Jonal Corporation v. District of Columbia

533 F.2d 1192, 175 U.S. App. D.C. 57

• Court: Court of Appeals for the D.C. Circuit
• Decided: April 21, 1976
• Docket: 74-1191
• Status: Published

Opinions

MERHIGE, District Judge:

Appellant, a Maryland corporation doing business in the District of Columbia, takes this appeal from the summary judgment of the District Court holding that decisions of the District of Columbia Contract Appeals Board are subject to the limited scope of judicial review provided in the Wunderlich Act, 41 U.S.C. §§ 321-22 (1970). Jonal sought payment of $71,726.13 allegedly due for work done pursuant to a contract with the District of Columbia to build several water pollution control plant buildings.¹ Since the amount in controversy exceeds $50,000, jurisdiction was conferred on the District Court by D.C.Code Ann., § 11-501(4) (1973).²

The facts, as appear in the record, are that following the completion of competitive bidding procedures, the District of Columbia, on April 13, 1967, awarded a contract for the construction of two water pollution control plant supply buildings to the appellant Jonal. The parties entered into a written contract on May 1, 1967 which incorporated by reference all the bid plans and specifications, and all the terms of the bid invitation. Article 15 of the contract contained the following provisions:

Disputes. — Except as otherwise specifically provided in this contract, all disputes concerning questions arising under this contract shall be decided by the contracting officer subject to written appeal by the contractor within thirty (30) days to the Contract Appeals Board, whose decision shall be final and conclusive upon the parties thereto, subject to the limitation of Sec. 3(b)(2) of Reorganization Plan No. 5 of 1952. In the meantime the contractor shall diligently proceed with the work as directed.

After the appellant began work in accordance with the contract, disputes arose over the proper interpretation to be given various notes appearing on the contract drawings. Jonal Corporation claimed that it had not contracted to perform specified items of work,³ but the contracting officer decided to the contra and directed Jonal to proceed with the execution of the contract. Jonal accordingly performed the work under protest, and then submitted claims for compensation to the contracting officer for the alleged additional work. The contracting officer denied the claims and Jonal appealed to the District of Columbia Contract Appeals Board pursuant to the procedure outlined in Article 15 of the contract.

On March 7 and 8, 1972 hearings were held before a three-man panel of the Contract Appeals Board. The members of the Board empanelled to hear the matter were Louis P. Robbins, Assistant Corporation Counsel for the District of Columbia,⁴ Lou Frana, Assistant Corporation Counsel for the District of Columbia, and Gerald I. Sawyer, a Contracting Officer employed by the District of Columbia Department of Highways. Mr. Robbins and Mr. Frana were appointed by C. Francis Murphy, Chairman of the Contract Appeals Board for the District of Columbia and Corporation Counsel for the District of Columbia. Mr. Sawyer was appointed to the panel by Mr. Robbins. The counsel for the District of Columbia before the Board was James E. Lemert, assigned by Mr. Murphy to both defend the case and prosecute the District of Columbia’s case against Jonal for liquidated damages. On February 16, 1973, the Board issued its findings of fact, conclusions of law, opinions and decisions denying appellant’s claims.

On April 4, 1973, appellant filed suit, giving rise to this appeal, against the District of Columbia to recover the costs, expenses and damages occasioned by the alleged modifications in the original contract specifications. The District of Columbia answered the complaint on April 27, 1973 and moved for summary judgment on June 19, 1973, contending that disputes arising out of contracts entered into by the District are reviewable under the standards prescribed by the Wunderlich Act, and that the Court’s review was restricted to the question of whether decision of the Contract Appeals Board was supported by “substantial evidence.” On July 5, 1973, the appellant filed a “Counterstatement of Undisputed Facts” and a statement of “Points and Authorities in Opposition to Defendant’s Motion for Summary Judgment.” In those papers Jonal contended that the Court must first decide whether Organization Order No. 9, establishing the Board and its constituency, violates, on its face, the Due Process Clause of the Fifth Amendment to the Constitution of the United States. In addition, the appellant argues that the Board was so created as to be inherently tainted, allowing the District Court to review de novo the Board’s decision. Finally, the appellant noted that it “reserve(d) the right to file supplemental points and authorities in opposition to defendant’s arguments on the limitation of (the District) Court’s review, and the finality to be accorded the ruling of the Contract Appeals Board, . . . after the issues raised by this pleading are resolved.”

On November 27,1973, the District Court issued its memorandum and order which are the subject of this appeal. The trial judge held that appellant’s constitutional claim “must fail for want of jurisdiction since the claim was not properly pleaded as a matter of form.” The trial judge also held that the Wunderlich Act’s standards of review are applicable to the case and, in accordance with those standards, that the appellee was entitled to summary judgment on the merits. “After a review of the whole administrative record, the Court finds that the District of Columbia Contract Appeals Board’s decision was based on substantial evidence, and was not arbitrary or capricious.” Op. at 6.

The appellee argues, in support of the District Court’s ruling, that the appellant’s procedural due process claim was belatedly proffered and improperly pleaded. This position has some justification. The Contract Appeals Board was established in 1953 and its composition, function and authority have remained essentially unchanged since its inception. See Reorganization Order No. 29, pt. VII, D.C.C.E. § 1-App. II 125 (1966), effective September 17, 1953. See also Organization Order No. 9, pt. VI, D.C.Code Ann. § 1-App. 235-36 (1973), effective June 6, 1968; Reorganization Plan No. 3 of 1967 § 303, 3 C.F.R. 345 (Comp.1967), 5 U.S.C. App. § 588 (1970). Yet, Jonal Corporation’s constitutional objection to the Board’s composition was not presented until after the contract containing the questioned grievance procedure had been knowledgeably executed in 1967 by its representative,⁵ the administrative procedure had been completely exhausted on the contract issues, the case had been filed and fully pleaded in the District Court, and the defendant had filed a motion for summary judgment. Since the constitutional defect is allegedly inherent in the grievance procedure, the plaintiff, in fairness, ought to have presented its position at an earlier stage of the process.⁶ We need, however, not reach the issue of whether such a delay in presenting the claim operates to bar this Court from further considering the argument, for we conclude that the appellant’s procedural due process contention is lacking in substance.

Jonal Corporation argues that since the Corporation Counsel of the District of Columbia, or his designated representative, appointed all the members of the panel, and since the counsel for the District of Columbia was the Corporation Counsel of the District of Columbia, represented by an assistant Corporation Counsel, who was both defending the District of Columbia against Jonal’s claim and prosecuting its claim for liquidated damages against Jonal, it was “being required to try its case before its adversary’s lawyer.” Br. 17.

In a matter involving a deportation proceeding, the Supreme Court held in Marcello v. Bonds, 349 U.S. 302, 75 S.Ct. 757, 99 L.Ed. 1107 (1955), that due process was not violated by the supervision of adjudicating officers by officials charged with investigating and prosecuting functions.

As noted above, the only complaint which petitioner can urge concerning the hearing procedures in this case is the objection that the special inquiry officer was subject to the supervision and control of officials in the Immigration Service charged with investigative and prosecuting functions. Petitioner would have us hold that the presence of this relationship so strips the hearing of fairness and impartiality as to make the procedure violative of due process. The contention is without substance when considered against the long-standing practice in deportation proceedings, judicially approved in numerous decisions in the federal courts, and against the special considerations applicable to deportation with the Congress may take into account in exercising its particularly broad discretion in immigration matters. 349 U.S. at 311, 75 S.Ct. at 762, 99 L.Ed. at 1116.

The decision has an informative history. Prior to the Marcello case, the Supreme Court had interpreted the Administrative Procedure Act, 5 U.S.C. § 501 et seq., to require the separation of administrative functions in deportation cases. Wong Yang Sung v. McGrath, 339 U.S. 33, 70 S.Ct. 445, 94 L.Ed. 616 (1950). Six months thereafter, Congress expressly excluded deportation proceedings from specified sections of the Act so as to reinstate the proceedings suspended by the Supreme Court. Supplemental Appropriation Act of 1951, 64 Stat. 1048. In 1962 Congress enacted the Immigration Act, 8 U.S.C. § 1252, which specifically provided for various combinations of judicial, prosecutorial and investigative functions that seemingly ran counter to the Administrative Procedure Act. The Supreme Court in Marcello specifically held that the Immigration Act was intended by Congress to supersede the Administrative Procedure Act on the question of separation of functions, and denied the petitioner’s claim of a due process violation.⁷ The case has consistently been interpreted to stand for the general proposition that the combination in administrative procedures of judging with prosecuting or investigating functions is not, per se, a denial of due process. E. g., American Telephone and Telegraph Co. v. F. C. C., 449 F.2d 439, 455 (2d Cir. 1971); Kinsella v. Board of Education of Central School District No. 7, 378 F.Supp. 54, 60 (W.D.N.Y.1974); Toney v. Reagan, 326 F.Supp. 1093, 1099 (N.D.Cal.1971); K. Davis, Administrative Law Treatise § 13.02, p. 1975 (1958); cf. Escalera v. New York City Housing Authority, 425 F.2d 853, 863 (2d Cir. 1970).

The Supreme Court only recently restated its position on the issue of combination of function in administrative agencies in a case involving a Wisconsin medical disciplinary board.

The contention that the combination of investigative and adjudicative functions necessarily creates an unconstitutional risk of bias in administrative adjudication has a much more difficult burden of persuasion to carry. It must overcome a presumption of honesty and integrity in those serving as adjudicators; and it must convince that, under a realistic appraisal of psychological tendencies and human weakness, conferring investigative and adjudicative powers on the same individuals poses such a risk of actual bias or prejudgment that the practice must be forbidden if the guarantee of due process is to be adequately implemented. Withrow v. Larkin, 421 U.S. 35, 95 S.Ct. 1456, 1464, 43 L.Ed.2d 712, 723, 43 U.S.L.W. 4459, 4463 (U.S.1975).

Although Withrow is distinguishable on its facts from the present case — it involved a disciplinary board that had both instigated the investigative proceedings and later ruled in a full and contested hearing on the existence of misconduct — the case’s pronouncement of the presumption in favor of impartiality in administrative hearings irrespective of some overlap of adjudicative, prosecutorial and investigative function provides guidance in the present case.

Obviously, if personal bias or prejudice is apparent in the conduct of the administrative proceedings, there may well be grounds for the reversal of the administrative determination if the objection is timely brought. See NLRB v. Washington Dehydrated Food Co., 118 F.2d 980 (9th Cir. 1941). Similarly, administrative decisions made by adjudicators with a pecuniary interest in the results of the proceeding may suffer reversal. Cf. Gibson v. Berryhill, 411 U.S. 564, 579, 93 S.Ct. 1689, 1694, 36 L.Ed.2d 488, 493 (1973); Tumey v. Ohio, 273 U.S. 510,47 S.Ct. 437, 71 L.Ed. 749 (1927). How ever, the instant appellant has not advanced at any stage in these protracted proceedings, any claims of personal bias or pecuniary interest on the part of the membership of the Contract Appeals Board.

In conclusion, due process principles enunciated in Marcello v. Bonds, supra, controls us as to the constitutional issue. In the absence of evidence of actual personal bias or pecuniary interest, we hold that the fact that the Board membership was appointed by the Corporation Counsel, and the fact that the Corporation Counsel was also responsible for appointing an individual to prosecute and defend the case on behalf of the District of Columbia before the Board, does not, per se, constitute a violation of the due process clause of the Fifth Amendment.

Appellants also argue that the constituency of the Contract Appeals Board excepts the Board’s decisions from the limited review provisions of the Wunderlich Act. 41 U.S.C. §§ 321-22 (1970). The Act refers to “any contract entered into by the United States,” 41 U.S.C. § 321, and has been applied by this Circuit to contracts entered into by the District of Columbia. Kenny Construction Co. v. District of Columbia, 105 U.S.App.D.C. 8, 262 F.2d 926 (1959). See also, District of Columbia v. Heman Ward, Inc., 261 A.2d 836 (D.C.Ct.App.1970). However, the Act expressly excepts certain decisions from its limited review provisions.

No provision of any contract entered into by the United States, relating to the finality or conclusiveness of any decision of the head of any department or agency or his duly authorized representative or board in a dispute involving a question arising under such contract, shall be pleaded in any suit now filed or to be filed as limiting judicial review of any such decision to cases where fraud by such official or his said representative or board is alleged: Provided, however, that any such decision shall be final and conclusive unless the same is fraudulent or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or is not supported by substantial evidence. 41 U.S.C. § 321 (Emphasis added).

Appellants argue that the formation of the Board by appointment of the Corporation Counsel should lead this Court to conclude that the Board’s decision was “capricious or arbitrary or so grossly erroneous as to imply bad faith.”

The terms “arbitrary” and “capricious” are typically associated with constitutional due process standards. See Wickard v. Filburn, 317 U.S. 111, 129, 63 S.Ct. 82, 91, 87 L.Ed. 122,137 (1942); Nebbia v. New York, 291 U.S. 502, 525, 54 S.Ct. 505, 510, 78 L.Ed. 940, 949 (1933). Accordingly, the Court interprets the standard intended to be established by the use of those terms to be the appropriate constitutional due process standard. To hold otherwise would be to engage in subtle definitional exercises that are confusing and of questionable historical origin. Since the constituency of the Board does not violate the constitutional due process standards set out in Marcello, it did not render a decision on the controversy in issue that, without further evidence, can be said to be arbitrary or capricious.

Similarly, although due process discussions do not typically include the “so grossly erroneous as necessarily to imply bad faith,” standard,⁸ it would be difficult to hypothecate an administrative adjudication that both violates this standard and yet is within the constitutional boundaries set by the due process clause. Appellants assert that the grossly erroneous standard should be interpreted in light of the Court of Claims discussion in Penner Installation Corporation v. United States, 89 F.Supp. 545, 548, 116 Ct.Cl. 550, (1950) aff’d by equally divided Court, 340 U.S. 898, 71 S.Ct. 278, 95 L.Ed. 651 (1950):

So, if in any case we say that the contracting officer has not acted in good faith, we mean only that he has not in good faith discharged his duties as an impartial, unbiased judge. We do not at all mean to impugn his fidelity to his employer. Indeed, it is this fidelity to his employer that makes it so difficult for him to act impartially.

In considering whether or not the contracting officer has acted impartially it is, of course, proper to take into consideration in any case, whether or not actual bias is shown, the correctness of his findings, his relationship to the parties, the allegiance he avows, and the duties his employment by one of them casts upon him.

Even if this Court were to adopt the standard of the Penner case, it would not support the appellant’s position that the inherent composition of the Board necessarily imports a finding of bias in all of the Board’s decisions. In Penner, the Court of Claims carefully analyzed the contracting officer’s decision before finding actual bias.

In view of his action on these three items, we are forced to conclude that he did not act with due regard to plaintiff’s rights, that he did not act as an impartial, unbiased arbiter, and that his decisions, therefore, must be held to have been arbitrary and capricious, and lacking in that good faith required of an unbiased, impartial arbiter. 89 F.Supp. at 549.

Penner does not stand for the proposition that a contracting officer’s position, as an employee of the government, inherently biases his decisions. Rather it stands for the commonly accepted proposition that if actual bias is shown in a contracting officer’s decision, the decision must be reversed. Furthermore, the Court in Penner clearly equates the good faith standard to the standard of arbitrariness and capriciousness. The other ease noted by the appellants, Commonwealth Coating Corp. v. Continental Casualty Co., 393 U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968), was premised on a finding of impropriety on the part of the decision maker because of his undisclosed financial ties to one of the litigants. There, one of the arbitrators had rendered substantial services for one of the parties to the dispute, and had not informed the other party of this relationship. The Court there held that the “undisclosed business relationship” required a reversal of the arbitration board’s decision. “We can perceive no way in which the effectiveness of the arbitration process will be hampered by the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of possible bias.” 393 U.S. at 149, 89 S.Ct. at 339, 21 L.Ed.2d at 305. The instant case does not involve a non-disclosure problem; the appellants were fully aware when they signed the contract with the District of Columbia of the procedures and composition of the Contract Appeals Board. In conclusion, the grossly erroneous standard should also be equated with the constitutional due process standard. Since the due process standard established by Marcello has not been violated in the instant case, the Court concludes that the grossly erroneous standard similarly has not been violated.

Finally, the appellants argue that the District Court improperly determined that there was substantial evidence to support the Board’s finding. It is alleged that certain items of documentary evidence and the twelve exhibits introduced during the hearings before the Contract Appeals Board were not before the District Court when it rendered its decision on the basis of the “whole administrative record.” In the interests of justice, we conclude that the case should be remanded so that the District Court, if it has not already done so, may consider all pertinent parts of the administrative record, including the documentary evidence and exhibits aforementioned.

We deem it appropriate to point out that our remand is for the limited purpose of having the trial court file an amended and supplemental finding reflecting either that it had considered all documentary evidence and exhibits in reaching its conclusion or has, since remand, considered same and amends or affirms, as it deems appropriate, its judgment order.

1 . The plaintiff seeks $6,491.00 for the construction of the two water pollution control plant buildings to a greater height than that called for in the plans and specifications, $25,635.13 for the performance of certain paving work not included in the plans and specifications, delay damages in the sum of $30,000, and $9,600 representing the unpaid balance due under the contract.

2 . This section has since been amended.

3 . Disputes arose over the interior height of the plant buildings, and certain paving work around the buildings.

4 . Mr. Robbins is presently Principal Assistant Corporation Counsel, District of Columbia.

5 . The trial judge noted “Jonal is no stranger to government contracts. It secured the disputed contract through competitive bidding and pursued its dispute before the Board in full recognition of the fact that the contract disputes clause . required all disputes to be referred to the Board ‘whose decision shall be final and conclusive upon the parties.’ ” Op. 3, fn. 3.

6 . Indeed, the trial judge held that the constitutional claim was improperly pleaded, and dismissed it under the authority of Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946). Also in issue is whether Jonal, by failing to assert the constitutional defense at the administrative hearing, waived his right to present it to the District Court. See SEC v. R. A. Holman & Co., 323 F.2d 284 (2d Cir. 1963).

7 . The fact that deportation hearings by inquiring officers are subject to de novo review, and that the Wunderlich Act provides for limited review of the Contract Appeals Board decisions does not distinguish the Marcello opinion from this case. The due process requirements at the hearing level should not significantly fluctuate with the review standards. Review is not, nor should it be, a necessary requisite to affording a litigant his due process rights at the initial hearing.

8 . The language of the statute itself would seem to imply that an application of the grossly erroneous standards involves an assessment of the actual decision of the Board in light of the evidence presented at the hearing. However, this Court will assume that the language is not so limited, and that it also goes to the validity of the procedural processes involved in the hearing.