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03/22/90 BILLIE R. SCHLANK v. KATHERINE A. WILLIAMS

March 22, 1990

BILLIE R. SCHLANK, APPELLANT
v.
KATHERINE A. WILLIAMS, ET AL., APPELLEES



Appeal from the Superior Court of the District of Columbia; Hon. Frederick H. Weisberg and Hon. Gladys Kessler, Motions Judges.

Before Steadman, Schwelb, and Farrell, Associate Judges.

The opinion of the court was delivered by: Farrell

FARRELL, Associate Judge: This is an appeal from a grant of summary judgment on one count of a five count complaint in favor of appellee Katherine A. Williams, Acting Administrator of the Rehabilitation Services Administration of the District of Columbia Department of Human Services (RSA). The appellant, Ms. Billie R. Schlank (Schlank), is a blind vendor operating a vending stand in the District of Columbia pursuant to the Randolph-Sheppard Act, as amended (the "Act"), 20 U.S.C. § § 107 to 107f (1982), and its implementing regulations, 34 C.F.R. §§ 395.1 to 395.38 (1988). She contends that the Superior Court erred as a matter of law in concluding that the Act prohibits a blind vendor from deducting legal expenses incurred in the operation of her stand when calculating her net monthly profits. Such a deduction would have a significant effect on Schlank's income since all participating vendors are assessed a monthly administrative levy by RSA based upon a percentage of their net profits. Once collected, this levy goes into a general fund for the benefit of all blind vendors.

Schlank also appeals from an order denying her motion for attorneys' fees incurred in her administrative dealings with RSA and in this litigation. She contends that the Act allows for the recovery of attorneys' fees or, in the alternative, that such fees are warranted by RSA's history of bad faith or oppressive conduct in dealing with her both before and during the litigation.

We affirm the judgment and order of the trial court.

I.

The Randolph-Sheppard Act was passed "for the purposes of providing blind persons with remunerative employment, enlarging the economic opportunities of the blind, and stimulating the blind to greater efforts in striving to make themselves self-supporting." 20 U.S.C. § 107 (a). The program is administered on the federal level by the Rehabilitation Services Administration of the Department of Education (DOE), 20 U.S.C. § 107a (a)(1), which designates state agencies to run the program on the local level. Id. at 107a (a)(5); 34 C.F.R. § 395.2. RSA is the agency which administers the program in the District of Columbia. The state agency then licenses eligible blind persons who are authorized to operate vending facilities on federal property. Id.; 34 C.F.R. § 395.7.

The state agency is also responsible for the administrative functions involved in overseeing the program, including the collection of an administrative levy from each vendor based upon a percentage of net monthly proceeds. *fn1 This levy is then placed in a general fund for the benefit of all licensed vendors. In its application to DOE for designation as the state licensing agency, the state agency agrees, inter alia, that any funds set aside from vendors' net proceeds may be used only for the purposes of "(A) maintenance and replacement of equipment; (B) the purchase of new equipment; (C) management services; (D) assuring a fair minimum return to operators of vending facilities; and (E) retirement or pension funds, health insurance, and provision for paid sick leave and vacation time, if it is determined by a majority vote of blind licensees . . . that funds under this paragraph shall be set aside for such purposes." 20 U.S.C. § 107b (3); 34 C.F.R. § 395.9. *fn2 The state agency also agrees to provide written procedures by which a blind vendor dissatisfied with any action taken by the agency in administering the program may obtain a full evidentiary hearing at the state level, and to submit grievances not otherwise resolved to DOE for arbitration. 20 U.S.C. § 107b (6); 34 C.F.R. § 395.13 (a). *fn3 At the time of the proceedings in this case, RSA had established no such procedures in the District of Columbia.

Section 107d-3 (a) of the Act provides that any income derived from the operation of vending machines on federal property shall be distributed to vendors operating facilities on that property *fn4 or, if there are no vendors operating facilities on the property, to the state agency to be used for the benefit of all licensees.

II.

Schlank was licensed as a blind vendor in 1976 and was assigned to operate a vending facility in the State Department building in February of 1977. Her disputes with RSA began shortly thereafter.

In mid-1977 Schlank complained to William W. Thompson, the coordinator of RSA's vending facility program, that she was not receiving the income from vending machines in the building to which she was entitled under section 107d-3 (a) of the Act and that RSA was not making a sufficient effort to collect this income. Although Thompson responded that he was attempting to resolve the situation through negotiation with federal officials, Schlank was dissatisfied with these efforts. *fn5 She therefore sought a full evidentiary hearing as provided by the Act. Since RSA had failed to promulgate rules for such hearings, a hearing was held under the auspices of the Fair Hearings Division of the Department of Human Resources. See D.C. Code §§ 3-210.1 to 210.19 (1988). After a decision in her favor in May of 1978, however, Schlank received a letter from the chief of the Fair Hearings Division stating that it was without jurisdiction to hear the dispute and thus the decision was not binding or enforceable. Schlank was later told by RSA that she and the other vendor in the State Department building would both receive their proper shares of the vending machine income. This apparently resolved the issue.

In June of 1983, Schlank requested permission from RSA to service and stock vending machines in the State Department building. RSA denied this request on July 5, 1984, based in part upon a new RSA regulation or "program instruction" establishing criteria for vendors wishing to service vending machines. In order to qualify, vendors were required to achieve a certain percentage of gross and net profits from the operation of their vending facilities; these percentages varied depending on the classification of the facility. Schlank's facility was classified as a "snack-bar" and she was unable to meet the applicable percentages. The same criteria were used in determining eligibility for promotions and transfers. Schlank perceived that, under these criteria, only she and the other vendor in the building were excluded from servicing vending machines or being considered for promotion, and that she had been singled out for harassment because of her outspokenness. *fn6

Schlank was also involved in a dispute with RSA regarding the right of a blind vendor to incorporate. Despite opinions from DOE that the Act did not prohibit incorporation, RSA threatened Schlank with revocation of her license should she do so. In addition, beginning in 1984 Schlank deducted her legal costs as a business expense from her monthly levy by RSA. The agency questioned whether this was a proper deduction, sought advice from DOE on the subject, and ultimately informed Schlank that it would bill her for "unauthorized" deductions. *fn7

On February 15, 1985, Schlank filed a five count complaint in Superior Court against Katherine Williams, the acting administrator of RSA, seeking declaratory and injunctive relief. *fn8 In count one, Schlank sought a declaratory judgment that RSA had denied her application to service vending machines in the State Department building on the basis of arbitrary and capricious regulations. She further alleged that these regulations were without legal effect because they had not been promulgated in accordance with the District of Columbia Administrative Procedure Act. See D.C. Code § 1-1501 (1987). Count two made the same contentions with regard to RSA's regulations governing promotion and transfer opportunities. In count three, Schlank sought a declaratory judgment regarding her right to deduct her legal fees as an operating expense from the monthly administrative levy on her net proceeds. In counts four and five she sought a declaratory judgment or order allowing her to incorporate or, in the alternative, an exemption from and/or a refund of District of Columbia Business Franchise taxes already paid. The parties filed cross-motions for summary judgment.

In a July 16, 1987 order Judge Wagner granted, in part, Schlank's motion for summary judgment and denied that of RSA. *fn9 With regard to counts one and two, Judge Wagner found that the program instructions establishing new eligibility requirements for vendors wishing to service vending machines and for transfers and promotions constituted new rules that had not properly been promulgated, and so were without legal effect. *fn10 Judge Wagner denied summary judgment on count three, reserving for trial the issue of whether legal expenses are deductible when computing a vendor's net proceeds. With regard to incorporation, the Judge concluded that neither the Act nor any regulation prohibits a vendor from incorporating, ...


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