Alphapointe v. Dep't of Veterans Affairs, Case No. 19-cv-02465 (APM)
| Decision Date | 29 July 2020 |
| Docket Number | Case No. 19-cv-02465 (APM) |
| Citation | 475 F.Supp.3d 1 |
| Parties | ALPHAPOINTE, et al., Plaintiffs, v. DEPARTMENT OF VETERANS AFFAIRS, et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Jessica C. Abrahams, Lora A. Brzezynski, John L. Roach, IV, Faegre Drinker Biddle & Reath LLP, Washington, DC, for Plaintiffs Alphapointe, Winston-Salem Industries for The Blind.
David Scott Gallacher, Sheppard Mullin Richter & Hampton, Washington, DC, for Plaintiff PDS consultants, Inc.
Alexis J. Echols, Kyla Marie Snow, Peter T. Wechsler, U.S. Department of Justice, Washington, DC, for Defendants.
Plaintiffs Alphapointe and Winston-Salem Industries for the Blind, doing business as IFB Solutions, Inc., are qualified nonprofit agencies under the AbilityOne Program, a federal program that provides employment opportunities for people who are blind or have other severe disabilities. Plaintiffs have, for many years, provided certain goods and services to the Department of Veterans Affairs ("VA") as a result of statutory preferences afforded to AbilityOne-qualified vendors. In 2019, the VA notified Plaintiffs that it would transition a number of Plaintiffs’ contracts to veteran-owned businesses. Plaintiffs assert that a recently announced change to applicable acquisition regulations—which the parties refer to as the "2019 Class Deviation"—led to the VA's decision not to renew these contracts.
Plaintiffs argue that the 2019 Class Deviation is arbitrary, capricious, and not in accordance with law because it conflicts with a Federal Circuit opinion that requires the VA to perform what is known as a "Rule of Two" evaluation before awarding a procurement contract that exceeds $ 5 million and, if the Rule is satisfied, award the contract to a veteran-owned small business. Further, Plaintiffs maintain that the agency improperly promulgated the 2019 Class Deviation without subjecting it to notice-and-comment rulemaking.
Plaintiffs previously asked this court to enjoin the VA from enforcing the 2019 Class Deviation, which the court declined to do. Now Defendants and Defendant-Intervenor, PDS Consultants, Inc., move to dismiss Plaintiffs’ complaint under Federal Rules 12(b)(1) and 12(b)(6). For the reasons that follow the court grants their motions as to Count II and transfers Count I to the Court of Federal Claims.
In October 2018, the Federal Circuit decided PDS Consultants, Inc. v. United States . The case addressed the interplay between two federal procurement statutes—the Javits-Wagner-O'Day Act ("JWOD"), 41 U.S.C. §§ 8501 – 06, and the Veterans Benefits, Health Care, and Information Technology Act of 2006 ("VBA"), 38 U.S.C. §§ 8127 –28—and established how the VA must make certain procurement decisions when the two statutes were seemingly in conflict with one another. See generally 907 F.3d 1345 (Fed. Cir. 2018).
The JWOD was enacted in 1938, and amended in 1971, to create employment opportunities for blind and "other severely disabled" individuals. Id. at 1348–49. To accomplish this, the JWOD established a fifteen-member body known as the Committee for Purchase from People Who Are Blind or Severely Disabled, or "AbilityOne." Id. (citing 41 U.S.C. § 8502 ). One of the Committee's principal functions is to create and maintain a procurement list, called the "AbilityOne List," which identifies products and services produced by qualified nonprofit entities that employ individuals who are blind or otherwise significantly disabled. See id. at 1349. The JWOD, generally speaking, "requires that federal agencies," including the VA, "purchase products and services on the [AbilityOne] List from designated nonprofits." Id. More specifically, the JWOD states that:
An entity of the Federal Government intending to procure a product or service on the procurement list ... shall procure the product or service from a qualified nonprofit agency for the blind or a qualified nonprofit agency for other severely disabled in accordance with regulations of [AbilityOne] ... if the product or service is available within the period required by the entity.
Id. (citing 41 U.S.C. § 8504(a) ) (emphasis added).
In 2003, Congress passed the Veteran Benefits Act of 2003 as an amendment to the Small Business Act. It provided that contracting officers "may award contracts on the basis of competition restricted to small business concerns owned and controlled by service-disabled veterans" if "the contracting officer has a reasonable expectation that not less than 2 small business concerns owned and controlled by service-disabled veterans will submit offers and that the award can be made at a fair market price." Id. at 1349–50 (citing 15 U.S.C. § 657f(b) ). Such a procurement could not be made, however, " ‘if the procurement would otherwise be made from a different source’ ... including the JWOD." Id. at 1350.
Three years later, Congress enacted the VBA to "to remedy federal agencies’ failures to meet the[ ] contracting goals." Id. It was passed in part to "increase contracting opportunities for small business concerns owned and controlled by veterans and ... by veterans with service-connected disabilities." 38 U.S.C. § 8127(a)(1). Section 502 of the VBA requires the VA to procure products and services from veteran-owned small businesses or service-disabled, veteran-owned small businesses in certain circumstances and directs the Secretary of the VA to establish specific annual goals for the VA's contract awards to such businesses. See PDS Consultants , 907 F.3d at 1350 (citing 38 U.S.C. § 8127(a) ).
Importantly, the VBA contains what is known as the "Rule of Two." The Rule provides:
Except as provided in subsections (b) and (c) ... a contracting officer of the [VA] shall award contracts on the basis of competition restricted to [veteran-owned businesses] ... if the contracting officer has a reasonable expectation that two or more [veteran-owned businesses] will submit offers and that the award can be made at a fair and reasonable price ....
38 U.S.C. § 8127(d). Thus, except as provided in subsections (b) and (c) of Section 8127, the Rule of Two requires the VA to award a procurement contract to a veteran-owned small business through a competitive bidding process when a contracting officer determines that two or more such businesses will submit offers and that the award can be made at a "fair and reasonable price." See Kingdomware Tech., Inc. v. United States , ––– U.S. ––––, 136 S. Ct. 1969, 1976, 195 L.Ed.2d 334 (2016) (). The VBA's two exceptions to the Rule of Two are as follows: (1) Contracting officers "may" award a contract less than $250,000 "us[ing] procedures other than competitive procedures," 38 U.S.C. § 8127(b) ; and (2) the VA "may" award a contract "using procedures other than competitive procedures" if "the anticipated award price of the contract (including options) will ... not exceed $5,000,000," and the contract award "can be made at a fair and reasonable price," id. § 8127(c). Thus, taken together, subsections (b) and (c) authorize VA procurement officers to avoid "competitive procedures" for procurements of less than $5,000,000, subject to certain conditions.
In PDS Consultants , the Federal Circuit resolved the conflicting directives of the JWOD and the VBA with respect to larger-dollar procurement contracts subject to the Rule of Two under Section 8127(d). Finding that the VBA took precedence over the JWOD for such contracts, the court held that "where a product or service is on the [AbilityOne] List and ordinarily would result in the contract being awarded to a nonprofit qualified under the JWOD, the VBA unambiguously demands that priority be given to veteran-owned small businesses." 907 F.3d at 1360. PDS Consultants did not, however, address the interplay between the JWOD and the VBA with respect to procurements of less than $5 million, which, at the contracting officer's discretion, can be awarded to a veteran-owned business with competitive bidding. See 38 U.S.C. §§ 8127(b), (c). In fact, the opinion specifically states that "[t]he two statutory provisions at the heart of this case are the VBA, 38 U.S.C. § 8127(d), and the JWOD." PDS Consultants , 907 F.3d at 1357.
After the Federal Circuit issued PDS Consultants , on May 20, 2019, the VA issued the 2019 Class Deviation, ostensibly to comply with the Federal Circuit's ruling. Compl., ECF No. 1 [hereinafter Compl.], ¶ 38; see also Pls.’ TRO Reply, ECF No. 17 , Ex. 1, ECF No. 17-1 at PDF pp. 31–36 [hereinafter Deviation], at 1. The Class Deviation describes PDS Consultants as "binding circuit precedent," and explains that the Federal Circuit held that "when a product or service is on the AbilityOne Procurement List and ordinarily would result in award under the JWOD program, the [VBA] instead unambiguously requires that priority be given to Veteran-owned small businesses." Deviation at 2. Under the heading "New Policy," the 2019 Class Deviation states that "[c]ontracting officers shall apply the VA Rule of Two, as implemented in [VA Acquisition Regulation ("VAAR") ] subpart 819.70, prior to awarding any contract to AbilityOne non-profit organizations or to Federal Prison Industries, Inc." See id. Further, "[f]or AbilityOne, if an award is not made to an eligible [veteran-owned small business] under VAAR subpart 819.70, the priority use of AbilityOne applies and supplies and services on the [AbilityOne] List are mandatory sources." See id.
Plaintiffs Alphapointe and IFB Solutions are nonprofit corporations that provide employment opportunities, vocational training, rehabilitation services, education, and outreach for people who are blind or visually impaired. Compl. ¶¶ 7–8. Both companies make products and offer...
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