant's debarment under 24 C.F.R. 24.9(
a)(4) which provides for debarment for any " + + + cause of such serious
compelling nature, affecting responsibility, as may be determined + + +
to warrant debarment. Such determination shall clearly demonstrate that
participation by the contractor or grantee would be harmful to the best
interests of the public." Appellant was a subcontractor under contracts
between the Department and an AMB contractor. Therefore, Appellant comes
within the definition of "Contractors or grantees" defined by 24 C.F.R.
24.4(g). Therefore, this is a proper matter within our jurisdiction for
an Initial Determination. The activities engaged in by Appellant were
clearly harmful to the best interests of the public. This is so, first
of all because the money given to the AMB influenced his judgment such
that the best contractor for the job was not likely to be chosen. In
addition, it can be assumed that the cost of the gratuity is reflected
in the contract price and thus ultimately passed on to the public.
Thus, there is ground for imposing the sanction of debarment against Mr.
Taylor as called for under the Regulations (24 C.F.R. 24.9(a)(4)).
In opposing the imposition of debarment, Appellant offers as
mitigating factors the following:
1) There was a relatively small amount of money involved
2) Appellant wasn't aware that his conduct was criminal
3) Appellant has already suffered economic hardship resulting
from his suspension and
4) Appellant should not be punished for invoking his 5th
Amendment right.
The Government contends, but without proof, that the payoffs to Mr.
Rubini were over a long period of time and far exceeded $75. Next, it
properly points out Appellant's claim that his conduct was not criminal
is immaterial to this administrative proceeding. The Government contends
that any economic hardship Appellant has encountered is likewise
immaterial to these proceedings except to the extent thaty it might
deter future irresponsible conduct, which it maintains has not been
shown here. Based upon the circumstances of this matter, the Government
recommends Appellant be debarred for one year.
It is always imperative in determinations of matters of proposed
debarment to remember that the purpose of the Department's Regulations
is for protection of the public interest and not for punitive purposes
(24 C.F.R. 24.5(a)). In this matter, Appellant believes that the sum of
all the circumstances involved here would warrant his reinstatement at
the time of final opinion. He cites other cases arising out of the
Wilmington investigation in which this Department imposed relatively
short periods of debarment (In the Matter of Frank P. Pullella,
76-401-DB, In the Matter of John A. Woerner, 76-445-DB). However, in
those two matters, the principals cooperated with the United States
Attorney and acknowledged giving things of value to an AMB. Here, we can
readily distinguish those cases from the matter under consideration as
Appellant has not admitted wrongdoing nor has he cooperated with the
Department of Justice. Appellant has been named as having given a
kickback to an AMB. This act was in essence fraudulent in nature.
Appellant states that since he invoked the Fifth Amendment he will treat
the allegations of wrongdoing as though admitted. In mitigation of the
alleged wrongdoing, Appellant argues that there was no criminal intent
on his part but that he was merely engaging in a common business
practice to obtain business from the AMB. The giving of gratuities to an
AMB may have been a common business practice but it is in essence a
fraudulent act for which the Government ultimately pays the price.
Appellant submitted into the record a number of letters from real estate
brokers which attest to his good workmanship. The positions advanced by
Appellant in mitigation of this offense, does not diminish from the
seriousness of the act which caused the Department to initiate this
action.
A review of the entire record in this matter discloses there is
sufficient evidence of impropriety by Appellant to show a lack of
responsible conduct and to warrant debarment under 24 C.F.R. 24.9(a)(
4). Continued participation in the programs of the Department by
Appellant would be harmful to the best interests of the public.
Accordingly, it is my Initial Determination that debarment of Appellant
is in the best interest of the Government. Consideration is given to the
period of time that Appellant has been under suspension and based upon
all of the circumstances involved, it is my decision that the period of
debarment should remain in effect until January 1, 1979.
76-426-DB 76-124-D19
In the Matter of: LEWIS WEINSTEIN
April 20, 1979
790420
Jean S. Cooper
By letter dated April 26, 1976, Appellant was notified that he was
suspended from participation in programs of the Department of Housing
and Urban Development based on an indictment charging him with violation
of 18 U.S.C. 2, 371 and 1010. Appellant filed a timely request for
hearing on the suspension but the hearing was held in abeyance at the
request of Appellant while he pursued an appeal. On September 10, 1976,
the Department was notified that the indictment had been dismissed and
Appellant requested a termination of suspension. Shortly thereafter,
the Department of Justice appealed the dismissal of the indictment to
the United States Court of Appeals. An Order to Show Cause was issued in
the instant case on September 30, 1977 directing the Department to show
cause why the suspension of Appellant should not be terminated based on
the dismissal of the indictment. On October 25, 1977 the Department
notified the Hearing Officer that the Court of Appeals had reversed the
dimissal of the indictment and the indictment was again in effect. The
Supreme Court denied a writ of certiorari to reverse the Court of
Appeals decision.
By letter dated December 7, 1978, Appellant was notifed by the
Department that it intended to debar him and his affiliates for an
indefinite period of time based on conviction of violation of 18 U.S.C.
1012 and 2. Although Appellant's suspension had never been terminated
during the appeal of the indictment, he was also notified that he was
temporarily suspended pending resolution of the debarment action.
Appellant filed a request for hearing on the proposed debarment by
letter dated December 15, 1978.
The Hearing Officer consolidated the suspension and debarment actions
for hearing on a written record. The Departmental regulation applicable
to suspension and debarment provides that in actions based on indictment
and conviction, a hearing is limited to submission of written briefs and
documentary evidence. 24 C.F.R. 24.5(c)(2). The Government filed a brief
and documentary evidence in support of its position that Appellant's
acts were so egregious and serious that an indefinite debarment period
was justified. Appellant failed to file a brief or evidence but wrote a
letter dated March 27, 1979, in response to an Order to Show Cause
issued by the Hearing Officer on February 27, 1979. In effect, Appellant
argues that he has already been suspended for three years and an
indefinite period of debarment would be unjust because of Government
misconduct in his case that was acknowledged by the District Judge at
the time of sentencing Appellant. He also points out that the sentencing
court directed him not to participate in HUD programs during his three
year period of probation and he argues that any period of debarment
should not exceed the "debarment" sentence by the District Court. The
Department filed a reply brief arguing against Appellant's contentions.
Appellant filed a second letter re-emphasizing the Government misconduct
allegation.
The Department regulation applicable to suspension and debarment, 24
C.F.R. Part 24, provides in pertinent part:
Sec. 24.4 Definitions
(a) "Debarment" means exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense of the failure or inadequacy
of performance generally not to exceed five years. However, the
hearing officer may exclude a party for an indefinite period
because of egregious and willful improper conduct.
(b) "Suspension" means a disqualification from participation in
HUD programs for a temporary period of time because a contractor
or grantee is suspected upon adequate evidence of engaging in
criminal, fraudulent, or seriously improper conduct.
(f) "Contractors or grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources including, but not limited
to + + + builders + + + real estate agents and brokers + + + or
those in a business relationship with such recipients including,
but not limited to, + + + attorneys;
Sec. 24.6 Causes and conditions applicable to determination of
debarment.
(a) Causes. (1) conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
(b) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
Sec. 24.13 Causes and conditions under which contractors or
grantees may be suspended.
(c) An outstanding indictment of a contractor or grantee + + +
is adequate evidence of suspected criminal conduct and may be the
basis for imposition of a suspension. Conviction of a contractor
or grantee is adequate evidence to warrant imposition of a
suspension pending debarment.
Sec. 24.14 Period and scope of suspension.
(a) + + + In no event shall a suspension continue beyond 18
months unless prosecutive action has been initiated within that
period. Whenever prosecutive action has been initiated, the
suspension may continue until the administrative or legal
proceedings are completed.
Appellant is an attorney in Shreveport, Louisiana (G-D). He was also
the secretary and registered agent of Graves Construction, Inc., a
corporation in the business of building and selling homes. (G-C).
Between March and October 1971, Graves Construction, Inc. sold four of
its single-family homes to purchasers who obtained a HUD-insured
mortgage and mortgage assistance payments under 235 (b) of the Housing
and Urban Development Act of 1968 to pay for their homes. The Section
235 program was designed to assist low income families in purchasing a
home by providing subsidies on mortgage payments. The eligibility
requirements of income level and family size are set forth by the
secretary of HUD. Under this program, the HUD Handbook specifies that a
mortgagor is required to make a downpayment of $200 in order to
participate in the program (G-E, G-F).
Graves Construction, Inc. filled out receipts that the $200
downpayment had been received in each of the four transactions in
question when no downpayments had been made. Appellant was the closing
attorney in each of the four transactions. He also notarized the
mortgage note and mortgage in each instance. Appellant transmitted the
false statements of receipt of the downpayments to FHA, knowing the
statements to be false. Appellant states that he did so because he had
been informed by Rudy Langford, District Director of FHA, that the
downpayment requirement could be ignored.
On August 10, 1978, Appellant pleaded guilty to four counts of an
Information of the same date (G-A) that he and Glen D. Graves had
knowingly made false statements to HUD and aided and abetted the making
of false statements to HUD. He was given a suspended sentence of six
months on each of the four counts, three years probation, and a fine of
$1,000 on each count. Appellant was also ordered to refrain from doing
any business with HUD for the duration of his probation. (G-B). Glen D.
Graves also pleaded guilty to two counts of a similar Information (G-D
(20)). Rudy Langfold was convicted of making false statements to a grand
jury and has been debarred since June 13, 1977 from participation in HUD
programs. (G-3).
Appellant is a "contractor or grantee" within the meaning of the
Departmental regulation because he was a corporate officer in Graves
Construction, Inc. and the attorney for the corporation. Graves
Construction was an indirect recipient of HUD funds through the
non-Federal sources of the morgagee and mortgagor. 24 C.F.R. 24.4(f).
The Department contends that Appellant's actions defrauded the
Department by circumventing a material requirement for participation in
the 235 program. In two of the cases, the mortgagors defaulted on their
payments shortly after the mortgage was issued. The Department was
liable for the payment of large settlement claims in both instances (G-I
(17) (18); G-J (14)-(18)).
Conviction for commission of a criminal offense as an incident to
obtaining a public or private contract is ground for debarment, per se.
24 C.F.R. 24.6(a)(1). The purpose of debarment is to assure the
Government that "awards be made only to responsible contractors" and
"shall be used for the purpose of protecting the public and + + + not
for punitive purposes." 24 C.F.R. 24.0, 24.5(a).
Responsibility is a term of art in contract law that concerns a
contractor's integrity and honesty as much as his ability to complete
performance on a contract. 34 Comp. Gen. 86 (1954); 39 Comp. Gen. 468
(1959); 49 Comp. Gen. 139 (1969). I find that Appellant's actions show
a clear lack of integrity. Appellant's program occurred not so much
because he relied on the advice of the District Director as to the need
for a downpayment but because he went beyond that advice to being party
to a fraud. Appellant does not contend that any HUD official told him it
was necessary to file a false receipt of payment. In fact, if he had
relied on the District Director's advice, he should have omitted the
receipt altogether if the downpayment was not required.
Appellant is an attorney and, as such, an officer of the court. Of
all the parties involved in the false receipt scheme, Appellant should
have been the most aware that it was either totally unnecessary or, if
it was necessary, that he was participating in criminal fraud. I find
his actions particularly irresponsible because his legal training gave
him the background to evaluate what he was doing and understand all its
implications. Appellant, by his two letters, still appears to have
missed this point. His whole defense rests on an assertion that he has
been singled out for punishment by HUD and that the District Director
was totally responsible for what had occurred. I find both assertions to
be specious.
The wrongful acts of the HUD District Director are relevant only
insofar as it can be said that the Department did not rely on the
receipts of downpayment if the Director told Appellant the entire
requirement of a downpayment would be ignored. Beyond that, Appellant is
responsible for his acts. The submission of fraudulent documents was
more than a mere technical violation of a criminal statute.
Nonetheless, I do not find that an indefinite period of debarment is
warranted. Appellant has been suspended from participation in
Departmental programs for almost three years. The suspension was fully
in accordance with the Departmental regulation both in the initial
suspension action pursuant to 24 C.F.R. 24.13(c) and the continuation of
it during the prosecutive process. 24 C.F.R. 24.14(a). However, despite
the fact that Appellant's actions were irresponsible and show lack of
integrity, an indefinite period of debarment of at least five years in
addition to the three year suspension he has already served would not
significantly advance the public or Government interest. I find that a
three-year period of debarment would be in the best interest of the
Government. I do not find that such a period of debarment is punitive
under the facts of this case.
For the foregoing reasons and based on the record considered as a
whole, Appellant shall be debarred from participation in all programs of
the Department of Housing and Urban Development for a period of three
years from April 20, 1979 up to and including April 20, 1982, in the
best interest of the Government and the public.
75-383-DB
In the Matter of: OTIS JONES and OTIS JONES WRECKING CO.
January 21, 1976
760121
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thiry (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated September 3, 1975, Assistant Secretary H. R.
Crawford notified Otis Jones and Otis Jones Wrecking Co. (hereinafter
referred to as Appellant) of their suspension as a HUD contractor. The
basis for the suspension was that an investigation undertaken by HUD had
allegedly disclosed certain violations by Appellant in the performance
of purchase orders it had undertaken with the Department. Specifically,
it was charged that Appellant, in the performance of these purchase
orders, instead of removing decomposable and debris from the properties
as required by the purchase orders, had instead used it as fill and
buried it. The letter identified five (5) purchase orders whose
provisions were allegedly violated. Appellant was further advised of its
right to a hearing in accordance with the provisions of 24 C.F. R.
24.10. On September 19, 1975, Appellant requested a hearing in this
matter. A hearing was conducted on December 3, 1975 at the HUD Area
Office, Detroit, Michigan. William M. Hatchett, Esquire, of the City of
Detroit, represented Appellant, and John P. Witsil, Esquire, HUD Office
of General Counsel, represented the Government.
At the hearing, the Government introduced into evidence five (5)
purchase orders which Appellant had undertaken with the Department.
These purchase orders were all issued in late 1973 and during 1974 for
the demolition of HUD-owned properties in the City of Pontiac. It is
noted that all of these purchase orders were awarded and performed after
June 30, 1973. That date is important because on that date Hud delegated
to the City of Detroit and other municipalities in that area the
responsibility for conducting inspections of HUD properties. It has been
determined in other hearings that these inspections performed by these
municipalities were, in fact, performed to their own specifications. In
most instances, these specifications were different than the HUD
specifications. The HUD specifications required that all decomposable
material, including wood, and in addition, all hardfill such as bricks
and concrete be removed from the properties. The specifications of the
City of Pontiac, for example, did not require that hardfill, i.e.,
bricks and concrete, had to be removed from the properties. However, the
City of Pontiac specifications did require that decomposable material
and wood be removed from the properties.
The Government introduced into the record five (5) Inspection Reports
conducted at these properties in the Spring of 1975 by a HUD Task Force.
The Inspector who conducted these inspections appeared as a witness and
read from the Inspection Reports into the record. In addition, the
Government introduced as evidence photographs of four (4) of the
properties involved which supported the allegations and findings of the
Inspection Reports. Specifically in the properties herein involved, wood
was found in two (2) properties at 279 S. Edith and 72 N. Jessie. The
amount of wood found in these properties was far in excess of normal
spillage as explained on the Inspection Reports and is fully supported
by the photographs introduced into evidence.
At the hearing, much controversy developed in the testimony over the
issue of whether or not the HUD specifications were applicable to these
purchase orders. However, the Hearing Officer finds that the City of
Pontiac specifications were utilized by their Inspectors in inspecting
and accepting these properties. Therefore, Appellant's performance is
judged according to those standards, and all hardfill found in the
properties is disregarded in my determination of this matter.
Appellant testified in his own behalf and stated that he performed in
accordance with the City of Pontiac specifications. Appellant introduced
into the record inspection reports by the City of Pontiac which
indicated acceptance of the work performed on these five (5) properties.
Appellant produced as its witnesses the inspectors from the City of
Pontiac who, in fact, inspected these particular prop-office. These
Inspectors testified that Appellant had performed in accordance with the
City of Pontiac specifications. Based upon the City of Pontiac
inspections and acceptance thereof, Appellant had been paid by HUD.
When questioned about the amount of wood that was found in the
properties, Appellant stated that he had the properties all inspected
for the hole excavation and after it had been approved by the inspectors
the fill was put back in and the Inspectors were called for the final
inspection and acceptance. However, Appellant was not able to
satisfactorily explain how the wood was found in the properties other
than stating that in some instances properties were left open for a long
period of time. Appellant stated that he had never seen wood or a wood
pocket in a hole that had been excavated after he had himself inspected,
(Tr. 71).
The pertinent provision of the Department Regulations relating to
suspension (24 C.F.R. 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings + + +. (Emphasis added.)
The Government's basis for continuing the suspension is 24 C.F.R.
24.12(a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added).
A review of the entire record in this case discloses that wood was
found in two (2) properties where Appellant had undertaken work for HUD.
In regard to the other three (3) properties, there were large amounts of
brick and concrete in the properties. However, hardfill was permitted
according to the City of Pontiac specifications. The amount of wood
found on the other three (3) properties could be termed "normal
spillage." However, the wood found at the two (2) properties at 279 S.
Edith and 72 N. Jessie constituted an amount far in excess of what could
be termed "normal spillage." "Normal spillage" is the amount of wood
that can be expected to fall off the machine in the excavating process
or which can be ground into the earth when it is being removed from the
property especially when the earth is damp. In this instance, however,
the pockets of wood clearly indicate either deliberate attempt or gross
carelessness on the part of Appellant in letting this wood remain in the
property. Appellant, of course, has denied that any wood was left in the
property and testified that when these properties were excavated they
were inspected and accepted by the City of Pontiac for that purpose.
However, it is possible to have an excavation inspected and then have a
final inspection acceptance without determining whether or not wood has
been put back into the hole. The Appellant, of course, was responsible
to see that no decomposable debris was left in the property. HUD, of
course, under its specifications retains the right to reinspection, and
that is what it did here in the Spring of 1975 with the HUD Task Force.
Therefore, when large amounts of wood are found in the properties as is
the case here, a reasonable inference can be drawn that it is the result
of very careless work or was placed there by the contractor which
constitutes a violation of HUD specifications.
A review of the entire record indicates that there is adequate
evidence to sustain this suspension. Accordingly, the suspension is
upheld.
76-460-DB (No. 77-172-D9)
In the Matter of: MALLIE J. PATTERSON and VERDA JEAN PATTERSON
September 26, 1978
780926
Jean S. Cooper
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
On October 12, 1976, Appellants were notified of their suspension and
proposed debarment from participation in HUD programs based on
convictions (Government Exhibits 1 and 2). Mallie J. Patterson was
convicted for violation of 18 U.S.C. 1010 and Verde Jean Patterson was
convicted for violation of 18 U.S.C. 1010 and 26 U.S.C. 7203. A timely
request for hearing was made but counsel for Appellants failed to
arrange a hearing date, as ordered, and on April 12, 1977, and Order to
Show Cause was issued. The case was transferred to another hearing
officer and a second Order to Show Cause was issued on September 8,
1977. Appellants responded, and having shown good cause, were given
until April 17, 1978 to submit briefs on their behalf. No written
submission was recieved from Appellants and a last Order to Show Cause
was issued on July 13, 1978. No response to this Order has been filed by
Appellants and this Initial Determination will be issued based on a
written record filed by the Government.
Both Appellants pleaded guilty to charges that they had willfully and
knowingly made false statements concerning the names of firms by whom
services were rendered as a contractor performing home improvement work
for the Federal Housing Administration. FHA places a restriction of
$2,000 on the amount payable for certain types of work and Appellants
applied for payment using names of fictitious companies to receive
payment in excess of the FHA limit for a certain type of work.
(Government Exhibits 8, 9, 10 and 11).
Commission of a criminal offense as an incident to obtaining or
attempting to obtain a public or private contract is a cause for
debarment 24 U.S.C. 24.6(a)(1). Convictin is proof of the ground. The
purpose of debarment is to assure the Government that "awards be made
only to responsible contractors + + +" and "shall be used for the
purpose of protecting the public and + + + not for punitive purposes."
24 C.F.R. 24.0, 24.5(a). The term "responsibility" in Government
contract law includes, by definition, the integrity and honesty of a
contractor. 34 Comp. Gen. 86 (1954). Appellants set out to bilk the FHA
of payments far in excess of the regulatory limit by devising a
fraudulent application scheme. Such actions go to the very heart of
business integrity.
The issue is whether Appellants possess sufficient business
responsibility at the present time to participate in Government programs
at public expense. No mitigating factors have been set forth to show
that Appellants do not pose a present business risk and, inasmuch as a
conviction is ground for debarment, I find that such is warranted.
Furthermore, the seriousness of Appellants' offense is such that a three
period of debarment is warranted.
Upon consideration of the entire record in this matter and the best
interests of the Government and the public, Mallie J. Patterson and
Verda Jean Patterson shall be debarred from participation in HUD
programs up to and including September 26, 1981.
76-459-DB
In the Matter of: DOROTHY SAYLES
May 25, 1977
770525
James W. Mast
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
On October 6, 1976, James L. Young, then Secretary for Housing-FHA
Commissioner of the Department of Housing and Urban Development, herein
the Department, served Respondent with written notice that debarment was
being considered pursuant to the Department's Rules and Regulations, 24
C.F.R. 24, herein the Rules, because of his conviction by the United
States District Court for the Central District of California on a
violation of 18 U.S.C. 1012, 2(a) and (b). On October 22, 1976,
Respondent requested a hearing. On December 17, 1976, the undersigned
requested the parties to respond setting out their positions in writing.
The hearing was scheduled for March 18, 1977. Thereafter, the parties
agreed to submit the case in writing in lieu of hearing and the hearing
was cancelled. Both parties made submissions.
Upon the entire record, I make the following:
Respondent Dorothy Sayles was engaged in the business as a
salesperson. Sales made by Respondent were pursuant to FHA-approved
mortgages.
On May 21, 1976, Respondent was named in a complaint filed with the
United States Magistrate for the United States District Court for the
Central District of California. On June 17, 1976, Respondent entered a
plea of guilty to the complaint before Vanetta S. Tassapolos, United
States Magistrate. Upon her plea, she was found guilty and was placed on
one-year probation and fined $250.
The conviction was the result of a real estate sales transaction
where Respondent was the salesperson. On July 17, 1973, Respondent aided
and abetted an unnamed person in the filing of a false Request for
Verification of Employment Form with FHA of the Department. The form was
used to obtain the FHA-insured mortgage on the sale.
Respondent is a mature woman. She has worked since she was 18. She
has been in the real estate business since she was 18. She asks that the
Department, "Please weigh my thirty-five years of honesty against the
accusations made against me."
Respondent is a contractor as an agent of a real estate broker
receiving funds indirectly because of the FHA-insured mortgages. Upon
her conviction of a crime related to her business with the Department,
the basic requirements of debarment were established.
It would be inappropriate not to debar Respondent in view of her
misconduct in business with the Department. The Department seeks an 18
month period of debarment to begin the date of her original suspension.
In view of Respondent's previous good record and the isolated nature of
the misconduct, a three-year period of debarment is inappropriate.
Accordingly, Respondent is debarred for an eighteen month period
beginning October 6, 1976, and ending April 5, 1978.
1. Respondent is a contractor within the meaning of the Department's
Rules, 24 C.F.R. 24.4(g).
2. By her conduct resulting in her conviction of violating 18 U.S.C.
1012, 2(a) and (b), Dorothy Sayles violated the Department's Rule, 24
C.F.R. 24.9(a)(1).
It is ordered that Dorothy Sayles is debarred from participation in
Department programs for a period of eighteen months beginning October 6,
1976 and ending April 5, 1978. Department funds shall not be expended
for financial assistance to Dorothy Sayles or to any concerns in which
Dorothy Sayles has a substantial interest. Bids or proposals shall not
be solicited therefrom, and subcontracts with her will not be approved
unless it is determined to be in the best interests of the Government.
76-453-DB
In the Matter of: JOHN W. YOPP d/b/a WALDEN PROPERTIES
February 23, 1978
780223
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
By letter dated June 6, 1976, John W. Yopp, d/b/a Walden Properties,
13039 Puritan, Detroit, Michigan, (hereinafter Appellant) was notified
of his suspension from further participation in HUD programs. The basis
for this suspension was that the Department had been informed of an
indictment returned against Appellant by a Federal Grand Jury, in the
Eastern District of Michigan, charging a violation of Title 18 U.S.C.
Sections 1010 and 2(b). On November 9, 1976, Counsel for Appellant
requested a hearing in this matter. In the request for a hearing,
Appellant's Counsel related that on or about September 25, 1975,
Appellant was given an Unsatisfactory Risk Determination. Appellant's
Counsel alleges that a hearing was requested but for unknown reasons the
same was not granted. On or about June 19, 1976, Appellant was suspended
and on or about June 18, 1976, the U.R.D. listing was rescinded.
Accordingly, Appellant reiterated the request for a hearing.
By letter of December 7, 1976, the Hearing Officer granted
Appellant's request to hold the hearing in abeyance, because of the then
pending January criminal trial date. Several other follow-up letters
were subsequently sent to Appellant in order to establish a hearing
date, but no reply was ever received. On December 21, 1977, the parties
were advised, that in view of Appellant's failure to respond to the
Hearing Officer's inquiries, a Determination would be issued, and the
Government was requested to submit its written brief was received, a
copy of which was served on Appellant. No brief has been received from
Appellant.
On May 27, 1976, Appellant was indicted by the Federal Grand Jury for
the Eastern District of Michigan, along with Feodies Shipp, Jr., on
eighteen Counts, charging them with violations of Title 18 U.S.C.
Sections 1010 and 2(b), (Gov't. Ex. No. 1). On July 28, 1977, Appellant
entered a plea of guilty to Counts 15 and 16 of the indictment for
making false statements to the Department (Gov't. Ex. No. 2). As a
result of the guilty plea, Appellant was sentenced to two (2) years on
each Count, the sentences to run concurrently, and fined one thousand
dollars ($1,000) on each Count. The gist of the offenses to which
Appellant entered a plea of guilty, involved false statements concerning
mortgagor's assets in applications to the Department for FHA Insurance.
Based upon the conviction, the Department on September 9, 1977, sent
Appellant a notice of debarment (Gov't. Ex. No. 3). The record fails to
disclose that Appellant responded to the notice of debarment.
The Government urges Appellant's debarment because Appellant's acts
in misrepresentation of assets deceives the Department as to the true
risk it is undertaking in writing FHA mortgage insurance. The result of
this misrepresentation is to induce the Department to insure mortgages
which it would not have insured, except for the false misrepresentation.
The Government asserts that as a result of Appellant's activities, a
home buyer may be burdened with a mortgage that it cannot afford, and
the Department may be forced to purchase a mortgage that it did not
intend to buy. The Government submitted into the record, a copy of the
Final Determination of Feodies Shipp, Jr., who was debarred for a
three-year period, ending on May 20, 1980. (Gov't. Ex. No. 4) The
Government recommends a debarment period against Appellant of similiar
duration.
The relevant provisions of 24 C.F.R. 24 regarding the proposed
debarment action against Appellant are as follows:
Section 24.4 Definitions
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +
(f) "Contractors and Grantees." Individuals + + + that are
direct recipients of HUD funds or that receive HUD funds
indirectly through non-Federal sources including, but not limited
to + + + real estate agents and brokers + + + all participants or
contractors with participants, in programs where HUD is the
guarantor or insurer.
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
a contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining a public or private contract, or
subcontract thereunder, or in the performance of such contract or
subcontract.
(4) Any other cause of such serious compelling nature,
affecting responsibility, as may be determined by the appropriate
Assistant Secretary, to warrant debarment.
Appellant was involved in attempting to obtain a contract of
insurance, i.e., FHA insurance on the mortgage of the properties
involved in this matter. Therefore, Appellant is within the definition
of "Contractors or grantees," as defined in the regulation 24.4(f).
Accordingly, the matter of Appellant's proposed debarment action is
properly before a Hearing Officer for administrative determination.
Appellant entered a plea of guilty to a violation of Title 18 U.S.C.
Section 1010, for making false statements to the Department in
attempting to obtain contracts of FHA insurance. Thus, these acts are
"causes" for debarment, as defined in 24.6(a)(1).
A review of the evidence in the record establishes cause for
debarment. The false statements were serious offenses because they are
an attack on the very integrity and soundness of the FHA Mortgage
Insurance fund. By placing non-qualified mortgagors in HUD-owned
properties, the risk of foreclosure is increased. Moreover, there is an
increase in the possible loss to the Government (Cf. Preuit v. U.S., 382
F. 277 (9th Cir. 1967)). The Government points out that Appellant's
cohort, Mr. Shipp, was debarred through the period May 20, 1977 to May
20, 1980. A like period of debarment is deemed reasonable for Appellant.
Based upon a review of the record in this matter, I find there is
substantial evidence of violations of the provisions of 24 C.F.R. 24 on
the part of Appellant to warrant debarment. It is my Determination that
such debarment is in the public interest. The period of debarment will
be from the date of this Determination and continue through May 20,
1980.
76-449-DB
In the Matter of: MITZI LEE CRUDUPT
March 20, 1978
780320
B. Paul Cotter, Jr.
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
On May 19, 1976, Criminal Complaint Number MG 76-658A was filed in
the United States District Court for the Central District of California
charging Mitzi Lee Crudupt ("Crudupt" or "appellant") with violations of
18 U.S.C. 2(a), 2(b) and 1012 (1970). (Government Exhibit 2). The
Affidavit of Special Agent Lumpkin attached to the complaint stated that
Crudupt had forged the signature of one Gertie M. Cason to a Mortgagees
Application for Mortgagor Approval for Commitment for Mortgage Insurance
Under the National Housing Act, FHA Form 2900-1, dated June 26, 1973.
The Affidavit also stated that eleven other real estate documents had
been prepared by Crudupt on behalf of her employer Turner Walker Realty.
(Government Exhibit 3 and Attachment A thereto).
On June 10, 1976, Crudupt plead guilty to the misdemeanor of aiding
and abetting the making of a false statement to the Department ("HUD")
in violation of 18 U.S.C. 2(a) (b) and 1012 (1970). Crudupt was adjudged
guilty and convicted. She received a suspended sentence, was placed on
probation for one year, and ordered to pay a fine of $150.00. The
complaint was then dismissed on motion of the Government.
By letter dated August 25, 1976, the Assistant Secretary notified
appellant that because of her conviction she was suspended and her
debarment was proposed pursuant to 24 C.F.R. 24.10 (1976). (Government
Exhibit 1). Crudupt filed a timely appeal by handwritten note to the
Secretary dated September 3, 1976. (Appellant Exhibit 1).
In January 1977, the Department's regulation governing debarment was
revised. Section 24.5(c) of the revised regulation provided that where a
debarment action is based on a conviction "an appeal is limited to
submission of documentary evidence and written briefs to the hearing
officer." A briefing schedule was established on September 20, 1977, to
be completed by November 9, 1977. The Government's brief was duly filed
but no response was received from appellant. On January 3, 1978,
appellant was given an extension of three weeks to file her brief, but
was warned that a determination would be issued at the end of that
period if no brief was filed. Again no response was received. This
determination is being prepared in accordance with the notice contained
in the hearing officer's letter of January 3, 1978.
The Government bases its action on Section 24.6 of the revised
regulation. That section provides in pertinent part:
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
or such contract or subcontract.
(5) Violation or any law, regulation, or procedure relating to
the application for financial assistance, insurance, or guarantee
or to the performance of obligations incurred pursuant to a grant
of financial assistance, or conditional or final commitment to
insure or guarantee.
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
This matter is governed by the regulation as revised in January of
1977, although the operative events took place earlier. The regulation
in guestion is not of a criminal nature, that is, it provides for
sanctions and not penalties. See, Gonzalez v. Freeman, 334 F. 2d 570
(D.C.Cir. 1964). The stated purpose of the regulation is to protect the
best interest of the public. That purpose has remained constant both
before and after the occurrence of the conduct complained of here. A
variety of regulations whose purpose was not penal, as in the instant
case, have been held properly applied to conduct occurring before the
revision. See, Thompson v. Whittier, 185 F. Supp. 306 (D.D.C. 1960),
rev'd on other grounds, 317 F. 2d 901; De Veau v. Braistead, 363 U.S.
144 (1960); U.S. v. Nasser, 476 F. 2d 1111 (7th Cir. 1973).
The question presented for determination at this hearing is whether
the appellant is presently a responsible contractor and thus eligible to
enter into contracts with the Department. That question addresses the
appellant's present qualifications for doing business with the
Government. It is not a question of whether appellant should be
penalized for past conduct. Accordingly, this hearing will be governed
by the regulation as revised, 24 C.F.R. Part 24, 42 Fed. Reg. 5304
(1977).
Appellant is a "contractor or grantee" within the meaning of Section
24.4(f) of the regulation which, by its terms, applies to "real estate
brokers and agents," 24 C.F.R. 24.4(f) (1977). There was clearly
adequate evidence to warrant suspension of appellant under Section 24.12
and 24.13 of the regulation.
As noted, the regulation implements the Department's policy of
protecting the public interest by insuring the proper expenditure of
public funds. That policy is effected by permitting those contractors
deemed "responsible" to participate in Department programs. 24 C.F.R.
24.0 (1977). In O'Brien v. Carney, 6 F. Supp. 761 (D. Mass. 1934), the
Court defined the word "responsible" as a term of art. That term was
applied to Government contractors by the Comptroller General, as
follows:
+ + + the word "responsible" imports something more than
pecuniary ability, and in the selection of the lowest responsible
bidder, public officers are required to consider not only the
financial resources of the bidder, but also his integrity (and)
fitness + + + 34 Comp. Gen. 86 (1950). (Emphasis added).
Appellant here has been convicted of a crime the essence of which is
fraud and falsification. COnsequently, the conviction strongly evidences
a lack of integrity and fitness within the meaning of the term
responsible. The crime to which appellant plead guilty consisted of
aiding and abetting the making of a false statement to an agency of the
United States.
The Government asserts that appellant's criminal conduct warrants
imposition of a one year period of debarment. The Government notes that
appellant's conviction was based on a crime of specific intent, namely,
aiding and abetting in the forgery of a signature on a FHA Form 2900-1
with the purpose of deceiving the Department.
The record contains several factors in mitigation of the period of
debarment. Firstly, appellant plead guilty to a misdemeanor rather than
a felony. Secondly, appellant apparently cooperated to some extent with
the FBI investigation. Thirdly, the prohibited conduct took place almost
five years ago. Fourthly, there is no other evidence in the record of
wrongdoing on appellant's part either before or since the prohibited
conduct took place. And finally, appellant has already been suspended
from doing business with the Department for over 18 months.
In view of the entire record in this matter, a 60 day period is
deemed reasonable and necessary to protect the public interest. That
period of time considered with the 18 month period of suspension should
provide an adequate demonstration that appellant possesses the necessary
qualities of integrity and fitness required of one who contracts with
this Department.
Upon consideration of the best interest of the Government and the
entire record in this matter, it is hereby determined that appellant,
Mitzie Lee Crudupt, should be debarred for a period of 60 days
commencing March 20, 1978, and ending May 20, 1978.
76-448-DB
In the Matter of: BEN LESNIAK, JR.
March 22, 1977
770322
James W. Mast
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
On June 15, 1976, David S. Cook, for the then Assistant
Secretary-Federal Housing Commissioner, for Housing Production and
Mortgage Credit-Federal Housing Administration-Commissioner, of the
Department of Housing and Urban Development, herein the Commissioner,
FHA, and the Department served Respondent with written notice of
suspension pursuant to the Department's Rules and Regulations, 24 C.F.
R. 24.15, herein the Rules, because of his indictment by the Grand Jury
for the United States District Court for the Northern District of
Indiana on charges of violations of 18 U.S.C. 371 and 26 U.S.C. 7201 and
7206(1). On August 18, 1976, James L. Young, Assistant Secretary for
Housing of the Department served Respondent with written notice that
debarment was being considered pursuant to the Rules 24 C.F.R. 24.10
because of his conviction on the indictment by the United States
District Court for the Northern District of Indiana. On August 30, 1976,
Respondent requested a hearing. On October 20, 1976, the undersigned
requested the parties to submit their respective positions in writing.
The hearing was scheduled for February 8, 1977. On February 8, 1977,
Respondent's mailgram was received by which he waived hearing and
requested that the case be considered on the basis of written
submissions. The Department concurred. On February 9, 1977, it was
ordered that the parties file their written submissions by March 11,
1977. The Department filed their written submission on March 11, 1977;
Respondent did not file even though the certified mail receipt was
returned indicating service of the Order.
Upon the entire record, I make the following:
At all material times Respondent Ben Lesniak, Jr. was Executive
Director, Secretary, and Contracting Officer for the Housing Authority
of the City of East Chicago, Indiana. The Housing Authority of the City
of East Chicago was the recipient of funds from the Department.
Respondent was indicted by the Grand Jury for the United States
District Court for the Northern District of Indiana, Hammond Division on
the first count of violation of 18 U.S.C. 371, on the second count of
violation of 26 U.S.C. 7201, and on the third count of violation of 26
U.S.C. 7206(1). On July 30, 1976, Respondent entered a plea of guilty to
counts one and three. The Court sentenced Respondent to one year
imprisonment on count three and to a five-year suspended sentence with
five years probation under strict supervision on count one. Count two
was dismissed.
The convictions were as a result of Respondent's conduct in his
official duties. In count one Respondent conspired with John Telander
and John Lesniak to defraud the Federal Government by execution of
fraudulent purchase agreements with Telander Brothers Construction, Inc.
John Telander wrote checks to John Lesniak of Midstate Inspection
Engineering. John Lesniak wrote checks in substantially the same amounts
to Respondent. John Telander also wrote checks to Consolidated Agency,
Inc., a corporation owned in part by Respondent. The conspiracy was
active in 1970, 1971 and 1972. The amount involved in count one was
$5,800. In count three, Respondent filed a fraudulent income tax return
for 1971 which failed to disclose income of $11,500 from Telander
Brothers Construction, Inc., $2,495.80 from Levy Company, and other
income of $1,405.
Respondent was the Federal Government's chief witness in the criminal
case, U.S. v. Bursten and Seidel, Cr. No. 76-26 (N.D. Ind. held May 4,
1976). The trial resulted in the conviction of Lawrence Bursten and
Solomon Seidel, two Milwaukee building contractors, for bribing
Respondent and others. Respondent will probably be a government witness
in future criminal cases involving housing fraud.
Respondent offered nothing in his defense.
Respondent is a contractor as an agent of a public organization which
receives funds from the Department. Upon his conviction resulting from
his official conduct, the basic requirements of debarment are
established.
It would be inappropriate not to debar Respondent in view of his
misconduct as a public official where the elements of a scheme to
defraud the Department are established. Consideration for his
cooperation with the Federal Government in the prosection of others
involved in bribery and housing fraud is appropriate. However, because
the scheme here described could probably not have been effective without
the participation and cooperation of Respondent a three-year period of
debarment is considered necessary.
Accordingly, Respondent will be debarred for three years beginning
August 18, 1976, the date of the debarment letter, and terminating
August 17, 1979.
1. Respondent is a contractor within the meaning of the Department's
Rule, 24 C.F.R. 24.4(g).
2. By his conduct resulting in his conviction of violating 18 U.S.C.
371 and 26 U.S.C. 7206(1), Ben Lesniak, Jr. violated the Department's
Rule, 24 C.F.R. 24.9(a)(1).
It is ordered that Ben Lesniak, Jr. is debarred from participation in
Department programs for a period of three years beginning August 18,
1976, and terminating August 17, 1979. Department funds shall not be
expended for financial assistance to Ben Lesniak, Jr. or to any other
concerns in which Mr. Lesniak has a substantial interest. Bids or
proposals shall not be solicited therefrom, and subcontracts with him
will not be approved unless it is determined to be in the best interests
of the Government..
76-444-DB
October 28, 1976
761028
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
In the Matter of: GINO PALUZZI, GINO PALUZZI CONTSTRUCTION CO.,
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in 24.10(b)(3), this Initial Determination is final
unless reversed or modified within thirty (30) days by the Assistant
Secretary for Housing - Federal Housing Commissioner. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated August 19, 1976, Gino Paluzzi d/b/a/ Gino Paluzzi
Construction Company (hereinafter Appellant) was notified by Assistant
Secretary Young that he had been suspended as a HUD Contractor and that
the Department was instituting debarment action against him. Appellant
was notified that the Government's action was based upon information
that it had received that Appellant had entered a plea of guilty to an
Information issued by the U.S. Attorney for The Eastern District of
Michigan charging a violation of Title 18, USC, Section 201(f). The gist
of the offense was Appellant's giving a gratuity to a HUD employee.
Appellant was notified of his right to a hearing in accordance with 24
C.F.R. 24.10. In his letter of August 25, 1976, Appellant requested a
hearing. The Hearing was conducted in Detroit, Michigan on October 7,
1976. Appellant appeared on his own behalf while Saul Green, Area
Counsel of the Detroit Area Office represented the Government.
At the hearing, Government Counsel introduced into evidence a copy of
the Judgment and Probation/Commitment Order (Government Exhibit No. 1).
This document indicated that Appellant, on May 7, 1976, had entered a
plea of guilty for payment of a gratuity to a public official, in
violation of Title 18, USC, Section 201(f). Appellant received a
suspended sentence, was placed on probation for two (2) years, and was
fined $1,500.
Appellant testified that he had paid a gratuity to a HUD employee.
He stated that he paid five percent of the contract price to a HUD
employee. On cross-examination, Appellant acknowledged that his offense
involved his participation in a collusive bidding scheme, whereby false
bids would be submitted to the Government. The Contracts involved were
awarded on a systematically rotated basis to the Contractors involved in
the collusion. The successful bidder paid five percent of the contract
price to the Area Management Broker.
In explanation of the offense, Appellant stated that he did not
realize the seriousness of his acts. Moreover, once the scheme was
exposed, Appellant cooperated fully with the U.S. Attorney's Office.
Appellant introduced into the record a number of letters of character
reference from clergymen and representatives from his community
attesting to his good character and reputation (Appellant Exhibit No.
1).
The basis under which the Government has moved for Appellant's
debarment is set forth in 24 C.F.R. 24.9(a) which states as follows:
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes.
(1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting to obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
The facts in this matter are not in dispute. Appellant has entered a
plea of guilty to a violation of Title 18, USC, Section 201(f), which is
the federal bribery statute. The offense involved is of a serious
nature. Appellant participated in a collusive scheme to submit fradulent
bids to the Government. The award of the contracts through the HUD Area
Management Broker was done on a systematic basis to the participating
members. The successful contractor would then pay five percent of the
contract amount to a HUD employee. The Government's competetive bidding
system functions to permit all qualified bidders to have their bids
treated fairly and to afford the Government the price benefit flowing
from open competetive bidding. The scheme involved here attempted to
destroy that system. Moreover, it caused the amount of the kickback to
be paid by the Government.
Appellant explains his participation in this activity by asserting
that he was unaware of the seriousness of his acts. This explanation is
difficult to accept since the scheme here was fundamentally fraudulent
and Appellant must have been aware of it. In mitigation of the matter,
Appellant testified as to his cooperation with the United States
Attorney in investigating the matter and the letters of character
reference.
A review of the complete record in this matter discloses that there
is substantial evidence that Appellant's plea of guilty comes within the
purview of 24 C.F.R. 24.9(a). Accordingly, it is my Initial
Determination that it is in the best interest of the Government that
Appellant be debarred. The period of debarment is effective through
three (3) years from the date of this Initial Determinations.
76-435-DB
In the Matter of: LEONARD E. BRISCOE, d/b/a BRISCOE MORRISON CO. and
ELITE MANAGEMENT CORP. and BEN A. MORRISON, d/b/a BRISCOE MORRISON CO.
and THE BEN MORRISON CO., INC.
November 21, 1979
771121
B. Paul Cotter, Jr.
In separate letters dated June 30, 1976, the Assistant Secretary for
Housing - Federal Housing Commissioner suspended appellants Leonard E.
Briscoe and Ben A. Morrison from participating in Department ("HUD")
programs and advised them that HUD was instituting a debarment action
against them and their affiliates. The Secretary's actions were based on
specified violations of various management agreements between Briscoe,
Morrison, their companies and various apartment owners. (Documents
File, Tabs 1 and 2). /1/ The suspension and debarment actions were
initiated pursuant to Section 24.9(a)(4) of the Department's regulation
in effect at that time governing the debarment, suspension and
ineligibility of contractors and grantees, 24 C.F.R. Part 24 (1976).
Both men, by counsel, filed timely petitions for hearing (Documents
file, Tab 3). Six months later, Briscoe, by counsel, disclaimed any
personal involvement in the matters under consideration, but elected not
to contest the proceeding further. (Documents File, Tab 8). Thereafter,
the Government moved to dismiss Mr. Briscoe's appeal for lack of
jurisdiction. The Hearing Officer denied the motion on the ground that
Briscoe had not withdrawn his appeal but rather had elected to proceed
on the written record. (Documents File, Tabs 13 and 14). A subsequent
Government motion for an initial determination debaring Briscoe was also
denied. (Documents File, Tabs 16 and 17).
On January 27, 1977, six months after the suspension and debarment
notices were issued, the government revised and published its regulation
governing debarment, suspension and ineligibility of contractors and
grantees, 24 C.F.R. Part 24, 42 Fed. Reg. 5304 (1977) ("the
regulation"). The principal purpose of the revision as stated in the
preamble to the proposed regulation published the previous December, 41
Fed. Reg. 54302 (1976), was to change the period of debarment to make
the sanction "more responsive to the public protection + + +." The
principal revisions pertinent to the instant appeals were an expanded
statement of the regulation's applicability and an increase in the
maximum period of debarment from three years to five years or, for
"egregious and willful improper conduct," indefinitely.
Hearing was held in Fort Worth, Texas, from April 26 to April 28,
1977. At the close of the Government's case, Mr. Morrison elected to
submit his appeal on the written record. Both Morrison and the
Government filed over 400 pages of documents with the Hearing Officer in
support of their position.
In the 24 month period between July 14, 1972, and June 30, 1974,
Briscoe and Morrison singly, together or through various business
entities, entered into some seven agreements to manage HUD insured
multifamily projects within a 180 mile radius of Forth Worth, Texas.
Four of those agreements gave rise to the instant proceeding.
Thus, on July 14, 1972, Leonard Briscoe and another, on behalf of
Elite Management Corporation, executed a Management Agreement with the
Greenville New Hope Apartment Trust to manage a 200 unit multifamily
project ("Greenville") in Greenville, Texas. Greenville was subject to a
HUD insured mortgage and was entitled to receive rent supplements under
Section 236 of the National Housing Act. Consequently, contract
performance was subject to HUD regulations, a Regulatory Agreement
between the owner and HUD, and a Management Plan incorporated by
reference. The contract itself provided that it was not binding on the
owner or the agent until endorsed by two consenting parties, the
mortgagee (in this case the Federal National Mortgage Association) and
the Secretary of HUD. The record does not disclose when or if the
consents were executed. (Government Brief dated May 24, 1977, Exhibit
2).
On December 7, 1972, the Park Manor Apartments Housing Trust entered
into a similar agreement with the Briscoe Morrison Company to manage a
214 unit apartment complex ("Park Manor") in Fort Worth, Texas. The
agreement was executed by Mr. Briscoe on behalf of the management agent.
The consents were executed on June 12 and May 30, 1973, respectively.
(Appeal File, Tab 4).
Eight months after the Park Manor agreement on August 13, 1973, the
Park Terrace Apartments Housing Trust executed a similar agreement with
Briscoe Morrison Company for managing a 124 unit project ("Park
Terrace"), also in Fort Worth. Mr. Morrison executed the agreement on
behalf of the agent, and the consents were executed on August 13 and
October 17, 1973. (Appeal File, Tab 16).
A further agreement was entered into on February 27, 1974, between
The Ben Morrison Company and Neighborhood Action Trust to manage a 100
unit complex ("NAA") also located in Fort Worth. Mr. Morrison also
executed this agreement, but while the mortgagee endorsed its consent on
April 15, 1974, the agreement was never consented to by HUD.
(Government Exhibit 1).
Mr. Morrison was also management agent for three complexes not at
issue here during some portion of the time he was management agent for
the four multifamily complexes described above. The three complexes
were: the Mount Vernon Apartments in Palestine, Texas, from April 2,
1973, to June 1, 1974, the Alexander Plaza Apartments, Saint Angelo,
Texas, and the Sweet Union Apartments, Jacksonville, Texas. (Tr.
445-46; Appeal File, Tab 8; Government Exhibit 29). Palestine and
Jacksonville are more than 100 miles southeast of Fort Worth, Greenville
is approximately 90 miles northeast of Fort Worth, and Saint Angelo is
some 180 miles southwest of Forth Worth.
The Government's June 30, 1976, letter to Mr. Briscoe charged eleven
violations of the three management agreements for Park Manor, Park
Terrace and Greenville. The violations alleged fall into four
categories: (1) excessive operating expenses and improper payments;
(2) failure to furnish fidelity bonds; (3) failure to furnish reports
in a timely fashion; and (4) unavailability of management. The
Government letter concluded that the violations charged "are considered
to be of such a compelling nature that it seriously reflects upon your
responsibility and integrity as a contractor + + +" sufficient to
warrant suspension and debarment. (Document File, Tab 1).
With respect to the Park Manor and Park Terrace allegations as they
apply to Mr. Briscoe, the Government rests on the record made at the
Morrison hearing. Specifically, the Government points out that Mr.
Briscoe appears to have signed the Park Manor agreement on December 7,
1972, and attended a meeting concerning Park Manor on December 18, the
purpose of which was to obtain HUD approval of Briscoe Morrison Company
as managing agent. That company began management of Park Manor on
January 1, 1973. However, the record is devoid of a single reference to
Mr. Briscoe after the December 18, 1972 meeting, and there is no
evidence of any kind as to the nature of Briscoe's relationship to the
company. The only connection in the record between Mr. Briscoe and the
Park Terrace agreement and its performance is the word "Briscoe" in the
title of the company.
The Government bases its case for debarring Mr. Briscoe in connection
with the performance of the Park Manor and Park Terrace management
agreements in its May 24, 1977, brief on the ground that "As a principal
of the Briscoe Morrison Company, Mr. Briscoe is responsible for the
actions of his company." (Government Brief, page 1).
The Greenville management agreement was signed by Leonard E. Briscoe
and Donald J. White on behalf of Elite Management Corporation ("Elite").
The agreement does not otherwise identify the relationship of the
signatories to Elite. (Government Brief, Exhibit 2).
With respect to Elite's performance of the Greenville agreement, the
Government submitted a copy of a February 12, 1974 audit report on
Greenville for the period May 1, 1971 to March 31, 1973. The report
states that Elite, one of three corporations managing Greenville during
that 23 month period was "under the direction of Leonard E. Briscoe + +
+." The statement is not otherwise confirmed by the record, and the
audit report identified Mr. Morrison as the primary representative
involved. Elite managed the project for eight months from August 1, 1972
to April 1, 1973. The audit report charged Elite with incurring excess
management fees in the amount of $3,793.56 and concluded with a
recommendation "that the Area Office take action to effect recovery + +
+." (Government Brief, Exhibit 1).
The audit report states that the Greenville mortgage was in default
before Elite took over management on August 1, 1972, was assigned to HUD
six weeks later, and was finally foreclosed on October 2, 1973, because
of continuing defaults on mortgage payments. The foreclosure took place
some six months after Elite's contract had been terminated.
Ben Morrison was the principal of two companies, Briscoe Morrison
Company, the management agent for Park Manor and Park Terrace, and the
Ben Morrison Company, Inc., management agent for NAA. It is clear from
the record that Morrison was virtually the sole proprietor of these
companies which had a maximum of three full time employees at any one
time. Morrison's wife worked full time, and relatives and others appear
to have been employed by the two companies from time to time.
(Appellant Exhibit 5).
The Government's June 30, 1976, letter proposing Morrison's debarment
listed violations of the management agreements at Park Manor, Park
Terrace, and NAA as grounds for the action. Five failures of performance
were listed for each complex. Three charges were common to each: (1)
failure to file a fidelity bond required by the contract; (2) excessive
operating expense and improper payments; and (3) unavailability of
management. In connection with Park Manor, Morrison was also charged
with failure to file timely reports, and in connection with NAA, failure
to furnish a qualified resident manager during a four month period as
well as ineffective management. (Documents File, Tab 2).
By letter dated April 1, 1977, the Government charged five additional
management agreement violations at Park Manor and two additional
violations at Park Terrace. The additional charges included diversion of
funds, failure to collect funds, and failure to maintain complete
records at both projects. (Documents File, Tab 20).
The Park Manor Apartments were completed approximately 18 months
before the Briscoe Morrison Company signed its management agreement in
December 1972. (Tr. 95). The prior manager had resigned, and the project
was apparently in poor financial condition. It was paying excessive
insurance premimums at the time. (Appeal File, Tab 6). The annual report
for the year ended September 30, 1972, was not filed until May 1973,
seven months later. (Tr. 147). Morrison had agreed to prepare that
report on March 8, 1973, three months after he began managing Park
Manor. (Appeal File, Tab 11).
Shortly after commencing his duties at Park Manor, Morrison, with the
concurrence of the owners and the local HUD office, sought financial
relief for the project in the form of interest relief, mortgage payment
deferrals and increased rent. (Tr. 489). The relief initially sought in
March was delayed by the absence of the 1972 annual report, but was
eventually obtained some four or five months later. (Tr. 454-455;
Appeal File, Tab 15). The financial relief was continued during
Morrison's tenure. (Tr. 489).
Ultimately, Morrison succeeded in obtaining substantial rent
increases totaling 30% to put the project on a more viable financial
basis. (Tr. 98-99). As a result of Morrison's efforts the project
deficit was reduced. (Tr. 102).
In February or March 1973, the Government discovered an escrow
shortage that added to Park Manor's "severe financial difficulty." The
amount of the tax escrow payment had been miscalculated, giving rise to
a $26,000.00 deficit. (Tr. 95-96, 144-145; Government Exhibit 24).
In the winter of 1974, some 10 or 11 months after Morrison commenced
managing Park Manor, a series of extremely serious gas leaks throughout
the project were discovered. (Tr. 105; Government Exhibit 28). Heating
and cooking at Park Manor were accomplished by gas. A corrosion control
expert identified 14 leaks during the course of a three week survey of
the project in February and March of 1974. (Tr. 161-165). The gas was
shut off for a period of time, and the leaks were ultimately corrected
at a cost of over $21,000.00 including over $7,500.00 in lost rent.
(Tr. 106; Government Exhibit 25; Appellant Exhibit 6). The project
also experienced electrical problems. (Tr. 109; Appellant Exhibit 6).
On July 26, 1974, HUD cancelled Morrison's management contract
effective August 31, 1974. (Government Exhibit 9). Although no reason
was stated in the notice of cancellation, the record reflects that the
Government's action was based, inter alia, on charges of failure to file
a fidelity bond required by the contract (Appeal File, Tab 42),
excessive operating expenses, (Tr. 261-263, 326-327, 440-441, 445-446;
Government Exhibits 29, 35; Appeal File, Tab 32), failure to file
various reports in a timely fashion (Tr. 348, Government Exhibit 13),
unavailability of management (Tr. 166-177, 328) and failure to collect
rentals for a day care center and two apartments. (Tr. 271-276,
316-326). Subsequent HUD-initiated investigations disclosed unpaid bills
and incomplete records. (Tr. 172-177, 202-205, 209-211; Government
Exhibits 20 and 21). HUD also discovered that Morrison had charged Park
Manor $469.61 for the cost of stationery and business cards for the
Briscoe Morrison Company. (Tr. 264-267; 446-447; Government Exhibit
33).
In response to the Government's evidence, appellant submitted a
statement denying the Government's charges and ascribing claims of
excess operating expenses, unpaid bills and incomplete records to the
poor financial condition and lack of records that Morrison inherited
from prior management. In addition, appellant points to problems
resulting from a high tenant turnover rate, difficulties in obtaining
fire insurance, and insensitivity of local HUD personnel. Appellant
concludes that these problems, together with the interruption of the
project's gas supply, were the cause of the Government's charges and not
any failure of performance on his part. Appellant alleges further that
project funds were used to purchase letterhead, envelopes and stationery
for the Briscoe Morrison Company "in efforts to direct some of the
problems and traffic away from the project." (Appellant Exhibit 6).
Morrison was the first management agent for Park Terrace commencing
in August 1973. The project was rented quickly and was in good condition
when Morrison's contract was terminated. (Tr. 111-114). However,
Morrison failed to file the fidelity bond required by the contract. (Tr.
41-42).
During the course of Morrison's tenure, the Government learned that
Morrison was acting as resident manager for the project. Although the
contract did not expressly prohibit the practice, it did not appear that
Morrison was actually in residence. (Tr. 345, 451; Government Exhibits
16 and 30). The Government also charged that Morrison had received
excess management fees (Tr. 452-453; Government Exhibit 29), improperly
used project funds to pay for bookkeeping costs (Tr. 378-379), and
mismanaged record keeping and payroll taxes. (Tr. 384-387).
Subsequently, the Government charged that Morrison paid $631.00 in
project funds to Guardian Maintenance Company of which he was an officer
for a temporary maintenance building that was never delivered. (Tr.
205-207, 212, 377; Government Exhibits 19, 22 and 23).
In response to the Government's charges, appellant alleges its
failure to obtain fidelity bonds was due to the absence of current
fiscal data, that it did not receive excess management fees and that
additional bookkeeping expenses were required by an otherwise
unidentified mandate from HUD in Washington. In answer to the charge
concerning the utility building, Appellant recites some background as to
the need for the building but then asserts that the transaction was
abandoned because one of the trustees decided it was not needed.
(Appellant Exhibit 4).
Morrison managed NAA for a six month period from March 1 to August
30, 1974, pursuant to an agreement with the Ben Morrison Company dated
February 27, 1974. (Government Exhibit 1). HUD never consented to the
agreement, and Morrison was removed ultimately by HUD directive issued
July 26, 1974. (Government Exhibits 5, 6 and 7; and see, Appeal File,
Tab 37).
Again Morrison failed to furnish a fidelity bond. (Tr. 48). He was
also charged with mismanaging rentals, maintenance, and personnel. (Tr.
54, 61-62, 351, 457-461; Appeal File, Tabs 22, 24, 25, 26 and 33).
NAA had suffered severe financial difficulty when Morrison took over.
(Appellant Exhibit 5). During Morrison's tenure at NAA there was a
serious erosion problem (Tr. 490), furniture was stolen, he was unable
to obtain a manager willing to reside at the project, and some of the
apartments were in disrepair and couldn't be rented. (Appellant Exhibit
5).
At the outset of the hearing, counsel for Morrison moved to dismiss
all proceedings relating to Neighborhood Action on the ground that since
the Government never approved the management contract, it could not base
any debarment action on allegations of Morrison's mismanagement.
Additionally, counsel argued that the regulation as revised was not
applicable to the hearing, in effect at the time that Morrison was
managing the three complexes in question. Decisions on these motions
were deferred pending receipt of briefs from the parties.
Appellant's Motion to Dismiss charges related to NAA is based on the
ground that HUD never consented to the management agreement and that
therefore HUD has no standing to impose debarment based on a contract to
which it was not a part. Appellant misapprehends the scope of the
Department regulation both as it existed at the time the debarment
action was initiated and as the regulation was revised in 1977.
The regulation in effect in 1976 was applicable to "contractors or
grantees." Section 24.4(g) defines contractors or grantees to include
Individuals and public or private organizations + + + that
receive HUD funds indirectly through non-Federal sources; all + +
+ contractors with participants, in programs where HUD is the
guarantor or insurer + + +.
The 1977 revision defined contractors in section 24.4(f) to include
individuals + + + and + + + private organizations + + + that
receive HUD funds indirectly + + + including + + + mortgagees + +
+ management and marketing agents, or those in a business
relationship with such recipients + + +.
It is clear from the language of the regulation that it applies to the
appellant Morrison, the Briscoe Morrison Company, and The Ben Morrison
Co., Inc., both on the grounds that they are receiving HUD funds
indirectly in the form of federal rent supplement payments and on the
grounds that they are in a business relationship with the mortgagee
trust that received HUD funds. The 1977 revision of the definition of
"contractor" included, and even enlarged, the scope of the predecessor
definition. 24 C.F.R. Part 24 (1977).
Morrison performed his agreement with the trust for several months.
Accordingly, appellant's Motion to Dismiss charges and events related to
NAA is denied.
Appellant argues that this debarment proceeding is governed by the
regulation in effect at the time notice of debarment was issued in 1976
and not the regulation as revised three months prior to the hearing. In
support of its argument, appellant asserts that if Morrison were held
accountable under standards promulgated after his contract had
terminated he would be punished for actions "which at the time of
commission were not outlawed nor considered inimical to the interest of
the public." (Brief for Appellant, page 10). The argument is in effect
an assertion that giving the debarment regulation retroactive
application would violate the provision barring ex post facto laws.
The prohibition against ex post facto laws has principal application
in the area of criminal law. The regulation in question is not of a
criminal nature, that is, it is a sanction and not a penalty. See,
Gonzalez v. Freeman, 334 F. 2d 570 (D.C. Cir. 1964). The stated purpose
of the regulation is to project the best interests of the public. That
purpose has remained constant both before and after the occurrence of
the conduct complained of here.
Thus, a variety of regulations whose purpose was not penal have been
applied to conduct occurring before the revision. See, Thompson v.
Whittier, 185 F. Supp. 306 (D.D.C. 1960, rev'd on other grounds, 317 F.
2d 901; De Veau v. Braistead, 363 U.S. 144 (1960); U.S. v. Nasser, 476
F. 2d 1111 (7th Cir. 1973). The distinction between penalty and sanction
was succinctly stated in De Veau at page 160:
The mark of an ex post facto law is the imposition of what can
fairly be designated punishment for past acts. The question in
each case where unpleasant consequences are brought to bear upon
an individual for prior conduct, is whether the legislative aim
was to punish that individual for past activity, or whether the
restriction of the individual comes about as a relevant incident
to regulation of a present situation, such as the proper
qualifications for a profession.
The question presented for determination at this hearing is whether
the appellants were presently responsible contractors and thus eligible
to enter into contracts with the Department. That question addresses the
appellant's present qualifications for doing business with the
Government. It is not a question of whether appellant should be
penalized for past conduct. Accordingly, this hearing will be governed
by the regulation as revised, 24 C.F.R. Part 24, 42 Fed. Reg. 5304
(1977).
The Government asserts that Mr. Briscoe and his affiliate, Elite
Management Corporation, should be debarred for five years because
Briscoe was a principal in Elite and the Briscoe Morrison Company and
therefore chargeable with conduct by those two entities and their
employees which would warrant debarment. However the Department has not
presented any evidence that Briscoe himself engaged in any prohibited
conduct.
The evidence of Briscoe's relationship to the management affairs of
the Greenville Park Manor and Park Terrace project is severely limited.
It consists of three items: (1) attendance at a meeting prior to the
Briscoe Morrison Company becoming management agent at Park Manor and the
signing of the Park Manor management agreement; (2) Briscoe's name in
the Briscoe Morrison company that became management agent at Park
Terrace; and (3) the signing of the Greenville Management agreement and
the audit report reference to Briscoe's "direction" of the company
managing Greenville.
In contrast to the foregoing evidence the record reflects that: (1)
there is no further mention of Briscoe involvement in Park Manor after
the agreement was signed; (2) Briscoe never signed the Park Terrace
agreement which Morrison signed as manager there was not even a place on
the agreement for Briscoe to sign); and (3) the audit report on
Greenville identified Morrison as the primary representative involved in
that project and made no further mention of Briscoe. These factors and
the absence of any additional evidence of record tend to support
Briscoe's assertion that he had no personal involvement in the three
projects.
The policy of the debarment regulation requires that "awards be made
only to responsible contracts + + +." and "shall be used for the purpose
of protecting the public and + + + not for punitive purposes." 24 C.F.R.
24.0, 24.5(a). "Department action + + + to disqualify contractors + + +
shall be based upon all available relevant facts + + +." and "shall be
rendered in the best interest of the Government + + +." 24 C.F.R.
24.5(b), 24.6(b).
The term responsibility was defined by the Comptroller General as
follows:
"Responsible" imports something more than pecuniary ability,
and in the selection of the lowest responsible bidder, public
officers are required to consider not only the financial resources
of the bidder, but also his integrity, fitness, capacity and
ability successfully to fulfill the contract requirements.
(Citations omitted). 34 Comp. Gen. 86 (1954). (Emphasis added).
Thus, the cases on responsibility (other than those dealing with
financial and organizational ability) have been divided into those
pertaining to a prospective contractor's integrity and perseverance in
the performance of Government work. 39 Comp. Gen. 468 (1959), 49 Comp.
Gen. 139 (1969).
The Government's bases for debarring Briscoe are founded essentially
on an imputed lack of tenacity and perseverance in the performance of
the Park Manor, Part Terrace, and Greenville contracts pursuant to 24
C.F.R. 24.6(a)(3). It would also appear that the Government, by claiming
money due and owing on all three projects, bases its case on section
24.6(a)(10) of the regulation making failure to pay debts to the
Department a ground for debarment. In all instances the grounds for
debarment are imputed to Briscoe as either an officer or a principal in
the managing company.
In Gonzalez v. Freeman, 334 F.2d 570 (D.C. Cir. 1964), (then) Circuit
Judge Warren Burger, after noting the "serious economic impact" of
debarment, wrote at p. 578 that "The governmental power must be
exercised in accordance with accepted basic legal norms" and that the
debarment procedure should conform to the basic fairness inherent in the
Administrative Procedure Act, 5 U.S.C. 552, et seq. (1970). The
principles detailed in Gonzalez have been incorporated in this
Department's debarment regulation to satisfy the requirement that the
process culminate "in administrative findings and conclusions based upon
the record so made." 334 F.2d at 578.
More importantly to this inquiry, Judge Burger noted in footnote 17
that
Although the record of proceedings of the plea and sentencing
of Thomas Gonzalez is not before us, his guilt is cogent evidence
tending to support his debarment. But this record is barren of
evidence or findings which would support blanket attribution of
Gonzalez conduct to all appellants alike. For example, absent
specific findings as to Carmen Gonzalez's knowledge of or
participation in the acts of her brother, her debarment raises
questions of denial of substantive due process; the record is
likewise silent as to findings of corporate participation.
(Citations omitted). Emphasis added).
As in Gonzalez, the record in this matter is not adequate to find that
Briscoe had knowledge of or participated in the actions charged by the
Government as evidencing lack of integrity or tenacity and perseverance.
To the contrary, the record shows that Morrison was the principal
actor in all three contracts to the exclusion of Briscoe. The
Government's showing with respect to Greenville amounts to a claim of
$3,793.56 in excessive or improper management fees paid to the corporate
agent, Elite Management Corporation. The report states further that "Mr.
Ben Morrison was the primary representative and/or employee involved in
the project's management + + +." The Inspector General recommended that
action be taken to recover these fees, but there is no showing that such
action was taken or that the Government ever took steps to reduce its
claims to judgment. The record is inadequate to attribute any improper
conduct to Briscoe.
The evidence against Mr. Briscoe with respect to Park Manor and Park
Terrace activities is even less substantial. It should be noted that the
alleged performance failures at both complexes occurred over three years
ago, that the cause of the alleged failures is in dispute (the
significance of which will be discussed in greater detail below), and
that the regulation requires that performance failures must have
occurred "within a reasonable period of time preceding the determination
to debar." 24 C.F.R. 24.6(a)(3)(ii).
In consideration of the entire record in this matter, it is hereby
determined that the Government has failed to show a lack of
responsibility on the part of Leonard E. Briscoe and that the suspension
of Briscoe and Elite Management Corp., is hereby termination and they
are hereby reinstated with full right of participation in all Department
programs.
The Department's June 30, 1976, letter to Morrison charged management
agreement violations
"of such a compelling nature that it seriously reflects upon
your responsibility and integrity as a contractor and upon the
propriety of your further dealing in matters in which this
Department has an interest."
The Government's April 1, 1977, letter supplementing the charges was
issued on the same grounds, 24 C.F.R. 24.9(a)(4) (1976).
Section 24.9 was renumbered Section 24.6 in the revised regulation
and remained unchanged in substance, as follows:
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contract or grantee in the public interest for any of the
following causes:
(a) Causes + + +
(4) Any other cause of such serious compelling nature,
affecting responsibility, as may be determined by the appropriate
Assistant Secretary, to warrant debarment.
Subsection (a)(4) includes conduct which demonstrates both a lack of
tenacity and perseverance in the performance of Government contracts.
In addition, the language of subsection (a)(4) is sufficiently broad to
include the grounds for debarment stated in subsection (a)(3)(ii). That
section reads in pertinent part:
(3) Violation of contract provisions, as set forth below, of a
character which is regarded by the Department to be so serious as
to justify debarment action:
# # #
(ii) A record of failure to perform, or of unsatisfactory
performance, in accordance with the terms of one or more
contracts: Provided, That such failure or unsatisfactory
performance has occurred within a reasonable period of time
preceding the determination to debar. Failure to perform or
unsatisfactory performance which the contractor can show was
caused by events beyond its control which were not reasonably
foreseeable shall not be considered to be a basis for debarment
provided that no fault or negligence of the firm or individual was
involved.
With but two exceptions, all of the grounds in support of the
proposed debarment stated in the Government's letters of June 30, 1976,
and April 1, 1977, go to the issue of Morrison's tenacity and
perseverance in contract performance. The exceptions address the issue
of integrity as a required element of contractor responsibility and are
comprised of the following charges of diversion of project funds: (1)
at Park Manor for the purchase of stationery; and (2) at Park Terrace
for payment of a utility building that was never delivered.
With respect to lack of tenacity and perseverance, it is well
established that performance failures resulting "not from lack of
capacity but a consistent failure to apply the necessary tenacity and
perseverance to do an acceptable job" will support a finding of
nonresponsibility in an individual procurement action. 43 Comp. Gen.
257, 264 (1963). However, as a collary to that rule, the Comptroller
General held in the same case that:
With respect to future procurements + + + responsibility will
have to be based on the nature of the work to be done and + + +
capacity, credit, integrity, tenacity, and perseverance + + + as
of that time + + +. Id. at 264.
The Comptroller General's decision focuses on the critical issue in this
proceeding, namely, whether the contractor is presently responsible
within the meaning of the regulation.
However, it is equally well established that a contractor's prior
contract performance failures may present grounds for a present finding
of nonresponsibility. The finding is not mandatory because under most
circumstances the Government interest can be protected by a guarantee or
bond. 7 Comp. Gen. 547 (1928), 15 Comp. Gen. 149 (1935). Consequently,
the test to be applied in reaching a decision to debar for prior
performance failures is the seriousness of the offense. Schlesinger v.
Gates, 249 F. 2d 111 (D.C. Cir. 1957), 37 Comp. Gen. 756 (1958).
Turning to the record here, two questions must be answered: (1) Did
Morrison in fact fail in the performance of his management contract
without excusable cause; (2) If Morrison did so fail, is the failure of
such seriousness as to warrant disqualification from participation in
Departmental programs for some future period of time.
It it clear that the list of performance failures charged by the
Government and evidenced by the record, standing alone, are extensive
and serious. However, those failures of performance do not stand alone.
Two principal facts undercut the charges: (1) Despite the Government's
consent, Morrison and his companies did not have the capacity during the
period in question to perform all the management contracts he was
awarded; and (2) All of the projects that Morrison managed had major
problems, the causes of which preceeded the award of his contract.
The record is clear that Morrison lacked the staff to perform more
than any one of the contracts he was awarded. While Morrison himself
appears to have had the necessary expertise, he could not be in two,
three, or four places at once. Yet the Government, which reserved the
right to approve management contracts, presumably for the purpose of
determining that the prospective management agent was "responsible,"
continued to award Morrison contracts that were beyond his capabilities.
In this regard, then, the Government is partially responsible for
Morrison's failures of performance.
In addition, the Government was on notice of Morrison's limited
capabilities by virture of his inability to obtain fidelity bonds. Yet
the Government consented to the Park Terrace management agreement
despite the fact that Morrison had been unable to get a fidelity bond
for almost a year at Park Manor.
Secondly the record is clear that each of the projects managed by
Morrison had major, pre-existing problems. For example, Park Manor
suffered from both fiscal and structural problems as well as absence of
adequate records. Some of these problems were attributable to the
Government, such as the escrow miscalculation.
The Government has not proved conclusively that Morrison owes it
money. Claims, inter alia, for excessive operating costs, overpayment of
insurance premiums, and improper payment of bookkeeping fees have all
been disputed. For example, the accountant, Mr. Woolery, testified that
it would not be unusual to have an accounting adjustment for insurance
premiums during a transition period. (Tr. 396-397). It may well be that
these allegations together with other mismanagement claims would support
a disputed termination for default. However, appellant elected not to
dispute the termination of the Park Manor and Park Terrace contracts,
and the propriety of those Government directed actions are not for
decision here. The unresolved Government claims for money are not, in
themselves, sufficient grounds for debarring Morrison from future
participation in Department programs.
This record reflects an interaction of pre-existing problems at
Morrison's projects with a workload beyond Morrison's capabilities at
the time to result in much of the Government's claims of failures in
contract performance. The charge of unavailability of management
typifies this result. Thus, at any given point in time during 1973 and
1974, Morrison was manager of at least three and sometimes four projects
located sometimes 100 miles apart. Although the Government had consented
to Morrison's management of all but one of these projects, he clearly
lacked the organization and staff to perform adequately. Consequently,
the record will not support a finding that Morrison's performance
failures were inexcusable or that, standing alone, they were of so
serious a nature as to warrant future disqualification for prior
conduct.
The Government charges that Morrison diverted funds to buy stationery
for his own company and to pay another of his companies for unperformed
work. These charges stand essentially uncontroverted.
Clearly the use of project funds to purchase stationery for a private
company is, at the least, improper. Morrison's claim that the diversion
of funds was to benefit Park Manor by directing the workload to his
company is transparent and without substance. The same is true in the
case of the $600.00 payment to Morrison's company for a utility building
that was not delivered. The material submitted by Morrison did not in
fact even controvert the charge. This use of project funds for
Morrison's own benefit is essentially dishonest, commonly defined as a
"lack of integrity." Alsup v. State, 91 Tex. C. R. 224, 238 S.W. 667,
669.
All of Appellant's actions, taken together, evidence a lack of
responsibility essential to a contractor's participation in HUD
programs. The lack of responsibility in the instant case is particularly
reprehensible in view of appellant's background and level of
achievement. It is clear in these circumstances that appellant's conduct
supports some period of debarment in the public interest. Under other
circumstances such actions could warrant imposition of the maximum
period of debarment.
However, appellant appears to have an otherwise exemplary record. He
has been active in a number of civic and public interest activities, and
the record shows no evidence of the kind of problems considered here. It
would appear that Morrison's energy and ambition have led him, either
wilfully or inadvertantly, to overstep the bounds.
That Appellant's activities took place more than three years ago
carries some persuasive force in conjunction with the absence of any
evidence of other wrong doing by appellant. These circumstances mitigate
in favor of a period of debarment less than the five year maximum
authorized by the regulation. Should appellant continue in his indicated
course of conduct the level of integrity, tenacity and perseverance
required of a "responsible" government contractor would be established
sufficiently to protect the public interest and the integrity of the
system whereby HUD expends public funds. In view of the entire record in
this matter, a nineteen month period of debarment is deemed appropriate,
with consideration given to appellant's suspension since June 30, 1976.
That Ben A. Morrison, Briscoe Morrison Company and The Ben Morrison
Company, Inc., shall be, and they hereby are, debarred from
participation in all programs of the Department of Housing and Urban
Development for a period of nineteen months from November 21, 1977, to
and including June 30, 1979.
1/ The record in this proceeding is comprised of (1) the
transcript of the hearing; (2) exhibits filed by the Government and the
appellant at the hearing; (3) an Appeal File of documents compiled in
support of the initiation of the proceeding by the Assistant Secretary;
and (4) a Documents File comprised of materials generated since the
notices of suspension were issued.
76-434-DB
In the Matter of: PERNELL BELCHER and JACKSON, BELCHER, SMALLS REAL
ESTATE CO.,
Sep. 3, 1976
760903
Michael F. Burke
A hearing having been held on the record in the above-entitled
proceeding, I, Michael F. Burke, as Hearing Officer, upon consideration
of the record in its entirety, issue this Initial Determination
containing the following order with my Findings and Conclusions attached
and made a part hereof, pursuant to the authority delegated to Hearing
Officers of the Department of Housing and Urban Development under 24
C.F.R. 24.10(b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing - Federal Housing Commissioner. Notice
of Final Determination, which is conclusive, will be given in writing
and transmitted by registered mail by the Assistant Secretary.
By letter dated June 7, 1976 from then Assistant Secretary David S.
Cook, Mr. Pernell Belcher and Jackson, Belcher, Smalls Real Estate Co.,
Inc. (hereinafter referred to as Appellant) were notified that the
Department had information concerning possible irregularities of a
serious nature in their business dealings with the Government.
Appellant was informed that the Department had been advised that an
indictment had been returned against Appellant charging violations of 18
U.S.C. Sections 1010 and 2. In that letter, Appellant was also notified
of its suspension from further participation in HUD programs and of its
right to a hearing in accordance with the provisions of 24 C.F.R. 24.10.
Acting through its attorney, on June 10, 1976, Appellant requested a
hearing. Subsequently, on July 9, 1976, Appellant was notified by the
Government that information had been received that Appellant had entered
a plea of guilty to a violation of Title 18, U.S. C., Sections 1010 and
2. As a result of this guilty plea, the Department advised Appellant it
was proposing to debar Appellant. Appellant was again advised of its
right to a hearing in this matter in accordance with 24 C.F.R. 24.10. A
hearing was held on both the suspension and proposed debarment on August
20, 1976 at HUD Headquarters, Washington, D. C.
Sally Dawson, Esquire, of the HUD Office of General Counsel, appeared
on behalf of the Government, and Paul Spiller, Esquire, appeared on
behalf of Appellant.
At the hearing, the Government introduced into evidence a copy of a
Judgment of Conviction entered against Appellant on May 26, 1976 in the
United States District Court, District of Delaware, (Government's
Exhibit No. 1). The Judgment of Conviction indicates that Appellant
entered a plea of guilty to the violation of Title 18, U.S.C., Sections
1010 and 2. The gist of the offense was that he represented to the
Government that a mortgagor had deposited a certain amount of $400 with
Appellant when, in fact, said mortgagor had not made such payment. This
representation was made by Appellant to the Department of Housing and
Urban Development. As a result of his guilty plea, Appellant was fined
the sum of $600.00 and placed on probation for a period of one (1) year.
Appellant testified on his own behalf and stated that he represented
to the Department that he had received $400 when, in fact, he had not
done so. This representation was made to the FHA. In explanation of this
transaction, Appellant's testimony was to the effect that he was
interested in processing the mortgage as prompltly as possible and,
therefore, submitted the papers without actually receiving the cash.
The $400 in fact was not received until thirty (30) days later.
Appellant presented as a character witness, Charles Foreman, Director
of Field Services of the National Committee Against Discrimination in
Housing. He testified that he has known Appellant approximately 11 or 12
years, and that he has an excellent reputation in the community.
Appellant introduced into the record a letter from Assistant United
States Attorney Jack Beam who handled the criminal case involving
Appellant. In that letter, Mr. Beam stated as follows:
"Mr. Belcher was permitted to plead guilty to one count of an
information because of his limited involvement in any criminal
activity and because of his willingness to fully cooperate with
the FBI in the Federal Housing Administration investigation.
"Not only was Mr. Belcher's involvement in any false statements
to FHA minimal; but he appeared to be unaware of the full
significance of submitting false statements to the Federal Housing
Administration. This, most likely, is the result of the fact that
Mr. Belcher had limited responsibility and influence in the
Jackson Belcher, Smalls Real Estate Company operation. It would
appear that his conviction was as much a function of inexperience
as it was any actual criminal intent.
"Under Title 18, United States Code, Section 1010, there is no
requirement that the Government prove that the defendant intended
to defraud the United States and in fact, there was little or no
evidence of such intent on the part of Mr. Belcher as has been
present in other cases involving real estate brokers in this
State." (Hearing Officer's Exhibit No. 1)
The relative provision of the Department's Regulations (24 C.F.R.
24) relating to debarment provides as follows:
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
(a) Causes.
(1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting to obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
The Government argues that Appellant's plea of guilty is in violation
of Section 24.9(a)(1) in that it is a conviction involving a criminal
offense with regard to the obtaining or attempting to obtain public or
private contracts. The Government further states that Appellant's plea
of guilty was sufficient indication of a serious breach of public trust
to warrant debarment.
Appellant's position is that in regards to the purchase of the home
involved here, an additional $400 of deposit was needed from the
purchaser. Based upon the representation from the buyer that the funds
were forthcoming, Appellant sent a letter to FHA indicating that the
money had been received when, in fact, it had not. Appellant purportedly
did this to get the paper work moving. Appellant relies strongly on the
letter of the Assistant United States Attorney that there was no intent
by Appellant to defraud.
Appellant's attorney also represented, although the statement was not
documented in the record, that Federal Judge Stapleton placed Appellant
on probation, unlike other persons involved in these types of
transactions which were incarcerated. Judge Stapleton allegedly stated
that his was obviously an isolated incident and that the downpayment
involved in this incident was subsequently made.
A review of the record in this matter discloses that a criminal
offense was invoved in obtaining a public contract; i.e., FHA insurance
coverage of the mortgage. Appellant's plea of guilty comes within the
purview of Section 24.9(a)(1). Therefore, grounds exist whereby the
Department may debar Appellant. Although the violation was not of a
grave nature, it involved a practice that should not be condoned or
overlooked. Therefore, Appellant is hereby debarred. However, the
record disclosed there were several circumstances of a mitigating nature
involved here which warrant a minimum period. This was the first offense
by Appellant, there was evidence entered of his excellent reputation,
the offense involved a small amount, and, in the view of the Department
of Justice, there was no criminal intent. Moreover, the Judge imposed a
relatively light sentence which indicates his view that the offense was
not of a serious nature.
Accordingly, it is the Initial Determination of the Hearing Officer
that Appellant be debarred for a period of six months from the date of
this decision.
76-433-DB
In the Matter of: PATRICIA BATES and ACTION WRECKING CO.
October 14, 1976
761014
Michael F. Burke
A hearing having been held on the record in the above-entitled
proceeding, I, Michael F. Burke, as Hearing Officer, upon consideration
of the record in its entirety, issue this Initial Determination
containing the following order with my Findings and Conclusions attached
and made a part hereof, pursuant to the authority delegated to Hearing
Officers of the Department of Housing and Urban Development under 24
C.F.R. 24.10(b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing - Federal Housing Commissioner. Notice
of Final Determination, which is conclusive, will be given in writing
and transmitted by registered mail by the Assistant Secretary.
By letter dated September 12, 1975, Patricia Bates and Action
Wrecking Company (hereinafter Appellant) were notified of their
suspensions as HUD Contractors by Assistant Secretary H. R. Crawford.
The suspension was based upon alleged violations of the provisions of
certain purchase orders entered into by Appellant with the Department.
In that letter, Appellant was advised of the right to a hearing in
accordance with 24 C.F.R. 24.10. Subsequently, on December 29, 1975,
Appellant received another letter from the Department in which Appellant
was informed that the preivous suspension letter was withdrawn and that
a new suspension was issued based upon Appellant's indictment returned
by the Grand Jury for the Eastern District of Michigan. The indictment
charged Appellant with making fraudulent claims for payments in
connection with contracts between Appellant and the Department.
Appellant was again advised of the right to a hearing. The Department
was later informed that Appellant entered a plea of guilty to an
information and as a result thereof Appellant was advised by the
Department that debarment was being considered. On June 24, 1976,
Counsel for Appellant requested a hearing.
The hearing was conducted in Detroit on August 10, 1976. Eugene F.
Nowak represented Appellant while John P. Witsil appeared on behalf of
the Government.
Government Counsel entered into the record a copy of the Information
to which Appellant entered a plea of guilty. (Government Exhibit No. 1)
The Information, which was in six counts, charged Appellant with
receiving money in excess of amounts due for the demolition of HUD owned
properties in Detroit in violation of Title 18 USC Section 1012. As a
result of the guilty plea, Appellant received a suspended sentence,
placed on two (2) year's probation and fined $500. (Government Exhibit
No. 2)
Counsel for Appellant acknowledged the plea of guilty entered by
Appellant. In mitigation of the circumstances related to Appellant's
involvement in this matter, Counsel for Appellant introduced a letter
from Assistant United States Attorney Peter J. Kelly, who handled the
criminal case against Appellant. Mr. Kelly related Appellant's
cooperation in assisting the Government obtain a conviction in a
criminal case involving a HUD employee. He also recommended that
Appellant be treated some degree of leniency in this matter.
The basis for a debarment action against Appellant is found in 24 C.
F.R. 24.9(a) which states as follows:
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes.
(1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting ot obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
Government Counsel asserts that the Appellant has entered a plea of
guilty to six counts of violations Title 18 USC Section 1012. The six
counts to which Appellant pled guilty, involved receiving sums of money
in the total amount of $5,632 for performing work which was not in fact
performed. In Government Counsel's view, these are serious offenses
which would warrant a full three year period of debarment.
Appellant's Counsel contends that work was done on the six properties
involved but acknowledges they were not performed properly. Moreover,
Appellant offered to make restitution at the time of sentencing but this
was refused by the Court but instead imposed a fine of $500. Counsel
also requested that Appellant's cooperation with the United States
Attorney's Office and the time Appellant has already been suspended, be
taken into consideration by the Hearing Officer.
The record in this matter discloses a series of violations by
Appellant which were a fraud upon the Government. This is not the case
of a technical violation of the law and of a single offense. Rather, as
Appellant's plea indicates, this matter concerns a series of violations,
knowingly committed in the performance of Government contracts. The
conduct of Appellant clearly falls within the prohibition of 24 C.F.R.
24.9(a)(1). Accordingly, it is the finding of the Hearing Officer that
debarment of Appellant is warranted, based upon all the facts and
circumstances related to this matter and is in the best interest of the
Government. In assessing the period of debarment, the serious nature of
the offenses has been considered as well as Appellant's cooperation with
the United States Attorney and the fact that she has been suspended for
over one year. Based upon all these factors, it is the Initial
Determination of the Hearing Officer that Appellant be debarred for a
period of two (2) years from the date of this Initial Determination.
76-432-DB
In the Matter of: RAYMOND KEIL
October 20, 1976
761020
Michael F. Burke
A hearing having been held on the record in the above-entitled
proceeding, I, Michael F. Burke, as Hearing Officer, upon consideration
of the record in its entirety, issue this Initial Determination
containing the following order with my Findings and Conclusions attached
and made a part hereof, pursuant to the authority delegated to Hearing
Officers of the Department of Housing and Urban Development under 24
C.F.R. 24.10(b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing - Federal Housing Commissioner. Notice
of Final Determination, which is conclusive, will be given in writing
and transmitted by registered mail by the Assistant Secretary.
By letter dated June 11, 1976, Raymond Keil (hereinafter Appellant)
was notified by then Assistant Secretary Cook of his suspension from
further participation in HUD programs and that his debarment was being
considered. The basis for this action was that the Department had been
informed of Appellant's conviction for violation of Title 18 USC
Sections 1010 and 2 in the United States District Court for the Northern
District of Indiana. Appellant was advised of his right to a hearing
concerning the suspension and proposed debarment under 24 C.F. R.
24.10. On June 21, 1976, Appellant requested a hearing. A hearing was
held in HUD Headquarters, Washington, D.C. on September 23, 1976. Gary
P. Tweet, Esquire, appeared on behalf of Appellant while Kathleen McKay,
HUD Office of General Counsel, represented the Government.
At the hearing, Government Counsel introduced into evidence a copy an
of Information that charged Appellant with knowingly and willfully
making a false statement to the Department concerning a mortgagee's
application. (Government Exhibit No. 1) (Appellant was named in the same
Information as Paul Hofferber for having committed the offense. Mr.
Hofferber was also suspended and his debarment proposed. Mr. Hofferber
had a separate hearing. In the Matter of Paul R. Hofferber and Star
Realty; Docket No. 76-427-DB.) The Information charged that Appellant
caused statements to be submitted to the Government which represented
that individuals had made a cash deposit of $800.00 and had assets
totalling $5,450.00 on July 24, 1971 in an application for FHA mortgage
insurance wherein Appellant well knew that a deposit of only $50.00 had
been made and that the individuals total assets did not exceed
$1,000.00. These false representations were in violation of Sections
1010 and 2 of Title 18 of the United States Code. Department Counsel
also introduced into evidence a copy of a Judgment and Probation Order
issued by the U.S. District Court for the Northern District of Indiana,
dated April 23, 1976, which shows that Appellant entered a plea of
guilty to one count of a violation of Title 18, USC, Sections 1010 and
2. Appellant was fined $200.00 and placed on probation for one year.
(Government Exhibit No. 2)
Appellant testified on his own behalf and stated that he has been a
realtor for twelve and one-half years. He was employed by Star Realty,
owned by the afore-mentioned Paul Hofferber, and during that period of
time has had extensive dealings with FHA programs. Appellant testified
as to the details and circumstances relating to his plea of guilty. He
stated that he sold a house owned by a widow, and she asked Appellant if
there was anything she could do to assist in selling the house; such as
painting or decorating it. Appellant suggested that she give the buyer
of the house an allowance for painting or decorating the house. This was
done and Appellant sold the house for her. Moreover, Appellant testified
that the custom of using a "painting allowance" was a common practice in
the Gary, Indiana area. This transaction occurred in 1971, and Appellant
stated that the practice stopped after March 1973. In addition,
Appellant stated that "painting allowances" are permitted under some FHA
programs. In the course of his testimony, Appellant stated that when he
entered a plea of guilty to the offense that he received a minimum
sentence. He testified that the U.S. Attorney advised the Judge that he
believed the practice of a "painting allowance" was a very commonplace
thing in the real estate business. In addition, Appellant stated that he
has cooperated fully with the U.S. Attorney in his investigation of
this matter. A letter from the U.S. Attorney attesting to Appellant's
cooperation was introduced into evidence. (Appellant Exhibit No. 1) Six
letters of character reference were also introduced into the record
which described Appellant's excellent reputation in his community.
(Appellant Exhibit No. 2)
The pertinent provision of the Department's Regulations (24 C.F.R.
24) regarding debarment are as follows:
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
(a) Causes.
(4) Any other cause of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his duly authorized representative to warrant
debarment shall clearly demonstrate that participation by the
contractor or grantee would be harmful to the best interests of
the public.
Appellant does not dispute the fact that he permitted a "painting
allowance" in the sale of a house covered by FHA insurance. He has
pleaded guilty, for this offense, to a violation of Title 18 USC,
Sections 1010 and 2. However, as in the Matter of Paul R. Hofferber and
Star Realty; Docket No. 76-427-DB, Appellant was sentenced to one year
probation and fined only $200. The record indicates that this is the
first offense for Appellant who enjoys a good reputation in his
community. It is also significant that Appellant was a subordinate to
Paul Hofferber who was aware of Appellant's handling of the sale of the
house involved here. In my disposition of the Hofferber matter (supra),
in view of the technical nature of the violation involved and the weight
of the evidence, I ordered a debarment of only a three month period and
gave recognition to the time that he was suspended. Therefore, Mr.
Hofferber was debarred for only thirty (30) days from the date of my
Initial Determination. To order a longer period of debarment for
Appellant who was only an employee of Hofferber would be grossly unfair.
The circumstances that caused me to debar Mr. Hofferber for a minimum
period are equally applicable here. Accordingly, in view of the fact
that Appellant has been suspended since June 11, 1976, it is my Initial
Determination that Appellant be debarred for the period ending November
19, 1976.
76-431-DB
In the Matter of: EVELYN ARNOLD d/b/a EVELYN ARNOLD CENTURY "21" REALTY
June 3, 1977
770603
B. Paul Cotter, Jr.
By letter dated June 7, 1976, the Assistant Secretary for Housing
Production and Mortgage Credit - FHA Commissioner notified appellant,
Evelyn Arnold, d/b/a Evelyn Arnold Century "21" Realty ("Arnold") or
"appellant"), that the Department proposed to debar Arnold based on her
conviction in the United States District Court for the Central District
of California. The Assistant Secretary also suspended Arnold from
participating in HUD programs pending a decision on the proposed
debarment (Government Exhibit 1). Arnold filed a timely request for a
hearing and subsequently elected to have her appeal determined on the
written record (Appellant Exhibits 1 and 2). Both Arnold and the
Government have submitted evidence pertaining to their respective
positions.
On March 16, 1976, Arnold, represented by counsel, pled guilty to one
count charging Arnold with causing a false statement to be submitted to
HUD in violation of 18 U.S.C. Section 2(b) and 1012 (1970). Arnold was
convicted and fined $250.00. No term of probation or imprisonment was
imposed (Government Exhibit 5).
The complaint to which Arnold pled guilty incorporated the affidavit
of FBI Special Agent Ralph E. Lumpkin (Government Exhibits 3 and 4).
The affidavit stated that in response to a request from the San
Francisco HUD Regional Inspector General, the FBI investigated the
purchase of a property located in Los Angeles, California. HUD files
contained a form, dated April 18, 1974, and signed by Arnold as broker,
verifying a purchaser's deposit of $1,200 to Arnold's trust account. On
December 29, 1975, Lumpkin visited the property and found it unoccupied
and boarded up. Arnold told Agent Lumpkin that, on or about August 11,
1975, in response to a HUD audit request to reverify the deposit, she
checked her trust account records and determined that the $1,200 had in
fact never been deposited to Arnold's trust account. Arnold told Agent
Lumpkin further that upon inquiry to the sales person involved she was
unable to obtain a satisfactory explanation of the previous
verification. Nevertheless, in the face of that knowledge, Arnold
reverified to HUD the $1,200 deposit to her trust account and falsified
her trust account ledger to cover up the previous false statement. The
statements in Agent Lumpkin's affidavit stand uncontroverted.
The Government contends that Arnold should be debarred from
participating in HUD programs for a period of 18 months. In support of
its position, the Government states that:
"The wilful submission to HUD of documents containing false
information frequently causes the Department to sustain financial
loss on mortgages that it would otherwise not insure. Ms.
Arnold's conduct strikes at the very heart of this Department's
attempt to provide a decent home for every American family, and
clearly establishes that she has not demonstrated that HUD funds
will be properly utilized." (Government Exhibit 2.)
However, the Government also suggests that if sufficient mitigating
circumstances are present, it would be appropriate in fixing the period
of debarment to take cognizance of Arnold's ineligibility to participate
in HUD programs since June 7, 1976.
Appellant admits commission of the offense in question but contends
that it was an isolated incident and
"+ + + that her personal and professional character, reputation
and rehabilitation are of such a high degree and the liklihood of
reccurance (sic) is so slight that no public purpose would be
served by debarring her from participation in HUD programs."
Appellant asserts without contradiction that she has never before been
subject to disciplinary action of any kind.
Appellant is well educated and has participated actively in a number
of professional and civic organizations. She holds an MBA degree and a
teaching credential in Adult Education. She has been a California real
estate salesman since 1964 and a real estate broker since 1967.
Among her professional activities and accomplishments are positions
as a Director of the California Association of Realtors (1976), a member
of the Board of Directors of the Compton-Lynwood Board, President of
Women's Council of that Board (1973-1974), and President of the Board
itself in 1976. Appellant is also President of the Real Estate Advisory
Committee of the Southwest Community College Real Estate Workshop.
Appellant presently serves her community as a director of Hub City
Urban Developers, Inc., a nonprofit corporation promoting active
utilization of abandoned housing within the city of Compton, and she is
Housing and Finance chairman of that organization serving without
remuneration. She is also Treasurer and a member of the Executive
Committee of the Compton, California, Chamber of Commerce and
Vice-Chairman of the local Mental Health Commission.
Appellant has submitted ten character references from business and
personal acquaintances attesting to her personal and professional
honesty and integrity. Among those attestations are letters from the
United States Attorney for the Central District of California, two
judges of the Superior Court of Los Angeles, California, and various
community leaders.
HUD regulations pertaining to debarment provide in pertinent part:
Sec. 24.4 Definitions.
(a) "Debarment" means, in general, an exclusion from
participation in HUD programs for a reasonable, specified period
of time commensurate with the seriousness of the offense + + +.
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee, in the public interest for any of the
following causes:
(a) Causes.
(1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting to obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
Section 24.9(a)(1) of the regulation renders Appellant's conviction
for a criminal offense grounds for debarment per se. The question
presented here is what period of debarment is necessary to protect the
public interest, that is, the public interest in maintaining full and
free competition in the expenditure of public fund. See 24 C.F.R 24.5(
a) (1976).
Central to the achievement of that public interest is the
determination that those persons participating in HUD programs are
"responsible." That term has been defined in the context of Government
contracts by the Comptroller General as follows:
"'Responsible' imports something more than pecuniary ability,
and in the selection of the lowest responsible bidder, public
officers are required to consider not only the financial resources
of the bidder, but also his integrity, (and) fitness + + +."
(Emphasis added). 34 Comp. Gen. 86 (1950).
The essence of the actions underlying appellant's conviction is
fraud, commonly defined as "an intentional perversion of truth for the
purpose of inducing another in reliance upon it to part with some
valuable thing + + +." Black's Law Dictionary 788 (4th ed., 1951).
Appellant's actions clearly demontrate a lack of integrity, or
responsibility, essential to participation in HUD programs.
The lack of integrity in the instant case is particularly
reprehensible in view of appellant's education, achievements and
apparent standing in the community. Under ordinary circumstances such
actions would warrant imposition of the maximum period of debarment.
However, the record in this case supports the representation that
appellant's actions were an isolated incident in an otherwise
unblemished, even praiseworthy record. The record discloses the
following mitigating circumstances: (1) the operative events occurred
in August 1975, almost two years ago; (2) appellant's conduct prior and
subsequent to submission of the false reverification appears exemplary;
(3) appellant's integrity, honesty and reputation in the community have
been attested to by ten distinct sources as being of the highest
caliber; (4) appellant cooperated fully with Government authorities in
the criminal investigation and has demonstrated some remorse for her
fraudulent activities. The Government appears satisfied with appellant's
representations of her rehabilitation to the extent of recommending less
than the maximum period of debarment and a crediting of her period of
suspension to the recommended period of debarment. Should appellant
continue on her indicated course of conduct the qualities required of a
"responsible" Government contractor would be evidenced sufficiently to
protect the public interest in the integrity of the system whereby HUD
expends public funds. In view of these circumstances a period of six
months is judged a reasonable length of time for appellant to make such
a showing. That period takes into consideration the one year period of
appellant's suspension.
For all of the foregoing reasons, it is hereby determined that
appellant should be debarred for a period of six months commencing June
3, 1977, and ending December 3, 1977, pursuant to 24 C.F.R. 24.9 (a)(
1).
76-430-DB
In the Matter of: GERALD SCHILL, NEAL HORRALL and HOMESTEAD REALTY
CORP.
April 1, 1977
770401
James W. Mast
On December 2, 1975, Robert Odle, Jr., for the Assistant Secretary
for Housing Management of the Department of Housing and Urban
Development, herein the Department, served Respondents with written
notice of suspension under Part 24 of the Rules and Regulations of the
Department, herein the Rules. The Respondents were suspended because of
indictment by the United States District Court of the Southern District
of Indiana, Indianapolis Division on violations of 18 U.S.C. 371, 201(
c), 201(g). No request for a hearing on the suspension was made by
Respondents.
On May 24, 1976, Abner D. Silverman for James L. Young, Assistant
Secretary for Housing-Federal Housing Commissioner of the Department
served the Respondents with written notice that debarment pursuant to
Part 24 of the Rules was being considered because of their guilty pleas
to violations of 18 U.S.C. 371, 201(c), 201(g). On June 7, 1976,
Respondents requested a hearing on the matter. On July 23, 1976, the
parties were requested to submit their respective positions. On October
4, 1976, Respondents requested that the hearing be held in Indianapolis,
Indiana, because of the cost of transportation for witnesses. This was
followed by Respondents filing their positions on October 31, 1976.
Respondents' motion for change of venue was granted on October 14, 1976.
Counsel for the Department filed its summary of issues and evidence on
November 8, 1976. On December 2, 1976, the hearing was rescheduled for
February 28, 1977. This scheduled hearing was cancelled because of an
agreement reached between the parties.
On March 31, 1977 a Formal Settlement Agreement on Debarment and
Restitution was submitted to the undersigned for approval. (Copy
attached).
After consideration of the Settlement Agreement, it appears that it
is consistent with the purposes and policies of the Department's Rules,
Part 24. Accordingly, the Settlement Agreement is adopted as the Initial
Determination in the case.
It is ordered as follows:
1. That in order to protect the public interest, Gerald Schill, Neal
Horrall and Homestead Realty Corp. shall be debarred from participation
in Departmental programs from March 29, 1976, to September 29, 1977.
2. That during said period of debarment, Gerald Schill and Neal
Horrall shall make restitution to the Department of Housing and Urban
Development in the total sum of one thousand, three hundred and
twenty-four dollars ($1,324.00), with each individual being responsible
for payment of $662, representing the sum alleged to have been received
by said individuals in the criminal indictment which formed the basis of
the suspension heretofore imposed by the Department on December 2, 1975.
3. That payment of the restitution in paragraph 2 above shall be a
condition precedent to the reinstatement or rescission of the debarment
by the Department of Housing and Urban Development against Gerald
Schill, Neal Horrall and Homestead Realty Corp.
4. Reinstatement has no effect on the right of the Department of
Justice to initiate a civil recovery action against Respondents for acts
or omissions of Respondents prior to or after the date of reinstatement.
76-428-DB
In the Matter of: MERINER CHARLES HOLMAN, d/b/a/ HOLMAN & ASSOCIATES
January 7, 1977
770107
B. Paul Cotter, Jr
By letter dated June 7, 1976, the Assistant Secretary for Housing
Production and Mortgage Credit - FHA Commissioner, David S. Cook,
suspended Appellant, Meriner Charles Holman ("Holman"), from further
participation in all Department ("HUD") programs and initiated this
debarment proceeding. (Government Exhibit 1.) The letter stated that the
basis for the action was Holman's conviction by the United States
District Court for the Central District of California for violation of
18 U.S.C. 2(b) and 1012. Holman timely petitioned for a hearing and,
subsequently, in a telephone conversation with Administrative Judge
Michael F. Burke, requested that this matter be determined on the
written record (Appellant Exhibit 1; Government Exhibit 2). Evidence
was submitted by both Holman and the Government in the form of originals
and copies of the District Court proceeding, sworn statements and
correspondence. On November 30, 1976, the undersigned was designated
Hearing Officer for this matter in place of Administrative Judge Burke.
On March 15, 1976, FBI Special Agent Ralph E. Lumpkin filed a
Complaint charging that on or about May 23, 1973, Holman knowingly and
fraudulently made and caused to be made false statements on FHA Form No.
2004-G, "Request for Verification of Employment." The false statements
consisted of a verification that one Gertie M. Cason ("Cason") had been
employed at Turner Walker Realty for five years at a monthly salary of
$750.00 (Government Exhibit 3). In an Affidavit attached to and
incorporated in the Complaint, Lumpkin stated that Holman told him on
December 30, 1975 that: (1) Cason was an alias for one Mitzi Lee
Crudupt; (2) Holman, Crudupt and a Turner Walker sales agent arranged
to sell certain real estate to Crudupt using the alias; and (3) Holman
verified the Cason employment on the FHA form even though he knew the
information "was false and that the form was being submitted to HUD."
(Government Exhibit 4.) On March 16, 1976, the day after the Complaint
was filed, Holman, represented by Counsel, pled guilty and was convicted
of violating 18 U.S.C. 2(b) and 1012. He was fined $250.00 by the Court
(Government Exhibit 5).
In a Declaration under penalty of perjury executed November 22, 1976,
Holman reaffirmed the truth of the Lumpkin Affidavit, but with two
qualifications. In response to the conspiracy charge, Holman declared
that while he knew the property was to be sold to Crudupt, he did not
know until later that the Cason alias was to be used. In response to the
charge of verifying the form with knowledge that the information was
false and was to be submitted to HUD, Holman declared that he signed the
form in blank and that the false information was filled in after he
signed. Holman also declared that he "did not receive a dime for this
transaction." (Appellant Exhibit 2.)
Section 24.9 of HUD's regulation governing debarment and suspension
provides in pertinent part:
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes.
(1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting to obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
The Government urges that Holman be debarred pursuant to 24 C.F.R.
24.9(a) because he is guilty of criminal misconduct. That contention is
essentially uncontradicted. Holman's Declaration under penalty of
perjury does not contravene the essence of the misconduct for which he
was convicted, namely, causing false and fraudulent statements to be
made to HUD. The Declaration merely presents a more detailed statement
of the proscribed acts and their time. Holman's conviction falls
squarely within the ground for debarment set forth in Section 24.9(a).
The record reflects three facts bearing on the appropriate period of
debarment: (1) Holman's conviction was based on a single transaction, a
misdemeanor; (2) the conduct complained of occurred three years prior
to Holman's conviction and suspension; and (3) the record is devoid of
any other evidence of misconduct contemporaneous with or subsequent to
the conduct for which Holman was convicted.
In sum, Mr. Holman was convicted of a fraudulent act but has
apparently maintained an unblemished record since the act was committed.
Ordinarily, such a fraud on the Government would warrant a substantial,
if not the maximum, period of debarment to protect the interest of the
public in the integrity of HUD programs and the lawful expenditure of
public funds. However, the apparent isolated nature of the incident and
the absence of any evidence of misconduct for a substantial period of
time mitigate in Mr. Holman's favor. Accordingly, a six-month period of
debarment is warranted. Appellant will have been ineligible to
participate in HUD programs for a total of one year from the original
suspension date, June 7, 1976. That one-year period is judged sufficient
to protect the best interests of the Government.
Upon consideration of the entire record in this matter, it is hereby
determined that Appellant Meriner Charles Holman, Holman and Associates,
and all his affiliates should be debarred for a period of six months
commencing January 7, 1977, and ending July 7, 1977, pursuant to 24
C.F.R. 24.9(a)(1).
76-427-DB
In the Matter of: PAUL R. HOFFERBER and STAR REALTY
August 19, 1976
760819
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in 24.10(b)(3), this Initial Determination is final
unless reversed or modified within thirty (30) days by the Assistant
Secretary for Housing - Federal Housing Commissioner. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
In a letter dated June 11, 1976, then Assistant Secretary David Cook
notified Mr. Paul R. Hofferber and Star Realty (hereinafter referred to
as Appellant) of his suspension from further participation in HUD
programs. In addition, he was advised that the Department was
contemplating his debarment. The reason for these actions was that the
Department had been advised of Appellant's conviction in the U.S.
District Court for the Northern District of Indiana for violations of
Title 18, U.S.C., Sections 1010 and 2. That letter further advised
Appellant of the right to a hearing in accordance with the provisions of
24 C.F.R. 24.10. By letter dated June 18, 1976, Appellant requested a
hearing. A hearing was conducted in this matter at HUD Headquarters, on
July 29, 1976. Mr. Samuel Hamilton, Esquire, of the HUD Office of
General Counsel, represented the Government, while Appellant appeared on
his own behalf.
At the hearing, Department Counsel introduced into evidence a copy of
an information that charged Appellant with knowingly and willfully
making a false statement to the Department concerning a mortgagee's
application. The substance of the offense was that the Appellant caused
statements to be submitted to the Government which represented that
individuals had made a cash deposit of $800.00 and had assets totalling
$5,450.00 on July 24, 1971 in application for FHA mortgage insurance
wherein Appellant well knew that a deposit of only $50.00 had been made
and that the total assets did not exceed $1,000.00. These alleged false
representations were in violation of Sections 1010 and 2 of Title 18 of
the United States Code. Department Counsel also introduced into evidence
a copy of a Judgment and Probation Order issued by the U.S. District
Court for the Northern District of Indiana, dated April 23, 1976,
wherein it is indicated that Appellant pleaded guilty to one count of a
violation of Title 18, U.S.C., Sections 1010 and 2. Appellant was
placed on probation for a period of one year and fined $200.00.
Appellant testified on his own behalf and stated that he is the
president of Star Realty and has been in the real estate business for
approximately 18 years and during that time has had extensive dealings
in the FHA program. He pointed out that this is the first time he has
ever had any involvement with the law insofar as any violations on his
behalf or that of his company were concerned. Appellant further stated
that at the time he got his notice of suspension in June of 1976, his
company was doing approximately 75% of its business with FHA or VA.
Appellant does not deny the fact that he entered his plea of guilty
in this matter. He stated that the investigation concerning this offense
goes back to 1971 and that it has been under investigation for many
years by the U.S. Attorney's Office in the Northern District of Indiana.
About three years ago, he turned over all of his books and records to
the U.S. Attorney and believed that was the end of the matter until this
matter resulted in his being charged with the offenses this past year.
In mitigation of the offense, Appellant stated that the charge against
him involves the fact that a purchaser of a home when he or she does not
have sufficient downpayment offers to perform certain services in
exchange for a reduction of the downpayment amount. Appellant testified
that this is a common practice in the real estate business in his area,
and that it is done by many other realtors as well as himself. He does
not excuse his involvement in this matter. Appellant testified that
since he first became notified that this type of activity was
prohibited, he has ceased to get involved with it. This type of service
in lieu of full downpayment is referred to in the real estate business
as a "painting allowance."
After the hearing was over, Appellant submitted into the record seven
(7) letters of character reference from business leaders, individuals in
the real estate profession, a minister, and a physician which attests to
Appellant's excellent reputation in his community for honesty and
integrity, (Hearing Officer's Exhibit No. 1).
The relative provision of the Department's Regulations (24 C.F.R.
24) relating to debarment provides as follows:
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
(a) Causes.
(4) Any other cause of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his duly authorized representative to warrant
debarment. Such determination shall clearly demonstrate that
participation by the contractor or grantee would be harmful to the
best interests of the public.
The record is clear in this matter that Appellant has entered a plea
of guilty for violation of Title 18, U.S.C., Sections 1010 and 2.
However, it must be observed that Appellant was placed on one year
probation and fined only $200.00 which clearly indicates that the judge
who handled the criminal case did not believe that the offense was of a
serious nature. Moreover, the offense involved here would appear to be
in the nature of a technical violation of the law.
Appellant does not deny that he was involved in the practice of
authorizing "painting allowances" as a means of enabling purchasers to
satisfy the requirements for downpayments on FHA properties. However,
Appellant points out that his actions never increased any commitment,
forms, or cost to the FHA but merely allowed people who weren't in a
financial position at that particular time to meet the minimum
downpayment requirements of the FHA. It appears that this practice was
quite common in his area, and, in fact, at certain times it has been
permitted under certain types of housing programs conducted by the FHA.
Under these circumstances, it is reasonable to assume that there was no
criminal intent to defraud the Government. In addition, Appellant has
been involved in the real estate business for nearly twenty (20) years
and has had extensive business dealings with FHA over that time. This is
the first time he had been involved in any irregularities with the
Government. Appellant has submitted into the record letters of character
reference which indicate that he is held in very high esteem by leaders
of his community.
Since Appellant has entered a plea of guilty to a criminal offense,
ground for debarment exists. However, based on all the circumstances in
this matter; the minor technical violation of the law, Appellant's
otherwise excellent reputation and the light sentence imposed by the
Judge, only a minimum period of debarment is warranted. The Hearing
Officer also takes judicial notice of the fact that accepting "painting
allowances," although improper, is a practice in wide use in the sale of
residential property. To impose a longer term of debarment would
constitute a penalty which is not within the spirit or meaning of the
HUD Regulations. Accordingly, it is the decision of the Hearing Officer
that Appellant be debarred for a period of three (3) months, and the
Hearing Officer takes into account the period under which Appellant has
already been suspended since June 11, 1976. Accordingly, it is the
Initial Determination of the Hearing Officer that Appellant be debarred
for a period ending September 20, 1976.
76-417-DB
In the Matter of: LEON SPENCER
May 20, 1977
770520
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Administrative Judge, upon consideration of the
record in its entirety issue that this Initial Determination, containing
the following order, pursuant to the authority delegated to Hearing
Officers of the Department of Housing and Urban Development under 24
C.F.R. 24.10(b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3) this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing - Federal Housing Commissioner. Notice
of Final Determination, which is conclusive, will be given in writing
and transmitted by registered mail by the Assistant Secretary.
On March 29, 1976, Leon Spencer (hereinafter Appellant) was notified
by letter from Assistant Secretary for Housing Production and Mortgage
Credit David S. Cook, that the Department was considering the debarment
of Appellant. Pending any hearing on the matter of debarment, Appellant
was notified of his suspension from further participation in HUD
programs. This proposed debarment action was initiated as a result of
the Department being informed of Appellant's conviction in the United
States District Court, Boston, Massachusetts, for violation of Title 18
U.S.C. Section 709. On April 3, 1976, Appellant requested a hearing.
By letter dated July 9, 1976, the undersigned advised Appellant that
if it would impose a financial hardship upon him to travel to
Washington, the hearing could be held on the written record.
Accordingly, Appellant was requested to submit his position regarding
his proposed debarment in writing. No response was received from
Appellant, and on January 18, 1977, Appellant was notified by the
undersigned that unless a communication was received from Appellant, a
Determination of Debarment would be initiated. Prior to issuing the
Determination, Appellant was again requested on April 12, 1977, to
submit his position in writing, otherwise his inaction would be deemed
as a waiver of the original request for a hearing as provided in the
regulations 24 C.F.R. 24.10(b). By copy of that letter, Government
Counsel was requested to submit its position in writing. On May 6, 1977,
Government Counsel submitted its Motion for Initial Determination. In
view of Appellant's failure to respond to the Hearing Officer's
correspondence over a prolonged period of time, an Initial Determination
will be issued.
The relevant regulations regarding the proposed debarment are set
forth in 24 C.F.R. 24, pertinent to the matter involved are the
following:
Sec. 24.4 Definitions
(a) "Debarment" means, in general, an exclusion from
participation in HUD programs for a reasonable, specified period
of time commensurate with the seriousness of the offense + + +"
Sec. 24.9
Causes and conditions applicable to determination of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the following
causes:
(a)(4) Any other cause of such serious compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his duly authorized representative to warrant
debarment. Such determination shall clearly demonstrate that
participation by the contractor or grantee would be harmful to the
best interests of the public.
In support of its Motion For Initial Determination, the Government
submitted a copy of a Judgment of Conviction entered against Appellant
in the United States District Court for the District of Massachusetts on
June 24, 1975 (Govt. Exhibit No. 1). That document disclosed that
Appellant had pled guilty to one count of making a false statement in
violation of Title 18 U.S.C. Section 709. The gist of the offense was
that Appellant knowingly and intentionally made a false representation
that his aluminum siding business had been endorsed, authorized,
appraised and approved by the Department. As a result of his guilty
plea, Appellant was fined $300.00.
The Department contends that the offense involved is of a serious and
compelling nature, and accordingly maintains that such conduct shows a
lack of business responsibility on the part of Appellant which warrants
debarment. Appellant has not submitted any statement in explanation of
this incident although requested to do so on several occasions by the
Hearing Officer.
The offense that Appellant has committed was an act of fraud against
the Government and was the type of conduct that injures those persons
who rely on qualified tradesmen to repair houses under Government
approved and financed programs. In this matter, Appellant failed to
follow-up his hearing request and to present the full type of
presentation afforded individuals who have been suspended and whose
debarment is being considered. (24 C.F.R. 24.10, et seq.). Thus, there
is no evidence of a mitigating nature in the record to assist in my
decision as to whether debarment is called for or, if so, what would be
an equitable period of debarment. The light sentence imposed by the
Judge in Appellant's criminal case, a $300 fine, indicates that the
Judge found the offense not to be of a serious nature.
A review of the record in this matter discloses that the offense to
which the Appellant has pleaded guilty comes within the causes
applicable to a determination of debarment, 24 C.F.R. 24.9(a)(4).
Clearly, any individual, such as Appellant, who misrepresents his
qualifications to the public, has demonstrated a total lack of
responsibility and should not be permitted to participate in programs of
this Department. The HUD Regulations provide that debarment "shall be
used for the purpose of protecting the public and not for punitive
purposes." (24 C.F.R. 24.5(a)). Here the public deserves protection from
an individual who misrepresents that he is licensed by the Department.
DETERMINATION
It is my Initial Determination that Appellant be debarred for a
period commencing on May 20, 1977 and ending on March 29, 1979. In
establishing the term of debarment, due consideration is made of the
fact that Appellant has been suspended since March 29, 1976.
76-416-DB
In the Matter of: C. FREDERICK BRAVE
August 4, 1976
760804
Michael F. Burke
A hearing having been requested in the above-entitled proceeding but
disposed of by agreement between the parties, I, Michael F. Burke, as
Hearing Officer, issue this Initial Determination in accordance with the
understandings reached in that agreement pursuant to the authority
delegated to Hearing Officers of the Department of Housing and Urban
Development under 24 C.F.R. 24.10(b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing - Federal Housing Commissioner. Notice
of Final Determination, which is conclusive, will be given in writing
and transmitted by registered mail by the Assistant Secretary.
By letter dated February 3, 1976, Assistant Secretary David S. Cook
notified C. Frederick Brave (hereinafter referred to as Appellant) that
the Department had been informed that Appellant had been convicted by
the U.S. District Court for the Eastern District of Louisiana of
violation of Title 18, U.S.C., Sections 2 and 10. The letter further
advised Appellant that he was thereby suspended from further
participation in HUD programs and, that in order to protect the public
interest and the interest of the Department, Appellant's debarment from
participation in all HUD programs was being considered. Appellant was
advised of its right to a hearing concerning his proposed debarment in
accordance with the provisions of 24 C.F.R. 24.10.
By letter dated March 29, 1976, Appellant acting through his attorney
requested a hearing. A hearing was scheduled in this matter for June 29,
1976. Prior to that date, Department Counsel requested the Hearing
Officer for an indefinite postponement of the hearing in light of the
fact that the parties were meeting to attempt to settle this matter by
negotiation. This request was granted on June 29, 1976. Subsequently,
by memorandum received on August 2, 1976, the Hearing Officer was
advised that the parties had entered into an agreement to settle this
matter.
The memorandum executed on behalf of the Government by Counsel and by
Counsel for Appellant indicates that the parties have agreed that
Appellant will be debarred for a period commencing February 3, 1976
until February 3, 1977. The parties also represented to the Hearing
Officer that the Assistant Secretary for Housing had approved this
settlement by memorandum dated July 13, 1976, (Exhibit No. 1). The
parties, therefore, requested a Final Order to be issued by the Hearing
Officer debarring Appellant or any concern, corporation, partnership, or
association in which he has a substantial interest in participation in
HUD-assisted programs pursuant to the above-cited terms.
In view of the settlement reached between the parties to this matter,
and in view of the fact that it has been approved by the FHA
Commissioner, the Initial Determination will be issued in accordance
with the provisions of the settlement. The parties have requested that a
Final Order be issued by the Hearing Officer debarring Appellant.
However, under HUD Regulations governing Debarment, Suspension and
Ineligibility of Contractors and Grantees, and specifically under 24 C.
F.R. 24.10(b)(3), a Hearing Officer is only authorized to make an
Initial Determination which is subject to review by the Assistant
Secretary who initiated the action. Therefore, my decision is issued
pursuant to the limitations of authority contained in those Regulations.
Accordingly, it is the Initial Determination of the Hearing Officer
that Appellant be debarred from further participation in HUD programs
until February 3, 1977.
76-415-DB
In the Matter of: JACK DIFFERENT
July 13, 1976
760713
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Community Planning and Development. Notice of
Final Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated December 16, 1975, Jack Different (hereinafter
referred to as Appellant) was notified by Assistant Secretary Meeker of
his suspension from further participation in programs of the Department
of Housing and Urban Development (hereinafter referred to as the
Government). This suspension was based upon an indictment returned by
the Federal Grand Jury for the Southern District of Mississippi charging
Appellant with violations of Title 18 U.S.C. Sections 657 and 2. The
letter also advised Appellant of its right to a hearing under 24 C.F.R.
24.10. Subsequently, the Government, by its letter of January 27, 1976,
removed the suspension because it had been informed of the dismissal of
the indictment against Appellant. On March 16, 1976, Appellant was again
suspended and advised of his proposed debarment by the Government based
upon Appellant's plea of guilty before the United States District Court
for the Southern District of Mississippi for violations of Title 18
U.S.C. Sections 1012 and 2. On March 26, 1976, Appellant requested a
hearing.
The hearing was held in HUD Headquarters on June 17, 1976. Phillip
Schulman of the HUD Office of General Counsel appeared on behalf of the
Government, and Paula P. Newett represented Appellant.
Appellant was the Executive Director of the Gulf Regional Planning
Commission (GRPC) of Gulfport, Mississippi during 1973. During the
period from May 31, 1973 until May 31, 1974, GRPC received HUD grant
awards, specifically 701 comprehensive planning awards and, therefore,
GRPC was a grantee of HUD. At the hearing, Department Counsel introduced
into evidence a Judgment and Commitment Order, dated October 30, 1975,
whereby Appellant pleaded guilty to willfully and unlawfully receiving
compensation, rebate, and reward in the form of payment for unauthorized
expense, (Government's Exhibit No. 2). Appellant was given a one (1)
year suspended sentence, placed on one (1) year inactive probation, and
directed to make restitution of $2,250. The specific nature of the
offense involved expenses charged by Appellant to GRPC for a conference
conducted by the National Association of Regional Conferences in Miami,
Florida during the period of October 1 through October 5, 1973, when in
fact no such conference was scheduled for that time. It was alleged in
the Complaint filed by the FBI on October 30, 1975, that Appellant's
expenses in connection with the Miami trip amounted to $1,968.94,
(Government's Exhibit No. 1).
Appellant testified on his own behalf and stated that the trip to
Miami was arranged by a subordinate, and he didn't realize that there
was not a conference scheduled there until his arrival. He stated that
he traveled around the Miami area and made a report of his trip. Later
in early 1974, some staff members of GRPC brought to his attention
evidence of some irregularities in GRPC's books. Appellant immediately
brought this to the attention of the FBI for an investigation.
Appellant introduced into the record seven letters of character
reference, (Appellant's Exhibit No. 4). Appellant also stated that he
had worked in connection with HUD funded programs over a period of many
years, and this was the first time he was involved in any impropriety.
The relative provision of the Department's Regulations (24 C.F.R.
24) relating to debarment provides as follows:
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
The Department Regulations (24 C.F.R. 24 et seq.) concerning
Debarment, Suspension, and Ineligibility of Contractors and Grantees
provide in pertinent part in Section 24.3(a)(3):
(a) This part applies to + + + (3) public and private
organizations and individuals who are contractors with or grantees
of the Department and to all who receive HUD funds from such
contractors or grantees; + + +
In this matter, Appellant was an employee of the Gulf Regional Planning
Commission, which was a HUD grantee. Therefore, Appellant is subject to
these Regulations.
A review of the record indicates Appellant entered a plea of guilty
to willfully and unlawfully receiving compensation for unauthorized
expenses. The Judgment of Conviction also indicates that Appellant was
represented by counsel at the time he entered the plea. Moreover,
Appellant does not contest the validity of the conviction, (Tr. 14).
Department Counsel argues that it is in the best interest of the
Government to debar Appellant.
Appellant contends that, while not contesting the conviction, the
circumstances of the offense are mitigated by the fact that he
incorrectly relied on a subordinate who handled the arrangements for the
Miami trip. Appellant introduced into the record seven letters attesting
to his outstanding record and achievements in his community as well as
of his high character and business integrity. These letters were from
the Mayor of Biloxi, the Mayor of Pass Christian, and other civic
leaders.
Notwithstanding the otherwise distinguished record of Appellant, his
plea of guilty to the offense involved here warrants debarment. The
willful receipt of expenditures for the trip to Miami constituted a
fraud against the Government. In regard to the period of debarment, the
Hearing Officer has taken into account the seriousness of the crime and
also considered all of the mitigating circumstances. It is the decision
of the Hearing Officer that Appellant should be debarred for a period of
two (2) years. That period of debarment is established rather than the
maximum period of three (3) years because of the excellent reputation
Appellant has had and his contributions to his community. Moreover,
there is every reason to believe that he will be able to continue these
community efforts in the future.
It is the Initial Determination of the Hearing Officer that
Appellant's debarment is in the best interest of the Government. The
period of debarment is to commence from the date of this Initial
Determination and continue for a period of two (2) years from that date
76-411-DB
In the Matter of: ROBERT N. LANDRUM
August 19, 1976
760819
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing - Federal Housing Commissioner. Notice
of Final Determination, which is conclusive, will be given in writing
and transmitted by registered mail by the Assistant Secretary.
By letter dated March 3, 1976, Robert N. Landrum (hereinafter
referred to as Appellant) was notified by Assistant Secretary Cook that
the Department of Housing and Urban Development (hereinafter referred to
as the Government) was in receipt of information which indicated
irregularities of a very serious nature which were allegedly committed
by Appellant in his business dealings with the Government.
Specifically, Appellant was informed that an FBI investigator report
disclosed that Appellant may have submitted false information in
connection with an application for an FHA mortgage approval concerning
the Landrum Mortgage Corporation. The substance of the alleged offense
includes the fact that assets represented as being those of the
Corporation were in fact not assets of that corporation. In addition,
there was a representation of certain individuals listed as being
officers of that corporation other than Appellant himself who apparently
were not in fact officers of this corporation. Because of the serious
nature of these allegations, Appellant was advised in that letter of his
suspension from further participation in HUD programs and that the
Department was contemplating his debarment. Appellant was further
advised of its right to a hearing in accordance with 24 C.F.R. 24.10.
By letter dated March 26, 1976, Appellant requested a hearing. A hearing
was conducted in Chicago, Ill., on June 23, 1976. Mr. Robert H.
Holloway, Esquire, appeared on behalf of Appellant, and John P. Witsil,
Esquire, of the HUD Office of General Counsel, represented the
Government.
The Government offered into evidence a copy of an application for
approval as a mortgagee submitted to the FHA on behalf of Landrum
Mortgage Corporation signed by Appellant, dated September 30, 1968. One
of the representations of this application was to the effect that the
applicant would maintain net worth of $100,000 or more with assets
acceptable to FHA, (Government's Exhibit No. 1). In addition, the
Government offered into evidence a letter from Appellant to FHA, dated
November 18, 1968, wherein five (5) individuals were identified as being
stockholders and officers of the Landrum Mortgage Corporation,
(Government's Exhibit No. 2). The Government presented as a witness FBI
Special Agent Robert G. Tompkins, Jr. who testified that he interviewed
Appellant on September 6, 1973 in regard to the FHA application
submitted by Landrum Mortgage Corporation. A copy of the FBI interview
was introduced into evidence, (Government's Exhibit No. 3). Mr.
Tompkins testified that in the course of his interview with Appellant,
Appellant admitted the individuals listed as officers of the Landrum
Mortgage Corporation were not in fact officers of this corporation.
Appellant's explanation of the listing of these names was to the effect
that he believed he must put down additional names besides himself in
order to qualify as an FHA insured mortgagee. Further, during the course
of the interview, Appellant stated that he owned the assets of the
corporation personally and not the corporation. Moreover, he advised the
FBI agent that he never transferred the personal assets from his own
listing to that of the corporation. In explanation of this, Appellant
stated he needed to show assets in excess of $100,000 to qualify as an
FHA approved mortgagee and that is why he listed his personal assets.
Appellant testified on his own behalf. Appellant is 71 years old and
has been involved in the real estate business in the Chicago area for 35
years. Appellant testified fully and forthrightly about the allegations
made against him. He did not deny the substance of the statement made to
the FBI agent, Mr. Tompkins. However, he did state in his own behalf
that the matter involving the FHA application evolved as follows: He
stated that in 1968 he was talking to a Mr. Douglas who was at that time
Assistant to the HUD Regional Director, Mr. Stevens. He was exploring
with Mr. Douglas the possibility of getting approved as an FHA
mortgagee. Appellant testified that Mr. Stevens encouraged him to make a
formal application for an FHA approved mortgagee. Appellant discussed
with Mr. Douglas a listing of his assets, and he was assured by the HUD
representatives that these would be acceptable to the Government.
Appellant incorporated the Landrum Mortgage Corporation under the state
laws of Illinois. Appellant's attorney represented at the hearing that
under the state laws of Illinois, one individual can file an application
for incorporation. Appellant stated that when he did file his
corporation papers for incorporation with the Secretary of the State of
Illinois, he did so without the assistance of an attorney. Subsequently,
he received a charter from the State of Illinois and in addition his FHA
approval for the corporation. Appellant testified that he never did any
business as an FHA approved mortgagee, although he acknowledged that the
corporation itself did so. However, it appears that shortly after he
received his mortgagee approval he entered into a period of business
decline and suffered the loss of his personal assets. One of the
officers listed as a corporate officer was, in fact, Appellant's
personal secretary. Appellant also introduced into evidence a letter
from another corporate officer asserting he had been informed by
Appellant that he was to be an officer.
Appellant testified that he never intentionally misrepresented
anything to the Government and that no deceit or fraud was ever
perpetrated by him with the Department. In regard to the alleged offense
involving his failure to transfer his personal assets to that of the
corporation, Appellant testified that he was never advised by the
Government representatives that he had to transfer these assets to the
Corporation.
The relative provision of the Department's Regulations (24 C.F.R.
24) relating to debarment provides as follows:
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
(a) Causes. (4) Any other cause of such serious and compelling
nature, affecting responsibility, as may be determined in writing
by the Secretary or his duly authorized representative to warrant
debarment. Such determination shall clearly demonstrate that
participation by the contractor or grantee would be harmful to the
best interests of the public.
The Government moves that Appellant be debarred because of his
knowingly and willfully submitting false information to the Department.
In the Government's view, this constitutes a lack of business integrity
which disqualifies him from conducting business with the Government.
Such lack of business integrity would fall within the prohibition of
Sec. 24.9(a)(4) "any other cause of such serious and compelling nature,
affecting responsibility + + + to warrant debarment. Such determination
shall clearly demonstrate that participation by the contractor or
grantee would be harmful to the best interests of the public."
Appellant's position is that there may be a technical violation of
the law involved, but in mitigation of this matter, Appellant asserts
that it became involved in this transaction with the knowledge of HUD
officials and that no intentional withholding of information was made at
that time. Moreover, in the filing of the corporation papers, Appellant
did not have the benefit of legal advice in this highly legal and
technical area. Furthermore, no fraud was ever perpetrated by Appellant
against the Government. As it appears from the record, Appellant did not
pursue the obtaining of FHA approved mortgages.
It must be further noted that the alleged offense here occurred in
1968. The FBI investigated the alleged offense in 1973 and no
prosecutive action was ever initiated by the Department of Justice.
Appellant has been a leader in the minority real estate field in the
Chicago area for many years. The letters of reference submitted on his
behalf indicate from both Government and civic leaders that he is well
thought of and has been active in the real estate field as well as civic
affairs in aid of minority businesses in the Chicago area. The Hearing
Officer takes notice of the forthright and emotional testimony which
Appellant gave at the hearing.
A review of this matter in its entirety fails to disclose any conduct
on the part of Appellant which could be construed as being of a "serious
and compelling nature affecting responsibility to warrant debarment."
The matter would appear to involve a minor technical violation of the
letter of the law, which was not pursued by the Department of Justice.
Moreover, the open conduct of Appellant in dealings with the HUD
representatives at the time he filed his FHA application and his
withdrawal from actively becoming an FHA approved mortgagee indicates no
fraud was ever perpetrated against the Government by Appellant.
Accordingly, it is the Initial Determination of the Hearing Officer
that this suspension be removed as there is not adequate evidence of a
serious and compelling nature affecting responsibility in the record to
warrant debarment.
76-402-DB
In the Matter of: THE WAYNE GROUP
August 29, 1977
770829
Michael F. Burke
A hearing having been held in this matter, I, Michael F. Burke, as
duly appointed Hearing Officer, upon consideration of the record in its
entirety, issue this Initial Determination containing the following
order, with my findings and conclusions attached and made a part hereof,
pursuant to the authority delegated to Hearing Officers of the
Department of Housing and Urban Development under 24 C.F.R. 24.10, et
seq.
This matter concerns the propriety of a Section 512 Determination
issued under the National Housing Act. The Section 512 Determination was
issued by the Area Director of the Detroit HUD Area Office on October
21, 1975, against The Wayne Group (hereinafter Appellant). This action
refused the benefits of participation under that Act for a period of
three years. In a letter dated January 20, 1976, to Appellant's Counsel,
the HUD General Counsel advised that Appellant had exhausted available
procedures for reinstatement by the Area Office Director and was,
accordingly, entitled to a hearing by Headquarters of the Director's
determination. This matter was assigned to the undersigned for a
hearing.
The conduct of the hearing in this matter was the subject of unusual
delays. Many of the records pertinent to this matter, including copies
of some of the contracts were transferred to the custody of the United
States Attorney's Office in Detroit after the matter was docketed for
hearing. This caused delays in the proceedings, prevented normal
pre-hearing discovery and resulted in many of the documents not being
made available as evidence at the hearing nor for subsequent submission
to the Hearing Officer.
Appellant (formerly Spade Development) applied for and received
certification from the Small Business Administration (hereinafter SBA)
as a minority contractor under what is known as the "8(a)" program. /1/
The 8(a) program is a small business set aside for qualified minority
contractors. Under this program, procurement officers of executive
departments or agencies, such as, the Department of Housing and Urban
Development (hereinafter the Government) award contracts to the SBA with
the understanding that SBA will then subcontract them to certified 8(a)
contractors. Under the terms of such contracts, HUD remains fully
responsible for the administration of the subcontracts, as was the case
here. The three contracts which are the subjects of this decision were
awarded under the "8(a)" program.
These three contracts were first let by HUD to SBA and will be
referred to by the designated HUD/SBA contract numbers, viz.
044-74-1567, 044-74-3089 and 044-74-3090 (hereinafter 1567, 3089 and
3090, respectively). These three contracts, in turn, were subcontracted
to Appellant. Contract No. 1567 was entered into on October 18, 1973 for
the repair of 25 houses and was completed in March of 1974 (Tr. 97, 98).
Contract Nos. 3089 and 3090 were both entered into on May 14, 1974, and
were for the repair of 14 and 30 houses, respectively. Contract No.
3089 was completed in December of 1974 (Tr. 99). Contract No. 3090 was
not completed, however, and in fact was the subject of a termination for
default action by the Government on September 25, 1975. The authority
under this statute was delegated to HUD Area Directors in the
implementing regulations, 24 C.F.R. Section 200.190 et seq., 1976 ed.
The regulations provide for a preliminary notice, then for an informal
hearing to be presided over by the Area Director (24 C.F.R. Section
200.192, 1976 ed.). These procedures were followed here and a final
Section 512 Determination was issued to Appellant on October 21, 1975,
based upon the following grounds:
I. Subcontracting without authority for supplies and services
in violation of Paragraph 5 of the Special Provisions of the SBA
contract.
II. Material failure to "carry out contractual obligations to
complete and deliver the properties repaired within the dates
specified by the contract terms." Specifically, the Area Director
referred to 9 of 23 properties which were not timely completed
under Contract No. 3090.
III. Requesting or receiving payment "for work which was
performed in a manner so deficient as to constitute material
nonperformance." Four specific properties were identified as a
basis for this charge, 18487 Woodingham, 20516 Appoline, 4743
Wesson, and 19422 Hanna.
After the final Section 512 Determination was issued, Appellant filed
a timely appeal and request for hearing as provided in 24 Section C.F.R.
24.5(c). A hearing was held on April 20, 1977 at HUD Headquarters in
Washington, D.C. /2/ Both parties submitted post-hearing briefs and
reply briefs. I. Subcontracting Without Authority
The first basis stated by the Area Director for the Section 512
Determination was Appellant's alleged failure to comply with Paragraph
5, Special Provisions, of the subject contracts, which provides that "+
+ + the Contractor agrees not to subcontract any of the supplies/
services specified herein without prior written approval of the SBA
Contracting Officer." /3/ In support of this contention the Government
offers affidavits signed by Appellant which attest to the fact that
subcontractors who performed work on various properties under the
subject grants had been paid for their work. (Government Ex. No. 5)
Appellant admits that a substantial amount of the work performed
under the subject contracts was subcontracted but asserts that it was
the understanding of all the parties involved that it would do so, (Tr.
124, 125, 141, 164). For example, Appellant testified that the HUD
Contracting Officer was aware of its contracting practices and verbally
approved of it (Tr. 172).
As stated at the hearing, on the matter of SBA written approval to
subcontract:
MR. MALECH: "Was there any written approval from HUD?
MR. ROCK: No, but the Contracting Officer verbally - - we
discussed this with him many times. He knew how we were operating.
He claimed to have no problem with that. Did the first clause that
you read
JUDGE BURKE: Excuse me, Mr. McKinnon, let him
WITNESS: - - the requirements as written. That was David
Jackokes who was the contract officer. He was well aware of how we
were operating. I met with David on a weekly basis, took him
progress reports, took him everything. Everyone was very scared in
town about this whole thing because it was a minority contractor,
they were intercity properties, everyone was very afraid. And we
did a lot of reporting and a lot of communications.
And everyone knew exactly what we were doing everyday. And we
were very pleased that - - everyone was very pleased that the
contract was performed in such a manner that it wasn't ahead of
schedule and such.
There was never a question or anything raised at that time as
to how we were operating. They were just so pleased that the
houses were getting done." (Tr. 172-173).
Further, Appellant argues that its Business Plan for the 8(a) program
which was approved by the SBA on September 24, 1973, stated specifically
that Appellant intended to use only 20% of its own forces and that
Appellant planned to obtain all of its field workers by trade through
subcontracting (Business Plan, Tab A, Appellant's Post-Hearing Brief,
Items III and IV(a)(1)). Moreover, it is pointed out that this Business
Plan was to apply for a period of three years. Although Appellant was
not given specific written permission to subcontract under the
individual contracts, Appellant argues that the SBA, HUD and Appellant
all anticipated that this Business Plan would be followed for
rehabilitation work in Detroit (Tr. 169, 170). Appellant contends that
the subcontracting provisions in the contracts were required by
regulations designed for a national 8(a) program, that local practice
for rehabilitation work required subcontracting and that the SBA and HUD
acknowledged this by acquiscing in Appellant's subcontracting practices
(Tr. 180, 181).
The regulations authorize the Area Director to issue a Section 512
Determination when he finds that the contractor "Has failed materially
to properly carry out contractual obligations with respect to completion
+ + +" of the contract (24 C.F.R. Section 200.190(c)). No definition or
guidance is provided by this regulation, however, with respect to what
constitutes material failure. Moreover, there is no legislative history
on the point. Nor has this Section been interpreted by the courts.
The issue presented, therefore, is whether Appellant, by its failure
to obtain written approval of the SBA to subcontract comes within the
definition of "failed materially to carry out" its contractual
obligations with respect to these contracts. The contracts which
Appellant entered into state that the purpose of the award to Appellant
is "to assist (it) toward achievement of viability + + +" and for this
reason the contractor may not subcontract without written approval of
the Contracting Officer. Yet, it is Appellant's argument, in essence,
that to achieve viability in this particular instance subcontracting was
a necessity. Appellant argues that it was unreasonable to maintain a
permanent work force because of: 1) the type of work engaged in (few
general contractors do not subcontract some of their work), 2) the
uncertainty of obtaining rehabilitation contracts (the approval of the
8(a) Business Plan did not assure that Appellant would obtain any
contracts), and 3) the difficulties encountered in performing once
contracts were obtained (viz, delays in obtaining walk-through
inspections and utility hook-ups) (Tr. 156, 157, 180, 195, 204).
Appellant's failure to abide by a formality cannot be deemed to have
been a material failure to perform its contractual obligations,
particularly where, as here, the contracting authorities permitted
Appellant to rely upon their failure to enforce that provision for a
substantial period of time. In addition, two of the three contracts
involved as a basis for the Section 512 Determination were completed
long before this action was taken. The Government's acquiesence in
Appellant's subcontracting may be likened to an estoppel. United States
v. Georgia Pacific Company, 421 F. 2d 92 (9th Cir. 1970).
Based upon the evidence in the record, it is found that the SBA
approved a business plan in 1973 which was to remain in effect for three
years, which approved the use of subcontracts by Appellant. Judicial
notice is taken of the fact that in construction work, there is always a
substantial amount of subcontracting. Secondly, the Government was aware
throughout the life of these contracts that subcontracting was being
undertaken. Therefore, if the Government believed that approval of
Appellant's subcontracts was a contractual requirement, it should have
directed this matter to Appellant's attention, as a matter of proper
contract administration, during the life of the contracts. Yet, it
failed to do so, and only after the contracts were completed or
terminated did the Government consider Appellant's alleged failure to
obtain SBA approval as a basis for administrative action. The Section
512 Determination is a very serious action and should only be imposed
when the preponderance of the evidence establishes a material failure to
carry out contractual obligations. It is, therefore, concluded that
Appellant's failure to obtain written permission to subcontract under
Contract Nos. 1567, 3089, and 3090 was not such a material failure as
would support a 512 Determination. II. Failure to Complete Properties
The second basis stated for the issuance of the Section 512
Determination was Appellant's material failure "to carry out contractual
obligations to complete and deliver the properties + + +" covered by
Contract No. 3090 in a timely manner. This contract was the subject of a
termination for default action on September 25, 1975. The propriety of
the Government's default action was the subject of a separate hearing
before the HUD Board of Contract Appeals on April 19, 1977, at HUD
Headquarters in Washington, D.C. A decision issued by the Board on
August 11, 1977, on the merits of the Government's action held that the
Government had waived the completion date for Contract No. 3090 and
that no new date for completion had been set. Therefore, the Board found
the default action had been issued improperly and it converted it into a
termination for convenience. Since it has been decided by the Board that
the default action was improper, the Section 512 Determination regarding
this contract for the grounds cited must also fail.
The Government in its post-hearing brief points out that the
Government's rights under the Default Clause of the contract are not
exclusive and, therefore, the Section 512 Determination may be properly
instituted for Appellant's alleged nonperformance of Contract 3090.
This may be so, but since it has been held that the default action was
improper, it follows that since the facts alleged by the Government are
identical with the basis for the default action, the Section 512
Determination cannot be sustained. III. Requesting or Receiving Payment
for Deficient Work
The third basis asserted as grounds for issuing a Section 512
Determination was requesting or receiving "payment for work which was
not performed or performed in a manner so deficient as to constitute
material nonperformance of (its) obligations." The Government specifies
four properties for which Appellant improperly requested or received
payment. Each property will be considered separately.
A. The Hanna Property
19422 Hanna was repaired by Appellant under Contract No. 1567. The
original inspection by a HUD Fee Inspector was conducted on March 18,
1974. Appellant invoiced the work on this property on March 20, 1974,
and received payment. An inspection report dated September 14, 1975, and
preprepared by a HUD staff inspector indicated that Appellant, by
voucher of April 10, 1974, had requested payment of the full contract
price for this property but in the Government's view a number of
requirements as called for in the contract specifications were not
complied with (Gov't. Ex. No. 71).
Appellant points out that the Hanna property was accepted and paid
for by the Government in March 1974 (Tr. 112-114; Appellant's No. 5).
It also emphasizes that the Government inspection took place eighteen
months after the completion of the contract and urges, therefore, that
the property was no longer Appellant's responsibility.
The Government does not dispute Appellant's testimony that Contract
No. 1567 was completed and payment made, including the work on the
property at 19422 Hanna. It argues, however, that Fee Inspectors are not
Government employees and the Government had the right to reinspect.
Inspection of the work by the Fee Inspector implies, however, that the
work has been accepted since the contract provides that:
"+ + + acceptance by the Government shall be made as promptly
as practicable after completion and inspection of all work
required by this contract. Acceptance shall be final and
conclusive except as regards latent defects, fraud, or such gross
mistakes as may amount to fraud + + +" (S.F. 23-A October 1969,
Paragraph 10(f), Inspection and Acceptance).
Since there was acceptance and payment for work performed on this
property, there is a presumption that the work was performed. It is,
therefore, inconsistent for the Government to pay for the completion of
work and to contend eighteen months later that the work was not
inspected or accepted. The only basis for the Government to pursue its
rights in the Inspection area is to allege "latent defects," or the
other grounds spelled out in the cited contract clause. However, the
Government does not allege that there were any latent defects in this
work or that fraud was involved and the record discloses no evidence of
such. Moreover, the contract contained a "Guarantee" provision. Under
that provision, Appellant guaranteed all work against defects in
workmanship and material for one year after the date of final
acceptance. (Clause No. 17, in Special Conditions for Bulk
Rehabilitation of One to Four Family HUD-Owned Properties.) Since the
acceptance occurred in March, 1974 Appellant's obligation under this
clause ceased in March 1975.
A review of the record regarding this property discloses there was an
"acceptance" and "payment" for work performed in March 1974. Eighteen
months later the Government reinspected and found that the work was not
performed as required by the specifications of the contract. Since it
was no longer Appellant's responsibility, unless "latent defects, fraud,
or such gross mistakes as may amount to fraud" can be shown, the Section
512 Determination action cannot prevail.
It would appear that the Government's proper cause of action would
have been to proceed under the Inspection Article if it believed that it
could establish a basis for asserting latent defects, fraud, or such
gross mistakes as may amount to fraud. It should also be noted that
vandalism is a common occurrence in HUD-owned properties and eighteen
months had elapsed since the time of inspection until the Government
reinspection. (Appeal of Simon Swartzentruber, HUDBCA No. 75-21, 76-1
BCA No. 11, 871). Thus, Appellant cannot be held responsible after
acceptance for the condition of this property with the exceptions listed
above.
Therefore, there is no evidence of a material violation of the
National Housing Act, or provisions thereunder, to sustain the Section
512 Determination regarding this property.
B. The Appoline Property
20516 Appoline was repaired by Appellant pursuant to Contract No.
3089, and was vouchered on January 27, 1975. The contract was completed
in December 1974. The voucher was not paid. An inspection report
conducted by the Government dated September 15, 1975, indicated that
Appellant requested payment for work not performed (Gov't Ex. No. 7B).
This report cited the many deficiencies found by the Government
Inspection.
Although Appellant has not received payment for work performed on
this property, Appellant contends that it was inspected and accepted in
December of 1974 (Tr. 110). In support of this position, Appellant
offers an inspection report dated December 12, 1974 (HUD-9519, August
1972). The report indicates that the work done on the property was
acceptable (Appellant's Ex. No. 4). This form was signed by a HUD Fee
Inspector. /4/ The Government asserts that these Fee Inspectors have no
power to bind the Area Director. Whether or not fee inspectors had the
authority to bind the Government it was not established by the
Government at the hearing. However, the contract provides that "+ + +
work under the contract is subject to final acceptance by the authorized
representative of the Area Director, DHUD." (Special Conditions for Bulk
Rehabilitation of One to Four Family HUD-Owned Properties, Paragraph 4,
Inspection and Acceptance.) Thus, a Fee Inspector could have the
authority to bind the Area Director if such authority was given. The
Hearing Officer has conducted over two dozen administrative hearings
involving the Detroit Area Office, and it takes judicial notice of the
fact that the Area Office delegated its inspection authority to non-HUD
employees; Fee Inspectors and City of Detroit Inspectors. Therefore, it
is reasonable to assume a Fee Inspector had inspection and acceptance
authority. Moreover, if the Government decided that the work was
improperly performed it had its recourse under the Inspection and the
Guarantee-provisions of the contract, without resort to the drastic
action of a Section 512 Determination. Therefore, it is my finding that
there is no evidence here of a material violation of the provisions of
the National Housing Act to support a Section 512 Determination.
C. The Wesson and Woodingham Properties
The remaining properties for which the allegedly improper requests
for payment were made are 4743 Wesson and 18487 Woodingham, both covered
by Contract No. 3090, which contract was the subject of the Government's
termination for default action. These two properties were deleted from
the contract, the former in April of 1975, and the latter in August 1975
(Tr. 137, 138; Appellant's Ex. Nos. 2 and 6, HUD BCA Docket No. 75-24).
The Appellant requested payment for partial work done on these
properties prior to their deletion from the contract. The deletion of a
property from the contract was a partial Termination for Convenience
action by the Government. The Government inspected these properties on
September 15, 1975, and found that some of the work vouchered for had
not been properly performed (Gov't. Ex. Nos. 7A and 7H).
Since the properties were deleted from the contract and work had been
undertaken on them, Appellant, properly invoiced the Government for the
work performed under the Termination for convenience provision of the
contract. The Government, of course, had the right and the obligation to
evaluate Appellant's termination claims.
The contract provides that the whole or any part of it may be
terminated for the convenience of the Government in accordance with
Section 1-8.703 of the Federal Procurement Regulations (Modifications to
General Provisions, Item 25(b)). This regulation requires the Contractor
to submit a termination claim for work done and provides that the
Contracting Officer and the Contractor may then agree upon the whole or
any part of that amount to be paid to the Contractor. Appellant's claim
for payment was a termination claim in accordance with this regulation.
The fact that the Government might not agree that he is due the total
amount is anticipated in the regulation. The proper method for
reconciling the differences between the parties is negotiation or, in
the event no agreement can be reached, the Contracting Officer may
determine, on the basis of the information available to him, the amount
due the Appellant. In regard to these properties, for example, on 18487
Woodingham, Appellant vouchered for $790, the Government initially
allowed no payment. However, that decision was modified to allow $565
for the roofing; it can be deducted that $225 remains in issue. On the
property at 4743 Wesson, Appellant filed a claim for $825. Of this
amount the Government allowed $240, leaving a disputed balance of $585
on this property. Therefore, approximately $800 of repair work is
disputed by the Government, on these two properties.
It is difficult to imagine how Appellant could be issued a Section
512 Determination for filing a settlement claim in accordance with the
Termination for Convenience clause of the contract. Such activity cannot
be construed as a material failure to properly carry out contractual
obligations such as would justify a refusal of participation under
Section 512 of the National Housing Act. cannot be sustained. /5/
Therefore, the Section 512 Determination action
Based upon a review of the evidence and the record of this matter, it
is my Initial Determination that the Section 512 Determination was not
supported by a preponderance of the evidence against Spade Development,
Inc., The Wayne Group, Inc., Clyde W. Hall, and David H. Eisenberg,
principals, and I find that no basis exists under 24 C.F.R. 24 et seq.
to warrant debarment; and, therefore, the Section 512 Determination is
removed.
1/ 13 C.F.R. Section 124.8-1 et seq. (1976), 15 U.S.C. Section 637.
On September 22, 1975, Appellant was issued a letter by the HUD
Detroit Area Director stating that the Area Director proposed issuing it
a Section 512 Determination. A 512 Determination is so called because it
is authorized by Section 512 of the National Housing Act, 12 U.S.C.
Section 1731(a), which provides in relevant part:
"The Secretary is authorized to refuse the benefits of
participation (+ + + indirectly as a building contractor, or
dealer + + +) under title I, II, VI, VII, IX, X, or XI of this Act
to any person or firm + + + if the Secretary has determined that
such person or firm has failed materially to properly carry out
contractual obligations with respect to the completion of
construction, alteration, repair or improvement work financed with
assistance under this Act + + +"
2/ Appellant was also terminated for default on the basis of
his performance of one of the contracts to which the 512
Determination related. An appeal of this termination was timely
filed and the HUD Board of Contract Appeals asserted jurisdiction.
A separate hearing on the propriety of the default termination was
held before the Board on April 19, 1977, in Washington, D.C. In a
decision issued by the HUD Board of Contract Appeals, the
Government's default action was held improper and the Termination
of the Contract was converted to a Termination for Convenience;
decision of August 11, 1977.
3/ The Government in its brief reasserts this as a ground for the
action taken and urges that Appellant, in addition, violated as
well the provisions of Paragraph 6, Special 8(a) Contract
Conditions, which requires that the Contractor obtain the written
approval of the HUD Contracting Officer before subcontracting.
4/ HUD had hired a number of Fee Inspectors to facilitate the
inspection of the large number of houses to be rehabilitated in
Detroit (Tr. 128).
5/ It should be noted that Appellant in its brief alleges that
issuance of the Section 512 Determination was based upon personal
animosity of the HUD Area Director toward its president, Clyde
Hall. I believe that this issue is not controlling here and,
therefore, my Determination was made based upon the evidence in
the record as it related to each of the three grounds of the
Section 512 Determination. However, it appears, without doubt, as
the Contracting Officer testified, that there existed "a climate
of disfavor" toward Appellant. This situation may not have been
the principal reason why the Section 512 Determination was
initiated, but it may explain why many of the contract problems
were not resolved in normal contract channels, and resulted in the
Government resorting to use the Section 512 Determination.
75-396-DB
In the Matter of: CHICK REED and CHICK REED DEMOLITION CO.
February 18, 1976
760218
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated September 3, 1975, Assistant Secretary H. R.
Crawford notified Chick Reed and Chick Reed Demolition Co. (hereinafter
referred to as Appellant) of their suspension as a HUD contractor. The
basis for the suspension was that an investigation undertaken by HUD had
disclosed that several purchase orders for the demolition of properties
which Appellant had undertaken for HUD were not properly performed. The
letter alleged that an examination of these properties disclosed that
decomposable material had been left in the properties instead of being
removed as required by the terms of these purchase orders. The letter
identified five (5) specific purchase orders which Appellant reportedly
had failed to satisfactorily perform. Appellant was advised of its right
to a hearing under the provisions of 24 C.F.R. 24.10. Because of a
change of address on the part of Appellant, he did not receive this
letter until several months later and did not request a hearing from the
Department until November 12, 1975. Although the request for a hearing
was not within the ten (10) day limit spelled out in the regulations,
the request was granted. The hearing was held on December 3, 1975 at the
HUD Area Office, Detroit, Michigan. John P. Witsil, Esquire, HUD Office
of General Counsel, represented the Government, and Appellant
represented himself.
Of the five (5) purchase orders involved in this hearing, three (3)
of the purchase orders (Government's Exhibit Nos. 1B, 1C, and 1D) state
as follows: "Building to be demolished." These purchase orders do not
establish the requirement clearly nor do they indicate what
specifications were to be followed or in what manner the properties were
to be demolished. Accordingly, because of the vagueness of the
requirement, these three (3) purchase orders are eliminated from our
consideration in this matter. The remaining two (2) purchase orders
which were issued on January 22, 1973 and January 19, 1973,
respectively, indicate that the requirement is as follows: "Demolish
dwellings as per specs."
During the hearing, the Government introduced into evidence
Inspection Reports regarding these two (2) specific properties. The
Inspector who conducted the investigations and examinations of these
properties as part of a HUD Task Force in May 1975 appeared as a
witness. The Inspection Report regarding the property at 12042 Ward,
Detroit (Government's Exhibit No. 3) states:
"Started 11:25, completed 11:45
At a depth of 6" found the top of the foundation wall.
Excavated 2 to 3 ft deep. Basement was filled with a large
quantity of wood, some large pieces of concrete, scrap metal -
appears to be the remains of an entire house."
Photographs were also introduced into evidence (Government's Exhibit
Nos. 3A through 3G) pertaining to this property. The photographs
indicate, among other things, that there were remains of a wire fence, a
wood post, and many pieces of large wood.
The Inspection Report regarding the property at 12826 Mark Twain
(Government's Exhibit No. 7) indicates as follows:
"Started 10:50, completed 11:15
At a depth of 6", found a very large quantity, probably most of
the house, of very rotten wood, some scrap metal. At 2 ft, very
septic water."
Photographs regarding this property (Government's Exhibit Nos. 7A
through 7F) were introduced into evidence and showed that large amounts
of wood that were found in the property throughout the excavated area.
In explanation of the amounts of wood found in the properties,
Appellant stated that he had subcontracted out these properties to his
brother and acknowledged that he did not closely supervise them, (Tr.
18). Although Appellant was unable to furnish Inspection Reports
indicating satisfactory performance for these contracts, he stated that
he had received approval from both the City of Detroit and HUD on these
properties, and it was his belief that once he had passed final
inspection that there was no problem with the Government. Appellant did
not deny the existence of the wood in the properties. He stated that he
felt the Inspectors from both the City of Detroit and of HUD equally to
blame with him since they had approved these properties. Appellant
stated that he had taken these purchase orders at a low price, for
example the property at 12042 Ward was for $500 and the property at
12826 Mark Twain was for $650. The Hearing Officer takes Judicial Notice
of the fact that many of the properties in the Detroit area were
demolished under purchase orders where the price involved was in the
$1,000 to $1,200 range. Appellant stated that he had taken a loss on all
of the work that he had undertaken for HUD and apparently he did the
work to allow a cash flow. His opinion was that to the best of his
ability that he had performed within the funds on the purchase order.
The pertinent provision of the Department Regulations relating to
suspension (24 C.F.R. 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings + + +. (Emphasis added.)
The Government's basis for continuing the suspension is 24 C.F.R.
24.12(a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added.)
There are only two (2) purchase orders involved here for our
consideration. In both instances, Appellant testified that he took these
purchase orders at a loss. An explanation of why contractors take work
at a loss, it has been disclosed at this hearing that it is a means of
obtaining cash flow, (Tr. 67). However, performing work at a loss does
not excuse a contractor from fulfilling the requirements of the
contract. Even though Appellant may have performed the jobs to the best
of his ability within the budgets established for each of these purchase
orders, he failed to perform to the terms of the purchase orders. An
examination of these properties and photographic evidence introduced
into the record indicates that large amounts of wood were left in these
properties. The amounts of wood found in these properties is far greater
than could be considered "normal spillage." Appellant did not deny that
wood was found in these properties but stated that since there had been
an inspection and acceptance of these properties, either by HUD or the
City of Detroit, he was of the opinion that the contracts had been
satisfactorily performed. However, under either the HUD or the City of
Detroit inspection procedures, it was possible to pass inspection and
still have unauthorized debris left in the property. This could occur
because Inspectors inspected the open hole to see that the house was
removed and later made a final inspection when the property was graded
over. Between these two inspections, it is entirely possible to bury a
house or to put back dirt which contained debris. In addition, the
Government has the right to reinspect the properties, which it did here.
Appellant has testified that he subcontracted a part of the work to
his brother. Although it is permitted to subcontract work under these
purchase orders, the HUD specifications, nevertheless, require that the
contractor "provide competent superintendence." Appellant has
acknowledged that he did not monitor the subcontracted work.
The amount of wood found in these two (2) properties is so great that
it is reasonable to infer from all the circumstances that Appellant must
bear the responsibility for the violation. The photographs indicate
almost an entire house is buried in each of the two (2) properties, and
it is reasonable to assume that this debris was left by Appellant. It
was his responsibility up to the time of the final acceptance to
ascertain that no wood was left in the property.
A review of the entire record discloses adequate evidence of
violation of the requirements of the purchase orders. Therefore, the
suspension is upheld.
75-395-DB
In the Matter of: RICHARD BENFORD and ALL STAR WRECKING COMPANY
February 20, 1976
760220
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(2).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated September 3, 1975, Richard Benford and All Star
Wrecking Company (hereinafter referred to as Appellant) were notified by
the then Assistant Secretary for Housing Management of their suspension
as a HUD contractor. This suspension was based upon the results of an
investigation undertaken by the Department of Housing and Urban
Development (hereinafter referred to as the Government) which disclosed
alleged violations in the performance of certain purchase orders
undertaken by Appellant with the Government. The letter identified six
(6) purchase orders whose provisions were allegedly violated. The
purchase orders called for the demolition of houses on HUD-owned
properties. Allegedly, Appellant had failed to remove decomposable
debris from the properties as required by the terms of the purchase
orders and instead had used it as fill and buried it. The letter further
advised Appellant of its right to a hearing under the provisions of 24
C.F.R. 24.10, which was subsequently requested by Appellant. The hearing
was held on December 3, 1975 at the HUD Area Office, Detroit, Michigan.
John P. Witsil, Esquire, HUD Office of General Counsel, represented the
Government, and Appellant appeared on his own behalf.
At the hearing, the Government introduced into evidence six (6)
purchase orders which had been performed by Appellant. The alleged
violation of these purchase orders is the basis for the suspension of
Appellant. Of the six (6) properties involved, two (2) of the purchase
orders were issued in March of 1973, and copies of the purchase orders
indicate that they were accepted and forwarded to Washington, D.C. for
payment prior to June 30, 1973. In addition, subsequent to the hearing,
Appellant has submitted HUD Inspection Reports which indicate that the
two (2) properties in question (9142 Concord and 2585-87 Anderson
Street) were inspected and accepted by HUD in June of 1973. It has been
established in other hearings concerning suspensions of other demolition
contractors that on June 30, 1973 inspection authority was transferred
by HUD to the Inspectors of the City of Detroit and other
municipalities. It has also been established that after June 30, 1973
these municipalities inspected the HUD-demolished properties according
to their own specifications. Their specifications permitted hardfill,
i.e., bricks and concrete, to be left in the properties, while the HUD
Inspectors inspected according to HUD specifications which did not
permit hardfill in the properties. Under either specifications, that is
HUD or the City of Detroit, decomposable material, such as wood, was not
permitted to be left in the properties.
A HUD Task Force examined the six (6) properties in the Spring of
1975. At that time, Inspection Reports were made of the amounts of
debris and descriptions were made of the general condition of the
properties involved. Of the properties involved, there were large
quantities of wood found in each of the properties.
Appellant testified that he had started his own business in 1973.
Prior to that he had been involved in the demolition business for 23 to
24 years. Since he commenced his own business, he stated that he had
performed about 43 contracts for HUD. In addition, he has performed
approximately 200 to 300 jobs for the City of Detroit and for the City
of Detroit Board of Education. In explanation of the amounts of debris
found in the properties, Appellant stated that the ground in these
properties was soft and filled with moisture and that it was very
difficult for him to move the large excavating machines which weighed in
excess of 20 tons in and out of these properties without spilling
amounts of wood. He also testified that he recalls some Inspectors
allegedly told him that it was permissible to leave hardfill in the
properties as long as the property had been cleaned out. He could not
identify anyone specifically who had told him and did not recall if the
Inspector was from HUD or the City of Detroit. Hardfill was permitted
under the City of Detroit specifications but not under the HUD
specifications. Under both specifications, wood was prohibited.
Appellant testified that it was a common practice to leave wood in
the hole. He explained that if a machine operator had a half-bucket or
so of wood and if it were late in the afternoon they would bury it.
They would dig down as deep as possible in the property and bury it. He
stated that he believed it was the operators in many instances who had
buried this wood. He also related that other contractors who were doing
demolition work in the vicinity would bring debris over and for a
payment to the machine operator on the other property would be permitted
to dump half a load of debris in the property. However, no specific
evidence of "sneak dumping" by other contractors was offered by
Appellant. He related instances where he had discovered his machine
operators engaging in this practice. He also testified that when he did
discover such actions he made his operators clean up the properties and
also gave them time off without pay.
Subsequent to the hearing in addition to submitting HUD Inspection
Reports relative to two (2) properties involved in the hearing,
Appellant also submitted letters of reference from the Wayne County
School District, Detroit Public School System, and the State of
Michigan, Department of Social Services. All three (3) organizations
stated that Appellant had performed work for them and had done so in a
satisfactory manner.
The pertinent provision of the Department Regulations relating to
suspension (24 C.F.R. 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings + + +. (Emphasis added.)
The Government's basis for continuing the suspension is 24 C.F.R 24.12(
a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the bast
interests of the Department. (Emphasis added.)
Of the properties involved here, a review of the Inspection Reports
made by a HUD Task Force in the Spring of 1975 indicates a large
quantity of wood was found in each of the properties. The Hearing
Officer in other hearings relating to the suspension of demolition
contractors has taken Judicial Notice of the fact that normal spillage
occurs in the performance of these purchase orders. In addition to
normal spillage, Judicial Notice is also taken of the fact that in damp
weather wood can be ground into the property by the excavating machines.
Regardless of these considerations, however, the amount of wood found in
these properties here indicates a pattern where large quantities of wood
were found in each of the properties and in amounts that were in excess
of normal spillage. Moreover, Appellant did not satisfactorily explain
the presence of wood in the properties. He stated that it was a normal
practice and attempted to explain it on the customs of the operators in
burying wood rather than to take it out to the City dump which was 15
miles away. However, regardless of the fact that Appellant did not order
the wood to be put in the hole, he still retains responsibility as a
contractor for debris being left in the property until final acceptance.
Although there was HUD inspection and acceptance on two of these
properties and presumably City of Detroit acceptance on the other
properties, this inspection is not conclusive. The Government had the
right to reinspect the properties which it did here. Thus, when in each
of these properties there is found large amounts of wood and debris, it
is reasonable to infer the contractor who performed the work is
responsible for it, unless there is clear evidence to the contrary.
Accordingly, it is the conclusion of the Hearing Officer that
adequate evidence has been established to continue the suspension. This
finding is based upon the clear violation of the specifications in force
which establishes Appellant as not being responsible as required by the
Regulations (24 C.F.R. 24.12(a)(2)).
75-393-DB
In the Matter of: LEO ESPINOSA
August 13, 1976
760813
James W. Mast
On December 4, 1975, Michael T. Savage for the Assistant
Secretary-Commissioner, Housing Production and Mortgage Credit-FHA
Commissioner, Department of Housing and Urban Development, herein the
Department, served Respondent with written notice of suspension pursuant
to the Department's Rules and Regulations, herein the Rules, 24 C.F.R
24.15, because of his indictment by the Grand Jury for the United States
District Court for the Central District of California, implicating him
in violation of Title 18, Sections 1001 and 2(b), United States Code. On
December 17, 1975, Respondent by Counsel filed a request for a hearing.
On January 28, 1976, the under-signed requested Counsel for the parties
to submit their positions in writing. On March 9, 1976, Counsel for
Respondent requested that the hearing be transferred to Los Angeles,
California. On March 23, 1976, Counsel for the Department opposed the
transfer of the hearing. On April 15, 1976, it was ordered that the
hearing be moved to Los Angeles and scheduled for July 12, 1976. On June
28, 1976, Counsel for the Department moved to consolidate the notice of
suspension with a request for debarment based on Respondent's conviction
for violation of Title 18, Section 1001 and 2(b), United States Code. On
July 1, 1976, the Motion to Consolidate was granted. The hearing was
held as scheduled. The Department appeared by Counsel; Respondent
appeared in person and by Counsel.
Upon the entire record, I make the following:
Leo Espinosa is a real estate broker, licensed in the state of
California, doing business as Leo Espinosa, Realtor. He has been in the
real estate business in the San Bernadino, California, area for 9 years.
On October 23, 1975, Leo Espinosa was named as a defendant in a six
count indictment by the Grand Jury of the United States District Court
for the Central District of California in criminal case number CR75-1658
alleging violations of 18 U.S.C. 1001 and 2(b). On April 19, 1976,
Respondent entered a plea of guilty to violations of 1001 and 2( b) as
charged in Count two of the indictment. The Title 18 U.S.C. 1001 and
2(b) references are to making false statements in Veterans
Administration's transactions. The Court accepted Respondent's plea of
guilty; Respondent was assessed two years imprisonment and fined
$1,500.00. The imprisonment was suspended and Respondent was placed on
probation for three years. Counts 1, 3, 4, 5, and 6 were dismissed.
Count two alleged that on August 29, 1974, Respondent made false
statements on the VA form 26-253 (employment verification form) of
Ronald C. Adkins and caused it to be submitted to the Veterans
Administration. The incident was in a real estate purchase transaction
on property located at 1424 Belle Street, San Bernadino, California.
The false statement was that Adkins was employed as a cost estimator for
2 years by Ronald Woertink, contractor and owner of Apollo Pintary
Contractors, and that Adkins received wages of $1,680.00 per month. The
purpose of the false statement was to qualify Adkins for the purchase of
the property.
Respondent submitted evidence of his prior good record, his
reputation in his community, and his contribution to the community.
Further, Respondent's only source of income is his real estate business
Respondent is a contractor within the meaning of the Rules as an
indirect recipent of government funds from the sale of real estate by
Veterans Administration insured mortgages. Upon Respondent's conviction
of a crime involving real estate business with the government, the basic
requirements of debarment were established.
Counsel for the Department seeks a full three-year debarment.
Respondent argued that his criminal conviction was sufficient to
guarantee his future good behavior, that further suspension would be
counterproductive and punitive, and that he has already been suspended
since December 4, 1975.
It would be inappropriate not to debar Respondent in view of his
conviction of a crime involving his real estate business with the
government. As an experienced real estate broker he must be held fully
accountable for his misconduct. The submission of false statements in
order to accomplish a sale cannot be viewed as consistent with his
responsibilities.
In this case, however, there is no evidence of a pattern or practice
of such misconduct. It is appropriate in evaluating the seriousness of
the offense to consider the seriousness which the Court ascribed to his
criminal conviction. The Court in determining his punishment would
carefully examine his conduct, his prior record, and the desirability of
returning him to his community. Here the Court placed him on probation
and fined him. Under these circumstances a short period of debarment is
deemed appropriate. Accordingly, Respondent will be debarred for a
period of eighteen months beginning December 5, 1975, and ending June 4,
1977.
1. Leo Espinosa is a contractor within the meaning of the
Department's Rules, 24 C.F.R. 24.4(g).
2. By his conduct resulting in his conviction of violating 18 U.S.C.
1001, 2(b), Leo Espinosa violated the Department's Rules, 24 C.F.R.
24.9(a)(1).
It is ordered that Leo Espinosa is debarred from participation in
Department programs for a period of eighteen months beginning December
5, 1975, and terminating June 4, 1977. Department funds shall not be
expended for financial assistance to Leo Espinosa, Leo Espinosa Realtor,
or to any other concerns in which Mr. Espinosa has a substantial
interest. Bids or proposals shall not be solicited therefrom, and
subcontracts with him will not be approved unless it is determined to be
in the best interests of the Government.
75-392-DB
In the Matter of: GERALD A. WAECHTER and MONTGOMERY REAL ESTATE and
COMPANY
March 22, 1976
760322
James W. Mast
On January 12, 1973, Eugene A. Gulledge, then Assistant
Secretary-Commissioner, Housing Production and Mortgage Credit-FHA
Commissioner, Department of Housing and Urban Development, herein the
Department, served Respondent with written notice of suspension
effective January 5, 1973, pursuant to the Department's Rules and
Regulations, herein the Rules, 24 C.F.R. 24.10 because of his indictment
by the Grand Jury for the United States District Court, Eastern District
of Michigan, Southern Division "implicating (him) in the alleged making
of false statements to the Government." On September 14, 1974, Sheldon
B. Lubar, then Assistant Secretary-Commissioner, served Respondent with
written notice that debarment pursuant to the Department's Rules, 24
C.F.R. 24, was being considered because of his conviction by the United
States District Court, Eastern District of Michigan, Southern Division
of violations of Title 18, Section 1010 and 2(b) United States Code. On
September 4, 1975, Counsel for Respondent initiated a request for
reinstatement by the Department. On October 10, 1975, Respondent
requested reinstatement by the Department. On November 24, 1975, Michael
T. Savage for the Assistant Secretary-Commissioner, served Respondent
with written notice that debarment pursuant to the Department's Rules,
24 C.F.R. 24, was being considered because of his conviction as referred
to above in the letter of September 14, 1974. On December 2, 1975, the
undersigned wrote Counsel for Respondent and the Department and
requested their respective positions. On December 22, 1975, Respondent
filed his response. No response was filed by the Department. On January
27, 1976, a hearing was scheduled for March 15, 1976. The hearing was
held as scheduled. The Department appeared by Counsel and the Respondent
appeared in person.
Upon the entire record in the case, I make the following:
Gerald A. Waechter was President of Montgomery Real Estate and
Company and Monterey Real Estate, Inc. Both were closely held family
corporations. Respondent did business with the Department as a real
estate broker where sales were financed through FHA.
On January 3, 1973, Respondent along with 15 others were indicted on
173 counts of violating 18 U.S.C. 1010, 2(b) and 371, for making false
statements to the Department. On December 18, 1973, Respondent was
indicted on six counts of violating 18 U.S.C. 201(b) for bribing
employees of the Department to influence their official acts. On
September 13, 1974, Respondent entered a plea of guilty to four counts
of the former indictment and three counts of the latter. Respondent was
sentenced to two years imprisonment and fined $35,000. Additionally,
Respondent was placed on probation for 11 years. Respondent actually
served 10 1/2 months of his sentence. At present Respondent is still on
probation.
Respondent submitted evidence of his cooperation with the prosecution
in the investigation of the Department's Detroit office. He also
testified that his experience has changed him and that he would not
again to tempted to violate the law in his activities.
Respondent was a contractor as an officer of real estate companies
which were indirect recipients of funds from the Department because of
the mortgage insurance. Under the circumstances of his conviction, the
basic requirements for debarment were established.
The original suspension in this situation was an unsatisfactory risk
determination in January 1972. That suspension, however, is not at issue
in this case. Thereafter, the suspension in this case was effective as
of January 5, 1973. On September 14, 1974, the original notification of
debarment was served on Respondent by registered mail. The letters
directed to Respondent at the address of record were returned
undelivered. Although the failure of delivery depending on the reason
for the failure may have the effect of extending the time Respondent
would have to request a hearing, it does not vitiate the debarment
action. It is concluded that the debarment action here was initiated
September 14, 1974.
Respondent was a principal participant in the submission of false
information to the Department and in the bribing of government agents.
The 15 co-indictees in the first case were employees of Respondent. It
cannot be concluded that Respondent was caught up in a scheme in which
he was not a principal participant, nor did he make such a claim. It
should be noted, however, that Respondent's was not the only case
arising in the Detroit office. A number of the Department's employees
were participants in illegal acts. Respondent assisted the United States
Attorney and the Federal Bureau of Investigation in their investigation
of the Department's Detroit office and the prosecution of Department
employees. Also a number of other real estate companies were also
involved.
Additionally, Respondent cites the effect on his character of 10 1/
2months in incarceration. Presently, he is cooperating with the U.S.
Probation Office in assisting other parolees. Respondent submits his
changed attitudes and sense of values as warranting an immediate
termination of debarment. The Department argues for a debarment for a
period of three years beginning September 14, 1974.
Respondent's cooperation in the clean up of the Department's Detroit
office warrants some consideration in determining the period of
debarment. Also, Respondent's appearance at the hearing as a truly
contrite and chastened individual gives evidence of his future
compliance with the law. The Department appears to have taken these
factors into consideration in recommending that the debarment be dated
back to September 14, 1974, rather than recommending that debarment
commence as of the date of this determination.
Respondent has been suspended from doing business with the Department
effectively since January 1972. Debarment until September 1977 as
suggested by the Department would be for a suspension for an effective
period of five years and eight months. While it is true that the
debarment could for a period of three years beginning the date of the
final order in the case, the Department does not make such request.
Considering all of the circumstances of the case: the seriousness of
the crimes, Respondent's involvement in the conspiracy, but also his
cooperation in the investigation and prosecution, the present term of
his effective suspension (four years), and his apparent rehabilitation,
Respondent will be debarred for a period of three years beginning
December 18, 1973 (the date of his second indictment). This will result
in a term of effective suspension approximating five years.
1. Gerald A. Waechter, Montgomery Real Estate and Company, and
Monterey Real Estate, Inc., are contractors within the meaning of the
Department's Rules and Regulations 24 C.F.R. 24.4(g).
2. By his conduct resulting in and by the finding of conviction of
violations of Section 201(b), 1010 and 2(b), Title 18, United States
Code, Gerald A. Waechter, has violated the Department's Rules and
Regulations 24 C.F.R. 24.0 through 24.15.
On the entire record, it is ordered that Gerald A. Waechter,
Montgomery Real Estate and Company, and Monterey Real Estate, Inc., and
any other concerns in which Gerald A. Waechter has a substantial
interest are debarred for a period of three years beginning December 18,
1973, and ending December 17, 1976. Department funds shall not be
expended for assistance to Gerald A. Waechter or to any concerns,
corporations, partnerships, or associations in which he has a
substantial interest, bids and and proposals shall not be solicited
therefrom, and subcontracts with him will not be approved, unless it is
determined to be in the best interest of the Government.
75-389-DB
In the Matter of: Paul H. Guillory, Sr.
January 26, 1976
760126
James W. Mast
On March 3, 1975, Michael T. Savage for the Assistant
Secretary-Commissioner, Housing Production and Mortgage Credit - FHA
Commissioner, of the Department of Housing and Urban Development, herein
the Department, served Paul H. Guillory, Sr., herein the Respondent,
with written notice of suspension pursuant to Part 24 of the
Department's Rules and Regulations, herein the Rules, because of his
indictment bythe Grand Jury of the United States District Court for the
Eastern District of Louisiana on a violation of Title 18, Section 1010
of the United States Code. No request for a hearing on the suspension
was made by Respondent. Thereafter, on October 6, 1975, Michael T.
Savage served Respondent with written notice that debarment pursuant to
Part 24 of the Rules, was being considered because of his conviction by
the United States District Court for the Eastern District of Louisiana
of violation of Title 18, Section 1010 of the United States Code. On
October 13, 1975, Respondent answered and requested a hearing in the
matter. On November 4, 1975, the case was assigned to the undersigned
for hearing. On November 12, 1975, the parties were requested to submit
their respective positions. On November 25, 1975, Respondent submitted
its position. Thereafter the parties submitted a stipulation of facts to
be considered as the record in lieu of a hearing. The stipulation was
accepted and the hearing was indefinitely postponed.
Upon the entire record, I make the following:
Paul H. Guillory, Sr. is engaged in the business of real estate
ownership and development. He is president of corporations which own and
operate Paulme' Chalet Apartments and Fleur de Lis Apartments in Lake
Charles, Louisiana.
An indictment of 3 counts alleging violations of Title 18, Section
1010 of the United States Code was returned against Respondent in Case
Number CR-75-87 by the Grand Jury of the United States District Court
for the Eastern District of Louisiana, Lake Charles Division. On July
14, 1975, Respondent entered a plea of guilty to Count III of the
indictment. The other two counts were dismissed. On August 11, 1975, the
Court sentenced Respondent to pay a fine of $1,500 and to six months
confinement which was suspended. Respondent was placed on three years
probation. The indictment and conviction arose out of a scheme where
Fred Brave, an architect, overstated his architect's fees by the amount
of $60,000 on contracts which were submitted to the Department in
connection with obtaining mortgage approval. Brave also participated in
the same type of scheme with a number of other builders. Brave suggested
the scheme to Respondent. The $60,000 was retained by Guillory and used
in the construction of the Fleur de Lis Apartments.
In his defense, Respondent cited his full and complete cooperation
with the Government and assured the Government of his continued complete
cooperation. Further, Respondent stated that he was 58 years old and had
previously good record with no prior criminal convictions. He also
submitted that he had undergone open heart surgery after two severe
heart attacks and was under the "continuous care" of a heart specialist.
It is the opinion of the specialist that "any physical or mental strain
be avoided if at all possible."
Respondent is a contractor as a real estate developer and builder and
as the owner and operator of apartment complexes. Upon his conviction
the basic requirements for debarment were established.
It would be inappropriate not to debar Respondent in view of his
conviction of a crime involving his business with the Department. Here
Respondent was a principal conspirator with Brave and the amount
involved was substantial. In mitigation Brave appears to have
participated in the same scheme with other contractors and to have
suggested it to Respondent. Importantly Respondent is apparently
cooperating with the prosecution by the Government. Finally,
Respondent's prior good record and present state of health warrant
consideration. Under these circumstances Respondent will be debarred for
a period of 3 years beginning March 3, 1975, the date of his original
suspension, and terminating March 2, 1978. Further, if at some later
date the probation imposed by the Court is set aside or reduced, this
debarment action should be reopened and reconsidered. Finally,
Respondent may, of course, after 6 months from date of debarment,
request reinstatement by the Department.
1. Paul H. Guillory, Sr. is a contractor within the meaning of the
Department's Rules, Part 24, Section 24.4(g).
2. By Paul H. Guillory, Sr.'s conduct resulting in his conviction of
violating Title 18, Section 1010, United States Code, Respondent
violated the Department's Rules, Part 24, Section 24.0 through 24.15.
On the entire record it is ordered that Paul H. Guillory, Sr. is
debarred from participation in Department of Housing and Urban
Development programs for a period of 3 years commencing March 3, 1975
and terminating March 2, 1978. During the period above no Department
funds shall be expended for financial assistance to Paul H. Guiillory,
Sr. or to any concerns, corporations, partnerships, or associations in
which he has a substantial interest; bids and proposals shall not be
solicited therefrom; and subcontracts with them will not be approved;
unless in any circumstance it is determined to be in the best interests
of the Government.
75-388-DB
In the Matter of: Southern Erection Company, Inc.
January 5, 1976
760105
James W. Mast
On October 3, 1975, Respondent by Counsel requested a hearing on the
purported denial of a previous participation certificate, FHA Form 2530.
The undersigned was designated to hear and determine the matter. On
October 30, 1975, the matter was set for hearing in Washington, D.C. on
November 7, 1975. The matter was subsequently rescheduled to December
12, 1975, at Shreveport, Louisiana. The hearing was held on that date.
The Department appeared by Counsel and Respondent appeared in person and
represented by Counsel.
The Department moved to dismiss the preceedings since no action had
been initiated against Respondent pursuant to the Department's Rules and
Regulations 24 C.F.R. 24.10(a). Section 24.10(a) provides as follows:
(a) Initiation of debarment action. When the Department seeks
to debar a contractor or grantee (or any affiliate thereof), that
party shall be served with written notice by registered or
certified mail, return receipt requested, from the program officer
proposing the action: (1) Stating that debarment is being
considered, (2) setting forth the reasons for the proposed
debarment, and (3) indicating that such party will be accorded an
opportunity for a hearing if he so requests within 10 days from
his receipt of notice, and that he may be represented by counsel.
Respondent objected to the dismissal and maintained that it had been
orally informed of the denial of previous participation clearance.
Further, it maintained that because of this action it was denied the
approval as the contractor on certain projects. Notwithstanding such
claims no action was ever initiated against Respondent under Section
24.10(a). The rules do not provide for any oral notice of proceedings
and such putative oral notice is ineffective to initiate an action.
There is thus nothing properly before the undersigned and I am
constrained to dismiss the proceedings. The form of dismissal shall be
as proposed by Respondent and as agreed to by the Counsel for the
Department.
It is ordered that the proceedings herein are dismissed for the
reason that Southern Erection Company, Inc., nor any of its affiliates
within the meaning of 24 C.F.R. 24.4(d) were not on May 14, 1975, or at
any time thereafter to date of this hearing, suspended, debarred, or
placed in ineligibility status, nor were Southern Erection Company,
Inc., nor any of its affiliates on any consolidated list issued by the
Department of Housing and Urban Development in accordance with the
regulations set forth in 24 C.F.R. Part 24. Further and in particular
said parties were not suspended, debarred, or placed in ineligibility
status in connection with Project No. LA-121-1, Calfax Public Housing
turnkey project and Project LA-125-1, Caldwell Parish Public Housing
turnkey project. Finally, no written notice of suspension, debarment, or
placement in ineligibility status or listing on any consolidated lists,
of Southern Erection Company, Inc., or any of its affiliates was ever
given by the Department of Housing and Urban Development to Southern
Erection Company, Inc. or any of its affiliates.
75-387-DB
In the Matter of: ALFRED RAYMOND LA PETER
December 4, 1975
751204
James W. Mast
On September 22, 1975, Michael T. Savage for the Assistant
Secretary-Commissioner, Housing Production and Mortgage Credit-FHA,
Department of Housing and Urban Development, herein the Department,
served on Alfred Raymond La Peter, herein the Respondent, written notice
that debarment pursuant to the Department's Rules and Regulations, 24
C.F.R. Part 24, was being considered based on Respondent's plea of
guilty in the United States District Court, Central District of
California, of violation of Title 18, Section 1010 and 2(b), United
States Code. By letter dated September 26, 1975, Respondent requested a
hearing in the matter. On October 22, 1975, the undersigned wrote the
parties requesting their respective positions and tentatively scheduling
the hearing for December 2, 1975. On October 30, 1975, Respondent wrote
Counsel for the Department requesting that the hearing be held in Los
Angeles. On November 26, 1975, the undersigned issued an Order
indefinitely postponing the hearing at Counsel for the Department's
request pending formal stipulation by the Respondent to a period of
debarment. On November 18, 1975, Respondent submitted his agreement to a
three year period of debarment. Subsequently, on December 2, 1975,
Counsel for the Department submitted the Department's acceptance of
Respondent's agreement to stipulate to a three year period of debarment
pursuant to 24 C.F.R. 24.9(c).
On the basis of the acceptance by the Department of Respondent's
written stipulation it is ordered that Alfred Raymond La Peter is
debarred from participation in HUD programs for a period of three years
commencing September 22, 1975, and terminating September 21, 1978.
During that period Department funds shall not be expended for financial
assistance to Alfred Raymond La Peter or to any concern, corporation,
partnership, or association in which he has a substantial interest, bids
or proposals shall not be solicited therefrom, and subcontracts with him
will not be approved unless it is determined to be in the best interests
of the Government.
75-386-DB
In the Matter of: HAROLD OLSON and OLSON WRECKING CO.
April 5, 1976
760405
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in 24.10(b)(3), this Initial Determination is final
unless reversed or modified within thirty (30) days by the Assistant
Secretary for Housing Management. Notice of Final Determination, which
is conclusive, will be given in writing and transmitted by registered
mail by the Assistant Secretary.
By letter dated September 12, 1975, Harold Olson and Olson Wrecking
Co. (hereinafter referred to as Appellant) were notified of their
suspension as a HUD contractor by Assistant Secretary H. R. Crawford.
In that letter, Appellant was notified that an investigation undertaken
by HUD (hereinafter referred to as the Government) disclosed certain
violations of purchase order specifications under taken by Appellant
with the Department for the removal of houses in the Detroit area. The
letter alleged that contrary to contract specifications, Appellant had
failed to remove decomposable material and debris from the properties
where the demolitions had taken place and had used it as fill and
covered it in the property. The letter further identified the nine (9)
purchase orders whose specifications allegedly had not been complied
with as well as identification of the property addresses of the houses
involved. In that letter, Appellant was notified of its right to a
hearing in accordance with the provisions of 24 C.F.R. 24.10. The
hearing was conducted on February 26, 1976, in Detroit, Michigan. Frank
G. Garavaglia, Esquire, appeared on behalf of Appellant, and John P.
Witsil, Esquire, HUD Office of General Counsel, represented the
Government.
At the hearing, Department Counsel introduced into evidence copies of
the nine (9) purchase orders as well as Inspection Reports pertaining to
the properties covered by these purchase orders. These Inspection
Reports were prepared by Inspectors who were part of a HUD Task Force in
the Spring of 1975. This HUD Task Force inspected properties which had
been demolished under HUD contracts. The Inspection Reports indicated
that throughout many of these properties wood was found. Under the
requirements of the specifications of the purchase orders, wood and
decomposable material was not allowed to be left in the property. In
addition to these Inspection Reports, photographs of the properties
taken by the Inspectors in the Spring of 1975 were introduced into
evidence. These photographs indicated the items of debris that was
removed from the properties in question. The Inspection Report for the
property at 751 Newport indicates:
"At 1 ft. found 3 ft. of very rotten wood, some bricks.
Appears that entire house is buried here."
Photographs of this property indicate the extent of the amount of wood
found there.
The Inspection Report for 859 Newport indicates
"At a depth of 1 ft. found 3 ft. of rotten wood + + +."
Photographs taken at this property reveal the extent of wood found in
that property.
The Inspection Report for the property at 738 Drexel indicates:
"(1) Encountered wood."
Photographs taken at that site again reveal the large amount of wood
found in that excavated property.
The Inspection Report for the property at 529 Newport indicates:
"+ + +a 3 ft. layer of rotten wood + + +."
Photographs taken of this property reveal the large amounts of wood
found there.
Appellant testified on his own behalf and denied that there had been
any violations of the terms of the purchase orders. Appellant explained
that he was primarily concerned with the business aspects of his
company; that is, he was responsible for preparing bids to the
Government which involved visiting properties and making estimates for
submission. He also was responsible for submitting the invoices and
doing the other paper work associated with his company's operation. He
left the day-to-day operations of the company and the supervision of
work on the property sites to a superintendent.The superintendent,
however, is now deceased. Employees of Appellant's company testified.
They explained the procedures they followed in the demolition of
properties. They denied that they ever had been instructed to leave wood
in the properties. However, it was explained that these demolitions took
place in an area of Detroit near the river were the ground is very damp,
and it was stated that the machines sometimes became buried in the mud
in some of these properties. This would explain, in Appellant's view,
why wood could be left in the properties.
The pertinent provision of the Department Regulations relating to
suspension (24 C.F.R. 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings + + +. (Emphasis added.)
The Government's basis for continuing the suspension is 24 C.F.R.
24.12(a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added.)
A review of the entire record in this matter indicates adequate
evidence of violations of the terms of the purchase orders unless there
is legal justification to explain how the wood was left in the
properties. The photographs of the properties mentioned above clearly
support the fact that a large amount of wood was left in this property.
The amount of wood left in these properties clearly is in excess of what
could be called "normal spillage." "Normal spillage" has been defined in
other hearings to consist of the amount of wood that could normally be
expected to be buried in the ground by the machines in the demolition
process or fall off of the machine as the wood was removed and placed
into a truck. In this instance, the amount of wood is extensive.
Appellant, in effect, entered a general denial that any violations had
occurred. However, a contractor must assume the responsibility for the
property until final inspection has been made. In regard to these
particular properties, although City of Detroit inspections were
obtained for each of the properties in question, it was entirely
possible that wood remained in the properties. The procedures for
inspection by the City of Detroit were in such a manner that each of the
individual inspections called for by the City of Detroit could have been
complied with by the contractor and yet decomposable material could be
left in the property or buried in the fill. Therefore, when these
properties were examined in 1975, it disclosed a pattern of work which
clearly indicates that amounts wood were left in these properties by the
contractor for which he must bear the responsibility.
Appellant, in its testimony, attempts to absolve itself from
responsibility on the ground that the day-to-day management operation of
the demolition of these properties was left to a superintendent.
Further, it is claimed that the superintendent may have been lax and it
would be inequitable to make Appellant responsible for selecting an
employee who may have been less than diligent. This contention does not
have any merit. Appellant was the contractor, and he remains responsible
to see that the purchase orders and the terms and conditions were fully
complied with. Appellant cannot transfer that responsibility to an
employee.
There is adequate evidence of violations of the terms and conditions
of these purchase orders. It is, accordingly, the decision of the
Hearing Officer that Appellant is not a responsible contractor as
required by the provisions of 24 C.F.R. 24.12(a)(2).
Accordingly, it is the Initial Determination of the Hearing Officer
that this suspension be upheld.
75-385-DB
In the Matter of: JACOB R. CLAYTON and JAKE CLAYTON REALTY CO.
May 24, 1976
760524
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in 24.10(b)(3), this Initial Determination is final
unless reversed or modified within thirty (30) days by the Assistant
Secretary for Housing Production and Mortgage Credit - FHA Commissioner.
Notice of Final Determination, which is conclusive, will be given in
writing and transmitted by registered mail by the Assistant Secretary.
By letter dated September 8, 1975, Assistant Secretary Cook advised
Jacob R. Clayton and the Jake Clayton Realty Company (hereinafter
referred to as Appellant) of their suspension from further participation
in HUD (hereinafter referred to as the Government) programs pending
resolution of an indictment charging an alleged violation of Title 18
U.S.C. Sections 1010 and 2(b). Subsequently, on March 10, 1976, the
Government notified Appellant of its intention to institute debarment
actions in accordance with 24 C.F.R. 24.0 et seq. based upon
Appellant's conviction of at least one count of the indictment.
Pursuant to 24 C.F.R. 24.10, by letter dated March 18, 1976,
Appellant requested a hearing of the proposed debarment on the record.
Both the Government, by letter dated April 28, 1976, and Appellant, by
letter dated May 3, 1976, have submitted their positions with respect to
the matter.
Appellant was indicated on fourteen (14) counts of violations of 18
U.S.C. Sections 1010 and 2(b) on August 15, 1975. On January 26, 1976,
Appellant entered guilty pleas to Counts 6 and 13 of that indictment,
(Government's Exhibit No. 1). Appellant was sentenced by District Judge
O'Connor on January 26, 1976, to serve six (6) months on Count 6 and
placed on probation for eighteen (18) months; on Count 13, Appellant
was fined $500.00, (Government's Exhibit No. 2). Count 6 involved a
false statement submitted by Appellant to the Government that a
purchaser of a home under Section 235 of the FHA low-income home
ownership program had made the required cash deposit on a home when in
fact Appellant knew that no such payment had been made. Count 13
involved a false statement submitted by Appellant to the Government that
an individual was employed when in fact Appellant knew to the contrary.
The basis for a debarment action against Appellant is found in 24 C.
F.R. 24.9(a)(1) which states:
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes.
(1) Conviction for commission of a criminal offense as an
incident to obtaining or attemping to obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
Appellant has entered pleas of guilty to two (2) counts of violations
of 18 U.S.C. 1010 and 2(b) in the submission of Section 235 forms to the
Government. Entering a plea of guilty to these offenses constitutes
grounds for debarment as specified in 24 C.F.R. 24.9(a)(1). Appellant,
in his presentation to the Hearing Officer, states his position in
behalf of justification for a minimum period of debarment to coincide
with the period of probation. In summary, Appellant's commendable war
record, his employment with the Jackson County, Missouri, Welfare
Department, and the efforts he has made since finding the Jack Clayton
Realty Co. in 1966 to obtain decent housing for his clients are cited in
support of this position. Moreover, Appellant points out that the
Government has not suffered any monetary loss resulting from the false
statements made by Appellant as the properties have been foreclosed.
Appellant's arguments in behalf of mitigating the period of debarment
are not persuasive. The purpose of the debarment regulations is for
protection of the public. The offenses which Appellant has committed
strike at the very integrity of the low-income housing program. By
submitting false information to the Government, Appellant assisted in
allowing otherwise ineligible persons to participate in the 235 program.
There are sound reasons why the 235 program has established standards of
qualifications for participation. To consciously violate these standards
by submitting false statements constitutes acts which indicate Appellant
is not a responsible party entitled to participate in HUD programs.
It is the Initial Determination of the Hearing Officer that
Appellant's debarment is in the best interest of the Government. The
period of debarment is to commence from the date of this Initial
Determination and continue for a period of three (3) years from that
date.
75-384-DB
In the Matter of: DAVID R. BARTUSH and ZEPHYR WRECKING COMPANY
Jan. 23, 1976
760123
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated September 3, 1975, Assistant Secretary H. R.
Crawford advised David R. Bartush and Zephyr Wrecking Co. (hereinafter
referred to as Appellant) of their suspension as HUD contractor. This
suspension was based upon the results of an investigation undertaken by
a HUD which disclosed certain violations in the terms of certain
purchase orders undertaken by Appellant with the Department. The
specific violations that Appellant was charged with consisted of
allegedly failing to remove debris and/or decomposable material from
properties as required by the terms and conditions of the purchase
orders and, in fact, burying the debris in the properties. The letter
further advised Appellant of its right to a hearing in accordance with
the provisions of 24 C.F.R. 24.10. On September 17, 1975, Appellant
requested a hearing. The hearing was conducted on December 4, 1975 at
HUD Area Office, Detroit, Michigan. B. Gerald Bartush, Esquire, appeared
on the behalf of the Appellant, and John P. Witsil, Esquire, HUD Office
of General Counsel, appeared on behalf of the Government.
The basis for the suspension of Appellant was that he had allegedly
violated the terms of eight (8) purchase orders undertaken with the
Department. These purchase orders were identified in the letter of Mr.
Crawford to Appellant. At the hearing, copies of these purchase orders
were introduced into evidence. Of the eight (8) purchase orders
involved, two (2) of them were completed prior to June 30, 1973. That
date is significant because about that date, HUD delegated to the City
of Detroit and to other municipalities in that area the right to conduct
inspections for HUD. Prior to that date, HUD had conducted its own
inspections. The importance in this inspection authority is that HUD
specifications did not permit hardfill, i.e. bricks and concrete, to be
left in the property while the specifications of the municipalities did
permit it. Neither specifications permitted wood and/or decomposable
material to be left in the properties.
In the Spring of 1975, a HUD Task Force conducted investigations of
certain HUD demolished properties in the Detroit area. The results of
the investigation of these properties were made on Inspection Reports,
and the findings of these inspections form the basis under which
Appellant has been suspended. Of the two (2) properties involved here
where there were HUD inspections, it is noted that on the property at
161 S. Francis that a concrete slab was found in the property which is a
violation of the HUD specifications. In addition, the property at 166 S.
Sanford contained wood in the property which is a violation of both HUD
specifications and the City of Pontiac specifications. Of the remaining
six (6) properties, several of them contained large amounts of wood.
Concrete and brick which was found in these six (6) properties has been
disregarded because it is recognized that the City of Pontiac conducted
investigations according to its own specifications which permitted
hardfill to be left in the properties. However, the City of Pontiac
specifications did not permit wood to be left in the property.
In addition to the Inspection Reports prepared by the HUD Task Force
which described in detail the amount of debris found in the properties,
photographs were also introduced. These photographs substantiated
contents of the Inspection Reports and revealed the extent of the debris
found in the properties.
In its presentation of its position in this matter, Appellant related
that it had commenced to do business with HUD in February of 1973.
Appellant operates his own business, is a college graduate, and has been
working for HUD since 1973. Appellant introduced into evidence
documentation of a communication with HUD in the Summer of 1973 which
indicated that HUD would accept work which had been inspected and
approved by the City of Pontiac even though the purchase orders
specified that the demolitions were to be performed "per HUD specs."
Appellant testified that he performed these purchase orders in
accordance with the City of Pontiac specifications and assumed that his
work was acceptable since it had been inspected and accepted by the City
of Pontiac Inspectors. During extensive questioning by Department
Counsel and on his own direct testimony, Appellant, however,
acknowledged that wood had been left in the properties. He attempted to
explain it as being normal spillage. He acknowledged, however, that he
did not use a laborer to rake miscellaneous pieces of wood out of the
property. (In other hearings, there has been testimony that in the
removal of a house from a property that a laborer is utilized to rake
debris out of the excavated area after the machine has left it.) He
stated it was not required by the specifications to rake the property.
Appellant attempted to explain some of the wood that was found in the
hole as being clean-up wood. In one particular instance in relation to
some wood that was found in the hole, he stated that if the wood found
there was not normal spillage, then it could have possibly been a ramp
that must have been left in the hole, (Tr. 99). Appellant acknowledged
that it appeared that a ramp was indicated in one of the photographs
shown to him by Department Counsel, (Tr. 126).
In regard to the property at 522 S. Jessie, Appellant stated as
follows, (Tr. 128):
THE WITNESS: "I left the concrete, miscellaneous wood I would
have to say I cleaned up after the site, I did have a basement
inspection on this hole. As for the fence, I would say I did put
the fence in the hole because I was approached by the owner of the
house to the south of this site requesting me to clean out or
clean this fence off so he could have a clear vision of his ite
and it was after the trucks had left and I pulled the fence down."
HEARING OFFICER BURKE: "Did you leave the fence in the hole?"
THE WITNESS: "Apparently I did. I'm sure that's probably the
fence. Normally we are not allowed to take the fences down. Again
I did it as a favor for the guy and I'm in trouble."
In other testimony, Appellant stated that he failed to remove steps
as required by the purchase order from a property because he was under
the impression that a church was about to buy this property and could
utilize steps. However, Appellant acknowledged that he did not check
this matter out with the Inspectors before he left them there.
The pertinent provision of the Department Regulations relating to
suspension (24 C.F.R. 24) are as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings + + +. (Emphasis added.)
The Government's basis for continuing the suspension is 24 C.F.R.
24.12(a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added.)
Eight (8) properties undertaken by Appellant under purchase orders
with HUD are at issue here. Disregarding the question as to whether or
not the HUD specifications apply to this work, it is clear that they
applied to the properties at 161 S. Francis and 166 S. Sanford, and both
of these properties contained hardfill and wood. The remaining six (6)
properties in of themselves contained debris in such an amount that it
violated the City of Pontiac specifications as well as that of HUD,
unless Appellant could satisfactorily explain why the debris was there.
The Hearing Officer has taken Judicial Notice in other hearings of
normal spillage of wood in the excavated areas of the properties. This
normal spillage consisted of pieces of wood that could fall off the
machine during the excavating process as well as pieces of wood being
ground nto the earth, especially when the property is damp. However, a
review of the Inspection Reports pertaining to these six (6) properties
here as well as a careful examination of the photographs disclose
pockets of wood which are far in excess of what could be termed "normal
spillage."
Since there has been inspections and acceptance of all of these
properties either by HUD or the City of Pontiac, the argument may be
raised that the inspection of these properties and the subsequent
payment under these purchase orders by HUD would bar any further
questions of unacceptable work on the part of Appellant. However, HUD
does, in fact, reserve the right to reinspect, and it did so by means of
a HUD Task Force in the Spring of 1975.
Appellant in its closing statement argues that under the case of
Horne Brothers, Inc. v. Laird, et al., 463 F. 2d. 1268 (1972) that the
Government failed to meet the test of adequate evidence as defined in
that case. Appellant argues that at the hearing the Government presented
no new evidence and only introduced into the record the Inspection
Reports prepared by the Government Inspector. In other words, Appellant
acknowledged the Government had probable cause for the original
suspension, but it maintained that it must show more at the hearing. In
Horne Brothers, Inc. (supra), it states at p. 1272:
"While the initial thrust of a suspension may be likened to an
ex parte temporary restraining order, the continuance of the
suspension beyond a thirty day period is more fairly likened to a
preliminary injunction after notice, maintainable only on the
showing of adequate evidence that is not self-determined."
(Emphsis added.)
Moreover, it states at p. 1271:
"The 'adequate evidence' showing need not be the kind necessary
for a successful criminal prosecution or formal debarment. The
matter may be likened to the probable cause necessary for an
arrest, a search warrant, or a preliminary hearing. This is less
than must be shown at the trial, but it must be more than
uncorroborated suspicion or accusation."
At the hearing, the Government presented the Inspector who conducted
the inspection, he testified as to the details of the inspection, and he
was available for cross-examination by Appellant. In addition, the
Government introduced photographs which went to the description of the
alleged violations by Appellant. Moreover, Appellant testified on his
own behalf and, in the course of that testimony, made several admissions
that directly acknowledged violation of the specifications. For
example, he testified that he left wood in the hole and attempted to
explain it as being normal spillage. With this contention, the Hearing
Officer disagrees.
It is my opinion that the amount of wood in the properties
constituted more than normal spillage, and Appellant presented no
excusable defense for it. Appellant on his own initiative stated that he
tore down a fence and buried it in the hole without checking with the
City of Pontiac or the HUD Inspector, again this is a violation of the
specifications. Therefore, a review of the entire record discloses that
there is adequate evidence of violations of the purchase orders, and,
therefore, this suspension should be upheld.
75-380-DB
In the Matter of: FRANK GIANFERMI and STATE WIDE DEMOLITION
October 10, 1975
751010
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in 24.10(b)(3), this Initial Determination is final
unless reversed or modified within thirty (30) days by the Assistant
Secretary for Housing Management. Notice of Final Determination, which
is conclusive, will be given in writing and transmitted by registered
mail by the Assistant Secretary.
By letter dated September 3, 1975 from the Office of Assistant
Secretary Crawford, Frank Gianfermi and State Wide Demolition
(hereinafter referred to as Appellant) were advised of their suspension
as HUD contractors. Appellant was advised in that letter that an
investigation undertaken by HUD had revealed certain violations of
purchase orders and/or demolition contracts which had been awarded to
that firm. The specific violations concerned work undertaken by
Appellant in the Detroit, Michigan area in which it has been found by
the HUD investigation that instead of removing debris and/or
decomposable material resulting from the demolition work undertaken by
Appellant, it had been used as fill and covered. Appellant was advised
of its right to a hearing in accordance with the provisions of 24 C.F.
R. 24.10. Appellant contacted the Hearing Officer on October 3, 1975 and
requested a hearing which was held at HUD Headquarters on the afternoon
of October 7, 1975. Appellant appeared on his own behalf at the hearing,
and John P. Witsil, HUD Office of General Counsel, appeared on behalf of
the Government.
At the hearing, the Government introduced into evidence (Government's
Exhibits No. 1 through No. 7) the purchase orders pertaining to the
seven (7) properties which were investigated by HUD. In addition, the
Government produced as a witness, Mr. Robert Cressman, who inspected the
seven (7) properties covered by the purchase orders. Mr. Cressman
related in detail the contents of his Inspection Reports involving the
seven (7) properties. The Inspection Reports divulged irregularities in
the work performed by Appellant. However, on the overall, they were of a
much less serious nature then in other suspension cases, and in the
words of the Inspector, "There is almost no comparison between this one
and many of them that I have seen," (Tr. 21). Of the seven (7)
properties involved, one property was withdrawn from consideration at
the hearing by Department Counsel. Another purchase order involved a
property for which payment has not been received by Appellant. The
remaining properties involved violations that have subsequently been
corrected and certified by HUD inspections.
It was Appellant's position that he had complied with the
requirements of the purchase orders. Further, he stated that in those
instances where deficiencies had been brought to his attention, he
corrected them. Moreover, he would undertake to go back to any of the
properties that required rework and correct them at his own expense,
(Tr. 79). In addition, Appellant introduced into evidence (Appellant's
Exhibits No. 1 and No. 2) receipts for the removal of the houses and
debris from the particular sites for each of the properties involved.
Appellant also introduced into evidence (Appellant's Exhibits No. 3
through No. 9) statements from neighbors of each of the properties
involved to the effect that they saw the houses and debris removed from
the properties. Moreover, Appellant also introduced into evidence
(Appellant's Exhibits No. 10 through No. 12) letters of character
reference from business associates.
At the hearing, Department Counsel stated that he had been in contact
with Assistant United States Attorney Kelly in Detroit who is conducting
the investigations of the demolition contracts in the Detroit area. Mr.
Kelly has advised Department Counsel that there is no basis for any
criminal action against Appellant, and in addition, Appellant has
cooperated fully with the investigation being undertaken by that office
and has expressed the opinion that the Appellant is a man of high
integrity.
Subsequent to the hearing, Department Counsel found out that
subsequent inspections were conducted on June 5, 1975 and copies of the
Inspection Reports indicate the properties on four of the properties
were accepted as meeting HUD specifications, (Government's Exhibits No.
22 through No. 25). It was Department Counsel's position that the
charges against Appellant be dismissed based upon the evidence adduced
at the hearing and the receipt of the additional Inspection Reports,
(Government's Exhibit No. 26).
The reason for the suspension of Appellant was that he had allegedly
violated the terms of his purchase orders and/or contracts with HUD in
that debris and/or other decomposable material was found on the
properties in violation of the specifications. A review of the record
fails to disclose adequate evidence of violations to support a
suspension. The irregularities that were discovered were of a minor
nature, and Appellant corrected six (6) out of the seven (7) properties.
Appellant has been in the demolition business as a prime contractor for
only eight (8) months, and the purchase orders involved here were
performed during 1975. As supported by the documentation offered by
Appellant, the properties were demolished and removed from the site. The
debris that was found was insignificant and has now been removed.
The pertinent provision of the Department Regulations relating to
suspension (24 C.F.R. 24) are as follows:
Sec. 24.11 Suspension.
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings, and as such, shall not be based upon an
unsupported accusation.
Moreover, if suspension were to be upheld against Appellant, it would be
on the following basis:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) (2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. On a review of
the record, the Hearing Officer cannot find the
"adequate evidence" required to support this "drastic action" against
Appellant, and by Appellant's actions regarding the purchase orders
herein involved, he has shown himself to be a responsible contractor.
Accordingly, it is the determination of the Hearing Officer that the
suspension be removed.
75-379-DB
In the Matter of: PROGRESS WRECKING CORP., PETER M. SHONTZ, JR.,
PATRICIA J. SHONTZ, and SAMUEL GOLDEN
Dec. 12, 1975
751212
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in 24.10(b)(3), this Initial Determination is final
unless reversed or modified within thirty (30) days by the Assistant
Secretary for Housing Management. Notice of Final Determination, which
is conclusive, will be given in writing and transmitted by registered
mail by the Assistant Secretary.
On August 25, 1975, Assistant Secretary H. R. Crawford advised
Progress Wrecking Corp., Peter M. Shontz, Jr., Patricia J. Shontz, and
Samuel Golden (hereinafter referred to as Appellant) of their suspension
as a HUD contractor. This suspension was based upon the results of an
investigation undertaken by the Government which disclosed certain
violations by Appellant in the performance of their contracts with the
Department. The letter listed ten (10) properties which had been
examined where there had been allegedly found debris buried in the
properties which should have been removed from the property when the
houses were demolished. Under the provisions of 24 C. F.R. 24.10,
Appellant requested a hearing. Prior to the hearing, Department Counsel
furnished to Appellant copies of material in its files relevant to this
matter. At the hearing which was conducted in the HUD Area Office,
Detroit, Michigan, on November 4, 1975, John P. Witsil of the HUD
Office of General Counsel represented the Government, and Laurence B.
Deitch of Southfield, Michigan, represented Appellant.
In its opening statement, Department Counsel declared that the
suspension of Appellant was based upon alleged violations of the terms
of ten (10) of its purchase orders with the Government and introduced
into evidence copies of these purchase orders. Upon questioning by the
Hearing Officer as to whether or not he objected to their admissibility,
Counsel for Appellant stated that he had Inspection Reports (HUD-Form
9519) which indicated inspection and acceptance by HUD on seven (7) of
the ten (10) properties involved. Department Counsel, therefore, offered
into evidence as joint exhibits copies of these Inspection Reports.
Based upon an examination of these documents, Department Counsel moved
to dismiss the charges involving the properties where final inspection
and acceptance had been made by HUD. It was agreed by both parties that
the HUD specifications were applicable to these purchase orders. The
Hearing Officer, after questioning both parties as to the relevancy of
the Inspection Reports to the properties and to the applicability of the
HUD specifications, granted the Government's motion and dismissed the
charges to seven (7) of the properties. The only issues remaining in the
hearing were the alleged violations by Appellant of purchase orders
involving three (3) properties.
The Government Inspector, who examined the three (3) properties in
question during May of 1975, testified that he had uncovered large
amounts of brick and concrete in these excavated areas. In addition, his
reports indicated that he uncovered some pockets of wood and other types
of rubbish.
Prior to putting on its own case, after extensive investigation of
the Government Inspector, Counsel for Appellant moved to dismiss charges
on the three (3) properties under consideration. He based his request
for dismissal on the grounds that the purchase orders relative to these
houses had been paid by the Department. However, the Inspection Reports
(HUD-Form 9519) were not available for these three (3) properties in
question. The Government agreed to examine its files to determine
whether or not they in fact existed. The Hearing Officer advised Counsel
for Appellant that he would take the motion under advisement.
In presentation of its case, Appellant testified on its own behalf
and stated that they had been in business since 1967. Appellant
estimated that he has undertaken $10 million worth of business in the
last eight years. His business presently principally involves doing work
on large industrial jobs, however, they have done approximately 100
homes for HUD. Appellant denied that he violated the terms of its
purchase orders, and in fact, stated that he had personally visited most
of the sites when jobs were being done and had seen clean fill being put
back into the excavated areas. Appellant's witness testified that a HUD
official (Mr. Gold) told him to do these purchase orders according to
City specifications (TR. P65) which allowed hard fill in the property.
Moreover, there were City of Detroit inspections on these properties.
Appellant introduced into the record its copy of the purchase orders for
the three (3) properties involved. These purchase orders indicate that
they had been approved by payment by a HUD official and the notation
appears in Block 24 that there was a Form 9519 Inspection Report as the
basis for payment and signed by HUD official, F. Diehl. Appellant also
introduced into the record copies of inspections undertaken by the City
of Detroit relative to these three (3) properties.
Letters of reference from industrial organizations such as the Ford
Motor Company, Dow Chemical Company, consumers Power Company, and
Fruehauf Corp. were also introduced into the record. These letters
indicated the Companies involved had dealt with Appellant and found its
work to be satisfactory.
Appellant also stated for the record that they had never been called
before the Grand Jury or any of its employees been called before the
Grand Jury in regard to the criminal investigation being conducted in
the Detroit area by the Federal Grand Jury concerning criminal
violations connected with demolition contracts of HUD. Appellant, in
testifying regarding the performance of these purchase orders, stated
that it was possible that pieces of isolated wood could be buried into
the ground in the removal process. However, he emphasized that it took
all possible measures to try to remove every piece of scrap wood that
remained on the sites after the houses were removed. The only
explanation regarding the debris that was found in the hole was that it
could have been put in there by other contractors, and he explained that
there were rumors in the Detroit area that contractors engage in what is
known as "sneak dumping" which means that a contractor doing work on a
property near these properties in question could have removed a foot of
the clean land fill and put it on his property, dug a hole and buried
some debris in there, and covered it up.
The record remained open regarding this hearing until Department
Counsel had the opportunity to examine the HUD Area Office records to
ascertain whether or not HUD-Form 9519 Inspection Reports existed
pertaining to these three (3) properties in question. To date,
Department Counsel has not been able to locate these Inspection Reports.
The pertinent provision of the Department Regulations relating to
suspension are as follows:
Sec. 24.11 Suspension.
Suspension is a drastic action taken when there is suspicion
of fraud or other criminal conduct in Government business or contractual
dealings, and as such, shall not be based upon an unsupported
accusation. Moreover, if suspension were to be upheld against Appellant,
it would be on the following basis:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) (2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension.
The purpose of this hearing is to determine whether adequate evidence
exists to warrant continuation of the suspension which has been in force
since August 25, 1975.
The Government moved to dismiss the charges involving seven (7)
properties because there were HUD Inspection Reports for these
properties. The Hearing Officer granted this motion.
The Government would also agree to dismiss the charges involving the
remaining three (3) properties if there were HUD Inspection Reports.
The Government Counsel was unable to find these reports in the HUD
files. Appellant, however, introduced into evidence its copies of the
purchase orders for the three (3) properties involved which indicated
acceptance on behalf of HUD by Franklin Diehl, and the purchase orders
indicate that the basis for acceptance is a Form 9519 Inspection Report.
Since the Government would agree to dismiss these charges if HUD
Inspection Reports exist, the Hearing Officer finds that the Appellant's
exhibits are sufficient to satisfy that requirement. The Government
should not be able to take advantage of the fact that its own records
are incomplete.
In addition, the record indicates that the contractor was allegedly
told by HUD that City of Detroit specifications applied. In any event,
the Hearing Officer will take judicial notice that in other hearings
there was testimony by a HUD employee, Eugene Anthony, that HUD
specifications were not furnished to demolition contractors performing
under purchase orders until November 1972. It is noted that the purchase
orders involved here, were entered into during July 1972.
Moreover, the purchase orders are vague and ambiguous on their face
in that the requirements are stated: "Demolish as per specifications."
It did not specify: "Demolish in accordance with HUD specifications
attached hereto." Acknowledging that the City of Detroit inspection was
perfored and HUD approved payment based on "Form 9519 Inspection
Report", it was reasonable for the Appellant to follow City of Detroit
specifications. This is especially true, since there was no evidence
that HUD specifications were applicable to the purchase order.
It is basic in the law of Government contracts, if an ambiquity
exists in the interpretation of a provision thereof, and two alternative
interpretations are reasonable, the ambiquity will be construed against
the party who drafted it. This rule is known as the doctrine of
"Contraproferentum." In the circumstances of this matter as outlined
above the rule applied against the Government.
A review of the testimony and exhibits introduced into the record
discloses that there was found some pieces of wood in the properties.
Appellant denied that it knowingly left any wood in the properties, and
raises the possibility that the rubbish was "sneak dumped" by another
contractor. Since there were inspections and acceptance of these three
properties, any reasonable inspection would disclose pockets of wood so
near the surface. Therefore, an inference can be made that in the
properties where wood was found near the surface, they may have been
"sneak dumped."
Based upon a review of the entire record, it is the opinion of the
Hearing Officer that there is not adequate evidence to sustain the
drastic action of suspension. It is the initial determination of the
Hearing Officer that the suspension be removed.
75-382-DB
In the Matter of: IVAN HOMRICH AND HOMRICH WRECKING INC.
Dec. 16, 1975
751216
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in 24.10(b)(3), this Initial Determination is final
unless reversed or modified within thirty (30) days by the Assistant
Secretary for Housing Management. Notice of Final Determination, which
is conclusive, will be given in writing and transmitted by registered
mail by the Assistant Secretary.
By letter dated August 25, 1975, Assistant Secretary H. R. Crawford
notified Ivan Homrich and Homrich Wrecking Inc. (hereinafter referred to
as Appellant) that an investigation undertaken by HUD disclosed certain
violations in the performance of five (5) purchase orders which
Appellant had undertaken with the Department. The letter informed
Appellant that their investigation disclosed that, instead of removing
debris and/or decomposable material from the properties under these
purchase orders, Appellant had used it as fill and covered it.
Accordingly, he was notified that he was suspended as of that date from
further participation as a HUD contractor. Appellant was further
notified of its right to a hearing in accordance with the provisions of
24 C.F.R. 24.10. On September 8, 1975, Appellant requested a hearing.
The hearing was conducted on November 11, 1975 at the HUD Area Office,
Detroit, Michigan. John P. Witsil, HUD Office of General Counsel,
appeared on behalf of the Government, and Laurence B. Deitch,
Southfield, Michigan, appeared on behalf of Appellant.
At the hearing, the Government introduced into evidence five (5)
purchase orders covering the properties involved in this suspension.
These purchase orders were performed in late 1973 and 1974. The work
covered by the purchase orders was to be performed in Dearborn Heights
and Inkster, Michigan. The requirements were stated on the purchase
orders as follows: "Demolish as per specs." At the hearing, the
Government introduced into the record five (5) Inspection Reports
prepared by the HUD employee who participated in the HUD Task Force who
examined these properties in the Spring of 1975. These Inspection
Reports revealed that the excavated areas of the properties disclosed
that large amounts of brick and concrete were found there. In addition,
pieces of wood and other debris were found in some of the properties.
Upon completion of the Government's case and after extensive
cross-examination of the Government Inspectors, Counsel for Appellant
moved to have this case dismissed. The basis for his motion was that the
Inspection Reports which were the basis for the suspension were made in
May of 1975. All of the five (5) properties involved here were
demolished a year or two earlier. Second, the Inspectors who examined
these properties in May of 1975 knew nothing of the performance of the
work when the properties were being demolished. Third, the Government
did not offer any proof and did not establish exactly what Appellant did
wrong. Finally, he stated that the inspection acceptance date terminated
Appellant's responsibility in regard to these properties in that
Appellant was not a life-long guarantor of the requirements of his
performance. The Government, in reply, stated that it had established a
prima facie case in that materials had been found in the excavated areas
inconsistent with the requirements of the specifications. In addition,
the Government maintained the right of reinspection under the HUD
specifications. The Heairng Officer stated that he would take the motion
under advisement and make his decision after he had reviewed the entire
record. After review of the entire record, the Appellant's Motion is
denied and the Matter will be determined on its merits.
Appellant, in the presentation of its case, maintained that he had
followed the provisions of their purchase orders and that HUD had
inspected or had caused to have inspected and accepted the five (5)
properties involved, and Appellant produced copies of the purchase
orders signed off by HUD employees, Mr. Deihl, Mr. Anthony and Mr.
Anderson, indicating approval for payment of the purchase orders and
indicating that a HUD-Form 9519 Inspection Report was the basis for
payment.
Appellant called Mr. Anthony of the HUD Area Office, Detroit,
Michigan, as a witness. Mr. Anthony stated that he knew Appellant since
1973. Mr. Anthony described the procedures involved in the award and
administration of purchase orders during the time covered by these
purchase orders. He testified as to the transfer of Inspection
responsibility to the City of Detroit and other municipalities after
July 1, 1973. (This procedure is described in other hearings in detail,
(In the Matter of Raynold Lowe, Docket No. 75-356-DB.)) Mr. Anthony was
shown copies of the purchase orders which Appellant had introduced into
evidence, and, in particular, he was shown the signatures of the HUD
officials who approved the purchase orders for payment. He testified
that it appeared to him that all of these purchase orders had been
properly processed. He further testified that he could not recall
whether or not Appellant had ever received a copy of the HUD
specifications.
Appellant testified on his own behalf. He stated that he had been in
the demolition business since 1965. He stated that he has demolished
over 3,000 homes. Appellant introduced into the record letters from the
Wayne County Road Commission and the State of Michigan, Department of
State Highways and Transportation which state that Appellant has done
work for both of these organizations and performed in a satisfactory
manner. He stated that he performs his jobs with the assistance of his
two sons who are the machine operators. He stated that he did undertake
work in the City of Detroit in 1975, but after the time of the purchase
orders involved here. Appellant stated that he had a contract with HUD
in 1975, in which he observed that HUD is withholding $35,000 on it as a
result of this suspension action initiated by the Department.
Appellant testified that he became involved in HUD work in 1973. He
stated purchase orders would be sent to him sometimes in blank or
sometimes fully completed by HUD, and he would sign them and return them
to the HUD office. In addition, he stated sometimes he typed up the
blank purchase orders which had been sent to him by HUD. The purchase
orders contained the requirement: "Demolish per specs." He testified
that he never received specifications with the purchase orders. However,
he recalled that he may have seen a copy of the HUD specifications when
he first got involved with HUD programs, but in no instance did he
recall any specification was attached to the purchase order. Appellant
testified that he performed the purchase orders in accordance with the
specifications of the municipality where the property was located, and
in this particular instance, hardfill was permitted in the ground. He
maintained that he had a reputation being one the cleanest wreckers in
the State of Michigan, and the only explanation he has of any wood being
left on these properties is that it was ground into the properties by
the twenty ton machine used in this work.
The relevant Regulation of the Department regarding Suspension (24
C.F.R. 24) is as follows:
"Suspension is a drastic action taken when there is suspicion
of fraud or other criminal conduct in Government business or
contractual dealings + + + ." (Emphasis added.)
The Government's basis for continuing the suspension is 24 C.F.R.
24.12(a)(2) which provides:
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added.)
As fully explained in other hearings, (In the Matter of Raynold Lowe,
Docket No. 75-356-DB, December 15, 1975 and In in the Matter of Charles
Hobart and Hobart Wrecking Company, Docket No. 75-370-DB, December 11,
1975) the HUD specifications were not applicable to inspections
performed by the City of Detroit and other municipalities on HUD
demolished properties after June 30, 1973. These purchase orders were
for demolition of properties inspected after June 30, 1973. Therefore,
the local specifications which permitted hardfill in the property were
applicable. Disregarding the hardfill found in May 1975, the only
possible violation concerns the amount of wood found in the excavations.
The amount of wood found was insignificant compared to wood found in
other contractor's properties. In addition, based upon hearing over two
dozen of these demolition contract suspension matters, Judicial Notice
is taken of the normal spillage of wood in the excavations as well as
grounding wood into small pieces by a twenty ton machine.
Therefore, a review of the entire record fails to disclose that
Appellant's performance indicates a lack of responsibility so as to
warrant continuation of suspension.
It is the Initial Determination of the Hearing Officer that the
suspension be removed.
75-378-DB
In the Matter of: ESTELL WRIGHT
December 10, 1975
751210
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated August 25, 1975, Assistant Secretary H. R. Crawford
notified Estell Wright (hereinafter referred to as Appellant) that based
upon an investigation undertaken by the Department of Housing and Urban
Development (hereinafter referred to as the Government) there had been
disclosed certain violations in the performance of purchase orders which
Appellant had undertaken with HUD. Specifically, these violations were
alledged to be of such a serious nature that Appellant was notified of
his suspension as a contractor or grantee with the Government. The
specific violations involved the failure to remove debris and/or
decomposable material for properties that Appellant had contracted to
demolish for the Government. The letter further stated that five (5)
purchase orders were involved and the violation of the provisions of
these purchase orders was the basis for the suspension.
Appellant was advised of his right to a hearing in accordance with
the requirements of 24 C.F.R. 24.10. Subsequently, on September 10,
1975, Appellant requested a hearing which was held on October 30, 1975
at the HUD Detroit Area Office, Detroit, Michigan. At the hearing, John
P. Witsil, HUD Office of General Counsel, represented the Government,
and Thomas J. Olejnik, Detroit, Michigan, represented Appellant.
Appellant entered into its own business in approximately late 1974 or
early 1975. Prior to that time, he had worked as an employee with other
demolition contractors in the Detroit area, and as such, was familiar
with the procedures to be followed in performing these types of
contracts. In this particular matter, the Government alleged that
Appellant had violated the terms of five (5) individual purchase orders
awarded to Appellant. These purchase orders for the five (5) properties
involved, which were awarded in March and April 1975, were introduced
into evidence (Government's Exhibit Nos. 1A through 1E). These purchase
orders indicated: "Demolish dwellings as per specifications."
At the hearing, the Government introduced into evidence Inspection
Reports (Government's Exhibit Nos. 3 through 7) which had been made
during the Spring of 1975. These Inspection Reports were made by an
Inspector who was part of the HUD Task Force which examined the five (5)
properties which had been previously demolished by Appellant in the
Detroit area. The summary of these Inspection Reports discloses that
excavations of these five (5) properties revealed that layers of bricks,
some pieces of metal, debris, and some pieces of wood were found. The
amount of wood found was not very significant and could be contrued to
be normal spillage. At the hearing, the Government Inspector who made
the inspection as part of the Task Force stated that the debris found in
the excavated areas was about average, and he ventured the opinion that
the debris had been put in the property as backfill and was not a part
of the previous structure.
Appellant related that he had started a new company in the past year
and that the purchase orders in question here were the first contracts
which it had performed for the Government. In addition and more
importantly, he maintained these purchase orders did not contain and HUD
specifications, and Appellant testified that he never received any HUD
specifications as being applicable to the work being performed under the
purchase orders herein involved. Appellant stated that he removed the
houses in accordance with the City of Detroit specifications. Moreover,
he stated that these jobs were considered emergencies and that he had
been advised that HUD would accept hardfill in the excavated areas
within one foot of the surface. (Tr. 37) Appellant related how he had
obtained clean landfill to put back in the excavated areas. He stated
that he was present when it was put back into the excavated areas, and
from his observation, there was no decomposable material in it. In
support of his contention that he had performed the contract in
accordance with the City of Detroit inspection, he introduced into
evidence (Appellant's Exhibits Nos. 1 through 3) copies of the City of
Detroit Building Permits and Inspection Reports. These Inspection
Reports indicate that these properties had been inspected and accepted
by the City of Detroit on the following dates:
1. 8235 Traverse inspected and accepted on May 15, 1975
2. 104 Louisiana inspected and accpeted on March 4, 1975
3. 4175 Canton inspected and accepted on May 16, 1975
4. 8735 Knodell inspected and accepted on May 15, 1975
5. 14901 Dexter inspected and accepted on May 16, 1975
It is noted that the Task Force inspections undertaken by HUD were
almost simultaneous to the time these inspections were conducted by the
City of Detroit.
It is Appellant's contention that the City of Detroit specifications
permitted hardfill (i.e., concrete and bricks) to remain in the site
within two feet of the surface. Moreover, since these purchase orders
were indicated as "emergency work," the HUD Area Office representative,
Mr. Soper, allegedly had stated that hardfill could remain in the hole
within one foot of the surface. In support of its position, Appellant
produced as witnesses two contractors, James Jenkins and Thomas Hobart.
James Jenkins testified that he had spoken to Mr. Soper, and he was told
by Mr. Soper that he could bring hardfill back up to one foot in these
jobs. Mr. Jenkins was the representative of the Minority Business
Association, and for that reason had telephoned HUD on Appellant's
behalf. In addition, Mr. Hobart, another contractor, testified that Mr.
Soper had told him that there was a new HUD ruling that hardfill could
stay in the hole. (Tr. 60) In addition, Mr. Hobart stated that he had
been told by HUD that they could have hardfill anywhere below one foot
in emergency jobs. (Tr. 65).
The hearing was recessed because of the testimony concerning the
alleged waiver of the specifications by Mr. Soper until Mr. Soper could
be produced as a witness. The hearing resumed on November 6, 1975 at the
HUD Detroit Area Office, Detroit, Michigan. At that time, Mr. Soper was
called as a witness. Mr. Soper, a HUD employee, stated that he never
told Mr. Jenkins or Mr. Hobart that hardfill could be left in the hole
within one foot of the surface. He did testify, however, that HUD
prepared their Inspection Reports (HUD-Form 9519) based upon acceptance
by the City of Detroit Inspectors. (Tr. 10)
Another witness was Mr. Beaupied, HUD Area Office. He explained the
procedure involved in becoming a demolition contractor. It involved a
two-step procedure. In the HUD Area Office, there is a formal contract
section which handles all contracts over $2,000. Purchase orders are
handled by the Housing Management group for work under $2,000. However,
as explained by Mr. Beaupied, before a contractor receives work under
purchase orders, he must first make formal application to get on the HUD
Bidder's List and show his qualifications to the Contracting Officer. At
the time they apply for formal contracts, they are given a copy of the
HUD specifications. However, no evidence was presented at the hearing
which would establish that contractors who perform work under purchase
orders do in fact, or did in fact, receive a copy of the HUD
specifications which are in issue here and in other hearings relating to
these types of contracts. He did testifiy that to his knowledge none of
the contractors performing the emergency work in the Winter and Spring
of 1975 were furnished copies of the specifications. (Tr. 23) He also
testified that he had no recollection of any telephone inquiries from
contractors concerning interpretation of HUD's specifications.
In another suspension hearing, the Hearing Officer called a witness
from the City of Detroit, Silas H. Estes, Acting Chief Building
Inspector. He testified to meetings in 1973 between HUD and the City of
Detroit at which an arrangement was made for the City of Detroit to
conduct inspections for HUD. Moreover, HUD was informed "that we would
only inspect according to Detroit city ordinance requirements." (In the
Matter of Otis Jones and Otis Jones Wrecking Company, Docket No.
75-383-DB, December 3, 1975, Tr. 7). Further, he testified to the
contents of a letter from HUD to the City of Detroit dated May 7, 1975
(Hearing Officer's Exhibit No. 1). That letter made record of an
understanding between the two parties concerning inspection. One of
these agreements was "The City will perform open hole inspections within
their rules and regulations and shall not enforce HUD regulations." In
reference to this agreement, Department Counsel questioned Mr. Estes as
follows:
Q. "# # # is that anything new?
A. (Mr. Estes) No.
Q. That's what you had been doing ever since you made
inspections involving HUD property?
A. That's right.
HEARING OFFICER BURKE: The import, then, of this Exhibit is to
formalize the agreement that had existed over the past several
years between the City of Detroit and HUD regarding these
inspections and specifically as far as we are concerned and
interested, it did permit, then, hard fill to be put back in the
excavated area, is that correct, within two feet of the surface?
(Emphasis added.)
THE WITNESS: I would say this is the understanding with HUD.
Not particularly an agreement, but an understanding." (Otis Jones,
supra, Tr. 9-10)
In the instant matter, the Government suspended Appellant on August
25, 1975 for failure to comply with the provisions of five (5) purchase
orders it undertook to demolish certain properties in the City of
Detroit. The Government's basis for continuing the suspension is 24 C.
F.R. 24.12(a)(2) which provides:
"(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interest of the Department." (Emphasis added.)
Further, it is provided in 24 C.F.R. 24.11:
"Suspension is a drastic action taken when there is suspicion
of fraud or other criminal conduct in Government business or
contractual dealings + + + ." (Emphasis added.)
A review of the record in the instant matter discloses:
1. Appellant undertook work on five (5) purchase orders which stated
"Demolish dwellings as per specifications."
2. There was testimony by HUD employee, Mr. Beaupied, that no HUD
specifications were furnished to contractors doing emergency work in
1975.
3. Appellant maintained he never received HUD specifications but
performed work in accordance with City of Detriot specifications.
4. The City of Detroit specifications permitted hardfill in the
excavated areas.
5. A HUD employee, Eugene Anthony, has testified that after July 1,
1973, the City of Detroit untertook inspections for HUD, and HUD paid
the contractors upon City of Detroit approval. (In the Matter of Charles
Hobart and Hobart Wrecking Company, Docket No. 75-370-DB, October 30,
1975)
6. The City of Detroit, when it performed HUD inspections, did so in
accordance with City of Detroit ordinance requirements.
7. Appellant's work was inspected and accepted by the City of Detroit
Inspectors.
8. HUD paid Appellant based upon the City of Detroit inspection
approvals, and in fact, paid them after the May Task Force inspections.
9. The Government offered no new evidence, other than reciting the
contents of the Inspection Report compiled in May 1975, to indicate
Appellant was in violation of the terms of the purchase orders.
As stated in Horne Brothers v. Laird, 463 F. 2d 1268 (D. C. Cir.
1972):
"In our view, under any proper procedural scheme the Government
should be permitted a reasonable time, after it has notified a
suspended bidder of his suspension status, before it must conduct
a proceeding attended by the contractor and his representatives,
to provide an opportunity to offer evidence to rebut charges and
confront accusers, in short, to demonstrate the lack of adequate
evidence to warrant suspension." (Emphasis added.)
In the opinion of the Hearing Officer, the Appellant within the
language of Horne Brothers (supra) did offer evidence "to demonstrate
the lack of adequate evidence to uphold the suspension." The weight of
the evidence based on the testimony at the hearing supports Appellant's
position that the City of Detroit specifications govern as indicated in
May 7, 1975 communication from HUD to the City of Detroit. Therefore,
since the City of Detroit specifications applied "hardfill," that is
brick and concrete, were allowed in the property. This leaves the issue
of the wood found in some of the properties. The Hearing Officer, after
hearing over two dozen of these suspension matters, takes jducial notice
of normal spillage of wood in demolition contracts and additionally that
the twenty ton machine used by contractors grinds wood into the ground.
Appellant was performing his first contracts with HUD. The Hearing
Officer observed his demeanor during his testimony and weighed his
testimony carefully. His testimony was credible. The record in this
matter does not indicate Appellant's performance was such that it should
be construed "for other causes of such serious and compelling nature
affecting responsibilty" to warrant upholding the suspension.
It is the Initial Determination of the Hearing Officer that the
suspension of Appellant be removed.
75-377-DB
In the Matter of: HYMAN A. COHEN and H. A. COHEN REAL ESTATE CO.
October 6, 1976
761006
Michael F. Burke
A hearing having been held on the record in the above-entitled
proceeding, I, Michael F. Burke, as Hearing Officer, upon consideration
of the record in its entirety, issue this Initial Determination
containing the following order with my Findings and Conclusions attached
and made a part hereof, pursuant to the authority delegated to Hearing
Officers of the Department of Housing and Urban Development under 24
C.F.R. 24.10(b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing - Federal Housing Commissioner. Notice
of Final Determination, which is conclusive, will be given in writing
and transmitted by registered mail by the Assistant Secretary.
By letter dated August 12, 1975, Hyman A. Cohen and H. A. Cohen Real
Estate Company (hereinafter referred to as Appellant) were notified by
Acting Assistant Secretary deWilde of its suspension from further
participation in HUD programs and that its debarment was under
consideration by the Department. This action was taken based upon the
Government having received information that Appellant had entered a plea
of guilty to violations of Title 18, U.S.C., Sections 2, 1001, and 1010.
Appellant was informed in that letter of its right to a hearing in
accordance with 24 C.F.R. 24.10. Appellant, acting through his attorney,
requested a hearing. Subsequently, upon reconsideration of this matter,
Appellant decided to waive its right to have the case presented on the
record.
The record discloses that Appellant, on June 27, 1975 in the United
States District Court for the District of Delaware, entered a plea of
guilty to four counts of violations of Title 18, U.S.C., Sections 1001
and 2; and guilty to fifteen counts of violations of Title 18, U.S.C.,
Sections 1010 and 2. As a result of the guilty pleas, Appellant was
incarcerated for a term of six months, and fined the sum of $10,000. In
addition, Appellant was placed on probation for a period of forty
months, (Government's Exhibit No. 1). Appellant was a proprietor of his
own real estate business in Wilmington, Delaware. The gist of his
criminal offenses involved the making of false statements to the
Department, specifically, submitting false information on applications
for FHA insurance.
Appellant's Counsel asserts that Appellant is seventy years old, has
ill health, is in a state of economic distress and despite his advanced
years has to be the support of his family. Moreover, notwithstanding
Appellant's plea arraignment, Appellant was, in fact, imprisoned.
Several letters of character reference were introduced into the record
attesting to Appellant's excellent reputation both in his business
dealings and his personal character, (Appellant's Exhibit No. 1). In
summary, these letters present Appellant as a man of great social
concern but who was careless in record keeping and with a lack of
orderliness in his business dealings. There was also introduced into the
record a letter from Appellant's physican which indicated Appellant's
serious medical problems.
The Government Counsel entered into the record a letter from the
United States Probation Officer who conducted Appellant's pre-sentence
investigation and who will supervise the probation until April 4, 1979,
(Government's Exhibit No. 3). The Probation Officer stated that he is
aware of the FHA frauds which have occurred over the past 10 years in
Wilmington, and he described Appellant's behavior in regard to his
violations as being guilty of "gross negligence which can be
appropriately described as criminal." He also noted that the sentencing
judge believed that Appellant's violations warranted a jail sentence
regardless of the surrounding circumstances; the age and poor health of
Appellant. In addition, Government Counsel submitted a letter from the
HUD Wilmington Insuring Office, wherein the Insuring Office Director
asserted that five of the properties cited in Appellant's indictment,
were acquired by HUD and resulted in a loss of $52,000 to the Department
(Government's Exhibit No. 4).
The basis for a debarment action against Appellant is found in 24 C.
F.R. 24.9(a) which states as follows:
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes.
(1) Conviction for commission of a criminal offense as an
indictment to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
# # # # #
(4) Any other cause of such serious compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his duly authorized representative to warrant
debarment. Such determination shall clearly demonstrate that
participation by the contractor or grantee would be harmful to the
best interests of the public.
Government Counsel contends that the offenses to which Appellant
pleaded guilty fall within the meaning of 24 C.F.R. 24.9(a)(1) in that
they were designed to induce the mortgagee to approve unqualified
mortgagors and induce the Department to make a commitment of mortgage
insurance. Moreover, Government Counsel asserts that Appellant's acts
also fall within the scope of 24 C.F.R. 24.9(a)(4) in that they show a
reckless disregard for the Department's regulations and Federal law. It
is the Government's position that debarment for the maximum period is
warranted, as the acts involved here were not technical violations of
the law but rather a pattern of transactions of misrepresentations in
order to make a sale.
Appellant's Counsel argues that Appellant should not be debarred. He
points out that Appellant has already been suspended over one year and
deprived of earning the only livelihood available to him. In addition,
Appellant has already been punished for the violations by his being
incarcerated for a period of six months and being fined the sum of
$10,000. Moreover, Appellant's Counsel points to Appellant's age, his
poor health, the urgent need to support a family as reasons why
debarment should not be imposed. In addition, Appellant has been advised
by his Counsel of the requirements of the statutes and regulations
governing HUD programs, and Appellant has assured Counsel that he will
comply with them in the future and that any failure to comply with them
in the past was as a result of ignorance in part and a sincere desire to
help others.
The purpose to the Department's regulations set forth in 24 C.F.R.
et seq. is for protection of the public and not for punitive purposes.
Therefore, in deciding the instant matter, careful consideration has
been given to the positions advocated by each party. On the one hand,
the Government urges maximum of debarment and it depicts the offenses as
a series of fraudulent acts committed for Appellant's gain. Appellant's
Counsel argues that Appellant has been punished adequately and points to
the personal circumstances of the Appellant; his age, poor health and
economic distress.
Based upon a review of the record, and giving full consideration to
all the circumstances, it is the Initial Determination that Appellant be
debarred for a period of one year from the date of this determination.
In imposing this period of debarment, the Hearing Officer has taken into
account the fact that Appellant has already been suspended for fourteen
months as well as Appellant's age and health conditions. On the other
hand, despite these personal factors, it should be noted that the
offense involved here was not an isolated act but involved many singular
offenses that established a fraudulent course of conduct in Appellant's
dealings with the Department.
It is the Initial Determination of the Hearing Officer that
Appellant's debarment is in the best interest of the Government. The
period of debarment is to commence from the date of this Initial
determination and continue for a period of one (1) year from this date.
75-376-DB
In the Matter of: ANTHONY SOAVE and M & M CONTRACTING, INC.
December 17, 1975
751217
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination, containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated August 25, 1975, Assistant Secretary H. R. Crawford
advised Anthony Soave and M & M Contracting, Inc. (hereinafter referred
to as Appellant) of their suspension as a HUD contractor. This
suspension was based upon an alleged violation by Appellant of certain
provisions of their purchase orders undertaken with the Government.
Specifically, it charged that Appellant, in the performance of the
purchase orders, had failed to remove debris and or decomposable
material from the site as required under the terms of the purchase
orders and had instead used it as fill and covered it. The letter
further advised Appellant of its right to a hearing under the provisions
of 24 C.F.R. 24.10. On September 2, 1975, Appellant requested a hearing.
A hearing was held on October 29, 1975 at the HUD Area Office, Detroit,
Michigan. John P. Witsil, HUD Office of General Counsel, appeared on
behalf of the Government, and Jean-Pierre Swennen, Washington, D.C.,
appeared on behalf of Appellant.
The Government based its suspension upon the alleged violation by
Appellant of the provisions of five (5) separate purchase orders
undertaken by Appellant with HUD. These purchase orders had been
undertaken by Appellant for the Government in May 1973. The purchase
orders stated the requirement as follows: "Demolish Dwellings as per
specs." The Government introduced into evidence copies of the five (5)
purchase orders. In addition, the Government introduced into the record
a copy of the HUD specifications which it maintained governed the
performance of work on these purchase orders.
During the Spring of 1975, a HUD Task Force examined properties in
the City of Detroit to ascertain whether or not the terms of contracts
for demolition work undertaken by the Department had been violated. A
team of Inspectors visited these demolished properties and filed
Inspection Reports based on their examination of material excavated from
these properties.
The Inspection Reports prepared by the HUD Task Force disclosed
bricks and concrete were found throughout the five (5) properties
involved. Moreover, there was also found miscellaneous debris and
evidence of wood in some of the properties.
Appellant's position is that it performed in accordance with the
requirements of the purchase orders. Copies of City of Detroit
Inspections and Acceptance Reports for each of the five (5) properties
were introduced into evidence. The final inspections were in October and
November, 1973. Appellant also introduced into the record six (6)
statements from neighbors of each of the five (5) properties involved in
this hearing. These statements were to the effect that they observed the
demolition work being performed, and they saw the houses being removed
and the land cleared and graded properly.
Counsel for Appellant filed an extensive post-hearing brief which
questioned the imposition of the suspension on numerous due process
grounds. However, the Hearing Officer will determine this matter on its
merits.
The pertinent provision of the Department Regulations relating to
suspension (24 C.F.R. 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings+ + + +" (Emphasis added.)
The Government's basis for continuing the suspension is 24 C.F.R.
24.12(a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added.)
A review of the record discloses that Appellant maintained that it
performed these purchase orders in accordance with HUD specifications.
Whether, in fact, this contention is true is irrelevant to determination
of this matter. The record discloses that the five (5) properties were
inspected and accepted by the City of Detroit in the Autumn of 1973. It
has been established in other hearings that the City of Detroit
conducted inspections for HUD after June, 1973 in accordance with City
of Detroit specifications (In the Matter of Otis Jones, Docket No.
75-383-DB, December 3, 1975). In a number of other hearings based upon
the evidence in Otis Jones, supra, the Hearing Officer has ruled that
City of Detroit specifications apply on all inspections performed after
June, 1973. Therefore, hardfill is permitted to be left in the
properties involved herewith within two feet of the surface. Hence,
Appellant only had to perform in accordance with the City of Detroit
specifications.
As regards to any other debris found in the properties, again, the
Hearing Officer, as in other hearings involving similar circumstances,
takes Judicial Notice of the normal spillage of wood into the excavated
areas and the likelihood of pieces of wood being ground into the earth
by a twenty-ton machine.
Accordingly, a review of the record fails to disclose "adequate
evidence" to sustain the suspension which was imposed on August 25,
1975.
It is the Initial Determination of the Hearing Officer that the
suspension be removed.
75-370-DB
In the Matter of: CHARLES HOBART and HOBART WRECKING COMPANY
December 11, 1975
751211
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3) and 24.15(a)(5).
As provided in 24.10(b)(3), this Initial Determination is final
unless reversed or modified within thirty (30) days by the Assistant
Secretary for Housing Management. Notice of Final Determination, which
is conclusive, will be given in writing and transmitted by registered
mail by the Assistant Secretary.
By letter dated August 25, 1975, Assistant Secretary H. R. Crawford
advised Charles Hobart and Hobart Wrecking Company (hereinafter referred
to as Appellant) of their suspension as a HUD contractor. In that
letter, six (6) purchase orders were identified which had been
undertaken by Appellant which, in the view of the Department, had not
been properly performed. Specifically, it was alleged that in violation
of the terms of these purchase orders, Appellant had failed to remove
debris and/or decomposable material from the properties as required by
the terms of the purchase orders and rather had used it as fill and
buried it. The contractor was advised of its right to a hearing in
accordance with the provisions of 24 C.F.R. 24.10. By letter dated
August 30, 1975, Appellant, through its Counsel, requested a hearing
which was conducted on October 30, 1975 at the HUD Detroit Area Office,
Detroit, Michigan. John P. Witsil, of the HUD Office of General Counsel,
represented the Government, and Thomas J. Olejnik, Detroit, Michigan,
represented Appellant.
The six (6) purchase orders involved in this hearing were performed
during the time period of 1973 and 1974 by Appellant. The purchase order
requirements were stated as follows: "Demolish as per specs." A HUD
Task Force during the Spring of 1975 conducted examinations and
inspections of the six (6) properties in the Detroit area which had been
previously demolished under contracts with HUD. At the time that this
investigation was conducted, the Inspectors observed the properties
being excavated and reported their findings on Inspection Reports. At
the hearing, the Government introduced the Inspection Reports pertinent
to the six (6) properties. Mr. Cobb, the Government Inspector, testified
as to the contents of the Inspection Reports made by him when he
conducted his inspections in the Spring of 1975. These Inspection
Reports disclosed large amounts of brick and concrete found in the
excavated area as well as finding pockets of wood in some of the
properties. Appellant's position was that the City of Detroit
specifications applied to these purchase orders, and, therefore,
hardfill (bricks and concrete) was allowed in the properties within two
(2) feet of the surface. Moreover, Appellant maintained that he never
received a copy of the HUD specifications relating to the work to be
performed under these purchase orders. The HUD specifications were
introduced into the record. To clarify whether or not the HUD
specifications were applicable, the Government called as a witness
Eugene E. Anthony of the HUD Area Office in Chicago, Illinois. Mr.
Anthony was shown copies of the purchase orders which had been
introduced into the record and asked what specifications applied to
these jobs. He testified that he came to work with HUD in June of 1972.
He stated after November 1, 1972 he became involved in demolition
procedure. HUD conducted its own inspections at that time until July 1,
1973. In July of 1973, the procedure changed. This change was brought
about by a HUD administrative decision based upon the number of
inspections that were being made by HUD personnel and City personnel. A
City Ordinance required that the Inspectors of the City had to visit
each site and inspect the hole and the grade. Therefore, HUD changed its
procedures and would accept the inspections of the City of Detroit
Building and Safety Engineers on the open hole and the final inspection.
At the time of the final inspection, the contractors would take their
purchase orders to the City of Detroit, and they would stamp it approved
and one of the supervisors of the inspection would initial a stamp or
sign it. Contractors would bring the approved Inspection Report to HUD
for payment based upon City inspection. (Emphasis added.)
In response to a question by Department Counsel (Tr. 7), Mr. Anthony
testified that the City of Detroit Inspectors were advised by HUD
officials to conduct their inspections to meet the HUD requirements (Tr.
8). He also acknowledged that the contractors doing business with HUD
were advised that HUD would accept the inspections by the City, but that
HUD reserved the right to go out and inspect it. He also testified that
he was aware of the difference in the requirements of the HUD
specifications with the City of Detroit specifications (Tr. 10). He was
aware that the City of Detroit specifications at that time would allow
hardfill to be placed in the excavated area up to two (2) feet below the
grade. Mr. Anthony testified that even under the City of Detroit
specifications, however, no wood, garbage, or rubble was permitted to be
left in the hole.
In regard to the specific purchase orders introduced into the record,
Mr. Anthony was of the opinion that during the time involved here
(November 1973 through August 1974), the City of Detroit inspections
would be conducted and would be used as the basis for HUD payment. In
regard to the HUD specifications, Mr. Anthony stated that in December
1972 all demolition contractors were furnished with a copy of the HUD
specifications, and that they were to sign one copy and return it to the
HUD office. Mr. Anthony did not have any knowledge as to whether or not
Mr. Hobart had ever in fact received these specifications from HUD.
Despite the testimony of Mr. Anthony that the City of Detroit was to
conduct inspections to meet HUD specifications, the Hearing Officer in
other hearings has heard testimony that contradicts Mr. Anthony.
Specifically, in the matter of Otis Jones (Docket No. 75-383-DB), there
was testimony by Mr. Estes of the City of Detroit, Department of
Buildings and Safety Engineering, that at a meeting between HUD and the
City of Detroit, it was agreed that inspections for HUD would be to the
standards under the City of Detroit ordinances. At that hearing (Otis
Jones, supra), there was introduced into the record a letter from HUD to
Mr. Lederer, Commissioner, Department of Buildings and Safety
Engineering, City of Detroit, dated May 7, 1975, which documented
understandings arrived at between HUD and the City of Detroit. One of
these understandings was:
"3. The City will perform "open-hole" inspections within their
rules and regulations, and shall not enforce any HUD regulations."
(Emphasis added.)
In regard to this understanding, Mr. Estes was asked by the Hearing
Officer:
"HEARING OFFICER BURKE: The import, then, of the Exhibit is to
formalize the agreement that had existed over the past several
years between the City of Detroit and HUD regarding these
inspections and specifically as far as we are concerned and
interested, it did permit, then, hard fill to be put back in the
excavated area, is that correct, within two feet of the surface?
THE WITNESS: I would say this is the understanding with HUD.
Not particularly an agreement, but an understanding." (Otis Jones,
supra, Tr. 9-10)
Appellant testified on his own behalf and stated that he has been in
the demolition business for about twelve (12) years. He stated that his
company had done business around the Michigan area and did not get
involved with HUD until 1973 or 1974. During this time period, they had
demolished approximately 170 buildings. He stated that prior to
undertaking these purchase orders, he was not aware of the HUD
specifications. In addition, he stated that these particular purchase
orders were in the nature of "emergency jobs," that is, they were to be
performed within ten or fifteen days under the instances rather than the
normal 45 to 60 days.
Appellant maintained that under the City of Detroit specifications
and inspection standards, hardfill could remain in the hole two (2) feet
of the surface. He acknowledged that they left hardfill in the hole
because they thought it was permitted by the specifications. In regard
to wood that remained in the hole, he stated that it was not possible to
remove all wood from these properties. He based this statement upon the
fact that the machine that removed the house is 27 tons and that it can
crush the wood underneath it and especially during the time of the year
when the ground is soft this wood is buried into the ground and it is
impossible to remove it. In addition, he stated that it is entirely
possible that a few scraps of wood would fall off the machine in the
removal process. Appellant pointed out that properties in question here
were performed on land which had originally been very swampy, and,
therefore, the excavated areas were very muddy at times, and this
prevented all wood from being removed as it was very easily buried into
the ground by the machine going back and forth over it. In addition, he
pointed out that these vacant lots become the dumping places as well as
playgrounds for children in that area, and, therefore, rubble such as
beer cans and other debris is tossed into these areas.
Appellant entered into evidence City of Detroit inspections for the
six (6) properties involved which indicated inspection and acceptance.
In addition, Appellant testified that he didn't have any other
supporting material relative to these purchase orders as they had been
turned over to the FBI. Appellant, however, used his own trucks, and,
therefore, he did not have any trucking receipts which would indicate
that debris was removed in fact from each of the property sites in
question.
The pertinent provision of the Department Regulations relating to
suspension (24 C.F.R. 24) are as follows:
Sec. 24.11 Suspension.
Suspension is a drastic action taken when there is suspicion
of fraud or other criminal conduct in Government business or contractual
dealings, and as such, shall not be based upon an unsupported
accusation. Moreover, if suspension were to be upheld against Appellant,
it would be on the following basis:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) (2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension.
A review of the record in its entirety discloses that the purchase
orders did not specify that the work was to be performed according to
the HUD specifications. Secondly, Mr. Anthony testified that he did not
know if Appellant ever received the HUD specifications. Appellant stated
he believed that the City of Detroit specifications applied and that he
was not aware of HUD specifications. Both parties agreed that the City
of Detroit inspections were accepted by HUD as the basis for payment.
The Government offered testimony by Mr. Anthony that the City of Detroit
was to inspect to meet HUD specifications, but this testimony has been
contradicted by a representative of the City of Detroit. Mr. Estes
testified in that the understanding formalized in the May 7, 1975 letter
was the procedure followed for several years.
Therefore, based upon the foregoing facts, it is reasonable to assume
that Appellant would have believed that the City of Detroit
specifications applied to these purchase orders. The Hearing Officer
finds that based upon all the facts and circumstances of this matter the
City of Detroit specifications applied after July 1, 1973. The purchase
orders performed by Appellant were accepted by the City of Detroit, and
HUD made payment based upon that acceptance.
Since the City of Detroit specifications govern, the hardfill could
be left in the property within two (2) feet of the surface. The
Appellant testified that it was not possible to remove all of the wood
from the hole. He stated that this was particularly true when the land
was muddy. He also acknowledged normal spillage and grinding of pieces
of wood by the 27 ton machine could cause pockets of wood.
In light of the facts stated above, it is the Hearing Officer's
opinion that although the work was not perfect, it was, nevertheless, in
substantial compliance with the City of Detroit specifications.
Accordingly, there exists no adequate evidence to warrant continuation
of this suspension action.
It is the Initial Determination of the Hearing Officer that the
suspension be removed.
75-369-DB
In the Matter of: NICHOLAS SINIGLIA
January 19, 1976
760119
James W. Mast
On July 31, 1975, David O. Meeker, Jr., Assistant Secretary for
Community Planning and Development of the Department of Housing and
Urban Development, herein the Department, served on Nicholas Siniglia,
herein the Respondent, written notice of proposed debarment pursuant to
the Department's Rules and Regulations, herein the Rules, 24 CFR, Part
24, based on Respondent's plea of guilty to charge of violation of Title
18, Section 1001 of the United States Code, by the United States
District Court for the Southern District of New York. By letter dated
August 13, 1975, Respondent requested a hearing in the matter. On
September 24, 1975, the undersigned wrote the parties and requested
their respective positions. On October 15, 1975, Respondent by Counsel
answered and reaffirmed his position as that stated in a letter of
August 13, 1975, sent to David O. Meeker, Jr. No response was received
from Counsel for the Department. On October 17, 1975, the undersigned
served the parties with a Notice of Hearing for November 20, 1975. The
hearing was held as scheduled. The Department appeared by Counsel and
Respondent appeared in person and was represented by Counsel.
Upon the entire record I make the following:
Nicholas Siniglia is president of Experienced Machinery Movers, Inc.
In the course of his business he deals with the Department of Housing
and Urban Development as a subcontractor for Urban renewal projects.
The basis for the Department's action is Respondent's guilty plea to
violation of 18 U.S.C. 1001, submission of a fraudulent document to a
government agency. All evidence presented indicates that only the single
incident was involved.
The Respondent operates a small heavy machinery moving company. In
November 1973, he submitted an oral estimate for the moving of heavy
machinery to Samuel Wagner, a contractor, who wanted to bid on moving a
tenant in an urban renewal project upon a request by Wagner. In early
December 1973, Respondent and the contractor met with a Dennis Green,
who acted as an agent to coordinate activities between the tenant who
was moving and the urban renewal agency. Green later provided the major
evidence leading to Respondent's indictment. At the meeting, Respondent
and the contractor signed the document herein involved, a form called a
Contractor's Assignment in which it was stated that no money was being
paid as a kickback to the tenant being moved. However, as Respondent
testified at the hearing, he was aware that $6,000 was in fact being
paid to the tenant through Green. Shortly after the agreement was
signed, the $6,000 was paid from the contractor to Green, in
Respondent's presence and with his knowledge. Respondent pleaded guilty
to violation of 18 U.S.C. 1001 and in May 1975 received six months
suspended sentence. No fine was imposed.
At the hearing Respondent testified and admitted his violation of 18
U.S.C. 1001 but protested as to the degree of his cupability citing his
lack of knowledge that Green was wired for sound by the government and
pressure exerted on him at the meeting to sign the document in haste.
However, Respondent was dealing in a business context and as an
experienced businessman must be held to act in a prudent manner and,
thus, responsible for documents he has signed. Respondent's contention
of lack of time to be fully cognizant of the illegal dealings is suspect
as he admitted that the contractor advised him on the day before the
signing that the agent would receive some fee in return for awarding the
job. Respondent stated he believed the fee was a legal finders fee
despite the fact that he had never before been involved in a business
deal in which one was given out in this manner. Furthermore, the
Contractor's Assignment failed to state a definite sum for the bid, a
fact which Respondent admitted was highly unusual and which should have
alerted him to the irregularities of the transaction. Finally,
Respondent has admitted that at the time of signing he did realize that
the money exchanged was an illegal payment and that the bid would be
rigged.
Respondent cited his otherwise clear business record of 35 years and
the fact that he made no contribution to the money paid.
Respondent is a contractor within the meaning of the Department
Rules, 24 CFR Section 24.4(g) as an individual that receives HUD funds
directly or indirectly through non-Federal sources. Upon Respondent's
conviction the basic requirements for debarment were met 24 CFR 24.9(
a)(1).
Counsel for the Department requests a full period of debarment of 3
years. Evidence for Respondent's participation in the kickback and
bid-rigging scheme were limited to his signing the false document.
Respondent did not initiate the conspiracy; and, in fact, submitted a
reasonable bid on the subcontract. Respondent did not contribute to the
money paid. His participation in the conspiracy was relatively minor, in
that it consisted of knowledge and primarily passive involvement. No
evidence of a pattern or practice of similar kickbacks, illegal dealings
with the government, or general criminal misconduct, or proclivity to
such conduct was submitted. Further, the District Court did not view the
crime as so heinous as to require incarceration or a fine.
It would be inappropriate not to debar Respondent for, given his
awareness that the payment was illegal, he breached the confidence
conferred upon him by the Department. Under the circumstances, a 1 year,
6 months period of debarment appears reasonable.
Respondent, however, should not be lulled into any misconception that
further delinquencies or deficiencies would be treated so lightly. The
period here is shortened because of the absence of evidence of
aggravated conduct, on his part, a pattern or practice of misconduct or
proclivity to engage in such acts, and evidence of a 35 year good
record. Further violations would be considered decidedly more serious.
Accordingly, Respondent will be debarred for a period of 1 year, 6
months beginning May 28, 1975.
1. Nicholas Siniglia is a contractor within the meaning of the
Department's Rules, Part 24, Section 24.4(g).
2. By his conduct resulting in his conviction of violation of Section
1001, Title 18, United States Code, Nicholas Siniglia has violated the
Department's Rules, Part 24, Section 24.0 through 24.15.
It is ordered that Nicholas Siniglia is debarred from participation
in Department programs for a period of 1 year, 6 months, commencing May
28, 1975 and ending November 28, 1976. Department funds shall not be
expended for financial assistance to Mr. Siniglia or to any concerns,
corporation, partnership or association in which he has a substantial
interest, bids or proposals shall not be solicited therefrom, and
subcontracts with him will not be approved unless it is determined to be
in the best interests of the government.
75-368-DB
In the Matter of: DENNIS GREEN
September 9, 1976
760909
James W. Mast
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
On May 15, 1975, David O. Meeker, Jr., Assistant Secretary for
Community Planning and Development of the Department of Housing and
Urban Development, herein the Department, served Respondent with written
notice of suspension, pursuant to the Department's Rules and
Regulations, herein the Rules, 24 C.F.R. 24.15 because of his indictment
by the Grand Jury of the United States District Court for the Southern
District of New York on charges of violating 18 U.S.C. 1341 and 1343.
On May 22, 1975, Respondent by Counsel responded to the charges and by a
separate letter requested a hearing in the case. On August 6, 1975,
David O. Meeker, Jr. served Respondent with written notice that
debarment pursuant to 24 C.F.R. 24.10 was being considered because of
his conviction in United States District Court of the Southern District
of New York of violation of 18 U.S.C. 1341 and 1343. On August 19,
1975, Respondent by Counsel requested a hearing in the case. On
September 24, 1975, the undersigned requested the parties to submit
their respective positions in writing. On October 20, 1975, no response
having been received, a Notice of Hearing issued scheduling the hearing
for November 19, 1975. On the basis of information that the matter would
be presented by stipulation the case was indefinitely postponed. On
April 5, 1976, no stipulation having been obtained the case was
rescheduled for May 21, 1976. At the request of Respondent the matter
was rescheduled until July 27, 1976. At the further request of
Respondent and on the basis of agreement to present the case by written
submissions by August 23, 1976, the case was postponed until August 30,
1976. On August 3, 1976, Counsel for the Department submitted in writing
and served on Respondent evidence and argument in support of the
Department's case. No written submission was filed by Respondent's
attorney. On August 27, 1976, the case was postponed until September 3,
1976. The hearing was held as finally scheduled. The Department appeared
by Counsel; Respondent did not appear. Upon the entire record in the
case I make the following:
Dennis Green was a participant in the Businessman's Relocation
Service of New York. Businessman's Relocation Service was under contract
with Consolidated Foods Corporation to provide relocation services.
Relocation services performed by Respondent were as a result of urban
renewal projects.
Respondent was indicted by the Grand Jury of the United States
District Court of New York in case Number 72 Cr-685 on three counts, two
counts of violating 18 U.S.C. 1343 and one count of violating 18 U.
S.C. 1341. On June 25, 1973, Respondent was found guilty of "unlawfully,
willfully and knowingly, + + + Devis(ing) + + + to defraud and to obtain
money + + + by false + + + pretenses + + +," in violation of 18 U.S.C.
1341 and 1343. The Court sentenced Respondent to one year on count one,
one year on count 2, and one year on count three, to run consecutively
and placed Respondent on probation for two years to begin upon the
service of the sentence in count one. The Respondent was further
required to make restitution in the amount of $35,308.
The conviction arose out of a transaction where Respondent through
Businessman's Relocation Service of New York was a contractor of
Consolidated Foods Corporation to provide relocation assistance. By a
scheme Respondent was to receive money from Consdolidated Foods Service
and convert it to his own use. All three counts of the indictment arose
out of the same transaction.
Counsel for the Department in addition to submitting evidence in
support of his case submitted letters in support of Respondent. Maxwell
C. Kaufman, Deputy Commissioner, Housing and Development Administration
of the City of New York, and Burt M. Schwartz, Assistant Chief, Criminal
Division, United States Attorney of New York, both, cited Respondent's
cooperation in prosecution and conviction of moving company
representatives who were attempting to defraud the United States and the
Department of $250,000.
Respondent has submitted nothing else in his defense.
Respondent was a contractor within the meaning of the Rules as an
indirect recipient of funds from the Department. Upon his conviction,
the basic requirements of debarment were met.
Counsel for the Department seeks only a just and proper period of
debarment. On the basis of evidence submitted by the Department of
Respondent's substantial cooperation in the conviction of moving company
representatives, the period of debarment will be reduced from the three
years possible in such cases to one year and six months beginning May
15, 1975, the date of his original suspension and ending November 14,
1976.
1. Dennis Green is a contractor within the meaning of the
Department's Rules, 24 C.F.R. 24.4(g).
2. By his conduct resulting in his conviction of violating 18 U.S.C.
1341, 1343, Dennis Green, violated the Department's Rules, 24 C.F.R.
24.9(a)(1).
It is Ordered that Dennis Green is debarred from participation in
Department programs for a period of eighteen (18) months beginning May
15, 1975, and terminating November 14, 1976. Department funds shall not
be expended for financial assistance to Dennis Green or to any other
concerns in which Mr. Green has a substantial interest. Bids or
proposals shall not be solicited therefrom, and subcontracts with him
will not be approved unless it is determined to be in the best interests
of the Government.
75-367-DB
In the Matter of: LUTHER JOHNSON
December 1, 1975
751201
James W. Mast
On July 2, 1975, H. R. Crawford, Assistant Secretary for Housing
Management of the Department of Housing and Urban Development, herein
the Department, served on Luther Johnson, herein the Respondent, written
notice of debarment pursuant to the Department's Rules and Regulations,
herein the Rules, 24 CFR, Section 24.9(a)(3)(i)(ii), because of his
"constant failure to comply with the specifications and poor workmanship
+ + + and unreasonably long delays in completion of such work."
Respondent requested a hearing in the matter. On August 15, 1975, the
undersigned wrote the parties and requested their respective positions.
No response was received. On September 10, 1975, a notice of hearing was
served on the parties. The hearing was held as scheduled on November 6,
1975. The Department appeared by Counsel and Respondent appeared in his
own behalf.
Upon the entire record I make the following:
Luther Johnson is owner and operator of Luther Johnson's Painting and
Construction of Columbus, Ohio. Respondent in that capacity has been a
contractor of the Department on residential rehabilitation contracts and
in lawn maintenance and security contracts.
The periods of contracts here involved was from June 1974 until
December 1974. On December 16, 1974, the Department terminated the lawn
maintenance and security contracts because of alleged unsatisfactory
performance. There appear to have been no further contracts entered into
after that date. As noted above these proceedings were begun over 6
months later on July 2, 1975.
The first incident involved the rehabilitation contract on 4168
Arbury Lane, Columbus, Ohio. This occurred in November 1974. The major
problem involved compliance with specifications on the installation of
the drain pipe. Department witnesses testified as to the insufficiency
of the drain as installed on the house and the failure to install the
water carry-off line to the street. The conclusion drawn by the
Department witnesses was that Respondent was attempting to defraud the
Department by making it appear that the carry-off line was installed
when it had not been. Respondent offered testimony of a witness who
directed, but who did not actually see the work done, and later tested
the installation by running water through it and concluded that it had
been installed. The conclusion which Respondent would apparently have
made was that after installation there had been a theft of the carry-off
line. There is no direct evidence that the line was not, in fact,
installed, and I find it unnecessary to so find. It is uncontradicted
that Respondent knowingly did not follow specifications in installing
the roof drain down pipe. Further it is uncontradicted that despite the
claim that the carry-off line was not in place at the inspection was
therefore the responsibility of the contractor, Respondent failed to
remedy this major deficiency for some 2 months. Finally, in order to
complete the rehabilitation contract the Department contracted the work
in January 1975 to another contractor and deducted the amount from the
payment to Respondent.
The second incident involved the rehabilitation contract on 2185
Margaret Street, Columbus, Ohio during late 1974. No specific evidence
was offered of deficiencies in Respondent's performance of this
contract. It was stated only that the "workmanship was poor."
The third incident involved the rehabilitation contract on 1309
Lockbourne Road, Columbus, Ohio during late 1974. The specifications
called for 3 new storm doors. This work was apparently not subcontracted
out by Respondent. Evidence establishes that when Respondent reported
the house ready for final inspection it was found to have only one new
storm door and one old storm door. The third storm door was missing.
Respondent offered evidence that the second new storm door was
installed.
The conclusion apparently sought is that the second new storm door
was stolen by persons unknown. I find it unnecessary to reach such a
conclusion since it is clear that Respondent knowingly failed to comply
with specifications in using a used storm door where a new one was
specified. In this situation it is clear that Respondent remedied the
deficiencies in a timely manner after notice.
The fourth incident involved the rehabilitation at 2430 Lexington,
Columbus, Ohio during late 1974. The specifications called for a 3 foot
by 24 foot sidewalk. Respondent installed a 2 foot by 24 foot drive.
Upon the inspection the error was called to his attention. Respondent
was later paid only for the work actually done and the project was
accepted.
Evidence of substantial failure to perform the lawn maintenance and
security contract from June 1974 until December 1974. This work had been
subcontracted out by Respondent. The uncontraverted evidence warrants
the conclusion of poor management and administration on the part of
Respondent.
Respondent, other than as specifically noted above, did not deny the
deficiencies claimed by the Department. Respondent, the best person to
contest the accuracy of such claims, did not testify. It is reasonable
to conclude, therefore, that his testimony would not materially disagree
with the evidence offered.
Respondent is a contractor as a direct contractor of the Department.
Under Section 24.9(3)(i) debarment is appropriate where "willful failure
to perform in accordance with the specifications" is shown. Under
Section 24.9(3)(ii) debarment is appropriate where "a record of failure
to perform, or of unsatisfactory performance," is shown. In the latter
case the "failure or unsatisfactory performance" must have "occurred
within a reasonable period of time preceding the determination to
debar."
Counsel for the Department at first recommended the full three year
period of debarment. After a colloquy on the reasons Counsel for
Department offered that a one year period of debarment would be
appropriate. Respondent argued for a dismissal of the proceedings.
Further, Respondent argued that other contractors failed to perform
their contracts.
Respondent's failure to properly perform contracts cannot be ignored.
This is merely a situation of minor deficiencies in performance which
can be expected in the rehabilitation of 600 to 700 houses a year and in
several hundred lawn maintenance contracts. Respondent's performance
was substantial in its deficiencies. Of the 6 houses Respondent was
rehabilitating in late 1974, four did not pass inspection. Of these 4168
Arbury Lane and 1309 Lockbourne Road were indicative of an intent not to
perform. Without regard to deficiencies of other contractors these
warrant debarment. The failure to perform the lawn maintenance contract
is more indicative of poor management rather than intent not to perform.
Because of the six month period of poor performance it is concluded that
Respondent had a substantial disrespect for his responsibilities under
the contract. This, too, is sufficient for debarment.
Finally, it is noted the lawn maintenance contract was terminated in
December 1974 and other than the completion of existing contracts
Respondent has had no business dealings with the Department since that
date. There is no evidence that Respondent was given an opportunity for
a hearing on the termination of his contract which it is concluded is a
form of suspension.
Debarment here is based on two contractual areas involving numerous
contracts. The last act complained of occurred in December 1974 in the
case of the 4176 Arbury Lane project. Also, the lawn maintenance
contracts were terminated December 16, 1974. It thus becomes critical to
determine whether "willful" conduct under Section 24.9(3)(i) established
by the circumstances since if it is not then the action is grounded on
Section 24.9(a)(3)(ii) for "failure to perform" and "unsatisfactory
performance." In that event the determination to debar must be made
within a reasonable time. The "determination to debar" is interpreted to
mean not the internal agency determination but the determination as made
in the debarment letter. Thus, the proviso to Section 24.9(a)(3)(ii)
constitutes a regulatory limitation on initiation of proceedings. It is
concluded that a period in excess of 6 months in the case of these types
of contracts would not be reasonable. This is determined since the
failure to perform and unsatisfactory performance do not require an
extended investigation but are, and this case were, readily apparent to
the contracting offices. It would be unreasonable to initiate debarment
proceedings on these types of contracts over six months after the
incidents especially where the deficiencies were known to the
Department, and, in fact, one series of contracts had been terminated
because of the deficiencies.
The 4168 Arbury Lane, the 1309 Lockbourne Road, and the 2430
Lexington transactions establish that Respondent knowingly failed to
perform. There he reported houses as ready for inspection when he well
knew he had not complied with the specifications. Under the
circumstances it is concluded that Respondent "willfully" failed to
perform these contracts. Since the three situations would constitute a
substantial breach of duty and thus would be "serious" within the
meaning of Section 24.9(a)(3). Accordingly, debarment will be directed
as recommended by Counsel for the Department for one year beginning July
2, 1975.
1. Luther Johnson is a contractor within the meaning of the
Department's Rules, Part 24, Section 24.4(g).
2. By his unsatisfactory performance of contracts involving HUD-owned
properties, Respondent has violated the Department's Rules, Part 24,
Sections 24.0 through 24.15.
It is ordered that Luther Johnson is debarred from participation in
Department programs for a period of one year, commencing July 2, 1975,
and ending July 1, 1976. Department funds shall not be expended for
financial assistance to Mr. Johnson or to any concerns, corporation,
partnership or association in which he has a substantial interest, bids
or proposals shall not be solicited therefrom, and subcontracts with him
will not be approved unless it is determined to be in the best interests
of the Government.
76-365-DB
In the Matter of: JOHN F. KELLEHER
August 17, 1976
760817
James W. Mast
On June 25, 1975, Michael T. Savage for the Assistant
Secretary-Commissioner, Housing Production and Mortgage Credit-FHA
Commissioner of the Department of Housing and Urban Development, herein
the Department, served Respondent with written notice of suspension
pursuant to the Department's Rules and Regulations, herein the Rules, 24
C.F.R. Section 24.15, because of his indictment by the Grand Jury for
the United States District Court for the District of Delaware, on
violations of Title 18, Section 201(f), United States Code. By letter
dated June 30, 1975, Respondent requested a hearing on the suspension.
On August 8, 1975, Michael F. Burke, Hearing Officer, requested that
Respondent contact him with respect to the request for the hearing. On
November 19, 1975, Michael T. Savage for the Assistant
Secretary-Commissioner served Respondent with written notice that
debarment pursuant to the Department's Rules, 24 C.F.R. Section 24, was
being considered because of his conviction in the United States District
Court for the District of Delaware of violation of Title 18, Section
201(f), United States Code. By letter dated December 2, 1975, Respondent
requested a hearing. On January 28, 1976, the undersigned requested the
parties to submit their respective positions in writing. On March 12,
1976, a Notice of Hearing was issued scheduling the hearing for May 10,
1976. On May 6, 1976, an Order postponing the hearing until July 26,
1976, was issued. The hearing was held as scheduled on July 26, 1976.
The Department appeared by Counsel; neither Respondent nor his Counsel
appeared. On the morning of the hearing, July 26, 1976, Counsel for the
Respondent made a request for postponement by a telephone call to the
undersigned. Counsel for Respondent was informed that a written request
must be made for such a continuance, and Counsel admitted that he had
previously been informed that written requests are necessary.
Accordingly, Respondent's request for postponement was denied. The
undersigned granted Respondent's request to be allowed to submit a
written statement in support of his position on the case by the close of
business August 9, 1976. On August 9, 1976, Respondent's position and
supporting documents were filed.
Upon the entire record, I make the following:
John F. Kelleher was an FHA area management broker and also held a
financial interest in the three construction companies noted on the
indictment, Michael A. Monico Construction Company, Parkview
Construction Company, and J. & S. Construction Company. On June 5, 1975,
John F. Kelleher was indicted by the Grand Jury for the United States
District Court for the District of Delaware for a violation of Title 18,
Section 201(f), United States Code. The Title 18 U.S.C. Section 201(f)
reference relates to offering gratuities to federal employees. On
October 22, 1975, Respondent entered a plea of guilty of violation of
Title 18, Section 201(f), United States Code. The Court accepted
Respondent's plea and ordered Respondent confined for a period of one
year and fined the sum of five thousand dollars ($5,000.00). Respondent
at the date of the hearing was serving his term of confinement.
The Respondent's plea of guilty to the one count bribery indictment
was for giving Mr. Henry McComb Winchester, Jr., the Director of the
Wilmington Office of the Federal Housing Administration, seven hundred
dollars ($700.00) for disclosing to him information concerning bids
submitted by other competing contractors for general contracting work to
be performed on Department of Housing and Urban Development owned
properties. The Respondent at that time was acting on behalf of the
three construction companies mentioned above in which he had a financial
interest.1 From the evidence submitted it is found that the Respondent
was not the originator of the bid rigging scheme but that Mr. Henry
Winchester was the originator. This was not an isolated situation
involving only the two mentioned parties but several other individuals
were also involved including a Frank F. Pullela. The evidence further
tends to show that this was not an isolated incident by the Respondent
but that there had been a general pattern of bribery from the period of
July 1970 to October 1973.2 1See Leo, FHA Chief Faces 139 Counts, The
Morning New (Wilmington, Delaware), June 6, 1975, at 1, Exhibit No. 11.
2See Chastain, Four Indicated in Wilmington Bribery Case, Philadelphia
Inquirer, June 6, 1975, at 3-B, Exhibit 11.
As evidence of his good character, the Respondent submitted letters
of recommendation which were obtained prior to Mr. Kelleher's
sentencing. One letter was written by W. Laird Stabler, United States
Attorney for the District of Delaware to the Sentencing Judge, Murray M.
Schwartz. Because of the Respondent's extensive cooperation with the
United States Government in its investigation into Federal Housing
Administration fraud in Delaware, Mr. Stabler recommended that
Respondent receive a sentence of probation and a maximum fine of $15,000
instead of incarceration.
Respondent, John F. Kelleher, is a contractor within the meaning of
the Department's Rules, 24 C.F.R. 24.4(g) as the direct recipient of
funds from the Department as an FHA area management broker and as the
recipient of funds from the Department for work performed on Department
contracts in connection with his interest in the construction companies.
Upon Respondent's conviction of crimes involving his business with the
Department, the basic requirements of debarment were established.
It would be inappropriate not to debar Respondent in view of his
conviction of a crime involving his business with the Department.
Counsel for the Department seeks a full three-year period of debarment
to commence with the date of the hearing. Respondent was convicted of
the serious crime of the direct bribery of a Department official, thus
undermining the competitive bidding procedures. In mitigation it appears
that the respondent was not the originator of the bid rigging scheme.
Furthermore, the Respondent gave invaluable assistance to the task force
investigation into Federal Housing Administration frauds in Delaware.
This extensive cooperation in removing corruption in the Department
should not go unrecognized in determining the appropriate period of
debarment. Respondent will be debarred for two years beginning November
19, 1975, the date of the debarment letter, and ending November 18,
1977.
1. John F. Kelleher is a contractor within the meaning of the
Department's Rules, 24 C.F.R. 24.4(g).
2. By his conduct resulting in his conviction of violating 18 U.S.C.
Section 201(f), John F. Kelleher, violated the Department's Rules, 24
C.F.R. Section 24.9(a)(1).
It is ordered that John F. Kelleher is debarred from participation in
Department programs for a period of two years beginning November 19,
1975, and terminating November 18, 1977. Department funds shall not be
expended for financial assistance to John F. Kelleher, or to any other
concerns in which Mr. Kelleher has a substantial interest. Bids or
proposals shall not be solicited therefrom, and subcontracts with him
will not be approved unless it is determined to be in the best interests
of the Government.
75-363-DB
In the Matter of: ARTHUR G. LOHMEIER
June 16, 1976
760616
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
A hearing having been held on the record in the above-entitled
proceeding, I, Michael F. Burke, as Hearing Officer, upon consideration
of the record in its entirety, issue this Initial Determination,
containing the following order with my Findings and Conclusions attached
and made a part hereof, pursuant to the authority delegated to Hearing
Officers of the Department of Housing and Urban Development under 24
C.F.R. 24.10(b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing - Federal Housing Commissioner. Notice
of Final Determination, which is conclusive, will be given in writing
and transmitted by registered mail by the Assistant Secretary.
By letter dated June 4, 1975, Arthur G. Lohmeier (hereinafter
referred to as Appellant) was advised by the Office of the Acting
Assistant Secretary - FHA Commissioner of his suspension from further
participation in HUD programs. The suspension was based upon a plea of
guilty entered into by Appellant for a violation of Title 18, U.S.C.,
Section 215. Appellant was further advised that his debarment from
participation in all HUD programs was being considered. He was informed
of his right to a hearing in accordance with the provisions of 24 C.F.
R. 24.10. Through his attorney, Appellant requested that this matter be
determined on the record.
The record discloses that on November 5, 1974, Appellant was named in
an eighteen-count indictment charging him with violations of Title 18,
U.S.C., Sections 215 and 1005, (Government's Exhibit No. 1). Appellant
had been the Mortgage Manager of the National Bank of Detroit, and the
indictment charged him with seventeen counts of receiving improper fees
for procuring loans on properties as well as one count for making a
false statement. On April 16, 1975, Appellant entered a plea of guilty
to a violation of Title 18, U.S.C., Section 215 (receiving a gratuity
for procuring a loan), (Government's Exhibit No. 2). Appellant was
sentenced to one (1) year on Counts 1 through 9 of the indictment; and,
execution was suspended on all counts except for the first four (4)
months. The sentences on each count were to run concurrently. Appellant
was placed on probation for a period of two (2) years on the remaining
nine (9) counts. In addition, Appellant was fined $200.00 on each of the
eighteen counts.
In behalf of the Appellant, his counsel submitted a statement that
Appellant had no record of prior convictions. Moreover, Appellant has
served a prison sentence of four (4) months, and his counsel stated that
there is no necessity for any further punitive treatment. Department
Counsel's position is that Appellant's Judgment of Conviction warrants
the debarment of Appellant for a period of three (3) years.
The Government letter of June 4, 1975, which advised Appellant of his
suspension and possible debarment and the copy of the indictment
charging Appellant did not make any specific reference to HUD programs.
Therefore, the Hearing Officer on his own initiative raised the question
of whether there was any jurisdiction over this matter within 24 C.F.R.
24.4(g) with Department Counsel by memorandum dated March 22, 1975.
Department Counsel, by memorandum of June 4, 1976, advised that the
indictment and conviction were based upon a violation of 18 U.S.C.
Section 215; receiving a gratuity. Further, Counsel stated that while
the loans involved in the indictment were conventional loans and thus
did not involve initiation of FHA insured mortgages, the National Bank
of Detroit is an FHA approved mortgagee. It was, therefore, the
Government's position that Appellant was an employee of a contractor
with a participation in HUD programs in that the bank was involved in
the FHA mortgage insurance program.
Appellant's employment as a mortgage manager of an FHA approved
mortgagee clearly falls within the purview of 24 C.F.R. 24.4(g) as a
contractor or grantee of the Department. This section is applicable to
the offenses listed in the indictment because Appellant was a key
employee of a "contractor" who was a participant in HUD insured
programs. Although the offenses did not specifically involve loans from
the Government, the provisions of 24 C.F.R. 24.9(l) are sufficiently
inclusive to cover Appellant's actions.
Appellant has pleaded guilty to an eighteen count indictment for
violation of 18 U.S.C. 215 for having received gratuities to process
mortgage loans favorably. This type of conduct does not represent an
isolated offense but a clear course of conduct of participating in
fraudulent transactions, and represents a total lack of business
integrity on behalf of Appellant. This type of conduct shows that the
public interest would not be served by Appellant's continuation in doing
business with the Government.
It is the Initial Determination of the Hearing Officer that Appellant
should be debarred for a period of three (3) years. Since some delays
which were not the fault of Appellant occurred in the issuance of this
Determination, the period of debarment is established from March 22,
1976, and to continue through March 22, 1979.
75-361-DB
In the Matter of: JAMES W. DALPAY
February 27, 1976
760227
James W. Mast
On June 2, 1975, Robert Odle, Jr. for the Assistant Secretary for
Housing Management of the Department of Housing and Urban Development,
herein the Department, served James W. Dalpay, herein the Respondent,
with written notice of suspension and proposed debarment pursuant to
Part 24 of the Department's Rules and Regulations, herein the Rules,
because of his guilty plea to an Information charging him with
violations of Section 1012 and 2 of Title 18, United States Code and his
conviction on Counts I and II in the Information. On June 9, 1975,
Respondent requested a hearing in the matter. On June 27, 1975, the case
was assigned to the Undersigned for hearing. On July 1, 1975, the
Parties were requested to submit their respective positions. On July 27,
1975, Respondent submitted his position. Thereafter, the parties agreed
to submit written submissions to be considered as the record in lieu of
a hearing. The written submissions were accepted and the hearing was
indefinitely postponed.
Upon the entire record, I make the following:
James W. Dalpay, as an area management broker of real estate in the
Renton area of Washington, dealt with the Department of Housing and
Urban Development in the course of his business.
An Information charging Respondent with violations of Section 1012
and 2 of Title 18, United States Code, was entered against Respondent in
Case Number CR-75-1028 in the United States District Court for the
Western District of Washington at Seattle. On March 31, 1975, Respondent
appeared with counsel in the District Court and entered a plea of guilty
to Counts I and II of the Information. The Court sentenced Respondent to
pay a fine of $250 for each of said Counts I and II. Respondent was
placed on one year probation which was terminated early, on January 23,
1976.
The information and conviction arose out a scheme by Respondent
whereby he submitted unauthorized vouchers for reimbursement to the
Department for expenses incurred in connection with properties he owned
or managed. Payment to Respondent began in December 1973, and continued
for approximately seven months. The Counts to which Respondent pled
guilty specifically alleged, in the First Count, submission to the
Department of a voucher for utility bills on 43 HUD-owned properties in
the amount of $208.75 which falsely included bills for eight private
properties owned or managed by Respondent amounting to $37.35. The
Second Count similarly alleged Submission of a voucher for utility bills
on 23 HUD-owned properties in the amount of $109.79 which falsely
included bills for three private properties owned or managed by
Respondent amounting to $26.98.
In his defense, Respondent cites his previously good record with no
prior criminal convictions and the relatively lenient sentence he
received. He states that he is 49 years old and feels his misconduct
arose from negligence in record-keeping rather than a criminal intent to
defraud the Government. Respondent points to the small amounts of money
involved and states that he reimbursed the full amount illegally
received, a total of $1,250.70.
Respondent is a contractor within the meaning of the Department's
Rule, 24 C.F.R. Section 24.4(g), that as a broker and manager of
properties receiving Department funds. Upon his conviction, the basic
requirements for debarment were met under 24 C.F.R. 24.9(a)(1).
It would be inappropriate not to debar Respondent in view of his
conviction for a crime involving his business with the Department.
Respondent actively participated in the illegal activity by his
submission of the unauthorized vouchers and did so for a fairly lengthy
period of time, at least seven months. In mitigation, relatively small
amounts of money were involved and Respondent apparently cooperated with
the Government in reimbursing illegal funds received. Finally,
Respondent's prior good record and present attempts to rehabilitate his
business dealings warrant consideration. Under these circumstances,
Respondent will be debarred for a period of two years beginning June 2,
1975, the date of his original suspension, and terminating June 1, 1977.
Respondent may after six months from date of debarment request
reinstatement by the Department.
1. James W. Dalpay is a contractor within the meaning of the
Department's Rule, Part 24, Section 24.4(g).
2. By James W. Dalpay's conduct resulting in his conviction of
violating Title 18, Section 1012 and 2, United States Code, Respondent
violated the Department's Rules, Part 24, Section 24.0 through 24.15.
It is ordered that James W. Dalpay is debarred from participation in
Department programs for a period of two years, commencing June 2, 1975,
and ending June 1, 1977. Department funds shall not be expended for
financial assistance to James W. Dalpay or to any concerns,
corporations, partnerships, or associations in which he has a
substantial interest, bids or proposals shall not be solicited
therefrom, and subcontracts with him will not be approved, unless it is
determined to be in the best interests of the Government.
75-360-DB
In the Matter of: PHILLIP A. SAMEROFF
September 26, 1976
760926
James W. Mast
On June 13, 1974, David M. DeWilde, Acting Assistant
Secretary-Commissioner, Housing Production and Mortgage Credit-FHA,
Department of Housing and Urban Development, herein the Department,
served on Phillip A. Sameroff, herein the Respondent, written notice of
suspension effective that date pursuant to the Department's Rules and
Regulations, herein the Rules, 24 C.F.R. Part 24, because of his
indictment in the United States District Court, Eastern District of
Michigan, to an indictment charging him with violation of Title 18,
Sections 1010, 201(b) and 371 of the United States Code. On April 23,
1975, David M. DeWilde served Respondent with written notice that
debarment pursuant to 24 C.F.R. Part 24 of the Department's Rules was
being considered based on his plea of guilty to a superseding
Information charging him with violation of Title 18, Sections 1012 and
2(b), United States Code. On April 28, 1975, Respondent requested a
hearing in the matter. On July 1, 1975, the undersigned wrote the
parties and requested their respective positions. No response was
received. On August 1, 1975, the undersigned served on the parties a
notice of hearing scheduled for August 26, 1975. At Respondent's
request, the hearing was postponed until September 17, 1975, and held on
that day as rescheduled. Respondent did not appear in person or by
Counsel.
Upon the entire record in the case, I make the following:
Phillip A. Sameroff was apparently associated with Credit Bureau
Reports, Inc.
An indictment was entered against Respondent for making and passing
false statements to the Department in violation of the Code.
Thereafter, a superseding Information was entered against Respondent
which alleged that on January 11, 1971, and January 13, 1971, Respondent
knowingly made and caused to be made false statements as to a material
fact in a report by Credit Bureau Reports, Inc. and in a Mortgagee's
Application for Mortgage Insurance to the Department. The Information
specified that Respondent represented to the Department that "Hope B.
Lowe possessed an asset of furniture with a value of $2,000.00, when in
fact she then had no such asset with such value, as defendent well knew;
in violation of Sections 1012 and 2(b), Title 18, United States Code."
On April 24, 1975, Respondent pleaded guilty to the two counts and was
sentenced to 2 years probation and fined $1,000.00 for each count.
No defense or explanation was offered by Respondent.
In this case Respondent was a contractor because of his affiliation
with Credit Bureau, Inc., which was the indirect recipient of funds from
the Department because of the mortgage insurance. Upon his conviction,
the basic requirements for debarment were established.
Respondent has been suspended from doing business with the Department
since June 13, 1974. Counsel for the Department made no recommendation
that the full period of debarment be reduced, and further,
recommendation for a period of debarment at least equal to period of
probation. No evidence of the degree of complicity or responsibility of
Respondent in the submission of the false statement was offered by
Counsel for the Department. Further, no evidence of a pattern of
misrepresentation by Respondent has been offered. The record here
consists only of this guilty plea and sentence. It would be
inappropriate not to debar a contractor during the period of probation
from the District Court. Under the circumstances of this case, including
the absence of evidence from the Department about the crime and the
absence of any evidence from Respondent warranting mitigation, it is
appropriate that consideration be given to the action of the District
Court. Accordingly, Respondent will be debarred for a period of 2 years
11 months beginning June 13, 1974, and ending May 12, 1977. Further, if
at some later date the probation imposed by the Court is set aside or
reduced, this debarment action should be reopened and reconsidered.
1. Phillip A. Sameroff is a contractor within the meaning of the
Rules and Regulations Part 24, Section 24.4(g).
2. By his conduct resulting in and by the finding of conviction of
violation of Section 1010 and 2(b), Title 18, United States Code,
Phillip Sameroff has violated the Department's Rules and Regulations,
Part 24, Sections 24.0 through 24.15.
It is ordered that Phillip A. Sameroff, and any affiliates and any
concerns in which Phillip A. Sameroff has a substantial interest, are
debarred and excluded from participating in programs of the Department
of Housing and Urban Development for a period of 2 years 11 months
beginning June 13, 1974, and ending May 13, 1977.
75-359-DB
In the Matter of: JAMES C. THORPE and ZEBROWSKI AND ASSOCIATES, INC.
December 16, 1975
751216
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in this entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, James C. Thorpe and Zebrowski and
Associates, Inc. (hereinafter referred to as Appellant) were notified by
Assistant Secretary H. R. Crawford of their suspension as HUD
contractors. The suspension was based upon an investigation undertaken
by HUD which indicated Appellant, contrary to the provisions of their
purchase orders, had failed to remove debris and/or decomposable
material resulting from the demolition of certain houses in the Detroit
area and had used it as fill and covered it. Accordingly, they were
advised that they were suspended from further participation as a
contractor or grantee in any program effective as of the date of the
letter. They were also advised, in that letter, of their right to a
hearing and to be represented by Counsel in accordance with the
provisions of 24 CFR 24.10. By letter dated June 6, 1975, Appellant,
through their Counsel, William Liberson, requested a hearing. On August
18, 1975, Mr. Liberson was furnished specific information regarding the
alleged violations charged against Appellant consisting of the specific
purchase orders and property locations involved which had been the basis
for the suspension. The hearing in this matter was held at HUD
Headquarters on October 7, 1975. John P. Witsil, HUD Office of General
Counsel, appeared on behalf of the Government, and Mr. William Liberson,
Detroit, Michigan, appeared on behalf of Appellant.
At the hearing, the Government stated that the basis for the
suspension was that Appellant had allegedly violated the terms and
conditions of seven (7) specific purchase orders undertaken with HUD for
the demolition of certain properties in the City of Detroit, Michigan.
These purchase orders, introduced by the Government into evidence,
stated the requirement as follows: "Demolish Dwellings as per
specifications." Six (6) of these purchase orders were issued in 1972,
and one (1) was issued in 1973. The Government introduced into evidence
Inspection Reports which were based upon inspections of these properties
undertaken by a HUD Task Force in the Spring of 1975 in Detroit. The
Inspectors who inspected the properties at that time appeared as
witnesses at the hearing, and they substantiated the contents of the
Reports which disclosed large amounts of cement blocks, concrete,
bricks, other debris, and pieces of wood found in the properties.
Appellant had four (4) witnesses testify on its behalf. All were
former or present employees of Appellant. They all denied that any
violations occurred in the performance of any of the purchase orders
involved. However, two (2) witnesses testified only as to the details of
the property at 9527 Harper. In regard to the other properties, there
was only a general denial that no violations had occurred, and they all
testified as to Appellant's compliance with the terms of the contract.
Appellant also introduced into the record four (4) City of Detroit
Inspections entitled Certificate of Approval. The Certificates of
Approval, however, were not signed by any official of the City of
Detroit. Subsequent to the hearing, Counsel for Appellant introduced
into evidence copies of six (6) HUD Inspection Reports (HUD-9519) for
six (6) of the properties involved.
The pertinent provision of the Department Regulations relating to
suspension (24 CFR 24) is as follows:
Sec. 24.11 Suspension.
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings + + +." (Emphasis added.)
The Government's basis for continuing the suspension is 24 CFR
24.12(a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compeling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interest of the Department. (Emphasis added.)
It has been Department Counsel's position in other hearings to move
to dismiss, as a basis for suspension, any property where a HUD Final
Acceptance was found (In the Matter of Progress Wrecking Corp., Docket
No. 75-379-DB, December 11, 1975). This Motion is based upon the
position that the inspection was made upon a HUD requirement. However,
in this matter, it is noted that two of the inspections were made after
June 1973, when the City of Detroit specifications applied and when
hardfill could be left in the properties. The Inspection Reports on
those two properties do not disclose any substantial amount of wood.
The remaining four were inspected in 1972 and 1973, as stated in another
hearing when Department Counsel moved for dismissal on similar grounds:
"It is the position of the Department that if a contractor is
employed to perform and his work is subject to an inspection by a
member of this Department and a member of this Department did in
fact inspect and approve that a subsequent inspection two years
after the completion of the work would in fact show that the
contractor could not be held liable for what was found a period of
two years after the date of completion of the work.
# # # # # #
We have no evidence available to relate that this contractor
was in fact responsible for what was found in 1975 since it was a
two year time span." (In the Matter of Louis M. Sarko and Arrow
Wrecking, Inc. Docket No. 75-344-DB, TR. 7-8)
Applying the basis for that motion to the Inspection Reports
conducted by HUD Inspectors involved here, these four properties are
removed from our consideration since no evidence was introduced to
establish Appellant was responsible two years later for any debris found
in the four properties.
Of the remaining property where no evidence of Inspection and
Acceptance was introduced, the following is noted: A copy of the
purchase order indicates it was approved for payment by HUD on July 31,
1973, which raises the inference that there was a City of Detroit
inspection shortly before that date. If the City of Detroit inspected in
July 1973, then hardfill was permitted in the property within two feet
of the surface. Therefore, the only possible bases of violation would be
the presence of wood found in this property. The amount of any wood
found was negligible.
Appellant has demolished over 400 houses for HUD. A review of the
entire record in this matter discloses that the Government has not
produced adequate evidence to sustain this suspension which has been in
force since May 27, 1975. It is the Initial Determination of the Hearing
Officer that the suspension be removed.
75-385-DB
In the Matter of: STANLEY GELDYS and STANSON WRECKING CO.
February 13, 1976
760213
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, Assistant Secretary H. R. Crawford
advised Stanley Geldys and Stanson Wrecking Co. (hereinafter referred to
as Appellant) of their suspension as a HUD contractor. This suspension
was based upon the results of an investigation undertaken by HUD which
indicated that in the performance of certain purchase orders with the
Department, Appellant had allegedly failed to remove debris and/or
decomposable material at properties as required by the terms of these
purchase orders and had instead used it as fill and covered it. In that
letter, Appellant was also advised of its right to a hearing in
accordance with the provisions of 24 CFR 24.10. By letter dated June 13,
1975, Appellant requested a hearing. On October 6, 1975, Department
Counsel furnished to Appellant the identification of the specific
properties covered by the purchase orders which were identified as the
basis for suspension. The hearing was conducted on November 13, 1975 at
the HUD Area Office, Detroit, Michigan. Fred S. Babbin, Esquire,
represented Appellant, and John P. Witsil, Esquire, HUD Office of
General Counsel, represented the Government.
The Government alleged that Appellant was in violation of the terms
and conditions of eight (8) of its purchase orders in that it left
decomposable material in the properties. At the hearing, the Government
introduced into evidence Inspection Reports conducted by HUD Inspectors.
These Inspection Reports were prepared as part of a HUD Task Force in
the Spring of 1975 which examined certain HUD-owned properties in the
Detroit area. These Inspection Reports indicated that debris was buried
in these properties in violation of the terms of its purchase orders.
Specifically, pockets of wood were found in some of these properties
which is in violation of the HUD specifications (as well as the City of
Detroit specifications). Many of the properties also contained large
deposits of brick and concrete. However, it has been established in
other hearings concerning these demolition contracts that after July 1,
1973 these inspections on demolished properties were conducted by the
City of Detroit Inspectors. It has also been established that the City
of Detroit conducted their inspections in accordance with their own
specifications which permitted the use of hardfill, that is, brick and
concrete, to be left in the properties, (In the Matter of Otis Jones,
Docket No. 75-383-DB). Therefore, in our consideration of this
suspension on any property inspected after July 1, 1973, the matter of
hardfill has been disregarded.
Two (2) of the properties in issue here were inspected and approved
by HUD, that is, the property at 9533 Harper and the property at 5854
Bewick. These properties were inspected prior to June 30, 1973. At the
hearing, the HUD Inspector who had examined the property at 5854 Bewick
as part of a HUD Task Force in the Spring of 1975 testified as follows:
"At 18" depth, encountered rubbish - wood, bricks, concrete
concrete blocks, and metal scraps - steel scrapping, in old metal
truck left cylinder, metal pots, etc. The trench was excavated to
about 4 ft., + + + rubbish throughout."
The other HUD inspected property at 9533 Harper was inspected by a HUD
employee who was not available at the hearing. His Inspection Report,
however, was received into evidence. It indicated:
"1 1/4 hrs.
Crawl space.
Hole dug at rear of House, concrete Slabs & Footings were
buried, wood, pipes & wiring."
The remaining six (6) properties were inspected after July 1, 1973
when the City of Detroit had inspection responsibility. Of these six (6)
properties, two (2) in particular contained large amounts of debris. The
property at 1125 Drexel was inspected on March 12, 1975 by an Inspector
from the HUD Task Force. His Inspection Report indicated as follows:
(1) "Concrete Slabs, Bricks, Rotted Lumber, 1 Fence Post & 2
Railroad Ties
(2) On Surface of Lot 1 Cement Step & Concrete Slabs also. Lot
was not filled in properly 10" below grade."
Photographs introduced into evidence of this property taken at the time
of the Inspection Reports verified the contents of the Report and
indicated the large amounts of wood that had been left in the property.
The Inspection Report pertaining to the property at 5490 Harding,
which was made on March 10, 1975, indicated as follows:
"1 1/2 hrs.
Debris filled.
It seems like a large hole was dug & debris pushed in.
Concrete slabs, Bricks, Blocks, Wood, also water logged."
The photographs of this property which were introduced into evidence
discloses throughout the property large amounts of wood being buried
there.
Appellant introduced into evidence HUD Inspection Reports for the
properties located at 9533 Harper and 5054 Bewick. These Inspection
Reports indicated final acceptance by HUD of the work performed on these
properties by Appellant. Appellant also testified about the change in
inspection procedures after July of 1973 when HUD discontinued the
practice of conducting its own inspections and delegated that authority
to the City of Detroit. Appellant testified that on the basis of City of
Detroit inspections they were paid on these other six (6) properties.
Appellant also introduced into the record Affidavits from neighbors
living near the properties at 5854 Bewick, 1125 Drexel, and 5890
Harding. These Affidavits were to the effect that these individuals had
seen the work being performed on these properties, they had witnessed
the houses being demolished and removed from the property, and observed
clean landfill being put back in the excavated area. Department Counsel
objected to the introduction of these Affidavits into the record. The
Hearing Officer observed that these Affidavits would be received into
evidence with the understanding that they were hearsay statements.
In explanation of some of the debris that may have been found in the
properties, Appellant testified that it was possible that after the
inspection of the excavated area had been completed, neighbors perhaps
had thrown debris into the property, and at the time the landfill was
put in the excavation, it covered the debris which remained in the
property. Appellant stated that this debris could have been put back in
the property without his knowledge, (Tr. 34).
The HUD Inspector who examined six (6) of the properties in issue in
this suspension was not present at the hearing. At the completion of the
hearing, it was agreed that the hearing would resume when the absent
Government witness was available. Subsequently, Appellant's Counsel
advised the Hearing Officer that he would waive resumption of the
hearing and requested that the hearing be terminated and that this
matter be decided upon the record as presented at the hearing on
November 13, 1975.
The pertinent provision of the Department Regulations relating to
suspension (24 CFR 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings+ + + . (Emphasis added.)
The Government's basis for continuing the suspension is 24 CFR 24.12(
a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added.)
A review of the record of this hearing indicates that there were
violations by Appellant in its performance of four (4) purchase orders,
under the standards of inspection applicable to each of these
properties. It is acknowledged that there was final inspection and
acceptance of these four (4) properties. Nevertheless, the Government
had the right to reinspect the properties. In addition, under the
inspection procedures of both HUD and the City of Detroit, it was
possible to have an "open-hole" inspection and final inspection without
determining if debris remained in the property. That is, it was entirely
possible to clean out the basement and put back debris-filled dirt into
the property without being discovered on final inspection. In this
regard, Appellant testified that it may have been possible for some
other person to have dumped debris in the property. This may indeed have
happened, but Appellant retained responsibility until the purchase order
was completed and the work accepted to make certain no debris was left
in the property.
It is recognized that the HUD Task Force conducted its inspection two
years after the work was performed. Nevertheless, there is a reasonable
inference that since Appellant was working on these four (4) properties,
it was responsible for any debris left in the properties. It should be
noted in this regard that there are four (4) properties involved, and a
certain pattern of leaving debris in these properties existed.
Accordingly, it is the decision of the Hearing Officer that there is
adequate evidence to uphold the suspension. As defined in Home Bros. v.
Laird, 463 F. 2d 1268 (U.S.C.A., D.C. 1972) at p. 1271:
"The 'adequate evidence' showing need not be the kind necessary
for a successful criminal prosecution or a formal debarment. The
matter may be likened to the probable cause necessary for an
arrest, a search warrant, or a preliminary hearing."
The suspension of Stanley Geldys and Stanson Wrecking Co. from
further participation in HUD programs as stated in the letter of May 27,
1975 from H. R. Crawford, Assistant Secretary for Housing Management, is
hereby upheld.
75-357.A-DB
In the Matter of: GERALD F. SANDS
July 14, 1977
770714
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 C.F.R. 24.10(
b)(3).
As provided under 24 C.F.R. 24.10(b)(3), this Initial Determination
is final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
On May 27, 1975, Brennan B. Gillespie, Gerald F. Sands (hereinafter
Appellant) and Nationwide Demolition, Inc., were notified by then
Assistant Secretary H. R. Crawford of their suspension from further
participation in HUD programs. This suspension was based upon an
investigation which disclosed alleged violations in the performance of
HUD purchase orders in the removal and demolition of HUD-owned
properties in the Detroit area. Subsequently, the suspension of
Nationwide and Mr. Gillespie was rescinded on September 4, 1975, and a
new suspension was issued, based upon in indictment returned in the U.
S. District Court for the Eastern District of Michigan charging a
violation of Title 18 U.S.C. Section 287. By letter dated September 23,
1975, Counsel for Appellant requested that the suspension action against
Appellant be withdrawn in that he had not been named as an individual in
the indictment against Nationwide, although Appellant was an officer of
that company. Appellant had a separate hearing on the matter of his
suspension. It was the decision of Hearing Officer that Appellant was a
"contractor or grantee" as defined in 24 C.F.R. 24.4(g) and that the
suspension action taken against Nationwide, based upon an indictment,
was applicable to Appellant, accordingly, Appellant's suspension was
upheld. (Docket No. 75-357.A-DB, decision of December 16, 1975.)
On December 30, 1976, Appellant was notified in a letter from the
Acting Assistant Secretary for Housing that the Department was
considering his debarment. This action was taken, based upon
Nationwide's guilty plea, to filing false claims against the United
States in violation of Title 18 U.S.C. Section 287 for which Nationwide
was fined $10,000. Appellant was notified that the conviction of
Nationwide, of which he was an officer, reflected upon the propriety of
his further dealings in matters in which the Department has an interest.
Appellant was further informed of his right to a hearing in accordance
with 24 C.F.R. 24.10. Appellant requested a hearing concerning his
proposed debarment. A hearing was conducted in Detroit on March 11,
1977. Joel M. Shere, Esquire, represented Appellant while Mark
Zimmermann, of the HUD Office of General Counsel represented the
Government.
At the hearing, the parties stipulated that the testimony given by
Appellant in his suspension hearing conducted in Detroit on November 11,
1975, would be introduced into the record. The substance of Appellant's
testimony at the suspension hearing was to the effect that he was a 50%
owner, vice president, and secretary of Nationwide Demolition, Inc. His
duties with that corporation involved general management of the office
functions, such as bookkeeping, payroll, and some bidding on private
demolition work. In addition, Appellant was involved with numerous other
corporations, through which he would subcontract out the work that he
received from those businesses. In the suspension hearing, Appellant had
testified that he had devoted approximately 10% of his time to the
affairs of Nationwide and was never involved in aoy of the functions
regarding HUD related demolition work.
At the debarment hearing, Government Counsel introduced into evidence
(Tr. 3) a Judgment of Conviction, dated September 30, 1976, against
Nationwide Demolition and Wrecking Company, Inc. (Government Exhibit No.
1) The Judgment indicated a plea of guilty to filing false claims
against the United States and ordered a fine of $10,000. Government
Counsel also submitted a brief in support of its position, that
Appellant is an affiliate of Nationwide Demolition, and because of the
affiliate nature of this relationship, he had the potential to control
the corporation, that omission of the duty was serious enough grounds to
warrant debarment.
Appellant submitted a brief in opposition, wherein he argued that
Appellant is not an "affiliate" of Nationwide as defined in the
Regulations, 24 C.F.R. 24.4(g). Moreover, Appellant contended, that
although Appellant has been formally suspended since May 25, 1975, he
was effectively "blacklisted" by HUD for many months prior to that date.
Specifically, Appellant stated that there was a denial of contracts to
Appellant by the Department to which he maintains he was entitled since
November, 1974. Appellant testified, for example, that he was the low
bidder on a HUD-funded contract in the City of Highland Park, Michigan,
in November 1974. (Tr. 10-11) However, when the proposed contract with
Appellant was transmitted to HUD for approval, it was disapproved. In
addition, in several other procurements, Appellant stated he was low
bidder on HUD contracts and he failed to obtain the contract. However,
Appellant acknowledged that he never formally made any bid protest over
the failure of HUD to make contract award on his low bids.
The applicable regulations regarding this matter are as follows:
24 C.F.R. 24.4(a) "Debarment" means, in general, an exclusion
from participation in HUD programs for a reasonable, specified
period of time commensurate with the seriousness of the offense or
failure, or the inadequacy of performance + + + .
24 C.F.R. 24.4(d) "Affiliates." Business concerns are
affiliates of each other when either directly or indirectly one
concern or individual controls or has the power to control
another, or when a third party controls or has the power to
control both.
24 C.F.R. 24.4(g) "Contractors or grantees." Individuals and
public or private organizations that are direct recipients of HUD
funds or that receive HUD funds indirectly through non-Federal
sources; all participants or contractors with participants, in
programs where HUD is the guarantor or insurer; and Federally
assisted construction contractor.
The proposed basis for the debarment action is under 24 C.F.R. 24.9.
This section provides:
Causes and conditions applicable to determination of debarment.
(a) Causes.
(1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting to obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
In the Initial Determination upholding the suspension action against
Appellant, Appellant was determined not to be an "affiliate" as defined
in 24 C.F.R. 24.4(d) inasmuch as that section concerns the relationship
of one business to another rather than the relationship of one
individual to a business as is the case here. Appellant's suspension was
upheld on the basis that Appellant was a "contractor or grantee" as
defined in 24 C.F.R. 24.4(g) and that the suspension action taken
against Nationwide applied to Appellant.
In the instant debarment action, the Government contends Appellant is
an "affiliate" as the definition includes a situation, as is the case
here, where "one concern or individual controls or has the power to
control another + + +" It argues that the regulations do not require
that an individual exercise control and that failure to exercise control
does not absolve an individual, but rather tends to demonstrate
irresponsibility by failure to exercise that control. Indeed, it
maintains that Appellant, as a 50% shareholder, had power to control
Nationwide. It cites in support of its position a number of
administrative decisions and court cases which have held that a
corporate officer's failure to exercise control can form the basis for
administrative and criminal sanctions, United States v. Park, 421 U.S.
658 (1975) Ventilation Cleaning Engineers, Inc. and Bernard Williams
SCA-176, decided August 23, 1975.
Appellant contends that the governing regulations do not authorize
debarment on the ground asserted i.e., the conviction of Nationwide. It
points out that the Initial Determination upholding the suspension of
Appellant in its view was incorrect; i.e., holding Appellant was a
"contractor or grantee" as defined in 24 C.F.R. 24.4(g). Appellant
argues that it does not fall within any of the definitions of
"contractor" as defined in the regulations.
The Initial Determination in the suspension of Appellant held he was
a "contractor or grantee" as defined by the Regulations (24 C.F.R.
24.4(g)). In this hearing on the debarment, the Government argues that
Appellant is an "affiliate" (24 C.F.R. 24.4(d)) as defined by the
Regulations. That interpretation was rejected in my Initial
Determination in the suspension matter. Appellant was an officer not an
employee of Nationwide. He could have or should have known of the
operations of the Company. His testimony at the suspension hearing that
he only spent 10% of his time on the business affairs of Nationwide does
not excuse him from failure to exercise the responsibilty he had as an
officer of Nationwide.
The several cases that the Government cites to support its position
that a corporate officer's failure to exercise control can form the
basis for administrative sanctions are persuasive. As the Government
properly points out this is not a criminal proceeding but a separate
administrative proceeding to determine whether Appellant exercised
business responsibility. Appellant had a responsibility to control the
affairs of Nationwide and that involved the duty to inquire as to
whether its affairs were being conducted lawfully. Accordingly, since a
corporation can only act through its agents, the agents (officers) must
be held responsible unless they can demonstrate that they exercised all
reasonable measures to be assured that the business was being conducted
in a proper way. No such showing was demonstrated in the case here.
This is particularly true in this matter since Appellant was not only a
vice-president of Nationwide but a 50% owner. Even though no basis for
criminal action against Appellant was found, his conduct in this matter
may be likened to nonfeasance. "Nonfeasance" is defined as
nonperformance of some act which ought to be performed, omission to
perform a required duty at all, or total neglect of duty. Black's Law
Dictionary, 1208 (Rev. 4th ed., 1968).
It is my Initial Determination that a review of all the facts and the
evidence in this matter, warrants that Appellant be debarred. This
Determination is based upon substantial evidence that Appellant failed
to undertake the actions required of an officer of a corporation to
prevent the acts that led to Nationwide's conviction. Further, it is my
finding that such debarment is in the public interest.
Appellant at the hearing and in its brief, argues that Appellant was
effectively blacklisted prior to its suspension by HUD in May 1975. We
find that this contention is not supported by the evidence in the
record. There was testimony by a Government witness, the Housing
Programs Compliance Officer that he was unaware of any administrative
action imposed against Nationwide or Appellant prior to May 27, 1975,
the date of the suspension action (Tr. 20).
In deciding upon the period of debarment consideration has been given
to the period of suspension that Appellant has experienced. Therefore,
it is my Initial Determination that Appellant be debarred as of this
date and the period of debarment remain in effect until May 27, 1978.
75-357-DB
In the Matter of: BRENNAN GILLESPIE, II NATIONWIDE DEMOLITION AND
WRECKING, INC.
February 21, 1978
780221
Michael F. Burke
A review of the record in its entirety having been conducted, I,
Michael F. Burke, as duly appointed Hearing Officer, issue this Initial
Determination, containing the following order, with my findings and
conclusions attached and made a part hereof, pursuant to the authority
delegated to Hearing Officers of the Department of Housing and Urban
Development under 24 C.F.R. 24.10 et seq.
By letter of February 23, 1977, Brennan Gillespie, II, and Nationwide
Demolition and Wrecking, Inc., (hereinafter Appellant) were notified of
their proposed debarment by the Department. By letter of March 1, 1977,
Counsel for Appellant requested a hearing. The hearing was conducted in
Detroit on October 13, 1977. The Government was represented by Iris
Lopez of the Area Counsel's Office, Detroit, while Joel M. Shere,
represented Appellant.
Appellant was originally suspended by the Department on May 27, 1975.
This suspension was based upon an investigation conducted by the
Department which disclosed alleged violations by Appellant in the
performance of certain HUD purchase orders in the removal and demolition
of HUD-owned property in the Detroit Area. Subsequently, the suspension
of Nationwide and Mr. Gillespie was rescinded by the Department on
September 4, 1975, and a new suspension issued on that date, based upon
an indictment returned in the United States District Court for the
Eastern District of Michigan. That indictment charged Appellant with 15
violations of Title 18 U.S.C. Section 287.
At the hearing, the Government introduced into evidence a copy of a
One Count Information dated August 3, 1976, charging Appellant,
Gillespie with violation of Title 18 U.S.C. Section 1012 and 2(b). In
addition, entered into evidence were copies of Judgment and Probation/
Commitment Order against Mr. Gillespie dated September 30, 1976, whereby
he pled nolo contendere to that charge for submission of false claims to
the Department. On that date he was placed on probation for a period of
two years and ordered to pay a fine of $1,000. The Government also
introduced into the record a copy of a Judgment and Probation/
Commitment Order dated September 30, 1976, against Nationwide Demolition
and Wrecking Co., Inc., which recorded a plea of guilty on that date,
and the company was ordered to pay a fine in the amount of $10,000,
which amount was to be paid within a reasonable amount of time. At the
hearing Government Counsel called Appellant to the witness stand to
verify the facts in the Indictments and Judgment and Conviction Orders.
Appellant testified, in addition, on his own behalf and stated that
this was the only offense with which he has ever been charged. He also
testified that his company had been organized since 1970 and had
performed several hundred demolition jobs for the HUD Area Office in
Detroit and he thought that it was important that his company continue
doing this work. In response to Counsel's questions, Appellant expressed
his awareness of the seriousness of the offense that he had committed,
and also his commitment to abide by the regulations of the Department in
the future in the event he is reinstated. Appellant also stated that
even though he had been suspended since May of 1975 he had been in fact
de facto suspended from work with the Department from the Fall of 1974.
The applicable provisions of the regulation concerning the
determination of this proposed debarment action is as follows:
Section 24.4 Definitions.
(a) "Debarment" means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years. However, the
hearing officer may exclude a party for an indefinite period
because of egregious and willful improper conduct. Debarment also
means exclusion from participation by reason of ineligibility
under regulations of the Secretary of Labor pursuant to Executive
Order 11246, which exclusion continues pending elimination of the
circumstances for which it was imposed
(f) "Contractors or grantees." Individuals, state and local
governments and public or private organizations that are direct
recipients of HUD funds or that receive HUD funds indirectly
through non-Federal sources including, but not limited to,
borrowers, builders, mortgagees, real estate agents and brokers,
area management brokers, management and marketing agents, or those
in a business relationship with such recipients including, but not
limited to, consultants, architects, engineers and attorneys; all
participants, or contractors with participants, in programs where
HUD is the guarantor or insurer; and Federally assisted
construction contractors.
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes.
(1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting to obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
(b) Conditions
(1) The existence of any of the causes set forth in paragraph
(a) of this section does not necessarily require that a contractor
or grantee be excluded from departmental programs. In each
instance, whether the offense or failure, or inadequacy of
performance, be of a criminal, fraudulent, or other serious
nature, the decision to debar shall be made within the discretion
of the Department and shall be rendered in the best interest of
the Government. Likewise, all mitigating factors may be considered
in determining the seriousness of the offense, failure or
inadequacy of performance, and in deciding whether the
Administrative Sanction is warranted.
Appellant was a "contractor" within the purview of 24 C.F.R. 24.4(g)
in that he performed work under a HUD contract and was reimbursed
directly by HUD funds. Accordingly, the matter of Appellant's proposed
debarment determination is properly before the Hearing Officer for
determination under 24 C.F.R. 24.
Further, Appellant has pled guilty to a crime involving the
performance of a HUD contract. Therefore, Appellant is guilty of an
offense which is a "cause" for debarment within the meaning of 24 C.F.
R. 24.6. Hence, the grounds exist under which Appellant may be debarred.
The Government urges that Appellant be debarred for a period of three
years from the date of the determination of debarment. Appellant
asserts that he has been suspended from HUD activities for a period of
2-1/2 years. Moreover, delay has occurred in the processing of this
matter. Based on the long period of suspension, Appellant contends only
a minimum period of debarment should be imposed.
It is my initial determination that Appellant be debarred. However,
in assessing the period of debarment it is noted that Appellant has been
suspended from participation in HUD programs since May of 1975.
Moreover, one of the officers of Appellant's Company and Mr. Sands was
suspended together with Appellant in May 1975, and his appeal from the
suspension action and subsequent debarment action has been determined by
the Department. It was the Department's determination that Mr. Sands
should be debarred for a period of two years ending May 1978 /1/. To
impose a period of debarment beyond that date on this Appellant, in the
instant matter, would be a penalty which would be in derogation of the
Department regulations. (24 C.F.R. 24.5). A review of the evidence in
this record indicates that Appellant has acknowledged the guilt of his
crime, has suffered from it, and apparently has a resolute intention to
abide by the regulation of the Department, in the event he should
receive further HUD contracts. Therefore, it is my Determination that
the period of debarment should run from the date of this Determination
through May 25, 1978.
Based upon the evidence in the record, it is my Determination that
Appellant be debarred from further participation of the programs of this
Department through May 25, 1978. Further, it is my finding that such
debarment is in the public interest.
1/ Mr. Sands, in his debarment hearing, also raised the charge that
their Company had been de facto debarred since the fall of 1974. This
allegation was found by the Hearing Officer to be unfounded.
75-356-DB
In the Matter of: RAYNOLD LOWE and MID-AMERICAN WRECKING CORP.
December 16, 1975
751216
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, Mr. Raynold Lowe and Mid-American
Wrecking Corporation (hereinafter referred to Appellant) were advised by
Assistant Secretary H. R. Crawford of their suspension as a HUD
contractor based upon an investigation undertaken by HUD which disclosed
certain violations in the performance of demolition contracts undertaken
by Appellant with the Government. This investigation disclosed that
Appellant allegedly violated the terms of its contracts by failing to
remove debris and/or decomposable material from the property as required
by the terms of their contracts and instead had not removed it but used
it as fill and covered it. In addition, the letter notified them of
their right to a hearing in accordance with the provisions of 24 CFR
24.10. By letter dated June 12, 1975, Appellant, through its attorney,
requested a hearing. On October 6, 1975, Appellant was furnished the
details of its alleged violations. The hearing was held on November 5,
1975 at the HUD Area Office, Detroit, Michigan. John P. Witsil, HUD
Office of General Counsel, represented the Government, and Peter A.
Davis, Ann Arbor, Michigan, represented Appellant.
During the Spring of 1975, a HUD Task Force undertook the examination
of properties which had been demolished under HUD contracts. In this
particular matter, five (5) properties demolished by Appellant were
inspected. These purchase orders were awarded in late 1973 and during
1974.
The Inspection Reports and photographs of the excavated properties
indicated large amounts of rock, concrete blocks, pools of water, and
some wood were found in the properties. Miscellaneous items of debris
were also found in the properties.
On October 22, 1975, Appellant submitted a statement which set forth
Appellant's position regarding these alleged violations. In essence,
Appellant maintains that he performed the work both in the City of
Detroit and Ferndale and not according to the specifications and
requirements of the City of Detroit and Ferndale and not according to
HUD specifications. It is his position that Appellant was unaware of any
distinction between HUD specifications and those individual City
specifications. Further, he did not inquire as to the specifications
that HUD had these properties demolished under. It is Appellant's
position that they were never aware of the requirements of the HUD
specifications until they had been furnished a copy of these
specifications by Department Counsel on October 22, 1975. In regard to
the property located in Detroit, Appellant cited the Detroit City
Ordinance which permits hardfill as backfill. He maintained the three
(3) properties which were demolished in Ferndale were undertaken during
December 1974, allegedly during one of the biggest snowstorms in the
history of the State. Therefore, the bulldozer became stuck in one of
the properties. Moreover, HUD was asking Appellant to complete the jobs
as quickly as possible. In the hazardous weather conditions, Appellant
acknowledged pieces of wood could be ground into the properties.
Appellant testified on his own behalf. He is a graduate of Ohio State
University and the University of Michigan. He is a former college
instructor as well as an artist and sculptor. Appellant has performed
approximately 150 to 250 jobs with HUD. He stated that he, in fact, had
typed up every purchase order he received from HUD and always had typed
on the face of the purchase order "per specifications." He stated he
typed it in this fashion because he had received a sample purchase order
from HUD and just copied every other purchase order in the same manner.
Appellant stated he never received a copy of the HUD specifications, and
that it was his practice to excavate houses and demolish in accordance
with the specifications of the community that he would work in. In that
instance, this would mean the City of Detroit and of Ferndale. It is his
position that he complied with the requirements of each of these Cities
that the properties were inspected and accepted and had been paid by HUD
for them and, therefore, there could not be any violations.
In regard to these particular properties, he stated that it was
permissible under both the City of Detroit and of Ferndale
specifications to leave solid material such as concrete and broken brick
in the holes. Appellant denied responsibility for the wood and rubbish
found in the properties. In regard to the property located at 670 E.
Saratoga, he produced a statement from a neighbor of that property to
the effect that he had observed Appellant remove the house and debris
from that property when Appellant demolished it. Appellant also
introduced into the record a City of Detroit Building Permit for the
property at 15539 Inverness. Appellant, who had been in the demolition
business for five years, submitted a number of letters of recommendation
with the submission of October 22, 1975 with other commercial firms, the
City of Ann Arbor, and the University of Michigan which indicated a
record of satisfactory performance.
On cross-examination, Department Counsel brought out the fact that
Appellant had a previous company which was dissolved in 1972 or 1973.
His company had submitted to HUD on a formal basis and, therefore, had a
copy of the HUD specifications incorporated into it. Nevertheless,
Appellant stated that he was unaware of the requirements of the HUD
specifications.
Department Counsel also cross-examined Appellant about whether or not
a Government Inspector from HUD had ever visited one of the properties
being demolished by Appellant. Appellant denied that any such visit ever
took place, however, the Government produced a witness who testified
that he visited a property in February 1973 and advised Appellant's
employee not to put hardfill in the property. This was denied by a
witness for Appellant.
The Government introduced into evidence an Inspection Report,
HUD-Form 9519. This Inspection Report, dated February 2, 1973, is signed
by HUD Inspector Eugene Anthony. This Inspection Report pertains to work
being performed by Appellant at 11600 North Martindale (a property not
involved in this hearing). It has the handwritten comments:
"Hole not clean, dirt piled on lot full of stone, bricks, etc.
Remove."
Mr. Anthony testified that Appellant received a copy of HUD
specifications in November 1972 by mail. Appellant stated that he had
not received its mail from HUD on several occasions and had, in fact,
complained about this. Mr. Anthony acknowledged that Appellant had
telephoned him on occasion that he had not received mail. Mr. Anthony
also testified that the City of Detroit inspections were made for HUD
commencing on July 1973 to January 1975. However, he also stated that
the City of Detroit was instructed to inspect to HUD specification
standards (Tr. 93).
The pertinent provision of the Department Regulations relating to
suspension (24 CFR 24) are as follows:
Sec. 24.11 Suspension.
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings and, as such, shall not be based upon an
unsupported accusation.
Moreover, if suspension were to be upheld against Appellant, it would be
on the following basis:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a)(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension.
The four (4) purchase orders involved here were undertaken by
Appellant in late 1973 and 1974. In this hearing, Mr. Anthony, a HUD
employee, testified that the HUD inspection procedures were changed in
June 1973 to permit the City of Detroit and other municipalities to
perform inspection and acceptance of HUD demolished properties. Mr.
Anthony testified, however, that these municipalities were to inspect
according to HUD specifications. However, in another hearing, the matter
of the applicability of HUD specifications to inspections conducted by
the City of Detroit and other municipalities was thoroughly examined (In
the Matter of Otis Jones, Docket No. 75-383-DB, December 3, 1975). At
that hearing, it was determined that the City of Detroit advised HUD
officials in 1973 that such inspections would be performed according to
City of Detroit specifications. Moreover, this agreement was documented
in a letter from HUD to the City of Detroit in May 1975. Indeed, in the
Otis Jones hearing, supra, evidence was introduced by Appellant that the
City of Pontiac clearly advised HUD on every inspection that the
inspection was performed in accordance with "City of Pontiac
Specifications." Thus, it is the ruling of the Hearing Officer, that all
inspections involved here, were according to the standards of the
municipalities involved.
Since the HUD specifications did not apply to these properties,
hardfill could be left in the excavated area within two feet of the
surface. The only possible violation, therefore, is the amount of wood
found in the properties. Again, as in other hearings involving similar
circumstances, Judicial Notice is taken by the Hearing Officer of normal
wood spillage and the probability of some wood being ground into the
earth by a twenty ton machine. Moreover, three of the four purchase
orders were performed in the extreme winter weather of the Detroit area
which makes removal of all debris practically impossible.
The Hearing Officer takes note of a conflict of testimony as to
whether Appellant had or ever had knowledge of the HUD specification and
particularly its distinction to City of Detroit specifications.
However, that fact is not relevant to the decision of this hearing in
light of the Hearing Officer's ruling outlined above. In addition, the
purchase orders involved in this hearing state: "Demolish dwellings as
per specs." There was no evidence that HUD specifications were attached
to the purchase orders and is, therefore, further supportive of our
decision.
Based upon a review of the entire record in this hearing, there is
not adequate evidence to sustain the drastic action of "Suspension." It
is the Initial Determination of the Hearing Officer that the suspension
be removed.
75-354-DB
In the Matter of: JAMES JENKINS, JR. and MACY'S WRECKING INC.
September 22, 1975
750922
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, the Assistant Secretary for Housing
Management informed James Jenkins, Jr., the President of Macy's Wrecking
Incorporated, of 2454 W. Warren, Detroit, Michigan, (hereinafter
referred to as Appellant), of his suspension and of his future
participation as a contractor or grantee in any HUD programs. The
suspension was based upon an investigation being conducted by HUD which
disclosed violations of the demolition contracts undertaken by Appellant
with HUD. Specifically, it was alleged that the HUD investigation
disclosed that contrary to contract provisions, Appellant, instead of
removing debris and/or decomposable material resulting from the
demolition, used it as fill and covered it. It further alleged that
payment for the work was made to Appellant although the work did not
conform to contract requirements. Mr. Jenkins was advised of his right
to a hearing and to be represented by counsel in accordance with 24 CFR
24.10. By letter of June 9, 1975, Appellant requested a hearing. A
hearing was held at HUD Headquarters on July 31, 1975. John P. Witsil
was Government Counsel and Mr. Jenkins appeared on his own behalf.
Mr. Jenkins is President of Macy's Wrecking Incorporated. He
undertook a number of demolition contracts for the HUD Area Office which
consisted of individual Purchase Orders for demolition of individual
properties. At the hearing, the Government Counsel introduced into
evidence ten separate purchase orders pertaining to individual
properties where the houses were to be demolished, (Government Exhibit
Nos. 2A to 2J). Three of the ten purchase orders, however, omitted
reference to the Federal specification which prescribed how the houses
were to be demolished, and these three Purchase Orders are excluded from
consideration of this matter.
The Government introduced into evidence the HUD Inspection Reports
covering the work undertaken by Appellant at the seven properties,
(Government Exhibit No. 3A to No. 3I - "Acquired Property Inspection
Report" HUD-9519, August 1972). These Inspection Reports were undertaken
and filed by a HUD Task Force in the Spring of 1975 which was
established to determine if HUD demolition contracts had been properly
performed. The Government also introduced into evidence the HUD
specification referenced in the Purchase Orders (Government Exhibit No.
1) which stated in pertinent part:
"I. Demolitions and Removal
F. Each basement and/or part basement shall be entirely cleaned
out of the debris including that debris resulting from the
demolition of the structure.
II. Backfilling of Basements and Crawl Spaces
B. After approval of basement or part-basement excavation by
the local Building Department, the contractor shall fill the void
with back fill material + + +. Under no circumstances shall the
excavations be filled with clay, rubbish, trash, wood, or other
extraneous materials."
The Government presented as a witness Mr. Robert A. Cressman, the HUD
Inspector, who conducted the inspection of the properties. He testified
as to the contents of the reports and of his own recollection of the
inspection. Although the Inspection Reports are attached to this opinion
as Government Exhibit No. 3A through 3I, set forth fully on the record
are pertinent parts of Mr. Cressman's testimony relating to the
inspection of individual properties:
"HEARING OFFICER BURKE: Thank you. The next property is at
4127 Hurlbut.
THE WITNESS (Mr. Cressman): "Commenced at 8:50, completed 9:
30. At a depth of one foot found a moderate quantity of rock and
wood, several large pieces of concrete, a few brick and several
unidentifiable metal objects. This all located near the rear of
the lot." Now, on this I have two comments. Unidentifiable metal
objects, meaning that I could not recognize them as having been
residential, and, final comment, this all located near the end of
the lot, in the instance this was not in a basement. It was beyond
where the house had originally set.
HEARING OFFICER BURKE: Okay. Any comment, Mr. Jenkins?
MR. JENKINS: No.
HEARING OFFICER BURKE: The next property is at 3736
McClelland.
THE WITNESS: "Commenced at 3:55, completed 4:40. Sidewalk
slab, a brick pier and part of the foundation wall appeared on the
surface. This is prior to any excavation. A minor amount of wood
and scrap metal was found spread about six inches below the
surface." This particular property appeared to have been a cross
base, a non-basement type house, and there wasn't much debris
buried there. However, major portions of the structure still could
be seen upon walking on the site.
HEARING OFFICER BURKE: The next property is 4814, 4816
McClelland.
THE WITNESS: "Commenced 3:00 o'clock, completed 3:50. At a two
foot depth found a two foot layer of wood, broken concrete slabs,
and some brick. Near the rear of the house found many large pieces
of concrete, a length of large wire rope, scrap metal and paper
and other identifiable but not residential type of debris." In
this particular instance, if I were to pose an opinion, it
appeared that it had been back-filled with some kind of industrial
debris rather than clean - well - rather than the remains of the
house. The specifications, of course, called for clean back-fill."
(Tr. 50, 51).
Appellant testified on his own behalf and denied that he was in
violation of the HUD regulations. He explained his method of demolishing
and removing a house. He would first obtain a building permit from the
City of Detroit; these building permits outlined the requirements to be
performed and listed a record of inspections. After the building permit
was obtained, he would demolish the house, and he would then call the
City of Detroit Inspector and have them inspect the site, (Tr. 34). He
also testified that he would call HUD to inspect, but often they did not
have the staff to inspect and, therefore, the City would conduct the
inspection. The City Inspector would inspect the property site and
determine whether or not the basement was cleaned out properly. If the
City Inspector determined that it was cleaned out properly, he would
then advise Appellant to backfill, (Tr. 34). After the hole had been
filled, Appellant would call the City of Detroit Inspector back for a
final inspection regarding the land fill. The City Inspector would
approve the job, and HUD would pay on the approved City inspection.
Appellant explained the difference that existed in specification
requirements between HUD and the City of Detroit, (Tr. 38). Under the
HUD specification, there was a requirement to take down basement walls
to two feet below the grade and to remove all of the wall down to two
feet, as well as all debris. Under the City of Detroit specification,
the requirement was to take the wall down two feet, but the contractor
could leave the hard debris in the basement. Appellant stated that he
went to HUD and requested that it adopt the City of Detroit
specifications which he alleged that it subsequently did. Appellant
introduced a copy of a letter from the HUD Area Office in Detroit dated
June 21, 1972 for the purpose of establishing the fact that HUD had
delegated inspection and acceptance responsibility to the City of
Detroit, (Appellant Exhibit No. 3). However, the letter only stated that
contractors were required to comply with all local building codes and
regulations and nowhere in the letter is there any expression of any
delegation of authority from HUD to the City of Detroit to conduct
inspections of HUD properties. In addition, Appellant introduced a copy
of the letter dated May 26, 1972 (Appellant Exhibit No. 2) which was
given to all of the demolition contractors prior to contractor's
submitting bids on the demolition contracts. This letter referred to the
specifications under which the demolition work was to be performed.
Appellant also offered a copy of the HUD specification for "Demolition
1-4 Family Dwellings". This specification contained the same requirement
as Government Exhibit No. 1. Appellant also introduced into evidence an
undated copy of purportedly the revised HUD specification for
"Demolition 1-4 Family Dwellings," (Appellant Exhibit No. 5). This
specification in Part II. B. now provides as follows:
B. After approval of basement or part-basement excavation by
the Local Building Department, the contractor shall back-fill to
within one (1) foot of sidewalk and alley grade. All inorganic
material found on the premises may be used. Brick or broken
concrete would be acceptable. Concrete shall be no larger than
(12" x 12"). The top one (1') foot shall be clean crumbling yellow
clay or sand. (Note: No blue or grey clay shall be used. No
foundry sand shall be used.) These requirements shall be strictly
enforced. Under no circumstances shall the excavations be filled
with blue or grey clay, rubbish, wood, or other extraneous
materials. (Emphasis added.)
Appellant stated that this specification was only recently modified,
(Tr. 82).
Appellant testified that he followed the City of Detroit
specifications and that is why he was suspended. Further, he stated that
during the time that the Purchase Orders were being performed that there
was very little difference between the HUD and the City of Detroit
specifications and now that difference has been eliminated by HUD
modifying their specification to make them compatible with the City of
Detroit specifications.
The relevant provisions of the Department's Regulations relating to
suspension (24 CFR 24) are as follows:
Sec. 24.4 Definitions.
(b) "Suspension" means a disqualification from participation in
HUD programs for a temporary period of time because a contractor
or grantee is suspected upon adequate evidence of engaging in
criminal, fraudulent, or seriously improper conduct. (Emphasis
added.)
Sec. 24.5 General.
(a) Debarment, suspension, and placement in ineligible status
are measures which may be invoked by the offices of the Department
either to exclude or to disqualify contractors and grantees from
participation in Department programs. These measures shall be used
for the purpose of protecting the public and are not for punitive
purposes + + +.
(b) Department action to exclude or to disqualify contractors
and grantees from participation in its programs, or to reconsider
such measures, shall be based upon all available relevant facts +
+ +. (Emphasis added.)
Sec. 24.11 Suspension.
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings and, as such, shall not be based upon an
unsupported accusation. A contractor or grantee is suspended
pending investigation and appropriate action by the Department of
Justice. In assessing whether adequate evidence exists for
invoking a suspension, consideration shall be given to the amount
of credible evidence which is available, to the existence or
absence of corroboration as to important allegations, as well as
to the inferences which may properly be drawn from the existence
or absence of affirmative facts + + +. (Emphasis added.)
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Government. (Emphasis added.)
Government Counsel requested that the suspension be upheld on the
grounds that Appellant's work did not conform to the requirements of the
contracts. If this contention is based upon fact, then it would
seriously reflect upon Appellant's responsibility and clearly be in
violation of the HUD Regulations cited above.
A review of the entire record indicates that Appellant was in
violation of the HUD specifications, in that under the Purchase Orders
with the Department, he failed to remove "rubbish, trash, wood, or other
extraneous materials" from the excavations. In the Findings of Fact,
three specific violations are detailed. Appellant did not seriously
challenge the merits of the findings of the Inspector's Report. In fact,
he introduced into evidence a copy of a magazine article which tends to
corroborate the Government's position, (Appellant Exhibit No. 6).
Appellant bases its defense on the grounds that because of the
confusion that existed between the City of Detroit and HUD
specifications, he was not in violation of the Contract provisions.
Even if the City of Detroit specifications were applicable to the
Purchase Orders involved here, the Appellant's position would be without
merit. Neither set of specifications, in force at the time of the
Purchase Orders, permits decomposable material to be left in the
basement.
To uphold the suspension, it must be based upon adequate evidence,
Horne Brothers v. Laird, 463 F. 2d 1268 (D.C. Cir. 1972). As the Court
held in that case at p. 1271:
"The 'adequate evidence' showing need not be the kind necessary
for a successful criminal prosecution or a formal debarment. The
matter may be likened to the probable cause necessary for an
arrest, a search warrant, or a preliminary hearing. This is less
than must be shown at the trial, but it must be more than
uncorroborated suspicion or accusation."
The proof submitted by the Government regarding the violation of HUD
regulations clearly meets the test of "adequate evidence" and,
accordingly, the suspension is hereby upheld.
78-298-D37 75-351-DB
In the Matter of: JULIUS A. REED d/b/a Chick Reed Demolition Company
October 23, 1978
781023
Jean S. Cooper
On September 3, 1975, Appellant was suspended from participation in
programs of the Department of Housing and Urban Development for failure
to fulfill specifications in purchase orders for demolition of certain
properties. The suspension was upheld after a hearing and a Final
Determination by the Secretary. Thereafter, Appellant pleased guilty to
a charge of violation of 18 U.S.C. 1012, and on August 15, 1977, HUD
informed appellant of its intent to debar him from participation in
Departmental programs based on his plea. Appellant failed to request a
hearing on the proposed debarment, and a Final Determination was
subsequently issued that debarred him from May 26, 1976 until May 25,
1979. On March 16, 1978, Appellant's attorney filed a request for
reinstatement pursuant to 24 C.F.R. 24.11(c). A hearing was held in
Detroit, Michigan on August 18, 1978 to determine whether Appellant's
debarment should be terminated.
The regulation applicable to reinstatement provides in pertinent
part:
24.11(c). Grounds. Except as otherwise provided by statute, a
party may be reinstated subject to this 24.11 upon the submission
of an application, supported by documentary evidence, setting
forth appropriate grounds for the granting of relief such as newly
discovered material evidence, reversal of a conviction, bona fide
change of ownership or management, or the elimination of the
causes for which the debarment was imposed.
The purpose of debarment is to assure the Government that "awares be
made only to responsible contractors+ + +" and "shall be used for the
purpose of protecting the public and+ + +not for punitive purposes." 24
CFR 24.0, 24.5(a). The test for debarment is present responsibility but
a prior performance failure may be grounds for a present finding of
non-responsibility. Schlesinger v. Gates, 249 F. 2d 111 (D.C. Cir.
1957), 37 Comp. Gen. 756 (1958). One of the grounds for debarment is
conviction for commission of a criminal offense. 24 CFR 24.6(a)(1).
Reinstatement, as set forth in the regulation, is a form of
reconsideration, based on evidence that either the causes for debarment
have been eliminated or the facts on which the debarment determination
were based have either changed through correction of error or were
false. As written, it is not a vehicle designed to accommodate a
repentent contractor. Appellant admits that no newly discovered material
evidence exists to warrant reconsideration of the debarment
determination (Transcript of Hearing, at 32). Likewise, there has been
no reversal of his conviction and Appellant does not contend that a bona
fide change of ownership or management of Chick Reed Demolition Company
has occurred. Rather, Appellant rests his case for reinstatement on the
contentions that a) he is now a responsible contractor who understands
what he did wrong, and therefore a continuation of his debarment is not
in the interest of the government or the public, and b) he has attempted
to correct the deficiencies of his performance but has been prevented
from doing so by HUD officials, who will not permit him to return to the
properties until the expiration of his debarment.
The cause of Appellant's debarment was conviction for violation of 18
U.S.C. 1012. Appellant pleaded guilty to intent to defraud HUD by
knowingly receiving payment for demolition of a property under a HUD
purchase order that was in excess of the amount owed him. (Joint Exhibit
6). It appears that the fraud charge arose out of the improper
demolition of properties which was the basis for Appellant's suspension.
However, although the suspension and debarment may be based on a common
set of underlying facts, the ground for each action was different.
Appellant contends he would eliminate the cause for his debarment if
he were permitted to correct the demolition deficiencies that were the
subject of his suspension. First of all, it is questionable whether this
could be accomplished in light of the fact that the hearing officer
found "almost an entire house is buried+ + +" on two of the sites.
(Initial Determination of Michael F. Burke, dated February 18, 1976, at
5). Second, the acts in question occurred over three years ago. At this
point, no restitution or correction of work deficiencies, even if
possible, could eliminate either the monetary loss or cost of
administration of the reclamation program to HUD. The economic impact on
the Government and public is not just actual loss of funds but cost to
the public of conducting a program. Preuit v. U.S., 382 F. 2d 277 (9th
Cir. 1967); U.S. v. Markham, 537 F. 2d 187 (5th Cir. 1976). Third, the
debarment is based on conviction of fraud, not improper demolition of
properties. It is doubtful that correction of work site deficiencies
would extend to expunge the fraud so as to bring appellant within the
language of 24.11(c). I find it would not.
The reinstatement provision is narrowly drafted to correct errors of
fact and law that formed the framework for a debarment determination.
It does not provide for a form of "parole" in which personal
rehabilitation is ground for reinstatement. While it may well benefit
the government to take into consideration such a factor, the HUD
regulation is not so written. The jurisdiction of the hearing officer is
delimited by the language of the regulation. Despite Appellant's
compelling argument that he no longer poses a business risk to the
government because he is now a responsible contractor, the regulatory
provision for reinstatement does not encompass such a ground for
reinstatement when the ground for debarment is not lack of
responsibility, but fraud. The debarment must, therefore, stand.
For the foregoing reasons, Appellant's request for reinstatement is
DENIED.
75-350-DB
In the Matter of: DANIEL WELBER and FEDERAL WRECKING CO.
March 12, 1976
760312
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, Assistant Secretary H. R. Crawford
advised Daniel Welber and Federal Wrecking Co. (hereinafter referred to
as Appellant) of their suspension as a HUD contractor. This suspension
was based upon the results of an investigation undertaken by HUD which
disclosed certain alleged violations in the terms of certain purchase
orders undertaken by Appellant with the Department of Housing and Urban
Development (hereinafter referred to as the Government). The specific
violation with which Appellant was charged consisted of alleged failure
to remove debris and/or decomposable material from properties as
required by the specifications and the terms and conditions of the
purchase orders. The letter further advised Appellant of its right to a
hearing in accordance with the provisions of 24 CFR 24.10. On June 3,
1975, Appellant requested a hearing. The hearing was conducted on
November 4, 1975, at the HUD Area Office, Detroit, Michigan. Earl R.
Jacobs, Esquire, and Joel S. Welber, Esquire, appeared on behalf of
Appellant, and John P. Witsil, Esquire, HUD Office of General Counsel,
appeared on behalf of the Government.
The Government introduced into evidence nine (9) purchase orders upon
which it based the charges that Appellant violated the terms of his
contract. These purchase orders were all performed prior to July of
1973, the date on which there was an implied delegation of specification
standards by HUD to the City of Detroit, (In the Matter of Otis Jones,
Docket No. 75-383-DB). The Government also introduced into evidence
Inspection Reports for these properties prepared by Inspectors from the
HUD Task Force in the Spring of 1975 and photographs taken of the debris
removed from the properties. The HUD Inspector's testimony and the
photographs of the properties indicate that eight (8) of the properties
contained mostly hardfill with minimum amounts of decomposable debris.
The property at 6444 Seneca, however, contained an amount of wood and
other building debris in excess of what could be considered as "normal
spillage."
Appellant denied that he had not performed in accordance with the HUD
specifications, as he understood them, and in fact claimed that he had
not seen a copy of the specifications until October of 1975. However,
the Government introduced into evidence a copy of the HUD specifications
dated December 7, 1972 signed by Appellant's Office Manager. All of the
properties involved here, with the exception of 6444 Seneca, were
demolished prior to the date the specifications were signed by
Appellant's employee.
Appellant introduced into evidence dump receipts for the property at
1211-15 Drexel. These receipts indicate loads of debris were removed
from the property, (Tr. 127). Department Counsel stipulated that there
were dump receipts in Appellant's records for the other properties in
question.
Appellant contends that it was his understanding that the City of
Detroit specifications were to be used. City of Detroit specifications
permitted the leaving of hardfill, whereas HUD specifications did not
allow any debris to remain on the sites. He stated that this
understanding was reached at a meeting in May 1972 with Paul Gold, who
at that time was supervising the Department's demolition program in the
Detroit Area Office.
In regard to the 6444 Seneca property wherein wood was found,
Appellant stated that the entire block was demolished by various
wreckers. Therefore, Appellant contends that the property inspected was
either not the property he demolished or was subject to "sneak-dumping"
by other contractors who performed after Appellant.
After the hearing, Paul Gold was discovered to be living in Oregon.
At the request of Department Counsel, Gold submitted an Affidavit
regarding the issue of the applicable specifications in force during May
of 1972. Specifically, in the Affidavit, Gold states that on May 26,
1972 he mailed a set of HUD specifications attached to a cover letter to
all contractors who were involved in the program. In addition, Gold
states that at no time did he waive the HUD specifications either orally
or in writing for any contractor.
Gold's Affidavit was submitted to Appellant's counsel for comments.
Appellant's counsel introduced an Affidavit by Appellant in reply to
Gold's Affidavit. Specifically, Appellant states that he has no record
of receipt of Gold's May 26, 1972 letter or the attached specifications,
or was it found to be in Appellant's files. In addition, Appellant
states that the procedures to which he testified regarding the leaving
of hardfill were set in motion by a conversation with Gold prior to May
26, 1972.
The Government filed a response to Appellant's Affidavit contending
that Appellant's statements offer nothing substantially beyond the prior
testimony given at the hearing. According to the Government's position,
since Appellant's Affidavit did not adequately contradict Gold's
statement, there is adequate evidence on the record to uphold the
suspension action of May 27, 1975.
The pertinent provision of the Department Regulations relating to
suspension (24 CFR 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings+ + + (Emphasis added.)
The Government's basis for continuing the suspension is 24 CFR 24.12(
a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added.)
A review of the entire record in this matter discloses that a clear
pattern of work regarding the properties in issue can be discerned.
There are nine (9) properties in question. Eight (8) of them involve
demolitions prior to December of 1972. That date is critical because it
is the only date where Appellant can be clearly held to have knowledge
of HUD specifications. In other hearings, a HUD official has testified
that the HUD specifications were not mailed to the demolition
contractors until December 1972, (In the Matter of Charles Hobart and
Hobart Wrecking Company, Docket No. 75-370-DB, Tr. 11). In the eight (8)
properties demolished prior to that date, hardfill only was found in
each of the eight (8) properties. Appellant testified that he demolished
these properties under the requirements of the City of Detroit
specifications which permitted hardfill. The Government denied that the
City of Detroit specifications were applicable and maintained that the
work was to be done under the HUD specifications which prohibited
hardfill. Moreover, during the time when these eight (8) purchase orders
were being performed, the HUD Area Office was in the process of
demolishing thousands of homes. Appellant testified that it typed up its
own purchase orders, (Tr. 109). In other hearings involving the
suspension of demolition contractors, it has been established that
purchase orders were processed in an irregular manner in 1972, because
HUD was attempting to demolish thousands of houses and apparently lacked
the necessary administrative staff to handle the workload. Therefore, it
is reasonable to see how an honest difference could exist over the
question of the applicability of the HUD specifications. Given the fact
that it has not been established on this record that Appellant was aware
of the HUD requirements prior to December of 1972, it must be held that
Appellant's interpretation is not unreasonable. The record regarding
Appellant's performance on these eight (8) properties does not indicate
careless work nor an intent to violate the specifications.
The property at 6444 Seneca represents a different factual situation.
That property was demolished in the Spring of 1973 when Appellant had at
least constructive notice of the HUD specifications. In this property
an amount of wood was found. The photograph of the property discloses
the wood was more than "normal spillage" but less than the remains of a
buried house. Appellant defended this finding on the grounds that the
entire 6400 block of Seneca had been demolished and questioned (a)
whether the property inspected was 6444 Seneca and (b) whether another
contractor may have "sneak-dumped" debris into this property. However,
Appellant offered no evidence in support of these positions. Appellant
testified at the hearing in a very forthright manner. He emphatically
denied that he or his employees left wood in any of the properties. Of
the nine (9) properties involved here, there is only one that is beyond
his normal pattern of performance. Therefore, it is reasonable to infer
that Appellant may not be responsible for the wood found in the Seneca
property.
Appellant has been suspended nearly ten (10) months. To continue the
suspension of what could be characterized as a border-line violation of
the regulations regarding one property might be considered a penalty
which is contrary to the letter and spirit of 24 CFR 24 et seq. In any
event, the Hearing Officer does not find on this record evidence of such
serious and compelling nature affecting responsibility to warrant
continuation of the suspension.
It is the Initial Determination of the Hearing Officer that the
suspension be removed.
75-349-DB
In the Matter of: HENRY C. MARDIGIAN and CUYAHOGA WRECKING CORP.
February 25, 1976
760225
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(2).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, H. R. Crawford, the then Assistant
Secretary for Housing Management, notified Henry C. Mardigian and
Cuyahoga Wrecking Corp. (hereinafter referred to as Appellant) of their
suspension based upon an investigation which was conducted concerning
alleged violations in the performance of purchase orders by Appellant
with the Department of Housing and Urban Development (hereinafter
referred to as the Government). Specifically, it was alleged that the
investigation had disclosed that, in the removal of dwellings from
HUD-owned properties, instead of removing the debris and/or decomposable
material as required by the provisions of the purchase orders Appellant
had used it as fill and buried it. The letter further advised Appellant
of its right to a hearing in accordance with the provisions of 24 CFR
24.10. By letter dated June 6, 1975, Appellant requested a hearing
regarding its suspension. On October 6, 1975, Department Counsel advised
Appellant of the specific purchase orders which the Government alleged
had been violated by Appellant. In addition, on that date, the
Government sent to Appellant copies of the Inspection Reports which had
been prepared by a HUD Task Force in the Spring of 1975 and uncovered
the debris which is the purported violation of the terms of the purchase
orders. The hearing was conducted on November 12, 1975 at the HUD Area
Office, Detroit, Michigan. John P. Witsil, Esquire, HUD Office of
General Counsel, represented the Government, and Jack D. Rowe, Esquire,
represented the Appellant.
At the hearing, Department Counsel stated that the basis for
suspension was the alleged violation of the terms and conditions of
eight (8) purchase orders. At the hearing, Department Counsel introduced
into evidence copies of the eight (8) purchase orders relating to the
properties which are the subject of this suspension. In addition,
Department Counsel introduced into evidence the Inspection Reports
prepared by the HUD Task Force in the Spring of 1975 which detailed the
extent of debris and described the alleged violations of the terms of
the purchase orders.
It is noted that of the eight (8) purchase orders involved in this
matter that they were all completed and inspected subsequent to June 30,
1973. June 30, 1973 is the effective date when HUD delegated to the City
of Detroit and other municipalities in that area the authority to
conduct inspections on HUD-demolished properties. Under the practice
adopted by the City of Detroit and other municipalities in that area,
they conducted inspections according to their own specifications. Their
specifications permitted the use of hardfill, that is concrete and
bricks, to be left in the properties within two (2') feet of the
surface. By comparison, the HUD specifications prohibited hardfill being
left in the properties. Therefore, since all of the final inspections
were made by the City of Detroit, any consideration of violations on the
part of Appellant disregards any hardfill that was found in these
properties.
The HUD Inspectors who inspected these properties in the Spring of
1975 appeared as witnesses at the hearing. They read from the Inspection
Reports prepared at the time they conducted their inspections of the
eight (8) properties in question here. In addition, the Government
introduced into evidence photographs taken at each of these eight (8)
individual sites when these inspections were conducted. These
Inspection Reports, as substantiated by the photographs, disclose that
large amounts of wood were found in the excavated properties. Of the
properties involved, specifically the properties at 2127 LaMay, 2590
LaMay, 3140 Garland, and 1438 Garland, all contained large amounts of
wood.
Appellant testified on his own behalf. He related that he had
submitted bids on 80 HUD-owned properties and received purchase orders
to do work on 69 of them. In regard to the eight (8) properties in issue
here, Appellant testified that it had not performed the work under the
purchase orders, but had subcontracted the work out to All Star Wrecking
Company. Appellant related All Star would advise it when the work was
completed, and Appellant would then contact the City of Detroit to
obtain inspections on the property. Appellant introduced into evidence
eight (8) Inspection Reports from the City of Detroit which indicate
that inspections were performed and the properties were accepted.
Appellant stated that it was never aware of any violations under
these eight (8) purchase orders until it received the notice of
suspension.
The pertinent provision of the Department Regulations relating to
suspension (24 CFR 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings + + +. (Emphasis added.)
The Government's basis for continuing the suspension is 24 CFR 24.12(
a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors
or grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added.)
A review of the entire record in this matter reveals that large
amounts of wood were left in the properties. This constitutes a
violation of both the HUD and the City of Detroit specifications and
would be adequate evidence of a violation of the provisions of the
purchase orders, unless justification can be shown to excuse it.
Appellant's position is that it agreed the wood should not be in the
properties. It explained that it may have been there before some of the
houses were constructed.
In other hearings involving the suspension of demolition contractors
in the Detroit area, Judicial Notice has been taken of "normal spillage"
of wood being found in the properties. "Normal spillage" is the amount
of wood that could fall off of the machine or be pushed back into an
excavated area of a property during demolition work. Moreover, Judicial
Notice is also taken of the fact that wood can be ground and crushed
into the excavated area by the 20-ton machine that is used in demolition
work. However, the amounts of wood found in the properties involved in
this hearing are far in excess of what could be termed "normal
spillage." Rather, the amount of wood found throughout the properties
indicates a pattern of either careless work or deliberate disregard of
the requirements of the specifications. Appellant testified that it
subcontracted this work to another contractor. It is permitted to
subcontract work, but the prime contractor retains the responsibility
for performance and is required to superintend the work of the
subcontractor. From Appellant's testimony, it would appear that it left
the subcontractor do the work without any close supervision. Appellant
was responsible for the demolition and the excavation of these
properties until final acceptance. In consideration of the amount of
wood and debris found in these properties, even though the Government
offered no direct evidence to establish Appellant put the debris in the
property, it is reasonable to infer that the individual who demolished
the properties is responsible for the debris left in the properties,
unless there is clear evidence to rebut it.
Appellant did not offer any evidence to explain how the debris was
found in the property. Therefore, based upon the record, there is
"adequate evidence" of violations of the terms of the purchase orders to
warrant suspension. This finding is based upon the fact that violation
of the specifications in force by either HUD or the City of Detroit
establishes Appellant as not being a responsible contractor as required
by the Regulations (24 CFR 24.12(a)(2)).
75-348-DB
In the Matter of: DAVID ROSENTHAL and CAPITAL WRECKING CO. INC.,
Dec. 17, 1975
751217
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, David Rosenthal and Capital Wrecking
Co., Inc. (hereinafter referred to as Appellant) was advised by
Assistant Secretary H. R. Crawford of their suspension as a HUD
contractor. This suspension was based upon the results of an
investigation undertaken by HUD in the Spring of 1975 which disclosed
that Appellant had allegedly violated the terms of certain purchase
orders it had undertaken with the Government. It was alleged that
Appellant, instead of removing debris and/or decomposable materials from
these properties, had used it as fill and buried it. Appellant was
further advised of its right to a hearing in accordance with 24 CFR
24.10. On June 5, 1975, Appellant requested a hearing. A hearing was
held on November 11, 1975 at the HUD Area Office, Detroit, Michigan.
John P. Witsil, HUD Office of General Counsel, represented the
Government, and Fred S. Babbin, Southfield, Michigan, represented
Appellant.
The Government alleged That Appellant had violated the provisions of
nine (9) purchase orders undertaken with HUD for the demolition of
certain properties in the City of Detroit, Michigan and introduced them
into evidence. Two (2) of these purchase orders involved in this hearing
provide: "Demolish Structure" and identify the properties involved. The
other seven (7) purchase orders failed to state any requirement. These
purchase orders merely identified the properties and the amount thereof.
These purchase orders were issed in late 1973 and 1974.
At the hearing, the Inspection Reports, prepared by the HUD Task
Force in 1975, were introduced into evidence. These inspection Reports
indicated that bricks and pieces of concrete were found in each of the
properties as well as miscellaneous debris and a very moderate amount of
wood.
Appellant contended that he performed these purchase orders in
accordance with the City of Detroit specifications. Appellant denied the
applicability of the HUD specifications and, in fact, testified that he
never received a copy of the HUD specifications. On cross-examination,
Department Counsel produced a copy of the HUD specifications with an
acknowledgement of its receipt by Appellant in December 1972. When
confronted with the HUD specifications, Appellant acknowledge receipt of
the specifications but asserted that he did not understand its
significance or any difference from the City of Detroit specifications.
City of Detroit inspections were conducted on all nine (9)
properties. Copies of the Inspection Reports were introduced into
evidence. These inspections were all made after June 1973 and were the
basis of approval for payment by HUD.
The pertinent provision of the Department Regulations relating to
suspension (24 CFR 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings + + +." (Emphasis added.)
The Government's basis for continuing the suspension is 24 CFR
24.12(a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors
or grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added.)
At the outset, the Hearing Officer takes notice of the testimony
regarding receipt of the HUD specifications. Indeed, Appellant's
testimony concerning this matter raises questions as to his credibility.
However, that is not the controlling issue in this hearing. The issue
here is which specifications applied to the work performed under these
purchase orders.
The record discloses that the properties were all inspected for HUD
by City of Detroit Inspectors in late 1973 and during 1974. As the
Hearing Officer has repeatedly held in similar cases, the City of
Detroit inspections were based upon City of Detroit specifications in
all inspections made for HUD after June 1973 (In the Matter of Charles
Hobart and Hobart Wrecking Company, Docket No. 75-370-DB). Therefore,
City of Detroit specifications, which allow hardfill within two feet of
the surface, applied to these properties. Thus, all mention of hardfill
in the Inspection Reports is irrelevant. The amount of wood found in
these properties is comparatively insignificant and appears to be
accounted for as a result of normal spillage and grounding of wood into
the earth by the demolition machinery. It is again noted that seven (7)
of the purchase orders here involved failed to state any requirement,
therefore, it is questionable even if Appellant could be held to comply
with the City of Detroit specifications. Indeed, the other two (2)
purchase orders stated: "Demolish Structure" without identifying or
referring to any specifications. Accordingly, since there exists no
adequate evidence of any violation of the provisions of the purchase
orders, it is the Initial Determination of the Hearing Officer that the
suspension, which has been imposed since May 27, 1975, be removed.
75-347-DB
In the Matter of: CHARLES SCHUMACHER and
December 1, 1975
751201
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
SCHUMACHER BROTHERS WRECKING CO.
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, Assistant Secretary for Housing
Management, H. R. Crawford, informed Charles Schumacher and Schumacher
Brothers Wrecking Company (hereinafter referred to as Appellant), of
9903 Marie, Livonia, Michigan, of their suspension from further
participation as a contractor or grantee in any HUD programs. The
suspension was based upon an investigation being conducted by the
Department which alleged violations in the performance of demolition
contracts undertaken by Appellant with HUD. Specifically, it was alleged
that contrary to contract provisions, Appellant, instead of removing
debris and/or decomposable material resulting from the demolition, used
it as fill and covered it. Further, it was alleged that payment for the
work was made to Appellant although the work did not conform to contract
requirements. (At the hearing, Counsel for Appellant stated that
Appellant had been orally suspended by a HUD official in Detroit in
February or March of 1975. Section 24 CFR 24.12 provides that only an
Assistant Secretary may suspend a contractor, and 24 CFR 24.15 sets
forth the procedures to be followed in issuing written notice of
suspension.) Appellant was advised of the right to a hearing and to be
represented by Counsel in accordance with 24 CFR 24.10. By letter dated
June 5, 1975, Appellant's Counsel, Arnold J. Shifman, requested a
hearing. Pursuant to this request, a hearing was held at HUD
Headquarters on August 20, 1975. John P. Witsil, HUD Office of General
Counsel, appeared on behalf of the Government, and Arnold J. Shifman,
Royal Oak, Michigan, appeared on behalf of Appellant.
Mr. Charles Schumacher is president of Schumacher Brothers Wrecking
Company, a corporation in existence for approximately ten years. In 1972
and 1973, Appellant entered into a number of contracts with the
Department for the demolition of properties in the Detroit area. The
Government introduced into evidence one contract pertaining to two (2)
properties at 1662-64 Lillibridge and 2222-25 Lillibridge (Government's
Exhibit No. 3) and one purchase order which involved a property at 8741
Woodlawn Avenue (Government's Exhibit No. 8). Appellant is charged with
allegedly failing to perform to the contract requirements. The contract
contained the HUD specifications under which the demolition of these
houses was to be accomplished. In addition, the purchase order contained
the required specifications by attachment. The specifications which the
Government alleged were violated by Appellant are as follows:
I. DEMOLITIONS AND REMOVAL
F. Each basement and/or part basement shall be entirely cleaned
out of the debris including that debris resulting from the
demolition of the structure.
II. BACKFILLING OF BASEMENTS AND CRAWL SPACES
B. After approval of the basement or part-basement excavation
by the local Building Department, the Contractor shall fill the
void with backfill material + + + . Under no circumstances shall
the excavations be filled with clay, rubbish, trash, wood, or
other extraneous materials.
The Government introduced as a witness a HUD employee, Mr. Robert
Cressman, assigned to a HUD Task Force group which inspected a large
number of HUD-owned properties in the Detroit area in the Spring of
1975. Mr. Cressman testified as to the condition of the property at 2225
Lillibridge from his Inspection Report, (Government's Exhibit No. 4):
THE WITNESS (Mr. Cressman): "Commenced at 10:12, completed 10:
30.
Numerous pieces of concrete and concrete blocks on the surface.
And (sic) an 18-inch depth found an 18-inch layer of rock and
wood, bricks, several concrete slabs. The basement was not
broken." (Tr. 28 & 29)
In addition, the Government introduced into evidence a series of
photographs (Government's Exhibit Nos. 5A to 5J) taken by the Task Force
at the site showing property areas after the digging had occurred. The
photographs reveal that there was debris buried on the property.
Another Government witness was Willie D. Cobb, an Inspector assigned
to the Task Force group. His testimony, again based on his on-site
Inspection Report (Government's Exhibit No. 6) was in regards to the
property at 1662-64 Lillibridge:
THE WITNESS (Mr. Cobb): "Okay. Encountered at 18 inches one
evident use of grey clay. 2. At 21 inches from surface wood pocket
(Much deteriorated wood). 3. At 36 inches wood pocket together
with large pieces of wood and deteriorated wood. 4. 24 inches,
metal pipe and wood pocket. 5. In excess of six feet of concrete
slab at front of lot." (Tr. 47 & 48)
The Government introduced into evidence photographs for this property
(Government's Exhibit Nos. 7A to 7K), and Mr. Cobb testified as to each
photograph's content. These photographs also show that there was debris
and wood buried at this site.
The Government called John Jenetta, another of the Inspectors on the
Task Force, to testify concerning his inspection of the property at 8741
Woodlawn, (Government's Exhibit No. 9):
THE WITNESS (Mr. Jenetta): "Marked down it was debris filled,
it was filled with wood, asphalt shingles, brick, pieces of pipe,
broken concrete slabs and metal." (Tr. 60)
Photographs were again introduced into evidence by the Government
(Government's Exhibit Nos. 10A to 10F) and identified by Mr. Jenetta.
The photographs indicate various types of debris on the demolition site,
as found by the Inspector.
Appellant denied the allegations which were the bases for suspension
and, through cross-examination and its own direct evidence, attempted to
refute them. On cross-examination, Appellant raised the issue of
whether, in fact, the Government had inspected the specific properties
demolished by Appellant or a property demolished by other contractors.
The Government Inspectors each testified that the actual sites to be
demolished were selected by the FBI, and they had no direct knowledge of
the correct locations of the properties.
Appellant testified on his own behalf. He stated that the properties
involved at 1662-64 Lillibridge and 2222-25 Lillibridge were demolished
under a HUD contract as distinguished from a purchase order, and that
the HUD Inspector visited the site daily (Tr. 85). Moreover, Appellant
had recollection of the work performed at 8741 Woodlawn (Tr. 76) in that
he visited the site shortly after getting out of the hospital and saw
the house excavated from the site. Appellant also testified that he
recalls the demolition at 1662-64 Lillibridge, and stated that the hole
was clean. His recollection of this job is based upon the fact that he
recalls an equipment breakdown at this site (Tr. 99).
In addition to direct testimony by Appellant that the debris was
hauled away at each of the sites involved, Appellant attempted to
demonstrate that other demolition contractors could have filled the
excavated areas with debris. Appellant introduced into evidence copies
of building permits taken out by other demolition contractors and
adjoining properties, (Appellant's Exhibit No. 4, No. 10, and No. 13).
These sites were all demolished by the other contractors after Appellant
had completed his work. Further, Appellant introduced into evidence a
statement by a neighbor (Appellant's Exhibit No. 8) stating that another
contractor who demolished an adjoining property did, in fact, dump his
debris on the property demolished by Appellant at 1662-64 Lillibridge.
Finally, Appellant introduced a copy of HUD Final Inspection Report
dated May 11, 1973 for the property located at 8741 Woodlawn
(Appellant's Exhibit No. 3) which stated: "Final" and further noted:
"Barely acceptable, could have been smoother." Appellant testified
further that the two other properties at issue had been inspected by
both the City of Detroit and HUD (which was not the normal procedure).
The Government was requested to furnish the other two Inspection
Reports, but after an extensive search was unable to locate them.
After the hearing was adjourned, the record was left open for
submission of documentation by both parties. Appellant introduced into
the record (Appellant's Exhibit No. 15) a survey which, compared with
the photographs taken at the site by the Government, indicates that the
Government inspected the property located at 1656 Lillibridge rather
than 1662-64 Lillibridge, the property in question. Appellant also
submitted into the record on October 9, 1975 (Appellant's Exhibit Nos.
16A and 16B) HUD Inspection Reports dated April 14, 1972, for the
properties at 2225 Lillibridge and 1662 Lillibridge, signed by Norman
Dines. These reports each indicate: "On site improvements acceptably
completed," and the handwritten notation: "Okay to backfill hole." In
addition, the Hearing Officer uncovered in the Department files an
Inspection Report, dated May 30, 1972, for Contract 044-185 (Hearing
Officer's Exhibit No. 1). This Inspection Report indicates that Repairs
Acceptably Completed and the General Quality of Work to be Acceptable.
Contract 044-185, which was Government's Exhibit No. 3, included the
properties at 1662-64 Lillibridge and 2225 Lillibridge.
In order to uphold the suspension, a review must be made of the
entire record to determine if adequate evidence exists.
Initially, it must be noted that Counsel for Appellant alleged at the
hearing, and it was not denied by Government Counsel, that the Appellant
had been orally suspended by a HUD official from the HUD Area Office
sometime during February or March 1975. This oral suspension is a
violation of HUD Regulations, 24 CFR 24.12, as well as being a violation
of Federal Procurement Regulations, Section 1-1.605-4. Suspension is an
extremely serious matter and one which can cause great economic hardship
upon a contractor. Therefore, it is incumbent upon the Department, prior
to taking any suspension action, to carefully review the contractor's
performance or the basis for suspension before it initiates such action
and only then when it is done in accordance with the prescribed
regulations of the Department and of the Federal Procurement
Regulations. These Regulations seem to have been ignored in this
instance.
In the instant matter, we are concerned with three (3) properties.
In examining the facts surrounding each alleged violation, it is
important to note the following:
(a) the work to be performed to HUD specifications. This is
indisputable. Appellant maintained that it did perform work in
accordance with the requirements of the contracts and, in fact,
there are HUD Inspection Reports in evidence;
(b) All three (3) properties were signed as accepted by HUD;
and
(c) Appellant introduced into evidence a survey and photographs
which indicated that HUD may have in fact examined the wrong
property when its Task Force conducted its survey and excavation
of properties in the Spring of 1975. Examination of this survey
and photographs submitted by Appellant by the Hearing Officer
indicates that the property at 1662-64 Lillibridge was not the
property that the Task Force inspected, rather it was a property
at 1656 Lillibridge. Therefore, the property at 1662-64
Lillibridge is removed from our considerations in this matter.
The remaining two (2) properties were inspected by and accepted by
HUD. In addition, there were inspections and acceptances on behalf of
the City of Detroit. There was testimony given that during this time
period the HUD Inspectors visited the site almost daily. Therefore,
credence must be given to the HUD Inspection Reports, and they must be
accepted as final; even though it is recognized that the Government has
the right to reinspect the properties. In addition, Appellant testified
on his own behalf and, in the opinion of the Hearing Officer, was a
credible witness.
It is the decision of the Hearing Officer that the suspension be
removed. This determination is based upon my review of the entire record
in this matter. The Government asks that the suspension be upheld based
upon the provisions of 24 CFR 24.12(a)(2) which states:
"The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department."
However, the allegations of any wrongdoing by Appellant to warrant
continuation of this suspension is not supported by the evidence. The
evidence offered in behalf of Appellant is convincing. Since the purpose
of the Department Regulations pertaining to suspension is to protect the
Government and not to penalize the contractor, the suspension should be
removed. It should be noted that Appellant has been officially suspended
since May 27, 1975. It is understood that other contracts performed by
Appellant may be examined by other Government agencies. However, this
Determination was based upon review of the record as it applies only to
the three (3) properties herein involved.
75-345-DB
In the Matter of: LOUIS M. SARKO and SARKO EQUIPMENT INC.,
December 15, 1975
751215
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon considertion of the record in
its entirety, issue this Initial Determination containing the following
order with my Findings and Conclusions attached and made a part hereof,
pursuant to the authority delegated to Hearing Officers of the
Department of Housing and Urban Development under 24 CFR 24.10(b)( 3)
and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, Louis M. Sarko and Sarko Equipment,
Inc. (hereinafter referred to as Appellant) were notified by Assistant
Secretary H. R. Crawford of their suspension as a HUD contractor. The
suspension was based upon an investigation conducted by the Government
which indicated that Appellant, in the performance of certain demolition
contracts with HUD, had failed to remove debris and/or decomposable
material from the properties as required but had used it as fill and
covered it. The letter further advised Appellant of its right to a
hearing regarding this suspension in accordance with the provisions of
24 CFR 24.10. By letter dated June 3, 1975, Appellant requested a
hearing. On October 6, 1975, Department Counsel notified Appellant of
the details of the basis for suspension and furnished identification of
the properties involved. The hearing was held on November 6, 1975 at the
HUD Area Office, Detroit Michigan. John P. Witsil, HUD Office of
General Counsel, represented the Government, and Alan B. Sarko
represented Appellant.
At the hearing, Department Counsel introduced into the record
purchase orders for six (6) properties where the demolitions allegedly
were improperly conducted. In connection with these properties,
Department Counsel also introduced into the record copies of HUD
Inspection Reports for three (3) properties at 8841 Chalfonte, 8420
Chalfonte, and 7740 DeSoto. The Government then moved to dismiss the
charges involving these three (3) properties on the basis that the
properties involved had been inspected and accepted by HUD. The Hearing
Officer took this motion under advisement, and he stated that he would
render a decision based upon his review of the entire record. Now that
the entire record has been reviewed, these three (3) properties
mentioned in the Government's motion are removed from consideration of
this suspension matter, and the decision will pertain only to the other
remaining three (3) properties.
The three (3) purchase orders were issued in 1973. The requirement
was stated as follows: "Demolish Dwellings as per specs." No particular
specifications were identified, nor is there evidence any specifications
were in fact attached. The Government introduced into evidence the
Inspection Reports prepared by the Inspector who was a member of the HUD
Task Force in the Spring of 1975. Of the three (3) properties involved,
the first property was described as being carelessly performed. The
second property involved shows substantial compliance with the
requirements. The third property did contain some wood.
Appellant acknowledged that it had received copies of the HUD
specifications in 1972. Further, he maintained that he did perform the
purchase orders in accordance with these specifications. He described in
detail the procedures followed by his company in undertaking this job.
Appellant had performed over 200 demolitions for HUD during 1971, 1972
and 1973. He testified that he had not received work from HUD within the
last two years because, in his opinion, he refused to lower his prices
so that it would be competitive and receive contracts. For example, the
Hearing Officer observes that the prices on the purchase orders involved
in this hearing are all in excess of $1,000, mostly in the $1,500 range.
The Hearing Officer takes Judicial Notice of the fact that he has
observed purchase orders for $600 and $800 for similar type properties.
Appellant introduced into the record for the Hearing Officer's
examination a brochure which contained testimonials from some of the
leading industrial firms in the Detroit area attesting to a record of
satisfactory performance by Appellant. In addition, Appellant submitted
for examination by the Hearing Officer copies of dump tickets indicating
that debris had been removed from properties undertaken by Appellant
during this time period. (It should be noted that the dump tickets did
not specifically identify the purchase orders they pertained to.)
Moreover, Appellant introduced into evidence photographs of a landfill
in the rear of its properties which it described as a 7 1/2 acre lot
where clean landfill was found. This landfill allegedly was used by
Appellant in backfilling the properties involved. Appellant maintained
vigorously that it complied with the terms of these contracts, that it
had received inspections from the City of Detroit for these properties.
Those Inspection Reports disclose that final acceptance was made on July
30, 1973, August 16, 1973, and January 10, 1974 for the three
properties. Appellant maintained that the City of Detroit inspections
were undertaken for HUD and, therefore, should be conclusive. It stated
that it never knowingly left any wood in a property.
The pertinent provision of the Department Regulations relating to
suspension are as follows:
Sec. 24.11 Suspension.
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings, and as such, shall not be based upon an
unsupported accusation.
Moreover, if suspension were to be upheld against Appellant, it would be
on the following basis:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a)(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension.
In this matter, Appellant stated that is performed in accordance with
HUD specifications. However, the City of Detroit inspections for these
properties were made after July 1, 1973. That was the date when HUD
turned over inspections to the City of Detroit and other municipalities.
Judicial Notice is taken that after that date, inspections were not made
according to the HUD specifications (In the Matter of Otis Jones, Docket
No. 75-383-DB, pp. 7-10). Therefore, after that date, hardfill could be
left in the properties within two feet of the surface.
Moreover, the purchase orders are vague and uncertain in their
requirements in that they fail to identify fully and properly the
specifications under which the work was to be performed.
Of the three (3) properties in issue here, only one (1) remains in
question, where a pocket of wood was found. It must be considered that
Appellant has performed over 200 contracts for HUD. Secondly, from
review of the letters of commendation from other organizations, it is
apparent Appellant has an excellent record of performance. In addition,
at the hearing Appellant offered evidence to indicate its efforts to
comply with specifications; such as, dump tickets, photos of landfill
on their property. Appellant acknowledged it was not obtaining HUD
contracts because it refused to cut its prices. On the overall, the
Hearing Officer was of the opinion that Appellant was a reputable
contractor.
Therefore, since Judicial Notice has been taken in other hearings
involving the suspension of demolition contractors of wood being left in
a property because of normal spillage or being ground into the property
by a twenty ton machine, it will be noted here. To sustain the drastic
action of suspension for wood found in one (1) property, in light of
Appellant's overall record with HUD, would be grossly inequitable.
Moreover, there was no evidence of fraud or criminal conduct introduced
against Appellant at the hearing. Further, it is noted that Appellant
has been suspended since May 27, 1975.
Accordingly, it is the opinion of the Hearing Officer that there is
not adequate evidence to sustain the suspension. Therefore, it is the
Initial Determination of the Hearing Officer that the suspension be
removed.
75-344-DB
In the Matter of : LOUIS M. SARKO and ARROW WRECKING, INC.
December 1, 1975
751201
Michael F. Burke
UNITED STATES OF AMERICA DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT Washington, D.C.
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)
(3) and 24.15(a) (5).
As provided in Section 24.10(b) (3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, Assistant Secretary H. R. Crawford
notified Louis M. Sarko and Arrow Wrecking, Inc. (hereinafter referred
to as Appellant) of their suspension as HUD contractors. The suspension
was based upon an investigation undertaken by the Government which
indicated that Appellant had violated the terms of its purchase orders
with the Department in that in performing certain demolition contracts,
it had failed to remove debris and/or decomposable material from the
property sites involved, and had instead used it as fill and covered it.
By letter of June 3, 1975, Appellant requested a hearing in this matter.
A hearing was conducted in this matter on November 6, 1975 at the HUD
Area Office, Detroit, Michigan. Mr. Alan B. Sarko appeared on behalf of
Appellant, and Mr. John P. Witsil, of the HUD Office of General Counsel,
appeared on behalf of the Department.
In its suspension action, the Government maintained the basis for the
suspension was that Appellant had violated the terms of four (4)
purchase orders with the Government (Government's Exhibit Nos. 1A
through 1D). At the hearing, however, Department Counsel moved to
dismiss the suspension against Appellant. The motion was based upon the
fact that Department Counsel had in his possession Inspection Reports
which indicated that each of the four (4) properties involved in the
suspension action had been inspected and accepted by the Department
(Government's Exhibit Nos. 2A through 2D). As Department Counsel stated,
"These inspection reports reflect that the demolition work on the four
properties involved was final, complete and approved by HUD. In view of
the fact that an inspector did in fact approve the work it is the
position of the Department that the charges held against this contractor
with respect to these four properties be dismissed." (Tr.6)
In response to a question from the Hearing Officer as to whether or
not HUD had the right to reinspect after acceptance, the Department
Counsel stated that it did. However, Department Counsel pointed out, "We
have no evidence available to relate that this contractor was in fact
responsible for what was found in 1975 since it was a two year time
span." (Tr. 8)
The Hearing Officer advised Counsel that he would take the motion
under consideration and issue an Initial Determination after he reviewed
the entire record in this matter.
The Hearing Officer has now examined the transcript of the hearing in
this matter and has reviewed all available documentation and exhibits
pertinent to the hearing. It is the Initial determination of the Hearing
Officer that the Government's Motion to Dismiss the charges be granted
and the suspension be removed at once. The basis for the suspension were
allegations, which if true, would have been adequate evidence to support
a suspension. However, as Department Counsel pointed out, the Properties
involved here were inspected and accepted by HUD. Moreover, there is no
evidence, as stated by Department Counsel at the hearing, which could
establish that Appellant did in fact violate the terms of its purchase
orders. Therefore, since the purpose of the suspension regulations is
for the protection of the public and not to impose a penalty upon a
contractor, there is no reason why Appellant should not be immediately
permitted to resume work. The suspension is hereby removed.
75-343-DB
In the Matter of: PHILLIP STRAMAGLIA and ALL STATE WRECKING COMPANY
February 13, 1976
760213
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975, Assistant Secretary H. R. Crawford
advised Phillip Stramaglia and All State Wrecking Co. (hereinafter
referred to as Appellant) of their suspension as HUD contractors.
Appellant had undertaken the performance of purchase orders with HUD for
the demolition of properties in the Detroit area. The basis for the
suspension was that an investigation being conducted by HUD had
disclosed that Appellant allegedly had failed to remove debris and/or
decomposable material as required by the terms of their purchase orders
and had instead used it as fill and covered it. Appellant was advised of
its right to a hearing in accordance with the provisions of 24 CFR
24.10. By letter dated June 3, 1973, Appellant, through their attorney,
Donald Z. Ricard, requested a hearing. On August 18, 1975, Department
Counsel furnished Appellant with a detailed listing of the purchase
orders and properties which were the basis upon which the suspension was
made. The hearing was held on September 11, 1975 at HUD Headquarters,
Washington, D.C. Mr. Ricard appeared on behalf of Appellant, and John P.
Witsil, HUD Office of General Counsel, appeared on behalf of the
Government.
At the hearing, Department Counsel introduced into evidence eight (8)
purchase orders which were performed by Appellant. The Government
contends that Appellant's suspension should be upheld on the grounds
that violation of the provisions of these purchase orders would show
that Appellant was not a responsible contractor as required under 24 CFR
24.12(a)(2).
During the Spring of 1975, a HUD Task Force inspected certain
properties, including the ones covered by the eight (8) purchase orders
here involved, where properties had been demolished under HUD contracts.
The Inspection Reports prepared by the HUD Task Force concerning these
eight (8) properties were introduced into evidence.
It is noted that of eight (8) properties involved in this matter only
one of the purchase orders was issued and final inspection was made
prior to June 30, 1973. The remaining properties were inspected after
June 30, 1973. That date is significant because on June 30, 1973, HUD
delegated to the City of Detroit and other municipalities in that area
the authority to conduct inspections on demolished properties for HUD.
Moreover, in other hearings relating to the suspension of demolition
contractors, there has been testimony given which indicated that the
City of Detroit and these municipalities conducted the inspections after
that date according to their own specifications. The City of Detroit
specifications permitted hardfill (i.e., bricks and concrete) to be left
in the property, (In the Matter of Otis Jones and Otis Jones Wrecking
Co., Docket No. 75-383-DB).
Of the eight (8) properties, one was inspected prior to June 30,
1973. The testimony of the Inspector who was present when that property
was excavated was to the effect that the property was fairly clean, (Tr.
26). The other seven (7) properties, however, contained debris of
varying degree. Since, however, the inspections of the seven (7)
properties were conducted by the City of Detroit, their inspection
standards were used. The City of Detroit permitted hardfill to be left
in the properties. Hence, hardfill is disregarded in my evaluations of
these properties. These properties contained amounts of wood which in
most instances could be categorized as "normal spillage," that is, wood
left in the property which fell off of the machine. However, the
Inspection Report at 6162 Seneca contained the following data:
"However, once we were able to get through that crust, the
house jumped out of the ground literally. The material had been
compressed into the hole to the degree that when the cap was
lifted, it actually raised out of the ground." (Tr. 75)
There were no photographs of this property presented at the hearing.
In regard to this property, the Government Inspector testified:
"This particular property was a corner property adjacent to a
highway. The surface was very, very hard, and at that time it had
a pea gravel appearance, and I felt like it might have been used
for a dumping place for concrete trucks." (Tr. 75)
Another property, 5202 Sheridan, contained large amounts of wood,
(Government's Exhibit No. 14C). That is, the photograph revealed amounts
of wood of a quantity that must be considered more than normal spillage.
A photograph of the excavation at 6456 Seneca (Government's Exhibit No.
18C) also reveals a large amount of wood.
Appellant denied that he was in violation of the provisions of the
contract and stated that he removed all debris from the properties.
Appellant offered into evidence copies of Inspection Reports issued by
the City of Detroit (Appellants Exhibit Nos. 6 and 8A through 8F)
covering the properties involved. A review of the Inspection Reports
indicates that each of the properties were inspected and approved as
being graded (which indicates that the properties were filled over). In
addition, Appellant, through its vice-president, Mr. DeGuano, testified
as to his direct recollection of some of the excavations on these
properties. In particular, he recalled the property at 6162 Seneca
because he recalls being at that site at the time the house was removed,
(Tr. 83). Mr. DeGuano explained that he recalled that property because
he had some difficulty with one of the truck drivers who drove over the
sidewalk. In addition, he recalls in the removal process breaking a
neighbor's fence and repairing it, (Tr. 85). Mr. DeGuano testified that
he saw the house removed from the property and that he subsequently
examined the excavated area and it was cleaned out, (Tr. 84).
Appellant also offered into evidence (Appellant's Exhibit Nos. 1
through 5) statements of persons who witnessed the removal of the houses
on five (5) of the properties. (These statements were later transformed
into Affidavits submitted to the Hearing Officer after the hearing and
requested to be put into the record.) These statements which were
obtained by Appellant's Counsel indicate that each of the persons
involved allegedly witnessed the removal of the house at the time it was
being demolished, and from their statements, indicates that it was
removed and clean landfill was put back into the excavated area. Of
particular interest is the Affidavit of Ms. Calhoun who was the neighbor
at the house next to 6162 Seneca. In her statement she related: "I was
present when the house at 6162 Seneca was torn down. I saw them carry in
trucks the debris from the house, including all the lumber."
Subsequent to the hearing, on November 28, 1975, Appellant submitted
to the Hearing Officer copies of dump tickets for the time period of
July through December of 1973. However, these receipts, and as so
acknowledged by Appellant's Counsel, do not relate to any of the
specific properties involved in this hearing. They do indicate a large
amount of transactions during the period covered by the purchase orders
between Appellant and a company for removal of debris on a regular
basis.
The pertinent provision of the Department Regulations relating to
suspension (24 CFR 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings + + + . (Emphasis added.)
The Government's basis for continuing the suspension is 24 CFR
24.12(a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added.)
In its closing argument, Counsel for Appellant argued that there was
substantial compliance on the part of Appellant in its performance of
the purchase orders. He acknowledged that there was not strict
compliance. Department Counsel, in his closing statement, contended that
the suspension should be upheld based upon violations of specific
provisions of the HUD specifications.
A review of the entire record in this matter discloses evidence of
violations on three (3) properties. As stated above, since the City of
Detroit inspections applied to seven (7) of these properties, all
consideration of debris involving hardfill has been disregarded.
However, of the three (3) properties under consideration and central to
this determination, there is adequate evidence to warrant continuation
of the suspension unless there is justification demonstrated by
Appellant that the violations are excusable.
The two (2) properties at 5202 Sheridan and 6456 Seneca contain
quantities of wood that is more than "normal spillage." The Hearing
Officer takes Judicial Notice of "normal spillage," that is, wood that
falls off of the machine and also the scraps of wood that are ground
into the earth by the machine. Appellant failed to explain
satisfactorily this debris in these properties. It, of course, denied
that it was in violation and offered the Affidavit of witnesses that
they saw the houses carried away. However, these are hearsay statements,
and the individuals who made them could not have been aware of the
requirements that Appellant was performing to under the purchase orders.
Although the Government offered no direct evidence that Appellant put
the debris in these properties, there is, nevertheless, an inference
which may be made that it is Appellant's responsibility to see that no
debris was left in the property. The amount of wood in the property at
5202 Sheridan was of a degree that indicates either sloppy work or a
deliberate attempt to leave wood in the property.
The property at 6162 Seneca involves an alleged violation of a
different nature. There, the Inspector testified that it appeared that
an entire house had been buried. There was no photograph of this
property introduced at the hearing which could assist the Hearing
Officer as to the amount of wood present in the property. Appellant
denied this violation. Moreover, Mr. DeGuano was a credible witness, and
he testified that he saw the property cleaned out. In addition, the
Government Inspector testified that this property was a neighborhood
dumping ground. Moreover, an Affidavit was submitted by a neighbor who
claims that she saw the house demolished and removed. However, again the
contractor retains responsibility for any debris that is in the
property. Even though there was a final acceptance, and the Appellant is
not in the position of a guarantor of the property's condition beyond
acceptance, it nevertheless does not preclude HUD's right to reinspect.
Based on the circumstances involved here, Appellant must bear the
responsibility. Even if the house was removed and passed the "openhole"
inspection, the house could have been pushed back in the property and
still passed final inspection. The Inspection Report for this property
notes: "7-12-73 + + + debris still on site - Nr basement," and a
subsequent entry of acceptance of 9/24/73. In addition, there is the
possibility that the house was removed and debris-filled soil was put
back in the property. Although the property may have been a neighborhood
dump, there was no claim by Appellant that this property was
"sneak-dumped" nor any evidence that a neighbor witnessed the house
being buried by another party. Therefore, a reasonable inference can be
made that Appellant who demolished the house is responsible for the
debris in the property, absent clear evidence to the contrary.
Therefore, based upon a review of the entire record in this matter,
it is my findings that there exists adequate evidence of violations of
the purchase orders involved here to warrant continuation of the
suspension.
75-342-DB
In the Matter of: IRVING CHAIKEN and ALL RITE WRECKING CO.
April 5, 1976
760405
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(2).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated May 27, 1975 from Assistant Secretary H. R.
Crawford, Irving Chaiken and All Rite Wrecking Co. (hereinafter referred
to as Appellant) were advised of their suspension as a HUD contractor.
The letter advised that an investigation undertaken by HUD (hereinafter
referred to as the Government) had disclosed certain violations in the
terms and provisions of purchase orders undertaken by Appellant with the
Government. Specifically, it was alleged that in the performance of
these purchase orders, Appellant failed to remove decomposable material
in the properties as required by the terms of these purchase orders and
had instead used it as fill and buried it. Appellant was further
advised of its right to a hearing in accordance with the provisions of
24 CFR 24.10. Subsequently, on July 6, 1975, Appellant requested a
hearing. By letter dated November 4, 1975, Appellant was furnished
copies of the six (6) purchase orders and identification of the six (6)
properties involved in this suspension. The hearing was conducted on
February 26, 1976, in Detroit, Michigan. At the hearing, Frank G.
Garavaglia, Esquire, represented the Appellant, and John P. Witsil,
Esquire, HUD Office of General Counsel, appeared on behalf of the
Government.
At the hearing, the Government introduced into evidence six (6)
purchase orders which identified the HUD-owned properties which were
demolished by Appellant. In addition, Inspection Reports prepared by the
HUD Task Force which conducted inspections of these properties in the
Spring of 1975 were introduced into evidence without objection by
Appellant's Counsel. Photographs taken at the site of the properties
involved at the time the HUD Task Force conducted its investigation were
also introduced into evidence.
Of these six (6) properties involved in this suspension, one (1) of
the properties, 5866 Bewick, involved a purchase order awarded in
September of 1972, and the record indicates it was approved for payment
in February 1973. The dates regarding this purchase order are
significant because on or about June 30, 1973, HUD delegated to the City
of Detroit and to other municipalities in that area the responsibility
for conducting inspections on the demolitions of HUD-owned properties.
In regard to the property at 5866 Bewick, the Inspection Report
indicates that in addition to rotten wood being found in the property by
the HUD Inspectors, there was also hardfill. The photographs taken at
that site discloses the extent of wood and hardfill found in that
excavated area.
Of the five (5) remaining properties involved in this suspension, all
of them were inspected by the City of Detroit. Judicial Notice is taken
of the fact that after July 1, 1973 the City of Detroit Inspectors did,
in fact, conduct inspections according to City of Detroit
specifications. City of Detroit specifications, as distinguished from
the HUD specifications, permitted the use of hardfill in the excavated
areas. Therefore, in regard to these five (5) properties, the presence
of hardfill has been eliminated from consideration of these properties.
However, wood in varying amounts was found in each of these five (5)
properties which was in violation of both the City of Detroit
specifications and the HUD specifications. For example, the Inspection
Report for 4405 Lakepointe indicated a pocket of wood. There were no
photographs taken of that particular property to substantiate or portray
exactly how much wood was uncovered. However, the Inspector testified
that in explanation of the description of having found a "wood pocket"
he meant as follows:
"What I meant by a wood pocket is huge or large areas of just
wood piled on top of wood and the wood was deteriorated; it was
like layer upon layer of wood." (Tr. 24)
The property at 540 Eastlawn disclosed pieces of wood also were found
in the excavated area. Photographs taken at this site disclose the
extent of wood that was found there, and it was extensive. Pieces of
wood were also found in the other properties at 258 Marlboro and 808
Drexel but not to the degree found in the property at 803-805 Eastlawn.
Appellant testified on his own behalf and stated that he had never
deliberately left wood in any of the properties. He explained in detail
the procedures followed in the excavation and demolition of properties.
He stated that wood could have been left in the properties by another
contractor who may have "sneaked-dumped" it. He stated that before his
suspension in May of 1975 he had never been advised of any particular
problem with any of these properties here involved. There was also
testimony that Appellant may had been orally suspended by
representatives of HUD sometime in late 1974.
In some of the Inspection Reports, the question of foundry sand being
discovered in some of the properties was raised. However, a Government
witness stated that he advised Appellant during the performance of these
purchase orders that if foundry sand were acceptable to the City of
Detroit it would be acceptable to HUD. The question of foundry sand,
therefore, is not a part of the considerations in my determination of
this matter. Moreover, foundry sand being found in the property has
never been considered as the basis for upholding the suspensions of any
other demolition contractors.
The pertinent provision of the Department Regulations relating to
suspension (24 CFR 24) is as follows:
Sec. 24.11 Suspension
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings + + +. (Emphasis added.)
The Goverment's basis for continuing the suspension is 24 CFR 24.12(
a)(2) which provides:
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designee to warrant suspension. The determination
shall clearly demonstrate that the suspension is in the best
interests of the Department. (Emphasis added).
A review of the entire record in this matter discloses adequate
evidence of violations of the terms of the purchase orders. The
violation can be categorized in two ways:
1. The property at 5866 Bewick - this purchase order was performed at
a time when the HUD specifications were the standard of acceptance.
Under the HUD specifications neither hardfill nor wood was permitted to
be left in the properties. The Inspection Reports and photographs taken
at the site disclose that both hardfill and wood were found there.
Clearly, this is a violation of both the HUD specifications and the City
of Detroit specifications.
2. The remaining five (5) properties - under the inspection standards
in force at that time HUD had delegated to the City of Detroit
inspection authority on the demolition of HUD-owned properties. The
City of Detroit specification permitted hardfill to be left in the
properties. However, it did not permit wood or decomposable material to
be left there. Examination of the Inspection Reports and some of the
photographs introduced into evidence at the hearing disclose that
amounts of wood were left in these properties as described in the
Findings of Fact. In regard to the properties at Eastlawn, for example,
the amount of wood clearly is in excess of what could be termed "normal
spillage." "Normal spillage" has been defined in other hearings as the
amount of wood that could be reasonably expected to be left in the
property as a result of falling off the machine or being ground into the
earth by the removal equipment.
Under Horn Brothers v. Laird, et al., 463 F. 2d 1268 (1972), it is
only necessary for the Government to show "adequate evidence" to uphold
a suspension. The Court defined it in the following manner:
"The 'adequate evidence' showing need not be the kind necessary
for successful criminal prosecution or formal debarment. The
matter may be linkened to the probable cause necessary for an
arrest, a search warrant, or a preliminary hearing. This is less
than must be shown at the trial, but it must be more than
uncorroborated suspicion or accusation."
In this particular matter, the Government introduced into evidence
Inspection Reports and photographs which support the findings of these
Inspection Reports as well as the independent testimony of the
Inspectors who made these Reports. The evidence adduced from these
Reports meets the test of "adequate evidence" as set forth above.
Appellant, of course, has denied the allegations which form the basis
for the Government's initial order of suspension. However, Appellant
remained responsible for any debris that was found in these properties
up until the time of final inspection. It is recognized that final
acceptances on these properties was made by the City of Detroit.
However, final acceptance does not prevent the Government from
reinspecting them. Moreover, under the inspection procedures in force at
the time of these inspections being performed, it was entirely possible
that the contractor could have an open-hole inspection and then have a
final inspection when the property was leveled off and yet hardfill or
other decomposable material could be put back or left in the hole prior
to the final inspection.
A review of the entire record discloses adequate evidence of
violations of the terms of the purchase orders and, therefore, it is the
finding of the Hearing Officer that Appellant is not a responsible
contractor as defined in 24 CFR 24.12(a)(2).
It is the Initial Determination of the Hearing Officer that this
suspension be upheld.
75-341-DB
In the Matter of: JOHN T. ADAMO and PAUL GARVAGLIA and ADAMO WRECKING
COMPANY
April 5, 1976
760405
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(2).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letters dated May 27, 1975 from Assistant Secretary H. R.
Crawford, John T. Adamo and Paul Garavaglia as partners in Adamo
Wrecking Co. (hereinafter referred to as Appellant) were advised of
their suspension as HUD contractors. The letters advised them that based
upon the results of an investigation untertaken by HUD, there had been
disclosed certain discrepancies in the performance of their purchase
orders undertaken by Appellant with the Department. Specifically, it
was alleged that in the performance of certain purchase orders for
demolition of HUD-owned properties in the Detroit area, Appellant had
used decomposable material as fill and buried it instead of removing it
from the property as required by the specifications of the purchase
order. Appellant was advised of its right to a hearing in accordance
with the provisions of 24 CFR 24.10. Subsequently, Appellant, through
its attorney, on June 5, 1975 requested a hearing. On October 6, 1975,
Department Counsel furnished Appellant with a list of the twelve (12)
purchase orders and identification of the properties involved in their
suspension. The hearing in this matter was held on February 26, 1976 in
Detroit Michigan. Frank G. Garavaglia, Esquire, represented Appellant,
and John P. Witsil, Esquire, HUD Office of General Counsel, appeared on
behalf of the Government.
At the hearing, Department Counsel stated that the basis for
suspension against Appellant was that in the performance of twelve (12)
purchase orders undertaken with the Department Appellant had used
decomposable material as hardfill and buried it instead of removing it
as required by the terms of the purchase order specifications. At the
hearing, the Government introduced into evidence copies of twelve (12)
purchase orders involved together with Inspection Reports which were
prepared by members of a HUD Task Force in he Spring of 1975. This Task
Force inspected the twelve (12) properties in question. The Inspection
Reports described the material which was removed from the properties.
Moreover, in support of these Inspection Reports, photographs were
introduced into evidence which corroborate the findings of the
Inspection Reports.
Of the twelve (12) properties involved, one (1) was inspected prior
to June of 1973. That date is significant because on that date HUD
delegated to the City of Detroit and surrounding communities the
authority to conduct inspections on behalf of HUD in the demolition of
HUD-owned properties. Judicial Notice is taken of the fact that the City
of Detroit, although conducting inspections under HUD purchase orders,
conducted the inspections according to the City of Detroit
specifications. The City of Detroit specifications allowed hardfill, i.
e., bricks and cement, to be left in the property. The property
inspected prior to June of 1973 was at 9745 Holmur. The Inspection
Report for that property indicates that both wood and cement blocks and
concrete were found in the excavated area. Moreover, the photographs
taken at that site shows the extent of brick and wood in the property.
Of the eleven (11) remaining properties, they were inspected after
June of 1973 by the City of Detroit. The City of Detroit inspections, as
mentioned above, were based upon the City of Detroit specifications
which permitted the use of hardfill to be left in the properties.
Accordingly, in the evaluation and consideration of these eleven (11)
properties, the presence of hardfill has been disregarded.
In these eleven (11) properties, varying amounts of wood were
reported by the Inspectors as having been found in these properties.
For example, at the property at 6125 Huber, the Inspection Report for
this property indicates in part:
"The entire wood from of a house may have been buried there."
In clarification of this Report, the following cross-examination of
the Inspector who made the Report took place:
"Q. (Mr. Garavaglia) And, from that you determined that there
may have been an entire house buried there, is that correct?
"A. (Mr. Cressman) Well, I said the entire, it'd be the entire
wood frame, and this is based on the fact that there was a one
foot layer of rotten wood there." (Tr. 34, 35)
In regard to the property at 9745 Holmur, the Inspection Report
indicated:
"Wood, cement blocks, concrete, wire, rubble near rear."
A photograph introduced into evidence displayed the amount of wood
found in the property. In response to Appellant's Counsel's
cross-examination, the Government Inspector testified that the amount of
wood was more than normal spillage, (Tr. 18, 19).
The Inspection Report for 4416 Ashland indicated in relevant part:
"2. 2 pieces of railroad ties - one of which was over 30" in
length and 6" in width with metal pieces still intact on one
piece."
A photograph of this railroad tie was introduced in evidence.
Appellants witnesses, who performed the work on the purchase orders
in issue, denied that they were in violation of the terms of the
purchase orders. These witnesses described the procedures followed by
Appellant in the demolition of the houses. In addition, Appellant
introduced James Jenkins, a Detroit contractor, as a character witness,
who testified that Appellant was one of the better contractors in
Detroit. On cross-examination, Department Counsel extracted from Mr.
Jenkins that he has a business relationship with Appellant.
The pertinent provision of the Department Regulations relating to
suspension (24 CFR 24) is as follows:
Sec. 24.11 Suspension
The Government's basis for continuing the suspension is 24 CFR 24.12(
a)(2) which provides:
Section 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(2) For other causes of such serious and compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his designees to warrant suspension. The
determination shall clearly demonstrate that the suspension is in
the best interests of the Department. (Emphasis added.)
In his closing argument, Counsel for Appellant argues that the
Government did not sustain the burden of proof to uphold the suspension.
There is evidence to indicate that the specifications of the purchase
orders were violated which is sufficient to sustain the suspension,
unless Appellant can show justification or legal excuse for it.
Appellant entered a general denial but offered no evidence to justify
the presence of wood in these properties. There is a pattern of work
here which indicates carelessness or a disregard for the requirements of
the purchase orders. Appellant was responsible until final acceptance
for these properties. The Governments reinspection shows that prohibited
types of debris was left in the properties. Under the inspection
procedures of the City of Detroit, it was possible to pass all of the
required inspections and still leave debris and wood in the property.
The amount of debris, as left in these properties, constituted a clear
violation of the terms of the purchase order and is "adequate evidence"
to sustain the suspension.
Accordingly, it is the finding of the Hearing Officer that adequate
evidence of violations of the terms of the purchase orders constitutes
"causes of such serious and compelling nature, affecting responsibility"
as defined in 24 CFR 24.12(a)(2) to warrant continuation of the
suspension.
It is the Initial Determination of the Hearing Officer that the
suspension be upheld.
75-339-DB
In the Matter of: WILLIAM G. CONWAY, JR.
September 18, 1975
750918
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusion attached and made a part
hereof, pursuant to the authority delegated to Hearing Officers of the
Department of Housing and Urban Development under 24 CFR 24.10(b)( 3)
and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Production and Mortgage Credit - FHA
Commissioner. Notice of Final Determination, which is conclusive, will
be given in writing and transmitted by registered mail by the Assistant
Secretary.
By letter dated Octover 31, 1973, Mr. William G. Conway, (hereinafter
referred to as Appellant), was informed by Assistant Secretary Lubar of
his suspension from further participation in HUD programs. The
suspension was based upon Appellant's indictment for alleged violation
of Title 18, United States Code, Sections 1010 and 2( b). Appellant was
notified of his right to a hearing under 24 CFR 24.10. Subsequently, on
May 14, 1975, Appellant was notified of his proposed debarment from
participation in HUD programs based upon his conviction for violation of
Title 18, United States Code, Sections 1010 and 2(b). Appellant
requested a hearing on the proposed debarment by his letter of May 19,
1975.
At the hearing, Government Counsel introduced into evidence a copy of
the indictment dated October 16, 1973 (Government Exhibit No. 1) which
charged Appellant with a violation of Title 18, United States Code,
Sections 1010 and 2(b), in that he witnessed a false statement which was
submitted to HUD. In addition, Government Counsel introducted into
evidence a copy of the Judgment against Appellant, dated March 14, 1974,
signed by Judge D. J. Keith, whereby Appellant was sentenced to eighteen
months imprisonment.
Appellant appeared on his own behalf. He acknowledge that he was a
witness to a false statement that was subsequently submitted to HUD with
an application for FHA mortgage insurance; that a person had a job as a
babysitter, which he knew was not true. He stated that he has served a
prison term of eight months. Appellant introduced into evidence a copy
of the suspension of July 21, 1975 of his real estate license for a
period of ninety (90) days by the State of Michigan, Department of
Licensing and Regulation (Appellant Exhibit No. 1). Appellant related
that he is presently employed as an office manager but in the future
would like to return to his work in the real estate field. He state that
he believes that he has paid his debt to society and wants to be able to
return to his profession. Government counsel stated that in view of the
long period for which Appellant has already been suspended that he would
not recommend any further period of debarment.
The Department regulations regarding debarment are found in 24 CFR
24.
The pertinent provisions relating to this matter are as follows:
(a) This part applies to + + + (4) and participants, or
contractors with participants, in programs where HUD is the
guarantor or insurer.
Section 24.4 Definitions
(a) "Debarment" means, in general, an exclusion from
participation in HUD programs for a reasonable, specified period
of time commensurate with the seriousness of the offense or
failure, or the inadequacy of performance.
Section 24.5 General
(a) Debarment, suspension, and placement in ineligible status
are measures which may be invoked by offices of the Department
either to exclude or to disqualify contractors and grantees from
participation in Department programs. These measures shall be used
for the purpose of protecting the public and are not for punitive
purposes. To assure the Department of benefits to be derived from
the full and free competition of interested contractors and
grantees, these measures should not be instituted for any time
longer than deemed necessary, and should generally preclude awards
only for the duration of the period of nonresponsibility.
Section 24.9 Causes and conditions to determination of
debarment. Subject to the following conditions, the Department may
debar a contractor or grantee in the public interest for any of
the following causes.
(a) (4) Any other cause of such serious compelling nature,
affecting responsibility as may be determined in writing by the
Secretary or his duly authorized representative to warrant
debarment. Such determination shall clearly demonstrate that
participation by the contractor or grantee would be harmful to the
best interest of the public.
In the instant matter, Appellant pleaded guilty to a felony, which
clearly establishes his lack of responsibiltiy. Thus, within the preview
of the regulations cited above, 24 CFR 24.9, a basis for debarment
exists. Therefore, Appellant is hereby debarred. However, in view of the
fact that this is Appellants first offense, and in consideration of the
time he has been imprisoned, his long period of suspension, and the loss
of his real estate license as a result of his criminal act, it is my
decision that no further period of debarment be imposed. This decision
is in accord with the Government Counsel's recommendation. Since the
purpose of the regulations is stated to be for the purpose of protecting
the public and not for punitive purposes, 24 CFR 24.5(a), it is believed
any further sanction against Appellant would not be in accord with the
letter or the spirit of the regulation.
It is the finding of the Hearing Officer that Appellant be debarred,
the debarment to be measured from the date of the original suspension of
October 31, 1973 and to remain in effect until the day of this
determination.
75-338-DB
In the Matter of: NORMAN C. WILDER and WILDER AUCTION & REAL ESTATE CO.
February 24, 1976
760224
Michael F. Burke
A hearing having been held on the record in the above-entitled
proceeding, I, Michael F. Burke, as Hearing Officer, upon consideration
of the record in its entirety, issue this Initial Determination
containing the following order with my Findings and Conclusions attached
and made a part hereof, pursuant to the authority delegated to Hearing
Officers of the Department of Housing and Urban Development under 24 CFR
24.10(b)(3) and 24.15(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
By letter dated April 24, 1975, H. R. Crawford, Assistant Secretary
for Housing Management, informed Norman C. Wilder and Wilder Auction &
Real Estate Company (herein referred to as Appellant) of their
suspension from doing business with the Department of Housing and Urban
Development (hereinafter referred to as the Government). The letter
further informed Appellant, that, effective April 21, 1975, debarment
action was being instituted against them. Appellant waived its right to
a hearing and elected to have this matter determined on the record.
The letter charged that the Appellant, in its capacity as an Area
Management Broker in Morristown, Tennessee, allowed James B. Ketner, a
repair contractor and alleged business associate of Appellant, to
solicit bids for repairs on three (3) Government-owned properties from
himself and two others. Ketner's bid was the lowest in all cases; and,
it was further alleged that the two other bidders (Homer Daniels and
James Greenlee) were former employees of Appellants and had no present
or past construction or repair contracting businesses.
In addition, Appellant allegedly certified that two (2) of the three
(3) properties involved herein were completed by Ketner when, in fact,
they were found to be either only partially completed or not
accomplished at all by subsequent Government inspections. It is further
alleged that the repairs mentioned above were only completed after
repeated requests and inquiries by Government Inspectors.
Three (3) bids were submitted by Appellant to HUD in April 1973 for
repair work to be done on three (3) HUD-owned properties. These bids
were signed by J. B. Ketner, Homer Daniels, and James Greenlee. In each
instance, Ketner was the low bidder.
The Government submitted sworn statements by Homer Daniels and James
Greenlee which disclosed that each had completed the bid forms with data
supplied by Ketner and had signed the forms at Ketner's request. Both
Daniels and Greenlee stated that they had been employed as bartenders
for Wilder and Ketner in 1974. Further, each indicated that he had no
intent to bid on repairing Government-owned properties and that he was
not in the construction or contracting business.
In regard to the alleged improper certification of properties charge,
Appellant certified that the repairs on properties at 1612 Shields Road
and 1252 Debi Circle were completed by Ketner on or before April 24,
1973 and April 28, 1973, respectively. Both properties were inspected by
the Government numerous times before repairs were acceptably completed.
The property at 1612 Shields Road was accepted by the Government on
September 12, 1973, and the property at 1252 Debi Circle was accepted on
September 20, 1973.
By letter dated August 26, 1975, Appellant stated that James Greenlee
and Homer Daniels, the two (2) unsuccessful bidders on the three (3)
contracts awarded to Ketner, were not employees of his. In addition, he
stated that both were, in fact, qualified repair contractors.
Further, Appellant contends that in his opinion Ketner's work on the
two (2) properties involved in the second charge of improper
certification of completion was acceptable. He attributed the
deficiencies found by the subsequent Government inspections to
vandalism. In addition, he states that since the work was eventually
completed and the houses sold, this charge is not sufficiently serious
to warrant debarment. All of these deficiencies were Ketner's
responsibility under the contract, and the Government's position here is
that none of them can be explained away by alleged acts of vandalism.
The Government contends that Appellant should have been aware of the
possibility that the bids submitted by Ketner were collusive in nature,
and awards should not have been made. In addition, the Government states
that any award to Ketner, if he had a business relationship to
Appellant, was in violation of the Conflict of Interest provisions of
the Area Management Broker contract (Article 15(3), (5), and (6)).
In regard to the improper certification of completion charge against
Appellant, the Government states that Appellant's defense of vandalism
is without foundation. The Government notes that the Inspection Reports
written after Appellants certification show such deficiencies as
inadequate painting, unmowed lawns, unreplaced locks, and unwashed
windows.
The Government maintains that Appellant should be debarred under 24
CFR 24.9(a)(4) which states:
Section 24.9 Causes and conditions applicable to determination
of debarment.
(a) Causes.
(1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting to obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
# # #
(4) Any other cause of such serious compelling nature,
affecting responsiblity, as may be determined in writing by the
Secretary or his duly authorized representative to warrant
debarment. Such determination shall clearly demonstrate that
participation by the contractor or grantee would be harmful to the
best interests of the public.
By Article 7 of its contract, Appellant was responsible for
procurring repair services not exceeding the cost of $2,500 pursuant to
the written instructions of the Government. The Government, in its
Property Disposition Handbook (4320.1), required that Appellant have
three (3) bids submitted for work to be performed. These provisions were
designed to insure adequate and fair competition as to price, and waiver
was only to be used under unusual circumstances. Daniel's and Greenlee's
sworn statements clearly establish that Appellant fragrantly violated
these provisions. They have stated that they were employees of Appellant
and were not engaged in the home repair business. Further, they have
described the corrupt scheme to submit collusive bids through Appellants
business partner, Ketner.
The second charge regarding improper certification of two (2)
properties on which Ketner worked is clearly supported by the Inspection
Reports. Appellants certification of Ketners completion, when, in fact,
numerous significant defects existed, certainly shows negligence. In
addition, Appellants defense of alleged vandalism is not supportable in
view of the defects found: such as, poor painting, dirty windows,
unmowed lawns, and unreplaced locks. In addition, the report of the FBI
interview with Ketner contains admission by the repair contractor of
poorly performed work.
A review of the entire record in this matter establishes convincing
evidence that Appellant deliberately violated the provisions of the
contract. Such willful disregard of contractual obligations is
sufficient evidence that Appellant is not a responsible contractor and
that its continued participation in HUD programs is not in the public
interest.
Therefore, it is the Initial Determination that Appellant be debarred
for a period of three (3) years from the date of this Determination.
75-337-DB
In the Matter of: JUDITH NOLDEN
August 25, 1976
760825
James W. Mast
On December 18, 1974, David M. DeWilde, Acting Assistant
Secetary-Commissioner, Housing Production and Mortgage Credit-FHA
Commissioner of the Department of Housing and Urban Development, herein
the Department, served on Judith Nolden, herein the Respondent, with
written notice of suspension effective that date pursuant to the
Department's Rules and Regulations, herein the Rules, 24 CFR Part 24,
because of her indictment by the Grand Jury for the United States
District Court, Eastern District of Michigan, Southern Division, on
alleged violations of Title 18, Section 1010 and 2(b) of the United
States Code. On April 21, 1975, David M. DeWilde served Respondent with
written notice that debarment pursuant to 24 CFR Part 24 of the
Department's Rules was being considered because of her conviction by the
Court of violations of Title 18, Section 1010 of the Code. On April 29,
1975, Respondent requested a hearing in the matter. On June 4, 1975, the
undersigned wrote the parties and requested their respective positions.
On June 18, 1975, Respondent replied and offered her explanation of the
matter and requested that the "letter be used in lieu of (Respondent's)
personal appearance at the hearing." /1/ On August 29, 1975, Counsel for
the General Counsel submitted the Department's evidence. /2/
Judith Nolden was a secretary for D & B Golden, Inc., a real estate
broker in Flint, Michigan.
On November 1, 1974, Respondent was indicted on 37 counts of making
and passing false statements to the Department in violation of Sections
1010 and 2(b) of the Code. These involved 6 separate real estate
transactions, all of which occurred in 1970. On May 16, 1975, Respondent
entered a plea of guilty of one count of violation of Section 1010 and
2(b) of the Code. Respondent was placed on probation for 2 years but no
fine imposed.
Respondent in her own defense claims that she was "totally ignorant
of the fact that (she) had broken the law," and further that she was
simply carrying out her employers instructions and had no intention to
commit a crime. She left D & B Golden, Inc., in 1970. She is not now
working in real estate but would like to be free to return to it.
In the present case Judith Nolden was a contractor as an agent of a
real estate firm which was the indirect recipient of funds from the
Department because of the mortgage insurance. Upon her conviction, the
basic requirements for debarment were established.
Respondent has been suspended from doing business with the Department
since December 12, 1974. From the evidence in this case including her
explanation which is not contested by the Department her involvement in
a scheme to defraud the Department appears to have been minor and
without intend to defraud.
It would be inappropriate not to debar a contractor during the period
of her probation from the District Court. Under the circumstances of
this case, including the absence of evidence of even personal petty
avarice and the existence of her minor part in the fraud against the
government, to debar for a period of time beyond her probation would be
excessively harsh and therefore punitive. Accordingly, Respondent will
be debarred for a period of 2 years 5 months beginning December 12,
1974, and ending May 12, 1977. Further, if at some later date the
probation imposed by the Court is set aside or reduced, this debarment
action should be reopen and reconsidered.
1. Judith Nolden is a contractor within the meaning of the Rules and
Regulations Part 24, Section 24.4(g).
2. By her conduct resulting in and by the finding of conviction of
violation of Section 1010 and 2(b), Title 18, United States Code, Judith
Nolden has violated the Department's Rules and Regulations, Part 24,
Sections 24.0 through 24.15.
On the entire record, it is odered that Judith Nolden, and any
affiliates and any concerns in whih Judith Nolden has a substantial
interest, are debarred and excluded from participating in programs of
the Department of Housing and Urban Development for a period of two
years 5 months beginning December 12, 1974, and ending May 12, 1977.
1/ The letter is received in evidence. 2/ The indictment and judgment of
conviction are received in evidence.
Upon the entire record in the case, I make the following:
75-336-DB
In the Matter of: LAWRENCE E. FOURNIER
August 15, 1975
750815
Michael F. Burke
A hearing having been held on the record in the above-entitled
proceeding, I, Michael F. Burke, as Hearing Officer, upon consideration
of the record in its entirety, issue this Initial Determination
containing the following order with my Findings and Conclusions attached
and made a part hereof, pursuant to the authority delegated to Hearing
Officers of the Department of Housing and Urban Development under 24 CFR
24.10(b)(3) and 24.15(a)(5).
As provided in section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Production and Mortgage Credit-FHA
Commissioner. Notice of Final Determination, which is conclusive, will
be given in writing and transmitted by registered mail by the Assistant
Secretary.
On December 17, 1974, Mr. Lawrence E. Fournier (hereinafter referred
to as Appellant) was notified by Acting Assistant Secretary deWilde of
his suspension from participation in HUD programs. The basis for the
suspension was Appellants indictment for alleged violations of Title 18,
United States Code, Sections 2 and 1010. Appellant was notified of his
right to a hearing in this matter pursuant to 24 CFR 24.10. By letter of
May 5, 1975, Appellant requested that a hearing be held at San Jose,
California. On June 6, 1975, in a telephone conversation with Appellant,
he was advised that any hearing would be held only in Washington, D.C.
Appellant was advised of his right to have the matter determined on the
record, and he so elected.
Counsel for Appellant advised that Appellant had entered a plea of
guilty to a misdemeanor for violation of Title 18, United States Code,
Section 1012. The offense involved aiding and abetting the submission of
a false statement to HUD. He was sentenced to two years probation during
which time he must involve himself in a voluntary work project.
In a statement to the Federal Probation Department, Appellant stated:
"I prepared a Deposit Receipt for the buyers on November 14,
1971, which indicated that buyers would obtain a new F.H.A. Loan
221-D2. Thereafter, a mortgage broker, at my request, contacted
the buyers and he prepared an F.H.A. form 2900-1 for submission to
F.H.A. I never saw tht form as completed until my attorney
obtained a copy from the U.S. Attorneys Office in San Francisco in
January, 1975. At the time I prepared the Deposit Receipt, I did
not know it was a crime to obtain an F.H.A. loan and indicate a
buyer intended to reside on the property when in fact the buyer
did not intend to reside on the property." (Appellant Exhibit No.
2)
Appellant stated he became involved in this matter because of his
inexperience at the time in home financing, and had no knowledge of FHA
financing. Appellant is working with the United States Attorneys Office
on a voluntary work project as part of his probation.
The statement submitted on behalf of Appellant was forwarded to
Government Counsel for comment and recommendation. Government Counsel
conferred with the U.S. Attorneys Office, with Appellant's Probation
Officer, and after consideration of the facts surrounding the charge and
the performance of Appellant as a probationer, made the recommendation
that Appellant be debarred for a period of nine (9) months from the date
of this Initial Determination. (Government Exhibit No. 1)
The pertinent Department regulations applicable to this matter are as
follows:
Section 24.4 of 24 CFR - Definitions
(a) "Debarment" means, in general, an exclusion from
participation in HUD programs for a reasonable, specified period
of time commensurate with the seriousness of the offense or
failure, or the inadequacy of performance.
(2) "Contractors or grantees." Individuals and public or
private organizations that are direct recipients of HUD funds or
that receive HUD funds indirectly through non-Federal sources;
all participants, or contractors with participants, in programs
where HUD is the guarantor or insurer; and Federally Assisted
construction contractors. Sec. 24.9 of CFR - Causes and conditions
applicable to
determination of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(4) Any other cause of such serious compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his duly authorized representative to warrant
debarment. Such determination shall clearly demonstrate that
participation by the contractor or grantee would be harmful to the
best interests of the public.
Appellant pleaded guilty to a misdemeanor for the aiding and abetting
of the submission of a false statement to HUD. The record fails to
disclose, however, any criminal intent on Appellant's part and although
a person who deals with Government is held to be aware of its
regulations, this matter appears to be more a case of negligence if not
inexperience. Nevertheless, since Appellant did enter a plea of guilty,
there is adequate evidence to sustain a debarment action.
Based upon a review of the entire record, it is recommended that
Appellant be debarred. However, it is recommended that the period of
debarment be only for a period of nine months from the date of the
Initial Determination. To impose a longer period of debarment would be
imposing a penalty which would be contrary to the letter and the intent
of the regulations.
Lawrence E. Fournier be debarred from participation in programs of
the Department of Housing and Urban Development for a period of nine (9)
months. This debarment shall be effective until May 15, 1976.
75-333-DB
In the Matter of: FRANK J. QUINN AND RAINBOW REALTY
March 30, 1977
770330
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Administrative Judge, upon consideration of the
record in its entirety issue this Initial Determination, containing the
following order, pursuant to the authority delegated to Hearing Officers
of the Department of Housing and Urban Development under 24 CFR
24.10(b)(3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing - Federal Housing Commissioner. Notice
of Final Determination, which is conclusive, will be given in writing
and transmitted by registered mail by the Assistant Secretary.
By letter dated April 23, 1975, Frank J. Quinn (hereinafter
Appellant), was notified by then Acting Assistant Secretary David M.
DeWilde of his suspension from further participation in HUD programs.
The basis for this action was that the Department had been informed that
the United States Attorney for New Jersey had issued an Information
charging Appellant with violation of 18 USC Sections 1010 and 2.
Appellant requested a hearing on his suspension by letter of April 30,
1975. Subsequently, HUD became aware that Appellant had entered a plea
of guilty to the Information. Accordingly, by letter dated July 8, 1975,
Acting Assistant Secretary DeWilde notified Appellant that his debarment
was being considered. Appellant elected to consolidate the debarment
hearing with the already scheduled suspension hearing. A hearing was
therefore held at HUD Headquarters on July 9, 1975 on both the
suspension and debarment pursuant to 24 CFR 24.10. Frank J. Rubin,
Esquire appeared for Appellant while the Department was represented by
William S. Jordan, HUD Office of General Counsel.
At the time of the hearing Appellant requested that the initial
determination of the period of debarment be held in abeyance pending the
return of a probation report and sentencing of Appellant pursuant to his
guilty plea in the United States District Court in New Jersey. The
probation report and judgment and Probation/Commitment Order were
forwarded to the Hearing Officer by letter dated February 1, 1977.
Department Counsel recommended debarment of Appellant for the maximum
period permitted by the regulations in effect at the time of hearing.
This would result in a debarment of the years, from the date of the
hearing until July 9, 1978.
On April 21, 1975 Appellant appeared before Judge Fisher of the
United States District Court for the District of New Jersey and entered
a plea of guilty to a one count information charging him with a
violation of 18 USC Sections 1010 and 2. Appellant's offense consisted
of the making of a false representation to the Government in regard to
the obtaining of a mortgage and sale of a property covered by Mortgage
Insurance under the National Housing Act. On May, 3, 1976, Judgment of
Conviction was entered against Appellant. The Court suspended sentence
on Appellant's conviction and placed him on probation for a period of
one (1) year. No fine was imposed on Appellant.
At the time of his offense Appellant was principal, if not sole,
owner of Rainbow Realty, Inc., a small realty company located in
Somerset, New Jersey. Appellant had been a real estate broker in New
Jersey for over twenty years. His company was a small one which handled
very few properties involving FHA funds. Appellant's offense concerned a
house sold in 1970. The contract of sale for this property prepared by
Appellant, on the basis of which a federally insured mortgage was
obtained, indicated that the buyer had made a $2,000 down payment on the
property. There was, in fact, no such payment. Instead, Appellant and
the buyer agreed that the buyer, who was unable to make such a down
payment, would instead do certain repair work on the property in lieu of
the payment. This practice is common in many areas of the country, and
is known as a "painting allowance." See In the Matter of Raymond Keil,
Docket No. 76-432-DB, In the Matter of Paul R. Hofferber and Star
Realty, Docket No. 76-427-DB. The representation that the buyer had made
the $2,000 down payment was the only false statement of which Appellant
was convicted. He has never been convicted of any other criminal
offense, and has never had his real estate broker's license revoked. At
all times subsequent to issuance of the Information to which he plead
guilty Appellant has freely cooperated with the U.S. Attorney in New
Jersey in investigations regarding fraud or corruption in the lending of
federal funds. This is evidence by letter of the U.S. Attorney for New
Jersey to Appellant's Probation Officer.
Appellant is made subject to the Department's debarment regulations
(24 CFR Part 24) by virtue of 24 CFR 24.3(a)(4), which makes the
regulations applicable to "participants + + + in programs where HUD is
the guarantor or insurer." Appellant clearly participated in the sale of
a property subject to a HUD-insured mortgage.
The provisions of the Department's regulations relevant to the
sanctions proposed against Appellant are as follows:
Section 24.9 Causes and conditions applicable to determination
of debarment.
(a) Causes.
(1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting to obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
In the instant matter, Appellant has entered a plea of guilty to an
Information charging him with making a false representation to the
Federal Housing Administration in connection with a federally insured
mortgage. This crime constituted a fraud against the Government, and is
clearly within the purview of 24 CFR 24.9. Appellant has freely admitted
commission of the crime. However, he has stated that the violation
resulted largely from his ignorance of FHA procedures and his
willingness to merely sign the relevant documents and permit the entire
transaction to be handled by a mortgage company. As a result, Appellant
viewed his violation as a technical one, in that he had signed the
documents containing the false representations, but was not really aware
of the consequences of this act.
Debarment is an administrative remedy intended to protect the public,
and is not to be imposed as a penalty. 24 CFR 24.9. Although it is
recognized that Appellant's violation may have been of a technical
nature, as evidenced by the relatively lenient sentence imposed by the
United States District Court in Appellant's criminal case, Appellant has
been convicted of a crime fully within the purview of 24 CFR 24.9. A
review of the record in this matter leads to my determination that
debarment of Appellant is in the public interest. Appellant has attended
college and should have been aware of the consequences of his actions.
There is a sound basis for regulations that provide that a prospective
purchaser of a home under a federally insured program make a down
payment. Avoidance of these regulations constituted a fraud against the
Government.
Based upon a review of the entire record in this matter, it is the
Initial Determination of the Hearing Officer that Appellant be debarred.
In assessing the period of debarment, consideration is given to the
period for which Appellant has already been suspended, dating from April
23, 1975. Accordingly, Appellant is debarred, effective from the date of
this Initial Determination through April 23, 1978.
75-332-DB
In the Matter of: WENDELL J. SMITHERMAN
March 5, 1976
760305
James W. Mast
On March 25, 1976, Robert C. Odle, Jr., Acting Assistant Secretary
for Housing Management of the Department of Housing and Urban
Development, herein the Department, served Wendell J. Smitherman, herein
the Respondent, with written notice of suspension pursuant to Part 24 of
the Department's Rules and Regulations, herein the Rules, because of his
indictment by the Grand Jury of the United States District Court for the
Eastern District of Michigan on a violation of Title 18, Section 201(c)
of the United States Code. By letter dated April 2, 1975, Respondent
requested a hearing in the matter. On May 2, 1975, the undersigned wrote
the parties and requested their respective positions. No response was
received. On June 3, 1975, the undersigned issued a Notice of Hearing
for July 30, 1975, which was subsequently indefinitely postponed pending
resolution of the indictments entered against Respondent. The hearing
was rescheduled for February 9, 1976, and later postponed until February
20, 1976. By letter dated January 6, 1976, Respondent submitted his
position as well as several letters supporting his good reputation. On
February 4, 1976, Respondent was served with written notice of his
proposed debarment pursuant to Part 24 of the Department's Rules,
because of his conviction on Counts 2 and 3 of the aforementioned
indictment. A joint hearing was held with respect to the suspension and
debarment proceedings on February 20, 1976. The Department appeared by
Counsel and Respondent appeared in his own behalf.
Upon the entire record, I make the following:
Wendell J. Smitherman, as an area management broker, contracted with
the Department to manage Department-owned and leased properties. His
duties included solicitation of competitive bids for rehabilitation work
on the properties he managed, submission of the bids to the Department,
and certification of rehabilitation work properly completed.
An indictment charging Respondent with violation of Sections 2, 201
(Bribery), 371 (Conspiracy) and 1010 (Submission of False Statements to
HUD) was entered against Respondent in Case Number 5-81049 in the United
States District Court for the Eastern District of Michigan, Southern
Division. On December 15, 1975, Respondent appeared with counsel in the
District Court and entered a plea of guilty to Counts 2 and 3 of the
indictment, bribery of a public official. The Court sentenced Respondent
on January 15, 1976, to pay a fine of $1000 for each of said Counts 2
and 3 and placed Respondent on two years probation.
The indictment and conviction were based on Respondent's
participation in a system of rigged and collusive bidding for
rehabilitation work in violation of the competitive bidding system
required by the Department. Count 2, to which Respondent pleaded guilty,
specifically alleged that in November, 1971, Respondent solicited and
received a bribe from Samuel H. Blumenstein in return for disregarding
the Department's competitive bidding procedure and awarding
rehabilitation work to the 70's Development Group, Inc., a Michigan
corporation of which Blumenstein was a vice president. Under Department
procedure, when rehabilitation work is completed the area management
broker, Respondent in this case, signs the purchase order certifying
completion and submits it to the Department for payment. In the
particular instance involved, the 70's Development Group, Inc. had
received the contract for rehabilitation work through rigged bidding
and, upon Respondent's signing of the purchase order requesting
Department payment, paid Respondent for his assistance in processing the
rigged bids. The bids was in the amount of $200.00, 5% of the purchase
order's award.
Count 3 involved a similar transaction in early 1972 in which
Respondent received a bribe from Morton L. Feldman, a vice president in
the 70's Development Group, Inc., for his assistance in rigged bidding
resulting in another award of rehabilitation work to the 70's
Development Group, Inc. The bribe was in the amount of $200.00,
representing approximately 5% of the purchase order's award.
Respondent stated at the hearing and in a letter attached to his
Answer that he did not realize the seriousness of his wrongdoing when he
accepted the bribes and that his otherwise good record more accurately
reflected his true character. Respondent also cited his election in 1974
as the first Black on the Board of Directors for the United Northwestern
Realty Association and receipt of a certificate of honor from the
Association as support for his good character. No evidence was presented
by Respondent disputing his extensive involvement in the bid-rigging
scheme.
Respondent is a contractor within the meaning of the Department's
Rule, 24 CFR Section 24.4(g) as an area management broker of properties
receiving Department funds. Upon his conviction, the basic requirements
for debarment were met under 24 CFR 24.9(a)(1). Counsel for the
Department requests a full period of debarment of three years.
It would be inappropriate not to debar Respondent in view of his
conviction for a crime involving his business with the Department. His
participation in the bid-rigging was extensive, and in fact, essential
to its accomplishment. It is inconceivable that Respondent truly failed
to realize the illegality of the bids he submitted and the brides he
received. By his conduct, Respondent breached the confidence conferred
upon him by the Department. Accordingly, Respondent will be debarred for
a period of three years beginning March 25, 1975, the date of his
original suspension and terminating March 24, 1978.
1. Wendell J. Smitherman is a contractor within the meaning of the
Department's Rules, Part 24, Section 24.4(g).
2. By his conduct resulting in his conviction of violation of Section
201(c), Title 18, United States Code, Wendell J. Smitherman has violated
the Department's Rules, Part 24, Section 24.0 through 24.15.
It is ordered that Wendell J. Smitherman is debarred from
participation in Department programs for a period of three years,
commencing March 25, 1975 and ending March 24, 1978. Department funds
shall not be expended for financial assistance to Mr. Smitherman or to
any concerns, corporations, partnerships, or associations in which he
has a substantial interest, bids or proposals shall not be solicited
therefrom, and subcontracts with him will not be approved, unless it is
determined to be in the best interests of the Government.
75-330-DB
In the Matter of: JOSEPH SATKIN
March 15, 1977
770315
James W. Mast
On February 1, 1974, Sheldon B. Lubar, then Assistant
Secretary-Commissioner, Housing Production and Mortgage Credit-Federal
Housing Administration, of the Department of Housing and Urban
Development, herein the Commissioner; FHA and the Department,
respectively, served Respondent with written notice that his debarment
pursuant to the Rules and Regulations of the Department, 24 C.F.R. 24 et
seq., herein the Rules, was being considered because of his conviction
by the United States District Court Newark, New Jersey of violation of
18 U.S.C. 1010 and 2. On March 3, 1975, Michael T. Savage, for the
Commissioner, served Respondent with written notice that his debarment
pursuant to the Rules was being considered because of his conviction by
the United States District Court Newark, New Jersey of violation of 18
U.S.C. 1010 and 2. On March 23, 1975, Respondent requested a hearing on
the matter. On May 2, 1975, the undersigned requested the parties to
submit their positions in writing and tentatively scheduled the hearing
for July 28, 1975. On July 7, 1975, Respondent requested a postponement
because of illness. On July 11, 1975, the hearing was indefinitely
postponed. The Respondent was also incarcerated at this time in the U.S.
Penitentiary, Lewisburg, Pennsylvania. On January 3, 1977, the case was
scheduled for hearing on March 25, 1977. Notices to Respondent at all
known addresses were returned as no longer at that address and no known
forwarding address. Negligent failure by Respondent to notify the
Department of a change of the address of record can not serve to defeat
the effect of the Rules. Douglas Wilder, 76-HUD(JD)-26. On March 7,
1977, the Department moved for the debarment to be affirmed for a period
of three years but requested that credit be given for the time spent in
a suspended status prior to debarment. Appended to the Department's
motion were the indictment and judgment of conviction of Respondent.
Upon the entire record, I make the following:
Respondent Joseph Satkin was primarily engaged in the real estate
business at Passaic, New Jersey.
Indictments were returned against Respondent by the Grand Jury of the
United States District Court for the District of New Jersey in 1971 in
Criminal Case Number 682-71. The indictment alleged 40 counts of
violation of 18 U.S.C. 1010 and 2. Respondent pled guilty to counts 1,
4, 11, 17 and 20 of the indictment. On November 17, 1972, Respondent was
sentenced to a total of four years incarceration and fined a total of
$25,000.
The convictions were as a result of a scheme where Respondent would
sell residential real estate through a mortgage insured by FHA. In order
to induce purchasers to buy, Respondent would offer the sale with no
down payment. Respondent would submit the sale for approval by FHA
showing a down payment satisfied by a fraudulent gift certificate to the
purchaser.
Respondent offered nothing in mitigation.
Respondent was a contractor under 24 C.F.R. 24.4(g) as an indirect
recipient of funds obtained as a result of the real estate mortgage
insurance of FHA. Upon his conviction of a crime involving his business
with the Department, the requirements of debarment were established. It
would be inappropriate not to debar Respondent because of his conviction
of fraud upon the Department. It is noted that the fraud involved a
pattern or practice of such activity as evidenced by his conviction of
five counts of the indictment. The seriousness of his offense is
established by the punishment imposed by the Court. The maximum period
of debarment allowed by the Rules at the time this case was originated
was three years. It is noted that the original debarment letter
suspending Respondent was served by registered mail on February 1, 1974.
The Department has moved that Respondent be debarred for three years and
that Respondent " + + + be given credit for the time spent in a
suspended status + + +." The motion will be granted. Respondent will be
debarred from February 1, 1974 until the date of this determination.
1. Respondent is a contractor within the meaning of the Department's
Rules 24 C.F.R. 24.4(g).
2. By his conduct resulting in his conviction of violating 18 U.S.C.
1010 and 2, Respondent violated the Department's Rules 24 C.F.R. 24.9(
a)(1).
It is ordered that Joseph Satkin is debarred from participation in
Department programs for a period beginning Februrary 1, 1974 and
terminating the date of this order. Department funds shall not be
expended for financial assistance to Respondent or to any concerns in
which he has a substantial interest. Bids or proposals shall not be
solicited therefrom unless it is determined to be in the best interests
of the Government.
75-328-DB
In the Matter of: JOSEPH R. STERBLING
July 23, 1976
760723
James W. Mast
On October 31, 1973, Sheldon B. Lubar, then Assistant Secretary
Commissioner, Housing Production and Mortgage Credit-FHA Commissioner,
Department of Housing and Urban Development, herein the Department,
served Respondent with written notice of suspension pursuant to the
Department's Rules and Regulations, herein the Rules, 24 C.F.R. 24.10,
because of his indictment by the Grand Jury for the United States
District Court, Eastern District of Michigan, Southern Division,
implicating him in violations of Title 18, Sections 1010 and 2(b),
United States Code. No Request for a hearing was filed. On July 31,
1974, Sheldon B. Lubar, served Respondent with written notice that
debarment pursuant to the Departments Rules 24 C.F.R. 24, was being
considered because of his conviction by the United States District
Court, Eastern District of Michigan, Souther Division of violations of
Title 18, Sections 1010 and 2(b), United States Code. /1/ No request for
a hearing was filed. Again on March 27, 1975, Michael T. Savage for the
Assistant Secretary-Commissioner served Respondent with written notice
that debarment pursuant to the Departments Rules 24 C.F.R. 24 was being
considered because of his conviction by the United States District
Court, Eastern District of Michigan, Southern Division of violations of
Title 18, Section 1010 and 2(b), United States Code. /2/ On April 2,
1975, a request for a hearing was filed by the Respondent.
On May 1, 1975, the undersigned wrote Counsel for the Department and
Respondent and requested their respective positions. On May 16, 1976, no
response having been received, the undersigned set the hearing on June
17, 1975, but suggested that the parties explore the possibility of
submission of the case by stipulation. On June 6, 1975, Respondent
agreed to the proposal for submission by stipulation, or in the
alternative to agreement for a reasonable period of debarment.
Submitted together with that letter was a copy of a letter to Counsel
for the Department. On the basis of the offer of Respondent, the matter
was indefinitely postponed to allow the parties to reach agreement.
No agreement having been filed on May 7, 1976, the case was
rescheduled for hearing. /3/ On July 15, 1976, the hearing was held as
scheduled. The Department appeared by Counsel. Respondent did not
appear. /4/
On the basis of the entire record, I make the following:
Joseph R. Sterbling was named as defendant along with William E.
Brown, William Carter Payne, Emmitt R. Newell and Alvin Lemar Love in an
81 count indictment by the Grand Jury for the United States District
Court for the Eastern District of Michigan, Southern Division in
criminal case Number 4-80910 alleging violations of 18 U.S.C. 201(b),
201(c) and 2(a). Respondent was specifically named either alone or
jointly with other defendants in 41 counts of the indictment.
On March 1, 1974, Respondent entered a plea of guilty of violations
of 18 U.S.C. 201(f) to counts 6, 11, 56, 60 and 74 of the indcitment.
The Title 18 U.S.C. Section 201(f) reference related to offering
gratuities to federal employees. The Court accepted Respondents plea and
ordered Respondent confined for a period of three years (two years
currently in counts 6, 11, 56 and one year consecutive to the two years,
but concurrently to each other in counts 60 and 74), and fined
Respondent $5,000 ($1,000 in each of the five counts). Respondent was
immediately incarcerated.
Count 6 alleged that on March 22, 1971, Joseph R. Sterbling and
William E. Brown offered William Carter Payne, a Commitment Appraiser
for the Department, $100 to obtain approval of a firm commitment for
mortgage insurance on property at 3134 Eastlawn, Detroit, Michigan;
count 11, that on May 15, 1971, Strebling and Brown offered Payne $100
for the same purpose on property at 2566 Lenox, Detroit; count 56, that
on October 14, 1971, Sterbling and Brown offered Payne $100 for the same
purpose on property at 1212 Marborough, Detroit; and count 74, that on
October 26, 1971, Sterbling and Brown offered Payne $100 for the same
purpose on Property at 9541 Edgewood, Detroit.
The only defense offered was contained in the attachment to
Respondents letter of June 6, that Respondent believed that he had been
punished enough for his misconduct.
No evidence was offered of Respondents status at the time of his
crimes. Further, it was not established what part he played in the
conspiracies to violate the law involving the Departmens Detroit Office.
Upon his conviction of crimes involving his business with the Department
(here the obtaining commitments for mortgage insurance) the basic
requirements of debarment were established.
Counsel for the Department seeks a three-year period of debarment
beginning the date of this decision. Arguably, in this case, however,
the debarment became effective July 31, 1974, when no request for
hearing was received ten days after the debarment letter of that date
issued. The letter was mailed to Respondents address of record at that
time. Without conceding there was no service, any failure to inform the
Department of any change of address of record after having been served
at that address with a suspension letter. Negligent failure to receive
certified mail cannot serve to defeat the purpose of the Rules. /5/
Respondent was named in numerous counts of the indictment and entered
a plea of guilty to five counts. As noted above, his complicity in the
scheme is not a matter of record in this case. The controlling evidence
of the seriousness of the offense was the seriousness ascribed to by the
United States District Court in its sentence of a three year
imprisonment and a $5,000 fine. In a similar case arising in Detroit,
Gerald W. Waechter, an admitted major conspirator, was debarred for a
period of three years beginning the date of his original debarment
letter. Gerald A. Waechter, 76-HUD(JD)-12, (Final Determination, April
20, 1976). Further in the present case, it shoudl be noted that
Respondent has already been debarred for over two years and eight
months. Beginning the debarment now would result in an effective period
of debarment of over five years and eight months. This is substantially
in excess of the period contemplated by the rules of three years unless
notice has been given. /6/
Under all the circumstances of the case including the effectivenss of
the debarment letter of July 31, 1974, the evidence introduced of the
seriousness of the offense, the comparability to the Waechter case,
Respondents offer to stipulate in June 1975 to the facts or to the final
disposition of the case, and the three year and nine month effective
period of debarment which will result, a three year period of debarment
beginning July 31, 1974 is deemed appropriate.
1. Joseph R. Sterbling is a contractor within the meaning of the
Departments Rules 24 C.F.R. 24.4(g).
2. By this conduct resulting in and by the finding of conviction of
violations of Section 201(f), Title 18, United States Code, Joseph R.
Sterbling, has violated the Departments Rules 24 C.F.R. 24.9(a)(1).
On the entire record, it is ordered that John R. Sterbling and any
other concerns in which John R. Sterbling has a substantial interest are
debarred for a period of three years beginning July 31, 1974, and ending
July 30, 1977. Department funds shall not be expended for John R.
Sterbling or to any concerns, corporations, partnerships, or
associations in which he has a substantial interest, bids and proposals
shall not be solicited therefrom, and subcontracts with him will not be
approved, unless it is determined to be in the best interests of the
Government.
1/ At the hearing Counsel for the Dapartment moved to amend the
debarment letter to read 18 U.S.C. Section 201(f). The Motion was
granted. 2/ See supra. note 1. 3/ The Notice of Hearing was returned by
the U.S. Postal Service marked "Unclaimed." Notice was given to
Respondent by the Postal Service on May 10 and 25, 1976. The letter was
sent certified to the then address of record of Respondent. Respondents
failure to receive the notice was occasioned by his negligence in
failing to call for certified mail or to inform the Department of any
change of address after having requested a hearing. Negligent failure to
receive certified mail obviously cannot serve to defeat the purpose of
the Rules and Respondents liability thereunder. I hold that there was
constructive service of the notice of the hearing date sufficient to
satisfy the requirements of the Rules, Section 24.10(b)(2). Douglas
Wilder, 76-HUD (JD)-26, (Final Determination, June 23, 1976). 4/ The
record referred to in Rules, Section 24.10(b)(3) includes the formal
documents described herein before together with the evidence, in this
case the indictment and judgment of conviction. By direction of Section
24.10(b)(3), the Hearing Officer is required to make his initial
determination on the evidence presented at the hearing. 5/ See supra
note 3. 6/ See Rules, 24 C.F.R. 24.9(c).
75-328-DB
In the Matter of: JOSEPH R. STERBLING
August 2, 1976
760802
James W. Mast
On July 23, 1976, the undersigned issued the Initial Determination in
the above case. In the Initial Determination it was recommended that
Respondent be debarred for a period of three years commencing July 31,
1974, because of his conviction by the United States District Court for
the Eastern District of Michigan, Southern Division for violation of 18
U.S.C. Section 201(f). Thereafter, on July 28, 1976, Counsel for the
Department filed a Motion to Correct the Record, and on July 29, 1976,
he filed a Motion for Clarification and Reconsideration. Consideration
of the Motions is deemed appropriate. Wendell J. Smitherman, 76-HUD(
JD)-13 (Final Determination, April 5, 1976).
1. Counsel for the Department seeks clarification of an obvious
typographical error in the Initial Determination. The debarment
recommended was for a period of three years beginning July 31, 1974.
The Order, however, stated, "John R. Sterbling + + + (is) + + + debarred
for a period of three years beginning July 31, 1974, and ending July 30,
1974." The error is corrected to read, "for a period of three years
beginning July 31, 1974, and ending July 30, 1977."
2. Counsel for the Department submits that the debarment letter of
July 31, 1974, should be disregarded as not received because Joseph R.
Sterbling was incarcerated. On this basis it is argued that the
debarment period should not begin July 31, 1974. Counsel assumes that
this resulted in the issuance of the second letter of debarment March
27, 1975.
The copy of the debarment letter of July 31, 1974, is an official
record of the Department which was presented by the Department to the
undersigned in connection with the consideration of the case. As such,
it is presumed to be a valid document. There has long been a rebuttable
inference of fact that documents mailed were received. Rosenthal v.
Walker, 111 U.S. 185, 193-94 (1884), Dunlap v. United States, 165 U.S.
486, 495 (1897). Further, "a finding in opposition to such inference of
fact, absent evidence of nonreceipt, is against the weight of the
evidence." Crude Oil Corp. v. Commissioner, 161 F.2d 809, 810 (10th Cir.
1947). Counsel assumes that since Respondent was incarcerated the mailed
department letter "could not have been received" by him. Further, he
assumes that the Department "apparently" was aware of the situation and
"therefore" issued the letter dated March 27, 1975. Such is to pile
inference upon inference without the support of evidence. Under Crude
Oil this cannot be done. Accordingly, it is presumed that the letter of
July 31, 1974, was received.
3. Counsel for the Department submits that there is no authority for
beginning a debarment period as of the date of the debarment letter. In
all cases the Respondent is suspended from doing business with the
Department by the debarment letter. In this case, Respondent had been
suspended nine months previously on October 31, 1973. Further, it has
been an accepted procedure of the Department to predate the debarment in
appropriate cases either to the date of the suspension letter or to the
date of the debarment letter. Gerald A. Waechter, 76-HUD(JD)-12 (Final
Determination April 20, 1976); Wendell J. Smitherman, 76-HUD( JD)-7
(Final Determination April 5, 1976); Arnold H. Romberg, 75-HUD( JD)-22
(Final Determination November 21, 1975); Judith Nolden, 75-HUD( JD)-13
(Final Determination September 25, 1975). Norman L. Burton, 75-HUD(JD)-6
(Final Determination July 19, 1975); Moses Blount, 75-HUD( JD)-5 (Final
Determination June 19, 1975). It is concluded that the Department can
date debarment periods as beginning the date of the original suspension
letter, the debarment letter, the hearing, the initial determination or
final determination, or such other date which would reasonably
effectuate the policy of the Rules of the Department.
Counsel submits that the Initial Determination should be reconsidered
because it issued prior to filing by Counsel of his Motion to Correct
the Record. The argument is rejected. /1/ After review of the record and
the proposed corrections by Counsel, it is concluded that all the
material corrections as proposed were previously considered in making
the Initial Determination from notes made at the hearing. The Motion to
Correct the Record is, accordingly, granted. However, nothing contained
therein warrants reconsideration of the Initial Determination.
4. Finally, Counsel submits that failure of Respondent to claim the
certified mail containing the Notice of Hearing may vitiate the Initial
Determination in the case. Additionally, Counsel argues that service of
the Notice of Hearing should have been made by regular mail. It is noted
that Rule 24 C.F.R. 24.10(b)(2), requires that the "Notice of the time
and place of such hearing shall be in writing, transmitted by registered
or certified mail, return receipt requested, +++." (Emphasis added). The
issue of the effect of the failure of Respondent to call for, claim, or
receive certified mail sent to his address of record was fully discussed
and decided in the Initial Determination.
Accordingly, the Motion for Clarification is granted to correct the
typograhical error; the Motion for Reconsideration is denied; and the
Motion to Correct the Record is Granted.
1/ It should be noted that no oral testimony was received at the
hearing and the record consists of the documentary evidence and the
transcript, including only the colloquy of Counsel and the Hearing
Officer at the hearing.
75-327-DB
In the Matter of: HAYWARD W. RICHARDSON AND HAYWARD W. RICHARDSON
REALTY
October 29, 1975
751029
James W. Mast
On February 26, 1975, David M. Dewilde, Acting Assistant
Sectretary-Commissioner, Housing and Production and Mortgage Credit-FHA,
of the Department, of Housing and Urban Development, herein the
Department, served Hayward W. Richardson with written notice of
suspension effective that date because of his being named in an
indictment against George W. Lamb by the Grand Jury of the United States
District Court for the Eastern District of Michigan, Southern Division
with having agreed to give and giving things of value to Lamb in return
of offical acts. On March 17, 1975, Respondent requested a hearing in
the case. On May 1, 1975, the undersigned wrote Counsel for Respondent
and Counsel for the Department requesting their respective positions on
issues and tentatively scheduling the hearing for June 20, 1975. On May
22, 1975, Counsel for Respondent replied raising issues of fact and law.
Subsequently, after negotiations between Counsel for the parties Counsel
wrote a second letter dated June 17, 1975, in which the undersigned was
informed that the parties had agreed to submit the matter on the record
and to waive the hearing. Counsel for Respondent's letter also
constituted his submission in support of his clients position. The
hearing was thereupon cancelled. The undersigned was later advised
administratively by Counsel for the Department that the parties had
agreed to an informal disposition of the matter. Finally, on October 29,
1975, Counsel for the Department submitted his written Motion,
memorializing the agreement and based on the record, that Respondent
should be debarred for a period of six months commencing February 26,
1975, and terminating August 26, 1975.
On the basis of the agreement of the parties and the entire record it
is ordered that Hayward M. Richardson and Hayward W. Richardson Realty
are debarred from participation in HUD programs for a period of six
months commencing February 26, 1975, and terminating August 26, 1975.
During that period Department funds shall not be expended for financial
assistance to Hayward W. Richardson, Hayward W. Richardson Realty, or to
any concern, corporation, partnership, or association in which they have
a substantial interest, bids or proposals shall not be solicited
therefrom, and subcontracts with them will not be approved unless it is
determined to be in the best interest of the Government.
75-326-DB
In the Matter of: NORMAN ROISMAN
August 31, 1978
780831
James W. Mast
On July 27, 1978, Respondent filed a request for reinstatement from a
debarment and suspension action. The administrative sanction imposed
would have expired on October 31, 1978. The Department filed a response
stating it had no objection to immediate reinstatement.
On the basis of the submission and the position of the Department it
is concluded that it is in the best interest of the Government to
reinstate Respondent. It is further concluded that Respondent has given
sufficient assurances that he understands the requirements of the
statutes and administrative rules, regulations, and statements of
procedure, and that he will comply with the administrative rules,
regulations, and statements of procedures in the future.
Accordingly, it is ordered that the administrative sanction
previously imposed against Respondent Norman Roisman is terminated
effective the date of this Order. It is further ordered that Respondent
Norman Roisman is REINSTATED as a contractor with whom the Department
may do business. Finally, it is ordered that this proceeding is
terminated.
75-325-DB
In the Matter of: NORMAN L. BURTON
June 19, 1975
750619
James W. Mast
On January 12, 1973, Eugene A. Gulledge, then Assistant
Secretary-Commissioner, Housing Production and Mortgage Credit-FHA
Commissioner, of the Department of Housing and Urban Development, herein
the Department, served Norman L. Burton, herein the Respondent, with
written notice of suspension effective January 5, 1973, pursuant to the
Department's Rules and Regulations, herein the Rules, because of his
indictment by the Grand Jury for the United States District Court of the
Eastern District of Michigan, Southern Division, on alleged violations
of Title 18, Section 1010, United States Code. On January 19, 1973,
Respondent requested a hearing at Detroit, Michigan. On January 29,
1973, Leslie J. Carson, Jr., Acting General Counsel of the Department,
informed Respondent, "it is our custom to conduct suspension appeals at
HUD Headquarters, Washington, D.C. because of the limited HUD staff
available to participate in these matters." Respondent further was
offered a hearing at Washington. No such request was made and the
suspension continued until March 10, 1975, when Michael T. Savage, for
the Assistant Secretary-Commissioner, Housing Production and Mortgage
Credit-FHA Commissioner of the Department served Respondent with written
notice that debarment pursuant to Part 24 of the Department's Rules, was
being considered because of his conviction by the United States District
Court for the Eastern District of Michigan, Southern Division, of
violation of Title 18, Section 1010, United States Code. On March 23,
1975, Respondent again requested a hearing in Detroit. On April 30,
1975, the undersigned wrote Respondent and Counsel for the Department
requesting their respective positions on issues and informing Repondent
"policy is to hold all debarment hearings in Washington. Any request to
the contrary must set forth a substantial reason in order to justify a
hearing at another place." /1/ No response was made. Thereafter, on May
15, 1975, the undersigned issued a Notice of Hearing. Hearing was held
in the matter on June 13, 1975. Respondent did not appear in person but
instead submitted his position in the form of a letter with attachments.
These were received in evidence.
Upon the entire record in the case, I make the following:
The Respondent was manager of the West Side Branch of the Montgomery
Realty in Detroit, Michigan.
Respondent was indicted on 9 counts of making false statements to the
Department in violation of Sections 1010 and 2(b), Title 18, United
States Code. The alleged false statements were on mortgage applications
for mortgagor approval and commitment for mortgage insurance under the
National Housing Act. Respondent was found guilty on 4 counts, not
guilty on 4 counts and 1 count was dismissed. Thereafter, on March 18,
1975, imposition of sentence was suspended in all four counts and
Respondent was placed on probation for a period of 2 years. Further
Respondent was fined $500. Respondent has appealed his conviction.
Respondent in his defense claims that he was innocent of wrongdoing.
He identifies himself as a salaried employee who stood to gain nothing
by making false statements. Further he claims that the information was
given him over the telephone by other employees of Montgomery Realty and
that he would only fill out and sign papers as a business convenience.
He cites the statement of the District Judge, "Mr. Burton, you are a
good man, but you wallowed in mud and didn't know when to get out."
In the present case Mr. Burton was a contractor as an agent of a real
estate company which was the indirect recipient of funds from the
Department because of the mortgage insurance. Under the circumstances of
his conviction the basic requirements for debarment were established.
Respondent has been suspended from doing business with the Department
since Janury 5, 1973, or a period of in excess of 2 years and 5 months.
Under the circumstances of this case including the punishment imposed by
the District Court and the uncontested claim by Respondent that he was
not knowingly involved in a scheme to defraud the public or the
government, the maximum debarment appears too harsh. Accordingly,
Respondent will be debarred for a period of 2 years and six months
beginning the date of his suspension January 5, 1973. Further, if
Respondent should prevail in appeal and his conviction is reversed, and
the entire case dismissed, this debarment action should be reopened and
reconsidered.
1. Norman L. Burton is a contractor with the meaning of the Rules and
Regulations Part 24, Section 24.4(g).
2. By his conduct resulting in and by the finding of conviction of
violation of Section 1010 and 2(b), Title 18, United States Code, Norman
L. Burton, has violated the Department's Rules and Regulations, Part 24,
Sections 24.0 through 24.15.
On the entire record, it is ordered that Norman L. Burton and any
affiliates and any concerns in which Norman L. Burton has a substantial
interest, are debarred and excluded from participating in programs of
the Department of Housing and Urban Development for a period of two
years and six months beginning January 5, 1973.
1/ While Departmental policy may be to set hearings only in
Washington, "accepted basic legal norms," and "basic fairness" as
required in administrative proceedings by Horne Brothers, Inc. v.
Laird, 463 Fed. 2 1268 (D.C. 1972) would in an appropriate case require
a hearing at a place reasonably accessible to Respondent. Such might be
a case where numerous witnesses were to be called or where voluminous
records were to be offered by Respondent. Here, however, Respondent did
not press his request by replying to the April 30 letter, but chose
instead to submit his case by a letter accompanying documents.
75-318-DB
In the Matter of: ROY A. WOODWARD
May 11, 1976
760511
James W. Mast
On March 10, 1975, Michael T. Savage for the Assistant Secretary
Commissioner, Housing Production and Mortgage Credit-FHA Commissioner,
of the Department of Housing and Urban Development, herein the
Department, served Roy A. Woodward, herein the Respondent with written
notice of suspension pursuant to 24 CFR 24 of the Department's Rules and
Regulations, herein the Rules, because of his indictment by the Grand
Jury of the United States District Court for the Southern District of
Michigan on a violation of Title 18 United States Code Section 1010 and
2(b). No request for a hearing was made by Respondent. On January 30,
1976, Michael T. Savage served Respondent with written notice that
debarment pursuant to 24 CFR 24 was being considered because of his plea
of guilty to at least one count of the indictment. On February 10,
1976, Respondent requested a hearing in the matter. On March 9, 1976,
the parties were requested by the undersigned to submit their respective
positions. Thereafter, the parties agreed to submit the case for
consideration on documents and waived the right to a hearing. The
agreement was approved; the documents submitted were received in
evidence.
Upon the entire record, I make the following:
Roy A. Woodward was a real estate salesman for Groves Realty, Inc.,
herein Groves, of Flint, Michigan. Ninety percent of the sales of Groves
were through Department processes.
A 3 count indictment charging Respondent with violations of Sections
1010 and 2(b) of Title 18, United States Code was entered in docket
number 74-50130 in the United States District Court for the Eastern
District of Michigan, Southern Division, on December 19, 1974. On
November 25, 1975, Respondent entered a plea of guilty to one count of
the indictment. The Court suspended sentence and fined Respondent
$300.00. No probation was imposed on Respondent by the Court.
Respondent has paid the fine.
The conviction resulted from a real estate transaction where
Respondent acted as sales agent. Respondent falsified documents filed
with the Department to show a deposit of $500 was paid by the purchaser
when in fact only $100 was paid. Additionally, Respondent made other
false entries reflecting assets and liabilities of the purchaser on
documents submitted to the Department in this sale.
Respondent is 63 years old and his health is impaired as a result of
a stroke. His only other source of income is social security payments.
He has a good record as a law abiding and trustworthy person.
Respondent states that he has learned his lesson from this experience.
Respondent is a contractor within the meaning of Rules as an indirect
recipient of funds from the sale of real estate involving an FHA insured
mortgage. Upon Respondent's plea of guilty, the basic requirements of
debarment were established.
It would be inappropriate not to debar Respondent in view of his
conviction of a crime involving his business with the Department.
Counsel for the Department requests a full 3 year debarment.
Respondent, of course, was the active participant in the submission of
the false documents to the Department. There is, however, no evidence
offered of a pattern of practice of such conduct. On the contrary the
record only shows this one incident in an otherwise good life. Further,
from the evidence Respondent appears to be a law-abiding, trustworthy
person who has learned his lesson. Also, his age and health condition
warrant consideration. Debarment, of course, is not a form of punishment
and should only be for the period of nonresponsibility. Moses Blount et
al., 75-HUD(JD)-5 (June 19, 1975). In considering the seriousness of
Respondent's misconduct, it is worthwhile to note that the Court imposed
only a $300 fine without incarceration or probation. Under the
circumstances, Respondent will be debarred for a period of one year and
six months beginning March 10, 1975, the date of his suspension and
terminating September 9, 1976.
1. Roy A. Woodward is a contractor within the meaning of the
Department's Rules 24 CFR 24.4(g).
2. By his conduct resulting in his conviction of violating 18 U.S.C.
1010 and 2(b), Roy A. Woodward violated the Department's Rules 24 CFR
24.10.
It is ordered that Roy A. Woodward is debarred from participation in
Department programs for a period of one year and six months, beginning
March 10, 1975 and terminating September 10, 1976. Department funds
shall not be expended for financial assistance to Mr. Woodward or to any
concerns, corporations, partnerships, or associations in which he has a
substantial interest, bids or proposals shall not be solicited
therefrom, and subcontracts with him will not be approved, unless it is
determined to be in the best interests of the Government.
75-315-DB
In the Matter of: PAUL E. SCHLEICHER and
GREAT HORIZONS DEVELOPMENT
CORPORATION
September 25, 1975
750925
Michael F. Burke
A hearing having been held in the above-entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusion attached and made a part
hereof, pursuant to the authority delegated to Hearing Officers of the
Department of Housing and Urban Development under 24 CFR 24.10(b)( 3)
and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Production and Mortgage Credit - FHA
Commissioner. Notice of Final Determination, which is conclusive, will
be given in writing and transmitted by registered mail by the Assistant
Secretary.
By letter dated March 10, 1975, Michael T. Savage, Acting for the
Assistant Secretary-Commissioner, notified Mr. Paul E. Schleicher and
Great Horizons Development Corporation (hereinafter referred to as
Appellant) of their suspension from HUD programs. The letter further
advised Appellant that their debarment was being considered. The basis
for the suspension and proposed debarment was based upon the results of
an investigation conducted by the Department of Justice which indicated
Appellant gave a "thing of value" and participated in cash payments to
Mr. Herman Walker (hereinafter referred to as Walker), a HUD employee,
during the time he was an employee of the Department. Appellant
requested a hearing, through his Counsel, which was held on June 19 and
20, 1975 in Washington, D.C.
John P. Witsil, HUD Office of General Counsel, appeared on behalf of
the Government, and Richard O. Duvall, Washington, D.C., appeared on
behalf of Appellant. Mr. Duvall made several prehearing requests for
information concerning "things of value" and for further detail
concerning the charges against Appellant. Accordingly, a prehearing
conference on this matter was held on June 17, 1975. Department Counsel
advised Mr. Duvall of the identity of the Government witness and his
knowledge of the particulars of the charges against Appellant. Mr.
Duvall requested a continuance of this matter because of the alleged
lack of specificity of the charges. His request for a time extension was
denied on the basis that it appeared that his client must have or should
have knowledge of the allegations against him. However, the Hearing
Officer ruled that in the event some totally new material in the form of
any new allegations was introduced at the hearing, a continuance would
be granted to permit Appellant sufficient time to prepare a defense.
Paul E. Schleicher is president of the Great Horizons Development
Corporation of Gary, Indiana. He has been engaged in the real estate,
construction, or development business in that area for thirty years. He
has been involved in the construction of 9,000 living units that are
federally related (Appellant Exhibit No. 5). He stated 90 to 95 percent
of his business has been federal projects, (Tr. 299).
On or about June 7, 1972, Mr. Bozak of the Gary Housing Authority
told Appellant of the problems a firm called Builders United
Enterprises, Inc. (hereinafter referred to as Builders United) was
having on a Gary housing project, designated as Contract 1121, and
requested Appellant to see if he could assist them on this HUD Local
Housing Authority (LHA) contract. As suggested by Mr. Bozak, Appellant
contacted Mr. Joseph Howell (hereinafter referred to as Howell), the
president of Builders United. Builders United was a minority contractor
without sufficient financial resources at that time and was experiencing
great difficulties in obtaining land sites for the Gary project. As a
result of their meeting, a joint venture was entered into between Great
Horizons and Builders United in June 1972, (Tr. 169). The role of
Builders United in the joint venture was to put together the land for
the housing sites and make contact with the various subcontractors.
Great Horizons would arrange the financing, arrange the necessary
construction loans, pay the day-to-day expenses, and generally supervise
the building of the project. The joint venture lasted from June 1972 to
January 1974.
Howell testified that during the period of the joint venture,
Appellant furnished Builders United with cash advances for meeting the
payroll and for operating funds, (Tr. 26). These cash advances were made
against Builders United's anticipated share of the profits on the joint
venture. Howell, in addition, testified to his relationship with Walker.
At that time, Walker was the Director of Equal Employment Opportunity in
the HUD Area Office in Indianapolis. He was also assigned to a housing
project which the joint venture subsequently undertook for HUD in South
Bend, Indiana. Howell testified that Walker requested money from Howell
to help process the South Bend project through HUD, (Tr. 24). Howell
testified further that he discussed Walker's money demands with
Appellant. Allegedly, according to Howell, Appellant approved of
payments to Walker. In addition, Howell testified that he was present on
occasions in Appellant's office when Walker talked to Appellant about
the payment of money and was present on one occasion when Appellant paid
money to Walker, (Tr. 149).
The Government introduced into evidence an affidavit executed by
Howell (Government Exhibit No. 2) which he furnished to the Internal
Revenue Service on September 11, 1974. This affidavit listed all
payments allegedly made by Howell to Walker as bribe payments; some of
these payments were identified as allegedly coming from Appellant.
Attached to the affidavit are a series of promissory notes executed by
Howell to Appellant for monies which Howell allegedly paid to Walker.
Several of these notes contain the notation "HW" underneath the face of
the note, supposedly denoting money paid to Walker. In addition, there
are two of these promissory notes that have the word "Herman" written on
the face of the note, one executed on April 27,1973 in the amount of
$900 and the word "Herman" written underneath, and one note executed on
June 14, 1973 in the amount of $500 where the word "Herman" is written
of the face of the note.
Howell testified about his knowledge of Appellant's assistance to
Walker in obtaining a bank loan, (Tr. 154). He stated that at about the
time of the loan transaction, October 1973, Appellant did not have much
cash available. Walker requested money from Howell who passed the
request on to Appellant. Appellant could not furnish cash to Walker so
he arranged a bank loan of approximately $700, (Government Exhibit No.
1).
Howell, on direct examination, acknowledged his past criminal record
(Tr. 34). He has pleaded guilty to a one-count indictment of bribing
Walker and was placed on a two-year probation. He also stated he had a
conviction for issuing a check with insufficient funds and two incidents
of assault and battery. In addition, he testified that he had a juvenile
arrest record. On cross-examination, he admitted that he served one year
in the Indiana State Prison, (Tr. 66).
Walker was indicted on nineteen counts of bribery by the Federal
Grand Jury for the Northern District of Indiana on September 25, 1974,
(Appellant Exhibit No. 13). The substances of the indictment includes
many counts of bribery involving Walker and Howell prior to the
initiation of the joint venture between Howell and Appellant. Walker
pleaded guilty to one count of bribery for accepting money from Howell
and has served his sentence.
Robert J. Elwood (hereinafter referred to as Elwood), executive
vice-president of Great Horizons, testified as to the reasons and
methods of payment to Howell. The monies were advanced to Howell for
salaries and costs, and promissory notes were executed in order to have
documentation of the loans when the profits were divided at the
completion of the projects. Elwood further stated that the staff of
Builders United was put on Appellant's payroll in early 1974 when Howell
did not pay withholding taxes to the Internal Revenue Service, and a tax
lien was subsequently filed against him. Elwood essentially handled the
day-to-day management of the joint venture. He testified that to his
knowledge, Appellant never gave or lent money to Howell for payment to
Walker.
Appellant testified that he never made any loan or payment to Howell
to be paid to Walker (Tr. 235). Further, he stated that he never made
any direct cash payments to Walker. He acknowledged that during the
summer of 1973, Howell had told him Walker was asking for money, (Tr.
238). Appellant stated that Howel never told him that any of the money
that was being borrowed was going to Walker. Appellant further testified
that Walker was not in any position to influence HUD decisions on the
Gary or the South Bend projects. Appellant stated that he held Walker in
high regard and stated that he was a very dedicated individual who was
interested in achieving better housing, (Tr. 241).
In regard to the loan hypothecation, Appellant testified that Howell
contacted him initially in October 1973 about a loan to Walker. Walker
then contacted Appellant directly in his office. Appellant contacted his
banker to help Walker obtain a loan. The bank insisted upon a pledge of
Appellant's savings account as security for the loan. (Tr. 242). The
loan, which was for $700, was ultimately repaid, although Walker did in
fact become delinquent at times in payments. Appellant testified that
Walker had been helpful to him in dealing with the Federal bureaucracy.
He was a useful channel of communication to Appellant, (Tr. 244).
Appellant stated that after the loan, he didn't request any special
favors. He stated that he believed his relationship with Walker would
have been the same regardless of the loan. However, he stated that
because of his high regard for Walker, "I went beyond the bounds of
propriety," (Tr. 243).
Appellant also testified about instituting legal action to recover
property that Howell had in his possession to which Appellant claims
title. On one occasion, Howell assaulted Appellant's son-in-law when he
attempted to remove this property. He also testified as to the hostile
attitude of Howell towards him since the summer of 1974.
Appellant has testified about the matters concerning the alleged
payments to Walker and the hypothecation of his bank book to Walker
before the Federal Grand Jury for the Northern District of Indiana, and
the Grand Jury did not indict Appellant.
Subsequent to the hearing, the record in this matter remained open at
the request of both parties to receive additional documentation.
Counsel for Appellant made several unsuccessful attempts to obtain the
appearance of Walker as a witness. Moreover, he submited an affidavit
from Walker (Appellant Exhibit No. 8) which the Hearing Officer
originally rejected because it was determined that any testimony of
Walker, because of its critical nature, should be subject to
cross-examination. Appellant's Counsel submitted a Motion for
Reconsideration (Appellant Exhibit No. 9) of this decision on August 28,
1975, consisting of a legal brief to support his request that the
affidavit of Walker be made part of the record. The brief reemphasized
the informal nature of the hearings and that our rules provide that
"Rules of evidence and procedure applicable to a proceeding in a court
of law will not be applied." Upon reconsideration of the matter, the
Hearing Officer advised the parties that the affidavit of Walker would
be made part of the record, mindful of the fact that Walker's testimony
was not subject to cross-examination.
The affidavit of Walker describes in detail the bank loan of $700
which Appellant arranged for him, which has been paid in full. The
account of Walker's testimony corroborates Appellant's version of the
bank loan. Walker also stated in the affidavit that at the time the bank
loan was made, Appellant had no decisions pending before him. Walker
asserted that Appellant never participated in any cash payments to him,
nor did Appellant ever ask him to exert any influence or perform any
favors on his behalf.
Appellant's Counsel introduced into the record a copy of the
indictment returned against Howell on July 18, 1974 (Appellant's Exhibit
No. 11) for his participation in the bribery scheme. Appllant's Counsel
also submitted for the record a certified copy of the proceeding against
Howell at both his arraignment, at which he pleaded guilty, and
sentencing in the U. S. District Court for the Northern District of
Indiana, (Appellant Exhibit No. 12). These proceedings indicate that at
the time of his arraignment on July 18, 1974, Howell agreed "to make
certain disclosures and cooperate with the Government, and the
Government in turn agrees to give you immunity from prosecution up to
this time for any act up to this time except as it may involve income
tax violation." As part of the plea agreement, the Government agreed to
recommend probation. At Howell's sentencing on September 23, 1974, the
Judge stated:
"If it were not for the Government's recommendation I would
impose an institutional sentence. However, I am not unmindful of
the fact of your cooperation with the Government in this regard,
and they feel your cooperation is not only helpful, but perhaps
essential." (Page 6, Appellant Exhibit No. 12)
The pertinent provisions of the Department's regulations relating to
debarment (24 CFR 24) are as follows:
Sec. 24.4 Definitions (a) "Debarment" means, in general, an
exclusion from
Sec. 24.9 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes.
(4) Any other cause of such serious compelling nature,
affecting responsibility as may be determined in writing
by the Secretary or his duly authorized representative
to warrant debarment. Such determination shall clearly
demonstrate that participation by the contractor or
grantee would be harmful to the best interests of the
public.
I. Alleged Payments by Appellant to Mr. Walker.
The Government's first allegation concerns payments by Appellant to
Howell for transmittal to Walker. The Government bases its position
chiefly on the testimony of Howell. His testimony was based upon the
substance of a sworn statement given to the Internal Revenue Service in
September of 1974. He did not appear to have independent recollection of
most of the alleged bribe payments to Walker. In addition, the
Government introduced into evidence a series of promissory notes issued
to Appellant by Howell which indicated various amounts of money lent to
Howell. Appellant's Counsel submitted for the record a series of checks
from Appellant to Howell given in exchange for the promissory notes
which indicate that the Department condones activity of this nature.
This, the Hearing Officer emphatically rejects, as inaction in this area
could possibly lead to a weakening of the HUD procurement process in the
future. On the other hand, the Government's case in chief was based
principally on a charge that was found to be not supported by the
evidence. Therefore, to impose a debarment period greater than nine
months for Appellant's involvement in the loan arrangement, in the
opinion of the Hearing Officer, is unwarranted.
Paul E. Schleicher and Great Horizons Development Corporation be
debarred from participation in programs of the Department of Housing and
Urban Development for a period of nine (9) months. The period of
debarment shall be effective from the date of the original suspension,
March 10, 1975, until December 10, 1975.
75-310-DB 75-313-DB
In the Matter of: WILLIAM B. JOLLEY In the Matter of: WILLIAM C.
WINCHELL AND MELTON-WINCHELL AND ASSOCIATES, INC.,
October 18, 1977 May 15, 1975
771018 750515
James W. Mast Michael F. Burke
On or about August 18, 1977, William B. Jolley, herein Respondent,
filed with Lawrence B. Simons, Assistant Secretary-Housing of the
Department of Housing and Urban Development, herein the Department, a
request for reinstatement from debarment pursuant to the Department's
Rules and Regulations, herein the Rules, 24 C.F.R. 24.11. Thereafter,
the undersigned, was designated to consider and decide the case. On
September 12, 1977, the undersigned requested the Parties to submit
their summaries of issues, and evidence by October 3, 1977, and
tentatively scheduled the hearing for October 22, 1977. On September 21,
1977, Respondent filed his summary; the Department did not file. In
view of the Respondent's summary, it appeared that there were no
questions of fact or credibility on material issues which would warrant
an evidentiary hearing on the record. It was ordered that the parties
should show cause why the case should not be decided on the basis of
documentary evidence rather than on evidentiary hearing. Further, it was
ordered that the parties should submit their evidence by October 12,
1977. Respondent and the Department submitted their evidence and
argument; neither opposed a decision on the documentary evidence.
Upon the entire record, I make the following:
William B. Jolley was Director of the Cincinnati Insuring Office of
the Department from 1971 until April 1972. He was terminated by the
Department at the latter date.
Respondent was indicted by the Grand Jury of the United States
District Court for the Southern District of Ohio in 1975. On August 18,
1975, Respondent entered a plea of guilty of violation of 18 U.S.C.
1001. The Court sentenced him to three years, of which four months was
confinement in a jail-type institution and two years eight months was
suspended. Respondent was placed on probation for the latter period.
Respondent appealed his conviction.
The conviction arose out of a transaction where Respondent "+ + +
willfully and knowingly use(ed) a false writing and a document containg
a false, fictitious and fraudulent statement + + + in connection with
the approval by him in his official capacity + + + of a rehabilitation
project known as Shiloh Apartments + + +" on the application by his
son-in-law.
Debarment proceedings in the Department were initiated against
Repondent and Monarch Enterprises, Inc. by suspension on February 24,
1975. After a hearing, Respondent and Monarch Enterprises, Inc. on
November 13, 1975, were debarred for three years from February 24, 1975
until February 23, 1978. The period of debarment was considered
appropriate because of the Respondent's official misconduct. Debarment
of Monarch Enterprises, Inc., a company ostensively managed by his wife,
was because of Respondent's "+ + + participation in the creation,
organization, management, control, and the day-to-day operations + + +"
of the company.
Respondent submits that he + + + has been effectively barred by
prosecution and legal restraints, and by informal negative personal
pressures by agency personnel, from many financial and employment
opportunities since 1972." Further, Respondent claims that his wife's
management firm (apparently Monarch Enterprises, Inc.) was put out of
business. Respondent also claims to have acted as an unpaid designer and
consultant on a successful Department project. As he stated, "Removal of
debarment would give (the Department) access to some knowledge and
ability that it could certainly use."
On the basis of the available evidence at the time, Respondent, a
contractor, was properly debarred for three years in the previous
decision in this case. Under 24 C.F.R. 24.11, Respondent could request
reinstatement after six months from November 13, 1975.
The Rules at 24.11(b) states "In reaching his determination regarding
reinstatement, the presiding offical must be satisfied that it is in the
best interest of the Government to reinstate and also be persuaded from
assurances of the party concerned that he understands the requirements
of the statutes and the administrative rules and regulations and that he
will comply with them in the future." The burden to establish grounds
for reinstatement is on the Respondent seeking the relief. The standard
of proof required is substantial evidence to support the relief
requested. At 24.11(c) the Rules define some of the bases for
reinstatement as "+ + + newly discovered material evidence, reversal of
a conviction, bona fide change of ownership or management, or the
elimination of causes for which debarment was imposed."
Although Respondent appealed his conviction, there is no evidence
that the conviction was reversed. There also was no newly discovered
evidence affecting the debarment, or evidence of "elimination of causes
for which debarment was imposed." Since Respondent is an individual,
change in ownership or management is not in issue. Repondent based his
action on his ability to perform important services for the Department.
By the terms of the order of debarment, the Department could contract
with Respondent where it was "+ + + determined to be in the best
interest of the Government."
Under the circumstances, Respondent's unsupported claim that he has
valuable services to offer the Department fails to satisfy the burden of
proof required for reinstatement. In reaching this conclusion, it is
noted that the debarment as a contractor will be removed by its own
terms on February 23, 1978.
1. William B. Jolley is a contractor within the meaning of 24 C.F.R.
24.4(f).
2. William B. Jolley and Monarch Enterprises, Inc. were debarred on
November 13, 1975, for a period of three years beginning February 24,
1975, and ending February 23, 1978.
3. William B. Jolley's application for reinstatement from debarment
pursuant to 24 C.F.R. 24.11 fails to establish good and sufficient
reasons for reinstatement as a contractor.
On the entire record, it is ordered that the application for
reinstatement from debarment as a contractor filed by William B.
Jolley, is dismissed; the order of debarment issued November 13, 1975,
shall continue in effect until its expiration, February 23, 1978.
A hearing having been held in the above entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Production and Mortgage Credit - FHA
Commissioner. Notice of Final Determination, which is conclusive, will
be given in writing and transmitted by registered mail by the Assistant
Secretary.
On July 9, 1974, Mr. William C. Winchell and Melton-Winchell and
Associates, Inc. (hereinafter referred to as Appellant) were notified
that their Title I Contract of Insurance No. 47457 was suspended pending
the outcome of an investigation by the HUD Inspector General. The
suspension was based upon allegations that Appellant:
a. had altered loan documents relating to loans being offered
for FHA insurance;
b. had charged borrowers closing fees (in violation of Sections
201.540(a) & (b) of Title I Regulations); and
c. had withheld amounts from dealer proceeds to cover GNMA
marketing costs (in violation of Section 201.540 of Title I
Regulations).
By letter dated February 28, 1975, the attorney for Appellant
requested a hearing for reconsideration for reinstatement under their
FHA Title I Contract of Insurance. Subsequently, by letter of March 13,
1975, Acting Assistant Secretary for Housing Production and Mortgage
Credit - FHA Commissioner David M. DeWilde informed Appellant that based
upon the results of the investigation conducted by the HUD Inspector
General that their debarment was being considered. Appellant was further
advised that debarment would include the withdrawal of their FHA
approval as a mortgagee and as a Title I lender. Appellant was notified
of its right to a hearing and to be represented by counsel in accordance
with provisions of 24 CFR 24.10.
As requested by Appellant, a hearing was held in this matter on April
23, 1975. John P. Witsil, HUD Office of General Counsel, appeared on
behalf of the Government, and M.J. Probst, of Baker and Probst, Little
Rock, Arkansas, appeared on behalf of Appellant.
The Loans Processed Through IMSCO
The record discloses that Appellant entered into the mortgage banking
business on or about April 1, 1973. On June 21, 1973, it applied for a
Title I Contract of Insurance with FHA (Government Exhibit No. 1). On
September 21, 1973, the application for a Title I Contract of Insurance
was disapproved on the basis that Appellant did not meet the
requirements of a lending institution (Appellant Exhibit No. 1). The
letter which disapproved the application stated in part, "We do not find
the Company has experience, staff, or facilities to carry out a mobile
home operation." Upon receiving this approval, Appellant started to
explore alternate ways of making mobile home loans available to less
advantaged people. It investigated the mobile program and looked into
methods of financing the purchases of mobile homes. Eventually, it was
placed in contact with Investment Mortgage Services Company (IMSCO) of
California which was an insurer of GNMA backed securities and whose
business involved the taking of loans from small companies such as
Appellant and pooling them. Appellant related that IMSCO had informed
them that they had a Title I approved Contract of Insurance. The parties
entered into an agreement whereby Appellant would operate as IMSCO'S
agent in Arkansas, pooling mobile home loans and sending them to IMSCO.
This agreement was entered into on or about December 12, 1973. In
January 1974, the mobile home operation was started by Appellant.
Appellant related that it went through the FHA Regulations, and in order
to comply with them, developed dealer files in keeping with these
Regulations. Under the agreement with IMSCO, Appellant was to make loans
to purchasers of mobile homes and send these loans to IMSCO in
California. IMSCO would send the money to Appellant who would then pay
the dealers. This operation was conducted for several months during
which time the Appellant prepared for processing approximately 41 mobile
home purchase loans. During the first part of March 1974, IMSCO advised
Appellant that their Title I Contract of Insurance had a 250 mile
restriction on it, which had the effect of preventing Appellant from
acting as IMSCO's agent in the State of Arkansas.
As a result of IMSCO's geographic restriction as an FHA insurer,
Appellant was confronted with two problems:
a. the 41 loans which were processed through IMSCO, and which
were not approved for FHA insurance because of the geographic
restriction placed on IMSCO, and
b. the placement of future loans.
Appellant testified that he had discussed the problem of the IMSCO loans
with Mr. Banderman, president of IMSCO. He advised Appellant he would be
attending the National Mortgage Banker's Conference in Washington D.C.
during the week of April 19, 1974 and suggested that they iron out the
problem at that time. He also suggested to Appellant to reapply for
Title I insurance. Appellant testified that he met with Mr. Banderman in
Washington on the evening of April 22, 1974, and at that time, Mr.
Banderman allegedly told him of a meeting with then Assistant Secretary
- FHA Commissioner Lubar. (Tr. 144) Mr. Banderman disclosed to Appellant
that Mr. Lubar advised that Appellant should get a Title I Contract,
"change the names from Melton-Winchell, endorse the back, and send them
out to California to be purchased with the endorsement on the back along
with the transfer of insurance reserves." (Tr. 145) Appellant testified
at the hearing that he complied with these instructions. Appellant hand
carried his application for Title I insurance to HUD. There was a
meeting at HUD on April 23, 1974, attended by Appellant, Mr. Banderman,
and a representative from Senator McClelland's office together with HUD
personnel. No mention was made at the meeting of the processing of
Appellant's loans through IMSCO, and the only matter discussed was the
Title I application. Appellant's application for Title I insurance was
approved on April 29, 1974 (Appellant Exhibit No.2).
On May 23, 1974, after Appellant had received its Title I Contract of
Insurance, Mr. McWeeney, a financial representative of the Department,
visited Appellant to give a complete indoctrination of the program and
to review Appellant's records. His examination of Appellant's files
disclosed numerous instances of loans which were made prior to the
effective date of the Title I Contract of Insurance, May 6, 1974, and
which were subsequently submitted by Appellant on a Title I loan
manifest. Detailed discrepancies were noted by Mr. McWeeney and
discussed with Appellant. Mr. Mcweeney testified, "I found a number of
duplications of documents. I found documents where alterations were
made." (Tr. 34) "I pointed out to him that in my opinion there were some
serious irregularities within the loans. I pointed out that the loans
were actually conventional loans and not insurable under FHA since they
had been made prior to the date of the contract." (Tr. 35) Mr.
McWeeney's work sheets (Government Exhibit No. 3) and his report
(Government Exhibit No. 4) indicated that duplicate files were kept by
Appellant, that loans which were processed with IMSCO, mostly during the
period of January, February, and March of 1974, were subsequently
treated as FHA Title I loans by Appellant. Data concerning the loan
irregularities was presented into evidence at the hearing, taken from
the report and as testified to by Mr. McWeeney. The "alterations" were
accomplished by applying "Snow-PAK" to the pertinent parts of the loan
documentation to indicate that they were processed on or after May 6,
1974, when, in fact, the back-up documentation found in the files
disclosed that the loans had been made before the Title I Contract of
Insurance had been awarded to Appellant. At the conclusion of his review
of Appellant's files, Mr. McWeeney orally instructed Appellant not to
make any more Title I loans. Based upon the report of the financial
representative, Appellant was advised by letter of July 9, 1974 that
their Title I Contract of Insurance was suspended pending the outcome of
an investigation.
One of the grounds for possible debarment is that Appellant "altered
loan docuemnts" relating to loans being offered for FHA insurance.
Appellant denied that he "altered" the documents, but he did admit to
having used "Snow-PAK" on the documents. (Tr. 148) In addition, as the
financial representative uncovered, the original loan applications were
made many months prior to May 6, 1974. Appellant acknowledged that there
were 21 mobile home loan applications "changed" after that date and
included in the manifest loan report which was submitted to HUD. (Tr.
149) Appellant's explanation for making the "changes" was the advice
received from Mr. Banderman who allegedly told Appellant that Mr. Lubar
approved this method of processing the mobile home loans. The president
of IMSCO, Mr. Banderman, did not appear as a witness at the hearing, nor
did Mr. Lubar. However, an affidavit that Mr. Lubar submitted to the
Grand Jury for the Eastern District of Arkansas, dated September 24,
1974, was introduced into evidence by the Government over Appellant's
objection (Government Exhibit No. 5) In the affidavit, Mr. Lubar stated
that he did not tell Mr. Banderman, to advise Appellant "to alter any of
the legal instruments here involved."
The second ground for possible debarment is that Appellant allegedly
charged borrowers a closing fee in violation of Section 201.540(a) & (b)
of Title I Regulations. In support of this allegation, the Government
introduced into evidence the Title I Lender Report of Mr. McWeeney, and
copies of the notes taken by him during the time he was conducting his
review and investigation of Appellant's files. His examination disclosed
a closing fee of $200 was charged to each and every loan applicant that
he reviewed (Government Exhibit No. 4). Appellant denied his charge and
maintained that the $200 was a service charge applied against the seller
and this $200 included the administrative processing of the dealer
papers. The Seller's Closing Statement introduced into evidence at the
hearing indicated an item of case designated as "Closing Fee - $200." A
witness for Appellant testified that this form was not designed for
Title I loans, but it was the only form available, and therefore, many
of the cost items are not appropriately designated. (Tr. 100) The
Government's position was that the closing fee was made a part of the
selling price and passed on to the borrower.
The third allegation is that Appellant "withheld amounts from dealer
proceeds to cover GNMA marketing costs" in violation of Section 201.540
of Title I Regulations. In the work sheets prepared by the Government's
financial representative (Government Exhibit No. 4), there are itemized
breakdowns of several loans that were originally processed through
IMSCO, and subsequently submitted as FHA Title I loans. These breakdowns
indicate loans averaging approximately $10,000 each and commssions in
the range of $1,500 and $1,350 each. (Tr. 46, Tr. 47) Appellant
acknowledged that is deducted the amounts so as to avoid delays of from
six to eight weeks in processing loans. (Tr. 161) In addition, Appellant
testified that because of uncertain business conditions, such as
manufacturers going out of business, it did not want to "get caught with
several thousand dollars worth of points that we did not have control
of." (Tr. 162)
It was brought out during the hearing that Appellant's activities
which was the basis of the suspension were also investigated by the
Federal Grand Jury in Arkansas, and the matter was closed without any
indictments being returned. Appellant testified at the hearing and
before the Grand Jury. In view of his appearance as a witness before the
Grand Jury, he was given the "Miranda" warning before he testified at
the hearing.
The relevant provisions of the Department relating to debarment (24
CFR 24) are as follows:
Sec. 24.4 Definitions
(a) "Debarment" means, in general, an exclusion from
participation in HUD programs for a reasonable, specified period
of time commensurate with the seriousness of the offense or
failure, or the adequacy of performance + + +.
Sec. 24.9 Causes and conditions applicable to determination of
debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes.
(4) Any other cause of such serious compelling nature,
affecting responsibility, as may be determined in writing by the
Secretary or his duly authorized representative to warrant
debarment. Such determination shall clearly demonstrate that
participation by the contractor or grantee would be harmful to the
best interests of the public.
The pertinent provisions of the Department relating to withdrawal of
approval of mortgagees are as follows:
Sec. 203.7 of the Title I Regulations, Withdrawal of approval.
(a) Approval of a mortgagee may be withdrawn at any time by
notice from the Commissioner, by reason of:
(7) Such other reason as the Commissioner determines to be
justified.
Based on a review of the transcript of the hearing and of all the
documents introduced into evidence, it is indisputable that loan
documents which were related to loans offered for FHA insurance were
changed. The Government submits that the loan documents were "altered"
while the Appellant merely acknowledges that they were changed.
Alteration is defined as "variation, changing, making different. A
change of a thing from one form or state to another." Black's Law
Dictionary, 103 (Rev. 4th Ed. 1968) In his closing argument at the
hearing, Counsel for Appellant acknowledged that Appellant acted naively
in this matter. The Hearing Officer disagrees with this conclusion.
Appellant was an experienced businessman who testified that he had
fifteen years experience in the mortgage banking business. For most of
that time, he served as an officer in mortgage companies. In addition,
he is a past president of the Arkansas Mortgage Banking Association.
When IMSCO advised Appellant of the geographic restriction of IMSCO's
Title I Contract of Insurance, Appellant had a great financial risk on
all mobile home loans processed from January 1974 through May 6, 1974
when Appellant received their Contract of Insurance. This is especially
true since he made loans to many loan applicants who were high credit
risks. Therefore, Appellant's only chance of reducing his risk was to
get FHA coverage for these previously placed loans after he received his
FHA Contract of Insurance. However, that Contract of Insurance had an
effective date of May 6, 1974. The policies issued before that date
could not be covered under that policy. An individual with Appellant's
background and experience must have or should have known that it was
improper to change pertinent data on loan documents to make them
eligible for FHA coverage. As important as FHA coverage of the loans was
to Appellant, it is significant to note that he never discussed the
loans previously processed through IMSCO at the meeting in HUD on April
23. 1974. Instead, Appellant went ahead and altered the loan documents
in an attempt to make conventional loans eligible for FHA insurance
coverage.
The second and third grounds for possible debarment involve charging
borrowers closing fees and withholding amounts from dealer proceeds;
both in violation of Sections 201.540(a) and (b) of Title I Regulations.
In explanation of these charges, Appellant stated that charging closing
fees was actually a service charge against the seller and withholding
the amounts from dealer proceeds was done to expedite processing of the
loans. Regardless of these explanations, and in addition, there was
adequate evidence presented by the Government to support these charges,
the provisions of Section 201.540 are quite clear and anyone doing
business under an FHA Contract of Insurance is obliged to follow them.
This is not a case where Appellant was unaware of a Government
regulation or was erroneously misled by a Government agent, Federal Crop
Insurance Corp. v. Merrill, et al., 332 U.S. 380 (1947). Therefore,
Appellant had no choice but to adhere to the commission ceilings
established in Seciton 201.540(a) and (b) of the Title I Regulations.
One of the bases for debarment cited above in 24 CFR 24.9(a)(4) is:
"Any other cause of such serious compelling nature, affecting
responsibility, as may be determined in writing by the Secretary
or his duly authorized representative to warrant debarment + + +."
(Emphasis added.)
In a case involving the suspension of a bidder, the Supreme Court of the
State of New Jersey stated in the case of Trap Rock Industries, Inc. v.
Kohl, 284 A. 2d 161 (N. J. 1971) at 166:
"+ + + that a bidder be 'responsible' embraces moral integrity
just as surely as it embraces a capacity to supply labor and
materials. The relevancy of moral responsibility is evident. It
assures honest performance. It meets the citizen's expectation
that his government will do business only with men of integrity."
In defining "responsibility" relative to the award of a Govenment
contract, the Comptroller General has commented:
"'Responsible' imports something more than pecuniary ability,
and in the selection of the lowest responsible bidder, public
officers are required to consider not only the financial resources
of the bidder, but also his integrity, fitness, capacity, and
ability to successfully fulfill the contract requirements." 34
Comp. Gen. 86
The conduct of Appellant in this matter fails to meet the test of
integrity, and it is the conclusion of the Hearing Officer that
Appellant is not a responsible party based upon his knowingly altering
loan documents and failing to observe the financing charges set out in
Section 201.540(a) and (b) of the Title I Regulations.
Accordingly, the Appellant is hereby debarred from participation in
HUD programs for a period of three (3) years. In addition, the debarment
should include withdrawal of their FHA approval as a mortgagee and as a
Title I lender. A review of the record indicates that Appellant has
offered complete cooperation and made full disclosure throughout this
matter. This included his disclosures to the HUD financial
representative, testimony before the Grand Jury, and testimony at the
hearing. Therefore, since Appellant was in fact suspended by the oral
instruction of Mr. McWeeney on May 23, 1974, it is the recommendation of
the Hearing Officer that the debarment run from that date for a period
of three (3) years until May 23, 1977.
IT IS ORDERED THAT:
William C. Winchell and Melton-Winchell and Associates, Inc. be
debarred from participation in programs of the Department of Housing and
Urban Development, including the withdrawal of their FHA approval as a
mortgagee and as a Title I lender for a period of three (3) years. The
period of debarment should be from the date of their original suspension
of May 23, 1974 until May 23, 1977.
75-306-DB
In the Matter of: C. OTTO WHITE, JR. AND C. OTTO WHITE, JR., REALTOR
May 26, 1976
760526
James W. Mast
On February 3, 1975, David M. deWilde, Acting Assistant Secretary
Commissioner, Housing Production and Mortgage Credit-FHA Commissioner of
the Department of Housing and Urban Development, herein the Department,
served Respondent with written notice of suspension pursuant to 24 CFR
Part 24 of the Department's Rules and Regulations, herein the Rules,
because of his indictment by the Grand Jury for the United States
District Court for the State of South Carolina, Greenville Division, on
violations of Title 18 Section 1010 United States Code. On February 10,
1975, Respondent requested a hearing on the suspension. On July 30,
1975, Michael F. Burke, hearing officer, requested that Respondent
contact him with respect to the request for the hearing. On October 1,
1975, Michael T. Savage for the Assistant Secretary Commissioner served
Respondent with written notice that debarment pursuant to 24 CFR Part 24
of the Rules was being considered because of his plea of guilty to
violation of Title 18 Section 1010 in the United States District Court.
On October 6, 1975, Respondent requested a hearing. On November, 12,
1975, the undersigned requested the parties to submit their respective
positions in writing. On December 10, 1975, Respondent submitted his
position. On January 15, 1976, a notice rescheduling hearing issued. The
hearing held as scheduled on February 11, and May 12, 1976. The
Department appeared by Counsel; the Respondent appeared by Counsel and
in person. Upon the entire record I make the following:
C. Otto White, Jr. was President and sole stock owner of C. Otto
White, Jr., Realtor of Greenville, South Carolina. C. Otto White, Jr.,
Realtor was engaged in the business of a real estate broker. Sales of C.
Otto White, Jr., Realtor were through FHA-insured mortgages.
An eight count indictment was returned against C. Otto White, Jr.,
Incorp. by the Grand Jury for the United States District Court for the
District of South Carolina, Greenville Division, on November 20, 1974.
The indictment alleged violations of Title 19 United States Code Section
1010. C. Otto White, Jr., Incorp. was named in all counts of the
indictment as a defendant; C. Otto White, Jr. was named in no counts of
the indictment as a defendant. On July 29, 1975, C. Otto White, Jr.,
Incorp. entered a plea of nollo contendere to counts 6 and 7 of the
indictment. C. Otto White, Jr., Incorp. was fined $5,000 on each of the
two counts for a total of $10,000; counts 1, 2, 3, 4, 5 and 8 were
dismissed.
Originally, C. Otto White, Jr., and C. Otto White, Jr., Inc. were
indicted on July 30, 1975 by the Grand Jury for the same United States
District Court in an indictment which alleged five counts of violation
of Title 18 United States Code Section 1010 and 2. This earlier
indictment was nollo prosequied and superseded by the indictment upon
which the plea was entered. The plea arose out of two real estate
transactions. In the first, it was alleged in the indictment that on
July 7, 1970, C. Otto White, Jr., Incorp. for the purpose of obtaining
an FHA-guaranteed loan on real estate located at 36 Third Avenue,
Greenville, South Carolina, knowingly made and passed to the Department
a false statement that C. Otto White, Jr., Incorp. had received from
Robert T. Latimore a $500 down payment. In the second, it was alleged
that on July 17, 1970, C. Otto White, Jr., Incorp. for the purpose of
obtaining FHA-guaranteed loan on real estate located at 111 McDade
Street, Greenville, South Carolina, knowingly made and passed to the
Department a false statement that C. Otto White, Jr., Incorp. had
received from A. C. Robinson $500 down payment. The purpose of the
conduct appears to have been to qualify unqualified applicants for FHA
loans. Both transactions in question were handled by salesmen working
for C. Otto White, Jr., Realtor. Additionally, the Department offered
evidence which would tend to establish that C. Otto White, Jr. was aware
of and approved conduct such as alleged as violations in the indictment.
Respondent denied knowledge of the acts alleged as violations in the
indictment and also of the transactions upon which the indictments were
based. Respondent maintained that these transactions were handled
entirely by agents of Respondent, C. Otto White, Jr., Realtor, without
the participation or awareness of C. Otto White, Jr. Further, Respondent
offered substantial evidence of his reputation for good character, his
prior record as a law-abiding citizen, and his substantial contribution
to the community in which he lived. Finally, Respondent offered evidence
of his poor health and substantial disabilities which effectively
removed him from active participation in and control of C. Otto White,
Jr., Realtor prior to the dates alleged in the indictment.
Respondent, C. Otto White, Jr., Realtor is a contractor within the
meaning of the Department's Rules 24 CFR Section 24.4(g) as an indirect
recipient of Department funds which originate because of the mortgage
loan guarantee. Upon its conviction, the basic requirements for
debarment were met under 24 CFR Section 24.9(a)(1).
There is no dispute that Respondent C. Otto White, Jr., Realtor and
C. Otto White, Jr., Incorp. are, in fact, the same entity. Further,
there is no dispute that C. Otto White, Jr., Realtor is a closely-held
and managed family enterprise in which Respondent C. Otto White, Jr.
President. It is concluded that Respondent C. Otto White, Jr., Realtor
is an alter ego of Respondent C. Otto White, Jr. for the purposes of the
Rules of the Department. William B. Jolley, et al., 75-HUD(JD)-26.
Although not free from doubt, some evidence would tend to indicate that
Respondent C. Otto White, Jr. did know of and approved of the practice
which gave rise to the indictment upon which the action is based.
However, it is uncontradicted that Respondent C. Otto White, Jr. did not
know of the false statements in the two transactions alleged in the
indictment. There is no doubt that the conduct was participated in by
agents of Respondent C. Otto White, Jr., Realtor. Under the doctrine of
respondeat superior Respondent C. Otto White, Jr., Realtor was liable
for their conduct both criminally and under the Rules.
In a well-tried case from both sides, Counsel for the Department
seeks the full three-year period of debarment and Respondent on the
other hand argues that no debarment should issue. Counsel for the
Department argues that Respondent's conduct impairs the integrity of the
FHA system. Respondent argues that considering the actual remoteness of
Respondent C. Otto White, Jr. from the violative conduct, his good
record and his poor health, further debarment would be punitive.
The acts of the sovereign when directed against an individual's
rights or privileges, here the privilege of doing business under
government (FHA) sponsorship must be strictly construed against the
government. This is necessary in order to protect the individual from
governmental excess. Here the Department chose to proceed only on the
conviction and not on the basis of other conduct it may have been aware
of. It could have, of course, initiated its debarment action on the
basis of acts or conduct not alleged in the indictment or found by the
District Court in its judgment. It chose not to do so. Under the
circumstances, I am constrained to limit the case to those allegations
specifically set out above. There is no doubt of Respondent's legal
responsibility in the case. However, the evidence of Respondent C. Otto
White, Jr.'s physical impairment which removed him from active
management of his company cannot be ignored. Also, his prior good
record, his reputation, and his civic contribution serve to mitigate the
period of debarment required. Finally, it should be noted that the
United States Attorney and the District Court choose to nollo porosequi
as to Respondent C. Otto White, Jr.; only C. Otto White, Jr., Realtor
was prosecuted and fined $10,000. Under all the circumstances, a limited
period of debarment is appropriate and Respondent will be debarred for
one year and four months beginning February 3, 1975 and terminating June
3, 1976.
1. C. Otto White, Jr. and C. Otto White, Jr., Realtor are contractors
within the meaning of the Department's Rules, 24 CFR 24.4( g).
2. By the conduct resulting in the conviction of C. Otto White, Jr.,
Realtor of violating Title 18 United States Code Section 1010,
Respondent violated the Department's Rules 24 CRF 24.10.
It is ordered that C. Otto White, Jr. and C. Otto White, Jr., Realtor
are debarred from participating in Department programs for a period of 1
year and 4 months beginning February 3, 1975 and terminating June 2,
1976. Department funds shall not be expended for financial assistance to
C. Otto White, Jr. or C. Otto White, Jr., Realtor, or to any concerns in
which they have a substantial interest; bids or proposals shall not be
solicited therefrom, and subcontracts thereto will not be approved
unless it is determined to be in the best interests of the government.
75-300-DB
In the Matter of: ASSOCIATED EAST MORTGAGE COMPANY
May 1, 1975
750501
Michael F. Burke
A hearing having been held in the above entitled proceeding, I,
Michael F. Burke, as Hearing Officer, upon consideration of the record
in its entirety, issue this Initial Determination containing the
following order with my Findings and Conclusions attached and made a
part hereof, pursuant to the authority delegated to Hearing Officers of
the Department of Housing and Urban Development under 24 CFR 24.10(b)(
3) and 24.15(a)(5).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modifed within thirty (30) days by the
Assistant Secretary for Housing Production and Mortgage Credit - FHA
commissioner. Notice of Final Determination, which is conclusive, will
be given in writing and transmitted by registered mail by the Assistant
Secretary.
On January 17, 1975, Acting Assistant Secretary-Commissioner David M.
deWilde notified Associated East Mortgage Company of their suspension
from participation in HUD programs based upon information indicating
possible irregularities of a serious nature in their business dealings
with the Government. In addition, Appellant was further advised that the
suspension included their temporary withdrawal under the provisions of
24 CFR 203.7 as FHA approved mortgagees. This suspension was based upon
an indictment returned by the Federal Grand Jury on January 8, 1975,
convened for the District of New Jersey, charging Appellant with alleged
violations of Title 18, U.S.C., Sections 371, 1101, 1010 and 2.
Appellant was named in a seventy-count indictment for alleged conspiracy
and fraudulent submission of mortgage applications to obtain loans from
FHA and the VA. The indictment charged that the operative events
occurred during the period from January 1969 to November 1973. Appellant
was notified of its right to a hearing and to be represented by counsel
in accordance with the provisions of 24 CFR 24.10.
A hearing was held in this matter on April 9, 1975. John P. Witsil
appeared on behalf of the Government, and Leonard J. Bucki of Wolf,
Block, Schorr and Solis-Cohen, Philadelphia, Pennsylvania, appeared on
behalf of the Appellant. Government counsel introduced into evidence the
seventy-nine page indictment returned by the Federal Grand Jury for the
District of New Jersey which charged Appellant with seventy counts of
conspiracy and fraud (Exhibit 1). Based upon the return of the
indictment alone, the Government maintained there is a sufficient basis
to warrant the continuing of the suspension until the outcome of the
criminal proceeding as well as the withholding of approval under 24 CFR
203.7 as FHA approved mortgagees.
Counsel for Appellant contended that the suspension should be lifted
on the basis that the Government has not borne its burden of proof, as
required by relevant regulations. He argued that pertinent sections of
24 CFR requires explicitly that the Government bear the burden of
establishing, with competent evidence, the existence of grounds for
suspension. Appellant's Counsel argued that the suspension, as required
by CFR, must be based upon "adequate evidence." Confining its case to
the existence of an indictment, he concluded, has established nothing
more than there is an outstanding accusation made against a party.
Further, he maintained that no evidence had been presented at the
hearing that there is any basis for suspension. Moreover, basing a
suspension of an indictment presents a question of constitutional due
process.
The suspension of Appellant was based upon an indictment returned by
a duly constituted Federal Grand Jury which charged Appellant with
violations of Title 18, U.S.C., Sections 371, 1101, 1010 and 2. These
alleged violations involved conspiracy and fraudulent submission of
mortgage applications to obtain loans from the FHA and the VA.
The relevant provisions of the Department's Regulations relating to
suspension (24 CFR 24) are as follows:
Sec. 24.4 Definitions.
(b) "Suspension" means a disqualification from participation in
HUD programs for a temporary period of time because a contractor
or grantee is suspected upon adequate evidence of engaging in
criminal, fraudulent, or seriously improper conduct. (Emphasis
added.)
Sec. 24.5 General.
(a) Debarment, suspension, and placement in ineligible status
are measures which may be invoked by the offices of the Department
either to exclude or to disqualify contractors and grantees from
participation in Department programs. These measures shall be used
for the purpose of protecting the public and are not for punitive
purposes + + +.
(b) Department action to exclude or to disqualify contractors
and grantees from participation in its programs, or to reconsider
such measures, shall be based upon all available relevant facts +
+ +. (Emphasis added.)
Sec. 24.11 Suspension.
Suspension is a drastic action taken when there is suspicion of
fraud or other criminal conduct in Government business or
contractual dealings and, as such, shall not be based upon an
unsupported accusation. A contractor or grantee is suspended
pending investigation and appropriate action by the Department of
Justice. In assessing whether adequate evidence exists for
invoking a suspension, consideration shall be given to the amount
of credible evidence which is available, to the existence or
absence of corroboration as to important allegations, as well as
to the inferences which may properly be drawn from the existence
or absence of affirmative facts + + +. (Emphasis added.)
Sec. 24.12 Causes and conditions under which contractors or
grantees may be suspended.
(a) The Assistant Secretaries of the Department may, in the
interest of the Government, suspend a contractor or grantee:
(1) Suspected, upon adequate evidence, of
(i) Commission of fraud or a criminal offense as an incident to
obtaining, attempting to obtain, or in the performance of a public
contract + + +; (Emphasis added.)
Suspension means that a contractor is suspected upon "adequate
evidence" of engaging in criminal, fraudulent, or seriously improper
conduct (24 CFR 24.4). In the instant case, there was an indictment
returned against Appellant. The offenses alleged in the indictment
relate to fraud or criminal offenses related to obtaining a Government
contract, or commission of falsification of records or any other offense
indicating dishonesty and lack of integrity, all of which are covered by
the Regulations. It has long been recognized that an indictment is far
more than an "unsupported accusation." The rule is that an indictment,
regular on its face and returned by a legally constituted Grand Jury, is
presumed to be founded on competent evidence, United States v. James,
290 F. 2d 866, cert. denied, 368 U.S. 834 (1961). There is also the
valid presumption that the Grand Jury acted upon sufficient evidence.
Blumenfield v. United States, 284 F. 2d 46, cert. denied, 365 U.S. 812.
In the case of Louis Bernstein and Brewster Corporation v. Romney, et
al., (E.D.N.Y. Cr. No. 72-C-1643), the court refused to grant
plaintiff's motions for summary judgment on a HUD suspension of such
mortgagees because of indictments against them, and held:
"The indictments, while not per se evidence of guilt, are
nevertheless indictments handed up by a grand jury upon probable
cause after investigation, and are 'presumed to be founded on
competent evidence.'" United States v. James, 290 F. 2d 866, 869
(5th Cir.) cert. denied, 368 U.S. 834 (1961).
In the case of Horne Brothers, Inc. v. Laird, 463 F. 2d 1268 (D.C.
Cir. 1972), which was suspension case of the Department of Defense, the
Court stated:
"The 'adequate evidence' showing need not be the kind necessary
for a successful criminal prosecution or a formal debarment. The
matter may be likened to the probable cause necessary for an
arrest, a search warrant, or a preliminary hearing. This is less
than must be shown at the trial, but it must be more than
uncorroborated suspicion or accusation."
In the case of Trap Rock Industries v. Kohl, 284 A. 2d 161 (1971)
decided by the Supreme Court of the State of New Jersey, a contractor
was suspended from bidding on state contracts. The suspension was based
upon an indictment alone. The contractor argued that they were suspended
on the basis of the indictment alone, without independent proof of the
truth of the criminal charges, and the suspensions were improper. The
New Jersey Supreme Court upheld the suspension, observing that:
"An indictment, State or Federal, is hardly a neutral fact for
all purposes. In the area of our present concern, it cannot be
said that an indictment has not meaning. On the contrary, the
indictment means that a basis exists to believe the charge if the
evidence on hand is not explained or contradicted. And if the
charge against the contractor is true, his lack of responsibility
is a present fact. A conviction thereafter will merely evidence
that the disqualifying attribute did exist." 284 A. 2d 161, 170.
Although Trap Rock, supra, is a state case, it is adopted as being
applicable here.
Based upon a review of the entire record in this matter, and the
applicable law, it is concluded that the existence of a valid indictment
alone charging Appellant with offenses of the type named therein is more
than an unsupported accusation and is "adequate evidence" as required by
HUD Regulations to support continuation of the suspension.
The order of temporary suspension of Appellant, pending resolution of
the criminal charges against it, is hereby sustained.
The suspension of Associated East Mortgage Company from participation
in HUD programs and their withdrawal as FHA approved mortgagees, as
stated in the letter of January 17, 1975, to Mr. Marshall C. Dennison,
President, Associated East Mortgage Company from David M. deWilde,
Acting Assistant Secretary-Commissioner, Housing Production and Mortgage
Credit - FHA Commissioner is hereby sustained.
75-296-DB
In the Matter of: ROSS CROWN
Michael F. Burke
A hearing having been held on the record in the above entitled
proceeding, I, Michael F. Burke, as Hearing Officer, upon consideration
of the record in its entirety, issue this Initial Determination
containing the following order with my Findings and Conclusions attached
and made a part hereof, pursuant to the authority delegated to Hearing
Officers of the Department of Housing and Urban Development under 24 CFR
24.10(b)(3).
As provided in Section 24.10(b)(3), this Initial Determination is
final unless reversed or modified within thirty (30) days by the
Assistant Secretary for Housing Management. Notice of Final
Determination, which is conclusive, will be given in writing and
transmitted by registered mail by the Assistant Secretary.
On December 6, 1974, H. R. Crawford, Assistant Secretary for Housing
Management, Department of Housing and Urban Development, notified
appellant that he was suspended from participation in any program
administered by HUD, effective December 9, 1974, and he was further
notified that a debarment action was being instituted against him. The
suspension and the proposed debarment were based upon the appellant's
plea of guilty to an Information charging him with submitting a false
and fraudulent bid in violation of Sections 2 and 1010, Title 18, United
States Code. Appellant was advised of his right to a hearing on this
matter pursuant to 24 CFR 24.10. Appellant elected to have a hearing on
this matter, but because of a misunderstanding as to the location of the
hearing, did not appear at the hearing and the matter has been decided
on the record.
Appellant was President of Fire Insurance Contractors, Inc.,
Farmington, Michigan. In May 1971, a written bid was prepared and
submitted to the Department of Housing and Urban Development allegedly
on behalf of Fire Insurance Contractors, Inc. in the amount of two
thousand three hundred and ninety dollars ($2,390.00) for rehabilitation
work on Department property owned at 24 North Street, Highland Park,
Michigan. This bid was in fact a fraudulent bid and it was submitted as
a losing bid to assure that the winning bid would be awarded to Green
Acres Construction Co.
An Information charging Apellant with submitting the above-described
false bid was presented in the United States District Court for the
Eastern District of Michigan, and charged him with violations of
Sections 2 and 1010, of Title 18, United States Code. Appellant entered
a plea of guilty to the Information, received a suspended sentence, and
was placed on probation for a period of two (2) years and fined fifteen
hundred dollars ($1,500.00).
A hearing was scheduled for HUD Headquarters on March 4, 1975. As a
result of a misunderstanding, the Appellant did not appear at the
hearing, and the Appellant was subsequently allowed to submit his case
on the record. At the hearing, Mr. John P. Witsil represented the
Department of Housing and Urban Development. He outlined the offense as
alleged in the Information, and offered into evidence a copy of the
Information (Exhibit 1) and a certified copy of the "Judgment of
Conviction" (Exhibit 2). Mr. Witsil moved for the debarment of the
Appellant, in that he had pleaded guilty to a crime involving false
statements which fall within the causes for debarment as set forth in 24
CFR 9(a)(1).
By letter dated March 12, 1975, Appellant set forth his position
regarding the offense (Exhibit 3). He stated that he had been called
upon by a Mr. Bloomstein of Development 70's sometime during 1972 to
discuss HUD programs with him. (The Information charged that the event
took place in 1971, which Appellant acknowledged was the correct date
when this discrepancy was brought to his attention (Exhibit 5).) Mr.
Bloomstein was on a committee established in the HUD Area Office in
Detroit for the purpose of inspecting the HUD repaired houses and to
review contractor's bids for the repair of such houses. Mr. Bloomstein
allegedly told Appellant that he knew Appellant wasn't getting much
repair work and purportedly the reason was that the Appellant was not
part of any group but was in fact working alone. Appellant gave credence
to Mr. Bloomstein's comments because of his position with HUD.
Appellant was then informed that he would be getting blank bid forms
from time to time, but in order to save time Appellant was requested to
sign a blank bid form which he then proceeded to sign. Appellant stated
that he forgot about the matter until he was later contacted by the FBI
and informed that the bid sheet he has signed was used in a fraudulent
scheme to rig bids. Appellant, in his statement, asserted he never in
any way participated with groups or individuals in an attempt to defraud
HUD. He acknowledged, however, that it was a negligent act to sign a
blank bid form.
Department Counsel was given the opportunity to review and comment
upon Appellant's statement (Exhibit 4). He pointed out the discrepancy
in the date in Appellant's statement. In addition, he observed that if
the offense was as insignificant as Appellant contends, why was a
sentence of two years probation and a fine of $1,500 levied? Department
Counsel was of the opinion that there exists no mitigating evidence
which would afford any reason to debar Appellant for any time other than
the maximum permissible under our Regulations.
Section 24.9(a)(1) of 24 CFR provides in relevant part as follows:
+ + + the Department may debar a contractor or grantee in the
public interest for any of the following causes:
(a)(1) Conviction for commission of a criminal offense as an
incident to obtaining or attempting to obtain a public or private
contract, or subcontract thereunder, or in the performance of such
contract or subcontract.
Appellant was a contractor who participated in HUD programs within
the meaning of 24 CFR 24.3. The record discloses that he pleaded guilty
to a "criminal offense incidental to obtaining+ + +a public contract"
which is specifically a cause for debarment under 24 CFR 24.9(a)(1).
Appellant defended his participation in this criminal activitiy by
stressing his lack of involvement in the criminal scheme, and asserting
that his behavior was merely negligent. However, the record discloses
that Appellant did enter a plea of guilty and, moreover, the relatively
harsh sentence imposed by the court would seem to indicate that
appellant's involvement was considerably greater in this criminal
activity than Appellant contends.
There is a public interest in the preservation of the integrity of
the administration of HUD programs. Appellant here participated in a
criminal scheme which attempted to corrupt these programs. Debarment is
used as a means of protecting the public from acts that violate the
integrity of HUD programs. A review of the entire record discloses that
there is adequate evidence to warrant that debarment action be taken
against Appellant. Accordingly, it is the finding of the Hearing Officer
that Appellant be debarred for a period of three (3) years from further
participation in any HUD programs. This debarment should be measured
from December 6, 1974, the date of the Appellant's suspension.
Ross Crown be debarred from participation in programs of the
Department of Housing and Urban Development for a period of three (3)
years. This debarment shall be effective until December 6, 1977.
74-279-DB
In the Matter of: LOUIS BETAR
January 18, 1978
780118
Michael F. Burke
A review of the record in its entirety having been conducted, I,
Michael F. Burke, as duly appointed Hearing Officer, issue this Initial
Determination, containing the following order, with my findings and
conclusions attached and made a part hereof, pursuant to the authority
delegated to Hearing Officers of the Department of Housing and Urban
Development under 24 C.F.R. 24.10 et seq.
By letter dated May 27, 1977, Assistant Secretary Simons advised Mr.
Louis Betar of Clifton, New Jersey (hereinafter Appellant) that the
Department had been informed of the Appellant's conviction in the United
States District Court for the District of New Jersey (Gov't Exhibit No.
1). This conviction was based upon Appellant's falsifying statements to
the FHA for approval of mortgagee insurance in violation of 18 U.S.C.
1010. The Department's letter stated that based upon the conviction it
was considering debarment of Appellant from further participation in HUD
programs and pending any debarment action that he was suspended from
participation in HUD programs. Appellant was advised of his right before
any determination of debarment was made to submit documentary evidence
and written briefs and to be represented by Counsel in accordance with
24 C.F.R. 24.5(c)(2) and 24 C.F.R. 24.7. On June 8, 1977, through
Counsel, Appellant requested a hearing. By letter dated August 3, 1977,
the Hearing Officer advised Appellant of the procedures to be followed
in the processing of this matter. Appellant's attorney in a telephone
conversation had previously advised the Hearing Officer that they
elected to waive any oral hearing and proceed on the written record. The
Hearing Officer directed Appellant and the Government to submit their
written briefs and all relevant evidence concerning this matter to the
Hearing Officer no later than August 22, 1977. Submission of written
briefs was made by both parties before that date.
On August 6, 1974, the Federal Grand Jury for the District of New
Jersey returned a 17 count indictment against Appellant alleging
violations of 18 U.S.C. 371 1001 and 2. As a result thereof, on
September 7, 1974, the Department initiated suspension against Appellant
based upon this indictment. A hearing was held on this matter on
November 13, 1974, and by Initial Determination issued on February 21,
1975, the Department upheld Appellant's suspension. In the interim, the
Federal Grand Jury for the District of New Jersey returned a 35 Count
superseding indictment against Appellant on January 7, 1975, charging
violations of 18 U.S.C. 371 1010, and (2) (Gov't. Exhibit No. 2). On
January 11, 1977, Appellant entered a plea of guilty to Count 18 of the
second indictment and on March 25, 1977, he was sentenced in the United
States District Court for the District of New Jersey and was given a two
year suspended sentence and placed on five years probation (Gov't.
Exhibit No. 3). In addition, one of the conditions of the probation was
that Appellant make restitution to HUD for the losses it incurred in the
sum of $23,737.70 as a result of the default on the mortgage to which
Appellant had submitted the false application. The second condition of
probation was that Appellant would not be involved in any loan or loan
guarantee transaction to which either the Federal or State Governments
were a party unless involvement by Appellant was supervised by a
responsible individual.
The Government asserts that by his plea of guilty, Appellant admitted
his active participation in a scheme designed to commit a fraud upon the
Department, whereby HUD would insure mortgages for prospective
homebuyers who would not have qualified for HUD mortgage insurance if
the true facts concerning the mortgagors application had been made
known. In this particular instance, Appellant pled guilty to falsifying
the income of a mortgagor when in fact he knew such information was
false. The act of placing a person, who could not afford to carry the
mortgage, into a HUD-owned property resulted in a loss to the Government
of $23,737.70. Subsequently, as a result of negotiations between
Appellant and the United States Attorneys Office in New Jersey,
Appellant made payment to the Government of $10,000 in settlement of the
defaulted mortgage. The Government states that the issue of Appellant's
responsibility is a primary importance in this matter here. HUD must
rely on the responsibility and honesty of individuals with whom it
deals. In this particular instance, Appellant's criminal conduct
displays a lack of responsibility and dishonesty on his part. Government
Counsel states that Appellant's conduct warrants imposition of a period
of debarment for four years.
Appellant's Counsel points to Appellant's suspension from
participation in HUD programs since September 9, 1974, based upon the
original indictment returned against Appellant. This suspension has
remained in full force and effect since that time. Appellant asserts
that he has made restitution of the money owing to HUD and has been
adjudged by the probation office of the United States District Court in
New Jersey to be rehabilitated to a degree where his employment in the
real estate business would not be incompatible with the welfare of
society. Additionally, the United States District Judge who sentenced
Appellant imposed a special condition for probation upon the Appellant
in that he should not handle any transactions involving a loan or
guarantee, or insurance of a loan by Government Agencies, State or
Federal, except under the supervision of a licensed person. Moreover,
Appellant's Counsel points out that in addition to this condition of
probation, the fact remains that Appellant's period of probation is for
five years and therefore remains in effect through 1982. Appellant's
Counsel entered in to the record a number of letters of character
reference which represent that Appellant is aware of the seriousness of
his criminal act, and that there is every reason to believe that he will
not be involved in criminal activity in the future (Appellant's Exhibits
1A-1C). In addition, the State of New Jersey, through its regulatory
body, the Real Estate Commission, has reinstated Appellant to license as
a real estate broker. Therefore, Appellant argues that debarment is an
unnecessary and unwarranted action insofar as Appellant is concerned,
because he is under certain restrictions by the District Court which
would protect any interest that the Government might have under any
transaction which involved an insured loan from the Department.
The pertinent provisions of 24 C.F.R. 24 applicable to this matter
are as follows:
Section 24.4 Definitions
(a) "Debarment means, exclusion from participation in HUD
programs for a reasonable, specified period of time commensurate
with the seriousness of the offense or the failure or inadequacy
of performance generally not to exceed five years + + +
(f) "Contractors and Grantees." Individuals, + + + that are
direct recipients of HUD funds or that receives HUD funds
indirectly through non-Federal sources including, but not limited
to + + + real estate agents and brokers + + + all participants, or
contractors with participants, in programs where HUD the guarantor
or insurer + + +
Section 24.6 Causes and conditions applicable to determination
of debarment.
Subject to the following conditions, the Department may debar a
contractor or grantee in the public interest for any of the
following causes:
(a) Causes. (1) Conviction for commission of a criminal offense
as an incident to obtaining or attempting to obtain a public or
private contract, or subcontract thereunder, or in the performance
of such contract or subcontract.
(6) Making or procuring to be made any false statement for the
purpose of influencing in any way the action of the Department.
(b) Conditions + + + (2) The existence of a cause set forth in
paragraph (a) (1) and (2) of this section shall be established by
criminal conviction by a court of competent jurisdiction at the
discretion of the appropriate official.
Here, Appellant entered a plea of guilty to Count 18 of a 35 count
indictment. At the time of entering a plea of guilty to the judge in the
United States District Court for the District of New Jersey, Appellant
readily acknowledged the fraud that he had committed against the
Department. In his response to the Judges guestion at the time of
entering his guilty plea, he stated that he knew false forms were being
submitted to the Department in that they showed employment information
about a mortgagee with earnings of $541.00 per month and he knew in fact
that this amount was wrong.
Appellant applied for an FHA contract of insurance, therefore, he was
a "contractor or grantee," and thus comes within the applicability of 24
C.F.R. 24. In addition, since Appellant entered a guilty plea to making
false statements to the Government, his unlawful conduct is a cause for
debarment as it comes within the meaning of 24.6(a) and 24.6( a)(6) in
that Appellant committed a criminal offense as an incident to obtaining
or attempting to obtain a public or private contract of FHA insurance.
In addition, Appellant made a false statement for the purpose of
influencing the action of the Department. The false statement made by
Appellant to the Department caused the Department to finance a mortgage
where the mortgagor was financially unable to make the monthly payments.
As a result thereof, a default incurred on the mortgage which resulted
in an unnecessary expenditure of the HUD insurance fund. As a result of
this foreclosure, HUD incured a loss of $23,737.70 on the property
involved. Appellant has acknowledged his indebtedness to the Government
and has negotiated a settlement agreement with the Department of $10,000
in repayment of this foreclosed mortgage. The acts to which Appellant
has entered a plea of guilty strike at the very integrity of the FHA
insurance program. This program was established by Congress to afford
purchasers of homes to acquire mortgage insurance which might not be
otherwise available to him. When this insurance fund is diminished as
was the case here it only results in a public mistrust of the FHA
program. Here the Government suffered a direct loss of over $20,000 as a
result of the false statements submitted to it.
The reasons stated above are causes and grounds for debarment. It is
noted that Appellant has been suspended since 1974 and under the
regulations as presently applicable, Appellant can be debarred up to a
period of five years for the act to which he has pled guilty (24 C.F.R.
24, Fed. Reg. Vol, 42, No. 18 - January 27, 1977). /1/ Therefore,
consideration will be given to the length of time he has been suspended
in determining any period of debarment. In addition, in the discussion
between the Appellant and the Judge at the time of sentencing, it
appears that Appellant is now aware of the seriousness of his offense
and the record indicates that he has suffered a great loss as a result
of his criminal activity. Moreover, the record indicates that in the
State of New Jersey, the cognizant officials in the Real Estate
Commission there believed Appellant should be restored to a real estate
brokerage license, with the protective safeguards that exists as a
result of the Judge's sentence. Therefore, although a willful commission
of a crime which causes a loss to the Government is cause for debarment
which should not be lightly considered, based upon the entire record in
this matter, it is my Determination that Appellant should be debarred
and the period of debarment should be for one year. This Determination
takes into consideration the length of time that Appellant has already
been suspended, the fact that he has apparently rehabilitated himself,
the attestation of his rehabilitation by several character references
and, moreover, the terms of the probation imposed upon Appellant by the
District Judge which will remain in effect until 1982.
It is my Determination that it is in the best interest of the public
that Appellant be debarred for a one year period effective from the date
of this determination and continuing to January 18, 1979.
1/ It should be noted that at the time of the suspension of Appellant
a maximum period of debarment was three years (24 C.F.R. 24, Fed. Reg.
Vol. 36, No. 246, December 27, 1971). However, the new regulations carry
administrative sanctions, they are not penal statutes, and therefore,
they do have a prospective application and govern the disposition of
this matter. Gonzalez v. Freeman, 334 F. 2d 570, (D.C. Cir. 1964).
of
this matter. Gonzalez v. Free