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Gallo Asphalt Co. v. Sagner

Decided: November 8, 1976.


For reversal and remandment -- Chief Justice Hughes and Justices Sullivan, Pashman and Clifford. For affirmance -- Justice Mountain and Judge Carton. Concurring and dissenting -- Judge Conford. The opinion of the court was delivered by Pashman, J. Conford, P.J.A.D., Temporarily Assigned (concurring and dissenting in Part). Carton, P.J.A.D., Temporarily Assigned (dissenting). Justice Mountain authorizes me to state that he joins in this opinion.


[71 NJ Page 407] This is an appeal by two business entities challenging a debarment order which precludes them from bidding on any public projects financed by the State Department of Transportation (D.O.T.).*fn1 Appellants are family enterprises which are owned and operated by two brothers,

Gene and Vincent Gallo. Respondent is Alan Sagner, Commissioner of D.O.T., who imposed the debarment order.

On July 31, 1974, Gallo Asphalt Co. (Gallo Asphalt, a partnership) and Passaic Crushed Stone Co., Inc. (Crushed Stone, a corporation), together with one other business entity and several individuals, were indicted by a State Grand Jury for conspiring to fix bids on contracts for the construction and resurfacing of roads in Passaic County. The indictment charged a conspiracy to rig bids by controlling the price and supply of asphalt, by collusive bidding, by allocation of territories, by fixing prices, and by inflating prices of contracts to finance bribes to public officials. Mario Gallo, the older brother of Gene and Vincent, was named as a co-conspirator but not as a defendant in the indictment. Prior to his death in February 1970, Mario had been a partner in Gallo Asphalt and a stockholder in Crushed Stone with his two brothers. He had also been the chief executive in these as well as other family-owned companies.

As a result of a plea bargain with the Attorney General's office, Gene and Vincent Gallo entered guilty pleas on behalf of Gallo Asphalt and Crushed Stone before the late Judge John A. Ackerman on October 29, 1974. Pursuant to R. 3:9-2,*fn2 and with the consent of the prosecuting attorney, Judge Ackerman issued two orders prohibiting the use of the guilty pleas of the two companies as evidence "in any civil proceedings which may now be pending or which may be instituted in the future." Nevertheless, the following day the Commissioner notified Gene and Vincent Gallo that the indictment, guilty pleas and convictions indicated the lack of "responsibility" of Gallo Asphalt and of Gallo Asphalt Corp. (Gallo Corp.),*fn3 and affected their ability to

do business with D.O.T. As a result, he informed them that he had suspended these companies, including their affiliates and subsidiaries, in their capacities as contractors, subcontractors and suppliers, from the classification lists of prequalified bidders with D.O.T. They were permitted to request a hearing at which they could show cause why the suspension should not be continued.

Appellants sought an expedited hearing and appeared before the Commissioner on November 19, 1974. At the outset, counsel for the D.O.T. (an attorney from the Attorney General's office) stated that the parties had agreed on "telescoping" the proceeding to consider the propriety of debarment as well as suspension.*fn4 He then entered into evidence the Commissioner's letter of suspension, which adverted to appellants' guilty pleas and convictions. He also confirmed the allegations in the letter by questioning appellants' counsel as to the date of the hearing before Judge Ackerman and the details of the sentencing. Relying on the criminal convictions, he argued that sufficient cause for debarment had been established under the principles of 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). In his view, the indictment alone would have justified suspension;

the guilty pleas were evidence that the charges in the indictment were true.

Appellants' counsel responded by asserting that neither Gene nor Vincent had been implicated in the criminal activity for which the companies had entered guilty pleas. He also described the terms of the plea bargain with the State, emphasizing the applicability of R. 3:9-2 and entering into evidence copies of Judge Ackerman's order. In addition, Gene and Vincent Gallo, counsel for the estate of Mario Gallo, and attorneys from the Attorney General's office testified on behalf of the companies. Although Gene and Vincent had been Mario's nominal equals while he was alive and had been directors, partners, and shareholders in the family businesses, they claimed to have taken no part in setting policy or in managing finances. The testimony, as supplemented by evidence in a later hearing, indicated that Mario had taken charge of the businesses from their father Thomas Gallo and had been the unquestioned chief executive officer, while his brothers confined themselves to running a Crushed Stone facility at Pompton Lakes which manufactured asphalt products. Specifically, the prosecuting attorneys testified that they had uncovered no information suggesting that Gene and Vincent had played a role in setting exorbitant prices or in arranging collusive bids with other contractors.

On December 31, 1974, Commissioner Sagner issued a Determination and Order debarring Gallo Asphalt, Gallo Corp. and any related businesses until October 30, 1976. Accordingly, they were prohibited from bidding on any contract with D.O.T., from acting as a subcontractor or material supplier on any such contract, and from serving as a contractor or material supplier on local-aid contracts with D.O.T. funds. In his order, Commissioner Sagner noted that:

At appellants' request, a second hearing was held on January 27, 1975 before the Commissioner. Appellants presented additional evidence showing that Mario Gallo exclusively managed the businesses without the participation of Gene or Vincent. On February 25, 1975 Commissioner Sagner issued a second Determination and Order reaffirming his earlier decision but modifying the order to an indeterminate debarment period; the Gallos could resume State work when they "demonstrate[d] to [his] satisfaction that they possess[ed] the requisite degree of responsibility in the sense of moral integrity." The Appellate Division affirmed in an unreported per curiam decision, and we granted appellants' petition for certification. 68 N.J. 488 (1975).

We need not pass on the grounds for the Commissioner's decision rejecting the Gallos' claim that they should not be held responsible for Mario's criminal conduct. Instead, we find that the appellants' guilty pleas should not have been received in evidence during the hearing. Judge Ackerman's orders specifically stated that:

The Appellate Division did not address the propriety of the Commissioner's reliance upon the guilty pleas of the two firms because it thought that R. 3:9-2 and the order limiting the use of the pleas did not affect the use of the convictions resting thereon. It found that the two business entities were guilty of the charge alleged in the indictment based on the testimony of a witness for appellants, and concluded that the Gallos were not prejudiced by the Commissioner's use of the pleas.

However, the record shows that the essence of D.O.T.'s allegations against appellants was the admission of criminal guilt inherent in their pleas and the resulting convictions. The D.O.T. hearing was clearly a "civil proceeding" within the meaning of R. 3:9-2 and Judge Ackerman's orders, and therefore no reliance whatsoever should have been placed upon the pleas. This is so even though debarment hearings are not subject to the evidentiary formalities of a trial.*fn5 The terms and the spirit of the agreement entered into by the State and appellants precluded any evidential use of the pleas and convictions in subsequent civil proceedings. Thus, this case is not strictly analogous to other instances in which prior pleas of nolo contendere have been considered in disciplinary hearings. See In re Berardi, 23 N.J. 485 (1957); In re Friedman, 21 N.J. 273 (1956); In re Devine, 18 N.J. 67 (1955); Kravis v. Hock, 137 N.J.L. 252 (Sup. Ct. 1948).

Had it been clear that the pleas might have been utilized against them in the debarment proceeding, the Gallos might never have entered them, since the bulk of their business is with public entities. This is evidenced by the sworn testimony of appellants' counsel at the hearing:

May I further say that the plea was entered because of the timing involved. The plea was entered so that we could quickly resolve our problems with those agencies that debarred us and in fact, after the entry of the plea the State of New Jersey, through the good offices of the Attorney General, saw to it that we were in fact

reinstated by making certain facts known to these various agencies. Moving to dismiss the indictment might I say, Mr. Heimlich, would have taken many, many months because first of all a judge could not have dismissed the indictment at that point. It was not a civil action and you don't have discovery in a criminal case and the judge would have to hear the State's case first before he could dismiss the indictment. That would have taken many, many months and because of the financial losses which these companies would have sustained, there would be no good reason for them to not enter a plea and save themselves financially at that point, rather than go on for six months or a year, with possible appeals to the Appellate Division, depending upon the outcome. It would have taken a considerable period of time.

Plea bargaining is part of our criminal practice. The Attorney General has honored the plea bargain. The trial judge asked Mr. Zauber, representing the State at the acceptance of the pleas:

Mr. Zauber, I gather you are satisfied, consent having been given, among other things, the interest of the State or the public are really ...

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