In the Matter of the Proposed Debarment of October 17, 1977 PHOTO & SOUND COMPANY, JEROME KINTNER, and LOWELL E. STACY 116 Natoma Street San Francisco, California 94105 P.S. Docket No. 6/8 APPEARANCES: David M. Atcheson, Esq. Pillsbury, Nagel & Atcheson 155 Montgomery Street San Francisco, California 94104 for Respondents Norman D. Menegat, Esq. Assistant Regional Counsel Western Region, U.S. Postal Service San Bruno, California 94099 for United States Postal Service Duvall, William A.
By letters dated May 25, 1977, the Assistant Postmaster General, Procurement and Supply Department, United States Postal Service, advised Photo & Sound Company (P. & S.), Jerome Kintner and Lowell E. Stacy, 116 Natoma Street, San Francisco, California 94105, (Respondents) that he proposed to debar them from contracting with the Postal Service for a period of three years commencing June 1, 1977. The reason stated for the proposed debarment was that Messsrs. Kintner and Stacy, as employees of Photo & Sound, during the time when the latter was contracting with Respondent, acted to influence contracting personnel of the Postal Service by offering them things of value. It was stated that the authority for the proposed debarment was Section 1-604 of the Postal Contracting Manual and the addressees were told that they had 20 days from the date of their receipt of the notice within which to request a hearing, and that failure to request a hearing within the prescribed time would result in the proposed debarment's becoming final.
A timely request for a hearing was filed by or on behalf of each Appellant. In the P. & S. and Kintner requests it was stated that they proposed to contest the proposed debarments on the grounds that they --
1. *** have not at any time offered things of value to Postal Service personnel with the intention of influencing them in the performance of their official duties;
2. *** have not engaged in any activity affecting Postal Service personnel of such serious and compelling nature, or otherwise, so as to warrant debarment; and
3. In the one instance where their actions have been questioned, they have cooperated fully with the authorities, and, therefore, they believe it would be inequitable to the corporation and not in the best interests of the Government to impose debarment. In the case of Stacy's request, the first above assertion is omitted; the second assertion is amended to indicate that he does not believe he has engaged in any activity etc., as in number 2, above, and the assertion in number 3, above, is repeated.
In the reply to each of the requests for hearing, the Postal Service outlined instances, described later herein in more detail, in which each of the three Respondents was alleged to have some connection with the purchase of various electronic consumer items which were given to a Postal Service official and to a third party.
A hearing was held on June 29, 1977, and both parties have filed briefs and reply briefs on the issues.
Section 1-604.1 of the Postal Contracting Manual sets forth a number of specific "Causes and Conditions for Debarment", and includes the following:
"(4) Any other cause of such serious and compelling nature, affecting responsibility as a Government contractor, as may be determined by the Postal Service to warrant debarment."
P. & S. Company was organized more than 30 years ago and it was primarily a motion picture company and a recording studio. About 5 years ago it began to engage in the sale of motion picture projectors and recorders. P. & S.'s business for most of the time it has been in business has been primarily with schools, corporations, and service organizations having training needs. Its customers were some 5,000 school systems and some 3,000 companies. It was a professional organization, hiring professional people of whom the company was proud, and the selling had to be done outside the offices of the company. Today there are approximately 155 employees in offices located in Los Angeles, San Francisco, Sacramento, San Jose, Fresno, Costa Mesa, and San Diego, California, and Seattle, Washington. P. & S. is primarily a sales organization and it is the largest outlet for Bell & Howell products in the country. It has, in addition, appreciable sales of the products of Eastman Kodak Company, Minnesota Mining and Manufacturing Company and Newcomb Audio products. It is the largest business concern in its particular area of business, but there are 2 or 3 other companies that are somewhat comparable to it in size. Over the last 10 years it has grown at the rate of about 15 or 20% a year until, at the present time, its annual sales are running approximately 15 million dollars (Tr. 62-64). P. & S. is an employee-owned business. Some employees own stock in their own name, but the majority of the stock is held by a profit-sharing trust (Tr. 77).
In late 1972 the Postal Service contacted P. & S. to get help for the Respondent's training staff and for the Respondent's architectural and design people in developing plans for three conference rooms in the new regional headquarters building of the Postal Service in San Bruno, California. At this stage, the Postal Service wanted to avail itself of the company's expertise in the audio/visual hardware field.
In late 1972, also, the officers and directors of P. & S. began to believe that federal funding of educational programs would probably decrease, and that it would be prudent business practice to investigate other avenues of business. The company then took steps to increase its business in the non-educational area such as in business, industry, local and federal government. Whereas the business of the company up to about 1972 had been almost wholly in the educational field, it changed until at present the business is about 60% educational and 40% non-educational.
When the company was contacted by the Postal Service, as mentioned above, there was great reluctance on the part of some of the officers of the company to engage in the type of business that would be required by the Postal Service. Doubt was expressed as to the capability of company personnel to make detailed drawings of the entire system and it was believed that it would be difficult to perform the contract to do the installation that later would be required (Tr. 30-32).
These doubts were overcome and for the initial stages of the undertaking, a salesman, Lowell E. Stacy, was assigned. Mr. Stacy had graduated from Portland State University in Oregon and shortly thereafter, at the age of 22, he went to work with P. & S. as a salesman (Tr. 35). Mr. Stacy's father-in-law had been a junior officer during World War II on the ship which had been commanded by Jerome Kintner, now president of P. &. S., and this circumstance was one of the factors leading to Stacy's employment by P. & S. The preceding statement does not in any way detract from the testimony that Mr. Stacy is a rapid learner, a competent salesman, and apparently well-qualified for the position to which he was appointed. Mr. Stacy had worked in the development of other audio/visual systems for certain business firms, but none of these systems had been as large as the one required to meet the needs of the Postal Service (Tr. 35, 36, 73, 75).
At the first meeting of Mr. Stacy with the Postal representatives the purpose was to find out the needs of the Postal Service. Mr. Stacy, along with others, subsequently prepared an outline giving the pricing information on those items that would be required to perform the work for the Postal Service. Four or five of such lists were prepared until they arrived at one which met the desires of the Postal people. In the preparation of these lists,
Mr. Stacy met occasionally with the general contractor who was constructing the building in order that audio/visual items could be timely delivered to the site. Involved in the project were some 5' x 15" screens, which, because of the size of the building elevator, would be difficult to get into the building if delivery was delayed. Until the time of the presentation of the plan accepted by the Postal Service as satisfactory, Mr. Stacy had met only minimally with Mr. William Raborn, then Manager of the Procurement Branch for the Western Region of the United States Postal Service (Tr. 9, 10, 37, 38).
P. &. S. was requested to develop a price for preparing drawings and specifications which could be used by the Postal Service (1) to do the initial work that had to be done in building preparation and (2) for the preparation of a bid package. Mr. Stacy met Mr. Raborn in connection with the latter phase of the matter since it was Mr. Raborn who would issue the purchase order covering the preparation of the necessary drawings and specifications. The amount of the purchase order was 2 or 3 thousand dollars (Tr. 38). Among other things, P. & S. was requested to, and did, submit a list of possible bidders. The Postal Service also suggested that P. & S. submit its own bid for the performance of the necessary work. P. & S. did submit such a bid in the amount of $91,825.70 and, being the low bidder by approximately $50,000 to $60,000, was awarded the contract (Ex. 1) on October 30, 1973 (Tr. 38-40).
The contract was satisfactorily performed and completed in approximately one year. During this period Mr. Stacy met a Mr. William Westfall, a graphics contractor who had his own business known as Columbia Graphics. This business was located about one block from the office of P. & S. as was, also, the Postal Service building. At the time Mr. Stacy met Mr. Westfall, it was obvious that Mr. Westfall and Mr. Raborn were friends.
In a conversation in a San Francisco cafe near the offices of P. & S. Mr. Stacy was asked by either Mr. Westfall or Mr. Raborn whether P. & S. could supply various consumer types of items, such as stereo receivers, capable of operation in a van as well as on a boat. Mr. Stacy responded that P. & S. did not normally sell those types of items but that the company could get access to those products through other firms. Shortly thereafter Messrs. Westfall and Raborn gave to Mr. Stacy a list of items that they would like to have, and they requested that he supply them with catalog information relating to the listed products. Mr. Stacy supplied the catalog information and Messrs. Westfall and Raborn indicated the products that they wanted. Mr. Stacy then wrote an order for these products. 1/ The order forms used are those used by P. & S. to put merchandise on order. It is an internal record indicating who is ordering the product, as well as identifying the products, themselves (Tr. 41-45). When Westfall and Raborn asked Stacy to order the products, Mr. Stacy asked who would be paying for the merchandise. Westfall said that he should be paying for the merchandise. Westfall said that he should be billed for all of the items to be ordered. The charge of the items to Columbia Graphics was approved by P. & S. president Kintner, based upon his information that Columbia Graphics was also a contractor working for the Postal Service and that its credit status was all right (Ex. 2g; Tr. 65-66).
The items were ordered and delivered to Westfall and Raborn. About 45 days after delivery Stacy became aware that the items had not been paid for by Westfall, to whom they had been billed. Stacy was directed by Mr. Kintner to attempt collection from Westfall or from Columbia Graphics, but repeated efforts in this direction were unsuccessful. In the meantime Columbia Graphics had moved its office. During one of the calls to Westfall's office, Stacy was told by Columbia Graphics' bookkeeper that Westfall had no money in the account, and that was the last effort made to collect the bill from Westfall. Mr. Stacy did, on one occasion, tell Raborn that the vill had not been paid. Raborn seemed "a little upset" and said that he would speak to Westfall (Tr. 46-47). Eventually, the debts were written off as uncollectable at the direction of Mr. Kintner (Tr. 46-47; Exhibits 2o, 2p).
During the course of the performance of the P. & S. contract Stacy and Raborn had become well acquainted and Stacy liked Raborn "very much" (Tr. 51). In 1974 when the work under P. & S.'s contract was substantially complete, Stacy was, on one particular occasion, in Raborn's office. Raborn told Stacy that he (Raborn) had just bought a new condominium and he invited Stacy over to see it. Stacy accepted the invitation and when he arrived he was taken on a tour of the premises. During the course of the tour Raborn told Stacy that he would like to have two television sets - a small one for an upstairs room, and a larger one for downstairs. Stacy testified that there was no direct request for television sets at that time (Tr. 59, 60) but that it was Stacy's distinct impression that Raborn expected P. & S. to provide these items to him free of charge (Tr. 49). Raborn asked for specification sheets on television sets so that he might select the set that he wanted for each of the two rooms.
Stacy did not commit himself or P. & S. with respect to the requests for television sets, but he later discussed these requests with Mr. Kintner, who gave no instructions at that time as to how the matter would be handled. Later, Raborn told Stacy which television sets he wanter, but there was no offer, or discussion of any kind, by Raborn with respect to the payment of the approximately $600.00 cost of the television sets (Tr. 49-50).
Stacy took the specification sheets showing the sets chosen by Raborn back to the offices of P. & S., where there was another discussion of the problem. At this meeting, in addition to Messrs. Stacy and Kintner, an unnamed vice-president of P. & S. was present that Stacy felt himself to be under some real or imagined obligation to Raborn, and, based on such belief, he had made a commitment to Raborn on behalf of the company. Because Stacy felt such warm friendship for Raborn; because of the relationship between Stacy's father-in-law and Mr. Kintner; and in an effort to extricate Stacy from some situation, "whatever he was in", it was decided that the best way to bring an end to the matter was to accede to Raborn's request for the two television sets (Tr. 73, 50). The television sets were ordered and delivered to Mr. Raborn, who made no offer to pay for them. Raborn did ask that he be furnished a cash receipt showing that he had paid P. & S. for the television sets, but Stacy refused to provide such a receipt and none was ever provided to Raborn (Tr. 50, 59).
One result of the foregoing series of events was the indictment, trial and conviction of Mr. Raborn, and in one of the counts of the indictment on which he was convicted and sentenced it was charged that he unlawfully received two television sets. At the time of the hearing in this matter, Mr. Raborn's conviction was on appeal.
Mention previously has been made of Jerome Kintner, president and a director of Photo & Sound Company. Mr. Kintner was first employed with P. & S. in November, 1945, as a salesman of audio/visual hardware. After about 3 years as a salesman he became, successively, sales manager, head of sales and marketing, and president. At the present time he is the owner of the largest single block of stock (15%) in the company (Tr. 61-62, 77). The owner of the next largest block of stock (8%) is Mr. August Revel, who retired in March, 1977 (Tr. 29, 77). It was Mr. Revel who testified with respect to his misgivings about entering into the contract with the Postal Service. After the contract was awarded to Photo & Sound Company, Mr. Revel had nothing further specifically to do with the job that was to be performed (Tr. 33). The only other P. & S. officer specifically referred to in the testimony concerning the events described herein, was the unnamed executive vice-president who participated in the decision to give the television sets to Raborn (Tr. 80). From the testimony of record in this proceeding, it is clear that Mr. Kintner played a leading, if not the decisive role, leading to the decision with respect to the gifts of the television sets to Raborn (Tr. 69, 73, 76, 80).
A. The Columbia Graphics Account.
With respect to this transaction, Respondents assert that it was a purchase of equipment for Westfall and Raborn with full and sincere intent and understanding by Respondents that the bill for the items (apparently at cost) would be paid by Columbia Graphics. For approximately a year efforts were made by P. & S.'s credit department, and by Mr. Stacy, to collect the amount due. The effort of both P. & S. collectors proved to be of no avail and, when Mr. Stacy was advised that Westfall had no money in his account, the decision was made not to "throw good money after bad", and the bill was written off. The pursuit of usual, or any other, collection practice was believed to be hopeless. The write-off of delinquent accounts is not uncommon in that segment of the electronics business in which P. & S. is engaged (Tr. 83). P. &. S. eventually recouped the cost of these items by making deductions from commissions otherwise due Stacy (Tr. 68). This action was in accord with company practices in the case of uncollectable bills.
The Postal Service points out that P. & S. usually referred overdue bills to a collection agency for action, but that this step was not taken in connection with the Columbia Graphics bill. From this fact, the Postal Service concludes that it was the Respondents' intent from the beginning to curry favor with Westfall and Raborn by giving them these items of equipment valued at $1811.13 (Ex. 2g).
B. The Gift of Two Television Sets.
Respondents insist that the testimony which has been summarized or quoted herein relating to this event shows that the gift of the television sets was the result of so strong a suggestion by Raborn that it was tantamount to an affirmative request. Although suppliers in the field in which P. & S. is engaged have dinners for present or prospective customers, it is against the policy of P. & S. to give such gifts as television sets (Tr. 69, 72). Respondents assert that Mr. Stacy was motivated by his friendship for Mr. Raborn, and his sense of gratitude or obligation to Raborn for assistance Raborn had given during the course of performance of the contract. Mr. Kintner, according to Respondents, acquiesced in the gift because he wanted to break Mr. Stacy loose from his preoccupation with the Postal Service, because of his friendship for Stacy's father, and because he believed that the give would remove Stacy's sense of obligation to Raborn. None of these motivations, say Respondents, is sufficient to make the admitted gift of the television sets of such character as to warrant disbarment of the company, or any of its officers or employees. In the company's fiscal year prior to the hearing its sales to the Postal Service amounted to less than $1,000.00. Respondents conclude that this fact establishes that it harbored no expectation of special business considerations at the time the television sets were given to Raborn.
The Postal Service concedes that it can not establish a clear nexus between the gifts by Respondents and specific favorable disposition toward P. & S. which could be expected to bear fruit in the future in the form of preferential treatment. The Postal Service's position is that the acts of the Respondents described herein are indicative of an unsatisfactory record of business integrity (P.C.M., § 1-903.1(iv)) and that the conduct of the Respondents was of such serious and compelling nature to warrant the debarment of the Respondents for a period of three years.
There is testimony in the record (Tr. 72) that the giving of gifts such as television sets is neither the policy nor the practice of the Respondents. Mr. Stacy testified that he never provided gifts to any other government official. The record indicates that Mr. Stacy is a young man and that, in his enthusiasm for his job and in the warmth of his friendship for Mr. Raborn, by whom he undoubtedly was impressed, he was susceptible to the suggestions, perhaps amounting to requests, or more, that providing electronic consumer goods and television sets would be relatively easy ways of cementing their friendship. It is clear that Raborn was not hesitant in making known his wants to persons who could supply and fulfill them.
Giving full weight to all of the foregoing matters, and exercising a fairly large degree of leniency, it is conceivable that the matter of the Columbia Graphics account could be treated simply as an instance, encountered in any business, in which and account becomes uncollectable and prudence dictates that it be written off as a bad debt.
The exercise of lenience is necessary to reach this disposition of the Columbia Graphics account for the following, among possibly other, reasons: (1) an appreciable amount of money was involved and normally, one would think, the creditor would reduce the account to judgment; and (2) except for one time when Stacy mentioned to Raborn the fact that Westfall was delinquent, no effort was made to collect from Raborn, although it was known by Stacy, Kintner, and perhaps others, that Raborn was the recipient of some of the items.
Nevertheless, despite these facts, if, contrary to the present situation one were reviewing this matter alone, he might, out of an abundance of lenience, view this affair as an isolated aberration and not representative of any design or pattern of forbearance or favor-seeking. Supporting this view of the Columbia Graphics account is the fact that there do appear to have been earnest, repeated and consistent efforts made to collect from the prime debtor.
Regretably, the same conclusion may not, and can not, be reached with respect to the gift of the two television sets. When Raborn first mentioned the desire for these items to Stacy, Stacy got the message immediately that Raborn had no desire or intention to pay for the equipment. By this time Stacy well knew, through his experience with the Columbia Graphics account, of Raborn's distinct lack of enthusiasm for paying for merchandise, even though he had asked for it and was using it. That Stacy fully comprehended the nature of the request is evidenced by his immediate report of the request to the president of P. & S. Since the suggestion of the desire for two television sets was made "During the latter part of 1974", (Ex. 6, p. 2) it is safe to assume that Mr. Kintner was also aware of Raborn's tendency to acquire goods without paying for them, because it was on October 7, 1974, that Mr. Kintner issued the instruction to "write off" the Columbia Graphics account.
Some time, perhaps a matter of only a few days, passed between the day on which Raborn's request was made known to Kintner and the day on which the crucial decision was made to accede to the request. Both Stacy and Kintner knew that the day of decision would come and neither is in position to state -- indeed it has not been suggested, that they were caught off-guard, or that they acted impulsively. There was an abundance of time in which these men could have considered, with great care, the step they were being requested to take and the implications and consequences that might flow therefrom. From Mr. Kintner's testimony, it is apparent that the decision was reached in the company's offices only after an appreciable period of discussion among the two men previously mentioned and an unidentified senior vice-president of the company. 2/ It is obvious that Mr. Kintner and the senior vice-president were not immature youths, subject to be swayed by the broad hints and suggestions of greedy individuals. For whatever reasons these men had, they came down on the wrong side of the question, and it is now acknowledged by them that this is a fact (Tr. 69, 73, 76, 80). Mr. Kintner, as the chief executive officer, a director, and the largest individual shareholder of the company, undoubtedly had an important - perhaps, the decisive role in the decision to provide the television sets for Raborn. This decision, because of its serious and compelling nature, seriously affects the Respondents' responsibility as a Government contractor.
The Government's procurement processes must not only be kept free from undue and improper influence, but those processes must also be kept free of the appearance of being subject to such baleful influence. In § 1-604.3(b) of the Postal Contracting Manual it is stated, in part:
***The criminal, fraudulent, or seriously improper conduct of an individual may be imputed to the firm with which he is connected where such grave impropriety was accomplished within the course of his official duty or was affected by him with the knowledge or approval of that firm.***" The aggregation of personnel of Phot & Sound Company participating in the decision concerning the Raborn television sets makes their act in this matter the act of the company.
Based upon the entire record in this proceeding, specifically the circumstances surrounding the Columbia Graphics account and the gifts of television sets to Raborn, it is concluded that Photo & SOund Company, Jerome Kintner, and Lowell E. Stacy are hereby debarred from entering into contracts with the United States Postal Service.
Section 1-604.2 of the Postal Contracting Manual provides in part as follows:
"***debarment by the Postal Service shall be for a reasonable, definite, stated period of time, commensurate with the seriousness of the offense or the failure or inadequacy of performance. As a general rule, a period of debarment shall not exceed 3 years." It is noted that "3 years" is stated in terms of a maximum period. Although the Postal Service has stated that the debarment in this case should be for three years, it has stated no arguments and produced no evidence showing why the maximum period is appropriate.
There is no evidence of the indictment of any of the Respondents, and it is believed to be unlikely that similar events would be repeated. On the other hand, the persons involved in the decision to make the gift of the television sets to Raborn acted willfully after due deliberation. To be permitted to perform such acts with impunity would debase and destroy the integrity of the Government's procurement system.
Considering all the known factors in this matter, the Respondents herein named are hereby debarred as provided above for a period of eighteen months beginning June 1, 1977.
1/ See Exhibit 2 and sub-exhibits.
2/ It is not known whether Mr. Revel (Tr. 28-24) was the only Senior vice-president of P. & S.