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COMMITTEE OF BLIND VENDORS OF THE DIST. OF COLUMBI

April 17, 1990

COMMITTEE OF BLIND VENDORS OF THE DISTRICT OF COLUMBIA, et al., Plaintiffs,
v.
DISTRICT OF COLUMBIA, et al., Defendants



The opinion of the court was delivered by: GASCH

 OLIVER GASCH, UNITED STATES DISTRICT JUDGE.

 This is a class action lawsuit brought by blind vendors and their representatives against the District of Columbia Rehabilitation Services Administration and other District of Columbia agencies. Plaintiffs claim that defendants have mismanaged the district's Randolph-Sheppard program to the detriment of plaintiffs and the class. Plaintiffs seek a writ of mandamus to compel defendants to adhere to the Randolph-Sheppard Act, and damages of more than $ 800,000 for breach of contract. *fn1"

 On October 7, 1988, the Court denied defendants' motion to dismiss or, in the alternative, for summary judgment. The Court rejected defendants' arguments, holding that plaintiffs had standing and were not barred from seeking relief in a judicial forum for failure to exhaust their administrative remedies. Committee of Blind Vendors v. District of Columbia, 695 F. Supp. 1234, 1237-40 (D.D.C. 1988). The Court also held that monetary damages were available to aggrieved vendors under the Randolph-Sheppard Act, and rejected defendants' argument that plaintiffs' claims were improper since the named agencies had the sole discretion to allocate agency resources. Id. at 1240-42. Finally, the Court concluded that this action met the requirements of Federal Rule of Civil Procedure 23(b)(3) and that a class action was appropriate. Id. at 1242-44.

 Following an allowance of time for discovery and other pretrial matters, the Court held a five-day bench trial from December 18 to December 22, 1989. Approximately 175 exhibits comprising many hundreds of pages were received into evidence. The most significant exhibits consisted of financial audits, program compliance reviews, and correspondence between the blind vendors and the agencies. On February 8, 1990, the parties submitted their proposed findings of fact and conclusions of law. Upon consideration of the testimony of the witnesses at trial, the exhibits filed with the Court, and the entire record herein, the Court has now made its findings of fact and conclusions of law. Before elaborating these findings, however, it is necessary first to outline in broad contours the relevant provisions of the Randolph-Sheppard Act and the nature of plaintiffs' claims.

 I. THE STATUTORY FRAMEWORK

 The Randolph-Sheppard Vending Stand Act, 20 U.S.C. §§ 107-107f ("the Act"), was first enacted in 1936. Its purpose was to provide employment opportunities on federal property to blind vendors, to afford them self sufficiency, and to further federal rehabilitative efforts on their behalf. 20 U.S.C. § 107(a); H.R. Rep. No. 1094, 74th Cong., 1st Sess. 2 (1936); S. Rep. No. 937, 93d Cong., 2d Sess. 5 (1974). The Act was twice amended, in 1954 and 1974. As several courts have chronicled, Congress intended through these amendments to strengthen the Act in several important respects and to confer on the blind vendors legally enforceable rights. Texas State Comm'n for the Blind v. United States, 796 F.2d 400, 402-03 (Fed. Cir. 1986), cert. denied, 479 U.S. 1030, 93 L. Ed. 2d 828, 107 S. Ct. 874 (1987); Delaware Dep't of Health and Social Servs. v. United States Dep't of Educ., 772 F.2d 1123, 1126-31 (3rd Cir. 1985).

 Another aspect of the program relevant to this lawsuit concerns the collection and distribution of vending machine income. The Act requires that a percentage of vending machine income obtained from machines located on federal or District property be turned over for the benefit of the blind vendors. 20 U.S.C. 107d-3. *fn2" This requirement was added to the Act in 1954, following congressional dissatisfaction with the limited expansion of the blind vendor program which stemmed in part from the competition presented by automatic vending machines. See Texas State Comm'n for the Blind v. United States, 6 Cl. Ct. 730, 732-34 (Ct. Cl. 1984) (reviewing legislative history of the Act), rev'd on other grounds, 796 F.2d 400 (Fed. Cir. 1986). If the vending machine directly competes with a vending facility, the blind licensee who operates that facility is entitled to 100% of the vending machine income. 20 U.S.C. § 107d-3(a). If the vending machine does not directly compete with a vending facility, the vendors are entitled to either 30% or 50% of the income, depending on the nature and use of the property. Id. § 107d-3(b). When no licensee is operating a facility on the property, the vending machine income is deemed "unassigned" and accrues to the blind vendors' pension fund. Id. § 107d-3(c). See also 34 C.F.R. § 395.32.

 At the federal level, the Act delegates to the Secretary of Education ("Secretary") the responsibility for interpreting and enforcing its provisions. In turn, the Secretary is authorized to designate state licensing agencies ("SLA's") to operate the program at the state and local levels. The SLA's are designated following an application and approval process through which they agree to adhere to the requirements of federal law. The SLA's are directly responsible for licensing the blind vendors. 20 U.S.C. §§ 107a(a)(5), 107b; 34 C.F.R. §§ 395.5, 395.7. With respect to obtaining a vending stand, the statutory scheme is two-tiered. A prospective vendor must first apply for a license from an SLA; the SLA in turn applies to a federal agency for placement of the licensee on federal property. Randolph-Sheppard Vendors of America v. Weinberger, 254 U.S. App. D.C. 45, 795 F.2d 90, 93, 102 (D.C. Cir. 1986); see 20 U.S.C. § 107a(a)(5), (c); 34 C.F.R. §§ 395.7, 395.16, 395.35.

 Finally, the Secretary is required to ensure, through appropriate regulations, that licensed vendors receive uniform and adequate training, including on-the-job training. The regulations delegate to the SLA's the responsibility to provide uniform and adequate training of the vendors. See 34 C.F.R. § 395.11. The SLA's are further required to provide upward mobility training and follow-up services to ensure that each vendor's "maximum vocational potential is achieved." 20 U.S.C. § 107d-4.

 II. FINDINGS OF FACT

 The Parties

 1. Plaintiff the Committee of Blind Vendors (Blind Vendors Committee, or "BVC") is an organization established by the District of Columbia government in Mayor's Order No. 77-131 (Aug. 8, 1977) pursuant to 20 U.S.C. § 107b-1(3). The BVC is comprised entirely of licensed blind vendors and represents the interests of such vendors under the Randolph-Sheppard Act. Plaintiff Randolph-Sheppard Vendors Association of the District of Columbia, Inc. ("Vendors Association"), is a not-for-profit corporation comprised of licensed blind vendors in the District of Columbia.

 2. Plaintiff Gale Conard is a blind vendor licensed in the District of Columbia. He operates a vending facility at 601 D Street, N.W., Washington, D.C., is president of the Vendors Association, and is a member of the BVC. Plaintiff Veronica Holt is a blind vendor licensed in the District of Columbia. She operates a vending facility at the Department of Agriculture, 14th Street and Independence Avenue, N.W., Washington, D.C., is coordinator of the BVC, and is a member of the Vendors Association.

 3. On September 28, 1988, the Court granted plaintiffs' motion for certification as a class action. Committee of Blind Vendors, 695 F. Supp. at 1242-44. The class of plaintiffs herein consists of all blind vendors licensed to operate in the District of Columbia. There are approximately 63 blind vendors in the class. Complaint at 14, para. 2.

 4. Defendant District of Columbia is a municipality and the locus of the seat of national government. Defendant Marion Barry, Jr., is the Mayor of the District of Columbia and is ultimately responsible for the execution of human service programs within the city, including the execution of the Randolph-Sheppard program.

 5. Defendant Peter Parham is Director of the Department of Human Services in the District of Columbia. Defendant Katherine A. Williams is Acting Administrator of DCRSA, a position she has held since March 1, 1987. Williams Tr. 66 (day 3). As Acting Administrator, Ms. Williams is currently responsible for overseeing the operations of the Randolph-Sheppard program in the District of Columbia.

 6. Defendant Vernon E. Hawkins is currently Deputy Director of the Department of Human Services in the District of Columbia. He was Administrator of DCRSA from 1981 until February 1985, during the period in which many of plaintiffs' claims arose. Hawkins Tr. 6 (day 3). During the months of December 1984 and January 1985, Donald Brooks filled in for Mr. Hawkins in his capacity as Acting Administrator of DCRSA, as Mr. Hawkins was at that time Acting Commissioner of Social Services. Hawkins Tr. 28-29 (day 3); Brooks Tr. 40-41 (day 4).

 The Nominee Structure

 8. The Act and its implementing regulations permit the SLA to utilize a "nominee agency" to more efficiently deliver services to blind vendors. The SLA is not required to utilize the services of a nominee, and may instead operate the program on its own. The nominee, if utilized, is to "act as [the SLA's] agent in the provision of services to blind licensees under the State's vending facility program. . . ." 34 C.F.R. § 395.1(1). The nominee is responsible for overseeing the day to day operations of each blind vendor. The nominee is also responsible for providing management services and administrative support, including the payment of salaries to employees of a blind vendor's stand, the collection of vending machine income from designated property, the preparation of personal financial statements for each blind vendor, and the maintenance and repair of vendor equipment. P-125 at 4.

 9. The services provided by the nominee are paid for by an administrative levy assessed against the net proceeds of each blind vendor. In 1976, the levy was as high as 38% for some categories of services. Effective July 1, 1984, the levy was reduced to a flat rate of 28%. In 1985 it was reduced to 24%, and in 1986 it was further reduced to 21%. Since 1986, the administrative levy has remained at 21%. P-2; P-116; P-125 at 4; Butka Tr. 143-44 (day 1); Williams Tr. 157-58 (day 4).

 10. Under an agreement with the District of Columbia Department of Human Resources, District Enterprises for the Blind, Inc. ("DEB"), a nonprofit corporation, was the nominee organization that provided management services to blind vendors in the District of Columbia from December 1, 1976 to December 31, 1984. George Reed, who worked as a blind vendor for nearly 40 years, was the president of DEB from 1971 until its dissolution in 1985. P-2; D-11; D-20; Reed Tr. 149 (day 1).

 11. DEB's operations were financed solely through funds collected from the individual vendors, that is, through the administrative levy. In fiscal year 1984, the levy totalled more than $ 600,000. P-125 at 5. Neither the District of Columbia government nor the federal government contributed supporting funds to assist DEB's management operations. Butka Tr. 125-26 (day 1).

 12. On the whole, the blind vendors were satisfied with DEB's performance and regarded DEB's personnel to be experienced and qualified. Although there were some problems, DEB was generally well-managed and tended to improve as the organization matured. Conard Tr. 12 (day 2); Shanahan Tr. 93 (day 2); Zakarian Tr. 166 (day 1).

 13. On January 3, 1983, DCRSA commissioned an independent study of DEB in an effort to improve the blind vendor program in the District. The study was performed by Ensight, Incorporated, a nonprofit management and business assistance firm. D-14. The Ensight study recommended retaining DEB as the nominee, subject to an internal restructuring of DEB's management activities. D-14 at 30; Hawkins Tr. 17 (day 3).

 14. On September 12, 1984, DCRSA gave a 90-day notice of termination to DEB. The terms of the contract between the District of Columbia and DEB allowed for such termination without cause. The termination of DEB's contract was initiated by Vernon Hawkins. Herron Tr. 95 (day 3). DEB's termination as nominee became effective December 31, 1984. D-23 (letter from Donald Brooks to George Reed, Sept. 12, 1984).

 15. The blind vendors and the BVC strenuously objected to the termination of DEB. They urged DCRSA to restructure DEB rather than contract out for management services. P-23; P-27; Holt Tr. 66 (day 2). Nonetheless, DCRSA unilaterally decided to terminate DEB and "to establish a new nominee kind of structure." Hawkins Tr. 15 (day 3).

 16. DEB was terminated as the nominee notwithstanding its strong financial showing in its final year of operation. Indeed, from January to March 1984, the vending facility program in the District of Columbia experienced one of its best quarters ever. This was attributable to DEB's efforts to cut costs, improve profits, and operate more efficiently. DEB's financial position continued to strengthen through the third quarter of 1984. P-21; P-26; P-29; Butka Tr. 128-30 (day 1).

 17. According to official pronouncements, the agreement between the District and DEB was terminated because DCRSA wanted to expand the Randolph-Sheppard program into the operation of large cafeterias, and it was believed that DEB was not capable of managing such large-scale operations. However, the overriding reason that DEB was terminated as the nominee was due to a perception that DEB was functioning beyond the control of DCRSA. Reed Tr. 158-59 (day 1); Conard Tr. 10-11 (day 2); Herron Tr. 96 (day 3).

 The DAC Corporation Contract

 18. On November 16, 1984, the District of Columbia Department of Human Services issued Request for Proposal ("RFP") No. JA/85887, which was a bid solicitation for a "Comprehensive Professional Food Service Management, Consulting and Support Services Program" to be provided to blind licensees operating vending facilities in the District of Columbia under the Randolph-Sheppard program. The RFP was restricted to certified minority businesses only. P-32.

 19. In mid-November 1984, sixty-one blind vendors signed a petition opposing the termination of DEB as the nominee and urging DCRSA to accept Ensight's recommendation to retain DEB as the nominee. P-34. This petition was presented to Vernon Hawkins, who was unpersuaded and rejected DEB's pleas. On December 21, 1984, DCRSA awarded the service contract to the DAC Corporation ("DAC"), a for-profit minority business. The contract took effect January 1, 1985. D-51.

 20. DAC replaced DEB in the provision of management services to blind vendors from January 1, 1985 to September 30, 1985. In fact, however, DAC's services were terminated four months earlier, on May 31, 1985. The four month period from June 1 to September 30, 1985 represented the "winding up" of DAC's contractual services to the blind vendors. No services to the blind vendors were provided during this time. P-125 at 4; Conard Aff. (P-175) at 4; Holt Tr. 69 (day 2).

 21. Prior to May 31, 1985, DAC provided some accounting services pursuant to its contract. Specifically, DAC provided monthly settlement statements (or profit and loss sheets) to each blind vendor from January through May, 1985. However, these statements were often late and inaccurate, with the result that the vendors were unable to control their finances with accuracy. Holt Aff. (P-176) at 4; Holt Tr. 71-72 (day 2); Conard Tr. 16-17 (day 2); Shanahan Tr. 95 (day 2); Herron Tr. 65-66 (day 5). During this period also DAC collected unassigned vending commissions (those from machines in buildings in which there were no blind vendors), which were placed in the blind vendors' pension fund. Conard Tr. 16-17 (day 2). *fn3"

 22. Viewed overall, DAC provided no appreciable services to the blind vendors during the entire nine months from January 1 to September 30, 1985. Doris Shanahan testified that she received no services while DAC was the contractor. Shanahan Tr. 93-94 (day 2). Lawson Purse testified to the same effect. Purse Tr. 108 (day 2). Gale Conard testified that no DAC employee ever visited his facility, provided management services or technical assistance, or inspected his facility for sanitation and safety. Conard Aff. (P-175) at 3; Conard Tr. 18-19. Veronica Holt also testified that DAC never provided her with assistance or inspected her vending facility for sanitation and safety. Holt Aff. (P-176) at 4-5; Holt Tr. 67-68 (day 2).

 23. DAC failed to apply for and procure various business licenses for vending facilities. As a result, some vending facilities were operating illegally for a period of time. The blind vendors also did not receive needed repairs in a timely manner. P-93 at 3; Conard Tr. 29 (day 2); Holt Tr. 72, 83 (day 2).

 24. Overall, the blind vendors received inadequate services or no services at all while DAC was the contractor. DAC focused its energies on planning the development of large cafeteria operations, or "emporia," rather than on providing services to the individual vendors. Herron Tr. 67 (day 5); Drake Tr. (day 4).

 25. DAC had no experience with the Randolph-Sheppard program, no knowledge of the Act or its regulations, no experience dealing with blind persons and their particular needs, and no knowledge of the particular services the blind vendors would require. Conard Tr. 14 (day 2); Shanahan Tr. 94 (day 2); Hawkins Tr. 22-23 (day 3). As a result, DAC employees were sometimes insensitive in their dealings with individual vendors. For example, Andrew Daniel, a snack bar manager in the Archives building, was pulled from his stand for a period of about six weeks. Although defendants insist that he was pulled from his stand due to poor performance, he was given no advance notice or warning before DAC's actions, and he suffered a loss of inventory and financial injury as a result. Daniel Tr. 103-07 (day 2).

 26. A review of the expenditures incurred by DEB and DAC reveals that DAC expended far more in funds for its services than did DEB. For the twelve months ending September 30, 1984, DEB spent approximately $ 303,000 for management services, or approximately $ 25,000 per month. In contrast, for the nine months ending September 30, 1985, DAC spent approximately $ 426,000 for its services, or approximately $ 47,300 per month. Moreover, in view of the fact that the primary services to the vendors were terminated as of May 31, 1985, and that the last four months of DAC's services were spent "winding up" the contract, a realistic assessment of expenditures reflects that DAC spent approximately $ 85,000 per month over a five month period, a 250% increase over DEB's monthly average. P-125 at 5-6.

 27. In fiscal year 1984, while DEB was nominee, the District appropriated $ 51,005 to the Randolph-Sheppard program. In fiscal year 1985, while DAC was the contractor, the District appropriated $ 732,794 to the program. In other words, District appropriated funds were increased by more than 1300% between DEB's tenure and DAC's tenure. P-125 at 5.

 28. Although huge sums of money were poured into the Randolph-Sheppard program while DAC was the contractor, the blind vendors did not receive any appreciable benefits as a result. The increased funding from the District to DAC failed to "trickle down" to the vendors. Instead of increasing services to the vendors, DAC spent money for consultants, additional staff, and increased management service expenses. In short, DAC was extremely top heavy in terms of management. P-125 at 5; Troupe Tr. 11-12, 37 (day 2).

 29. All funds generated from the Randolph-Sheppard program while DAC was the contractor were funneled into the "Randolph-Sheppard Vending Stand Account - - 802-627," also known as the "627 account." The 627 account was established by the District of Columbia Department of Human Services to monitor the blind vendor program under DAC's management. The account has a zero balance, which means that all funds deposited therein were expended. D-230; D-233; Atlee Tr. 70-72 (day 4); Herron Tr. 60-61 (day 5).

 30. The regulations require that the nominee be a "nonprofit agency or organization." 34 C.F.R. § 395.1; Pacinelli Tr. 61-62 (day 1). Vernon Hawkins testified that DAC was not considered to be a "nominee," and that its for-profit status was therefore irrelevant. Hawkins Tr. 25-28 (day 3); Hawkins Tr. 14-16 (day 5). However, that testimony is unpersuasive, for several reasons. First, as described in both the RFP and the DAC contract, the services to be provided by DAC encompassed those typically provided by a nominee. Specifically, DAC was required to locate, repair, and replace vending facility equipment as such needs arose; compile and publish monthly financial reports; identify the locations of all vending machine installations and determine commission proceeds; and provide "individual consultation for Each Operator within the areas of marketing, merchandising, cash control, review of operating statements, procurement, complaints, sanitation and compliance with program policies and procedures." P-32 (Article III) (emphasis in original); P-51 at 3-4. Second, DCRSA represented to the blind vendors that DAC would take over the functions of a nominee. See P-39 (correspondence from Donald Brooks to individual blind vendors, Dec. 14, 1984). Finally, throughout the trial, witnesses for both plaintiffs and defendants referred to DAC as a "nominee" or conceded that DAC performed the functions of a nominee. Herron Tr. 104-05 (day 3); Brooks Tr. 33, 45 (day 4); J. O'Connell Tr. 85 (day 4); B. O'Connell Tr. 132 (day 4).

 31. Even before the DAC contract was negotiated, DCRSA administrators were on notice that a service contract with DAC might violate the Randolph-Sheppard Act. On November 30, 1984, Robert Humphreys, counsel for the blind vendors, wrote to Vernon Hawkins and expressed his legal opinion that a contract with DAC for the provision of management services would violate federal law in view of DAC's for-profit status. P-34. Mr. Hawkins took no immediate legal action with respect to this objection. Hawkins Tr. 27-28 (day 3). Blind vendors also directly expressed their concerns that there was no substantive difference between the services provided by DEB and those provided by DAC. P-45 (list of questions submitted to DCRSA in early 1985); Holt Tr. 72-73 (day 2); P-46 at 2 (letter from Veronica Holt to Dr. Pacinelli, Feb. 4, 1985). On March 1, 1985, about a dozen blind vendors walked a picket line in front of DCRSA offices to protest the change in management from DEB to DAC. P-49 (attachment).

 32. On March 14, 1985, the federal Rehabilitation Services Administration ("RSA"), a subdivision of the United States Department of Education, informed DCRSA that DAC was functioning as a "nominee" within the meaning of the Randolph-Sheppard Act. Specifically, the RSA found that the range of services DAC contracted to provide "raises the question of whether DAC provides a discrete technical service, or functions as a new nominee organization." The RSA concluded: "The similarity between the DAC contract and a nominee agency agreement causes this Office to believe that DAC functions as a nominee rather than as a contractor providing a management service." P-174 at 1; Pacinelli Tr. 74 (day 1). This conclusion was reached after RSA staff undertook a comparison of the services provided by DEB with those provided by DAC. Pacinelli Tr. 78 (day 1).

 33. Following discussions and negotiations with the blind vendors, on March 21, 1985, DCRSA notified the BVC that the contract with DAC would be terminated. P-54. On April 3, 1985, DCRSA informed Carthur Drake, President of DAC, that DAC's contract would be terminated effective May 21, 1985, because it appeared that DAC was "a for profit corporation ...


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