1. Did the OFCCP violate the Fourth Amendment rights of the plaintiff, a government contractor, against an unreasonable administrative search by the federal government?
2. Are sanctions issued against government contractors calculated to punish them for failure to live up to their affirmative action responsibilities under their contracts?

[The plaintiff, Beverly Enterprises, Inc., operates nursing homes that provide care for veterans under contracts with the Veterans Administration. It challenged the OFCCP's administrative search of the company's affirmative action files and other review of the company as a violation of its Fourth Amendment rights. From an adverse ruling by the Department of Labor's Administrative Law Board, the plaintiff appealed to the U.S. district court.]
URBINA, D. J.…
The plaintiff is an Arkansas corporation that operates nursing homes that provide skilled nursing care for veterans. In various contracts with the Veterans Administration, the plaintiff has agreed to be bound by the affirmative-action provisions contained in Executive Order 11,246. Executive Order 11,246 requires that whenever the federal government purchases goods or services the government must insert a provision into the contract that prohibits the contractor from discriminating on the basis of race, sex, color, religion or national origin. The executive order also requires that contractors establish and update a written affirmative action program and allows the Secretary of Labor to set guidelines for verifying compliance. If a contractor fails to comply with these guidelines, the Secretary of Labor is empowered to terminate all contracts with that contractor and order that the government not deal with that contractor until it complies with the executive order.

One method by which the Department of Labor secures compliance with affirmative action programs is through a corporate management review ("CMR"), an administrative search that normally includes a review of the company's affirmative action files, an on-site review of the company's headquarters and an off-site analysis. The process for selecting companies for review begins when federal contractors, such as the plaintiff, file an Equal Employment Opportunity Employer Information Report with the Equal Employment Opportunity Commission. The plaintiff's report lists the location of the plaintiff's headquarters, the number of employees, the number of facilities and the plaintiff's industry. This information is entered into a computer and given to the Office of Federal Contract Compliance Programs in the Department of Labor ("OFCCP").

The OFCCP organizes the list of company headquarters into separate geographical lists corresponding to the jurisdictional territory of each OFCCP local office. The national office then sends each local office a list of the companies, placed in random order, which have headquarters in its jurisdiction ("CMR candidate list"). Defendant OFCCP claims the only criteria that affect the order and composition of the CMR candidate list are: (1) the geographical location of the company's headquarters, (2) the number of facilities the company owns, (3) the status of the company as a federal contractor and (4) the number of people the company employs….

The OFCCP local offices then are assigned to conduct a certain number of CMRs each year by their regional office. The area director for each local office starts at the top of the CMR candidate list and decides whether the office can review the candidate. A company may be rejected for review if it is out of business, its contract is completed, its contract is worth less than $50,000, it has fewer than 50 employees, there is no evidence of its contract with the government, it was reviewed within the past two years, it was reporting to the OFCCP under a Conciliation Agreement or it is a signatory to a consent decree….

In 1998, the Little Rock, Arkansas office of the OFCCP was assigned to choose one company in its jurisdiction for a CMR. According to the defendants, the plaintiff's name was placed third on a list of three candidates that was given to area director Joel Maltbia by the national office. Mr. Maltbia claimed he rejected the first name on the list because the Federal Procurement Data System, the OFCCP's computer listing of federal contractors, did not list the company as having a current contract with the federal government. Mr. Maltbia eliminated the second name from the list because he believed that the company was already reporting to the OFCCP under a consent decree. By contrast, Mr. Maltbia found that the plaintiff did not meet any of the criteria for being rejected for review. Accordingly, Mr. Maltbia filled out rejection forms for the first two candidates on the list and recommended that the plaintiff be selected for review.

The plaintiff was informed of its selection in October 1998. Mr. Reilly, the plaintiff's deputy general counsel and vice-president, met with OFCCP officials later that month to discuss the criteria by which the plaintiff was selected for a CMR review. Mr. Reilly expressed concerns that the plaintiff was being targeted for review because its other 699 facilities had been selected for other types of review on many occasions in the past few years. During this time, the plaintiff's companies were found to be compliant 100% of the time. Mr. Reilly believed the meetings with OFCCP officials failed to address his concerns and he refused to let the defendant OFCCP conduct its review.

On May 17, 1999, defendant OFCCP filed an Administrative Complaint with the Department of Labor's Office of Administrative Law alleging that the plaintiff's refusal to submit to a CMR violated its obligations under Executive Order 11,246…. The plaintiff claimed it was not selected according to a neutral administrative plan, as required by the Fourth Amendment.…

On July 22, 1999, the A.L.J. issued a recommended decision and order ("decision") to the Board finding that the plaintiff's selection for a Corporate Management Review was valid. Based on this finding, the A.L.J. recommended that the Administrative Law Board cancel the plaintiff's contracts with the government and bar the plaintiff and its subsidiaries from future government contracts until it complied with the requirements of Executive Order 11,246. On September 1, 1999, the Board issued an order in which it accepted the factual findings and recommendations of the A.L.J. with the exception of the A.L.J.'s recommendation to immediately cancel the government's contracts with the plaintiff and its subsidiaries. Instead, the Board gave the plaintiff 30 days to comply with Executive Order 11,246 before any sanction would be imposed.
The plaintiff appealed the Board's decision to this court as contrary to the plaintiff's constitutional and procedural rights and also sought to limit the scope of the remedy….

An administrative search violates the Fourth Amendment unless the agency shows the company's selection for the search is based on: (1) specific evidence of an existing violation, (2) reasonable legislative or administrative standards that have been met with respect to that particular contractor or (3) an administrative plan containing specific neutral criteria. In this case, the defendants seek to prove that the plaintiff's selection for the search was made pursuant to an administrative plan containing specific neutral criteria. Deciding whether the defendant OFCCP used neutral criteria is a factual determination. Thus, the court will overturn the agency's decision only if it is not supported by substantial evidence…. The court holds that the proposed administrative search does not violate the Fourth Amendment because substantial evidence supports the agency's finding that the search was initiated pursuant to a neutral administrative plan….

The plaintiff requests that this court give it 30 days after the sanctions take effect so that it will have a chance to comply with the order. This request is consistent with the sanction's goal of compelling compliance. See First Alabama Bank of Montgomery v. Donovan, 692 F.2d 714, 722 (11th Cir. 1982) (purpose of sanctions under E.O. 11,246 is to encourage compliance, not to punish). Therefore, the court holds that the defendants may not debar the plaintiff unless the plaintiff fails to comply with the Board's final order within 30 days from the date that the Board issues its final judgment.

For the foregoing reasons, the court will grant the defendants' motion and deny the plaintiff's motion for summary judgment on the plaintiff's Fourth Amendment claims. The court further holds that it lacks sufficient information to determine whether the plaintiff's subsidiaries may be punished for its failure to meet its obligations under Executive Order 11,246. Thus, the court will remand this case to the Administrative Law Board of the Department of Labor for proceedings consistent with this opinion. The court also modifies the remedy to allow the plaintiff 30 days after the Administrative Review Board's final decision to comply with its responsibilities under Executive Order 11,246 before it may be sanctioned.