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659 F.Supp. 85
33 Cont.Cas.Fed. (CCH) P 75,208

VIKTORIA-SCHAEFER INTERNATIONAL SPEDITIONSGESELLSCHAFT, mbH & CO. KG, et al.,
Plaintiffs,
v.
The UNITED STATES DEPARTMENT OF the ARMY, et al., Defendants.
Civ. A. No. 86-0493.
United States District Court,
District of Columbia.
March 13, 1987.

MEMORANDUM

HAROLD H. GREENE, District Judge.

In February 1986, plaintiffs sought an order temporarily enjoining the United States Army from performing a group of contracts awarded to their competitors. Plaintiffs alleged that their due process rights had been violated by the Army's determination that, because of alleged lack of integrity, they were not responsible contractors. The Court agreed that plaintiffs had made a strong showing of likely success on the merits, in light of the decision of the Court of Appeals in in Old Dominion Dairy v. Secretary of Defense, 631 F.2d 953 (D.C.Cir.1980), and issued a temporary restraining order on February 27, 1986. One month later, the Court approved a stipulation of dismissal signed by both parties. Plaintiffs now seek attorney's fees and expenses under the Equal Access to Justice Act, 28 U.S.C. § 2412 (1986). They also seek to recover attorney's fees and expenses for the preparation of the motion for attorney's fees. For the reasons stated below, plaintiffs' motion will be granted, to the extent that the Court considers it reasonable.

I
The Equal Access to Justice Act calls for the awarding of attorney's fees and expenses to a qualified prevailing party in civil actions against the United States, unless the United States can demonstrate that its position was substantially justified or that there were special circumstances making a fee award unjust. See 28 U.S.C. § 2412(d)(1)(A). The Army does not dispute that plaintiffs are "qualified" parties. And although it disputes that plaintiffs are "prevailing" parties, this dispute is half-hearted. A party is "prevailing" if it succeeds "on any significant issue in litigation which achieves some of the benefit the parties sought in bringing the suit." Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933-1939, 76 L.Ed.2d 40 (1983). Plaintiffs in the instant case sought termination of four contracts and award of those contracts to itself. Plaintiffs achieved this result; consequently, they are prevailing parties. [FN1] FN1. The Army contends that the settlement was unfavorable to plaintiffs because it provided for good faith negotiations, its right to pursue other remedies, and release by plaintiffs of their right to institute actions against the Army's employees. These basically are benefits to which the Army would have been entitled in any event, with or without the settlement; they do not detract from the success achieved by plaintiffs by virtue of the settlement. This leaves two questions. First is whether the Army's position was "substantially justified." Once a party demonstrates that it is qualified and has prevailed, the government bears the burden of demonstrating that its position was substantially justified. Massachusetts Fair Share v. Law Enforcement Assistance Administration, 776 F.2d 1066, 1067 (D.C.Cir.1985). Congress recently amended the fees provision of the Equal Access to Justice Act, in order to make clear that the government's justification would be measured not only by its litigation stance, but also by the acts or omissions underlying the civil action. See 28 U.S.C. § 2412(d)(2)(D), as amended by Pub.L. No. 99-80, 99 Stat. 183, 185 (1985). In other words, unreasonable agency action will not necessarily be purged--in the sense of averting attorney's fees--by reasonable Justice Department litigation. This broadened definition of "position of the United States" makes the government's burden in avoiding fee awards even greater. See Massachusetts Fair Share, supra, at 1068 n. 17.

The Army has completely failed to meet this burden. The central fact of this litigation is that, as the Army concedes, the Old Dominion Dairy decision required the government to afford procedural due process to prospective government contractors when it intends to reject an otherwise low and acceptable bid for lack of integrity. More specifically, the Old Dominion Dairy decision required that the contractor "be given notice of those charges as soon as possible and some opportunity to respond to the charges before adverse action is taken." 631 F.2d at 955-56. Emphatically, this is what the Army failed to do. On December 13, 1985, the contracting officer determined that plaintiffs lacked integrity, but it did not notify them of that determination until January 8, 1986. In the meantime, the four contracts at issue were awarded to other parties, and plaintiffs completely lost their due process right to contest these awards free from the stigma imposed by the contracting officer. This, of course, was a direct violation of the Old Dominion Dairy decision.

The Army attempts to distinguish the instant case from Old Dominion Dairy, for example by pointing out that there was "no misleading of the plaintiffs by avoiding the issue during conversation." But plaintiffs are entirely correct in their assertion that if the procedural safeguards of Old Dominion Dairy do not fully apply in the instant case--that is, if the Army's position was "substantially justified" because the earlier case is distinguishable--then those procedural safeguards will not fully apply in any case. If anything, the instant plaintiffs' rights were more flagrantly violated, since the contracting officer failed to notify them of the adverse determination for 26 days; in Old Dominion Dairy, notification was given within 5 days. And in the instant case, the contracts had been awarded from 9 to 16 days before the notification--leaving plaintiffs without a reasonable chance to assert their liberty interest by rebutting the integrity charges. Nor is it "substantial justification" for the Army's deprivation of plaintiffs' rights that the Federal Acquisition Regulations do not require prior notification of a nonresponsibility determination. The Old Dominion Dairy decision has independently required such notification, in a case like this, since 1980--and it is the Army's responsibility to ensure that its contracting officers are aware of decisions that require it to respect fundamental constitutional rights. [FN3]

FN3. As it did in opposing the injunction, the Army also relies heavily on the ruling in Shermco Industries, Inc. v. Secretary of the Air Force, 584 F.Supp. 76 (N.D.Tex.1984). In Shermco, the court found that a draft indictment provided plaintiff with sufficient notice, under Old Dominion Dairy, that the government was concerned about its integrity. To the extent that Shermco is persuasive in this jurisdiction, suffice it to say that plaintiffs in the instant action received no notice of the integrity charges against them for almost a month. Moreover, the Shermco decision did not even deal with nonresponsibility determinations, and specifically distinguished Old Dominion Dairy. See 584 F.Supp. at 88.

An award of fees and expenses is thus proper unless special circumstances make such an award unjust. The Army concedes that the issue of "special circumstances" constitutes a matter of first impression in this Circuit, and argues that the award should be denied because "plaintiffs created the problems that led to the nonresponsibility determinations." [FN4] Specifically, the Army argues that plaintiffs were found to be nonresponsible because they breached a presumption of liability clause in a number of contracts and they encountered other difficulties. FN4. Defendants' Opposition at 19.The Army's arguments here fail in three respects. First, contrary to the Army's evident assumption, plaintiff Viktoria-Schaefer [FN5] is not the same entity as Viktoria Transport with which the Army had difficulties. Second, it has not been shown that either entity, in the prior contract disputes, was doing anything other than legitimately asserting its rights under German law. Third, even if plaintiffs had been breaching contracts, they still had the same liberty interests under Old Dominion Dairy as any individual or company. Those liberty interests still demanded protection, by notification before adverse action was taken on grounds of lack of integrity. Plaintiffs may indeed have lacked integrity, but under the law of this Circuit they have a constitutional right to be told about it in advance. Consequently, the government has failed to prove special circumstances that would make the award of attorney's fees unjust. FN5. Actually Viktoria-Schaefer International Speditionsgesellschaft mbH & Co. KG.
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