* The original of this document contains information which is subject to withholding from disclosure under 5 U.S.C. 552. Such material has been deleted from this copy and replaced with XXXXXXX’s.
April 2, 2002
DEPARTMENT OF ENERGY
OFFICE OF HEARINGS AND APPEALS
Hearing Officer's Decision
Name of Case: Personnel Security Hearing
Date of Filing: November 19, 2001
Case Number: VSO-0507
This Decision concerns the eligibility of XXXXXXXXXXXXX (hereinafter the individual) to hold an access authorization.(1) The regulations governing the individual's eligibility are set forth at 10 C.F.R. Part 710, "Criteria and Procedures for Determining Eligibility for Access to Classified Matter or Special Nuclear Material." This Decision will consider whether, based on testimony and other evidence presented in this proceeding, the individual's suspended access authorization should be restored. As discussed below, I find that the individual has not met her burden to bring forward sufficient evidence to show that her access authorization should be restored.
I. History
This administrative review proceeding began with the issuance of a Notification Letter, informing the individual that information in the possession of the DOE created substantial doubt pertaining to her eligibility for an access authorization. In accordance with 10 C.F.R. § 710.21, the Notification Letter included a detailed statement of the derogatory information.
The area of concern cited in the Notification Letter involves information that the individual has demonstrated a pattern of unreliability and financial irresponsibility. This behavior is subject to the provisions of 10 C.F.R. § 710.8(l) (hereinafter Criterion L). (2)
The Notification Letter identified the following matters as concerns:
(i) On November 13, 2000, the individual reported that she filed for Chapter 13 Bankruptcy on May 20, 1999. She claimed that she had previously reported the bankruptcy, but her personnel security file did not contain any information to that effect. She claimed that in July 2000 the Chapter 13 bankruptcy was dismissed at her request and that she was current on all of her debts at that time. An updated credit report was obtained on November 28, 2000 showed past due and collection accounts totaling $62,953.
(ii) During a March 1, 2001 Personnel Security Interview (PSI) the individual stated that she and her husband filed a first Chapter 13 bankruptcy in May 1998 and a second Chapter 13 bankruptcy in May 1999; that the bank was on the verge of foreclosing on their home; that she and her husband had made payments on the Chapter 13 bankruptcy for a year, but stopped in July 2000 because they could not continue to make the $5,000 a month payment; that she uses one credit card belonging to her mother-in-law, for which she owes $2,000 to $3,000; that since the 1998 bankruptcy, she and her husband have not made payments on eleven accounts which are cited in the Letter. These accounts include two mortgages, a number of credit card accounts and an involuntary repossession of a car with an alleged balance of $50,000.
(iii) During the March 2001 PSI, the individual stated that she intended to pay all outstanding debts through a Consumer Credit Counseling Service (CCCS), but as of the date of the Notification Letter, she had not yet established a repayment plan with CCCS.
The Notification Letter informed the individual that she was entitled to a hearing before a Hearing Officer in order to respond to the information contained in that Letter. The individual requested a hearing, and that request was forwarded by the DOE Office to the Office of Hearings and Appeals (OHA). I was appointed the Hearing Officer in this matter. In accordance with 10 C.F.R. § 710.25(e) and (g), the hearing was convened.
At the hearing, there were seven witnesses: the individual’s real estate lawyer, the landlord from whom the individual is currently leasing a house, the individual’s credit counselor, two of the individual’s supervisors, the individual’s husband and the individual herself. The individual was represented by an attorney.
II. Factual Background
Since the fact pattern of this case is complex, I believe that it will be useful to provide some background in order to facilitate an understanding of the hearing testimony, and the evidence presented. I have set forth below the contentions of the individual regarding the reasons for her indebtedness and bankruptcies. Where there is some documentary support for these claims, I shall cite to the relevant portions of the record.
Fundamentally, the individual claims that her financial difficulties arose because of a real estate scam that was perpetrated by an unethical mortgage broker (hereinafter mortgage broker). The scam involved two residences owned by the individual and her husband.
A. Property # 1
In December 1996, the individual refinanced a mortgage on this residence through the mortgage broker. The mortgage broker was also to be the new lender. Some of the proceeds from the refinancing were supposed to be used to pay off some of the individual’s credit card debts. That payment was to be made by the mortgage broker along with other payouts after settlement. The mortgage broker failed to repay either the prior mortgagee on that property, or the individual’s creditors. However, he did make some monthly payments on that prior mortgage. Therefore, the individual did not learn of the failure to pay off the prior mortgage until October 1997, when the mortgagee provided a notice of delinquency to the individual and her husband. Indiv. Exh. I. This prior mortgage was eventually paid off. Indiv. Exh. N.
Shortly after the refinancing, the mortgage broker purportedly agreed to purchase property #1. However, the individual claims that she learned later on that the transaction was really only an agreement to make mortgage payments for her, while she was still fully liable for the mortgage. This property went into foreclosure because the mortgage payments were never made by mortgage broker or by the individual. The mortgage broker foreclosed on this property, for which he was holding the loan, as described above.
B. Property #2
In March 1997, believing that she had sold property #1 to the mortgage broker, the individual and her husband purchased a new residence, Property #2. At that time, unaware of the scam, the individual used the mortgage broker’s services to obtain a loan on this property and to close the purchase. In November 1997, the individual and her husband attempted to refinance this property in order to consolidate their debts. At that time they learned that the mortgage broker had recorded a fraudulent deed of trust against the property. This was allegedly done by forging the initials of the individual and her husband and by cutting and pasting other documents that contained their signatures. Indiv. Exh. E. The mortgage broker refused to release the fraudulent deed of trust and the individual was unable to complete the refinancing. In order to resolve the issue of the lien and clear the title on this property, the individual and her husband decided to bring the matter to a judge in a Chapter 13 bankruptcy proceeding. While still in the bankruptcy proceeding, they were advised by an attorney to abandon the bankruptcy in favor of attempting again to refinance the property. The goal here was to use the equity in the property to pay off all consumer debt, as well as mortgage arrears. They were unsuccessful in their attempt to refinance and this property went into foreclosure.
The individual contends that the mortgage broker and the persons who were associated with him in his business have been sued by a title insurance company. She has provided a copy of the complaint. Indiv. Exh. A. As noted in the complaint, the claims against the mortgage broker include fraud, conspiracy to defraud, breach of fiduciary duty, breach of contract and racketeering. The complaint cites numerous instances in which this mortgage broker has engaged in real estate fraud involving many properties and victims.
III. The Hearing Testimony
A. The Real Estate Lawyer
This witness confirmed that he had represented the individual and her husband in attempting to pay off the first mortgage on property #1. He testified that the mortgage broker did not promptly pay off that mortgage as he was obligated to do. Transcript of Personnel Security Hearing (hereinafter Tr.) at 81. He confirmed that the reputation of the mortgage broker in the community was a poor one and that he had heard of problems experienced by other customers with this mortgage broker. Tr. at 83. He believed that the mortgage broker was involved in fraud, and not just bad business practices. Tr. at 86. He also stated that he knew of no party (other than the mortgage broker) that actually claimed that the individual and her husband did anything improper in their own real estate dealings. Tr. at 84.
B. The Landlord
This witness has been renting a residence to the individual and her husband for more than 15 months. He stated that they have always paid their rent on time. Tr. at 27-28. He testified that he is in the process of completing a sale of this property to the individual and her husband, and believes that he has found financing for the sale. Tr. at 29, 31-32. He expects the sale to be completed shortly. Id. He testified that he has had other clients who have had bad experiences with the mortgage broker. Specifically, he stated that he was aware of instances in which the mortgage broker had taken out two loans on the same property or had failed to pay off an existing mortgage when entering into a refinancing. Tr. at 36-37. He testified that he has known the individual and her husband for about five years and trusts them. Tr. at 37.
C. The Consumer Counselor
This witness is vice president of client services and a counselor with Consumer Credit Counseling Service (CCCS) of the area in which the individual resides. She testified that she first saw the individual and her husband on June 27, 2001. She stated that they signed papers agreeing to set up a repayment program in July and also made their first payment in that month. Tr. at 92. She testified that since that time they have always made full and timely payments under their agreement. Id. She indicated that the repayment amount per month is worked out with each creditor by CCCS, and it is based on a percentage of the outstanding debt. Tr. at 93, 95. She testified that the individual and her husband make payments of about $1,200 per month and that their debt will be paid off in about five years. Tr. at 93-94. She further stated that individuals who enter the repayment program are not supposed to acquire a new credit card. Tr. at 101-102.
D. The Individual
The individual testified that each creditor that filed a claim in her bankruptcy proceeding was included in the CCCS repayment program. With the assistance of her attorney, the individual reviewed in detail each item on her current credit report, and pointed out the payment to that creditor on her CCCS repayment schedule. Tr at 104-136. Indiv. Hearing Exh. #2 (credit report); Indiv. Exh. 2-1 (Consumer Credit Counseling Monthly Client Statements). (3) The individual also testified that she was current on all her utility bills and referred to copies of canceled checks that showed payment for these services. Indiv. Exh. 2-2 through 2-6. Tr. at 137-40. The individual also responded to the concern in the Notification Letter that she had failed to notify the DOE in a timely manner of her bankruptcies. She stated that she believed that she had provided this information. Tr. at 143. She also testified that she uses her mother-in law’s credit card to purchase gasoline and prescriptions. Tr. at 153. She indicated that she charged a family vacation costing about $7,000 on the card and that she currently owes about $3,000 to the credit card company. She stated that she tries to pay about $1,000 a month towards that debt and expects to pay off the debt in several months. Tr. at 147, 152.
E. The Husband
The husband testified about how he and the individual attempted to resolve their financial problems created by the mortgage company by means of Chapter 13 bankruptcy proceedings. He stated that he was advised by an attorney that the problems could be solved by bringing the matter to the attention of a bankruptcy judge. Tr. at 159. He testified that he and the individual also attempted to refinance property # 2 and use their equity to pay off creditors. Tr. at 171. He indicated that they were unable to straighten out their financial problems through either Chapter 13 bankruptcy proceedings or through refinancing, and property # 2 was forced into foreclosure. Tr. at 156-97.
F. Supervisor # 1
Supervisor # 1 testified that he has known the individual for about 18 years and was her supervisor during 1994-1998. He characterized her as honest, forthright and an outstanding employee. Tr. at 14- 15.
G. Supervisor # 2
Supervisor # 2 testified that he has known and worked with the individual since the mid 1980s. Tr. at 197. He has supervised her from time to time on several projects over a number of years. He indicated that as a result of a reorganization, he recently became her supervisor again. Tr. at 198. He stated that he “would vouch 100 percent for her honesty and integrity.” Tr. at 200. He had no questions about her loyalty or trustworthiness. Tr. at 197.
IV. Standard of Review
The Hearing Officer’s role in this proceeding is to evaluate the information presented by the DOE Office and the individual, and to render an opinion based on that evidence. The decision as to access authorization is a comprehensive, common-sense judgment, made after consideration of all the relevant information, favorable or unfavorable, as to whether the granting of access authorization would not endanger the common defense and security and would be clearly consistent with the national interest. See 10 C.F.R. § 710.7(a).
A DOE administrative review proceeding under 10 C.F.R. Part 710 is not like a criminal case, in which the burden is on the government to prove the defendant guilty beyond a reasonable doubt. In this type of case, we use a different standard, which is designed to protect national security interests. A hearing is “for the purpose of affording the individual an opportunity of supporting his eligibility for access authorization.” 10 C.F.R. § 710.21(b)(6). The burden is on the individual to come forward at the hearing with evidence to convince the DOE that restoring his access authorization “would not endanger the common defense and security and would be clearly consistent with the national interest.” 10 C.F.R. § 710.27(d).
This standard implies that there is a strong presumption against the granting or restoring of an access authorization. See Dep’t of Navy v. Egan, 484 U.S. 518, 531 (1988) (“clearly consistent with the national interest” standard for the granting of access authorizations indicates “that security determinations should err, if they must, on the side of denials”); Dorfmont v. Brown, 913 F.2d 1399, 1403 (9th Cir. 1990)(strong presumption against the issuance of a security clearance). Consequently, it is necessary and appropriate to place the burden of persuasion on the individual in cases involving national security issues. Personnel Security Hearing (Case No. VSO-0002), 24 DOE ¶ 82,752 at 85,511 (1995).
V. Analysis
As stated above, there are three main areas of financial issues cited in the Notification Letter that give rise to a security concern under Criterion L: (i) the individual declared bankruptcy twice in two years; (ii) the individual owned two properties that were forced into foreclosure due to unpaid mortgages; and (iii) the individual amassed about $63,000 in credit card debt (including interest). I must consider whether there is evidence that mitigates these concerns. See 10 C.F.R. § 710.7(c). I will first address the security concerns arising from the individual’s bankruptcy filings and the real estate foreclosures. Afterwards, I will examine the security concerns connected with her credit card debt.
A. Bankruptcies and Foreclosures
Filing for bankruptcy may give rise to security concerns about an individual's trustworthiness and reliability, if an employee has engaged in financial behavior that is irresponsible. Personnel Security Hearing (Case No. VSO-0081), 25 DOE ¶ 82,805 (1996). When reviewing the access authorization of an individual who has filed for bankruptcy, I therefore focus on how that individual reached the point at which it became necessary for her to seek the help of the bankruptcy court in order to regain control of her financial situation through discharging debts. I must thus consider whether there is a legitimate financial hardship, or whether the bankruptcy resulted from irresponsible behavior.
While I still find the circumstances surrounding the bankruptcies and foreclosures not completely explained or fully documented, I am overall convinced that the bankruptcies and foreclosures are the result of the fraudulent real estate practices by the mortgage broker. In particular, the testimony of her real estate lawyer and her landlord, as well as documentary evidence in the record, convince me that this mortgage broker duped the individual and her husband in a real estate scheme that resulted in their real estate difficulties. E.g., Indiv. Exh.1-2, 1-3; Indiv. Exh. A-N. The individual has therefore persuaded me that the foreclosures did not arise from her own irresponsible actions, but rather from an extraordinary set of unfortunate circumstances, trickery and fraud. I also find that the Chapter 13 bankruptcies were part of a plan to bring her real estate difficulties under control and pay her debts in an organized, court-approved manner.
I also believe that even though the individual’s attempts to resolve the real estate problems were not successful, they were, at the time, reasonable ones. For example, there is evidence that she has retained five attorneys to assist her. Indiv. Exh. N, O. Tr. at 161, 183, 188.
I further find that she did not wait an unreasonable period of time to try to resolve these matters. The record indicates that when she learned that the mortgage broker failed to pay off the first lender in property #1, the individual quickly sought legal assistance, and the matter was eventually resolved. Indiv. Exh. N, Indiv. Exh. 1-5. (4)
Finally, a concern was raised in the Notification Letter that the individual waited about 18 months to reveal her bankruptcy to the DOE. The individual claims that she had revealed it earlier, but there was no record of that disclosure in her personnel file.
The individual did not fail to disclose the matter on any form that she submitted to the DOE, so there is no question of falsification or omission on a form. The question here is whether there is any concern about the individual’s reliability due to a failure to reveal the bankruptcy promptly. While I agree that the disclosure should have been made in a more timely fashion, I do not consider the delay to constitute a separate security concern. As discussed above, the security concerns regarding the bankruptcy itself have been resolved.
Accordingly, I conclude that the individual has mitigated the security concerns associated with the bankruptcies and foreclosures.
B. Current Financial Situation
I will now consider the individual’s current financial posture. Although ultimately I am not persuaded that the individual has fully resolved the security concerns associated with her current financial situation, in particular her credit card debt, she has demonstrated a somewhat improved financial position. First, as discussed above, she entered into a repayment program with CCCS and is making regular payments to her creditors. (5) The monthly amount of $1,200 is feasible, given her household income, and I do not believe that it will pose any difficulty for her to continue making the payments for the entire program. Tr. at 149-50, Indiv. Hearing Exh. 1. She has established that she is repaying creditors that were cited in the Notification Letter and other creditors that filed a claim in her bankruptcy proceeding. Tr. at 104-137; Indiv. Exh. 2-1, Indiv. Hearing Exh. #2. (6) As of the date of the hearing, she had repaid about $10,000 of the $63,000 debt cited in the Notification Letter.
The individual has also established that she is paying other monthly bills such as utilities and rent on a regular basis. Indiv. Exh. 2-3 through 2-6. She is in the process of purchasing the residence that she has been leasing for more than one year. Tr. at 29. She has provided evidence of conditional loan approval for that property. Submission of March 20, 2002, Exh. A.
However, I remain concerned about another issue that was raised in the Notification Letter and explored at the hearing. That issue relates to the individual’s use of her mother-in-law’s credit card. The CCCS counselor testified that individuals in the program are not supposed to acquire new credit cards. Since the individual stated that she was using her mother-in-law’s card, she was not technically in violation of that rule. Nevertheless, I did have a concern about whether she was using that credit in a responsible manner, or whether her purchasing pattern demonstrated a continued problem with excess spending on credit. Continuing to amass debt while under the CCCS program through use of the credit card of another person does not seem to me to demonstrate a commitment to establish a sound current financial footing, which is the focus of my concern regarding the individual at this point. I therefore decided that corroboration was necessary for the individual’s assertions regarding her use of her mother-in-law’s credit card. I allowed the individual to submit some additional information on this matter. Tr. at 204. This material was submitted on March 20, 2002. (7)
According to the individual, the facts surrounding the use of the mother-in-law’s credit card are as follows. The individual testified that she took a vacation with her family during the summer of 2001, which she charged on that credit card. She stated that due to the vacation, there was an outstanding balance at the level of about $7,000 this past summer. She stated that she was making regular payments to bring down that debt. She said the debt was currently about $3,000, that she has been making monthly payments of about $1,000, and was hoping to bring the monthly carry-over debt to zero very shortly. She stated that she is presently only using the credit card for gasoline, prescription medicine “and things like that.” Tr. at 147-53.
I asked the individual to provide some additional information to substantiate these claims, so that I could verify her commitment to establish a sound current financial footing. Exhibit C of the individual’s submission of March 20, 2002 addresses that request. It consists of copies of credit card statements from October 2001 through February 2002.
After reviewing those statements I find that they do not corroborate the individual’s hearing testimony. As an initial matter, the statements show that the individual has used the credit card for more than just gasoline, prescription medicine and similar items. It shows a wide range of purchases, indicating that the individual was using credit to pay for both ordinary daily living expenses, and other types of expenses. For example, in every month, the statements indicate that she purchased clothing, housewares, personal items and restaurant meals with this credit card. Moreover, in several months the statements showed charges for items such as a hotel and rental car in Las Vegas and golf club fees.
Further, rather than consistently paying down the balance, as she led me to believe she was, the individual actually increased the balance in several months, until in January 2002, the month prior to the hearing, her unpaid balance actually exceeded her available credit by a small amount. In one month in which she made a large payment, she also had new charges in a similar amount, so that her overall unpaid balance was not reduced at all. In another month she made a payment of about $500, but had new purchases of $2,600. Then, in February 2002, just days prior to the hearing, the individual made a large payment of about $5,000, which brought down the unpaid balance to about $2000.
Based on this evidence I am not persuaded that the individual has taken control of her spending habits. I also note that she has a considerable period, about five years, remaining in her CCCS repayment program, and that at the time of the hearing she had only been participating in the CCCS program for eight months. Given
these factors, I do not believe that her present financial position is sufficiently stable for me to conclude that the security concerns regarding her finances have been resolved. See Personnel Security Hearing (Case No. VSO-0302), 27 DOE ¶ 82,832 (2000). Moreover, I have an additional concern about her candor in this proceeding and with the DOE in general, since the credit card documentation that she submitted at my request contradicts her hearing testimony.
This is not to say that the individual is not entitled to make the purchases that she did, or to use her mother-in-law’s credit card. My focus here is on whether her financial position, sense of responsibility, and overall trustworthiness and honesty are at the level expected of those who are granted access authorization. As described above, the individual has not satisfied me on these points.
VI. CONCLUSION
As indicated by the foregoing, I find that individual has not resolved the Criterion L security concerns set forth in the Notification Letter. Accordingly, it is my determination that the individual’s access authorization should not be restored.
The review procedures applicable to proceedings under Part 710 were revised effective September 11, 2001. 66 Fed. Reg. 47061 (September 11, 2001). Under the prior procedures, the review of a Hearing Officer Opinion was performed by the Director, Office of Hearings and Appeals. 10 C.F.R. § 710.28(a). Under the revised procedures, the review is performed by an Appeal Panel. 10 C.F.R. § 710.28(b)-(e). The final rule preamble provides that in any pending case not already appealed to the Director of the Office of Hearings and Appeals, an individual seeking review of a Hearing Officer Decision may select either the revised procedures or the prior procedures. 66 Fed. Reg. at 47061. Accordingly, the individual in this case may seek review under either the revised or the prior regulation set forth at 10 C.F.R. § 710.28. Any request for review must be filed with the Director, Office of Hearings and Appeals, and served on the other party.
Virginia A. Lipton
Hearing Officer
Office of Hearings and AppealsDate: April 2, 2002
(1) An access authorization is an administrative determination that an individual is eligible for access to classified matter or special nuclear material. 10 C.F.R. § 710.5.
(2) Derogatory information covered by Criterion L includes information that an individual has “[e]ngaged in any unusual conduct or is subject to any circumstances which tend to show that the individual is not honest, reliable , or trustworthy; or which furnishes reasons to believe that the individual may be subject to pressure, coercion, exploitation, or duress which may cause the individual to act contrary to the best interests of the national security. Such conduct or circumstances include. . . a pattern of financial irresponsibility . . . .”
(3) The most recent CCCS statement submitted by the individual was dated January 3, 2002. As of that date the balance to be repaid under the program was approximately $53,556.
(4) This payoff resolves the specific concern cited in the Notification Letter about the failure to pay off the first mortgage on property #1. Notification Letter Item B(5)(k).
(5) The Notification Letter raised a concern that the individual had stated during a March 2001 Personnel Security Interview that she was going to seek the assistance of consumer counseling but had failed to do so immediately. It appears that the individual waited until June 2001 to sign the actual CCCS agreement. She testified that she was waiting to collect information from her creditors. Tr. at 145-46. I do not find this three-month period to be inordinate or to raise any concern about her honesty or trustworthiness.
(6) The Notification Letter raised a concern regarding repossession of a leased vehicle with a balance of $50,000. The amount cited in the Notification Letter was in error. The actual balance when the vehicle was repossessed was approximately $15,000. Indiv. Exh. L. The individual testified that she sold the lease on this vehicle. She stated that the purchaser failed to make the payments, and returned the vehicle to the lessor. Tr. at 130-33. The individual testified that she does not have any documentation to show that the vehicle was returned to the lessor. The only documentation she has to establish that she relinquished the lease is a statement from an insurance company showing a new insured for this vehicle. Indiv. Exh. M. While this is certainly not perfect corroboration for the individual’s claims, I find that it tends to support her position.
(7) The individual’s submission of March 20, 2002 has resolved concerns regarding proof of payment for a vehicle that was listed as an outstanding debt on her credit report. Submission of March 20, 2002, Exh. B. This is a different vehicle from the one referred to in Note 6 above.