950 F.3d 1376
Fed. Cir.2020Background
- SBA awards contracts set aside for service-disabled-veteran-owned (SDVO) small businesses; eligibility requires SDVs to own and control the business under SBA regulations for LLCs.
- For LLCs, control criteria include that one or more SDVs must "control all decisions" of the company under 13 C.F.R. § 125.13(d).
- XOtech is a Georgia LLC with four members (Gary Marullo, an SDV, owns 90.28%) and an Operating Agreement making the company manager-managed with three Managers: Gary (SDV), Kathy (non-SDV), and Joshua (non-SDV), each with equal manager votes and management decisions made by majority of Managers.
- Certain transformative actions are reserved to Members and require a "Majority Interest," which effectively vests decisive member-level authority in Gary as the sole Senior Member with ~90% ownership.
- An unsuccessful bidder challenged XOtech’s SDVO status; the SBA Director and Office of Hearings and Appeals found XOtech lacked SDV control because management votes require at least one non-SDV. The Court of Federal Claims affirmed; XOtech appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SDVs "control all decisions" of XOtech under 13 C.F.R. § 125.13(d) | Marullo can unilaterally remove Managers and thus can control or reclaim control of decisions; non-SDV managers are like removable employees exercising delegated authority, not independent controllers. | The Operating Agreement vests management power in three equal Managers and requires a majority vote; at least one non-SDV vote is required for management decisions and removal power does not let Marullo veto or undo their decisions. | SDVs do not control all decisions: because management decisions require the vote of at least one non-SDV, XOtech is not eligible as an SDVO contractor. |
Key Cases Cited
- Kingdomware Techs., Inc. v. United States, 136 S. Ct. 1969 (2016) (explains statutory framework for set-aside procurement programs)
- Palantir USG, Inc. v. United States, 904 F.3d 980 (Fed. Cir. 2018) (standard of review and principles for judgment on administrative record in bid protests)
- Glenn Def. Marine (Asia), PTE Ltd. v. United States, 720 F.3d 901 (Fed. Cir. 2013) (same appellate review principles cited for cross-motions on administrative record)
- A & D Fire Prot., Inc. v. United States, 72 Fed. Cl. 126 (2006) (discusses burden and considerations in Rule 52.1 motions in bid protests)
- XOtech, LLC v. United States, 142 Fed. Cl. 313 (2019) (Claims Court decision concluding XOtech lacked SDV control; affirmed here)