United States: Fed. Circ. Implies Narrowing Of Claims Court Jurisdiction

In 2016, an Ohio property developer brought a bid protest at the Court of Federal Claims objecting to a lease solicitation from the General Services Administration. The developer claimed that the property description in the solicitation had changed from the description the GSA submitted to Congress to obtain funding. According to the developer, the GSA violated 40 U.S.C § 3307, the statute requiring submission of the description to Congress. The COFC denied the protest, ruling that the developer did not stand within the "zone of interests" defined by the statute, thus failing to satisfy the independent requirement of "prudential standing."1

The developer appealed, and the Federal Circuit was expected to rule on the issue of prudential standing and resolve the disagreements among COFC judges regarding whether the doctrine of "prudential standing" applies to COFC protests, or whether the Tucker Act's "interested party" requirement provides the only test for standing in a protest at COFC. Instead of addressing prudential standing, however, the circuit's March 5, 2018, decision rested on a basis that neither party argued — denying standing to the developer because § 3307 was not a "procurement statute," and "says nothing of how GSA must run its procurement."2 This implies a narrowing of the COFC and Federal Circuit's previous broad interpretations of the Tucker Act's jurisdiction over challenges to statutory violations "in connection with a procurement or a proposed procurement."3

Background

Cleveland Assets arose from a Government Services Administration request for lease proposals (RLP) seeking a secure space for the Federal Bureau of Investigation's Cleveland Field Office. The FBI Cleveland Field Office has been housed in a building leased by Cleveland Assets since February 2002. The lease was initially set to expire in January 2012, but has been extended multiple times to the present day.4

Under 40 U.S.C. § 3307, the GSA must seek approval of two congressional committees before obligating funds on a lease where the annual rent will exceed $2.85 million. This statute requires the GSA to submit a prospectus describing (among other things) the property it intends to lease and an estimate of the price it will ultimately pay:

40 U.S.C § 3307. Congressional Approval of Proposed Projects

(a) Resolutions Required Before Appropriations May Be Made.—The following appropriations may be made only if the Committee on Environment and Public Works of the Senate and the Committee on Transportation and Infrastructure of the House of Representatives adopt resolutions approving the purpose for which the appropriation is made:

...

(2) An appropriation to lease any space at an average annual rental in excess of $1,500,000 for use for public purposes.

(b) Transmission to Congress of Prospectus of Proposed Project.—To secure consideration for the approval referred to in subsection (a), the Administrator of General Services shall transmit to Congress a prospectus of the proposed facility, including—

(1) a brief description of the building to be constructed, altered, or acquired, or the space to be leased, under this chapter;

(2) the location of the building or space to be leased and an estimate of the maximum cost to the Government of the facility to be constructed, altered, or acquired, or the space to be leased;

In 2009, the GSA began preparing for a new lease for the FBI Cleveland Field Office. It provided the congressional committees with a final prospectus in December 2010 that set forth an estimated rental rate of $26.00 per square foot. By September 2011, the relevant committees adopted resolutions approving the prospectus at that rate. Over five years later, the GSA issued a RLP, which, pursuant to § 3307, stated the GSA would only award a lease if the offered rental rate did not exceed the "Congressionally-imposed rent limitation" of $26.00.[[N:Id. at *3-4.] For context, the Federal Circuit's decision explained that pursuant to the lease extensions, the "GSA has paid, and continues to pay, Cleveland Assets a penalty rate of $44.72 per rentable square foot ("PSF") since the expiration of the original 10-year period."5

The COFC Decision

Cleveland Assets filed a pre-award protest at the COFC challenging the terms of the RLP.6 Cleveland Assets argued that the RLP is contrary to law because it exceeds the GSA's leasing authority under § 3307, stating that the RLP included "additional space and structures not identified in the prospectus GSA submitted to the Congressional Committees for the FBI's new lease."7 Judge Elaine Kaplan held that, while it was possible that Cleveland Assets was an "interested party" for purposes of the COFC's Tucker Act jurisdiction, it lacked the required "prudential standing" necessary to bring this claim.8

Prudential standing is a judge-made standing doctrine arising from the administrative law context. It is not rooted in the Article III case or controversy requirement, and therefore can be adjusted or eliminated by clear congressional direction. Even if a plaintiff challenging the government's violation of a statute has some interest in the government's action, in order to have "prudential" standing, they must be within the "zone of interests protected or regulated by the statutory provision" at issue — i.e. the statute must have, in some sense, been enacted to protect or control entities in the plaintiff's position.9 Judge Kaplan found that Congress had not exempted the Tucker Act from the prudential standing requirement, and that Cleveland Assets' interest in keeping the current FBI lease (or winning a new one) is not within the "zone of interests" protected by the appropriations rules set out in § 3307:

[§ 3307(a)] requires GSA to secure the approval of Congressional Committees in order to obtain appropriated funds for leases above a set annual dollar amount. 40 U.S.C. § 3307(a). Its purpose is obviously to enable Congress to oversee how the money it appropriates is spent. ... The statute does not mention private parties or government contractors, and does not remotely suggest an intent to confer a right to judicial review.10

In taking this position, Judge Kaplan was continuing a split among the COFC judges on the application of prudential standing in the Tucker Act context. Several contemporary cases have declined to apply prudential standing to the COFC's jurisdiction over bid protests under § 1491(b) of the Tucker Act.11

Appeal to the Federal Circuit

Cleveland Assets appealed to the Federal Circuit. With respect to Cleveland Assets' claim that the RLP violated § 3307, the parties' briefing focused entirely on whether the COFC correctly applied the prudential standing requirement. Cleveland Assets argued that the standing requirement for bid protests is only that the protester be an "interested party" and does not include any "zone of interest" requirement. The government, in turn, argued that the COFC properly imposed a zone of interest test.

Oral argument was held before a panel of Judges Kimberly Moore, Todd Hughes and Kara Farnandez Stoll. At first, the argument, like the briefing, focused on whether the zone of interests rule applies to bid protests raised under § 1491(b). However, shortly into the government's response, the discussion turned away from whether prudential standing applies to § 1491(b) toward whether § 3307 really has anything to do with procurement at all — i.e., whether it is the type of statute that, even if violated, can be the basis for a bid protest. This discussion evolved to a point where the panel questioned whether ruling in Cleveland Assets' favor might mean that individual appropriations relating to a defense acquisition might be the basis for a protest.12

In a unanimous decision authored by Judge Moore, the Federal Circuit affirmed the COFC's decision dismissing Cleveland Assets' claim that the GSA RLP violated § 3307.13 Building on the discussion during argument, the court held that because § 1491(b) only confers jurisdiction over challenges in connection with a procurement, it does not cover allegations of a violation of § 3307, because § 3307 is an appropriation statute, not a procurement statute. The decision repeatedly references a concern with unnecessarily expanding the scope of bid protest jurisdiction:

While the Claims Court dismissed Count II on prudential standing grounds, we need not reach that issue because the plain language of 28 U.S.C. § 1491(b)(1) expressly precludes Claims Court jurisdiction over Count II of the complaint. Section 1491(b)(1) only confers jurisdiction over challenges to statutes or regulations "in connection with a procurement or proposed procurement." 28 U.S.C. § 1491(b)(1). We have previously interpreted § 1491(b) to extend only to actions in which the government at least initiated a procurement, or initiated the process for determining a need for acquisition. The phrase "procurement" therefore limits the types of government action that the Claims Court has jurisdiction to review under § 1491(b). If plaintiffs could allege any statutory or regulatory violation tangentially related to a government procurement, § 1491(b)(1) jurisdiction risks expanding far beyond the procurement context.

The only statute alleged to be violated by Cleveland Assets in Count II is 40 U.S.C. § 3307, an appropriation, not a procurement, statute. The plain text of § 3307 demonstrates that the statute is directed to "appropriations [being] made only" pursuant to approval by the specified congressional committees. While the word "procurement" is nowhere to be found in the statute, "appropriation" is used eight times.

The statutory structure confirms our plain language reading of the statute. The structure of 40 U.S.C. § 3307 directs GSA how to apply for an appropriation, but it says nothing of how GSA must run its procurement once the appropriation is made. ... If we were to read § 3307 as a procurement statute, every appropriations bill and rider would become a potential source of challenge for any interested party under 28 U.S.C. § 1491(b)(1).14

Implications

After Cleveland Assets, we know at least three things for certain: First, Cleveland Assets lost its bid protest. Second, the COFC does not have jurisdiction to consider a protest challenging a GSA violation of § 3307. And third — the COFC is still divided on the issue of prudential standing. The real implications of Cleveland Assets arise from the Federal Circuit's sua sponte determination that only violations of "procurement statutes" may be subject to challenge under § 1491(b). With respect to that issue, there are at least three important questions.

First, why is § 1491(b) limited to alleged violations of "procurement statutes"? The decision does not provide any meaningful explanation for that holding. On its face, § 1491(b) seems to only require (1) an "interested party" and (2) "any alleged violation of statute or regulation in connection with a procurement or proposed procurement."15 Past Federal Circuit precedent has provided a broad interpretation of the phrase "in connection with a procurement," requiring only that the statute have connection to a procurement, not that the statute be a "procurement statute," however defined. Indeed, the circuit's landmark holding in RAMCOR seems to foreclose any "procurement statute" requirement:

The language of § 1491(b), however, does not require an objection to the actual contract procurement, but only to the "violation of a statute or regulation in connection with a procurement or a proposed procurement." The operative phrase "in connection with" is very sweeping in scope. As long as a statute has a connection to a procurement proposal, an alleged violation suffices to supply jurisdiction.16

That is not to say there is no limit to the scope of issues that may form the basis of a protest. The constitutional standing requirement for injury-in-fact provides a limit to the types of violations of law that can be raised in a protest, because the alleged violation must cause harm (i.e., prejudice) to the protester.17 Beyond the constitutional standing requirement, the Federal Circuit has long held that § 1491(b) also requires a plaintiff to be an "interested party" in order to have standing to bring a protest, limiting the pool of potential protesters to actual or prospective offerors with a direct economic interest in the procurement.18 Even granting the Federal Circuit's reasonable concern that all appropriations statutes not become a new field for protests, however, it is not obvious that drawing a line around "procurement statutes" as those statutes that specifically address and control procurements is the answer. Appropriations and procurements go hand in hand, and Congress often directs certain procurement processes through its authorization and appropriation bills.

Second, what is a "procurement statute"? Cleveland Assets does not provide any meaningful rule or test to help determine whether a statute qualifies. The decision observes that the word "procurement" does not appear in § 3307, and that § 3307 does not specifically address how the GSA "must run its procurement." But such literal tests imply that many statutes affecting procurement are now ruled out from protest consideration. All we know really know is that § 3307 does not qualify. That is problematic because, despite the decision's reasoning, § 3307 clearly controls aspects of the GSA's discretion in conducting its procurement. Section 3307 may not say the word "procurement," but it does say "lease," and it is well settled that GSA lease competitions are procurements.19 The terms of § 3307 do effectively limit the GSA's options regarding its procurement, even if it does not direct the GSA to conduct its procurement in a specific way. Section 3307 requires the GSA to estimate and submit a maximum budget, and limits the discretion of the GSA to increase that budget, which, in Cleveland Assets, led directly to the rental rate cap to which the protester objected. If that is not a "procurement statute," there may not be many "procurement statutes" out there.

Third, will Cleveland Assets seek reconsideration from the panel or the en banc court? This is the only question that will be answered relatively soon. While panels do not often accept an invitation to reconsider their decisions, and en banc rehearing is exceedingly rare, this case just might fit the bill. The decision: (1) creates new precedent on an important jurisdictional issue, which could be interpreted to conflict with prior Federal Circuit precedent, (2) was based on argument raised for the first time during oral argument, and (3) does not discuss any broader implications of its holding or state a clear rule to follow, may warrant a second look from the Circuit.

It is difficult at this point to predict the implications of Cleveland Assets. Most protests, alleging violations of the Competition in Contracting Act or the Federal Acquisition Regulation are unlikely to be impacted. However, any protest filed at COFC alleging violation of a statute or regulation that does not obviously qualify as a "procurement statute" may face a jurisdictional challenge. Given that the COFC judges are still split on whether prudential standing applies, protesters may have to demonstrate that they allege violation of a "procurement statute" and that they are within the "zone of interests" protected by that procurement statute.

Footnotes

1. Cleveland Assets LLC v. United States, 132 Fed. Cl. 264, 272-277 (2017).

2. Cleveland Assets LLC v. United States, 17-2113 at *7 (Fed. Cir., Mar. 5, 2018), available at www.cafc.uscourts.gov/sites/default/files/opinions-orders/17-2113.Opinion.3-1-2018.1.PDF.

3. 28 U.S.C. § 1491(b)(1).

4. Cleveland Assets, 17-2113 at *2.

5. Id. at 2.

6. Cleveland Assets, 132 Fed. Cl. at 272.

7. d. at 274.

8. Id. at 272-277.

9. See e.g., Bennett v. Spear, 520 U.S. 154, 163 (1997).

10. Cleveland Assets, 132 Fed. Cl. at 277.

11. See e.g., MORI Assocs., Inc. v. United States, 102 Fed. Cl. 503, 542 (2011) (zone of interests standard "does not apply to protests brought as a breach of duty to fairly and honestly consider bids"); Hallmark-Phoenix 3, LLC v. United States, 99 Fed. Cl. 65, 70 (2011) (holding prudential standing does apply to cases brought under 1491(b)); Santa Barbara Applied Research, Inc. v. United States, 98 Fed. Cl. 536, 544 (2011) (determining prudential standing does not apply under § 1491(b)).

12. See audio recording of January 12, 2018 hearing at 32:00-33:40 (discussion of "procurement" vs. "appropriation" statutes generally begins at 23:15). Available at www.cafc.uscourts.gov/oral-argument-recordings?title=Cleveland&field_case_number_value=&field_date_value2%5Bvalue%5D%5Bdate%5D=&=Search.

13. Cleveland, 17-2113.

14. Id. at *6-7 (internal citations and quotations omitted).

15. 28 U.S.C. § 1491(b).

16. RAMCOR Servs. Grp., Inc. v. United States, 185 F.3d 1286, 1289 (Fed. Cir. 1999)

17. "To prevail in a bid protest case, the protester must show that it was prejudiced by the government's actions." Glenn Defense Marine (Asia), PTE Ltd. v. United States, 720 F.3d 901, 912 (Fed. Cir. 2013). Despite the practice of GAO and some COFC judges, the Federal Circuit does not distinguish between standing and prejudice. See Myers Investigative And Sec. Servs., Inc. v. United States, 275 F.3d 1366, 1369–70 (Fed. Cir. 2002) ("To some extent, the Court of Federal Claims appears to have treated the question of whether Myers was prejudiced by the GSA as different from the question of whether Myers has standing. In fact, prejudice (or injury) is a necessary element of standing.")

18. See Am. Fed'n of Gov't Employees, AFL-CIO v. United States, 258 F.3d 1294, 1302 (Fed. Cir. 2001) (" We therefore are not convinced that Congress, when using the term "interested party" to define those who can bring suit under § 1491(b)(1), intended to confer standing on anyone who might have standing under the APA. The term Congress did choose to define standing under § 1491(b), "interested party," is a term that is used in another statute that applies to government contract disputes, the CICA. As set forth above, the CICA explicitly defines that term as "an actual or prospective bidder or offeror whose direct economic interest would be affected by the award of the contract or by failure to award the contract.").

19. See Forman v. United States, 767 F.2d 875, 879 (Fed. Cir. 1985). Indeed, if a lease was not a procurement, then the entire case would have been dismissed for lack of jurisdiction on that basis alone, and the Federal Circuit could not have addressed Cleveland Assets remaining protest ground after dismissing the alleged violation of § 3307.

Originally published by Appellate Law360, Government Contracts Law360, Real Estate Law360, White Collar Law360.

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