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Trap Rock Industries Inc. v. Sagner

Decided: March 12, 1975.


Lora, Handler and Tarleton. The opinion of the court was delivered by Handler, J.A.D.


[133 NJSuper Page 102] On November 23, 1971 the New Jersey Supreme Court decided Trap Rock Industries, Inc. v. Kohl, 59 N.J. 471 (1971), cert. den. 405 U.S. 1065, 92 S. Ct. 1500, 31 L. Ed. 2d 796 (1972), wherein it upheld the decision by the Commissioner of Transportation, John C. Kohl, temporarily suspending Trap Rock as a qualified bidder on contracts to be awarded by the Department of Transportation (D.O.T.) until such time as Michael Stavola divested himself of all his interest in the corporation. The suspension was based on an indictment against Michael Stavola for conspiring to bribe and offering a bribe to a member of the State Police to intercede in Stavola's behalf concerning another indictment against him for assault and battery of a police officer and obstruction of justice. As a result of Stavola's later conviction, proceedings to debar Trap Rock were brought before the Commissioner on March 16, 1972 and Trap Rock was barred for a period of five years from bidding or furnishing materials on D.O.T. contracts

or on contracts with any political subdivision utilizing state funds, or from entering into any subcontracts for work or materials on such projects. This decision was upheld by the Supreme Court in Trap Rock Industries, Inc. v. Kohl, 63 N.J. 1 (1973).

On June 14, 1973 a hearing was held before the Commissioner to determine whether Michael Stavola had completely divested himself of his interest in Trap Rock and whether the corporation should be reinstated as a qualified bidder on government contracts. Following the hearing the Commissioner rendered a decision upon findings and conclusions and issued a reinstatement order on June 29, 1973.

It is not disputed that Trap Rock thereafter met the prequalification standards in accordance with N.J.S.A. 27:7-35.1 et seq. and D.O.T. regulations, and became authorized or classified as a qualified bidder on state projects in excess of $25,000,000, and since August 1973 engaged in and completed several substantial public projects as a prime contractor and a subcontractor. It is further stated, without dispute, that on July 1, 1974 D.O.T., under its current Commissioner, Alan Sagner, continued Trap Rock's classification as an eligible bidder on public projects for the period July 11, 1974 to July 31, 1975.

On August 8, 1974 D.O.T. received bids for the resurfacing of Route 287. Trap Rock was the lowest bidder at $2,464,161.45 and was awarded the contract. The contract document was sent to Trap Rock on August 30, 1974. It was executed and then returned by Trap Rock to D.O.T. on September 6, 1974 for the Commissioner's signature.

At this time -- specifically on September 5, 1974 -- Trap Rock entered a guilty plea in the United States District Court for the District of New Jersey to a federal indictment which had been returned against the corporation on May 31, 1973. The indictment charged the corporation with unlawfully making a false federal income tax return for the fiscal year ending February 28, 1970. Trap Rock was alleged to have made a payment of $15,000 to former Governor Cahill's

political campaign and deducting that payment from its income tax return as an advertising expense. Trap Rock was convicted on its guilty plea and sentenced to pay a fine of $3500.

On September 25, 1974 Trap Rock was instructed by D.O.T's project engineer to discontinue work immediately on the Route 287 project. Two days later, on September 27, 1974, upon informal oral notice a hearing was scheduled for Monday, September 30, 1974. Although there is a controversy as to the expected scope of the hearing, its salient purpose was to determine whether the Commissioner should reject Trap Rock's bid and refuse to execute the contract because of the federal conviction. The authority for this possible action was N.J.S.A. 27:7-35.8, which provides that the Commissioner may reject a bidder at any time prior to the "actual award of a contract, where there have been developments subsequent to the classification of such bidder, which in the opinion of the commissioner would affect the responsibility of the bidder."

At the hearing the view was expressed on behalf of D.O.T. that the objective of the proceeding was not only to determine whether the Commissioner should execute the contract relating to the Route 287 project because of Trap Rock's guilty plea to the federal indictment, but also whether Trap Rock should be debarred generally as an eligible bidder. Counsel for Trap Rock took the position that hearing was restricted to the question of whether the contract relating to the Route 287 project ought to be executed by the Commissioner in light of the guilty plea to the federal indictment and with respect to this question, whether the present ownership and management of Trap Rock were in any way responsible for the conduct giving rise to the federal indictment against the corporation.

By letter dated October 9, 1974 the Commissioner informed Trap Rock of his decision not to sign the proposed contract for the Route 287 project and to debar Trap Rock from further bidding on D.O.T. projects. The Commissioner

stated that a formal determination would be forthcoming. On November 22, 1974 Commissioner Sagner issued his formal decision debarring Trap Rock from bidding on D.O.T. projects and from subcontracting or supplying materials on any local contract involving D.O.T. funds. He concluded that Trap Rock "lacked the moral integrity necessary to deal" with D.O.T. Necessarily, the Commissioner determined that, under N.J.S.A. 27:7-35.8, the guilty plea was a development subsequent to the classification of Trap Rock as a qualified bidder and that this did affect its responsibility as a bidder.

Trap Rock contends initially that the Commissioner was in error because the indictment to which Trap Rock pleaded guilty had been returned on May 31, 1973, approximately two weeks before the June 14, 1973 hearing before Commissioner Kohl, and that the pendency and circumstances of the federal indictment "were known to and had been considered and rejected by Commissioner Kohl as a basis for debarring Trap Rock."

The record of the June 14, 1973 hearing conducted by Commissioner Kohl is bereft of any reference to the federal indictment of May 31, 1973 or to any of the circumstances surrounding the commission of the federal offense. There is, likewise, no finding of fact or conclusion expressed in the determination of June 29, 1973 or other circumstance which would generate a necessary inference or impel the deduction that the former Commissioner had actually investigated, considered, evaluated and rejected the federal indictment as a factor bearing upon his decision to reinstate Trap Rock as an eligible bidder. Thus, the issue, not having been litigated by the prior administrative decision, should not be foreclosed in a later proceeding. 2 Am. Jur. 2d, Administrative Law, § 502 at 314 (1962); cf. 1B Moore's Federal Practice, § 0.443(4) at 3913 (1965). ...

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