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MCGREGOR PRINTING CORP. v. KEMP

September 30, 1992

McGREGOR PRINTING CORPORATION, Plaintiff,
v.
IRA L. KEMP, et al., Defendants.



The opinion of the court was delivered by: JOHN H. PRATT

MEMORANDUM OPINION

 In this action, plaintiff McGregor Printing Corporation ("McGregor") challenges an informal rulemaking decision of the Committee for Purchase from the Blind and Other Severely Handicapped ("Committee") to add computer tabulating machine paper to a list of commodities and services which the federal government procures solely from blind and handicapped workshops. Before the Court are plaintiff's and defendants' cross motions for summary judgment. For the reasons which follow, we deny plaintiff's Motion for Summary Judgment and grant summary judgment for the defendants.

 I. Background

 Plaintiff, McGregor, is a prior government contractor which provided part of the government's needs for a type of tabulating machine paper, NSN 7530-00-800-0996 ("0996"), a continuous, flatfold computer paper for use in computer printers. McGregor was one of two private suppliers of 0996 for the government and has provided it with 0996 paper for approximately twenty years. See Administrative Record ("AR") at 114. McGregor asserts that the Committee's decision violates the requirements of the Committee's enabling statute, the Javits-Wagner-O'Day Act ("JWOD Act"), 41 U.S.C. §§ 46-48c, as well as the informal rulemaking provisions of the Administrative Procedure Act ("APA"), 5 U.S.C. § 553. The JWOD Act, which amended an earlier Act, was passed in 1971 to promote employment for blind workers by bringing them into the economic mainstream of private industry.

 Defendants are the Committee, its chairman, Ira L. Kemp, and the National Industries for the Blind ("NIB"). The Committee is a 15-member independent agency authorized under the JWOD Act to determine which items or services are "suitable" for the government to procure solely from workshops composed of blind or other severely handicapped individuals. Under the JWOD Act, the Committee is authorized to establish a "Procurement List" of such commodities and services, 41 U.S.C. § 47(a)(1), and to determine the "fair market price" at which the government should procure that commodity. 41 U.S.C. § 47(b). The JWOD Act also provides that the Committee may designate a non-profit agency or agencies to facilitate distribution of government orders. 41 U.S.C. § 47(c).

 The NIB is a private, non-profit 501(c)(3) charitable purposes corporation that earns commissions by causing the Committee to transfer government business to tax-exempt organizations that it oversees. It is the central nonprofit agency designated by the Committee "to represent the workshops for the blind" in this process. 41 C.F.R. § 51-3.1(a). As such, the NIB is authorized to recommend fair market prices and suitable commodities for procurement to the Committee. 41 C.F.R. § 51-3.2.

 In determining whether an item is "suitable" for placement on the Procurement List, the Committee is bound by several statutory and regulatory provisions. The Committee must consider whether a workshop is "capable of producing the commodity . . . at a fair market price"; whether the addition to the Procurement List "would not have a serious adverse impact on the current or most recent contractor"; and whether the workshop has the "capability to meet the Government's quality standards and delivery schedules." 41 C.F.R. § 51-2.6(a),(b).

 In making additions or deletions to the list, the Committee must also comply with the informal rulemaking procedures established in subsections 553(b) - 553(e) of the APA, 5 U.S.C. §§ 551-559, 701-706. See 41 U.S.C. § 47(a)(2). Committee regulations also require that the Committee publish notice in the Federal Register at least 30 days in advance of any addition or subtraction to the list, "announcing the proposed addition and providing interested persons an opportunity to submit written data, views, or arguments on the proposed addition." 41 C.F.R. § 51-2.6(c). The Committee is obligated to pay attention to "any substantive comments received as the result of the notice in the Federal Register." 41 C.F.R. § 51-2.7(d).

 In the case at hand, the Committee considered adding 0996 tabulating paper to the Procurement List pursuant to a memo by the NIB on May 21, 1991, recommending such an addition. In determining that the item was suitable for inclusion on the Procurement List, the Committee had before it the NIB's request which included estimations of the numbers of jobs that would be created for blind workers, a proposed calculation of the "fair market price," and the finding that six workshops would be interested in and capable of producing the government's needs. See AR at 4 - 15.

 On May 24, 1991, the Committee published a Notice of Proposed Rulemaking in the Federal Register, requesting that comments be filed by June 24, 1991 in response to the proposed addition to the Procurement List. See 56 FR 23,875 (1991); AR at 51 - 52. McGregor, apparently, did not become aware of the notice until June 21, 1991, and requested a thirty-day extension for comment on that date. See AR at 106. The Committee extended the deadline for McGregor's comments to July 5, 1991.

 Upon receipt of the NIB's request, Committee staff independently investigated the NIB findings. The Committee determined that the NIB's calculation of the fair market price was accurate. See AR at 217-20. Committee staff also requested that Government Services Agency (GSA) engineers assess the workshops' capability to produce 0996.

 Comments were filed by McGregor and International Business Forms Industry, Inc. ("IBFI"), a trade association representing forms manufacturers, objecting to the proposed addition of 0996. See AR at 109-27. In an affidavit, McGregor's vice-president submitted that blind workers did not have the capacity to operate the machinery required to produce 0996 and that 0996 could not be produced by these workshops at the fair market price established by the Committee. See AR at 125-126. As for "adverse impact," McGregor stated that "it would be significantly affected by the loss of sales" of 0996, and that removal of 0996 would "destroy the distribution system in the forms industry." AR at 113, 115. These comments were largely conclusory and without factual support.

 The executive director of the Committee submitted the full text of these comments to the Committee members, along with a "vote package." That package included the staff summary of relevant data and the conclusion that the workshops were capable of producing 0996. See AR at 139. The summary also included impact data, estimating that McGregor's contract with the government accounted for 2.7% of McGregor's sales for the year. See AR at 140. The Committee members, after considering this package, unanimously approved the addition of 0996 to the Procurement List, as recommended by the NIB.

 On August 16, 1991, the Committee published its final notice in the Federal Register. See 56 FR 40,873 (1991); AR at 151 - 152. The final rule noted that the Committee had received two comments and that:

 The Committee has taken the contractor's record as a Government supplier of this item into account in reaching its conclusion that the addition does not constitute a serious adverse impact on current contractors. As the contract for this item represents only a small portion of the contractor's total sales, the contractor cannot be said to be dependent on sales of this item to the Government even if it has been a long-time supplier of this item.

 * * * *

 The Government market for this item is only a small part of the total market. The Committee does not consider addition of the Government market for this paper to the Procurement List to constitute serious adverse impact on the forms industry.

 56 FR 40,874 .

 McGregor proceeded to file a petition for reconsideration of the final rule on November 27, 1991. In its petition, McGregor objected to the lack of any record supporting a finding of capability, of the required percentage of blind labor, or of ability to produce at a fair market price. See AR at 158-159. McGregor also alleged that the Committee had "improperly delegated its function of assessing capability to NIB, which it cannot lawfully do." AR at 159. The Committee members voted to deny McGregor's petition for reconsideration on the basis that the request did not provide the Committee with any new information that would have resulted in a different outcome. See AR at 192.

 On December 19, 1991, McGregor filed its Complaint for Declaratory and Injunctive Relief against the Committee, its Chairman Ira L. Kemp, and the NIB. On January 29, 1992, McGregor petitioned the Court for a preliminary injunction of the enforcement of the Committee's decision pending resolution of the cross-motions for summary judgment filed by McGregor and the three named defendants. The Court held a hearing on both sets of motions on April 2, 1992, and granted McGregor's motion for temporary injunctive relief. The motions for summary judgment are now taken up by this Court.

 II. Legal Claims

 In its motion for summary judgment, plaintiff McGregor seeks to vacate the Final Rule to add 0996 to the Procurement List on the grounds that the Committee, its chairman, and the NIB acted arbitrarily and capriciously in their actions to place 0996 on that list. McGregor's claims are of three general types: 1) that defendants failed to follow proper procedure for informal rulemaking (First Count); 2) that the Final Rule to add 0996 to the Procurement List was not grounded on relevant fact (Second through Fourth Counts); and 3) that the Committee exceeded its statutory authority under the JWOD Act in placing 0996 on the Procurement List (Fifth and Sixth Counts). Defendants then filed motions for ...


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