DGR Assocs., Inc. v. United States

• Decision Date: 02 August 2012
• Docket Number: No. 2011–5080.,2011–5080.
• Citation: 690 F.3d 1335
• Parties: DGR ASSOCIATES, INC., Plaintiff–Appellee, v. UNITED STATES, Defendant–Appellant, and General Trades & Services, Inc., Defendant.
• Court: U.S. Court of Appeals — Federal Circuit

690 F.3d 1335

DGR ASSOCIATES, INC., Plaintiff–Appellee,

v.UNITED STATES, Defendant–Appellant,andGeneral Trades & Services, Inc., Defendant.

No. 2011–5080.

United States Court of Appeals,Federal Circuit.

Aug. 2, 2012.

Darcy V. Hennessy, Hennessy, Boe & Gondring, P.A., of Mission, Kansas, argued for plaintiff-appellee. With her on the brief was Leslie A. Boe.

Steven M. Mager, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant Director.

Before RADER, Chief Judge, PLAGER, and WALLACH, Circuit Judges.

PLAGER, Circuit Judge.

This case involves a dispute over whether a party who prevailed in a bid protest against the United States is entitled to an award of attorneys' fees and costs under the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412. The Court of Federal Claims determined that the Government's position in the underlying bid protest was not substantially justified, and awarded attorneys' fees, costs, and expenses.¹ However, given the then-existing disagreement among all three branches of the Federal Government over the law applicable to this bid protest, we conclude that the Court of Federal Claims erred in finding that the United States' position was not substantially justified, and accordingly reverse.

I. The Bid Protest Case

To understand the issues in the litigation over the EAJA award, it is necessary first to understand the issues in the original bid protest litigation.² The relevant facts are set forth at length in the Court of Federal Claims' bid protest opinion, DGR, 94 Fed.Cl. at 193–199, and need not be repeated here. For purposes of this attorneys' fee dispute, a brief summary will suffice.

A. Legal and Regulatory Background

The Small Business Act (“the Act”) establishes various programs that assist qualifying small businesses in obtaining Federal contracts, and sets forth the requirements incident thereto. 15 U.S.C. §§ 631–657. Two of the programs are involved in this case: the so-called Section 8(a) Program (§ 637(a)(1)(B)), which assists small businesses owned and controlled by socially and economically disadvantaged individuals, and the HUBZone Program (§ 657a), which assists small businesses that are located in historically underutilized business zones. Among its requirements, the Act mandates that each Government agency establish annual contracting goals for the various small business programs created by the Act, including these two. Id. § 644(g)(1).

The Small Business Administration (“SBA”) is charged with carrying out the requirements of the Act and issuing such rules and regulations as it deems necessary. Id. §§ 633(a), 634(b). In its regulations the SBA decreed that there should be “parity” between the 8(a) and HUBZone programs. By so decreeing, the SBA gave the Federal agencies' contracting officers substantial discretion to consider and designate contracts for either program without having to prioritize one program over the other. See, e.g.,13 C.F.R. §§ 124.503(j), 125.18, 126.605, 126.607. Whether this parity policy is consistent with the terms of the Act itself lies at the heart of the dispute in this case.

B. Factual Background

In December 2009, the Air Force solicited bids for a service contract for Eielson Air Force Base in Alaska. Appellee DGR had previously performed the requested services pursuant to a contract that expired that year. Because the Air Force had not yet satisfied its contracting goal under the 8(a) program for fiscal year 2009, the Air Force announced that it would award the contract pursuant to a section 8(a) competition.

DGR however requested that the Air Force instead set aside the contract for qualified HUBZone small business concerns rather than for 8(a) program participants. In support of its position, DGR cited a decision from the Government Accountability Office (“GAO”), Mission Critical Solutions, B–401057, 2009 CPD ¶ 93 (Comp.Gen. May 4, 2009), which concluded that the Small Business Act gave priority to the HUBZone program over the 8(a) program. (The GAO is an administrative arm of the Congress assigned various missions, including a role in the bid protest process.)

The Air Force nevertheless declined DGR's request, citing in opposition to the GAO ruling an August 2009 memorandum from the Department of Justice (“DOJ memorandum”) that was issued in reaction to the GAO's Mission Critical decision. The DOJ memorandum reviewed the Act, the SBA's parity regulations, and the GAO decision, and concluded that the Act does not compel prioritization of the HUBZone program over the 8(a) program; that SBA's parity regulations are based on a permissible interpretation of the Act; and that the GAO decision is not binding on Executive Branch agencies while the DOJ memorandum is.

DGR then filed a formal agency-level protest, which the Air Force in due course denied. In its denial the Air Force, in addition to referencing the DOJ memorandum, also cited a July 2009 memorandum from the Office of Management and Budget (“OMB memorandum”) that was issued also in reaction to the GAO's Mission Critical decision and which directed Executive Branch agencies to continue to follow SBA's parity regulations.

Pursuant to the established appeal procedures, DGR next filed its protest with the GAO; not surprisingly the protest was sustained by the GAO despite the contrary Department of Justice and OMB directives. DGR Assocs. Inc., B–402494, 2010 CPD ¶ 115 (Comp.Gen. May 14, 2010). The GAO confirmed the interpretation it had reached in Mission Critical that the terms of the statute specifically prioritized the HUBZone program over the 8(a) program. The GAO further noted that the Court of Federal Claims had affirmedthat interpretation in Mission Critical Solutions v. United States, 91 Fed.Cl. 386 (2010). The Air Force was told to rebid the contract consistent with the GAO reading of the Act.

However, again not surprisingly, the Air Force declined to comply with the GAO's conclusion, citing the OMB and DOJ memoranda and, in addition, a May 2010 memorandum from the Department of Defense (“DOD memorandum”) instructing that the OMB memorandum continues to reflect Executive Branch policy. The Air Force further cited a March 2010 Department of Justice memorandum, which concluded that the Court of Federal Claims' decision in Mission Critical applied only to the specific contract at issue in that case and not to the operation of SBA's parity rules more generally.

The Air Force subsequently awarded the competitive 8(a) contract to General Trades & Services, Inc., after which DGR timely filed suit in the Court of Federal Claims protesting the bid award and seeking to invalidate the award.

Before the Court of Federal Claims, the Government presented two arguments in response to DGR's suit: (1) as a jurisdictional matter, DGR waived its right to bring suit by not filing its court action prior to the closing date for receipt of proposals; and (2) on the merits, the statute did not require the Air Force to prioritize the HUBZone program over the 8(a) program.

The trial court rejected the Government's jurisdictional argument, noting that it was “directly at odds with government policy to seek resolution of protests within the agency.” DGR, 94 Fed.Cl. at 203. Regarding the Government's merits argument, the court saw “no need to modify the detailed, analytical and persuasive reasoning of the Chief Judge” in the Mission Critical case, and affirmed the conclusion that the Act itself gave priority to the HUBZone program over the 8(a) program. Id. at 205. Accordingly, the court upheld DGR's bid protest, thus invalidating the contract award to General Trades & Services; the trial court subsequently awarded attorneys' fees and costs under the EAJA to DGR. Although it does not affect the issues in this case, not long after, Congress abrogated the Court of Federal Claims' merits decisions in DGR and Mission Critical by amending the Small Business Act to clarify that the HUBZone program does not take priority over the 8(a) program. Pub.L. No. 111–240, 124 Stat. 2504 (Sept. 27, 2010).

II. The Attorneys' Fees Issue—The Case Before Us

A. Legal Background

The EAJA provides that, when a timely application is filed, an eligible prevailing party shall be awarded attorneys' fees and other expenses incurred by that party in any civil action brought by or against the United States “unless the court finds that the position of the United States was substantially justified....” 28 U.S.C. § 2412(d)(1)(A). The purpose of the Act is to ensure that litigants “will not be deterred from seeking review of, or defending against, unjustified governmental action because of the expense involved.” Scarborough v. Principi, 541 U.S. 401, 407, 124 S.Ct. 1856, 158 L.Ed.2d 674 (2004).

B. Factual Background

DGR timely filed its application for attorneys' fees and costs under the EAJA based on its successful bid protest against the Air Force in the Court of Federal Claims. DGR, 97 Fed.Cl. at 217. As noted, that court ruled that DGR was entitled to attorneys' fees and associated costs because the Government's position in the bid protest was not substantially justified. Id. at 217–20. Specifically, the court held that the Government's jurisdictional argument “was patently unreasonable, and not substantially justified,” and that the Government's merits-based argument also “was not reasonable” in view of the “unambiguous wording of the statute, and the existing case law precedent.” Id. at 219. The court awarded DGR $37,227.72 in attorneys' fees, costs, and expenses, comprised of attorneys' fees for 210 hours at an hourly rate of $175 based on a cost of living adjustment, and $477.72 in costs and expenses. Id. at 220–21. The Government appeals the award. We have jurisdiction pursuant to 28 U.S.C. § 1295...