Court Opinion

ID: 4694310
Source: CourtListenerOpinion
Date Created: 2021-06-10 16:03:53.279941+00
Date Added: 2024-06-11T08:05:28.525374
License: Public Domain

In the United States Court of Federal Claims
                               No. 19-1668C
                           (Filed: June 10, 2021)

*********************

LAX ELECTRONICS, INC.
d/b/a AUTOMATIC CONNECTOR,                Bid protest; Cross-motions for
                                          judgment on the administrative
              Plaintiff,                  record; Qualified Products List;
                                          Department       of    Defense
v.                                        Manual.
THE UNITED STATES,

              Defendant.

*********************
    Justin T. Huffman, Auburn, NY, for plaintiff.

       Reta E. Bezak, Trial Attorney, Department of Justice, Civil Division,
Commercial Litigation Branch, Washington, DC, with whom were Brian M.
Boynton, Acting Assistant Attorney General, Martin F. Hockey, Acting
Director, and Deborah A. Bynum, Assistant Director, for defendant. John J.
Pritchard, Senior Counsel, Defense Logistics Agency, of counsel.

                                 OPINION

        Plaintiff, LAX Electronics, Inc., doing business as Automatic
Connector (“Automatic”), alleges that the Defense Logistics Agency
(“DLA”) improperly removed Automatic from a Qualified Products List
(“QPL”) to supply electrical connector parts to Department of Defense
(“DOD”) component clients. Plaintiff filed a motion for judgment on the
administrative record, seeking a permanent injunction to be placed back on
the QPL. Defendant opposes the request and cross-moved for judgment on
the record. Oral argument was held on May 27, 2021. Because the removal
was neither procedurally deficient nor substantively irrational, we must deny
plaintiff’s request.
                             BACKGROUND

I. Factual History

       Automatic has supplied electronic connectors to the government for
over 50 years as a supplier on the DLA QPL at issue. As part of maintaining
the approved provider list, DLA regularly conducts audits of QPL suppliers
to ensure that the listed parts continue to meet military standards set by DOD
and DLA. The events in question center on a June 2019 audit of Automatic,
which referenced an earlier 2016 audit. Both are relevant to the challenged
agency action and records of both were properly included in the
administrative record. One of plaintiff’s general allegations here is that the
2019 audit was, in essence, pretextual because the same auditor had decided
in 2016 that Automatic should be excluded from the QPL. No evidence of
bad faith was provided, nor did plaintiff pursue this avenue seriously in its
papers.

       During the 2019 audit, DLA flagged multiple major concerns and
several minor ones. One major concern was “Automatic chang[ing] a major
process for machining parts without informing DLA,” which, if disclosed,
would have required Automatic to go through the requalification process.
Administrative Record (“AR”) at 448. Another concern of the DLA auditor
was systemic traceability problems where Automatic lacked a process to
track the components used in connectors through multiple stages of the
manufacturing process. Id. Automatic also failed to properly document its
testing of parts on the QPL, a repeat problem from 2016. Id. at 450. The
final major concern was Automatic’s failure to report to DLA orders of parts
shipped for QPL jobs. Id. at 451. The other significant concern highlighted
in the audit report, although not a direct violation of the standards tested
during the audit, was that Automatic had failed to document and could not
show any record of implementing corrective actions that it told DLA it would
accomplish following a 2016 audit. Id. at 453. During that audit, a stop
shipment order was implemented by DLA due to problems the audit turned
up. The promised corrective actions were necessary before DLA would lift
the stoppage.

       The 2016 audit primarily concerned testing of Automatic’s
connectors. Id. at 288–91. As mentioned above, during the audit, a stop
shipment of several of plaintiff’s products was enforced by DLA. Following
the final report, Automatic was required to provide corrective action reports
(“CARs”) to address the problems found. Id. at 291. Following Automatic’s
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submission of its CARs, the corrective actions were accepted.1

        On July 2, 2019, DLA once again sent a stop shipment letter to
plaintiff due to the errors identified by the 2019 audit report. See id. at 457-
58. As stated in that report, DLA required Automatic to provide CARs
within 30 days, which were to describe how Automatic would address the
problems found during the audit. AR at 456. On August 7, 2019, Automatic
sent DLA seven CARs prepared by a consultant brought in to help with the
problems uncovered by the audit. Id. at 462-78. Also on August 7, 2021,
plaintiff sent a letter from counsel regarding the CARs and the stop shipment
order, requesting dialogue regarding the problems and proposed fixes and
asking DLA to lift the stop shipment order.2 AR at 481-83.

       On September 12, 2019, DLA removed Automatic from the QPL,
informing plaintiff by letter dated that same day. AR at 519–20. DLA wrote
that, based on the June 2019 audit results, Automatic had “engaged in a
repeated and continuing course of conduct resulting in a significant number
of program violations requiring its removal from the electronic QPL.” Id. at
519. The letter then listed 11 failures that the audit found, including
undocumented supplier changes, changes to product design without
requalification, failures of testing and calibration, and a general failure “to
comply with specification and standards traceability requirements for QPL

1
  To its reply brief, Automatic attached two letters it received from DLA after
the 2016 audit. Both letters discuss Automatic’s corrective actions for the
errors found during that audit. The first letter, sent May 11, 2016, found that
the deficiencies discovered during the audit had been corrected and lifted the
stop shipment order. Pl.’s Reply Ex. 1. The second letter, sent August 15,
2017, clarified that it found the CARs to be acceptable and that DLA would
review the corrective actions’ implementation during their next audit of
Automatic. Pl.’s Reply, Ex. 2. These documents are not part of the record,
and plaintiff has not moved to supplement the record with them.

2
 The Amended Complaint also alleges that, on August 13, 2019, Automatic
received a letter from DLA, requiring Automatic to issue a report through the
Government-Industry Data Exchange Program (“GIDEP”) to inform GIDEP
participants of the problems with Automatic’s QPL parts found during the
June 2019 audit. Plaintiff also alleges that it responded by letter to DLA,
arguing that a GIDEP notice would be premature given the lack of comment
from DLA on Automatic’s CARs. These documents were not included by
the agency in the Administrative Record nor separately provided by plaintiff.

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parts.” Id. at 520. Also noted as a reason for the removal was Automatic’s
refusal to issue a GIDEP notice. Id. at 519. The letter provided, consistent
with the Department of Defense Manual, that Automatic was afforded an
opportunity to “respond and set forth any facts [it] deem[ed] relevant.” Id.
at 520. An internal DLA memo explaining Automatic’s removal, dated the
same day, recorded that DLA considered the CARs sent by Automatic, but it
did not rely on them because of the “repeat findings that occur during
subsequent audits.”3 Id. at 522–23. It is clear from this and statements in the
audit report that the agency was particularly concerned with Automatic’s
history of problems and its lack of documented fixes.

        Following Automatic’s removal from the QPL, DLA sent plaintiff a
letter on October 9, 2019, informing it that DLA would issue a GIDEP notice
to inform participants of Automatic’s non-compliance and violations. That
notice subsequently issued on May 29, 2020. Id. at 526. Automatic did not
respond to either the September or October 2019 notice.

II. Procedural History

        Automatic responded to its removal by filing suit in this court on
October 28, 2019. The Amended Complaint made two claims. First,
Automatic alleged that DLA violated multiple provisions of the Department
of Defense Manual (“DoDM”) Number 4120.24, Enclosure 14, when
removing Automatic from the QPL. Specifically, Automatic alleged that
DLA failed to consider Automatic’s CARs before removing Automatic from
the QPL. Second, Automatic alleged that DLA violated FAR § 9.205(a) by
not allowing Automatic sufficient time to re-qualify for the QPL and by
failing to give notice of DLA’s intent to establish a qualification requirement,
including the “anticipated date that the agency will begin awarding contracts
subject to the qualification requirement.” 48 C.F.R. § 9.205(a)(4) (2020).

        The government filed a motion to dismiss the complaint for lack of
subject-matter jurisdiction. LAX Elecs., Inc. v. United States, 2019 WL
6880939 at *2 (Fed. Cl. Dec. 17, 2019). We agreed in part, dismissing the
first claim because it was untethered to an “alleged violation of statute or
regulation in connection with a procurement or a proposed procurement” as
it was the result of an audit that was untied to any particular procurement or
proposed procurement. Id. at *2 (citing 28 U.S.C. § 1491(b)(1) (2012)).
Although finding jurisdiction over the second claim, we sua spante dismissed

3
 This document was not provided to plaintiff until the Administrative Record
was filed in this docket.
                                       4
it for failure to state a claim because FAR § 9.205(a) concerns new
qualifications imposed on offerors; it does not deal with offerors ousted from
the QPL or those attempting to requalify. Id. at *4.

        On appeal, the Court of Appeals for the Federal Circuit reversed the
jurisdictional dismissal, holding that Automatic’s removal from the QPL
meant that it could not bid on future procurements, putting it within the
Tucker Act’s jurisdictional grant. Lax Elecs., Inc. v. United States, 835 Fed.
Appx. 553, 558-59 (Fed. Cir. 2020). The appellate court affirmed the ruling
on the second count regarding the FAR violation. Id. at 559. Following the
mandate and remand, the government filed the administrative record, and the
parties submitted the case on cross-motions for judgment.

                                 DISCUSSION

       When reviewing bid protests, we apply the standards set forth in the
Administrative Procedures Act (“APA”). Banknote Corp. of Am., Inc. v.
United States, 365 F.3d 1345, 1350–51 (Fed. Cir. 2004). Unless the agency’s
decision was “arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law,” it will remain undisturbed. 5 U.S.C. § 706(2)(A).
In other words, if the agency’s decision was reasonable and not in violation
of any law or regulation, then it meets the APA standard and will be upheld.

        Automatic challenges its removal from the QPL, alleging that DLA
violated multiple provisions of the DoDM by failing to evaluate and consider
Automatic’s CARs before removing it from the QPL. It also argues that the
support for the agency’s decision is lacking because there is neither record
support for the idea that Automatic is a repeat offender for any particular
violation nor is there evidence that it failed to implement its prior corrective
actions. Plaintiff seeks to permanently enjoin DLA from (1) “barring
Automatic from the QPL” and (2) “issuing any more contracts for parts that
Automatic had listed on the QPL.” Pl.’s Mot. at 14. At oral argument,
plaintiff qualified its request by clarifying that it only sought to be reinstated
pending a proper consideration of its CARs and that it did not seek to stop
DOD from otherwise buying QPL parts prior to its restored ability to bid on
procurements.

       Defendant responds that the invocation of the DoDM is unavailing
because it does not have the force of law and thus cannot serve as the basis
for a protest. Furthermore, even if the manual does bind the agency, DLA
followed the relevant provisions, argues the government. The government

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also defends the removal decision generally as rational because it is
supported by ample evidence of a considered agency decision.

         We agree with defendant on all points, though the issue of the force
and effect of the DoDM is something of a red herring because, although there
is no indication that it was the product of notice and comment ruling making,
it is the standard DLA attempted to adhere to. Thus, even though we agree
with the government on the point, we consider below whether the agency met
the procedural requirement anyway.

I. Department Of Defense Manual 4120.24 Does Not Have The Force And
Effect Of Law

       The Federal Circuit in Hamlet v. United States outlined a four-part test
for when an agency’s handbook or manual “is a regulation entitled to the
force and effect of law.” 63 F.3d 1097, 1105 (Fed. Cir. 1995). It goes as
follows:

       (1) the promulgating agency was vested with the authority to
       create such a regulation; (2) the promulgating agency
       conformed to all procedural requirements, if any, in
       promulgating the regulation; (3) the promulgating agency
       intended the provision to establish a binding rule; and (4) the
       provision does not contravene a statute.

Id. 4 There is no real question that DOD has the authority to create procedures
for the Defense Standardization Program, of which the DoDM is a part. 10
U.S.C. sections 2451–2452 give the Secretary of Defense the authority to
create a standardization program for supplies for the Department of Defense.5
The QPL is part of this effort. In the introduction to the manual, it states that
it is published “in accordance with the authority in DoD Directive (DoDD)
51340.1 . . . and DoD Instruction (DoDI) 4120.24 . . . to assign
responsibilities and prescribe the procedures for implementing the [Defense

4
  Although the Federal Circuit in Hamlet applied this test to an agency’s
personnel manual, the Court of Federal Claims has applied this test to other
types of agency materials. See, e.g., Infrastructure Def. Techs., LLC v.
United States, 81 Fed. Cl. 375, 397–98 (2008) (considering whether a DOD
and a DLA Acquisition Directive had regulatory effect).
5
   The standardization program is how the Department of Defense
standardizes the supplies it uses. 10 U.S.C. § 2451(a) (2012).
                                       6
Standardization Program] in accordance with sections 2451-2457 of Title 10,
United States Code . . . .” AR at 1.

       That being said, there is no indication in the record or other legal
authority cited by the parties that DOD followed applicable procedural
requirements in order to give the DoDM regulatory effect. The procedural
requirements for promulgating regulations can be found in the APA at 5
U.S.C. § 552(a). Commonly known as “notice-and-comment rulemaking,”
the APA requires an agency to publish a proposed rule in the Federal
Register, allowing time for the public to submit comments on the proposed
rule. The agency will then take those comments into consideration as it
develops its final rule. The final rule is then published in the Federal
Register.

       The DoDM was published neither for comment nor permanently in
the Federal Register. The DoDM is published only on DOD’s website. The
APA requires, however, that, “Each agency shall separately state and
currently publish in the Federal Register for the guidance of the public . . .
rules of procedure . . . .” 5 U.S.C. § 552(a)(1)(C) (2018). We are aware of
no exception that would apply to DOD procedures. 6

        DOD’s informal publication on its website further suggests that the
agency did not intend for the manual to have the force of law. The Federal
Circuit in Hamlet provided four factors to establish whether a promulgating
agency intended to establish a binding rule: “(a) whether the language of the
provision is mandatory or advisory; (b) whether the provision is ‘substantive’
or ‘interpretive’; (c) the context in which the provision was promulgated; and
(d) any other extrinsic evidence of intent.” 63 F.3d at 1105.

        The language relied on by plaintiff in the DoDM is precatory, not
mandatory. The procedural provision that Automatic cites as having been
violated is DoDM 4120.24, Enclosure 14, § 12(b)(1), which states that a
contractor’s products “should again be included on the electronic QPL…
once the deficiencies noted have been corrected to the government’s
satisfaction.” (emphasis added). As Hamlet and multiple other cases have
recognized, when a provision establishes that the government “should” do

6
 In Hamlet, the handbook’ promulgation met procedural muster despite not
following the APA’s requirements because the statute specifically exempts
personnel materials from its ambit. 63 F.3d 1097, 1105 n.6 (Fed. Cir. 1997)
(citing 5 U.S.C. § 553(b) (2012)).
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something, that provision is, absent other affirmative indications, not
mandatory. E.g., id. at 1104.

       The provisions cited are also procedural, not substantive rules. “[I]f a
provision of an agency’s personnel manual or handbook constitutes such a
‘substantive rule,’ it is far more likely to be considered a binding regulation
for purposes of Tucker Act jurisdiction than if the provision were in the
category of ‘interpretative rules, general statements of policy, or rules of
agency organization, procedure, or practice.’” Id. at 1105 n.6 (it is unclear
which authority the circuit court was quoting). Although section 12 of
Enclosure 14 lists reasons that removal from a QPL might be warranted,
which are essentially substantive, the manual states only that “removal might
be warranted.” AR at 96. When considered as a whole, especially those
provisions cited by plaintiff, DOD has not expressed an intent that these
provisions be binding.7

       We conclude that the DoD Manual is not a binding regulation.
Nevertheless, as noted above, it is the standard the agency applied. As such,
we consider, as part of our larger analysis of the rationality of the agency
action, whether it met its own DoDM-stated goals in the process.

II. The Process And Decision Were Reasonable

       The procedures outlined for removal in DoDM are that, if a product
or products are removed from the QPL, DLA must send “a written notice
(registered, with a return receipt requested) of the action taken, the reasons
for removal, and an opportunity to respond to that notice.” DoDM 4120.24,
Enclosure 14, § 12(b)(2). The letter of September 12, 2019, ticks each of
those boxes. It gave Automatic notice of its removal from the QPL along
with a list of 11 reasons for it, citing approved reasons for removal listed in
Enclosure 14, § 12(a). It also cited section 12(b)(2) when stating that DLA
was affording Automatic an opportunity to respond.

        Automatic failed to avail itself of this opportunity. Now, in essence,
it relies on those CARs, submitted before the notice of removal, as
constituting its response. Or it argues, in essence, that no response was

7
  The final factor is whether the provision in question contravenes a statute.
If it did, it could not have regulatory effect. That is not an issue here,
however, as the manual is clearly promulgated pursuant to the Defense
Standardization Act cited above.

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necessary given its previously submitted CARs. We cannot agree. We find
no arbitrary conduct nor any violation of the manual in the process followed
by the agency and afforded to Automatic. Plaintiff’s own decision not to
respond to the removal notice cannot and does not establish any procedural
omission on the part of the agency. The bona fides of the removal decision
thus stand or fall on their own.8

       Furthermore, even if the CARs submitted to DLA could somehow be
considered a response to Automatic’s removal from the QPL, DLA did take
the CARs into consideration, contrary to Automatic’s assertions. Plaintiff
claims that DLA’s memo supporting Automatic’s removal from the QPL
reveals that DLA did not review the CARs because the memo states that the
“corrective actions are not effective as is demonstrated by the repeat findings
that occur during subsequent audits.” Pl.’s Mot. at 10 (quoting AR at 523).
That is a mischaracterization of the memo, however. The memo is plain that
DLA considered Automatic’s corrective actions insofar as it did not believe
that they would be effective. To support that assertion, the memo points to
Automatic’s past incidents, referencing past audits, stop shipments, and
corrective actions that were not implemented, or at least no record of which
could be produced to the auditor.9 The DoDM, in fact, lists consideration of
whether deficiencies in a product “reflect a repeated or continuing course of

8
  To the extent that plaintiff argues that the notice was deficient by not
affirmatively stating that Automatic’s past failures to document or implement
CARs was a basis for removal, we find no prejudice. Automatic was on
notice of the issue based on the findings regarding that issue in the June 2019
Audit Report. See AR at 453. The cover letter to the CARs submitted in
response to DLA, dated August 6, 2019, references the issue and even
requests copies of documents from DLA. AR 460. Further, although
inarticulate, there are two statements in the September letter that reference
Automatic’s conduct going back several years, which given the context
provided by the Audit Report, informed plaintiff of this basis for removal.
AR at 519-20 (“Automatic Conductor has engaged in a repeated and
continuing course of conduct . . . . [F]or several years, Automatic Connector
has ignored and circumvented VQ’s authority as the qualifying activity.”).
9
   Although not meaningfully treated by the parties, the Administrative
Record also contains an array of correspondence regarding the 2016 findings,
corrective actions, and stop shipment issues that lasted through 2018.
Automatic had a stop shipment notice issued in July 2017, which was not
lifted until October 2018. See AR 340 (stop shipment); AR 446 (release of
stop shipment).
                                      9
conduct” when deciding whether a product or products should be placed back
on the QPL. DoDM 4120.24, Enclosure 14, § 12(b)(1). DLA considered
Automatic’s CARs and reasonably believed, based on past actions, that the
CARs would not be effective.

        There is also no per se violation of the manual in DLA’s decision not
to put Automatic back on the QPL as contemplated by section 12(b)(1). This
provision states that “once the deficiencies noted have been corrected to the
government’s satisfaction,” the product “should again be included on the
electronic QPL.” There is no evidence that the government was satisfied that
the deficiencies were or would be corrected to its satisfaction. Further, as
noted above, this language is not mandatory. Even if the record suggested
that the agency was satisfied with the CARs, this provision alone would not
force the government’s hand.

       On the bona fides of the decision to remove, plaintiff takes no issue
with the findings in the Audit Report. Automatic challenges none of the
reasons asserted in the notice or internal memo other than arguing that it did
not have a problem with repeated failings. Plaintiff argues that the first audit
was mainly concerned with testing and the second with traceability issues.
That, notion, however, is belied by the record. There were testing issues
revealed by both audits.

       We thus find no irrationality in the agency’s finding that the problems
were repeated. That leaves plaintiff with only the argument that the agency’s
worries should have been allayed by its proposed corrective actions. This
argument we cannot entertain because it would require the court to second
guess the agency’s deliberative process. We cannot do so. That plaintiff
disagrees or that a reasonable person might even come to a different
conclusion is not enough. The agency needs only a reasonable basis for its
action. We find that DLA’s decision was informed. It considered the
relevant information, that information was correct, and DLA concluded in a
valid exercise of its discretion to remove Automatic from the QPL.10
Nothing more is required in these circumstances. The procedure afforded
was likewise rational.

10
   It is also of no note that DLA did not discuss the issues or plaintiff’s
proposed response to them prior to removal. The record is replete with
correspondence during and after the audit process. Notice was given and
plaintiff did not avail itself of its final opportunity to respond.
                                      10
                               CONCLUSION

        Automatic has not shown procedural error or other irrationality in
DLA’s decision to remove it from the QPL. Accordingly, plaintiff's motion
for judgment on the administrative record (ECF No. 27) is denied.
Defendant’s motion for judgment on the administrative record (ECF No. 31)
is granted. The Clerk of the Court is directed to enter judgment for defendant.
No costs.

                                           s/ Eric G. Bruggink
                                           ERIC G. BRUGGINK
                                           Senior Judge

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