Alphapointe v. Department of Veterans AffairsAlphapointe v. Department of Veterans Affairs
MEMORANDUM OPINION
I. INTRODUCTION
Plaintiffs Alphapointe and Winston-Salem Industries for the Blind, doing business as IFB Solutions, Inc., are qualified nonprofit agencies under the AbilityOne Program, a federal program that provides employment opportunities for people who are blind or have other severe disabilities. Plaintiffs have, for many years, provided certain goods and services to the Department of Veterans Affairs (“VA“) as a result of statutory preferences afforded to AbilityOne-qualified vendors.
In 2019, the VA notified Plaintiffs that it would transition a number of Plaintiffs’ contracts to veteran-owned businesses. Plaintiffs assert that a recently announced change to applicable acquisition regulations—which the pаrties refer to as the “2019 Class Deviation“—led to the VA‘s decision not to renew these contracts.
Plaintiffs argue that the 2019 Class Deviation is arbitrary, capricious, and not in accordance with law because it conflicts with a Federal Circuit opinion that requires the VA to perform what is known as a “Rule of Two” evaluation before awarding a procurement contract that exceeds $5 million and, if the Rule is satisfied, award the contract to a veteran-owned
Plaintiffs previously asked this court to enjoin the VA from enforcing the 2019 Class Deviation, which the court declined to do. Now Defendants and Defendant-Intervenor, PDS Consultants, Inc., move to dismiss Plaintiffs’ complaint under
II. BACKGROUND
A. Factual Background
1. The Federal Circuit‘s Decision in PDS Consultants
In October 2018, the Federal Circuit decided PDS Consultants, Inc. v. United States. The case addressed the interplay between two federal procurement statutes—the Javits-Wagner-O‘Day Act (“JWOD“),
The JWOD was enacted in 1938, and amended in 1971, to create employment opportunities for blind and “other severely disabled” individuals. Id. at 1348–49. To aсcomplish this, the JWOD established a fifteen-member body known as the Committee for Purchase from People Who Are Blind or Severely Disabled, or “AbilityOne.” Id. (citing
An entity of the Federal Government intending to procure a product or service on the procurement list . . . shall procure the product оr service from a qualified nonprofit agency for the blind or a qualified nonprofit agency for other severely disabled in accordance with regulations of [AbilityOne] . . . if the product or service is available within the period required by the entity.
Id. (citing
In 2003, Congress passed the Veteran Benefits Act of 2003 as an amendment to the Small Business Act. It provided that contracting officers “may award contracts on the basis of competition restricted to small business concerns owned and controlled by service-disabled veterans” if “the contracting officer has a reasonable expectation that not less than 2 small business concerns owned and controlled by service-disabled veterans will submit offеrs and that the award can be made at a fair market price.” Id. at 1349–50 (citing
Three years later, Congress enacted the VBA to “to remedy federal agencies’ failures to meet the[] contracting goals.” Id. It was passed in part to “increase contracting opportunities for small business concerns owned and controlled by veterans and . . . by veterans with service-connected disabilities.”
Importantly, the VBA contains what is known as the “Rule of Two.” The Rule provides:
Except as provided in subsections (b) and (c) . . . a contracting officer of the [VA] shall award contracts on the basis of competition restricted to [veteran-owned businesses] . . . if the contracting officer has a reasonable expectation that two or more [veteran-owned businesses] will submit offers and that the award can be made at a fair and reasonable price . . . .
In PDS Consultants, the Federal Circuit resolved the conflicting directives of the JWOD and the VBA with respect to larger-dollar procurement contracts subject to the Rule of Two under Section 8127(d). Finding that the VBA took precedence over the JWOD for such contracts, the court held that “where a product or service is on the [AbilityOne] List and ordinarily would result in the contract being awarded to a nonprofit qualified under the JWOD, the VBA unambiguously demands that priority be given to veteran-owned small businesses.” 907 F.3d at 1360.
PDS Consultants did not, however, address the interplay between the JWOD and the VBA with respect to procurements of less than $5 million, which, at the contracting officer‘s discretion, can be awarded to a veteran-owned business with competitive bidding. See
2. The 2019 Class Deviation
After the Federal Circuit issued PDS Consultants, on May 20, 2019, the VA issued the 2019 Class Deviation, ostensibly to comply with the Federal Circuit‘s ruling. Compl., ECF No. 1 [hereinafter Compl.], ¶ 38; see also Pls.’ TRO Reply, ECF No. 17 [hereinafter Pls.’ Reply], Ex. 1, ECF No. 17-1 at PDF pp. 31–36 [hereinafter Deviation], at 1. The Class Deviation describes PDS Consultants as “binding circuit precedent,” and explains that the Federal Circuit held that “when a product or service is on the AbilityOne Procurement List and ordinarily would result in
Plaintiffs Alphapointe and IFB Solutions are nonprofit corporations that provide employment opportunities, vocational training, rehabilitation services, education, and outreach for people who are blind or visually impaired. Compl. ¶¶ 7–8. Both companies make products and offer services on the AbilityOne List. Alphapointe provides the VA with pharmaceutical bottles and switchboard services. Id. ¶¶ 7, 14. IFB Solutions supplies the VA with eyeglasses and other vision-related products for Veterans Integrated Service Networks (“VISN“) 2, 7, and 8.1 See id. ¶ 8.
Following the 2019 Class Deviation, the VA notified Plaintiffs that contracting decisions would now be subject to the 2019 Class Deviation and that the VA wоuld not be extending its contracts with Plaintiffs. See id. ¶¶ 53–61. Plaintiffs had a number of affected contracts with the VA. IFB Solutions’ VISN 8 contract was set to expire on August 30, 2019. See id. ¶ 51; see also 08/27/2019 TRO Hr‘g Tr., ECF No. 21, at 6–7 (explaining VISN 8 option has been extended to August 30, 2019). IFB Solutions’ VISN 2 contract and Alphapointe‘s switchboard services contract expired on September 30, 2019. See Compl. ¶¶ 55, 61. IFB Solutions’ VISN 7 contract expired in early October 2019. See id. ¶ 59 (VA notifying IFB Solutions on July 9, 2019, that it will contract for 90 days more). The expiration date for Alphapointe‘s pharmaceutical bottles contract was uncertain at the time Plaintiffs filed their complaint, but the VA notified Alphapointe that it would not extend the bottles contract because it had idеntified a veteran-owned business to assume that contract. See id. ¶ 60.
B. Procedural Background
Plaintiffs filed this action on August 15, 2019, against Defendants the VA, the Secretary of the VA, and the United States (collectively “Federal Defendants“), see generally Compl.,2 and the same day filed a Motion for a Temporary Restraining Order and Preliminary Injunction,
Pls.’ Mot. for a Temp. Restraining Order & Prelim. Inj., ECF No. 3. The nub of Plaintiffs’ Complaint is that the VA, because of the 2019 Class Deviation, is improperly awarding low-dollar contracts for goods and services on the AbilityOne List to veteran-owned small businesses in situations where it should be preferencing AbilityOne businesses. See Compl. ¶¶ 45–50. Their Complaint
The day after Plaintiffs filed their complaint, PDS Consultants, Inc. (“PDS“) moved to intervene as a defendant. PDS Consultants, Inc.‘s Mot. to Intervene & Statement of P. & A., ECF No. 10. PDS is a service-disabled, vеteran-owned small business verified as eligible to receive contract awards under the Veterans First Contracting Program, and for more than twenty years, PDS “has provided the VA with vision-related products and services throughout the United States.” Id. at 3. The court determined that PDS had satisfied the requirements to intervene as a matter of right and granted its motion. See Order, ECF No. 16.
Shortly thereafter, the court denied Plaintiffs’ Motion for a Temporary Restraining Order and Preliminary Injunction. See Alphapointe v. Dep‘t of Veterans Affairs, 416 F. Supp. 3d 1 (D.D.C. 2019). At the preliminary injunction stage, the court, relying on a 1998 Federal Circuit decision, Southfork Systems, Inc. v. United States, found that it had jurisdiction over Counts I and II. Id. at 6–7 (citing Southfork Systems, 141 F.3d 1124 (Fed. Cir. 1998)). Nonetheless it denied Plaintiffs’ request for injunctive relief because Plaintiffs failed to demonstrate irreparable harm or a likelihood of success on the merits of either Count I or Count II. Id. at 1, 8–11. With respect to Count I, the court determined that “Plaintiffs . . . failed to show that the 2019 Class Deviation . . . is an arbitrary and capricious reading of PDS Consultants.” Id. at 10. On Count II, the court held that the 2019 Class deviation was likely exempt from notice-and-comment procedures pursuant to the “proprietary rules exception” under
Federal Defendants and PDS now move to dismiss Plaintiff‘s Complaint under
III. JURISDICTION
The court begins with its subject-matter jurisdiction. To survive a motion to dismiss under
A. Count I: Arbitrary-and-Capricious Challenge
Both Federal Defendants and PDS argue that the court lacks jurisdiction as to Plaintiffs’ arbitrary-and-capricious claim in Count I. See Fed. Defs.’ Mot. at 12–16; PDS Mot. at 6–7.
As PDS puts it, Count I is “actually a de facto bid protest, challenging specific procurement actions by the VA,” which can only be heard in the Court of Federal Claims under the Tucker Act. PDS Mot. at 6; see also Fed. Defs.’ Mot. at 12–16. When deciding Plaintiffs’ Motion for Temporary Restraining Order and Preliminary Injunction, the court found that it was “a close call” whether the court had jurisdiction, but ultimately held that Plaintiffs had “carried their burden of establishing jurisdiction” because their claim centered on challenging “the 2019 Class Deviation itself, and not its application to a particular procurement decision.” Alphapointe, 416 F. Supp. 3d at 7. Today, the court reaches a different conclusion.
The Tucker Act confers exclusive jurisdiction on the Court of Federal Claims for any “action by an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or
see also Acetris Health, LLC v. United States, 949 F.3d 719, 728 (Fed. Cir. 2020) (citing RAMCOR‘s broad construction of “in connection with“).
Courts in this circuit have embraced this broad reading. In Public Warehousing Co. K.S.C. v. Defense Supply Center Philadelphia, for instance, the court rejected the plaintiff‘s argument that “procurement” was intended to refer only to a bid protest or “a dispute over an individual contract solicitation or award.” 489 F. Supp. 2d 30, 39–40 (D.D.C. 2007). The court reasoned that a “‘bid protest’ limitation” had been squarely rejected and that “[l]imiting the ‘violation of statute or regulation’ prong to bid рrotest cases would render it superfluous” because if “section 1491(b)(1) were limited to claims challenging the merits of a specific solicitation or contract award, the ‘violation of statute or regulation’ clause would serve no purpose because the other clauses in section 1491(b)(1) vesting jurisdiction in the Court of Federal Claims would suffice.” Id. at 40 (citing RAMCOR, 185 F.3d at 1289; Labat-Anderson, Inc. v. United States, 346 F. Supp. 2d 145, 151 (D.D.C. 2004)). See also Validata, 169 F. Supp. 3d at 78–79.
This case fits within the broad jurisdictional parameters of Section 1491(b). Count I challenges the 2019 Class Deviation as arbitrary, capricious, and contrary to law because it “exceeds the scope of the Federal Circuit‘s mandate in PDS Consultants.” Compl. ¶ 74. Further, the Complaint alleges, “[t]he VA has cited the 2019 VA Class Deviation as its basis for elevating contract рreference for” veteran-owned businesses over AbilityOne businesses and details a number of Alphapointe‘s and IFB Solutions’ contracts that were cancelled as a result. Id. ¶¶ 75–77. Although Plaintiffs frame Count I as an arbitrary-and-capricious challenge to the validity of the 2019 Class Deviation itself, the essence of their claim is that the VA has removed them as the incumbent provider of goods and services by misapplying the relevant procurement statutes—the JWOD and the VBA. See id. ¶¶ 72–78. Thus, what they contest is an alleged statutory violation “in connection with a procurement or a proposed procurement.” See RAMCOR, 185 F.3d at 1289 (“As long as a statute has a connection
The court in PDS Consultants reached the same conclusion. There, one of the defendant-appellants characterized the plaintiff‘s claim as challenging “the validity of the [VA Acquisition Regulations] and AbilityOne program as a whole,” and therefore argued that the case belonged before a federal district court. 907 F.3d at 1355. The Federal Circuit held otherwise. It explained that “PDS Consultants’ claims fall squarely within Tucker Act jurisdiction . . . . [R]ather than challenge the validity of the VAAR and AbilityOne programs as the Industries for the Blind contends, PDS Consultants alleged а statutory violation—namely, that the VA acted in violation of the VBA by awarding contracts without first conducting the Rule of Two analysis.” Id. at 1356. Thus, as an “alleged violation of statute or regulation in connection with a procurement or a proposed procurement,” the court concluded, “PDS Consultants’ action arises under the Claims Court‘s jurisdiction.” Id. So, too, here. Plaintiffs maintain that the JWOD requires the VA to purchase goods and services from a qualified AbilityOne contractor unless the Rule of Two applies, yet the 2019 Class Deviation “appears to permit” “the VA to omit or disregard the Rule of Two analysis and award contracts on a sole source basis,” and to incorrectly “indicate that the directives of § 8127(b) and (c) [of the VBA] override the contracting requirements of the JWOD Act as well.” Compl. ¶¶ 45, 50. It was therefore improper, Plaintiffs contend, for the VA not to have extended their contracts. Like the VBA, the JWOD is a statute that is central to government procurement. See id. (describing the VBA as a statute that “dictates the methodology the VA must employ for procurements“). So, at root, what Plaintiffs challenge, is the interplay between two procurement statutes: the VBA and the JWOD. Plaintiffs’ action therefore “arises under the Claims Court‘s jurisdiction.” PDS Consultants, 907 F.3d at 1356.
This result surely will surprise Plaintiffs, as it represents an about-face from what the court concluded on the motion for preliminary injunction. See Pls.’ Opp‘n at 7–9 (citing Alphapointe, 416 F. Supp. 3d at 6–7). The court, however, is no longer convinced that the Federal Circuit‘s decision in Southfork Systems, Inc. v. United States, 141 F.3d 1124, on which the court relied at the preliminary injunction stage, see Alphapointe, 416 F. Supp. 3d at 6, compels jurisdiction. Upon closer inspection, Southfork Systems is about the failure to state a claim, not subject matter jurisdiction. See 141 F.3d at 1134 (“We agree with the Court of Federal Claims that, in Counts I–III of its amended complaint, Southfork failed to state a claim upon which relief could be granted.“). The plaintiff there had challenged the validity of certain agency implementing regulations, see id. at 1133 n.6, but the court held that such allegations failed to support the plaintiff‘s actual claims, which were that the agency had impliedly breached its duty to fairly and honestly consider bids, see id. at 1134 (stating that “[w]e never have said, however, that violation оf a statute or regulation constitutes a per se breach of the government‘s duty to treat all bidders fairly and honestly“). The Federal Circuit‘s statement in Southfork that “if a bidder wishes to challenge the validity of a regulation governing a procurement, the proper method of doing so is to bring an action in federal district court under the Administrative Procedure Act,
Plaintiffs also point out that, in a related case that challenges an earlier VA Class Deviation from 2017, defendants did not contest the district court‘s subject-matter jurisdiction, see Nat‘l Indus. for the Blind, Inc. v. U.S. Dep‘t of Veterans Affairs, 1:17-cv-00992-KBJ (D.D.C. May 24, 2017), thus suggesting that at least Federal Defendants somehоw have implicitly acknowledged jurisdiction in this case, see Pls.’ Opp‘n at 10–11. But whether these defendants conceded jurisdiction or not in a related case has no bearing on this one. This court has an independent obligation to evaluate its own jurisdiction, see Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006), and finds it wanting as to Count I.
B. Transfer of Count I to the Court of Federal Claims Is in the Interest of Justice
“[U]pon concluding that it lacks jurisdiction” a federal court should decide “whether to dismiss the case or, ‘in the interest of justice,’ to transfer it to a court . . . that has jurisdiction under
C. Count II: Failure to Subject the 2019 Class Deviation to Notice and Comment
As to Plaintiffs’ notice-and-comment claim advanced in Count II, the court plainly has jurisdiction. “[T]he Court of Federal Claims lacks APA jurisdiction” and therefore could afford no remedy for the alleged procedural violation. Martinez v. United States, 333 F.3d 1295, 1313 (Fed. Cir. 2003); see also McNeil v. United States, 293 Fed. App‘x 758, 760 (Fed. Cir. 2008) (“The Court of Federal Claims ‘lacks the general federal question jurisdiction of the district courts, which would allow it to review [an] agency‘s actions and to grant relief pursuant to the Administrative Procedure Act.‘” (quoting Crocker v. United States, 125 F.3d 1475, 1476 (Fed. Cir. 1997))); Schmidt v. United States, 89 Fed. Cl. 111, 125 (Fed. Cl. 2009). Count II is thus properly before this court. See Fire-Trol Holdings LLC v. U.S. Forest Serv., 209 Fed. App‘x 625, 627 (9th Cir. 2006)
IV. DISCUSSION
A. Propriety of a Rule 12(b)(6) Dismissal
The court now turns to Defendants’
Plaintiffs overstate the need for an administrative record to resolve Count II. The D.C. Circuit has held that an APA claim may be resolved on a motion to dismiss, and does not require an administrative record, where a party‘s assertion that a “challenged provision[] violate[s] [a statute] can be resolved with nothing more than the statute and its legislative history.” Am. Bankers Ass‘n v. Nat‘l Credit Union Admin., 271 F.3d 262, 266 (D.C. Cir. 2001); see also Amfac Resorts, L.L.C. v. U.S. Dep‘t of the Interior, 282 F.3d 818, 830 (D.C. Cir. 2002) (“We said in American Bankers, with respect to a claim that a regulation conflicted with a statute, that the court did not even need the administrative record to determine the validity of the regulation.“), vacated in part on other grounds sub nom. Nat‘l Park Hosp. Ass‘n v. Dep‘t of Interior, 538 U.S. 803 (2003). On the other hand, where the APA сhallenge is “to the [agency‘s] rule-making process” or “to the manner in which the [agency] has applied the rule in specific cases that does not depend entirely on the argument that the rule itself violates the statute,” Am. Bankers, 271 F.3d at 267, resolving such a dispute without “calling for the administrative record” would be improper, Am. Bioscience, Inc. v. Thompson, 243 F.3d 579, 582 (D.C. Cir. 2001) (faulting the district court for not “calling for the administrative record” and instead relying “on the parties’ written or oral representations to discern the basis on which the [agency] acted“).
Count II does not require the court to “call for” the administrative record. In that count, Plaintiffs contend that “[t]he VA violated the APA by unilaterally implementing and posting the 2019 Class Deviation on its website without proрerly following the APA notice-and-comment procedures.” Compl. ¶ 81. Thus, Plaintiffs do not challenge the manner of rulemaking; rather, they challenge whether rulemaking was required in the first place. The APA either requires that the 2019 Class Deviation be subject to notice and comment, or it does not. Resolving Plaintiffs’ challenge therefore requires no obvious need for the administrative record.
In any event, Plaintiffs’ demand for the administrative record is largely academic. Concurrent with filing their reply brief, the Federal Defendants filed a certified
B. Failure to Subject the 2019 Class Deviation to Notice and Comment
Section 553 of the APA sets forth the procedures for notice-and-comment rulemaking, and it prоvides exceptions for when those procedures are not required. See
As the court noted in its previous opinion, the D.C. Circuit has said little about this exception. See Alphapointe, 416 F. Supp. 3d at 11. However, the Circuit has observed that Congress intended for it to cover both narrow “managerial” proprietary decisions and broader proprietary “matters of interpretation and policy.” Nat‘l Wildlife Fed‘n v. Snow, 561 F.2d 227, 231–32 (D.C. Cir. 1976). Furthermore, the Circuit has observed “[t]hat the governmental function is not strictly ‘proprietary,’ or the regulation‘s character is not ‘mechanical,’ does not curtail Section 553(a)(2)‘s permissive effect. Public policy may be sorely affected, and the wisdom of public input manifest, but the statutory exemption still prevails when ‘grants,’ ‘benefits’ or other named subjects are ‘clearly and directly’ implicated.” Humana of S.C., Inc. v. Califano, 590 F.2d 1070, 1082 (D.C. Cir. 1978) (citations omitted).
Here, the 2019 Class Deviation “clearly and directly” relates to the VA‘s proprietary contracting function, including “matters of interpretation and policy” relating to such contracts. Under the heading “New Policy,” the 2019 Class Deviation states that “[c]ontracting officers shall apply the VA Rule of Two, as implemented in VAAR subpart 819.70, prior to awarding any contract to AbilityOne non-profit organizations or to Federal Prison Industries, Inc.” Deviation at 2. Further, it provides that “[f]or AbilityOne, if an award is not made to an eligible [veteran-owned business] under VAAR subpart 819.70, the priority use of AbilityOne applies and supplies and services on the [AbilityOne] List are mandatory sources.” See id. These directives plainly relate to the VA‘s contracting for goods and services in its proprietary capacity. Accordingly, the 2019 Class Deviation was not subject to notice-and-comment procedures.9
Plaintiffs once again rely on Misso Services Corporation v. United States Small Business Administration, to support the proposition that the proprietary rules exception does not apply in this case. Pls.’ Opp‘n at 23–24. But that citation fares no better on the merits than it did at the preliminary injunction stagе. See Alphapointe, 416 F. Supp. 3d at 11. In Misso, the court required the Small Business Administration to comply with notice-and-comment procedures before issuing a substantive policy change that precluded the plaintiff from continuing to conduct its business. See 1981 WL 30841, No. 81-0283, at *8 (D.D.C. Dec. 23, 1981). But as the court previously explained, the Misso opinion did not address, or even mention, the proprietary rules exception. See generally id. Plaintiffs now argue that the court “misapprehended their argument as to why Misso is both relevant and controlling.” Pls.’ Opp‘n at 24. Plaintiffs explain that they cited to Misso because “it analogizes to the facts” in this case and because “[t]he regulation at issue generally pertained to government contracting, but did not adequately relate to it so as to bring the regulation within the ambit of § 553(a)(2).” Id. Whatever the factual similarities between this case and Misso—and the court does not concede that there are any—the case lacks any capacity to persuade when it does not even mention the proprietary rules exception at issue here.
Finally, in their Surreply, Plaintiffs contend that, because the administrative record nowhere identifies Section 553(a)(2), the Federal Defendants may not invoke that justification now. Surreply at 5–6. But whether or not Defendants considered Section 553(a)(2) when promulgating the 2019 Class Deviation has no bearing on the legal question of whether the deviation itself is exempt from notice-and-comment procedures. It is either exempt or it is not. The APA did not require the VA to subject the 2019 Class Deviation to notice and comment.
IV. CONCLUSION
For the foregoing reasons, the court grants Federal Defendants’ Motion to Dismiss, ECF No. 31, and Intervenor-Defendant‘s Motion to Dismiss, ECF No. 30, as
A separate order accompanies this Memorandum Opinion.
Dated: July 29, 2020
Amit P. Mehta
United States District Court Judge