Gallo Asphalt Co. v. Sagner

365 A.2d 932, 71 N.J. 405, 1976 N.J. LEXIS 164

• Court: Supreme Court of New Jersey
• Decided: November 8, 1976
• Status: Published

Opinions

The opinion of the court was delivered by

Pashman, J.

This is an appeal by two business entities challenging a debarment order which precludes them from bidding on any public projects financed by the State Department of Transportation (D.O.T.).¹ Appellants are family enterprises which are owned and operated by two brothers, Gene and Yincent Gallo. Respondent is Alan Sagner, Commissioner of D.O.T., who imposed the debarment order.

On July 31, 1974, Gallo Asphalt Co. (Gallo Asphalt, a partnership) and Passaic Crushed Stone Co., Inc. (Crushed Stone, a corporation), together with one other business entity and several individuals, were indicted by a State Grand Jury for conspiring to fix bids on contracts for the construction and resurfacing of roads in Passaic County. The indictment charged a conspiracy to rig bids by controlling the price and supply of asphalt, by collusive bidding, by allocation of territories, by fixing prices, and by inflating prices of contracts to finance bribes to public officials. Mario Gallo, the older brother of Gene and Yincent, was named as a co-conspirator but not as a defendant in the indictment. Prior to his death in February 1970, Mario had been a partner in Gallo Asphalt and a stockholder in Crushed Stone with his two brothers. He had also been the chief executive in these as well as other family-owned companies.

As a result of a plea bargain with the Attorney General’s office, Gene and Yincent Gallo entered guilty pleas on be-' half of Gallo Asphalt and Crushed Stone before the late Judge John A. Ackerman on October 29, 1974. Pursuant to 12. 3:9-2,² and with the consent of the prosecuting attorney, Judge Ackerman issued two orders prohibiting the use of the guilty pleas of the two companies as evidence “in any civil proceedings which may now be pending or which may be instituted in the future.” - Nevertheless, the following day the Commissioner notified Gene and Yincent Gallo that the indictment, guilty pleas and convictions indicated the lack of “responsibility” of Gallo Asphalt and of Gallo Asphalt Corp. (Gallo Corp.),³ and affected their ability to do business with D.O.T. As a result, he informed them that he had suspended these companies, including their affiliates and subsidiaries, in their capacities as contractors, subcontractors and suppliers, from the classification lists of prequalified bidders with D.O.T. They were permitted to request a hearing at which they could show cause why the suspension should not be continued.

Appellants sought an expedited hearing and appeared before the Commissioner on November 19, 1974. At the outset, counsel for the D.O.T. (an attorhey from the Attorney General’s office) stated that the parties had agreed on “telescoping” the proceeding to consider the propriety of debarment as well as suspension.* **⁴ He then entered into evidence the Commissioner’s letter of suspension, which adverted to appellants’ guilty pleas and convictions. He also confirmed the allegations in the letter by questioning appellants’ counsel as to the date of the hearing before Judge Ackerman and the details of the sentencing. Relying on the criminal convictions, he argued that sufficient cause for debarment had been established under the principles of Trap Rock Industries, Inc. v. Kohl, 59 N. J. 471 (1971), cert. den., 405 U. S. 1065, 92 S. Ct. 1500, 31 L. Ed. 2d 796 (1972). In his view, the indictment alone would have justified suspension; the guilty pleas were evidence that the charges in the indictment were true.

Appellants’ counsel responded by asserting that neither Gene nor Yincent had been implicated in the criminal activity for which the companies had entered guilty pleas. He also described the terms of the plea bargain with the State, emphasizing the applicability of B. 3 :9-2 and entering into evidence copies of Judge Ackerman’s order. In addition, Gene and Yincent Gallo, counsel for the estate of Mario Gallo, and attorneys from the Attorney General’s office testified on behalf of the companies. Although Gene and Yincent had been Mario’s nominal equals while he was alive and had been directors, partners, and' shareholders in the family businesses, they claimed to have taken no. part in setting policy or in managing finances. The testimony, as supplemented by evidence in a later hearing, indicated that Mario had taken charge of the businesses from their father Thomas Gallo and had been the unquestioned chief executive officer, while his brothers confined themselves to running a Crushed Stone facility at Pompton Lakes which manufactured asphalt products. Specifically, the prosecuting attorneys testified that they had uncovered no information suggesting that Gene and Yincent had played a role in setting exorbitant prices or in arranging collusive bids with other contractors.

On December 31, 1974, Commissioner Sagner issued a Determination and Order debarring Gallo Asphalt, Gallo Corp. and any related businesses until October 30, 1976. Accordingly, they were prohibited from bidding on any contract with D.O.T., from acting as a subcontractor or material supplier on any such contract, and from serving as a contractor or material supplier on local-aid contracts with D.O.T. funds. In his order, Commissioner Sagner noted that:

. . . it has not been shown that Gene and Vincent [Gallo] were criminally culpable in the conspiracy ... In my mind the taint that was created by a conspiracy against the competitive bidding system over a 14 year period was not absolved by the death of Mario Gallo.

J interpret the guilty plea on October 29, 1974 by Gallo Asphalt Company and Passaic Crushed Stone Company, Incorporated, as a recognition of this taint. [Emphasis supplied.]

At appellants’ request, a second hearing was held on January 27, 1975 before the Commissioner. Appellants presented additional evidence showing that Mario Gallo exclusively managed the businesses without the participation of Gene or Vincent. On February 25, 1975 Commissioner Sagner issued a second Determination and Order reaffirming his earlier decision but modifying the order to an indeterminate debarment period; the Gallos could resume State work when they "demonstrate [d] to [his] satisfaction that they possess [ed] the requisite degree of responsibility in the sense of moral integrity.” The Appellate Division affirmed in an unreported per curiam decision, and we granted appellants’ petition for certification. 68 N. J. 488 (1975).

We need not pass on the grounds for the Commissioner’s decision rejecting the Gallos’ claim that they should not be held responsible for Mario’s criminal conduct. Instead, we find that the appellants’ guilty pl'eas should not have been received in evidence during the hearing. Judge Ackerman’s orders specifically stated that:

. . . the plea of guilty by the defendant . . . entered and accepted by the Court today shall not be evidential in any way in any civil proceeding now pending or which may be instituted in the future. [Emphasis supplied.]

The Appellate Division did not address the propriety of the ¡Commissioner’s reliance upon the guilty pleas of the two firms because it thought that R. 3:9-2 and the order limiting the use of the pleas did not affect the use of the convictions resting thereon. It found that the two business entities were guilty of the charge alleged in the indictment based on the testimony of a witness for appellants, and concluded that the Gallos were not prejudiced by the Commissioner’s use of the pleas.

However, the record shows that the essence of D.O.T.’s allegations against appellants was the admission of criminal guilt inherent in their pleas and the resulting convictions. The D.O.T. hearing was clearly a “civil proceeding” within the meaning of R. 3 :9-2 and Judge Ackerman’s orders, and therefore no reliance whatsoever should have been placed upon the pleas. This is so even though debarment hearings are not subject to the evidentiary formalities of a trial.⁵ The terms and the spirit of the agreement entered into by the State and appellants precluded any evidential use of the pleas and convictions in subsequent civil proceedings. Thus, this case is not strictly analogous to other instances in which prior pleas of nolo contendere have been considered in disciplinary hearings. See In re Berardi, 23 N. J. 485 (1957); In re Friedman, 21 N. J. 273 (1956); In re Devine, 18 N. J. 67 (1955); Kravis v. Hock, 137 N. J. L. 252 (Sup. Ct. 1948).

Had it been clear that the pleas might have been utilized against them in the debarment proceeding, the Gallos might never have entered them, since the bulk of their business is with public entities. This is evidenced by the sworn testimony of appellants’ counsel at the hearing:

May I further say that the plea was entered because of the timing involved. The plea was entered so that we could quickly resolve our problems with those agencies that debarred us and in fact, after the entry of the plea the State of New Jersey, through the good offices of the Attorney General, saw to it that we were in fact reinstated by making certain facts known to these various agencies. Moving to dismiss the indictment might I say, Mr. Heimlich, would have taken many, many months because first of all a judge could not have dismissed the indictment at that point. It was not a civil action and you don’t have discovery in a criminal case and the judge would have to hear the State’s case first before he could dismiss the indictment. That would have taken many, many months and because of the financial losses which these companies would have sustained, there would be no good reason for them to not enter a plea and save themselves financially at that point, rather than go on for six months or a year, with possible appeals to the Appellate Division, depending upon the outcome. It would have taken a considerable period of time.

Plea bargaining is part of onr criminal practice. The Attorney General has honored the plea bargain. The trial judge asked Mr. Zauber, representing the State at the acceptance of the pleas:

Mr. Zauber, I gather you are satisfied, consent having been given, among other things, the interest of the State or the public are really not impaired in any way by these pleas.

Mr. Zauber responded:

That’s correct, in view of the fact that the surviving principals of these two entities were not personally involved in any of the allegations contained in the indictment.

The Office of the Attorney General subsequently advised various State and local agencies, including that of respondent, of the above.

Because of the bargain, appellant could rightfully expect that no adverse inferences as to moral integrity would be drawn from the guilty plea. Basic fairness requires that the Commissioner honor the agreement when he is sitting as a quasi-judicial officer. Cf., Santobello v. New York, 404 U. S. 257, 92 S. Ct. 495, 30 L. Ed. 2d 427 (1971); State v. Thomas, 61 N. J. 314, 321-323 (1972). Moreover, this requirement does not undermine the Commissioner’s power to uphold the integrity of the competitive bidding process on D.O.T. projects. As Judge Ackerman stated in accepting the pleas:

Of course, in accepting the plea with that condition, it does not give any immunity, it merely means that the plea cannot be used in evidence in a civil matter. And if there should be any civil suit, or a follow-through, of course, the evidence can be presented but it simply means the pleas cannot be used as admissions.

The guilty pleas played a decisive role in the Commissioner’s decision. Since the pleas should not have been allowed in evidence, this case will be remanded to the Commissioner for further consideration. We are eager to protect the public interest. The .Commissioner may hold a hearing; any competent evidence may be offered to determine the “responsibility” of the present ownership. In the interim, Gallo Asphalt and' Crushed Stone may bid for and accept business with any public entity.

Reversed and remanded.

1 N. J. S. A. 27:7-35.8 Developments subsequent to classification ; right to reject bidder

Nothing contained in this act shall be construed as depriving the State Highway Commissioner of the right to reject a bidder at any time prior to the actual award of a contract, where there have been developments subsequent to the classification of such bidder, which in the opinion of the commissioner would affect the responsibility of the bidder. Before taking final action on any such bid, the commissioner shall notify the bidder and give him an opportunity to present any additional information which might tend to substantiate the existing classification. [Emphasis supplied.]

R. 3:9-2 provides in pertinent part:

2 For good cause shown the court may, in accepting a plea of guilty, order that such plea not be evidential in any civil proceeding.

3 The third appellant, Gallo Asphalt Corp. (Gallo Corp., a corporation) was not indicted. Gallo Asphalt was dissolved as a partnership in 1970 on the death of Mario Gallo, and a new entity bearing the name Gallo Asphalt Go. was created with the estate of Mario Gallo as a partner. The Gallos have argued throughout that the now defunct partnership was the only culpable party, even though they entered a guilty plea for the reconstituted partnership. We agree with the Commissioner’s conclusion that this attempted distinction between the two entities is meaningless in view of the continuity of operations and the identity of partners. For the sake of clarity and convenience, no distinction will be drawn between the two versions of Gallo Asphalt Co.

4 He noted that suspension customarily followed an indictment, and served as a temporary measure until the resolution of criminal proceedings. Since appellants had already been convicted, the parties stipulated that there was no need to engage in two separate hearings. Counsel for appellants acknowledged that the proceeding could result in debarment.

5 New Jersey’s Administrative Procedure Act (APA), which became effective in 1968, provides that in contested cases “the parties shall not be bound by rules of evidence whether statutory, common law, or adopted by the Rules of Court.” N. J. S. A. 52:14B-10. It defines a contested ease as

“a proceeding, including any licensing proceeding, in which the legal rights, duties, obligations, privileges, benefits or other legal relations of specific parties are required by constitutional right or by statute to be determined by an agency by decisions, determinations, or orders, addressed to them or disposing of their interests, after opportunity for an agency hearing.” N. J. S. A. 52:14B-2(b).