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Tiare Enterprises, Inc. v. United States Department of Transportation

United States District Court, District of Columbia

March 31, 2017


          MEMORANDUM OPINION [DKTS. ## 23, 27]

          RICHARD J. LEON United States District Judge

         Plaintiff Tiare Enterprises, Inc. ("plaintiff or "Tiare") seeks to overturn a 2015 decision by the United States Department of Transportation's Departmental Office of Civil Rights ("USDOT") affirming an earlier 2014 decision by the Hawaii Department of Transportation ("HDOT") to decertify Tiare as an Airport Concession Disadvantaged Business Enterprise ("ACDBE"). Currently before the Court are the parties' cross-motions for summary judgment. See PL's Mot. for Partial Summ. J. [Dkt. #23]; Defs' Mot. to Dismiss in Part and for Summ. J. [Dkt. # 27]. Upon consideration of the pleadings, record, and relevant law, I find that USDOT's decision to affirm the decertification decision was supported by substantial evidence in the administrative record and was not arbitrary and capricious. Accordingly, defendants' Motion to Dismiss in Part and for Summary Judgment is GRANTED, and plaintiffs cross-motion for summary judgment is DENIED.


         I. Statutory and Regulatory Background

         Congress has authorized USDOT to provide project grants to eligible airports as part of the Airport Improvement Program. 49 U.S.C. §47104. In addition to other requirements that are not relevant here, the USDOT can only approve a grant if it receives written assurances that "at least 10 percent of all business at the airport selling consumer products or providing consumer services to the public are small business concerns . . . owned and controlled by a socially and economically disadvantaged individual" 49 U.S.C. § 47107(e). In order to facilitate compliance with this requirement, USDOT has promulgated detailed regulations to carry out the Airport Concessionaire Disadvantaged Business Enterprise ("ACDBE") program. The program, and its implementing regulations at 49 C.F.R. Parts 23 and 26, [1] set forth the eligibility requirements and required procedures for firms wishing to qualify as disadvantaged business enterprises and work at airports receiving funds under the Airport Improvement Program.

         Initial eligibility determinations for the ACDBE program are not made by the USDOT, but by public or private entities ("recipients") like HDOT, most of whom receive funds from the USDOT. Recipients are required to apply the ACDBE regulations promulgated by the USDOT when making eligibility determinations. 49 C.F.R. § 23.31(a), § 26.83 (2011). Under the regulations, ACDBEs must be at least 51% owned and controlled by socially and economically disadvantaged individuals. 49 C.F.R. § 23.3, § 26.69(b) (2011). Individual applicants must prove by a preponderance of the evidence that they are in fact socially and economically disadvantaged. 49 C.F.R. § 26.61(b). However, citizens who are women or members of specified ethnic minority groups are presumed to be socially and economically disadvantaged. 49 C.F.R § 26.67 (2011). Presumptively disadvantaged applicants need not prove their eligibility by a preponderance, but they must certify in writing that they are in fact disadvantaged and that their personal net worth does not exceed $ 1.32 million. Id.; 49 C.F.R. § 23.35. Once certified, a firm must demonstrate annually that it still meets ACDBE status. See 49 C.F.R. § 26.83 (i)-(j); id. § 23.1(d), § 26.83(a) (2011). Every year, the ACDBE's owner must submit a sworn affidavit affirming its continued eligibility and its ability to meet the disadvantaged status requirement. Id. at § 26.83(j) (2011).

         In 2013, a recipient agency could rebut a presumption of economic disadvantage in two ways. First, if the owner's annual statement showed that his or her net worth exceeded $1.32 million, the presumption was rebutted automatically. 49 C.F.R. § 26.67(b)(1) (2011). Second, if the recipient had a "reasonable basis" to believe that the individual was not economically disadvantaged, the recipient could initiate proceedings to determine whether the presumption should be rebutted and decertify the firm from ACDBE status. Id., § 26.67(b)(2) (2011). In order to initiate a decertification proceeding, the recipient had to provide written notice and reasons for the proposed decertification. Id. § 26.87(b) (2011) The recipient had to give the firm an opportunity for an informal hearing where the firm could respond and provide evidence and argument in favor of continued certification. Id. § 26.87(d)(1) (2011). The firm could also elect to forego a hearing and provide its response and any arguments in writing. Id. § 26.87(d)(3). The burden of proof during a decertification hearing was (and still is) on the recipient agency seeking decertification, rather than the firm who facing potential decertification; the recipient must show by a preponderance of the evidence that the certification standards are not met. Id. Once a final decision is made, the recipient must provide the firm with written notice of its decision that includes specific references to evidence that supports each ground for decertification. Id. § 26.87(g) (2011).

         Once a recipient formally decertifies an ACDBE, the decertified firm may file an administrative appeal with USDOT. Id. § 26.89 (2011). USDOT is directed to affirm a decertification decision unless the decision is "unsupported by substantial evidence" or is "inconsistent with the substantive or procedural provisions" of the ACDBE certification regulations. Id. § 26.89(f)(1). However, USDOT need not overturn a decision for a procedural error unless it resulted in "fundamental unfairness to the appellant or substantially prejudice[d] the opportunity of the appellant to present its case." Id. § 26.89(f)(3).

         II. Factual and Procedural Background

         Tiare Enterprises is a corporation owned and operated by Ms. Roberta Fithian ("Fithian"). AR0481, ¶ 1. Tiare operates concessions at airports in Hilo and Kona, Hawaii, and has been a certified ACDBE since 1986. Id. ¶¶ 5-6. On November 4, 2013, Fithian filed a certified affidavit of her continued eligibility as an ACDBE. AR0088-93. In her affidavit, she included a personal net worth statement reporting $1, 226, 630 in assets, $243, 044 in liabilities, and $983, 586 in personal net worth. In November and December 2013, HDOT staff member Julie Rawlins corresponded with Fithian and requested additional clarification and documentation regarding her assets and liabilities. See AR0244-25, AR0247-48, AR0250, AR0252, AR0254-55.

         On December 18, HDOT sent a written notice of its intent to decertify Tiare as an ACDBE. AR0074-78. As grounds for the proposed decertification, the notice stated that Fithian's personal net worth, properly calculated, was actually $1, 782, 591; the notice asserted that she had understated the value of her real estate and "other" assets on her personal net worth statement, and stated that it was not going to consider a supposed $187, 641 liability Fithian had claimed because she provided insufficient documentation to establish its existence. Based on this calculation, the notice stated that she had "accumulated wealth too substantial to need the program's assistance" and could not therefore be regarded as economically disadvantaged. The letter indicated that participants are required to cooperate fully with HDOT's investigation, and that failure to cooperate could constitute grounds for decertification; the notice did not specifically indicate whether and how Tiare was uncooperative. AR0078. HDOT also stated (incorrectly) that the firm had "the burden of demonstrating by a preponderance of the evidence that it meets [ACDBE eligibility] requirements." AR0074. The notice concluded by stating that Fithian could request an informal hearing within 10 days of receipt of the letter. AR0078.

         On December 20, Tiare's counsel emailed HDOT and stated that it "intend[ed] to invoke ... [an informal] hearing, but would like to first speak with you." AR0377. On December 23, Tiare's counsel emailed HDOT again and requested an extension to respond until January 31, 2014. AR0378. On December 26, Rawlins replied to Tiare's counsel, stating "I understand from your e-mail that you will be requesting a hearing. I will forward your email to [DBE Program Supervisor] Melanie Martin for her response regarding that request." AR0380. On December 27, Martin responded to Fithian's counsel and granted Tiare an extension to January 31, 2014 to respond to the decertification notice. AR0382. She also stated "the firm may either submit information that may support the continued certification of Tiare Enterprises, or request an informal hearing. . . ." Id.

         On January 31, 2014, Fithian submitted a written response to the decertification proposal. AR0391. Fithian asserted that HDOT's personal net worth calculation was incorrect, and that her actual net worth was well below with $ 1.32 million threshold. AR0396. In addition, Fithian argued that HDOT's reliance on guidance from USDOT's General Counsel and its analysis in the notice was incorrect; HDOT should have simply been focused on Fithian's personal net worth and whether or not it rebutted the presumption of economic disadvantage, as required in 49 C.F.R. 26.67(b). Fithian argued that HDOT was instead bypassing the regulations and relying on USDOT guidance that was inapplicable to determine that she was not economically disadvantaged. AR0397.

         On April 2, 2014, HDOT formally decertified Tiare on the grounds that it had "not met the burden of proof regarding its claim of economic disadvantage" and failed to cooperate with HDOT's requests for information. AR0424. The notice stated that a finding of economic disadvantage could be based on an individual's income, personal net worth, or the fair market value of individual assets. AR0419. The notice stated that Tiare was not economically disadvantaged because Fithian's income placed her in the top 0.1% of wage earners, "the strength of her personal net worth qualifie[d her] to own numerous real estate properties in Hawaii, " and she had "successful access to capital and credit opportunities." AR0423-24. With respect to cooperation, the notice stated that Fithian did not provide bank statements or loan documents that HDOT requested to establish the existence of $187, 641 liability had she claimed, and did not provide a list of personal assets worth $1, 000 or more. AR0423. On April 24, 2014, Fithian's counsel sent a letter to HDOT, requesting an "informal hearing at which Ms. Fithian may respond to HDOT's proposed removal" of eligibility. AR0320. On May 6, 2014, HDOT responded, stating that the decertification was final, that the time to request a hearing had passed, and that Tiare could appeal to the USDOT. AR0322.

         Tiare administratively appealed HDOT's decision to the USDOT, alleging inter alia that HDOT failed to show that Ms. Fithian was economically disadvantaged, failed to grant an informal hearing, and failed to inform Fithian of the correct burden of proof. AR0326. On July 27, 2015, USDOT sent Fithian a letter formally notifying her that it affirmed HDOT's decertification decision on the grounds that there was substantial evidence to support HDOT's finding that her personal net worth exceeded $1.32 million, as well ...

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