Fighting Back Against OIG Investigations (But Losing)

Fist pileBy Sara Kropf

Office of Inspector General—or OIG—investigations can have wide reaching consequences. I’ve written before about the lack of procedural fairness surrounding these investigations.

Now, you might think that OIG investigations affect only federal agency employees, but that’s not the case. OIGs can investigate people outside of the agency, including federal government contractors.

A negative investigative finding about a government contractor can mean that contractor doesn’t win any more contracts with the feds. This is a very big deal for the contractor and could spell the end of her business altogether.

One outside contractor who was the subject of a negative OIG report about his company decided to fight back.

Stewart Liff and his consulting company sued the Department of Labor and its OIG (“DOL-OIG”), as well as the Office of Personnel Management (“OPM”) for the reputational harm and loss of government contracts resulting from the publicized report.

The DC Circuit said no way. It reversed the denial of the dismissal of the case.

(I apologize in advance for the number of acronyms in this post. It’s a very DC post.)

An OIG Report and the Fallout

Stewart Liff is a government consultant on human resources management issues. His consulting firm did training and provided resources on management issues for various government entities, including the Department of Labor, Department of Defense, and OPM. About 90% of his work was for federal agencies.

Relevant here, Mr. Liff was doing work for a program called the Department of Labor Veterans Employment and Training Service (DOL-VETS).

After Mr. Liff issued a management assessment report on the program, a few DOL-VETS employees complained, and DOL-OIG began investigating. In 2011, DOL-OIG issued a report saying that DOL had improperly hired Mr. Liff under pressure from a high-ranking DOL official who knew Mr. Liff from a previous job.

Even though the report stated that it was not to be “distributed outside of the agency,” it was posted publicly on the internet and The Washington Post published an article about Mr. Liff.

Following the report, deputy secretary Seth Harris issued a memorandum stating that he would “aggressively pursue Mr. Liff for all valid causes of action.” This memorandum was also published online for everyone to see.

The collateral damage from the OIG investigation did not stop there.

The same month, the DOL-OIG report was published, Mr. Liff learned that the OIG for OPM had also begun an investigation into Mr. Liff’s services. Just one month later, OPM ended its contract with Mr. Liff. The OPM director piled on, making public statements disclaiming any future use of Mr. Liff’s services.

Mr. Liff sued DOL-OIG, DOL and OPM alleging violations of his due process rights and the Administrative Procedures Act. He asserted a claim for money damages under Bivens against acting DOL-OIG Daniel Petrole, Department of Labor deputy secretary Seth Harris and OPM Director John Barry, as well as two unnamed agents.

He claimed that these individuals violated his constitutional rights by issuing an OIG report that damaged Mr. Liff’s reputation, barred him from future government contracts and deprived him of his liberty interest in pursuing his chosen profession to advise government agencies.

In the complaint, Mr. Liff alleged that he lost competitive bids on all but one government contract since the publicization of the report and that many of his government contacts simply stop returning his phone calls.

The District Court Doesn’t Dismiss the Case (This Is a Win)

Mr. Liff had to know that his case was a longshot. It’s always hard to sue the government and even harder to sue government officials in their individual capacity.

The defendants argued that there was no remedy under Bivens for harm to one’s reputation. They also argued that there were alternative remedies available under other statutes, which would preclude a Bivens remedy. Finally, they asserted a qualified immunity defense, claiming that there was no clearly established constitutional right against reputation harm.

In the district court, Mr. Liff won a partial victory when the court did not dismiss the action outright.

The district court rejected the qualified immunity defense. It also decided not to resolve the question of whether there was an alternative remedy to deny a Bivens claim.

The Court of Appeals Feels a Bit Differently

The task of defending the decision grew even more challenging on appeal. The defendants sought an interlocutory appeal based on the denial of their qualified immunity defense.

The court of appeals ignored the qualified immunity defense and analyzed whether the district court erred by refusing to reach the Bivens question as a threshold issue.

I won’t bore you with a discussion of all of the alternative remedies the court described, but they include the Tucker Act, the Federal Acquisition Regulation, the procurement protest system, and the Contract Disputes Act.

These remedies, however, allow someone to seek redress against an agency that has denied the person a contract. They don’t allow someone to seek redress against an OIG who issued a reputation-destroying report.

The court of appeals decision also analyzes the availability of the Privacy Act as an alternative remedy. What’s particularly interesting about this analysis is that the government did not raise it before the district court.

The court gives lip service to the general rule that “a federal appellate court does not consider an issue not passed upon below.” Singleton v. Wulff, 428 U.S. 106, 120 (1976). But then it shrugs and says, “no big deal.”

It exercised its discretion to address the issue because it was a “straightforward legal issue” and both sides had briefed it before the court.

(It’s funny, courts of appeal are always more than happy to find waiver when my criminal clients don’t raise an issue below, but apparently a different standard applies when it’s the government who fails to raise it. I guess “discretion” is easier to apply to help the government than to help a criminal defendant.)

Where the court gets it (mostly) right is the availability of a remedy under the Privacy Act, 5 U.S.C. § 552a.

The Privacy Act regulates the collection, maintenance and dissemination of information by federal agencies. Agencies are charged with making sure the information they have and release about individuals is accurate and complete.

This is no easy task.

But, important here, the Privacy Act has protections for individuals who feel wronged by the government’s release of private information about them. As the court described:

The Privacy Act also offers relief for some claims based on the government’s information that is not “within a system of records.” McCready v. Nicholson, 465 F.3d 1, 11 (D.C. Cir. 2006) (quotation marks omitted). McCready illustrates that the Privacy Act encompasses misstatements contained in a disparaging Inspector General’s report and associated agency documents. Id. at 11-14. The Privacy Act also applies when an “adverse determination ‘is made’” by the agency that maintained the flawed record or by an outside actor. See Dickson v. Office of Pers. Mgmt., 828 F.2d 32, 36-37 (D.C. Cir. 1987). Injunctive relief and monetary damages are available. 5 U.S.C. § 552a(g)(2) & (4).

The court relied on a 2006 case to conclude that “the Privacy Act encompasses the statements contained in a disparaging Inspector General’s report and associated Agency documents.”

In the end, the court concluded that Mr. Liff had viable alternative remedies to his Bivens claims and it dismissed the case.

Using this Decision for Good

This decision was not good for Mr. Liff, but it could be used more proactively by other individuals who are wronged by OIG reports. The D.C. Circuit’s rulings on the Privacy Act is binding law on the district courts in DC that will hear most of these challenges against federal agencies in the first place.

Many OIGs now publish only summaries of reports or take out the name of the contractor or employee who is the subject of the report. It seems like the next test will be a case where the person harmed is easily identified by the report—even if not named in it.

This entry was posted in civil case, Government contracting fraud, OIG investigations. Bookmark the permalink.

2 Responses to Fighting Back Against OIG Investigations (But Losing)

  1. Pingback: OIG Investigations – Why Lawyers and Clients Should Both Worry (Part II) | Grand Jury Target

  2. Pingback: OIG Investigations – Why Lawyers and Federal Employees Should Both Worry (Part III) | Grand Jury Target

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