B-153681, JUN. 22, 1964

B-153681, JUN. 22, 1964

TO CHAIRMAN, ATOMIC ENERGY COMMISSION:

THIS IS IN REPLY TO LETTER OF MAY 13, 1964, FROM MR. JOHN V. VINCIGUERRA, YOUR ACTING ASSISTANT GENERAL MANAGER, REQUESTING TO BE ADVISED WHETHER THE PROVISIONS OF 5 U.S.C. 53 ARE APPLICABLE TO WACKENHUT SERVICES, INCORPORATED, A WHOLLY OWNED SUBSIDIARY OF THE WACKENHUT CORPORATION, CORAL GABLES, FLORIDA.

IT IS EXPLAINED THAT WACKENHUT SERVICES, INCORPORATED, IS A FLORIDA CORPORATION WHICH IS EMPOWERED BY ITS ARTICLES OF INCORPORATION "TO CONTRACT FOR AND PROVIDE WATCHMEN, GUARD PERSONNEL AND FIRE FIGHTING EQUIPMENT, PLANS, SURVEYS AND SYSTEMS FOR THE SAFETY AND PROTECTION OF ANY INDIVIDUAL, FIRM, CORPORATION, GOVERNMENT OR AGENCY THEREOF.' IT IS PRECLUDED, HOWEVER, BY ITS ARTICLES OF INCORPORATION FROM ENGAGING "IN THE CONDUCT OF BUSINESS COMMONLY KNOWN AS THAT OF A DETECTIVE AGENCY OR PRIVATE DETECTIVE.' THE WACKENHUT CORPORATION IS LICENSED AS A PRIVATE INVESTIGATIVE AGENCY UNDER FLORIDA STATUTES.

THE PROVISIONS OF LAW SET FORTH IN 5 U.S.C. 53 READ AS FOLLOWS:

"NO EMPLOYEE OF THE PINKERTON DETECTIVE AGENCY, OR SIMILAR AGENCY, SHALL BE EMPLOYED IN ANY GOVERNMENT SERVICE OR BY ANY OFFICER OF THE DISTRICT OF COLUMBIA.'

CONCERNING A QUESTION SIMILAR TO THAT NOW PRESENTED AND INVOLVING A SUBSIDIARY CORPORATION WHOSE OFFICERS ALSO WERE OFFICERS IN THE PARENT CORPORATION FURNISHING DETECTIVE SERVICES, WE HELD THAT THE AWARD OF A CONTRACT TO A SEPARATE CORPORATION ESTABLISHED WITH AUTHORITY TO PERFORM ONLY PROTECTIVE SERVICES WOULD APPEAR TO DO NO VIOLENCE TO THE PURPOSE OF THE PROVISIONS OF 5 U.S.C. 53 AND THAT WE WOULD NOT OBJECT ON THE BASIS OF THOSE PROVISIONS TO ANY GOVERNMENT CONTRACT AWARDED TO IT. SEE B-149192, JUNE 29, 1962, 41 COMP. GEN. 819.

THE DECISION REFERRED TO ABOVE CONTAINS THE FOLLOWING PARAGRAPH:

"THE DOCTRINE OF THE SEPARATE LEGAL ENTITY OF THE CORPORATION IS, OF COURSE, WELL RECOGNIZED. 13 AM.JUR., CORPORATIONS SEC. 6. ALTHOUGH CORPORATE ENTITIES MAY BE DISREGARDED WHERE THEY ARE MADE THE IMPLEMENT OF AVOIDING A CLEAR LEGISLATIVE PURPOSE, THEY WILL NOT BE DISREGARDED WHERE THOSE IN CONTROL HAVE DELIBERATELY ADOPTED THE CORPORATE FORM IN ORDER TO SECURE ITS ADVANTAGES AND WHERE NO VIOLENCE IS DONE TO THE LEGISLATIVE PURPOSE BY TREATING THE CORPORATE ENTITY AS A SEPARATE LEGAL PERSON. SCHENLEY DISTILLERS CORP. V. UNITED STATES, 326 U.S. 432. NOR WOULD THE IDENTITY OF CORPORATE OFFICERS BETWEEN THE OLD AND NEW CORPORATIONS REQUIRE THAT THE CORPORATE ENTITY OF THE NEW CORPORATION BE DISREGARDED IF SEPARATION OF CORPORATE AFFAIRS WERE MAINTAINED. ANNOTATION, 102 AIR 1054. AND AS INDICATED IN DECISIONS AT 38 COMP. GEN. 881; 26 ID. 303 AND 8 ID. 89, THE LEGISLATIVE PURPOSE OF THE ACT OF MARCH 3, 1893, IS TO PROHIBIT CONTRACTS WITH OR APPOINTMENTS OF INDIVIDUAL EMPLOYEES OF DETECTIVE AGENCIES OR CONTRACTS WITH A DETECTIVE AGENCY FOR ANY PURPOSE; BUT NOT THE EMPLOYMENT OF AN AGENCY CONCERNED SOLELY WITH PROTECTIVE SERVICES.'

YOUR ACTING ASSISTANT GENERAL MANAGER MAKES REFERENCE TO THIS PARAGRAPH AND ASKS, IN EFFECT, WHETHER THE FACTS IN THE INSTANT CASE MEET THE REQUIREMENT THAT "SEPARATION OF CORPORATE AFFAIRS BE MAINTAINED.'

CONCERNING THIS MATTER WACKENHUT SERVICES, INCORPORATED, FURNISHED YOUR COMMISSION A CERTIFICATE WHICH STATES THAT:

"THIS IS TO CERTIFY THAT WACKENHUT SERVICES, INCORPORATED, DOES NOT FALL WITHIN THE PROHIBITION CONTAINED IN THE ACT OF MARCH 3, 1893 (5 U.S.C. 53), WHICH PROHIBITS THE EMPLOYMENT IN ANY GOVERNMENT SERVICE OF EMPLOYEES OF THE PINKERTON DETECTIVE AGENCY, OR A SIMILAR AGENCY, EITHER BY CONTRACT WITH THE AGENCY OR BY DIRECT HIRE OF SUCH EMPLOYEES.'

IN SUPPORT OF THAT CERTIFICATION IT ALSO PROVIDED YOUR COMMISSION WITH CERTAIN DOCUMENTS, CORRESPONDENCE AND OTHER MATERIAL (FORWARDED HERE WITH THE LETTER OF MAY 13) WHICH IT BELIEVES ESTABLISHES ITS ELIGIBILITY FOR AWARD OF THE CONTRACT INSOFAR AS 5 U.S.C. 53 IS CONCERNED.

AN EXAMINATION OF THE FURNISHED MATERIAL DISCLOSES THAT THE SUBSIDIARY WAS INCORPORATED ON JULY 25, 1960, AND THAT THE FIRST MEETING OF THE BOARD OF DIRECTORS WAS HELD ON JULY 27. MR. GEORGE WACKENHUT ACTED AS CHAIRMAN OF THE MEETING AND WAS ELECTED PRESIDENT OF THE SUBSIDIARY, THE SAME POSITION HE HELD IN THE PARENT CORPORATION. THE PARENT'S OFFER TO PURCHASE 500 SHARES OF STOCK OF THE SUBSIDIARY (THE MAXIMUM NUMBER OF SHARES AUTHORIZED FOR ISSUE WAS 5000) AT $1 PER SHARE WAS ACCEPTED AND NO ADDITIONAL SHARES HAVE BEEN ISSUED.

IT FURTHER APPEARS THAT THE DIRECTORS AND OFFICERS OF BOTH CORPORATIONS ARE THE SAME INDIVIDUALS WITH THE SAME TITLES EXCEPT FOR THE PARENT'S TITLE,"VICE PRESIDENT, FINANCE AND TREASURER" AND THE SUBSIDIARY'S TITLE,"TREASURER.' THE DIRECTORS AND OFFICERS OF THE SUBSIDIARY RECEIVE NO SALARY FROM THE SUBSIDIARY BUT THE SUBSIDIARY IS CHARGED A PRO RATA SHARE OF THEIR SALARIES. IN ADDITION,"HEADQUARTERS SUPPORT" IS PROVIDED TO THE SUBSIDIARY BY THE PARENT AND CONSISTS OF SECRETARIAL, CLERICAL, FINANCIAL AND SALES PROMOTIONAL SERVICES, AND OTHER GENERAL AND ADMINISTRATIVE EXPENSES WHICH LIKEWISE ARE CHARGED ON A PRO RATA BASIS TO THE SUBSIDIARY BY THE PARENT.

IT ALSO APPEARS THAT THE SUBSIDIARY PERFORMS ALL THOSE CORPORATE FUNCTIONS NECESSARY IN THE CONDUCT OF ITS BUSINESS INCLUDING THE FOLLOWING: (1) QUALIFIES AS A FOREIGN CORPORATION IN STATES WHERE IT INTENDS TO PERFORM SERVICES; (2) OBTAINS OCCUPATIONAL OR PROFESSIONAL LICENSES, MUNICIPAL, COUNTY, OR STATE AS REQUIRED; (3) REQUESTS AND OBTAINS FACILITY SECURITY CLEARANCES WHEN CLASSIFIED INFORMATION SO REQUIRES; (4) PERSONNEL ARE RECRUITED, SCREENED, HIRED AND TRAINED AS SUBSIDIARY EMPLOYEES BY SUBSIDIARY SUPERVISORY PERSONNEL; AND, WHERE REQUIRED, THE SUBSIDIARY REQUESTS AND OBTAINS PERSONNEL SECURITY CLEARANCES FOR ITS PERSONNEL; (5) SEPARATE PUBLIC RELATIONS RELEASES ARE MADE; (6) CORRESPONDENCE AND FILES ARE SEPARATELY MAINTAINED; THE SUBSIDIARY'S STATIONERY IS UTILIZED. (7) GENERAL AND PAYROLL ACCOUNTS ARE MAINTAINED IN VARIOUS BANKS; (8) PERSONNEL ARE PAID BY THE SUBSIDIARY WITH CHECKS DRAWN AGAINST PAYROLL ACCOUNTS AND MACHINE PAYROLL ACCOUNTING RECORDS ARE MADE AND RETAINED; APPROPRIATE TAXES ARE WITHHELD FROM PERSONNEL PAY CHECKS; (8) INVOICES ARE PREPARED AND FORWARDED; CHECKS IN PAYMENT ARE RECEIVED; AND MACHINE ACCOUNTING RECORDS ARE MADE AND RETAINED; (10) SEPARATE BOOKS OF ACCOUNT ON A CASH BASIS ARE MAINTAINED; THE ACCOUNTS ARE AUDITED YEARLY; (11) TAXES ARE PAID AND REPORTS ARE FILED; (12) INSURANCE COVERAGES ARE MAINTAINED.

IN VIEW OF THE FOREGOING, IT SEEMS TO US THAT THE CORPORATE AFFAIRS OF WACKENHUT SERVICES, INCORPORATED, ARE SEPARATELY MAINTAINED FROM THOSE OF THE WACKENHUT CORPORATION AND WE DO NOT FEEL THAT ANYTHING CONTAINED IN 5 U.S.C. 53 REQUIRES THAT THE SUBSIDIARY BE CONSIDERED TO BE INELIGIBLE FOR AN AWARD OF THE CONTRACT IN QUESTION.

WE HAVE, HOWEVER, RECEIVED A LETTER PROTESTING AGAINST THE FAVORABLE CONSIDERATION OF AN AWARD OF THE CONTRACT TO WACKENHUT SERVICES, INCORPORATED, FROM MR. KENNETH C. MCGUINESS, ATTORNEY AT LAW, ON BEHALF OF THE PRESENT CONTRACTOR, FEDERAL SERVICES, INCORPORATED.

MR. MCGUINESS REFERS TO OUR EARLIER DECISION MENTIONED ABOVE, 41 COMP. GEN. 819, PARTICULARLY TO THE STATEMENTS THEREIN THAT "CORPORATE ENTITIES MAY BE DISREGARDED WHERE THEY ARE MADE THE IMPLEMENT OF AVOIDING A CLEAR LEGISLATIVE PURPOSE" AND THAT THE IDENTITY OF CORPORATE OFFICERS BETWEEN THE OLD AND NEW CORPORATIONS DOES NOT REQUIRE THAT THE CORPORATE ENTITY OF THE NEW CORPORATION BE DISREGARDED IF "SEPARATION OF CORPORATE AFFAIRS WERE MAINTAINED.'

CONCERNING THE FIRST STATEMENT REFERRED TO ABOVE, WE SEE NO PARTICULAR DIFFERENCE BETWEEN THE FACTUAL SITUATION CONSIDERED HEREIN AND THAT CONCERNED IN THE DECISION OF 41 COMP. GEN. 819. NOR DO WE READ IN THE LEGISLATION IN QUESTION OR ITS LEGISLATIVE HISTORY ANYTHING WHICH WOULD PRECLUDE AN OWNER OF A BUSINESS WHOSE SOLE FUNCTION IS TO PROVIDE SECURITY GUARD SERVICES FROM OBTAINING A GOVERNMENT CONTRACT MERELY BECAUSE HE ALSO OWNED A SEPARATE BUSINESS ENGAGED IN PERFORMING DETECTIVE WORK. LIKEWISE WE FIND NOTHING THEREIN TO SUGGEST THAT A CORPORATION WHICH IS OTHERWISE QUALIFIED TO CONTRACT WITH THE GOVERNMENT SHOULD NOT BE PERMITTED TO DO SO SOLELY FOR THE REASON THAT IT IS WHOLLY OWNED BY A CORPORATION THAT IS NOT PERMITTED BY LAW TO CONTRACT WITH THE GOVERNMENT. ACCORDINGLY, WE ARE NOT CONVINCED THAT THE FACTS CONSIDERED HEREIN REQUIRE THE CONCLUSION THAT WACKENHUT SERVICES, INCORPORATED, WAS SPECIFICALLY ESTABLISHED TO AVOID THE STATUTORY OBLIGATIONS OF THE ANTI-PINKERTON ACT AS ALLEGED BY MR. MCGUINESS. WE BELIEVE THESE FACTS CAN AS REASONABLY BE CONSTRUED AS ESTABLISHING THAT THE ACTION TAKEN WAS TAKEN SPECIFICALLY FOR THE PURPOSE OF CREATING A CORPORATION THAT WOULD BE ELIGIBLE TO CONTRACT WITH THE GOVERNMENT BY REASON OF THE PROVISIONS OF 5 U.S.C. 53.

THE RELATIONSHIP OF CORPORATE AGENCIES OR AFFILIATES OF OTHER CORPORATIONS IS DISCUSSED IN VOL. 1, FLETCHER'S CYCLOPEDIA OF CORPORATIONS, SECTION 43. CONCERNING THE QUESTION WHETHER ONE CORPORATION IS MERELY AN AGENCY OR INSTRUMENTALITY OF ANOTHER CORPORATION, IT IS SAID THAT SUCH QUESTION IS A QUESTION OF FACT AND IT IS STATED THAT---

"IT IS NOT ENOUGH, HOWEVER, THAT SHAREHOLDERS AND OFFICERS OR MANAGERS IN THE CORPORATION ARE IDENTICAL, AND THE MERE FACT THAT ONE OWNS ALL THE STOCK OF THE OTHER, OR SUBSTANTIALLY ALL, IS NOT ENOUGH TO WARRANT DISREGARD (OF THEIR SEPARATE ENTITIES), IN THE ABSENCE OF SOME FRAUDULENT PURPOSE. * * * COMMON OFFICERS AND MANAGEMENT IS NOT INCOMPATIBLE WITH SEPARATE ENTITIES, OR CONCLUSIVE OF IDENTITY; NOR A DIFFERENCE IN OFFICERS AND STOCKHOLDERS CONCLUSIVE OF DISTINCT ENTITIES. * * * A DIFFERENCE IN CORPORATE POWERS, THE HELD CORPORATION HAVING POWER TO DO THAT WHICH IS BEYOND THE POWERS OF THE OTHER, IS AN OBSTACLE TO THE COMPLETE DISREGARD OF THE FORMER'S ENTITY.' WHILE IT MAY BE THAT FOR CERTAIN PURPOSES THE WACKENHUT CORPORATIONS MIGHT BE TREATED AS ONE ENTITY, WE FIND NOTHING IN THE FACTS HERE INVOLVED REQUIRING SUCH TREATMENT WITH RESPECT TO THE PROVISIONS OF THE ANTI-PINKERTON ACT.

MR. MCGUINESS ALSO LISTS IN HIS LETTER A NUMBER OF ITEMS WHICH HE CONTENDS SUPPORTS THE VIEW THAT THE CORPORATE ENTITIES SHOULD BE DISREGARDED BECAUSE THE CORPORATIONS DO NOT MEET THE TEST OF "SEPARATION OF CORPORATE AFFAIRS" WHERE THERE IS IDENTITY OF CORPORATE OFFICERS, SUCH AS REFERRED TO IN OUR EARLIER DECISION, 41 COMP. GEN. 819.

CHIEF AMONG THE ITEMS LISTED ARE THE FOLLOWING: (1) THE SAME INDIVIDUALS ARE THE PRINCIPAL OFFICERS OF BOTH CORPORATIONS; (2) THEY MAINTAIN A SINGLE PRINCIPAL OFFICE AND ONLY THE WACKENHUT NAME APPEARS; (3) EMPLOYEES ON THE PAYROLL OF SERVICES ARE LIMITED TO THOSE PERFORMING DIRECT LABOR AT GOVERNMENT SITES UNDER CONTRACT TO SERVICES, AND THEIR IMMEDIATE SUPERVISORS AT THE SAME LOCATION. SERVICES HAS NO SEPARATE EXECUTIVES OR ADMINISTRATIVE PERSONNEL, ALL SUCH INDIVIDUALS PERFORMING WORK FOR SERVICES BEING EMPLOYEES OF WACKENHUT; (4) THE PAYROLL FOR ALL SERVICES EMPLOYEES IS PREPARED BY PAYROLL CLERKS WHO WORK FOR WACKENHUT; (5) EMPLOYEES OF WACKENHUT WHO ALSO PERFORM WORK FOR SERVICES ARE PAID BY WACKENHUT AND THE EXPENSE OF SUCH WORK THEREAFTER ALLOCATED TO SERVICES; (6) ALL OF THE WACKENHUT EMPLOYEES WITH RESPONSIBILITY FOR SALES ARE SUPPOSED TO OBTAIN SALES FOR BOTH WACKENHUT AND SERVICES.

THESE ITEMS ARE LARGELY THE SAME ITEMS HERETOFORE REFERRED TO HEREIN AS "HEADQUARTERS SUPPORT" PROVIDED TO THE SUBSIDIARY AND CHARGED TO THE SUBSIDIARY ON A PRO RATA BASIS.

IN VIEW OF THE RELATIONSHIP BETWEEN THE TWO CORPORATIONS WE BELIEVE SUCH ARRANGEMENT IS NOT UNREASONABLE. WE SEE NO REASON, NOR DO THE AUTHORITIES WE HAVE EXAMINED, SUGGEST ANY BASIS FOR HOLDING THAT THE FURNISHING OF SUCH SERVICES ON A REIMBURSABLE BASIS CONSTITUTES SUCH AN INTERMINGLING OF CORPORATE AFFAIRS AS TO REQUIRE THAT THE CORPORATION BE CONSIDERED AS ONE ENTITY. NOR DO WE THINK IT PROPERLY CAN BE SAID THAT BECAUSE OF THE CIRCUMSTANCES AND ITEMS SET FORTH ABOVE, THERE IS AN ABSENCE OF MANAGERIAL AND ADMINISTRATIVE PERSONNEL OR FUNCTION IN THE SUBSIDIARY CORPORATION. THOSE SUPPORT SERVICES UNQUESTIONABLY COULD HAVE BEEN PROCURED BY CONTRACT WITH OTHER SOURCES AND WE SEE NO PROPER REASON WHY, UNDER THE CIRCUMSTANCES HERE INVOLVED, THE SUBSIDIARY SHOULD BE REQUIRED TO DUPLICATE THOSE FACILITIES, SERVICES, AND EQUIPMENT WHICH COULD BE FURNISHED BY THE PARENT ON A PRO RATA COST BASIS.

NOR CAN WE AGREE WITH THE CONTENTION THAT A RULING WHICH WOULD PERMIT AN AWARD TO BE MADE TO WACKENHUT SERVICES, INCORPORATED, WOULD, IN EFFECT, ACCOMPLISH BY ADMINISTRATIVE ACTION THE REPEAL OF THE ANTI PINKERTON ACT. OUR DECISION WILL NOT PERMIT GOVERNMENT CONTRACTS TO BE AWARDED TO DETECTIVE AGENCIES, OR SIMILAR AGENCY, WHICH IS ALL THAT THE STATUTE PROHIBITS. LAWS SUCH AS THE ANTI-PINKERTON ACT WHICH TEND TO ABRIDGE, LIMIT OR DENY THE BASIC RIGHT OF AN INDIVIDUAL OR ORGANIZATION TO ENTER INTO OTHERWISE PROPER CONTRACTS MUST, IN OUR VIEW, BE STRICTLY CONSTRUED. SINCE, AT MOST, THE MATTER WOULD APPEAR DOUBTFUL, EVEN UNDER A BROAD CONSTRUCTION OF THE ACT, WE BELIEVE THAT UNDER A STRICT CONSTRUCTION OF THE ACT, THE QUESTION CONCERNING APPLICATION OF THE ACT TO WACKENHUT SERVICES, INCORPORATED, MUST BE RESOLVED IN FAVOR OF THAT CORPORATION. FINALLY, IT IS SUGGESTED BY MR. MCGUINESS THAT:

"* * * THE EFFECT OF THE ANTI-PINKERTON ACT CANNOT BE IGNORED IN DETERMINING WHETHER SERVICES IS A RESPONSIBLE BIDDER ON GROUNDS OTHER THAN ITS STATUS UNDER THAT ACT. BECAUSE OF THE CLOSELY-KNIT NATURE OF WACKENHUT AND SERVICES, IT WOULD BE VIRTUALLY IMPOSSIBLE FOR THE CONTRACTING OFFICER TO DETERMINE THE RESPONSIBILITY OF SERVICES AS A BIDDER WITHOUT RELYING ON WACKENHUT. THUS, IT IS THE FINANCIAL RESOURCES OF WACKENHUT, TOGETHER WITH ITS RECORD OF PERFORMANCE AND INTEGRITY, WHICH IS ACTUALLY BEING CONSIDERED RATHER THAN THAT OF SERVICES. IF PERMITTED, AN INELIGIBLE DETECTIVE AGENCY WILL SUPPLY THE RESPONSIBILITY ESSENTIAL FOR THE PROTECTIVE AGENCY TO RECEIVE A CONTRACT.'

ASSUMING THAT THE ABOVE IS A CORRECT STATEMENT OF THE FACTS, WE FAIL TO SEE HOW THE PROVISIONS OF 5 U.S.C. 53 WOULD PRECLUDE A DETERMINATION THAT THE SUBSIDIARY IS A RESPONSIBLE BIDDER. IN OTHER WORDS, EVEN THOUGH THE PARENT CORPORATION IS INELIGIBLE TO RECEIVE A CONTRACT AWARD, WE SEE NO REASON WHY ITS RECORD OF PERFORMANCE MIGHT NOT BE TAKEN INTO CONSIDERATION IN EVALUATING THE DEPENDABILITY AND RESPONSIBILITY OF ITS OFFICERS WHO ARE ALSO OFFICERS OF THE SUBSIDIARY COMPANY. FURTHERMORE, WE UNDERSTAND WACKENHUT SERVICES, INCORPORATED, IS PRESENTLY PERFORMING AND ALSO HAS SATISFACTORILY CONCLUDED CONTRACTS COVERING GUARD SERVICES WITH SEVERAL OTHER AGENCIES OF THE GOVERNMENT, SO THAT ITS RESPONSIBILITY AS A BIDDER APPARENTLY COULD BE DETERMINED TO SOME EXTENT, AT LEAST, ON THE BASIS OF ITS RECORD WITH THOSE AGENCIES.

ACCORDINGLY, IT IS OUR VIEW THAT THE PROVISIONS OF 5 U.S.C. 53 ARE NOT APPLICABLE TO WACKENHUT SERVICES, INCORPORATED.

PURSUANT TO YOUR REQUEST, THE ENCLOSURES FORWARDED WITH YOUR LETTER ARE RETURNED. HOWEVER, THE CONTENTS OF SUCH ENCLOSURES CONSTITUTE IN LARGE PART SUBSTANTIATION FOR THE FACTS RELIED ON BY US IN REACHING OUR DECISION AND IT IS REQUESTED THAT WHEN THEY HAVE SERVED THEIR PURPOSE THEY, OR COPIES THEREOF, BE RETURNED TO OR FURNISHED TO US FOR RETENTION IN OUR FILES.