Integrity Management Intern. v. Tombs & Sons, Inc.

• Decision Date: 15 July 1985
• Docket Number: Civ. A. No. 83-4231.
• Citation: 614 F. Supp. 243
• Parties: INTEGRITY MANAGEMENT INTERNATIONAL, INC., Plaintiff, v. TOMBS & SONS, INC., and Leroy C. Tombs, Defendants.
• Court: U.S. District Court — District of Kansas

614 F. Supp. 243

INTEGRITY MANAGEMENT INTERNATIONAL, INC., Plaintiff, v. TOMBS & SONS, INC., and Leroy C. Tombs, Defendants.

Civ. A. No. 83-4231.

United States District Court, D. Kansas.

July 15, 1985.

Gary D. McCallister, Davis, Unrein, Hummer & McCallister, Topeka, Kan., for plaintiff.

Eldon J. Shields, McDonald & Dykes, Steven D. Kort, Overland Park, Kan., for defendants.

MEMORANDUM AND ORDER

EARL E. O'CONNOR, Chief Judge.

In this action, defendant Tombs & Sons, Inc., was the low bidder on a food service contract let by the federal government. Plaintiff Integrity Management International, Inc., was the second low bidder. To qualify for this contract, each bidder was required to self-certify that it met the Small Business Administration's definition of a "small business." Both parties did so certify, and defendant was awarded the contract. Alleging that defendant's self-certification was erroneous, plaintiff brings this action to recover both actual and punitive damages. (Defendant Leroy C. Tombs is the president of, and major shareholder in, defendant Tombs & Sons, Inc. His liability in this action would appear to depend upon a finding that Tombs & Sons was his mere alter ego. Throughout this memorandum, then, the term "defendant" will refer only to his corporation.)

The matter was tried to the court on May 30 and 31, 1985. Invoking the court's diversity jurisdiction, plaintiff offered evidence to support recovery on alternative theories of fraud, unjust enrichment, and intentional interference with prospective contractual relations. At the close of trial, we expressed some doubt as to the viability of such state law claims in the context of the federal government's competitive bidding process. The parties were invited to submit supplemental briefs on that legal issue, and plaintiff chose to do so. We now conclude that the federal Small Business Act and its implementing size regulations do preempt the state law claims upon which plaintiff relies.

The parties agree that the Small Business Act, 15 U.S.C. §§ 631 et seq., does not authorize a private cause of action by an unsuccessful bidder against a successful bidder on a government contract as to which only small businesses are allowed to bid. See Savini Construction Co. v. Crooks Brothers Construction Co., 540 F.2d 1355, 1359 (9th Cir.1974); Royal Services, Inc. v. Maintenance, Inc., 361 F.2d 86, 92 (5th Cir.1966); Northland Equities, Inc. v. Gateway Center Corp., 441 F.Supp. 259, 264 (E.D.Pa.1977). As plaintiff correctly notes, however, that is not the issue in this case. Plaintiff's claims are based not on the federal Act, but on various state common law causes of action. We must thus determine whether the federal Act and its regulations preempt the state law claims asserted here.

In Iconco v. Jensen Construction Co., 622 F.2d 1291 (8th Cir.1980), the court acknowledged the cases cited above, but proceeded to hold that certain state law claims were not preempted by these federal statutes and regulations. For the reasons stated below, we respectfully disagree with the analysis of the Iconco court.

As the Eighth Circuit acknowledged, federal regulation of small business set asides in the federal procurement process is extensive. In enacting the Small Business Act, Congress

directed the awarding of contracts to small-business concerns as necessary to assure that they receive a fair proportion; the SBA and the government agency involved were authorized to make such determinations for individual contracts or for classes of contracts. 15 U.S.C. § 644. The making of any false statement for the purpose of obtaining anything of value under the Act was made a crime punishable by fine and imprisonment. 15 U.S.C. § 645. The Administrator was directed to promulgate regulations necessary to carry out the authority vested in the SBA under the Act. 15 U.S.C. § 634(b)(6).

... The implementing regulations, 13 C.F.R. § 121 et seq. (1974), allow any bidder or other interested person to challenge the small-business status of any other bidder. The challenge must be in writing, and delivered to the responsible contracting officer within five days after the bid opening; the contracting officer must then forward the protest to the SBA. The SBA, in turn, must advise the protested bidder and ask for a response to the challenge. The bidder whose status is protested must respond within three days after it receives the protest. If it does not, the SBA will rule that it is not a small business. 13 C.F.R. § 121.3-5 (1974). Any determination of size may be appealed to the Size Appeal Board, which must, if the case is concerned with a pending procurement, act within five days. The Board receives evidence and then issues a written decision, which, absent reconsideration, is the final administrative decision. 13 C.F.R. § 121.3-6(g)(5) (1974).

Iconco, 622 F.2d at 1297.

"Pre-emption of state law by federal statute or regulation is not favored `in the absence of persuasive reasons — either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained.'" Commonwealth Edison Co. v. Montana, 453 U.S. 609, 634, 101 S.Ct. 2946, 2962, 69 L.Ed.2d 884 (1981) (quoting Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963)). In this case, such "persuasive reasons" do exist for finding plaintiff's state law claims preempted by the federal statutes and regulations cited above.

We agree with the Eighth Circuit that Congress had two primary goals in mind when it established this statutory and regulatory scheme. It wished both "to help small business" and "to assure that government contracts were performed in a timely and competent manner." Iconco, 622 F.2d at 1298. The state law claims asserted by plaintiff are consistent with the first of these two goals. But, as other federal courts have persuasively reasoned, the second goal could easily be frustrated if unsuccessful bidders were allowed to sue a bidder to whom a government contract had been awarded.

For instance, the Ninth Circuit noted in Savini Construction that:

this Congressional purpose of aiding small business only insofar as the expeditious administration of

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