Opinion ID: 499513
Heading Depth: 2
Heading Rank: 1

Heading: Statutory Preemption

Text: 11 The objective of the Small Business Act is clearly stated in section 631 of the Act: 12 It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases ... and services for the Government ... be placed with small-business enterprises, to insure that a fair proportion of the total sales of Government property be made to such enterprises, and to maintain and strengthen the over-all economy of the Nation. 13 15 U.S.C. Sec. 631(a) (1982). 14 Tombs argues, and the district court agreed, that Congress' second primary goal in enacting the Small Business Act was to assure that government contracts were performed in a timely and competent manner. Integrity Management, 614 F.Supp. at 245; Brief of Defendant-Appellee at 7. Although no citation to the Act or its legislative history is given to support this asserted goal, we recognize that Congress does, of course, have an interest in timely and competent performance of those contracts. However, aiding small businesses by limiting the number of eligible bidders for those contracts necessarily reduces this efficiency to some extent. We cannot infer from the mere existence of an efficiency goal how much efficiency Congress was willing to sacrifice to help small businesses. While Congress must have intended to strike a balance, state remedies for violation of the substantive provisions of the Small Business Act need not necessarily conflict with Congress' overall goals. 15 Indeed, there are plausible and persuasive arguments both for and against preemption in this case. Arguments for preemption include: 1) the burden on successful bidders faced with lawsuits and the consequent disincentive to bid for and accept set-aside awards, 2) the incentive provided by a state law remedy for unsuccessful bidders to use that remedy, which holds out the potential for gaining contract profits without contract performance, instead of the federal regulatory scheme for protesting, and 3) the fact that a state law remedy, if any, would depend entirely on the existence of and standards set in the Small Business Act and would operate in an area--federal procurement--that can be of no interest to the states. 16 Arguments against preemption include: 1) the lack of harm to the government from state law remedies between bidders, because the contract, once awarded, is treated as presumptively valid, 6 2) the incentive provided for unqualified large businesses not to bid on set-aside contracts, and most significantly, 3) the strong presumption against preemption of state law, particularly in those areas of law traditionally regulated by states, such as actions for fraud and unjust enrichment. We discuss these briefly.
17 The argument that a private cause of action to remedy violations of the Small Business Act would unduly burden successful bidders was first made in Savini Constr. Co. v. Crooks Bros. Constr. Co., 540 F.2d 1355 (9th Cir.1974), in which the Ninth Circuit concluded that there was no implied federal right of action to enforce the Small Business Act. The court stated:Had [the successful bidder] known that, depending on the post-award outcome of the size appeal, it would be subject to suit for its profits, it might well have declined to accept the award. Or, having accepted, it might have refused to continue work on the contract following the Size Appeals Board determination that it was originally ineligible to bid. Finally, although [the successful bidder] might have continued to execute the contract, serious problems of quality and speed of work could have arisen given the possible deprivation of profits at the conclusion of the project. 18 Id. at 1359. Tombs repeats and expands on these propositions. Brief of Defendant-Appellee at 8-11. 19 This argument has been accorded less weight in the context of determining whether a state right of action to enforce the Small Business Act may exist. See Icono v. Jensen Constr. Co., 622 F.2d 1291, 1299 (8th Cir.1980) (mere threat of legal action, without more, is not sufficient ... to discourage either the submission of bids or the acceptance of a contract award); accord Tectonics, Inc. v. Castle Constr. Co., 753 F.2d 957, 963 (11th Cir.), cert. denied, 474 U.S. 848, 106 S.Ct. 143, 88 L.Ed.2d 118 (1985). We too find the argument less than compelling in this context. In the years since Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), the courts have been extremely reluctant to imply a [federal] cause of action absent ... specificity on the part of the Legislative Branch. Cannon v. University of Chicago, 441 U.S. 677, 718, 99 S.Ct. 1946, 1968-69, 60 L.Ed.2d 560 (1979) (Rehnquist, J., concurring). The reluctance to imply private actions is particularly strong when a statute is completely silent. Because implied federal causes of action are disfavored, the argument found compelling in Savini must be seen in its context. Conversely, there is great reluctance to assume that Congress did intend to preempt state law with respect to a particular area when Congress was silent regarding the matter of preemption. See Part 4. While the Savini argument has some merit, in this case it must be balanced against the reluctance to find that state law has been preempted. 20 Moreover, to whatever extent the availability of a state common law remedy produces negative effects on successful qualified bidders, these effects are at least partially offset by the positive effects of such a remedy on other bidders. While we recognize that the possibility of being sued is one that no business views with enthusiasm, we believe that the principal effect of such a possibility is that bidders will take greater care to ensure that they meet the SBA's size standards. Finally, a state cause of action to enforce the Small Business Act would discourage businesses that are not small, like Tombs, from improperly attempting to secure set-aside contracts, see Tectonics, 753 F.2d at 963 n. 5.
21 Absent a state right of action, an unsuccessful bidder has at least two avenues of redress. It can request a size determination from the SBA, see 13 C.F.R. Secs. 121.8-121.9 (1987), or it can bring suit under the Administrative Procedure Act, 5 U.S.C. Sec. 702 (1982). See Cincinnati Elec. Corp. v. Kleppe, 509 F.2d 1080, 1084-86 (6th Cir.1975). 7 The district court suggested that allowing a state right of action would provide a perverse incentive: an unsuccessful bidder would prefer to wait until the contract had been awarded and performed, and then sue on state law grounds rather than using the SBA's procedures. Integrity Management, 614 F.Supp. at 246. By suing in state court, the bidder may be awarded profits it has not earned, while if it only follows administrative procedures, the most the bidder can hope for is that the contract has not already been awarded and will be awarded to it. See id. at 246; see also Northland Equities, Inc. v. Gateway Center Corp., 441 F.Supp. 259, 263 (E.D.Pa.1977) (allowing an unsuccessful [non set-aside] bidder to sue after the award is made would provide an irresistible disincentive to his coming forth at an earlier time and wreak havok on procurement). 22 We do not think the contrast is so stark. Unsuccessful bidders have been unsuccessful in court where they did not have a ruling from the SBA that the successful bidder was too large. See Ferguson-Williams, Inc. v. Bamsi, Inc., 782 F.2d 940 (11th Cir.1986) (affirming summary judgment for defendant because SBA had not found it to be a large business and court must give deference to SBA's determination); cf. Tectonics, Inc. v. Castle Constr. Co., 496 So.2d 704 (Ala.1986) (refusing to confer state cause of action on unsuccessful bidder when federal law conclusively presumed the low bidder to be small). 8 An unsuccessful bidder will thus have a strong incentive to use the SBA's procedures, and to sue only when its case is supported by the SBA's determination. 23 Moreover, bidders have an incentive to obtain the contract itself rather than merely seeking its profits. Because procurement officers may consider factors other than the lowness of the bids offered, see 48 C.F.R. Secs. 13.104, 14.407-2, 15-605(b) (1987), familiarity with a previous awardee would presumably work to that firm's benefit when procurement officers make future decisions. Bidders thus have good reason to challenge the size of the low bidder before the contract is awarded.
24 Tombs argues persuasively that the states' interest in adjudicating actions between bidders on federal set-aside contracts is minimal. 25 The Small Business Act applies to and effects [sic] only those involved in federal procurement. It reaches, not the public generally, but those having very specific [relationships] with the federal government itself. The law and the regulations promulgated under it regulate the relationship between the federal government and others, not between citizens themselves.... 26 ... 27 It seems so painfully obvious that the body of federal law relating to procurements by the federal government is so far removed from the interests and power of the states, that actions such as this may even be beyond the jurisdiction of state courts. After all, the SBA and federal procurement statutes constitute a body of law in and of itself, which creates its own remedies for unsuccessful bidders.... 28 Brief of Defendant-Appellee at 14, 19. Indeed, the highest court of one state has concluded that there is absolutely no logic in interpreting the Small Business Act to allow a state cause of action. Tectonics, 496 So.2d at 706. 29 Furthermore, IMI's state law cause of action, if any, exists only because a federal statute has directed that certain contracts be set aside for entities determined by federal regulations, and in spite of normal privity of contract rules. See Icono, 622 F.2d at 1295-96. Tombs argues that the effect of allowing state common law actions is that fifty states [will] become involved in interpreting and applying the federal law and SBA regulations and that the effective uniform administration of the small business set-aside program will be lost. Brief of Defendant-Appellee at 14. The dissent agrees with these assertions. 30 Small business set-aside contracts are not merely one kind of government procurement contracts, however. They do more than provide the government with needed supplies and services; they embody a national policy of promoting free enterprise that the states have an interest in promoting as well. Moreover, unjust enrichment, intentional interference with securing a contract, and fraud are torts for which states have an interest in providing a remedy regardless of the means by which they are accomplished. Whether the kinds of misrepresentations Tombs has made in fact fall within the scope of a particular state's contract and fraud actions is not for this court to decide in the first instance. Nor do we believe that such actions would create the chaos Tombs predicts. IMI does not propose that the court below make its own determination of small business status. The federal Size Appeals Board has ruled that Tombs is not a small business. IMI merely urges the trial court to adopt this federal determination of small business status under the federal regulations as evidence of state law torts. See Tectonics, 496 So.2d at 706-08 (Adams, J., dissenting). It is precisely because federal regulations and determinations will provide the standard by which to measure culpability that the effective uniform administration of the set-aside program will not be disturbed.
31 The reasoning above inclines us to hold that there is no preemption of state common law remedies in this case. A surer basis for that holding, however, is the near presumption against preemption of traditional state law. See Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 2129, 68 L.Ed.2d 576 (1981) (Consideration under the Supremacy Clause starts with the basic assumption that Congress did not intend to displace state law.); Chicago & N.W. Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 317, 101 S.Ct. 1124, 1130, 67 L.Ed.2d 258 (1981) (Pre-emption of state law by federal statute or regulation is not favored 'in the absence of persuasive reasons--either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained.' ); Los Alamos School Bd. v. Wugalter, 557 F.2d 709, 714 (10th Cir.) (It will not be presumed that a federal statute was intended to supersede the exercise of the power of the state unless there is a clear manifestation of intent to do so.), cert. denied, 434 U.S. 968, 98 S.Ct. 512, 54 L.Ed.2d 455 (1977). The SBA's policies, practices, and regulations, which we address below, make an even stronger case for this presumption.