Due Process Protections In DBE Decertification Proceedings. Thomas A. Reed Preston Gates Ellis & Rouvelas Meeds LLP May 10, 2006

Transcription

1 Due Process Protections In DBE Decertification Proceedings Thomas A. Reed Preston Gates Ellis & Rouvelas Meeds LLP May 10, 2006

2 Introduction The purpose of this presentation is to briefly summarize the rights and responsibilities of disadvantaged business enterprises and DBE program operators (or recipients) in 49 CFR decertification proceedings.

3 The Regulatory Approach to Narrow Tailoring DOT is tasked with ensuring that DBE programs do not become over inclusive. Decertifying firms that no longer meet DBE eligibility standards is just one way of ensuring that DBE programs are narrowly tailored to further a compelling governmental interest, i.e., remedying past discrimination.

4 Who s covered by 49 CFR Part 26? Part 26 certification and decertification procedures are intended to apply to Airport Concession Disadvantaged Business Enterprises ( ACDBEs ) as well as other disadvantaged minority and women owned businesses ( DBEs ) except where Part 26 expressly refers ACDBEs to Part 23. The Department of Transportation ( DOT ) retained a separate regulatory scheme for ACDBEs in deference to the differences in the airport concessions business as compared to DBEs under Part 26, especially with respect to business size standards, so in some cases the reporting requirements for ACDBEs may slightly differ from the requirements that govern DBEs.

5 DBE Eligibility Status Does not Expire! This is probably the most important point to take away from this presentation! Once a recipient of federal-aid highway funds, federal transit funds, or airport funds has certified a DBE, it shall remain certified for a period of at least three years unless and until its certification has been removed in a formal decertification proceeding. Decertification proceedings must be triggered by information suggesting that the firm s eligibility status may have changed.

6 DBE Eligibility Status Does not Expire! Recipients may not require DBEs to reapply for certification as a condition of continuing to participate in the program during the three-year period specified above, unless the factual basis on which the certification was made changes. Recipients are not required to certify firms every three years. In fact, recipients are prohibited from requiring that firms go through a recertification review process more frequently than once every three years, unless the recipient has obtained information indicating a change in the firm s eligibility for DBE status. DBE no change affidavits and notices of change are intended to keep recipients current on the status of DBE firms. Recipients cannot use recertification as a means to keep DBEs current.

7 Denial Of Certification Is Not Permanent When a firm is decertified or its initial certification application is denied, the recipient must establish a waiting period of 12 months or less for reapplication. Firms may reapply regardless of the reasons for denial or decertification.

8 When Can Certification Be Removed Without A Procedure? There is only one situation in which a recipient may remove the eligibility of a certified DBE firm without a decertification proceeding. Removal is allowed without a proceeding when the DBE firm does not dispute that the personal net worth of an owner necessary to its certification exceeds $750,000. In ALL other cases, without exception, a recipient is not permitted to remove the eligibility of a certified firm without a decertification proceeding.

9 Decertification Procedures What triggers a decertification proceeding? A. Third Party Ineligibility Complaints B. Recipient Initiated Proceedings C. DOT Directive To Initiate Proceedings D. Notice Of Change Submitted By DBE Firm

10 Triggers A. Third Party Ineligibility Complaints Any person may file a complaint with the recipient challenging the eligibility of a DBE firm. However, the recipient is not required to accept general allegations of ineligibility or anonymous, unsubstantiated complaints. Moreover, it is not in the recipient s interest to rely on such complaints since the recipient must submit a detailed record of its decertification decision to DOT.

11 Triggers B. Recipient Initiated Proceedings Based On Review Of Records. Recipients must review their records on the DBE (material obtained from the firm, the complainant, the recipient s independent investigation, or received pursuant to a request for information, etc). If the facts on which certification was based change, the recipient can take action to remove eligibility. The recipient also has discretion to investigate a firm if there is reason to believe that information on the firm is incorrect or outdated.

12 Triggers C. DOT Directive to Initiate Proceedings. If a concerned operating administration determines that information in a recipient s certification records provides reasonable cause to believe that a DBE certified by a recipient does not meet eligibility criteria, the concerned operating administration may direct the recipient to initiate a decertification proceeding. The concerned operating administration must notify the recipient and the DBE concerning its reasons for the directive and provide relevant documentation.

13 Triggers D. Notice of Change submitted by DBE Firm. DBE firms have a number of reporting responsibilities: 1. General Statement Of Compliance; 2. Personal Net Worth Statement; 3. Notice of Change; and 4. No Change Affidavit.

14 DBE Reporting Requirements 1. General Statement of Compliance or Affirmation That DBE Is Disadvantaged DBEs must submit a signed and notarized certification that each presumptively disadvantaged owner of the firm meets part 26 standards for social and economic disadvantage. This statement does not require supporting documentation.

15 DBE Reporting Requirements 2. Personal Net Worth (PNW) Statement The PNW of an individual owner cannot exceed $750K. ACDBEs are now subject to the same PNW standard. However, acknowledging the different business context of concessions, DOT allows ACDBEs to exclude from the PNW calculation assets of up to $3M that the owner/applicant can demonstrate are necessary to obtain financing to enter or expand an airport concessions business or assets that have in fact been encumbered to support existing financing for the applicant s business.

16 DBE Reporting Requirements 2. Personal Net Worth (PNW) Statement (continued) DBE applicants must also submit a signed, notarized statement of personal net worth, with appropriate supporting documentation. The reporting requirements for DBE airport concessionaires ( ACDBEs ) do not include a formal PNW statement, but as noted above, ACDBEs are held to the same PNW standard subject to the exclusion for assets necessary to obtain financing.

17 DBE Reporting Requirements 2. Personal Net Worth (PNW) Statement (continued) DOT recipients have discretion to look behind the PNW statement if obvious mistakes, errors or omissions are apparent, i.e., the recipient can seek further information or investigate. DOT recipient may not use requests for further information as means to harass, target, punish or discriminate against DBEs.

18 DBE Reporting Requirements 3. Notice Of Change DBE firms must provide a written affidavit to the recipient within 30 days of any change in their circumstances affecting their DBE eligibility. The notification must include documentation of the change in detail.

19 DBE Reporting Requirements 4. No Change Affidavit Each DBE firm must submit an affidavit annually on the anniversary date of the firm s certification. The affidavit affirms that there have been no changes in the firm s ability to meet DBE eligibility standards (i.e., size, disadvantage, ownership and control). Submission of this affidavit confirms that an individual owner s PNW does not exceed $750K.

20 Recipient s Notification Requirements The recipient must notify the DBE firm of its recommendation to remove the DBE s eligibility. The notification must provide the reasons for the decision, including specific references to the evidence in the record supporting the recipient s reasons for the decision. The notice must advise the firm of the consequences of the decision and the availability of an appeal to the DOT.

21 Decertification Hearing A. Standard of Proof When a recipient seeks to decertify a DBE, the burden is on the recipient to show by a preponderance of the evidence (51% of the evidence favoring decertification) that the DBE does not meet the eligibility requirements. The burden is reversed in a certification hearing, i.e., when a firm is seeking DBE status. In a hearing addressing a firm s initial certification, the firm must prove by a preponderance that it meets the eligibility requirements for a DBE.

22 Decertification Hearing B. Eligibility Criteria 1. Membership in Socially/Economically Disadvantaged Group 2. Individual Disadvantage 3. Business Size (must be small by SBA standards) 4. Minority/Women Ownership (51% owned by socially and economically disadvantaged individuals) 5. Minority/Women Control (DBE must be independent )

23 Decertification Hearing C. Verbatim Record For decertification, a complete verbatim record must be created. A verbatim record is not necessary for certification applications so long as the party potentially appealing the decision has alternative means to review the record of the initial proceeding. A firm whose certification status has been challenged may also elect to present information and arguments in writing, without going to a hearing. The recipient still must prove by a preponderance of the evidence that the firm does not meet the eligibility criteria.

24 Decertification Hearing D. Separation of Functions Staffers who make recommendations regarding removal of a DBE s eligibility cannot be decision-makers at the decertification hearing.

25 Decertification Hearing E. Grounds for Decision The recipient s decision cannot be based on a reinterpretation of information available at the time of the DBE s initial certification. Rather, it must be based on: 1. a change in firm s circumstances since initial certification; 2. new information about the firm not available at certification; 3. information that the firm concealed or misrepresented at the time of the certification; 4. a change in DOT s standards since the initial certification; or 5. a documented finding that the initial certification was erroneous.

26 Decertification Hearing D. Other Considerations: 1. A DBE remains certified while a recipient s determination is pending, until issuance of a final decertification decision and notice. Once the recipient has made its final determination, the decision remains in effect even during an appeal to the DOT. I.e., DOT does not stay the effect of the recipient s decision while it is considering the appeal.

27 Decertification Hearing Other Considerations: (continued) 2. No Ripple Effect. Even if a firm is decertified, other recipients cannot automatically decertify the firm. They must also initiate a proceeding. By the same token, a final decision affirming the firm s eligibility does not mean that the firm in question is thereafter insulated from proceedings initiated by other recipients.

28 Availability of Appeal Before DOT A. Timing Appeal must be done by letter to DOT Office of Civil Rights within 90 days of a recipient s final decision. The file must contain all of the appellant s arguments for or against certification and information regarding other recipient s who have decertified the firm or before whom decertification proceedings are pending. Extensions of the 90 day period are available for good cause shown. After receipt of the letter-appeal, DOT requests the verbatim record. The regulations do not specify a time frame within which DOT must make this request, but it is implied that the request must be made immediately upon receipt of the record.

29 Availability of Appeal Before DOT Timing (continued) The recipient must submit the verbatim record to DOT within 20 days of DOT s request for the record. Recipients can request extension of the 20 day deadline for good cause. DOT s policy is to make its decision within 180 days of receipt of the record. Appellant should anticipate that an appeal will take at least 7 months.

30 Availability of Appeal Before DOT B. Scope of Review 1. DOT reviews the verbatim record and determines if the recipient s decision was substantially supported by the evidence. Reasonable minds may differ, but so long as there is evidence in the record which supports the recipient s decision, DOT must uphold the decision. This is not de novo review, i.e., DOT does not conduct a second hearing. DOT also examines whether the recipient s decision is consistent with the substantive and procedural provisions of part 26 concerning certification. 2. The parties are entitled to supplement the record on appeal. 3. A complainant may also appeal a decision that a firm is eligible.

31 Availability of Appeal Before DOT C. DOT authority: 1. DOT can take immediate action on appeal. It can affirm the recipient s decision. It can also reject a decertification decision and immediately certify the firm, or contrarily, it can reject a certification decision and effect the removal of DBE status itself. If DOT determines that the record is insufficient, it can remand the matter to the recipient with instructions to seek more information on a material issue. DOT cannot uphold a recipient s decision based on grounds not specified in the recipient s decision. 2. DOT does not consider petitions for reconsideration. Parties wishing to challenge DOT s decision must take their case to federal court having at this point exhausted all administrative remedies.

32 Appealing DOT Decisions D. Must Exhaust Administrative Remedies A party to a DBE certification or decertification proceeding may wish to take the matter to federal court, but if it has not fully exhausted its remedies, i.e., gotten a final determination from the Department of Transportation, federal court s will likely reject the suit as not ripe for their review. Once DOT has reached a final determination on the certification status of the DBE, the losing party is free to appeal the DOT s decision to federal court.

33 Closing Points 1. Do not allow DBE status to be taken away without a fight, i.e., without insisting on a full hearing or submitting arguments and evidence in writing. 2. Recipients may not always know the specific due process procedures and may think that DBE status can expire. Recipients must go through to strip a DBE of its status. 3. In a decertification proceeding, the burden is on the recipient to prove the DBE s ineligibility. In the initial certification proceeding, the firm has the burden of proving that it is eligible. 4. ACDBE owners should be aware that they can exclude assets necessary to secure financing of up to $3M from their PNW calculation. 5. One decertification decision does not mean that other recipients can automatically decertify a DBE. Separate decertification proceedings must be initiated by other recipients seeking to challenge the DBE s eligibility. 6. Losing DBE status does not have to be permanent. Final recipient decisions can be appealed to DOT. DOT decisions can be appealed to federal court. Or, a firm can reapply after a period designated by the recipient (no more than a year from the denial or decertification decision).