Lax Electronics, Inc. v. United States

In the United States Court of Federal Claims

No. 19-1668C

(Filed: December 17, 2019)

NOT FOR PUBLICATION

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LAX ELECTRONICS, INC.

d/b/a AUTOMATIC CONNECTOR, Pre-award bid protest; Motion

to dismiss; Jurisdiction;

Plaintiff, Standing; Failure to state a

claim; Qualified parts list;

v. FAR § 9.205; Transfer of

complaint.

THE UNITED STATES,

Defendant.

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OPINION

This is a challenge to the Defense Logistics Agency’s (“DLA”)

decision to remove plaintiff from its Qualified Parts List (“QPL”) for certain

electronic connectors that plaintiff manufactures. Not being on the list,

plaintiff may not respond to solicitations from DOD entities for these parts

nor may other contractors offer to the government plaintiff’s parts.

Defendant has moved to dismiss for lack of jurisdiction on the basis that the

DLA’s removal of plaintiff from the QPL is not an action taken in connection

with a procurement or proposed procurement, and thus there is no bid protest

jurisdiction under 28 U.S.C. § 1491(b) (2012) over this claim. We agree in

part and transfer Count I and dismiss Count II.

BACKGROUND

Plaintiff, LAX Electronics, Inc., doing business as Automatic

Connector, supplies electronic connectors to contractors and directly to the

government. For over 50 years, plaintiff has had parts listed on DLA’s QPL.

In June 2019, a DLA Auditor, Sonya Taylor, performed an audit of plaintiff’s

facility. The resulting audit report identified several deficiencies relating

primarily to a recently-issued DLA standard for electric and fiber optic parts

(MIL-STD-790). Ms. Taylor’s report further states that corrective action for

the identified problems was required within 30 days and that the corrections

had to then be accepted by DLA. DLA then sent a letter, dated July 2, 2019,

which ordered plaintiff to stop shipment and production of the connectors

due to the deficiencies noted in the audit report. Plaintiff responded to DLA

with its Corrective Action Reports for the noted deficiencies on August 6,

2019.

Since August, plaintiff alleges that it has further attempted to discuss

the matter with DLA on numerous occasions, but DLA has not responded.

Instead, on August 13, 2019, DLA sent a notice to plaintiff that LAX may be

required to issue a notice to the Government-Industry Data Exchange

Program (“GIDEP”) for the accused parts. Plaintiff notes that the letter does

not mention LAX’s CARs nor its attempts to contact DLA regarding the

audit report.

Automatic responded two days later by letter, asserting that no GIDEP

notice was necessary nor was any required by regulation and that there are in

fact no problems with plaintiff’s parts. On September 12, 2019, DLA

removed plaintiff from the QPL due to repeated program violations and

plaintiff’s refusal to issue a GIDEP notice. The practical import of which,

according to plaintiff, is that it will now be forced to requalify all of its parts

at significant and prohibitive cost to it.

On October 9, 2019, DLA sent a letter to LAX, notifying plaintiff of

the government’s intent to issue a GIDEP alert by the end of the month to

alert government and industry members of plaintiff’s nonconformance to

military specifications. Plaintiff’s counsel contacted counsel for DLA and

requested that no GIDEP action be taken pending a protest brought by

plaintiff. That request was rebuffed.

On October 28, 2019, plaintiff filed suit here. Along with its

complaint, it filed a motion for a temporary restraining order and preliminary

injunction. We held a status conference on November 1, 2019, at which the

issue of jurisdiction was raised by defendant. We thus set a schedule for

briefing on a motion to dismiss prior to further action on the merits and

plaintiff’s request for preliminary relief.

As part of that schedule, we afforded plaintiff an opportunity to

supplement its motion for preliminary relief in order to identify a

procurement or procurements that the protested action is in connection with,

as required by the statute. See 28 U.S.C. § 1491(b) (granting jurisdiction

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over challenges to illegal agency action “in connection with a procurement

or a proposed procurement”) It did so primarily in the form of an affidavit

from its President, Pierre Lax, which identified two outstanding solicitations

for parts that plaintiff offers but can no longer sell to the government after

being removed from the QPL, one closing on November 12, 2019 and the

other on November 15, 2019. Copies of those solicitations were attached to

the affidavit. Mr. Lax additionally names three similar solicitations that

closed after the filing of the protest and before the date of the affidavit

(November 6, 2019).

Defendant filed its motion to dismiss on November 12, 2019. On

November 21, 2019, plaintiff filed both a response to the motion and an

amended complaint. Because an amended complaint would normally moot

a pending motion to dismiss, we held a status conference on November 25,

2019, at which the parties agreed that defendant’s motion was not moot and

to keep the briefing schedule as previously set. The motion is now fully

briefed, and oral argument was held on December 12, 2019.

DISCUSSION

This court has “jurisdiction to render judgment on an action by an

interested party objecting to a solicitation by a Federal agency for bids or

proposals for a proposed contract . . . or any alleged violation of statute or

regulation in connection with a procurement or a proposed procurement.” 28

U.S.C. § 1491(b)(1). The issue is whether the alleged agency action is

properly considered “in connection with a procurement or a proposed

procurement.” Jurisdiction hangs in the balance.

The complaint, as amended, identifies five DLA solicitations “that

were open as of October 28, 2019.” Am. Compl. ¶ 25. The closing dates

range from October 28, 2019 to November 14, 2019. Id. The amended

complaint further alleges that plaintiff would have been a bidder for these

solicitations had it not been for DLA’s improper removal of LAX from the

QPL. Plaintiff goes on to allege that DLA failed to follow its own

procedures, Department of Defense Manual (“DoDM”) 4120.24, Enclosure

14, Sections 11-12 in issuing the stop shipment order, removing plaintiff

from the QPL, and threatening to issue a GIDEP alert. The amended

complaint adds the allegation that DLA violated Federal Acquisition

Regulation (“FAR”) § 9.205(a) by failing to give DLA sufficient time to

qualify its products prior to award and failed to give proper notice of its intent

to establish a qualification requirement as required by the regulation.

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Plaintiff seeks an injunction to prevent DLA from issuing a GIDEP alert and

to prevent DLA from issuing any more contracts for parts that plaintiff had

listed on the QPL, and it seeks a declaration that DLA cannot legally establish

a qualification requirement and exclude plaintiff from the QPL without

providing a response to LAX’s CARs.

Defendant argues that these allegations are insufficient to establish

jurisdiction in this court because plaintiff’s removal from the QPL was not

taken “in connection with a procurement” and because plaintiff lacks

standing to challenge any current and future solicitations due to it being

unqualified to bid on them. Factually, defendant identifies a DLA audit,

unconnected to a specific procurement or planned procurement, as the

precipitating event to plaintiff’s removal from the list. Plaintiff does not

dispute the point.

Defendant relies on this court’s and the Federal Circuit’s decisions in

Geiler/Schrudde & Zimmerman v. United States. In Geiler, the protestor

challenged the award of a contract to upgrade the chiller at a Veterans

Administration (“VA”) hospital in Kentucky. The solicitation was set aside

for service-disabled veteran owned small businesses (“SDVOSBs”). 133

Fed. Cl. 578, 582 (2017). The government moved to dismiss on the basis

that the plaintiff had lost its SDVOSB status during the pendency of the

protest due to the death of its principle, Mr. Geiler, meaning that the company

no longer had standing to bring suit because it could not otherwise be

awarded the contract. Id. This argument triggered the plaintiff to file a

supplemental complaint in which it alleged that revocation of its SDVOSB

status was irrational and illegal (lack of due process). Id. at 583.

Judge Smith denied the motion as to the original grounds of the protest

because standing is determined at the time of filing of suit, but he dismissed

plaintiff’s supplemental complaint, holding that the decision to revoke the

plaintiff’s status was not taken in connection with the subject procurement,

or any other, and was thus outside of the court’s purview under § 1491(b)(1).

Id. at 584. Plaintiff appealed that dismissal. The Federal Circuit affirmed,

finding that the revocation of SDVOSB status was not an action taken in

connection with a procurement or proposed procurement. 743 Fed. App’x

974, 976-77 (Fed. Cir. 2018). The circuit court first noted that the loss of

status did not affect VA’s decision to whom it would award the contract. Id.

at 977. Plaintiff argued, however, that all future procurements were at issue

because, lacking status, it could no longer bid on any work set aside for

SDVOSB contractors. The court found that link too tenuous. Although

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recognizing the broad scope of bid protest jurisdiction under § 1491(b)(1),

the Federal Circuit found that the possibility that an agency action would

affect future procurements did not “establish that the violation ‘clearly

affected’ a contract’s award or performance.” Id. (quoting Ramcor Servs.

Group, Inc. v. United States, 185 F.3d 1286, 1289 (Fed. Cir. 1999)).

The court also found support in the statute’s requirement that a protest

be brought by an “interested party.” Id. at 977-78. The requirement that an

interested party have a direct economic interest in the outcome of a particular

procurement suggests that bid protest jurisdiction does not cover allegations

concerning “unidentified pending and future procurements.” Id. at 978

(citing Myers Investigative & Sec. Servs., Inc. v. United States, 275 F.3d

1366, 1370 (Fed. Cir. 2002)).

Although plaintiff here has identified specific solicitations that it has

been prevented from bidding on after its removal from the QPL, we agree

with defendant that the removal from the list was not an action taken in

connection with a procurement or a proposed procurement. The removal

came about after an audit that revealed a paperwork problem with the

sourcing of LAX’s parts. The audit was not performed in connection with

any of the listed procurements from the amended complaint nor any others;

according to plaintiff, in fact, it was the result of a several year dispute with

DLA’s auditor, Ms. Taylor. 1 See Am. Compl. ¶¶ 8, 10.

The present case is unlike that relied on by plaintiff in its opposition,

SAI Industries Corp. v. United States, in which the court exercised

jurisdiction over a challenge to the disqualification of the protestor from

receiving a contract to produce aircraft tailpipes because it was not a

prequalified source. 60 Fed. Cl. 731, 733 (2004). As a preliminary matter,

as defendant points out, the issue of jurisdiction was not raised nor treated by

the court. More importantly, the case dealt with the pre-approval process for

a specific solicitation not a standing QPL. The facts at issue revolved around

a solicitation, unlike here. We find missing in the present case the necessary

factual connection between the alleged impropriety and a procurement or

proposed procurement. Count I then must be dismissed for lack of

jurisdiction.

1

Further, as provided by plaintiff, several of the solicitations since LAX’s

disqualification have asked for plaintiff’s parts by name. This suggests that

the procuring activity at DLA certainly was not in cahoots with Ms. Taylor

to deprive LAX of a chance to bid on a specific procurement.

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Plaintiff, however, points out that its amended complaint, in Count II,

also alleges a regulatory violation in connection with the five solicitations

that it has identified. Plaintiff cites to FAR § 9.205, which states that an

agency must, “when possible, give sufficient time to arrange for qualification

before award” if and when “an agency determines that a qualification

requirement is necessary.” 48 C.F.R. § 9.205(a) (2019). Reading the

complaint generously, we construe the argument to be that, by not responding

to plaintiffs CARs and booting it from the QPL, the agency has failed to give

LAX “sufficient time to arrange for qualification before award” as to the five

identified solicitations. Although there is no merit to the claim, we have

jurisdiction over it.

Count II of the amended complaint puts at issue a regulatory provision

that plainly applies to public procurements, and plaintiff has identified five

solicitations, and now presumably five awards, that it argues were issued

without affording plaintiff “sufficient time to arrange for qualification.” Id.

The allegation draws a sufficient nexus between an asserted violation of a

procurement regulation and five specific procurements. 2 Thus, Count II is

within the court’s bid protest jurisdiction, but that is as far as it goes.

Although within the court’s broad protest jurisdiction, the allegation

is not otherwise well-founded. Plaintiff argues that the agency violated FAR

§ 9.205 by issuing the solicitations without first having given plaintiff

sufficient notice and more of an opportunity to correct the problems listed in

the audit report.

We begin with the obvious. Plaintiff was, until it was removed from

the QPL, qualified to sell those parts to the government. It is thus the removal

of plaintiff’s parts from the qualified list—the bona fides of which are not

properly before us—that, according to plaintiff, triggered an obligation to

apply FAR § 9.205 and to halt purchasing pending a new notice that a

2

It is no answer, as defendant posits, that plaintiff lacks standing due to it

having been bounced from the qualified list. Count II alleges that plaintiff

was owed an opportunity to requalify before award of the five procurements

identified in the complaint. Standing is determined at the time of the

complaint, when these procurements were still not completed. It has thus

alleged a non-trivial competitive injury in a pre-award context, but for which

plaintiff would have competed for the award. In these circumstances, that is

enough to establish standing.

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qualification to bid would be applied and to afford time for the ousted offeror

to requalify. This reading would flip the purpose of these provisions on its

head. The obligations on agencies are triggered by the imposition of a new

qualification. That is not what happened here. Rather, an experienced and

previously qualified bidder was, independent of any solicitation or new need

of the agency, removed from the QPL. DLA’s need for qualified parts was

unchanged and nothing new imposed. Plaintiff’s reading would place an

untenable burden on agencies; one that the FAR specifically disclaims.

Subpart 9.202 lays out what an agency must do when it wants to

impose a qualification on bidders. Although the agency must issue a

justification and afford fair opportunity for bidders to become qualified,

9.202(e) states that “a contracting officer need not delay a proposed award in

order to provide a potential offeror with an opportunity to demonstrate its

ability to meet the standards specified for qualification.” 48 C.F.R. §

9.202(e). Plaintiff’s argument is thus a nonstarter and need not delay the

entry of judgment. 3 We thus find it appropriate to dismiss Count II for failure

to state a claim. See Constant v. United States, 929 F.2d 654, 657 (Fed. Cir.

1991) (holding that a sua sponte dismissal for failure to state a claim was not

a denial of due process because the claim was “untenable as a matter of law”

and thus “no additional proceedings could have enable [plaintiff] to prove

any set of facts entitling him to relief”).

Although Count II fails to state a claim for which this court can afford

relief and Count I is miscast as a bid protest, the challenge to plaintiff’s

removal from the QPL by DLA appears, on its face, to be subject to review

as final agency action under the Administrative Procedures Act, jurisdiction

over which belongs to the district courts. Defendant’s motion posits the

same. At the conclusion of oral argument, plaintiff made an alternative

request that the court transfer its complaint to the Eastern District of New

York should we find jurisdiction in this court wanting. 28 U.S.C. § 1631

gives authority to federal courts to transfer actions in order to cure a want of

jurisdiction if the transferring court finds it “to be in the interest of justice.”

We find a transfer appropriate here.

3

The argument that DLA owed plaintiff, and presumably others, a notice of

the imposition of a qualification is likewise unavailing. Plaintiff has been on

the QPL for 50 years. Nothing new was imposed on offerors when LAX was

removed from the list nor has plaintiff pled any independent prejudice to it

from the alleged lack of notice.

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CONCLUSION

Because jurisdiction over Count I is appropriate only in district court

and because Count II fails to state a claim, the Clerk of Court is ordered to

do the following:

1. transfer Count I to the United States District Court for the Eastern

District of New York;

2. dismiss Count II for failure to state a claim;

3. enter judgment accordingly. 4

No costs.

s/Eric G. Bruggink

ERIC G. BRUGGINK

Senior Judge

4

Plaintiff’s motion for preliminary relief (ECF No. 2) is denied as moot.

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