Court Opinion

ID: 2652791
Source: CourtListenerOpinion
Date Created: 2014-02-10 17:06:44.771792+00
Date Added: 2024-06-11T09:10:57.277891
License: Public Domain

In the United States Court of Federal Claims
                                    No. 10-448C
                             (Filed February 10, 2014)

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                            *
B&B MEDICAL SERVICES, INC., *                 Pre-award bid protest; RCFC 12(b)(1);
                            *                 lack of subject-matter jurisdiction;
             Plaintiff,     *                 small business set-aside; 48 C.F.R.
                            *                 § 19.102(f); non-manufacturer rule;
         v.                 *                 VA home healthcare oxygen; NAICS
                            *                 codes; moot due to changes in size
THE UNITED STATES,          *                 standard regulations.
                            *
             Defendant.     *
                            *
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       Richard L. Moorhouse, Greenberg Traurig, LLP, McLean, Virginia, for
plaintiff. William M. Jack, Ryan C. Bradel, Greenberg Traurig LLP, Washington,
D.C., and Mark G. Chalpin, Silver Spring, Maryland, of counsel.

       Joshua E. Kurland, Commercial Litigation Branch, Civil Division,
Department of Justice, with whom were Stuart F. Delery, Assistant Attorney
General, Bryant G. Snee, Acting Director, and Kirk T. Manhardt, Assistant Director,
all of Washington, D.C., for defendant.

                                      ORDER

WOLSKI, Judge.

       Presently before the Court is the government’s motion to dismiss this case as
moot. This bid protest was brought by plaintiff B&B Medical Services, Inc. (B&B)
as a challenge to the decision by the Department of Veterans Affairs (VA) to cancel
Solicitation No. VA-249-10-RP-0041 (the solicitation). See Compl. ¶¶ 1, 10, 20–22.
This solicitation, for home healthcare oxygen, was a small business set-aside under
North American Industry Classification System (NAICS) code 339112, limited to
offerors with 500 or fewer employees. Id. ¶¶ 1, 14 & Ex. A at 1; see also Admin. R. at
23. It also contained the Federal Acquisition Regulation (FAR) provision commonly
known as the non-manufacturer rule, which states that “[a]ny concern submitting a
bid or offer in its own name, other than on a construction or service contract, that
proposes to furnish an end product it did not manufacture (a ‘non-manufacturer’), is a
small business if it has no more than 500 employees . . . .” See Compl., Ex. A at 59–
61; Admin. R. at 635–37; 48 C.F.R. § 19.102(f). 1

       The solicitation was issued in place of an earlier one which had been
designated with the services NAICS code 532291, and thus would have been
restricted to offerors with annual receipts of $7 million or less. See Admin. R. at 17,
270. The plaintiff filed a protest of that previous solicitation with the Government
Accountability Office (GAO), arguing that the size standard of the non-manufacturer
rule should determine offeror eligibility under the holding of Rotech Healthcare Inc.
v. United States, 71 Fed. Cl. 393, 411–24 (2006), a decision from our court concerning
similar solicitations. See Admin. R. at 283–86. After reviewing the solicitations
that were the subject of Rotech, the Contracting Officer (CO) agreed with B&B and
reissued the solicitation under the supply NAICS code 339112, attempting to comply
with a Small Business Administration (SBA) decision in a separate matter which
found that the non-manufacturer rule does not apply to solicitations with services
NAICS codes. Id. at 270.

        Objecting to the decision to use NAICS code 339112 for the solicitation, several
potential offerors appealed to the Office of Hearings and Appeals (OHA) of the SBA
--- resulting in the decision that the CO was right the first time in selecting the
services NAICS code 532291 for the procurement. Admin. R. at 553–61. A few
months later, the VA canceled the solicitation. See Compl. ¶ 20 & Ex. C; Admin. R.
at 108. The plaintiff filed an agency-level protest of the cancellation. See Compl.
¶ 21 & Ex. D; Admin. R. at 574–75. In denying this protest, the CO explained that
the OHA “decision clearly states that the appropriate NAICS Code to be assigned to
the requirements set out in the referenced solicitation is 532291, Home Health
Equipment Rental.” Admin. R. at 576. He also noted that the GAO sustained a
protest of another VA home healthcare oxygen solicitation, on the ground that the VA
was required to follow an OHA determination that NAICS code 532291 was the
appropriate code. Id. Instead of amending the solicitation to swap in the correct
code, the CO “decided to cancel and resolicit as the population of potential offerors
may well be very different for the newly assigned code.” Id.

       Fearing that this population of potential offerors may be construed as not
including it, B&B filed its protest in our court. Plaintiff alleged that the VA
arbitrarily and capriciously canceled the solicitation, contending that the solicitation
was primarily for the supply of items and that the non-manufacturer rule should
determine offeror eligibility. See Compl. ¶¶ 1, 17–19, 27–31. Plaintiff’s harm from
the cancellation was that it “exceeds the $7 million size standard” and thus “if NAICS

1 The solicitation also instructed offerors that “the small business size standard for a
concern which submits an offer in its own name, but which proposes to furnish an
item which it did not manufacture, is 500 employees.” Compl., Ex. A at 61; Admin.
R. at 637; see also 48 C.F.R. § 52.212-1(a).
                                           -2-
532291 is applied to the now-cancelled and to-be-reissued Solicitation . . . it will not
qualify as a small business concern under a 100 percent set aside.” Id. ¶ 25. The
government moved to dismiss the case under Rule 12(b)(1) of the Rules of the United
States Court of Federal Claims (RCFC), arguing among other things that a challenge
to the arbitrary cancellation of a solicitation is not within our subject-matter
jurisdiction under the Tucker Act, see Def.’s Mot. to Dismiss at 5–8 (citing 28 U.S.C.
§ 1491(b)(1)); that the corrective action of which the cancellation is a part is not ripe
for judicial review, id. at 12–15; and that B&B lacked standing to challenge the
cancellation, id. at 15–16. 2

       At the request of the parties, due to the pendency of a related case and to a
proposed rule that would change one of the relevant small business size standards,
the case has been stayed beginning in 2012. See Order (Sept. 21, 2012). The latter
reason has given rise to the government’s mootness motion, as the size standard for
small businesses under NAICS code 532291 has been increased to $30 million in
annual receipts. See 13 C.F.R. § 121.201 (2013); Small Business Size Standards:
Real Estate and Rental Leasing, 77 Fed. Reg. 58,747, 58,754 (Small Bus. Admin.
Sept. 24, 2012). Plaintiff concedes that it qualifies as a small business under this
standard. See Pl.’s Resp. in Opp’n to Def.’s Mot. Dismiss for Mootness (Pl.’s Opp’n)
at 1, 3.

        Before considering whether this matter is moot, a brief discussion of our
jurisdiction is in order. As the Court has explained elsewhere, see MORI Assocs.,
Inc. v. United States, 102 Fed. Cl. 503, 522–24 (2011), it had been firmly established
that the arbitrary cancellation of a solicitation constitutes a breach of the implied
contract to fairly and honestly consider bids. The Federal Circuit has held that our
protest jurisdiction was augmented and not diminished by the Administrative
Dispute Resolution Act of 1996 (ADRA). See Res. Conserv’n Group, LLC v. United
States, 597 F.3d 1238, 1243, 1246 (Fed. Cir. 2010). Thus, the Court has found that
challenges to arbitrary solicitation cancellations remain within our jurisdiction, as
concerning violations of the FAR. See MORI Assocs., 102 Fed. Cl. at 523–24 (citing
48 C.F.R. § 1.602-2(b)). Given our long history of entertaining such protests, the
Court does not find subject-matter jurisdiction to be absent merely because the
particular regulation that is violated by arbitrary cancellation is absent from the
complaint. Moreover, plaintiff does allege that a regulation --- the
non-manufacturer rule, 48 C.F.R. § 19.102(f) --- was interpreted and applied in an
arbitrary manner. See Compl. ¶¶ 15, 17, 19, 27–31. This would seem adequate for
purposes of our subject-matter jurisdiction as stating the alleged violation of a
regulation. Cf. MORI Assocs., 102 Fed. Cl. at 524 n.17 (explaining how the arbitrary
exercise of laws might be “not in accordance with law” under 5 U.S.C. § 706(2)(A)).
2
  The government also makes the odd argument that the cancellation of a
solicitation moots the protest of this cancellation. See Def.’s Mot. to Dismiss at 9–
12.
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        The Court also notes that while challenges to the arbitrary canceling of
solicitations were traditionally rooted in an implied contract triggered by the
submission of a bid, the regulation that is their basis under the ADRA does not rely
on such a trigger. See 48 C.F.R. § 1.602-2 (concerning “all necessary actions for
effective contracting”). Thus, challenges to such cancellations are not restricted to
offerors who have submitted bids, but can be brought by a sufficiently “interested
party.” 28 U.S.C. § 1491(b)(1). In this type of pre-award bid protest, such interest
--- the source of standing under the standard borrowed by the Federal Circuit for
ADRA purposes, see Am. Fed’n of Gov’t Employees, AFL-CIO v. United States, 258
F.3d 1294, 1302 (Fed. Cir. 2001) --- is established by alleging “a non-trivial
competitive injury which can be redressed by judicial relief.” Weeks Marine, Inc. v.
United States, 575 F.3d 1352, 1361–63 (Fed. Cir. 2009). 3 Jurisdiction over B&B’s
protest, whether scrutinized as a matter of standing at the outset or mootness at this
point in time, ultimately turns on the existence of a sufficient alleged injury. 4

       The question of plaintiff’s standing was a difficult (and close) one from the
beginning. When a solicitation is canceled because the government made the
decision that it no longer needs the particular services or items, see FFTF Restoration
Co. v. United States, 86 Fed. Cl. 226, 232–33 (2009), or that it should either in-source
the requirements, see MORI Assocs., 102 Fed. Cl. at 513–14, or make a sole-source
award to a competitor, see Def. Tech., Inc. v. United States, 99 Fed. Cl. 103, 114–15
(2011), the cancellation necessarily precludes the protester from the opportunity of
competing for a contract award. Here, the solicitation was canceled so that it could
be reissued for a competitive award, and a strong argument can be made that a
competitive injury is not inflicted until the new solicitation issues which excludes the
protester from the competition. This is further compounded by B&B’s reliance on
Rotech, which determined that the application of the non-manufacturer rule to a
solicitation did not depend on whether a services or supply NAICS code was
employed. Rotech, 71 Fed. Cl. at 429–30. Under this approach, canceling a
solicitation so that a services NAICS code could be substituted for a supply one would

3 A different standard --- basing prejudice on whether the challenged action
deprived the protester of a substantial chance of winning a contract --- may apply
when the pre-award protest concerns the evaluation of a submitted offer. See Orion
Tech., Inc. v. United States, 704 F.3d 1344, 1348–49 (Fed. Cir. 2013).

4  It is clear to the Court that the formal cancellation of a solicitation is the type of
final decision that satisfies ripeness doctrine. Moreover, the Court doubts that
“final agency action,” 5 U.S.C. § 704, a concept from the Administrative Procedure
Act that the ADRA does not incorporate, has any relevance to the question of
whether the protest of a procurement decision is ripe. See CBY Design Builders v.
United States, 105 Fed. Cl. 303, 336 (2012).
                                           -4-
not affect the application of the non-manufacturer rule, and thus it is hard to see how
the cancellation by itself would inflict any competitive injury upon B&B.

       In any event, it is evident that the government’s interpretation of the
non-manufacturer rule alone was not to plaintiff’s prejudice; rather, competitive
injury depends on the interaction of this interpretation with a NAICS code under
which B&B fails to qualify as small. See Compl. ¶ 25. The CO canceled the
solicitation to comply with an OHA determination that NAICS code 532291 was
appropriate given the agency’s requirements. Admin. R. at 576; Compl., Ex. E.
Once OHA made this determination, the CO lacked the discretion to use any other
NAICS code for the procurement. See 48 C.F.R. § 19.303(c)(5). If there were any
doubts as to the agency’s intentions in this regard, they have been dispelled by the
pre-solicitation notice, issued January 6, 2014, identifying the revised procurement
as a total small business set-aside under NAICS code 532291. See Def.’s Notice
(ECF No. 37), Attach. A. As we have seen, under the current regulations, B&B
qualifies as a small business under this particular code, see 13 C.F.R. § 121.201
(2013); Pl.’s Opp’n at 1, 3, and thus the only injury alleged in the complaint is
eliminated.

        Although the parties still disagree over the proper application of the
non-manufacturer rule, B&B is not injured by the government’s contrary views. A
case is moot when it is unreasonable to expect “that the alleged violation will recur,”
and “interim relief or events have completely and irrevocably eradicated the effects of
the alleged violation.” County of Los Angeles v. Davis, 440 U.S. 625, 631 (1979)
(citations omitted). The alleged wrongful interpretation of the non-manufacturer
rule is a cognizable violation of B&B’s rights only when it results in the improper
exclusion of plaintiff from the pool of eligible offerors. This exclusion can no longer
result from the use of the NAICS code which the SBA requires the agency to use in
home healthcare oxygen procurements --- thus, the allegedly illegal interpretation of
the non-manufacturer rule has no effect on B&B’s ability to compete under the
revised procurement or any other procurement involving the same requirements.
The formal change in the size standard regulation, based on industry data and not
some change in policy, see 77 Fed. Reg. 58,747–48, is akin to the repeal of a law,
rather than a voluntary cessation of illegal activity. Cf. Rothe Dev. Corp. v. Dep’t of
Def., 413 F.3d 1327, 1332–33 (Fed. Cir. 2005) (contrasting the suspension of a policy
with the repeal of a law).

      To be sure, the agency has not changed its interpretation of the
non-manufacturer rule, but we are now presented with an “abstract disagreement”
and not a “specific live grievance.” Lewis v. Cont’l Bank Corp., 494 U.S. 472, 479
(1990) (citations omitted) (internal quotation marks omitted). Plaintiff argues that
the agency’s interpretation of the non-manufacturer rule will matter to it if it
“outgrow[s] even the new size standard,” Pl.’s Opp’n at 4, but this “amounts to a

                                          -5-
request for advice as to what the law would be upon a hypothetical state of facts . . . or
with respect to contingent future events that may not occur as anticipated, or indeed
may not occur at all.” Cont’l Bank Corp., 494 U.S. at 479–80 (citations omitted)
(internal quotation marks omitted). 5 Plaintiff’s controversy with the government
concerning its eligibility as an offeror is now moot. When a matter becomes moot,
we lose subject-matter jurisdiction over it, and dismissal under RCFC 12(b)(1) is in
order. CBY Design Builders v. United States, 105 Fed. Cl. 303, 328–29 (2012);
Technical Innovation, Inc. v. United States, 93 Fed. Cl. 276, 278 (2010). The
government’s motion to dismiss this case for mootness is GRANTED. The Clerk
shall close the case.

IT IS SO ORDERED.

                                         s/ Victor J. Wolski
                                         VICTOR J. WOLSKI
                                         Judge

5  Contrary to B&B’s contention, see Pl.’s Opp’n at 4–5, the Court does not find this
case analogous to Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83 (1993), in
which the vitality of a patent invalidity claim on appeal rested on the independent
jurisdiction over the matter under a counterclaim seeking a declaratory judgment.
See Cardinal Chem. Co., 508 U.S. at 96.
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