AND NOW, this 19th day of December, 2008, the opinion filed October 22, 2008, in the above-captioned matter shall be designated Opinion rather than Memorandum Opinion, and it shall be reported.
Argued: September 29, 2008
Before this Court are preliminary objections filed by the Commonwealth of Pennsylvania, Department of Transportation (Department) in opposition to a Petition for Review filed in our original jurisdiction by Schuylkill Products, Inc., Joseph W. Nagle (Nagle), Ernest G. Fink, Jr. (Fink) and CDS Engineers, Inc. (CDS) (collectively, SPI) in which it alleges that the Department's debarment proceedings against SPI are improper and without authority.
According to the Petition filed by SPI, the facts pled are as follows. SPI is a corporate entity with a business address in Cressona, Pennsylvania, and is in the business of manufacturing and/or fabricating bridge spans and prestressed concrete bridge beams. CDS is a wholly owned subsidiary of SPI. Nagle is the President and Treasurer of SPI and of CDS and Fink is the Vice-President and Secretary. It is one of the largest employers in Schuylkill County, employing 150 workers.
SPI is a "Bulletin 15 Supplier" which means it is listed as an approved manufacturer of materials that are supplied for use at Department construction projects. To be a Bulletin 15 Supplier, SPI had to meet certain technical and manufacturing criteria relating to quality control and performance of its product.
Prior to March, 2008, SPI was a contractor prequalified to perform erection services for the Department. On March 31, 2008, SPI voluntarily allowed its prequalification to lapse. Both before and after the lapse of its prequalification, SPI supplied (and currently supplies) its products as a Bulletin 15 Supplier for use by others in Commonwealth contracts. CDS was a subcontractor prequalified to perform erection services for the Department and, likewise, voluntarily allowed its prequalification to lapse. Since its prequalification lapsed, CDS has provided professional engineering services to contractors and subcontractors that perform construction for Department contracts.
In October, 2007, both SPI and CDS became aware of a criminal investigation when search warrants were issued for their businesses. As a result of evidence gathered, two former SPI employees pled guilty, inter alia, to taking kickbacks from a minority business enterprise, Marikina Construction Corporation. Those actions were outside the scope of their employment. Since the search warrants were issued, no other criminal charges were made. SPI continued to do business and supply its products. However, by letter dated June 19, 2008, the Department notified SPI and CDS of its Intent to Debar and deem them ineligible to further participate in any Commonwealth contract. The letter indicated the intent to debar was being sought pursuant to 67 Pa. Code §457.13 (regarding reasons for debarment) and Management Directive 215.9 and because of alleged evidence that suggested SPI and CDS conspired to defraud certain entities, including the United States Department of Transportation. Consequently, counsel for SPI's and CDS' lender, M&T Bank (Bank), issued a letter stating that it was the Bank's position that the debarment proceedings might constitute a per se violation of their pre-existing loan contracts' terms and conditions and that the Bank would "now be analyzing, reviewing, and closely monitoring its banking relationship with SPI for current and future developments."*fn1 (Morton R. Branzburg July 1, 2008 Letter.)
As a result, SPI filed a six-count Petition for Review seeking declaratory and injunctive relief. In Count One-Declaratory Relief, it alleged that it was not subject to debarment because the management directive did not have the force and effect of law. In Count Two-Declaratory Relief, SPI v. the Department, it alleged that SPI was not a contractor or a subcontractor, but was a supplier, and the Prequalification Code, Procurement Code and the Directive did not apply to a supplier. In Count Three--Declaratory Relief, Nagle and Fink v. the Department, it alleged that Nagle and Fink did not contract with the Department and only individuals who contracted with the Department could be debarred. In Count Four-Declaratory Relief, SPI and CDS v. the Department, it alleged that due process was violated because the Department initiated the procedure to debar and also was going to make the final determination of whether the violation had occurred.*fn2 Finally, in Count Six-Permanent Injunction, SPI and CDS v. the Department, it alleged that a permanent injunction of the administrative debarment hearings was necessary because it was the only remedy that could abate the offending activity and it had no adequate remedy at law. Further, the debarment proceedings would cause immediate and irreparable injury to it because the proceedings, if not enjoined, would destroy SPI's and CDS' businesses.
The Department filed Preliminary Objections to the Petition for Review alleging: 1) that this Court lacks subject matter jurisdiction because SPI's claims are not ripe for judicial review and they have failed to exhaust their administrative remedies; and 2) in a demurrer, that SPI fails to assert a cause of action against the Department for which relief may be granted because Management Directive 215.9 has the full force and effect of law; Fink and Nagle are subject to debarment, and the debarment hearing process is not infirm.*fn3 SPI filed an Answer to the preliminary objections denying the allegations.
After a hearing before the Court, it issued an order dated September 29, 2008, determining that the parties would be limited to and ordering the parties to submit supplemental briefs on the following issue:
Whether the Commonwealth of Pennsylvania (Commonwealth), under Management Directive 215.9, as affected by any other statutes, may preclude a supplier from doing business because the supplier has engaged in activities that would otherwise justify debarment.*fn4
The Department contends that Management Directive 215.9 provides it with the authority to suspend and/or debar a supplier. It provides us with the following history behind the Management Directive: In June, 1990, then Governor Casey issued Executive Order 1990-3 which ordered the Secretary of the Budget and the Secretary of General Services to "coordinate the development of a contractor Responsibility Program designed to identify, evaluate, and sanction appropriately, contractors that do not meet the standards of responsibility, that render deficient performance, or that engage in wrongdoing, or other activity adversely affecting their fitness to contract with Commonwealth agencies." (Executive Order 1990-3.) The provisions of Executive Order 1990-3 are codified at 4 Pa. Code §§7-501- 7-505. Pursuant to the Executive Order, the Contractor Responsibility Program was created and set forth in Management Directive 215.9. That Management Directive applies to all contracts entered into by executive agencies and seeks to ensure that the Commonwealth contracts only with responsible contractors. See Management Directive 215.9(1) and (2). The Department, as an executive agency, must participate in the maintenance and management of the Contractor Responsibility Program. 62 Pa. C.S. §§301(c), 321(6).
The Department refers us to the standards and procedures for agency determinations of contractor responsibility and procedures to suspend and debar a contractor at Management ...