Due Process Protections In
DBE Decertification Proceedings
Thomas A. Reed
Preston Gates Ellis
& Rouvelas Meeds LLP
May 10, 2006
Introduction
The purpose of this presentation is to briefly
summarize the rights and responsibilities of
disadvantaged business enterprises and DBE
program operators (or recipients) in 49 CFR
§26.87 decertification proceedings.
The Regulatory Approach to “Narrow Tailoring”
DOT is tasked with ensuring that DBE programs do
not become over inclusive. Decertifying firms that
no longer meet DBE eligibility standards is just
one way of ensuring that DBE programs are
“narrowly tailored” to further a compelling
governmental interest, i.e., remedying past
discrimination.
Who’s covered by 49 CFR Part 26?
ƒ Part 26 certification and decertification procedures are intended to apply to
Airport Concession Disadvantaged Business Enterprises (“ACDBEs”) as
well as other disadvantaged minority and women owned businesses
(“DBEs”) except where Part 26 expressly refers ACDBEs to Part 23.
ƒ The Department of Transportation (“DOT”) retained a separate regulatory
scheme for ACDBEs in deference to the differences in the airport
concessions business as compared to DBEs under Part 26, especially with
respect to business size standards, so in some cases the reporting
requirements for ACDBEs may slightly differ from the requirements that
govern DBEs.
DBE Eligibility Status Does not “Expire”!
ƒ This is probably the most important point to take away from this
presentation!
ƒ Once a recipient of federal-aid highway funds, federal transit funds, or
airport funds has certified a DBE, it shall remain certified for a period of
at least three years unless and until its certification has been removed
in a formal §26.87 decertification proceeding.
ƒ Decertification proceedings must be “triggered” by information
suggesting that the firm’s eligibility status may have changed.
DBE Eligibility Status Does not “Expire”!
ƒ Recipients may not require DBEs to reapply for certification as a condition of
continuing to participate in the program during the three-year period specified
above, unless the factual basis on which the certification was made changes.
ƒ Recipients are not required to certify firms every three years. In fact, recipients
are prohibited from requiring that firms go through a recertification review
process more frequently than once every three years, unless the recipient has
obtained information indicating a change in the firm’s eligibility for DBE status.
ƒ DBE “no change” affidavits and notices of change are intended to keep
recipients current on the status of DBE firms. Recipients cannot use
recertification as a means to keep DBEs current.
Denial Of Certification Is Not Permanent
When a firm is decertified or its initial
certification application is denied, the recipient
must establish a waiting period of 12 months or
less for reapplication. Firms may reapply
regardless of the reasons for denial or
decertification.
When Can Certification Be Removed Without A §26.87
Procedure?
ƒ There is only one situation in which a recipient may
remove the eligibility of a certified DBE firm without a
§26.87 decertification proceeding. Removal is allowed
without a proceeding when the DBE firm does not dispute
that the personal net worth of an owner necessary to its
certification exceeds $750,000.
ƒ In ALL other cases, without exception, a recipient is not
permitted to remove the eligibility of a certified firm
without a §26.87 decertification proceeding.
Decertification Procedures
What triggers a decertification proceeding?
A.
B.
C.
D.
Third Party Ineligibility Complaints
Recipient Initiated Proceedings
DOT Directive To Initiate Proceedings
Notice Of Change Submitted By DBE Firm
Triggers
A. Third Party Ineligibility Complaints
Any person may file a complaint with the recipient
challenging the eligibility of a DBE firm. However,
the recipient is not required to accept general
allegations of ineligibility or anonymous,
unsubstantiated complaints. Moreover, it is not in
the recipient’s interest to rely on such complaints
since the recipient must submit a detailed record of
its decertification decision to DOT.
Triggers
B. Recipient Initiated Proceedings Based On Review Of Records.
Recipients must review their records on the DBE (material
obtained from the firm, the complainant, the recipient’s
independent investigation, or received pursuant to a request
for information, etc). If the facts on which certification was
based change, the recipient can take action to remove
eligibility. The recipient also has discretion to investigate a
firm if there is reason to believe that information on the firm is
incorrect or outdated.
Triggers
C. DOT Directive to Initiate Proceedings.
If a concerned operating administration determines that
information in a recipient’s certification records “provides
reasonable cause to believe” that a DBE certified by a
recipient does not meet eligibility criteria, the concerned
operating administration may direct the recipient to
initiate a decertification proceeding. The concerned
operating administration must notify the recipient and
the DBE concerning its reasons for the directive and
provide relevant documentation.
Triggers
D. Notice of Change submitted by DBE Firm. DBE
firms have a number of reporting
responsibilities:
1.
2.
3.
4.
General Statement Of Compliance;
Personal Net Worth Statement;
Notice of Change; and
No Change Affidavit.
DBE Reporting Requirements
1. General Statement of Compliance or Affirmation That DBE Is
Disadvantaged
DBEs must submit a signed and notarized certification that
each presumptively disadvantaged owner of the firm meets
part 26 standards for social and economic disadvantage.
This statement does not require supporting documentation.
DBE Reporting Requirements
2. Personal Net Worth (PNW) Statement
The PNW of an individual owner cannot exceed $750K. ACDBEs
are now subject to the same PNW standard. However,
acknowledging the “different business context of concessions”,
DOT allows ACDBEs to exclude from the PNW calculation assets
of up to $3M that the owner/applicant can demonstrate are
necessary to obtain financing to enter or expand an airport
concessions business or assets that have in fact been
encumbered to support existing financing for the applicant’s
business.
DBE Reporting Requirements
2. Personal Net Worth (PNW) Statement (continued)
DBE applicants must also submit a signed, notarized
statement of personal net worth, with appropriate
supporting documentation.
The reporting requirements for DBE airport
concessionaires (“ACDBEs”) do not include a formal PNW
statement, but as noted above, ACDBEs are held to the
same PNW standard subject to the exclusion for assets
necessary to obtain financing.
DBE Reporting Requirements
2. Personal Net Worth (PNW) Statement (continued)
DOT recipients have discretion to “look behind” the
PNW statement if obvious mistakes, errors or omissions
are apparent, i.e., the recipient can seek further
information or investigate.
DOT recipient may not use requests for further
information as means to harass, target, punish or
discriminate against DBEs.
DBE Reporting Requirements
3. “Notice Of Change”
DBE firms must provide a written affidavit to the
recipient within 30 days of any change in their
circumstances affecting their DBE eligibility.
The notification must include documentation of the
change in detail.
DBE Reporting Requirements
4. “No Change” Affidavit
Each DBE firm must submit an affidavit annually on the
anniversary date of the firm’s certification. The affidavit
affirms that there have been no changes in the firm’s
ability to meet DBE eligibility standards (i.e., size,
disadvantage, ownership and control). Submission of
this affidavit confirms that an individual owner’s PNW
does not exceed $750K.
Recipient’s Notification Requirements
The recipient must notify the DBE firm of its
recommendation to remove the DBE’s eligibility. The
notification must provide the reasons for the decision,
including specific references to the evidence in the
record supporting the recipient’s reasons for the
decision. The notice must advise the firm of the
consequences of the decision and the availability of an
appeal to the DOT.
Decertification Hearing
A. Standard of Proof
When a recipient seeks to decertify a DBE, the burden is
on the recipient to show by a “preponderance of the
evidence” (51% of the evidence favoring decertification)
that the DBE does not meet the eligibility requirements.
The burden is reversed in a certification hearing, i.e., when
a firm is seeking DBE status. In a hearing addressing a
firm’s initial certification, the firm must prove by a
preponderance that it meets the eligibility requirements for
a DBE.
Decertification Hearing
B. Eligibility Criteria
1.
2.
3.
4.
5.
Membership in Socially/Economically Disadvantaged
Group
Individual Disadvantage
Business Size (must be small by SBA standards)
Minority/Women Ownership (51% owned by socially
and economically disadvantaged individuals)
Minority/Women Control (DBE must be “independent”)
Decertification Hearing
C. Verbatim Record
For decertification, a complete verbatim record must be created.
A verbatim record is not necessary for certification applications so long
as the party potentially appealing the decision has alternative means to
review the record of the initial proceeding.
A firm whose certification status has been challenged may also elect to
present information and arguments in writing, without going to a
hearing. The recipient still must prove by a preponderance of the
evidence that the firm does not meet the eligibility criteria.
Decertification Hearing
D. Separation of Functions
Staffers who make recommendations
regarding removal of a DBE’s eligibility
cannot be decision-makers at the
decertification hearing.
Decertification Hearing
E. Grounds for Decision
The recipient’s decision cannot be based on a reinterpretation of
information available at the time of the DBE’s initial certification.
Rather, it must be based on:
1.
2.
3.
4.
5.
a change in firm’s circumstances since initial
certification;
new information about the firm not available at
certification;
information that the firm concealed or misrepresented at
the time of the certification;
a change in DOT’s standards since the initial
certification; or
a documented finding that the initial certification was
erroneous.
Decertification Hearing
D. Other Considerations:
1. A DBE remains certified while a recipient’s determination is
pending, until issuance of a final decertification decision and
notice. Once the recipient has made its final determination, the
decision remains in effect even during an appeal to the DOT. I.e.,
DOT does not stay the effect of the recipient’s decision while it is
considering the appeal.
Decertification Hearing
Other Considerations: (continued)
2.
No Ripple Effect. Even if a firm is decertified, other
recipients cannot automatically decertify the firm.
They must also initiate a§26.87 proceeding. By the
same token, a final decision affirming the firm’s
eligibility does not mean that the firm in question is
thereafter insulated from §26.87 proceedings initiated
by other recipients.
Availability of Appeal Before DOT
A. Timing
Appeal must be done by letter to DOT Office of Civil Rights within 90
days of a recipient’s final decision. The file must contain all of the
appellant’s arguments for or against certification and information
regarding other recipient’s who have decertified the firm or before
whom decertification proceedings are pending. Extensions of the 90
day period are available for good cause shown.
After receipt of the letter-appeal, DOT requests the verbatim record.
The regulations do not specify a time frame within which DOT must
make this request, but it is implied that the request must be made
immediately upon receipt of the record.
Availability of Appeal Before DOT
Timing (continued)
The recipient must submit the verbatim record to DOT
within 20 days of DOT’s request for the record.
Recipients can request extension of the 20 day deadline
for good cause.
DOT’s “policy” is to make its decision within 180 days of
receipt of the record.
Appellant should anticipate that an appeal will take at
least 7 months.
Availability of Appeal Before DOT
B. Scope of Review
1.
DOT reviews the verbatim record and determines if the
recipient’s decision was substantially supported by the
evidence. Reasonable minds may differ, but so long as there
is evidence in the record which supports the recipient’s decision, DOT
must uphold the decision. This is not “de novo” review, i.e., DOT does
not conduct a second hearing. DOT also examines whether the
recipient’s decision is consistent with the substantive and
procedural provisions of part 26 concerning certification.
2.
The parties are entitled to supplement the record on appeal.
3.
A complainant may also appeal a decision that a firm is eligible.
Availability of Appeal Before DOT
C. DOT authority:
1.
DOT can take immediate action on appeal. It can affirm the
recipient’s decision. It can also reject a decertification decision
and immediately certify the firm, or contrarily, it can reject a
certification decision and effect the removal of DBE status itself. If
DOT determines that the record is insufficient, it can remand the
matter to the recipient with instructions to seek more information
on a material issue. DOT cannot uphold a recipient’s decision
based on grounds not specified in the recipient’s decision.
2.
DOT does not consider petitions for reconsideration. Parties
wishing to challenge DOT’s decision must take their case to
federal court having at this point exhausted all administrative
remedies.
Appealing DOT Decisions
D. Must Exhaust Administrative Remedies
A party to a DBE certification or decertification
proceeding may wish to take the matter to federal court,
but if it has not fully exhausted its remedies, i.e., gotten
a final determination from the Department of
Transportation, federal court’s will likely reject the suit
as not ripe for their review. Once DOT has reached a
final determination on the certification status of the
DBE, the losing party is free to appeal the DOT’s
decision to federal court.
Closing Points
1.
2.
3.
4.
5.
6.
Do not allow DBE status to be taken away without a fight, i.e., without insisting on a full
hearing or submitting arguments and evidence in writing.
Recipients may not always know the specific due process procedures and may think that
DBE status can expire. Recipients must go through §26.87 to strip a DBE of its status.
In a decertification proceeding, the burden is on the recipient to prove the DBE’s
ineligibility. In the initial certification proceeding, the firm has the burden of proving that it
is eligible.
ACDBE owners should be aware that they can exclude assets necessary to secure
financing of up to $3M from their PNW calculation.
One decertification decision does not mean that other recipients can automatically
decertify a DBE. Separate decertification proceedings must be initiated by other recipients
seeking to challenge the DBE’s eligibility.
Losing DBE status does not have to be permanent. Final recipient decisions can be
appealed to DOT. DOT decisions can be appealed to federal court. Or, a firm can reapply
after a period designated by the recipient (no more than a year from the denial or
decertification decision).