## United States Court of Appeals for the Federal Circuit
2006-5096, -5117 CHAPMAN LAW FIRM CO., Plaintiff-Appellant,

v. GREENLEAF CONSTRUCTION CO., INC., Plaintiff-Appellee,

v. UNITED STATES, Defendant-Cross Appellant, and MICHAELSON, CONNOR & BOUL, INC., Defendant-Appellee. James S. DelSordo , Cohen Mohr, LLP, of Washingt on, DC, argued for plaintiffappellant. Alexander J. Brittin , Brittin Law Group, PLLC, of McLean, Virginia, argued for plaintiff-appellee. Sameer Yerawadekar , Trial Attorney, Commercial Litigation Branch, Civil Division, United States D epartment of Justice, of Washington, DC, argued for defendant-cross appellant. With him on the brief were Peter D. Keisler , Assistant Attorney General, and Mark A. Melnick , Assistant Director. Of counsel on the brief were Kimberly Nash , Senior Trial Counsel, and Robert J. Brown , Attorney-Advisor, Procurement & Administrative Law Division, United States Department of Housing and Urban Development, of Wa shington, DC. Margaret A. Dillenburg , Law Offices of Margaret Dillenb urg, P.C., of Washington, DC, for defendant-appellee. Appealed from: United States Court of Federal Claims Judge Thomas C. Wheeler

## United States Court of Appeals for the Federal Circuit

2006-5096, -5117

CHAPMAN LAW FIRM CO., Plaintiff-Appellant,

v. GREENLEAF CONSTRUCTION CO., INC., Plaintiff-Appellee,

v. UNITED STATES, Defendant-Cross Appellant, and MICHAELSON, CONNOR & BOUL, INC., Defendant-Appellee.

__________________________ DECIDED: June 11, 2007

__________________________ Before NEWMAN, LOURIE, and PROST, Circuit Judges

. Opinion for the court filed by Circuit Judge PROST. Circuit Judge NEWMAN concurs in part and dissents in part. PROST, Circuit Judge

. Chapman Law Firm Co. (“Chapman”) appeals a June 7, 2006, decision by the United States Court of Feder al Claims declining to dismi ss a bid protest filed by Chapman in light of a proposed corrective acti on by the United Stat es that the courtdetermined lacked a rational basis and was contrary to law. Chapman Law Firm Co. v. United States , 71 Fed. Cl. 124 (2006) (“ Chapman I ”). The United States cross-appeals the Court of Federal Claims’ rejection of its proposed corrective action and the court’s refusal to dismiss the case after the United States proposed a second, revised corrective action. Chapman Law Firm Co. v. United States , No. 06-CV-330 (Fed. Cl. June 20, 2006) (“ Chapman II ”). We affirm the Court of Federal Claims’ denial of the motion to dismiss in light of the first pr oposed corrective action; however, because the Court of Federal Claims im properly entered judgment for plaintiffs rather than dismissing the case after the United States proposed its revised corrective action, we reverse and remand for the Court of Federal Claims to dismiss. I. BACKGROUND This case arises out of a bid protest filed by Chapman in relation to a competitive procurement initiated in August 2003 by the United States Department of Housing and Urban Development (“HUD”) for management and ma rketing services for single-family housing owned by HUD in Michigan and Ohio. As part of this procurement, HUD employed a “cascading” procedure in which sm all businesses were first considered for the contract. Only if there was inadequat e competition among sm all businesses would non-small businesses be considered. Chapman, which competed as a small business, was awarded the contract on September 30, 2005. On April 19, 2006, however, HUD decided to terminate Chapman’s contract for convenience and issue a new competitive solicitation pursuant to Federal Acquisition Regulation § 15.206(e). In response, Chapman filed a bid protest action in the Court of F ederal Claims, contesting HUD’s termination of Chapman’s

2006-5096, -5117 2contract, cancellation of the existing solicitat ion, and issuance of a new solicitation. Michaelson, Connor & Boul, Inc. (“MCB”), the incumbent contractor, and Greenleaf Construction Co., Inc. (“Greenleaf”), a compet ing offeror for the contract whose small business status was disputed by Chapman, intervened. On May 19, 2006, the United States filed a motion to dismiss the protest action pursuant to Federal Rule of Civil Proc edure 12(b)(6), based on HUD’s decision to implement voluntary corrective action. As part of this corrective action, HUD proposed reinstating Chapman’s contract and the original solicitati on, and canceling a proposed “bridge” contract with MCB. The Court of Federal Claims, however, declined to rule on the United States’ motion to di smiss until it received further information regarding the specifics of the proposed corrective action. On May 30, 2006, the United States provided the requested supplemental information in support of its motion to dismiss, indicating that HUD would: (1) reinstate C hapman’s previously awarded contract, but issue a stop work order against t he contract so that corrective action could be taken; (2) issue an amendment to all offe rors in the competitive r ange at both small business and unrestricted competition tier s identifying various changes that had occurred since the original solicitation was issued; (3) iss ue a discussion letter to Chapman to review matters raised in a January 17, 2006, Gove rnment Accountability Office (“GAO”) bid protest decision; and (4) request a final proposal revision from Chapman, ostensibly the only offeror in the small business tier, prior to requesting and reviewing proposals submitted by other offerors at the unrestricted tier. T he Court of Federal Claims, however, denied the United States’ motion to dismiss, finding that the proposed corrective action lacked a rational basis and was contrary to law because, among other

2006-5096, -5117 3things, it did not include Greenleaf in the sm all business tier despite an intervening determination by the Small Business Administ ration (“SBA”) that Greenleaf was indeed a small business. In response, HUD indicated it would proc eed with the reevaluation in the manner suggested by the Court of Federal Claim s, including both Chapman and Greenleaf in the small business tier. The United States then renewed its motion to dismiss. Rather than granting the renewed motion to dismi ss, though, the Court of Federal Claims instead entered judgment in favor of Chapman and Greenleaf. In doing so, the Court of Federal Claims noted that Chapman and Greenleaf “were instrumental in achieving the final outcome,” and “[t]hrough their persistence . . . [had] materially altered the legal relationship among the parties.” Chapman II , slip op. at 2. Furthermore, the Court of Federal Claims noted that grant ing the motion to dismiss might limit Chapman and/or Greenleaf from applying for attorney fees under the Equal Access to Justice Act (“EAJA”), but that the entry of judgment for plaintiffs would leave open the opportunity for Chapman and/or Greenleaf to pur sue them at a later date. Id. Chapman appeals the Court of Federal Claims’ denial of the Unit ed States’ original motion to dismiss. The United States cross-appeals the same issue, as well as the Court of Federal Claims’ entry of judgment rather t han granting the renewed motion to dismiss. We have jurisdiction pursuant to 28 U.S.C. § 1491. II. DISCUSSION A. Standard of Review This court reviews the Court of Federal Claims’ conclusions of law de novo. Glendale Fed. Bank, F.S. B. v. United States , 239 F.3d 1374, 1379 (Fed. Cir. 2001).

2006-5096, -5117 4However, within that context, the review of an agency’s procurement decision is narrowly circumscribed. Prineville Sawmill Co. v. United States , 859 F.2d 905, 909 (Fed. Cir. 1988); NFK Eng’g, Inc. v. United States , 805 F.2d 372, 376 (Fed. Cir. 1986). This court can only set aside an agency’s action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. ” 5 U.S.C. § 706(2)(A); see Advanced Data Concepts, Inc. v. United States , 216 F.3d 1054, 1057 (Fed. Cir. 2000). Similarly, our review of t he denial of a motion to dismiss a complaint pursuant to Rule 12(b)(6) of the Court of Federal Claims is also limited. The court must determine “whether the claimant is entitled to offer evidence to support the claims,” not whether the claimant will ultimately prevail. Scheuer v. Rhodes , 416 U.S. 232, 236 (1974). In doing so, the court “must accept as true all fa ctual allegations in the complaint, and . . . indulge all reasonable inferences in favor of the non-movant.” Sommers Oil Co. v. United States , 241 F.3d 1375, 1378 (Fed. Cir. 2001). “[U]nless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief,” the complaint should not be dismissed. Conley v. Gibson , 355 U.S. 41, 45-46 (1957). B. Review of the Proposed Corrective Action On appeal, Chapman and the United States bot h argue that the Court of Federal Claims erred when it determined that the Go vernment’s first proposed corrective action was unreasonable. According to Chapman, t he Court of Federal Claims’ finding that Greenleaf should be included in t he small business tier of t he competitive range is in error since the SBA decision that Greenleaf was a small business came after the contract was awarded to Chapman. According to the Government, the Court of Federal

2006-5096, -5117 5Claims erred because the Government’s fi rst proposed corrective action placed the parties in the same positions they occupied prior to the events giving rise to the protest and rendered all of Chapman’s and Greenleaf’s lega lly cognizable claims either moot or premature. We reject each of these arguments. First, the SBA determination that Greenleaf was a small business applies to this procurement because there had not been a binding final award. Moreover, the Government was requesting a revised pr oposal from Chapman and possibly other offerors. Second, the Government’s argum ent that its first proposed corrective action rendered all of Chapman’s and Greenleaf’s claims moot or premature is also incorrect, as the corrective action effectively left out Greenleaf. Simply put, the Court of Federal Claims’ inquiry into the reasonableness of the Government’s first proposed corrective action, and the court’s subs equent determination that the proposed corrective action was not reasonable, were proper. C. Denial of the Renewed Motion to Dismiss The Government also cross-appeals the C ourt of Federal Claims’ refusal to dismiss the case in response to the revis ed proposed corrective action, which included both Chapman and Greenleaf in the small business tier. Rather than granting the motion to dismi ss, the Court of F ederal Claims entered judgment in favor of Chapman and Greenleaf. In so doing, the Court of Federal Claims stated that Chapman and Greenleaf “materially altered the legal relationship among the parties.” Chapman II , slip op. at 2. Considering t hat “[g]ranting [the Government’s] renewed motion to dismiss might limit Chapm an, and possibly Greenleaf, from applying

2006-5096, -5117 6for attorneys’ fees,” the Court of Feder al Claims entered judgment to leave open the opportunity of applying for such fees. Id. In its holding, the Court of Federal Claims appears to have borrowed language from Buckhannon Board and Care Home, Inc. v. We st Virginia Department of Health and Human Resources , 532 U.S. 598, 605 (2001), in whic h the Supreme Court rejected the use of the “catalyst theory” as justification for the reco very of attorney fees. In Brickwood Contractors, Inc. v. United States , 288 F.3d 1371, 1380 (Fed. Cir. 2002), we held that this rejection extended to the EAJA fee context as well. Under the catalyst theory, a plaintiff is consi dered a “prevailing party” if it achieves the desired result because the lawsuit brought about a volunt ary change in the defendant’s conduct—no judicially sanctioned change in the legal relati onship of the parties is required. In Buckhannon , the Supreme Court rejected this theory, saying that [a] defendant’s voluntary change in conduct, although perhaps accomplishing what the plaintiff sought to achieve by the lawsuit, lacks the necessary judicial imprimatur on the change. [Precedent] counsel[s] against holding that the term ‘prevaili ng party’ authorizes an award of attorney’s fees without a corresponding alteration in the legal relationship of the parties. 532 U.S. at 605. Merely stating that there has been an alte ration in the legal relationship of the parties as the Court of Federal Claims did, however, is insufficient, by itself, to avoid running afoul of the Suprem e Court’s pronouncement in Buckhannon ; our precedent requires that there must be an actual, court-ordered alteration in the legal relationship in the parties in the form of an entry of judgment or a consent decree. See Brickwood , 288 F.3d at 1380.

2006-5096, -5117 7Here, the court’s entry of judgment wa s not only unnecessary, it was improper. None of the parties objected to the substance of the revis ed proposed corrective action. The only opposition to the Government’s mo tion to dismiss was raised by Chapman, and that was only because Chapman wanted attor ney fees. In fact, Chapman indicated it was amenable to a dismissal—provided the c ourt indicated it was a “prevailing party” for EAJA purposes. Although securing attorney fees may under standably affect a party’s litigation strategy, the availability of EAJA fees is not an appropriate consideration for a court when determining how to dispose of a case. When, during the course of litigation, it develops that the relief sought has been grant ed or that the questi ons originally in controversy between the parties are no longer at issue, t he case should generally be dismissed. And while the Supreme Court has recognized an exception to this rule when the defendant voluntarily ceas es the challenged practice, see Ne. Fla. Chapter of the Associated Gen. Contractors of Am. v. City of Jacksonville , 508 U.S. 656, 662 (1993), the exception does not apply to this case. 1 As explained in County of Los Angeles v. Davis , 440 U.S. 625, 631 (1979), t he voluntary cessation exception may be refuted when there clearly is no “reasonable expectation” that the alleged violation will recur and “interim relief or events have completely and irrevocably eradicated the effects of the alleged violation.” (Citations omitted).

1 Although the Court of Federal Claims’ opinion states that “[t]his is not a case where the procuring agency voluntarily el ected to follow a proper remedial course,” Chapman II , slip op. at 2, the opinion is simply in correct. The fact th at the Government revised its proposed corrective action after the Court of Federal Claims rejected its first proposal does not make the revised proposal any less voluntary.
2006-5096, -5117 8Here, the Court of Federal Claims had already determined that the revised corrective action was reasonable, and was requi red to assume that the Government would carry out the correct ive action in good faith. See T&M Distribs., Inc. v. United States , 185 F.3d 1279, 1285 (Fed. Cir. 1999) (“Government officials are presumed to act in good faith, and ‘it requires “well-ni gh irrefragable proof” to induce a court to abandon the presumption of good faith.’” (quoting Kalvar Corp. v. United States , 543 F.2d 1298, 1301-02 (Ct. Cl. 1976))). The revised corrective action adequately addressed the effects of the challenged acti on, and the Court of Federal Claims had no reasonable expectation that the ac tion would recur. Accordingly, the Court of Federal Claims should have dismissed the case. Enteri ng judgment for plainti ffs was, therefore, improper. III. CONCLUSION We affirm the Court of Federal Claims’ denial of the Government’s motion to dismiss in light of its first proposed corre ctive action; however, because the Court of Federal Claims improperly enter ed judgment for plaintiffs a fter the Government revised its proposed corrective action, we reverse and remand for the Court of Federal Claims to dismiss the complaint. COSTS No costs. AFFIRMED-IN-PART, REVERSED-IN-PART, AND REMANDED

NEWMAN, Circuit Judge , concurring in part, dissenting in part. I would affirm the rulings of the C ourt of Federal Claim s as to not only Chapman’s appeal, but also the government’s cross-appeal.

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