Cordial Endeavor Concessions of Atlanta, LLC v. City of Atlanta, Georgia
FAA Docket No:
16-17-01
Author:
William S. Barham, Acting Deputy Assistant Administrator, Office of Civil Rights
Complainant(s):
Cordial Endeavor Concessions of Atlanta, LLCRespondent(s):
City of Atlanta, GeorgiaAirport(s):
Hartsfield-Jackson Atlanta International Airport
Holding:
Violation of 49 C.F.R. Pts. 23 and 26.Abstract:
Complainant was a certified Airport Concession Disadvantaged Business Enterprise (“ACDBE”) that operated a day spa in Concourse A—“XpresSpa Atlanta Terminal A, LLC”—at the airport from 2011 to 2015 as a joint venture partner with XpresSpa Holdings, LLC. (p. 1-2.) Complainant alleged that the City was in violation of Grant Assurance 37, Disadvantaged Business Enterprises, and the City’s ACDBE and Disadvantaged Business Enterprise (“DBE”) requirements under 49 C.F.R. Parts 23 and 26, respectively. (p. 2.) More specifically, Complainant alleged that the City failed to monitor and enforce the joint venture agreement between it and XpresSpa Holdings, LLC. (p. 2.) The City, as sponsor, owner, and operator of the airport, denied the allegations and argued that it completed extensive investigations and review of Complainant’s allegations against XpresSpa. (p. 2.) The City further argued that an ACDBE Program violation did not result merely because the City could not substantiate Complainant’s allegations. (p. 2.)
First, the Director considered whether the City was in compliance with its grant assurances and federal obligations in its oversight, monitoring, and control of XpresSpa and Complainant, and in the enforcement of their joint venture operating agreement. The Director concluded that the City was not in compliance.
During the six-year relationship between Complainant and XpresSpa, the City conducted only one review of the joint venture agreement—something far less than the “increased monitoring” practice specified under DOT/FAA joint Venture Guidance, which includes annual verification of ACDBE certification eligibility status; periodic (not less than annual) review of the managing entity’s meeting minutes and reports; periodic interviews with joint venture participants, managers, and employees; and, perhaps most important in this case, review of any documentation, including financial reports and agreement necessary to ensure compliance with the agreement. (p. 18.) While the City reviewed deficiencies in XpresSpa’s implementation of the joint venture operating agreement, there was nothing in the record to show that the City followed up with this review, took action to correct deficiencies, or verified that the deficiencies were corrected; instead, the record showed that the conditions deteriorated to the point that the City would no longer communicate with Complainant. (p. 18.)
Complainant filed an informal complaint with the Office of Civil Rights, which found that the City was not in compliance with 49 C.F.R. §§ 23.29 and 26.53 and ordered corrective action. (p. 18.)
The City responded to the request for a corrective action plan with a proposal and a rebuttal letter that identified various issues with how the FAA conducted its investigation. (p. 18.) For example, the City complained that by limiting the City to written responses to a series of targeted requests, the FAA stifled the City’s attempts to rebut the allegations against it and that the FAA’s fact-finding in the investigation appeared to ignore the information that the City furnished and to accept Complainant’s accusations as true. (p. 18.)
The Director disagreed with the City’s assertion that the FAA’s Office of Civil Rights failed to conduct a thorough and comprehensive investigation. (p. 19.) Rather, according to the Director, the investigation examined all aspects of the City’s alleged failure to monitor and oversee the joint venture operating agreement, including all of the submissions by the parties and XpresSpa, as well as applicable regulations and agency guidance. (p. 19.) For that matter, the City claimed that the FAA ignored most of the City’s submissions, but failed to list which documents it alleges were ignored by the FAA investigators. (p. 20.)
Second, the Director considered the Complainant’s allegations that the City violated 49 C.F.R. § 26.53(f)(3) because it allowed XpresSpa to terminate Complainant as an ACDBE at the airport without good cause and without otherwise complying with regulatory requirements for termination of a DBE firm. (p. 21.) The City’s Office of Contract Compliance concluded that good cause existed for the termination in that there were no prospects for a successful business relationship between the parties. (p. 21.) But, the Director found the City’s reasoning for Complainant’s termination unpersuasive, writing that the City’s basis for termination did not meet the standard of “good cause” and that the City’s conclusion that Complainant was not a responsible contractor was not supported under 49 C.F.R. § 26.54(f)(3)(vii). (p. 22.) In reaching this conclusion, the Director specifically noted 49 C.F.R. § 26.53 as germane to the Complainant’s case as that regulation required the City to ensure “that a prime contractor not terminate a DBE subcontractor … without your prior written consent.” (p. 22.) On its face, this section applies to subcontractors and substitute DBE firms, rather than to joint venture partners. (p. 22.) And, while the FAA did not dispute that a valid joint venture existed between the parties, it deemed XpresSpa’s unilateral right of termination to be tantamount to a contractor/subcontractor relationship. (p. 23.)
Moreover, while XpresSpa contended that it did not truly terminate Complainant, but rather exercised its right under the operative Purchase and Sale Agreement to terminate the agreement ab initio, the FAA opined that this argument was a post hoc rationalization designed to obscure what was in effect the unilateral termination of its ACDBE partner. (p. 23.)
Third, the Director evaluated claims that the City harassed and retaliated against the Complainant after its submission of an Investigation Request. (p. 24.) Relying on a letter from the FAA to the City, the Director noted that the City’s investigation report appeared to address only four of 36 purported acts of harassment and retaliation, that the City’s investigation and report were incomplete, and that the City had done nothing further to address the claims of Complainant or a corrective action plan proposed by the FAA: “The City fell far short of the requirements of the DBE regulations mandating sponsor involvement in investigating, determining, and resolving retaliation claims.” (p. 25.)
In all, the City was found out of compliance with its grant assurances and federal obligations in its oversight, monitoring and control of XpresSpa and Complainant, and in the enforcement of their joint venture operating agreement. (p. 26.) The Director found that the city violated 49 C.F.R. § 23.29 because it failed to implement appropriate mechanisms to ensure compliance with the requirements of that law by XpresSpa, and it failed to monitor and enforce the work of its ACDBE by reviewing records of all contracts, leases, joint venture agreement, and other concession-related agreements between XpresSpa and Complainant. (p. 26.)
The Director further found the City in violation of 49 C.F.R. § 26.37 because it failed to implement appropriate mechanisms to ensure compliance with the law’s requirement by all program participants including XpresSpa. (p. 26.) The City also failed to enforce a monitoring and enforcement mechanism to ensure that work committed to DBEs at a contract award was actually performed by DBEs. (p. 26.)
The City was also in violation of Grant Assurance 37, Disadvantaged Business Enterprises, according to the Director’s Determination, because it failed to implement and administer a program to monitor the joint venture operating agreement between XpresSpa and Complainant and determine the amount of all management fees and profits potentially due Complainant since the inception of the joint venture and ensure payment to Complainant. (p. 26.)
Given these findings, the Director ordered the City to submit a detailed accounting report describing the management fees and profits. The Director further directed the City to enforce the terms of the joint venture operating agreement to ensure that XpresSpa was in compliance with the City’s ACDBE plan in all respects and submit a report to the Director describing the steps it took to ensure such enforcement. (p. 26.)
Next, the Director concluded that the City was also not in compliance with its grant assurances and federal obligations regarding the termination of Complainant. As such, the City was in violation of 49 C.F.R. § 26.53(f)(1) because it had allowed XpresSpa to terminate Complainant, an ACDBE firm, without approving and providing prior written consent. (p. 27.) The City was also in violation of 49 C.F.R. § 26.53(f)(4), according to the Director, by failing to ensure that XpresSpa gave notice to the City or Complainant of its intent to request termination and/or to substitute another ACDBE in place of Complainant and the reason for that request. (p. 27.) Accordingly, the Director ordered the City to retract its Order of Substitution and to engage an independent third party, mutually agreed to by the City, Complainant, and XpresSpa, and to inform the Director of their choice. (p. 27.) The independent third party, in turn, would be required to conduct an independent evidentiary hearing on the termination/substitution matter and issue a finding. (p. 27.)
Third, the Director concluded that the City was not in compliance with the its grant assurances and federal obligations regarding the retaliation and harassment charge by Complainant in that the City failed to correctly accept, process, investigate, determine, and implement findings regarding the allegations. (p. 27.) As such, the Director found the City to be in violation of 49 C.F.R. § 26.37(a) in that it failed to implement appropriate mechanisms to ensure compliance with Part 26 by all program participants, including but not limited to, Complainant’s complaint of 49 C.F.R. § 26.109(d) violations. (p. 27.) The Director then ordered the City to retract the Retaliation and Harassment Investigative Report and engage an independent third party to investigate each of 36 purported acts of harassment and retaliation claimed by Complainant. (p. 27.)
No appeal was filed.