The opinion of the court was delivered by: OLIVER GASCH
This matter is before the Court on defendants' motion to dismiss, or in the alternative, for summary judgment, and on plaintiffs' cross-motion for summary judgment. The case has been fully briefed and argued in open court.
On the merits, there being no genuine issue as to any material fact, the Court has concluded for the reasons stated below that plaintiffs are entitled to judgment as a matter of law. An appropriate order granting plaintiffs relief accompanies this opinion.
Each plaintiff formerly participated in a federal program designed to aid disadvantaged and small businesses in winning government contracts, known as the section 8(a) program. Plaintiffs brought this action in July of 1987, complaining that the Administrator of the SBA, and her Associate Administrator, acted illegally and beyond their statutory authority in negotiating and implementing an agreement known as the Memorandum of Agreement/Domestic Post Camp and Station Ground Fuel Section 8(a) Contracting Procedure ("Interagency Agreement" or "1979 Agreement"), which is appended to this Memorandum.
Section 8(a) authorizes the Administrator of the SBA to negotiate contracts with various federal procuring agencies. These contracts provide for portions of various acquisitions to be "set-aside" or "reserved" for performance by firms that are certified under the section 8(a) program, firms which in turn subcontract with the SBA for performance. Acquisitions which are not made under the section 8(a) program are filled by competitive bidding.
The DLA is part of the Department of Defense, and it has an agency within its control called the Defense Fuel Supply Center ("DFSC"). The DFSC purchases ground fuels (petroleum and other petroleum products delivered by either tankwagon or transport) for military use and for the use of various federal agencies.
On December 5, 1979, William A. Clement, then Associate Administrator for Minority Small Business and Capital Ownership Development, United States Small Business Administration, signed the Interagency Agreement. It had previously been signed on November 28, 1979, by Charles T. Patterson, then Staff Director, Small and Disadvantaged Business Utilization, Defense Logistics Agency. The Interagency Agreement was applied between December 5, 1979 and July 17, 1985 by the DLA to all DFSC acquisitions of ground fuels from section 8(a) firms, including plaintiffs' six subcontracts
with SBA which quantify their injury and form the bases of their complaint.
Once the DFSC provided SBA with the FMPs, SBA would then negotiate with the various section 8(a) firms qualified to work in a particular CMA to arrive at a price. In any event, the price was not, according to the Interagency Agreement, to be set higher than the FMP. Once the price was negotiated, there was no procedure by which it could be changed save the unlikely event of mutual agreement of both parties to the Interagency Agreement, the SBA and the DLA.
Plaintiffs were not included in the negotiations of the terms and conditions of the Interagency Agreement.
If, in the event no contracts in a CMA were awarded by competitive procedures for a product, the Interagency Agreement provided several formulae by which a price may be calculated by the DFSC. Interagency Agreement, Part III, § C. The documentation is not complete, but upon the best information and belief of the parties, this section of the Interagency Agreement was applied for only seventeen line items in two of plaintiff Smith's subcontracts. Def. Supp. Resp. at 5-6.
Once DFSC provided the FMPs, the SBA had 30 days to notify DFSC of the finally negotiated prices. Any prices up to the FMP were, by definition, fair and reasonable, and were to be accepted by DFSC.
There are at least six subcontracts with the SBA that plaintiffs complain about: one for plaintiff A & S Council, three for plaintiff Smith, and two for plaintiff Williams. All six subcontracts contained numerous "line items" which correspond to a particular delivery site with a specified quantity of fuel and a specified price. All three plaintiffs had subcontracts with the SBA whose FMPs were based on contracts with non-section 8(a) bidders who subsequently failed to perform on their contracts.
The complaint was filed in July of 1987 in this Court with a prayer for declaratory relief and $ 15,000,000 in monetary damages. In March of 1988 the case was transferred, on defendants' motion, to the United States Claims Court for the reason that the district court lacked jurisdiction for claims in excess of $ 10,000 under the Tucker Act, 28 U.S.C. § 1346(a)(2) (1988). Originally, this Court thought "plaintiffs [were] clearly seeking money damages for loss of profits." Memorandum Opinion, filed March 2, 1988, at 14.
Upon transfer to the Claims Court, both parties argued that jurisdiction did not lie in that court. Plaintiffs maintained that the district court had jurisdiction to hear a monetary claim against the SBA, citing Mar v. Kleppe, 520 F.2d 867, 871 (10th Cir. 1975). Defendants, on the other hand, argued that since plaintiffs had not submitted their claim to a contracting officer for a final decision under the Contracts Disputes Act ("CDA"), 41 U.S.C. § 605(a), a claim for declaratory relief could not lie because claims for declaratory relief cannot be heard in the Claims Court, due to its limited jurisdiction, unless there is a final decision (or deemed decision) of a contracting officer on a claim for money damages. A & S Council Oil Co., Inc. v. United States, 16 Cl. Ct. 743, 744-45 (1989).
The complaint contains six counts. Count I contends that the Interagency Agreement is a rule within the meaning of the Administrative Procedure Act ("APA"), 5 U.S.C. § 551(4), and is void as a matter of law for failure to comply with its notice and comment rules. Count II avers that the DLA failed to obtain the necessary approvals before entering into the Interagency Agreement, under the Defense Acquisition Regulation ("DAR"), 32 C.F.R. §§ 1-108 and 1-109, which was arbitrary and capricious. Count III declares that the Interagency Agreement violates DAR § 1-705.5(b)(2), which requires the FMP to be "predicated on the basis of likely costs under normal competitive conditions." Count IV states that plaintiffs were adversely affected by DLA's negotiation and implementation of the Interagency Agreement since it limited the authority of the contracting officer to make price adjustments to reflect consideration of unrealistically low contract prices as under DAR § 1-705.5(c)(1)(L)(ii). Count V avers that the SBA and its Administrator acted illegally in negotiating and implementing the Interagency Agreement since it allegedly violates the regulations and standard operating procedures ("SOP") implementing section 8(a). Finally, count VI declares that the Administrator acted in excess of her statutory authority by negotiating and implementing the Interagency Agreement since the Act does not authorize "agreements fixing prices to be paid by federal procuring agencies to subcontractors under the 8(a) program." Complaint P 89.
Since the Claims Court was without jurisdiction to grant money damages under 41 U.S.C. § 605(a), it was also without jurisdiction to hear a claim for declaratory relief. United States v. King, 395 U.S. 1, 5, 23 L. Ed. 2d 52, 89 S. Ct. 1501 (1969). The Claims Court made it clear that plaintiffs do not seek damages that are the result of either contract performance or nonperformance. A & S Council, 16 Cl. Ct. at 748. Rather, plaintiffs contend that there was illegal conduct in entering into the Interagency Agreement with its pricing scheme, and that only after its execution and subsequent subcontracting were plaintiffs able to quantify the harm caused.
As a preliminary matter, the Court recognizes that plaintiffs have not pressed counts I, II, III or IV in their briefs since this case has been retransferred. Plaintiffs have elected not to prosecute count I invoking the Court's jurisdiction under the APA. Memorandum of Points and Authorities in Support of Plaintiffs' Motion for Summary Judgment ("Plaintiffs' Memo"), filed March 13, 1992, at 2. Furthermore, plaintiffs have elected to proceed only against the SBA, its Administrator, and her agents, but not against the defendants from the DLA, or the Department of Defense. Plaintiffs' Reply Memorandum in Support of Motion for Summary Judgment ("Plaintiffs' Reply"), filed March 29, 1991, at 9.
Since counts II, III and IV were directed at the actions of the DLA, and count I was based on the APA, these four counts will be dismissed, with prejudice, for failure to prosecute.
There are four threshold issues to be decided before the Court may reach the merits of this case. Defendants make several procedural arguments, including lack of subject matter jurisdiction, and failure to waive sovereign immunity. In addition, defendants claim that the 1979 Agreement is no longer in effect, and is in fact superseded by a 1985 agreement, thus rendering plaintiffs' claims moot, or in the alternative, denying plaintiffs' standing to sue since all subcontracts complained of were governed by the terms of the 1979 Agreement.
Discussed in greater detail in part II below, on the merits, plaintiffs maintain that they relied on the purposes of the section 8(a) program and defendants' regulations, policies and the language of the Interagency Agreement to their detriment, and that defendants were unjustly enriched by entering into the Interagency Agreement. Defendants, on the other hand, deny that there was anything improper or illegal about the Interagency Agreement as written or applied and that any losses sustained by plaintiffs were solely as a result of their poor business judgment.
A. Waiver of Sovereign Immunity
The United States, or agencies thereof, may not be sued without consent. Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 93 L. Ed. 1628, 69 S. Ct. 1457 (1949); United States v. Testan, 424 U.S. 392, 399, 47 L. Ed. 2d 114, 96 S. Ct. 948 (1976). "Waiver of sovereign immunity is a jurisdictional prerequisite much like, but not exactly the same as, subject matter jurisdiction; that is to say, unless sovereign immunity is waived, there can be no consideration of the subject matter."
Hans v. Louisiana, 134 U.S. 1, 33 L. Ed. 842, 10 S. Ct. 504 (1890).
There are many statutes by which consent to suit has been given. As above, one of those waivers is found in the Small Business Act, 15 U.S.C. § 634(b)(1). Sovereign immunity is waived by the SBA outside the Tucker Act
by the "sue and be sued" clause of that statute. See C.H. Sanders Co. v. BHAP Housing Dev. Fund Co., 903 F.2d 114, 119-20 (2d Cir. 1990) (Title 20 U.S.C. § 1132g-1(c)(2) provided "sue and be sued" waiver of sovereign immunity against Dept. of Housing and Urban Development ("HUD") outside Tucker Act); Falls Riverway Realty, Inc. v. Niagara Falls, 754 F.2d 49, 55 (2d Cir. 1985) (Title 42 U.S.C. § 1456(c)(1) provided "sue and be sued" waiver against HUD). See also ATC Petroleum v. Sanders, 274 U.S. App. D.C. 12, 860 F.2d 1104, 1113 n.2 (D.C. Cir. 1988). However, such a waiver applies only to the agency involved, and not to the United States generally. Falls Riverway Realty, 754 F.2d at 55 (citing S.S. Silberblatt, Inc. v. East Harlem Pilot Block-Bldg. 1 Housing Dev. Fund Co., 608 F.2d 28, 35-36 (2d Cir. 1979)). The Court notes that it is only funds over which the Administrator of SBA has control to which sovereign immunity has been waived, not general Treasury funds. Id. at 36; C.H. Sanders, 903 F.2d at 120.
The court in Driskill held that the waiver of sovereign immunity in 15 U.S.C. § 634(b)(1) was specifically limited such that "courts have no jurisdiction to award injunctive relief against the SBA." Id. at 386 (citing Duncan v. Furrow Auction Co., 564 F.2d 1107, 1109 (4th Cir. 1977), cert. denied, 436 U.S. 904, 56 L. Ed. 2d 401, 98 S. Ct. 2232 (1978)). The court was distinguishing the waiver of sovereign immunity by the "sue and be sued" clause in both the statute regulating the Postal Service, 39 U.S.C. § 401(1), which under Kennedy Electric Co. v. United States Postal Service, 367 F. Supp. 828 (D. Colo. 1973), aff'd on other grounds, 508 F.2d 954 (10th Cir. 1974), allowed for the imposition of an equitable lien, and the Act, 15 U.S.C. § 634(b)(1), which specifically prohibits imposition of injunctive relief and "other similar process" against the SBA.
Since the case at bar does not contemplate injunctive relief against defendants, it would seem that this Driskill precedent is limited on its facts, and therefore inapplicable. The "sue and be sued" clause in 15 U.S.C. § 634(b)(1) certainly waives sovereign immunity, but under Driskill, not when injunctive relief is part of the case. When injunctive relief is not sought, as here, sovereign immunity is waived.
After Mar v. Kleppe, supra, the Tenth Circuit had occasion to revisit this area of the law in Ascot Dinner Theatre, Ltd. v. Small Business Admin., 887 F.2d 1024 (10th Cir. 1989). Defendants cite this latter case as dispositive of the case at bar having limited the holding in Mar. Id. at 1030 & n.5. A careful examination of these two cases, along with the Trans-Bay7 and ATC Petroleum decisions in this Circuit, and the Driskill decision in the Fourth Circuit, convinces the Court that there has been a waiver of sovereign immunity and a grant of jurisdiction to hear this case.
In Ascot, the trial court had awarded damages to the Ascot Dinner Theatre ("Theatre"), and against the SBA for having denied a loan guaranty to the Theatre; the Tenth Circuit reversed. The Theatre was to be located in a shopping center in Lakewood, Colorado. The Theatre signed a lease for the property in October 1982, paying $ 49,000 on deposit and agreeing to pay $ 1.1 million for tenant improvements by January of 1983. After no less than three extensions, the partnership which owned the center sent the Theatre a default letter. In the meantime, the Theatre, through its representative, had attempted to get financing. Application was made to the SBA for a loan guaranty. SBA denied the loan application for the sole reason that the Theatre qualified as an "opinion molder" and was therefore ineligible for a loan guaranty under 13 C.F.R. § 120.2(d)(4).
Next, the Theatre resisted classification of its claim as a tort and advanced a contract theory instead, the idea being that the SBA had made a commitment to guaranty the Theatre's loan and breached that agreement. The case of Mar v. Kleppe, supra, was cited for the proposition that a jurisdictional grant is included in 15 U.S.C. § 634(b) for a contract claim against the Administrator without precluding an action for damages or a declaratory judgment. Ascot, 887 F.2d at 1029. The Theatre's contract arguments were hampered by the facts. There was no such loan guaranty or commitment between the Theatre and the SBA, whereas in Mar, there was at least an oral agreement. The Theatre's reasonable expectation that the loan guaranty "program would be administered in accordance with the Constitution" was held to be insufficient. Id. at 1030. The court concluded that in the absence of a contract or oral agreement, the Theatre's claim was a tort and thus subject to the FTCA. Id. at 1031 (citing Jackson v. United States, 216 Ct. Cl. 25, 573 F.2d 1189, 1199 (Ct. Cl. 1978); Federal Deposit Ins. Corp. v. Citizens Bank & Trust Co., 592 F.2d 364, 368-69 (7th Cir.), cert. denied, 444 U.S. 829, 62 L. Ed. 2d 37, 100 S. Ct. 56 (1979)).
The final argument the Theatre advanced, to no avail, was that its claim was based on the first amendment. The Tenth Circuit wrote: "However desirable a direct remedy against the government might be as a substitute for individual official liability, ' . . . the sovereign still remains immune to suit.'" Ascot, 887 F.2d at 1031 (citing Martinez v. Winner, 771 F.2d 424, 442 (10th Cir. 1985) (quoting Bivens v. Six Unknown Unnamed Agents, 403 U.S. 388, 410, 29 L. Ed. 2d 619, 91 S. Ct. 1999 (1971) (Harlan, J., concurring))).
The limitation that Ascot imposes on Mar is that 15 U.S.C. § 634(b) is not read as a broad waiver of sovereign immunity. Ascot, 887 F.2d at 1030. The theory of a claim against the SBA may not be totally devoid of a contractual basis. Id. at 1030 n.5. As the plaintiffs at bar have injuries quantified by their contracts with the SBA, and complain about an agreement the SBA had with the DLA, it cannot be said that their claims are devoid of a contractual basis.
As a final point on this subject, the Court is not prepared to characterize plaintiffs claims purely as torts, constitutional or otherwise, as was the case in Driskill, 901 F.2d at 386. While it appears that the SBA and its Administrator have breached statutory and regulatory duties by their actions in this case, the Court is convinced that most of the SBA's responsibilities to plaintiffs grew out of the Interagency Agreement itself. Thus, the FTCA does not stand in plaintiffs' way with respect to a waiver of sovereign immunity.
B. Subject Matter Jurisdiction
For the Court to have jurisdiction in this case, there must be a grant of subject matter jurisdiction, as well as a valid waiver of sovereign immunity that is "unequivocally expressed." United States v. King, 395 U.S. at 4; Testan, 424 U.S. at 399; Falls Riverway Realty, 754 F.2d at 54; S.S. Silberblatt, 608 F.2d at 35; Marcus Garvey Square, Inc. v. Winston Burnett Construction Co., 595 F.2d 1126, 1132 (9th Cir. 1979). The Court rejects defendants' challenge to this Court's jurisdiction.
In the first instance, the Court must evaluate the cause of action to determine whether there is a grant of jurisdiction and a waiver of sovereign immunity. This present case is one that "arises under the Constitution, laws, or treaties of the United States" pursuant to 28 U.S.C. § 1331, most notably, 15 U.S.C. § 631 et seq., and the Takings Clause of the fifth amendment to the Constitution.
lies, without regard to the amount in controversy, in an action against the United States, or its agencies, or any of its officers or employees in their official capacity, arising under the Constitution, laws or treaties of the United States. Included within this grant is jurisdiction in the federal courts to review federal agency actions.
Sharrock v. Harris, 473 F. Supp. 1173, 1175 (S.D.N.Y. 1979) (citing Califano v. Sanders, 430 U.S. 99, 105, 51 L. Ed. 2d 192, 97 S. Ct. 980 (1977)). The SBA is a federal agency, and this case is a review of its actions.
In addition, the Court notes that while plaintiffs' causes of action are not based specifically on their contracts with the government, they do arise from contracts to which the government is a party.
Subject matter jurisdiction, then, exists under 28 U.S.C. § 1331 for just such causes of action. Illinois v. Milwaukee, 406 U.S. 91, 31 L. Ed. 2d 712, 92 S. Ct. 1385 (1972). Also, contracts with the federal government are governed by federal common law. Priebe & Sons, Inc. v. United States, 332 U.S. 407, 92 L. Ed. 32, 68 S. Ct. 123 (1947).
Since plaintiffs challenge the conduct of the Administrator of the SBA in entering into and implementing the 1979 Agreement and establishing a pricing mechanism at odds with the purposes of the section 8(a) program, as well as with the regulations and procedures promulgated pursuant thereto, and since they claim money damages quantified by their subcontracts with the SBA, a grant of federal question jurisdiction is plain.
A recent Supreme Court decision also helps plaintiffs' search for a grant of jurisdiction. In American National Red Cross v. S.G., 120 L. Ed. 2d 201, 60 U.S.L.W. 4631, 112 S. Ct. 2465 (U.S. June 19, 1992), the "sue and be sued" provision in the charter of the Red Cross, a federally chartered corporation, was read to confer jurisdiction in federal courts when specifically mentioned. Id. at 4633. In the case at bar, the grant of jurisdiction comes from 15 U.S.C. § 634(b)(1), which says that the Administrator of the SBA may
sue and be sued in any court of record of a State having general jurisdiction, or in any United States district court, and such jurisdiction is conferred upon such district court to determine such controversies without regard to the amount in controversy; but no attachment, injunction, garnishment, or other similar process, mesne or final, shall be issued against the Administrator or his property.
Id. (emphasis supplied). Defendants place more emphasis on the last clause suggesting that the district court may not entertain plaintiffs' prayer for a declaratory judgment, one can assume, because a declaratory judgment would be a "similar process" to an injunction or attachment. However, there is ample authority to support a finding that 15 U.S.C. § 634(b)(1) makes an action for damages and declaratory relief proper. Mar v. Kleppe, 520 F.2d at 871; Gilford v. United States, 573 F. Supp. 96 (D. Colo. 1983); Claxton v. Small Business Admin., 525 F. Supp. 777 (S.D. Ga. 1981); Carter v. Small Business Admin., 40 Colo. App. 271, 573 P.2d 564 (Colo. Ct. App. 1977), cert. denied, 464 U.S. 1043, 79 L. Ed. 2d 174, 104 S. Ct. 711 (1984). Furthermore, it is not entirely clear that the SBA has immunity from every type of injunction. See Ulstein Maritime, Ltd. v. United States, 833 F.2d 1052 (1st Cir. 1987) (section 634(b)(1) does not bar all injunctions or judicial review of agency actions that exceed agency authority where such remedies would not interfere with internal operations of agency).
Defendants argue forcefully that the Tucker Act, 28 U.S.C. § 1346(a)(2), limits this Court's jurisdiction to hear contract claims against the United States to those claims which do not exceed $ 10,000. It is true that with an ordinary contract claim against the United States the most ready-made waiver of sovereign immunity and grant of jurisdiction are to be found in the Tucker Act. However, as the discussion on sovereign immunity above demonstrates, plaintiffs may look to another statute for a waiver of sovereign immunity, in this case 15 U.S.C. § 634(b)(1), and to that same authority, the Constitution, or federal common law for a grant of subject matter jurisdiction.
In a very similar case, procedurally speaking, to the one at bar, the Court of Appeals found a grant of subject matter jurisdiction in 28 U.S.C. § 1331(a). Trans-Bay, 551 F.2d at 377-78. In vacating the district court's decision granting summary judgment, the Court of Appeals criticized the trial court for viewing the case as a "mere suit on a contract." Id. at 377. In Trans-Bay, the Secretary of HUD was sued to recover monies that were held by HUD as a "holdback" during construction of a federal housing project. There was no contract obligation between HUD and the plaintiff Trans-Bay, as there is none between the SBA and the plaintiffs at bar. However, the language used by the Court of Appeals is illuminating, applicable and controlling:
Here we are asked to determine whether the Secretary of HUD has an obligation to plaintiff Trans-Bay that is not rooted in a contract between them, but rather on equitable rights generated by HUD's course of activities pursuant to federal statutes, including the contracts it has sponsored, and prescribed for others, as a ...