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BEVERLY ENTERPRISES, INC. v. HERMAN

August 24, 2000

BEVERLY ENTERPRISES, INC., PLAINTIFF,
V.
ALEXIS M. HERMAN, SECRETARY, UNITED STATES DEPARTMENT OF LABOR ET AL., DEFENDANTS.



The opinion of the court was delivered by: Urbina, District Judge.

    MEMORANDUM OPINION

GRANTING THE DEFENDANTS' MOTION TO STRIKE EVIDENCE; GRANTING IN PART AND DENYING IN PART THE DEFENDANTS' SUMMARY JUDGMENT MOTION; DENYING THE PLAINTIFF'S SUMMARY JUDGMENT MOTION; REMANDING TO THE AGENCY TO DETERMINE WHETHER SUBSIDIARIES MAY BE SANCTIONED

I. INTRODUCTION

Beverly Enterprises, Inc. ("the plaintiff") brings this action to set aside a final decision and order ("order") by the Department of Labor's Administrative Review Board ("the Board"). The plaintiff operates nursing homes that provide care for veterans. The defendants are the Department of Labor, the Office of Federal Contract Compliance Programs ("OFCCP") and the heads of both agencies. The order would cancel the plaintiff's current contracts with the government and bar the plaintiff and its subsidiaries from future government contracts unless the plaintiff allows the OFCCP to conduct a Corporate Management Review ("CMR") within thirty days of the order's issuance. Under the CMR, the OFCCP would inspect the plaintiff's files and headquarters to determine whether the plaintiff is complying with affirmative-action standards required for federal contractors.

The plaintiff contends the order violates its Fourth Amendment, Fifth Amendment and procedural rights. The defendants maintain that both the proposed search and the administrative proceedings that affirmed the search fully comported with the plaintiffs constitutional rights.

The defendants move to strike certain evidence that the plaintiff presents that is not contained in the administrative record compiled during the agency hearings. The defendants ask that the court base its decision solely on the administrative record. The contested evidence consists of affidavits and exhibits regarding the process by which defendant OFCCP selected the plaintiff for a CMR. The plaintiff argues this evidence is necessary to show that defendant OFCCP acted in bad faith during the agency proceedings and that the administrative record is too bare for review by this court.

Both sides have moved for summary judgment on the plaintiffs Fourth Amendment, Fifth Amendment and procedural claims. The plaintiff and the defendants contend that this court should determine, as a matter of law, whether: (1) the selection of the plaintiff for an administrative search comports with the Fourth Amendment, (2) the expedited hearing procedures used in the administrative proceedings met the Fifth Amendment's minimum Due Process requirements and (3) the A.L.J. and the Board followed agency guidelines during the administrative proceedings. The plaintiff further claims that the Board lacked the power to punish its subsidiaries for any of its violations because the subsidiaries did not have the opportunity to be heard.

The court concludes that: (1) the plaintiff may not supplement the administrative record with affidavits, (2) the selection of the plaintiff for the administrative search was valid under the Fourth Amendment, (3) the agency's expedited hearing procedures in this case met the Fifth Amendment's minimum Due Process requirements, (4) the agency's procedures did not violate the agency's guidelines, (5) the court lacks the information to determine whether the plaintiffs subsidiaries may be sanctioned for the actions of their parent company and (6) the defendants must give the plaintiff 30 days after the Board's final ruling to comply with its affirmative-action responsibilities before it can enforce the sanctions. The case is therefore remanded to the Administrative Review Board of the Department of Labor for proceedings consistent with this opinion.

II. BACKGROUND

The plaintiff is an Arkansas corporation that operates nursing homes that provide skilled nursing care for veterans. See Administrative Record (hereinafter "R.") at 1567. In various contracts with the Veterans Administration, the plaintiff has agreed to be bound by the affirmative-action provisions contained in Executive Order 11,246. See R. at 1567. Executive Order 11,246 requires that whenever the federal government purchases goods or services the government must insert a provision into the contract that prohibits the contractor from discriminating on the basis of race, sex, color, religion or national origin. See Exec. Order No. 11,246, § 202(1), 30 Fed.Reg. 12319 (1965). The executive order also requires that contractors establish and update a written affirmative action program and allows the Secretary of Labor to set guidelines for verifying compliance. See id. at § 202(5), § 205. If a contractor fails to comply with these guidelines, the Secretary of Labor is empowered to terminate all contracts with that contractor and order that the government not deal with that contractor until it complies with the executive order. See id. at § 209(5), § 209(6).

One method by which the Department of Labor secures compliance with affirmative action programs is through a corporate management review ("CMR"), an administrative search that normally includes a review of the company's affirmative action files, an on-site review of the company's headquarters and an off-site analysis. See R. at 1567. The process for selecting companies for review begins when federal contractors, such as the plaintiff, file an Equal Employment Opportunity Employer Information Report with the Equal Employment Opportunity Commission. See R. at 1568. The plaintiffs report lists the location of the plaintiffs headquarters, the number of employees, the number of facilities and the plaintiffs industry. See R. at 711-12 (sample form). This information is entered into a computer and given to the Office of Federal Contract Compliance Programs in the Department of Labor ("OFCCP"). See R. at 1568.

The OFCCP organizes the list of company headquarters into separate geographical lists corresponding to the jurisdictional territory of each OFCCP local office. See R. at 1568. The national office then sends each local office a list of the companies, placed in random order, which have headquarters in its jurisdiction ("CMR candidate list"). See R. at 1568. Defendant OFCCP claims the only criteria that affect the order and composition of the CMR candidate list are: (1) the geographical location of the company's headquarters, (2) the number of facilities the company owns, (3) the status of the company as a federal contractor and (4) the number of people the company employs. See Defs.' Mot. for Sum.J. at 9. The plaintiff, however, argues that the computer program that generates the CMR candidate list considers other factors, including the company's industry. See Pl.'s Mot. for Summ.J. at 2-3.

The OFCCP local offices then are assigned to conduct a certain number of CMRs each year by their regional office. See R. at 707. The area director for each local office starts at the top of the CMR candidate list and decides whether the office can review the candidate. See R. at 1568. A company may be rejected for review if it is out of business, its contract is completed, its contract is worth less than $50,000, it has fewer than 50 employees, there is no evidence of its contract with the government, it was reviewed within the past two years, it was reporting to the OFCCP under a Conciliation Agreement or it is a signatory to a consent decree. See R. at 709. The director continues down the list until he or she has selected enough companies for review to fill the quota for that office. See R. at 707-709. The national office director then confirms the accuracy of the area director's decisions. See R. at 1568. After this process is complete, the agency notifies the chosen companies of their selection and offers them an opportunity to request an explanation for their selection. See R. at 1569.

In 1998, the Little Rock, Arkansas office of the OFCCP was assigned to choose one company in its jurisdiction for a CMR. See R. at 1569. According to the defendants, the plaintiffs name was placed third on a list of three candidates that was given to area director Joel Maltbia by the national office. See R. at 1568-69. Mr. Maltbia claimed he rejected the first name on the list because the Federal Procurement Data System, the OFCCP's computer listing of federal contractors, did not list the company as having a current contract with the federal government. See R. at 827. Mr. Maltbia eliminated the second name from the list because he believed that the company was already reporting to the OFCCP under a consent decree. See R. at 827. By contrast, Mr. Maltbia found that the plaintiff did not meet any of the criteria for being rejected for review. See R. at 1569. Accordingly, Mr. Maltbia filled out rejection forms for the first two candidates on the list and recommended that the plaintiff be selected for review. See R. at 827-28. Mr. Busch, the national office director, approved Mr. Maltbia's choice of the plaintiff for a CMR. See R. at 1569.

The plaintiff was informed of its selection in October 1998. See R. at 1569. Mr. Reilly, the plaintiffs deputy general counsel and vice-president, met with OFCCP officials later that month to discuss the criteria by which the plaintiff was selected for a CMR review. See R. at 1569. Mr. Reilly expressed concerns that the plaintiff was being targeted for review because its other 699 facilities had been selected for other types of review on many occasions in the past few years. See R. at 1570. During this time, the plaintiff's companies were found to be compliant 100% of the time. See R. at 1570. Mr. Reilly believed the meetings with OFCCP officials failed to address his concerns and he refused to let the defendant OFCCP conduct its review. See R. at 1723.

On May 17, 1999, defendant OFCCP filed an Administrative Complaint with the Department of Labor's Office of Administrative Law alleging that the plaintiffs refusal to submit to a CMR violated its obligations under Executive Order 11,246. See R. at 1723. The defendants asked that the plaintiff be enjoined from refusing to comply with its affirmative action obligations. See R. at 1723. The plaintiff claimed it was not selected according to a neutral administrative plan, as required by the Fourth Amendment. Pursuant to its guidelines, defendant OFCCP used its discretion to initiate an "expedited hearing." See R. at 1566. Under an expedited hearing, discovery is limited to admissions, an exchange of witness lists, and oral depositions allowed by the Administrative Law Judge ("A.L.J."). See 41 C.F.R. § 60-30.33. The A.L.J. denied some of the plaintiff's discovery requests because such requests are not allowed in an expedited hearing. See R. at 816. The plaintiff, however, was allowed to employ counsel, take depositions from and cross-examine OFCCP officials involved in the plaintiffs selection for a CMR, review all documents considered by the agency in its decision and present its own exhibits and witnesses to prove its case. See R. at 807-1100.

On July 22, 1999, the A.L.J. issued a recommended decision and order ("decision") to the Board finding that the plaintiffs selection for a Corporate Management Review was valid. See R. at 1571. Based on this finding, the A.L.J. recommended that the Administrative Law Board cancel the plaintiffs contracts with the government and bar the plaintiff and its subsidiaries from future government contracts until it complied with the requirements of Executive Order 11,246. See R. at 1573. On September 1, 1999, the Board issued an order in which it accepted the factual findings and recommendations of the A.L.J. with the exception of the A.L.J.'s recommendation to immediately cancel the government's contracts with the plaintiff and its subsidiaries. See R. at 1726. Instead, the Board gave the plaintiff 30 days to comply with Executive Order 11,246 before any sanction would be imposed. See R. at 1734.

The plaintiff appealed the Board's decision to this court as contrary to the plaintiffs constitutional and procedural rights and also sought to limit the scope of the remedy. The defendants filed a motion to strike the affidavits submitted by the plaintiff and both sides have moved for summary judgment. This court has jurisdiction pursuant to the Administrative Procedure Act ("APA"), 5 U.S.C. § 706.

ANALYSIS

A. MOTION TO STRIKE

This motion concerns three affidavits offered by the plaintiff that were not put before the Department of Labor's Administrative Review Board when it made its decision. The defendants move to strike these documents as improperly supplementing the administrative record. See Defs.' Mot. to Strike at 2. When reviewing a decision under the Administrative Procedure Act ("APA"), district courts generally are restricted to the record that was before the agency.*fn1 See commercial Drapery contractors v. United States, 133 F.3d 1, 7 (D.C.Cir. 1998). The plaintiff, however, argues that an exception to the general rule should apply here because defendant OFCCP purposely limited the plaintiff's discovery to prevent it from presenting its case and because the new evidence would show that the agency decision was wrong. See Pl.'s Opp'n to Defs.' Mot. to Strike ("Pl.'s Opp'n") at 1. For the following reasons, the court finds no basis for departing from the general rule of agency review under the APA and will grant the defendants' motion to strike.

1. Admitting Evidence Submitted After the Administrative Procedure

When a court reviews an administrative agency's decision under the APA, the court must limit its review to the administrative record. See Commercial Drapery, 133 F.3d at 7 (citing Environmental Defense Fund, Inc. v. Costle, 657 F.2d 275, 284 (D.C.Cir. 1981)); IMS, P.C. v. Alvarez, 129 F.3d 618, 624 (D.C.Cir. 1997). Without a stipulation, a court may depart from this rule only upon a "strong showing of bad faith or improper behavior" or "when the record is so bare that it prevents effective judicial review." See Commercial Drapery, 133 F.3d at 7 (quoting Citizens to Preserve Overton Park m Volpe, 401 U.S. 402, 420, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971)); IMS, 129 F.3d at 624 (stating parties may stipulate to admission of later-submitted evidence).*fn2 As discussed below, the court concludes that these exceptions do not apply. Accordingly, the scope of review will be limited to the record that was before the administrative agency.

a. Bad-faith exception

The plaintiff claims that the affidavits it presented to the court should be admitted because they contain information that the defendant OFCCP deliberately withheld. See Pl.'s Opp'n at 1. In essence, the plaintiff believes that the OFCCP acted in bad faith by using an expedited hearing to "deliberately . . . [exclude] documents that may have been adverse to its decision." Id. When a party accuses an agency of bad faith, the agency is entitled to a presumption of administrative regularity and good faith that must be overcome with evidence. See FTC v. Owens-Corning Fiberglas Corp., 626 F.2d 966, 975 (D.C.Cir. 1980). Thus, to expand discovery because an agency withheld evidence, there must be a "strong showing of bad faith or improper behavior." See Community for Creative Non-Violence v. Lujan, 908 F.2d 992, 997 (D.C.Cir. 1990) (citing Citizens to Preserve Overt on Park, 401 U.S. at 420, 91 S.Ct. 814). This requires a "prima facie showing" that the agency either purposefully or negligently excluded record evidence adverse to its position. See Kent County v. US. EPA, 963 F.2d 391, 396 (D.C.Cir. 1992). For the reasons discussed below, the court holds that the plaintiff has failed to make a sufficient showing of bad faith on the part of defendant OFCCP.

(i) Expedited-hearing guidelines

According to OFCCP guidelines, an expedited hearing "may be used . . . when a contractor . . . has refused to give access to or to supply records or other information as required by the equal opportunity clause." 41 C.F.R. § 60-30.31. Once the OFCCP has implemented an expedited hearing, the parties may use only requests for admissions, a request for the opposing side's witness list and, upon a showing of good faith, depositions. See 41 C.F.R. § 60-30.33 (c). No other forms of discovery are permitted in such proceedings. See id.

(ii) Alleged bad-faith violation of normal agency procedure

The plaintiff does not dispute that defendant OFCCP initiated the administrative proceeding because the plaintiff refused to supply records, a refusal that allows the OFCCP to institute an expedited hearing under its regulations. It is also undisputed that the depositions and documents the plaintiff sought were not allowed to be discovered in an expedited hearing. The plaintiff instead argues that the OFCCP persuaded the Administrative Law Judge ("A.L.J.") to apply the OFCCP expedited hearing regulations in this case more strictly than in other cases. See Pl.'s Opp'n at 2. However, the plaintiff cites only one instance where an A.L.J. found that the discovery process in an expedited hearing was not consistent with "the demands of due process." See Boeing Co., 99 OFC 14 (1999), R. at 1705. The plaintiff argues that the A.L.J.'s decision in Boeing shows that the OFCCP and the A.L.J. acted inappropriately in this case. The court finds this argument unconvincing for two reasons. First, the A.L.J. in Boeing approvingly cited the A.L.J.'s July 22 decision in this case as an example of modifying the rules in the plaintiff's favor to "foster the ends of justice." Id., R. at 1706. Thus, the only possible irregularity in this case was that the plaintiff might have been allowed more discovery than the guidelines provide. Secondly, in Boeing, the OFCCP relied solely on "community concerns" about the company's affirmative action program in selecting Boeing for a CMR. The OFCCP, however, could not legitimately explain how it determined that there were "community concerns" about Boeing's affirmative action program.*fn3 Id., R. at 1710. In this case, the plaintiff was not targeted for investigation based on unidentified evidence of discrimination. Rather, the defendant OFCCP chose the plaintiff using a random selection process. This type of process does not raise the same concerns that the defendant OFCCP withheld factual information needed by the A.L.J. to make a proper decision. Thus, the court finds that the use of expedited hearing procedures in this situation was not for the purpose of excluding the plaintiff's evidence in the hearing.

(iii) Conclusion

For the reasons discussed above, the court holds that the plaintiff has failed to make the required showing that the OFCCP's use of an expedited hearing was in bad faith. Specifically, the court finds that the defendant OFCCP invoked a standard procedure that allows the agency to effectively enforce compliance with affirmative-action programs under Executive Order 11,246.*fn4 Furthermore, "the conduct and extent of discovery in agency proceedings is a matter ordinarily entrusted to the expert agency." See Trailways Lines, Inc. v. ICC, 766 F.2d 1537, 1546 (D.C.Cir. 1985). Thus, an agency decision will not be overturned because a company was justifiably denied a discovery request that "wandered intrusively" into the agency's operations. Id. For these reasons, the court holds that the OFCCP's decision to use an expedited hearing was not in bad faith.

b. Preventing judicial review

A court also may consider material outside of the administrative record if an agency fails "to explain administrative action [so] as to frustrate effective judicial review." See IMS, 129 F.3d at 624 (quoting Camp v. Pitts, 411 U.S. 138, 142-43, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973)). However, the plaintiff must demonstrate that the agency "failed to examine all relevant factors or to adequately explain its grounds for decision." Id. In this case, the court concludes that the record amply supports the agency's decisions and the record requires no additional information.

The plaintiff presents three sets of exhibits to show that the agency failed to review all relevant factors. These exhibits focus on the OFCCP's application, rather than the substance, of its procedures. See Pl.'s Opp'n at 3. Specifically, the plaintiff challenges the designation of only three companies on the CMR candidate list and Mr. ...


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