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STANKO PACKING CO. v. BERGLAND

May 16, 1980

STANKO PACKING COMPANY, INC., Plaintiff,
v.
Bob BERGLAND, Secretary of Agriculture et al., Defendants.



The opinion of the court was delivered by: GREEN

MEMORANDUM OPINION

This action arises under the Administrative Procedure Act, 5 U.S.C. § 701 et seq., and the National School Lunch Act, 42 U.S.C. § 1751 et seq. By agreement of the parties, plaintiff, Stanko Packing Company, Inc., (Stanko) withdrew its motion for a preliminary injunction and agreed to a hearing on the merits pursuant to Fed.R.Civ.P. 65(a)(2).

 Stanko, a Nebraska corporation engaged in the slaughter of livestock and the processing and sale of meat products, instituted this action against Bob Bergland, Secretary of the United States Department of Agriculture (USDA) and other USDA officials to challenge an April 1, 1980 suspension barring Stanko from bidding on or being awarded contracts to supply meat for USDA programs. Until January 3, 1980 Stanko had submitted bids for, and had been awarded contracts to supply meat products to the USDA.

 The events leading to Stanko's suspension from the USDA program began on November 2, 1979 when Glasgow Packing Company (Glasgow), Stanko's affiliate, was suspended from participating in any USDA contract awards for preparing, selling, offering for sale and transporting nonfederally-inspected meat products because of evidence indicating that Glasgow Packing Company "may have committed an offense indicating a lack of business integrity or business honesty which seriously and directly affects the question of its responsibility as a government contractor." (Pl. Exhibit 1) Neither Glasgow's suspension nor the affiliation between Stanko and Glasgow are contested by plaintiff.

 Stanko was subsequently advised by letter dated January 3, 1980 that because USDA determined it to be an "affiliate" of Glasgow within the meaning of 41 C.F.R. § 1-1.601-1(e), of the Federal Procurement Regulations, Stanko would also be suspended and "so long as that affiliation continues, bids and proposals will not be solicited from Stanko Packing Company and, if received, will not be considered. No USDA contracts will be awarded to (Stanko) while suspension of Glasgow Packing Company is in effect." 41 C.F.R. § 1-1.605-2(b), the focal point of this action, provides:

 
(1) Suspension may include all known affiliates of a concern (firm) or individual.
 
(2) A decision to include known affiliates in a proposed suspension is an individual determination and, as such, must be made on a case by case basis.

 Documents indicating that Rudy G. Stanko, Jr., Henry L. Stanko, Jr., and Robert Stanko were principal partners in Glasgow and also principal officers of Stanko led USDA to find a management relationship constituting an affiliation. (Pl. Exhibit 5) The applicable regulation, 41 C.F.R. § 1-1.601-1(e), defines affiliates as follows:

 
"Affiliates" means business concerns which 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.

 The January 3, 1980 letter from USDA to Stanko also reiterated that suspension was an appropriate measure because:

 
beef carcasses processed at Glasgow Packing Company, which was suspended from bidding on USDA procurements, have been and are likely to be shipped to Stanko Packing Company for possible use in the fulfillment of USDA contracts.

 (Pl. Exhibit 5)

 Stanko's counsel, upon inquiring, was advised by USDA, that "the investigation confirmed the affiliation between Glasgow and Stanko and implicated Stanko and Glasgow officials in offenses involving the movement of unwholesome meat in the Department of Agriculture programs." (Pl. Exhibit 9) The Federal Procurement Regulations, 41 C.F.R. § 1-1.605-3 required only that the notice of suspension describe the nature of the irregularities in general terms without disclosing the Government's evidence in the ongoing investigation.

 A hearing on Stanko's suspension was convened on January 31, 1980 at which time evidence and oral arguments by counsel were made a part of the record. Stanko was formally suspended on April 1, 1980 and now challenges both the adequacy of that hearing as well as the continued suspension imposed by USDA. Arguing that the administrative record is devoid of any evidence of direct involvement by Rudy G. Stanko, Jr., Henry L. Stanko, Jr. or Robert Stanko in Glasgow or evidence tending to show they violated the Federal Meat Inspection Act, 21 U.S.C. § 601 et seq., plaintiff charges that the suspension was arbitrary, capricious and an abuse of discretion, in violation of the Administrative Procedure Act, 5 U.S.C. § 701 et seq. Moreover, according to plaintiff, the suspension is ...


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