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Sebastian Phillips, Et. Al v. Raymond E. Mabus

September 30, 2012

SEBASTIAN PHILLIPS, ET. AL, PLAINTIFFS,
v.
RAYMOND E. MABUS, ET. AL, DEFENDANTS.



The opinion of the court was delivered by: Signed: Emmet G. Sullivan United States District Judge

MEMORANDUM OPINION

Plaintiffs, Sebastian Phillips and the company he owns, Marine Design Dynamics, Inc. (hereinafter "MDD"), bring suit against various officials in the United States Navy as well as certain of MDD's former employees. Plaintiffs allege they were effectively debarred from government contracting with the Navy without notice and a hearing, in violation of their Fifth Amendment due process rights. Plaintiffs also allege a variety of common law causes of action against MDD's former employees as well as two government employees. When this case was initially filed plaintiffs moved for a temporary restraining order and preliminary injunction against the federal defendants, seeking to enjoin them from de facto debarring MDD from government contracting. On December 7, 2011, following a hearing on plaintiffs' emergency motions, the plaintiffs and federal defendants agreed and stipulated to a consent preliminary injunction. Now pending before the Court are (1) the federal defendants' motion to dismiss, or in the alternative for summary judgment, (2) plaintiffs' motion to enforce the consent preliminary injunction, and (3) motions to dismiss filed by three of plaintiffs' former employees. Upon consideration of the motions, the responses, and the replies thereto, the relevant caselaw and the record in this case as a whole, the motions will be DENIED.

I. FACTUAL AND PRODCEDURAL BACKGROUND*fn1

Plaintiff Marine Design Dynamics, Inc., a District of Columbia-based government contractor, is a Naval Architecture firm specializing in ship energy conservation for the Navy and other government clients. In 2006, MDD began working as a subcontractor to Computer Sciences Corporation ("CSC"), performing work under CSC's SeaPort e-prime contract with the Naval Sea Systems Command of the Department of the Navy ("NAVSEA"), contract number N001788-04-D-4030-EHO2. Under CSC's NAVSEA contract, MDD performed work for the Navy's Operational Logistics Integration Program ("OPLOG") at its Carderock facility. From 2006 through 2011, all the work MDD performed for OPLOG was pursuant to this arrangement under the CSC contract. This work comprised most of MDD's government contracting work, and plaintiffs derive all of their revenue and income from government contracting.

In November 2009, MDD entered into a second contract, this time as a prime contractor for the Navy, to provide engineering and program management services to the energy conservation program for the Combat Logistic Force ships of the Military Sealift Command ("MSC"). That contract, number N00033-10-802, specified a one year term, with an option for MSC to renew for two additional years, until November 2012.

Between March and July of 2011, four key MDD employees who had performed significant work on the OPLOG projects - Michael Mazzocco, Volker Stammnitz, William Muras and Matthew Miller -left MDD. Plaintiffs allege that before leaving MDD, each of the key employees solicited OPLOG management and arranged to take the work they were performing for MDD with them when they left. At least two of the departing employees, Mazzocco and Stammnitz, formed their own businesses to compete with MDD. Plaintiffs allege that after leaving MDD, all four former employees did, in fact, continue to perform the same work for OPLOG as they had performed at MDD. In addition, Mazzocco allegedly spread rumors that MDD was double or triple billing the government for its work. Plaintiffs claim these rumors are false, and that moreover, they have not been given formal notice of the rumors or an opportunity to respond to them. Nevertheless, as a result of the rumors, the government began to deny plaintiffs work. First, on April 13, 2011, plaintiffs were notified that OPLOG manager Charles Traugh was "pulling back" $700,000 of OPLOG work previously budgeted for MDD, under the CSC contract, in FY 2011. Plaintiffs allege that this $700,000 was reallocated to others, including Mazzocco, Stammnitz, Muras, and Miller, who received the money after leaving MDD.

Shortly thereafter, on or about May 18, 2011, Mazzocco, Stammnitz, and Muras met in Boston with NAVSEA and OPLOG employees, including NAVSEA Chief Technology Officer Michael Bosworth, OPLOG program manager Traugh, and assistant program manager William Robinson. Plaintiffs allege that during that meeting, Bosworth and Traugh, working with Mazzocco, Stammnitz and Muras, decided to eliminate MDD entirely from the OPLOG budget in Fiscal Year ("FY") 2012, and redirect plaintiffs' work to the departing or already departed MDD employees. Plaintiffs allege that OPLOG's FY 2012 budget, developed by Traugh and Robinson, had included a minimum of $2.7 million for MDD.

During a meeting to review the OPLOG program on July 13, 2011, Bosworth implemented the decisions reached at the May 2011 meeting in Boston. He instructed Traugh that OPLOG was to immediately cease giving any OPLOG work to plaintiffs, and to continue the moratorium through at least FY 2012. On July 28, 2011, Traugh met with plaintiff Phillips and informed him that OPLOG would not be tasking work to MDD for FY 2012 under the CSC prime contract or any existing prime contract. Plaintiffs allege that they have been awarded no new work at OPLOG, through the CSC contract or any other contract, since July 2011.

Without any work to perform at OPLOG, MDD attempted to get additional work through other components of the Navy. Specifically, plaintiffs attempted to obtain work as a subcontractor to Gryphon Technologies, which has a prime contract with NAVSEA. See Am. Compl. Exhibits O, P, Q; see also Fed. Defs.' Mot. to Dismiss or in the Alternative for Summ. J., Ex. C, Decl. of Kevin D. Baetsen ("Baetsen Decl."), Exs. 1-3. MDD's ability to obtain this work, however, was subject to NAVSEA appointing a government employee to serve as a Technical Point of Contact ("TPOC"). Initially, Tom Martin, director of the energy office at NAVSEA headquarters, agreed to serve as TPOC, but later informed other Navy personnel that he could not do so because he had been informed that there were problems "tracking the money" MDD had charged the government for its OPLOG work. Martin explained that he had been "directed by [his] leadership not to be involved with any contract that includes MDD," regardless of whether the contract was to perform OPLOG work or work for a different component of the Navy. Am. Complaint ¶¶ 87, 89 (quoting Oct. 7, 2011 email from T. Martin).

Finally, MDD alleges that the defendants attempted to interfere with its existing contract with MSC (contract number N00033-10-802) before it was renewed for FY 2012 by, inter alia, attempting to divert work under that contract to former MDD employees. These alleged attempts were unsuccessful; in the fall of 2011, MSC exercised its final one-year option on its contract with MDD, which will expire in November 2012. Baetsen Decl. ¶ 4.

On November 16, 2011, Plaintiffs initiated this suit against several Navy officials as well as the four former MDD employees discussed above. Plaintiffs moved for a temporary restraining order and preliminary injunction against the federal defendants only, alleging plaintiffs had been de facto debarred from government contracting without notice and a hearing in violation of their fifth amendment right to due process of law. Pls.' Mot. for Temp. Rest. Order at 4-5. Following briefing on the motion, the Court held a hearing on December 7, 2011. At the hearing's conclusion, the parties agreed and stipulated to the entry of a preliminary injunction. See Order Granting Stipulated Prelim. Inj.; see also Minute Order of Dec. 7, 2012. In relevant part, the Stipulated Preliminary Injunction (1) enjoined the government from taking any additional action to implement or spread the de facto debarment, (2) required the Navy to allow MDD to compete for new work and to continue performing contracts it was currently performing under the same standards applicable to other contractors, and (3) required the Navy to communicate the foregoing information to CSC and Gryphon. See Id.

Following the preliminary injunction proceedings, Plaintiffs filed an Amended Complaint. Count I asserts that the federal defendants violated plaintiffs' constitutional right to due process by blacklisting them for government contracting without procedural safeguards, and seeks declaratory and injunctive relief. Count II asserts the same claims against Bosworth and Traugh in their individual capacities and seeks damages of $2.5 million. Counts III -- VIII assert breach of fiduciary duty and civil conspiracy against Mazzocco, Stammnitz, Muras, and Miller, and common law defamation against Mazzocco. Finally, Count IX alleges common law interference with contractual relations by Traugh and Robinson in their official and individual capacities. The federal defendants, as well as Mazzocco, Stammnitz, and Muras have moved to dismiss the Amended Complaint; the federal defendants have also moved in the alternative for summary judgment. Plaintiffs, for their part, have filed a motion to enforce the preliminary injunction. These motions are ripe for resolution by the Court.

II. STANDARD OF REVIEW*fn2

On a motion to dismiss for lack of subject-matter jurisdiction under Rule 12(b)(1), the plaintiff bears the burden of establishing that the court has subject-matter jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). "The court must address the issue of jurisdiction as a threshold matter, because absent jurisdiction the court lacks the authority to decide the case on any other grounds." Am. Farm Bureau v. EPA, 121 F. Supp. 2d 84, 91 (D.D.C. 2000). Moreover, because subject-matter jurisdiction relates to the Court's power to hear the claim, the Court must give the plaintiff's factual allegations closer scrutiny when resolving a Rule 12(b)(1) motion than would be required for a Rule 12(b)(6) motion. Uberoi v. EEOC, 180 F. Supp. 2d 42, 44 (D.D.C 2001). In resolving a motion to dismiss for lack of subject-matter jurisdiction, the Court "may consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Coal. For Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C. Cir. 2003) (internal citations and quotation marks omitted).

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a complaint. Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation marks and citations omitted). While detailed factual allegations are not necessary, plaintiff must plead enough facts "to raise a right to relief above the speculative level." Id.

When ruling on a Rule 12(b)(6) motion, the Court may consider "the facts alleged in the complaint, documents attached as exhibits or incorporated by reference in the complaint, and matters about which the Court may take judicial notice." Gustave-Schmidt v. Chao, 226 F. Supp. 2d 191, 196 (D.D.C. 2002). The Court must construe the complaint liberally in plaintiff's favor and grant plaintiff the benefit of all reasonable inferences deriving from the complaint. Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). However, the Court must not accept plaintiff's inferences that are "unsupported by the facts set out in the complaint." Id. "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Though the Court must draw all justifiable inferences in favor of the non-moving party in deciding whether there is a disputed issue of material fact, "[t]he mere existence of a scintilla of evidence in support of the [non-movant]'s position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant]." Anderson, 477 U.S. at 252.

III. ANALYSIS

A.Federal Defendants' Motion to Dismiss, or, in the Alternative, for Summary Judgment

The federal defendants move to dismiss plaintiffs' claims against them in Counts I, II, and IX of the Amended Complaint for lack of jurisdiction and failure to state a claim upon which relief can be granted. In the alternative, the federal defendants argue that summary judgment should be granted on Counts I and II.

1.Sovereign Immunity

Federal defendants argue that sovereign immunity bars plaintiff's claims in Count I against the federal defendants in their official capacities. Fed. Defs.' Mot. to Dismiss or for Summ. J. at 4-8 (hereinafter "Fed. Defs.' Mem."). The plaintiffs contend that the government has waived sovereign immunity for claims seeking non-monetary relief against the United States, its agencies and federal officers acting in an official capacity. Pls.' Opp'n to Fed. Defs.' Mot. to Dismiss at 27-28. Plaintiffs are correct. See 5 U.S.C. § 702; see also P&V Enters. v. United States Army Corps of Eng'rs, 466 F. Supp. 2d 134, 140-41 (D.D.C. 2006). In Count I of the Amended Complaint, plaintiffs seek only declaratory and injunctive relief, and their claims are against federal officers in their official capacities.*fn3 Accordingly, the waiver of sovereign immunity found in Section 702 of the APA applies to plaintiffs' claims against the federal defendants.

2.Sufficiency of Plaintiffs' Claims that a De Facto Debarment Occurred

Federal defendants also argue that plaintiffs cannot show the government's actions constituted de facto debarment in violation of the due process clause of the Fifth Amendment.

Fed. Defs.' Mem. at 27-31. Defendants principally argue that no de facto debarment occurred for two reasons: (1) because MSC exercised an option on its contract with MDD on October 30, 2011, which provided work for MDD until late 2012, plaintiffs did not lose all of their government work and accordingly were not debarred; and (2) in order to give rise to Fifth Amendment protections, de facto debarment must be based on charges of a lack of integrity, which, according to federal defendants, plaintiffs do not allege.

De facto debarment occurs when a contractor has, for all practical purposes, been suspended or blacklisted from working with a government agency without due process, namely, adequate notice and a meaningful hearing. Trifax Corp. v. Dist. of Columbia, 314 F.3d 641, 643-44 (D.C. Cir. 2003); TLT Constr. Corp. v. United States, 50 Fed. Cl. 212, 215 (2001). To demonstrate de facto debarment, plaintiffs must show "a systematic effort by the procuring agency to reject all of the bidder's contract bids. Two options exist to establish a de facto debarment claim: 1) by an agency's statement that it will not award the contractor future contracts; or 2) by an agency's conduct demonstrating that it will not award the contractor future contracts." TLT Constr., 50 Fed. Cl. at 215-16 (internal citations and quotations omitted).

Plaintiffs argue that they have adequately alleged both of these options, although they need allege only one to survive a motion to dismiss. Pls.' Opp'n at 11. First, Plaintiffs allege, and defendants do not dispute that two Navy officials, Traugh and Bosworth, stated they would not permit plaintiffs to work on any future contracts. Am. Compl. ¶¶ 79-84; see also Fed. Defs.' Mem. Ex. A, Traugh Decl. at ¶ 8 ("I decided, with Mr. Bosworth's concurrence, that OPLOG would no longer use MDD as a subcontractor starting with work funded from FY 2012 appropriations."); Ex. B., Bosworth Decl. at ¶ 7 ("I . . . directed Charles Traugh . . . not to renew the association of OPLOG with MDD starting in FY 2012.") Plaintiffs allege that these statements applied to their attempts to receive work at OPLOG as well as other components of the Navy, as demonstrated by NAVSEA employee Tom Martin's statement that "I have been directed by my leadership not to be involved with any contract that includes MDD," even if the contract had nothing to do with OPLOG. Am. Compl. ¶ 89.

Plaintiffs also argue they have alleged a de facto debarment by the agency's conduct: namely, the Navy has taken away MDD's existing work and refused to permit MDD to obtain additional work in several instances. First, in April 2011, the Navy "pulled back" $700,000 that had been allocated to MDD for subcontracting work with CSC during FY 2011. Am. Compl. ¶¶ 56-57. Next, in July 2011 the Navy announced its intention not to award MDD any more work under the CSC prime contract and to prohibit MDD from receiving any more work from OPLOG under any contract through FY 2012. Id. ¶¶ 73-74, 78-79. Plaintiffs allege they have received no new work from OPLOG since summer 2011. Id. ¶ 83. Third, the Navy also indicated, via emails dated September 15, 2011 and October 7, 2011, that MDD would not get any funding on any future contract or subcontract, whether through OPLOG or NAVSEA. Id. ¶¶ 87-92. The Navy also refused to appoint a TPOC, which is a condition precedent to obtaining this work. Id. Finally, Plaintiffs allege that federal defendants attempted to stop -- albeit unsuccessfully -- plaintiffs from performing the final year of work on plaintiffs' single remaining contract to perform work for the Navy. Id. ¶ 94. Plaintiffs allege that "all of their revenue and income derive from Federal Government contracts, primarily OPLOG and MSC contracts," and that defendants' actions threaten to put plaintiffs out of business. Id. ¶ 95.

The Court agrees that plaintiffs have met their burden to allege a de facto debarment sufficient to survive a motion to dismiss. First, plaintiffs have alleged multiple Navy officials stated that plaintiffs would not be awarded any future contracts. As noted above, courts have found categorical statements that contractors will not be awarded any future contracts may amount to a de facto debarment. See TLT Constr. Corp., 50 Fed. Cl. at 215; see also CRC Marine Servs. v. United States, 41 Fed. Cl. 66, 84 (1988)(a contractor may allege de facto debarment by evidence of statements, by agency officials or employees, that he would not be awarded any contract at the present or in the future); Related Indus., Inc. v. United States, 2 Cl. Ct. 517, 525 (1983)(same).

Second, plaintiffs have alleged that the agency's conduct amounts to a systematic effort to preclude it from future contracting. In Art-Metal USA, Incorporated v. Solomon, this Court found that de facto debarment occurred when the government terminated one of the movant's contracts in its entirety and held in abeyance the awards of four additional contracts for which the contractor had submitted bids. The plaintiff did not have to prove that it had lost 100% of its work to show de facto debarment; it was sufficient to show that the government's actions were aimed at the overall status of the plaintiff as a contractor, specifically at plaintiff receiving new contracts. 473 F. Supp. 1, 4, 5 n.7 (D.D.C. 1978). Similarly, in Leslie & Elliott Company v. Garrett, this court found de facto debarment when the Navy refused to award plaintiff two contracts for which it had been the lowest bidder because the evidence showed the Navy "had determined that it should no longer do business with" the contractor at the submarine base. 732 F. Supp. 191, 196 (D.D.C. 1990). Likewise, this Circuit has found that de facto debarment may lie where there has been exclusion from "virtually all government work for a fixed period of time," Reeve Aleutian Airways, Incorporated v. United States, 982 F.2d 594, 598 (D.C. Cir. 1993) (citations and quotations omitted); or where the government's conduct "has the broad effect of largely precluding [plaintiffs] from pursuing" government work. Trifax Corp., 314

F.3d at 644 (citation omitted).

Defendants contend that plaintiffs cannot show a de facto debarment as a matter of law because plaintiffs "were subsequently awarded work by the alleged debarring agency;" namely, on October 30, 2011, MSC exercised the final option of a three-year contract with MDD. The MSC contract, which was initially awarded in 2009, will expire in November 2012. Fed. Defs.' Mot. at 27-28, Baetsen Decl. ¶ 4.*fn4

The present record is cloudy as to the extent of the Navy's disqualification of plaintiffs. The facts currently before the court do not reveal whether MSC's exercise of the final option of its three year contract with MDD is tantamount to a new or "future" contract awarded after the alleged debarment, or, in the alternative, is effectively a continuation of a contract awarded in 2009, well before the alleged debarment. Ultimately, development of these facts may be dispositive as to the de facto debarment claim. However, at the motion to dismiss stage, when the Court must view all facts in the light most favorable to plaintiffs, the statements and actions alleged in the Amended Complaint make out a plausible claim to de facto debarment. While plaintiffs have not lost 100% of their contracting work, they have plausibly claimed that they have been barred from performing work on several contracts and thus have been broadly precluded from future work with the Navy. Courts have often found that, while "[p]reclusion from a single contract is insufficient to establish de facto debarment," an allegedly broad based preclusion across multiple contracts (or, in this case, subcontracts) gives rise to a viable claim for de facto debarment. Highview Eng'g, Inc. v. United States Army ...


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