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Parties Involved:
United States
Appellee
XOtech, LLC
Appellant

Document Text:

United States Court of Appeals 

for the Federal Circuit ______________________

XOTECH, LLC,

Plaintiff-Appellant

v.

UNITED STATES,

Defendant-Appellee

______________________

2019-1743

______________________

Appeal from the United States Court of Federal Claims 

in No. 1:18-cv-01483-NBF, Senior Judge Nancy B. Firestone.

______________________

Decided: February 26, 2020

______________________

WILLIAM T. WELCH, McMahon, Welch & Learned, 

Reston, VA, argued for plaintiff-appellant. 

 ERIC LAUFGRABEN, Commercial Litigation Branch, 

Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by JOSEPH H. HUNT, ALLISON KIDD-MILLER, ROBERT 

EDWARD KIRSCHMAN, JR.; BEVERLEY E. HAZLEWOOD, Office 

of General Counsel, United States Small Business Administration, Washington, DC; WAYNE T. BRANOM, III, Contract and Fiscal Law Division, United States Army Legal 

Services Agency, Fort Belvoir, VA.

Case: 19-1743 Document: 34 Page: 1 Filed: 02/26/2020
2 XOTECH, LLC v. UNITED STATES

 ______________________

Before LOURIE, TARANTO, and STOLL, Circuit Judges.

LOURIE, Circuit Judge.

XOtech, LLC (“XOtech”) appeals from a decision of the 

United States Court of Federal Claims (“the Claims Court”) 

affirming the Small Business Administration Office of 

Hearings and Appeals’ determination that XOtech is not 

eligible to compete for government contracts set aside for 

service-disabled-veteran-owned contractors. See XOtech, 

LLC v. United States, 142 Fed. Cl. 313 (2019) (“Decision”). 

Because we agree with the Claims Court that service-disabled veterans do not control “all decisions” of XOtech as required by 13 C.F.R. § 125.13(d), we affirm.

BACKGROUND

I

“In an effort to encourage small businesses, Congress 

has mandated that federal agencies restrict competition for 

some federal contracts.” Kingdomware Techs., Inc. v. 

United States, 136 S. Ct. 1969, 1973 (2016). To that end, 

the Small Business Act requires many federal agencies to 

set aside contracts to be awarded to certain categories of 

small businesses. Service-disabled-veteran-owned 

(“SDVO”) small businesses are one such category. 15 

U.S.C. § 644(g)(1)(B). SDVO status is highly beneficial in 

competing for government contracts because it permits 

designated contractors to compete for government business 

against fewer competitors. In order for a business to be 

eligible to compete for SDVO contracts, service-disabled 

veterans (“SDVs”) must own and control the business. See, 

e.g., 15 U.S.C. §§ 632(q)(2), 637(d)(3)(E).

The Small Business Administration (“SBA”) has promulgated regulations establishing criteria for determining 

whether SDVs own and control businesses having various 

corporate forms. See 13 C.F.R. §§ 125.12, 125.13. For a 

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XOTECH, LLC v. UNITED STATES 3

limited liability company (“LLC”), at issue here, one or 

more SDVs must directly and unconditionally own at least 

51% of each class of member interest for the company to be 

owned by SDVs. 13 C.F.R. § 125.12, (a), (c). For an LLC to 

be controlled by SDVs, one or more SDVs must (1) control 

the company’s long-term decision making, 13 C.F.R. 

§ 125.13(a); (2) conduct the company’s day-to-day management and administration of business operations, id.; (3) 

hold the highest officer position, id. § 125.13(b); (4) serve 

as managing members, id. § 125.13(d); (5) have “control 

over all decisions of the limited liability company,” id.; and 

(6) “meet all super majority voting requirements,” id. 

§ 125.13(f). This appeal concerns whether an SDV “control[s] . . . all decisions” of XOtech under § 125.13(d).

II

XOtech is organized as an LLC under the Georgia Limited Liability Company Act (“Georgia LLC Act”). Under the 

Georgia LLC Act, an LLC may be either member-managed 

or manager-managed. GA. CODE ANN. § 14-11-304(a), (b)

(2019). In a member-managed company, the owners are 

the members and possess the “right and authority to manage the affairs of the limited liability company and to make 

all decisions with respect thereto.” Id. § 14-11-304(a). In a 

manager-managed company, management of the company 

is vested in one or more managers who have authority to 

manage the company as provided in the operating agreement. Id. § 14-11-304(b).

XOtech was originally organized in 2000 as a membermanaged company, with Gary Marullo, an SDV, as the only 

member. XOtech was later transformed from a membermanaged company into a manager-managed company, 

with Mr. Marullo as the only manager. In 2012, XOtech’s

Operating Agreement was amended to change XOtech from 

a single-manager company into a multiple-manager company.

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4 XOTECH, LLC v. UNITED STATES

Under its current Operating Agreement, XOtech has 

four “Members” who are its owners, and each Member’s 

voting interest corresponds to their respective ownership 

interest. The ownership interests of XOtech’s Members are

as follows:

Member Ownership Percentage

Gary Marullo 90.28%

Kathy Marullo 3.72%

Jena Marullo-Webb 2.00%

Joshua Marullo 4.00%

J.A. 70.

Certain decisions are reserved to Members and require 

an affirmative vote of a “Majority Interest,” including “(a) 

the sale, exchange, lease or other transfer or disposition of 

all, or substantially all, of the Company’s assets outside of 

the ordinary course of business, and (b) any reorganization, 

merger, liquidation, recapitalization or liquidation of the 

Company.” J.A. 89 ¶ 6.03. A Majority Interest consists of

the vote of Members owning a majority of the company, as 

well the vote of all “Senior Members.” Mr. Marullo currently is the only Senior Member. Thus, by virtue of his 

90% ownership interest and status as the only Senior Member, Mr. Marullo controls all decisions reserved to Members, which are the most significant and transformative 

decisions affecting the company.

The Operating Agreement also designates three “Managers”: Mr. Marullo, as well as his wife, Kathy, and his son,

Joshua, neither of whom is an SDV. Unless specified otherwise in the Operating Agreement, Managers “have full 

and complete authority, power and discretion to manage 

and control the business, affairs and properties of the 

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XOTECH, LLC v. UNITED STATES 5

Company, to make all decisions regarding such matters 

and to take all action necessary or convenient to carry out 

the business and affairs of the Company.” J.A. 89 ¶ 6.01. 

The Operating Agreement vests authority for several specific functions in the Managers, including hiring employees, binding XOtech to contracts, borrowing money, 

determining the amount and timing of distributions to 

Members, and prosecuting or defending any proceeding in 

XOtech’s name. J.A. 89 ¶ 6.01, 92 ¶ 7.01. Each Manager 

has equal voting power, and a majority vote of Managers is 

required to make a management decision. Thus, any management decision requires the vote of at least one non-SDV, 

and the two non-SDV Managers can make management decisions without Mr. Marullo’s vote.

The number of Managers is determined by a Majority 

Interest of Members, and a Manager may be removed at 

any time, with or without cause, also by a Majority Interest 

of Members. Mr. Marullo therefore has the authority unilaterally to set the number of Managers and to remove 

Managers at will.

III

In 2017, the Department of the Army issued a Request 

for Proposals seeking an SDVO contractor to provide logistics support for various Army Reserve facilities. XOtech 

submitted a proposal and ultimately was awarded the contract. An unsuccessful bidder protested the award to the 

SBA, challenging, among other things, XOtech’s eligibility 

to compete for SDVO contracts. The Director of the SBA’s 

Office of Government Contracting determined that XOtech 

did not meet the requirements for SDVO status and sustained the protest. Specifically, the Director determined 

that, although Mr. Marullo, an SDV, owned XOtech, he 

lacked sufficient control over XOtech’s operations because 

he required the vote of at least one non-SDV to make management decisions. The SBA Office of Hearings and Appeals affirmed the Director’s decision. See Matter of: 

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6 XOTECH, LLC v. UNITED STATES

XOtech, LLC, SBA No. VET-277, 2018 WL 8786645 (Sept. 

14, 2018).

XOtech filed a bid protest in the Claims Court, and 

both XOtech and the government moved for judgment on 

the administrative record. The court determined that not 

all decisions of XOtech are controlled by SDVs because its 

Operating Agreement requires Mr. Marullo to have the 

vote of at least one non-SDV to make management decisions. Decision, 142 Fed. Cl. at 318. The court also determined that Mr. Marullo’s ability to remove non-SDV

Managers at will does not give him control over all decisions of XOtech because that removal authority does not 

restrict the ability of non-SDV managers to make decisions 

before removal, nor does it enable Mr. Marullo to undo 

their decisions. Id. at 319. The court thus granted the government’s motion for judgment on the administrative record.

XOtech appealed. We have jurisdiction under 28 

U.S.C. § 1295(a)(3).

DISCUSSION

We review decisions of the Claims Court on cross-motions for judgment on the administrative record de novo, 

applying the same standard of review as the trial court. 

Palantir USG, Inc. v. United States, 904 F.3d 980, 989 

(Fed. Cir. 2018) (citing Glenn Def. Marine (Asia), PTE Ltd. 

v. United States, 720 F.3d 901, 907 (Fed. Cir. 2013)). Crossmotions for judgment on the administrative record are governed by Rule 52.1(c) of the Rules of the United States 

Court of Federal Claims. “In deciding these motions, the 

[Claims Court] considers ‘whether, given all the disputed 

and undisputed facts, a party has met its burden of proof 

based on the evidence of record.’” Palantir, 904 F.3d at 989 

(quoting A & D Fire Prot., Inc. v. United States, 72 Fed. Cl. 

126, 131 (2006)).

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XOTECH, LLC v. UNITED STATES 7

Bid protests are reviewed under the Administrative 

Procedure Act. Palantir, 904 F.3d at 989. Therefore, an

agency’s decision may be set aside only if it is “arbitrary, 

capricious, an abuse of discretion, or otherwise not in accordance with law,” or “without observance of procedure required by law.” Id. (quoting 5 U.S.C. § 706(2)(A), (D)).

On appeal, XOtech makes two principal arguments. 

First, XOtech argues that its non-SDV Managers cannot 

block any management decision that Mr. Marullo takes because he has the authority to remove any Managers that 

disagree with him and proceed with his decision. Second, 

XOtech argues that Mr. Marullo’s inability to prevent nonSDV Managers from making decisions that he opposes does 

not preclude SDVO status because the ability of the nonSDV Managers to bind XOtech is no different from that of 

an ordinary employee to whom decision-making authority 

has been delegated. In a business of any appreciable size,

XOtech argues, at least some decision-making authority 

must be delegated to employees to conduct day-to-day business, which does not in itself alter control of a company for 

purposes of SDVO status. And where non-SDV Managers 

can be removed at will by an SDV, those Managers are no 

different from ordinary employees whose delegated authority can be revoked at any time. Thus, argues XOtech, the

ability of non-SDV Managers who are removable at will to 

make management decisions without Mr. Marullo’s vote 

does not wrest control over all decisions of Mr. Marullo because those decisions are merely an exercise of authority 

delegated by Mr. Marullo in the same way as with any removable employee.

In response, the government argues that XOtech cannot satisfy the requirement that SDVs control all decisions 

of XOtech because its Operating Agreement requires the 

vote of at least one non-SDV to make management decisions. Mr. Marullo’s ability to remove Managers is insufficient to retain control over all decisions, the government 

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8 XOTECH, LLC v. UNITED STATES

argues, because it does not permit him to veto or undo decisions taken by non-SDV Managers.

We agree with the government and the Claims Court 

that XOtech is not an SDVO business. To determine who 

controls the decisions of a company, we look to the terms of 

its governing documents. Here, XOtech’s Operating Agreement vests management authority in three Managers who 

have equal voting power, and every management decision 

requires a majority vote. J.A. 90 ¶ 6.06–6.08. Since Mr. 

Marullo is the only SDV Manager, the vote of at least one 

non-SDV is required for any management decision. If any 

portion of an LLC’s decision-making authority requires the 

vote of a non-SDV, then SDVs cannot be said to control all 

decisions of the company. To establish SDV control, one or 

more SDVs must be able to independently exercise control 

of all decisions, without the consent of any non-SDVs. That 

is not the case here.

XOtech concedes that where a governing document requires a supermajority for certain decisions and SDVs do 

not control a supermajority of votes, SDVs lack the requisite control for SDVO status under 13 C.F.R. § 125.13. Appellant’s Br. 21. We agree, but that reasoning precludes 

SDVO status for XOtech. Here, XOtech’s Operating Agreement requires a simple majority for management decisions, 

and SDVs do not control a majority of management voting 

power. Thus, SDVs do not control those decisions and lack 

the requisite control for SDVO status. In fact, Mr. 

Marullo’s lack of control is even more pronounced, for not 

only does Mr. Marullo require the vote of at least one nonSDV to make a management decision, his wife and son—

neither of whom is an SDV—together compose a majority

of Managers who can make decisions even without the vote 

of Mr. Marullo.

Moreover, Mr. Marullo’s ability unilaterally to remove 

other Managers is insufficient to retain control of all decisions. Until Mr. Marullo actually removes the non-SDV

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XOTECH, LLC v. UNITED STATES 9

Managers, all management decisions require the vote of at 

least one non-SDV. Mr. Marullo cannot preempt the nonSDV Managers from making decisions, and he cannot undo 

decisions that they have made even after their removal.

XOtech attempts to minimize the significance of the 

authority of non-SDV Managers to make decisions without 

Mr. Marullo’s vote by likening them to employees to whom 

decision-making authority is delegated. XOtech’s argument is unavailing. The ability of employees to make decisions during day-to-day operations results from a 

delegation of management authority, and the source of that

delegated authority is XOtech’s management structure, 

which Mr. Marullo does not independently control. Ultimately, the hiring, firing, and delegation of authority to 

employees are decisions reserved to Managers who are not 

controlled by SDVs.

The government has established a program to benefit 

firms owned by SDVs, and if a firm wishes to obtain the 

benefits of that designation, then it must comply with the 

rules and structure its business accordingly. In this case, 

XOtech at one time presumably qualified for SDVO status 

when Mr. Marullo was the sole Manager, but it chose to 

amend its governing documents to include non-SDVs as a 

majority of Managers and define management authority in 

such a way as to require at least one of their votes for management decisions. As noted, Mr. Marullo has authority to 

remove the non-SDV Managers and reassert SDV control 

over all decisions of XOtech. But unless and until he has 

done so, management decisions require the vote of at least 

one non-SDV. Thus, SDVs do not control “all decisions” of 

the company, and XOtech is not eligible for contracts set 

aside for SDVO contractors.

CONCLUSION

We have considered XOtech’s remaining arguments 

but find them unpersuasive. For the foregoing reasons, the 

judgment of the Claims Court is affirmed.

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10 XOTECH, LLC v. UNITED STATES

AFFIRMED

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