A & S Council Oil Co., Inc. v. Saiki

• Citation: 799 F. Supp. 1221
• Decision Date: 06 August 1992
• Docket Number: Civ. A. No. 87-1969-OG.
• Court: U.S. District Court — District of Columbia
• Parties: A & S COUNCIL OIL COMPANY, INC., et al., Plaintiffs, v. Patricia SAIKI, et al., Defendants.

799 F. Supp. 1221

A & S COUNCIL OIL COMPANY, INC., et al., Plaintiffs, v. Patricia SAIKI, et al., Defendants.

Civ. A. No. 87-1969-OG.

United States District Court, District of Columbia.

August 6, 1992.

COPYRIGHT MATERIAL OMITTED

Julius E. Mensah, Indianapolis, Ind., for plaintiffs.

Marina Utgoff Braswell, John D. Bates, Asst. U.S. Attys., Jay B. Stephens, U.S. Atty., Washington, D.C., for defendants.

MEMORANDUM

GASCH, District Judge.

This matter is before the Court on defendants' motion to dismiss, or in the alternative, for summary judgment, and on plaintiffs' cross-motion for summary judgment. The case has been fully briefed and argued in open court.

This case involves the legality of an agreement entered into on December 5, 1979, between the Small Business Administration ("SBA") and the Defense Logistics Agency ("DLA"), a procurement arm of the Department of Defense, establishing a pricing mechanism for the delivery of petroleum products to various government installations under a minority set-aside program known as section 8(a) of the Small Business Act of 1953 ("the Act"), as amended, codified at 15 U.S.C. § 637(a). Plaintiffs are three small, minority-owned or otherwise disadvantaged businesses, engaged in trucking operations which provided fuel and other petroleum products to the government under subcontracts with the SBA.¹

On the merits, there being no genuine issue as to any material fact, the Court has concluded for the reasons stated below that plaintiffs are entitled to judgment as a matter of law. An appropriate order granting plaintiffs relief accompanies this opinion.

Factual Background

Each plaintiff formerly participated in a federal program designed to aid disadvantaged and small businesses in winning government contracts, known as the section 8(a) program. Plaintiffs brought this action in July of 1987, complaining that the Administrator of the SBA, and her Associate Administrator, acted illegally and beyond their statutory authority in negotiating and implementing an agreement known as the Memorandum of Agreement/Domestic Post Camp and Station Ground Fuel Section 8(a) Contracting Procedure ("Interagency Agreement" or "1979 Agreement"), which is appended to this Memorandum.

Section 8(a) authorizes the Administrator of the SBA to negotiate contracts with various federal procuring agencies. These contracts provide for portions of various acquisitions to be "set-aside" or "reserved" for performance by firms that are certified under the section 8(a) program, firms which in turn subcontract with the SBA for performance. Acquisitions which are not made under the section 8(a) program are filled by competitive bidding.

The DLA is part of the Department of Defense, and it has an agency within its control called the Defense Fuel Supply Center ("DFSC"). The DFSC purchases ground fuels (petroleum and other petroleum products delivered by either tankwagon or transport) for military use and for the use of various federal agencies.

On December 5, 1979, William A. Clement, then Associate Administrator for Minority Small Business and Capital Ownership Development, United States Small Business Administration, signed the Interagency Agreement. It had previously been signed on November 28, 1979, by Charles T. Patterson, then Staff Director, Small and Disadvantaged Business Utilization, Defense Logistics Agency. The Interagency Agreement was applied between December 5, 1979 and July 17, 1985 by the DLA to all DFSC acquisitions of ground fuels from section 8(a) firms, including plaintiffs' six subcontracts² with SBA which quantify their injury and form the bases of their complaint.

The price per gallon that section 8(a) firms and plaintiffs were to receive under the Interagency Agreement was to be determined in relation to a Fair Market Price ("FMP") that was supplied by the DFSC to the SBA for each particular Commercial Market Area ("CMA"). The FMP was defined as the "highest award price for the competitively solicited items (by type of product and method of delivery) within each Commercial Market Area of the region." Interagency Agreement, Pt. III, § B. In addition, the DFSC determined the CMA with respect to existing commercial sources of supply who would be the suppliers if there were no section 8(a) contractors to choose from.

Once the DFSC provided SBA with the FMPs, SBA would then negotiate with the various section 8(a) firms qualified to work in a particular CMA to arrive at a price. In any event, the price was not, according to the Interagency Agreement, to be set higher than the FMP. Once the price was negotiated, there was no procedure by which it could be changed save the unlikely event of mutual agreement of both parties to the Interagency Agreement, the SBA and the DLA.

Plaintiffs were not included in the negotiations of the terms and conditions of the Interagency Agreement.

If, in the event no contracts in a CMA were awarded by competitive procedures for a product, the Interagency Agreement provided several formulae by which a price may be calculated by the DFSC. Interagency Agreement, Part III, § C. The documentation is not complete, but upon the best information and belief of the parties, this section of the Interagency Agreement was applied for only seventeen line items in two of plaintiff Smith's subcontracts. Def. Supp.Resp. at 5-6.

Once DFSC provided the FMPs, the SBA had 30 days to notify DFSC of the finally negotiated prices. Any prices up to the FMP were, by definition, fair and reasonable, and were to be accepted by DFSC.

There are at least six subcontracts with the SBA that plaintiffs complain about: one for plaintiff A & S Council, three for plaintiff Smith, and two for plaintiff Williams. All six subcontracts contained numerous "line items" which correspond to a particular delivery site with a specified quantity of fuel and a specified price. All three plaintiffs had subcontracts with the SBA whose FMPs were based on contracts with non-section 8(a) bidders who subsequently failed to perform on their contracts.³

Procedural Background

The complaint was filed in July of 1987 in this Court with a prayer for declaratory relief and $15,000,000 in monetary damages. In March of 1988 the case was transferred, on defendants' motion, to the United States Claims Court for the reason that the district court lacked jurisdiction for claims in excess of $10,000 under the Tucker Act, 28 U.S.C. § 1346(a)(2) (1988). Originally, this Court thought "plaintiffs were clearly seeking money damages for loss of profits." Memorandum Opinion, filed March 2, 1988, at 14.

Upon transfer to the Claims Court, both parties argued that jurisdiction did not lie in that court. Plaintiffs maintained that the district court had jurisdiction to hear a monetary claim against the SBA, citing Mar v. Kleppe, 520 F.2d 867, 871 (10th Cir.1975). Defendants, on the other hand, argued that since plaintiffs had not submitted their claim to a contracting officer for a final decision under the Contracts Disputes Act ("CDA"), 41 U.S.C. § 605(a), a claim for declaratory relief could not lie because claims for declaratory relief cannot be heard in the Claims Court, due to its limited jurisdiction, unless there is a final decision (or deemed decision) of a contracting officer on a claim for money damages. A & S Council Oil Co., Inc. v. United States, 16 Cl.Ct. 743, 744-45 (1989).

It did not escape notice that defendants had moved to transfer the case to the Claims Court only to then argue that it did not have jurisdiction. After consideration of all the arguments, the Claims Court decided that it did not have jurisdiction and, in the interest of justice, retransferred the case to this Court. Id. at 745, 750. Thereupon, the parties submitted dispositive motions which are before the Court at this time.

The complaint contains six counts. Count I contends that the Interagency Agreement is a rule within the meaning of the Administrative Procedure Act ("APA"), 5 U.S.C. § 551(4), and is void as a matter of law for failure to comply with its notice and comment rules. Count II avers that the DLA failed to obtain the necessary approvals before entering into the Interagency Agreement, under the Defense Acquisition Regulation ("DAR"), 32 C.F.R. §§ 1-108 and 1-109, which was arbitrary and capricious. Count III declares that the Interagency Agreement violates DAR § 1-705.5(b)(2), which requires the FMP to be "predicated on the basis of likely costs under normal competitive conditions." Count IV states that plaintiffs were adversely affected by DLA's negotiation and implementation of the Interagency Agreement since it limited the authority of the contracting officer to make price adjustments to reflect consideration of unrealistically low contract prices as under DAR § 1-705.5(c)(1)(L)(ii). Count V avers that the SBA and its Administrator acted illegally in negotiating and implementing the Interagency Agreement since it allegedly violates the regulations and standard operating procedures ("SOP") implementing section 8(a). Finally, count VI declares that the Administrator acted in excess of her statutory authority by negotiating and implementing the Interagency Agreement since the Act does not authorize "agreements fixing prices to be paid by federal procuring agencies to subcontractors under the 8(a) program." Complaint ¶ 89.

Since the Claims Court was without jurisdiction to grant money damages under 41 U.S.C. § 605(a), it was also without jurisdiction to hear a claim for declaratory relief. United States v. King, 395 U.S. 1, 5, 89 S.Ct. 1501, 1503, 23 L.Ed.2d 52 (1969). The Claims Court made it clear that plaintiffs do not seek damages that are the result of either contract performance or nonperformance. A & S Council, 16 Cl.Ct. at 748. Rather, plaintiffs contend that there was illegal conduct in entering into the Interagency Agreement with its pricing scheme, and that only after its execution and subsequent subcontracting...