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DSE, INC. v. UNITED STATES

March 9, 1998

DSE, INC., Plaintiff,
v.
UNITED STATES OF AMERICA, et al., Defendants.



The opinion of the court was delivered by: SPORKIN

MEMORANDUM OPINION

 This matter comes before the Court on Plaintiff's motion for a Preliminary Injunction. Plaintiff, Dae Shin Enterprises, Inc. ("DSE") is an unsuccessful bidder for a contract with the Department of the Army for M550 Escapement Assemblies. DSE challenges the business size determination of the successful bidder, AMTEC Corporation ("AMTEC"), made by the Small Business Administration ("SBA"). The Court concludes that there are several problems with the SBA's size determination in this matter and will remand the case to the SBA for further proceedings.

 I. FACTUAL AND PROCEDURAL BACKGROUND

 On September 16, 1997, the U.S. Army issued Solicitation No. DAAA09-970R00264 (the "Solicitation") for the M550 Escapement Assembly. The Army issued the Solicitation as a small business set aside under the Standard Industrial Classification Code ("SIC") 3483 (See 13 CFR § 121.201), which establishes a small business size standard of 1500 employees. Proposals were due and submitted on November 13, 1997. The Army concluded its proposal evaluations and awarded the contract to AMTEC on January 21, 1998.

 AMTEC is a manufacturer of fuses that are used within ammunition. AMTEC's President is Randall Lansing and its Board of Directors consists of Charles L. Palmer (Chairman) and R. David Bergonia. Mr. Palmer is a sophisticated businessperson who acquires small businesses for institutional investors, ensures that they are adequately managed, and later re-sells the businesses for a profit. AMTEC is owned 100% by AMTEC Precision Products, Inc. AMTEC Precision Products has the same Board of Directors as AMTEC Corporation. AMTEC Precision Products is owned by North American Fund II ("Fund II"), a venture capital fund. Mr. Palmer serves as the President of North American Business Development Company, L.L.C., which is the General Partner of Fund II. Mr. Palmer is also involved in two other entities, the North American Company, Ltd., a family owned limited partnership, and the North American Fund III.

 Under the terms of the solicitation and 13 C.F.R. § 121.504, a company may self-certify that it qualifies as a small business under the terms of the solicitation. Following this procedure, AMTEC certified that it qualified as a small business at the time it submitted its initial offer on November 12, 1997.

 Disappointed bidders on small business set-aside contracts may protest to the contracting officer if they contend that a contract awardee does not meet the criteria for a small business concern. 13 C.F.R. §§ 121.1003, 121.1006. The contracting officer will then forward the protest to the local SBA Government Contracting Area Office. Upon a timely challenge, an SBA area contracting office will issue a "size determination" as to whether the awardee meets the criteria to be a small business concern. 13 C.F.R. § 121.1002. Following this procedure, Plaintiff DSE challenged AMTEC's small business size status in a January 23, 1998 letter written to the Army's Contracting Officer, Mr. James Lonergan. In its letter, DSE alleged the existence of multiple companies affiliated with AMTEC whose employees, when added together, far exceeded the Solicitation's 1500 employee size standard. Mr. Lonergan forwarded DSE'S challenge to the SBA's Office of Government Contracting, Area IV, for its review and determination. Because AMTEC's size was protested, the SBA was required to conduct a review of its size.

 In response to the SBA's request, Randall Lansing, AMTEC's President, submitted a completed Form 355 on January 29, 1998. SBA's Form 355 requests a broad range of information from the protested company, including information relating to affiliates and potential affiliates. SBA uses the information from this form to make its size determination.

 On February 9, 1998, the SBA Area IV issued its determination that AMTEC qualified as a small business as of the date of its self-certification (November 12, 1997). On February 23, 1998, DSE filed a protest to the General Accounting Office ("GAO"). In its protest, DSE requested a stay of contract performance consistent with 31 U.S.C. § 3553(d). On March 5, 1998, DSE received notice that the GAO failed to notify the Army of DSE's protest, and therefore, the Army directed performance to proceed. On March 11, DSE filed this action for temporary, preliminary, and permanent injunctive relief, and a declaratory judgment. On March 24, 1998, the Court permitted AMTEC Corporation to intervene as a defendant.

 On March 27, 1998, the SBA's Office of Government Contracting in Chicago protested the size of AMTEC Corporation. The SBA initiated this protest because it became aware of new information suggesting that AMTEC might have additional affiliates of which SBA was not previously aware. The SBA concluded its second size determination on April 16, 1998, finding that AMTEC had 1369 employees and thus was still qualified as a small business for the solicitation at issue. On April 23, 1998, the Court issued a TRO, restraining any further action on the procurement contract. Beginning on April 27, 1998, the Court held a four-day hearing on Plaintiff DSE's motion for a preliminary injunction.

 II. ANALYSIS AND DECISION

 To prevail on a request for a preliminary injunction, the Plaintiff must demonstrate: (1) a substantial likelihood of success on the merits; (2) irreparable harm or injury absent an injunction; (3) less harm or injury to the other parties involved; and (4) that it serves the public interest. See Dendy v. Washington Hosp. Center, 189 U.S. App. D.C. 212, 581 F.2d 990, 992 (D.C. Cir. 1978) (footnote omitted); Washington Metro Area Transit Comm'n v. Holiday Tours, Inc., 182 U.S. App. D.C. 220, 559 F.2d 841, 843 (D.C. Cir. 1977). The Court concludes that the Plaintiff has proven each of these elements and will issue a preliminary injunction barring further action on the contract.

 A. Substantial Likelihood of Success on the Merits

 1. Standard of Review for SBA's Size Determination

 The standard of review for the SBA's size determination is provided in the Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2) (1998):

 
The reviewing court shall hold unlawful and set aside agency action, findings, and conclusions found to be
 
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
 
(B) contrary to constitutional right, power, privilege, or immunity;
 
(C) in excess of statutory jurisdiction, authority, or limitations, or short ...

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