Tender Years Learning Corporation v. United States

In the United States Court of Federal Claims

No. 15–719C

(Filed: September 12, 2016)

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TENDER YEARS LEARNING CORP., *

*

Plaintiff, * Claim for Bid and Proposal Preparation

* Costs; Implied-In-Fact Contract; Rule

v. * 15(a)(2) Motion to Amend; Motion to

* Bifurcate; Motion to Dismiss; Mootness;

THE UNITED STATES, * Damages.

*

Defendant. *

*

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John J. O’Brien, Cohen Mohr, L.L.P., Washington, D.C., for Plaintiff.

Douglas G. Edelschick, with whom were Benjamin C. Mizer, Principal Deputy Assistant

Attorney General, Robert E. Kirschman, Jr., Director, and Donald E. Kinner, Assistant

Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice,

Washington, D.C., for Defendant.

OPINION AND ORDER

WHEELER, Judge.

Plaintiff Tender Years Learning Corporation (“Tender Years”) originally brought

this action as a bid protest challenging the Government’s decision to cancel a solicitation

and to award an interim grant to the incumbent grantee. Tender Years’ original complaint

sought to enjoin the Government’s cancelation of the solicitation and to restore the parties

to their pre-cancelation negotiating posture, as well as associated attorneys’ fees and costs.

The Government has twice moved to dismiss Tender Years’ complaint. See Dkt. Nos. 23,

38. Both motions to dismiss are pending.

On May 9, 2016, Tender Years moved to amend its complaint pursuant to Rule

15(a)(2) of the United States Court of Federal Claims (“RCFC”) and to bifurcate the issues

of entitlement and damages in this case. Tender Years’ Proposed Amended Complaint

would seek only damages on an implied-in-fact contract theory. The Government filed its

opposition to Tender Years’ motion on June 23, 2016, and Tender Years filed its reply on

July 5, 2016.1 The Court heard oral argument on the parties’ respective motions on

September 9, 2016. After reviewing the parties’ arguments in court and in their filings, the

Court concludes that justice requires allowing Tender Years to amend its complaint. The

Court further concludes that bifurcating the issues of entitlement and damages would

promote judicial economy in this case. Plaintiff’s motions are therefore GRANTED, and

Defendant’s motions to dismiss are DENIED as moot.

Background2

Tender Years brought this case because it bid for and was denied funding from the

Government, through the Department of Health and Human Services (“HHS”), to run a

Head Start program in Macon, Bibb, and Monroe Counties in Georgia. Head Start

programs were initiated by the Head Start Act, 42 U.S.C. § 9831 et seq., to “promote the

school readiness of low-income children by enhancing their cognitive, social, and

emotional development.” 42 U.S.C. § 9831. Pursuant to the Head Start Act, HHS awards

grants to qualifying agencies, which then carry out programs according to the Act’s

guidelines. See 42 U.S.C. §§ 9833, 9836. HHS must examine Head Start agencies every

five years to determine whether they are continuing to meet the Act’s standards. 42 U.S.C.

§ 9836(c)(7)(A). If an agency is “delivering a high-quality and comprehensive Head Start

program,” its grant is renewed for another five-year term. Id. § 9836(c)(7)(A)(i). If it is

not, then the grantee must compete in an open competition with other bidders to secure a

further five-year grant. Id. §§ 9836(c)(7)(A)(ii); 9836(d)(1).

At the end of its five-year term, Macon-Bibb Economic Opportunity Council, Inc.

(“Macon Bibb”) – the incumbent grantee for Macon, Bibb, and Monroe Counties in

Georgia – received notice from HHS that Macon Bibb was not administering its Head Start

program at the required quality level. Prop. Am. Compl. ¶¶ 12–13. HHS therefore created

an open competition for Head Start grant funding in Macon, Bibb, and Monroe counties,

which it publicized via a Funding Opportunity Announcement (“2014 FOA”). Id. ¶¶ 8-18.

Tender Years competed in the 2014 FOA, and HHS notified Tender Years in April 2015

that it was the “preliminary selected awardee.” Id. ¶ 19.a. Tender Years then began

working on plans to transition the Head Start contract from Macon Bibb to itself, and

continued to seek information from HHS officials during this process. Id. ¶ 19.a-c.

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These filings are referred to herein respectively as “Mot.,” “Opp’n,” and “Reply.” They are found at

Docket Numbers 64, 68, and 69. Additionally, Plaintiff’s Proposed Amended Complaint (Dkt. No. 64 Ex.

A) is referred to herein as “Prop. Am. Compl.”

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The Court draws the facts as stated in the Background section of this Opinion from the Proposed Amended

Complaint. For purposes of the pending motions, these facts are assumed to be true.

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Meanwhile, Macon Bibb was undertaking “an intensive public campaign” to reverse

HHS’s impending final award decision. Id. ¶ 20.a-b. After repeated requests and further

negotiations failed to clarify Tender Years’ award status, see id. ¶ 20, HHS reversed course

on June 10, 2015, and decided to “screen out” Tender Years as a potential grantee in the

2014 FOA. Id. ¶ 21.b. HHS did not notify Tender Years of its decision until June 23,

2015. Id. ¶ 26.a.

HHS based its decision on three factors: (1) that Tender Years had no board of

directors, (2) that Tender Years did not have the required staff to operate classrooms, and

(3) that Tender Years did not have the necessary classroom facilities. Id. ¶ 26.a. Tender

Years maintains that it did, in fact, have a board, and that it would have had the necessary

qualified staff if HHS had not earlier prevented it from contacting Macon Bibb employees.

Id. ¶¶ 26.b-c. Similarly, Tender Years alleges that it had its own classroom facilities and

contract partners that would have provided it with further classroom facilities, but HHS

prevented Tender Years from entering into contracts with those partners until Tender Years

received an official award notification from HHS. Id. ¶ 26.d. On July 9, 2015, HHS

provided a letter to Tender Years that contradicted the reasoning HHS used in denying

Tender Years’ bid. See id. ¶¶ 28–30. Specifically, the letter evaluated Tender Years’ bid

in terms of “strengths” and “weaknesses.” Id. HHS’s analysis gave Tender Years strengths

and comparatively few weaknesses in the areas HHS eventually used as grounds to deny

Tender Years’ bid. Id.

After rejecting Tender Years’ bid, HHS canceled the 2014 FOA without selecting a

five-year grantee. Id. ¶ 8. When HHS does not select a five-year grantee after a

solicitation, it must “designate a qualified agency to carry out the Head Start program in

the community on an interim basis” until it designates a five-year grantee through another

competitive solicitation. 42 USC § 9836(f). Although Macon Bibb’s deficient

performance was the reason HHS opened the solicitation in the first place, HHS designated

Macon Bibb as the interim grantee. Prop. Am. Compl. ¶ 8.

Procedural History

Tender Years filed this action seeking to enjoin the interim grant and to reopen the

2014 FOA. See Compl., Dkt. No. 1. The Court denied Tender Years’ motion for a

temporary restraining order on July 20, 2015. Dkt. No. 17. The Government then moved

to dismiss this case on August 7, 2015, arguing mainly that this Court lacked subject matter

jurisdiction over Tender Years’ claims because those claims related to a grant, not a

procurement within the meaning of 28 U.S.C. § 1491(b)(1). Dkt. No. 23. Before the Court

ruled on the Government’s motion, the Government apprised the Court on September 15,

2015, that it intended to take corrective action by reopening the 2014 FOA and restarting

negotiations with Tender Years. Dkt. No. 36. The Court therefore stayed proceedings in

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this case on September 16, 2015, pending the outcome of those negotiations. Dkt. No. 37.

The Government then moved once again to dismiss this case on September 21, 2016,

arguing that Tender Years’ claims had become moot because the Government had

reopened the 2014 FOA. Dkt. No. 38.

Meanwhile, Macon Bibb had filed an action against the Government in the United

States District Court for the District of Columbia. See Macon-Bibb Cnty. Econ.

Opportunity Council v. U.S. Dep’t of Heath & Human Servs., No. 15-cv-01850-RBW

(D.D.C.). In its action, Macon Bibb sought to enjoin the Government’s corrective action

and negotiations with Tender Years. See Dkt. No. 53. The District Court entered a

preliminary injunction order on November 20, 2015, that enjoined the Government’s

corrective action. Id. Tender Years, as an intervenor in the District Court action, filed an

appeal to the D.C. Circuit. Id. Because the corrective action was the basis for the

Government’s mootness argument in its pending motion to dismiss, this Court once again

entered a stay in this action on December 2, 2015. Id.

After further proceedings in the District Court action, the Government again closed

the 2014 FOA and agreed to award an interim grant to Macon Bibb, so the parties

voluntarily dismissed the District Court action. See Dkt. No. 62. Tender Years also

voluntarily dismissed its appeal before the D.C. Circuit. See Dkt. No. 58. This Court

therefore lifted the stay on proceedings in this case on May 5, 2016. Dkt. No. 62.

On May 9, 2016, Tender Years moved to amend its complaint pursuant to RCFC

15(a)(2) and to bifurcate the issues of entitlement and damages. Dkt. No. 64. Tender

Years’ Proposed Amended Complaint alleges solely implied-in-fact contract damages and

invokes this Court’s jurisdiction under 28 U.S.C. § 1491(a)(1). Tender Years has removed

all bid protest claims in its original complaint that invoked this Court’s jurisdiction under

28 U.S.C. § 1491(b)(1). The Government opposes Tender Years’ motion on the grounds

that the proposed amendments would be futile.

Discussion

Motion to Amend Complaint

A party may amend its complaint under RCFC Rule 15(a)(2) with the Court’s leave,

which should be given “freely . . . when justice so requires.” This language is liberally

construed, and courts generally grant leave to amend if there is no “apparent or declared

reason” not to permit amendment. A & D Auto Sales, Inc. v. United States, 748 F.3d 1142,

1158 (Fed. Cir. 2014) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). The Court

should deny leave to amend if there is evidence of delay, bad faith, repeated failure to

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correct a complaint’s deficiencies, undue prejudice to the opposing party, or if the

amendment would be futile. Id.

Here, there is no evidence of bad faith or undue delay by Tender Years, and this is

Tender Years’ first request to amend its complaint. Further, the Government does not

argue that it would be unduly prejudiced if Tender Years were granted leave to amend its

complaint. See Opp’n at 16. Rather, the Government argues that Tender Years should not

be granted leave to amend because Tender Years’ proposed amendments would be futile.

Therefore, this Court’s analysis will focus entirely on whether Tender Years’ proposed

amendments would be futile.

A proposed amendment is futile if it would not survive a motion to dismiss. Meyer

Grp., Ltd. v. United States, 115 Fed. Cl. 645, 650 (2014). Accordingly, “the party seeking

leave must proffer sufficient facts supporting the amended pleading that the claim could

survive a dispositive pretrial motion.” Id. (quoting Kemin Foods, L.C. v. Pigmentos

Vegetales Del Centro S.A. de C.V., 464 F.3d 1339, 1354–55 (Fed. Cir. 2006)) (internal

punctuation omitted). Here, the Government argues that the amendment would be futile

because it would not survive a motion to dismiss brought under RCFC 12(b)(1) and

12(b)(6). The Government argues, specifically, (1) that the implied-in-fact contract claims

are moot because the Government reopened the 2014 FOA, so this Court lacks subject

matter jurisdiction to entertain the claims; (2) that the Proposed Amended Complaint does

not state a claim upon which relief can be granted as to the interim award to Macon Bibb,

given that Tender Years does not allege that it even applied for the interim grant; and (3)

that the Proposed Amended Complaint does not state a claim upon which relief can be

granted to the extent it seeks damages in excess of bid and proposal preparation costs. The

Court will address each of the Government’s arguments in turn.

I. The Court Has Subject-Matter Jurisdiction Over Tender Years’ Claims

A. Standard of Review

Courts have no subject matter jurisdiction over moot claims. See CW Gov’t Travel,

Inc. v. United States, 46 Fed. Cl. 554, 556 (2000) (citing North Carolina v. Rice, 404 U.S.

244, 246 (1971)). Therefore, the Court’s analysis of the Government’s mootness argument

is substantially the same as it would be for a motion to dismiss for lack of subject matter

jurisdiction under RCFC 12(b)(1). See Tech. Innovation, Inc. v. United States, 93 Fed. Cl.

276, 278 (2010). When a defendant files a motion under RCFC 12(b)(1), the Court must

“assume all factual allegations to be true and . . . draw all reasonable inferences in

plaintiff’s favor.” Wurst v. United States, 111 Fed. Cl. 683, 685 (2013) (quoting Henke v.

United States, 60 F.3d 795, 797 (Fed. Cir. 1995)). However, a plaintiff must establish that

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jurisdiction exists “by a preponderance of the evidence.” Id. (citing Reynolds v. Army &

Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988)).

B. Plaintiff’s Proposed Implied-in-Fact Contract Claims are not Moot

Although mootness is part of the “case or controversy” requirement in Article III of

the United States Constitution, see Gerdau Ameristeel Corp. v. United States, 519 F.3d

1336, 1340 (Fed. Cir. 2008), the doctrine also applies in this Article I Court. See

Brookfield Relocation Inc. v. United States, 113 Fed. Cl. 74, 77 (2013). A case should be

dismissed as moot if “the issues presented are no longer ‘live’ or the parties lack a legally

cognizable interest in the outcome.” Rice Servs., Ltd. v. United States, 405 F.3d 1017,

1019 n.3 (Fed. Cir. 2005) (citation omitted). The parties lack such an interest if the

defendant’s alleged act will not recur, and if intervening events have “completely and

irrevocably eradicated the effects of the alleged violation.” CW Gov’t Travel, 46 Fed. Cl.

at 557 (quoting Los Angeles v. Davis, 440 U.S. 625, 631 (1979)).

For example, bid protest actions brought pursuant to this Court’s jurisdiction under

28 U.S.C. § 1491(b)(1) may become moot if the government takes corrective action by

canceling the challenged procurement and reopening the bidding process. See, e.g.,

Savantage Fin. Servs., Inc. v. United States, 118 Fed. Cl. 487, 491 (2014) (finding that

defendant’s corrective action mooted plaintiff’s claim in bid protest). The corrective action

eradicates the effects of an unfair outcome in the bidding process and may allow the

plaintiff bidder once again to compete for the government contract at issue.

However, the same cannot be said of claims, like Tender Years’, that invoke this

Court’s jurisdiction under 28 U.S.C. § 1491(a)(1). Under that Section, this Court has

jurisdiction over all claims arising out of “any express or implied contract with the United

States, or for liquidated or unliquidated damages in cases not sounding in tort.” When a

bidder submits a bid in a competitive solicitation such as the one at issue in this case, an

implied-in-fact contract arises between the bidder and the Government to fairly and

honestly consider the bid. FFTF Restoration Co. v. United States, 86 Fed. Cl. 226, 242

(2009).

Contract damages are different from the relief that plaintiffs seek under Section

1491(b)(1) in that they are not easily mooted. Where a plaintiff competing in a solicitation

seeks damages resulting from the government’s breach of an implied-in-fact contract under

Section 1491(a)(1), the Government’s corrective action does not render the plaintiff’s

claims moot. Instead, the Government can only moot a breach of contract claim by paying

all of the plaintiff’s claimed contract damages or performing under the contract in full. See

Landram v. United States, 229 Ct. Cl. 855, 856 (1982) (“Defendant has fully performed

the contracts and, as such, has forestalled any claim for breach of contract.”); cf. Gates v.

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Towery, 430 F.3d 429, 432 (7th Cir. 2005) (“To eliminate the controversy and make a suit

moot, the defendant must satisfy the plaintiffs’ demands; only then does no dispute remain

between the parties.”) (emphasis in original). This is logical in the context of a solicitation

like the 2014 FOA, as canceling and restarting the solicitation does not make a plaintiff’s

contract damages from the original solicitation evaporate.

Here, the Government argues that canceling the 2014 FOA mooted Tender Years’

claims. See Opp’n at 13. On the other hand, Tender Years claims that canceling the 2014

FOA was in fact part of the Government’s breach of an implied-in-fact contract between

the parties with respect to that FOA. See Prop. Am. Compl. ¶¶ 36–70 (Count II). The

Government’s argument might be promising in a bid protest case under Section 1491(b)(1),

but it fails here. The Proposed Amended Complaint sounds entirely in contract, and its

claims can therefore only be mooted by full payment or full performance under the

contract. There is no indication that either has occurred here. Tender Years has not been

paid, and its entire case rests on the argument that the Government has not fully performed.

The Government further argues that Tender Years has been made whole because

Tender Years was allowed to resubmit its proposal in the renewed FOA, so Tender Years

did not really suffer any damages because it presumably was able to use some or all of its

work product from the original 2014 FOA in the renewed FOA. See Opp’n at 13. This

argument, however, is not appropriate for contesting jurisdiction; rather, it goes to whether

and to what extent Tender Years suffered contract damages. That is a merits issue in this

case. Accordingly, Tender Years’ implied-in-fact contract claims are not moot, and the

Court has subject matter jurisdiction over these claims pursuant to 28 U.S.C. § 1491(a)(1).

II. Tender Years’ Proposed Amended Complaint Does Not Fail to State a Claim

Upon Which Relief May be Granted

A. Standard of Review

The Government argues that the Proposed Amended Complaint fails to state a claim

upon which relief may be granted with respect to Count IV and to Tender Years’ damages

claims. See Opp’n at 13–16. Accordingly, the Court must evaluate the Government’s

arguments the same way it would on a motion to dismiss for failure to state a claim under

RCFC 12(b)(6). A complaint fails to state a claim upon which relief may be granted within

the meaning of RCFC 12(b)(6) “when the facts asserted by the claimant do not entitle him

to a legal remedy.” Briseno v. United States, 83 Fed. Cl. 630, 632 (2008) (citation omitted).

The Court also must construe allegations in the complaint favorably to the plaintiff. See

Extreme Coatings, Inc. v. United States, 109 Fed. Cl. 450, 453 (2013). Still, “a complaint

must contain sufficient factual matter, accepted as true, to state a claim to relief that is

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plausible on its face.” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation

omitted)).

B. Count IV of the Proposed Amended Complaint States a Claim

The Government argues that Count IV of the Proposed Amended Complaint fails to

state a claim because Tender Years did not submit a bid for the interim grant that the

Government ultimately awarded to Macon Bibb. See Opp’n at 13–14. In support of its

argument, the Government cites cases standing for the well-established principle that

damages on implied-in-fact contract claims are limited to actual bidders. See id. at 14;

Motorola, Inc. v. United States, 988 F.2d 113, 116 (Fed. Cir. 1993) (per curiam). Tender

Years responds that Count IV “is not a separate claim for relief, but rather another instance

of how Defendant breached its implied-in-fact contract with [Tender Years].” Reply at 5.

The Court agrees with Tender Years’ interpretation. Tender Years does not allege

in Count IV that it should have been considered for the interim grant. If it did, then this

would be exactly the situation that the Government’s cited authorities expressly foreclose.

Instead, Tender Years argues that Count IV further shows that the Government acted

arbitrarily and capriciously in not fairly considering Tender Years’ bid. See Prop. Am.

Compl. ¶ 83. These allegations, construed favorably to Plaintiff, simply further develop

Plaintiff’s implied-in-fact contract claim with respect to the 2014 FOA. Therefore, they

do not fail to state a claim upon which relief may be granted.

C. The Proposed Amended Complaint States a Claim for Damages

The Government next argues that Tender Years’ claims for damages “including bid

and proposal costs” fail to state a claim upon which relief can be granted. See Opp’n at

15; Prop. Am. Compl. at 45. The Government argues that Tender Years’ vague use of the

word “including” means Tender Years is seeking damages beyond bid and proposal costs.

It is true that, in cases brought pursuant to this Court’s jurisdiction under 28 U.S.C.

§ 1491(a)(1), recovery is limited to bid preparation costs. Excavation Const., Inc. v. United

States, 494 F.2d 1289, 1290 (Ct. Cl. 1974). Still, Tender Years does not explicitly seek

damages that exceed those costs. Until it does so, the Court finds the Government’s

argument premature. Therefore, the Proposed Amended Complaint does not fail to state a

claim with respect to damages.

III. Conclusion

In sum, the Court finds that Tender Years’ proposed amendments would not be

futile. Further, permitting Tender Years to amend its complaint would serve the interests

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of justice within the meaning of RCFC 15(a)(2). Therefore, Plaintiff’s motion to amend

its complaint is GRANTED.

An amended complaint supersedes any previous complaints. See Jet, Inc. v. Sewage

Aeration Sys., 223 F.3d 1360, 1364–65 (Fed. Cir. 2000). Defendant’s two pending motions

to dismiss address Plaintiff’s original complaint, which will now be superseded by

Plaintiff’s amended complaint. See Dkt. Nos. 23, 38. Therefore, Defendant’s motions to

dismiss are DENIED as moot.

Motion to Bifurcate

Tender Years has moved to bifurcate the issues of entitlement, or liability, and

damages in this case. See Mot. at 6–7. The Court finds that bifurcating these issues would

promote judicial economy and would lead to a more efficient resolution of this case.

Plaintiff’s motion to bifurcate is therefore GRANTED.

The Clerk is directed to file Plaintiff’s Amended Complaint. Defendant’s Answer

is due within 14 days, on or before September 26, 2016.

IT IS SO ORDERED.

s/ Thomas C. Wheeler

THOMAS C. WHEELER

Judge

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