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ELLSWORTH ASSOCS. v. UNITED STATES

February 26, 1996

ELLSWORTH ASSOCIATES, INC.; and TRINH L. ELLSWORTH; Plaintiffs,
v.
UNITED STATES OF AMERICA; UNITED STATES SMALL BUSINESS ADMINISTRATION; PHILIP LADER, Administrator, United States Small Business Administrator; RICHARD W. NAING; NAING INTERNATIONAL ENTERPRISES, LTD.; UNITED STATES NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION; and D. JAMES BAKER, Administrator, United States National Oceanic and Atmospheric Administration, Defendants.



The opinion of the court was delivered by: RICHEY

 On February 16, 1996 the Court held a status conference pursuant to Federal Rule of Civil Procedure 16. Present for the plaintiffs were Joseph A. Arbatane and Kenneth Martin. Present for the defendants were Daniel F. Van Horn, James H. Hulme, Helen L. Gemmill, and David Fishman. Present for the non-party movants for leave to file briefs as amicus curiae were Andrew Hallowell and Andrew Mohr.

 Before the Court were a number of motions. After hearing arguments by the parties and the non-party movants, the Court granted the plaintiffs' Motion for Expedited Discovery and the non-party movants' Motions for Leave to File a Brief as amicus curiae. The Court denied the Naing defendants' Motion to Dismiss or Stay Pending Arbitration and the Government's Motion for a Protective Order. The Naing defendants indicated that they would file an interlocutory Appeal that day; they did, together with a Motion for a Stay Pending Appeal. The plaintiffs thereafter filed an Opposition to the Motion to Stay, to which the Naing defendants have replied. Subsequently, the Naing defendants filed a Motion to Dismiss the claims against them.

 In order to provide a basis for review of the Court's February 16, 1996 rulings, the Court sets forth below the rationale therefor. In addition, upon careful consideration of the Naing defendants' Motion for a Stay Pending Appeal and the Opposition thereto, the Court shall deny the defendants' Motion. Finally, the Court shall grant the Naing defendants' Motion to Dismiss and dismiss the Naing defendants' Motion to Disqualify Plaintiff's Counsel as moot.

 BACKGROUND

 The plaintiffs, a government contractor and the owner thereof, filed a Verified Complaint for preliminary and injunctive relief, declaratory judgment, and money damages against the United States, the Small Business Administration (SBA), the National Oceanic and Atmospheric Administration (NOASA), Naing International Enterprises, and Richard Naing, claiming that they were denied the opportunity to compete for a follow-up contract in violation of the Administrative Procedure Act, the Equal Protection Clause, and 42 U.S.C. ยง 1981. The plaintiff also asserts two common law claims against Richard Naing: tortious interference with business relations and unjust enrichment.

 Ellsworth Associates was the incumbent contractor on Contract No. 50-DDNW-3-00053 with the NOAA. Complaint P 7, 14. That contract expired on January 31, 1996. Id. P 21. The Government slated the follow-on work to Contract No. 50-DDNW-3-0053 (the "Follow-On Contract") for award to an 8(a) certified business by total set aside through the SBA's 8(a) Program; by slating the Follow-On Contract for award through the 8(a) Program, the NOAA and the SBA excluded Ellsworth Associates from competing for the follow-on work to Contract No. 50-DDNW-3-00053 by removing the solicitation and award of the Follow-On Contract from free and open competition. Id P 22, 25.

 As the incumbent contractor, Ellsworth requested that the Follow-On Contract be opened for competitive bidding from all small businesses regardless of race. Id. P 26. The NOAA denied the request. Id. The NOAA's contracting specialist, Mark Miller, informed Ellsworth that the Follow-On Contract would be warded through the 8(a) Program to Naing international. Id. The SBA certified Naing international as a participant in the 8(a) Program in January of 1994. Id. P 56. Notably, however, the Naing defendants have not yet received any payment for performance of the contract.

 The plaintiffs claim that the SBA's 8(a) Program, pursuant to which government contracts and assistance are provided to "economically disadvantaged individuals," and regulations promulgated thereunder, exceeds the authority given to the SBA by Congress, and is unconstitutional in light of Adarand v. Pena, U.S. , 115 S. Ct. 2297 (1993), the recent Supreme Court case applying strict scrutiny to a federal set-aside program.

 On January 31, 1996, the Court entered a stipulated preliminary scheduling order submitted by the parties, which includes a briefing schedule. The parties have agreed that consideration of the merits of the plaintiffs' claims shall be consolidated with the hearing on the plaintiffs' motion for a preliminary injunction which shall, in turn, be scheduled sometime after April 26, 1996.

 As noted, the issues before the Court at the February 16, 1996 hearing concerned five motions. In the first, the plaintiff seeks expedited discovery. The stipulated scheduling order limits the scope of the plaintiffs' request to certain government records concerning the application and processing of the Naing defendants' 8(a) program applications. In response to the plaintiffs' Motion for Expedited Discovery, the federal defendants filed a Motion for a Protective Order pursuant to Federal Rule of Civil Procedure 26(c). Subsequently, the parties filed a stipulated Protective Order.

 The Naing defendants filed a Motion seeking to have the case against them dismissed or stayed in favor of on-going arbitration. After the Court denied their Motion at the February 16, 1996 hearing, the Naing defendants filed an interlocutory appeal together with a Motion for a Stay Pending Appeal.

 Finally, the Minority Summit Volunteer Committee (MBSVC) and the Coalition for Contracting Equity (CCE), non-profit organizations that promote minority business development, filed Motions for Leave to File an Amicus Brief. The Court considers each of these motions in turn.

 A. The plaintiff's is entitled to expedited discovery because the material they seeks is germane to their claims and the discovery they seek will expedite the resolution of this matter; the government defendants have failed to establish good cause for the entry of a protective order with respect thereto.

 Courts have wide discretion with respect to discovery and Federal Rule of Civil Procedure 34(b) expressly provides that courts may expedite discovery. Because the Court finds that granting the plaintiffs' request would expedite resolution of their claims for injunctive relief and that the government defendants have failed to establish good cause for a protective order, the Court grants the plaintiffs' Motion for Expedited Discovery and denies the government defendants' Motion for a Protective Order.

 Expedited discovery is particularly appropriate when a plaintiff seeks injunctive relief because of the expedited nature of injunctive proceedings. See Optic-Electronic Corp. v. United States, 683 F. Supp. 269, 271 (D.D.C. 1987); Onan Corp. v. United States, 476 F. Supp. 428, 434 (D. Minn. 1979). Thus, courts have routinely granted expedited discovery in cases involving challenges to constitutionality of government action. See, e.g., Optic-Electronic, supra; Saco Defense Sys. Div. Maremont Corp. v. Weinberger, 606 F. Supp. 446, 449 (D. Me. 1985). The plaintiffs have narrowly tailored their request for expedited discovery, and it appearing that granting their Motion will expedite the resolution of this case, the Court grants the plaintiffs' Motion.

 The Court denies the government defendants' Motion for a Protective Order. Federal Rule of Civil Procedure 26 is broadly conceived. With limited exception, it affords parties access to information "reasonably calculated to lead to the discovery of admissible evidence." FED. R. CIV. P. 26(b)(1). One of those limited exceptions allows a court, "for good cause shown," to restrict or prohibit where necessary to "protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense . . ." FED. R. CIV. P. 26(c). Because the information sought by the plaintiffs appears likely to lead to the discovery of admissible evidence that is, in turn, germane to both the plaintiff's as-applied challenge to the 8(a) Program and the plaintiffs common law claims against the Naing defendants, the defendants' Motion for a Protective Order is denied.

 A party opposing discovery bears the burden of showing why discovery should be denied. In response to the motion for expedited discovery, the federal defendants filed a motion for a protective order pursuant to Federal Rule of Civil Procedure 26(c). Therein they assert that, because the plaintiff is no longer eligible for the 8(a) program, the plaintiffs lack standing to challenge the qualifications of the Naing defendants and that any claim the plaintiffs might have had is moot by virtue of their present ineligibility. The federal defendants also maintain that private parties have no authority to police the 8(a) Program and that any evidence regarding such would be irrelevant to the plaintiffs' claims.

 The federal defendants do not establish good cause to deny the plaintiffs' request. Rather, their opposition to the plaintiffs' request delves into the merits of the plaintiffs' claims. As part of a discovery dispute, such arguments are premature. Accordingly, the Court denies the government defendants' Motion for a Protective Order.

 B. The Naing defendants' Motion to Dismiss or, in the alternative to Stay Proceedings Pending Arbitration is denied because the plaintiffs' common law claims against the Naing defendants do not concern the application, interpretation, or performance of the failed Merger Agreement and are therefore outside the scope of the Merger Agreement's arbitration clause.

 The causes of action asserted against the Naing defendants fall entirely outside the scope of arbitration clause in the Merger Agreement. Therefore, the Court shall deny the Naing defendants' Motion to Dismiss or Stay Pending Arbitration.

 It is elementary that "parties to an arbitration agreement cannot be required to submit to arbitration any mater that they did not agree to that manner of dispute resolution. Davis v. Chevy Chase Financial, Ltd., 215 U.S. App. D.C. 117, 667 F.2d 160, 165 (D.C. Cir. 1981) (citing United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960)). Moreover, "[a] party who consents to the inclusion of a contract of a limited arbitration clause does not thereby waive his right to a judicial hearing on the merits of a dispute not encompassed within the ambit of the clause." Id. Whether a dispute is properly subject to arbitration is, in turn, a matter of contract. See Weatherly Cellaphonics v. Heiber, 726 F. Supp. 319, 321 (D.D.C. 1989).

 The arbitration clause in the Merger Agreement provides, in relevant part:

 
9.10 Arbitration. The parties shall meet in good faith to resolve any dispute that may arise between them regarding the application or interpretation of any provision of this ...

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