Preliminary Injunction; Prior Court Order; PennDOT Debarment Proceedings
Glenn O. Hawbaker, Inc. v. PennDOT, No. 138 M.D. 2021, 2022 WL 1592589 (Pa. Cmwlth. Jan. 19, 2022) (McCullough, J., single-judge op.), direct appeal, appeal docket 20 MAP 2022
This case arises from a Motion for Contempt based on a preliminary injunction issued by Commonwealth Court related to a Notice of Suspension issued by PennDOT to Glenn O. Hawbaker, Inc., a highway construction contractor based in State College, Pennsylvania. Commonwealth Court summarized the relevant factual history and regulatory provisions as follows:
Hawbaker regularly performs highway and bridge construction contracts throughout the Commonwealth for various public owners, including DOT, and Hawbaker has been prequalified to bid on contracts let by DOT for decades. In June 2018, investigators from the Pennsylvania Office of Attorney General (OAG) served a search warrant on Hawbaker’s offices in State College and seized a large volume of both paper and electronic files. The warrant related to documentation demonstrating whether Hawbaker complied with prevailing wage laws and, more specifically, how Hawbaker calculated the credit for fringe benefits paid to its employees.
Subsequently, on April 8, 2021, OAG filed a criminal complaint before a Magisterial District Judge in Centre County charging Hawbaker with four counts of theft by failure to make required disposition of funds received, in violation of Section 3927 of the Crimes Code, 18 Pa.C.S. § 3927. Essentially, the complaint alleges that for calendar years 2015 through 2018, Hawbaker withheld fringe benefit payments from its employees in violation of the PWA and the Davis-Bacon Act.
On April 19, 2021, just 11 days after OAG filed the criminal complaint, DOT issued a Notice of Immediate Suspension, suspending Hawbaker from contracting with, bidding on or participating in the award of contracts, for Commonwealth supervised or funded highway construction work. The Notice of Suspension indicated that it was issued pursuant to DOT’s regulation at 67 Pa. Code § 457.13, subsection (a) of which provides:
(a) Reasons for suspension or debarment. The Department may temporarily suspend or may debar, for a set period or permanently, a contractor, subcontractor or individual from bidding on or participating in State supervised or funded highway construction work for any of the following reasons:
(1) Commission of … theft[ ] ….
(2) Commission of fraud or a criminal offense or other improper conduct or knowledge or approval of, or acquiescence in these activities by a contractor or an affiliate, officer, employe or other individual or entity associated with either obtaining, attempting to obtain or performing a public contract or subcontract….
(6) Violation of a State or Federal law regulating hours of labor, minimum wage standards or prevailing wage standards[ ]….
67 Pa. Code § 457.13(a) (emphasis added). Of particular importance herein, DOT’s regulation goes on to provide as follows:
(b) Substantial evidence. The filing of criminal charges or initiation of legal proceedings for any of the reasons in subsection (a)(1)–(8) may constitute substantial evidence for suspension.
(c) Debarment based on criminal conduct. Debarment solely on the basis of any of the reasons in subsection (a)(1)–(8) shall be based on a conviction or plea of guilty or no contest in a court of law or a finding, ruling or adjudication of guilt for noncompliance by a court of law, commission, board or administrative body. It is not required that the appeals process be completed or that a sentence or other penalty be imposed.
(d) Effect of appeal. The filing of an appeal does not constitute a basis for delay or postponement of a suspension/debarment action.
(e) Suspension for criminal conduct. If a contractor, subcontractor or individual is suspended because of the filing of criminal charges or initiation of legal proceedings for other applicable reasons in subsection (a)(1)–(8) and there has been no conviction or ruling sufficient to justify debarment within the suspension period, the Department may, if appropriate, based on all of the relevant facts, initiate debarment proceedings.
67 Pa. Code § 457.13(b)-(e) (emphasis added).
2022 WL 1592589, at *1-2 (footnotes omitted).
In response to the Notice of Suspension, Hawbaker initiated action in Commonwealth Court seeking injunctive and declaratory relief, arguing that:
….DOT violated Hawbaker’s due process rights by issuing the immediate suspension without first conducting a full evaluation or investigation into the allegations contained in the criminal complaint, and without first providing Hawbaker with a hearing. Hawbaker further asserted that the mere fact that a criminal complaint was issued did not amount to substantial evidence of a crime to support a suspension under DOT’s regulations.
2022 WL 1592589, at *2. Following a hearing at which only Hawbaker presented witnesses, Commonwealth Court issued an opinion and order granting the preliminary injunction, Glenn O. Hawbaker, Inc. v. PennDOT, No. 138 M.D. 2021 (Pa. Cmwlth. June 30, 2021) (“Hawbaker I”), which Commonwealth Court summarized as follows:
The Opinion stressed the due process concerns at issue, noting that DOT’s prequalification regulations do not provide for an automatic hearing regarding a contractor’s suspension at any point, either pre- or post-deprivation. See Hawbaker I, slip op. at 22 (citing Balfour Beatty Construction, Inc. v. Department of Transportation, 783 A.2d 901 (Pa. Cmwlth. 2001)). In addition, the Opinion noted the inadequacy of a post-deprivation hearing under the circumstances—e.g., the fact that the suspension went into effect immediately and the substantial repercussions of such suspension (effectively precluding Hawbaker from operating as a contractor in the Commonwealth). The Opinion further held that Hawbaker raised substantial legal arguments as to whether DOT could suspend a contractor based solely on the filing of criminal charges, noting that DOT admitted the suspension was based only on OAG’s filing of charges and that DOT did not conduct its own independent investigation. See Carlisle Electric, Inc. v. Department of Labor & Industry, 516 A.2d 437, 440 (Pa. Cmwlth. 1986) (stating mere recital of facts alleged in a criminal complaint are no more than that – a series of allegations which, without more, prove nothing).
The Opinion found that Hawbaker met the first five requirements for a preliminary injunction to issue. Notably, the Opinion states the following with respect to the sixth and final requirement – that the injunction is reasonably suited to abate the offending activity:
DOT argues that the injunctive relief Hawbaker requests is exceedingly broad as it would prohibit DOT from ever suspending or debarring Hawbaker for anything arising out of OAG’s criminal charges or for any violation of the PWA or the Davis-Bacon Act. The Court agrees. Hawbaker’s requested relief goes beyond that required to remedy the specific injury alleged and treads into the realm of permanent injunctive relief. Therefore, the relief must be limited to enjoining Respondents from enforcing the Notice of Suspension and from proceeding with any further suspension or debarment action against Hawbaker as a result of the issues raised therein.
Hawbaker I, slip op. at 33 (italics in original, bold emphasis added). Further, the Court’s Order specifically states that “Respondents are hereby ENJOINED from enforcing the April 19, 2021 Notice of Suspension, and from proceeding with any further suspension or debarment action against Hawbaker as a result of the issues addressed herein.”
2022 WL 1592589, at *3. Following entry of the court’s injunction, Hawbaker entered a corporate plea of nolo contendere to four counts of theft through a plea agreement with OAG, which Commonwealth Court summarized as follows:
Pursuant to that plea agreement, Hawbaker consented to pay over $20 million to the alleged victims who were purportedly underpaid and agreed to a proposed sentence of five years of probation on each count of theft, with the sentences to run concurrently. Hawbaker further agreed to submit to oversight by a corporate monitor, at Hawbaker’s expense, to oversee its compliance with all state and federal prevailing wage laws and regulations, including the PWA and the Davis-Bacon Act. In return, OAG agreed not to bring any additional criminal charges against Hawbaker itself or any of its shareholders, officers, and employees for conduct occurring between January 1, 2015, through the time the plea agreement was made.
Of particular importance herein, Hawbaker avers that its understanding was that by submitting the nolo contendere plea, Hawbaker did not “plead guilty” to the underlying theft charges and that the plea could not be used as proof of the underlying commission of any crime or offense in a subsequent civil or administrative proceeding. Hawbaker points to paragraph 33 of its nolo contendere plea, titled “Consequences of Pleading Nolo Contendere”, which provides:
Although the effect of a plea of nolo contendere is equivalent to a plea of guilty, the significance of the plea is not the same. In pleading nolo contendere; [sic] you do not admit your guilt, but merely consent to being punished as if you were guilty. The consequences of entering a nolo contendere plea are exactly those of entering a guilty plea with one exception. As you are not admitting facts by entering a nolo contendere plea, the entry of a nolo contendere plea in this criminal proceeding could not be used in a subsequent civil proceeding to determine the existence of those facts. In all other respects, the consequences of a nolo contendere plea are the same as if you had pled guilty or were found guilty of those offenses. You will have a criminal record of conviction for the offenses underlying your nolo contendere plea.
Motion, Exhibit 4 (Nolo Plea Colloquy), ¶ 33.
2022 WL 1592589, at *3-4. Soon after Hawbaker’s nolo contendre plea, DOT initiated debarment proceedings against Hawbaker by filing a request for an order to show cause why Hawbaker should not be debarred for up to three years. In its request, DOT averred that:
7. By entering a plea of no contest to four counts of the crime of theft, Hawbaker has knowingly and intentionally established, for debarment purposes, pursuant to [67 Pa. Code] § 457.13(c), its commission of the crime of theft, and Hawbaker should be debarred from bidding on or participating in State supervised or funded highway construction work for a period up to three (3) years.
8. The ground for the debarment, as defined by [67 Pa. Code] § 457.13(a)(1) of the [p]requalification [r]egulations, is commission by Hawbaker of the crime of theft.
2022 WL 1592589, at *4 (emphasis added by Commonwealth Court). Hawbaker then sought Commonwealth Court’s permission to amend its petition for review, which Commonwealth Court granted in addition to a stay of all administrative proceedings before DOT relating to Hawbaker’s debarment pending further order of the Court.
Hawbaker’s Contempt Motion
Concurrently with its motion to amend the petition for review, Hawbaker filed a Motion for Adjudication of Civil Contempt or in the Alternative Motion for a Preliminary Injunction, arguing that the court’s preliminary injunction order prohibits PennDOT’s subsequent debarment action. Hawbaker sought a ruling “as to whether the existing preliminary injunction applies to Respondents’ recent conduct, i.e. the debarment proceedings,” and argued that a motion for civil contempt is the proper procedural mechanism to request that ruling. 2022 WL 1592589, at *4. In the alternative, Hawbaker requested an additional preliminary injunction enjoining PennDOT from proceeding with a debarment action arising out of the criminal charges and/or nolo contendere plea entered by Hawbaker related to alleged violations of the Pennsylvania Prevailing Wage Act (PWA) or the federal Davis-Bacon Act. In support of its motion, Hawbaker argued that:
… its decision to enter a corporate nolo contendere plea in the separate, criminal action should have no bearing on the preliminary injunction issued by this Court. Hawbaker points to the specific language of the plea colloquy form it submitted to the Centre County Court of Common Pleas, which provides that Hawbaker was not admitting its guilt and not admitting the underlying facts of the criminal complaint and, therefore, the plea cannot be used against Hawbaker in DOT’s debarment proceedings to determine the existence of those alleged facts. According to Hawbaker, this Court’s preliminary injunction precludes any debarment action prior to an actual finding of the commission of a crime, which the nolo contendere plea does not accomplish. As Hawbaker points out, DOT expressly admits that its debarment request is based solely on the nolo contendere plea and DOT does not identify any new bases upon which to justify the initiation of debarment proceedings. Therefore, DOT is improperly using the nolo contendere plea as definitive proof that criminal conduct occurred and such action runs afoul of the Court’s Order imposing a preliminary injunction. Stated otherwise, Hawbaker maintains that DOT’s debarment request is unequivocally related to and a result of Hawbaker’s plea and, as such, is contemptuous. Hawbaker argues that per this Court’s Opinion and Order, DOT must first prove the commission of a crime before initiating debarment proceedings against Hawbaker, and the facts in that regard have not changed since the preliminary injunction was issued.
Further, Hawbaker argues that this matter is grounded in purported violations of prevailing wage laws since the basis for OAG’s criminal charges is Hawbaker’s purported failure to properly credit fringe benefits for prevailing wage purposes. Hawbaker maintains that both the plain language of the PWA and case law confirm that only the Department of Labor & Industry (L&I) may enforce the PWA and that L&I has sole jurisdiction over all PWA debarments. Moreover, Hawbaker argues that the doctrine of laches precludes DOT from suspending or debarring Hawbaker given that Hawbaker has complied with multiple investigations into its prevailing wage practices by both L&I and the Department of Labor and that, prior to OAG’s filing of criminal charges, no agency had ever determined that Hawbaker violated prevailing wage laws.
2022 WL 1592589, at *5. In response, DOT argued that its disbarment proceedings were based upon Hawbaker’s conviction, by virtue of its nolo contendre plea, of four first-degree felony counts of theft under 18 Pa.C.S. § 3927(a), and not on the theory in OAG’s criminal complaint that Hawbaker violated prevailing wage laws. DOT contended that its regulations provide it with the authority to debar Hawbaker based upon its nolo contendere plea, explaining that:
…the request for an order to show cause cites to Section 404.1 of the State Highway Law, 36 P.S. § 670-404.1, titled “prequalification of bidders”, which requires DOT to establish by regulations a system for the qualification of competent and responsible bidders on highway projects. DOT further cites to its regulations which provide that DOT “may temporarily suspend or may debar, for a set period or permanently, a contractor, subcontractor or individual from bidding on or participating in State supervised or funded highway construction work for any of the following reasons … [c]omission of … theft….” 67 Pa. Code § 457.13(a)(1). That regulation goes on to provide that debarment in such circumstances “shall be based on a conviction or plea of guilty or no contest in a court of law….” 67 Pa. Code § 457.13(c). DOT maintains that these regulations clearly provide it with the authority to debar Hawbaker based upon its nolo contendere plea. See Eisenberg v. Department of Public Welfare, 516 A.2d 333 (Pa. 1986) (nolo contendere plea conclusively established physician’s conviction of a crime for purposes of department’s termination of his status as a preferred provider under the Medicaid program); State Dental Council & Examining Board v. Friedman, 367 A.2d 363 (Pa. Cmwlth. 1976) (nolo contendere plea used by board to establish commission of a crime in dental license suspension proceeding).
2022 WL 1592589, at *6. DOT further maintained that Hawbaker could not establish that the court’s preliminary injunction order prohibits DOT’s conduct beyond any doubt or uncertainty as necessary for a finding of contempt because the preliminary injunction order “only enjoins DOT from suspending or debarring Hawbaker based solely on the filing of criminal charges by OAG” and that DOT’s action was not based “solely on the filing of criminal charges—or really upon the filing of the charges at all—but instead upon Hawbaker’s voluntarily entering a nolo contendere plea and the resulting convictions for felony theft.” Id. (emphasis in original). DOT additionally argued, as summarized by Commonwealth Court:
DOT stresses that in the Opinion, the Court rejected Hawbaker’s relief as requested, finding it “exceedingly broad.” Hawbaker I, slip op. at 33. DOT points to this Court’s explanation that granting the relief as requested by Hawbaker would essentially result in a permanent injunction because it would prohibit DOT from ever suspending or debarring Hawbaker for anything arising out of OAG’s criminal charges or for any violations of the PWA or the Davis-Bacon Act. In addition, DOT asserts that the Court’s Opinion does not address any issues specifically pertaining to DOT’s authority to debar Hawbaker based upon a nolo contendere plea.
Finally, DOT asserts that Hawbaker will be afforded all the process it is due in the administrative debarment proceedings because it will be provided a full and fair hearing. Along these lines, DOT argues that Hawbaker has failed to exhaust the available administrative remedies under DOT’s prequalification regulations, and that Hawbaker is unable to demonstrate that any exception to the exhaustion requirement applies here, e.g. there is no meaningful challenge to DOT’s jurisdiction or to the facial constitutionality of a statutory or regulatory scheme, and the administrative procedure is neither unavailable nor inadequate.
Commonwealth Court’s January 19, 2022 Opinion on Contempt and Injunctive Relief
In a single judge opinion authored by Judge McCullough, Commonwealth Court denied Hawbaker’s motion on the basis that DOT’s action on the notice of suspension was not “clearly and specifically prohibited by the preliminary injunction in this matter,” which “did not address or even contemplate the conduct Hawbaker currently complains of, namely DOT’s initiation of debarment proceedings based upon Hawbaker’s entry of a corporate nolo contendere plea to the theft charges.” 2022 WL 1592589, at *7. The court reasoned:
…it is undisputed that DOT immediately lifted Hawbaker’s suspension upon issuance of this Court’s Opinion and that Hawbaker was permitted to bid on and was, in fact, awarded DOT contracts thereafter. Simply stated, DOT immediately complied with the Court’s preliminary injunction. It is also undisputed that the material facts underpinning the parties’ dispute significantly changed when Hawbaker entered its corporate nolo contendere plea to four counts of theft on August 3, 2021, and DOT subsequently initiated debarment proceedings. Hawbaker itself conceded such changes by filing its motion for leave to amend the petition for review, arguing that these changes in “material facts … resulted in the need to amend [Hawbaker]’s [o]riginal [p]etition” as they gave “rise to additional legal theories….” Motion for Leave to Amend, 9/23/21, ¶ 6. Frankly, the Court agrees with Hawbaker’s own assertion in its motion for leave to amend that these additional facts and legal theories “were not applicable to the temporary suspension issue that this Court previously addressed.” Id. at ¶ 7(d).
However, Commonwealth Court found that Hawbaker met the factors required for the court to grant the alternative request for a preliminary injunction. First, the court explained that Hawbaker established a clear right to relief and that it is likely to prevail on the merits:
… the Court is satisfied that Hawbaker has raised several substantial legal questions which fulfill this prerequisite. First, Hawbaker has raised a legitimate question as to whether DOT has jurisdiction to institute the debarment proceedings herein. The PWA establishes a thorough scheme for handling prevailing wage disputes, including prosecuting and penalizing violations through an administrative hearing process managed by L&I, not DOT. See, e.g., 43 P.S. §§ 165-2.2(e) (creating in L&I an Appeals Board “with the power and duty to … [h]ear and determine any grievance or appeal arising out of the administration of” the PWA), 165.11 (giving the Secretary of L&I the duty to investigate alleged failure to pay workmen prevailing wages under the PWA and to determine, after notice and hearing, whether such failure was intentional). See also 500 James Hance Court v. Pennsylvania Prevailing Wage Appeals Board, 33 A.3d 555, 557 (Pa. 2011) (stating L&I “is the Commonwealth agency charged with administration and enforcement of the [PWA]”). DOT claims that its debarment notice arises solely from the criminal charges filed against Hawbaker and its nolo contendere plea, without implicating the prevailing wage laws, and that a debarment on such grounds is specifically contemplated by DOT’s prequalification regulations. Yet the criminal charges lodged against Hawbaker are for theft “by failure to make required disposition of funds received,” 18 Pa.C.S. § 3927(a), and the requirement to make disposition of funds here specifically stems from the PWA and the Davis-Bacon Act. Both OAG’s criminal complaint and Hawbaker’s plea agreement reinforce this fact as they refer to either the prevailing wage laws generally, or to the PWA and the Davis-Bacon Act themselves.
Moreover, Hawbaker raises legitimate concerns that allowing multiple agencies to proceed against it for purported violations of the PWA could subject Hawbaker to punitive, inconsistent, and unfair consequences. As Hawbaker points out, the PWA only contemplates debarment of a contractor based upon a finding that the prevailing wage violation was intentional. See 43 P.S. §§ 165-11(e) and 165-12; see also 43 P.S. § 165-11(d) (providing that if Secretary determines the failure was not intentional, the contractor shall be afforded a reasonable opportunity to make payment). DOT’s prequalification regulations do not contemplate such an inquiry. In fact, DOT’s request for an order to show cause claims that simply “by entering a plea of no contest to four counts of the crime of theft, [Hawbaker] has knowingly and intentionally established, for debarment purposes … its commission of the crime of theft,” and that Hawbaker should therefore be debarred for up to three years. Answer to Motion, Exhibit B (DOT’s Request), ¶ 7. This undeniable conflict also calls into question the adequacy of the administrative remedy provided by DOT through its debarment proceedings.
As with its previous application for a preliminary injunction, Hawbaker again raises significant due process concerns regarding DOT’s administrative process and regulations, including whether Hawbaker’s entry of the nolo contendere plea can be used against it in a subsequent administrative proceeding and whether entry of the plea is enough, in and of itself, to establish the commission of the crime of theft under DOT’s regulations. Hawbaker further claims that DOT’s debarment proceedings should be barred by the doctrine of laches. Given all of the above, the Court is satisfied Hawbaker has demonstrated that substantial legal questions must be resolved to determine the rights of the parties. SEIU Healthcare.
2022 WL 1592589, at *8. Second, the court found that Hawbaker established that an injunction is necessary to prevent immediate and irreparable harm that cannot be compensated adequately by money damages because statutory and constitutional violations alleged by Hawbaker constitute irreparable harm per se. Third, the court found that greater injury would result from refusing the injunction than granting it, that issuing an injunction would not substantially harm other interested parties, and that a preliminary injunction will not adversely affect the public interest, reasoning that:
The only harm DOT has alleged throughout these proceedings is that an injunction will impair its ability to promote the policy of integrity in highway contracting. Yet, the Court notes that OAG’s criminal complaint pertained to Hawbaker’s conduct for a discrete period of time, specifically from 2015 through 2018, and that DOT admits Hawbaker subsequently changed its prevailing wage practices. More importantly, given the terms of Hawbaker’s plea agreement, a corporate monitor is in place to oversee Hawbaker’s compliance with all state and federal prevailing wage laws and regulations. Further, Hawbaker has been conducting business in the Commonwealth as a prequalified contractor, with a brief interruption after DOT’s Notice of Suspension was issued, for decades, including since OAG served its search warrant in 2018. As such, it cannot be said that Hawbaker currently poses an immediate threat to the integrity of highway contracting or that a preliminary injunction would adversely affect the public interest.
Along these same lines, Hawbaker’s request would maintain the “status quo,” which has been defined for preliminary injunction purposes as “the last peaceable and lawful uncontested status preceding the underlying controversy.” Hatfield Township v. Lexon Ins. Co., 15 A.3d 547, 556 (Pa. Cmwlth. 2011) (quoting In re Milton Hershey School Trust, 807 A.2d 324 (Pa. Cmwlth. 2002)). Here, that would be the parties’ status prior to DOT’s institution of debarment proceedings. Finally, the Court finds that Hawbaker’s request that Respondents be enjoined from proceeding with any debarment action arising out of OAG’s criminal charges or Hawbaker’s entry of its nolo contendere plea is reasonably suited to abate the offending activity.
2022 WL 1592589, at *9. Accordingly, Commonwealth Court issued an order enjoining DOT “from proceeding with any debarment action arising out of the Office of Attorney General’s criminal charges against Petitioner or Petitioner’s entry of a corporate nolo contendere plea.” Id.
DOT filed a direct appeal with the Supreme Court.
For more information, contact Kevin McKeon or Dennis Whitaker.