The opinion of the court was delivered by: SOTOMAYOR
SONIA SOTOMAYOR, U.S.D.J.
This is an action brought pursuant to 42 U.S.C. § 1983 and the Fourteenth Amendment of the United States Constitution seeking preliminary and permanent injunctive relief against the defendants (collectively, the "City"). Before me is a motion for a preliminary injunction by plaintiff Hellenic American Neighborhood Action Committee ("HANAC"). For the reasons set forth, the motion is GRANTED.
In this case plaintiff claims that without due process, it has been stigmatized and subjected to a de facto debarment as a bidder for City contracts based on unsubstantiated charges of corruption. The City claims that the pendency of an investigation by the Office of the U.S. Attorney, combined with preliminary findings by the City's Department of Investigation ("DOI"), as well as clearly improper and possibly criminal conduct by HANAC's president (since dismissed by HANAC's board of directors), warrant the City's refusal to renew existing contracts or enter into new ones with HANAC until completion of the investigation.
This action poses a clash between plaintiff's right to its good name and continuing status as an eligible bidder, and the limits imposed by the City's regulations upon its right to act quickly and decisively when it suspects the public fisc is being subverted by corrupt practices.
Before examining the specifics of this case, an understanding of the due process protections afforded by the City Charter and the rules promulgated thereunder to persons selling goods and services to the City is useful.
A bidder for City contracts such as the ones at issue here must clear two hurdles. First, the bidder must achieve the highest score in a complex balancing of factors relevant to contract performance, including price. Charter § 319. Second, and more relevant for this case, a bidder must be found to be "responsible" by the agency granting the contract. The two most powerful weapons the City has at its disposal to combat corruption among its vendors are a finding that a vendor is "non-responsible" and/or the suspension or debarment of a vendor. A third mechanism allows the City Comptroller to refuse to register a contract (effectively revoking it) "if in the Comptroller's judgement there is sufficient reason to believe that there is possible corruption in the letting of the contract or that the proposed contractor is involved in corrupt activity." Charter § 328(c).
Rules mandated by the City Charter set out the procedures for the use of these weapons so as to ensure fairness.
The City Charter requires that contracts be awarded to the "lowest responsible bidder," Charter § 313(b)(2), and establishes a Procurement Policy Board ("PPB") with the power to, inter alia "promulgate rules ... establishing ... standards and procedures to be used in determining whether bidders are responsible." Charter § 311.
The PPB Rules define a responsible contractor as
one which has the capability in all respects to perform fully the contract requirements and business integrity to justify the award of public tax dollars.
PPB Rules § 5-02(b)(1). The Rules do not specify an exhaustive list of factors to be considered, but merely list eight that may be included, one of which is "a satisfactory record of business integrity." PPB Rules § 5-02(b)(2)(vi). The bidder has the burden of proof to show it is "responsible." PPB Rule § 5-02(a)(2). Of significance for this action is the fact that the PPB Rules vest with the chief of each of the City's procuring agencies, and not the Mayor, the power of "final approval in the award of contracts of goods, services and construction." PPB Rules § 5-04(a).
The PPB Rules also require the City to maintain a publicly accessible computer database of all bidders (the "VENDEX") which must be checked for adverse entries by agency contracting officers. The Rules further require the DOI to search its database to determine whether a bidder has been "the subject of an investigation by the Department." If an investigation is underway, the agency may request a report from the DOI on its findings. PPB Rules § 5.02(f). The agency contracting officer and the agency head have the discretion to determine whether the DOI investigation warrants a non-responsibility finding; it is not automatic. Id.
The effect of a non-responsibility determination applies, as a formal matter, only to bids made by the non-responsible vendor to the agency making the determination. But because it must be reported on the VENDEX (PPB Rules § 5.02(g)(3)), such an action has a City-wide effect. The City's administrative code provides:
No contract for goods or services involving the expenditure of more than ten thousand dollars ... shall be let by an agency, elected official or the council, unless the contract manager or other person responsible for making the recommendation for award has certified that [the VENDEX] and information maintained pursuant to Section 6-166.1 of this code have been examined.
Administrative Code § 6-116.2(e).
The non-responsibility determination is appealable from the agency contracting officer to the agency head, and from there to the Mayor, who may delegate the authority to hear the matter to the City Chief Procurement Officer. PPB Rules § 7-03. The contract award is stayed during the pendency of the appeals. PPB Rules § 7-03(d).
B. Suspension and Debarment.
The City Charter provides that "[no] person or firm shall be suspended or debarred from contracting with the City or an agency of the City ... [without] reasonable notice and a reasonable opportunity to be heard at a hearing to be held on the record." Charter § 335(b)(1).
The PPB Rules again provide a non-exhaustive list of the grounds for debarment, including "indictment or conviction" for an enumerated list of crimes associated with corrupt practices, "except that indictment alone may be a cause for debarment only for such time as the indictment continues." PPB Rules § 7-08(a)(1)(i). Other grounds include "an agency determination of non-responsibility," PPB Rules § 708(a)(1)(vi), or "any other cause sufficiently serious and compelling that a reasonable person would seriously doubt the capability of the contractor to perform City contract requirements." PPB Rules § 708(a)(1)(xi).
The debarment process can be initiated at any time by an agency head who makes a recommendation for debarment in consultation with the Corporation Counsel, the City's legal representative. Sole authority for a debarment determination is invested with the City's Office of Administrative Trails and Hearings ("OATH"). Charter § 335(b)(i). OATH hearings must be "consistent with principles of fundamental fairness and due process." PPB Rules § 7-08(d)(1). There is no appeal to the Mayor (or any other body, except the courts) from a debarment determination by OATH. A debarment disqualifies a bidder from being awarded city contracts or exercising a renewal option for up to five years, at the discretion of OATH. Charter § 335(b)(i); PPB Rules § 7-08(i).
A suspension for up to three months may be instituted by an agency contracting officer, subject to an appeal to the agency head, "if there is probable cause for debarment." Charter § 335(b)(2). The agency contracting officer must either have "knowledge of facts which may form the basis" for a debarment petition, or actually have filed a debarment petition. PPB Rules § 7-08(c)(1). Upon notice of a suspension, the vendor has five days to challenge it in writing. The agency head must then make a final determination in writing which is not subject to further administrative appeal. PPB Rules § 7-08(e).
Additional power to investigate and block contracts believed to be secured by corrupt means is delegated by the Charter to the Comptroller. Charter § 328; PPB Rules § 5-07(h). The Comptroller's decision not to register a contract is appealable to the Mayor. PPB Rules § 507(h)(2)(i)(4).
Once administrative appeals have been exhausted, a bidder may appeal an adverse finding to the state court either as a mandamus proceeding under New York Civ. Prac. Law Rules Art. 78, or as an action at law.
Plaintiff in this action is a New York state not-for-profit community service organization. For 25 years it has received government contracts to provide various services to New York residents.
Defendant Marva Livingston Hammons is the Administrator/Coordinator of the City's Human Resources Administration ("HRA"), which had six ongoing contracts with HANAC (the "HRA Contracts"), and two new ones (the "WAY Contracts"). Defendant Seth Diamond and Violet Mitchell are HRA Deputy Commissioners involved in the letting and supervision of HANAC contracts. Defendant Department of Youth Services ("DYS") had one contract with HANAC that it has terminated "in the best interests of the City" and two which HANAC was recently granted (the "Beacon Schools Contracts"), that have also been terminated due to a finding of non-responsibility by DYS. Since this action commenced, the Department for the Aging, which had been considering HANAC for contracts where HANAC was the apparent successful bidder, notified HANAC that it has made a non-responsibility finding against HANAC. Letter of Lawrence S. Kahn dated June 20, 1996. The City has made emphatically clear in the course of this litigation that it does not intend to renew any of its contracts with HANAC or permit HANAC to bid on new ones until closure of the U.S. Attorney's investigation.
Approximately 70% of HANAC's funding is derived from contracts with the City. The remainder comes from state and federal contracts and private sources. Ten City contracts will expire on June 30, 1996, comprising approximately 35% of HANAC's revenue, and two contracts will expire on September 30, 1996, comprising about 15% of its revenue. Second Supp. Aff. of John Kaiteris in Support of Mot. for Prelim. Inj. P 4, 6, 7.
On March 27, 1996, the Comptroller issued a letter concluding "the process failures described in the March 19, 1996 letter to you violate the public trust and tenants of basic fairness and common sense." Ex. O to Pltf.'s Order to Show Cause. The same day, defendant Mayor Rudolph Giuliani directed the DOI to review all HANAC contracts. Aff. of Seth Diamond at P 14. The U.S. Attorney's Office also commenced an investigation. Decl. of Peter M. Bloch P 4. The Mayor then ordered HRA to terminate the HRA and WAY Contracts. Defs.' Mem. of Law in Op. at 6. Defendant Seth Diamond did so, citing a clause in the contracts allowing their unilateral termination on 30 days notice if the City believed it to be in its "best interests." Aff. of Seth Diamond P 15.
By letter dated April 3, DYS notified HANAC that it had been declared a "non-responsible proposer ... based on the fact that there is a ongoing investigation of HANAC, Inc. and its affiliates by the New York City Department of Investigation and the Office of the United States Attorney." Ex.Q to Pltf.'s Order to Show Cause. This action had the effect of terminating the Beacon Schools Contracts. The HRA agency contracting officer, Lin Saberski, purportedly made the non-responsibility finding "based on the fact that there was an ongoing investigation of HANAC by the New York City Department of Investigation and the Office of the United States Attorney." Aff. of Lin B. Saberski at P 4. The same day, DYS caused an entry to be made in the VENDEX stating that HANAC had been "FOUND NON-RESPONSIBLE DUE TO PENDING DOI AND U.S. ATTORNEY INVESTIGATIONS." Ex. C to Decl. of Barbara R. Keller at 5.
By letter dated April 4, Richard M. Bonamarte, Director of the Mayor's Office of Contracts, and the City's Chief Procurement Officer ("Bonamarte"), instructed the heads of all City agencies that "pending further notice, no procurement action of any kind is to be taken involving [HANAC and its affiliates], without first consulting with this Office." Ex.A to Reply Aff. of Richard M. Bonamarte (emphasis in original). It is this action that plaintiff maintains was a de facto debarment violative of its due process rights. HANAC became aware of the letter's existence only as a result of this litigation. HANAC claims it did not have notice of the de facto debarment until, in the course of this litigation, the City unequivocally indicated that it would not renew contracts nor consider new contract applications from HANAC until the U.S. Attorney concluded its investigation. Rely Mem. of Law in Further Support of Pltf.s' Mot. for Prelim. Inj. at 14.
In the course of this litigation, Bonamarte has explained the City's current policy toward HANAC as follows:
The City has not terminated existing contracts being satisfactorily performed by HANAC unless it has a contract-specific basis for believing that it is in the City's best interest to terminate a contract. In light of the pending investigation of HANAC, however, the City has not taken further procurement action involving HANAC or its affiliates, i.e. awarded new contracts or extended existing contracts. This policy will, of course, be reevaluated, and further ...