Court Opinion

ID: 9323791
Source: CourtListenerOpinion
Date Created: 2022-12-08 16:00:42.816442+00
Date Added: 2024-06-11T17:14:50.491602
License: Public Domain

Case: 21-1836    Document: 54     Page: 1   Filed: 12/08/2022

   United States Court of Appeals
       for the Federal Circuit
                  ______________________

        OBSIDIAN SOLUTIONS GROUP, LLC,
                Plaintiff-Appellant

                             v.

                    UNITED STATES,
                    Defendant-Appellee
                  ______________________

                        2021-1836
                  ______________________

     Appeal from the United States Court of Federal Claims
 in No. 1:20-cv-01602-RAH, Judge Richard A. Hertling.
                  ______________________

                Decided: December 8, 2022
                 ______________________

     MILTON C. JOHNS, Executive Law Partners, PLLC,
 Fairfax, VA, argued for plaintiff-appellant.

     STEVEN C. HOUGH, Commercial Litigation Branch,
 Civil Division, United States Department of Justice, Wash-
 ington, DC, argued for defendant-appellee. Also repre-
 sented by BRIAN M. BOYNTON, ERIC P. BRUSKIN, PATRICIA
 M. MCCARTHY.
                   ______________________

 Before REYNA, HUGHES, and CUNNINGHAM, Circuit Judges.
Case: 21-1836    Document: 54     Page: 2    Filed: 12/08/2022

 2                       OBSIDIAN SOLUTIONS GROUP, LLC   v. US

 HUGHES, Circuit Judge.
     Obsidian Solutions Group, LLC appeals a decision of
 the United States Court of Federal Claims granting judg-
 ment on the administrative record. The court held that the
 Office of Hearings and Appeals did not act arbitrarily or
 capriciously in determining Obsidian was not a small busi-
 ness. We affirm.
                              I
      On April 19, 2019, the Department of Energy (DOE)
 issued a solicitation for Technical Security, Communica-
 tions Security, Cyber, Analysis and Security Administra-
 tion. The solicitation was designated as a small business
 set-aside, and the size limit for interested businesses was
 a maximum of $20.5 million in average annual receipts.
 Obsidian submitted a bid proposal on July 18, 2019. At the
 time, Obsidian self-certified as a small business based on
 its five-year average of annual receipts (roughly $17.5 mil-
 lion). On September 2, 2020, the DOE notified Obsidian
 that it was the apparent successful offeror but that the
 DOE would submit a request to the Small Business Admin-
 istration (SBA) to confirm Obsidian’s size status before
 making the award.
     On September 10, 2020, the SBA determined Obsidian
 did not qualify as a small business for the purposes of the
 solicitation. Rather than use the five-year average of re-
 ceipts, the SBA used Obsidian’s three-year average
 (roughly $21.8 million), which exceeded the $20.5 million
 limit. Because of the SBA’s adverse size determination, the
 DOE did not award the procurement to Obsidian.
     After the Office of Hearings and Appeals (OHA) af-
 firmed the SBA’s size determination, Obsidian filed a bid
 protest in the Court of Federal Claims under the Tucker
 Act, 28 U.S.C. § 1491(b). Obsidian argued that the size de-
 termination was “arbitrary, capricious, an abuse of discre-
 tion, or otherwise not in accordance with law” because the
Case: 21-1836     Document: 54        Page: 3   Filed: 12/08/2022

 OBSIDIAN SOLUTIONS GROUP, LLC      v. US                      3

 SBA was required to start using five years of annual re-
 ceipts on December 17, 2018, the effective date of the Run-
 way Extension Act (REA). Suppl. App. 25–26 (quoting
 5 U.S.C. § 706(2)(A)). In addition to bid preparation and
 proposal costs, Obsidian requested injunctive relief, includ-
 ing that the court set aside the size determination; declare
 that Obsidian is a small business; and reinstate Obsidian
 as the apparent awardee. Suppl. App. 29–30. The Court of
 Federal Claims granted the United States’ motion for judg-
 ment on the administrative record and denied Obsidian’s
 cross-motion because the REA clearly and unambiguously
 did not apply to the SBA. Obsidian Sols. Grp., LLC v.
 United States, 153 Fed. Cl. 334, 344–45 (2021). Because
 Obsidian did not succeed on the merits, the trial court de-
 nied Obsidian’s requested relief. Id. at 345.
    Obsidian appeals.       We       have   jurisdiction   under
 28 U.S.C. § 1295(a)(3).
                               II
     We review judgment on the administrative record in a
 bid protest action de novo. Off. Design Grp. v. United
 States, 951 F.3d 1366, 1371 (Fed. Cir. 2020). We review de-
 nial of injunctive relief for abuse of discretion. Nichia Corp.
 v. Everlight Ams., Inc., 855 F.3d 1328, 1340 (Fed. Cir.
 2017).
                               A
     At issue is whether the REA’s amendment to Sec-
 tion 3(a)(2) of the Small Business Act (15 U.S.C.
 § 632(a)(2)), and in particular, its requirement to use a five-
 year average of receipts for purposes of size determina-
 tions, was immediately binding on the SBA. Before the
 REA was enacted in 2018, Section 3(a)(2) of the Small Busi-
 ness Act read, in relevant part:
Case: 21-1836       Document: 54   Page: 4    Filed: 12/08/2022

 4                        OBSIDIAN SOLUTIONS GROUP, LLC   v. US

     (A) In general
     In addition to the criteria specified in paragraph
     (1), the [SBA] Administrator may specify detailed
     definitions or standards by which a business con-
     cern may be determined to be a small business con-
     cern for the purposes of this chapter or any other
     Act.
     (B) Additional criteria
     The standards described in paragraph (1) may uti-
     lize number of employees, dollar volume of busi-
     ness, net worth, net income, a combination thereof,
     or other appropriate factors.
     (C) Requirements
     Unless specifically authorized by statute, no Fed-
     eral department or agency may prescribe a size
     standard for categorizing a business concern as a
     small business concern, unless such proposed size
     standard—
     (i) is proposed after an opportunity for public notice
     and comment;
     (ii) provides for determining—
     ...
     (II) the size of a business concern providing ser-
     vices on the basis of the annual average gross re-
     ceipts of the business concern over a period of not
     less than 3 years;
     . . .; [and]
     (iii) is approved by the [SBA] Administrator.
 15 U.S.C. § 632(a)(2)(A)–(C) (2018).
     The SBA has long interpreted subsection (C) as apply-
 ing to only non-SBA agency size standards—not to SBA
Case: 21-1836     Document: 54        Page: 5   Filed: 12/08/2022

 OBSIDIAN SOLUTIONS GROUP, LLC      v. US                      5

 size standards promulgated under subsections (A) and (B).
 Small Business Size Standards: Calculation of Annual Av-
 erage Receipts, 84 Fed. Reg. 29399, 29399 (June 24, 2019).
 The SBA repeated this interpretation in the Federal Reg-
 ister more than 50 times in the two decades before the en-
 actment of the REA. 84 Fed. Reg. at 29400. Thus, although
 the SBA used a three-year average for size determinations,
 it did so pursuant to the authority granted in subsection
 (A), not the requirement in (C). E.g., 13 C.F.R. § 121 (1990)
 (citing 15 U.S.C. § 632(a) for its authority to set size stand-
 ards and using three years of annual receipts).
                                B
     Effective December 17, 2018, Congress passed the
 REA, an amendment that made a single change to Section
 3(a)(2): it changed “3 years” in subsection (C)(ii)(II) to “5
 years.” Small Business Runway Extension Act of 2018,
 Pub. L. No. 115-324. The REA did not amend subsections
 (A) or (B) or any other language in subsection (C). Id.
     After the REA became effective, the SBA restated its
 longstanding interpretation that subsection (C) did not ap-
 ply to the SBA. 84 Fed. Reg. at 29399. Nonetheless, to pro-
 mote consistency between the SBA and non-SBA agencies,
 the SBA proposed a rule change on June 24, 2019. Id. at
 29400. The proposed rule would change the SBA’s existing
 three-year averaging period to a five-year period. Id. The
 SBA clarified that, because size is determined as of the
 date a firm certifies its size with its initial bid, the three-
 year period would continue to apply for all bids submitted
 before the effective date of the final rule. Id. at 29401. After
 a notice-and-comment period, the final rule took effect on
 January 6, 2020. Small Business Size Standards: Calcula-
 tion of Annual Average Receipts, 84 Fed. Reg. 66561 (Dec.
 5, 2019).
     The SBA’s proposed rule was not yet final when Obsid-
 ian submitted its proposal in July 2019. In making its size
 determination, the SBA explained that Obsidian’s size
Case: 21-1836     Document: 54      Page: 6   Filed: 12/08/2022

 6                       OBSIDIAN SOLUTIONS GROUP, LLC    v. US

 must be calculated on a three-year basis rather than a five-
 year basis because the governing SBA regulation at the
 time of submission was the three-year rule.
                               C
     Effective January 1, 2022, Congress amended Section
 3(a)(2) again, this time explicitly stating in subparagraph
 (C) that “no Federal department or agency (including the
 Administration when acting pursuant to subparagraph (A))
 may prescribe a size standard” inconsistent with the five-
 year averaging requirement. William M. (Mac) Thornberry
 National Defense Authorization Act for Fiscal Year 2021,
 Pub. L. No. 116-283, 134 Stat. 3388, 3784 (the “2022
 amendment”) (emphasis added). The amendment also ex-
 plicitly altered subsection (A), adding that the Administra-
 tor is “subject to the requirements specified under
 subparagraph (C).” Id. Congress made the 2022 amend-
 ment effective one year after the date of enactment and did
 not purport to apply this amendment retroactively. Id.
                              III
     Obsidian relies on three arguments, all of which must
 be true for its bid protest to succeed: (1) the REA applied to
 the SBA, (2) the REA required a five-year rule to go into
 effect immediately upon the REA’s December 2018 effec-
 tive date, and (3) no notice-and-comment rulemaking was
 required for the SBA to start using the five-year rule. We
 need only address the first issue because it is dispositive.
     When tasked with interpreting a statute, we start by
 exhausting all traditional tools of interpretation to deter-
 mine its meaning. The starting point is the text itself.
 United States v. Hohri, 482 U.S. 64, 69 (1987). We do not
 look at the text in a vacuum, but rather, we must consider
 the words “in their context and with a view to their place
 in the overall statutory scheme.” King v. Burwell, 576 U.S.
 473, 486 (2015) (cleaned up).
Case: 21-1836    Document: 54      Page: 7    Filed: 12/08/2022

 OBSIDIAN SOLUTIONS GROUP, LLC   v. US                      7

     The REA changed a single word in Section 3(a)(2). We
 consider that change in the overall structure of the entire
 provision, which includes three subsections. First, subsec-
 tion (A) authorized the SBA Administrator to “specify de-
 tailed definitions or standards” for determining size status.
 15 U.S.C. § 632(a)(2)(A) (2018). Second, subsection (B)
 granted discretion to the SBA—in exercising this author-
 ity—to use enumerated “or other appropriate factors” in es-
 tablishing size standards. Id. § 632(a)(2)(B). Third,
 subsection (C) made the broad authority of the first two
 subsections unique to the SBA by prohibiting any other de-
 partment or agency from prescribing its own size standards
 without first meeting more stringent requirements and
 getting approval from the SBA Administrator. The text of
 subsection (C) provided: “[u]nless specifically authorized by
 statute, no Federal department or agency may prescribe a
 size standard” unless it met the more stringent subsection
 (C) requirements and was “approved by the [SBA] Admin-
 istrator.” Id. § 632(a)(2)(C) (emphases added).
     The meaning of this language and structure is clear.
 Congress created not one but two subsections discussing
 size factors. The SBA was given its own, broader limita-
 tions on establishing size standards in subsection (B) than
 other agencies were given in subsection (C). Subsection (C)
 provided similar categories as subsection (B) but set more
 stringent requirements within those categories. If Con-
 gress had intended the SBA to be bound by the more strin-
 gent requirements applicable to other agencies, it could
 have created a single subsection outlining these categories.
 Instead, Congress made the broader authority of the SBA
 unique by making subsection (B) applicable to the SBA and
 by making other agencies subject to the stricter require-
 ments of subsection (C).
     Obsidian argues that the phrase “no Federal depart-
 ment or agency may prescribe a size standard” makes clear
 that subsection (C) applies to all agencies, including the
 SBA. But this argument reads out the rest of the text. First,
Case: 21-1836    Document: 54      Page: 8    Filed: 12/08/2022

 8                       OBSIDIAN SOLUTIONS GROUP, LLC   v. US

 by including the text “[u]nless specifically authorized by
 statute,” Congress exempted the SBA from the group of
 Federal departments or agencies limited by subsection (C).
 The SBA was specifically authorized by statute in subsec-
 tion (A) to specify its own standards. Second, subsection (C)
 concluded with the additional requirement that any size
 standards prescribed by other agencies must be “approved
 by the [SBA] Administrator.” The natural reading of this
 text, absent language to the contrary, is that subsection (C)
 restricts any non-SBA agency from promulgating its own
 size standards without first getting approval from the SBA
 Administrator.
     The REA did not change any of this language. Nor did
 the REA change the structure of the provision. To the con-
 trary, the REA changed only a single word in subsec-
 tion (C)—a subsection Congress should have known did not
 apply to the SBA. “Congress is presumed to be aware of an
 administrative . . . interpretation of a statute and to adopt
 that interpretation when it re-enacts a statute without
 change.” Forest Grove Sch. Dist. v. T.A., 557 U.S. 230, 239–
 40 (2009) (quoting Lorillard v. Pons, 434 U.S. 575, 580
 (1978)). Prior to the enactment of the REA, the SBA pub-
 lished repeated and regular notices of its longstanding in-
 terpretation that subsection (C) did not apply to the SBA.
 84 Fed. Reg. at 29400. Despite being on notice of this inter-
 pretation, Congress chose not to extend subsection (C) in
 the REA.
     This is in stark contrast to Congress’s later amendment
 to the Small Business Act. Unlike the REA, the 2022
 amendment to subsections (A) and (C) did explicitly change
 the language of the statute to make subsection (C) applica-
 ble to the SBA. Pub. L. No. 116-283, 134 Stat. 3388, 3784
 (2021). Congress added a limitation on the SBA’s authority
 in subparagraph (A): “and subject to the requirements
 specified under subparagraph (C).” Id. Then, it amended
 subparagraph (C) to reflect that change: “(including the
 Administration when acting pursuant to subparagraph
Case: 21-1836     Document: 54      Page: 9    Filed: 12/08/2022

 OBSIDIAN SOLUTIONS GROUP, LLC   v. US                        9

 (A)).” Id. When Congress amends a statute, it raises a pre-
 sumption that the legislature intended to substantively
 change, not simply clarify, the law. Ross v. Blake, 578 U.S.
 632, 641–42 (2016) (“When Congress amends legislation,
 courts must ‘presume it intends [the change] to have real
 and substantial effect.’” (alteration in original) (citation
 omitted)); Shambie Singer, Sutherland Statutes and Stat-
 utory Construction § 22.1 (7th ed. 2021). And that pre-
 sumption is strengthened here by the fact that Congress
 delayed the effective date by a year to January 1, 2022, and
 nowhere suggested that the amendment was retroactive.
 Thus, unlike the REA, the 2022 amendment made substan-
 tive changes to Section 3(a)(2) that prospectively applied
 subparagraph (C) to the SBA. The 2022 amendment there-
 fore further supports that Section 3(a)(2)(C) of the REA did
 not apply to the SBA.
     Finally, we are unpersuaded by Obsidian’s arguments
 that the legislative history dictates applying subsection (C)
 to the SBA. Although legislative history may be helpful for
 statutory interpretation, the history cited by Obsidian does
 not sway our decision. Obsidian relies on the fact that, after
 passing the REA, the House attempted to pass a clarifica-
 tion bill to make the REA applicable to the SBA. H.R. 2345,
 Clarifying The Small Business Runway Extension Act
 (July 15, 2019). But “subsequent legislative history . . . is a
 particularly dangerous ground on which to rest an inter-
 pretation of a prior statute when it concerns . . . a proposal
 that does not become law.” Pension Benefit Guar. Corp. v.
 LTV Corp., 496 U.S. 633, 650 (1990) (emphasis added). The
 clarification bill Obsidian relies on only ever passed in the
 House. It was not approved by the Senate and does not sug-
 gest Congress intended for the REA to apply to the SBA.
 The only relevant bill that did ultimately win the approval
 of both chambers of Congress was the 2022 amendment
 discussed above. Unlike the failed House bill, the 2022
 amendment made no mention of being a clarification and
 is, as explained above, presumed to have substantively
Case: 21-1836    Document: 54      Page: 10   Filed: 12/08/2022

 10                      OBSIDIAN SOLUTIONS GROUP, LLC   v. US

 changed, not simply clarified, the prior meaning of Sec-
 tion 3(a)(2).
     Moreover, to the extent the REA congressional reports
 imply that the bill’s sponsors believed the REA would apply
 to the SBA, this does not change our analysis. See H. R.
 Rep. No. 115-939, at 2 (2018); S. Rep. 115-431, at 4 (2018).
 What a bill’s sponsors think an amendment will do, and
 what an amendment actually does, are two separate
 things. Here, such ambiguous evidence of the sponsoring
 legislators’ mindset does not negate the clear text, struc-
 ture, and other evidence that all suggest the REA did not
 apply to the SBA.
                             IV
     Having agreed with the Court of Federal Claims that
 the SBA’s size determination was not arbitrary or capri-
 cious because the REA did not apply to the SBA, we also
 hold that the court did not abuse its discretion in denying
 injunctive relief. There can be no injunctive relief without
 a corresponding prevailing claim. Dell Fed. Sys., L.P. v.
 United States, 906 F.3d 982, 999 (Fed. Cir. 2018) (holding
 that “proving success on the merits is a necessary element
 for a permanent injunction”). Obsidian failed to succeed,
 and the Court of Federal Claims was correct to deny Obsid-
 ian’s requested relief.
                              V
     We have considered Appellant’s other arguments and
 find them unpersuasive or unnecessary to reach. For the
 reasons above, we affirm.
                        AFFIRMED
                           COSTS

 No costs.