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Chicago United Industries, Ltd. v. City of Chicago

December 3, 2007

CHICAGO UNITED INDUSTRIES, LTD., GEORGE LOERA, AND NICK MASSARELLA, PLAINTIFFS,
v.
CITY OF CHICAGO, MARY DEMPSEY, AND LOUIS LANGONE, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

The City of Chicago, Mary Dempsey, the city's former interim chief procurement officer, and Louis Langone, the director of administration of the City's Department of Transportation, have moved the Court to grant summary judgment against plaintiffs George Loera and Nick Massarella on three of the six counts contained in plaintiffs' revised third amended complaint. For the reasons stated below, the Court grants defendants' motion.

Background

The plaintiffs' claims arise from the City's debarment of Chicago United Industries ("CUI"), Loera, and Massarella in August 2005 from doing business with the City of Chicago. Prior to the debarment, CUI had been awarded contracts to provide City departments with stop signs, traffic control signals, fire extinguisher boxes, emergency telecommunications equipment, and other items. Allegedly as a result of the debarment, the City terminated or stopped performing on over forty contracts that CUI had with the City, whose value, CUI alleges, was around $12 million. The debarment also had the effect, plaintiffs contend, of preventing them from doing business with other firms that had City contracts. The plaintiffs allege that the debarment and termination violated Loera and Massarella's rights to due process, as Loera and Massarella were never notified that the City was considering debarring them personally, and that the procedure the City used allegedly was a sham. The plaintiffs also allege that during the debarment proceedings, the City and its representatives made false and defamatory statements about CUI, Loera, and Massarella to the press, City departments, and companies with which CUI does business. They also allege that the defendants later retaliated against them for filing suit to challenge the debarment.

The plaintiffs filed this suit shortly after the debarment took place. They obtained a temporary restraining order from the judge of this Court to whom the case was then assigned. The order was reversed on appeal after the Court of Appeals concluded that it amounted to an appealable preliminary injunction due to its duration and then found that the claim for injunctive relief had been rendered moot by the City's later reinstatement of the cancelled contracts, rescission of the debarment order, and amendment of debarment rules to provide for additional process in advance of debarment. See Chicago United Inds., Ltd. v. City of Chicago, 445 F.3d 940 (7th Cir. 2006). The court vacated the injunction but remanded the case for consideration of any claims for damages.

The plaintiffs filed an amended complaint following remand. They alleged that the City had retaliated against CUI for filing suit by threatening to reinstate debarment proceedings, canceling contracts, refusing to accept CUI as the low bidder on various contracts, failing to advise City departments and outside vendors that CUI was again eligible to do business with the City, and making defamatory statements about CUI, Loera, and Massarella. They asserted claims for damages on behalf of all three plaintiffs for violation of their procedural and substantive due process rights and for retaliation for exercising their First Amendment rights; a claim for an injunction against further debarment proceedings; and a state law defamation claim. In December 2006, this Court dismissed CUI's due process claims and all three plaintiffs' state law claims. The Court declined to dismiss the due process claims of Loera and Massarella and the First Amendment retaliation claims of the three plaintiffs.

Following the December 2006 ruling, plaintiffs filed a second amended complaint adding Dempsey, the City's interim chief procurement officer, as a defendant. In April 2007, the Court granted in part and denied in part another motion to dismiss filed by defendants. The Court dismissed Counts 1, 2, and 3 of that complaint (which alleged procedural and substantive due process violations as to Loera and Massarella and retaliation claims under § 1983 as to all three plaintiffs) with regard to defendant Dempsey to the extent plaintiffs sought damages resulting from her handling of the debarment and minority business enterprise decertification proceedings in a prosecutorial or quasi-judicial capacity. The Court also dismissed a breach of contract claim brought for the first time in the second amended complaint to the extent the claim was premised on defendants' failure to provide written notice of termination of the contracts at the time of CUI's debarment. The Court otherwise denied defendants' motion to dismiss. This decision allowed Loera and Massarella's claims of substantive and procedural due process violations (except where they ran up against Dempsey's immunity); plaintiffs' claims of retaliation; and the breach of contract claim (to the extent it rested on the theory that defendants had effectively terminated the contracts before they gave formal notice of the plaintiffs' debarment) to survive.

In August 2007, plaintiffs filed a third amended complaint. The Court will describe the allegations contained in the third amended complaint in some detail because they are the most current (not because they have changed significantly since the last iteration of plaintiffs' initial pleading-they have not).

In their revised third amended complaint, plaintiffs allege that CUI, a minority business enterprise and a supplier of goods, has been doing business with the City, the City's primary contractors, and other governmental agencies in northern Illinois for approximately twenty years. They allege that on an unspecified date, CUI was awarded a contract by the City with a total value of $1,530,000 to provide more than 300,000 sign blanks to the City's Department of Transportation (DOT). Pursuant to that contract, DOT placed an order for either 12,000 or 24,000 signs (plaintiffs' revised third amended complaint uses both numbers at different points), which CUI delivered in January 2005.

Shortly thereafter, Louis Langone, DOT's director of administration, claimed that CUI had shorted the City by 222 blanks, saying he had counted the blanks by hand. Massarella allegedly visited the DOT's sign shop and saw that the blanks were still shrink-wrapped; he believed that Langone could not possibly have counted the blanks and had made a false allegation against CUI as an excuse to avoid or delay payment. CUI then provided the City with documentation that the requested number of sign blanks had been delivered, and it requested payment. CUI was then told to deal only with the City's Department of Procurement Services ("DPS") and its attorneys. According to plaintiffs, CUI was eventually paid for all but 222 sign blanks.

On March 31, 2005, plaintiffs allege, the City issued a notice of intent to debar CUI. In that notice, the City alleged that CUI had submitted a false shipping ticket to DOT regarding the delivery of the sign blanks and had tried to collect $2,400 that it knew was not owed. According to plaintiffs, the notice did not state or suggest that the City was considering debarring Loera or Massarella personally. Plaintiffs also allege that at the time the City issued the notice, it also issued press releases falsely claiming that CUI was dishonest and had committed a fraud on the City.

Plaintiffs allege that on April 29, 2005, CUI submitted a written response to the notice of intent to debar, including a sworn affidavit from the manufacturer of the sign blanks stating that any shortage was the result of his own error and that CUI and its representatives were unaware of the error.

Plaintiffs allege that four months then passed, during which DOT and the City did not respond to plaintiffs' requests for meetings or a hearing regarding the allegations in the notice. Plaintiffs also allege that during this time, DPS directed other City departments not to honor their contracts with CUI or do business with CUI and advised other contractors to do the same, even though this allegedly violated the City's debarment procedures. As a result, plaintiffs allege, manufacturers and suppliers under contract with CUI terminated their relationships with the company. (Plaintiffs also now allege that the City, "contrary to its own long-standing business practices," allowed at least nine contracts it had with CUI to lapse between February and July of 2005.) Plaintiffs say that they repeatedly protested these actions by the City and requested a hearing and meetings with DPS and Dempsey but were ignored.

Plaintiffs allege that on August 24, 2005, the City debarred all three plaintiffs based on findings of fact that were based on false evidence supplied by Langone and summaries of witness interviews that falsely reported the statements of the witnesses. The debarment occurred, plaintiffs contend, without any opportunity to rebut the evidence against them and without findings by an impartial finder of fact. As a result of the debarment, the City's business with CUI was terminated, and all payments due to CUI were placed on hold.

Plaintiffs also allege that on March 17, 2005, the City gave CUI a notice of intent to decertify it as a minority business enterprise on the ground that it was ineligible for such a certification. The notice made no reference to the allegations of dishonesty or the sign blank contract. In April 2005, CUI responded in writing to the notice of intent to decertify. On August 24, 2005, the same day plaintiffs were formally debarred, CUI received notice of a hearing before DPS, to occur a week later. Plaintiffs allege that the notice did not mention the original notice of intent to decertify CUI as a minority business enterprise but rather referred only to the debarment of CUI. Plaintiffs allege that upon inquiry, CUI was advised that the decision on the decertification would be made by the same person or persons who had conducted the debarment proceedings.

The plaintiffs then filed this lawsuit and moved for a temporary restraining order. As noted earlier, the judge to whom the case was then assigned issued a temporary restraining order in which he enjoined the City from enforcing the debarment of the plaintiffs, canceling any existing contracts with CUI, and conducting any further proceedings on the decertification. The TRO was later extended and was modified to prevent the City from doing an ...


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