Kisser v. Kemp

Citations: 786 F. Supp. 38; 1992 U.S. Dist. LEXIS 3162; 1992 WL 49850Docket: Civ. A. 91-2380

Court: District Court, District of Columbia; February 18, 1992; Federal District Court

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Plaintiff Carroll P. Kisser, a former executive vice president of DeFranceaux Group, Inc. (DRG), has been barred from participating in federal transactions since March 22, 1989. His suspension by the Department of Housing and Urban Development (HUD) was initiated under regulations concerning misconduct and was followed by a three-year debarment effective December 2, 1991. Kisser contends that both actions were improper under the Administrative Procedure Act (APA) and violated his due process rights. The case is now under consideration for summary judgment, with no material facts in dispute.

The background reveals that Kisser's suspension stemmed from a dispute between DRG and the Government National Mortgage Association (GNMA) regarding the handling of foreclosure sale proceeds. DRG initially faced a default in July 1988 but was reinstated. However, due to ongoing issues, HUD suspended DRG and associated individuals, including Kisser, in March 1989. While many suspended individuals resigned, Kisser entered a consulting agreement with DRG. This led to HUD maintaining his suspension, labeling him an "affiliate" of DRG, a designation Kisser contested. An administrative law judge initially sided with Kisser, but HUD's counsel sought a review, resulting in the suspension being reinstated by HUD's Secretary's designee. Despite the general rule limiting suspensions to twelve months, HUD extended Kisser's suspension before proceeding with formal debarment, prolonging the overall duration of his disqualification.

After an evidentiary hearing from April 8-16, 1991, ALJ Cooper determined that Mr. Kisser was qualified to participate in government nonprocurement programs. Despite this ruling, HUD sought discretionary review from the Secretary and ruled that Mr. Kisser remained suspended. On December 2, 1991, Ms. Dudley, the Secretary's designee, issued a final ruling reversing the ALJ's decision and imposed a three-year debarment on Mr. Kisser, which would end on March 22, 1992. The Court reviews HUD's initial suspension and final debarment under the "arbitrary or capricious" standard per the APA, noting that issues from the initial suspension are not moot due to its ongoing stigma against Mr. Kisser.

HUD initially suspended Mr. Kisser and fifteen other DRG affiliates under 24 C.F.R. 24.105(b), which defines "affiliates" based on control relationships. However, the appropriateness of this approach is questioned since other regulations would have allowed HUD to impute the actions of DRG to its officers and employees based on their knowledge or involvement in wrongdoing. By proceeding under the "affiliate" section, HUD avoided the burden of proving individual misconduct, allowing for easier suspension without demonstrating actual wrongdoing. This approach seemingly aimed to compel the individuals to resign from DRG before any formal proceedings concluded, which would subsequently result in the lifting of their suspensions.

Mr. Kisser resigned from DRG but shortly after entered into a contract as an independent consultant, which HUD used to maintain his suspension status. This situation raised two legal questions: the validity of HUD's suspension decisions and whether Mr. Kisser was an affiliate of DRG as defined by regulations. The court determined that the affiliation issue alone could resolve the suspension's validity, deferring discussion on the agency's discretion until relevant to final debarment proceedings. ALJ Heifetz found no evidence to support that Mr. Kisser was still an affiliate post-resignation. However, Ms. Dudley, the Secretary's designee, reversed this decision, arguing the timing of his resignation and consulting role suggested a sham arrangement, with Mr. Kisser failing to prove a legitimate purpose. Ms. Dudley based her conclusion solely on her opinion without supporting evidence, contradicting HUD's own acknowledgment of the lack of evidence and improperly shifting the burden of proof to Mr. Kisser, contrary to applicable regulations. Consequently, her suspension determination was deemed arbitrary and capricious and must be vacated. In the subsequent debarment proceeding, HUD shifted its strategy, focusing on Mr. Kisser's actions as executive vice president of DRG while it was still a certified HUD co-insurer, with attention on compliance with pass-through requirements in the Guaranty Agreement.

HUD initiated debarment proceedings against Mr. Kisser but did not pursue similar actions against other DRG officers, raising concerns about the rationale behind this decision. The sole justification for targeting Mr. Kisser was his consulting relationship with DRG, which did not relate to any misconduct during his tenure as executive vice president. The Court noted that HUD had previously found insufficient grounds for Mr. Kisser's original suspension. Despite having identified multiple DRG officers potentially subject to debarment, HUD failed to provide a reasoned explanation for singling out Mr. Kisser, which the Court deemed arbitrary and capricious. The Court suggested that the action against Mr. Kisser may have been influenced by personal bias rather than legitimate grounds. Given the serious implications of debarment on both the government and the individual, the Court emphasized the need for careful agency decision-making and transparency. Consequently, Mr. Kisser's debarment was vacated, with the Court refusing to allow HUD an opportunity to retroactively justify its actions. The Court ordered that defendants' motion for summary judgment be denied, while granting the plaintiff's motion for summary judgment, resulting in the vacating of the plaintiff's suspension and debarment. The plaintiff's second motion for a preliminary injunction was deemed moot.

Section 2.05 of the Guaranty Agreement specifies that regular monthly installments must be adjusted to account for unscheduled recoveries of principal, including various forms of prepayments and claim settlements. The Issuer is responsible for further adjustments to ensure that the holder receives any unrecovered principal after a mortgage is assigned to the Secretary of Housing and Urban Development (HUD) or disposed of in other ways. These adjustments must occur by the month following a final claim settlement by the insuring agency. The court does not need to interpret this section regarding foreclosure sale proceeds.

When property owners defaulted on loans, DRG could seek reimbursement from HUD for payments made to security holders; however, this reimbursement was often insufficient and delayed, leading to economic strain on co-insurers. The plaintiff claims that HUD's actions violated the Due Process Clause but the court will not address these constitutional claims.

Mr. Kisser's suspension was not attributed to any wrongdoing during his tenure as DRG's executive vice president, but rather to his association with the company post-resignation. The plaintiff also contests the agency's decision to maintain his suspension despite an administrative law judge ruling in his favor. However, since the suspension did not stem from a hearing that could damage the plaintiff's reputation and ended on December 2, 1991, the issue is deemed moot.