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MARINETTE MARINE CORP. v. DEPARTMENT OF THE NAVY

October 29, 1981

MARINETTE MARINE CORPORATION, Plaintiff,
v.
DEPARTMENT OF the NAVY, and Peterson Builders, Inc., Intervenor-Defendant; MARINE POWER & EQUIPMENT CO., INC., Plaintiff, v. Michael CARDENAS et al., Defendants, and Peterson Builders, Inc., Intervenor-Defendant



The opinion of the court was delivered by: GASCH

MEMORANDUM

These two cases began in this Court when Marinette Marine Corp. (Marinette) sought and obtained a temporary restraining order to prevent the Navy from awarding a small business set-aside contract to the low bidder, Peterson Builders, Inc. (PBI), until Marinette had an opportunity to exhaust the Small Business Administration (SBA) appeal process. Since that time the matter has gone through a number of permutations and five hearings before this Court until it is now ripe for final disposition on cross-motions for summary judgment.

 BACKGROUND

 A. The Procedural History.

 Although the essential facts are not in dispute, the convoluted procedural history of the case requires that the background be set out in some detail. On April 8, 1981, the Navy issued a request for proposals for the design and construction of a salvage ship denominated as the "ARS-50," to be delivered in 1985. *fn1" The ARS-50 solicitation contained an option to produce four additional ships and was restricted to small business concerns. *fn2" Under the applicable SBA regulations a qualifying small business must have averaged less than 1000 employees during the previous twelve months. 13 C.F.R. § 121.3-2, & Schedule B, Major Group 37 (1981).

 The original closing date for the submission of proposals was June 15, 1981, but the Navy later extended the deadline to July 15, 1981. Timely proposals were submitted by Marinette, PBI, Marine Power and Equipment, Inc. (Marine), and Sea-Tac Alaska Corp., all of which self-certified under applicable regulations that they were qualifying small businesses. *fn3" PBI submitted the lowest priced proposal. The Contracting Officer, pursuant to Defense Acquisition Regulation (DAR) 1-703(b)(1), *fn4" notified the unsuccessful bidders that Peterson would get the ARS-50 contract and that they had five working days to protest PBI's small business status.

 Each of the unsuccessful offerors submitted timely protests, which the Contracting Officer forwarded to the SBA. The SBA Regional Office in Chicago had responsibility for deciding these protests. *fn5" On August 26, 1981, the Chicago office informed the Contracting Officer by telephone that PBI had been determined to be a small business and that written notice would be sent to all interested parties.

 A letter from the SBA Regional Office to Marinette, dated August 27, 1981, stated that Peterson was "a small business concern for the purpose of the procurement" and "any concern or other interested party which has been adversely affected by this decision shall have the right to appeal" to the Size Appeals Board of the SBA. Such interested parties, according to the letter, had five working days after receiving the letter to file an appeal. On August 28, 1981, the Contracting Officer awarded the contract to PBI. Marinette learned of the Regional Office's decision and of the Contracting Officer's award later on the 28th from a representative of the Navy. The August 27, 1981 letter from the SBA Regional Office did not reach Marinette until September 1, 1981. Upon receipt of the letter, Marinette immediately notified the Contracting Officer that it intended to appeal the Regional Office's determination to the SBA Size Appeals Board.

 On September 4, Marinette filed suit in this Court seeking to enjoin the Navy from proceeding with the ARS-50 contract. Marine filed a similar suit against the Navy and the SBA on the same date in the United States District Court for the Western District of Washington. On or about September 4, Marinette and Marine both filed appeals with the SBA Size Appeals Board.

 On September 11, 1981, this Court heard Marinette's motion for a temporary restraining order. Because the Court was concerned that the Contracting Officer's precipitous action would frustrate Marinette's right of appeal to the Size Appeals Board, the Court issued a temporary restraining order and held that the award to PBI was conditional, pending a ruling by the Size Appeals Board that PBI was a small business. At a subsequent status call, the parties consented to an extension of the restraining order until a preliminary injunction hearing could be had on October 2, 1981.

 On September 29, 1981, the SBA advised all parties by telephone that plaintiffs' appeals had been denied and that a written decision would follow in a few days. At the October 2 hearing, the Court noted that, because it did not have the written decision of the Size Appeals Board, it could not yet rule on the merits of the case. Therefore, the Court limited the hearing to the issue whether the restraining order should be extended. Expressing concern that Marinette, as the third low bidder, could not establish irreparable injury and might not prevail on the merits, the Court dissolved the restraining order.

 On October 6, 1981, plaintiff Marine's motion for a temporary restraining order came on for hearing before the District Court in Washington State. In view of the pending proceedings in Marinette's suit, that Court transferred Marine's suit to this Court. On October 8, this Court heard Marine's motion for temporary restraining order. The two cases were consolidated, the motion denied, and the matter was set for a hearing on the pending motions to dismiss and for summary judgment. On October 14, 1981, the Size Appeals Board issued its written decision.

 As a result of the complicated procedural history of this case, certain loose ends remained to be resolved by agreement of the parties: Marinette attacks the SBA decision but has not joined the SBA as a defendant; and Marine has sued the SBA but has not moved for summary judgment. The parties, being fully aware of these problems and recognizing that there is no issue as to material facts, have agreed to have the case decided on the merits. They have had ample opportunity to make their positions known both through briefs and in open court.

 B. The Underlying Facts.

 The facts which led Marinette and Marine to challenge PBI's size status before the SBA are undisputed and revolve around two sets of actions which Peterson took in anticipation of the ARS-50 procurement: 1) certain reorganizations of the Peterson family's corporate holdings; and 2) the subcontracting for certain temporary workers with Northern Technical Services.

 1. Kewaunee Affiliation.

 Prior to July 10, 1981, PBI shared interlocking shareholders, directors, and officers with Kewaunee Engineering Corp. (Kewaunee). Members of the Peterson family owned 100% of the stock of PBI and approximately 65% of the Kewaunee stock. The remaining Kewaunee stock was owned by International Harvester. Because certain parties at PBI feared that this situation would lead to an SBA finding that the two companies were affiliated, a finding that would lead to PBI's disqualification as a small business, certain actions were taken to alter the relationship between the two companies.

 Fred J. Peterson resigned as Chairman of the Board of PBI. Ellsworth L. Peterson and Robert E. Peterson, sons of Fred J. Peterson, resigned as officers and directors of Kewaunee. Ellsworth and Robert transferred their stock in Kewaunee to their father; and Fred J. Peterson transferred 1233 shares of PBI stock to Ellsworth and Robert and the rest of his PBI stock back to the corporation. The corporation in turn distributed its shares of Kewaunee to Fred J. Peterson. Moreover, Fred J. ...


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