1 DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS In the matter of: ) ) --- ) ADP Case No. 15-03586 ) Applicant for Public Trust Position ) Appearances For Government: Chris Morin, Esquire, Department Counsel For Applicant: Pro se ______________ Decision ______________ GALES, Robert Robinson, Administrative Judge: Applicant has mitigated the trustworthiness concerns regarding financial considerations. Eligibility to occupy a public trust position is granted. Statement of the Case On July 9, 2013, Applicant applied for a public trust position and submitted an Electronic Questionnaire for Investigations Processing (e-QIP).1 On December 6, 2015, the Department of Defense (DOD) Consolidated Adjudications Facility (CAF) issued a Statement of Reasons (SOR) to him, pursuant to DOD Regulation 5200.2-R, Personnel Security Program, dated January 1987, as amended and modified (Regulation); DOD Directive 5220.6, Defense Industrial Personnel Security Clearance Review Program (January 2, 1992), as amended and modified (Directive); and Adjudicative Guidelines for Determining Eligibility For Access to Classified Information (effective within the DOD on September 1, 2006) (AG) for all adjudications and other determinations made under the Directive. The SOR alleged trustworthiness concerns under Guideline F (Financial Considerations), and detailed reasons why the DOD adjudicators were unable to make 1 GE 1 (e-QIP, dated July 9, 2013). 2 an affirmative finding under the Directive that it is clearly consistent with the interests of national security to grant or continue Applicant’s eligibility for occupying a public trust position to support a contract with the DOD. The SOR recommended referral to an administrative judge to determine whether such eligibility should be granted, continued, denied, or revoked. Applicant acknowledged receipt of the SOR on December 21, 2015. In a sworn statement, dated January 4, 2016, Applicant responded to the SOR allegations and requested a hearing before an administrative judge. On March 16, 2016, Department Counsel indicated the Government was prepared to proceed. The case was assigned to me on March 23, 2016. A Notice of Hearing was issued on April 29, 2016. I convened the hearing, as scheduled, on May 18, 2016. During the hearing, four Government exhibits (GE 1 through GE 4), four Applicant exhibits (AE A through AE D), and two administrative exhibits were admitted into evidence without objection. Applicant testified. The transcript (Tr.) was received on June 1, 2016. I kept the record open to enable Applicant to supplement it. Applicant took advantage of that opportunity. He timely submitted a number of additional documents, which were marked as AE E through AE P, and admitted into evidence without objection. The record closed on June 22, 2016. Findings of Fact In his Answer to the SOR, Applicant admitted all of the factual allegations pertaining to financial considerations (¶¶ 1.a. through 1.f.) of the SOR. Applicant’s admissions are incorporated herein as findings of fact. After a complete and thorough review of the evidence in the record, and upon due consideration of same, I make the following additional findings of fact: Applicant is a 50-year-old employee of a defense contractor. He has been a full- time client advocate for a defense contractor since March 2016.2 He had previously spent a number of years (1993 until 2016) in various positions (associate – analyst, vice president – productivity analyst, and vice president consultant – business technology analyst) with two major international banks.3 He is seeking to retain his eligibility for occupying a public trust position to support a contract with the DOD. He has never served in the U.S. military.4 He is a 1984 high school graduate and the recipient of a 2000 bachelor’s degree.5 Applicant was married to his first wife in August 1988 and divorced in March 1994. He married his second wife in August 2003.6 He has two sons, 2 Tr. at 58, 67. 3 GE 1, supra note 1, at 10-13. 4 GE 1, supra note 1, at 14. 5 GE 1, supra note 1, at 9-10; Tr. at 67. 6 GE 1, supra note 1, at 16-18. 3 born in 1991 and 1995, a stepson, born in 1991, as well as two daughters, born in 1989 and 2009.7 Financial Considerations8 Applicant and his wife purchased their first home in 2004 with a high credit of $286,150. While contemplating real estate investment, he received information on buying, renting, and selling properties, and he obtained realtor’s licenses in two states. The national housing market was flying high. Housing prices peaked in early 2006, but started to decline later that year. After checking out several property portfolios, Applicant subsequently invested in other real estate and successfully rented his properties without any trouble. There was nothing unusual about Applicant’s finances until sometime in mid-2008 when the housing “bubble” burst and the national economy and the real estate market started to implode. The financial community was surprised, and no one knew the length and depth of the implosion. Individuals lost their jobs or were otherwise unable to maintain their normal monthly rent payments. Bankruptcies and foreclosures soared. Some renters simply departed in the middle of the night without informing the landlords. Although the renters of Applicant’s first property came upon hard times and could not continue their lease payments, Applicant managed to keep up with his mortgage payments and finally sold that property in April 2016. He was not as successful with his other properties. The SOR identified six purportedly continuing delinquent accounts referring to three rental properties that went into foreclosure, as reflected by the July 2013 credit report,9 the August 2014 credit report,10 and the March 2015 credit report.11 Those debts and their respective current status, according to the credit reports, other evidence submitted by the Government and Applicant, and Applicant’s comments regarding same, are described below: In December 2006, Applicant purchased his second investment property for approximately $132,500 split 80% between a bank first mortgage in an unspecified amount (SOR ¶ 1.c.), and 20% for a second mortgage in the amount of $33,125 (SOR ¶ 1.d.).12 Applicant had a reliable tenant. However, in mid-2009, at the end of her lease, 7 GE 1, supra note 1, at 22-26; Tr. at 65-66. 8 General source information pertaining to the financial accounts discussed below can be found in the following exhibits: GE 1, supra note 1; GE 2 (Combined Experian, TransUnion, and Equifax Credit Report, dated July 23, 2013); GE 3 (Equifax Credit Report, dated August 15, 2014); GE 4 (Equifax Credit Report, dated March 16, 2015); Answer to the SOR, dated January 4, 2016. More recent information can be found in the exhibits furnished and individually identified. 9 GE 2, supra note 8. 10 GE 3, supra note 8. 11 GE 4, supra note 8. 12 GE 2, supra note 8, at 8, 10; GE 1, supra note 1, at 36; AE L (Property Details, dated June 8, 2016), at 3; Tr. at 24, 43. 4 his tenant relocated to another property in the same area for one-half the rent. Applicant unsuccessfully tried to rent his property, and then put it up for sale. He paid the mortgage on the vacant property until he exhausted his savings, and then he approached the mortgage lender to offer a deed in lieu of foreclosure. His offer was rejected.13 The property was foreclosed in early 2010, and a notice of foreclosure sale was issued in February 2010.14 The property was sold in April 2010 for $105,090.15 In September 2014, the successor in interest to the second mortgage lender issued Applicant a Form 1099-C, Cancellation of Debt, indicating that $49,867.98 of the second mortgage debt had been discharged.16 The accounts have been resolved. In August 2007, Applicant purchased his third investment property for approximately $235,500 split 80% between a bank first mortgage in the amount of $188,400 (SOR ¶ 1.a.),17 and 20% for a second mortgage in the amount of $47,100 (SOR ¶ 1.b.).18 Applicant’s tenant lost his job and was unable to continue making rent payments. Applicant unsuccessfully tried to rent his property, and then put it up for sale, hoping for a short or routine sale.19 His efforts were unsuccessful. As with his other rental properties, he paid the mortgage on the vacant property until he exhausted his savings, and then he approached the mortgage lender to renegotiate or refinance his mortgage or offer a deed in lieu of foreclosure.20 The property was foreclosed in mid- 2010, and a notice of foreclosure sale was issued in May 2010.21 The property was sold in July 2010 for $219,946.22 Applicant was of the belief that he was informed that there was a deficiency of approximately $30,000 after the sale, but he is uncertain if he ever received a Form 1099-C, and appears confused.23 Moreover, according to Applicant’s July 2013 credit report, the loan “grantor reclaimed collateral to settle defaulted mortgage,” leaving a 13 GE 1, supra note 1, at 36; Tr. at 25; AE A (Hardship Affidavit, undated). 14 AE K (Notice of Foreclosure Sale, dated February 10, 2010). 15 AE L, supra note 9, at 3. 16 AE B (Form 1099-C, dated September 9, 2014). 17 GE 2, supra note 8, at 9; Tr. at 35. 18 GE 2, supra note 8, at 10; GE 4, supra note 8, at 1; GE 1, supra note 1, at 36; AE L (Property Details, dated June 8, 2016), at 3; Tr. at 22. During the hearing, Department Counsel moved to amend ¶ 1.b. of the SOR to conform to the evidence that reflects that there was a past-due amount of $23,759, and deleting references to a second mortgage and a deficiency balance. There being no objection, and considering the fact that the figure proposed already appeared in GE 3 (at 1) and GE 4 (at 1), the motion was granted. The amendment was entered into the record as Administrative Exhibit II. See Tr. at 80-86. 19 Tr. at 22, 38-39; AE F (Exclusive Seller Listing Agreement, dated October 28, 2008). 20 GE 1, supra note 1, at 37; Tr. at 36-38. 21 AE G (Notice of Foreclosure Sale, dated May 20, 2010). 22 AE H (Property Details, dated June 8, 2016), at 5. 23 Tr. at 39-41. 5 zero balance.24 The subsequent credit reports for August 2014 and March 2015 reflect the erroneously merged first and second mortgages as a second mortgage, and report the high credit as $188,400, with a past-due amount of $23,759 and remaining balance of $46,786.25 Based upon my rough calculations, if there is a deficiency, it is not from the first mortgage because the actual sale price exceeded the remaining loan balance. There might be one of approximately $15,500 from the second mortgage. The first mortgage account (SOR ¶ 1.a.) has been resolved, but the second mortgage account (SOR ¶ 1.b.) has not been resolved. In October 2007, Applicant purchased his next investment property, a boarding house, with a mortgage for approximately $355,500 (SOR ¶ 1.f.).26 Applicant’s tenants were inconsistent with their monthly rent payments and eventually were unable to continue making them. Applicant unsuccessfully tried to rent his property, and then put it up for sale, hoping for a short or routine sale.27 His efforts were unsuccessful. As with his other rental properties, he paid the mortgage on the vacant property until he exhausted his savings, and then he approached the mortgage lender to renegotiate or refinance his mortgage or offer a deed in lieu of foreclosure.28 The property was foreclosed in the fall of 2008, and a notice of foreclosure sale was issued in October 2008.29 The property was sold in February 2009 for $369,942. According to Applicant’s July 2013 credit report, the loan “grantor reclaimed collateral to settle defaulted mortgage,” leaving a zero balance.30 The account has been resolved. In January 2008, Applicant purchased his next investment property with a mortgage for approximately $349,200 (SOR ¶ 1.e.).31 Applicant’s tenants were inconsistent with their monthly rent payments and eventually were unable to continue making them. Applicant unsuccessfully tried to rent his property, and then put it up for sale, hoping for a short or routine sale.32 His efforts were unsuccessful. As with his other rental properties, he paid the mortgage on the vacant property until he exhausted his savings, and then he approached the mortgage lender to renegotiate or refinance his mortgage or offer a deed in lieu of foreclosure.33 The property was foreclosed, and in 24 GE 2, supra note 8, at 1; GE 4, supra note 8, at 1. 25 GE 3, supra note 8, at 9. 26 GE 2, supra note 8, at 11; Tr. at 47. 27 GE 1, supra note 1, at 35; AE I (E-mail Stream, with attachments, various dates). 28 AE M (E-mail Stream, various dates). 29 AE N (Notice of Foreclosure Sale, dated October 29, 2008). 30 GE 2, supra note 8, at 10. 31 GE 2, supra note 8, at 10; Tr. at 34, 47. 32 GE 1, supra note 1, at 35; Tr. at 47. 33 AE M, supra note 28. 6 mid-2009, it was sold for $68,000.34 According to Applicant’s July 2013 credit report, the account was transferred to another lender, leaving a zero balance.35 Applicant’s May 2016 credit report also reflects a zero balance.36 In the absence of any current negative information pertaining to the account, I conclude that the account has been resolved. In October 2009, during the period when Applicant’s finances were under siege and his rental properties were draining him of his savings, Applicant engaged the professional services of a credit repair law firm to contact his creditors to resolve his accounts. He continued using their services for a couple of years, starting out with monthly payments of $60. Eventually, the monthly fee increased to a point when Applicant chose to terminate the relationship as being too costly.37 That professional relationship was followed by another one with an organization that not only represented him, but also furnished financial guidance on credit repair. This relationship lasted approximately one year.38 While the two organizations furnished some guidance and some success with minor financial issues, they were ineffective with respect to Applicant’s mortgages.39 Applicant’s Personal Financial Statement indicates a monthly net income of $4,542, and normal monthly expenses of $3,181, leaving a monthly remainder of $1,361 available for saving or spending.40 He has approximately $400 in his checking account, $4,000 in his savings account, and approximately $50,000 in his 401(k) retirement account.41 Applicant has no other outstanding debts.42 His credit score, as of May 16, 2016, was 756, or excellent.43 In the absence of any additional unidentified delinquencies, it appears that Applicant's financial problems are under control. Policies The U.S. Supreme Court has recognized the substantial discretion of the Executive Branch in regulating access to information pertaining to national security emphasizing, “no one has a ‘right’ to a [position of public trust].”44 As Commander in 34 AE J (Property Details, dated June 11, 2016), at 4. 35 GE 2, supra note 8, at 11. 36 AE D (Credit Karma Credit Report, dated May 16, 2016), at 7. 37 Tr. at 59-62; AE O (E-mail Stream, various dates). 38 Tr. at 62-64. 39 Tr. at 64. 40 AE P (Personal Financial Statement, dated June 2, 2016). 41 Tr. at 51-52. 42 Tr. at 52, 64. 43 AE D, supra note 36, at 1. 44 Department of the Navy v. Egan, 484 U.S. 518, 528 (1988). 7 Chief, the President has the authority to control access to information bearing on national security and to determine whether an individual is sufficiently trustworthy to have access to such information. Positions designated as ADP-I and ADP-II are classified as “sensitive positions.”45 “The standard that must be met for . . . assignment to sensitive duties is that, based on all available information, the person’s loyalty, reliability, and trustworthiness are such that . . . assigning the person to sensitive duties is clearly consistent with the interests of national security.”46 DOD contractor personnel are afforded the right to the procedures contained in the Directive before any final unfavorable access determination may be made.47 When evaluating an applicant’s suitability for a public trust position, the administrative judge must consider the AG. In addition to brief introductory explanations for each guideline, the AG list potentially disqualifying conditions and mitigating conditions, which are used in evaluating an applicant’s eligibility for a public trust position. An administrative judge need not view the guidelines as inflexible, ironclad rules of law. Instead, acknowledging the complexities of human behavior, these guidelines are applied in conjunction with the factors listed in the adjudicative process. The administrative judge’s overarching adjudicative goal is a fair, impartial, and common sense decision. The entire process is a conscientious scrutiny of a number of variables known as the “whole-person concept.” The administrative judge must consider all available, reliable information about the person, past and present, favorable and unfavorable, in making a meaningful decision. In the decision-making process, facts must be established by “substantial evidence.”48 The Government initially has the burden of producing evidence to establish a potentially disqualifying condition under the Directive, and has the burden of establishing controverted facts alleged in the SOR. Once the Government has produced substantial evidence of a disqualifying condition, under Directive ¶ E3.1.15, the applicant has the burden of persuasion to present evidence in refutation, explanation, extenuation or mitigation, sufficient to overcome the doubts raised by the Government’s case. The burden of disproving a mitigating condition never shifts to the Government.49 45 Regulation ¶¶ C3.1.2.1.1.7, C3.1.2.1.2.3, and C3.1.2.2. See also Regulation app. 10, ¶ 10.2. 46 Regulation ¶ C6.1.1.1. 47 Regulation ¶ C8.2.1. It should be noted that a memorandum from the Deputy Under Secretary of Defense for Counterintelligence and Security, Adjudication of Trustworthiness Cases, dated November 19, 2004, covers the handling of trustworthiness cases under the Directive. The memorandum directed the Defense Office of Hearings and Appeals (DOHA) to continue to utilize the Directive in ADP contractor cases for trustworthiness determinations. 48 “Substantial evidence [is] such relevant evidence as a reasonable mind might accept as adequate to support a conclusion in light of all contrary evidence in the record.” ISCR Case No. 04-11463 at 2 (App. Bd. Aug. 4, 2006) (citing Directive ¶ E3.1.32.1). “Substantial evidence” is “more than a scintilla but less than a preponderance.” See v. Washington Metro. Area Transit Auth., 36 F.3d 375, 380 (4 th Cir. 1994). 49 See ISCR Case No. 02-31154 at 5 (App. Bd. Sep. 22, 2005). 8 A person who seeks access to sensitive information enters into a fiduciary relationship with the Government predicated upon trust and confidence. This relationship transcends normal duty hours and endures throughout off-duty hours as well. It is because of this special relationship that the Government must be able to repose a high degree of trust and confidence in those individuals to whom it grants access to sensitive information. Decisions include, by necessity, consideration of the possible risk the applicant may deliberately or inadvertently fail to safeguard sensitive information. Such decisions entail a certain degree of legally permissible extrapolation as to potential, rather than actual, risk of compromise of sensitive information. Furthermore, security clearance determinations, and by inference, public trust determinations, should err, if they must, on the side of denials.50 In reaching this decision, I have drawn only those conclusions that are reasonable, logical, and based on the evidence contained in the record. Likewise, I have avoided drawing inferences grounded on mere speculation or conjecture. Analysis Guideline F, Financial Considerations The trustworthiness concern relating to the guideline for Financial Considerations is set out in AG ¶ 18: Failure or inability to live within one=s means, satisfy debts, and meet financial obligations may indicate poor self-control, lack of judgment, or unwillingness to abide by rules and regulations, all of which can raise questions about an individual=s reliability, trustworthiness and ability to protect [sensitive] information. An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds. . . . The guideline notes several conditions that could raise trustworthiness concerns. Under AG ¶ 19(a), an “inability or unwillingness to satisfy debts” is potentially disqualifying. Also, under AG ¶ 19(c), “a history of not meeting financial obligations” may raise trustworthiness concerns. Applicant’s initial financial problems arose in mid- 2008 when his real estate investment activities turned sour and his rental properties started going into foreclosure. Because he was unable to continue making his monthly mortgage payments, four rental properties were foreclosed and sold. AG ¶¶ 19(a) and 19(c) have been established. The guideline also includes examples of conditions that could mitigate trustworthiness concerns arising from financial difficulties. Under AG ¶ 20(a), the disqualifying condition may be mitigated where “the behavior happened so long ago, was so infrequent, or occurred under such circumstances that it is unlikely to recur and does not cast doubt on the individual=s current reliability, trustworthiness, or good judgment.” Also, under AG ¶ 20(b), financial trustworthiness concerns may be mitigated 50 Egan, 484 U.S. at 531. 9 where “the conditions that resulted in the financial problem were largely beyond the person=s control (e.g., loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation), and the individual acted responsibly under the circumstances.” Evidence that “the person has received or is receiving counseling for the problem and/or there are clear indications that the problem is being resolved or is under control” is potentially mitigating under AG ¶ 20(c). Similarly, AG ¶ 20(d) applies where the evidence shows “the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts.”51 AG ¶¶ 20(a), 20(b), 20(c), and 20(d) apply. The nature of Applicant’s multi-year period of financial difficulties, commencing in 2008 and extending to 2010, was occasioned by a largely unexpected world-wide financial cataclysmic event. The housing “bubble” burst and the national economy and the real estate market imploded. Individuals lost their jobs or were otherwise unable to maintain their normal monthly rent payments. Bankruptcies and foreclosures soared. Applicant’s financial problems were a direct result of those unusual events that were largely beyond his control. His tenants bailed out and it was nearly impossible to replace them. He was burdened by zero rental income. Nevertheless, Applicant continued making his monthly mortgage payments until he exhausted his savings. His good-faith efforts were overcome by the reality of insufficient funds to continue doing so. He contacted his mortgage lenders in an effort to renegotiate or refinance his mortgages. He tried selling his properties. He was not successful. The properties were foreclosed and sold, in most instances for amounts that settled the defaulted mortgages. Several years before the SOR was issued, Applicant utilized the professional services of two different credit repair organizations in an effort to resolve his mortgage issues and other debts. He paid for their services, and while they provided some positive financial guidance and success with minor financial issues, they were ineffective with respect to his mortgages. Applicant has no other delinquent accounts. He has savings, a good monthly remainder available for saving or spending, and an excellent credit score. Applicant's financial problems are under control. Applicant’s actions no longer cast doubt on his current reliability, trustworthiness, or good judgment.52 51 The Appeal Board has previously explained what constitutes a good-faith effort to repay overdue creditors or otherwise resolve debts: In order to qualify for application of [the “good-faith” mitigating condition], an applicant must present evidence showing either a good-faith effort to repay overdue creditors or some other good-faith action aimed at resolving the applicant’s debts. The Directive does not define the term “good-faith.” However, the Board has indicated that the concept of good-faith “requires a showing that a person acts in a way that shows reasonableness, prudence, honesty, and adherence to duty or obligation.” Accordingly, an applicant must do more than merely show that he or she relied on a legally available option (such as bankruptcy [or statute of limitations]) in order to claim the benefit of [the “good-faith” mitigating condition]. (internal citation and footnote omitted) ISCR Case No. 02-30304 at 3 (App. Bd. Apr. 20, 2004) (quoting ISCR Case No. 99-9020 at 5-6 (App. Bd. June 4, 2001)). 52 See ISCR Case No. 09-08533 at 3-4 (App. Bd. Oct. 6, 2010). 10 Whole-Person Concept Under the whole-person concept, the administrative judge must evaluate an applicant’s eligibility for a public trust position by considering the totality of the applicant’s conduct and all the circumstances. The administrative judge should consider the nine adjudicative process factors listed at AG ¶ 2(a): (1) the nature, extent, and seriousness of the conduct; (2) the circumstances surrounding the conduct, to include knowledgeable participation; (3) the frequency and recency of the conduct; (4) the individual’s age and maturity at the time of the conduct; (5) the extent to which participation is voluntary; (6) the presence or absence of rehabilitation and other permanent behavioral changes; (7) the motivation for the conduct; (8) the potential for pressure, coercion, exploitation, or duress; and (9) the likelihood of continuation or recurrence. Under AG ¶ 2(c), the ultimate determination of whether to grant eligibility for a public trust position must be an overall commonsense judgment based upon careful consideration of the guidelines and the whole-person concept. Moreover, I have evaluated this case in light of the totality of the record evidence and have not merely performed a piecemeal analysis.53 There is some evidence against mitigating Applicant’s conduct. He became a real estate investor and, when he was unable to continue making his monthly mortgage payments, saw his investments sour and fall into foreclosure. Four properties were foreclosed and sold. The mitigating evidence is more substantial and compelling. There is no evidence of misuse of information technology systems, mishandling protected information, or substance abuse. After a lengthy career in international banking, Applicant received information on buying, renting, and selling properties, and he obtained realtor’s licenses in two states. Over the course of three years he invested in four rental-producing properties. Unexpected circumstances disrupted his investment plans when the housing “bubble” burst and the national economy and the real estate market imploded. Applicant’s tenants lost their jobs or were otherwise unable to maintain their normal monthly rent payments. Nationwide, bankruptcies and foreclosures soared, and Applicant was drawn into the downward spiral of real estate prices followed by foreclosures and further declines of real estate prices. Applicant did not conceal his financial difficulties when completing his e-QIP. Instead, he was honest and forthright, and he reported them. The undisputed developed evidence enables me to conclude that there are clear indications that Applicant’s financial problems are now under control. 53 See U.S. v. Bottone, 365 F.2d 389, 392 (2d Cir. 1966); See also ISCR Case No. 03-22861 at 2-3 (App. Bd. Jun. 2, 2006). 11 Overall, the evidence leaves me without questions or doubts as to Applicant’s eligibility and suitability for a position of public trust. For all of these reasons, I conclude Applicant has mitigated the trustworthiness concerns arising from his financial considerations. See AG ¶ 2(a)(1) through AG ¶ 2(a)(9). Formal Findings Formal findings for or against Applicant on the allegations set forth in the SOR, as required by section E3.1.25 of Enclosure 3 of the Directive, are: Paragraph 1, Guideline F: FOR APPLICANT Subparagraphs 1.a. through 1.f.: For Applicant Conclusion In light of all of the circumstances presented by the record in this case, it is clearly consistent with the interests of national security to grant Applicant eligibility to occupy a public trust position to support a contract with DOD. Eligibility is granted. ________________________ ROBERT ROBINSON GALES Administrative Judge