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Digital Management, Inc. v. Contreras-Sweet

United States District Court, District of Columbia

December 11, 2015

MARIA CONTRERAS-SWEET, Administrator, United States Small Business Administration, Defendant.


JOHN D. BATES United States District Judge

Digital Management, Inc. (DMI) won a government contract in 2013 that was set aside for small businesses. Generally, a business that is small when it makes its offer-as DMI was- continues to be considered small throughout the life of a contract, even if it grows to be other than small-as DMI did. But there are exceptions to this general rule-circumstances that require a business that was small at the time of its offer to “recertify” its size. The Small Business Administration (SBA) determined that such an exception applied to DMI: it was required to recertify its size because it had acquired several businesses since its offer. And recertifying meant acknowledging that DMI was no longer small.

DMI contends the SBA’s determination was mistaken and seeks a preliminary injunction barring its enforcement. DMI concedes that, under the relevant regulation now in effect, acquisitions by a small business trigger an obligation to recertify. But the company argues that, under the regulation in effect when it acquired the other businesses, only the acquisition of a small business triggered recertification-and since DMI was not itself acquired, it did not need to recertify. DMI says emergency preliminary relief is necessary because the SBA’s flawed determination precludes DMI from obtaining further work under a variety of government contracts set aside for small businesses. The Court concludes, however, that DMI has failed to show that it is likely to succeed on the merits of its claim. And even if that conclusion is not by itself dispositive, the other factors courts consider in deciding whether to grant preliminary relief do not weigh heavily in DMI’s favor. The Court will therefore deny DMI’s motion.


1. The Regulatory Background

Under the Small Business Act, “[i]t is the policy of the United States that small business concerns . . . shall have the maximum practicable opportunity to participate in the performance of contracts let by any Federal agency.” 15 U.S.C. § 637(d)(1). Federal agencies must set goals for participation in contracting by small businesses and develop plans to achieve those goals. Id. § 644(g)(2). That of course requires knowing which businesses are “small, ” and so the SBA has enacted regulations establishing the relevant criteria. See generally 13 C.F.R. pt. 121 (“Small Business Size Regulations”). The SBA also has a regulation that establishes when a business must satisfy those criteria in order to qualify as “small” with respect to a given government contract. See 13 C.F.R. § 121.404. The general rule is that the size of a business is assessed as of the date the business makes its initial offer. Id. § 121.404(a). And, generally, a business “that represents itself as a small business and qualifies as small at the time of its initial offer . . . is considered to be a small business throughout the life of that contract.” Id. § 121.404(g). This means that even if a small business outgrows the “small” criteria during the life of the contract, it is still considered small for purposes of that contract, so that (for instance) the procuring agency can count the performance toward its small business contracting goals. See Small Business Size Regulations, 71 Fed. Reg. 66, 434, 66, 434-35 (Nov. 15, 2006).

But there are exceptions to this “life of the contract” rule. Under certain circumstances, a business must recertify during the life of the contract that it remains small or, if it is not, acknowledge that it has become “other than small.” See 13 C.F.R. § 121.404(g)(1)-(3). Of critical importance here, recertification is required “[i]n the case of a merger or acquisition.” Id. § 121.404(g)(2)(i). As first promulgated in November 2006, the regulatory text did not define the term “acquisition.” See Small Business Size Regulations, 71 Fed. Reg. at 66, 444. In late 2013, however, the SBA revised the regulation by adding a new subprovision that specifies, among other things, that “[r]ecertification is required . . . [w]hen a concern acquires or is acquired by another concern.” 13 C.F.R. § 121.404(g)(2)(ii)(A); Acquisition Process: Task and Delivery Order Contracts, Bundling, Consolidation, 78 Fed. Reg. 61, 114, 61, 131 (Oct. 2, 2013). The scope of the recertification requirement as it existed before the 2013 revision (for simplicity’s sake, the “old version” of the regulation) is the key dispute in this case.

2. The Factual Background

DMI describes itself as “a leading information technology solutions and business strategy consulting firm that works primarily as a federal contractor.” Compl. [ECF No. 1] ¶ 12. In February 2011, DMI submitted an offer on a solicitation by the Department of Homeland Security (DHS) for a contract dubbed “EAGLE II.” Id. ¶¶ 14-15. EAGLE II was a “multiple-award contract vehicle, ” meaning that the contract was not for a single job or procurement, but rather for the opportunity (shared by multiple awardees) to bid on a stream of future “task orders.” The EAGLE II solicitation that DMI responded to was set aside for small businesses. Id. ¶ 14. All agree that DMI was “small” at the time it submitted its offer. Id. ¶ 15; SBA Size Determination, Ex. A to Compl. [ECF No. 1-1], at 10. In September 2013, DHS awarded an EAGLE II contract to DMI. Compl. ¶ 16.

Roughly two years later, the SBA alerted DMI that the EAGLE II Contracting Officer had called into question whether DMI was still small, given DMI’s apparent acquisition of a number of businesses. Id. ¶ 17. The SBA initiated a size inquiry and sought a variety of information from DMI. Id. ¶ 18. DMI provided the information and acknowledged that it had acquired three businesses since its EAGLE II offer, in July 2012, November 2012, and May 2013, respectively. Id. ¶ 20-21. DMI expressed its view that the effect of these acquisitions was governed by the old version of § 121.404(g), and that the old version required recertification only if the small business was acquired, not if the small business did the acquiring. And absent a need to recertify, DMI explained, it was entitled to continue to be considered small under the “life of the contract” rule. Id. ¶ 22.

The SBA’s Area II Office of Government Contracting disagreed, issuing a size determination on October 27, 2015, that concluded that DMI was required to recertify. The agency noted that the old version of the regulation said simply that recertification was required “[i]n the case of a merger or acquisition.” SBA Size Determination at 5 (quoting 13 C.F.R. § 121.404(g)(2) (2012)). In the agency’s view, this phrase covered both acquisitions by a small business and acquisitions of a small business. Id. The agency acknowledged that the 2013 amendment made the regulation’s applicability to both types of acquisitions unmistakable, but it said the revision merely clarified what had already been true under the old version. Id. at 5-6. “The SBA never intended for the recertification requirement to be directed only to small businesses being acquired. Rather, it was always intended for any type of acquisition or merger” to trigger recertification. Id. at 6. Because DMI had concededly acquired other businesses since its initial size certification, it was required to recertify and acknowledge “that it was no longer a small business concern.” Id.[1]

DMI promptly filed this lawsuit against the SBA Administrator (in her official capacity), alleging that the SBA’s size determination rested on legal error, was arbitrary and capricious, and thus violated both the Administrative Procedure Act and the Small Business Act. Compl. ¶¶ 31- 55. Shortly after filing its complaint, DMI also moved for a preliminary injunction. Pl.’s Mot. TRO and Prelim. Inj. [ECF No. 2]; see also Pl.’s Mem. in Supp. [ECF No. 2-1] (“Pl.’s Mem.”). After the parties briefed the motion, the Court held a hearing on December 2, 2015.[2]


A preliminary injunction is “an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 22 (2008). The plaintiff “must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” Id. at 20. As this Court has recently noted, there is some question in this circuit about whether, or to what extent, a particularly strong showing on one of these factors can make up for a weak showing on another. Guttenberg v. Emery, 26 F.Supp.3d 88, 100-01 (D.D.C. 2014); see also Sherley v. Sebelius, 644 F.3d 388, 392-93 (D.C. Cir. 2011). But the answer to that question makes no difference here. Even if it were permissible for a court that pegs a plaintiff’s likelihood of success at 50% or below to grant a preliminary injunction ...

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