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SourceAmerica v. United States Department of Education

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

March 15, 2019

SOURCEAMERICA, et al., Plaintiffs,
v.
UNITED STATES DEPARTMENT OF EDUCATION, et al., Defendants.

          MEMORANDUM OPINION

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

         Plaintiffs SourceAmerica and Lakeview Center, Inc., nonprofits that seek to enhance economic opportunities for the blind, request judicial review of the decision of an arbitration panel, convened by the Secretary of Education, that concluded the Department of the Army ("Army") violated the Randolph-Sheppard Act when the Army sought to award to plaintiffs a contract for services in Army dining facilities rather than to intervenor, the Kansas Department for Children and Families, a state agency that also seeks to enhance economic opportunities for the blind. This is a somewhat curious situation-it is, in essence, a dispute between organizations, both of which seek to advance the economic interests of the blind, as to which is entitled to a preference in the Army's contracting decision. And this curious situation is further compounded by the involved factual, legal, and procedural history of this case.

         At issues now are the parties' cross-motions for summary judgment. The motions have been fully briefed and argued and are now ripe for disposition.

         I.

         A.

         Just as this case involves multiple organizations that seek to enhance economic opportunities available to the blind, it also involves multiple statutes that provide a preference for the blind in federal contracting decisions. In particular, the Randolph-Sheppard Act ("RSA"), 20 U.S.C. §§ 107-107f, and the Javits-Wagner-O'Day Act ("JWOD"), 41 U.S.C. §§ 8501-8506, both create a preference for the blind in federal contracting decisions, although they differ in important respects. A basic understanding of both statutes is necessary to understand the factual and procedural history of this case and the current dispute.

         Congress enacted the RSA to "provid[e] blind persons with remunerative employment, enlarge[e] the economic opportunities of the blind, and stimulat[e] the blind to greater efforts in striving to make themselves self-supporting." 20 U.S.C. § 107(a). To effectuate these aims, the RSA provides a "priority ... to blind persons licensed by a State agency" in "the operation of vending facilities on Federal property." § 107(b). The RSA tasks the Secretary of Education ("the Secretary") with implementing this preference for blind vendors and promulgating regulations in accordance with the statute. §§ 107(b), § 107a(a). Specifically, the RSA directs the Secretary to designate a state licensing agency in each state. §§ 107a(a)(5), 107b. The designated state licensing agencies seek permits or contracts from federal departments, agencies, and instrumentalities for the operation of vending facilities, and state licensing agencies that are awarded such permits or contracts then must issue licenses to blind vendors to operate the vending facilities. § 107a(a)(5), (b).

         The RSA also tasks the Secretary with reviewing federal departments', agencies', and instrumentalities' decisions to limit the placement or operation of vending facilities. § 107(b). Specifically, the RSA requires that "[a]ny limitation on the placement or operation of a vending facility based on a finding that such placement or operation would adversely affect the interests of the United States shall be fully justified in writing to the Secretary, who shall determine whether such limitation is justified." Id. This provision is referred to infra as the "RSA Review Requirement."

         Anticipating that conflicts might arise between state licensing agencies and the federal departments, agencies, and instrumentalities from which state licensing agencies seek permits and contracts, Congress provided for a process for the arbitration of such disputes. Specifically, the RSA provides that state licensing agencies may compel the Secretary to convene an arbitration panel when they conclude that a federal department, agency, or instrumentality is violating the RSA or its regulations.[1] § 107d-l(b). The arbitration panel is to consist of three members: (1) a member designated by the state licensing agency; (ii) a member designated by the federal department, agency, or instrumentality involved; and (iii) a member jointly selected by these members. § 107d-2(b)(2). Importantly, the arbitration panel is authorized to determine only whether the federal department, agency, or instrumentality violated the RSA or its regulations. Id.; Md. Dep't of Educ. v. Dep't of Veterans Affairs, 98 F.3d 165, 169 (4th Cir. 1996). If such a violation is found, the head of the federal department, agency, or instrumentality is responsible for remedying the violation. § 107d-2(b)(2); Md. Dep't of Educ, 98 F.3d at 169. The RSA provides that arbitration decisions constitute final agency action for purposes of the judicial review provisions of the Administrative Procedure Act ("APA"), 5 U.S.C. § 701 et seq. § 107d-2(a).

         Similar to the RSA, the JWOD aims to "increase employment and training opportunities for persons who are blind or have other severe disabilities." 41 C.F.R. § 51-1.1(a). And, similar to the RSA, the JWOD effectuates this aim by creating a preference that benefits blind persons in federal contracting. Unlike the RSA, however, the JWOD is not limited in scope to permits or contracts for the operation of vending facilities on federal property; rather, the JWOD's preference applies to nonprofit agencies that employ workers who are blind or have significant disabilities and that are included on the Act's procurement list. 41 U.S.C. § 8504(a). The United States AbilityOne Commission ("the Commission"), the federal agency charged with administering the JWOD, designates central nonprofit agencies to help select products and services offered by nonprofits employing the blind and severely disabled suitable for inclusion on the procurement list. § 8503(c). When the Committee places products and services on the procurement list, it designates a nonprofit agency as the mandatory source of supply for those products or services. 41 C.F.R. § 51-5.2(a). Federal entities seeking to procure products or services included on the procurement list must procure those products and services from the nonprofits selected by the Committee and included on that list. 41 U.S.C. § 8504(a).

         A final statute, the John Warner National Defense Authorization Act for Fiscal Year 2007 ("JWNDA"), Pub. L. No. 109-364, merits brief mention before the factual and procedural history of this dispute is recounted. The JWNDA, as relevant here, provides that the RSA and the JWOD are inapplicable in certain circumstances. This provision is referred to infra is the "JWNDA No-Poaching Provision." Specifically, the provision provides that the RSA "does not apply to full food services, mess attendant services, or services supporting the operation of a military dining facility that, as of the date of the enactment of this Act, were services on the procurement list established under" the JWOD. Id. at § 856(a)(1). The JWNDA No-Poaching Provision further provides that the JWOD "does not apply at the prime contract level to any contract entered into by the Department of Defense as of the date of the enactment of this Act with a State licensing agency under the [RSA] for the operation of a military dining facility." Id. at § 856(a)(2).

         B.

         The parties to this action are involved with these statutory schemes to varying degrees. Plaintiff SourceAmerica is a creature of one of these schemes. Specifically, SourceAmerica is a JWOD central nonprofit agency. SourceAmerica works closely with plaintiff Lakeview Center, Inc. ("Lakeview"), a nonprofit agency that was designated by the Commission as the mandatory source of supply of certain services on the JWOD's procurement list. Intervenor, the Kansas Department for Children and Families ("Kansas"), is intimately familiar with the other primary statutory scheme in this case, the RSA, because of its status as an RSA state licensing agency. Defendant the Department of Education ("DOE"), through its Secretary, Betsy Devos, is charged with administering the RSA. The DOE, through its Secretary, convened the arbitration at issue here between the Army and Kansas.

         C.

         With the statutory schemes outlined and the principal players identified, it is appropriate next to outline the pertinent factual and procedural history of this case.[2] The dispute revolves around the procurement of a contract for services to be performed in the dining facilities at Fort Riley, an active military installation operated by the Army in Kansas. Pursuant to Army regulations, the Army contracts for two different types of services in its dining facilities, Full Food Services ("FFS") and Dining Facility Attendant ("DFA") services. The Army defines FFS as "a contract that covers those activities that comprise the full operation of an Army dining facility. It includes, but is not limited to, requisitioning, receiving, storing, preparing, and serving food... [and] the performance of related administrative, custodial, and sanitation functions." Resp't's Pre-Arbitration Br. 4 (citing U.S. Dep't of Army, Reg. 30-22, Army Food Program, glossary (July 24, 2012)), at Admin. R. 61. DFA services, according to Army regulations, are "[t]hose activities required to perform janitorial and custodial duties within dining facilities. [They] include []... sweeping, mopping, scrubbing, trash removal, dishwashing, waxing, stripping, buffing, window washing, pot and pan cleaning, and other sanitation-related functions." Id.

         In 2006, the Army awarded Kansas a FFS contract pursuant to the RSA. As required by the RSA, Kansas awarded the contract to a blind vendor. In 2011, the Army awarded Kansas a follow-on contract for the provision of FFS that was scheduled to expire in August 2015.[3]

         The Army subsequently determined that it no longer needed a FFS contract because Army soldiers formerly deployed in Iraq and Afghanistan could perform most of the duties, including cooking, at the Fort Riley dining facilities. However, because Army regulations prohibited soldiers from performing DFA services, the Army was required to contract out these services. Thus, the Army decided that it would procure a new contract, effective upon the conclusion of Kansas's contract, that covered only DFA services. Specifically, this new DFA contract would be for "janitorial and custodial duties within dining facilities [and] [i]include[]... cleaning, sweeping, mopping, scrubbing, trash removal, dishwashing, waxing, stripping, buffing, window washing, pot and pan cleaning and other sanitation related functions." Draft of Solicitation, Offer, and Award for DFA Services 7 (July 20, 2015), at Admin. R. 1002. Believing that a contract covering only DFA services did not constitute the operation of vending facilities, the Army concluded that the new contract would not be subject to the RSA's preference for blind vendors in the operation of vending facilities. Accordingly, the Army instead sought to procure a contract pursuant to the JWOD. To that end, the Commission proposed adding the Fort Riley DFA services to the JWOD's procurement list through publication in the Federal Register in July 2015. The Commission ultimately added the DFA services to the procurement list and formally designated Lakeview as the mandatory source of supply, effective February 2016. Source America facilitated the process.

         In March 2015, the Army informed Kansas that, following the conclusion of Kansas's contract, the Army would purchase only DFA services through a new contract not subject to the RSA. Dissatisfied with this turn of events and convinced that the new DFA contract was subject to the RSA, Kansas, in May 2015, filed a request with the Secretary for arbitration with the Army. As required by the RSA, the Secretary, in October 2016, convened a three-member panel to arbitrate the dispute.[4] See 20 U.S.C. § 107d-l(b). Kansas also filed suit in the United States District Court for the District of Kansas and obtained a preliminary injunction preventing the Army from proceeding with the JWOD procurement during the pendency of arbitration. Kansas v. United States, 2016 WL 3129397, at *3 (D. Kas. Feb. 26, 2016).[5] SourceAmerica and Lakeview- plaintiffs here-successfully intervened in the litigation. See Kansas v. United States, 192 F.Supp.3d 1184, 1187 (D. Kas. 2016). The Army complied with the injunction and awarded a bridge contract to Kansas.

         Plaintiffs also sought to intervene in the arbitration between Kansas and the Army based on plaintiffs' interest in the DFA contract at issue in the arbitration. To this end, plaintiffs sent two letters to the DOE requesting to intervene in the arbitration, dated April 8, 2016 and August 31, 2016. Plaintiffs did not receive a response to either letter.

         In advance of the arbitration, the Army submitted an amended witness list that represented that it intended to call witnesses employed by plaintiffs and the Commission to support its position that the RSA does not apply to contracts for DFA services at military dining facilities. Specifically, the Army represented that it intended to call: (i) Barry Lineback, Director of Business Operations at the Commission; (ii) Joe Diaz, Vice President of Operations at SourceAmerica; and (iii) Gary Murphy, Representative at Lakeview.

         The arbitration hearing was held on January 10, 2017. Plaintiffs attended the hearing and sought to be heard through counsel, but the panel denied this request. The panel also refused to hear testimony proffered by the Army from three witnesses employed by plaintiffs and the Commission-the three witnesses the Army had previously informed the panel that it intended to call.

         Following the hearing, the Army filed a request for a new hearing, citing fundamental unfairness in the proceeding and concerns about the panel's lack of impartiality. First, the Army argued that the panel chair improperly excluded relevant testimony from the three witnesses employed by plaintiffs and the Commission. Specifically, the Army argued that the exclusion of the witnesses was improper because

(i) the panel chair had previously found one of the witnesses essential for the Army's defense and ordered the DOE to fund his travel to the hearing;
(ii) the panel did not raise any relevancy concerns when the Army provided the panel with a summary of the witnesses' testimony twenty days before the hearing;
(iii) the panel chair asked an Army contract specialist about the Commission and JWOD preference but refused to hear evidence about the same from the Commission's and plaintiffs' employees, who had direct knowledge of these matters;[6] and
(iv) the panel chair knew or should have known that SourceAmerica and Lakeview had successfully intervened in the related federal litigation.

         Second, the Army argued that the panel chair acted inappropriately in riding to the airport with Kansas's counsel after requesting permission from the Army's counsel "to ride to the airport with your enemy" in the presence of the public and witnesses. Dep't of the Army's Post-Arbitration Br. & Request for New Hearing 9 (Feb. 17, 2017), at Admin. R. 1590. Third, the Army argued that "the Panel Chair and [Kansas's] Counsel made it known... that they both had flights" at the beginning of the hearing and repeatedly referenced these flights, thereby inappropriately "set[ting] the tone ... that their schedules were more important than obtaining evidence." Id. Finally, the Army questioned the panel's lack of impartiality because one of the panel members had represented a client and obtained a favorable outcome in an arbitration proceeding presided over by the panel chair at the same time that the two sat on an arbitration panel together in a separate proceeding.

         The arbitration panel issued its decision on May 9, 2017. The two-member majority denied the Army's request for a new hearing and held (i) that the Fort Riley DFA contract was subject to the RSA's preference; (ii) that the Army violated the RSA when it failed to apply the RSA's preference to the Fort Riley DFA contract; (iii) that the Army violated the RSA Review Requirement when, without consulting the Secretary, it included services formerly performed by an RSA vendor in a new contract that would not be performed by an RSA vendor; and (iv) that the Army violated the JWNDA No-Poaching Provision when it worked with the Commission to place services formerly performed by an RSA vendor on the JWOD's procurement list.

         General Carey, the panel's third member, dissented. He concluded that the RSA's preference did not apply to the Fort Riley DFA contract and that he would have granted the Army's request for a new hearing owing to concerns about the fairness of the proceeding. Following the panel's decision, the preliminary injunction issued by the district court in Kansas was dissolved, and the lawsuit was voluntarily dismissed by the parties in February 2018. Kansas Dep't for Children & Families v. United States, 2018 WL 1087848, at *1 (D. Kan. Feb. 21, 2018).

         Following the issuance of the arbitration panel's decision, SourceAmerica and Lakeview initiated this action against defendants the DOE and its Secretary, Betsy DeVos; the Army and its Acting Secretary, Ryan D. McCarthy; and the Department of Defense ("DOD") and its Acting Secretary, Patrick M. Shanahan[7] challenging the arbitration panel's decision. Kansas subsequently intervened in the action. Plaintiffs, defendants, and intervenor have all moved for summary judgment on various grounds.

         Plaintiffs argue that the arbitration decision is contrary to the RSA and the JWOD, in violation of the APA; that the arbitration panel engaged in improper exparte communications in violation of the APA; that the arbitration panel violated 5 U.S.C. § 555(b) of the APA by refusing to allow plaintiffs to participate in the proceeding; and that the arbitration panel violated plaintiffs' Fifth Amendment right to procedural due process. Plaintiffs request vacation of the arbitration decision, a declaration that the Fort Riley DFA services are covered by the JWOD and not the RSA, and an injunction preventing defendants from implementing or enforcing the arbitration decision.

         Defendants respond that only a state licensing agency may seek judicial review of an arbitration panel decision, and thus argue that plaintiffs cannot seek judicial review here. With respect to the merits, however, defendants agree with plaintiffs that the Army did not violate the RSA and thus contend that the arbitration decision was incorrect in this respect. But defendants argue that plaintiffs' remaining challenges to the arbitration decision should be rejected. Specifically, defendants argue that the panel's alleged ex parte communications should not be addressed because they are outside the scope of the complaint; that although the panel erred when it refused to allow plaintiffs to participate in the arbitration pursuant to 5 U.S.C. § 555(b), the error was harmless; and that plaintiffs' Fifth Amendment rights were not violated. Finally, defendants argue that the equitable relief plaintiffs request is inappropriate and that the proper remedy is remand to the arbitration panel.

         Finally, intervenor argues that the arbitration decision was correct and is not contrary to either the RSA or the JWOD. Intervenor also argues that the panel did not violate 5 U.S.C. § 555(b) because plaintiffs lacked standing to intervene in the arbitration proceeding. Finally, intervenor argues that plaintiffs' Fifth Amendment rights were not violated.

         II.

         Summary judgment is appropriate under Rule 56, Fed. R. Civ. P., where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." A genuine factual dispute exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc.,477 U.S. 242, 248 (1986). Summary judgment is especially appropriate in APA actions, as they do not ordinarily involve fact-finding because "the focal point for judicial review [under the APA] should be the administrative record already in existence." Camp v. Pitts,411 U.S. 138, 142 (1973) (per curiam). It is clear the material ...


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