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November 23, 1988

THE ENVIRONMENTAL PROTECTION AGENCY and LEE M. THOMAS, Administrator, Environmental Protection Agency and HARVEY G. PIPPEN, JR., Director, EPA Grants Administration Division and JOHN C. MARTIN, EPA Inspector General and P. RONALD GANDOLFO, EPA Divisional Inspector General for Audit

The opinion of the court was delivered by: KATZ



 1. Plaintiff B.E.S. Environmental Specialists, Inc. ("BES") is a large contractor under the Superfund program.

 2. Plaintiff Richard Baranowski is an officer of BES.

 3. On September 30, 1988, EPA issued a subpoena to BES, seeking the production of cost records in connection with an audit of specified contracts between BES and EPA, and of all delivery orders awarded to BES under a contract between EPA and another EPA clean-up contractor. The subpoena was issued because plaintiffs had been stonewalling EPA's audit efforts. The Assistant U.S. Attorney recommended enforcement proceedings.

 4. Plaintiff BES did not comply with this subpoena.

 5. On September 29, 1988, EPA had issued Notices of Proposed Disbarment to BES and Baranowski. These Notices suspended plaintiffs from further contracting with EPA, and gave plaintiffs 30 days to submit information against the proposed debarment.

 6. Plaintiffs did not exercise their right to submit materials opposing the proposed debarment.

 7. On October 31, 1988, plaintiffs filed this suit, with a motion for preliminary injunction in which they asked the Court to enjoin defendants from (1) conducting audits contemplated by the subpoena, (2) continuing the suspension and (3) continuing the debarment process.

 8. In April, 1987, a federal grand jury indicted BES and Baranowski on seven counts of making false claims and false statements against the United States, in connection with BES's contract to clean up a Superfund site in Berks County, Pennsylvania called the Brown's Battery Breaking site. After a non-jury trial, the district court acquitted BES and Baranowski of all the criminal charges.

 9. The subpoena decision was made by Deputy Inspector General Anna Virbick, upon the request of Divisional Inspector General for Audits P. Ronald Gandolfo, with the background memorandum of James Clark, an attorney with EPA's Office of General Counsel, Inspector General Division. The agent in the criminal case, Martin Squitieri, now Divisional Inspector General for Investigations, did not participate in the decision to issue the September 30, 1988 subpoena to BES.

 10. The documents listed in the September 30, 1988 subpoena are necessary for the proper conduct of an audit.

 11. The scope of the subpoena is reasonable in light of the agency's purpose to protect the taxpayers' investment in the Superfund program. The subpoena seeks documents which are relevant to this purpose.

 12. Although some burden is necessarily imposed by complying with the subpoena, the subpoena at issue is not unduly broad or burdensome. EPA also eased any burden by permitting production at BES's offices instead of EPA's offices, and by seeking to audit only completed contracts.

 13. The burden on the contractor must be evaluated in view of the fact that BES entered into the contracts which permit the agency access to the records in question.

 14. EPA's Office of Inspector General issued the September 30, 1988 subpoena for several reasons. First, the criminal charges and transcript of the criminal trial revealed problems of concern to EPA. Second, BES is a large and important EPA contractor under the Superfund program. Third, BES had refused to comply with its contractual obligation to produce records.

 15. The subpoena was not the product of individual or institutional vindictiveness or retaliation.

 16. The prior audits were not in depth, and did not take into account the record of the criminal trial.

 17. There is a reasonable basis for the agency to allege "special circumstances, such as indications of fraud" in light of the criminal transcript and exhibits as described at the hearing. Whether the administrative record will support any such finding is another matter, which must await development of a full record at an administrative hearing.

 18. BES has not received final payment on the Brown's Battery contract. BES has a contractual obligation to produce the records starting three years following final payment on the contract.

 19. The Director of the Grants Administration Division (the "Director") is EPA's debarring official. The Director is the only EPA official who has the authority to debar or suspend a contractor or to ...

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