Petition for Writ of Certiorari — Westech Laboratories, Inc. v. Dillenberg

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FILED

01 5 537 Str & Sep 2 6 2001

In the

‘Supreme Court of the United States

WESTECH LABORATORIES, INC.,

Petitioner,

JACK DILLENBERG, et al.,

Respondents.

On PetTITION For Writ OF CERTIORARI

To Tue Unitep States Court OF APPEALS

For Tue NintTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Eric H. ZAGRANS

Counsel of Record

THE ZAGRANS LAW FIRM

A LEGAL PROFESSIONAL ASSOCIATION

5338 MEADOW LANE CouURT

E.yriA, OH 44035-1469

(440) 934-7000

Counsel for Petitioner

BECKER GALLAGHER LEGAL PUBLISHING, INC.,

CINCINNATI, OHIO 800-890-5001

QUESTION PRESENTED

Petitioner operated a state licensed environmental

testing laboratory. The license conferred upon its holder the

right to have its test data accepted by state regulators for

compliance purposes. Based upon an investigation which

found an alleged deficiency in one out of more than 200

testing methodologies Petitioner employed, and without any

contention that the alleged deficiency created an imminent risk

to public health or safety, the Respondent state officials

effectively extinguished Petitioner’s rights and status under its

license, before according Petitioner an administrative due

process hearing, by communicating directly with Petitioner's

customers that its test data was “suspect” and no longer

acceptable for compliance purposes, and that it was “off the

list” of licensed laboratories. By taking such actions to

ensure that Petitioner’s customers would no longer use its

services, Respondents effectively revoked Petitioner’s license.

Respondent state officials held no pre-deprivation

hearing, and delayed holding a post-deprivation hearing until

fourteen months after the constructive revocation of

Petitioner’s license and long after its business had been

destroyed. The Ninth Circuit affirmed the district court's

dismissal of Petitioner’s complaint for failure to state a claim

upon which relief can be granted. The question presented is:

Whether a business that has been effectively

deprived of its license cannot, under any set of

facts, state a claim under the Due Process

Clause of the Fourteenth Amendment where no

pre-deprivation process is afforded, and where

there is a substantial delay in holding a post-

deprivation hearing, during which time the

license holder, unable to operate without its

license, has gone out of business?

PARTIES TO THE PROCEEDING

Petitioner

Petitioner Westech Laboratories, Inc. is a Delaware

corporation that is a wholly-owned subsidiary of WTI, Inc.,

another Delaware corporation. Westech Laboratories, Inc.

has no subsidiaries.

Respondents

Jack Dillenberg, the Director of the Arizona

Department of Health Services; Barbara Erickson, the

Laboratory Director for Laboratory Services of the Arizona

Department of Health Services; Steven D. Baker, the Senior

Auditor and Program Manager of the Environmental

Laboratory Licensure Section of the Office of Laboratory

Licensure and Certification of the Arizona Department of

Health Services; and James Griffith, the Deputy Director of

the Arizona Department of Health Services, in their respective

individual capacities together with the communities comprised

of the foregoing individuals and their respective spouses, if

any.

In addition, the foregoing persons, along with James

R. Allen, the successor to Jack Dillenberg as Director of the

Arizona Department of Health Services, were sued in their

respective official capacities as state officials, together with

their various successors in office, solely for purposes of the

request for prospective injunctive relief.

TABLE OF CONTENTS

QUESTIONS PRESENTED ..................

PARTIES TO THE PROCEEDING .............

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CONSTITUTIONAL AND STATUTORY

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A. Statutory Framework For State Regulation ....

1. Obtaining A License From The State ......

2. Maintaining The License..............

3. Suspending Or Revoking A License ......

a. Pre-Suspension or Pre-Revocation

Due Process Hearing Is Required

Unless Emergency Situation Poses

Immediate Threat To Public Safety ... .

b. Pre-Suspension Or Revocation

Opportunity To Cure Deficiencies .. .

B. The State Regulators’ Actions Against Westech .

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3. ADHS Investigation In June 1995 ........

4. The Revocation Notice And Related Actions

Of ADHS Officials; No Public Health Risk

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CONCLUSION

APPENDIX

5. The ADHS Hearing Held After Westech’s

License Rights Taken, Business Destroy ed,

And License Reverted ..............

Proceedings In The District Court ........

D. Proceedings On Appeal

REASONS FOR GRANTING THE WRIT

THE NINTH CIRCUIT DEPARTS FROM

THIS COURT’S SETTLED

JURISPRUDENCE, AND CONFLICTS

WITH ITS SISTER CIRCUITS, BY

CREATING A BRIGHT-LINE RULE OF

LAW THAT EVEN SUBSTANTIAL

DELAYS IN HOLDING A_ POST-

DEPRIVATION HEARING CANNOT

VIOLATE DUB PRAAEee occ ccc een ees

Appendix A - Court of Appeals Opinion .....

Appendix B - District Court Order ........

Appendix C - Judgment in a Civil Case .....

Appendix D - Notice of Appeal .........

Appendix E- Complaint ...............

Appendix F - Proposed Form of Judgment ...

Appendix G - Arizona Code Sections .......

S86 66.4.6. 8.8 64 2.8.6. 2: 2..0- 2-2 2 2S Ree. Se. 2. 2 es

TABLE OF AUTHORITIES

Barry v. Barchi,

ok er re i eae 19, 20

Chalkboard, Inc. v. Brandt,

902 F.2d 1375 (9th Cir. 1989) ............ 15

Cleveland Bd. of Educ. v. Loudermill,

Cre Ue cen (lee 6a wre eR Es 18, 19, 21, 23

Coleman v. Watt,

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Conley v. Gibson,

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FDIC v. Mallen,

Gap Us BE 6 oo bbc oh owe ak 21

Hishon v. King & Spalding,

Gy Ue ins on ee ee 8 20

Jones v. City of Gary, Indiana,

Jee gry, Le re ree 22

Parratt v. Taylor,

GPs a OE CE ok ks ke te eee 15

Paul v. Davis,

Me She ee Ce 6 sk eee ee 16, 26

Pierce v. Netzel,

2000 U.S. App. LEXIS 16968 at *4-6

CEG MEE 6c cca daar recenn 22

Pollock v. Baxter Manor Nursing Home,

706 F.2d 236 (8th Cir. 1983) ............. 22

Siegert v. Gilley,

rr er re ere ee 26

Soranno’s Gasco, Inc. v. Morgan,

874 F.2d 1310 (9th Cir. 1989) ......... 18, 21

Weller v. Dept. of Social Services for the City of Baltimore,

901 F.2d 387 (4th Cir. 1990) ............. 22

Constitution

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Statutes and Regulations

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Vii

PETITION FOR A WRIT OF CERTIORARI

Petitioner Westech Laboratories, Inc. (“Westech”)

respectfully prays that a writ of certiorari be issued to review

the judgment of the U.S. Court of Appeals for the Ninth

Circuit in this case.

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Ninth Circuit affirming the dismissal of Westech’s

amended complaint (App., infra, 1a-3a) is not reported. The

order of the United States District Court for the District of

Arizona granting the motion to dismiss the amended

complaint (App., infra, 4a-13a) is not reported.

JURISDICTION

The United States Court of Appeals for the Ninth

Circuit issued its memorandum opinion on June 28, 2001.

App., infra, 1a-3a. The jurisdiction of this Court rests upon

28 U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Fourteenth Amendment to the Constitution of the

United States provides, in pertinent part, that “No State shall

make or enforce any law which shall abridge the privileges or

immunities of citizens of the United States; nor shall any State

deprive any person of life, liberty, or property, without due

process of law; nor deny to any person within its jurisdiction

the equal protection of the laws.” U.S. CONST. amend. XIV,

§ 1.

Pursuant to this Court’s Rule 14.1(f), the relevant

provisions of Arizona environmental testing laboratory

licensing law involved in this case, including without

limitation Arizona Revised Statutes (“A.R.S.”) §§ 36-495

through 36-495.16, inclusive, and Arizona Administrative

Code (“A.A.C.”) R9-14-601 through R9-14-618, inclusive,

are set forth at App., infra, 40a-116a.

STATEMENT OF THE CASE

This case arises out of regulatory excesses and lawless

agency actions - actions by state regulators, taken without

due process of law and in disregard for their own rules and

policies, that unjustly and unnecessarily destroyed the ability

of a regulated firm to continue in business.

In 1992, Westech received from the Arizona

Department of Health Services (“ADHS”) its license to

provide environmental compliance testing for acceptance by

another state agency, the Arizona Department of

Environmental Quality (*“ADEQ”).' ADEQ regulates

municipalities and other entities throughout Arizona, and

requires them to submit the results of environmental testing,

performed only by licensed testing laboratories, in order to

show that the water, soils and/or air in their communities

satisfactorily comply with environmental laws and

regulations.

By issuing a license to Westech, the State of Arizona

conferred upon Westech the right to be able to submit the

' ADHS issued Westech’s license under the then newly

enacted regulations set forth at A.A.C. R9-14-601, et seq. (App.,

infra, 90a), governing environmental testing laboratories.

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results of its environmental testing on behalf of its municipal

and other customers to ADEQ for compliance purposes.’

This status as an approved testing laboratory whose test

results will be accepted by ADEQ is the sole purpose,

meaning and raison d'etre of Westech’s license; indeed, this

Status is the license. Thus, Westech’s interest in its license

granted by ADHS translates into a protected property interest

in its right or status to have its environmental testing results

accepted by ADEQ for compliance purposes.

In 1995, ADHS officials initiated proceedings to

revoke Westech’s license based upon an investigation which

found alleged deficiencies in one out of more than 200

laboratory testing methodologies it employed.’ However,

before according Westech an administrative due process

hearing in which it could defend itself and refute the

unfounded allegations, and without any claim or contention

that immediate, pre-emptive action was needed to protect the

public health or safety (because even if the alleged

deficiencies existed they would not have created a health risk

’ Westech’s license to operate an environmental

laboratory entitled Westech’s testing data of environmental samples

taken from its customers to be acceptable to ADEQ (and to be

perceived as being acceptable) for compliance purposes. An

unlicensed environmental laboratory may collect samples and

testing data but is not entitled to submit such data to ADEQ for

compliance purposes (see, e.g., A.R.S. §§ 36-495(1)(a), 36-495(4)

and 36-495.01(D), App., infra, 40a-43a), and thus would be useless

to customers who are regulated by ADEQ and who must prove that

they are in compliance with Arizona’s environmental laws and

regulations.

> EPA Methology 502.2, which tests for the presence and

level of organic compounds in drinking water.

to the public), the state regulators effectively extinguished

Westech’s rights and status under its license when they:

(i) communicated directly with ADEQ and falsely

accused Westech of cheating on quality control and of

submitting false test results. ADEQ was also explicitly told

that Westech was “off the list” of licensed testing laboratories

long before any such action was in fact taken;

(ii) communicated directly with Westech’s

municipal customers throughout Arizona (who are themselves

regulated by ADEQ), and informed them that Westech’s test

data were “suspect” and “no longer acceptable” to ADEQ for

compliance purposes. They were told that, if they continued

to use Westech, (a) their test results would not be accepted,

(b) they would have to perform additional site investigations,

and (c) their costs would not be reimbursed by the state; and

(ili) issued a press release and other media

communications that directly and foreseeably caused

widespread news reports that Westech had lost its license and

had been closed down by ADHS.

These actions by the ADHS officials caused ADEQ to

reject Westech testing data which, in turn, destroyed

Westech’s customer base; its customers had no use for

Westech if its testing data of environmental samples taken in

their communities could not be submitted to ADEQ for

compliance purposes. As noted above, ADEQ’s acceptance

of Westech’s test data is precisely the only function- and

purpose of its state-conferred license. Westech’s customers

reasonably understood from the regulators’ statements that

they could no longer do business with Westech, and they took

their business to Westech’s three principal competitors. By

directly causing ADEQ to reject Westech testing data and

Westech’s customers to turn to other environmental

laboratories, the state regulators destroyed Westech’s ability

to operate and do business with its customers, without

affording it a due process hearing, as effectively as if the

“paper” license had been taken away. Westech’s business and

property interests, as well as its business reputation, were

fatally injured. Westech went out of the laboratory testing

business shortly after these events and months before ADHS

convened a due process hearing, which eventually (but far too

late to salvage its business) exonerated Westech.

A. The Statutory Framework for State

Regulation

1. Obtaining a License from the State

Municipalities and other governmental entities in

Arizona must submit environmental test data obtained from a

licensed environmental testing laboratory to ADEQ to

demonstrate their compliance with Arizona environmental

laws and regulations. (App., infra, 40a-116a.) Similarly,

A.R.S. § 36-495.01(D) provides that all environmental

laboratories engaged in compliance testing and operating

within the State of Arizona must be licensed and regulated by

ADHS. (App., infra, 43a).* An unlicensed environmental

laboratory may collect samples and testing data but is not

entitled to submit such data to ADEQ for compliance

purposes (see, ¢.g., A.R.S. §§ 36-495(1)(a), 36-495(4) and

36-495.01(D), App., infra, 40a-43a), and thus would be

useless to customers who are regulated by ADEQ and who

4 See also A.R.S. § 36-495.01(A) (App., infra, 42a)

(“[ADHS] shall license environmental laboratories engaged in

compliance testing”).

must prove that they are in compliance with Arizona’s

environmental laws and regulations.

In April 1992, Westech received its license to operate

an environmental testing laboratory and to submit its testing

data to ADEQ for compliance purposes pursuant to A.A.C.

R9-14-601. (App., infra, 90a.)

2. Maintaining the License

ADHS is required to audit licensed environmental

testing laboratories on an annual basis. (A.R.S. § 36-

495.07(A); A.A.C. R9-14-607; App., infra, 49a, 101a.)

3. Suspending or Revoking a License

a. Pre-Suspension or Pre-Revocation

Due Process Hearing Is Required

Unless Emergency Situation Poses

Immediate Threat To Public Safety

Once issued, Arizona law treats the license and the

rights it confers upon the license-holder as protected property

interests.° Section 36-495.09(C) of the Arizona Revised

> Indeed, there are only four specific and limited grounds

for denying, revoking or suspending a laboratory operating license:

(i) violating the requirements for licensure or any other provision

of A.R.S. §§ 36-495 et seq. regulating environmental laboratories

or rules promulgated thereunder, (ii) issuing a report on laboratory

work performed by another laboratory without identifying the lab

that performed the tests, (iii) committing a felony offense in

connection with the operation of a laboratory, and (iv) knowingly

aiding, abetting or permitting the submission of false or inaccurate

information. A.R.S. § 36-495.09(A) (App., infra, 51a.)

> i tk ae iii

Statutes provides, in pertinent part, that the director of ADHS

“shall not suspend, revoke or deny a license without

affording the licensee notice and an opportunity for a [due

process] hearing as provided in title 41, chapter 6.”

(Emphasis supplied.) (App., infra, 51a.) The statute thus

mandates a pre-suspension or pre-revocation hearing in all

cases.

Under Arizona law, there is a narrow exception to the

pre-deprivation hearing requirement where some exigency or

emergency exists immediately threatening the safety of the

public at large. In such cases, the Director of ADHS may

immediately terminate specific testing services, procedures or

practices. See A.R.S. §§ 36-495.09(B) and 41-1064(C),

App., infra, 52a, 68a. These Arizona statutes comport with

this Court’s determination that “either the necessity of quick

action by the State [to protect the public interest] or the

impracticality of providing any meaningful pre-deprivation

due process, when coupled with the availability of [post-

deprivation procedures], can satisfy the requirements of

procedural due process.” Parratt v. Taylor, 451 U.S. 5B

539 (1981). However, in this case, no such immediate threat

to public life or safety existed or was even claimed to exist.

b. Pre-Suspension or Revocation

Opportunity to Cure Deficiencies

Moreover, in late 1994, ADHS developed and

promulgated a written environmental laboratory sanctions

policy setting forth the factors that ADHS would apply in its

enforcement actions against regulated laboratories. The

sanctions policy confirmed the intent of the state regulators to

allow laboratories charged with deficiencies a reasonable

opportunity cure or eliminate such deficiencies. See A.A.C.

R9-14-604(F) (App., infra, 51a).

B. The State Regulators’ Actions

Against Westech

Until the complete destruction of its business, Westech

was the largest testing laboratory in Arizona with a long and

proven track record of successful operation. Westech had

operated as a regulated environmental testing laboratory under

the license it received from ADHS, and had successfully

undergone periodic audits by ADHS and its officials. (App.,

infra, 21a.)

1. The Fall 1994 Audit

In the fall of 1994, after conducting their annual, two-

day audit of Westech, ADHS officials reported to Westech on

October 7, 1994, that the audit had uncovered “widespread

falsification of test data and test reporting.” While no

specifics were provided, Westech voluntarily terminated its

drinking water organics testing until ADHS had completed a

more thorough investigation. (App., infra, 22a.)

Westech’s subsequent internal investigation resulted in

the termination of two laboratory employees and the

resignation of a third. In addition, Westech decided to

restructure its quality assurance and quality control systems,

and retained various outside experts to assist in such efforts.

(App., infra, 23a.)

In January 1995, following additional investigation in

late November and early December 1994, ADHS officials

decided to suspend Westech’s regular license and to impose

specific conditions on Westech’s continued ability to operate

and to conduct and submit compliance testing. No mention

was made at any time of license revocation. - ADHS

confirmed to Westech that compliance with its conditions was

a “process” not an “event,” and that Westech would be

allowed adequate time to demonstrate full compliance. (App.,

infra, 23a-24a.) ADHS also confirmed that it would consider

the results of independent third-party audits of the

laboratory’s functions in analyzing Westech’s compliance with

the conditions imposed. (App., infra, 26a.)

In mid-January 1995, ADHS issued a press release

about the situation in which Director Dillenberg stated: “I

anticipate that Westech, with [ADHS’s] guidance, will correct

the deficiencies and remain a viable testing laboratory in the

state.” After describing Westech’s willingness to cooperate

with ADHS, the press release confirmed that the enforcement

action taken against Westech “does not mean that water

provided by Westech’s clients is unsafe to drink.” (App.,

infra, 23a.)

2. Westech’s Remedial Efforts in 1995

Shortly after the press release, an ADHS auditor

performed another on-site investigation, concluded that

Westech was now in compliance with the testing requirements

of Method 502.2, and cleared Westech to resume drinking

water testing. Westech considered the favorable

determination as evidence that its corrective measures were

working. Bolstered by this successful compliance report,

Westech continued its corrective action program and spent

$750,000 to implement the quality control changes and

systems recommended by its outside experts.

Notwithstanding ADHS clearance to do so, Westech decided

not to resume using Method 502.2 to perform drinking water

organics analyses for its clients until all changes had been

implemented. (App., infra, 24a.)

Westech retained an ADHS-approved independent,

third-party auditor to evaluate the laboratory’s remedial

efforts. After a two-day audit in mid-July 1995, the

independent audit found that Westech “had an above-average

commitment to producing quality measurements and

complying with local, state and federal regulations” and

appeared to have “gone most of the way in implementing

systems that addressed its past deficiencies.” ADHS was

made aware of the audit and its findings. (App., infra, 26a.)

3. ADHS Investigation in June 1995

In June 1995, ADHS officials made two unannounced

visits to collect laboratory documents to investigate a report

concerning a single sample of drinking water in Scottsdale,

Arizona, that had been analyzed on December 4, 1994, and

re-analyzed on December 5, 1994. The report showed that

the result for one organic compound was in excess of

regulatory levels.

Westech had recently discovered a reporting error on

the former report and had submitted a correction. The

December 4 test (showing a high level for the one organic

compound) had been inadvertently reported rather than the

valid December 5 re-test (showing that organics were within

regulatory limits). ADHS and ADEQ were immediately

notified of the mistaken reporting of a discarded test result

instead of the correct result. (App., infra, 25a.) ADHS

officials issued a formal Statement of Deficiencies on July 28,

1995, alleging deficiencies in the laboratory’s performance of

Method 502.2.

However, ADHS officials labeled Westech’s test data

as “suspect” and caused ADEQ to reject such data without

ever analyzing or investigating whether the test results were

affected by the alleged quality control deficiencies - in other

words, without checking to see whether the data should be

considered suspect. They neither audited the laboratory nor

evaluated all of the data. They did not perform a materiality

evaluation. They based their decision to condemn all of

Westech’s test data as “suspect” on a potential quality control

problem with eight packets of test data produced by one

analyst using one instrument. (App., infra, 26a-27a.)

Furthermore, even though ADHS had approved that the

analyst in question could perform tests using Method 502.2,

and even though ADHS knew that Westech had passed an

independent audit in mid-July 1995 “with flying colors,” the

ADHS officials made no effort to contact or speak with the

analyst (or anyone else at Westech) about the data. (/d.) A

proper audit cannot be performed without interviewing the

analyst and other key laboratory personnel.

Furthermore, ADHS officials stated to Westech in

June 1995 that the reviewed test data appeared to be in

substantial compliance with ADHS requirements. Following

a meeting with ADHS lawyers on June 26, 1995, Westech

prepared and faxed in early July 1995 a revised consent

agreement that was supposed to resolve the entire controversy

initiated by the January 1995 Suspension Notice. Instead,

ignoring the results of the July 1995 third-party audit which

showed that Westech had corrected the identified deficiencies

as agreed, ADHS officials abruptly “pulled the plug” on

Westech’s business on August 1, 1995 — over two months

before the deadline they had given Westech to correct and

eliminate the alleged deficiencies in its testing program.

(App., infra, 24a-26a.)

4. The Revocation Notice And Related

Actions Of ADHS Officials; No Public

Health Risk Involved

On August 1, 1995, Dillenberg issu ed a “Notice of

Intent to Revoke Regular License” (the “Revocation Notice”),

announcing without prior warning his intention to

permanently revoke Westech’s license. (App., infra, 26a.)

The Revocation Notice was accompanied by a devastating

press release issued to the major newspapers and damaging

Statements made to and interviews with the other media

throughout Arizona. It was front-page news in the Arizona

Republic, and other newspapers carried inaccurate and

misleading headlines attributable to Defendants’ statements

such as “Water Test Lab Closed” and “Water-Testing Lab

Loses License.” (App., infra, 27a.)

Prior to any hearing, and without claiming that there

was any imminent danger to public health or safety, the

ADHS officials also conveyed to ADEQ and to Westech’s

customers the false allegation that all of Westech’s testing (it

was licensed to perform over 200 test methods) and data were

unreliable and invalid. Their improper motive and purpose

was to ensure that Westech’s customers would cease doing

business with Westech. The state officials accomplished their

goal -- Westech’s customer base immediately evaporated, and

ADEQ rejected Westech’s data solely based on the

communications it had received from the ADHS officials.

(App., infra, 27a-28a; 29a-30a.)

5. The ADHS Hearing Held After Westech’s

License Rights Taken, Business Destroyed,

And License Reverted.

Although its business was badly damaged by the state

regulators’ communications with ADEQ and its customers and

by the pre-hearing smear campaign in the media, Westech was

prepared to go forward with an immediate hearing (originally

scheduled to begin a month after the Revocation Notice was

issued on August 1, 1995) to respond to the charges, save its

license and salvage its business before the state officials’

efforts to destroy it succeeded completely. However, the state

officials unjustifiably and unnecessarily delayed the

commencement of the due process hearing for many months,

from August 1995 until October 1996, which resulted in the

complete destruction of Westech. (App., infra, 28a.)

Long before the hearing was finally held, Westech was

forced to completely shut down its operations and sell off its

laboratory assets at liquidation value in May 1996. (/d.)

Nevertheless, the state officials needlessly proceeded

with the administrative hearing, beginning in October 1996

and lasting until June 1997, causing Westech to incur

considerable additional expense, solely because Westech

refused to sign a one-sided release demanded by ADHS which

would have released ADHS and its officials from any liability

for their misconduct but which would not have released

Westech from potential charges or liabilities. (/d.)

In August 1997, the ADHS hearing officer rendered a

72-page decision containing recommended findings of fact and

conclusions of law which determined, based on the evidence

introduced at the administrative hearing, that ADHS’ claim

for revocation of Westech’s regular license should be denied.

The hearing officer specifically found that ADHS written

policy allows laboratories charged with deficiencies a

reasonable opportunity to correct such deficiencies, and that

“the numerous steps taken by Westech in response to the

[ADHS audits and identified deficiencies] demonstrate a

commitment by Westech management to address those

deficiencies and improve data quality significantly. These

efforts further demonstrate that Westech management was not

knowingly aiding, permitting or abetting the submission of

false or inaccurate data at any time.” (App., infra, 28a-29a.)

In May 1999, subsequent to the filing of the amended.

complaint in this case and after further unexplained and

unjustified delays of more than 15 months, ADHS issued its

final agency decision that concluded the entire matter was

rendered moot by Westech’s cessation of its laboratory

business and sale of its laboratory assets in May 1996. In so

doing, ADHS’s final agency decision was completely at odds

with the detailed and thoroughly-documented factual findings |

and the well-reasoned legal conclusions of its own hearing

officer. (See App., infra, 29a.)

However, in November 1999, an administrative

hearing oificer awarded Westech over $560,000 of its

attorneys’ fees and costs incurred in connection with the

license revocation hearing to be paid by ADHS because

ADHS (i) did not prevail in the license revocation hearing,

and (ii) was not substantially justified in holding such a

hearing since Westech’s rights under the license were

terminated before the hearing commenced. ADHS appealed

to the Superior Court for Maricopa County. On October 31,

2000, the Superior Court affirmed the hearing officer’s

decision and the award to Westech from ADHS. (App.,

infra, 37a-39a.)

C. Proceedings In The District Court

On July 31, 1996, Westech sued four senior officials

of ADHS for money damages and injunctive relief under

Section 1 of the Civil Rights Act of 1871, 42 U.S.C. § 1983,

a Sl

for their actions taken under color of law which deprived

Westech of its property rights and liberty interests and

destroyed its business without due process of law in violation

of the Fourteenth Amendment. On November 20, 1998,

Westech filed a verified first amended and supplemental

complaint against the ADHS officials. (App., infra, 18a-35a.)

On January 19, 1999, the ADHS officials filed a

motion under Rule 12(b)(6) of the Federal Rules of Civil

Procedure to dismiss the complaint for failure to state a due

process claim upon which relief can be granted. By order

entered on August 31, 1999, the district court granted the

motion and dismissed Westech’s claims with prejudice and

without leave to amend. (App., infra, 4a-13a.)

The district court correctly characterized Westech’s

first claim to be that the ADHS officials’ conduct was the

functional equivalent of summarily taking its state-conferred

property right - its license - without due process. (App.,

infra, \la.) Westech had relied as controlling precedent on

the holding in Chalkboard, Inc. v. Brandt, 902 F.2d 1375 (9"

Cir. 1989), that the summary, pre-hearing suspension of a

plaintiff’s license to operate a day care center, coupled with

public communications to the day care center’s customers that

the center was closed down and they should take their

business elsewhere, violated the plaintiff's rights to due

process.

However, the district court erroneously distinguished

the Chalkboard case on its facts from this case because, the

court believed, “it is uncontested that [the ADHS officials]

did not deprive Westech of its business license summarily or

otherwise.” (App., infra, 11a.) This is the sole stated basis

for the district court’s dismissal of Westech’s property rights

claim. While it is certainly true that Westech’s license was

not “officially” suspended or revoked, such a distinction is

not supportable in logic or in law because it would effectively

insulate state agencies from having to afford constitutional

protections at all unless they “officially” revoke a license.

With respect to Westech’s second claim for relief

against the ADHS officials for injuring its business reputation,

the district court properly concluded, following this Court’s

decision in Paul v. Davis, 424 U.S. 693 (1976), that injury to

reputation by itself is not a liberty interest protected by the

Fourteenth Amendment. As the district court stated, “in

order for the plaintiff to invoke the procedural protections of

the Due Process [C]lause, he must allege, in addition to the

stigma inflicted to his own reputation, the distinct alteration

or extinction of a previously recognized right or status.”

(App., infra, 9a-10a, citing Paul v. Davis, supra, at 711).)

This is precisely what Westech has alleged: that the actions of

the ADHS officials, without affording Westech due process of

law, not only irretrievably harmed its business reputation, but

also caused the distinct alteration and extinction of its

previously-recognized right or status (embodied in its license)

to have its environmental testing data accepted by ADEQ for

compliance purposes. However, the district court mistakenly

concluded that Westech “is merely alleging an injury to its

business reputation” without more. (App., infra, 10a-11a.)

The district court simply ignored the fact that the defamatory

statements in this case were made directly to ADEQ and to

Westech’s business customers (in addition to the regulators’

statements made to the general public), and that they directly

caused the alteration or extinction of Westech’s previously

recognized right or status to have its testing data accepted by

ADEQ.

Westech’s third claim for relief is that the state

regulators needlessly delayed the revocation hearing originally

scheduled for September 1995 until after its business had been

destroyed as a viable going concern. The district court

concluded that Westech’s “claim that [the ADHS officials]

violated its due process rights by delaying the revocation

hearing until October 1996 was moot following Westech’s

sale of its laboratory assets in May 1996.” (App., infra,

12a.)

The district court failed to address the ADHS officials’

deliberate delay from September 1995, when the due process

hearing should have been held, through the time when the

laboratory assets were sold at liquidation value in May 1996.

The district court also ignored Westech claims that, if the

hearing had been held in September 1995, before its business

totally decimated, some portion of that business could have

been salvaged. (/d.) Thus, the district court held in effect

that Westech’s claim that_it should have received a due

process hearing before its business was ruined by the state

officials’ actions is rendered moot merely because Westech

sold its laboratory assets in May 1996 after its business had

already been destroyed.

D. Proceedings On Appeal

On appeal to the Court of Appeals for the Ninth

Circuit, Westech urged reversal and remand to the district

court for the reasons set forth above. In an unpublished

memorandum per curiam decision, the court of appeals

affirmed the dismissal of all of Westech’s claims for relief.

The Ninth Circuit correctly understood the essence of

Westech’s contention to be that “it was deprived of the

essence of its license when [ADHS officials] informed

Westech’s customers that ADHS [sic, actually ADEQ] would

not accept Westech test data.” (App., infra, 3a.) After

assuming without deciding that the constructive revocation of

a state-conferred license may trigger due process protections,

the court of appeals cryptically held that Westech’s due

process claims were foreclosed by the decision in Sorrano’s

Gasco, Inc. v. Morgan, 874 F.2d 1310 (9" Cir. 1989).

In Soranno’s Gasco, the Ninth Circuit held that (i) the

plaintiff was deprived of its protected property interests when

state officials communicated directly with the plaintiff's

customers in an effort to persuade the customers to cease

doing business with the plaintiff, thereby damaging the

goodwill of its business, and (ii) the plaintiff was nonetheless

not entitled to a pre-deprivation hearing because the state had

acted with legitimate concern to prevent an imminent risk to

public health or safety. See 874 F.2 at 1317-18. Presumably,

the Ninth Circuit in this case was citing to the second part of

its holding in Soranno’s Gasco as foreclosing Westech’s claim

that it deserved a pre-deprivation hearing. -In so doing,

however, the Ninth Circuit completely ignored the fact that

the ADHS officials never determined or contended that

Westech’s alleged deficiencies posed any imminent danger to

‘the public’s health, safety or welfare.

The court of appeals then went on to reject, partially

on the basis of the decision in Cleveland Bd. of Educ. v.

Loudermill, 470 U.S. 532, 547 (1985), Westech’s separate

claim that the ADHS officials’ intentional delay in holding the

post-deprivation hearing on the revocation of Westech’s

license until after their actions had destroyed its business

constituted an independent due process violation. (App.,

infra, 3a.) Westech contends that the appellate panel has

misinterpreted or misapplied the Court’s holding in

Loudermill.

The court of appeals also based its rejection of

Westech’s claim of unconstitutional delay on the panel’s

determination that “Westech’s license remained in force

throughout the period at issue [i.e., between the state

regulators’ actions and the commencement of the hearing], so

Westech was not prejudiced by any delay.” (App., infra, 3a.)

The court of appeals did not, however, address Westech

allegations that its license did not remain in force or effect,

and that it was prejudiced by the delay, because the

constructive revocation in August 1995 culminated in the

automatic forfeiture of the license when the business was

forced to close by year end 1995 and to liquidate its assets in

May 1996, both of which events were prior to the

administrative hearing which began in October 1996.

REASONS FOR GRANTING THE WRIT

THE NINTH CIRCUIT DEPARTS FROM

THIS COURT’S SETTLED

JURISPRUDENCE, AND CONFLICTS

WITH ITS SISTER CIRCUITS, BY

CREATING A BRIGHT-LINE RULE OF

LAW THAT EVEN SUBSTANTIAL

DELAYS IN HOLDING A _ POST-

DEPRIVATION HEARING CANNOT

VIOLATE DUE PROCESS

This Court has long recognized that, “[a]t some point,

a delay in the [due process] hearing would [itself] become a

constitutional violation.” Cleveland Board of Education v.

Loudermill, 470 U.S. 532, 547 & n.12 (1985), citing Barry

v. Barchi, 443 U.S. 55, 66 (1979) (recognizing due process

violation from administrative delay).° In this case, the state

of Arizona contravened its own law requiring that due process

hearings concerning license suspensions and revocations “be

promptly instituted and determined.” A.R.S. § 41-1064(C),

App., infra, 69a. The state did not hold a hearing until more

than fourteen months after it effectively revoked Westech’s

license, by which time Westech had been utterly destroyed.

The Ninth Circuit nonetheless affirmed the district court’s

dismissal of Westech’s amended complaint for failing to state

a claim,’ thereby accepting the astonishing proposition that

delaying a post-deprivation hearing by fourteen months cannot

® In Barry v. Barchi, a horse trainer’s license was

suspended without a pre-suspension hearing after a urinalysis

indicated that his horse had been drugged before running a race.

Addressing a New York statute which permitted an indefinite delay

between suspension and hearing, the Court found that such delay

violates due process; during the delay the full penalty of the

suspension could be irreparably and mistakenly suffered before any

hearing was held. /d.

” In reviewing the sufficiency of Westech’s amended

complaint for purposes of surviving a Rule 12(b)(6) motion to

dismiss for failure to state a claim upon which relief can be

granted, Westech’s allegations must be accepted as true and

liberally construed in the light most favorable to Westech. As this

Court has repeatedly held, such motions may not be granted unless

it appears “beyond doubt” that the plaintiff would not be entitled to

relief under any set of facts which it could prove in support of its

claim. See, e.g., Hishon v. King & Spalding, 467 U.S. 69, 73

(1984); Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (dismissal is

improper “unless it appears beyond doubt that the plaintiff can

prove no set of facts in support of his claim which would entitle

him to relief”). For the reasons set forth herein, it is not apparent

“beyond doubt” that Westech can show no set of facts entitling it

to relief.

violate due process.*

That stance offends this Court’s clear dictate that a

hearing must be provided at a “meaningful time,” Loudermill,

470 U.S. at 547 - as determined in light of the relevant

allegations and facts - and sharply separates the Ninth Circuit

from its sister circuits. For the question whether “delay in

completing a post-deprivation hearing [has] ‘become a

constitutional violation’ . . . cannot be evaluated in a

vacuum.” FDIC v. Mallen, 486 U.S. 230, 242 (1988)

(quoting Loudermill, 470 U.S. at 547). Instead, it can be

answered only by “examin[ing] the importance of the private

interest and the harm to this interest occasioned by the delay;

the justification offered by the Government for delay and its

relation to the underlying governmental interest; and the

likelihood that the interim decision may have been mistaken.”

Id. Accordingly, where a post-deprivation hearing has been

substantially delayed, other circuits have adopted a fact-

intensive inquiry into whether that delay nonetheless comports

with due process. See, e.g., Coleman v. Watt, 40 F.3d 255,

261 (8"" Cir. 1994) (“[w]e conclude that the question of what

caused the seven-day delay [in holding a hearing after

® The Ninth Circuit’s citation to Soranno’s Gasco, Inc. v.

Morgan, 874 F.2d 1310 (9" Cir. 1989), as “foreclos[ing]”

Westech’s theory of recovery does not bear upon this separate

aspect of the dccision. As already explained, supra at 18,

Soranno’s Gasco held that the plaintiff had a cognizable due

process interest but was not entitled to a pre-deprivation hearing

because issues of public health and safety were at stake. Here the

state has not even claimed health and safety are at stake.

Moreover, Westech is challenging the Ninth Circuit’s determination

that the delay in conducting the post-deprivation hearing, which the

Ninth Circuit analyzed separately in its opinion below, violated due

process.

plaintiff's car was impounded] is too fact intensive to permit

dismissal of this claim on the pleadings”); Weller v. Dept. of

Social Services for the City of Baltimore, 901 F.2d 387, 393

(4" Cir. 1990) (reversing dismissal because plaintiff's

“allegations, if proven, would rise to the level of a due

process violation”); cf. Jones v. City of Gary, Indiana, 57

F.3d 1435, 1444 (7" Cir. 1995) (affirming grant of summary

judgment because the delays “between [plaintiff's]

suspensions and hearings were not so great, as alleged by

[plaintiff], to deprive him of due process”).

In this case, Westech teen the state regulators

constructively deprived it of its license and livelihood without

offering any pre-deprivation hearing, without holding a post-

deprivation hearing for over fourteen months, much as

Westech desperately sought a prompt hearing, by which time

Westech had lost its business and its license had automatically

reverted. According to the Ninth Circuit, Westech failed to

state a viable claim under the Due Process Clause. The Ninth

Circuit reached this conclusion despite “[a]ssuming without

deciding that the constructive revocation of a license . . . may

violate due process.” (App., infra, 3a.) As such, the Ninth

9» This is a sound assumption. Permitting government to

achieve the same result without regard for proper procedure would

Create perverse incentives for it to effect deprivations under cover

of darkness rather than through established channels. Perhaps as

a result, courts have not distinguished between constructive and

formal deprivations with respect to due process. See Pierce v.

Netzel, 2000 U.S. App. LEXIS 16968 at *4-6 (2™ Cir. 2000)

(treating “constructive discharge” as grounding a procedural due

process claim); Pollock v. Baxter Manor Nursing Home, 706 F.2d

236, 241 (8" Cir. 1983) (“information released by the government

about a former employee . . . will work a de facto revocation of the

former employee’s right to engage in his or her chosen

Circuit has minted a bright-line rule that is anathema under

this Court’s jurisprudence: for the Ninth Circuit, the point

where over fourteen months have passed since a business was

stripped of its license and livelihood, and the business has

ceased to exist, categorically is not the “point [where] a delay

in the post-termination hearing [has] become a constitutional

violation.” Loudermill, 470 U.S. at 547. Of course, any

bright-line rule faithful to Loudermill would have to be just

the opposite. In any event, the rule established by the Ninth

Circuit creates an unsettling anomaly among the circuits, and

disregards the fact-sensitive nature of the relevant inquiry.

Beyond the impact this new rule has upon precedent,

it has troubling practical ramifications for businesses

throughout the Ninth Circuit. Numerous businesses in

regulated industries of every kind depend upon state-conferred

licenses and authorizations for their livelihoods. These

businesses spend enormous resources with the justifiable

expectation they can maintain their status and address any

compliance concerns as and if the arise without losing the

business before they can be heard. It upsets the reasonable

expectations of such businesses to be deprived, without notice

or hearing, of the benefits, rights and status of a license and

then be forced to wait well over a year, after its business has

already been destroyed, before obtaining a hearing.

However, if the opinion below is left to stand, such businesses

will be without recourse in such circumstances. This situation

demands correction by this Court.

Westech was ready, willing and able to proceed

immediately with a due process hearing to try to save its

license and operations before the ADHS officials’ efforts

profession”).

succeeded in completely destroying its business. When the

administrative hearing was originally scheduled to begin in

September 1995 (a month after the Revocation Notice issued),

Westech’s business had been severely damaged but not yet

destroyed. A timely opportunity to respond to the charges

and clear Westech’s business reputation would have enabled

Westech to salvage the remnant of its business.

Although Arizona law requires a prompt due process

hearing, the ADHS officials delayed the start of the

administrative hearing for over 14 months after their actions

in August 1995 destroyed Westech’s business. By May

1996, Westech’s closed laboratory business was forced to sell

its assets at liquidation value. Subsequently, the

administrative hearing was finally begun in October 1996,

long after Westech’s business was already destroyed and shut

down (the hearing then continued until June 1997). (App.,

infra, 28a.)

Thus, the state delayed well over a year before

beginning the “due process” hearing. During that time, the

full penalty of the revocation (i.e., the loss of Westech’s

ability to operate an environmental testing laboratory as a

going concern and to submit test data for compliance

purposes) was unjustly imposed. That itself constitutes a

separate and distinct due process violation caused by the

decisions made and the actions taken and authorized by the

state regulators.

Both courts below manifestly erred in holding (for

different reasons) that Westech’s claim was moot: either

because it sold its assets in May 1996, as the district court

concluded (App., infra, 12a), or because Westech’s license

“remained in force” throughout the entire period of delay, as

the court of appeals imagined (App., infra, 3a).

Although Westech’s business obviously suffered

immediate damage as a result of the ADHS officials’ actions,

a timely hearing could have salvaged a remnant of that

business before it subsequently became destroyed. However,

the ADHS officials deliberately delayed the hearing until

October 1996, well after Westech’s environmental laboratory

had been put out of business and its assets liquidated in May

1996. (App., infra, 28a.)

Therefore, contrary to the reasoning of the district

court, Westech’s claim that it should have received a due

process hearing before its business was ruined by the ADHS

officials’ actions cannot be rendered moot, as a matter of law

or logic, merely because the state officials succeeded too well

in delaying the start of the hearing until after Westech’s

business had already been destroyed and its assets sold.

Otherwise, the state could moot any such claim by a regulated

business by delaying a post-deprivation hearing for such an

egregiously long time that the business ceases to exist.

And contrary to the reasoning of the Ninth Circuit,

Westech’s license did not remain in effect during the entire

period of delay. Significantly, the Ninth Circuit’s opinion is

internally contradictory on this point. It had to accept that the

license did not remain in effect during the entire period of

delay when it assumed arguendo that “constructive revocation

of a license . . . may violate due process.” (App., infra, 3a.)

Under the facts alleged by Westech, the ADHS officials

constructively revoked Westech’s license in August 1995;'°

thus, it could not have been in effect then during the entire

period of delay. Certainly, by May 1996, when Westech was

forced to close the laboratory business and liquidate its assets,

prior to the start of the administrative hearing in October

1996, Westech’s license was automatically forfeited under

Arizona law. (App., infra, 40a.) This is what the ADHS

hearing officer found at the conclusion of the administrative

hearing in June 1997. The administrative revocation hearing

held from October 1996 through June 1997 was totally

unnecessary and meaningless because Westech’s license had

‘0 The Ninth Circuit's decision to “assume” that the

constructive revocation of a state-granted license may violate due

process also necessarily accepts the proposition that Westech’s

amended complaint stated a valid due process claim that the actions

of the ADHS officials on or about August 1, 1995, violated

Westech’s constitutionally protected liberty interest in its business

reputation under this Court's holdings in Paul v. Davis, 424 U.S.

693 (1976), and Siegert v. Gilley, 500 U.S. 226 (1991). As this

Court has made clear, mere defamation injuring one’s reputation,

without more, does not rise to constitutional magnitude. Paul v.

Davis, supra, at 708-09 (injury to reputation by itself is not a

liberty interest protected by the Due Process Clause). However, in

this case, Westech plainly alleges that the ADHS officials’

defamatory statements to its customers, in addition to injuring its

business reputation, directly caused the distinct alteration or

extinction of Westech’s previously-recognized right or status to

have its test data presumptively accepted by ADEQ for compliance

purposes. As the Ninth Circuit must have recognized in connection

with its “assumption” that state officials may violate due process by

taking actions that constructively revoke rights under a license,

Westech’s allegations comport with the holding of Paul v. Davis

that the plaintiff must allege the distinct alteration or extinction of

a right or status previously recognized by state law in addition to

the injury inflicted to his reputation. /d. at 711.

automatically terminated by May 1996. Not only was

Westech subjected to the unreasonable burden and expense of

going through a lengthy, pointless hearing, but it suffered

demonstrable prejudice to its business and property interests

by the ADHS officials’ deliberate delay in starting the hearing

until after its business was effectively ruined.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully Submitted,

Eric H. Zagrans

Counsel of Record

The Zagrans Law Firm

A Legal Professional Association

5338 Meadow Lane Court

Elyria, OH 44035-1469

(440) 934-7000

APPENDIX A

UNITED STATES COURT OF APPEALS FOR THE

NINTH CIRCUIT

No. 99-17293

[Filed: June 28, 2001]

WESTECH LABORATORIES, INC.,

Plaintiff - Appellant,

JACK DILLENBERG, ET AL.

Defendants - Appellees.

JUDGES:

HILL, ** GRABER, and McKEOWN, Circuit Judges.

Appeal from the United States District Court

for the District of Arizona. D.C.

No. CV-96-01776-RGS.

Roger G. Strand, District Judge

** The Honorable James C. Hill, Senior Circuit Judge,

United States Court of Appeals for the Eleventh Circuit,

sitting by designation.

United States Court of Appeals Opinion - 06/28/01

MEMORANDUM’

Plaintiff Westech Laboratories appeals from the

district court's order dismissing Westech's complaint for

failure to state a claim. See Fed. R. Civ. P. 12(b)(6). We

have jurisdiction pursuant to 28 U.S.C. § 1291 and we

affirm.

This case is guided by the Supreme Court's decision

in Paul v. Davis, 424 U.S. 693, 47 L. Ed. 2d 405, 96 S. Ct.

1155 (1976), where the Court held that the stigmatization of

a person by the government, without more, does not

constitute a violation of due process. /d. at 711-12. This

"stigma plus" test, as we have dubbed it, requires a plaintiff

to demonstrate both reputational harm and "also that the state

action deprived the plaintiff of a protected liberty or property

interest or a status recognized by the state." WMX Techs.,

Inc. v. Miller, 197 F.3d 367, 376 (9th Cir. 1999) (en banc).

So, for instance, we have held that when a business's

goodwill is protected by state law as a property interest,

damage to that interest may constitute an actionable "plus" in

the "stigma plus" test. Soranno's Gasco, Inc. v. Morgan, 874

F.2d 1310, 1316 (9th Cir. 1989).

Here, Westech attempts to characterize its claim as

falling within the rules established in Paul v. Davis, WMX,

and Soranno's Gasco. Westech concedes that its license was

not actually revoked, and it has affirmatively disclaimed any

* This disposition is not appropriate for publication and

may not be cited to or by the courts of this circuit except as

provided by 9th Cir. R. 36-3.

United States Court of Appeals Opinion - 06/28/01

claim based on goodwill. Rather, Westech contends, it was

deprived of the essence of its license when the Arizona

Department of Health Services (ADHS) informed Westech's

customers that ADHS would not accept Westech test data.

This argument is unpersuasive. Assuming without

deciding that the constructive revocation of a license--as

opposed to actual, technical revocation--may violate due

process, Westech's theory is foreclosed by Soranno's Gasco.

Westech also argued that the state's delay in holding a license

suspension hearing deprived it of the value of its license. This

argument also is of no avail. See Cleveland Bd. of Educ. v.

Loudermill, 470 U.S. 532, 547, 84 L. Ed. 2d 494, 105S. Ct.

1487 (1985). Moreover, Westech's license remained in force

throughout the period at issue, so Westech was not prejudiced

by any delay.

AFFIRMED.

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

No. CIV-96-1776-PHX-RGS

[Filed: August 31, 1999]

-WESTECH LABORATORIES, INC.,

Plaintiff,

)

v. )

)

ARIZONA DEPARTMENT OF HEALTH )

SERVICES, ET AL., )

Defendants. )

)

ORDER

I. INTRODUCTION

On July 31, 1996, Plaintiff Westech Laboratories, Inc.

filed its verified complaint against Defendants Arizona

Department of Health Services (“ADHS”), Office of

Laboratory Licensure & Certification, Jack Dilleneberg,

Director of ADHS, Roger Austin, Deputy Director of ADHS,

Barbara Erickson, Laboratory Director of the Laboratory

Services of ADHS, Steven D. Baker, Senior Auditor and

Program Manager of the Environmental Laboratory Licensure

U.S. District Court of Arizona Order - 08/31/99

Section of the Office of Laboratory Licensure and

Certification of the ADHS and Wynand H. Nimmo, Manager

of the Office of Laboratory Licensure and Certification of the

ADHS (hereinafter “Defendants” alleging claims pursuant to

42 U.S.C. § 1983 for violations of the Due Process Clause of

the Fourteenth Amendment. _ Plaintiff's claims stem from

Defendants' conduct during Plaintiff's license revocation

proceedings. On November 20, 1998, Plaintiff filed a verified

first amended complaint terminating Defendants Roger

Austin, Wynand H. Nimmo, Office of Laboratory Licensure

& Certification and Arizona Department of Health Services

and adding Defendants James Griffith, Deputy Director of

ADHS and James Allen, Director of ADHS. Currently

pending before the Court is Defendants' Motion to Dismiss.

Oral arguments were heard on June 14, 1999 at which time

the Court took the matter under advisement. After having

considered the issues raised by the parties, the Court finds

that Westech's complaint fails to state a due process claim;

accordingly, the Court will grant Defendants’ Motion to

Dismiss.

II. BACKGROUND

Westech is a Delaware corporation incorporated in

October, 1990 and having its principal place of business in

Phoenix. (Doc. 16 at 41). Westech was a licensed

“environmental testing laboratory” engaged in the business of

analyzing environmental compliance samples. (/d.) In

September, 1994, ADHS's office of Laboratory Licensure

and Certification began an audit of Westech. (Doc. 16 at

415). Shortly after ADHS began its audit, Defendant Baker

informed Westech that “major problems” were found.

Westech contends that Baker refused to give specific details

U.S. District Court of Arizona Order - 08/31/99

relating to the “major problems” but demanded that Westech

immediately discontinue accepting drinking water samples for

testing. (/d.) Consequently, Westech immediately ceased

accepting drinking water samples for testing. (/d.)

Additionally, Westech contends that it implemented a

massive, in-house review of quality assurance/quality control

policies and sought to revamp its testing procedures. (/d. at

417). | Westech alleges that as a result of communications

from Defendants, the Arizona Department of Administration

suspended Westech's contract work and stopped paying

Westech and for several weeks stopped paying Westech's

sister companies. (/d. at 416).

On December 2, 1994, Baker provided Westech with

a written statement setting forth the alleged deficiencies that

were uncovered during the September, 1994 audit. (/d. at

417). On December 21, 1994, Westech responded to Baker's

December 2, 1994 letter and explained the measures it had

implemented in response to the "problems" uncovered during

the ADHS September, 1994 audit. (/d.) Prior to ADHS'

issuance of its December 2, 1994 letter, in November, 1994,

ADHS again audited Westech. By letter dated December 21,

1994, Baker informed Westech that the second audit

uncovered additional deficiencies as set forth in his letter. (/d.

at 418). In a letter dated January 11, 1995, Westech

responded to baker's letter by answering the various

allegations and seeking approval of the measures it had

implemented in an effort to correct the deficiencies. (/d.)

Without response to Westech's December 21, 1994

letter and prior to receiving Westech's January 11, 1995

letter, on January 9, 1995, Defendant Dillenberg issued a

“Notice of Suspension of Regular License and Intent to Issue

U.S. District Court of Arizona Order - 08/31/99

Provisional License.” (Doc. 16 at 419). Dillenberg's Notice

of Suspension indicated his intention to place Westech under

a provisional license containing special restrictions and

conditions.' (/d.) Thereafter, on January 13, 1995, Westech

agreed in writing to comply with the special restrictions and

limitations of the provisional license. (Doc. 16 at 421).

Westech was given until October, 1995 to correct the alleged

deficiencies in its testing procedures. (/d.)

The hearing on the Notice of Suspension was

repeatedly continued at the joint request of Defendants and

Westech since both parties, beginning in March, 1995, were

attempting to settle the issues raised by the Notice of

Suspension. (Doc. 16 at q25). However, in May, 1995,

Westech learned that one of its tests conducted in December,

1994 and submitted to the Arizona- Department of

Environment Quality ("ADEQ") was being questioned. (/d.

at 426). Mary Simmerer of the ADEQ requested that

Defendants and the criminal division of Arizona's Attorney

Generals Office investigate the December, 1994 test result.

(Id.) Subsequently, in June, 1995, Defendants initiated an

investigation. (/d.)

Despite the parties continuing efforts to settle the

disputes raised by the Notice of Suspension, on August 1,

1995, Defendant Dillenberg issued a “Notice of Intent to

Revoke Regular License” indicating Defendants’ intentions to

permanently revoke Westech's license. (Id. at 429). Westech

! Westech alleges that despite having been promised the

provisional license, Defendants, without notice to Westech, decided

not to issue the provisional license to it. (Doc. 16 at 423).

U.S. District Court of Arizona Order - 08/31/99

requested 72 hours to investigate and respond to the

allegations raised in the notice. However, Defendants refused

Westech's request. Thereafter, Defendants issued a press

release relating to its notice to Westech of its intent to revoke

regular license. (/d. at 432). Defendants’ press release and

alleged other comments to the media caused newspapers of

major circulation in Arizona to carry headlines such as

“Water Test Lab Closed” and “Water-Testing Lab Loses

License.” (/d.). Additionally, Westech contends that

Defendants immediately communicated with Westech's

customer base of sister state agencies and various municipal

and local governments in an effort to dissuade them from

doing business with Westech. (/d. at §33).

III. DISCUSSION

A. Standard of Review

Dismissal for failure to state a claim is proper only if

it is clear that no relief can be granted under any set of facts

that could be proved consistent with the allegations. Cervantes

v. City of San Diego, 5 F.3d 1273, 1274 (1993). All

allegations of material facts are taken as true and construed in

the light most favorable to the plaintiff. Love v. United

States, 915 F.2d 1242, 1245 (9 Cir. 1989). "The issue is not

whether a plaintiff will ultimately prevail but whether [he] is

entitled to offer evidence to support his claim." Cervantes, 5

F.3d at 1274.

B. Analysis

In their Motion to Dismiss, Defendants contend that

Westech's § 1983 action must be dismissed since Westech

U.S. District Court of Arizona Order - 08/31/99

fails to allege a constitutionally recognized property interest.

Moreover, with respect to the individually named Defendants,

Defendants contend that Westech's claim must be dismissed

since (1) Westech fails to allege the personal participation of

either Defendants Barbara Erickson or James Griffith; (2) to

the extent that Westech sets forth allegation relating to the

conduct of Jack Dillenberg and Steven Baker, such allegations

are insufficient to state a constitutional claim against them in

their personal capacity and (3) alternatively, Defendants are

entitled to qualified immunity. Lastly, Defendants contend

that the Court must dismiss Westech's claim for equitable

relief since there no longer exists a case or controversy.

In order for Westech to make out a cause of action

under § 1983, it must plead that “(1) the defendants acting

~ under color of state law (2) deprived [it] of rights secured by

the Constitution or federal statutes.” Gibson v. United States,

781 F.2d 1334, 1338 (9" Cir.1986). Furthermore, in order

for Westech to properly allege that Defendants deprived it of

his Fourteenth Amendment due process rights, Westech must

allege that a constructionally protected property interest is at

stake. Board of Regents v. Roth, 92 S.Ct.2701, 2705 (1972).

Westech first alleges that Defendants violated its due

process rights by falsely accusing it of intentionally falsifying

test results. Westech alleges that Defendants’ accusations

deprived it of its interest in its business reputation and

goodwill. In Paul v. Davis, 96 S.Ct. 1155 (1976), the

Supreme Court addressed the issue whether a police chief's

distribution of a flyer which included the plaintiff's name and

a photograph with the caption "Active Shoplifters" implicated

the plaintiff's “liberty” or “property” interests sufficient to

invoke the procedural protections of the due process clause of

U.S. District Court of Arizona Order - 08/31/99

the Fourteenth Amendment. After an exhaustive analysis of

Supreme Court precedent, the Paul Court rejected the

plaintiff's claim, finding that injury to reputation by itself was

not a "liberty" interest protected under the Fourteenth

Amendment. /d. at 1164. Rather, the Paul Court held that in

order for the plaintiff to invoke the procedural protections of

the Due Process clause, he must allege, in addition to the

stigma inflicted to his own reputation, the distinct alteration

or extinction of a previously recognized right or status. /d. at

1165.

Moreover, in WMX Tech., Inc. v. Miller, 80 F.3d

1315 (9 Cir.1996), the Ninth Circuit addressed the issue

whether the plaintiff corporation's allegations that the

defendant's dissemination of a report linking the plaintiff to

organized crime caused injury to its business reputation or

goodwill satisfied the requirement that a constitutionally

protected property or liberty interest be at stake. Applying the

holding set forth in the Paul case that damage to one's

reputation without more does not rise to the level of a

constitutionally protected interest and finding that the

plaintiff's claim involved only defamatory remarks made to

the public generally which allegedly caused injury to the

plaintiff's business reputation, the WMX Tech. court

concluded that the plaintiff failed to satisfy the requirement

that a constitutionally protected property interest be at stake.

WMxX Tech., 80 F.3d at 1319.

Despite the fact that the Ninth Circuit, after agreeing

to hear the case en banc, determined that it lacked jurisdiction

to consider the substantive issues raised in the initial appeal,

see WMX Tech., Inc. v. Miller, 104 F.3d 1133 (9" Cir.1997),

the Court concludes that the portions of the WMX Tech.

10a

U.S. District Court of Arizona Order - 08/31/99

opinion cited above remain a persuasive indication of the

Ninth Circuit's position on the issues raised in the present

case. Thus, applying the reasoning from the WMX Tech. case,

since Westech's complaint alleges that “Defendants' conduct

deprived Westech of its ability to do business as a practical

matter, without a due process hearing” and that “[t]he actions

of Defendants, and each of them, abruptly ended Westech's

ability to market and sell its services to its customers and

destroyed it as a going concern” (see doc. 16 at 440), the

Court finds that Westech is merely alleging an injury to its

business reputation which is not sufficient to satisfy the

requirement that a protected property interest be at stake.

Westech also alleges that Defendants violated its

Fourteenth Amendment rights by depriving Westech of the

right to engage in its business, i.e. that Defendants conduct

was the functional equivalent of revoking its business license,

without due process of law. In support of its contention,

Westech cites Chalkboard, Inc. v. Brandt, 902 F.2d 1375. In

Chalkboard, the court addressed whether the defendants

summary suspension of the plaintiff's license to operate a day

care center violated the plaintiff's right to due process. In

Chalkboard, defendants did not dispute that the day care

facility had a property interest in its business license, nor did

the defendants dispute that it had deprived the day care

facility of that property interest by summarily suspending

Chalkboard's business license. Consequently, the Court finds

the Chalkboard case distinguishable from the facts of the

present case since it is uncontested that Defendants did not

deprive Westech of its business license summarily or.

otherwise. Other than the Chalkboard case which the Court

distinguishes from the present case, Westech fails to set forth

any legal authority for its proposition that Defendants

lla

U.S. District Court of Arizona Order - 08/31/99

deprived Westech of its due process rights by, in effect,

suspending its business license.

Additionally, in its response to Defendants’ Motion to

Dismiss, Westech raises the contention that Defendants’

revocation of Westech's allegedly “promised” provisional

license constitutes a deprivation of a property interest without

due process of law. However, Westech fails to set forth any

legal authority for its contention that Defendant Dillenberg's

alleged promise to grant Westech a provisional remedy until

October, 1995 created a constitutionally recognized property

interest.

Lastly, in its response to Defendants' Motion to

Dismiss, Westech also alleges that Defendants’ delay in

beginning its revocation hearing denied Westech's due

process rights. Westech's complaint alleges that the

administrative hearing on the notice of revocation was

originaliy scheduled for September, 1995, one month after

ADHS issues its notice of revocation. (Doc. 16 at 434). But,

since ADHS wanted to include matters pertaining to the 1994

audit and since ADHS issues a First Amended Notice of

Intent to Revoke Regular License, referencing “newly

discovered evidence,” the September, 1995 hearing was

delayed. (/d.)

Notwithstanding Westech's allegations that

Defendants’ “needlessly delayed” the hearing (see doc. 16 at

$34), Westech also alleges that “Westech was destroyed as a

viable going concern as a direct and proximate result of the

actions of the individual Defendants within a short time after

the Revocation Notice in August 1995. Westech sold its

laboratory assets in May, 1996.” Westech goes on to allege

that “[t}hus, as of May, 1996, the license revocation goal of

12a

U.S. District Court of Arizona Order - 08/31/99

Defendants was moot.” The Court finds that based on

Westech's own allegations set forth in its complaint, its claim

that Defendants violated its due process rights by delaying the

revocation hearing until October, 1996 was moot following

Westech's sale of its laboratory assets in May, 1996.

Therefore, for the reasons set forth above, the Court

finds that Westech fails to allege that Defendants’ deprived it

of a protected interest without due process of law and,

additionally, that Westech's allegation that Defendant's

violated its due process rights by needlessly delaying the

revocation hearing is moot. Accordingly, the Court will grant

Defendants’ motion to dismiss for failure to state a claim.

IT IS SO ORDERED granting Defendants' Motion

to Dismiss (Doc. #18).

IT IS FURTHER ORDERED that the Clerk of the

Court shall dismiss this action.

DATED this 27th day of AUGUST, 1999.

/s/

HONORABLE ROGER G. STRAND

U.S. DISTRICT COURT JUDGE

13a

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

No. CIV-96-1776-PHX-RGS

[Filed: August 31, 1999]

WESTECH LABORATORIES, INC.,

Plaintiff,

)

v. )

)

ARIZONA DEPARTMENT OF HEALTH )

SERVICES, ET AL., )

Defendants. )

)

JUDGMENT IN A CIVIL CASE

Jury Verdict. This action came before the Court for

a trial by jury. The issues have been tried and the jury

has rendered its verdict.

XX_ Decision by Court. This action came to hearing

before the Court. The issues have been heard and a

decision has been rendered.

IT IS ORDERED AND ADJUDGED J that

defendants’ Motion to Dismiss having been granted, that

l4a

plaintiff take nothing and the complaint and action are hereby

dismissed.

DATED at Phoenix, Arizona, this 31st day of August,

1999.

RICHARD H. WEARE

Clerk of Court/DCE

/s/

Deputy Clerk

15a

APPENDIX D

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

No. CIV-96-1776-PHX-RGS

[Filed: September 29, 1999]

WESTECH LABORATORIES, INC.,

Plaintiff,

JACK DILLENBERG, et al.,

)

Vv. )

)

Defendants. )

PLAINTIFF’S NOTICE OF APPEAL

Notice is hereby given, pursuant to Rules 3 and 4 of the

Federal Rules of Appellate Procedure, that Plaintiff, Westech

Laboratories, Inc., hereby appéals to the United States Court

of Appeals for the Ninth Circuit from the final judgment

entered by the United States District Court for the District of

Arizona on August 31, 1999 (Doc. #43), granting

Defendants’ motion to dismiss (Doc. #18) and dismissing the

complaint and this action with prejudice.

Respectfully submitted this 29" day of September,

1999.

l6a

THE ZAGRANS LAW FIRM

and

WTI, INC. Office of the

General Counsel

By:_/s/

Jeffrey R. Parker (006939)

One of the Attorneys for

Plaintiff

Copy of the foregoing mailed this

29" day of September, 1999, to:

JANET NAPOLITANO

Attorney General for the State of Arizona

MICHAEL G. PROST (004360)

Assistant Attorney General

Liability Management Section

1275 West Washington Street

Phoenix, Arizona 85007-2997

Attorney for Defendants

By:_/s/

One of the Attorneys for

Plaintiff

17a

APPENDIX E

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

No. CIV-96-1776-PHX-RGS

[Filed: November 20, 1998]

WESTECH LABORATORIES, INC.,

Plaintiff,

JACK DILLENBERG, et al.,

)

V. )

)

Defendants. )

)

VERIFIED FIRST AMENDED AND SUPPLEMENTAL

COMPLAINT FOR MONEY DAMAGES

AND FOR DECLARATORY AND

INJUNCTIVE RELIEF

Plaintiff, Westech Laboratories, Inc. ("Westech"), for

its Verified First Amended and Supplemental Complaint

against Defendants Jack Dillenberg, Barbara Erickson, Steven

D. Baker, and James Griffith, and each of them, jointly and

severally, in their respective individual capacities, together

with the communities comprised of said Defendants and their

respective spouses, if any, and in all Defendants,’ including

Defendant James R. Allen's, respective official capacities as

18a

Complaint - 11/20/98

current and former state officers with the Arizona Department

of Health Services and its Office of Laboratory Licensure &

Certification (collectively “ADHS”), hereby claims, alleges,

States and avers as follows:

THE PARTIES

1. Westech is a Delaware corporation having its

principal place of business at 3737 East Broadway Road,

Phoenix, Maricopa County, Arizona. At all times material to

this litigation, Westech held a license to Operate as an

"environmental testing laboratory" in Phoenix, Arizona,

issued by ADHS.

r § Defendant, Jack Dilleneberg (“Dilleneberg”),

was at all times material hereto the Director of ADHS, a

department or agency of the State of Arizona duly organized

under Arizona law.

a Defendant, Barbara Erickson (“Erickson”), is

at all times materia} hereto the Laboratory Director for State

Laboratory Services of ADHS.

4. Defendant, Steven D. Baker ("Baker") , is at

all times material hereto the Senior Auditor and Program

Manager of the Environmental Laboratory Licensure Section

of the Office of Laboratory Licensure and Certification of

ADHS.

a Defendant, James Griffith ("Griffith"), is at

19a

Complaint - 11/20/98

all times material hereto the Deputy Director or Acting

Director of ADHS.

6. Defendant, James R. Allen ("Allen") , is the

current Director of ADHS.

ae With the exception of Defendant Allen, all

actions committed by the individual Defendants herein were

undertaken on behalf of each such Defendant individually,

and on behalf of the marital communities comprised of each

individual Defendant and his or her respective spouse, if any,

jointly and severally. The names of the individual Defendants’

spouses, if any, are presently unknown to Westech and will

be substituted by amendment when discovered.

II.

NATURE OF ACTION, JURISDICTION AND VENUE

8. This is a civil rights action arising under the

provisions of 42 U.S.C. § 1983 and 28 U.S.C. § 2201 and

2202, seeking money damages and declaratory and injunctive

relief to redress Defendants’ deprivation, under color of law,

of rights, privileges and imraunities secured to Westech by the

Constitution and laws of the United States, including without

limitation rights secured to Westech by the Fourteenth

Amendment to the Constitution.

9. This Court has subject matter jurisdiction over

the federal questions presented by this controversy, pursuant

to 28 U.S.C.§§ 1331, 1343(a)(3), 2201 and 2202.

Notwithstanding the lack of a jurisdictional amount in

controversy requirement for the Court's federal question

jurisdiction, there exists between the parties an actual

20a

Complaint - 11/20/98

controversy, justiciable in nature, in which the amount in

controversy exceeds the sum of $75,000 exclusive of interest

and costs.

10. This Court has jurisdiction over the persons of

the Defendants, and each of them, all of whom reside in

Arizona within this judicial district.

11. | Venue is proper in this judicial district,

pursuant to 28 U.S.C.§ 1391, because all Defendants reside

within the District and because it is the judicial district within

which a substantial part of the events giving rise to the claims

for relief occurred.

If.

FACTUAL ALLEGATIONS COMMON TO ALL

CLAIMS FOR RELIEF

12. Without affording Westech a prior hearing or

due process, the actions of the individual Defendants herein

have deprived Westech of its ability to analyze environmental

compliance samples for its customers, and thereby have

destroyed Westech’s existing business and ability to do

business in the future.

13. | Westech had prospered as a_ full-service

environmental testing laboratory from its inception in October

1990 until its September 1994 audit by ADHS personnel.

Over those four years, the laboratory operations were

regularly audited by several different regulatory agencies and

a number of privately-retained auditors. During those years,

Westech's Phoenix laboratory successfully passed at least four

2la

Complaint - 11/20/98

audits annually. By means of such successful audits, Westech

gained certification or “approved” status from national

programs such as the U.S. Army Corps of Engineers, the

States of California, Nevada, Colorado and Utah, Chevron Oil

Company, El Paso Natural Gas Company, Allied Signal, Woodward

Clyde and the State of Arizona.

14. The field of environmental analytical testing

has undergone rapid technological advances. Given the

increasing complexity in this area, Westech's predecessor,

along with nearly the entire laboratory testing industry in

Arizona, supported new legislation for laboratory licensure in

1989 that would enable the State to regulate and sanction

environmental testing laboratories. The goal of the legislation

was to help assure quality analytical testing services to the

people of Arizona. Westech personnel served actively on the

advisory committee that assisted in implementing the new

legislation.

15. Against this record of Westech's successful

audits and compliance, industry leadership and rapidly

changing technology, ADHS's Office of Laboratory Licensure

and Certification began to audit Westech in September 1994.

Within hours of its commencement, Baker informed

Westech’s laboratory director that “major problems” had been

found. He refuced to provide specifics or details, but

demanded that Westech immediately discontinue accepting

drinking water samples for organics testing at Westech.

Westech had no prior knowledge of any testing deficiencies,

nor was it informed of any by Baker, but Westech

immediately and voluntarily complied with Baker's demands

and stopped accepting drinking water samples for such

testing.

22a

Complaint - 11/20/98

16. Based upon communications from Defendants,

the Arizona Department of Administration Suspended Westech

contract work, stopped paying Westech and for several weeks

stopped paying Westech's sister companies.

17. __ Baker finally gave Westech a written statement

dated December 2, 1994, of the deficiencies allegedly

uncovered during the audit that began in September 1994. In

response to the allegations, Westech immediately began a

massive, in-house review of quality assurance/quality control

policies and undertook to revamp its testing procedures and

methodologies in order to place its quality systems beyond

any question or criticism. On or about December 21, 1994,

Westech responded in writing to Baker's allegations,

explaining the measures that were being implemented and

requesting approval of such measures.

18. Personne! from the Office of Laboratory

Licensure and Certification again audited Westech's Phoenix

laboratory on November 22-23, 1994. By letter dated

December 21, 1994, Baker informed Westech that the second

audit had discovered the additional alleged deficiencies set

forth in his letter. On January 11, 1995, Westech submitted

a detailed written response to the second statement of alleged

deficiencies, answering the various allegations and again

seeking approval of the steps Westech had implemented.

19. Without replying to Westech's December 21,

1994 letter, and before receiving Westech's response to

Baker's second letter, Dillenberg issued a “Notice of

Suspension of Regular License and Intent to Issue Provisional

License” (the “Suspension Notice”) on or about January 9,

1995. The Suspension Notice reflected Dillenberg's intention

23a

Complaint - 11/20/98

and desire to place Westech under a provisional license

containing certain special restrictions and conditions.

20. | ADHS issued a news release on January 11,

1995 in which Dillenberg is quoted as stating, "I anticipate

that Westech, with the department's guidance, will correct the

deficiencies and remain a viable testing laboratory in the

state," and "Westech's owners have demonstrated a

willingness (0 cooperate."

21. | Onor about January 13, 1995, Westech agreed

in writing to abide by the special conditions and limitations of

the provisional license. No administrative hearing on the

Suspension Notice was ever held, and Westech voluntarily

continued to operate in accordance with the conditions and

limitations of the provisional license agreement to which it

had agreed, and Westech in good faith relied upon said

provisional license's issuance. Westech was given until

October 1995 to correct and eliminate the alleged deficiencies

in its testing programs.

22. | Baker sentan ADHS auditor, Zhikui Chian, to

Westech on January 13, 1995 to do a “walk through” of one

of its licensed test methodologies as performed by a Westech

analyst. After Mr. Chian's favorable review, Westech was

cleared to continue drinking water testing.

23. Without informing Westech, Defendants

decided not to deliver the provisional license that had been

signed by Dillenberg and promised to Westech. Defendants

did not "issue" the provisional license to Westech in

conformity with Department regulation R9-14-604(E).

24a

Complaint - 11/20/98

24. Westech voluntarily operated in compliance

with the special conditions and limitations demanded by

Defendants and, in reasonable reliance upon its agreement to

accept the conditions imposed by Defendants under the terms

of the document it signed on January 13, 1995, Westech

invested more than -$750,000 for auditors, consultants,

additional professionals, equipment and materials, and

devoted thousands of hours of labor in the design and

implementation of its restructured and upgraded quality

assurance and quality control systems.

25. The hearing on the Suspension Notice was

postponed several times at the joint request of ADHS and

Westech because of the parties' negotiations, beginning in

March 1995, to settle the entire controversy raised by the

Suspension Notice. During this period, Westech's testing was

approved pursuant to a series of proficiency evaluations

conducted by third parties to the satisfaction of Defendants.

Also during this time, Baker signed several letters to Westech

announcing his approval of Westech's proficiency in several

testing methods.

26. In May 1995, Westech learned that one of its

tests conducted in December 1994 and submitted to the

Arizona Department of Environmental Quality ["ADEQ"] was

being questioned. Westech investigated and immediately

discovered a reporting error. ADEQ was advised that a

discarded test had inadvertently been reported instead of the

retest. However, without communicating with Westech, Mary

Simmerer of the ADEQ separately requested Defendants and

the criminal division of the Arizona Attorney General's Office

to investigate the December 1994 test result, when she knew

25a

Complaint - 11/20/98

or should have known that the original report had simply

reported a discarded test result.

27. In January 1995, stating only that a complaint

had been filed, Defendants conducted a narrow and

superficial investigation of Westech by reviewing select data

from a single test method and lab analyst, both of which

Baker had approved following the "walk through" conducted

on January 13, 1995. ADHS reported to Westech

representatives shortly after this investigation that “we are not

seeing any serious problems." On or about June 21, 1995,

Westech submitted to ADHS a draft of a proposed consent

agreement that would settle the entire Suspension Notice. At

a meeting between the parties on June 26, 1995, ADHS

counsel told Westech representatives that the settlement

discussions should continue because the recent ADHS

investigation had found no serious compliance problems, and

Suggested several revisions to the draft consent agreement.

Westech thereafter incorporated the ADHS suggestions into

a revised consent agreement and faxed it toADHS on or about

July 5, 1995. Westech did not hear from Defendants again

until their “surprise attack” on August 1, 1995.

28. Pursuant to discussions with Dillenberg and the

terms of the provisional agreement, Westech initiated a third

party audit on July 18, 1995 of its entire laboratory by an

auditor whose qualifications were discussed with Baker in

advance. The auditor later told ADHS, based upon his criteria

of comparison to EPA laboratories, that Westech "passed with

flying colors."

29. Onor about August 1, 1995, Dillenberg issued

26a

Complaint - 11/20/98

a Notice of Intent to Revoke Regular License (the

“Revocation Notice”), without any prior warning to Westech.

The Revocation Notice announced Defendants' intentions and

desire to revoke permanently Westech's license, which was

the regulatory equivalent of the death penalty for Westech's

business.

30. The results of the June 1995 investigation

served as ADHS's purported basis for dispensing with the

provisional agreement and seeking revocation of Westech's

license. Approximately eight data packets from the

investigation were included in the Revocation Notice, half of

which were performed before the provisional licensure period

agreed to by the Department had even commenced and before

the ADHS “walk-through” approval of the test method and

analyst in question.

31. None of deficiencies alleged in these packets

were evaluated by ADHS for materiality. The Defendants did

not review the third party audit, did not seek clarification

from either the analyst or Westech, did not notice that a

significant portion of the criticized data was not even used by

Westech, and did not conduct an audit of the other 200+ test

methods Westech was licensed to perform.

32. Stunned by the August 1, 1995 Revocation

Notice after having been informed in June and July that

ADHS was finding no major problems, Westech requested 72

hours within which to investigate and respond to the

allegations in the Notice. Defendants refused Westech's

request and, without waiting for an evidentiary hearing to

determine whether the charges against Westech were true, and

without thereby affording Westech due process of law,

27a

Complaint - 11/20/98

immediately issued a devastating press release that was, and -

was intended to be, widely reported by newspapers and other

media around the State. Defendants' press release and other

comments to the media caused newspapers of major

circulation throughout Arizona to carry headlines such as

“Water Test Lab Closed" (Scottsdale Daily Progress, August

3, 1995) and “Water-Testing Lab Loses License” (Tempe

Tribune, August 4, 1995). The Arizona Republic carried the

report as a front-page story on August 3, 1995.

33. In addition, Defendants promptly notified and

communicated with Westech's customer base of sister state

agencies and various municipal and local governments in an

effort to make it impossible for any regulated entity to do

business with Westech. Westech’s sole business was the

testing of compliance samples, which are submitted for

environmental compliance purposes. The intended and

accomplished effect of Defendants' pre-hearing

communications to Westech's customers and to the public at

large was to create and foster the belief of the presumptive

invalidity of Westech’s data and compliance testing. Some of

Westech's testing data was rejected by at least one other state

agency based solely upon the communications and information

received from ADHS and the individual Defendants.

34. A.R.S.§36-495.09(C) requires Dillenberg “not

[to] suspend, revoke or deny a license without affording the

licensee notice and an opportunity for a hearing". The

administrative hearing on the Revocation Notice was

originally scheduled for September 5, 1995. Westech declared

that it was prepared to go to hearing as scheduled. However,

Defendants demanded that the hearing include matters from

the 1994 audit. Furthermore, on or about August 25, 1995,

28a

ee ee mE Me nT Nee CT

Complaint - 11/20/98

ADHS issued a First Amended Notice of Intent to Revoke

Regular License, purporting to include so-called “newly

discovered evidence.” As a result of Defendants’ strategic

maneuvers, the hearing was needlessly delayed.

35. | Westech was destroyed as a viable going

concern as a direct and proximate result of the actions of the

individual Defendants within a siiort time after the Revocation

Notice in August 1995. Westech sold its laboratory assets in

May 1996. Thus, as of May, 1996, the license revocation

goal of Defendants was moot.

36. Nevertheless, Defendants held needless

hearings on the mooted license commencing in October 1996

and lasting until June 1997 to the substantial expense, damage

and detriment of Westech.

37. In August, 1997 the Hearing Officer rendered

a 72-page decision containing Recommended Findings of Fact

and Conclusions of Law. The Hearing Officer found "Based

upon the Findings of Fact and Conclusions of Law attached

hereto, the Department's claim for revocation of Westech's

regular license should be denied. Moreover, based on the

facts in Sections 14-38 of the Findings of Fact, the Hearing

Officer concludes that revocation would be inappropriate

based upon any facts the Department may submit occurred

during the Phase II period (i.e. the period covered by the

1994 audit)."

38. The Hearing Officer found that "The (ADHS)

Sanctions Policy confirms the intent of ADHS to allow

laboratories that are charged with deficiencies a reasonable

Opportunity to correct those deficiencies..." He stated that

29a

Complaint - 11/20/98

"the numerous steps taken by Westech in response to the Fall

1994 audits and to the resulting deficiencies identified by

ADHS, demonstrate a commitment by Westech management

to address those deficiencies and improve data quality

significantly. These efforts further demonstrate that Westech

management was not knowingly aiding, permitting or abetting

the submission of false or inaccurate data at any time."

39. After several unexplained and unjustified

delays, Defendant Griffith's subordinate David Borg in

January 1998 issued a proposed Final Decision completely at

odds with the detailed findings of the Hearing Officer,

including the Hearing Officer’s determinations of witness

credibility. The proposed Final Decision states that the entire

matter was mooted by Westech's cessation of its business,

which resulted in the license reverting to the ADHS as a

matter of law. Westech has requested reconsideration of the

proposed Final Decision. Reconsideration is pending.

40. Defendants' conduct deprived Westech of its

ability to do business as a practical matter, without a due

process hearing. The actions of Defendants, and each of

them, abruptly ended Westech's ability to market and sell its

services to its customers and destroyed it as a going concern.

Defendants' actions also damaged Westech by virtue of

Westech's expenditures for restructured and upgraded quality

assurance and quality contro! systems, and by virtue of the

fees and costs paid by Westech associated with the

unnecessary and improper administrative hearing.

Defendants' actions deprived Westech of its property and

property interests without due process of law.

30a

Complaint - 11/20/98

FIRST CLAIM FOR RELIEF

(Claim for Due Process Violations Against Dillenberg,

Erickson, Baker, and Griffith, ‘Jointly and Severally, in

their Individual Capacities)

41. Westech realleges and incorporates by

reference each and every allegation set forth in Paragraphs 1

through 40, inclusive; above as if the same were fully

rewritten herein.

42. The actions of Dillenberg, Erickson, Baker,

and Griffith, individually, and each of them, jointly and

severally, constitute the deprivation of Westech's property

and property interests without due process of law, in violation

of its rights secured by the Fourteenth Amendment to the

Constitution of the United States.

43. As a direct and proximate result of the

constitutional violations committed by Dillenberg, Erickson,

Baker, and Griffith, individually, and each of them, jointly

and severally, Westech has suffered damages in the

expenditure of over $750,000 for auditors, consultants,

additional professionals, equipment and materials, and

thousands of hours of labor in designing and implementing its

restructured and upgraded quality assurance and quality

control systems, in reasonable reliance upon such Defendants'

assurances that they were giving Westech until October 1995

to correct any alleged problems, and in the loss and

destruction of Westech as a going concern and its business,

valued before the events described herein at over $2,000,000;

3la

Complaint - 11/20/98

and approximately $1,000,000 in fees and costs associated

with the unnecessary and improper administrative hearing and

related proceedings. In the Spring of 1996, Westech sold its

remaining laboratory equipment for its net liquidation value

of approximately $292,000.

44. The actions of said Defendants, and each of

them, were committed intentionally to deprive Westech of its

property without due process of law, or with reckless or

callous indifference to Westech’s constitutionally-protected

rights, thereby entitling Westech to an award of punitive

damages against said Defendants, jointly and severally.

45. As a direct and proximate result of the

unconstitutional actions alleged herein, Westech was obliged

to incur substantial legal fees and expenses in bringing this

action to redress the deprivation of its due process rights.

46. Westech is entitled to the payment of its

attorneys’ fees and expenses incurred in this action, pursuant

to the provisions of the Civil Rights Attorneys' Fees Awards

Act of 1976, 42 U.S.C. § 1988, by said Defendants, jointly

and severally.

SECOND CLAIM FOR RELIEF

laim for Declaratory and Permanent Injunctive Relief

Against All Defendants in their Official Capacities)

47. Westech realleges and incorporates by

reference each and every allegation set forth in Paragraphs 1

32a

Complaint - 11/20/98

through 46, inclusive, above as if the same were fully

rewritten herein.

48. | Westech seeks a declaration from the Court

that the conduct of Defendants Dillenberg, Erickson, Baker,

and Griffith, and each of them, as alleged herein constitutes

a violation, under color of law, of Westech's rights to be free

from the deprivation of its property without due process of

law, as secured by the Fourteenth Amendment to the

Constitution of the United States.

49. On information and belief, all Defendants

herein intend to, may or will subject Westech, its affiliates

and their officers, directors and/or shareholders to further

Sanctions, penalties or deprivations without due process of

law, thereby inflicting suffering, extreme hardship and

irreparable injury to their business or pecuniary interests and

to their reputations, and Westech seeks permanent injunctive

relief against same.

50. Westech would have no plain, speedy,

adequate or complete remedy at law for any such actions, and

this claim for declaratory and permanent injunctive relief is

Westech's only means for securing adequate prospective relief

against any such future harm.

51. Westech is entitled to the payment of its attorneys’

fees and expenses incurred in this action, pursuant to the

provisions of the Civil Rights Attorneys' Fees Awards Act of

1976,42 U.S.C. § 1988, by said Defendants, jointly and

severally.

33a

Complaint - 11/20/98

WHEREFORE, Plaintiff, Westech Laboratories, Inc.,

hereby demands judgment against Defendants Jack

Dillenberg, Barbara Erickson, Steven D. Baker, and James

Griffith, and each of them, jointly and severally, in their

respective individual capacities, together with the

communities comprised of each of them and their respective

spouses, if any, and, along with Defendant James Allen, in

their respective official capacities with ADHS, as follows:

A. with respect to the First Claim for Relief, for

compensatory damages in an amount in excess of $3,000,000

to be proven at trial, for statutory attorney’s fees and costs,

and for punitive damages in an amount to be proven at trial,

against Dillenberg, Erickson, Baker, and Griffith, in their

individual capacities, and each of them, together with the

communities comprised of each of them and their respective

spouses, if any, jointly and severally;

B. with respect to the Second Claim for Relief, for

a declaratory judgment that the conduct of Defendants, and

each of them, has violated Plaintiff's constitutional rights, for

an order permanently enjoining Defendants in their official

capacities from imposing further unconstitutional sanctions,

penalties or deprivations upon Plaintiff, its affiliates and their

officers, directors and/or shareholders in the future, and for

a statutory award from all Defendants of Westech's attorneys’

fees and costs incurred herein;

C. for interest on the foregoing amounts at the

highest legal rate from and after August 1, 1995 until paid;

D. for the costs of this action, pursuant to Rule 54

(d) of the Federal Rules of Civil Procedure; and

34a

Complaint - 11/20/98

E. for such other and further relief as the Court

may deem just and proper.

DATED: November 20, 1998.

THE ZAGRANS LAW FIRM

and

WTI, INC. Office of the General Counsel

By _/s/

Jeffrey R. Parker (006939)

Attorneys for Plaintiff

JURY DEMAND

Plaintiff, Westech Laboratories, Inc., hereby demands a trial

by jury, pursuant to Rule 38 of the Federal Rules of Civil

Procedure, on all issues so triable.

DATED: November 20, 1998.

/s/

Jeffrey R. Parker (006939)

Attorneys for Plaintiff

35a

Complaint - 11/20/98

VERIFICATION

STATE OF ARIZONA )

) ss.

County of Maricopa )

James E. Warne, III, being first sworn, states that he is

President of Westech Laboratories, Inc.; that he is authorized

to make this Verification on its behalf; that the foregoing First

Amended and Supplemental Complaint is true to the best of

his knowledge, information, and belief as to those matters

within his personal knowledge; and that as to matters outside

his personal knowledge, he believes them to be true.

DATED November 29", 1998

/s/

James E. Warne III

SUBSCRIBED AND SWORN TO BEFORE ME this

20" day of November, 1998, by James E. Warne, III,

President of Westech Laboratories, Inc., being authorized to

do so.

/s/

Gwenolyn F. Tatum

Notary Public

Comm. Expires 05/06/02

~ ; 36a

APPENDIX F

ARIZONA SUPERIOR COURT

MARICOPA COUNTY

CASE NO. CV 1999-22982

The State of Arizona, ex rel. the

Arizona Department of Healih Services

and Dr. James Shamadan in his official

Capacity as Acting Director,

Plaintiff

)

V. )

)

Timothy Barnes, in his official Capacity )

as a Contract Hearing Officer; )

Michael G. English and Westech )

Laboratories, Inc., an Arizona corporation, )

and real party in interest, )

Defendants. )

)

PROPOSED FORM OF JUDGMENT

This matter having come on for hearing on August 11,

2000 on Plaintiff Arizona Department of Health Services’

Appeal of the Decision of the Administrative Hearing Officer

dated November 22, 1999, which awarded Defendant

Westech Laboratories, Inc., $562,628.98 in attorney’s fees

and costs, and the Court having reviewed and considered the

37a

parties’ respective Briefs, the supplemental appendices and

documents of the parties, the entire voluminous administrative

record and arguments of counsel,

THE COURT HEREBY FINDS that the Hearing

officer’s Decision with respect to attorney’s fees and costs is

supported by substantial evidence, is not contrary to law, is

not arbitrary and capricious, and does not constitute an abuse

of discretion.

IT IS HEREBY ORDERED, ADJUDGE AND

DECREED that judgment on the Hearing Officer’s Decision

is entered as follows: Poh

1. That the appeal of the Hearing Officer’s

Decision is hereby denied;

2. That the Hearing Officer’s Decision awarding

Westech Laboratories, Inc. attorney’s fees and costs in the

amount of $562,628.98 is affirmed;

a That the Hearing Officer’s Decision is [not]

amended to include additional attorney’s fees incurred by

Westech in connection with the Fee Application in the amount

of $14,518.00 for a total of $577,146.98.

4. That Westech Laboratories, Inc. is entitled to

payment from th. State of Arizona ex rel. the Arizona

Department of Health Services in the amount $577;446-98

$562,628.98, together with statutory interest thereon

calculated at the rate of 10% as follows:

a. On $545,128.98 from June 25, 1999 through

November 22, 1999; and

38a

b. On $574,440-98 $562,628.98 from November

23, 1999 through the date of entry of this Judgment.

A That Westech Laboratories Inc. is awarded its

attorney’s fees and costs incurred in connection with this

appeal in the amount of $12,500.00.

6. After entry of this Judgment, statutory interest

at the rate of 10% shall accrue on the total amount of this

Judgment until paid.

% The Court finds that there is no just reason for

delay and directs entry of this Judgment.

DONE IN OPEN COURT THIS 31° day of October

2000.

/s/__Norman J. Davis

Judge of the Superior Court

39a

APPENDIX G

ARIZONA REVISED CODE SECTIONS

AND

ARIZONA ADMINISTRATIVE CODE SECTIONS

TITLE 36. PUBLIC HEALTH AND SAFETY

CHAPTER 4.3. ENVIRONMENTAL

LABORATORIES

ARTICLE 1. GENERAL PROVISIONS

A.R.S. § 36-495 (1995)

§ 36-495. Definitions

In this chapter, unless the context otherwise requires:

1. "Compliance testing” means laboratory analysis

of any matter, pollutant, contaminant, hazardous substance or

other substance subject to regulation pursuant to:

(a) Title 49 or rules adopted or enforced

by the department of environmental

quality for the purpose of determining

compliance with title 49.

(b) Federal environmental statutes or

regulations administered or enforced

by the United States environmental

protection agency relating to the safe

drinking water act (42 United states

40a

Arizona Revised Code and Administrative Code Sections

code sections 300F through 300j), the

clean air act (42 United States code

sections 7401 through 7642), the clean

water act (33 United States code

sections 1251 through 1376), the

resource Conservation and recovery act

(42 United States code sections 6921

through 6939B), the comprehensive

environmental response, compensation,

and liability act (42 United States code

sections 9601 through 9657) and the

toxic substance control act (42 United

States code sections 2601 through

2654) as they relate only to the

regulation of polychlorinated biphenyls

and asbestos.

relating to the safety, contamination

and sanitation of drinking water sold in

bottles, or ice or water sold by

machine or hauled and enforced by the

department of health services or the

United States food and drug

administration.

2. “Department” means the department of health

services.

3. "Director" means the director of the

department of health services.

4la

Arizona Revised Code and Administrative Code Sections

4. "Environmental laboratory" or “laboratory'

means a facility where compliance testing is performed.

5. "Facility" means a place, building, installation,

structure or vehicle.

6. "Government agency" means an agency of the

United States government, this state or a political subdivision

of this state.

Ve "Laboratory director" means an individual who

administers the technical and scientific operation of an

environmental laboratory and who is responsible for reporting

laboratory test results as specified in this chapter or rules

adopted pursuant to this chapter.

8. "License" means a regular license, renewal

license or provisional license issued by the department

pursuant to this chapter.

9. "Person" means an individual, employee,

officer, managing body, trust, firm, joint stock company,

consortium, corporation, partnership, association, state or

political subdivision of a state or the United States

government.

A.R.S. § 36-495.01 (1995)

§ 36-495.01. Licensure program; rules

A. On or before July 1, 1991, the department shall

license environmental laboratories engaged in compliance

testing. Upon application for an environmental laboratory

42a

Arizona Revised Code and Administrative Code Sections

license, the department shall issue the license if, after

investigation, the department determines that the application

conforms with the standards established by the department.

B. The director shall prescribe rules providing for

minimum standards of proficiency, methodology, quality

assurance, Operation and safety for environmental laboratories

and may prescribe standards for personnel education, training

and experience to meet federal environmental Statutes or

regulations, or enabling reciprocity with other states and the

manner and form in which compliance testing results are

reported. The rules shall be developed in cooperation with the

director of the department of environmental quality and shall

be consistent with title 49 and rules administered or enforced

by the director of environmental quality.

hes The director shall prescribe rules providing

minimum standards for third party accreditation.

'D. Unless exempted by section 36-495.02, no

person may operate or maintain an environmental laboratory

without a license issued by the department pursuant to this

chapter.

A.R.S. § 36-495.02 (1995)

§ 36-495.02. Exemptions

A. This chapter does not apply to an

environmental-laboratory in this state that is:

1. Certified or designated by the United ‘States

43a

Arizona Revised Code and Administrative Code Sections

environmental protection agency as_ the

laboratory which provides analytical services

to this state required for the delegation of

primary enforcement responsibility under a

federal law or regulation administered by that

agency.

Operated by the Arizona department of

agriculture or the radiation regulatory agency.

Performing only compliance testing of

parameters which require analysis at the time

of sample collection as long as the testing

~ methodologies employed are approved by the

director of the department of health services or

the department of environmental quality.

Licensed to perform those analyses for which

it is licensed or certified by another agency of

this state.

Accredited by a national voluntary laboratory

accreditation program administered by the

national institute of standards and technology

and approved by the department.

In addition to the exemptions established in

subsection A, the director may also exempt by ule certain

classes of environmental laboratories and types of compliance

testing, parameters and methods, if the director determines

that the exemptions will not adversely affect the public health

or the environment. The rules shall be developed in

cooperation with the director of the department of

44a

Arizona Revised Code and Administrative Code Sections

environmental quality and the director of the Arizona

department of agriculture.

A.R.S. § 36-495.03 (1995)

§ 36-495.03. License application; issuance; expiration

A. Unless exempted pursuant to section 36-

495.02, a person who operates or maintains an environmental

laboratory located in this state shall file an application with

the department at least thirty days before the anticipated

operation of a new laboratory for an environmental laboratory

license accompanied by the license application fee established

by this chapter. A person shall obtain a license for each

laboratory, except that only one license is required for

contiguous or coterminous laboratories under the same

ownership. The director, by rule, shall prescribe when

noncontiguous laboratories with the same owners may be

operated under a single license.

B. The application shall be on a form prescribed

and furnished by the department. The application shall be

under oath and shall contain:

2 The name and location of the environmental

laboratory.

- The name of the person owning the facility and

the name of the individual directing the

laboratory.

3. A description of the services and tests

45a

;

Arizona Revised Code and Administrative Code Sections

provided by the environmental laboratory.

4. Other information the department deems |

necessary to carry out its powers and duties

under this chapter.

i. The department shall issue a regular license to

an applicant to operate an environmental laboratory to provide

the services and tests described in the application if the

department determines that the applicant is in compliance with

the provisions of this chapter and rules adopted pursuant to

this chapter.

D. If the owner is not the laboratory director, the

director shall issue a license jointly to the owner and the

laboratory director who are jointly responsible for the

maintenance and operation of the laboratory and for violations

of this chapter or rules adopted pursuant to this chapter.

E. A license issued by the department is valid only

in the name of the persons to whom it is issued and cannot be

sold, assigned or transferred. A license is valid only for the

facility or facilities for which it is issued. If there is a change

in the laboratory name, directorship or ownership or an

appointment of an acting laboratory director, the license

automatically expires, unless within twenty business days

after the change the department is notified in writing of the

change and an application for a new license is submitted to

the department. A fee shall not be charged for this

application. The director shall issue a new license reflecting

the change if the laboratory is still in compliance with the

provisions of this chapter and rules adopted pursuant to this

chapter.

Arizona Revised Code and Administrative Code Sections

F. A regular license expires one year after the

date of issuance and shall be renewed on submission of a

renewal application and payment of the renewal application

fee prescribed in section 36-495.06, at least thirty days before

expiration of the license, unless the director determines

pursuant to section 36-495.09 that grounds exist to deny the

application.

A.R.S. § 36-495.04 (1995)

§ 36-495.04. Laboratory director; duties

The director of an environmental laboratory shall:

3 Ensure that all services and tests provided by

the laboratory are performed in compliance with this chapter

or rules adopted pursuant to this chapter.

Pa Direct and supervise services and tests

provided by the laboratory and be responsible for the work of

all personnel in the laboratory.

2. Be responsible for safety and hazardous

substance control in the laboratory.

A.R.S. § 36-495.05 (1995)

§ 36-495.05. Provisional licenses

A. The department may issue a provision. * license

for a period of not more than twelve months at the time it

issues a notice of suspension of a regular l'cense. The

47a

Arizona Revised Code and Administrative Code Sections

department may suspend a regular license if an inspection or

investigation of a laboratory reveals a violation of the rules

adopted by the director pursuant to this chapter and the

director believes that the immediate interests of the public are

best served by affording the laboratory the opportunity to

correct the deficiencies. The director shall issue a provisional

license only if the licensee agrees to carry out a plan

acceptable to the department to eliminate the deficiencies

within the term of the provisional license or period of time

specified by the department.

B. A licensee's agreement to carry out a plan of

correction does not constitute a waiver of its right to have a

hearing on the notice of suspension. A hearing on the notice

of suspension may include review of the appropriateness of

the laboratory's plan of correction.

C. An application for a regular license may be

submitted thirty days before the expiration of a provisional

license issued pursuant to this section. The department shall

condition its issuance of a regular license at the expiration of

the term of the provisional license on the licensee being in full

compliance with the correction plan and this chapter or rules

adopted pursuant to this chapter.

A.R.S. § 36-495.06 (1995)

§ 36-495.06. Fees

A. The department shall charge and collect a

nonrefundable fee for a regular or a renewal license.

48a

cae ae ne rene

Arizona Revised Code and Administrative Code Sections

B. The director shall establish by rule a fee

schedule that does not exceed the cost to the department to

conduct an on-site inspection, approve third party

accreditation, verify information submitted with the

application and other activities related to licensure pursuant to

this chapter or rules adopted pursuant to this chapter. The fee

schedule for application for a regular or renewal license shall

be based on the types of compliance testing that the laboratory

is licensed to provide.

A.R.S. § 36-495.07 (1995)

§ 36-495.07. Inspection; investigations

A. The department may make an initial inspection,

and thereafter an annual inspection, of each laboratory to

determine compliance with this chapter or rules adopted

pursuant to this chapter.

B. An application for licensure pursuant to this

chapter constitutes permission for the department's entry or

inspection of the laboratory during the pendency of the

application and, if licensed, during the term of the license for

the purpose of determining compliance with this chapter or

rules adopted pursuant to this chapter.

o. The department may require, as part of its

inspections, that the laboratory demonstrate proficiency in

performing tests that it offers by examining specimens

submitted by the department, the United States environmental

protection agency or other proficiency testing services

approved by the department.

49a

Arizona Revised Code and Administrative Code Sections

D. __In addition to the inspections provided for in

subsection A of this section, the department, on its own

initiative or on the receipt of a written complaint from a

person setting forth facts which, if proven, constitute a

violation of this chapter or rules adopted pursuant to this

chapter, may make an investigation of the laboratory's

operations, techniques and procedures. If the investigation or

an inspection conducted pursuant to this section discloses past

or current noncompliance with statutes and rules, the director,

in accordance with section 36-495.09, may deny, suspend or

revoke a license issued by the department pursuant to this

chapter.

= At any time the department may conduct an

investigation of the operation of an unlicensed laboratory

performing compliance testing and may conduct on-site

inspections of the laboratory, records, procedures and

methods to determine whether the laboratory must be licensed

pursuant to this chapter.

F. The director by rule shall establish standards

and procedures for third party accreditation and exempting

inspections and inspection fees for a laboratory that is

accredited by a third party.

A.R.S. § 36-495.08 (1995)

§ 36-495.08. Reports by laboratories

A laboratory shall make available to the department on

written request information and cata concerning its operation,

techniques and procedures. The department may require that

50a

Arizona Revised Code and Administrative Code Sections

the information be submitted under oath and signed by the

owner or director of the laboratory. The department may

require the laboratory director or owner to submit other

reports or information that it deems necessary to administer

this chapter.

A.R.S. § 36-495.09 (1995)

§ 36-495.09. Suspension, revocation or denial

of license; hearing

A. Pursuant to title 41, chapter 6 the director may

deny, revoke or suspend the license of a laboratory if its

owners, officers, agents or employees do any of the

following:

l. Violate a provision of this chapter or

rules adopted pursuant to this chapter.

a Issue or cause to be issued a report on

environmental laboratory work

performed in another laboratory

without designating the name and

address of the laboratory that

performed the test.

3. Commit a felony under the laws of any

State or of the United States arising out

of or in connection with the operation

of a laboratory. The record of

conviction or a certified copy is

conclusive evidence of conviction.

Sla

Arizona Revised Code and Administrative Code Sections

4. Knowingly aid, permit or abet the

submission of false or inaccurate

information required by this chapter or

rules adopted pursuant to this chapter.

- Violate the requirements for licensure

of the laboratory pursuant to this

chapter.

B. If the director reasonably believes that a

violation of subsection A, paragraph 5 of this section has

occurred and that the life or safety of the public is

immediately affected, on written notice to the owner or

director of the laboratory, he may order the immediate

termination of specific testing services, procedures or

practices.

we Except as provided in subsection B of this

section and section 41-1064, subsection C, the director shall

not suspend, revoke or deny a license without affording the

licensee notice and an opportunity for a hearing as provided

in title 41, chapter 6.

D. A person whose application for a license is

denied by the director or who has been ordered pursuant to

subsection B of this section to immediately terminate specific

services, procedures or practices, at any time within thirty

days after notice of the denial or order, may request in

writing a hearing before the director or a person designated

by the director to review the director's action. The hearing

shall be held within thirty days after the written request.

z. All hearings shall be held in accordance with

52a

Arizona Revised Code and Administrative Code Sections

title 41, chapter 6.

A.R.S. § 36-495.10 (1995)

§ 36-495.10. Operation of unlicensed laboratory; cease

and desist order; injunction; letter

A. The operation or maintenance of an

environmental laboratory that does not hold a current or valid

license or that exceeds the range of the services or tests

authorized by a license issued pursuant to this chapter is a

public nuisance. The director, in addition to other remedies

provided in this chapter, may issue a cease and desist order

pursuant to section 36-601 or, in the name of the people of

this state, through the attorney general, may bring an action

for an injunction to restrain the violation or to enjoin the

future operation or maintenance of the environmental

laboratory until the laboratory complies with the provisions of

this chapter.

B. Before issuing a cease and desist order or

bringing an action for injunction pursuant to this section, the

department may issue a certified letter to a licensed or

unlicensed facility in which it states the factual basis for the

department's belief that the laboratory is operating in violation

of this chapter or rules adopted pursuant to this chapter. The

department may include within the letter the enforcement

options available to the department if the violations continue.

Arizona Revised Code and Administrative Code Sections

A.R.S. § 36-495.11 (1995)

§ 36-495.11. Violation; classification

A. A person is guilty of a class 3 misdemeanor if

he:

l. Operates, maintains, directs or engages

in the business of operating an

environmental laboratory without a

license issued by the department.

y I Knowingly violates a provision of this _

chapter or a rule adopted pursuant to

this chapter.

B. Each day that a violation continues constitutes

a separate offense.

A.R.S. § 36-495.12 (1995)

§ 36-495.12. Violations; civil penalties

A. The department may assess a civil penalty in an

amount of not more than three hundred dollars for each

violation of this chenter after a hearing is conducted pursuant

to title 41, chapter 6. Each day that a violation continues

constitutes a separate violation.

B. The attorney general or the county attorney

shall bring actions to enforce the collection of penalties

assessed pursuant to subsection A in the name of this state in

the justice court or the superior court in the county in which

54a

Arizona Revised Code and Administrative Code Sections

the violation occurs.

c. Penalties assessed under this section are in

addition to other penalties imposed pursuant to this chapter.

D. The director shall transmit penalties collected

pursuant to this section to the state treasurer for deposit in the

State general fund.

A.R.S. § 36-495.13 (1995)

§ 36-495.13. Powers of the director _

A. In addition to the rules required by section 36-

495.01, the director may adopt other rules and prescribe

forms that are necessary for the administration and

enforcement of this cape,

B. The director may issue interpretive guidelines

on subjects relating to the rules adopted under this chapter.

lof The director-may enter into intergovernmental

agreements with other agencies of this state for the purpose of

licensing environmental laboratories performing compliance

testing.

A.R.S. § 36-495.14 (1995)

§ 36-495.14. Out-of-state laboratories; licensure;

reciprocity

A. Except as provided in this section, a laboratory

located outside of this state that performs compliance testing

55a

Arizona Revised Code and Administrative Code Sections

shall be licensed pursuant to this chapter. The laboratory shall

pay all applicable fees and is subject to the same investigatory

and disciplinary powers of the department. In addition, the

department, by rule, may require that the laboratory post a

bond with the department to cover the travel costs of

prelicensure and postlicensure inspections and evaluations.

B. A laboratory which is located outside of this

state and is licensed by this state shall renew the license by

submitting an application and fee at least sixty days before the

expiration of the license. The department, by rule, may also

prescribe that an out-of-state application be accompanied by

an additional fee to cover the costs of prerelicensure on-site

evaluation and inspection. |

C, The director shall designate the location of

hearings held in relation to disciplinary matters or the

issuance of a license.

.D. The director may enter into a reciprocity

agreement with the licensing agency of another state if the

director determines that the licensing requirements of that

state are substantially equal to those of this state. The

agreement shall provide that the licensing agencies of both

states shall recognize a current license issued by the other

state for the purpose of meeting the licensure requirements of

either state. The agreement shall also provide that both states,

on the request of either state, shall conduct necessary

investigations to determine compliance and shall allow on-site

inspections by investigators from either state.

B; If a reciprocal state revokes, suspends or

refuses to renew the license of a laboratory located in that

56a

Arizona Revised Code and Administrative Code Sections

State, this state shall recognize that action unless the

laboratory notifies the department within five business days of

the action that it wishes this state to undertake an independent

review and investigation and posts a bond as prescribed by the

department to conduct the review. If, at the conclusion of that

review, this state determines that the laboratory meets the

licensure requirements of this state, it shall issue a license to

that laboratory on payment of all fees required by this

chapter. Notwithstanding the terms of a reciprocity

agreement, if either state takes action contrary to the action of

the other, neither state has to recognize the license issued by

the other.

A.R.S. § 36-495.15 (1995)

§ 36-495.15. Environmental laboratory licensure revolving

fund; use ;

A. The environmental laboratory _ licensure

revolving fund is established in the department

which consists of monies from gifts, grants,

donations, fees derived from department