Testwell Is a Concrete Testing Laboratory Licensed by the Department

1

Dep’t of Buildings v. Testwell Laboratories, Inc.

OATH Index Nos. 1374/09 & 1375/09 (Dec. 2, 2008)

A licensed concrete testing laboratory and licensed site safety manager were indicted on corruption charges. Petitioner sought to impose indefinite suspension of licenses and other privileges held by respondents on sole basis of indictment without submitting competent evidence of the misconduct alleged. ALJ finds that such a hearing would violate due process and recommends dismissal of charges for failure of proof.

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NEW YORK CITY OFFICE OF

ADMINISTRATIVE TRIALS AND HEARINGS

In the Matter of

DEPARTMENT OF BUILDINGS

Petitioner

- against -

TESTWELL LABORATORIES, INC. and V. REDDY KANCHARLA

Respondents

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REPORT AND RECOMMENDATION

TYNIA D. RICHARD, Administrative Law Judge

This proceeding was referred to this tribunal pursuant to sections 28-401.19.1 and 28-211.1.2 of the New York City Administrative Code (“Construction Code”) and section 21-02 of Title 1 of the Rules of the City of New York. Respondents Vidyasagar Reddy Kancharla (“Kancharla”), a licensed site safety manager (Lic. No. 1212), and Testwell Laboratories, Inc. (“Testwell”), a licensed concrete testing laboratory (Lic. No. 32),have been charged with violating sections 28-401.19(2), (5), and (6) of the Construction Code by (i) making material false or misleading statements on a form or report filed with the Department, (ii) engaging in fraudulent dealings, and (iii) engaging in negligence, incompetence, lack of knowledge or disregard of the Construction Code and related laws and rules. NYC Admin. Code §§ 28-401.19(2), (5), and (6). The Department further charges Kancharla, a state licensed professional engineer (N.Y.S. Lic. No. 068162), with knowingly or negligently making false or misleading statements to the City, either personally or through agents, and with engaging in conduct that evidenced a failure to comply with law or rules, in violation of rules 21-02(a)(3) and (7) of the Rules of the City of New York. 1 RCNY §§ 21-02(a)(3) & (7).

The hearing in this matter was held before me on November 6, 2008. The record was kept open so the parties could submit closing briefs. Respondents submitted their motion to dismiss the charges on November 10 (“Resp. brief”), and petitioner submitted papers opposing the motion on November 13 (“Pet. brief”), at which time the record was closed. After the hearing, which was scheduled on an expedited basis at petitioner’s request, the parties made request for an expedited decision, which was granted. Based upon the record, I find that petitioner has failed to prove the charges, and I recommend their dismissal.

ANALYSIS

The Departmental charges against Testwell and Kancharla make a single substantive allegation: that both were indicted on October 29, 2008, in New York Supreme Court for enterprise corruption, scheme to defraud, grand larceny, attempted grand larceny, offering a false instrument for filing, and falsifying business records.[1] The Department asserts that the conduct alleged in the indictment relates to the licenses held by respondents and, using the indictment as a predicate, the Department seeks to suspend respondents’ licenses and privileges indefinitely until the criminal case is resolved.

Petitioner seeks to suspend Testwell’s concrete testing license and Kancharla’s site safety manager license. Section 28-401.19 of the Construction Code sets forth the 14 grounds upon which the commissioner may suspend or revoke a license.[2] The Department alleges that respondents have violatedsubsections (2), (5), and (6) which prohibit making material false or misleading statements, fraudulent dealings, and negligence, incompetence, lack of knowledge or disregard of the code.

Petitioner seeks to exclude Kancharla from the ability to file applications and other documents with the Department, as set forth in section 28-211.1.2. The section authorizes the Department to refuse an application or other document submitted by “a person who has been found, after a hearing at the office of administrative trials and hearings pursuant to the department’s rules” to have “knowingly or negligently made a false statement” or to have falsified required documents or allowed any such documents to be falsified. Admin. Code § 28-211.1.2.

Last, petitioner seeks to exclude Kancharla from participating in its programs for limited supervisory check and/or professional certification. Section 21-02 of the City rules set forth the bases upon which the Department may exclude a professional engineer from the Department’s programs for limited supervisory check and/or professional certification of applications, plans and removal of objections(1 RCNY § 21-02(a)). The Department may impose the exclusion on the basis of a number of offenses, including negligence or incompetence, false statements, conviction of a criminal offense, and other misconduct, typically done after a hearing at OATH. 1 RCNY § 21-02(a), (b) & (c).

I

Construction Code §§ 28-401.19 and 28-401.19.1 -- scope of the post-deprivationhearing

The Department concedes that, since the adoption of the Building Code in 1968, the relevant provisions of which were essentially the same as those set forth in the 2008 Construction Code, though renumbered, it has never sought a suspension pending resolution of a criminal casewhile asserting asits sole basis for the suspension the fact that a criminal indictment was issued against the licensee (Tr. 10). Yet, it makes just such a contention in this case, having submitted as its sole evidence the indictment filed in New York Supreme Court against these respondents on October 29, 2008 (Pet. Ex. 1). The Department asserts that the only issue properly before the tribunal in this hearing is “whether these respondents are the same [parties] named in the indictment” (Pet. brief, at 11).

Section 28-401.19 provides an inclusive list of 14 grounds for suspension and revocation, and theissuance of an indictmentis not among them. Criminal conviction is a ground for suspension under subsection 12 (“conviction of a criminal offense where the underlying act arises out of the individual’s professional dealings with the city or any other governmental entity”). Criminal convictions have frequently been the basis for license revocation in hearings conducted at this tribunal, where the charges of misconduct are typically proven by the judgment of conviction. See, e.g., Dep’t of Buildings v. Borrazzo, OATH Index No. 128/06 (Oct. 28, 2005) (license revocation for plumber convicted of bribery under Administrative Code section 26-151(a)(2)); Dep’t of Buildings v. Figliolia, OATH Index No. 1520/05 (Apr. 6, 2005), aff’d, Comm’r Dec. (Apr. 21, 2005) (plumber’s license revoked for plumber convicted of enterprise corruption); Dep’t of Buildings v. Mineo, OATH Index No. 1283/04 (June 7, 2004) (site safety manager license revoked under section 26-139 for licensee convicted of attempting to receive a bribe).

Respondents contend that petitioner is impermissibly attempting to rewrite the Construction Code (Resp. brief, at 2). It is generally held true that what is left out of a law is presumed to be intentionally left out. See, e.g., N.Y. Statutes § 74, entitled “Implications from legislative silence” (“A court cannot by implication supply in a statute a provision which it is reasonable to suppose the Legislature intended intentionally to omit; and the failure of the Legislature to include a matter within the scope of an act may be construed as an indication that its exclusion was intended.”); People v. Anonymous, 43 A.D.3d 806, 842 N.Y.S.2d 433 (1st Dep’t 2007) (failure of legislature to include a matter within a particular statute is an indication that its exclusion was intended); People v. Sommersell, 166 Misc.2d 774, 638 N.Y.S.2d 272 (2d Dep’t 1995) (omission of provision from statute is indication that its exclusion was intended, and in such instance court may not give statute reading which would include matters not contemplated by legislature in its enactment of statute); MBNA America Bank, N.A. v. Coe, 2 Misc.3d 355, 770 N.Y.S.2d 588 (City Ct. White Plains 2003) (the failure of the legislature to include a matter within the scope of a statute may be construed as an indication that its exclusion was intended).

Clearly, if the legislature had intended to include indictment as a ground for license suspension, which requires a lesser burden of proof than conviction, it could have done so. There is a significant difference between basing the deprivation of a property right on a criminal conviction versus an indictment, and it is one that the legislature could have made explicit but did not.

It bears noting that the Department recently revised and updated its code into the newly adopted Construction Code, which could have been updated to include the new provision the Department seeks. Instead, the Department makes a problematic argument that an indictment is sufficient to sustain its burden here, when in fact an indictment is not itself evidence. “‘An indictment is a mere accusation and raises no presumption of guilt. It is purely hearsay, for it is the conclusion or opinion of a body of men based on ex parte evidence. The rule applies to criminal actions as well as civil, and to all witnesses whether parties or not.’” People v. Miller, 91 N.Y.2d 372, 380, 670 N.Y.S.2d 978, 983(1998) (quoting People v. Morrison, 195 N.Y. 116, 117 (1909)).

The Department arguesthat the absence of a rule or statutory provision expressly authorizing it to seek suspension based on an indictment is “irrelevant,” because the Department has the ultimate authority to suspend licenses (Pet. brief, at 6). Although the case that petitioner cites,Sea Lar Trading Co. v. Michael, 107 Misc. 2d 93, 96-97, 433 N.Y.S.2d 403, 406 (Sup. Ct. N.Y. Co. 1980), does support its argument that the power to revoke implies the lesser power to suspend, the case is not otherwise applicable as it holds that the due process afforded beforea right is taken from an agent is less than that afforded to a licensee. Respondents here are licensees. Petitioner also contends that explicit authority to suspend based on an indictment is not necessary, because the courts have sustained suspensions on the basis of indictments pending the determination of the criminal case. The federal cases it cites are distinguishable, however, as discussed below.

I am unable to find in the Construction Code the relief that petitioner seeks. Here, on October 30, 2008, the Department imposed immediate pre-hearing suspensions on respondents based upon a belief that respondents’ conduct created “imminent jeopardy” to the public safety (Tr. 32-33). Since petitioner intends to seek revocation of respondents’ licenses if the criminal case results in conviction (Tr. 36), a final penalty is not sought in this case. In this proceeding, the Department seeks to “continue” those pre-hearing suspensions until the criminal case is resolved which, under section 28-401.19.1,are limited to “five working days.” In so doing, petitioner is attempting to insert within the existing codean interim (or “continued”) suspension that occurs after the initial pre-hearing suspension but that delays indefinitely respondents’ receipt of a meaningful post-deprivation hearing until after the criminal case is completed.[3] Under the Department’s proposed procedure, sandwiched between the pre-hearing suspension and the final post-deprivation hearing, this proceeding would be an interimhearing, post-deprivation, that effectively provides a rubberstamp for the Department’s finding of “imminent jeopardy” without any hearing on the facts that led the Department to a belief that the public was in such jeopardy,[4]or any presentation of evidence on the misconduct alleged that would offer an assurance of a “meaningful” hearing. According to the Department’s view, it would be entitled in this proceeding to a post-deprivation hearing that would neither offer finality nor provide respondents with the normal due process protections. It would also require this tribunal to relinquish its fact finding authority to that of the grand jurors (Tr. 37). None of this is anticipated or provided for in the statutory framework.

A post-deprivation hearing is meant to provide a meaningful opportunity to be heard. For example, under rule 21-02, before suspension of self-certification privileges, a licensee is entitled to an OATH hearing at the conclusion of which the administrative law judge:

shall issue proposed findings of fact and proposed conclusions of law, along with a report and recommendation to the Commissioner. The Commissioner shall review the report and recommendation . . . and shall issue a final determination. The Commissioner shall notify the architect or engineer in writing of the final determination. Such notice shall include a written statement indicating the reason for the final determination.

1 RCNY § 21-02(c)(4). Suspension and revocation hearings under section 28-401.19 (previously sections 26-139 and 26-151) have been held at OATH for many yearsand have consistently involved the receipt of testimonial and documentary evidence of the charges and the completion of a report and recommendation by the administrative law judge which is forwarded to the agency for its final determination. Section 28-211.1.2 of the Construction Code, for example, expressly designates a hearing at OATH and states that a penalty for false statements is not to be imposed until a licensee has been found, after a hearing, to have knowingly or negligently made a false statement. Having only the indictment in evidence, which is not evidence of a crime, I am unable to draw a factual conclusion as to whether a false statement was made.

Respondents argue that they are put in the untenable position of trying to defend against allegations supported merely by an indictment which prevents them from challenging specific allegations, cross examining witnesses, or evaluating the credibility or reliability of evidence. For example, respondents object that the Department refused to provide discovery requested prior to this hearing (Resp. Ex. A). The Department argued that respondents’ discovery demands were irrelevant because it was submitting only the indictment in this case (Tr. 16). At the hearing, petitioner’s advocate stated that the Departmental records sought by respondents were not in the Department’s possession (Tr. 17);she later admitted that she did not know if the Department had them because she had made no attempt to look for the records before denying respondents’ request (Tr. 19-20). She claimed that, in her experience, it was the Department’s practice to turn overto the District Attorney’s officeall documents related to a criminal investigation, without retaining any copies of its own (Tr. 20). Respondents’ counsel, who saidhe was formerly employed by the Department in a relevant capacity, denied this was true, arguing it would be “absurd” for the Department to relinquish all of its records because the Department’s system of inspector reviewand signoff contained in the files would be completely unavailable to it and would destroy its ability to issue permits or certificates of occupancy on any of the 102 building projects listed in the indictment, thus bringing to a halt such mammoth projects as Yankee Stadium and the Freedom Tower(Tr. 21-22; see 1 RCNY § 45-01). I found petitioner’s representation less than ingenuous, particularly afterthe advocate admitted that she had consulted no one above her title to determine what the Department’s record retention policy wasin such circumstances. Finally, the Department’s advocate contended that the records had nothing to do with the case because they addressed only the underlying facts, which were not relevant to thisproceeding (Tr. 19).

In addition to therefusal to provide discovery, petitioner’s advocate admitted that at least one of the Department’s investigators had been involved in the investigation conducted by the city’s Department of Investigation that led to the indictment (Tr. 36). The Department contends that it would jeopardize the criminal case to try the underlying facts in this proceeding. Given the length and complexity of the indictment, I was unconvincedthat there was no set of facts that could have been presented without jeopardizing the criminal case (Pet. Ex. 1).

While true that courts have sustained suspensions based upon the filing of an indictment, as petitioner argues, in the cases the Department cites there was express authority for suspending based on an indictment. For example, in Federal Deposit Insurance Corp. v. Mallen, 486 U.S. 230, 108 S. Ct. 1780 (1988), the Supreme Court was asked to consider the constitutionality of amendments to the Federal Deposit Insurance Act which specifically authorized a federal banking agency to take immediate action to suspend an officer or director of an insured bank who was formally charged with a felony involving dishonesty or breach of trust. Id.at 232-33, 108 S.Ct. at 1783-84; see12 U.S.C. § 1818(g)(1). See alsoBrown v. Dep’t of Justice, 715 F.2d 662, 665-66 (D.C. Cir. 1983) (indictment provided employer with “reasonable cause to believe the employee has committed a crime for which a sentence of imprisonment may be imposed,” which was the standard employed for employeesuspensions under 5 U.S.C. section 7513(b)(1)); Alsbury v. United States Postal Service, 530 F.2d 852, 855 (9th Cir. 1976) (construing Postal Service Manual provision similar to 5 U.S.C. section 7513(b)(1)); Rutigliano Paper Stock v. United States GSA, 967 F. Supp. 757(E.D.N.Y. 1997) (suspension of contractor based on indictment was expressly provided under the Federal Acquisition Regulations, 48 CFR 9.407-2 (b)); American Liberty Bail Bonds, Inc. v. Garamendi, 46 Cal. Rptr. 3d 541(Cal. Ct. App. 2006) (immediate suspension of indicted bail bonds agent was expressly authorized under section 1748.5(e)(1)of California Insurance Code). In each of these cases where the courts found that due process was adequateunder the circumstances, the basis for suspension had been authorized by statute. Many of them involved employees who had been arrested or indicted for crimes of which the employer had no evidence, but believed they might put others in jeopardy because of their employment capacity. Here, the Department has evidence.

Petitioner cites the Rutiglianocase for the proposition that an indictment is adequate evidence of misconduct. In Rutigliano, the district court held that a government contractor could be temporarily suspended from receiving government contracts on the basis of an indictment, noting that the indictment was “adequate evidence” of the offenses alleged, and the suspension did not constitute a due process violation. Rutigliano, 967 F. Supp. at 761. The court reviewed the agency’s authority as set forth in the Federal Acquisition Rules (“FAR”). FAR 9.407-2 explicitly provided for suspension of a “contractor suspected, uponadequate evidence,” of committing fraud or criminal offenses connected to a public contract; committing embezzlement, theft, forgery, bribery, falsification or destruction of records; making false statements, tax evasion, or receiving stolen property;or committing any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a government contractor or subcontractor. 48 C.F.R. § 9.407-2(a) (emphasis added). In another provision, the FAR also provided that “[i]ndictment for any of the [listed] causes . . . constitutesadequate evidence for suspension.” 48 C.F.R. § 9.407-2(b) (emphasis added). Thus, the basis for the court’s finding that the indictment was “adequate evidence” was drawn from the express language of the provision;it was not a substantive conclusion of law. A distinction in that case may also be drawn from the extensive framework set forth in the FAR that explains the process due in cases initiated upon an indictment and those that were not initiated upon an indictment. 967 F. Supp. at 761-62. There is no such framework available here.