A Washington, D.C., federal judge has overturned a 15-year federal contracting debarment issued by the U.S. Department of Defense’s logistics agency to a food exporter and its owners after related overcharging cases, ruling the DLA lacked evidence for the necessary “aggravating circumstances” to justify the lengthy exclusion.
Although the Defense Logistics Agency was allowed to debar International Exports Inc. and Suzanne and Ziad Itani as affiliates of a business found guilty of overcharging the government, it lacked the necessary undisputed evidence to back its decision that a lengthy 15-year exclusion was appropriate, U.S. District Judge Reggie B. Walton ruled in his July 17 decision.
“The court concludes that the debarring official should have discerned a genuine dispute over material facts with respect to [underlying] qui tam materials, and consequently, should have complied with [the Federal Acquisition Regulation], which expressly requires written findings of fact on disputed issues,” Judge Walton said.
Nonparty Samir Itani, owner of exporter American Grocers Inc., had been indicted in 2007 for allegedly overcharging the government on trucking costs for transporting food under federal food supply contracts.
He was subsequently suspended by the DLA from entering into federal contracts, along with his wife Suzanne and a related company, S&S Itani Inc., and after pleading guilty to those charges in 2009, he was sentenced to two years in prison.
Alongside the criminal case, there was a civil False Claims Act case targeted at the couple and Samir’s brother Ziad, as well as several businesses in which they held ownership stakes, in which a former employee accused Samir and Ziad of altering expiration dates and of forging halal and health inspection certifications on food supplied to U.S. troops stationed in the Middle East.
Samir and Suzanne Itani, as well as their businesses, agreed to a $15 million settlement to end the FCA case, without admitting wrongdoing, and in March 2011, the DLA issued notices of proposed debarment for the couple and S&S Itani.
Suzanne argued in response that she had played no significant role in the running of S&S during the relevant period, only taking control of the company to wind it up. She had subsequently established IE and claimed she had no intention of involving IE in government contracting, but said that a debarment would still be harmful, for example by potentially excluding the company from government incentive programs for commercial exports.
A DLA contracting officer, after the record was supplemented by Suzanne’s letter and a summary of the accusations in the FCA case, later proposed to also debar Ziad Itani and IE for their relationships to S&S, and after further responses from those parties, went ahead with the debarment in September 2011, excluding Suzanne and Ziad Itani, and IE, from participation in federal contracting for 15 years, through March 2026.
They sued to challenge the debarments, arguing there had been no wrongdoing on their part and that the Federal Acquisition Regulation, or FAR, did not cover debarment for “affiliates of affiliates” — their affiliation with S&S, which was in turn affiliated with Samir Itani.
Samir Itani’s criminal conduct, however, was directly imputed to S&S, which was allowed under the FAR, and as they had the power to control S&S and other family run businesses, Suzanne and Ziad were reasonably considered direct affiliates of the business, Judge Walton found. And no finding of wrongdoing is required for debarment under the relevant affiliate clause, he noted, meaning their debarments were allowed.
But the 15-year term of those debarments was unreasonable, Judge Walton ruled.
A typical debarment runs for three years, but the debarring official had argued that the “seriously improper conduct” underlying the debarments warranted an additional term. To support this, the official cited material including the FCA allegations.
But there were inconsistencies that “[raised] doubts about the reliability of the evidence” cited in the FCA case, such as why expiry dates were altered, Judge Walton found.
For example, Ziad Itani had claimed that expiry date changes made were done to bring them in line with stricter Middle Eastern standards, not to extend those dates and pass off stale food as fresh, the judge noted.
Further, there was a lack of “reliable connection” in the FCA complaint between the allegedly forged halal and health certifications and shipments made to U.S. troops, Judge Walton said.
As a result, the DLA had not adequately shown the necessary “aggravating circumstances” needed to support a 15-year debarment, according to the judge, who vacated the decision and sent it back to the DLA for further determinations on the disputed evidence.
Representatives for IE and the DLA didn’t immediately respond to requests for comment Friday.
IE and the Itanis are represented by David L. Pluchinsky and Nicholas D. Stepp of Akerman LLP, Brant W. Bishop of Wilkinson Walsh & Eskovitz LLP and H. Boyd Greene IV of Kirkland & Ellis LLP.
The DLA is represented by Channing D. Phillips, Daniel F. Van Horn and John C. Truong of the U.S. Attorney’s Office for the District of Columbia and in-house counsel Frank D. Hollifield and May Sena.
The case is International Exports Inc. et al. v. Mattis et al., case number 1:14-cv-02064, in the U.S. District Court for the District of Columbia.
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