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April 1, 1993

JOSEPH SILVERMAN, an individual, et al., Plaintiffs,

The opinion of the court was delivered by: EARL B. GILLIAM

 On January 25, 1993, motions for summary judgment by plaintiffs Joseph Silverman and Joseph Silverman doing business as Calendar Chemicals, and by defendant United States of America came on for hearing before the Honorable Earl B. Gilliam. Grant Clark appeared for plaintiffs, Donald Shanahan appeared for the government.

 At the conclusion of the hearing, the court took the motions under submission. The parties were unable to arrive at a mutually satisfactory disposition of the case within fifteen days of the motion hearing, as had been suggested by the court. After considering all of the pleadings, memoranda of points and authorities, and after having heard and considered oral argument, the court denies the government's motion, and grants plaintiffs' motion for summary judgment. The Defense Logistics Agency's ("DLA") three-year debarment of plaintiffs was arbitrary, capricious and an abuse of discretion owing to its severity and the agency's apparent failure to consider mitigative facts surrounding Mr. Silverman's misdemeanor conviction for conversion of government property. Accordingly, the debarment will be terminated as of the date of this memorandum decision and order.


 This action arises out of defendants United States Department of Defense and Defense Logistics Agency's debarment of plaintiffs from all government contracts for a period of three years. Plaintiff, Mr. Silverman, is an individual who does business as a sole proprietorship under the name of Calendar Chemicals. He is the only employee of Calendar. Since January 1984, he has sold cleaning products to the United States Navy, under federal government contracts. When Mr. Silverman could no longer meet the demand for his products while operating out of his residence, he entered into an agreement with P.M. Chemicals of San Diego, under which P.M. would produce Mr. Silverman's products exclusively for him. Under the agreement, Mr. Silverman remained involved in the production process and everyday activities of the business.

 In June 1986, Mr. Silverman was required for the first time to fill out a Department of Defense Form 129. One of the questions on the form was a designation of the "type of business." There were seven choices and no category such as "other." Mr. Silverman narrowed down his choices to "regular dealer" and "manufacturer or producer" and ultimately chose "manufacturer or producer." Mr. Silverman decided not to chose "regular dealer" because it was defined as one who sells to the public in the usual course of business. "Manufacturer or producer" was defined as one operating or maintaining a warehouse that produces supplies on the premises that are offered to the government.

 In September 1987, the Department of Defense ("DOD") froze Mr. Silverman's National Stock Numbers for all of his products. These numbers were critical to streamlining the ordering process for Navy customers. Although Mr. Silverman was not notified of the reason, the DOD froze the numbers because it believed that Mr. Silverman had misrepresented his status on the Form 129. Despite the freezing of the numbers Mr. Silverman continued to sell his products to the Navy from 1987 to 1991 under more than 600 federal government contracts.

 In December 1988, Mr. Silverman and his fiance, Linda Mandala, who operated another company selling cleaning products, were notified that they were suspected of bid rigging and anticompetitive activities. Mr. Silverman and Mandala consented to an interview with Special Agent Sharon Woods from the DOD. Mr. Silverman and Mandala subsequently learned that Woods filed a report with the DOD in February 1989 alleging that Mr. Silverman had made a criminal false statement in April 1986 when he called himself a "producer" rather than a "dealer."

 In January, 1990, Mr. Silverman and Mandala received grand jury subpoenas from the U.S. Attorney's office in Richmond, Virginia. The subpoenas requested extensive documentation regarding government contracts. Mr. Silverman and Mandala fully complied.

 In June 1991, Mr. Silverman requested reinstatement of the numbers that were cancelled in 1987. An Assistant United States Attorney in San Diego informed Mr. Silverman that he was under investigation for an allegedly false statement made on the Form 129 in 1986. The government claimed that when Mr. Silverman stated that he and not P.M. Chemical was the manufacturer or producer, he prevented DOD from getting the products from the true producer, which raised the price paid by the government. The AUSA said he was going to indict Mr. Silverman if he did not agree to plead guilty. Although Mr. Silverman believed that he had made the right choice on the form, he plead guilty to a misdemeanor count of conversion of government funds before Magistrate Judge McKee. Mr. Silverman was sentenced to a $ 250 fine and one year of unsupervised probation.

 Although Mr. Silverman believed that the matter was closed, the Defense Logistics Agency of the DOD notified him that he was proposed for debarment from all government contracts based solely on his misdemeanor conviction. Mr. Silverman was also suspended pending the DOD's final decision. The effect of suspension is the same as that of debarment: The contractor may neither be solicited nor receive government contracts from any agency of the United States.

 On March 10, 1992 Mr. Silverman presented a written brief in opposition to the proposed debarment. On March 18, 1992, Mr. Silverman appeared before Janet Cook, a Special Assistant for Contracting Integrity, to make a personal appeal that he not be debarred. On May 5, 1992, Mr. Silverman was debarred from all government contracts for three years based on the fact that he lacked the "present responsibility required of government contractors and that the protection of the government's interests require[d] the debarment."


 Standard of judicial ...

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