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CCASE:
NISSI CORP & NAT'L SECURITY SVCS & A. GODBOTT
DDATE:
19900925
TTEXT:
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[1] U.S. DEPARTMENT OF LABOR
DEPUTY SECRETARY OF LABOR
WASHINGTON, D.C.
20210
DATE: September 25, 1990
CASE NO. SCA-1233
IN THE MATTER OF
NISSI CORPORATION, DBA
NATIONAL SECURITY SERVICES,
AND ANDREW GODBOTT,
RESPONDENTS.
BEFORE: THE DEPUTY SECRETARY OF LABOR
FINAL DECISION AND ORDER
This is a proceeding under the McNamara-O'Hara Service
Contract Act of 1965, as amended (MOSCA), 41 U.S.C. [secs] 351-358
(1982), and the regulations issued thereunder. /FN1/ 29 C.F.R.
Parts 4, 6 (1983). The matter was commenced by the filing of a
complaint on March 27, 1980, by the United States Department of
Labor (DOL) alleging violations of MOSCA by Respondents in
providing security guard services to the Federal Aviation
Administration (FAA) in Indianapolis, Indiana. The complaint
sought payment of a sum equal to the alleged underpayment of the
minimum wages and fringe benefits, 41 U.S.C. [sec] 352(a), and also
sought debarment. 41 U.S.C. [sec] 354(a).
A hearing was held before Administrative Law Judge (ALJ) John
W. Earman on August 12, 1980, and, thereafter, on [1]
/FN/ The Deputy Secretary has been designated by the Secretary to
perform the functions of the Board of Service Contract Appeals
pending the appointment of a duly constituted Board. 29 C.F.R. 8.0
(1989). [1]
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[2] January 15, 1981, the ALJ issued a decision and order (D. and
O.) finding that Respondents' underpayments were the result of a
wrongful withholding of funds from Respondents by the government to
satisfy an earlier MOSCA judgment against violators erroneously
considered to be the same as Respondents in the present case.
Since the underpayment in this case was accordingly held to be the
responsibility of the government, the ALJ dismissed the complaint.
On review, the Solicitor argues that even if the withholding
were improper, violations of MOSCA occurred for which the
Respondents, as parties responsible, are necessarily liable.
Because the only relevance of an improper withholding is on the
issue of "unusual circumstances" to warrant debarment relief, it is
argued that dismissal of the complaint by the ALJ was improper and
an order of payment should have been issued. The Solicitor
contends, in any event, that the withholding of funds on the
present contract must be held to be proper because the propriety of
the withholding under the very same contract was determined to be
proper in an earlier administrative decision by the Department of
Transportation Contract Appeals Board, which must be given binding
effect in the present proceeding. /FN2/
FACTUAL BACKGROUND
On October 25, 1978, the FAA awarded a service contract (the
FAA contract) to National Security Services (National
Security), [2]
/FN2/ Respondents did not file a reply brief on review before the
Deputy Secretary. [2]
~3
[3] as contractor, for security guard services at an FAA air
traffic control center in Indianapolis, Indiana. The FAA contract
identified National Security as the "contractor" and the document
was signed on behalf of National Security by Dr. Andrew Godbott,
identified in the contract as the Chief Executive Officer of
National Security. Government Exhibit (Govt. Ex.) 1. The FAA
contract also identified NISSI Corporation, located at precisely
the same address as National Security, as the parent company of
National Security which owns or controls it. Id. NISSI
Corporation, National Security and Dr. Andrew Godbott are the named
Respondents in the present action for alleged violations of MOSCA
arising out of Respondents' performance on the FAA contract.
Previously, in 1976, the United States Navy awarded a service
contract (the Navy contract) to National Investigation and Security
Services, Inc. (National Investigation), /FN3/ and Dr. Andrew
Godbott to provide security guard services to the Navy Finance
Center in Bratenahl, Ohio. The Navy contract became the subject of
a DOL complaint under MOSCA, resulting in a DOL administrative
decision in 1978 ordering National Investigation and Dr. Godbott to
pay the balance of sums equal to the outstanding underpayment of
wages and benefits in the amount of $4,855.83. In the Matter of
National Investigation and Security [3]
/FN3/ Whether National Investigation and Security Services, Inc.,
and NISSI Corporation are the same entity is a sharply contested
issue in the present proceeding. [3]
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[4] Services. Inc., Case No. SCA-824, ALJ Decision and Order,
October 3, 1978.
Since all contract funds on the Navy contract had been
exhausted, DOL requested that the FAA Contracting Officer withhold
payment of $4,855.83 from the contractor on the FAA contract which
DOL determined was with the "same contractor" as the Navy contract.
See 41 U.S.C. [sec] 352(a). Funds on the FAA contract were
accordingly withheld in January and February 1979, and were
ultimately released to DOL for distribution to employees underpaid
on the Navy contract.
Under the FAA contract, security guard services were to be
provided for the period November 1, 1978, through October 31, 1979.
Shortly after the commencement of the contract period, and
continuing thereafter, wage payments to employees were not properly
made, resulting in formal complaints by some employees to DOL.
Upon the contractor's additional failure to provide continuous
guard services on several occasions, the FAA Contracting Officer
terminated the contract for default in April 1979. The contractor
thereupon appealed the Contracting Officer's decision to terminate
for default to the Department of Transportation Contract Appeals
Board (the CAB) under the disputes clause of the FAA contract.
Govt. Ex. 1 at 29. The contractor alleged before the CAB that its
nonperformance under the FAA contract should be excused because it
was due to the government's failure to pay monies rightfully due
under that contract. The contractor alleged in this regard that
the [4]
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[5] government's withholding of monies on the FAA contract
was wrongful because withholding can only be accomplished under
MOSCA where the contractors are the same, and the contractors on
the Navy and FAA contracts were not the same.
On February 12, 1980, the Contract Appeals Board issued its
decision finding that the contractors on the Navy and FAA contracts
were the same, that the government's withholding was proper, and
that the Contracting Officer properly terminated the contract for
default. In its decision, the CAB, without comment, equated
National Investigation, the contractor on the Navy contract, with
NISSI Corporation, the parent company on the FAA contract. The CAB
decision restated the contractor's argument over the identity of
contractors as contending that the Navy contract was awarded to
NISSI (National Investigation) and the FAA contract to National
Security, and that National Security is not in any way related to
NISSI. /FN4/ The CAB found, however, that NISSI (National
Investigation) completely dominated National Security, caused
National Security's violations of MOSCA, and must be regarded as
one and the same with it. Therefore, the same contractors, NISSI
(National Investigation) and National [5]
/FN4/ It does not thus appear that the lack of any connection
between National Investigation and NISSI Corporation was contested
before the CAB. In this proceeding, however, Respondent strongly
contended below that there is no connection between National
Investigation and NISSI Corporation, and further denied that NISSI
is the parent company of National Security or that NISSI controls
National Security or is any way identical to it. [5]
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[6] Security, were found to be involved on the Navy and FAA
contracts, and the withholding was held to be proper under MOSCA.
DISCUSSION
Propriety of the withholding
The Solicitor introduced the CAB decision into the record at
the hearing before the ALJ, Govt. Ex. 4, and contended that because
the issue of the identity of contractors (and thus the propriety of
the withholding) had been previously litigated before an
administrative agency acting in a judicial capacity, the decision
of the agency on that issue must be given binding effect in the
present proceeding. In his decision the ALJ rejected the
Solicitor's argument, holding that because the CAB decision was
based on mistaken facts (that NISSI Corporation is identical to
National Investigation, and that NISSI was the contractor on the
Navy contract), it has no constraining effect. The ALJ found the
facts in the CAB decision "mistaken" based on his own
interpretation of the evidence and testimony presented on the
record before him. /FN5/ [6]
/FN5/ If it were necessary to examine the ALJ's factfinding on the
issue of the identity of contractors, his conclusions regarding
NISSI Corporation could scarcely be upheld as made upon a
preponderance of the evidence. See 29 C.F.R. [sec] 6.10(b) (1983).
The ALJ stated that the "uncontradicted evidence in this record is
that "NISSI" Corporation was not incorporated until 1978." ALJ D.
and O. at 4. Although counsel for Respondents in a post-hearing
brief argued that NISSI was formed in September 1978, purporting to
attach thereto a Certificate of Incorporation attesting to this
fact, said attachment is nowhere identified as a Certificate of
Incorporation and is clearly not such a document. Further,
contrary to counsel's allegation that NISSI was formed in 1978, is
Dr. Godbott's own hearing testimony that "NISSI Corporation wasn't
even formed in 1978." Hearing [FN5 (continued...) ON PAGE 7
(...continued) [7] Transcript (H.T.) at 56. The evidence on this
issue is thus contradictory, and the ALJ's determination that it is
not is unsupported in the record as a whole. As will be shown
infra, however, it will not be necessary to redecide this factual
matter on review. [END FN5]
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[7] It was error for the ALJ to refuse to give preclusive effect
to issues decided in the CAB decision on the ground that the
decision was based on mistaken facts. /FN6/ If that rule were to
obtain, res judicata and collateral estoppel would never operate to
bar relitigation because the second tribunal could always find
perceived error in the first judgment. As stated by the Supreme
Court:
Nor are the res judicata consequences of a final,
unappealed judgment on the merits altered by the fact
that the judgment may have been wrong or rested on a
legal principle subsequently over N led in another case.
[citations omitted]. As this Court explained in
Baltimore S.S. Co. v. Phillips, 274 U.S. 316, 325, 47 S.
Ct. 600, 604, 71 L. Ed. 1069 (1927), an "erroneous
conclusion" reached by the court in the first suit does
not deprive the defendants in the second action "of their
right to rely upon the plea of res judicata . . . . A
judgment merely voidable because based upon an erroneous
view of the law is not [7]
/FN6/ It is clear that the DOL action, being brought under MOSCA,
is brought on a different claim from the earlier DOT contract
action before the CAB. It is not technically a question, then, of
the same [*] claim [*] being precluded (res judicata), but of the
same [*] issue [*] being precluded (collateral estoppel) in the
second action. "Collateral estoppel or issue preclusion, a part of
the broad doctrine of res judicata, instead of preventing a second
assertion of the same claim or cause of action [res judicata]
prevents a second litigation of the same issues even in connection
with a different claim or cause of action." 4 K. Davis,
Administrative Law Treatise [sec] 21:2 at 50 (1980); see Olchowik
v. Sheet Metal Workers' Int'l Ass'n, 875 F.2d 555, 557 (6th Cir.
1989). Although the distinction between the two is necessary, it
is noted that the two doctrines are fundamentally alike in
preventing a party who has had a chance to litigate a claim, or who
has actually litigated an issue, from being allowed to relitigate
such claim or issue at a later time. [7]
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[8] open to collateral attack, but can be corrected only by
a direct review and not by bringing another action upon
the same cause [of action]." We have observed that
"[t]he indulgence of a contrary view would result in
creating elements of uncertainty and confusion and in
undermining the conclusive character of judgments,
consequences which it was the very purpose of the
doctrine of res Judicata to avert."
Federated Department Stores Inc. v. Moitie, 452 U.S. 394, 398-399
(1981) (citation omitted). If Respondents were dissatisfied with
the CAB decision, they could have sought to correct it on direct
appeal, which, based on the record of this case, they did not do.
Accordingly, the ALJ here erred in refusing to give preclusive
effect to the issues litigated in the CAB decision for the reasons
he gave.
Moreover, after careful consideration of the record and
relevant precedent, I have determined the CAB decision must be
given preclusive effect in the present proceeding. It is well
settled that an administrative decision may be given preclusive
effect. The test, as stated by the Supreme Court, is "[w]hen an
administrative agency is acting in a judicial capacity and resolves
disputed questions of fact properly before it which the parties
have had an adequate opportunity to litigate, the courts have not
hesitated to apply res judicata to enforce repose." United States
v. Utah Constr. & Mining Co., 384 U.S. 394, 422 (1966); accord
University of Tennessee v. Elliott, 478 U.S. 788, 797-798 (1986);
Kremer v. Chemical Constr. Corp., 456 U.S. 461, 484 n.26 (1982).
In Utah Construction the Court gave preclusive effect to certain
factual issues decided by an administrative [8]
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[9] contract appeals board in a later action for breach of contract
brought in the Court of Claims. The test for issue preclusion has
been subsequently restated by the Court as involving three distinct
steps: (1) is the issue identical to that actually decided by another
decision maker? (2) was the issue necessary to the earlier judgment?
and (3) did the party against whom preclusion would operate have a
full and fair opportunity to litigate the issue? Montana v.
United States, 440 U.S. 147, 153 (1979); accord Olchowik v. Sheet
Metal Workers' Int'l Ass'n, 875 F.2d 555, 557 (6th Cir. 1989). /FN7/
Both of the foregoing formulations for issue preclusion are
satisfied in the present case. The CAB was clearly acting in a
judicial capacity in deciding the contractor's appeal of the
Contracting Officer's termination for default. The CAB was
established by regulation pursuant to the Contract Disputes Act of
1978, 41 U.S.C. [sec] 601-613, in July 1979, see 44 Fed. Reg.
43,721 (July 26, 1979), as a judicial decisionmaking body with
jurisdiction, inter alia, to hear and decide appeals from decisions
made by contracting officers relating to contracts awarded by DOT
and its constituent administrations. 41 C.F.R. [9]
/FN7/ The absence of any limitation of issue preclusion to
questions of "fact" is reflected in the second Restatement of
Judgments 27 (1982) which states that a determination of an issue
of fact or law may be conclusive in a subsequent action. See K.
Davis, AdministratiVe Law Treatise [sec] 21:2 at 51 (1980). In any
case, the issue of the identity of contractors is sufficiently
factual in the present case as to satisfy the Utah Construction
criteria alone. [9]
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[10] [secs] 12-60.101, 12-60.103 (1980). /FN8/ Appeals are
assigned to a panel of three ALJ members of the CAB, a majority of
which constitutes the decision of the Board. 41 C.F.R. [sec]
12-60.103 (1980). The February 12, 1980, decision of the CAB
involving National Security was rendered after submission on the
written record, the contractor having waived its opportunity for
hearing under Rules 8 and 17 of the CAB Rules of Procedure. See
41 C.F.R. [sec] 12-60.202, Rules 8, 17 (1980). The contractor
was afforded the full range of procedural rights provided by
the Board's rules. 41 C.F.R. [sec] 12-60.202 (1980). The CAB
decision is a formal document setting forth findings of fact,
employing substantial legal analysis in support of its result, and
is signed unanimously by all three ALJ panel members.
It is clear, furthermore, that the contractor had a full and
fair opportunity before the CAB to litigate the issue of the
identity of contractors on the Navy and FAA contracts. By May
1979, when the contractor filed its appeal with CAB, the existence,
respective identity and interrelationships of National
Investigation, NISSI and National Security were fully established.
No material facts were alleged to have changed, nor was there any
new evidence alleged to have arisen from the time of the CAB action
to the hearing in the present proceeding in [10]
/FN8/ For accuracy, the CAB rules are cited as they existed at
the time the CAB proceeding was initiated. In 1987 the rules
were recodified at 48 C.F.R. Part 63, deleting only Rule 30,
and making no other changes from the rules that were in effect
in 1979. See 52 Fed. Reg. 48,630 (December 23, 1987). [10]
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[11] August 1980. The contractor was thus fully able to litigate
the issue of whether the contractors on the Navy and FAA contracts
were the same. That it apparently chose only to deny the
relationship between National Security and NISSI, and did not
apparently dispute the identity of NISSI with National
Investigation is irrelevant. Utah Construction only requires that
there be a full and fair [*] opportunity [*] to litigate the issue
sought to be given preclusive effect.
There is no question that the CAB had jurisdiction to hear the
contractor's appeal of the termination for default, 41 C.F.R
12-60.103 (1980), which was agreed to by the parties in the
contract itself. Govt. Ex. 4 at 29. See, e.g., General Dynamics
Corp. v. United States, 558 F.2d 985 (Ct. Cl. 1977). Nor is there
any question that the issue of sameness of contractors on the Navy
and FAA contracts was identical in both the CAB and DOL
proceedings. This issue, moreover, is essentially factual, even if
its outcome directly governs the more legal issue of the propriety
of the withholding of funds on the FAA contract. Finally, a
determination of the identity of contractors was necessary to the
CAB judgment, since it had to decide whether the contractor's
nonperformance on the FAA contract should be excused by reason of
the government's withholding of funds. The propriety of the
withholding was therefore critical, which, in turn depended
directly on the factual identity of contractors.
That DOL was not a party to the earlier action before the CAB
does not prevent its use of collateral estoppel against [11]
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[12] Respondents in the present action. The doctrine of mutuality of
estoppel, that unless both parties in a second action are bound by
a judgment in a previous case, neither party may use the prior
judgment as determinative of an issue in the second action, was
overruled in Blonder-Tongue Laboratories. Inc. v. University of
Illinois Foundation, 402 U.S. 313 (1971). Further, the offensive
use of collateral estoppel when, as here, the government
complainant seeks to foreclose the Respondents from litigating an
issue that Respondents have previously litigated unsuccessfully,
has been fully recognized in Parklane Hosiery Co.. Inc. v. Shore,
439 U.S. 322 (1979), provided certain safeguards are met. As to
such safeguards, 439 U.S. at 332, it is clear that before the CAB
the contractor had every incentive to litigate the contract
dispute, since, under the contract, its liability for termination
for default was much greater than if its default were excused and
the termination converted to one for the convenience of the
government. Secondly, the procedural opportunities available for
the contractor to present its case in the DOT action were no less
than those available in the DOL action. See 41 U.S.C. Part 12-60
(1980). The overriding concern, that there have been a full and
fair opportunity to litigate the issue in the first action was more
than satisfied by the full, actual litigation of the issue before
the CAB.
Accordingly, I conclude that the determination by the CAB that
National Investigation, NISSI and National Security are one and the
same must be given preclusive effect in the present [12]
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[13] proceeding. It follows that the government's withholding of funds
on the FAA contract to satisfy an earlier judgment against the same
contractor was proper. As a result, Respondents' failure to pay
minimum wages and fringe benefits under MOSCA is not excused.
Therefore, the order of dismissal must be vacated and an order
directing the payment of the balance of sums still unpaid, in the
amount of $3,831.90, must be issued.
Parties liable for underpayment
It is evident that National Security and NISSI, being one and
the same, and being contractors on the FAA contract, are parties
responsible liable for the underpayment in this case. 41 U.S.C.
[sec] 352(a). I find that Dr. Andrew Godbott, individually, is
also a party responsible and jointly liable for the underpayment.
In his decision, the ALJ found as follows with regard to Dr.
Godbott:
The evidence is conflicting as to Dr. Godbott's status
with National Security Service. The Government has
contended that he is the President and Chief Executive
Officer. Dr. Godbott has stoutly denied this and has
characterized his relationship to NSS as a consultant.
His status is irrelevant. The issue is ownership
interest, if any. The Government has offered no evidence
as to his ownership in the company. Dr. Godbott's
uncontradicted testimony, which again must be taken as
true, is that he has no property interest in National
Security Service, that it is a sole proprietorship, owned
entirely by Mrs. Godbott.
ALJ D. and O. at 3. To the extent that the ALJ's findings above
were made with regard to the issue of party responsible under
MOSCA, 41 U.S.C. [sec] 352(a), they are in error and must be [13]
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[14] reversed. Dr. Godbott's liability as a party responsible
does not turn on his ownership interest in National Security.
The law governing responsible party under MOSCA is presently
codified at 29 C.F.R. [sec] 4.187(e)(1) (1989) of the regulations.
Although these regulations were promulgated in 1983, after the
events giving rise to the action before the CAB occurred, these
regulations, without exception, are derived from case precedent in
existence at the time of and applicable to the CAB proceeding. The
regulations are accordingly applicable to my review of the
proceedings below.
Under the regulations it is clear that a corporate official
who controls the day-to-day operations and management policy, or is
responsible for-*he control of the corporate entity, or who
actively directs and supervises the contract performance, including
employment policies and practices and the work of the employees
working on the contract, is liable for the violations individually
and jointly with the company. 29 C.F.R. 4.187(e)(1), (2), (3).
The ALJ resolved by inference the issue of whether Dr. Godbott is
a corporate official of National Security, by finding that National
Security is a sole proprietorship and not a corporation.
Regardless of this finding, the regulations also state that
personal liability for violations of MOSCA "includes all persons,
irrespective of proprietary interest, who exercise control,
supervision, or management over the performance of the contract,
including the labor policy or employment conditions regarding the
employees [14]
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[15] engaged in contract performance, and who, by action or
inaction, cause or permit a contract to be breached." 29
C.F.R. [sec] 4.187(e)(4).
The most telling fact in the present case on the issue of the
exercise of control over the contract is that Dr. Godbott signed
the contract on behalf of National Security. Further, Dr. Godbott
testified that he actually bid the contract, H.T. at 48, had
control over wage payments to employees, H.T. at 47, participated
in the borrowing of funds to pay employees, H.T. at 47, 53, failed
to pay employees when the withholding occurred, H.T. at 48, wrote
the letter releasing funds withheld under the FAA contract for
disbursement to unpaid employees, H.T. at 53, and appealed the
termination of the FAA contract to the CAB, through counsel. H.T.
at 55. The CAB decision at p.2 additionally refers to Dr. Godbott
as the official the Contracting Officer would notify concerning the
adequacy of performance on the contract, and that it was Dr.
Godbott who attempted to reinstall personnel when guards were not
provided.
As a signatory to the contract, Dr. Godbott clearly became
bound by and accepted responsibility for compliance with MOSCA and
the imposition of its sanctions. See 29 C.F.R. [sec] 4.187(e)(4).
Moreover, from all of the record evidence cited above, it is
evident that Dr. Godbott exercised sufficient managerial control
over the performance of the contract, and caused its breach, that
he must be considered liable as a party responsible. 29 C.F.R.
4.187(e)(4). See also United States v. [15]
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[16] Sancolmar Industries. Inc., 347 F. Supp. 404 (E.D.N.Y. 1972);
United States v. Islip Machine Works, Inc., 179 F. Supp. 585
(E.D.N.Y. 1959). The order for repayment must accordingly be directed
to Dr. Godbott individually.
Debarment
Under Section 5(a) of MOSCA, 41 U.S.C. 354(a), persons found
to have violated MOSCA are ineligible to be awarded government
contracts for a period of three years unless the Secretary
recommends otherwise because of "unusual circumstances." The
applicable for determining whether unusual circumstances exist in
the present case are set forth in Washington Moving and Storage
Co., Case No. SCA-168, Sec. Decision, March 12, 1974. The factors
set forth therein include whether respondent's liability turned on
a bona fide legal issue of doubtful certainty.
In the present case Respondents' liability under MOSCA on the
FAA contract turned on a bona fide legal issue of doubtful
certainty. The precise legal issue concerned the propriety of the
government's withholding of funds on the FAA contract. If legally
improper, as determined by the ALJ's weighing of evidence, then
Respondents' performance could be excused, no violation of MOSCA
would have occurred, and the case could properly be dismissed.
See, e.g., Boston Shipyard Boston Shipyard Corp., 886 F.2d 451 (1st
Cir. 1989); TGC Contracting Corp. v. United States, 736 F.2d 1512
(Fed. Cir. 1984); Southeastern Airways Corp. v. United States, 673
F.2d 368 [16]
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[17] (Ct. Cl. 1982); National Eastern Corp. v. United
States, 477 F.2d 1347 (Ct. Cl. 1973). On the other hand, if the
CAB decision should have been given preclusive effect, as
determined herein, then MOSCA violations occurred for which the
parties responsible are necessarily liable. In the circumstance
here, I find that the outcome of the withholding issue in this case
was sufficiently doubtful that relief from the ineligibility list
is warranted. Accordingly, the names of Respondents NISSI
Corporation, National Security Services and Andrew Godbott will not
be referred for placement on the list of ineligible bidders.
For all of the foregoing reasons, Respondents NISSI Corporation,
National Security Services and Dr. Godbott are hereby ordered to
pay to the Department of Labor the outstanding underpayment of FAA
Contract Number DOT-FA79GL-1858 in the amount of $3,831.90.
SO ORDERED.
[Roderick DeArment]
Deputy Secretary of Labor
Washington, D. C. [17]
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