Integrity Management Intern., Inc. v. Tombs & Sons, Inc.
| Citation | 836 F.2d 485 |
| Decision Date | 30 December 1987 |
| Docket Number | No. 85-2247,85-2247 |
| Parties | , 34 Cont.Cas.Fed. (CCH) 75,419 INTEGRITY MANAGEMENT INTERNATIONAL, INC., a California Corporation, Plaintiff- Appellant, v. TOMBS & SONS, INC., a Kansas Corporation, and Leroy C. Tombs, Defendants- Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
Gary D. McCallister of Davis, Wright, Unrein, Hummer & McCallister, Topeka, Kan., for plaintiff-appellant.
Timothy J. Arehart of McDonald, Dykes, Christlieb, Leitner & Preston, Overland Park, Kan., for defendants-appellees.
Before McKAY, SEYMOUR and MOORE, Circuit Judges.
Tombs & Sons, Inc. (Tombs) was the low bidder on a small business set-aside contract. Integrity Management International, Inc. (IMI), the second low bidder, filed a protest claiming that Tombs was not a small business within the meaning of the Small Business Act and its regulations. After the Small Business Administration determined that Tombs did not meet its small business standards, IMI brought this diversity suit against Tombs, claiming unjust enrichment, intentional interference with its economic advantage in securing contract rights, and fraud and misrepresentation. The district court held that state common law actions to enforce the Small Business Act are preempted by federal law, and ordered judgment to be entered in favor of Tombs. Integrity Management Int'l, Inc. v. Tombs & Sons, Inc., 614 F.Supp. 243, 246-47 (D.Kan.1985). We agree with the other circuits that have considered the matter that state common law actions are not preempted here. We therefore reverse.
The Small Business Administration (SBA) administers a number of programs under the Small Business Act, 15 U.S.C. Secs. 631-650 (1982 & West Supp.1987). One of these, the small business set-aside program, is designed to ensure that small businesses receive a fair proportion of the federal government's procurement contracts. The businesses involved self-certify that they are in fact small businesses; the SBA makes size determinations only after a protest is made by a contracting officer or an interested party. 13 C.F.R. Sec. 121.8(a) (1987).
In February 1982, the United States Military Academy at West Point solicited bids for a one-year 100% set-aside food service contract with four one-year options to renew. Thirteen bids were submitted. Tombs was the low bidder, IMI the second low bidder. 1 Aware of another food service contract held by Tombs, IMI believed that Tombs exceeded the size limits imposed by SBA regulations and was therefore ineligible to bid on the West Point contract. IMI filed a timely protest with the procurement office at West Point.
Tombs' original financial statements and income tax returns for the years 1979-1981 showed amounts that, when averaged, exceeded the $5.5 million size-limitation standard then used by the SBA. 2 Nevertheless, Tombs certified itself as a small business. After IMI filed its protest, Tombs revised its statements, thereby reducing the amounts shown to a level that complied with the SBA standard. Neither the original nor the revised statement included receipts from an affiliated corporation, Global Supply Company, that sold supplies to Tombs on the West Point and other projects. The SBA's Form 355 that Tombs submitted in response to IMI's protest showed only the revised amounts and did not include the receipts from Global. Based only on the information submitted, the SBA regional office determined that Tombs was a small business. The West Point contracting officer then awarded the contract to Tombs.
IMI filed an appeal of the regional office's determination with the SBA Size Appeals Board. After reviewing Tombs' original financial statements, its income tax returns, receipts from Global, and the revised financial statement submitted to the regional office, the Board determined that Tombs was a large business. IMI then filed this action, asserting that Tombs had misrepresented itself as a small business in order to secure the contract award.
As we discuss below, two considerations guide us on the issue of preemption. First, the question to be addressed is that of Congress' intent. To ascertain that intent we look not only to the statute and its legislative history, but also, where those are silent or unclear, to the agency charged with carrying out the statute's mandate. The extent of the authority given to the agency determines whether it has the power to preempt state law, and the agency's policies, practices, and regulations are evidence of whether the agency has in fact done so.
Second, the focus of our inquiry is not federal procurement, or even small business set-aside contracts, but the remedy for violation of the Small Business Act and its regulations. It is entirely possible for the substantive area of the law to be an area of exclusive federal concern, and nevertheless for state common law remedies to apply. See Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 257-58, 104 S.Ct. 615, 626, 78 L.Ed.2d 443 (1984) (). Thus, in this case, the establishment of size standards under the Small Business Act and the determination of whether a business meets those standards is an area of exclusively federal law. The remedies available to those harmed by businesses that the SBA has found to violate those standards, however, need not necessarily be exclusively federal.
State law may be preempted by an express congressional statement, by federal occupation of the field, or by direct conflict with federal law. In Louisiana Pub. Serv. Comm'n v. Federal Communications Comm'n, 476 U.S. 355, 106 S.Ct. 1890, 90 L.Ed.2d 369 (1986), the Supreme Court recently stated that preemption occurs when any of six conditions exist:
" when Congress, in enacting a federal statute, expresses a clear intent to pre-empt state law, when there is outright or actual conflict between federal and state law, where compliance with both federal and state law is in effect physically impossible, where there is implicit in federal law a barrier to state regulation, where Congress has legislated comprehensively, thus occupying an entire field of regulation and leaving no room for the States to supplement federal law, or where the state law stands as an obstacle to the accomplishment and execution of the full objectives of Congress."
Id. at 1898 (citations omitted). On the question of civil remedies for violations of the Small Business Act by bidders, Congress has preserved an immaculate silence. 3 No provision addresses the question, and the legislative history is silent as well. 4 The first method of preemption is thus not in issue. Indeed, because we are concerned only with state remedies for violations of state causes of action between bidders on set-aside contracts, only the last of these methods is arguably applicable. 5
The objective of the Small Business Act is clearly stated in section 631 of the Act:
"It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases ... and services for the Government ... be placed with small-business enterprises, to insure that a fair proportion of the total sales of Government property be made to such enterprises, and to maintain and strengthen the over-all economy of the Nation."
15 U.S.C. Sec. 631(a) (1982).
Tombs argues, and the district court agreed, that Congress' "second primary goal" in enacting the Small Business Act was "to assure that government contracts were performed in a timely and competent manner." Integrity Management, 614 F.Supp. at 245; Brief of Defendant-Appellee at 7. Although no citation to the Act or its legislative history is given to support this asserted goal, we recognize that Congress does, of course, have an interest in timely and competent performance of those contracts. However, aiding small businesses by limiting the number of eligible bidders for those contracts necessarily reduces this efficiency to some extent. We cannot infer from the mere existence of an efficiency goal how much efficiency Congress was willing to sacrifice to help small businesses. While Congress must have intended to strike a balance, state remedies for violation of the substantive provisions of the Small Business Act need not necessarily conflict with Congress' overall goals.
Indeed, there are plausible and persuasive arguments both for and against preemption in this case. Arguments for preemption include: 1) the burden on successful bidders faced with lawsuits and the consequent disincentive to bid for and accept set-aside awards, 2) the incentive provided by a state law remedy for unsuccessful bidders to use that remedy, which holds out the potential for gaining contract profits without contract performance, instead of the federal regulatory scheme for protesting, and 3) the fact that a state law remedy, if any, would depend entirely on the existence of and standards set in the Small Business Act and would operate in an area--federal procurement--that can be of no interest to the states.
Arguments against preemption include: 1) the lack of harm to the government from state law remedies between bidders, because the contract, once awarded, is treated as presumptively valid, 6 2) the incentive provided for unqualified large businesses not to bid on set-aside contracts, and most significantly, 3) the strong presumption against preemption of state law, particularly in those areas of law traditionally regulated by states, such as actions for fraud and unjust enrichment. We discuss these briefly.
The argument that a private cause of action to remedy violations of the Small Business Act would unduly burden successful bidders was first...
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