Amicus Brief on BP Debarment

UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

)

BP EXPLORATION & PRODUCTION INC., et al., )

)

)

Plaintiffs, )

) No. 4:13-cv-02349

v. )

) Hon. Vanessa D. Gilmore

GINA McCARTHY, in her official capacity )

as Administrator, United States )

Environmental Protection Agency, et al., )

)

Defendants. )

)

MOTION OF THE CHAMBER OF COMMERCE OF THE UNITED STATES, THE

AMERICAN PETROLEUM INSTITUTE, THE NATIONAL ASSOCIATION OF

MANUFACTURERS, THE NATIONAL OCEAN INDUSTRIES ASSOCIATION, THE

ORGANIZATION FOR INTERNATIONAL INVESTMENT, AND TECHAMERICA

FOR LEAVE TO FILE A BRIEF AMICUS CURIAE

IN SUPPORT OF PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT

1. Amici the Chamber of Commerce of the United States, the American Petroleum

Institute, the National Association of Manufacturers, the National Ocean Industries Association,

the Organization for International Investment, and Techamerica respectfully move for leave to

file a brief amicus curiae in support of plaintiffs’ motion for summary judgment. Amici sought

consent for this filing from counsel for the plaintiffs and defendants. Counsel for plaintiffs has

consented. Counsel for defendants has indicated that defendants reserve consent until after they

review this motion and attached brief.

Case 4:13-cv-02349 Document 38 Filed in TXSD on 12/02/13 of 5

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2. The prospective amici believe the issues in this case deserve close attention, and the

proposed amicus brief will aid the Court’s consideration. Amici, some of the largest trade and

industry organizations in the world, represent members who contract with the government and

perform work in connection with covered federal programs in a range of diverse industries—

from manufacturing to technology to oil and gas. Accordingly, amici have a vital interest in

preserving the established principles governing exclusion from government contracting and

covered federal programs. Amici submit this brief to inform the court of the serious

consequences for industry that will result from EPA’s interpretation of its authority.

3. The substantive portion of the brief—the Introduction and Argument—is less than

twenty pages. Amici’s Statement Of Interest is lengthy, due to the many amici joining this single

submission. To the extent amici’s Statement Of Interest is viewed as counting against page

limits, amici seek the court’s indulgence to exceed those limits by a modest amount in light of

the parties’ agreement to file briefs in excess of the limit.

For all of the foregoing reasons, prospective amici respectfully request leave to file the

attached brief amicus curiae.

Dated: December 2, 2013 Respectfully submitted,

By:

/s/ Bruce D. Oakley

Bruce D. Oakley

Attorney-in-Charge

Texas SBN 15156900

SDTX Bar No. 11824

HOGAN LOVELLS US LLP

Bank of America Center

700 Louisiana Street, Suite 4300

Houston, Texas 77002

T (713) 632-1400

D (713) 632-1420

F (713) 632-1401


3

Of Counsel:

Catherine E. Stetson

Thomas L. McGovern III

Jonathan D. Shaub*

Katherine L. Morga*


555 Thirteenth St., NW

Washington, DC 20004

(T) (202) 637-5600

(F) (202) 637-5910

[email protected]

[email protected]

[email protected]

[email protected]

*not admitted in D.C.; supervised

by members of the firm

[email protected]

Counsel for the Amici Curiae

Rachel L. Brand

Steven P. Lehotsky

NATIONAL CHAMBER LITIGATION

CENTER, INC.

1615 H Street, NW


Counsel for Amicus Curiae

the Chamber of Commerce of the United

States

Harry M. Ng

Evelyn R. Nackman

AMERICAN PETROLEUM

INSTITUTE

1220 L Street, NW

Washington, DC 20005-4070


the American Petroleum Institute

Linda E. Kelly

Quentin Riegel

Patrick Forrest

NATIONAL ASSOCIATION OF

MANUFACTURERS

733 10th Street, NW, Suite 700



the National Association of Manufacturers

ORGANIZATION FOR INTERNATIONAL

INVESTMENT

1225 Nineteenth Street, NW, Suite 501



the Organization for International Investment

Benjamin J. Aderson

Rachel S. Wolkowitz

TECHAMERICA

601 Pennsylvania Avenue, NW


4

NATIONAL OCEAN INDUSTRIES

ASSOCIATION

1120 G Street, NW • Suite 900



the National Ocean Industries Association

North Building, Suite 600


Counsel for Amicus Curiae TechAmerica


5

CERTIFICATE OF CONFERENCE

I hereby certify that on November 27, 2013, and December 2, 2013, counsel for amici

had a conference by phone and e-mail with Angeline Purdy, counsel for defendants, regarding

the filing of this brief and its length, who stated that defendants reserved a decision on whether to

consent to the filing of the brief until after they had reviewed the motion and brief. Therefore,

the motion should be treated as opposed at this time.

/s/ Bruce D. Oakley

Bruce D. Oakley

CERTIFICATE OF SERVICE

The undersigned hereby certifies that a true and correct copy of the foregoing

document has been served on all counsel of record via CM/ECF on this the 2nd day of

December, 2013, in accordance with the Federal Rules of civil Procedure.

/s/ Bruce D. Oakley

Bruce D. Oakley




HOUSTON DIVISION

)


)

)

Plaintiffs, )

) No. 4:13-cv-02349

v. )





)

Defendants. )

)

BRIEF OF THE CHAMBER OF COMMERCE OF THE UNITED STATES, THE

AMERICAN PETROLEUM INSTITUTE, THE NATIONAL ASSOCIATION OF

MANUFACTURERS, NATIONAL OCEAN INDUSTRIES ASSOCIATION,

ORGANIZATION FOR INTERNATIONAL INVESTMENT, AND TECHAMERICA

AS AMICI CURIAE IN SUPPORT OF PLAINTIFFS’ MOTION FOR SUMMARY

JUDGMENT

Case 4:13-cv-02349 Document 38-1 Filed in TXSD on 12/02/13 Page 1 of 60

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES .......................................................................................................... ii

STATEMENT OF INTEREST ........................................................................................................1

INTRODUCTION ...........................................................................................................................5

ARGUMENT ...................................................................................................................................7

I. EPA Cannot Designate A Corporate Headquarters As A “Violating Facility”

If No Violation Occurred At That Facility ....................................................................7

A. EPA’s Designation Of BPXP’s Headquarters As A “Violating

Facility” Is Precluded By The Plain Language Of The CWA ...........................7

B. Accepting The Designation Of BPXP’s Headquarters As A “Violating

Facility” Would Undermine The Intent Of The Statute ...................................13

II. An Agency Cannot Suspend Multiple Worldwide Affiliates Of A Company

Without Grounding Its Decision In The Public Interest Or Showing A Lack Of

Present Responsibility. .................................................................................................17

CONCLUSION ..............................................................................................................................24


APPENDIX


ii

TABLE OF AUTHORITIES

Pages

CASES:

Agility Def. & Gov’t Servs., Inc. v. U.S. Dep’t of Def.,

2012 WL 2480484 (N.D. Ala. June 26, 2012) .........................................................................20

Auer v. Robbins,

519 U.S. 452 (1997) .................................................................................................................11

Caiola v. Carroll,

851 F.2d 395 (D.C. Cir. 1988) .................................................................................................17

Chevron USA, Inc. v. Nat. Res. Def. Council, Inc.,

467 U.S. 837 (1984) ...................................................................................................................7

City of Arlington v. FCC,

133 S. Ct. 1863 (2013) .........................................................................................................7, 11

Commercial Drapery Contractors v. United States,

133 F.3d 1 (D.C. Cir. 1998) .......................................................................................................6

Gonzales v. Freeman,

344 F.2d 570 (D.C. Cir. 1964) .................................................................................................22

Kisser v. Kemp,

786 F. Supp. 38 (D.D.C. 1992), rev’d on other grounds sub nom Kisser v. Cisneros,

14 F.3d 615 (D.C. Cir. 1994) ...................................................................................................21

Lion Raisins, Inc. v. United States,

51 Fed. Cl. 238 (2001) .............................................................................................................22

Robinson v. Cheney,

876 F.2d 152 (D.C. Cir. 1989) .................................................................................................18

Smiley v. Citibank (South Dakota), N.A.,

517 U.S. 735 (1996) .................................................................................................................11

United States v. BP Exploration & Production, Inc.,

No. 2:12-cr-00292, Dkt. No. 2 (E.D. La. 2012) ...................................................................5, 12

United States v. Mix,

No. 2:12-cr-00171 (E.D. La.)...................................................................................................20

United States v. Rainey,

No. 2:12-cr-00291 (E.D. La.)...................................................................................................20


TABLE OF AUTHORITIES—Continued

Page(s)

iii

STATUTES:

5 U.S.C. § 706(2)(A)......................................................................................................................17

5 U.S.C. § 890.1003 .......................................................................................................................16

5 U.S.C. § 8902a ............................................................................................................................16

10 U.S.C. § 983(a) .........................................................................................................................16

21 U.S.C. § 350d(b)(1) ..................................................................................................................16

33 U.S.C. § 1319(c) .........................................................................................................................9

33 U.S.C. § 1319(c)(1)(A) ...............................................................................................................8

33 U.S.C. § 1321 ..............................................................................................................................9

33 U.S.C. § 1321(a)(2) .....................................................................................................................9

33 U.S.C. § 1321(b)(3) ................................................................................................................8, 9

33 U.S.C. § 1321(b)(3)(ii)................................................................................................................9

33 U.S.C. § 1368 .................................................................................................................... passim

33 U.S.C. § 1368(a) .........................................................................................................7, 8, 10, 12

41 U.S.C. § 6706(b) .......................................................................................................................16

42 U.S.C. § 7606 ............................................................................................................................10

42 U.S.C. § 7606(a) .......................................................................................................................14

42 U.S.C. § 1320a-7(b)(13) ...........................................................................................................16

42 U.S.C. § 1320b-6 ......................................................................................................................16

REGULATIONS:

2 C.F.R. pt. 180 ..............................................................................................................................15

2 C.F.R. § 180.125 .........................................................................................................................22

2 C.F.R. § 180.125(c).....................................................................................................................18



Page(s)

iv

2 C.F.R. § 180.605 .........................................................................................................................18

2 C.F.R. § 180.625 .........................................................................................................................19

2 C.F.R. § 180.625(b) ..............................................................................................................18, 19

2 C.F.R. § 180.630 .........................................................................................................................21

2 C.F.R. § 180.630(a).....................................................................................................................21

2 C.F.R. § 180.630(c).....................................................................................................................21

2 C.F.R. § 180.700(c).....................................................................................................................18

2 C.F.R. § 180.705 .........................................................................................................................18

2 C.F.R. § 180.905 .........................................................................................................................18

2 C.F.R. § 1532.1110 .....................................................................................................................13

2 C.F.R. § 1532.1115 .....................................................................................................................14

2 C.F.R. § 1532.1130 .....................................................................................................................13

2 C.F.R. § 1532.1130(a).................................................................................................................17

2 C.F.R. § 1532.1130(b) ..........................................................................................................14, 17

2 C.F.R. § 1532.1600(b) ....................................................................................................10, 12, 15

7 C.F.R. § 400.454(d)(3) ................................................................................................................17

32 C.F.R. § 216.3©(2) ...................................................................................................................16

48 C.F.R. § 9.103 ...........................................................................................................................22

48 C.F.R. § 9.104-1 ........................................................................................................................22

48 C.F.R. § 9.403 ...........................................................................................................................18

48 C.F.R. § 9.406-1(b) ...................................................................................................................18

30 Fed. Reg. 12,319 .......................................................................................................................16

38 Fed. Reg. 25,161 .......................................................................................................................13



Page(s)

v

53 Fed. Reg. 19161 (May 26, 1988) ........................................................................................18, 23

Executive Order No. 11,246, § 209(6) (Sept. 28, 1965) ................................................................16

Executive Order No. 11,738, § 1 (Sept. 10, 1973) .........................................................................13

Executive Order No. 11,738 § 2 (1973) .........................................................................................13

LEGISLATIVE AUTHORITIES:

H. Rep. No. 92-1465 (1972) ..........................................................................................................13

S. Rep. No. 92-414 (1972) .............................................................................................................13

OTHER AUTHORITIES:

Robert F. Meunier, U.S. Environmental Protection Agency, EPA Final Policy Guidance:

Listing of Persons Ineligible for Award Under Section 306 of the Clean Air Act and

Section 508 of the Clean Water Act, American Law Institute,

SK019 ALI-ABA 279 (1999) ....................................................................................................8

Steven D. Gordon, Suspension and Debarment from Federal Programs,

23 Pub. Cont. L.J. 573 (1994) ..................................................................................................19


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STATEMENT OF INTEREST1

The Chamber of Commerce of the United States of America (Chamber) is the world’s

largest business federation. It represents 300,000 direct members and indirectly represents the

interests of more than 3 million companies and professional organizations of every size, in every

industry sector, and from every region of the country. An important function of the Chamber is

to represent the interests of its members in matters before Congress, the Executive Branch, and

the courts. To that end, the Chamber regularly files amicus curiae briefs in cases that raise issues

of concern to the nation’s business community.

The American Petroleum Institute (API) represents over 550 oil and natural gas

companies, leaders of a technology-driven industry that supplies most of America’s energy,

supports more than 9.8 million jobs and 8 percent of the U.S. economy, and, since 2000, has

invested nearly 2 trillion dollars in U.S. capital projects to advance all forms of energy.

The National Association of Manufacturers (NAM) is the largest manufacturing

association in the United States, representing small and large manufacturers in every industrial

sector and every state. Manufacturing employs nearly 12 million men and women, contributes

more than $1.8 trillion to the U.S. economy annually, has the largest economic impact of any

major sector, and accounts for two-thirds of private-sector research and development. NAM is

the voice of the manufacturing community and the leading advocate for policies that help

manufacturers compete in the global economy and create jobs across the United States.

The National Ocean Industries Association (NOIA) is the only national trade association

which advocates solely on behalf of the offshore energy industry. It represents more than 300

member companies dedicated to the safe development of traditional and renewable offshore

1 No party’s counsel authored this brief in whole or in part. No party or any party’s counsel contributed money

intended to fund preparing or submitting this brief. No person—other than the amici, their members, or their

counsel—contributed money that was intended to fund preparing or submitting this brief.


2

energy for the continued growth and security of the United States. NOIA members are engaged

in activities including oil and natural gas exploration and production, equipment supply and

fabrication, transportation, geological services, gas transmission, navigation, research and

technology, shipping and shipyards, telecommunications, and environmental safeguards.

The Organization for International Investment (OFII) is a non-profit association

representing the U.S. operations of many of the world's leading global companies, which

insource millions of American jobs. OFII advocates for fair, non-discriminatory treatment of

foreign-based companies and works to promote policies that will encourage them to establish

U.S. operations, increase American employment, and boost U.S. economic growth. OFII also

guards against laws, regulations, and policies that fail to respect the separate corporate identities

of its U.S.-incorporated members and their foreign-based parents or that discriminate against its

members due to their corporate affiliations.

TechAmerica is the leading association for the United States technology industry—the

driving force behind productivity growth and job creation in the United States and the foundation

of the global innovation economy. Representing premiere technology companies of all sizes,

TechAmerica advocates for the Information and Communication Technology sector before

decision makers at the state, federal, and international levels of government. Many of

TechAmerica’s members are leading innovators in their fields. They are proud to make the most

innovative and advanced products available to governments and consumers around the world.

TechAmerica’s primary objectives include fostering an environment that will allow its members

to continue developing new products and services and expanding market opportunities for the

United States technology industry around the world.


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The federal government relies heavily on the skills and expertise of amici’s members to

develop, produce, manufacture, and supply the nation’s energy resources, communication

infrastructure, consumer and commercial goods, business services, and other resources. And

amici’s members contract with numerous federal and state agencies to perform this vital work.

Amici’s members operate numerous facilities engaged in work covering all aspects of business

and industry, including the oil, natural gas, and renewable energy industries, and millions of

employees work at these facilities on behalf of their employers. Many of amici’s members are

part of larger corporate families or engage in joint ventures with other companies that themselves

are part of a larger corporate family. And each member of these corporate families (many of

which also have international affiliates) may itself enter into contracts or do business with

various federal and state agencies or other companies to perform a variety of work, including the

production, refining, supply, support, and transport of our nation’s energy resources.

All of these amici have joined this brief because they are significantly concerned about

the statutory overreach EPA exhibited in this case. EPA asserted the authority to declare that a

Clean Water Act violation occurring at one company facility results in the mandatory

disqualification of the corporate headquarters from involvement in any federal program. And

according to EPA, the discretionary suspension of a company based on the improper conduct of

its employees automatically results in the indefinite suspension of multiple worldwide affiliates

of that company, no matter their connection to or involvement in the improper conduct. The

suspension also is not restricted to a single agency or a single industry; the affiliates are barred

from entering into a contract with any government agency or working with any company

involved in a federal program, even in an entirely unrelated industry. These expansive assertions


4

of authority, and EPA’s actions pursuant to that authority, pose a grave threat to federal

contractors and private industries with business touching on federal programs or federal lands.

When a company commits a regulatory violation, agencies have discretion to exclude

that company from federal contracting on a government-wide basis. But that discretion is not

absolute. An agency must abide by the terms of the statutes and regulations that govern the

exclusion of entities that have committed such violation. And an agency must exercise its

discretion in a reasonable manner, demonstrating some connection between the violation the

agency is addressing and the remedy it adopts. EPA followed neither of those dictates in this

case. And the implications of that approach, should it be accepted by this court, are disturbing.

Federal contractors compete to provide the best, most cost-effective services to the

United States. In performing their work, contractors must comply with a wide variety of

standards. When, despite those standards, accidents happen, an agency can take action to protect

against mistakes that may harm the public interest. An agency cannot, however, adopt sweeping

punishments based on mere affiliation. Far from protecting the public interest, excluding a

company’s affiliates from all federal programs punishes entities that share no blame.

And make no mistake: injuries caused by guilt-by-association exclusion would be

significant. If an entire corporate family is suspended or disqualified from federal programs, a

cascade of impacts will follow. First will come the layoffs of hundreds or even thousands of

employees whose performed jobs with any relation to federal programs. Second will come the

impact on the economy from the loss of corporate value resulting from the entire company’s

exclusion from all federal contracting. Third will come the ripple effect: the broader impact on

the economy as the industries involved in government programs struggle with the uncertainties

introduced by the threat of suspension or disqualification of an entire corporate structure


5

stemming from the improper conduct of a few employees of one corporate affiliate. It is

irresponsible for a single agency like EPA to take these actions without considering their

consequences for U.S. industry.

The harm of allowing the automatic extension of a suspension to all affiliates without a

showing that the extension is necessary to protect the public interest extends beyond just

government contracting. For example, because a federal oil or gas lease is a “covered

transaction” for the purposes of suspension and debarment, no federal leaseholder—which

includes a large majority of oil and gas companies—may contract with a suspended or debarred

affiliate. And other industries would similarly suffer; companies involved in federal programs in

any way would be barred from doing business with the affiliates of suspended companies,

whether or not the affiliates presented any risk of harm to the public interest. Thus, two private

companies would be prevented from entering into a contract because a mere affiliate of one

company had been suspended and the other company was, for example, a federal leaseholder.

States, foreign countries, and private entities also often decline to do business with entities

suspended by the federal government, and a company seeking a license to operate within a state

or foreign country may be denied such a license because of a suspension or debarment.

Companies that perform no contracts with the federal government—such as an international

affiliate of a U.S. company—would suffer serious consequences as a result of federal suspension

because of these and other collateral effects of suspension and debarment.

Amici submit this brief to protect the industry from those harms.

INTRODUCTION

The Deepwater Horizon blowout was an unprecedented event, and it was met with a

forceful and immediate response by the federal government. In the aftermath of the accident, BP


6

Exploration & Production Inc. (BPXP) pleaded guilty to criminal violations, including a

misdemeanor violation of the Clean Water Act (CWA). Plea Agreement, United States v. BP

Exploration & Production Inc., No. 2:12-cr-00292, Dkt. No. 2, at 15-16 (E.D. La. 2012).

The plea agreement triggered a reflexive response from EPA. In November 2012, and

without prior notice, it suspended BP p.l.c., BPXP, and nineteen other BP p.l.c. affiliates,

preventing all of those entities from entering into any new federal procurement contracts and

non-procurement covered transactions. Revised Action Referral Memorandum, Complaint, Ex.

D-2 (ARM). A couple of months later, EPA added another affiliate to the suspension list.

Supplemental Action Referral Memorandum, Complaint, Exh. E-2 (Supp. ARM). And then, in

February 2013, EPA disqualified BPXP’s Houston corporate headquarters from federal

contracting by designating that corporate headquarters a “violating facility” under the CWA. As

a result of the disqualification, BPXP is ineligible to receive any new federal contracts or

benefits for an indefinite period pending certification by EPA that the violation is corrected.

Amici well understand the damage caused by the Deepwater Horizon blowout, and they

do not seek to excuse the responsible parties from their actions. But EPA’s headquarters-level

disqualification and its decision to extend suspension to affiliated corporate entities without any

showing of public need plainly exceeded its statutory authority.

“Suspending a contractor is a serious matter. Disqualification from contracting directs

the power and prestige of government at a single entity, and may cause economic injury.”

Commercial Drapery Contractors, Inc. v. United States, 133 F.3d 1, 6 (D.C. Cir. 1998) (internal

quotation marks and citations omitted). EPA’s actions against BPXP, BP p.l.c., and BP’s

worldwide affiliates demonstrate a disregard for the serious ramifications of suspension and

disqualification—and an indifference to the statutory and regulatory provisions governing EPA’s


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suspension and disqualification authority. EPA may want to punish BPXP, but EPA, like all

other federal agencies, may only respond to an incident within the bounds of the authority

Congress has given it.

ARGUMENT

I. EPA CANNOT DESIGNATE A CORPORATE HEADQUARTERS AS A

“VIOLATING FACILITY” IF NO VIOLATION OCCURRED AT THAT

FACILITY.

The CWA provides for the automatic disqualification from federal contracting of any

person convicted of specified CWA violations “if such contract is to be performed at any facility

at which the violation which gave rise to such conviction occurred, and if such facility is owned,

leased, or supervised” by the convicted person. 33 U.S.C. § 1368(a). EPA’s determination that

BPXP’s Houston corporate headquarters was the “facility at which the violation which gave rise

to [its] conviction occurred” contradicts the plain language of the statute, is inconsistent with the

policy goals of the disqualification provision, and undermines established principles for

exclusion from government contracting. EPA’s designation of a headquarters as a “violating

facility” despite the lack of any CWA violation at that location is not just unsupported by statute;

it appears to be unprecedented. EPA’s designation of the headquarters as a “violating facility”

was therefore unlawful, unreasonable, arbitrary, and capricious.

A. EPA’s Designation Of BPXP’s Headquarters As A “Violating Facility” Is

Precluded By The Plain Language Of The CWA.

The Deepwater Horizon blowout occurred on an oil rig in the middle of the Gulf of

Mexico. EPA nonetheless concluded that BPXP’s corporate headquarters in Houston was the

“violating facility” for the misdemeanor violation of the CWA to which BPXP pleaded guilty.

EPA’s interpretation is flatly inconsistent with the language of Section 1368.


8

When “Congress has directly spoken to the precise question at issue,” then “the intent of

Congress is clear, [and] that is the end of the matter; for the court, as well as the agency, must

give effect to the unambiguously expressed intent of Congress.” City of Arlington v. FCC, 133

S. Ct. 1863, 1868 (2013) (quoting Chevron USA, Inc. v. Nat. Res. Def. Council, Inc., 467 U.S.

837, 842-43 (1984)). The “unambiguously expressed intent” of Congress in Section 1368 is that

a particular facility is automatically disqualified from contracting only if it is the facility “at

which the violation . . . occurred.” That is the “end of the matter” here.

Section 1368 mandates disqualification from a particular federal contract if three

conditions are present. First, a person must be “convicted of any offense under [S]ection

1319(c).” 33 U.S.C. § 1368(a). The pertinent part of Section 1319(c) makes it a crime to

“negligently violate” 33 U.S.C. § 1321(b)(3). Id. § 1319(c)(1)(A). And Section 1321(b)(3), in

turn, prohibits the “discharge” of hazardous substances into particular waters. Id. § 1321(b)(3).

Thus, the first condition is that a person must be “convicted” of “negligently” “discharg[ing]

hazardous substances” into the defined waters. Second, the contract must be for the procurement

of goods, materials, or services “to be performed at any facility at which the violation which

gave rise to such conviction occurred.” 33 U.S.C. § 1368(a). A person convicted of one of the

listed crimes under Section 1319(c) is thus not automatically disqualified from receiving a

contract if that contract will not be performed at the facility “at which the violation which gave

rise to such conviction occurred.” And the statutory context makes clear that the “violation” is

the CWA violation. See id. § 1319(c)(1)(A). Finally, Section 1368 only disqualifies convicted

persons from contracts to be performed at a violating facility if “such facility is owned, leased, or

supervised by such person.” Id. § 1368(a). See also Robert F. Meunier, U.S. Environmental

Protection Agency, EPA Final Policy Guidance: Listing of Persons Ineligible for Award Under


9

Section 306 of the Clean Air Act and Section 508 of the Clean Water Act, American Law

Institute, SK019 ALI-ABA 279, 282 (1999) (Listing Guidance).

In its plea agreement, BPXP admitted that it “did negligently discharge and cause to be

discharged oil in connection with activities under the Outer Continental Shelf Lands Act . . . in

such quantities as may be harmful in violation of [33 U.S.C. §§] 1319(c)(1)(A) and 1321(b)(3).”

Plea Agreement 15-16. The first condition was thus satisfied. And BPXP certainly owns and

supervises its corporate headquarters in Houston. But the designation of corporate headquarters

as the “facility” at which the violation occurred defies the unambiguous language of the statute.

The facility at which the CWA violation occurred was an oil rig in the Gulf of Mexico.

BPXP was convicted of “negligently violating” 33 U.S.C. § 1321(b)(3), which prohibits, among

other things, the “discharge of oil or hazardous substances . . . in connection with activities under

the Outer Continental Shelf Lands Act.” 33 U.S.C. § 1321(b)(3)(ii). Section 1321 defines

“discharge” as including, but not limited to, “any spilling, leaking, pumping, pouring, emitting,

emptying, or dumping” of oil. 33 U.S.C. § 1321(a)(2). The negligent conduct of “spilling,”

“leaking,” or “emitting” oil “in connection with activities under the Outer Continental Shelf

Lands Act” was the “violation” to which BPXP pleaded guilty. And that “spilling” occurred on

an oil rig on the outer continental shelf in the Gulf of Mexico. The oil rig alone was the “facility

at which the [discharge] that gave rise to the conviction occurred.” No “spilling” or “emitting”

occurred at BPXP’s corporate headquarters.2

2 The fact that the rig no longer exists does not change the analysis. In its guidance on how to apply the

mandatory disqualification provision, EPA recognizes that “convictions will almost always result in a

listing unless circumstances are such that an ineligibility under the statute, despite a conviction, is

essentially impossible.” Listing Guidance 283. One example of when “an ineligibility” would be

“essentially impossible” is where “the violating facility no longer physically exists.” Id. (emphasis

added). This makes sense. If one of a company’s plants is found to be in violation of the CWA, the

company may choose to close that plant permanently. Under those circumstances, there is no longer any

reason under the statute to bar contracting with that facility; no further, contracts would be performed


10

EPA never reconciled its contrary view with the plain statutory language. Instead, it

relied on its regulation interpreting the statute, which defines “violating facility” for purposes of

Section 1368 and the analogous provision of the Clean Air Act (CAA), 42 U.S.C. § 7606:

Violating facility means any building, plant, installation, structure, mine, vessel,

floating craft, location or site of operations that gives rise to a CAA or CWA

conviction, and is a location at which or from which a federal contract,

subcontract, loan, assistance award or other covered transactions may be

performed. If a site of operations giving rise to a CAA or CWA conviction

contains or includes more than one building, plant, installation, structure, mine,

vessel, floating craft, or other operational element, the entire location or site of

operation is regarded as the violating facility unless otherwise limited by EPA.

[2 C.F.R. § 1532.1600(b).]

The EPA reasoned that BPXP’s headquarters was a “location” or “site of operations” within the

meaning of the regulation and that “the conditions giving rise to the conviction, i.e. management

decisions regarding running the Rig, originated from” the headquarters. EPA Decision,

Complaint, Dkt. 1, Exh. H, at 13-14 (EPA Decision). As a result, EPA concluded that “the

conditions that gave rise to the violation occurred at the [headquarters] and the Rig.” Id. at 14.

But this line of reasoning itself demonstrates EPA’s error.

The statute does not forbid contracts that will take place at the facility where “the

conditions that gave rise to the violation occurred.” It restricts the disqualification to the “facility

at which the violation . . . occurred.” 33 U.S.C. § 1368(a) (emphasis added). The statute does

use the “gave rise” language—but it does so in requiring that the violation that forms the basis of

the disqualification be the one that “gave rise to such conviction.” Id. (emphasis added). In

other words, the excluded facility must be the one “at which” the violation “occurred,” and the

conviction that leads to automatic disqualification must be based on that violation. The statute

does not allow EPA to determine that a headquarters is the “violating facility” because

there. EPA’s Listing Guidance correctly recognizes that a facility that has ceased to exist or to operate renders

Section 1368 inapplicable as far as that facility is concerned. EPA departed from that guidance in this case.


11

something happened there that “gave rise” to the violation. Instead, the statute requires that the

violation—that is, the “discharge”—occur “at” the facility. The preposition “at” is unequivocal.

This is not a statute in which Congress “left ambiguity” to allow EPA discretion to define which

facilities should be held responsible for a CWA violation. City of Arlington, 133 S. Ct. at 1868

(quoting Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 740-41 (1996)).

Congress provided for the extreme sanction of mandatory disqualification only when

three conditions were present. One of those conditions requires that the violation occur at the

disqualified facility. EPA cannot, by regulation or interpretation, excise this unambiguous

statutory mandate and exclude a corporate headquarters from all government programs because

some decisions may, down the line, have ultimately “g[i]ve[n] rise to” the violation. When

Congress has expressed its intent clearly, EPA cannot grant itself more power by broadening the

language of the statute beyond the meaning it will bear. Adherence to statutory constraints is

especially important given the mandatory, indefinite nature of disqualification under the CWA.

Even if one assumes, as EPA does, that the “facility at which the violation . . . occurred”

is ambiguous and applies EPA’s implementing regulation, the agency’s decision that BPXP’s

corporate headquarters is a “violating facility” is “plainly erroneous” and “inconsistent with the

regulation.” Auer v. Robbins, 519 U.S. 452, 461 (1997) (internal quotation marks omitted). As

discussed, EPA’s own regulatory definition requires that the excluded facility “give[ ] rise to a

CWA or CAA conviction,” but none of the conduct charged in the Information or agreed to in

the Plea Agreement occurred at BPXP’s corporate headquarters. Indeed, all of the allegations in

the Information and the facts agreed to in the Plea Agreement pertinent to the CWA count

occurred on the rig itself.


12

The Information charged that the two Well Site Leaders stationed on the rig acted

negligently because they, among other things, “failed to phone engineers onshore to advise them

during the negative testing of the multiple indications that the well was not secure” and

“accepted a nonsensical explanation for the abnormal readings during the testing, again without

calling engineers onshore to consult[.]” Information, United States v. BP Exploration &

Production, Inc., No. 2:12-cr-00292, Dkt. No. 1 ¶ 21 (E.D. La. 2012). For the purposes of the

Information, the employees’ negligent actions on the rig were imputed to BPXP, and BPXP

admitted that those actions “proximately caused the discharge” into the Gulf. Id. ¶ 24; see Plea

Agreement, Exh. A (factual allocution). The Information does not assert that any individuals

located at BPXP’s headquarters acted negligently in choosing to assign these two particular Well

Site Leaders. Nor does it assert that “management decisions” made at the headquarters

“location” played any role in the spill by failing to supervise the leaders or to recognize the

developing problem. In fact, the Information and Plea Agreement make clear that headquarters

was not aware of the problem; the employees’ principal negligent acts consisted of failing to

notify “onshore engineers.” Information ¶¶ 19, 20, 21; Plea Agreement, Exh. A.

The imputation of certain employees’ conduct to their employer does not constitute an

“admi[ssion]” that BPXP’s corporate headquarters is the “violating facility,” as EPA would have

it. EPA Decision 14-15. The triggering event for disqualification does not turn on the agency

relationship to a “person” convicted. According to EPA’s implementing regulation, the statute

requires that the “building, plant, mine, . . . location, or site of operations” must be the location

where conduct occurred that “gives rise” to the conviction. 2 C.F.R. § 1532.1600(b); see 33

U.S.C. § 1368(a). That a contractor pleads guilty to a violation on the basis of conduct that

occurred at one facility does not mean that an entirely different facility (its headquarters) at


13

which none of the conduct giving rise to the conviction occurred is also disqualified from

performing all government contracts and from participating in other covered federal programs.

BPXP’s corporate headquarters did not give rise to the discharge of oil into the Gulf, and the

record of conviction contains no evidence that actions at headquarters gave rise to the violation.

EPA’s decision is thus contrary to the unambiguous text of the statute and also plainly erroneous

and inconsistent with the text of the agency’s own regulation.

B. Accepting The Designation Of BPXP’s Headquarters As A “Violating

Facility” Would Undermine The Intent Of The Statute.

The CWA’s automatic disqualification provision was intended to “ensure[ ] that the

Federal Government will not patronize or subsidize polluters through its procurement practices

and policies.” H. Rep. No. 92-1465, at 147 (1972). The exclusion from government contracting

pursuant to Section 1368 is “mandated by statute” and occurs “automatically.” 2 C.F.R.

§§ 1532.1110, 1532.1130; see also Listing Guidance 282 (disqualification under Section 1368 is

“mandatory in nature and the automatic consequence of a criminal conviction”). And this

automatic disqualification “assure[s] that each Federal agency empowered to enter into contracts

. . . shall undertake such procurement and assistance activities in a manner that will result in

effective enforcement” of the CWA. Executive Order No. 11,738, § 1 (Sept. 10, 1973), 38 Fed.

Reg. 25, 161. But, as the President’s Executive Order implementing Section 1368 recognized,

once an agency “determines that the condition which gave rise to a conviction has been

corrected, [it] shall promptly remove the facility and the name and address of the person

concerned from the list.” Id. § 2.

The CWA, however, does not authorize the extension of disqualification to related

facilities. As the contemporaneous legislative record recognized, Section 1368 is limited “to

contracts affecting only the facility not in compliance, rather than an entire corporate entity or


14

operating division.” S. Rep. No. 92-414, at 84 (1972) (emphasis added). Where a “second plant

within a corporation . . . seek[s] a contract unrelated to the violation at the first plant[,] . . . . the

unrelated facility should be permitted to bid and receive Federal contracts.” Id. The concern of

the statute is thus with the violation—in this case the discharge of oil—that might be occurring at

a particular location. The statute seals off that location from federal contracting until the cause

of the violation has been corrected. Otherwise, the federal government, through its contractors

or leaseholders, would be complicit in environmental violations.

The CAA has a parallel provision to Section 1368 providing for automatic

disqualification of the facility at which a CAA violation occurs. 42 U.S.C. § 7606(a). But the

CAA goes further: it not only provides for automatic disqualification of the particular facility at

which the CAA violation occurred but also provies that the EPA Administrator “may extend this

prohibition to other facilities owned or operated by the convicted person.” Id. (emphasis added).

EPA’s regulations in turn recognize that the “CAA specifically authorizes EPA to extend a CAA

disqualification to other facilities.” 2 C.F.R. § 1532.1115. But the CWA does not track the

CAA in this respect.

EPA’s regulations state that it may also “take discretionary suspension and debarment

actions” for violations of the CWA. 2 C.F.R. § 1532.1115 (emphasis added). And another

regulation asserts that if EPA “determines that the risk presented to Federal procurement and

nonprocurement activities on the basis of the misconduct which gives rise to a person’s CAA or

CWA convictions exceeds the coverage afforded by mandatory disqualification, EPA may use its

discretionary authority to suspend or debar a person.” 2 C.F.R. § 1532.1130(b). But neither

provides for the extension of automatic disqualification to other facilities.


15

In this case, the risks EPA attempted to address “exceed[ed] the coverage afforded by

mandatory disqualification,” but EPA did not rely only on its discretionary authority to suspend

or debar BPXP. Instead, it attempted to expand the coverage of mandatory disqualification

under Section 1368 beyond the terms of the statute by designating a company headquarters as the

“violating facility.” Such a designation, under EPA regulations, means that no federal contract

may be “performed” by BPXP either “at” or “from” its Houston headquarters. See 2 C.F.R.

§ 1532.1600(b).

Excluding the facility at which a CWA violation occurred prevents federal complicity in

an environmental violation. But the designation of a headquarters as a “violating facility,” the

route taken by EPA here, punishes a company as a whole because it has the effect of

disqualifying numerous related corporate facilities at which no CWA violation has occurred.

EPA has essentially amended the text of the CWA to match that of the CAA. But EPA cannot

expand its authority under the CWA by stretching its definition of “violating facility” to reach

numerous facilities of a corporation by targeting one of its headquarters. If the agency wants to

impute a CWA violation that occurred at one facility to other, non-violating facilities owned by

that company, it must, as its own regulations provide, rely on its discretionary suspension and

debarment authority—authority that comes with a comprehensive set of procedural protections

and implementing regulations. See 2 C.F.R. Part 180 (setting forth comprehensive procedures

for government-wide suspension and debarment from nonprocurement contracts). Federal

contractors are extremely familiar with the traditional suspension and debarment process, but

EPA’s novel circumvention of that process through expansion of mandatory disqualification

threatens to undermine its effectiveness.


16

Other contexts demonstrate the irrationality of designating a headquarters as a “violating

facility,” and the massive expansion of power that such imputation entails. For example, the

FDA has the authority to order the suspension of the registration of a “facility” engaged in,

among other things, the manufacturing, processing, or packing of food if the Secretary finds that

the food at that facility has a “reasonable probability of causing serious adverse health

consequences.” 21 U.S.C. § 350d(b)(1). It would be absurd under the statute for the FDA to

suspend the registration of a headquarters—suspending the operation of all of its associated

facilities as a result—on the basis of a contamination at one of the facilities without evidence that

the contamination also infects the headquarters itself, even if it could arguably claim that the

headquarters was involved in the “manufacturing” or “processing” of food since it oversaw the

operations. Similarly, statutes and regulations that exclude health care “providers” from federal

health care programs due to fraud or other health care violations should be read to exclude only

the violating entity, not an entity’s headquarters, unless the regulations specifically provide

otherwise. See, e.g., 5 U.S.C. § 8902a; 5 C.F.R. § 890.1003; 42 U.S.C. §§ 1320a-7(b)(13),

1320b-6; see also 10 U.S.C. § 983(a) (denying federal funds to “an institution of higher

education (including any subelement of such institution)” that has a policy discriminating against

ROTC participation); 32 C.F.R. § 216.3(c)(2) (clarifying that, as applied to an “individual

institution of education that is part of a single university system,” the statute denies funds only to

“that individual institution within [a] university system” that has the offending policy, not the

broader university system).

Numerous other statutes, regulations, and Executive Orders providing for the

disqualification or exclusion of entities from federal contracting on the basis of some violation

explicitly provide for the exclusion of the “contractor” itself—or, like the CAA, expressly allow


17

the agency to extend exclusion to other related entities. See, e.g., 41 U.S.C. § 6706(b) (contract

cannot be awarded to the “person or firm” found in violation of the prevailing wage law “or to an

entity in which the person or firm has a substantial interest”); Executive Order No. 11,246,

§ 209(6) (Sept. 28, 1965), 30 Fed. Reg. 12,319 (Secretary of Labor may exclude “any

noncomplying contractor” until it adopts complying employment policies); 7 C.F.R.

§ 400.454(d)(3) (in disqualification from the federal crop insurance program, the “conduct of one

organization in violation . . . may be imputed to another organization” when the second

organization “has the power to direct, manage, control, or influence the activities of the

organization responsible for the improper conduct”). The CWA contains no such authorization.

The intent of CWA’s Section 1368 is clear: to eliminate federal involvement with the

particular facilities responsible for criminal violations of the CWA. The consequences of

disqualification are immediate and severe. Unlike suspension or debarment, statutory

disqualification is indefinite, excluding all violating facilities until the agency, in its discretion,

determines that the problem has been corrected. This Court should not countenance EPA’s

attempt to transform the word “facility” into a more encompassing term such as “company” or

“corporate entity” and thereby augment the already powerful hammer it wields.

II. AN AGENCY CANNOT SUSPEND MULTIPLE WORLDWIDE AFFILIATES OF

A COMPANY WITHOUT GROUNDING ITS DECISION IN THE PUBLIC

INTEREST OR SHOWING A LACK OF PRESENT RESPONSIBILITY.

Unlike disqualification under the CWA, which is an “exclusion[ ] mandated by statute,”

an agency’s suspension or debarment decision is an exercise of the agency’s “discretionary

authority.” 2 C.F.R. § 1532.1130(a)-(b). An agency’s exercise of this discretion must be

reasonable. See 5 U.S.C. § 706(2)(A); Caiola v. Carroll, 851 F.2d 395, 398 (D.C. Cir. 1988). In

suspending nineteen worldwide BP “affiliates” on account of the conduct of four individuals


18

employed by BPXP or its parent BP p.l.c., EPA abused its discretion. An agency cannot extend

a suspension to sweep in multiple worldwide affiliates without offering some justification

grounded in the public interest.

To suspend an entity from all government contracting, EPA must conclude that

“[i]mmediate action is necessary to protect the public interest,” and the suspension must be

supported by adequate evidence. 2 C.F.R. § 180.700(c); see also 2 C.F.R. §§ 180.605, 180.705;

Robinson v. Cheney, 876 F.2d 152, 160 (D.C. Cir. 1989) (“[T]he ultimate inquiry as to ‘present

responsibility’ relates directly to the contractor itself.”). “An exclusion is a serious action that a

Federal agency may take only to protect the public interest. A Federal agency may not exclude a

person or commodity for the purposes of punishment.” 2 C.F.R. § 180.125(c). Punishment,

however, is the only explanation for EPA’s delayed suspension of multiple worldwide BP

affiliates without even an attempt to show that the suspensions were in the public interest or that

the suspended entities lacked present responsibility. In amici’s view, EPA’s approach in this

case threatens to undermine established principles of government contracting.

An “affiliate” of a contracting entity “may be included in a suspension or debarment

action” provided that the affiliate receives notice and an opportunity to contest the action. 2

C.F.R. § 180.625(b). The regulations define “affiliate” broadly, providing that “[p]ersons are

affiliates of each other if, directly or indirectly, either one controls or has the power to control the

other or a third person controls or has the power to control both.” Id. § 180.905. These

provisions, which mirror those of the FAR, 48 C.F.R. §§ 9.403, 9.406-1(b), were added out of

concerns that the suspension or debarment of affiliates may be “necessary to prevent a debarred

person from participating in covered transactions through or under the guise of other entities that

such person controls.” 53 Fed. Reg. 19161, 19169 (May 26, 1988).


19

EPA never contended, however, that BP would use its subsidiary BP Singapore PTE Ltd.

or BP Marine Global Investments Salalah Company LLC (based in the Sultanate of Oman), for

example, to circumvent BPXP’s suspension relating to the incident in the Gulf. EPA stated only

that “BP PLC is the owner of, and thus controls or has the power to control the following entities

. . . . As such, these entities are all “affiliates” of each other . . . . Accordingly, any suspension

or debarment of BP PLC or any of the entities named in this paragraph extends to all other

entities named in this paragraph pursuant to 2 C.F.R. § 180.625.” ARM 19. And in

subsequently adding Castrol Marine Americas to the excluded company list, EPA did not offer

any rationale other than the fact that it was a BP affiliate that EPA had overlooked previously.

Supp. ARM 5-6. EPA repeated this logic in its decision rejecting BP’s appeal, stating that

“‘[c]ontrol’ by the parent, in this case BP plc, is the sole consideration.” EPA Decision 11.

EPA’s ipso facto reasoning is inherently flawed. Core principles of government

contracting establish that the automatic extension of a suspension to far-flung subsidiaries—

many of which have no dealings whatsoever with the federal government—does not necessarily

or “[a]ccordingly” follow based on the “sole consideration” of control. Section 180.625 provides

that an affiliate “may” be suspended, requiring an exercise of discretionary authority by the

agency. 2 C.F.R. § 180.625(b). But EPA saw no need to support its exercise of this discretion

with any reasoning; instead it extended the suspension to affiliates automatically because of

shared control. Contrary to EPA’s decision here, commentators interpreting the regulations and

surveying the limited case law have recognized that “[p]roper application of the affiliate

provisions does not turn simply on whether the respondent fits within the definition of “affiliate.”

Steven D. Gordon, Suspension and Debarment from Federal Programs, 23 Pub. Cont. L.J. 573,

588 (1994) (emphasis added). Because the combination of the broad definition of “affiliate” and


20

the wide discretion given to contracting agencies “is potentially subject to abuse by an

overzealous agency,” suspension or debarment “may be extended to an affiliate only if the facts

of a particular case make such an extension appropriate.” Id. (collecting cases).

Just such abuse occurred here. Aside from the negligence of the two Well Site Leaders at

the site of the explosion, see supra at 12, the alleged “improper conduct” that forms the basis for

this worldwide suspension was (1) the deletion of text messages and voicemails by a BP drilling

engineer and (2) certain statements made by BP’s Deputy Incident Commander that

underestimated the amount of oil spilling out of the Macondo well. See ARM 10-19; see also

United States v. Mix, No. 2:12-cr-00171 (E.D. La.); United States v. Rainey, No. 2:12-cr-00291

(E.D. La.). The negligence occurred on the oil rig, and the other improper conduct—obstructing

justice and making false statements—occurred in the unique and isolated context of the

subsequent investigation of the oil spill. There were no improper business practices by the

parent company that might infect the entire BP conglomerate. In fact, the parent company itself,

BP p.l.c., was not indicted on or convicted of any improper conduct; EPA imputed the conduct of

two employees to it. See Agility Def. & Gov't Servs., Inc. v. U.S. Dep’t of Def., No. 5:11-cv-

0411-CLS, Slip Op. 22, 2012 WL 2480484, at *9 (N.D. Ala. June 26, 2012) (“[T]he government

may immediately suspend numerous affiliates on the basis of its suspicion of one of them, and

then has a limited period of time in which to determine which affiliates actually participated in

wrongdoing before it must terminate the suspensions of those not facing accusations. That

arrangement allows the government to put an immediate stop to potential wrongdoing that it may

not have been able to investigate fully, but it does not give the government the power to suspend

an affiliate indefinitely without even suspicion of wrongdoing.”). Here, EPA and BP were


21

engaged in dialogue for several months, and EPA could easily have determined which affiliates

were not implicated in the misconduct.

By employing the “affiliate” provisions but declining to base affiliate extension on

complicity in the improper conduct, EPA has attempted a “short-cut” to side-step the more

detailed and exacting imputation provisions. Kisser v. Kemp, 786 F. Supp. 38, 40-41 (D.D.C.

1992), rev’d on other grounds sub nom Kisser v. Cisneros, 14 F.3d 615 (D.C. Cir. 1994). EPA

relied on 2 C.F.R. § 180.630 to impute to BPXP the conduct of the negligent Well Site Leaders

and to impute to BP p.l.c. the improper conduct of two employees indicted for obstruction of

justice and making false statements. ARM 16-19. Section 180.630 allows an agency to impute

the conduct of an individual to an organization when the improper conduct of the individual

“occurred in connection with the individual’s performance of duties for or on behalf of that

organization, or with the organization’s knowledge, approval or acquiescence.” Id. § 180.630(a).

EPA also imputed to BP p.l.c. the improper conduct of BPXP, as admitted in its plea agreement.

ARM. 18-19. Section 180.630 allows the imputation of the conduct of one organization to

another “when the organization to whom the improper conduct is imputed has the power to

direct, manage, control, or influence the activities of the organization responsible for the

improper conduct.” 2 C.F.R. § 180.630(c). These imputation provisions move up the ladder of

control, allowing an agency to impute an employee or organization’s conduct to the entities that

control them. But the imputation provisions do not allow an agency to move up the ladder of

control to the parent and then back down to entities with no agency relationship to the improper

conduct. The EPA cannot impute the improper conduct of BPXP, BP p.l.c., or any of their

employees to other BP subsidiaries. See 2 C.F.R. § 180.630. So EPA determined to reach them

by exercising its discretion to suspend “affiliates.”


22

In support of this exercise of discretion, EPA found that there was an “immediate need”

to suspend worldwide affiliates of BP because they “bid for and are awarded federal contracts

that appear to be worth millions of dollars every fiscal year” and thus “this flow of taxpayer’s

funds to BP plc, or one of its many affiliates, is routine and constant.” EPA Decision 12. But

EPA never explained why it had to act to stem this flow immediately in order to “protect the

public interest,” the only permissible reason for the drastic remedy of suspension. 2 C.F.R.

§ 180.125. And EPA never reconciled the fact that BPXP itself, along with its affiliates, had

been awarded numerous contracts since the oil spill, each requiring the awarding agency to

determine at that time that BPXP or the affiliate was a “responsible” contractor. See 48 C.F.R.

§§ 9.103, 9.104-1; Complaint ¶¶ 41-45 (describing subsequent contract awards); Lion Raisins,

Inc. v. United States, 51 Fed. Cl. 238, 247 (2001) (agency suspension decision not rational where

it occurred almost two years after agency discovered conduct and during the intervening two

years the agency had awarded numerous contracts to the plaintiff).

In response to these arguments, EPA said that it did not have a “clear and full

understanding” of the conduct until the plea agreement. EPA Decision 12. Even accepting that

contention as true, however, the plea did not implicate other affiliates. EPA may not base a

worldwide suspension of affiliates on actions that happened in the past merely because the

agency realized the conduct was more egregious than it had previously thought without also

showing that the new information demonstrates a potential risk to the public interest. If the

individual who had engaged in misconduct had some control over affiliates or the agency had

reason to believe that the misconduct extended to certain affiliates, then the extension of the

suspension may be warranted. But retroactive action taken without any analysis of control or

potential risk for recurrence is punishment, not action taken to protect the federal government


23

from the possibility of immediate harm. EPA paid no attention to the primary considerations that

underlie all suspension and debarment decisions: present responsibility and the public interest.

See Gonzales v. Freeman, 334 F.2d 570, 576-77 (D.C. Cir. 1964) (“Notwithstanding its severe

impact upon a contractor, debarment is not intended to punish but is a necessary means for

accomplishing the congressional purpose[.]”) (internal quotation marks omitted).

EPA has conceded that “[i]n the past, BP was allowed to continue to do business with the

federal government after its affiliates were convicted of CAA and CWA violations that involved

the loss of life and serious environmental damages.” EPA Decision 12. That past practice—

extending the suspension or debarment only to the affiliates actually implicated in improper

conduct—is typical. Affiliates not implicated in the wrongdoing may continue to contract with

the government and work in federal programs. Such targeted suspension, tailored to address the

problem and protect the government, has always been the norm.

As to why this time is different, the final sentence of EPA’s decision is telling. After

recognizing that past suspensions had been more narrowly tailored to the entities at fault for

improper conduct, EPA concluded: “There is an immediate need to see that this does not happen

again.” EPA Decision 12. Perhaps “this” is another oil spill, although nothing in the decision

states that any BP entity other than BPXP played any role in the spill. Perhaps “this” means

covering up the spill, but, again, nothing in the decision indicates that the obstruction of justice

or deception beyond the actions of two individual employees of BP in their responses to the

accident. Regardless of the meaning of EPA’s ambiguous statement, there is no reasoning in the

decision that even suggests that any affiliate shared or played any role in the policies and

improper conduct forming the basis for the suspension.


24

The last sentence of EPA’s decision starkly confirms that EPA sought to use the fullest

extent of its authority to send a punitive message to BP. But to use the “affiliate” provisions to

accomplish that goal without any showing that such shared attribution is necessary to protect the

public interest is unlawful. Agencies may not take advantage of the “affiliate” provisions to

bypass the regulations governing imputation. As twenty-eight agencies recognized in enacting

the affiliate provisions, they may be necessary to counteract subterfuge and ensure that the

federal government is not contracting with an irresponsible party. But the fact that they are

available for such use does not mean they apply automatically based on the “sole consideration”

of control.” EPA Decision 11. If EPA or any other agency wants to invoke these regulations, it

must support their application with more than an argument that the regulations technically allow

it: the agency must provide a justification grounded in the public interest. Otherwise, any

suspension is arbitrary, capricious, and an unlawful abuse of the agency’s discretion. And a

worldwide suspension of multiple affiliates without justification exacerbates the problem by

orders of magnitude. EPA’s abdication of its responsibility to justify its actions threatens to

undermine widely accepted principles of federal procurement and non-procurement programs by

which amici and others abide. This court should uphold those principles and reject EPA’s

unprecedented and unlawful assertion of authority.

CONCLUSION

The Court should declare EPA’s disqualification of BPXP’s corporate headquarters

contrary to law, and it should declare that EPA’s unprecedented assertion of suspension power

over affiliates is arbitrary, capricious, an abuse of the agency’s discretion, and otherwise contrary

to law. The designation of BPXP’s corporate headquarters as a “violating facility” should be

voided and the suspension of BP p.l.c.’s affiliates lifted.


25

Dated: December 2, 2013 Respectfully submitted,

By:

Of Counsel:

Catherine E. Stetson

Thomas L. McGovern III

Jonathan D. Shaub*

Katherine L. Morga*


555 Thirteenth St., NW


(T) (202) 637-5600

(F) (202) 637-5910

[email protected]

[email protected]

[email protected]

[email protected]

*not admitted in D.C.; supervised

by members of the firm

/s/ Bruce D. Oakley

Bruce D. Oakley

Attorney-in-Charge

Texas SBN 15156900

SDTX Bar No. 11824


Bank of America Center

700 Louisiana Street, Suite 4300

Houston, Texas 77002

T (713) 632-1400

D (713) 632-1420

F (713) 632-1401

[email protected]

Counsel for the Amici Curiae

Rachel L. Brand

Steven P. Lehotsky

NATIONAL CHAMBER LITIGATION

CENTER, INC.

1615 H Street, NW

Linda E. Kelly

Quentin Riegel

Patrick Forrest

NATIONAL ASSOCIATION OF

MANUFACTURERS

733 10th Street, NW, Suite 700


26



the Chamber of Commerce of the United

States

Harry M. Ng

Evelyn R. Nackman

AMERICAN PETROLEUM

INSTITUTE

1220 L Street, NW

Washington, DC 20005-4070


the American Petroleum Institute

NATIONAL OCEAN INDUSTRIES

ASSOCIATION

1120 G Street, NW • Suite 900



the National Ocean Industries Association



the National Association of Manufacturers

ORGANIZATION FOR INTERNATIONAL

INVESTMENT

1225 Nineteenth Street, NW, Suite 501



the Organization for International Investment

Benjamin J. Aderson

Rachel S. Wolkowitz

TECHAMERICA

601 Pennsylvania Avenue, NW

North Building, Suite 600



TechAmerica



The undersigned hereby certifies that a true and correct copy of the foregoing document has been

served on all counsel of record via CM/ECF on this the 2nd day of December, 2013, in

accordance with the Federal Rules of civil Procedure.

/s/Bruce D. Oakley

Bruce D. Oakley


APPENDIX

Agility Def. & Gov't Servs., Inc. v. U.S. Dep’t of Def., No. 5:11-cv-0411-CLS,

Slip Op., 2012 WL 2480484 (N.D. Ala. June 26, 2012) .................................................................1


UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF ALABAMA

NORTHEASTERN DIVISION

AGILITY DEFENSE ANDGOVERNMENT SERVICES,INC., et al.,

Plaintiffs,

vs.

UNITED STATESDEPARTMENT OF DEFENSE,et al.,

Defendants.

)))))))))))))

Civil Action No. CV-11-S-4111-NE

MEMORANDUM OPINION AND ORDER

Plaintiffs, Agility Defense and Government Services, Inc., and Agility

International, Inc., commenced this action against the United States Department of

Defense, Secretary of Defense Leon E. Panetta, the Defense Logistics Agency, and

the Director of the Defense Logistics Agency, Vice Admiral Mark D. Harnitchek,

seeking declaratory and injunctive relief to lift plaintiffs’ suspension from government

contracting. Plaintiffs moved for summary judgment, and defendants filed a cross-1

motion for summary judgment. Upon consideration of the motions, briefs, and2

evidentiary submissions, the court has determined that summary judgment is due to

Doc. no. 1 (Complaint).1

Doc. no. 6 (Plaintiffs’ Motion for Summary Judgment); doc. no. 9 (Defendants’ Motion for2

Summary Judgment).

FILED 2012 Jun-26 AM 11:27U.S. DISTRICT COURT

N.D. OF ALABAMA

Case 5:11-cv-04111-CLS Document 16 Filed 06/26/12 Page 1 of 26Case 4:13-cv-02349 Document 38-1 Filed in TXSD on 12/02/13 Page 35 of 60

be granted in favor of plaintiffs and against defendants.

I. LEGAL STANDARD

Federal Rule of Civil Procedure 56 provides that summary judgment “should

be rendered if the pleadings, the discovery and disclosure materials on file, and any

affidavits show that there is no genuine issue as to any material fact and that the

movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). In other3

words, summary judgment is proper “after adequate time for discovery and upon

motion, against a party who fails to make a showing sufficient to establish the

existence of an element essential to that party’s case, and on which that party will bear

the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “A

genuine issue of material fact ‘exists only if sufficient evidence is presented favoring

the nonmoving party for a jury to return a verdict for that party.’” Farley v.

Nationwide Mut. Ins. Co., 197 F.3d 1322, 1336 (11th Cir. 1999) (quoting Stewart v.

Happy Herman's Cheshire Bridge, Inc., 117 F.3d 1278, 1284-85 (11th Cir. 1997)).

“In making this determination, the court must review all evidence and make all

reasonable inferences in favor of the party opposing summary judgment.” Chapman

Rule 56 was amended, effective December 1, 2010, in conjunction with a general overhaul3

of the Federal Rules of Civil Procedure. The Advisory Committee was careful to note, however, thatthe changes “will not affect continuing development of the decisional law construing and applyingthese phrases.” Adv. Comm. Notes to Fed. R. Civ. P. 56 (2010 Amends.). Consequently, casesinterpreting the previous version of Rule 56 are equally applicable to the revised version.

2


v. AI Transport, 229 F.3d 1012, 1023 (11th Cir. 2000) (en banc) (quoting Haves v.

City of Miami, 52 F.3d 918, 921 (11th Cir. 1995)). “[A]n inference is not reasonable

if it is only a guess or a possibility, for such an inference is not based on the evidence,

but is pure conjecture and speculation.” Daniels v. Twin Oaks Nursing Home, 692

F.2d 1321, 1324 (11th Cir. 1983). Moreover,

[t]he mere existence of some factual dispute will not defeat summaryjudgment unless that factual dispute is material to an issue affecting theoutcome of the case. The relevant rules of substantive law dictate themateriality of a disputed fact. A genuine issue of material fact does notexist unless there is sufficient evidence favoring the nonmoving party fora reasonable jury to return a verdict in its favor.

Chapman, 229 F.3d at 1023 (quoting Haves, 52 F.3d at 921); see also Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986) (asking “whether the evidence

presents a sufficient disagreement to require submission to a jury or whether it is so

one-sided that one party must prevail as a matter of law”).

When presented cross motions for summary judgment, “[t]he court must rule

on each party’s motion on an individual and separate basis, determining, for each side,

whether a judgment may be entered in accordance with the Rule 56 standard.” 10A

Wright, Miller & Kane, Federal Practice and Procedure: Civil 3d § 2720, at 335-36

(1998) (footnote omitted). As another court within this Circuit has observed:

“Cross motions for summary judgment do not change thestandard.” Latin Am. Music Co. v. Archdiocese of San Juan of the RomanCatholic & Apostolic Church, 499 F.3d 32, 38 (1st Cir. 2007). “‘Cross

3


motions for summary judgment are to be treated separately; the denial ofone does not require the grant of another.’” Christian Heritage Acad. v.Okla. Secondary Sch. Activities Ass’n, 483 F.3d 1025, 1030 (10th Cir.2007) (quoting Buell Cabinet Co. v. Sudduth, 608 F.2d 431, 433 (10thCir. 1979)). “Even where the parties file cross motions pursuant to Rule56, summary judgment is inappropriate if disputes remain as to materialfacts.” Id.; accord Monumental Paving & Excavating, Inc. v. Pa. Mfrs.’Ass’n Ins. Co., 176 F.3d 794, 797 (4th Cir. 1999) (“When consideringmotions from both parties for summary judgment, the court applies thesame standard of review and so may not resolve genuine issues ofmaterial fact. Instead, [the court must] consider and rule upon eachparty’s motion separately and determine whether summary judgment isappropriate as to each under the Rule 56 standard.”) (citations omitted).

Ernie Haire Ford, Inc. v. Universal Underwriters Insurance Co., 541 F. Supp. 2d

1295, 1297-98 (M.D. Fla. 2008). See also American Bankers Ins. Group v. United

States, 408 F.3d 1328, 1331 (11th Cir. 2005) (“This court reviews the district court’s

disposition of cross-motions for summary judgment de novo, applying the same legal

standards used by the district court, viewing the evidence and all factual inferences

therefrom in the light most favorable to the non-movant, and resolving all reasonable

doubts about the facts in favor of the non-moving party.”).

II. BACKGROUND

The facts in this case are not in dispute. Plaintiffs, Agility Defense and

Government Services, Inc., and Agility International, Inc., are companies that have

historically derived a significant portion of their operating revenue from contracts

with the United States government. The genesis of this action lies in plaintiffs’

4


corporate relationship to Public Warehousing Company, K.S.C. (“PWC”), a Kuwaiti

corporation that specializes in logistics. PWC owns scores of subsidiary entities.

Some of those companies are direct subsidiaries of PWC, and others are indirect

subsidiaries, owned by the direct subsidiaries. Plaintiff Agility Defense and

Government Services, Inc. (“DGS”) is a Delaware corporation with its principal place

of business in Madison County, Alabama, and an indirect subsidiary of PWC. There4

are three layers of subsidiaries between PWC and DGS. Plaintiff Agility5

International, Inc. (“Agility”) is a Delaware corporation with its principal place of

business in Alexandria, Virginia, and a direct subsidiary of DGS; therefore, it also is

an indirect subsidiary of PWC.6

The Defense Logistics Agency (“the Agency”), is a “combat support agency”

of the Department of Defense. 10 U.S.C. § 193(f)(3). As its name suggests, the

Agency is tasked with providing logistical support to the military and naval forces of

the United States. Its Director is defendant Vice Admiral Mark D. Harnitchek.7

A. Suspension of Government Contractors

See doc. no. 1-1 (Organizational Chart).4

Id. PWC directly owns Agility DGS Logistics Service Company, another Kuwaiti entity. 5

That company, in turn, owns PWC Logistics Services Holding, a Dutch company. The Dutchcompany owns Agility DGS Holdings, Inc., an entity incorporated in an unspecified U.S. state. Thatholding company directly owns plaintiff DGS. Id.

See id.6

Doc. no. 5 (Answer) ¶ 8.7

5


The regulations controlling government contracting are found in the Federal

Acquisitions Regulation System, Title 48 of the Code of Federal Regulations. The

regulations empower the “suspending official” of a government agency to prevent

certain contractors from doing business with the government. If a determination that

a contractor has engaged in certain prohibited activity is made, the suspending official

can “debar” that contractor doing business with the government for a fixed period of

time, lasting up to three years. See 48 C.F.R. §§ 9.406-1-5. The suspending official

also has the power to suspend a company or individual from government contracting

pending determination of whether debarment is appropriate. See id. §§ 9.407-1-5. A

suspension can last up to eighteen months without any formal action being taken

against the suspended contractor. See id. § 9.407-4(b). However, once proceedings

are initiated, the suspension can remain in effect until a final determination is made.

Id.

While suspended, a contractor is placed on the “Excluded Parties List.” See 48

C.F.R. § 9.404. Those on the Excluded Parties List are ineligible for any new

government contracts. Although a suspension may be issued by a single government8

See, e.g., doc. no. 11 (Certified Administrative Record) at Bates 485 (PWC Suspension8

Letter) (stating that contracts will not be solicited from or awarded to the suspended company).

The administrative record in this case contains scores of documents and hundreds of pages. The court will cite to the record by providing a name or description for the document cited, as wellas the “Bates” numbers stamped at the top and bottom of each page, rather than the internalpagination used in each document.

6


agency, it prohibits all departments of the executive branch of the federal government

from doing business with the suspended entity. Id. § 9.407-1(d). Existing contracts

generally are unaffected by suspension, and continue uninterrupted. The government9

may award new contracts to suspended contractors if “compelling reasons justify[]

continued business dealings,” Id.: e.g., the contractor is the lone supplier of a vital

commodity.

B. Suspension of Plaintiffs

In November of 2009, a grand jury in the Northern District of Georgia issued

an indictment alleging that PWC defrauded the federal government of over $6 Billion

dollars in relation to contracts to supply food to American military personnel stationed

in the Middle East. As a result of that indictment, M. Susan Chadick, the suspending10

official at the Agency, suspended the government contracting privileges of PWC on

November 16, 2009. Concurrent with that suspension, Chadick also suspended three11

PWC subsidiaries, including plaintiff DGS. During the following weeks, numerous12

other PWC subsidiaries were suspended, including plaintiff Agility on November 23,

Cf. PWC Suspension Letter, at Bates 485 (stating that “existing contracts will not be9

renewed”).

See Certified Administrative Record, at Bates 403-62 (Indictment).10

PWC Suspension Letter.11

Certified Administrative Record, at Bates 481 (DGS Suspension Letter). At the time of12

suspension, plaintiff DGS was known as “Taos Industries, Inc.” See, e.g., doc. no. 1 ¶ 13.

7


2009. The subsidiaries, including plaintiffs, were not accused of any involvement13

in the wrongdoing for which PWC was indicted; rather the sole basis for their

suspension was their status as affiliates of PWC.14

1. Plaintiffs’ response to suspension

As permitted by the regulations, plaintiffs submitted written responses in

opposition to their suspensions. In those submissions, plaintiffs argued that the15

suspensions were improper because they were not implicated in the indictment, which

accused only PWC of wrongdoing. Moreover, they noted the extensive company16

policies in place to prevent fraud and other improprieties in government contracting.17

Plaintiffs also argued that suspension was particularly inappropriate as to DGS,

because of a “Special Security Agreement” (“SSA”) regarding certain DGS

contracts. An SSA is necessary whenever a contractor working with classified or18

other sensitive information has foreign ownership. The SSA prohibits PWC from19

Certified Administrative Record, at Bates 735 (Agility Suspension Letter).13

See, e.g., id. (stating that plaintiff Agility was “suspended based on its affiliation to PWC,14

a criminally indicted company”).

Certified Administrative Record, at Bates 592-622 (Joint Response to Notices of15

Suspension); id. at Bates 783-99 (Supplemental Response of Plaintiff DGS).

Joint Response to Notices of Suspensions, at Bates 595.16

Id. at Bates 606-17.17

See generally Supplemental Response of Plaintiff DGS.18

See id. at Bates 788 (“[A]n SSA is a standard mitigation measure required by the [Defense19

Security Service] when it determines that such an agreement is necessary to enable the FederalGovernment to protect against the unauthorized disclosure of information related to nationalsecurity.”) (bracketed alterations supplied).

8


exercising control over DGS, limiting its participation to deliberations and decisions

of the DGS board of directors, and allowing PWC to control only a minority of those

directors. DGS applies the terms of its SSA to all government contracts, including20

those that do not involve sensitive information. Thus, plaintiffs argued, the SSA21

prevented PWC from controlling the contracting activities of DGS.

The Agency rejected plaintiffs’ arguments in response to their suspensions on

December 10, 2009. It noted that the compliance policies trumpeted by plaintiffs22

were identical to the policy that PWC had in effect, yet that company allegedly

engaged in extensive fraud. Additionally, the Agency stated that the terms of the23

SSA made it clear that PWC had day-to-day interaction with DGS, undermining any

argument that the SSA guaranteed the independence of DGS from PWC. The24

Agency found that “protection of the Government’s interests requires the continued

exclusion [of plaintiffs] from contracting with the U.S. Government.”25

2. Litigation in Washington, D.C.

Id. at Bates 788-89.20

Id. at Bates 789 (“In view of this broad language in the SSA, the exclusions of PWC’s21

involvement extend beyond classified controls to encompass the operation of [DGS’s] businessaffairs in general.”) (bracketed alteration supplied).

Certified Administrative Record, at Bates 1269-78 (Memorandum of Decision on the22

Request for Termination of Suspensions).

Id. at Bates 1273.23

Id. at Bates 1275.24

Id. at Bates 1278 (bracketed alteration supplied).25

9


Concurrently with the submission of their responses to the Agency, plaintiffs

filed suit in the United States District Court for the District of Columbia, seeking

injunctive relief to prevent the suspension from taking effect. Judge Richard W.

Roberts held a November 23, 2009 hearing on plaintiffs’ motion for a temporary

restraining order, and denied that motion by oral order on December 11, 2009. The26

suspension went into effect, and plaintiffs remain suspended from government

contracting. To date, their suspension has been in effect for thirty-one months.27

3. Plaintiffs’ attempts to have their suspensions terminated

In November of 2010, DGS retained the services of Contractor Integrity

Solutions, L.L.C., to act as in independent consultant, beginning in 2011. The28

purpose of the consulting agreement was to bolster the compliance system DGS

already had in place. On the basis of the consulting agreement, DGS wrote to the29

Agency, and made an oral presentation, asking for the Agency to reconsider its

suspension. The Agency denied that request, on the basis that it did not reflect30

“material information about a change in the relationship between DGS, Inc. and

Certified Administrative Record, at Bates 623-728 (TRO Hearing Transcript); Certified26

Administrative Record, at Bates 1372-87 (Bench Ruling Transcript).

Doc. no. 6-1 (Affidavit of Richard Brooks).27

Certified Administrative Record, at Bates 1706-08 (Engagement Letters).28

Id.29

Cf. Certified Administrative Record, at Bates 1710 (Letter Responding to Request for30

Reconsideration).

10


PWC.”31

In June of 2011, after the suspension had been in effect for more than eighteen

months, plaintiffs presented the Defense Logistics Agency the terms of a proposed

“management buyout” of Agility. Under the terms of that proposal, management32

employees of Agility would form a new holding company. Those personnel would33

also resign their positions with PWC. The new company would then buy a 60%34

stake of Agility from DGS. PWC would ultimately retain a 40% stake in Agility35

through its indirect ownership of DGS, but the majority stake in the company would

be held by the new company, whose employees would no longer be subject to PWC

control. Moreover, PWC would not have any voting or management authority over

Agility while PWC remained suspended. Although the management buyout would36

have eliminated the formal control PWC previously held over Agility, the Agency

informed plaintiffs that effecting the buyout would not terminate the suspension of

Agility. Accordingly, plaintiffs did not conduct the management buyout.37

Id.31

Complaint, at Ex. 4 (Management Buyout Term Sheet).32

Id. at 1.33

Certified Administrative Record, at Bates 1739 (Presentation of Management Buyout34

Terms to the Agency).

Management Buyout Term Sheet, at 1.35

Id. at 2.36

Certified Administrative Record, at Bates 1755-56 (Letter in Response to Management37

Buyout Proposal). Chadick informed plaintiffs that “it is not in the best interests of the Governmentto do business with any PWC . . . affiliate or subsidiary, regardless of the equity interest, until the

11


Although the Agency rejected plaintiffs’ proposed management buyout, it lifted

the suspensions of other PWC subsidiaries in response to similar arrangements. At

least two other companies had their suspensions terminated because they ceased to be

affiliated with PWC. A company called LA3P was removed from the Excluded

Parties List on December 17, 2009, “[b]ased on removing all management and

operational control over LA3P from” DGS. Another company, AFH Fuel Services,38

L.L.C., had its suspension lifted on September 15, 2010. The suspension was39

terminated due to a change in the operating agreement governing the company. 40

Under the initial operating agreement, DGS had a minority ownership stake of 44%,

and the authority to appoint one of the three “Managers” of the company. Under the41

amended operating agreement, DGS maintained its ownership stake, but not its ability

to appoint a Manager. 42

Plaintiffs brought this action for injunctive and declaratory relief, seeking to

criminal case has been concluded.” Id. at Bates 1756.

Certified Administrative Record, at Bates 1395 (Termination of Suspension Letter, LA3P). 38

The record does not indicate how that change was brought about.

Certified Administrative Record, at Bates 1670 (Termination of Suspension Letter, AFH39

Fuel Services, L.L.C.).

Id.40

Cf. Certified Administrative Record, at Bates 1656 (Letter of Counsel). The record does41

not actually contain the operating agreement under which DGS had that authority. However, theletter of counsel, and the amended operating agreements, demonstrate what the prior arrangementmust have been.

Certified Administrative Record, at Bates 1662-69 (Amended Operating Agreement).42

12


have the suspension lifted. At present, the prosecution of PWC is ongoing, but no

allegations of any wrongdoing have ever been leveled againts either plaintiff.

III. DISCUSSION

Plaintiffs present four counts in their complaint. The first three counts are

based upon the Administrative Procedure Act. In the first count, plaintiffs allege that

the Defense Logistics Agency has provided an inadequate rationale for the

suspensions. In the second count, plaintiffs allege that the suspensions are punitive.

And in the third, they argue that the suspensions are excessive in duration. In the

fourth count, plaintiffs allege that the continuing suspensions violate the Due Process

Clause of the Fifth Amendment to the United States Constitution.

A. The Administrative Procedure Act

The Administrative Procedure Act (“APA”) provides that, when reviewing the

action of an administrative agency, a court shall “hold unlawful and set aside agency

action, findings, and conclusions found to be . . . arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law . . . .” 5 U.S.C. § 706(2)(A).

Under that standard, a court’s review of an agency decision is deferential, even at the

summary judgment stage. Kirkpatrick v. White, 351 F. Supp. 2d 1261, 1270 (N.D.

Ala. 2004) (citing Preserve Endangered Area’s of Cobb’s History, Inc. v. U.S. Army

Corps of Engineers, 87 F.3d 1242, 1246 (11th Cir. 1996)). “To prove an agency’s

13


decision was arbitrary and capricious, the challenging party must show the record is

devoid of reasonable evidence supporting the agency’s decision.” Id. (citing

Organized Fishermen of Florida v. Franklin, 846 F. Supp. 1569, 1573 (S.D. Fla.

1994)).

B. Justiciability of Plaintiffs’ Claims

Defendants argue that the decision of the Agency to suspend plaintiffs, and to

continue to hold them suspended, is not justiciable because those decisions are

“committed to agency discretion by law.” 5 U.S.C. § 701(a)(2). An agency decision

is considered to fall within that exception to judicial review “if the statute is drawn so

that a court would have no meaningful standard against which to judge the agency’s

exercise of discretion.” Heckler v. Chaney, 470 U.S. 821, 830 (1985). Defendants

argue that, because the regulation governing suspension states that an agency “may”

extend the suspension to an affiliate of the wrongdoer, there are “no substantive

guidelines, requirements, or criteria by which to measure whether an agency abused

or did not abuse its discretion.” Even so, plaintiffs have been able to identify cases43

that demonstrate that the debarment or suspension of an affiliate, not itself accused of

wrongdoing, presents a justiciable controversy. See Cailoa v. Carroll, 851 F.2d 395

(D.C. Cir. 1988) (reviewing and reversing suspensions of individuals alleged to be

Doc. no. 10 (Brief in Support of Defendants’ Motion for Summary Judgment and in43

Opposition to Plaintiffs’ Motion for Summary Judgment), at 14.

14


affiliates of a debarred contractor). Cf. Gonzalez v. Freeman, 334 F.2d 570, 574-75

(D.C. Cir. 1964) (“An allegation of facts which reveal an absence of legal authority

or basic fairness in the method of imposing debarment presents a justiciable

controversy in our view.”). Thus, the court concludes that plaintiffs do present

justiciable claims, and turns to the merits of those claims.

C. Rationale for Initial Suspension

Resolution of plaintiffs’ APA claims turns on the interpretation accorded to

certain provisions of the Federal Acquisition Regulations System. In the first count

of their complaint, plaintiffs allege that their suspension was not based on an adequate

rationale and was, therefore, in violation of the APA. The regulations provide that,44

“[t]he suspending official may, in the public interest, suspend a contractor for any of

the causes in 9.407-2, using the procedures in 9.407-3.” 48 C.F.R. § 9.407-1(a)-

(b)(1). Section 9.407-2 enumerates nine offenses that serve as causes for suspension,

such as fraud, bribery, antitrust violations, and commission of “other offense[s]

indicating a lack of business integrity or business honesty.” Id. § 9.407-2(9).

Suspension of an individual contractor can lead to the suspension of others:

Suspension constitutes suspension of all divisions or other organizationalelements of the contractor, unless the suspension decision is limited byits terms to specific divisions, organizational elements, or commodities. The suspending official may extend the suspension decision to include

See doc. no. 1 ¶¶ 51-61.44

15


any affiliates of the contractor if they are (1) specifically named and (2)given written notice of the suspension and an opportunity to respond (see9.407-3(c)).

Id. § 9.407-1(c) (emphasis supplied). That is, “affiliates” are not automatically

considered suspended, but may be suspended based on the notice and response

procedures found in § 9.407-3(c). The regulations include a definition of “affiliates.”

Business concerns, organizations, or individuals are affiliates of eachother if, directly or indirectly, (1) either one controls or has the power tocontrol the other, or (2) a third party controls or has the power to controlboth. Indicia of control include, but are not limited to, interlockingmanagement or ownership, . . . shared facilities and equipment, [and]common use of employees . . . .

Id. § 9.403.

There is no dispute that, through indirect ownership of several subsidiaries,

plaintiffs are “affiliates” of PWC, as defined in the regulations. The regulatory

language clearly allows for the suspension of affiliates without any allegations of

wrongdoing against them. The suspending official has the power to “extend” the

suspension to them, and is required only to specifically name the affiliate and provide

it with notice and an opportunity to respond. To require a finding, or even an

allegation, of wrongdoing, would render the language of § 9.407-1(c) surplusage.

That is, there would be no need for a provision specifically addressing the suspension

of an affiliate if the government was required to apply the same procedures to

affiliates as to principals. Judge Roberts reached the same conclusion when plaintiffs

16


attempted to enjoin their suspension at the outset, stating that “if the determination

necessary to suspend the contractor in the first instance and an affiliate of that

contractor were the same, it might render Section 9.407(c) a nullity.” Judge Roberts45

continued:

[T]here must be some difference in the findings necessary to suspend acontractor in the first instance and to suspend an affiliate of thatcontractor. That difference appears to be that Section 9.407-1(c)authorizes a suspending official to suspend an affiliate on the basis offinding the affiliation alone without a finding of culpability.46

This court finds Judge Roberts’s rationale persuasive, and concludes that the initial

suspension of plaintiffs, as affiliates of PWC, was valid.

D. Excessive Duration of Suspension

The third count of plaintiffs’ alleges that their suspension violates the APA

because it has continued for a period greater than eighteen months. Although the47

plain language of the regulations supports the validity of the initial decision by the

Agency to suspend plaintiffs’ contracting privileges, the question of the indeterminate

duration of that suspension is murkier. The regulatory language regarding the

duration of suspension does not draw a clear distinction between the suspensions of

Bench Ruling Transcript, at Bates 1380.45

Id. at Bates 1380-81.46

See doc. no. 1 ¶¶ 66-74. As noted in the beginning of Part III of this opinion, the second47

count of plaintiffs’ complaint alleges that their continued suspension is “punitive.” Id. ¶¶ 62-65. Consideration of that claim is rendered moot by the following discussion and resolution of the claimasserted in the third count.

17


principals and affiliates, nor does it clearly treat them alike. The relevant part of the

regulation reads as follows:

If legal proceedings are not initiated within 12 months after the date ofthe suspension notice, the suspension shall be terminated unless anAssistant Attorney General requests its extension, in which case it maybe extended for an additional 6 months. In no event may a suspensionextend beyond 18 months, unless legal proceedings have been initiatedwithin that period.

48 C.F.R. § 9.407-4(b) (emphasis supplied). The last sentence of that provision

provides the nub of disagreement between the parties. Defendants argue that legal

proceedings against the suspended principal contractor allow the continued suspension

of its affiliates. In other words, they read the sentence as providing that: “In no event

may a suspension of an affiliate extend beyond 18 months, unless legal proceedings

have been initiated against the principal within that period.” Conversely, plaintiffs

argue that legal proceedings must be initiated against the affiliate itself for the

suspension to continue. That is, they read the sentence to as saying that: “In no event

may a suspension of an affiliate extend beyond 18 months, unless legal proceedings

have been initiated against the affiliate itself within that period.”

The pivotal issue of whether the suspension of an affiliate may extend beyond

18 months merely on the basis of legal proceedings being brought against the

principal appears to be unsettled. The parties have not identified a single judicial

decision addressing the issue, nor has the court’s independent research discovered

18


any. Defendants argue that the regulation allows for the indefinite suspension of an48

affiliate, because to hold otherwise “would lead to absurd and illogical results,” which

regulations should be interpreted to avoid. See, e.g., Rhode Island Hospital v. Leavitt,

548 F.3d 29, 37 (1st Cir. 2008). Plaintiffs argue that to allow indefinite suspension

on the basis of affiliation alone would contradict the “structure” of the regulation.

1. Arguments of the parties

Defendants note that subsidiaries may be initially suspended on the sole basis

of their affiliation with a parent company accused of impropriety. They argue that,

“if suspension is based on affiliation, it is only logical that the period of suspension

for the affiliate should be the same as for the primary contractor.” They state that49

“[o]ne purpose for suspending affiliates is to prevent the primary contractor from

shifting business to its affiliates, thereby allowing the affiliates to bid on government

contracts and avoid the consequences of suspension from government contracting.” 50

Defendants further argue that, if affiliation-based suspensions were limited to eighteen

months, a suspended contractor could create new subsidiaries to sidestep suspension.

After eighteen months, those new subsidiaries, which did not exist at the time of the

In fact, electronic searches of the West and Lexis databases returned only six cases in48

which § 9.407-4 is mentioned at all, none of which address the question before the court.

Doc. no. 15 (Reply Brief in Support of Defendants’ Motion for Summary Judgment and49

in Opposition to Plaintiffs’ Motion for Summary Judgment), at 7.

Id. at 4.50

19


events leading to indictment of their parent, would be eligible for contracting. The

suspended parent would profit from the subsidiaries’ contracts. That result, say

defendants, would be absurd. They argue that it is only logical that a suspension on

the basis of affiliation should last as long as the suspension of the primary contractor,

and state that this is what occurs in practice.

Rather than hypothecating circumstances under which primary how contractors

might abuse the system, plaintiffs focus their arguments on the text of the regulation

itself. Plaintiffs point out the distinctions between the language of § 9.407-1 and that

of § 9.407-4. The former section establishes two bases for suspension: suspicion of

any of the offenses listed in § 9.407-2, or affiliation with a contractor suspected of any

of the offenses listed in § 9.407-2. 48 C.F.R. § 9.407-1(a), (c). Conversely, § 9.407-51

4 simply states that a suspension may not last longer than eighteen months, “unless

The full text of those subsections reads as follows:51

(a) The suspending official may, in the public interest, suspend a contractor for anyof the causes in 9.407–2, using the procedures in 9.407–3.

. . .

(c) Suspension constitutes suspension of all divisions or other organizationalelements of the contractor, unless the suspension decision is limited by its terms tospecific divisions, organizational elements, or commodities. The suspending officialmay extend the suspension decision to include any affiliates of the contractor if theyare (1) specifically named and (2) given written notice of the suspension and anopportunity to respond (see 9.407–3(c)).

48 C.F.R. § 9.407-1(a), (c).

20


legal proceedings have been initiated within that period.” Id. § 9.407-4(b). That52

section makes no distinction between suspensions on the basis on an enumerated

cause and those on the basis of affiliation. Thus, argue plaintiffs, all suspended

contractors must be treated equally under that provision, and cannot be suspended for

longer than eighteen months unless legal proceedings have been brought against them.

2. Analysis

Plaintiffs’ interpretation, based on the text of the regulation itself, is sounder.

Although the regulation establishes two different methods of commencing suspension,

it contains only one provision regarding the expiration of suspension. That one

provision must be applied to suspected wrongdoers and suspended affiliates in a

consistent manner. Defendants’ concern that plaintiffs’ interpretation produces absurd

results is mitigated by several factors. Although defendants state that one reason the

regulation allows for the suspension of affiliates is to prevent the primary contractor

from shifting business to them, that is but one reason.

Another equally plausible reason is to allow the government adequate time to

The full text of § 9.407-4(b) provides:52

If legal proceedings are not initiated within 12 months after the date of thesuspension notice, the suspension shall be terminated unless an Assistant AttorneyGeneral requests its extension, in which case it may be extended for an additional 6months. In no event may a suspension extend beyond 18 months, unless legalproceedings have been initiated within that period.

48 C.F.R. § 9.407-4(b).

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investigate the affiliates for wrongdoing on their own part. That purpose becomes

clear when § 9.407-1 and § 9.407-4 are read in conjunction; the government may

immediately suspend numerous affiliates on the basis of its suspicion of one of them,

and then has a limited period of time in which to determine which affiliates actually

participated in wrongdoing before it must terminate the suspensions of those not

facing accusations. That arrangement allows the government to put an immediate stop

to potential wrongdoing that it may not have been able to investigate fully, but it does

not give the government the power to suspend an affiliate indefinitely without even

suspicion of wrongdoing. When the investigative purpose of the affiliation-based

suspension is considered, the fundamental flaw in defendants’ interpretation is

revealed. That interpretation would allow the government to issue a blanket

suspension against numerous contractors and, so long as proceedings were initiated

against one of them, allow the government to sit on its hands, rather than taking steps

to investigate and determine within a reasonable period of time whether the affiliates

were guilty of misconduct, all while those affiliates suffered the loss of business.53

Another flaw in defendants’ argument is exposed upon a close reading of the

regulatory definition of “affiliate.” Defendants’ argument is premised on the idea that

Because the court finds that plaintiffs’ interpretation of the statutory language is correct,53

it need not address the question of whether defendants’ interpretation violates the Due ProcessClause. However, to allow the government to suspend a contractor indefinitely, without suspicion,raises due process concerns.

22


“affiliates” will necessarily be subsidiaries of the “primary” contractor, which will be

their parent company. That is, in fact, the scenario here. However, “affiliate” is

defined more broadly. Although “control” is integral to the definition, both the parent

and the subsidiary are considered affiliates of each other. 48 C.F.R. § 9.403

(“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.”) (emphasis supplied).

Thus, the regulation allows for the suspension of a parent company for the

malefactions of its subsidiary, on the mere basis that the parent company is an affiliate

of the subsidiary. In such a scenario, the danger of a “primary” contractor shifting

business to its “affiliates” and, thereby, circumventing the consequences of suspension

would seem to be much reduced.

In addition to the possibility that a contractor will shift business to its

subsidiaries if they are not suspended, defendants hypothesize that a suspended

contractor could create new, wholly-owned subsidiaries in the wake of a suspension.

Because those companies did not previously exist, they could not be tainted with the

wrongdoing that led to the suspension of the primary contractor. Defendants argue

that an eighteen month cap on affiliation-based suspensions would allow a suspended

contractor to use such wholly-owned subsidiaries to engage in unfettered contracting.

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That argument is seriously undermined by the regulatory scheme. In addition to the

nine offenses enumerated as cause for suspension in § 9.407-2, there is a catchall

provision: “The suspending official may upon adequate evidence also suspend a

contractor for any other cause of so serious or compelling a nature that it affects the

present responsibility of a Government contractor or subcontractor.” 48 C.F.R. §

9.407-2(c). The creation of wholly-owned subsidiaries in order to circumvent a

suspension arguably fits within that catchall provision. Thus, plaintiffs’ interpretation

of the regulation would not, as defendants assert, amount to carte blanche for

suspended contractors seeking to continue to profit from government contracting, as

the government would have cause to suspend new subsidiaries created for the purpose

of abusing the system.

Finally, the language of the catchall provision highlights another regulatory

requirement that also protects the government from unscrupulous contractors. Before

considering any bid for a contract, the government must determine whether the bidder

is presently “responsible.” See 48 C.F.R. § 9.103. “No purchase or award shall be

made unless the contracting officer makes an affirmative determination of

responsibility. In the absence of information clearly indicating that the prospective

contractor is responsible, the contracting officer shall make a determination of

nonresponsibility.” Id. § 9.103(b). To be found responsible, a contractor must have,

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among other things “a satisfactory record of integrity and business ethics . . . .” Id. §

9.104-1(d). The determination of responsibility must be made anew for each potential

contract. See OSG Product Tankers, L.L.C. v. United States, 82 Fed. Cl. 570, 575

(Fed. Cl. 2008); Frequency Electronics, Inc. v. Department of the Air Force, 151 F.3d

1029 (Table), No. 97-1551, 1998 WL 377929, at *2 (4th Cir. July 1, 1998)

(“‘Responsibility’ is a present condition and not an indelible status.”). The fact that

a contractor is not suspended or debarred from contacting is no guarantee that it will

be found presently responsible upon submitting a bid. A contractor that is a newly-

created, wholly-owned subsidiary of a suspended contractor would surely raise a red

flag in the process of determining present responsibility.

The court concludes that the interpretation of the regulation proposed by

plaintiffs is the correct one. That is, no contractor may be suspended for greater than

eighteen months unless legal proceedings are initiated against that contractor itself,

regardless of the basis for the initial decision to suspend the company. The facts in

the record are undisputed: plaintiffs were suspended on the sole basis of their

affiliation with PWC; no legal proceedings have been initiated against them; and they

have remained suspended for thirty-one months — i.e., nearly twice the regulatory

limit of eighteen months. Their continued suspension is contrary to law, in violation

of the APA. Therefore, their suspensions must be terminated. Summary judgment is

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due to be granted in favor of plaintiffs, and against defendants.

IV. ORDERS AND INJUNCTION

For the reasons stated herein, plaintiffs’ motion for summary judgment is

GRANTED, and defendants’ motion for summary judgment is DENIED.

It is DECLARED that defendants’ suspension of plaintiffs for greater than

eighteen months, without the initiation of legal proceedings against plaintiffs, is

contrary to law. Additionally, it is DECLARED that plaintiffs are eligible for

government contracts, provided they are determined to meet the responsibility

requirements of 48 C.F.R. § 9.103.

It is further ORDERED, ADJUDGED, and DECREED that defendants lift

plaintiffs’ suspension from government contracting, and remove them from the

Excluded Parties List.

Costs are taxed to defendants. The clerk is directed to close this file.

DONE and ORDERED this 26th day of June, 2012.

______________________________United States District Judge

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HOUSTON DIVISION

)


)

)

Plaintiffs, )

) No. 4:13-cv-02349

v. )





)

Defendants. )

)

ORDER

Pending before the Court is a Motion for Leave of Amici Curiae the Chamber of

Commerce of the United States, the American Petroleum Institute, the National Association of

Manufacturers, National Ocean Industries Association, Organization for International

Investment, and Techamerica for Leave to File a Brief in Support of Plaintiffs’ Motion for

Summary Judgment. Having considered the motion and the applicable law, the Court hereby

GRANTS the motion.

IT IS SO ORDERED.

SIGNED at Houston, Texas, on this the ______ day of December, 2013.

__________________________________

VANESSA D. GILMORE

UNITED STATES DISTRICT JUDGE


Amicus Brief on BP Debarment

Documents

Transcript of Amicus Brief on BP Debarment