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ELLSWORTH ASSOCS. v. UNITED STATES

May 24, 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

 UNITED STATES DISTRICT JUDGE

 INTRODUCTION

 Before the Court in the above-captioned case are the plaintiffs' and the federal defendants' cross-Motions for Summary Judgment; the defendants style their Motion in the alternative as a Motion to Dismiss. Amici have filed briefs in support of the federal defendants' Motion. Upon careful consideration of the parties' pleadings, the briefs submitted by amici, the entire record herein, and the law applicable thereto, the Court shall grant the federal defendants' Motion to Dismiss.

 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 (NOAA), Naing International Enterprises, and Richard Naing, claiming that they were denied the opportunity to compete for a contract for computer support services in violation of the Administrative Procedure Act, the Equal Protection Clause, and 42 U.S.C. § 1981. The plaintiff also asserted two common law claims against the Naing defendants: tortious interference with business relations and unjust enrichment. The claims against the Naing defendants were dismissed by the Court under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief could be granted. See Ellsworth v. United States, 917 F. Supp. 841 (D.D.C. 1996).

 As discussed in the Court's earlier Opinion, 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 awarded 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. 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, exceed the authority given to the SBA by Congress, and is unconstitutional in light of Adarand v. Pena, U.S. , 132 L. Ed. 2d 158, 115 S. Ct. 2097 (1995), the recent Supreme Court case applying strict scrutiny to a federal set-aside program.

 Under the Section 8(a) Program, the SBA may award government procurement contracts to "socially and economically disadvantaged small business concerns." 15 U.S.C. § 637(a). In order to obtain certification, a small business must first be small. A business is considered small if it is independently owned and operated, not dominant in its field of operation, and satisfies certain standards regarding the number of employees and gross receipts for its particular industry. 12 U.S.C. § 632(a)(1)-(2).

 Second, it must be majority owned or controlled by one or more socially and economically disadvantaged individuals. 15 U.S.C. § 637(a)(4). An individual is considered "socially disadvantaged" if that individual has been "subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group." 15 U.S.C. § 637(a)(5); 13 C.F.R. § 124.105. An individual is considered "economically disadvantaged" if he or she is a "socially disadvantaged individual whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged." 15 U.S.C. § 637(a)(6)(A).

 By regulation, African Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans enjoy a rebuttable presumption of social disadvantage. 13 C.F.R. § 124.105(b). However, members of racial groups that do not enjoy the presumption may nonetheless establish their social disadvantage by presenting clear and convincing evidence of such. 13 C.F.R. § 124.105(c).

 In any event, an individual whose net worth exceeds $ 250,000 is ineligible for certification, 13 C.F.R. § 124.106(a)(2)(i), and any individual whose net worth subsequently exceeds $ 750,000 is ineligible for continued participation in the Program, 13 C.F.R. § 124.111(a)(2)(ii). Participation in the Program is limited to a maximum period of nine years. 15 U.S.C. § 636(j)(10)(C); 13 C.F.R. § 124.111(a). A participant in the Program my "graduate" therefrom prior to the expiration of this period if it substantially achieves the goals set forth in its business plan. 13 C.F.R. § 124.208(a).

 As noted above, Ellsworth Associates was ineligible for participation in the Program because its period of eligibility for participation had expired. Now that Ellsworth has exhausted its eligibility for the Program, it seeks, by way of a constitutional challenge, to open the ...


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