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Scarborough v. Harvey

May 22, 2007


The opinion of the court was delivered by: Reggie B. Walton United States District Judge


Edmund Scarborough, Larry Wright, and George Gowen ("the plaintiffs") bring this action against the United States Department of the Army ("Army"), the United States Department of Defense ("DOD"), and the United States Small Business Administration ("SBA") (collectively "the defendants"), seeking actual and compensatory damages as well as attorneys' fees and costs for multiple alleged violations of the Privacy Act, 5 U.S.C. § 552a et seq. (2000), in connection with an Army investigation into the issuance of possibly fraudulent surety bonds to the United States government by a number of individuals and entities, including the plaintiffs. Amended Complaint ("Compl.") at 1; see also id. ¶¶ 12-13, 87-213. Currently before the Court is the defendants' motion to dismiss the plaintiff's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) or, in the alternative, for partial summary judgment pursuant to Federal Rule of Civil Procedure 56(c) ("Defs.' Mot.").*fn2 Also before the Court is the plaintiffs' motion for discovery pursuant to Federal Rule of Civil Procedure 56(f) ("Pls.' Mot.").*fn3 For the reasons set forth below, the Court denies the defendants' motion to dismiss, denies without prejudice the defendants' motion for partial summary judgment, and grants the plaintiffs' motion for Rule 56(f) discovery.

I. Factual Background

The plaintiffs allege the following facts in support of their complaint. Plaintiff Scarborough "is an individual surety providing surety bonds to contractors performing commercial and government construction contracts." Compl. ¶ 1.*fn4 He also serves as Co-Chief Executive Officer of International Bonding & Construction, Inc. ("ICBS"), which "is in the business of providing a variety of bonding and construction administration/consulting services to Scarborough and other individuals and entities." Id. Plaintiff Wright is the president of The Underwriters Group ("Underwriters"), and is "engaged in the business of risk underwriting for business, construction[,] and financial institutions." Id. ¶ 2. Plaintiff Gowen is the president of First Mountain Bancorp ("FMB"), which is "engaged . . . in the business of serving as trustee for investors." Id. ¶ 3. The plaintiffs work together "in the individual surety and collateral businesses." Id. ¶ 13. Specifically, Scarborough serves "as an individual surety on bid, payment and performance bonds given to various agencies of the United States [g]overnment . . . and to private owners and contractors," Wright "locates monies to guarantee investors against losses," and Gowen "gathers assets to back and/or guaranty [sic] the individual surety bonds, and acts as trustee of assets backing the same." Id. ¶ 9.

In 2004, Special Agent Christopher Hamblen of the Army's Criminal Investigation Division ("CID") commenced an investigation into the allegedly fraudulent issuance of individual surety bonds to the United States government.*fn5 Id. ¶ 12; see also Defs.' Mot., Exhibit ("Ex.") 2 (Declaration of Christopher C. Hamblen) ("Hamblen Decl.") ¶¶ 2-5. This investigation centered on an individual named Robert Joe Hanson, but also encompassed several other individuals and entities, including the three plaintiffs and their respective businesses. Compl. ¶¶ 12-13; Hamblen Decl. ¶¶ 3-4. [ELEVEN LINES REDACTED]

A. The Dissemination of the Criminal Alert Notice

In connection with the above investigation, Hamblen created and issued Criminal Alert Notice No. 0006-04-CID274 ("the CAN") in March 2005.*fn6 Compl. ¶ 15; see Defs.' Mot., Ex. 1 (Criminal Alert Notice) at 1-3; see also Hamblen Decl. ¶ 5 (stating that the CAN "describ[ed] the subjects' activities regarding bonds on DOD contracts" and was issued "to warn [DOD] officials of the possible fraudulent activity of the individual sureties and . . . to collect information that would be useful to the investigation"). The CAN, which is subtitled "Insurance Fraud -- Bonding and Surety" and "conspicuously marked 'FOR OFFICIAL USE ONLY' at the top and bottom of each page," Compl. ¶¶ 26-27; see Criminal Alert Notice at 1-3, identifies the plaintiffs and their businesses, among other individuals and entities, as selling and advertising surety bonds for which the "specific marketable assets that are pledged as collateral to guarantee the performance of a bond obligation . . . [did] not meet the definition of acceptable assets" required by Federal Acquisition Regulation ("FAR") 28.203-2, Compl. ¶¶ 10, 14.*fn7 [TWO LINES REDACTED] The CAN further requests that any recipients who "have contracts with any of the [named] personnel or entities as the bonding company" should contact Hamblen at the CID.*fn8 Criminal Alert Notice at 3. The plaintiffs allege that the CAN contains "personal and confidential information about [them] including, but not limited to, [their] name[s], financial history, associations, entrepreneurial activities, business interests[,] and business addresses."*fn9 Compl. ¶¶ 30-32. The plaintiffs also allege that the CAN falsely implicates them in "the alleged fraudulent and criminal activities of Hanson," id. ¶ 28, and that "[m]uch of the information about [them] in . . . [the] CAN is inaccurate, misleading, or false, and in no way relates to their current businesses or Plaintiff Scarborough's issuance of individual surety bonds[] or has any relationship to any matter being investigated [by the CID]," id. ¶ 33.

Following its creation, the CAN was purportedly disseminated to a number of different individuals and organizations both within and outside of the federal government.*fn10 Compl. ¶¶ 37-67 (recounting all of the alleged disclosures of the CAN). First, the plaintiffs allege that Hamblen disseminated the CAN to the National Association of Surety Bond Producers ("NASBP"), "an international organization of professional surety bond producers and brokers," in late March 2005.*fn11 Id. ¶ 37. An article reproducing the text of the CAN was subsequently published in the April/May 2005 edition of the NASBP newsletter, available in both hard copy and electronic form to the organization's 5,000 members. Id. ¶¶ 38-39.

Next, the plaintiffs allege that on March 23, 2005, Hamblen sent the CAN by e-mail to Lieutenant Colonel Vincent Feck of the United States Air Force, "with a request that Lt. Col. Feck disseminate the CAN to all DoD contracting [o]ffices."*fn12 Id. ¶ 44 (internal quotation marks omitted); see also Hamblen Decl. ¶ 6 (stating that he "forwarded the CAN to [Feck] . . . [because] due to his position, [he] would be the best person to disseminate the CAN to DoD contracting officials"); Defs.' Mot., Ex. 6 (Declaration of Vincent J. Feck) ("Feck Decl.") ¶ 3 (stating that he received the CAN from Hamblen in March 2005). Feck then sent copies of the CAN by e-mail to all "senior procurement executives and their staffs in the [m]ilitary departments (the Departments of the Air Force, Army, and Navy) and the [d]efense [a]gencies," including the Defense Acquisition University ("DAU"), an agency of the DOD. Feck Decl. ¶ 3; see also Compl. ¶¶ 41, 43 (alleging dissemination of the CAN to the DAU and "to all DoD contracting offices"). In addition, Feck e-mailed the CAN "to the General Services Administration, [the] National Aeronautics and Space Administration[,] and the National Security Agency, all of which are outside the Defense Department, to share the information contained in the [CAN] with those organizations." Feck Decl. ¶ 3.

Finally, the plaintiffs allege that the individuals and agencies to whom Feck disclosed the CAN themselves disseminated it to various public and private entities. Compl. ¶¶ 55-67. Specifically, according to the plaintiffs, the DAU published a copy of the CAN on its public website in April 2005, where it was "accessed and viewed over 150 times by [I]nternet users."*fn13

Id. ¶ 57. The plaintiffs also allege that on April 1, 2005, Mary Urey, a DOD employee who had indirectly received the CAN from Feck, sent a copy of the CAN by e-mail to, inter alia, Ann Montes, a Procurement Center Representative for the SBA.*fn14 Id. ¶¶ 60-63; see also Defs.' Mot., Ex. 3 (Declaration of Ann H. Montes) ("Montes Decl.") ¶ 3 (stating that "[i]n April of 2005, [she] received an unsolicited e-mail from Mary Urey, a [DOD] employee, regarding a [DOD] investigation into sureties submitting false bonds"). On April 4, 2005, Montes "forwarded the [CAN] to several Business Opportunity Specialists . . . at the local SBA San Antonio District Office, including Fernando Guerra." Montes Decl. ¶ 4; see also Compl. ¶ 65 (alleging that Montes disseminated CAN to Guerra); Defs.' Mot., Ex. 4 (Declaration of Fernando J. Guerra) ("Guerra Decl.") ¶ 3. The plaintiffs then allege that on April 5, 2005, Guerra "disclosed and disseminated the CAN via e-mail to private contractors, [the] [p]laintiffs' competitors, and other unauthorized persons." Compl. ¶ 66; see also Guerra Decl. ¶ 4.

B. The May 2005 letters from Curtis Greenway

Following the issuance of the CAN, plaintiffs Wright and Scarborough, through separate attorneys, sent several communications to the CID seeking, inter alia, further information regarding Hamblen's investigation and all policies relating to CANs and their use, requesting retraction and correction of the factual inaccuracies and personal disclosures allegedly contained in the CAN, protesting the CAN's dissemination, and arguing that the trust receipts referred to in the CAN were valid security interests under the relevant federal regulations.*fn15 Compl. ¶¶ 68-73; see also Defs.' Mot., Ex. 5 (Declaration of Curtis L. Greenway) ("Greenway Decl.") ¶¶ 3-5. In two such communications on April 20 and April 21, 2005, Scarborough and Wright, through their attorneys, sent separate letters to CID attorney Curtis Greenway expressing their concerns. Compl. ¶¶ 71, 73; see also Greenway Decl. ¶¶ 4-5. Greenway responded to Wright's attorney in a letter dated May 6, 2005, and to Scarborough's attorney in a letter dated May 16, 2005.*fn16 Compl. ¶¶ 74, 76-77, 79-80; see also Greenway Decl. ¶¶ 9, 13-14. In these letters, Greenway articulated the basis for his belief, formed after an independent review of the circumstances surrounding the Hamblen investigation, "that the investigation of the [p]laintiffs . . . was appropriate."*fn17 Greenway Decl. ¶ 11; see also Compl. ¶¶ 76, 79. The plaintiffs allege that in doing this, Greenway "revealed confidential, sensitive and Privacy Act protected information about [p]laintiff Scarborough to [p]laintiff Wright and counsel for [p]laintiff Wright," Compl. ¶ 77, and "about [p]laintiff Wright to [p]laintiff Scarborough and counsel for [p]laintiff ...

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