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ART-METAL USA, INC. v. SOLOMON

October 6, 1978

ART-METAL USA, INC., Plaintiff,
v.
Joel W. SOLOMON, Administrator, General Services Administration, and General Services Administration, Defendants



The opinion of the court was delivered by: GREENE

Several months ago, Art Metal began to achieve some notoriety when a series of local newspaper articles describing the government's broad-scale investigation into GSA operations *fn1" began to focus on that agency's relationship with Art Metal. By the end of August, stories had appeared in both the Washington Post and the Washington Star concerning Art Metal's alleged failure to meet GSA specifications, inferior products, and possible abuses in contract dealings with GSA. *fn2"

 On August 24, 1978, in the normal course of procurement operations, Art Metal received a formal notice of award of the government's October, 1978 September, 1979 vertical file cabinet requirements contract worth approximately.$ 9.4 million. Art Metal is the holder of the present file cabinet contract and was the lowest bidder by $ 5 million on next year's contract. That same day, however, a telegram was sent to Art Metal terminating the contract in its entirety, with no explanation other than "for the convenience of the government." Since then, the awards on four additional GSA contracts for which Art Metal had bid have been, and are being, held in abeyance beyond the time when they would have been made in the normal course of business.

 On September 5, 1978, Art Metal filed this complaint alleging that the termination of the file cabinet contract implemented an unlawful debarment of it by GSA, without prior notice or hearing, in violation of the Constitution, the Administrative Procedure Act, and GSA's own regulations. *fn3" The complaint requested a declaratory judgment as to the unlawful debarment, and preliminary and permanent injunctions enjoining defendants from taking any act in furtherance of the debarment from this contract, and ordering them to rescind all agency action taken to effectuate that debarment.

 After hearing the arguments of counsel for both sides, the Court denied issuance of a temporary restraining order on September 6, 1978, and granted Art Metal leave to engage in discovery to enable the Court to ascertain whether the facts supported a finding of debarment as distinguished from a simple contract termination. The case is now before the Court on Art Metal's motion for preliminary injunction.

 I

 In determining whether Art Metal is entitled to a preliminary injunction, the relevant factors are: (1) whether plaintiff has demonstrated that it will suffer irreparable injury absent such relief, (2) whether there is a substantial likelihood that it will prevail on the merits, (3) whether the issuance of an injunction would substantially harm other parties interested in the proceedings, and (4) wherein lies the public interest. Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 182 U.S.App.D.C. 220, 559 F.2d 841, 843 (1977); Virginia Petroleum Jobbers Association v. F. P. C., 104 U.S.App.D.C. 106, 259 F.2d 921, 925 (1958). These factors are discussed below.

 II

 The question of irreparable injury to Art Metal may be disposed of rather summarily. Art Metal has produced credible evidence that the vast majority of its business for more than twenty years has been to supply office furniture to the GSA; that the file cabinet contract which was terminated on August 24 represents approximately one-third of its total government sales; that its present file cabinet contract expired on September 30, 1978, and most of its remaining GSA contracts shortly thereafter; and that absent an injunction, it will be put out of business. *fn4" Defendants do not attempt to rebut this evidence but challenge its sufficiency on the grounds that the government is not under an obligation to award to Art Metal, or anyone else, any contract at all, and that there is no evidence that Art Metal could not find another market for its products.

 These contentions are not well taken. As noted below, it is well settled that while no individual or corporation has a right to be awarded a specific government contract, one who has been dealing with the government on an ongoing basis may not be blacklisted from further contracting except for valid reasons and in conformity with the procedural safeguards established by law. Moreover, the Court would have to be blind to the realities to conclude that Art Metal would be able to shift its long-established commercial patterns to private purchasers on essentially a "moment's notice." The Court therefore finds that Art Metal has made the requisite showing of irreparable injury.

 III

 With respect to Art Metal's likelihood of success on the merits, it is clear at the outset that due process of law requires that before a contractor may be blacklisted (whether by debarment or suspension) he must be afforded specific procedural safeguards, including, Inter alia, a notice of the charges against it, an opportunity to rebut those charges and, under most circumstances, a hearing. Gonzalez v. Freeman, 118 U.S.App.D.C. 180, 334 F.2d 570 (1964); Horne Brothers, Inc. v. Laird, 150 U.S.App.D.C. 177, 463 F.2d 1268 (1972); Myers & Myers, Inc. v. U. S. Postal Service, 527 F.2d 1252 (2d Cir. 1975); Pan American World Airways, Inc. v. Marshall, 439 F. Supp. 487 (S.D.N.Y.1977). GSA's own regulations (41 C.F.R. ยงยง 1-1.600 et seq.) embody these same principles. Inasmuch as defendants readily concede that Art Metal has been afforded none of these basic protections, plaintiff's chance of succeeding on the merits is extremely high if it has in fact been debarred or suspended. *fn5"

  On the basis of the evidence *fn6" in the record, there can be no doubt but that GSA did debar or suspend Art Metal for an indefinite period. Art Metal's file cabinet contract was summarily cancelled on August 24, 1978, under conditions relating not only to that particular contract, but to Art Metal's overall status as a GSA contractor. Since that time, Art Metal's bids on four additional contracts on three of which it is the lowest bidder have been held in "what is probably described as either status quo or suspended animation (for) a point in time (which) has not been set" (Deposition of Federal Supply Services Commissioner Robert Graham, p. 45).

 GSA's managers candidly state in their depositions that they have no intention of awarding these or other contracts *fn7" to Art Metal as long as that company "is being investigated" a process they concede could continue for an unspecified ...


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