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SourceAmerica v. United States Department of Education

United States District Court, E.D. Virginia, Alexandria Division

March 23, 2018

SOURCEAMERI et al., Plaintiffs,


          T. S. Ellis, III United States District Judge.

         Plaintiffs, SourceAmerica and Lakeview, challenge an arbitration proceeding related to the administration of the Randolph-Sheppard Act (RSA)[1], a statute designed to create a preference for vendors employing blind and disabled workers in the award of government contracts. Plaintiffs argue that the arbitration panel erred in applying the RSA rather than the Javits-Wagner-O'Day Act (JWOD), [2] a separate statute that also provides a preference for the award of government contracts to vendors employing the blind and disabled. Plaintiffs allege a number of counts[3] including:

i. The decision of the arbitration panel was arbitrary and capricious because the decision conflicts with JWOD;
ii. The panel decision was arbitrary and capricious because the panel erroneously applied the RSA;
iii. The arbitration panel's decision refusing plaintiffs' request to intervene in the arbitration process was arbitrary and capricious as a violation of the Administrative Procedures Act (APA), 5 U.S.C. § 555(b);
iv. The arbitration panel's decision violated plaintiffs' procedural due process rights by depriving plaintiffs of a protected property interest in a dining services contract with the Army without process;
v. The structure of the arbitration provisions of the RSA violates Article III by delegating judicial power to an agency and violates the non-delegation doctrine, and
vi. Defendants violated the APA by withholding an action defendants were legally required to undertake, namely a rulemaking that would have given priority to JWOD over the RSA in determining the distribution of contracts for dining facility services.

         Defendants, the Departments of Education and Defense and the heads of those agencies and the Army, move for dismissal under Rules 12(b)(1) and 12(b)(6), Fed.R.Civ.P. Defendants first argue that there are a number of jurisdictional bars to review of the arbitration panel's decision. Defendants also argue that the complaint fails to allege sufficient facts with respect to some of the counts.

         The matter has been fully briefed and argued and is now ripe for disposition.


         SourceAmerica, one of the plaintiffs in this action, is a Washington, D.C. corporation with its headquarters and principal place of business in Vienna, Virginia. SourceAmerica is a nonprofit entity that facilitates the award of contracts by the federal government to qualified nonprofits that employ individuals with significant disabilities.

         Lakeview, the other plaintiff in this action, is a Florida corporation with its headquarters and principal place of business in Pensacola, Florida. Lakeview's mission is to reduce barriers to employment for individuals with disabilities by providing vocational services and employment opportunities to such individuals.

         The complaint names the Department of Education and the Department of Defense as defendants. Plaintiffs also sue Betsy DeVos, the Secretary of Education, James Mattis, the Secretary of Defense, and Ryan McCarthy, Acting Secretary of the Army, in their official capacities.

         The Army operates Fort Riley, an active military base in the state of Kansas. As part of operating the base, the Army has a number of regulations related to procurement of food and dining services, known collectively as the Army Food Program (AFP). The AFP consists of two functional uses: (i) Full Food Services (FFS), and (ii) Dining Facility Attendant services (DFA). FFS consists of contracts for the operation of dining facilities including requisitioning and serving food, and certain sanitation services. DFA services include contracts for the provision of janitorial services in dining facilities, including trash removal, dishwashing, and other sanitation services.

         In 2006, the Army awarded Contract Number W911RX-06-D-0003 for FFS services at Fort Riley to a Kansas state agency, the Kansas Social and Rehabilitative Services Agency (the Kansas Agency). The contract was scheduled to end May 31, 2010, but was extended to November 30, 2010. The Army awarded the contract to the Kansas Agency again in September 2011, and extended the contract to February 29, 2016. As soldiers returned from Afghanistan and Iraq, the number of soldiers at Fort Riley increased and the Army decided soldiers should provide FFS services on base. Accordingly, the Army decided not to renew the FFS contract after February 2016.

         Because Army regulations bar soldiers from performing DFA services at Fort Riley, the Army sought bids from civilian contractors in March 2015 to perform DFA services at Fort Riley. In this regard, the Army concluded that the solicitation of bids for DFA services was controlled by JWOD, not the RSA. JWOD requires the government to purchase supplies and services from a list of products and services offered by nonprofit agencies employing blind and disabled workers. A list of participating nonprofits is created by the AbilityOne Commission, a government agency charged with creating job opportunities for people who are blind or who have other significant disabilities. JWOD requires the government to procure services from providers on a list created by AbilityOne, if those services are available from a provider. After the Army began procurement in July 2015, the AbilityOne commission published a proposal by one of the plaintiffs, Lakeview, offering to act as the “Mandatory Source of Supply” pursuant to JWOD.

         Before the July 2015 notice was published, the Kansas Agency sent a letter formally requesting arbitration under the RSA. The Kansas Agency argued that the Army's solicitation of bids for DFA services pursuant to JWOD had violated the RSA. In addition to requesting arbitration, the Kansas Agency filed suit against the Army in the U.S. District Court in Kansas seeking to enjoin the Army from awarding a new contract for DFA services without following the RSA's procedure.

         On January 22, 2016, AbilityOne notified the Army that Lakeview would supply DFA services at Fort Riley. Shortly thereafter, the U.S. District Court in Kansas enjoined the Army from granting a contract to plaintiffs. See Kansas Dep't for Children & Families v. United States, No. 15-4907 (D. Kan. Feb. 26, 2016) (order enjoining DFA contract award). After the contract award was enjoined, plaintiffs intervened in the Kansas litigation. See Kansas Dep't for Children & Families v. United States, No. 15-4907 (D. Kan. Apr. 22, 2016) (order granting intervention motion). When the court denied plaintiffs' motion to dismiss, alter, or amend the preliminary injunction, plaintiffs filed an interlocutory appeal in the Tenth Circuit Court of Appeals. Id. at 1232. Although the Tenth Circuit's opinion dealt with a number of issues not presented here, the Tenth Circuit did rule that the RSA arbitration panel had jurisdiction to review the parties' claims. Id. at 1252. This ruling prompted plaintiffs to withdraw the original count I of their complaint in this case. See supra n. 3.

         In response to the request by the Kansas Agency, the RSA Commission, the body responsible for administering the RSA, convened an arbitration panel to hear the dispute between the Kansas Agency and the Army. On April 8, 2016, plaintiffs sent a letter to the commission stating a desire to intervene in the arbitration. On August 31, 2016, plaintiffs sent another letter requesting response to their request for intervention. The Commissioner did not respond to either request. When plaintiffs renewed their request to intervene in-person at the arbitration hearing, plaintiffs were again rebuffed on the ground that they were not parties in the matter.

         On May 9, 2017, the arbitration panel issued its ruling, concluding that the Army had violated the RSA in its solicitation of DFA services at Fort Riley. The panel also found that the Army had violated the No-Poaching provisions of the National Defense Authorization Act of 2007 by using JWOD to determine from whom bids should be solicited. One member of the panel, General David P. Carey (Ret.) dissented, arguing that that the JWOD Act applies to DFA services and that the Army had properly designated plaintiffs as suppliers of DFA services.


         Defendants attack jurisdiction using a scattershot approach; in the circumstances, all shots miss the mark and the motion to ...

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