author: THOMAS P. HOGAN, District Judge.

text:
    NATIONAL CLIENTS COUNCIL, INC., Plaintiff, v. LEGAL SERVICES CORPORATION, et al., Defendants.
    Civ. A. No. 85-2398.
    United States District Court, District of Columbia.
    Aug. 19, 1985.

      Matthew Jacobs, Covington & Burling, Washington, D.C., for plaintiff.
    Carl S. Rauh, Washington, D.C., for defendants.
   MEMORANDUM OPINION

THOMAS P. HOGAN, District Judge.

The principal defendant in this action, the Legal Services Corporation (LSC), is a nonprofit organization created in 1974 by the enactment of the Legal Services Corporation Act (LSCA/the Act), 42 U.S.C. § 2996, et seq. Under the Act, LSC administers a program of contracts and grants of federal funds to a variety of legal-service related organizations. The vast majority of these grantees provide free legal assistance and representation in non-criminal matters to individuals who are otherwise financially unable to afford such services. See id. §§ 2996b(a). However, the Act also authorizes LSC to award grants to organizations that do not directly provide legal assistance to the poor, but instead fulfill other functions necessary to effectuate the purposes of the Act. See id. § 2996e(a)(l)(B) & (a)(3).

Pursuant to this latter authority, LSC awarded a total of approximately $4 million in yearly federal grant funds to the plaintiff, the National Clients Council, Inc. (NCC), from 1976 to 1983. Under these grants NCC was to provide technical assistance and training to the boards of local Legal Services organizations throughout the country, as well as individual Legal Services clients. Likewise, NCC was to educate local program board members as to their responsibilities, inform clients of the function of legal services projects and their rights under those projects, and serve as a conduit for client input into the legal services network.

The National Clients Council has brought this action challenging a July 15, 1985 final determination of the Legal Services Corporation to deny NCC refunding for fiscal year 1984. Plaintiff is challenging the 1984 refunding decision now, in 1985, despite the fact that it received interim funding throughout the period of administrative review by LSC from January 1984 to July 1985. NCC contends that this issue is not moot because it will have a material impact on its 1985 application for refunding, held in abeyance by LSC pending final resolution of the 1984 funding issue. NCC maintains that unless it prevails in this action, and the Court determines that LSC improperly denied it refunding for 1984, NCC will not be deemed to have been an official grant recipient during 1984, and therefore will not be entitled to a presumption of refunding for 1985 enjoyed by existing grantees.

This case was originally brought before the Court on plaintiff’s motion for a preliminary injunction, filed contemporaneously with the complaint on July 26, 1985. NCC contends that, due to LSC’s final determination denying refunding and the resulting cessation of interim funding to NCC, it will have exhausted all of its financial resources by approximately August 16, 1985. NCC therefore sought a preliminary injunction requiring LSC to continue interim funding to NCC, and precluding LSC from taking any adverse action on NCC’s pending application for funding 1985, or from committing elsewhere any funds to which NCC may be entitled for 1984 and 1985, until resolution of the merits of this action. However, at the August 7, 1985 hearing on plaintiff’s motion, the parties concurred, upon inquiry from the Court, that the merits of the action may be resolved at this time on the basis of the record and pleadings currently before the Court. Accordingly, the Court shall treat this matter as one presenting cross-motions for summary judgment. See Fed.R.Civ.P. 65(a)(2).

I. Statement of Facts

A. The Review Team

On October 20, 1983 the defendant, Legal Services Corporation, notified NCC that a review team was being sent to NCC headquarters on October 26, 27, and 28 to monitor NCC’s operations and interview NCC staff. This notification also requested that NCC compile copies of “policy statements, position papers and other presentations of the National Clients Council.” In addition, LSC requested access to twenty-four other categories of documents relating to NCC’s activities and management. See Plaintiff’s Memorandum in Support of Motion for Preliminary Injunction, Exhibit 3.

In accordance with the notice, the review team visited NCC’s Washington, D.C. headquarters on the days indicated. In addition, two members of the team also visited selected NCC regional offices. The review team, appointed by LSC to perform the task of an organization-wide review of NCC, consisted of both outside independent consultants and LSC employees.

During the review team’s on-site visits, NCC refused to grant access to certain documents and records, including training files, technical assistance files, and correspondence files. Despite the failure to gain access to all of the requested records and documents, the review team nevertheless completed its evaluation of NCC and submitted a report to the Legal Services Corporation.

B. Preliminary Denial of Refunding

On the basis of the review team’s evaluation and report, LSC notified NCC on January 4, 1984 of its preliminary determination to deny refunding to NCC for the 1984 calendar year under section 1625.3 of LSC’s regulations, which provides that a grantee may be denied refunding when “there has been a significant failure by the recipient to comply with a provision of law or a rule,' regulation, guideline or instruction issued by the Corporation, or a term or condition of a current or prior grant from or contract with the Corporation.” 45 C. F.R. § 1625.3(b). The notification cited seven deficiencies in NCC’s operations as revealed by the October review, generally alleging an extensive pattern of financial abuse by NCC’s Board and personnel, as well as numerous organizational and managerial failings, and the failure to provide the review team access to documents. See Plaintiff’s Memorandum in Support of Motion for Preliminary Injunction, Exhibit 4. Despite the preliminary determination to deny refunding, under the Legal Services Corporation Act and LSC’s own regulations, NCC was entitled to continue receiving interim funding at its 1983 level pending a final determination on the issue. 42 U.S.C. § 2996f(a)(9) (1976); 45 C.F.R. § 1625.15.

C. The Administrative Review Process

On January 13, 1984, NCC notified LSC of its intent to challenge the preliminary determination to deny refunding, and requested an administrative hearing on the matters set forth in the January 4, 1984 notice. In response, LSC appointed Richard S. Gebelein, a former Attorney General for the State of Delaware, who was then in private legal practice but has since been appointed to the Delaware Superior Court bench, to serve as Presiding Officer in this matter. See 45 C.F.R. § 1625.6.

Upon initiation of the administrative review process by the Presiding Officer, NCC asserted its intention to contest all of LSC’s factual bases for the denial of refunding. On March 5, 1984 the parties commenced an administrative hearing before the Presiding Officer, which continued for twenty hearing days, concluding on April 19, 1984. The record of the hearing includes 5000 pages of transcript, including the testimony of sixteen witnesses, as well as 227 separate exhibits. After the conclusion of the hearing and the rendering of the Presiding Officer’s post-hearing ruling on evidentiary matters, the plaintiff sought leave to file two affidavits of its President, Ms. Nelwynne Hollie, which primarily contained information relating to efforts undertaken by NCC to modify, change and improve its own operations after January, 1984, and even after conclusion of the administrative hearing. Over the strenuous objection of LSC, the Hollie affidavits were admitted by Judge Gebelein.

On May 1,1985 Judge Gebelein issued his Opinion and Recommended Decision, setting forth his factual findings and legal conclusions, and reaching his recommendation that NCC be denied refunding. Four of Judge Gebelein’s findings and conclusions supported his recommended decision to deny refunding.

First, the Presiding Officer found that NCC improperly used grant funds over a number of years, and failed to employ proper measures to account for the expenditures of grant funds. Specifically, the Presiding Officer found that NCC spent thousands of dollars to rent automobiles for the personal use of its staff, especially for the personal use of Mr. Veney, NCC Executive Director until 1984. Mr. Veney alone was found to have rented cars for 260 days in 1983 at an expense of $12,000, using the cars primarily for transportation from his Columbia, Maryland home to NCC’s Washington, D.C. headquarters. The Presiding Officer also found that NCC made improper salary advances to its employees for in excess of six years. Likewise, the Recommended Decision found that federal grant funds were used by NCC personnel for private expenses, primarily travel expenses, and that NCC completely lacked an adequate system of recordation and verification of travel expenses. Judge Gebelein concluded that these financial abuses “[a]lone constitute a substantial basis for denying refunding.” (Plaintiffs Memorandum in Support of Motion for Preliminary Injunction, Exhibit 8 [hereinafter “Recommended Decision”], at 10-22; 34-35.)

Second, the Presiding Officer found that NCC had improperly withheld documents from the review team, constituting a “significant failure to comply with a grant condition in that it is a major violation of the ability of LSC to adequately monitor NCC’s compliance with other conditions, law, regulations, etc.” Again, the Presiding Officer found that under the circumstances of the case, this alone was enough to deny refunding. (Recommended Decision at 8-10; 36-37.)

Third, the Presiding Officer found that NCC failed to provide an effective mechanism for input to the Legal Services establishment by clients and client board members and that NCC was not effectively or efficiently using the resources at its disposal to fulfill its function of providing information to local program board members and clients. Specifically, he found that NCC did not maintain adequate mailing lists of its own members and discontinued its regular newsletter purportedly due lack of funds. Furthermore, Judge Gebelein found that NCC failed to serve as a funnel of information from the local program boards and clients council to LSC, and found especially lacking any regular contact between NCC and LSC regional offices. The Presiding Officer found that NCC thereby failed to fulfill one of its primary purposes — “to find out the problems of local board members and present those matters to the Legal Services Corporation Board and regional offices.” Recommended Decision at 37-38. The Presiding Officer concluded that, in light of the additional problems with NCC, this constituted a substantial basis for denying refunding. (Recommended Decision, at 23-25; 37-38.)

Finally, the Presiding Officer concluded that “nothing has become more obvious during this hearing and review of the evidence than that NCC lacked any effective or economical plan for delivery of its specialized services to its clients.” Recommended Decision, at 40. The decision found that NCC persistently failed over a number of years to correct the financial abuses, and generally failed to properly monitor its own activities. Because of this, the decision found that NCC impeded its ability to provide services to the community, providing a substantial basis for the denial of refunding. (Recommended Decision, at 29-30; 40-41.)

D. Final Determination Denying Refunding

NCC subsequently sought review by LSC of Judge Gebelein’s Opinion and Recommended Decision. See 45 C.F.R. § 1625.11. Pursuant to a motion filed by NCC on May 21, 1985, alleging that Acting President of the LSC, Thomas J. Opsut, was biased against NCC by virtue of testimony he had given before Congress, Mr. Opsut recused himself from review of this matter on June 7, 1985. LSC Vice President, Charles W. Jarvis, was appointed to render a final decision in this matter. On July 15, 1985, Jarvis issued a final administrative determination, adopting Judge Gebelein’s Opinion and Recommended Decision, and further finding that LSC was not statutorily required to attempt to resolve difficulties with NCC before denying refunding, but had nevertheless made such efforts unsuccessfully, and that conditional refunding of NCC was not erroneously rejected as an alternative to denying refunding altogether. See Plaintiffs Memorandum in Support of Motion for Preliminary Injunction, Exhibit 9.

With the July 15, 1985 final determination, LSC ceased the interim funding which NCC had received throughout the administrative process, totalling $830,775 at $43,-725 per month for the nineteen months from January 1984 to July 1985.

II. Discussion

The plaintiff has raised essentially five challenges to LSC’s denial of refunding for 1984. First, plaintiff contends that LSC’s final determination on the denial of refunding is improper because LSC failed to first attempt informal reconciliation with NCC. Second, NCC asserts that the burden of proof for denial of refunding hearing embodied in LSC’s regulation, and applied by the Presiding Officer, was unlawful under the 1984 Appropriations Act for the Legal Services Corporation, Public Law No. 98-166, 97 Stat. 1071. Third, NCC alleges that the Presiding Officer’s Recommended Decision improperly failed to address the option of granting NCC conditional refunding rather than denying refunding altogether. Fourth, NCC maintains the Presiding Officer’s determination that NCC failed to correct financial inadequacies is arbitrary and capricious, and unsupported by the evidence on the record. Finally, NCC argues that the Presiding Officer erred, as a matter of law and fact, in concluding that NCC improperly denied the LSC review team access to records.

A. Standard of Review

In considering the standard of review appropriate to this case, the Court-notes that because the Legal Services Corporation is not a department or agency of the federal government, the Administrative Procedure Act, 5 U.S.C. §§ 701-706, is not strictly applicable. See Spokane County Legal Services v. Legal Services Corp., 614 F.2d 662, 669 (9th Cir.1980). Nevertheless, this Court finds that standards of review analogous to those embodied in the APA are appropriate in this case. Accordingly, issues of law or procedure are properly questions for the Court to review de novo. See 5 U.S.C. § 706(2)(C) & (D). With respect to issues involving review of the evidence presented at the administrative hearing, plaintiff contends that the APA’s “substantial evidence” test, applicable to formal agency action under section 706(2)(E) should be applied, as opposed to the arbitrary and capricious test for informal agency action under section 706(2)(A). While this Court concurs that this case is essentially similar to judicial review of formal agency action, the Court notes that the APA’s “substantial evidence” test does not review agency action for a particular quantum of proof, but instead requires the reviewing court to determine only if the record contains “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Universal Camera Corp. v. NLRB, 340 U.S. 474, 477, 71 S.Ct. 456, 459, 95 L.Ed. 456 (1951); see also American Textile Manufacturers Institute, Inc. v. Donovan, 452 U.S. 490, 522-23, 101 S.Ct. 2478, 2497, 69 L.Ed.2d 185 (1981). Consequently, the real consideration for this Court is whether, considering all of the evidence introduced at the hearing, see Universal Camera, 340 U.S. at 487-88, 71 S.Ct. at 463-64, there was a rational basis for the decision rendered. See Spokane City, 614 F.2d at 669; San Juan Legal Services, Inc. v. Legal Services Corp., 655 F.2d 434, 439 (1st Cir.1981). Therefore, although the “arbitrary and capricious” test of the APA is generally applicable to review of informal policy making and rule making actions by agencies, while the “substantial evidence” test is applied to review of formal agency action taken on the basis of record evidence, because both tests ultimately consider the rationality of the underlying decision, this Court finds the language and considerations of both tests applicable to the case at hand. See Spokane City, 614 F.2d at 669 n. 11 (no discernible difference between “rational basis” test and “arbitrary and capricious” standard; “In the eyes of the law an administrative action not supported by evidence or lacking a rational basis is deemed arbitrary and capricious”) (quoting O’Beirne v. Overholser, 193 F.Supp. 652, 656 (D.D.C.1961), rev’d on other grounds, 302 F.2d 852 (D.C.Cir.1961).

B. The Merits

1) Informal Reconciliation

The plaintiff contends that LSC erred in denying refunding to NCC for 1984 without first making efforts to informally resolve the matter. Plaintiff maintains that section 1618.5 of LSC’s own regulations forbids LSC from taking any kind of formal disciplinary action against a grantee unless attempts at informal resolution have been unsuccessful. See 1618.5(a). LSC contends, however, that subsection (b) of section 1618.5 renders that regulation specifically applicable only to suspensions and terminations of funding and therefore inapplicable to a denial of refunding for failures to comply with the LSC A or the particular grant’s conditions. See 45 C.F.R. § 1618.5(b).

This Court need not decide, however, whether section 1618.5 requires informal efforts at reconciliation before LSC may initiate efforts to deny refunding in light of the fact that plaintiff waived this issue by failing to present it to the Presiding Officer. NCC first raised this challenge after the Presiding Officer rendered his Recommended Decision, when the plaintiff appealed that decision for further administrative review by LSC. This Court cannot sanction plaintiff’s effort to pursue a challenge by which it attempts to vitiate the entire nineteen month process before the Presiding Officer, involving considerable expenditure of time, effort and money by all participants, when such issue was not even raised with the Presiding Officer.

Moreover, even if informal reconciliation efforts are required, the record in this matter contains more than adequate evidence than LSC did in fact make such efforts over a number of years. As the Presiding Officer’s Recommended Decision clearly indicates, LSC made repeated requests to NCC from as early as 1978 to correct fiscal management problems, and gave NCC repeated opportunities to do so. The evidence supporting that conclusion was clearly summarized by the Presiding Officer, who stated:

The areas of inadequacies identified to NCC were the lack of any coherent system relating to travel advances, the problems and abuses relating to salary advances, and the lack of any monitoring or system of checks and balances to insure against financial abuse or misuse by employees.
In particular, it is highly significant to note that in spite of 1978 and subsequent warnings and admonitions relating to salary advances to employees, the abuses continued even after the notice of denial of refunding was made in this case some five years after LSC first complained of this problem.
Likewise, in the area of travel advances and checks and balances, repeated references to the inadequacy of the system did not prevent NCC from continuing to follow the same procedures resulting in the ineffective, inefficient and uneconomical expenditure of substantial amounts of grant fundings.

Recommended Decision, at 29.

This Court cannot agree with plaintiff that these efforts by LSC do not amount to attempts at informal reconciliation of perceived problems. Instead, this Court finds that any requirement of informal consultation is satisfied by giving the recipient notice of the perceived deficiencies, and an opportunity to correct them, before initiating adverse action. This record indicates that LSC gave NCC not only an adequate time to correct identified problems, but perhaps an unreasonably excessive amount of time to halt blatantly improper or irresponsible use of federal funds entrusted to LSC and NCC for the benefit of less fortunate members of our society.

2) The Burden of Proof

On November 30, 1983 the Legal Services Corporation published final rules in the Federal Register, which among other things amended the procedural rule previously applicable to the procedures for both the termination of funding and denial of refunding to create separate rules for termination, 45 C.F.R. § 1606, and denial of refunding, 45 C.F.R. § 1625. See 48 Fed. Reg. 54,196 (1983). The old regulation governing both termination and denial of refunding provided that “the Corporation [would] have the obligation of establishing a substantial basis for terminating the grant or contract or denying refunding.” 45 C.F.R. § 1606. Section 1625 was changed by the 1983 amendments to provide that for the denial of refunding:

The Corporation shall have the obligation of proving, by a preponderance of the evidence contained in the record, any disputed fact relied upon by the Corporation as justification for denial of refunding; with respect to all other issues, the recipient shall have the obligation to establish that the Corporation lacked a substantial basis for denying refunding.

45 C.F.R. § 1625.9. In the present case, the Presiding Officer specifically cited this regulation as the applicable standard, and made his findings of fact separate from his determinations as to whether NCC established that the proven facts did not constitute a substantial basis for denying refunding.

The plaintiff contends that LSC’s amendment of the procedures applicable to the denial of refunding violated a presumption of refunding for existing grantees established by the LSCA and the LSC 1984 Appropriations Bill, Pub.L. No. 98-166, 97 Stat. 1071, by shifting the burden of proof from the Corporation onto the grantee, and thereby effectively creating a presumption of refunding.

This Court cannot agree, however, that section 1625.9 as applied to NCC in its amended form placed any burden of proof on NCC. The regulation clearly provides that LSC bore the burden of proving all contested facts by a preponderance of the evidence. The regulation did provide that NCC had the obligation to establish that the facts proven did not provide a sufficient basis for denying refunding. As such, NCC clearly did not bear any burden of proof, but at most a burden of persuasion — to argue more effectively than LSC, and convince the Presiding Officer that the proven facts were not “substantial” enough to deny refunding. Therefore, because the proceeding could not go forward unless the Presiding Officer found that LSC had in fact proven some facts by a preponderance of the evidence, this Court finds that the procedures employed did not in any sense violate any initial presumption of refunding to which NCC may have been entitled.

3) & 4). Financial Abuses and Conditional Refunding

NCC’s third and fourth challenges to the denial of its refunding are so closely related as to merit joint discussion. Essentially, considering both arguments, plaintiff contends that the Presiding Officer’s Recommended Decision is arbitrary and capricious in that it failed even to consider conditional refunding as an alternative to the complete denial of refunding, and, moreover, is arbitrary, capricious and unsupported by the record in failing to grant at least conditional refunding in light of uncontroverted evidence of NCC progress at reforming past inadequacies.

LSC’s denial of refunding regulations expressly authorize the presiding officer to recommend “[gjranting refunding subject to any modification or condition that may appear necessary and appropriate on the information disclosed at the hearing or adduced from the record____” 45 C.F.R. § 1625.10. This Court cannot concur with plaintiff that the absence of an explicit discussion of conditional refunding in the Presiding Officer’s Recommended Decision indicates an arbitrary and capricious failure even to consider the option. Instead, an examination of the history of this case before the Presiding Officer, as well as the Recommended Decision itself, makes evident that conditional refunding was considered by Judge Gebelein and implicitly rejected by his recommendation that refunding of NCC be denied.

After the close of the hearing, the Presiding Officer issued a Preliminary Opinion and Recommended Decision, ruling on a continuing relevance objection that had been made by NCC to LSC’s introduction of evidence of events subsequent to the review team evaluation or the January 4, 1985 preliminary determination to deny refunding. In ruling that the evidence was relevant and admissible Judge Gebelein stated:

While normally this objection would have considerable merit, part of the defense of NCC has been to suggest that the difficulties of the past were primarily the responsibility of the Executive Director who is no longer in that position. LSC argues that NCC’s conduct since the evaluation, the notice of denial of refunding and the resignation of its Executive Director rebuts that defense. In this area, I must agree with LSC’s position. In essence, NCC is arguing that it has rehabilitated its problem area. LSC may meet that argument with any evidence existing to the contrary.

Plaintiff’s Memorandum in Support of Motion for Preliminary Injunction, Exhibit 7, at 14 (footnote omitted).

Likewise, prior to reaching the merits of the case, the Presiding Officer’s Recommended Decision held that two affidavits of Nelwynne Hollie, former President of NCC Board of Directors and now Executive Director of NCC, which recounted efforts by NCC to modify, change and improve its own operation since the evidentiary hearing were relevant and admissible. In doing so, the Presiding Officer indicated that the affidavits were of some value in considering the accountability of the present Board, and NCC’s ability to continue operation in an effective manner.

Judge Gebelein’s evidentiary rulings outlined above, and the discussion of the admitted evidence in his Recommended Decision, clearly indicate that he recognized and considered conditional refunding as an option. Judge Gebelein allowed such evidence to be introduced precisely because it bore on what NCC could be expected to do in the future, not because it in any way refuted or even mitigated wrongs committed in the past. These are considerations at the heart of conditional refunding, as distinguishable from a determination that complete refunding is merited because the charges against the grantee are baseless or insubstantial. Accordingly, this Court finds the Presiding Officer’s consideration of conditional refunding implicit in his overall treatment of the case as well as the discussion of the evidence in his Recommended Decision.

Furthermore, whatever argument plaintiff may have that the Presiding Officer failed to consider conditional refunding, there is no question that the LSC Vice President, Mr. Jarvis, considered and rejected that alternative when NCC appealed the Recommended Decision for LSC’s final decision. See 45 C.F.R. § 1625.11. At that time, Mr. Jarvis had the full record before him for review, and nevertheless concluded that conditional refunding was not merited under the circumstances. At most, plaintiff was entitled to have conditional refunding considered, and it clearly was before LSC reached a final decision on the denial of refunding.

Neither can this Court find that the submission of the affidavits of Nelwynne Hollie attesting to NCC’s post-hearing progress at reform rendered the decision to deny refunding on the basis of financial abuses arbitrary and capricious, or unsupported by substantial evidence. Plaintiff contends that Ms. Hollie’s affidavits were uncontroverted, and thereby constituted the only evidence on the record of NCC’s current status. Even so, this Court cannot find the decision to deny NCC refunding improper. The Recommended Decision conveys the Presiding Officer’s opinion that all efforts at reform made by NCC came too late, and under too much pressure of the threat of lost funding, to provide a reassuring basis for granting refunding, even conditionally. Recommended Decision, at 30, 35. This Court can find no sound basis to second-guess that judgment or label it “arbitrary and capricious.”

At oral argument before this Court NCC also asserted that, in light of LSC’s obligation under the Act to “ensure that ... appropriate training and support services are provided in order to provide ... assistance to ... significant segments of the population of eligible clients,” 42 U.S.C. § 2996f(a)(2)(C)(ii), the decision to deny refunding to NCC despite evidence of its efforts at reform was arbitrary and capricious because NCC is the only existing organization capable of providing such services. In making this argument, NCC relies on the express finding of the Presiding Officer that there is a need for an independent organization, outside of LSC itself, to serve as a conduit of client input into the Legal Services program, and that LSC had failed to establish that any existing organization other than NCC could fulfill this function. Recommended Decision, at 30-31.

However, the Presiding Officer also found that NCC had failed in its mission to provide a conduit of information to local Board members and clients as well as a conduit back to the Legal Services program from those individuals. Recommended Decision, at 23-24. The Presiding Officer found that this failure of NCC to fulfill this function, one of its primary functions, constituted an additional substantial basis for the denial of refunding. Recommended Decision, at 24.

Therefore, although LSC has an obligation to ensure that the services intended to be provided by NCC are in fact provided, this Court cannot conclude that an organization that has been found corrupt and ineffective in the past must be refunded solely on the basis of its own assurances that it will improve simply because no ready alternative has yet been found. Instead, given LSC’s determination that NCC’s assurances and evidence of reform were inadequate, LSC must now find an alternative to actually fulfill the necessary functions, or be prepared to be called to account for its failure to do so in some legislative or judicial proceeding separate from this action.

5) Access to Documents

The plaintiff also challenges, as an error of law and a finding unsupported by the evidence on the record, the Presiding Officer’s conclusion that NCC’s failure to grant the review team access to all requested records constituted a substantial basis to deny refunding.

In seeking access to the documents, LSC relied on Condition 6 of NCC’s grant, by which NCC agreed to

cooperate with all data collection and evaluation activities undertaken by the Corporation and give any authorized representatives of [LSC] ... access to all records, books, papers or documents.

The plaintiff maintains that this grant provision is in excess of LSC’s statutory authority. NCC maintains that under the provisions of the LSCA pertaining to the maintenance and disclosure of records, LSC is entitled only to require grantees to maintain records “with respect to funds provided by grant or contract” and to demand access to those particular documents at “reasonable times.” 42 U.S.C. § 2996g(b).

The defendant argues, however, that its right of access to documents does not derive solely from § 2996g(b)’s right to require certain categories of documents to be maintained and to allow inspection of them, but rather from LSC’s broader right under § 2996f(d) to monitor the activities of grantees, thus encompassing a broader category of documents.

In light of this Court’s affirmance of LSC’s denial of refunding on the independently sufficient grounds of NCC’s financial abuse and mismanagement and its failure to fulfill its primary functions under the grant, this Court need not reach the issue of NCC’s denial of access to documents. Nevertheless, as a matter of law, this Court fully concurs with the Presiding Officer’s conclusion that LSC’s obligation to evaluate and review its grant programs to ensure compliance with the law provides sufficient statutory authority to support the broad right of access to documents set forth in Condition 6 of the grant. “Without reviewing technical assistance and correspondence files, LSC cannot be sure that funds are not or were not being spent for prohibited activities.” Recommended Decision, at 36.

Likewise, this Court cannot accept plaintiff’s contention that, because NCC later agreed to disclose the documents in question, finding the denial of access to the documents a substantial basis for the denial of refunding was arbitrary and capricious. On February 7, 1984 counsel for NCC did in fact submit a proposal to the Presiding Officer for the disclosure of all documents either to LSC, or to the Presiding Officer for in camera review. NCC contends that, in light of this proposal, LSC’s continued reliance on this issue as a basis to deny refunding was arbitrary and capricious, evidencing LSC’s unreasonable desire to deny refunding and refusal to consider informal reconciliation.

However, NCC’s offer came well after the initial request for documents by the review team, and only when NCC was under the threat of losing refunding, a process which its denial of access to the documents could have potentially prevented being initiated. Therefore, this Court cannot conclude that LSC acted arbitrarily and capriciously in pursuing action against NCC for harms that could not be undone by NCC’s later efforts, or that the denial of refunding on this basis is not supported by substantial evidence.

Conclusion

Therefore, for the reasons set forth above this Court finds that the final determination of LSC denying refunding of NCC should be affirmed, and summary judgment granted for the defendant.

      . The President of Legal Services Corporation is also named as a defendant in this action.

      . The LSCA does not explicitly provide for judicial review of final determinations of the Legal Services Corporation. Nevertheless, such judicial review has been recognized as available in the district courts under general federal question jurisdiction, 28 U.S.C. § 1331, in light of the general presumption favoring judicial review, see Abbott Laboratories v. Gardner, 387 U.S. 136, 140, 87 S.Ct. 1507, 1510, 18 L.Ed.2d 681 (1967) ("judicial review of final agency action will not cut off unless there is persuasive reason to believe that such was the purpose of Congress”), and legislative history of the LSCA indicating Congressional presumption that judicial review would be available. See San Juan Legal Services, Inc. v. Legal Services Corp., 655 F.2d 434, 438-39 (1st Cir.1981) (citing H.R.Rep. No. 310, 95th Cong. 1st Sess. 33, reprinted in [1977] U.S. Code Cong. & Ad.News 4503, 4525-26; see also Spokane City Legal Services v. Legal Services Corp., 614 F.2d 662, 666-67 (9th Cir.1980).

      . Despite the plaintiff’s forecast that it will have exhausted its financial resources by August 16, 1985, plaintiff did not seek a temporary restraining order. Instead, plaintiff requested expedited consideration of its motion for a preliminary injunction. At the August 7, 1985 hearing on the motion plaintiff agreed that a ruling from this Court on the merits of this action by August 19, 1985 would be acceptable.

      . The review team was led by Professor Frank E. Booker of the University of Notre Dame School of Law, an experienced clinical educator and poverty lawyer. The review team also included Edward McGuire, James Grey, Jr., Alberto Lopez, Joel Thimell, and Gotindes Singh.

      . A denial of refunding is an administrative decision not to award a new grant to an existing grantee for the coming year, as distinguishable from termination or suspension of funding, both of which involve the cessation of funds during the term of an existing grant. See 45 C.F.R. §§ 1606.2 (termination); 1623.2 (suspension); 1625.2 (denial of refunding).

      . Plaintiff has argued here that LSC failed to initiate informal reconciliation, but instead evidenced a determination from the beginning to deny NCC refunding. At oral argument, however, NCC expressly declined to pursue the argument, rejected by the Presiding Officer, that LSC’s actions in attempting to deny refunding to NCC were the product of political bias. Recommended Decision at 31.

      . See, supra footnote 5 (distinguishing termination of funding, suspension of funding, and denial of refunding).

      . Contrary to the plaintiffs position that the 1984 Appropriations Act created a presumption of refunding for grantees, LSC maintains that Congress itself intended to shift the entire burden of proof in denial of refunding proceedings to the grantee, requiring the grantee to "show cause” why the proposed administrative action should not be taken. See Pub.L. No. 98-166, 97 Stat. 1071 (1983). Accordingly, after passage of the 1984 Appropriations Act, but also after NCC’s process of administrative hearings commenced, LSC again amended its regulations, this time to shift the entire burden of proof to the grant recipient. See 49 Fed.Reg. 2924 (1984). In light of this Court’s holding above and the application of the earlier regulation to NCC, this Court need not determine whether a grant recipient is entitled to a presumption of refunding which is violated by placing the burden of proof on it.

      . Mr. Jarvis' conclusion on the issue is clearly the important question since, had the Presiding Officer recommended conditional refunding, LSC would have had the right to appeal that decision in order to obtain a contrary final determination. See 45 C.F.R. § 1625.11(a).


source: Caselaw Access Project

author: MUNSON, Chief Judge.

license: Public Domain

text:
    Archie H. CHAMBERLAIN, Plaintiff, v. Rodney J. KRYSZTOF and Marshall P. Cappelli, Defendants.
    No. 84-CV-1520.
    United States District Court, N.D. New York.
    Aug. 19, 1985.
    As Amended Aug. 20, 1985.

      Archie H. Chamberlain, plaintiff, pro se. Frederick J. Scullin, Jr., U.S. Atty., Paula Ryan Conan, Asst. U.S. Atty., N.D. of N.Y., Sycracuse, N.Y., for defendants.
    Kenneth C. Brown, Trial Atty., Tax Div., U.S. Dept, of Justice, Washington, D.C.
   MEMORANDUM-DECISION AND ORDER

MUNSON, Chief Judge.

Plaintiff commenced this action pro se alleging that he was deprived of his civil rights by the withholding of income taxes by his employer. Plaintiff bases his claim on 42 U.S.C. §§ 1983, 1985 and 1986, asserting that defendants Krysztof and Cappelli, two Internal Revenue Service [“IRS”] employees, conspired with plaintiff’s employer to unlawfully withhold income taxes from his weekly paycheck. Plaintiff also appears to assert a cause of action directly under the Constitution and the Federal Tort Claims Act. Plaintiff argues that he is not an “employee” within the meaning of I.R.C. § 3401(c) which defendants have refused to recognize despite his submission of federal statutes to support his legal position. Plaintiff seeks injunctive relief and monetary damages and has moved to disqualify the United States Attorney from representing the individual IRS employees. Defendants have moved to dismiss the complaint or in the alternative, for summary judgment. For the reasons which follow, plaintiff’s motions to disqualify defendants’ attorneys and for a temporary restraining order are denied, and defendants’ motion for summary judgment is granted. Background

Plaintiff submitted a W-4 Employee’s Withholding Allowance Certificate [“W-4 Form”], dated October 26, 1983, to his employer indicating that he was “exempt” from withholding taxes. The IRS sent plaintiff a letter dated March 6, 1984 informing plaintiff that the IRS was reviewing plaintiff’s W-4 Form and that the plaintiff had 15 days to either withdraw his W-4 Form or furnish the IRS with more information justifying his claimed “exempt” status. Otherwise, the letter stated, the IRS would notify plaintiff’s employer to withhold taxes as if plaintiff were single with one withholding allowance, pursuant to Treasury Reg. § 31.3402(f)(2)-l(g)(ii) and (iii). The letter also stated that I.R.C. § 6682 provides for a $500 penalty for false statements with regard to withholding. Defendant Cappelli’s name appears at the end of the letter as District Director of the Buffalo District of the IRS. Defendant Krysztof’s name appears at the beginning of the letter as the person the plaintiff should contact if the plaintiff had any questions regarding the matter referred to in the letter. Enclosed with the letter from the IRS was a Questionnaire to Determine Exemption from Withholding (Form 6450) for Tax Year 1983 which plaintiff was asked to complete to provide this requested information. Plaintiff responded by letter dated March 24, 1984 and returned the Questionnaire essentially unanswered. He states in his letter that he “can not for any purpose go through this again as the results will be the same” as for the Tax Year 1981 in which he states the penalty was assessed and then abated by the IRS.

The IRS sent plaintiff a notice dated May 1. 1984 that he would be assessed the $500 civil penalty pursuant to I.R.C. § 6682 for false withholding information for the Tax Year 1983. On the same date the IRS sent a notice to plaintiffs employer directing the employer to disregard plaintiffs submitted W-4 Form and directing the employer to withhold taxes as if the plaintiff were single and claiming one withholding allowance. The IRS sent plaintiff a letter dated May 4, 1984 in response to plaintiffs March 24, 1984 letter explaining that he is entitled to exemption from Federal income tax withholding in 1983 only if in 1982 he did not owe any Federal income tax and had a right to a full refund of all income tax withheld and if he did not expect to owe any Federal income tax and/or expected a full refund of all income tax withheld in 1983. The letter stated that the information supplied by plaintiff in the Questionnaire was insufficient to establish his exemption from withholding tax in 1983. The letter goes on to explain the statutory requirement of withholding tax and the provisions authorizing the IRS to direct an employer to withhold taxes in disregard of an employer’s submitted W-4 Form which claims exemption. The letter further sets out the constitutional and statutory authority for taxation of earned income.

Plaintiff wrote back on May 9, 1984 challenging the IRS’ position as “harassment” and repeating his assertion that he is not an “employee” under the I.R.C. He wrote again on May 14, 1984 as a self-styled “formal appeal” of the assessment of the $500 civil penalty and requesting a hearing on the IRS’ determination that he filed false statements with regard to his W-4 form. In response to these two letters from plaintiff, defendant Kryzstof wrote to plaintiff on May 22, 1984 and denied plaintiff’s request for a hearing. Kryzstof stated that appeal procedures do not apply to cases such as his which involve “solely the failure or refusal to comply with the tax laws because of moral, religious, political, constitutional, conscientious, or similar grounds.” This letter informed plaintiff that he may file a claim for a refund after paying the penalty. Plaintiff replied to this letter on August 28, 1984 again asserting that he was not an employee subject to withholding taxes. Plaintiff filed a complaint in this Court on October 30, 1984 claiming civil rights violations due to the IRS’ subjecting him to withholding of income taxes as an “employee.”

Discussion

Although plaintiff sued defendants in their individual capacity, the facts of this case indicate that defendants were acting solely within their official duties as IRS employees in applying the withholding tax to the plaintiff. Therefore the United States Attorney is properly representing defendants in this action; plaintiffs motion to disqualify defendants’ attorneys is denied.

Plaintiff has moved for a temporary restraining order; it appears that he seeks a court order to stop continuing correspondence from the defendants pending final resolution of his lawsuit. At oral arguments on the motions the court reserved decision on this and all other motions; this request is now denied. In support of his motion plaintiff references two attached letters from the IRS. One letter dated January 7,1985 informs plaintiff that the $500 penalty assessed for filing a false withholding form in 1982 had been erroneously abated and was being re-assessed. A second letter, signed by defendant Kryzstof dated December 10,1984 is in response to plaintiff’s request for plaintiff’s 1984 income tax assessment; the letter from the IRS states that this request is premature. Plaintiff’s request as it relates to efforts by the IRS to collect taxes and assess penalties under I.R.C. § 6682 is barred by the Tax Anti-Injunction Act, 26 U.S.C. § 7421(a). Frasier v. Hegeman, 607 F.Supp. 318, 323 (N.D.N.Y.1985); Riley v. Commissioner, 566 F.Supp. 21 (S.D.Ohio 1983). This jurisdictional bar applies to actions for injunctive relief which are combined with a claim that an individual’s constitutional rights were violated and jurisdiction is alleged under 28 U.S.C. § 1343. Black v. United States, 388 F.Supp. 805, 808 (E.D.N.Y.1975), aff'd 534 F.2d 524 (2d Cir.1976). To the extent plaintiff’s request for a temporary restraining order is reasonably interpreted to restrain defendants from either collecting withholding taxes from his employer or assessing a penalty under I.R.C. § 6682 for filing false withholding forms, this request is denied pursuant to Rule 12(b)(1), Fed.R.Civ.P.

Plaintiff’s complaint and claim for monetary damages under 42 U.S.C. § 1983, 1985 and 1986 must be dismissed. Absent allegations of any action by IRS employees that they have acted under color of state law, plaintiff's cause of action under § 1983 is dismissed under Rule 12(b)(6). See Campbell v. Amax Coal Co., 610 F.2d 701 (10th Cir.1979) (IRS employees acting within the scope of their employment are not acting under color of state law); Frasier, 607 F.Supp. at 323-24. Plaintiff alleges that the defendants have conspired to take plaintiff’s weekly wages by withholding income taxes. Private actors can be held liable under § 1985 only where these actions cause some injury to a person or property or result in a deprivation of some right or privilege. Griffin v. Breckenridge, 403 U.S. 88, 103, 91 S.Ct. 1790, 1798, 29 L.Ed.2d 338 (1971). Also necessary to state a claim under § 1985 is an allegation of racial or other class-based animus. Campbell, 610 F.2d at 702; Atkins v. Lanning, 556 F.2d 485 (10th Cir.1977). Federal tax withholding does not result in the taking of property without due process. Campbell, 610 F.2d at 702; United States v. Smith, 484 F.2d 8 (10th Cir.1973), cert. denied, 415 U.S. 978, 94 S.Ct. 1566, 39 L.Ed.2d 874 (1974). Plaintiffs complaint fails to allege a class-based animus. Therefore plaintiff’s claim under § 1985 is dismissed under Rule 12(b)(6). Because the claim under § 1985 is deficient, plaintiff presents no valid claim under § 1986 of neglect to prevent a known conspiracy. Dacey v. Dorsey, 568 F.2d 275, 277 (2d Cir.1978); Campbell, 610 F.2d at 702; Hamilton v. Chaffin, 506 F.2d 904 (5th Cir.1975).

Plaintiff’s complaint appears to be addressed primarily to the constitutionality of the withholding tax provision of the I.R.C. as applied to him. To the extent, however, that he seeks to challenge the civil penalties assessed against him under I.R.C. § 6682 for filing false W-4 forms, he has failed to follow the statutory procedures for contesting this. It is a jurisdictional prerequisite for maintaining a court action challenging the imposition of a civil penalty that a taxpayer first pay the penalty, file a claim for a refund and have the claim disallowed. I.R.C. § 7422(a). See e.g., Kadah v. United States, 534 F.Supp. 469, 471-72 (N.D.N.Y.1982). Plaintiff has not alleged that he has followed this procedure nor does the record indicate that he has done so. Therefore plaintiff’s challenge to the IRS’ imposition of the civil penalty for filing false withholding forms is dismissed under Rule 12(b)(1).

Plaintiff’s claim for monetary damages under the Federal Tort Claims Act, 28 U.S.C. § 2671 et seq., is also deficient. The Act explicitly retains sovereign immunity for claims arising “in respect of any tax ...” 28 U.S.C. § 2680(c). Akers v. United States, 539 F.Supp. 831, 833 (D.Conn.1982), aff'd without opinion 718 F.2d 1084 (2d Cir.1983). Therefore this court lacks subject matter jurisdiction over plaintiff’s claim under the Federal Tort Claims Act.

The gravaman of plaintiff's complaint is that he is not an employee subject to withholding taxes under IRC § 3401(c). The chapter of the Internal Revenue Code providing for income tax withholding by an employer of an employee’s wages, Chapter 24, I.R.C. §§ 3401-04, contains the following definition of “employee”:

(c) Employee. — For purposes of this chapter, the term “employee” includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term “employee” also includes an officer of a corporation.

I.R.C. § 3401(c). Plaintiff apparently bases his position on a strict interpretation of the statutory language of § 3401(c) which does not on its face include all persons who earn wages from an employer. However, the chapter provides for income tax withholding of “wages” earned by an employee. “Wages” in turn are defined as “all remuneration ... for services performed by an employee for his employer ...” I.R.C. § 3401(a).

Plaintiff’s literal reading of the definition of employee is illogical in the context of the chapter providing for collection of income tax at its source, I.R.C. chapter 24. The chapter provides for withholding of wages by an employer; if almost all persons who earn wages were excluded form this provision as plaintiff would maintain, the withholding provision would not operate as apparently intended by Congress. Courts must occasionally look beyond the literal language of a statute to give effect to the overall legislative scheme which Congress intended to establish. Here where Congress provided a mechanism by which an employer is to withhold wages from an employee’s paycheck as a means for the IRS to collect income taxes at the source, the definition of employee must logically be read to include more than those wage earners who fall within the limited definition of § 3401(c). The definition should not be read as exclusive, but rather as indicative of Congress’ intent that those persons so designated in § 3401(c) would be subject to the income tax withholding provision in the same manner as all other employees. The definition of “employee”, contrary to the interpretation urged by plaintiff, is more properly read to include all those persons with the “status of employee under the usual common law rules applicable in determining the employer-employee relationship.” Marvel v. United States, 719 F.2d 1507, 1514 (10th Cir. 1983) (distinguishing “employee” from “independent contractor”).

Plaintiff has attempted to convince the IRS that he does not fall within the definition of “employee” and by this action apparently seeks a declaratory judgment that as applied to him the income withholding provision is unconstitutional. He does not dispute that he earns “wages” from an “employer.” Wages are income, Connor v. Commissioner, 770 F.2d 17, 20 (2d Cir. 1985) (per curiam); the federal income tax on wages is constitutional, id.; Ficalora v. Commissioner, 751 F.2d 85 (2d Cir.1984), cert. denied, — U.S.-, 105 S.Ct. 1869, 85 L.Ed.2d 162 (1985). Defendants are entitled to summary judgment on the issue of the constitutionality of the IRS subjecting plaintiff to the income tax withholding provisions of chapter 24 of the Internal Revenue Code.

For the foregoing reasons summary judgment is granted to defendants on the issue of the constitutionality of the federal withholding provision as applied to an “employee” earning “wages” from an “employer.” The complaint is hereby dismissed.

Defendants’ motion for an award of attorneys fees is denied.

      . Plaintiff appears to attempt to "clarify” his legal claims asserted in his complaint in his “Brief in Support of Plaintiff’s Oppositin of Defendants’ Answer and Submit Counterclaim for Summary Judgment for the Plaintiff.” Liberally construing the pleading requirements in favor of this pro se plaintiff, see Haines v. Kerner, 404 U.S. 519, 520-21, 92 S.Ct. 594, 595-96, 30 L.Ed.2d 652 (1972), this Court will treat the legal bases asserted in this Brief as supplementing plaintiff’s complaint.

      . The questionnaire calls for information with respect to Tax Year 1983. Part 1 covers exemption from withholding based on a vow of poverty for Tax Year 1982. Part 2 calls for information relating to Tax Year 1982. Plaintiff filled in his name and Social Security number and in response to requested information on his reported total income and total taxes wrote "Refund expected and N/A”.

      . The Court notes the decision submitted by plaintiff, Bothke v. Fluor Engineers & Constructors, Inc., 713 F.2d 1405 (9th Cir.1983), which denied an absolute immunity to IRS employees. However, this case is not dispositive of the issues presented in the case sub judice. In Bothke, the taxpayer sued an IRS employee for constitutional violations after the defendant attached plaintiffs wages to collect a delinquent tax assessment. The Court held that only a qualified immunity was available to the IRS employee.
      The case sub judice, however, is not founded upon the defendant’s failure to follow statutorily prescribed safeguards as was Bothke. Rather plaintiff attacks the application of the federal withholding provision in the Internal Revenue Code to him; i.e., plaintiff alleges that the defendants, rather than circumventing the tax laws (as in Bothke) were following the law. Plaintiff argues that the law applied by defendants is unconstitutional.
      It is not necessary for this Court to decide the issue of whether the two individual defendant IRS employees enjoy immunity from this suit for damages in light of this court’s holding that plaintiff was not deprived of his constitutional rights. The “employee" provision applies to him; defendant’s application of this statutory provision to direct plaintiff’s employer to withhold an amount of income from his paycheck in compliance with this tax law is proper and not in derogation of plaintiff’s constitutional rights. Accordingly, plaintiff has no legal basis for a lawsuit against the defendant IRS employees in the case sub judice and there is no need to resolve the issue of whether they would be immune from suit if plaintiff did have a cognizeable legal claim against them.
      This case submitted by plaintiff has no bearing on the issue of the propriety of the United States Attorney's continued representation of the defendants.
      The Internal Revenue Code provides that suits to recover taxes paid or penalties assessed in which the taxpayer sues government employees shall be conformed by the court into a suit against the government. I.R.C. § 7422(f)(2). Though plaintiff would presumably argue that his suit does not fall within this provision by virtue of his allegations that defendants acted unconstitutionally in applying I.R.C. § 3401(c) to him, he has made no allegations that defendants acted other than according to I.R.C. procedures and in this suit appears to attack the constitutionality of the statute. Therefore the suit against the individual IRS employees is properly construed as one against the IRS which the United States Attorney may properly defend.

      . "Employer" is defined in the subsection immediately following the subsection which defines "employee" as follows:
      (d) — For purposes of this chapter, the term “employer” means the person for whom an individual performs or performed any service, of whatever nature, as the employee of such person, except that—
      (1) if the person for whom the individual performs or performed the services does not have control of the payment of the wages for such services, the term "employer” (except for purposes of subsection (a)) means the person having control of the payment of such wages,
      I.R.C. § 3401(d).

      . But cf. Friends of the Earth v. Consolidated Rail Corp., 768 F.2d 57, 62 (2d Cir.1985.) (Second Circuit reads "action in a court” in Clean Water Act, 33 U.S.C. § 505(b)(1)(B), literally to not include administrative enforcement action as functional equivalent of court action which statute provides would preclude citizens’ suit.)


author: RAYMOND J. BRODERICK, District Judge.

text:
    Scott DORFMAN, a minor, by his parents and natural guardians, Jerry A. DORFMAN and Abbe L. Dorfman, and Jerry A. Dorfman and Abbe L. Dorfman, in their own right v. E.R. SQUIBB & SONS, INC.
    Civ. A. No. 85-4316.
    United States District Court, E.D. Pennsylvania.
    Aug. 21, 1985.

      Stephen M. Feldman, Philadelphia, Pa., for plaintiffs.
    David J. Griffith, Harvey, Pennington, Herting & Renneisen, Philadelphia, Pa., for defendants.
   MEMORANDUM

RAYMOND J. BRODERICK, District Judge.

This action originally was filed in the Court of Common Pleas of Philadelphia County on May 11,1983. The plaintiffs are Scott Dorfman, a minor child, and his parents, Jerry and Abbe Dorfman. The complaint alleges that Scott Dorfman was born prematurely on August 9, 1981, and that the premature birth caused brain damage, mental retardation, and cerebral palsy. The defendants named in the complaint are E.R. Squibb and Sons, Inc. (Squibb) and four obstetricians named individually and as members of their professional corporation (hereinafter referred to collectively as “the obstetricians”). The complaint alleges that in 1955 plaintiff Abbe Dorfman’s mother, Elenor Gross, ingested the drug Diethylstibestrol (D.E.S.) while pregnant with Abbe; that Abbe was exposed to D.E.S. in útero; and that as a result of that exposure Abbe developed certain abnormalities in her reproductive system which created a substantial danger of premature delivery in the event Abbe became pregnant. The first cause of action (on behalf of Scott Dorfman) alleges that the obstetrician defendants were negligent in their care of Abbe Dorfman during her pregnancy in 1981 in that they knew or should have known that Abbe’s mother had ingested D.E.S. while pregnant with Abbe; that they failed to determine the nature and extent of the abnormalities in the reproductive system of Abbe Dorfman caused by her exposure to D.E.S.; that they failed to properly treat Abbe to prevent premature delivery of her baby; that they failed to advise Abbe with regard to restrictions on her activity during her pregnancy; and that they failed to properly deliver Scott Dorfman. The second and third causes of action are brought by Scott’s parents, in their own right, for injuries and damages arising from the obstetricians’ alleged negligence with respect to the care of Abbe Dorfman and the delivery of Scott Dorfman in 1981.

The fourth, fifth, and sixth causes of action are brought by Scott Dorfman (and by his parents in their own right) against defendant Squibb, alleging that Squibb is liable (under theories of strict liability and negligence) for the premature birth of Scott Dorfman (and the plaintiffs’ resultant injuries and damages) as a result of Squibb’s manufacture and distribution of the D.E.S. which was ingested by Abbe Dorfman's mother in 1955.

As noted above, this action was filed in the Court of Common Pleas in 1983. Trial eventually was scheduled for September 30, 1985 before the Honorable Leon Katz. On May 20, 1985, counsel for the defendant obstetricians filed a motion for summary judgment in the Court of Common Pleas grounded upon the plaintiffs’ inability to produce any expert evidence with respect to their malpractice claims against the obstetricians. In a letter to the Clerk of the Common Pleas Motion Court dated June 7, 1985, counsel for plaintiffs stated he would not be filing a response to the defendant-obstetricians’ motion for summary judgment. In an order dated June 24, 1985, Judge Katz granted the obstetricians’ motion for summary judgment and entered judgment in their favor.

On July 24, 1985, defendant Squibb — the sole remaining defendant — filed a petition for removal to this Court, alleging diversity of citizenship between Squibb and the plaintiffs, and alleging that the petition was timely in that it was filed within thirty days after it could “first be ascertained” that the case had “become removable” pursuant to 28 U.S.C. § 1446(b) (i.e., thirty days after judgment was entered in favor of the non-diverse defendant obstetricians). The plaintiffs have filed a motion to remand this case to the Court of Common Pleas. The plaintiffs contend that the case was improvidently removed in that, inter alia, the petition for removal is deficient in failing to allege the citizenship of the parties at the time of the commencement of the suit, and that the petition is untimely because the claims set forth in the complaint against Squibb are “separate and independent” from the claims set forth in the complaint against the obstetricians {see 28 U.S.C. § 1441(c)), and that therefore Squibb should have filed its removal petition within thirty days after service of the complaint in May of 1983. For the reasons set forth below this Court has determined that this action was improvidently removed, and accordingly the plaintiffs’ motion to remand will be granted and this case will be remanded to the Court of Common Pleas of Philadelphia County.

Subsection (b) of 28 U.S.C. § 1446 states as follows:

The petition for removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within thirty days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required to be served on the defendant, whichever period is shorter.
If the case stated by the initial pleading is not removable, a petition for removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.

28 U.S.C. § 1441(c) provides:

(c) Whenever a separate and independent claim or cause of action, which would be removable if sued upon alone, is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters not otherwise within its original jurisdiction.

In the present case the defendant filed its petition for removal on July 24, 1985, alleging jurisdiction on the basis of diversity of citizenship between itself and the plaintiffs. At the outset, the plaintiff contends that the removal petition is deficient because it fails to allege the citizenship of the parties at the time of the commencement of the suit in the state court. The burden is on the defendant to show that diversity of citizenship existed between itself and the plaintiffs at the time of the commencement of the action in the state court and at the time of the filing of the petition for removal. Kerstetter v. Ohio Casualty Insurance Co., 496 F.Supp. 1305, 1307 (E.D.Pa.1980). In this case the petition for removal fails to allege that diversity of citizenship existed between Squibb and the plaintiffs at the time the suit was commenced. However, assuming that diversity did exist between Squibb and the plaintiffs at the time the suit was filed, and assuming (without deciding) that the defect in the removal petition could be cured, the Court nevertheless will remand this action because it has determined that the petition was not timely filed.

As noted above, the plaintiff contends that the cause of action against Squibb was “separate and independent,” on the face of the complaint, from the cause of action against the defendant obstetricians; that under 28 U.S.C. § 1441(c) the case was “removable” by Squibb at the time it was filed in the state court; and that because Squibb failed to file its petition for removal within thirty days after service of the complaint, its petition was not timely filed. Thus the issue (with respect to this contention of the plaintiffs) is whether or not the complaint sets forth a “separate and independent claim or cause of action” against Squibb, which would “be removable if sued upon alone,” within the meaning of Section 1441(c). If so, the case was “removable” by Squibb at the time the complaint was served, and Squibb’s removal petition was not timely filed.

In 1951 the Supreme Court examined the then-recently amended Section 1441(c) and determined that the 1948 change in language from “separable controversy” to the present “separate and independent claim or cause of action” evidenced a Congressional intent to restrict removal. American Fire and Casualty Co. v. Finn, 341 U.S. 6, 12, 71 S.Ct. 534, 539, 95 L.Ed. 702 (1951). In Finn, the plaintiff, a Texan, sued two nonresident insurance companies and their Texas agent, alleging alternative claims for recovery for a fire loss, i.e., that one or the other insurer had issued policies or that the agent was liable for failing to insure plaintiffs property. The non-resident defendants removed the case to federal court pursuant to Section 1441(c). The Supreme Court, in attempting to define the “separate and independent” concept, held that the case had been removed improperly because the claims against the removing defendants were not “separate and independent”:

[W]e conclude that where there is a single wrong to plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent cause of action under § 1441(c).

Finn, 341 U.S. at 14, 71 S.Ct. at 540 (footnote omitted). The Court noted that the allegations against the non-diverse defendant “involve substantially the same facts and transactions as do the allegations against the [diverse defendants],” and emphasized that “the damage comes from a single incident.” Id., 341 U.S. at 16, 71 S.Ct. at 541.

The general effect of the Finn decision has been to restrict removal sought under the “separate and independent claim” provision of § 1441(c), particularly where jurisdiction is founded upon diversity of citizenship. See 14A C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure, § 3724, at 370 (2d ed. 1985); 1A J. Moore & B. Ringle, Moore's Federal Practice, ¶ 0.163 [4. — 5—1], at 340 (2d ed. 1983); see also American Mutual Liability Insurance Co. v. Flintkote Co., 565 F.Supp. 843, 848 n. 4 (S.D.N.Y.1983) (collecting cases). However, claims against different defendants may be “separate and independent” where they involve “completely different questions of fact and substantially different questions of law.” New England Concrete Pipe v. D/C Systems, 658 F.2d 867, 873 (1st Cir.1981), citing Climax Chemical Co, v. C.F. Braun & Co., 370 F.2d 616 (10th Cir.1966), cert. denied 386 U.S. 981, 87 S.Ct. 1287, 18 L.Ed.2d 231 (1967). As Professor Moore points out, where

“two or more defendants act individually in such a manner that each has invaded a separate right of the plaintiff ... the plaintiff has multiple claims against the several defendants individually; and although plaintiff joins defendants in one action ... the claims are separate and independent within the meaning of § 1441(c).”

1A Moore’s Federal Practice, supra, ¶ 0.163 [4.-5], at 333.

In Lemke v. St. Margaret Hospital, et al., 552 F.Supp. 833 (N.D.Ill.1982), the plaintiff, an Illinois citizen, alleged in a state court action that the defendants — an Illinois school district and high school, an Indiana physician, and an Indiana hospital — caused the injury and death of her son. The son was injured while attending the high school, and died after receiving medical care from the defendant physician and hospital. The non-resident defendants removed the case to federal court. The district court reasoned that a determination as to whether the claims against the defendants were separate and independent should involve consideration of whether a plaintiff is “seeking to vindicate different rights against different defendants” and whether “the causes of action are based upon facts that are spatially and chronologically distinct.” Lemke, 552 F.Supp. at 840. The court concluded that in her complaint against the school district the plaintiff sought to vindicate the decedent’s right to attend school in a safe environment, that the complaint against the physician and hospital for malpractice involved a breach of their duty to render proper medical care, and that since the causes of action involved “different defendants charged with violating different rights,” the claims were “separate and independent” under Section 1441(c). 552 F.Supp. at 840-41.

In accordance with the decision in Lemke is the holding in Leinberger v. Webster, 66 F.R.D. 28, 31 (E.D.N.Y.1975), where the court held that a malpractice claim against a non-resident physician for negligent treatment of injuries sustained in an automobile accident, was “separate and independent” within the meaning of Section 1441(c) from the plaintiff’s claim against the (non-diverse) owner and operator of the vehicle which allegedly caused her original injuries.

Two other decisions involving factually similar but distinguishable situations should be noted. In Luebbe v. Presbyterian Hospital, 526 F.Supp. 1162 (S.D.N. Y.1981), a defendant surgeon who had been sued for malpractice by the plaintiff filed a third-party complaint against the non-resident manufacturer of a surgical instrument used in the operation at issue, contending that the allegedly defective instrument caused the plaintiff’s injuries. The court held that the third-party claim against the manufacturer was not separate and independent from the plaintiff’s malpractice action against the surgeon, noting that “detailed evidence about the surgical procedure performed on plaintiff will necessarily lie at the core of both issues.” 526 F.Supp. at 1165. Finally, in Bowerman v. Tomhave, 414 F.Supp. 7 (E.D.Pa.1975), the court held that a products liability claim against the non-resident manufacturer of an intrauterine device and a malpractice claim against the physician who inserted the device were not separate and independent because the claims (set forth in a single count) alleged that the plaintiff’s injuries were caused by the manufacturer, or the physician, or both. 414 F.Supp. at 9.

In determining whether the plaintiff has stated separate and independent claims against the defendants, the allegations in the complaint are controlling. Pullman Co. v. Jenkins, 305 U.S. 534, 537, 59 S.Ct. 347, 348, 83 L.Ed. 334 (1939). In the present case the complaint clearly alleges causes of action against the defendants which are based upon “spatially and chronologically distinct facts” and which seek to “vindicate different rights against different defendants.” Lemke v. St. Mar garet Hospital, supra, 552 F.Supp. at 840. The complaint against Squibb alleges that it manufactured and distributed a defective drug in 1955 which was ingested by plaintiff Abbe Dorfman’s mother, and which was a proximate cause of the injuries sustained by plaintiff Scott Dorfman at birth. The complaint against the defendant obstetricians, on the other hand, alleges that those defendants were negligent in that, given the alleged abnormalities in Abbe Dorfman’s reproductive system, they failed to provide reasonable medical care during her pregnancy in 1981. Although, as the defendant points out, the injuries sustained by the plaintiffs as a result of the defendants’ alleged conduct are the same, in fact the complaint alleges entirely distinct causes of action against the defendants: the claim against Squibb involves the manufacture and distribution of D.E.S. in 1955, and the claim against the defendant-obstetricians involves the adequacy of the medical care which they rendered during Abbe Dorfman’s pregnancy more than twenty-five years after the alleged torts committed by defendant Squibb. Clearly the complaint has set forth separate and independent claims against the defendants. In this case, in contrast to the situation presented to the Supreme Court in American Fire & Casualty Co. v. Finn, the “damage” may not have “come from a single incident,” and the allegations against Squibb do not “involve substantially the same facts and transactions” as do the allegations against the defendant obstetricians. See Finn, supra, 341 U.S. at 16, 71 S.Ct. at 541. Moreover, this is not a case where the facts underlying the products liability claim and the medical malpractice claim are inextricably intertwined in a single incident involving the defendant physician’s use of the defendant manufacturer’s product, as in Bowerman v. Tomhave, supra, 414 F.Supp. 7 (E.D.Pa.1975).

For all of these reasons this Court has determined that the complaint states a separate and independent cause of action against defendant Squibb within the meaning of 28 U.S.C. § 1441(c). Accordingly, the case was “removable” by defendant Squibb at the time the complaint was served in May of 1983, and Squibb’s removal petition, filed in July of 1985, is therefore untimely.

It is well-settled that the removal statutes are to be construed strictly against removal and in favor of remand. Shamrock Oil Corp. v. Sheets, 313 U.S. 100, 108-09, 61 S.Ct. 868, 872, 85 L.Ed. 1214 (1941); Abels v. State Farm Fire & Casualty Co., 770 F.2d 26, 29 (3d Cir.1985). On a motion to remand the burden is upon the defendant to establish that the case was properly removed to the federal court. Jones v. General Tire & Rubber Co., 541 F.2d 660 (7th Cir.1976); Davis v. Baer, 599 F.Supp. 776, 779 (E.D.Pa.1984); 1A Moore’s Federal Practice, supra, ¶ 0.168[4.-1], at 647. For the reasons set forth above this Court has determined that this action was not removed within the thirty day period provided for in 28 U.S.C. § 1446(b). Accordingly, an order will be entered remanding this case to the Court of Common Pleas of Philadelphia County.


author: BARRINGTON D. PARKER, District Judge.

text:
    AMDAHL CORPORATION, Plaintiff, v. Malcolm BALDRIGE, et al., Defendants.
    Civ. A. No. 85-0676.
    United States District Court, District of Columbia.
    Aug. 22, 1985.

      Edward Dolan, Joseph J. D’Erasmo, Rockville, Md., Shelton H. Skolnick, Regional Counsel, Amdahl Corp., Washington, D.C., for the plaintiff.
    George P. Williams, Asst. U.S. Atty., Jerry A. Walz, U.S. Dept, of Commerce, Office of Gen. Counsel, Washington, D.C., for Malcolm Baldrige.
    D. Michael Fitzhugh, Michael T. Janik, McKenna, Conner & Cuneo, Washington, D.C., for Planning Research Corp.
    Mark E. Newell, Latham, Watkins & Hills, Washington, D.C., for ViON Corp.
   MEMORANDUM

BARRINGTON D. PARKER, District Judge.

The plaintiff, Amdahl Corporation, as a disappointed bidder, seeks declaratory and injunctive relief and damages, arising from the denial of an award of a subcontract. The prime contract involved a government procurement transaction. The defendants are the United States Department of Commerce (“DOC”), certain federal officials, and non-federal defendants, Planning Research Corporation (“PRC”) and ViON Corporation (“ViON”). The defendants have filed a motion for summary judgment on the grounds that the plaintiff does not have standing to sue and that, therefore, this Court lacks subject matter jurisdiction. On March 27, 1985, the Court heard arguments from the parties on the motion. At that hearing the plaintiff requested, and the Court granted, limited discovery on the standing issue. On the completion of such discovery, the parties submitted additional memoranda of points and authorities. The matter has been fully briefed and considered. For the reasons stated below, the Court determines that the plaintiff lacks standing and that summary judgment should be granted in favor of the defendants.

FACTS

In April 1984, the Department of Commerce awarded a contract to defendant PRC for development and installation of an automated data processing system in the United States Patent and Trademark Office (“PTO”). The overall purpose of the contract was to provide automated data processing equipment and equipment maintenance services to the patent applications process. The requirements of the contract necessitated that the prime contractor, PRC, subcontract in some areas in order to fulfill its contractual obligations. On August 14, 1984, PRC issued a solicitation (“RFP”) to acquire computer software and hardware. The subcontract was awarded to defendant ViON in December, 1984. Amdahl submitted a proposal for the subcontract which was not accepted.

Amdahl then filed a complaint to enjoin performance of the subcontract alleging that certain mandatory specifications dealing with software compatibility set forth in the RFP could not be met by ViON. The plaintiff alleges that the subcontract was awarded in a manner inconsistent with federal procurement regulations.

The original solicitation for the prime contract contains provisions which require that Federal Procurements Regulations be adhered to when the prime contractor subcontracted for components. Plaintiff’s Opposition to Motion for Summary Judgment at Exhibits 2, 3. In its management plan submitted with its proposal for award of the prime contract, PRC agreed to abide by such Regulations in awarding subcontracts and such a provision was also included in the PRC contract. Non-federal Defendants’ Statement of Material Facts, Exhibit 2 at II-5-6. Further, clause 8 of the prime contract contains a “Subcontracts” provision which tracks 41 C.F.R. § 1-7.202-8, setting forth requirements for advance notice of subcontracts and for written consent from the government to enter into the subcontracts. Federal Defendants’ Motion for Summary Judgment at Exhibit 12.

After Amdahl learned of the award of the subcontractor to ViON, it submitted a Freedom of Information Act (“FOIA”) request to PRC regarding the subcontract. PRC rejected the request on the grounds that the FOIA was inapplicable to a private corporation. In January, 1985, Amdahl filed a bid protest with the General Accounting Office (GAO). The GAO responded to the bid protest by raising concerns addressed infra at 505 relating to the propriety of reviewing a subcontract protest. At the time this action was filed, GAO had not completed its review or issued an opinion on the jurisdictional issue.

ANALYSIS

There is well established precedent in this Circuit that disappointed bidders, under certain circumstances, have standing to challenge the award of government contracts. See, e.g., Scanwell Laboratories, Inc., v. Shaffer, 424 F.2d 859 (D.C.Cir. 1970). However, certain jurisprudential requirements for standing have developed in all areas of the law, including challenges to government contracts. In Ballerina Pen Co. v. Kunzig, 433 F.2d 1204 (D.C.Cir. 1970), a three-part test to establish standing was set forth.

First, the party must allege that the challenged action has caused him injury in fact, in order to satisfy the Articled III requirement that he possess ‘the personal stake and interest that impart the concrete adverseness’ necessary to the existence of a case or controversy. The plaintiff must further allege that the agency has acted arbitrarily, capriciously, or in excess of its statutory authority, so as to injure an interest that ‘is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.’ Finally, there must be no ‘clear and convincing’ indication of a legislative intent to withhold judicial review.

Id. at 1207 (citing Barlow v. Collins, 397 U.S. 159, 90 S.Ct. 832, 25 L.Ed.2d 192 (1970); Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970); Scanwell, 424 F.2d at 869). See also Control Data Corp. v. Baldrige, 655 F.2d 283, 288 (D.C.Cir.1981); cert. denied, 454 U.S. 881, 102 S.Ct. 363, 70 L.Ed.2d 190 (1981).

The question raised with regard to Amdahl’s standing to bring this action focuses principally on the zone of interest test. The injury in fact prerequisite can be satisfactorily demonstrated by plaintiffs’ status as a disappointed bidder. With a judicial determination that the subcontract award resulted from an arbitrary or capricious decision, the unsuccessful bidder has demonstrated a judicially redressable grievance, Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976), despite the fact that it cannot demonstrate that it would have been awarded the contract absent the illegality. Scanwell, 424 F.2d at 864; Aero Corp. v. Dept. of Navy, 540 F.Supp. 180, 201-02 (D.D.C.1982). In addition, defendants have not contended that there has been any legislative intent to foreclose judicial review of the type of subcontract award which is disputed by these parties.

The zone of interest test involves an examination of the statutes alleged to have been violated in the procurement process to determine whether the plaintiff’s interest is that which is sought to be protected by those regulations. See, e.g., Merriam v. Kunzig, 476 F.2d 1233, 1241-42 (3rd Cir. 1973), (cert. denied sub nom. Gateway Center Corp. v. Merriam, 414 U.S. 911, 94 S.Ct. 233, 38 L.Ed.2d 149 (1973)). Plaintiff alleges violations of various federal procurement regulations enacted by the authority of the Federal Property and Administrative Services Act of 1941. 40 U.S.C. § 471 et seq. However, prior to an examination of the purpose to be effected, and thus the interests protected, by those regulations, the plaintiff must first face a unique standing problem attendant to its status as a subcontractor. See Rubber Millers, Inc. v. United States, 596 F.Supp. 210, 213 (D.D.C.1984); Ingersoll Rand Co. v. United States, No. 84-0382, Memorandum at 4-6 (D.D.C. May 25, 1984).

Perhaps the most comprehensive discussion of the factors utilized to determine whether a subcontractor has standing is the Comptroller General’s opinion in Optimum Systems, Inc., 54 Comp.Gen. 767 (No. B-183039) (March 19, 1975). In that decision, it was determined that the General Accounting Office will only consider subcontract award protests in certain limited situations: (i) when the contractor acted as a purchasing agent of the government; (ii) where the government has caused or controlled the rejection or selection of a potential subcontractor; (iii) where agency bad faith or fraud in the approval of a subcontractor is demonstrated; (iv) where a contract was made “for” the government; or (v) where the agency is entitled to an advance decision. Id. at 773-74. The Court accepts the federal defendants’ position that no argument has been advanced by the plaintiff which would invoke the third and fifth exceptions listed above. After an examination of the three remaining situations, the Court determines that Amdahl, as a potential subcontractor, does not have standing to challenge the award of the contract to ViON.

The first exception promulgated in Optimum, Systems is where the prime contractor serves as a purchasing agent for the government. That exception is explained only by reference to another Comptroller General opinion, 21 Comp.Gen. 682 (1942). That and a Supreme Court decision cited therein, Alabama v. King and Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3 (1941), hold that a contractor is only a purchasing agent if it has the power to bind the credit of the government. See also United States v. District of Columbia, 669 F.2d 738, 744 (D.C.Cir.1981). However, the defendants point out that the payment provisions clause of the contract, clause 4 (Federal Defendants’ Motion for Summary Judgment at Exhibit 4), does not specify any payment to be made by the government to any entity except the contractor; thus, the government’s credit is not bound under the contract. Federal Defendants’ Statement of Material Facts at ¶ 11. The plaintiff offered no opposition to that interpretation of the contract.

Moreover, various amendments to the subcontract solicitation demonstrate that PRC did not consider itself to be acting as a purchasing agent for the government. Amendment 0005 to the RFP (non-federal defendants’ motion for summary judgment at Exhibit 3B), states that the cost of taxes (federal, state and local) should be factored into the proposals for the subcontract. Since the government is exempt from payment of those taxes, see Alabama v. King & Boozer, 314 U.S. at 10, 62 S.Ct. at 46, a contractor who considered itself to be a government purchasing agent would not request the cost of tax liability to be included in proposals submitted to it.

A more conclusive statement of PRC’s view of its status as a government purchasing agent is found in amendment 0003 to the RFP. Non-federal defendants’ motion for summary judgment, Exhibit 3A at Q 41 and 42. In response to questions directed at its solicitation, PRC stated that “this is not a government RFP,” and that “PRC is not an agent of DOC [Department of Commerce] under its prime contract.” Id.

The plaintiff, however, contends that the fact that PRC agreed to bind itself to various federal procurement regulations in the solicitation of its subcontract weighs heavily in determining that it was indeed a government purchasing agent. That theory is flawed under the specific facts present in this case.

The Brooks Act, 40 U.S.C. § 759, posits the authority to lease or purchase all automatic data processing equipment for the federal government in the administrator of the General Services Administration. However, that authority may be delegated to an agency pursuant to 40 U.S.C. § 759(b)(2). Several delegations of procurement authority (“DPA”) were made to DOC for the purchase of the equipment necessary to complete the prime contract. See Plaintiffs Exhibits 6-10. The DPA, which was redelegated to PRC, stated that

[The DPA] does require that you achieve maximum promotable competition in satisfying this automatic data processing (ADP) requirement. As such, this DPA requires your compliance with all applicable Federal statutes, policies, and regulations governing the acquisition, management, and utilization of ADP resources.
* 5}S 8f! * SjC *
Failure to comply with the conditions established herein will render this DPA voidable. If redelegated, it carries with it all stated requirements. Nevertheless, the original requester will remain responsible for compliance.

Plaintiff’s Opposition to Motion for Summary Judgment at Exhibit 6. Thus, the terms of the DPA arguably required the insertion of an agreement to conform with federal procurement regulations into the prime contract package.

However, absent other evidence of a purchasing agent relationship, the agreement to comply with federal procurement regulations is only an agreement to follow certain procedural steps-, it does not fix PRC’s status as a government agent vis-avis its potential subcontractors. That agreement can be viewed as a measure designed to protect DOC’s ability to maintain its DPA — a legal requirement for the purchase of automated data processing equipment for the federal government. Therefore, under these facts the agreement between the government and PRC to procure in conformance with federal regulations is not a contractual provision for the protection of the potential subcontractor, but for the government. Cf. Window Systems v. Manchester Memorial Hospital, 424 F.Supp. 331, 338 (D.Conn.1976) (regulation issued under the Hill-Burton Act and inserted in a contract is intended to protect the federal government not unsuccessful bidders).

The second situation in Optimum Systems, giving a subcontractor standing, is where there is direct and active government participation in the contract. That situation is likewise inapplicable. The examples of this sort of direct control cited in Optimum Systems all focus on the actu al behavior of the government in relation to a particular subcontract. The plaintiff asserts that both the solicitation for the prime contract and the management development plan submitted by PRC in response to the prime contract solicitation provide DOC with active source selection authority. See Plaintiffs Exhibits 1; 4.

The uncontroverted declarations in this ease demonstrate that the Department of Commerce played a very limited role with respect to the award of the subcontract to ViON. The declaration of PRC official directly involved with the subcontract stated that “[t]o my knowledge no Government employee has ever participated in any manner in the deliberations of PRC’s Technical Evaluation Board or any of PRC’s Cost or Technical Evaluation Panels, nor made a selection decision or participated in PRC’s selection decision with regard to the selection of ViON.” Non-federal defendants’ motion for summary judgment at Exhibit 3, ¶ 6. (Declaration of R. Dale D’Alessio). Further, the government did not evaluate or review any subcontract proposals, engage in any negotiations or discussions with ViON or Amdahl, or make the final subcontractor selection. Federal Defendants’ Exhibit 3, Ml 6, 7 (Declaration of Donald W. LeCrone). See also Federal Defendants’ Exhibit 14, ¶¶ 6, 7 (Declaration of Michael A. Keane). The uncontroverted deposition testimony reveals that PRC, not the government, made the selection of the subcontractor. The government simply concurred with PRC’s recommendation. D’Alessio dep. at 10-11; LeCrone dep. at 221-22; Keane dep. at 255-56.

It is also clear that after the government received PRC’s recommendation, it sought additional documentation in support of the choice. See, e.g., Keane dep. at 269, 271. One month elapsed between the time the recommendation was made and when it was approved. D’Alessio dep. at 13. The deposition testimony indicates that the government’s request for more information involved “minimal” contact with PRC. D’Alessio dep. at 60-61. The information was necessary so that the government could determine that there was both adequate documentation to support the recommendation and that the PRC “conducted the procurement properly.” LeCrone dep. at 215. See also id. at 141-42; 213-14. There is no evidence that the request for additional information was tantamount to dictating the choice of subcontractor. Thus, the government’s involvement did not rise to the level of control of subcontractor selection required in Optimum Systems. Mere approval of a selection, rather than participation in selection, is not sufficient to bring the subcontract within the Optimum exceptions. Ingersoll-Rand, Memorandum at 5. See also In re Pen Foam Insulation Co., 78 CPD ¶ 233 (1978).

The deposition testimony does reveal, however, that the government was actively involved in commenting on some aspects of the RFP itself, while it was being developed. LeCrone dep. at 130-133. It did suggest changes which were eventually incorporated into the RFP. While government involvement in the preparation of a solicitation has been cited as a factor in. determining whether the contractor was acting either for the government, it is only one factor in the calculus. See, e.g., Optimum Systems, Inc. v. Weinberger, C.A. No. 75-0320, Mem. at 5 (D.D.C. March 27, 1975); Lombard Corp. v. Resor, 321 F.Supp. 687, 690 (D.D.C.1970); In re Information Consultants, Inc., 84-1 CDP ¶ 373 at 3 (1984); In re S. Kane & Son, Inc., 82-2 CPD ¶ 5 at 2 (1982). The Court finds that the government’s involvement in the solicitation was not controlling, especially where PRC drafted the original specifications, Keane dep. at 245, and where government officials testified that their comments were never intended to effect the choice of a subcontractor, LeCrone dep. at 224. Since other factors such as management of a government facility and choice of subcontractor are not present in this ease, the government’s role in the solicitation preparation does not measure up to the type of involvement necessary to trigger standing on the basis of either the agency or government selection criteria.

The third potentially applicable Optimum exception is where the contractor’s award was made “for” the government. This exception appears to be limited to cases where the contractor is managing a government facility. “[T]he scope of the terms ‘for’ as used in Optimum Systems, supra, [was limited] to the type of contractual relationship found in prime management contracts issued by the Department of Energy and in contracts with prime contractors who operate Government-owned, contractor-operated plants.” In re S. Kane & Son, Inc., 82-2 CPD ¶ 5 at 2 . One of the government declarants has stated that “PRC has no responsibility under the prime contract, or otherwise, to operate or manage PTO [Patent and Trademark Office] facilities.” LeCrone Declaration at 118.

The plaintiffs further contend that because the title to the equipment purchased under the subcontract passed to the government, the contractor could be said to be acting “for” the government. In In re Motorola, 79-2 CPD 11124 (1979), the Comptroller General decision elaborated that unless the prime contract is for the management of a government facility, the fact that title to equipment purchased under the contract passes to the government does not make the purchase “for” the government within the category established by Optimum Systems.

CONCLUSION

Because the Court finds that there is no “intimate' involvement” between the government and the prime contract in areas involving either the operation of a government facility or in the solicitation resulting in the award of the subcontract to YiON, it concludes that plaintiff does not have standing to bring this action. Cf. Lombard Corp., 321 F.Supp. at 690 (“The Government and Chamberlain are intimately involved in every aspect of the operation of the Scranton plant”). An appropriate Order accompanies this Memorandum.

ORDER

In accordance with the attached Memorandum, it is this 21st day of August, 1985,

ORDERED

That defendants’ motion for summary judgment is granted; and

That this action is dismissed with prejudice.

      . Although the defendants' motion challenges the plaintiffs standing, it has been brought as a motion for summary judgment because affidavits have been filed. See Fed.R.Civ.P. 12(c).

      . Although the federal and non-federal defendants have filed separate motions for summary judgment, the arguments raised in the motions are the same. In addition, the federal defendants explicitly adopted the arguments of the private defendants. All defendants filed a joint reply brief and a joint supplemental brief. Thus, the Court will treat both motions from defendants as a combined motion.

      . The Court assumes that performance under the contract is now ongoing.

      . The procurement regulations allegedly violated by PRC are found at 41 C.F.R. §§ 1-4.1102-15; 1-4.1102-17; l-3.802(c)(2); 1-3.805-1. Complaint at ¶¶ 19-22.

      . The prime contract apparently contained two additional subcontract provisions, Additional Provision 1 and Additional Provision 2, which track 41 C.F.R. §§ 1-7.303-12 and 1-7.103-28 respectively. There is a dispute among the defendants as to whether those provisions were a part of the prime contract. Compare Statement of Material Facts of Non-Federal Defendants at ¶ 2 with Statement of Material Facts of Federal Defendant at ¶ 7.

      . See supra at n. 4.

      . See local rule 1 — 9(1). Thus, the Court may accept the defendants’ assertion as correct. See NRM Corp. v. Hercules Inc., 758 F.2d 676, 680 (D.C.Cir.1985); Tarpley v. Greene, 684 F.2d 1, 6 (D.C.Cir.1982).

      . At that point, PRC also indicated that title to equipment purchased under the subcontract would pass to the government. See discussion infra at 17.

      . This Circuit has held that contractors (and thus subcontractors) are not within the zone of interests protected by the Brooks Act. In Control Data Corp. v. Baldrige, 655 F.2d 283, the Court held that a potential bidder did not have standing to challenge regulations issued under the Brooks Act because that Act’s interest in "increased competition was expected to inure to the benefit of the government, rather than ADP suppliers.” Id. at 296.

      . The government limited the subcontractor sources and exercised control over every aspect of procurements, such that the prime contractors were "mere conduits.” 47 Comp.Gen., supra.

      The Government required that the prime contractor procure certain ancillary equipment from a particular company. B-162437, August 6, 1968.
      The Government ‘directly participated in the decision’ to reject a subcontract proposal and exclude it from competition on resolicitation based on the Government’s negative preaward survey performed at the prime contractor’s request. 49 Comp.Gen., supra.

        The agency severely limited the prime contractor's rights of selection of subcontractors and was instrumental in drafting the terms of the subcontract. B-170324, April 19, 1971.
      The Government hindered the testing and qualification of a potential subcontractor’s product to such an extent that the subcontractor could not receive various awards. B-174521, March 24, 1972.
      The Government specifically recommended an award of a subcontract to a particular company. 51 Comp.Gen. 678.
      The prime contractor rejected a potential subcontractor since the Government required in the sole-source prime contract that only the product manufactured by another company could be used. Matter of California Microwave, Inc., 54 Comp.Gen. 231 (1974).
      Optimum General, 54 Comp.Gen. at 773 — 74.

      . The fact that the government and PRC may not have adhered to the original terms of their agreement is a question of contract administration which plaintiff has no standing to challenge. Gull Airborne Instruments, Inc. v. Weinberger, 694 F.2d 838, 842 (D.C.Cir.1982). Further, parties to a government contract can agree to alter the terms of the contract. General Dynamics Corp. v. United States, 558 F.2d 985, 990-91, 214 Ct.Cl. 607 (1977).

      . Because this ruling is based on what actually transpired, the Court need not evaluate the motives, and thus credibility, of Amendment 0002 to the RFP.

      . See, e.g., Optimum Systems, Inc. v. Weinberger, No. 75-0320, Memorandum at 4-5; Lombard Corp. v. Resor, 321 F.Supp. 687, for examples of where standing was held to exist where the prime contractor managed the government facility.