Bayaud Enterprises, Inc. et al v. US Department of Veterans Affairs et al
Filing
66
OPINION AND ORDER ON THE MERITS entered by Judge Marcia S. Krieger on 2/25/2020. Denying 59 Motion to Dismiss for Lack of Jurisdiction. Denying 60 Motion for Summary Judgment. Upon review of the administrative record (# 57) and the parties briefing, the Court finds that the Defendants are entitled to judgment on their favor on all claims in this action. The Clerk of the Court shall enter such judgment and close this case. (rkeec)
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF COLORADO
SENIOR JUDGE MARCIA S. KRIEGER
Civil Action No. 17-cv-01903-MSK-KLM
BAYAUD ENTERPRISES, INC., and
SOURCEAMERICA,
Plaintiffs,
v.
U.S. DEPARTMENT OF VETERAN’S AFFAIRS,
UNITED STATES OF AMERICA, and
ROBERT WILKIE,
Defendants.
______________________________________________________________________________
OPINION AND ORDER ON THE MERITS
______________________________________________________________________________
THIS MATTER comes before the Court for resolution of the merits of the Plaintiffs’
appeal on the administrative record. The Court has considered the administrative record (# 57),
the parties’ briefing on the merits (# 59, 60), and response and reply briefs (# 61, 62, 63).
FACTS
I.
The Historical Legal Landscape
When federal agencies procure certain products and services, Congress has directed that
contracting preference be given to suppliers who meet certain criteria. Beginning in 1938,
pursuant to the Javits-Wagner-O’Day Act (“JWOD”), preference was to be given to nonprofit
entities that employed the blind or severely disabled. The JWOD directed the creation of a
commission, known generally as AbilityOne, that maintained and published a list of products
and services provided by such entities. 41 U.S.C. § 8503(a). JWOD further directed that “when
the Federal Government purchases products” that appear on AbilityOne’s procurement list,
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“priority shall be given to products produced and offered for sale” by such nonprofit entities, and
that the Government “shall procure the product or services from a qualified nonprofit agency” if
available. 41 U.S.C. § 8503(d)(2), 8504(a).
In 2006, Congress passed the Veteran’s Benefits, Health Care, and Information
Technology Act (“VBA”), 38 U.S.C. § 8101 et seq. which implemented the “Rule of Two,” that
generally requires the VA to purchase goods and services from qualified veteran-owned
businesses, if available. The VBA was intended to “increase contracting opportunities for small
business concerns owned and controlled by veterans,” the VBA directs that the Department of
Veteran’s Affairs (“the VA”) to “award contracts on the basis of competition restricted to small
business concerns owned and controlled by veterans . . . if the contracting officer has a
reasonable expectation that two or more [such businesses] will submit offers and that the award
can be made at a fair and reasonable price.” 38 U.S.C. § 8127(d).
Recognizing the apparent friction between the JWOD requirements that it purchase goods
and services from entities on the AbilityOne procurement list and the VBA’s requirements that it
purchase goods and services from veteran-owned businesses, in 2010, the VA promulgated a
directive to its contracting officers (hereafter “the 2010 letter”). Docket # 57-2 (hereafter, “AR”)
at 1-3. The 2010 letter concluded that “all items currently on the AbilityOne Procurement List as
of January 7, 2010 will continue to take priority over the contracting preferences mandated [in
the VBA],” but that “all new requirements will be subject to the contracting preferences
mandated by [the VBA] prior to being considered for placement with the AbilityOne program.”
AR at 2. In other words, if a specific item or service had been on AbilityOne’s list prior to
January 7, 2010, the VA would give preference to that supplier in accordance with JOWD. But
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for products or services that were added to AbilityOne’s list after January 7, 2010, the VA would
give preference to veteran-owned businesses over any JWOD-eligible suppliers.
In 2016, following a ruling by the U.S. Supreme Court on a related issue involving
application of the Rule of Two, the VA issued a new policy statement. The July 25, 2016 “Class
Deviation” (as such policy memos appear to be called) explains that, in circumstances where
there are “mandatory sources” for products or services – e.g. where JWOD would require a
purchase from a source on the AbilityOne list – the VBA’s preference for veteran-owned
businesses “does not apply.” AR 49. Thus, under the 2016 Class Deviation, a distinction was
made between “mandatory” contracting preferences, such as those created by JWOD, and
“competitive” preferences, such as the preference for veteran-owned business in the VBA. The
competition preference under the VBA would be considered only if the mandatory preference of
the JWOD did not apply.
But the 2016 Class Deviation did not last long. On March 1, 2017, the VA amended the
2016 Class Deviation to clarify its priorities. Under the 2017 Class Deviation purchase of
“supplies on the [AbilityOne] Procurement List are mandatory only if the supplies were added to
the Procurement List prior to January 7, 2010.” In all other circumstances, the VA instructed
contracting officers to apply the Rule of Two, purchasing from AbilityOne-listed providers only
if the “Rule of Two is not satisfied.” AR 53-54.
In February 2018, the VA appears to change course again, promulgating a new Class
Deviation that clarifies that “all supplies or services that are on the [AbilityOne] Procurement
List . . . are mandatory sources.”
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II.
The PDS Controversy
Beginning in 2002, AbilityOne listed JWOD-eligible providers of certain eyeglass
products and services and the VA had continuously purchased those products and services from
the AbilityOne-listed providers. In 2016, AbilityOne expanded the list, adding new categories of
eyeglass-related services and certifying JWOD-eligible providers as suppliers for the newlylisted products and services. In response, a veteran-owned business called PDS Consultants, Inc.
(“PDS”) advised AbilityOne that it provided products and services in the newly-identified
categories. It suggested that, according to the VBA, the VA would be required to purchase
products from PDS rather than the newly-identified suppliers on AbilityOne’s list. AbilityOne
disagreed.
PDS then commenced a bid protest in the U.S. Court of Federal Claims, and on May 30,
2017, the Court held that the VA was required to perform a Rule of Two analysis for all
procurements made after 2006, not just those involving post-January 2010 additions to
AbilityOne’s list. In addition, it held that the VBA’s requirements trumped those of JWOD. As
a result, it enjoined the VA from entering into further contracts with the AbilityOne-listed
supplier and directed the VA to perform a Rule of Two analysis regarding the eyewear products
and services, presumably causing the VA to purchase those products and services from PDS (or
another veteran-owned supplier) rather than the AbilityOne-listed supplier.
The VA appealed the Claims Court’s PDS ruling to the Court of Appeals for the Federal
Circuit. On October 17, 2018, the Federal Circuit affirmed the decision of the Claims Court.
PDS Consultants, Inc. v. U.S., 907 F.3d 1345 (Fed. Cir. 2018). Among other things, the Federal
Circuit rejected the theory posited in the VA’s 2016 Class Deviation – that JWOD created
certain “mandatory” purchases that always took priority, whereas the VBA merely provided a
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preference if the contract in question passed through JWOD’s filter and entered into a realm of
“competitive” bidding. The Federal Circuit explained that "by its express language, the [VBA]
applies to all contracts – not only competitive contracts.” 907 F.3d at 1358 (emphasis in
original). Applying several canons of statutory construction, the Federal Circuit then concluded
that the “requirements of the more specific, later-enacted VBA take precedence over those of the
JWOD when the two statutes are in apparent conflict.” 907 F.3d at 1359. “Thus,” the Federal
Circuit explained, “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.” Id. at 1360.
The Federal Circuit issued its Mandate in PDS on May 20, 2019. AR 111. That same
day, the VA issued a new Class Deviation that implemented the teachings of PDS. AR 118-122.
Concluding that “current agency policy and procedures conflict with the Court’s findings,” and
finding “urgent and compelling circumstances which necessitates immediate policy change and
makes compliance with the traditional publication requirements impracticable,” this 2019 Class
Deviation promulgated a new requirement that, effective immediately, “the VA Rule of Two . . .
must be applied prior to considering awarding a contract to an AbilityOne non-profit
organization.” AR 120-21.
III.
The Current Controversy
This action was filed in August 2017 after the Court of Claims’ PDS decision. Plaintiff
Bayaud Enterprises, Inc. (“Bayaud”) is a JWOD-eligible service provider that then had contracts
to provide medical transportation services, mailroom operations, and switchboard services at VA
facilities in Colorado. Plaintiff SourceAmerica is a “central nonprofit agency” that represents
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some 450 JWOD-eligible suppliers, providing them with information and assisting them in
obtaining, complying with, and resolving disputes over contracts with federal agencies.
Shortly after the Claims Court decision in PDS, the VA advised Bayaud that, consistent
with the Claims Court’s analysis, it would not renew certain contracts Bayaud when they
expired. The VA similarly advised SourceAmerica that it would not renew contracts with
SourceAmerica’s client agencies. Instead, the VA stated its intention to offer such contracts for
bid by veteran-owned businesses under the VBA. Docket # 1 at ¶ 62-68.
Initially, the Plaintiffs alleged claims challenging the 2017 Class Deviation (and the
Claims Court’s conclusion in PDS). But after resolution of the PDS appeal, the Plaintiffs
amended their pleadings. The current operative pleading is the Second Amended Complaint
(#2). It asserts five claims:
(i)
that the implementation of the 2019 Class Deviation violated the Administrative
Procedures Act (“APA”), 5 U.S.C. § 553, because the VA failed to provide for
notice-and-comment procedures before implementing it;
(ii)
the implementation of the 2019 Class Deviation violated the APA, 5 U.S.C. §
706(2), because the VA’s conclusion that the VBA takes precedence over JWOD
is arbitrary and capricious and contrary to law;
(iii)
that the VA’s failure to require veteran-owned businesses it contracts with to, in
turn, procure eligible services or products from the AbilityOne list is contrary to
law, in violation of the APA, 5 U.S.C. § 706(2);
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(iv)
a claim, of uncertain provenance,1 that the VA’s adoption of the 2019 Class
Deviation deprives the Plaintiffs of procedural due process and equal protection in
violation of the 14th Amendment to the U.S. Constitution; and
(v)
a claim that the 2019 Class Deviation violates the Rehabilitation Act, 29 U.S.C.
§794(a), because it excludes disabled employees of entities like the Plaintiffs from
participation in federal programs “solely on the basis of their disability.”
Having submitted the administrative record (# 57), the parties have filed hybrid
documents that serve as both briefing on the merits (on the administrative appeal claims) and
dispositive motions (on the constitutional and Rehabilitation Act claims).
The Defendants’ briefing (# 59) also moves to dismiss the Plaintiffs’ second and third
claims, alleging that this Court lacks subject-matter jurisdiction over those claims because the
Tucker Act, 28 U.S.C. § 1491(b)(1), vests exclusive jurisdiction in the Court of Federal Claims
over disputes by parties objecting to alleged violations of statute or regulation in connection with
a procurement. The Defendants also seek dismissal for lack of jurisdiction over the Plaintiffs’
APA claims under 5 U.S.C. § 706 because the Plaintiffs have an adequate remedy at law, again
invoking the Tucker Act’s provision of jurisdiction in the Court of Federal Claims over
contracting disputes. Finally, the Defendants move to dismiss the Plaintiffs’ constitutional and
Rehabilitation Act claims pursuant to Fed. R. Civ. P. 12(b)(6).
The Plaintiffs’ briefing (# 60) seeks summary judgment on each of the Plaintiffs’ claims
(as well as a grant of appropriate injunctive relief preventing the VA from implementing the
The Court will assume that the Plaintiffs bring this claim pursuant to the Declaratory
Judgment Act, 28 U.S.C. § 2201.
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2019 Class Deviation and re-bidding the Plaintiffs’ contracts). The mater is now ripe for
resolution.
ANALYSIS
A. Jurisdiction
The Defendants contend that this Court lacks subject matter jurisdiction over “most of
Plaintiffs’ claims.” Although they do not identify which particular claims, it appears from their
argument that they dispute the Court’s jurisdiction to hear the Plaintiffs’ second and third claims,
which allege that VA decisions violate Section 706 of the APA. The APA contains an express
waiver of the United States’ sovereign immunity to suit, allowing for judicial review of claims
by persons “suffering a legal wrong because of agency action,” if only non-monetary relief is
sought. 5 U.S.C. § 702. However, that same statutory provision limits the scope of its waiver of
sovereign immunity, providing that its procedures do not “confer[ ] authority to grant relief if
any other statute that grants consent to suit expressly or impliedly forbids the relief which is
sought." The Defendants argue that the Tucker Act, 28 U.S.C. § 1491(b)(1) vests exclusive
jurisdiction in the Court of Federal Claims for “any alleged violation of a statute or regulation in
connection with a procurement or a proposed procurement.”2 Thus, the question presented is
whether the Plaintiffs’ APA Section 706-based challenges are ones that concern a “violation of a
statute . . . in connection with a procurement or a proposed procurement.”
In response, the Plaintiffs argue that they are not challenging the VA’s application of the
2019 Class Deviation to any specific procurement or proposed procurement, but rather, are
Although the text of the Tucker Act purports to grant concurrent jurisdiction to federal
district courts as well as the Court of Federal Claims, Congress subjected the grant of district
court jurisdiction to a “sunset provision” that terminated in 2001. Now, the Court of Federal
Claims has “exclusive jurisdiction to review government contract protest actions.” Emery
Worldwide Airlines, Inc. v. U.S., 264 F.3d 1071, 1079-80 (Fed. Cir. 2001).
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challenging the adoption and legality of the Class Deviation itself. In Alphapointe v. Department
of Veteran’s Affairs, ___ F.Supp.3d ___, 2019 WL 7370369 (D.D.C. Aug. 30, 2019), the court
considered the same jurisdictional question is a case presenting essentially the same facts: an
AbilityOne-listed supplier challenging the VA’s adoption of the 2019 Class Deviation.3 Relying
on the Federal Circuit’s decision in Southfork Systems, Inc. v. U.S., 141 F.3d 1124, 1127-28
(Fed. Cir. 1998), the court in Alphapointe concluded that the jurisdictional question was “a close
call,” but found that an APA challenge to the adoption of the Class Deviation itself did not
present a question relating to a particular procurement decision that the Tucker Act reserved to
the Court of Federal Claims.
The Defendants argue in reply that the Plaintiffs’ Amended Complaint specifically
discusses the fact that the VA was declining to exercise options to extend Bayaud’s contracts as a
result of the 2019 Class Deviation, thus arguing that the Plaintiffs are indeed challenging specific
procurement decisions by the VA. Alphapointe addressed this situation as well, observing that in
addition to challenging the 2019 Class Deviation on its own, the plaintiffs there sought additional
relief in the form of an injunction preventing the VA from “terminating . . . any contracts that
the Plaintiffs have.” The Alphapointe court explained that “this latter requested remedy exceeds
what the court can do under the APA,” but found that it nevertheless could exercise jurisdiction
to consider Alphapointe’s well-pled APA claims that attacked the 2019 Class Deviation
generally.
Alphapointe presented the jurisdictional question in the context of the VA opposing
Alphapointe’s motion seeking a preliminary injunction suspending the 2019 Class Deviation.
The court found that it had sufficient subject-matter jurisdiction to consider the injunction
motion on its merits, but denied ultimately found that Alphapointe had not shown that it was
entitled to an injunction.
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This Court notes that the Plaintiffs’ Prayer For Relief here does not specifically seek
injunctive relief specific to Bayaud’s existing contracts with the VA. Even if it did, this Court
would find Alphapointe’s reasoning and approach to the jurisdictional question to be persuasive.
Thus, for the reasons stated in Alphapointe, this Court finds that it has subject-matter jurisdiction
to consider the Plaintiffs’ general APA challenges to the manner in which the VA adopted the
2019 Class Deviation, even if the Court might not have jurisdiction to grant any relief to the
Plaintiffs with regard to specific contracts, that being in the essence of a procurement decision.
Thus, the Court proceeds to the merits of the Plaintiffs’ claims.
B. Notice and comment claim
This claim has morphed somewhat during the briefing. As originally presented in the
Amended Complaint, this claim exclusively alleged a violation of the APA, 5 U.S.C. §553(b).
Docket # 52 at ¶ 70-77. The discussion of this claim in the Plaintiffs’ opening brief spans about
10½ pages, roughly 9 of which argue that the VA violated the APA. Docket # 60 at 48-57. The
final portion of this section of the brief is entitled “Defendants Violated Other Applicable
Rulemaking Procedures,” and contends that the VA also violated 41 U.S.C. § 1707 (a statute
governing the Office of Federal Procurement Policy), provisions in the Federal Acquisition
Regulation, and the Veterans Administration Acquisition Regulation.
In response, among other arguments, the Defendants argue that 5 U.S.C. § 553(a)(2)
provides that the APA’s notice-and-comment requirements do not apply to “a matter relating to .
. . contracts.” The Defendants object to the Plaintiffs’ argument that the failure to provide notice
and comment violated other statutes or regulations because “that new claim for relief was not
included in Plaintiffs’ complaint and is being raised for the first time in a response brief.”
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In reply, the Plaintiffs appear to withdraw any claim based on the APA. Docket # 63 at 9
(“Plaintiffs will withdraw any reliance on Section 553”). Instead, they press their argument that
the VA’s failure to provide a notice and comment violated 41 U.S.C. § 1707 and various
procurement-related regulations. The Plaintiffs argue that they “did plead the VA’s failure to
comply with these statutory and regulatory provisions in the operative complaint,” citing to,
effectively, a single introductory paragraph in the Amended Complaint that mentions that the
2019 Class Deviation “did not satisfy the notice-and-comment requirements of the [APA], the
Office of Federal Procurement Policy Act, and the [Federal Acquisition Regulation].” Docket #
52 at ¶ 13.
The Court agrees with the Defendants that the Amended Complaint fails to give adequate
notice that the Plaintiffs’ first claim for relief involved 41 U.S.C. § 1707 and various regulatory
provisions. Nothing in the 8 paragraphs that describe Claim One give the Defendants fair
warning that that claim asserted violations of any statute or provision other than 5 U.S.C. § 553.
Although the Amended Complaint makes passing reference to Paragraph 13, as part of the
Amended Complaint’s introductory section and Claim One incorporates by reference everything
else in the Amended Complaint, the Court cannot conclude that these provisions provided the
Defendants with fair notice that Claim One encompassed all of the legal contentions the
Plaintiffs now assert. Incorporation by reference of all prior allegations is stylistic boilerplate
that most reasonable attorneys properly ignore. (Indeed, the vast majority of allegations so
incorporated are utterly irrelevant to Claim One’s contention that the VA failed to give adequate
notice and solicit comment before implementing the 2019 Class Deviation.) The Amended
Complaint is replete with references to statutory and regulatory authorities of varying relevance,
making it impossible for a defendant to ascertain which references are purporting to support
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claims and which are merely providing background or color. Accordingly, the Court finds that
the Plaintiffs’ Amended Complaint does not provide fair notice that Claim One asserted any
claim other than one under 5 U.S.C. § 553, which the Plaintiffs have now withdrawn.
Accordingly, the Court finds that the Defendants are entitled to dismissal of Claim One.
C. Arbitrary and Capricious/Contrary to Law claims
The Plaintiffs’ second and third claims allege that the 2019 Class Deviation is arbitrary
and capricious or contrary to law, thus violating 5 U.S.C. § 706(2)(A). Claim Two alleges that
the 2019 Class Deviation is contrary to law because it fails to give due effect to JWOD and to
other VA procurement regulations. Claim Three alleges that the VA’s procurement policies are
contrary to law in two additional respects: (i) that the VA fails to enforce the requirements of 48
C.F.R. § 8.002(c), which requires VA contractors to give preference to AbilityOne-listed
suppliers when the contractors enter into subcontracts for the purchase of eligible goods and
services; and (ii) that the VA has improperly “indicated its intent to apply the Rule of Two” to
both the initial decision to enter into a contract and in the decision as to whether to exercise an
option to continue an existing contract; the Plaintiffs contend that the latter practice violates
various regulatory provisions.
The Court addresses Claim Three first, finding that the Plaintiffs have not presented any
meaningful argument that supports either prong of that claim. The Plaintiffs primary briefing
addresses the issue of the VA not requiring contractors to subcontract with AbilityOne-listed
supplies when available in two sentences, acknowledging that the 2019 Class Deviation “is silent
regarding the requirement that the VA’s prime contractors . . . must procure products or services
from the [AbilityOne] Procurement List,” and arguing that “[i]t is critical that any VA rule
prioritizing the VBA Rule of Two over the JWOD Act reaffirm this requirement.” (The latter
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comment reflects the fact that this argument is presented in conjunction with the Plaintiffs’
argument regarding Claim One – the VA’s failure to require adequate time for comment – and
not in the Plaintiffs’ purported discussion of Claims Two and Three.) Certainly, nothing in the
record establishes that the VA does not currently enforce 48 C.F.R. § 8.002(c), nor indicate that
it will refuse to do so via the 2019 Class Deviation. Accordingly, the Court finds that the
Defendants are entitled to judgment on this portion of Claim Three.
Likewise, the Plaintiffs’ briefing contains limited argument regarding whether the VA’s
legal right to apply the 2019 Class Deviation when deciding whether to exercise options to
extend existing contracts. It acknowledges that the Class Deviation “is silent” on this point and,
again, it offers that argument only for the purpose of demonstrating that the VA “would have
benefitted greatly from providing the public with a full notice-and-comment period.” There is
some collateral evidence in the record4 that suggests that the VA is indeed refusing the exercise
contract options with AbilityOne-listed suppliers because it intends to offer the contracts to
veteran-owned suppliers instead. But this Court cannot conclude that the 2019 Class Deviation’s
silence on this issue renders it “arbitrary and capricious” or “contrary to law.” The most that can
be said is that the 2019 Class Deviation is incomplete or that it does not fully spell out all the
particulars of how the VA intends to apply JWOD and the VBA in all situations going forward.
This evidence is not found within the Administrative Record filed by the parties at
Docket #57. Rather, it is tendered by the Plaintiffs via the affidavit of Carla Goulart, presented
as part of the Plaintiffs’ “summary judgment motion.” The Court has substantial doubts that
such evidence is properly before the Court, both due to it falling outside the administrative
record and because it is not clear that Ms. Goulart’s recitation of the VA’s communications with
contractors avoids hearsay concerns. But the Court does not understand the Defendants to
dispute the underlying fact that the VA appears to be refusing to exercise options with existing
JWOD-eligible contractors and intends to re-bid the contracts pursuant to the VBA. Ultimately,
that fact does not alter the analysis herein.
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Short of a law that requires the VA to set forth all such policies in a single document –
and the Plaintiffs identify no such law – the Court cannot say that the incompleteness of the 2019
Class Deviation renders in “contrary to law.” It may be that the VA will issue separate policy
guidance on that question (perhaps after providing notice of a proposed policy statement and
soliciting comment). It may be that the VA does not intend to promulgate any fixed policy and
will address that issue on a contract-by-contract basis (such that aggrieved contractors may
challenge those decisions in the Court of Federal Claims under the Tucker Act). But neither
these nor other possibilities bear on the question of whether the 2019 Class Deviation is
“contrary to law” because it lacks such explication. There being no showing by the Plaintiffs
that the incompleteness of the 2019 Class Deviation violates any law, the Defendants are entitled
to judgment in their favor on Claim Three.
The Court then returns to Claim Two. This claim more directly challenges the legality of
the 2019 Class Deviation, arguing that it is contrary to the statutory command of JWOD and
various other regulatory provisions that enshrine JWOD’s status as a primary source of
contracting preferences. The Plaintiffs’ briefing offers an extensive and formidable argument as
to why the 2019 Class Deviation violates the requirements of JWOD, the VBA, historical
application of the Federal Acquisition Regulation, and various other sources of law. This Court
need not extensively analyze, or even summarize, that argument because the entire thrust of that
argument requires this Court to first conclude that the Federal Circuit’s PDS decision was
wrongly-decided. Because this Court is unwilling to take that first step down the path presented
by the Plaintiffs, the Court cannot conclude that the 2019 Class Deviation is either arbitrary and
capricious or contrary to law.
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The Court recognizes and appreciates the Plaintiffs’ strategy that, by bringing this suit in
a different forum, they can theoretically get a second bite at this particular apple. This Court is
not technically bound by precedent from the Federal Circuit on cases of this type, and thus, could
consider the issues of PDS de novo. The Plaintiffs might persuade this Court or the 10th Circuit
to disagree with the Federal Circuit, increasing their chances of having the U.S. Supreme Court
agree to hear the issue.5 But this Court is extraordinarily reluctant to substitute its opinion for the
wisdom and experience of the Federal Circuit, particularly where it comes to issues surrounding
federal contracting.
The Tucker Act’s reposing of exclusive jurisdiction over contracting objections in the
Court of Federal Claims grants the Federal Circuit, as the overseer of the Claims Court, a
particular degree of familiarity and expertise with the peculiar issues and thorny regulatory
environment of contracting-related disputes. Were this Court convinced that the Federal Circuit
decided PDS hastily, this Court might be inclined to consider the matter anew. But the court in
PDS had the benefit of not only extensive briefing from both sides, but also the benefit of input
from nearly a dozen amicus curiae – including SourceAmerica – providing additional advice
regarding the issues in dispute. Nor is this a situation in which the issues raised by the Plaintiffs
here are orthogonal to those considered and resolved in PDS. Rather, the Plaintiffs here present
precisely the same issues in this case that the parties presented to the Federal Circuit. To be sure,
the Federal Circuit’s opinion in PDS does not address, point-by-point, the issues the Plaintiffs
raise here. But it is clear to the Court that the Federal Circuit evaluated (perhaps tacitly) those
issues and ultimately found them unpersuasive. In these circumstances, and particularly in the
absence of compelling contrary authority, this Court is inclined to afford PDS extremely strong
5
The U.S. Supreme Court denied a request for certiorari in PDS.
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persuasive value. As such, it rejects the Plaintiffs’ contention that PDS patently misapplies the
law.
Thus, the 2019 Class Deviation cannot be contrary to law because the only legal authority
that squarely addresses the question of the relative priorities between JWOD and the VBA is
PDS. The Plaintiffs are free to believe that PDS was wrongly-decided. They are free to believe
that PDS should be given a narrow reading or that it should be confined to its peculiar facts.
They are even free use the Tucker Act to go to the Court of Federal Claims to challenge the
VA’s decision to re-bid Bayaud’s (or any of SourceAmerica’s client agencies’) contracts, and
ultimately, to re-raise their arguments before the Federal Circuit in the hopes of persuading that
court to reach a different decision. But currently, PDS stands as the most-persuasive -- and
indeed only -- authority that squarely considers (and clearly rejects) the arguments the Plaintiffs
make here. In short, notwithstanding the Plaintiffs’ arguments that PDS’ reasoning is contrary to
law, PDS is the law, and the 2019 Class Deviation is consistent with it. 6
Nor can this Court conclude, in light of the existence of PDS, that the VA’s 2019 Class
Deviation was a decision that was “arbitrary and capricious.” A decision is arbitrary and
capricious if the agency entirely failed to consider an important aspect of the problem, offered an
explanation for its decision that runs counter to the evidence before the agency, or is so
implausible that it could not be ascribed to a difference in view or the product of agency
expertise.” See Motor Vehicle Mfrs. Assn. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43
The Court does not understand the Plaintiffs to argue that the 2019 Class Deviation
somehow mischaracterized or misapplied the decision in PDS. To the extent they do, the Court
rejects such an argument. PDS’ operative conclusion is crystal-clear: “when a product or service
. . . ordinarily would result in the contract being awarded to a nonprofit qualified under JWOD,
the VBA unambiguously demands that priority be given to veteran-owned small businesses”
instead. 907 F.3d at 1360. The 2019 Class Deviation clearly applies that conclusion.
6
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(1983). The agency must “articulate a satisfactory explanation for its action including a rational
connection between the facts found and the choice made.” Id. Here, there can be little dispute
that the VA based the 2019 Class Deviation on the explication of the Federal Circuit’s analysis in
PDS. Once again, although the Plaintiffs might disagree with the reasoning of the Federal
Circuit, but the Court cannot conclude that it was somehow unreasonable for the VA to decide to
conform its contracting regulations to the principles articulated in PDS, at least until further
cases clarified the matter further. Arguably, the VA could have concluded that PDS was
wrongly-decided and simply refused to follow it, or it could have carefully-parsed the ruling,
discarding various pronouncements as dicta or distinguishing them on technical or procedural
grounds, ultimately deciding to retain its then-existing contracting rules. But this Court cannot
conclude that it was arbitrary and capricious for the VA to decide that conclusions reached by an
influential federal appeals court on a matter of first impression reflected principles (binding or
otherwise) that it would be wise for the VA to follow.7
Accordingly, the Defendants are entitled to judgment in their favor on the Plaintiffs’
second and third claims for relief.
D. Remaining claims
This Court does not believe that extended analysis of the Plaintiffs’ remaining claims – a
contention that the 2019 Class Deviation violates the Plaintiffs’ procedural due process and equal
protection rights, and the Plaintiffs’ contention that that Class Deviation constitutes
discrimination on the basis of disability in violation of the Rehabilitation Act – is warranted.
If anything, this Court might be more likely to conclude that it would have been arbitrary
and capricious for the VA to not conform its contracting rules to the analysis in PDS than it
would be for the VA to follow the only caselaw resolving the issue.
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Turning to the due process claim, the Court cannot conclude that the Plaintiffs have
demonstrated a property interests in the continued receipt of federal contracts. Those claimed
property interests do not derive from any fundamental right secured by the Constitution, but from
the fact that Congress created certain expectations when it awarded contracting preferences
through JWOD.
But what Congress gives, Congress may also take away. The Plaintiffs cite to no
authority that affords a party due process relief simply because Congress chose to alter its
legislative priorities and reallocate a statutory benefit from one group to a different one. C.f.
Atkins v. Parker, 472 U.S. 115, 129-130 (1985) (Congressional decision to reduce welfare
benefits did not give rise to due process claim by recipients; “the 1981 entitlement did not
include any right to have the program continue indefinitely at the same level, or to phrase it
another way, did not include any right to the maintenance of the same level of property
entitlement. Before the statutory change became effective, the existing property entitlement did
not qualify the legislature's power to substitute a different, less valuable entitlement at a later
date. As we have frequently noted: ‘[A] welfare recipient is not deprived of due process when
the legislature adjusts benefit levels.... [T]he legislative determination provides all the process
that is due’).” Moreover, even assuming that the Plaintiffs have a property interest in future
contracts it is not the 2019 Class Deviation that divested them of that interest. Rather, it is the
enactment of the VBA (as construed by PDS) that divested them of certain benefits they
previously enjoyed through JWOD. The 2019 Class Deviation does no more than implement the
construction of the VBA that the Federal Circuit gave it in PDS. The Plaintiffs have not offered
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any argument that the VBA is itself an unconstitutional abridgement of their due process rights,
and thus, the Defendants are entitled to judgment8 in their favor on the due process claim.
For similar reasons, the Plaintiffs’ equal protection claim fails. Assuming for the
moment that the 2019 Class Deviation treats JWOD-eligible contractors differently than it treats
veteran-owned businesses, it is clear that the VA can articulate a legitimate (and indeed,
compelling) reason for doing so: because the VBA (as construed by PDS) requires it to do so.
Once again, the Plaintiffs’ real complaint is with Congress’ reallocation of contracting
preferences in the VBA, not with any action taken by the VA to comply with that law. Absent a
contention by the Plaintiffs that the VBA itself violates the equal protection clause – and no such
argument has been presented here – the Defendants are entitled to judgment on this claim as
well.
Finally, the Plaintiffs’ invocation of the Rehabilitation Act fails for the same reasons.9
That statute prohibits entities from preventing or discouraging disabled individuals from
participating in federally-funded projects if such discrimination occurs because of the
This Court need not decide whether it is granting the Defendants’ motion to dismiss these
claims pursuant to Rule 12(b)(6), granting summary judgment to them under Rule 56, or treating
the parties’ submissions on the administrative record as comprehensive and thus entering
judgment as a matter of law pursuant to Rule 50. The outcome is the same in any event.
8
The Court has some doubt as to whether – or, at the very least, upon what basis – the
Plaintiffs have standing to assert a Rehabilitation Act claim. Neither Bayaud nor SourceAmerica
are, themselves, “qualified individual[s] with a disability.” 29 U.S.C. § 794(a). They are neither
individuals nor do they have any disability as that term is described in the statute. It may be that
the Plaintiffs are attempting to assert some form of associational standing on behalf of, say,
Bayaud’s employees or SourceAmerica’s client agencies’ employees, but it is not necessarily
clear to the Court that any such disabled employees would themselves have standing to assert a
Rehabilitation Act claim against the Defendants here based on the Defendants’ decision to adjust
its contracting preferences. Were the Rehabilitation Act claim to proceed, the Court would
examine the question of standing more vigorously, but because the claim fails on its merits in
any event, the Court will assume, without necessarily finding, that the Plaintiffs could, if
required, make a colorable showing as to their standing to bring a claim under the Rehabilitation
Act.
9
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individuals’ disabilities. But once again, to the extent that disabled individuals employed by
JWOD-eligible entities are being deprived of job opportunities, the 2019 Class Deviation is not
the cause of that deprivation; the VBA is. Moreover, there is no evidence in the record to
suggest that the VA issued the 2019 Class Deviation for the purpose of preventing disabled
people from gaining employment through federal contracting. Rather, even the Plaintiffs
concede that the VA issued the 2019 Class Deviation because the PDS decision instructed that
the VBA granted such contracting preferences to veterans. Thus, nothing in the record supports
a claim under the Rehabilitation Act.
CONCLUSION
For the foregoing reasons, the Court DENIES both the Defendants’ Motion to Dismiss (#
59) (to the extent it raises challenges of subject-matter jurisdiction10), and the Plaintiffs’ Motion
for Summary Judgment (# 60). Upon review of the administrative record (# 57) and the parties’
briefing, the Court finds that the Defendants are entitled to judgment on their favor on all claims
in this action. The Clerk of the Court shall enter such judgment and close this case.
Dated this 25th day of February, 2020.
BY THE COURT:
Marcia S. Krieger
Senior United States District Judge
To the extent necessary, the Court grants the Defendants’ motion insofar as it seeks to
dismiss the Plaintiffs’ non-APA claims on Rule 12(b)(6) grounds.
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