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International Exports, Inc. v. Mattis

United States District Court, District of Columbia

July 17, 2017

INTERNATIONAL EXPORTS, INC., et al., Plaintiffs,
JIM MATTIS, in his official capacity as Secretary of Defense, [1] et al., Defendants.


          REGGIE B. WALTON United States District Judge.

         The plaintiffs, International Exports, Inc. (“International Exports”), Suzanne Itani, and Ziad Itani, initiated this civil action seeking judicial review under the Administrative Procedure Act (“APA”), 5 U.S.C. § 706 (2012), and a declaratory judgment in their favor, following the decision of defendant Defense Logistics Agency (“Agency”), a component of the United States Department of Defense (“Defense Department”), to debar the plaintiffs from government contracting for fifteen years, pursuant to the Federal Acquisition Regulation (“FAR”), see generally Original Complaint (“Compl.”), that is codified, in relevant part, at 48 C.F.R. §§ 9.403 and 9.406 (2016). Currently pending before the Court are the Defendants' Motion for Summary Judgment, ECF No. 36 (“Defs.' Mot.”), and the Plaintiffs' Motion for Partial Summary Judgment, ECF No. 37 (“Pls.' Mot.”). Upon careful consideration of the parties' submissions, the Court concludes that both motions must be granted in part and denied in part.[2]

         I. BACKGROUND

         In July 2007, a grand jury in Houston, Texas indicted non-party Samir Itani in “a [forty-six]-count indictment [charging, in addition to other offenses, ] conspiracy to defraud the government with respect to claims and with making false claims.” AR at 39; see also id. at 25- 38 (Indictment).[3] The indictment charged Samir Itani, who was then the “owner of American Grocers, Inc., a Houston company that export[ed] food and non-food products to countries in the Middle East, ” id. at 39, with submitting to the United States government false invoices that allegedly inflated the trucking costs incurred in transporting food products, see id. at 39-40. On July 27, 2017, following Samir Itani's indictment, the Agency suspended him from entering into government contracts due to his alleged wrongdoing, as well as his wife, plaintiff Suzanne Itani, non-party S&S Itani, Inc. d/b/a American Grocers, and non-party American Grocers, Ltd, “based on their affiliation with [Samir] Itani.” See id. at 1; see also id. at 59-61 (Notice of Suspension issued to American Grocers, Ltd.); id. at 65-67 (Notice of Suspension issued to S&S Itani, Inc.); id. at 68-70 (Notice of Suspension issued to Samir Itani); id. at 71-73 (Notice of Suspension issued to Suzanne Itani).

         In July 2009, a superseding information issued against Samir Itani based upon the alleged false trucking charges, see id. at 80-93 (Superseding Criminal Information), to which he subsequently pleaded guilty, acknowledging his culpability for committing the offense of conspiracy to defraud the government in violation of 18 U.S.C. § 286, id. at 94-116. A judge on the United States District Court for the Southern District of Texas sentenced Samir Itani to, inter alia, a twenty-four-month term of imprisonment. See id. at 117-18.

         While the criminal case against Samir Itani was unfolding, a separate, civil qui tam case under the False Claims Act was proceeding under seal before the same court. See id. at 182-212 (Relator Delma Pallares's First Amended Complaint, United States ex. rel. Pallares v. Itani, Case No. H-05-3018 (S.D. Tex. June 10, 2009) (“Pallares Am. Compl.”)). The qui tam complaint named as defendants Samir Itani, Suzanne Itani, and Samir Itani's brother Ziad Itani, along with several entities in which Samir or Suzanne Itani allegedly held an ownership or management interest. See id. at 185-86 (Pallares Am. Compl. ¶¶ 3-12). The relator in the qui tam case, who was a former employee of the Itanis from 1996 to 2003, id. at 185 (Pallares Am. Compl. ¶ 2), alleged that the defendants engaged in a scheme to modify the expiration dates on food to be delivered “to military contractors for consumption by thousands of U.S. troops stationed in bases in Iraq, Kuwait, and Saudi Arabia, ” to make it appear as though the food products had longer shelf lives. See generally id. at 195-99 (Pallares Am. Compl. ¶¶ 33-40). The qui tam complaint made reference to a 2006 “raid” in which “[b]uckets of [a]cetone [were] [f]ound at American Grocer's [w]areheouse, ” which was allegedly used to alter expiration dates on food products. See id. at 197 (Pallares Am. Compl. ¶ 38). The qui tam complaint further alleged that the defendants forged halal[4] and United States Department of Agriculture (“USDA”) health inspection certificates. See generally id. at 199-201 (Pallares Am. Compl. ¶¶ 42-44).

         In 2010, the parties in the qui tam action entered into a settlement agreement, see generally id. at 228-43 (Settlement Agreement), in which Samir and Suzanne Itani, and the defendant entities, agreed to pay $15 million to the United States to settle the claims in that case, see id. at 230-31. By its express terms, the settlement agreement “[was] neither an admission of liability by [the d]efendants nor a concession by the United States that its claims [were] not well-founded” Id. at 230 (Settlement Agreement ¶ 5). Instead, the parties entered into the settlement agreement “[t]o avoid the delay, uncertainty, inconvenience, and expense of protracted litigation of the . . . claims” asserted in the case. Id. (Settlement Agreement ¶ 6). The United States agreed to release, in part, any claims under the False Claims Act arising from, among other allegations, the Pallares qui tam complaint's allegations pertaining to the alteration of expiration dates and falsified halal and USDA certificates. See id. at 228-31 (Settlement Agreement ¶¶ 2- 3, 4(d)-(e), 9).

         Some months later, in March 2011, the Agency issued notices of proposed debarment to several parties, including Samir and Suzanne Itani, and S&S Itani. Id. at 386-403. Relevant to the dispute before the Court, the Agency proposed to debar plaintiff Suzanne Itani due to her affiliation with S&S Itani. See id. at 401 (“[Samir Itani's] conviction provided grounds for his debarment and the debarment of S&S Itani. . . . Your affiliation with S&S Itani provides a cause for debarment pursuant to FAR 9.406-2(c).”). In her response to the notice of the proposed debarment, Suzanne Itani stated that “during the time covered by the indictment [of Samir Itani], between 2004 and extending to 2006, . . . [she] played no significant role in the operational aspects of S&S Itani.” Id. at 450. However, she “assumed the title of CEO of S&S Itani” in 2009, and thereafter, in 2010, “made the decision to wind down the operations of and close S&S Itani . . . as business entities.” Id. She stated that she ceased operations of S&S Itani because she “did not want to be associated with a company that had been involved in the sort of conduct in which she would not have engaged.” See id. at 599. She subsequently established plaintiff International Exports, see id. at 599 (“International Exports was founded in 2010 by Suzanne Itani.”), to generate income for her family while Samir Itani was incarcerated, id. She further stated that “[a]lthough [she was] now running a commercial business, it has nothing to do with government contracting but may well be damaged by a debarment which might exclude me from participating in government incentive programs for commercial exports to other countries.” Id. at 449.

         In May 2011, the Agency “supplement[ed] the administrative record, ” id. at 244, by including a presentation summarizing the allegations in the Pallares qui tam case, id. at 245-334, an order issued by the Southern District of Texas unsealing the complaints filed in that case, id. at 335-36, and a copy of the amended qui tam complaint, id. at 337-69. The qui tam documents contain various allegations and purported evidence of the alleged shelf life mislabeling scheme, including allegations implicating Ziad Itani. See, e.g., id. at 351 (Pallares Am. Compl. ¶ 33 (“If the products would expire soon, [Samir] Itani instructed employees to eradicate the dates with acetone, spray paint, or a ‘Dremel' tool. [Samir] Itani or his brother, Ziad [Itani], would then make up a new date and imprint it on the product with a special dating machine.”)). Suzanne Itani submitted a response, through counsel, to the supplemental materials. See id. at 532-35 (June 29, 2011 letter from Suzanne Itani's counsel to the Agency).

         In a June 2011 letter, the Agency proposed to debar plaintiff Ziad Itani pursuant to FAR 9.406-2(c), citing his “affiliation with S&S Itani.” Id. at 456. The notice of proposed debarment also stated that, pursuant to FAR 9.406-5(b), “[t]he imputation of [S&S Itani's] seriously improper conduct to [Ziad Itani as an employee also] provide[d] a cause for debarment.” Id. at 457. In addition, the Agency proposed to debar plaintiff International Exports due to its affiliation with S&S Itani. See id. at 479. Like Suzanne Itani, both Ziad Itani and International Exports responded to their proposed debarments through counsel. See id. at 536-53 (Aug. 10, 2011 letter from Ziad Itani's counsel to the Agency); id. at 599-632 (Aug. 10, 2011 letter from International Exports's counsel to the Agency).

         The Agency rejected the plaintiffs' arguments against debarment in its final decision issued on September 23, 2011. See generally id. at 672-83. The debarring official imputed the misconduct underlying Samir Itani's 2009 fraud conviction to S&S Itani, id. at 681, and then debarred the plaintiffs as affiliates of S&S Itani, id. at 682. The debarring official further stated that, “[i]n addition to the fraud conviction of Samir . . . Itani, [she found] the seriously improper conduct of mislabeling food to extend the shelf life, [and] providing falsified halal and USDA certificates warrants an additional term to protect the [g]overnment's interest.” Id. at 662, 668, 669 (letters from the Agency to International Exports, Suzanne Itani, and Ziad Itani, respectively). The final decision imposed a fifteen-year debarment period for each of the plaintiffs, terminating in March 2026. Id. at 662, 668, 669 (letters from the Agency to International Exports, Suzanna Itani, and Ziad Itani, respectively). “The debarments apply to procurement, nonprocurement, and sales contracting and are effective throughout the executive branch of the [f]ederal [g]overnment . . . .” Id. at 683.


         In cases seeking judicial review of agency action under the APA, “[s]ummary judgment is the proper mechanism for deciding, as a matter of law, whether an agency action is supported by the administrative record and consistent with the APA standard of review.” Loma Linda Univ. Med. Ctr. v. Sebelius, 684 F.Supp.2d 42, 52 (D.D.C. 2010) (citing Stuttering Found. of Am. v. Springer, 498 F.Supp.2d 203, 207 (D.D.C. 2007)), aff'd, 408 F. App'x 383 (D.C. Cir. 2010). The APA requires that a court reviewing agency action “shall review the whole record or those parts of it cited by a party.” 5 U.S.C. § 706. “It is a widely accepted principle of administrative law that the courts base their review of an agency's actions on the materials that were before the agency at the time its decision was made.” IMS, P.C. v. Alvarez, 129 F.3d 618, 623 (D.C. Cir. 1997). Due to the limited role of a court in reviewing agency action based on the administrative record, the typical summary judgment standards set forth in Federal Rule of Civil Procedure 56 do not apply. See Stuttering, 498 F.Supp.2d at 207. Instead, “[u]nder the APA, it is the role of the agency to resolve factual issues to arrive at a decision that is supported by the administrative record, whereas ‘the function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did.'” Id. (quoting Occidental Eng'g Co. v. Immigration & Naturalization Servs., 753 F.2d 766, 769-70 (9th Cir. 1985)). Thus, “when a party seeks review of agency action under the APA, the district judge sits as an appellate tribunal, ” and “[t]he entire case on review is a question of law.” Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001) (quotation marks omitted).

         III. ANALYSIS

         “The FAR . . . prescribes the policies and procedures governing agency debarment of contractors.” Novicki v. Cook, 946 F.2d 938, 940 (D.C. Cir. 1991). “Under the [FAR], a contractor may be debarred for a number of reasons, including fraud in the performance of a public contract or subcontract.” Id. The FAR “operates on the assumption that all individuals with whom the government does business are persons of integrity who abide by the terms of their government contracts.” Caiola v. Carroll, 851 F.2d 395, 398 (D.C. Cir. 1988). “Debarment reduces the risk of harm to the system by eliminating the source of the risk, that is, the unethical or incompetent contractor.” Id. at 399. However, the FAR “stresses that debarment is a sanction to ‘be imposed only in the public interest for the [g]overnment's protection and not for purposes of punishment.'” Id. at 398 (quoting 48 C.F.R. § 9.402(b)). “The plaintiff[s] can prevail in this case if [they] can show that the debarring official's decision was arbitrary, capricious, an abuse of discretion, or not otherwise in accordance with the law.” Textro v. Cheney, 757 F.Supp. 51, 56 (D.D.C. 1991) (citing 5 U.S.C. § 706(2)(A)). And “[t]he Court's application of the arbitrary and capricious standard has been substantively equated with the inquiry [of] whether there was ‘substantial evidence' to debar the plaintiff.” Id. Guided by these principles, the Court now turns to the parties' contentions.

         A. The Plaintiffs' Affiliation with S&S Itani as a Basis for Their Debarment

         The defendants assert that the Agency's decision to debar the plaintiffs is unassailable because it is based on the debarring official's authority to extend the debarment of a contractor to any “affiliates” of the debarred contractor. See Def.'s Mem. at 11-12. The plaintiffs contend that their debarment was arbitrary and capricious because the Agency made no finding of wrongdoing on their part and that the FAR does not permit debarment of “affiliates of affiliates.” See Pl.'s Mem. at 2-3 (summarizing the plaintiffs' arguments). Upon careful review of the record and the FAR, the Court must reject the plaintiffs' position and conclude that the Agency's determination to debar the plaintiffs was not arbitrary and capricious.

         The FAR states that “[t]he debarring official may extend the debarment decision to include any affiliates of the [debarred] contractor if they are (1) specifically named and (2) given written notice of the proposed debarment and an opportunity to respond.” 48 C.F.R. § 9.406-1(b). The term “affiliate” is defined as follows:

Business concerns, organizations, or individuals are affiliates of each other if, directly or indirectly, (1) either one controls or has the power to control the other, or (2) a third party controls or has the power to control both. Indicia of control include, but are not limited to, interlocking management or ownership, identity of interests among family members, shared facilities and equipment, common use of employees, or a business entity organized following the debarment, suspension, or proposed debarment of a contractor which has the ...

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