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In Alphapointe v. Department of Veteran's Affairs, 416 F.Supp.3d 1 (D.D.C. 2019), the court considered the same jurisdictional question in a case presenting essentially the same facts: an AbilityOne-listed supplier challenging the VA's adoption of the 2019 Class Deviation.
Summary of this case from Bayaud Enters., Inc. v. U.S. Dep't of Veteran's AffairsOpinion
Case No. 19-cv-02465 (APM)
08-30-2019
ALPHAPOINTE, et al., Plaintiffs, v. DEPARTMENT OF VETERANS AFFAIRS, et al., Defendants.
John L. Roach, IV, Drinker Biddle & Reath LLP, Washington, DC, for Plaintiff. Alexis J. Echols, Peter T. Wechsler, U.S. Department of Justice, Washington, DC, for Defendant.
John L. Roach, IV, Drinker Biddle & Reath LLP, Washington, DC, for Plaintiff.
Alexis J. Echols, Peter T. Wechsler, U.S. Department of Justice, Washington, DC, for Defendant.
MEMORANDUM OPINION AND ORDER
Amit P. Mehta, United States District Court Judge
I. INTRODUCTION
Plaintiffs Alphapointe and Winston-Salem Industries for the Blind ("IFB Solutions, Inc.") are qualified nonprofit agencies under the AbilityOne Program, a federal program whose purpose is to provide employment opportunities for people who are blind or have severe disabilities. For years, as a result of statutory preferences afforded to AbilityOne-qualified vendors, Plaintiffs have provided certain goods and services to the Department of Veterans Affairs ("VA"). The VA, however, recently notified Plaintiffs that it would not be exercising options on certain contracts and that the agency would transition these agreements to veteran-owned companies. Plaintiffs assert that a recently announced change to applicable acquisition regulations—which the parties refer to as the "2019 Class Deviation"—caused the VA not to renew these contracts and, instead, transition them to veteran-owned businesses.
Plaintiffs have asked this court to enjoin the VA from enforcing the 2019 Class Deviation, as well as from "terminating, transitioning, or otherwise taking any adverse action against any contracts that Plaintiffs" have with the VA. See Pls.' Mot. for Prelim. Inj. and Temp. Restraining Order, ECF No. 3 [hereinafter Pls.' Mot.]. Plaintiffs assert that the 2019 Class Deviation violates the Administrative Procedure Act in two ways. First, Plaintiffs argue that the 2019 Class Deviation is arbitrary, capricious, and not in accordance with law because it conflicts with a Federal Circuit opinion that requires the VA to perform what is known as a "Rule of Two" evaluation before awarding a sole-source contract to a veteran-owned business. Second, Plaintiffs maintain that the agency improperly promulgated the 2019 Class Deviation without subjecting it to notice and comment.
For the following reasons, the court finds that it likely has jurisdiction to hear Plaintiffs' APA challenges, but that injunctive relief is not warranted at this time. Plaintiffs have not shown either that they are substantially likely to succeed on their APA claims or that, absent an injunction, they will suffer irreparable harm.
II. BACKGROUND
A. Factual Background
1. The Federal Circuit's Decision in PDS Consultants
In October 2018, the Federal Circuit decided PDS Consultants, Inc. v. United States . In that case, the court addressed how the VA is to make its procurement decisions in the face of two, seemingly conflicting statutes, the Javits-Wagner-O'Day Act ("JWOD") and the Veterans Benefits Act ("VBA"). See generally 907 F.3d 1345 (Fed. Cir. 2018). The purpose of the JWOD is to create employment opportunities for the blind and other severely disabled individuals. See id. at 1348–49. The JWOD is implemented by the Committee for Purchase from People Who Are Blind or Severely Disabled, or the "AbilityOne Committee." See id. One of the Committee's principal functions is to create and maintain the "AbilityOne List," an index of products and services produced by qualified nonprofit entities that employ individuals who are blind or significantly disabled. See id. at 1349. The JWOD, generally speaking, "requires that federal agencies," including the VA, "purchase products and services on the [AbilityOne] List from designated nonprofits." Id.
The VBA, on the other hand, directs the VA to procure products from veteran-owned businesses in certain circumstances. See id. at 1350. The VBA contains what is known as the "Rule of Two." The Rule provides:
Except as provided in subsections (b) and (c) ... a contracting officer of the [VA] shall award contracts on the basis of competition restricted to [veteran-owned businesses] ... if the contracting officer has a reasonable expectation that two or more [veteran-owned businesses] will submit offers and that the award can be made at a fair and reasonable price ....
38 U.S.C. § 8127(d). The Rule of Two thus requires the VA to award a procurement contract to a veteran-owned business through a competitive bidding process when a contracting officer determines that two or more veteran-owned businesses will submit offers and that the award can be made at a "fair and reasonable price." See Kingdomware Tech., Inc. v. United States , 579 U.S. ––––, ––––, 136 S. Ct. 1969, 1976, 195 L.Ed.2d 334 (2016) (holding that " § 8127 is mandatory, not discretionary"). The VBA includes two exceptions to the Rule of Two. The first states that contracting officers "may" award a contract less than $250,000 "us[ing] procedures other than competitive procedures," thus authorizing sole-sourcing of such contracts. 38 U.S.C. § 8127(b). The second exception similarly allows the VA to award a sole-source contract if "the anticipated award price of the contract will ... not exceed $5,000,000" and the contract award "can be made at a fair and reasonable price." 38 U.S.C. § 8127(c). As will be seen, these exceptions lie at the heart of the parties' dispute in this case.
The Federal Circuit in PDS Consultants resolved the conflicting directives of the JWOD and the VBA in favor of the VBA. The court held that, "where a product or service is on the [AbilityOne] List and ordinarily would result in the contract being awarded to a nonprofit qualified under the JWOD, the VBA unambiguously demands that priority be given to veteran-owned small businesses." PDS Consultants , 907 F.3d at 1360. PDS Consultants did not, however, address the interplay between the JWOD and the VBA with respect to procurements of less than $5 million, which, at the contracting officer's discretion, can be sole-sourced to a veteran-owned business.
2. The 2019 Class Deviation and Aftermath
On May 20, 2019, the VA issued the 2019 Class Deviation to comply with PDS Consultants ' Rule of Two directive. See Pls.' Reply, ECF No. 17 [hereinafter Pls.' Reply], Ex. 1, ECF No. 17-1 at 31–36 [hereinafter Deviation], at 1. Under the heading "New Policy," the 2019 Class Deviation states that "[c]ontracting officers shall apply the VA Rule of Two, as implemented in [VA Acquisition Regulations ("VAAR") ] subpart 819.70, prior to awarding any contract to AbilityOne non-profit organizations or to Federal Prison Industries, Inc." See id. Further, "[f]or AbilityOne, if an award is not made to an eligible [veteran-owned business] under VAAR subpart 819.70, the priority use of AbilityOne applies and supplies and services on the [AbilityOne] List are mandatory sources." See id.
Plaintiffs make products and offer services on the AbilityOne List. Alphapointe provides the VA with pharmaceutical bottles and switchboard services. See Compl., ECF No. 1 [hereinafter Compl.], ¶¶ 7, 14. IFB Solutions supplies the VA with vision-related products in Veterans Integrated Service Networks ("VISN") 2, 7, and 8. See id. ¶ 8. Following the 2019 Class Deviation, the VA notified Plaintiffs that it will not exercise options to extend these contracts. See Compl. ¶¶ 53–61. IFB Solutions' VISN 8 contract is set to expire on August 30, 2019. See Compl. ¶ 51; see also Hr'g Tr at 6–7 (explaining VISN 8 option has been extended to August 30, 2019). IFB Solutions' VISN 2 contract and Alphapointe's switchboard services contract are set to expire on September 30, 2019. See Compl. ¶¶ 55, 61. IFB Solutions' VISN 7 contract will expire in early October 2019. See id. ¶ 59 (VA notifying IFB Solutions on July 9, 2019 that it will contract for 90 days more). The expiration date for Alphapointe's pharmaceutical bottles contract is uncertain, but the VA has notified Alphapointe that it will not extend the bottles contract because it has identified a veteran-owned business to assume that contract. See id. ¶ 60.
B. Procedural Background
Plaintiffs filed this action on August 15, 2019, against Defendants the VA, the Secretary of the VA, and the United States (collectively "Federal Defendants"). See generally Compl. The crux of their Complaint is that the VA, because of the 2019 Class Deviation, is awarding contracts for goods and services on the AbilityOne List to veteran-owned businesses without first conducting the Rule of Two analysis required by PDS Consultants . See id. ¶ 50. Their Complaint advances four causes of action. The first two arise under the Administrative Procedure Act ("APA") and are the claims upon which they rely to obtain injunctive relief. See id. ¶¶ 72–84; Hr'g Tr. at 4. The third and fourth causes are contract or quasi-contract claims of promissory estoppel and breach of the duty of good faith and fair dealing. See id. ¶¶ 85–95.
Plaintiffs designated this action as related to an action pending before Judge Jackson that challenges an earlier Class Deviation. See Notice, ECF No. 2 (related with 17-cv-992). Judge Jackson determined, however, the cases were not "related" under Local Civil Rule 40.5 and therefore the matter was re-assigned to this court.
Plaintiffs assert that Federal Defendants violated the APA in two ways. First, they contend that the 2019 Class Deviation is arbitrary, capricious, and not in accordance with law because it disregards PDS Consultants by "prioritiz[ing] [veteran-owned businesses] even where the Rule of Two is not satisfied." See Pls.' Mot. at 25. Second, Plaintiffs maintain that the Deviation's issuance was procedurally improper because Federal Defendants did not follow notice-and-comment rulemaking. See id. at 27.
The Federal Defendants and Defendant PDS Consultants, who the court allowed to intervene, see also Order, ECF No. 16, raise a host of arguments in response to Plaintiffs' motion. As a threshold matter, they assert that this court does not have jurisdiction because jurisdiction over procurement challenges rests exclusively with the Court of Federal Claims. See generally Fed. Defs.' Response to Pls.' Mot., ECF No. 15 [hereinafter Fed. Defs.' Opp'n], at 18–25; PDS Consultants, Inc.'s Stmt. of P&A in Opp'n to Pls.' Mot., ECF No. 13 [hereinafter PDS Opp'n], at 3–7. They also contend that Plaintiffs fail to meet the four criteria for injunctive relief. See Fed. Defs.' Opp'n at 25–35; PDS Opp'n at 7–12.
The court held oral argument on August 27, 2019.
The Federal Defendants submitted additional records after oral argument but they are not relevant to the court's decision. See Notice, ECF No. 18.
III. JURISDICTION
As with the merits of a claim, a party seeking injunctive relief must show a "substantial likelihood of success" on the threshold question of jurisdiction. See Elec. Privacy Info. Ctr. v. Dep't of Commerce , 928 F.3d 95, 104 (D.C. Cir. 2019). Here, Defendants argue that the court lacks jurisdiction because Plaintiffs' claims are "plainly procurement challenges or [Contract Dispute Act] controversies, which are subject to the exclusive jurisdiction of the [Court of Federal Claims] under the Tucker Act." See Fed. Defs.' Opp'n at 18. Defendants point to the plain text of the Tucker Act, which confers the Court of Federal Claims with exclusive jurisdiction for actions by "an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement ." 28 U.S.C. § 1491(b) (emphasis added). Plaintiffs respond that they are not challenging the VA's procurement decisions on any particular contract, but instead are challenging the 2019 Class Deviation on its face under the APA, a challenge well within this court's jurisdiction. See Pls.' Reply at 7.
The Administrative Dispute Resolution Act placed a sunset provision terminating district court jurisdiction in 2001. See Pub. L. No. 104-320, § 12(d) (1996).
The parties agree that the Federal Circuit's decision in Southfork Systems Inc. v. United States is instructive in deciding whether Plaintiffs' APA claims are properly before this court. See Hr'g Tr. at 16, 56–58. In Southfork , an incumbent contractor challenged a pre-award procurement decision for cafeteria services by the Department of the Air Force. See 141 F.3d 1124, 1127–28 (Fed. Cir. 1998). The incumbent contractor brought multiple claims, including three asserting that the government had improperly interpreted a statute and exceeded its statutory authority. See id. at 1130. The court distinguished between claims asserting that an agency had acted in bad faith and failed to comply with a pertinent procurement regulation versus those alleging the agency "had violated statutory requirements because the regulations themselves were fatally inconsistent with the statute they purported to implement ..." Id. at 1134. The former type of bad faith claims, the court held, belong in the Court of Federal Claims, whereas the latter category of claims are properly brought in federal District Courts under the APA. See id. In the case before it, the Federal Circuit found that the plaintiff's "real complaint was that the [government] had acted arbitrarily in promulgating the regulations that the Air Force followed in conducting the [procurement]." Id. at 1135 (emphasis added). It was not claiming that the Air Force had improperly applied the promulgated regulations in its pre-award decision. See id. at 1134–35. Thus, the plaintiff's claims were not properly before the Court of Federal Claims. The court concluded that, "[i]f a bidder wishes to challenge the validity of a regulation governing a procurement, the proper method of doing so is to bring an action in federal district court under the [APA]." Id. at 1135.
Though the court finds this issue a close call, it concludes that Plaintiffs have carried their burden of establishing jurisdiction in this District Court. Reading the Complaint in the light most favorable to Plaintiffs, they challenge the 2019 Class Deviation itself rather than its application. In Count One, Plaintiffs allege that "[t]he VA's adoption of the 2019 VA Class Deviation was arbitrary, capricious, and contrary to law because [it] is inconsistent with and exceeds the scope of the Federal Circuit's mandate in PDS Consultants ." Compl. ¶ 74. The policy is inconsistent, Plaintiffs maintain, because it "empower[s]" the VA to "omit or disregard the Rule of Two analysis and award contracts on a single source basis." Id. Count Two alleges that the VA "unilaterally implement[ed]" the Deviation "without properly following the APA notice-and-comment procedures." Id. ¶ 81. Thus, using the dichotomy established in Southfork , Plaintiffs challenge the 2019 Class Deviation itself, and not its application to a particular procurement decision.
Defendants correctly point out that Plaintiffs' first claim also challenges the "VA's efforts to transition contracts away from IFB Solutions and Alphapointe without first satisfying the Rule of Two." Id. ¶ 77; see also Defs.' Opp'n at 22. This allegation sounds like a specific challenge to the application of the 2019 Class Deviation to a procurement decision, thus placing it beyond this court's jurisdiction. Furthermore, Defendants observe that, in addition to enjoining the 2019 Class Deviation, Plaintiffs ask the court to enjoin the VA from "terminating, transitioning, or otherwise taking any adverse action against any contracts that Plaintiffs ... have with the VA." Pls.' Mot., Proposed Order, ECF No. 3-4 [hereinafter Proposed Order]; see also Defs.' Opp'n at 23. This latter requested remedy exceeds what the court can do under the APA. See 5 U.S.C. § 706(2)(B) (authorizing district courts to "hold unlawful and set aside agency action, findings, and conclusions found to be ... contrary to constitutional right, power, privilege, or immunity"); Sugar Cane Growers Coop. of Fla. v. Veneman , 289 F.3d 89, 97 (D.C. Cir. 2002) ("Normally when an agency so clearly violates the APA we would vacate its action ... and simply remand for the agency to start again."). Notwithstanding these pleading defects, the court exercises jurisdiction over Counts One and Two in a manner consistent with its authority under the APA.
IV. DISCUSSION
With Plaintiffs having established jurisdiction, the court moves to the merits of Plaintiffs' demand for injunctive relief. Injunctive relief, of the kind requested here, is an "extraordinary and drastic remedy" that is "never awarded as [a matter] of right." Munaf v. Geren , 553 U.S. 674, 689–90, 128 S.Ct. 2207, 171 L.Ed.2d 1 (2008) (citations and internal quotation marks omitted). A court may only grant such "extraordinary remedy ... upon a clear showing that the plaintiff is entitled to such relief." Winter v. Nat. Res. Def. Council, Inc. , 555 U.S. 7, 22, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) (citing Mazurek v. Armstrong , 520 U.S. 968, 972, 117 S.Ct. 1865, 138 L.Ed.2d 162 (1997) (per curiam)). Specifically, a plaintiff must show that: (1) it "is likely to succeed on the merits"; (2) it "is likely to suffer irreparable harm in the absence of preliminary relief"; (3) "the balance of equities tips in [its] favor"; and (4) "an injunction is in the public interest." Id. at 20, 129 S.Ct. 365 (citations omitted).
Courts in this Circuit traditionally have evaluated these four factors on a "sliding scale"—if a "movant makes an unusually strong showing on one of the factors, then it does not necessarily have to make as strong a showing on another factor." Davis v. Pension Benefit Guar. Corp , 571 F.3d 1288, 1291–92 (D.C. Cir. 2009). Winter , however, called that approach into doubt and sparked disagreement over whether the "sliding scale" framework continues to apply, or whether a movant must make a positive showing on all four factors without discounting the importance of a factor simply because one or more other factors have been convincingly established. This question remains undecided by the D.C. Circuit. See Archdiocese of Washington v. Washington Metro. Area Transit Auth. , 897 F.3d 314, 334 (D.C. Cir. 2018).
It matters not in this case whether the sliding scale still applies, because Plaintiffs' claim for injunctive relief fails on the two most critical factors—irreparable harm and a substantial likelihood of success.
A. Plaintiffs Have Not Shown Irreparable Harm
In the D.C. Circuit, showing that in the absence of injunctive relief irreparable harm will result is a considerable burden. The injury must be "certain and great," and cannot be "theoretical." Wis. Gas. Co. v. FERC , 758 F.2d 669, 674 (D.C. Cir. 1985). Further, it must be "imminen[t]." Chaplaincy of Full Gospel Churches v. England , 454 F.3d 290, 298 (D.C. Cir. 2006). And, critically, for purposes of this case, "economic loss does not, in and of itself, constitute irreparable harm." Wis. Gas. Co. , 758 F.2d at 674. "Recoverable monetary loss may constitute irreparable harm only where the loss threatens the very existence of the movant's business." Id. (citation omitted). If a movant does not show irreparable harm, the court may deny the motion for injunctive relief without considering other factors. See CityFed Fin. Corp. v. Office of Thrift Supervision , 58 F.3d 738, 747 (D.C. Cir. 1995).
Plaintiffs assert that Alphapointe and IFB Solutions will each lose about 20 percent of its annual revenue if the court does not grant injunctive relief. See Compl. ¶ 63. This allegation does not arise to irreparable harm for a few reasons. First, neither Plaintiff asserts that a 20 percent loss threatens "the very existence" of its business. Wis. Gas. Co. , 758 F.2d at 674. Second, the 20 percent loss is not clearly imminent. True, Plaintiffs would begin to lose revenue when the contracts terminate, but the harm of the claimed 20 percent annual loss would be spread over a full year. Plaintiffs do not say that they would be unable to make up these revenue losses through other contracts. Third, even Plaintiffs' short-term losses are speculative and theoretical. Plaintiffs have filed bid protests with the Government Accountability Office challenging the VA's decision to sole-source Plaintiffs' present contracts to veteran-owned vendors, like PDS Consultants. See, e.g. , Pls.' Reply, Decl. of Dan Kelly, ECF No. 17-1, ¶ 6. Upon filing of these bid protests, an automatic stay of 100 days went into effect. See Hr'g Tr. at 45. The agency has the power to override the stay, and the VA has done so with respect to the VISN 8 contract, see Notice, ECF No. 19, and could do so for the others. But Plaintiffs can appeal the override to the Court of Federal Claims. See Hr'g Tr. at 46–47; see also Notice, ECF No. 19 (Defendants representing Plaintiffs advised they will seek to enjoin override); see also Notice, ECF No. 22 (Plaintiffs arguing override improper). That court could act quickly to reinstate the stay. See Hr'g Tr. at 48. Thus, as of today, it would be entirely speculative to find that Plaintiffs will suffer even a dollar of short-term revenue loss. Finally, Plaintiffs have not shown that their claimed financial loss is irrecoverable. Plaintiffs have brought promissory estoppel and breach of the duty of good faith claims against Federal Defendants for unlawfully "cancel[ling] contracts or refus[ing] to exercise options." Compl. ¶ 87. Government counsel represented that Plaintiffs could be made whole for lost revenues on these claims if they were to prevail, see Hr'g Tr. at 59, though Plaintiffs expressed some surprise at that position, see id. at 69. In any event, Plaintiffs have not convinced the court that money damages are not recoverable on their non-APA claims.
In their briefing, Plaintiffs also point to the economic harm their employees will suffer absent an injunction, but Plaintiffs conceded in oral argument that their employees' interests cannot be considered as part of the irreparable harm inquiry. See Hr'g Tr. at 42–43.
Plaintiffs rely on two cases to argue they will suffer irreparable harm, Feinerman v. Bernardi and Nalco Company v. Environmental Protection Agency . See Hr'g Tr. at 73 (citing 558 F. Supp. 2d 36 (D.D.C. 2008) and 786 F. Supp. 2d 177 (D.D.C. 2011) ). These cases are inapposite. In Feinerman and Nalco , the plaintiffs showed that their financial losses were irrecoverable because they had available to them only APA claims, which meant that they could not recover any money damages against the government even if they were to prevail. See 558 F. Supp. 2d at 51 ; see also 786 F. Supp. 2d at 188. Thus, the plaintiffs' injuries in those cases were, by definition, irreparable. Additionally, the losses in Feinerman were far greater that those at issue here. The plaintiff there needed an injunction to prevent his debarment, which he predicted would result in a 40 percent loss in revenue—more than twice what Plaintiffs claim they would lose here after a year. See 558 F. Supp. 2d at 50–51. Plaintiffs claimed financial losses here simply do not rise to the level of irreparable harm.
B. Plaintiffs Have Not Shown Likelihood of Success on the Merits
In addition to failing to show irreparable harm, Plaintiffs have not demonstrated a likelihood of success on either Count I—claiming arbitrary and capricious agency action—or Count II—asserting a failure to follow the rulemaking process.
1. Count I
Plaintiffs have not convinced the court that the 2019 Class Deviation violates the APA by "disregard[ing] the Federal Circuit's mandate in PDS Consultants ." Pls.' Mot. at 25. The 2019 Class Deviation provides that "[c]ontracting officers shall apply the VA Rule of Two, as implemented in VAAR subpart 819.70, prior to awarding any contract to AbilityOne non-profit organizations or to Federal Prison Industries, Inc." See Deviation at 2. And secondarily, it states, "[f]or AbilityOne, if an award is not made to an eligible [veteran-owned business] under VAAR subpart 819.70, the priority use of AbilityOne applies and supplies and services on the Procurement List are mandatory sources." See id. Plaintiffs assert that these provisions run afoul of PDS Consultants ' directive to apply the Rule of Two before contracting with a veteran-owned business to purchase an AbilityOne-covered good or service. Specifically, they say, the 2019 Class Deviation is too broad because it allows the VA to sole-source awards to veteran-owned businesses for AbilityOne goods and services. See Pls.' Mot. at 25; see also Hr'g Tr. at 12. As Plaintiffs see it, under PDS Consultants , the VBA can supplant the JWOD only if it follows the Rule of Two, notwithstanding the fact that the VBA permits sole-sourcing of low dollar-value contracts under subsections (b) and (c) of section 8127. According to Plaintiffs, "[t]he Federal Circuit's decision is extremely narrowly drawn and limited [to 38 U.S.C. § 8127(d) ]. It doesn't address whether the entirety of the VBA ... takes priority over the [JWOD]." Hr'g Tr. at 12.
Plaintiffs have failed to show that the 2019 Class Deviation, even as they interpret it, is an arbitrary and capricious reading of PDS Consultants . Cf. Coal Emp't Project v. Dole , 900 F.2d 367, 368 (D.C. Cir. 1990) ("We review an agency's interim rulemaking in response to a judicial decision for contrariness ‘to either the letter or spirit of the mandate’ in the original case.") (quoting Mid-Tex Elec. Corp. v. FERC , 822 F.2d 1123, 1130 (D.C. Cir. 1987) ). The Federal Circuit in PDS Consultants only addressed the interplay between the VBA's Rule of Two for contracts in excess of $5 million and the JWOD. For such contracts, the court held, the agency had to perform a Rule of Two analysis before making an award for an AbilityOne product or service to a veteran-owned business. PDS Consultants did not, however, address the relationship between the JWOD and VA contracts for AbilityOne products or services valued at less than $5 million that the VBA allows to be sole-sourced. The Federal Circuit said nothing about whether the JWOD prevails over the VBA for such low dollar-value contracts, or vice-versa. Indeed, the court expressly said that sections (b) and (c) of section 8127, i.e., the exceptions to the Rule of Two, were "not relevant" to its decision. PDS Consultants , 907 F.3d at 1357. Thus, Plaintiffs' problem with the 2019 Class Deviation—namely, that it prioritizes sole-sourcing of small-dollar contracts to veteran-owned business over AbilityOne nonprofits like Plaintiffs—is an issue that the Federal Circuit left unaddressed.
At oral argument, Federal Defendants represented that the contract awards at issue are less than $5 million and thus eligible to be sole-sourced. See Hr'g Tr. at 51. Counsel stated that these are short-term awards with short option periods that are valued at less than $5 million. See id. Plaintiffs have not come forth with evidence to rebut this representation. See Hr'g Tr. at 7 (Plaintiffs' counsel stating that the VISN 8 contract is "budgeted at approximately $7 million a year ," but not providing the value of the shorter-term contracts in dispute here).
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Thus, at most, what Plaintiffs have shown is that the 2019 Class Deviation grants a preference to veteran-owned businesses that the court in PDS Consultants did not recognize. Plaintiffs cite no case, however, for the proposition that an agency acts arbitrarily and capriciously when it adopts a regulation that fills in a gap not addressed by a judicial decision. To be sure, that does not mean the 2019 Class Deviation's apparent elevation of the VBA over the JWOD for all contracts, regardless of dollar value, is correct. That interpretation may be at odds with the JWOD's statutory scheme. But Plaintiffs have not made such a statutory construction argument here. They argue only that the 2019 Class Deviation does not follow the Federal Circuit's directive in PDS Consultants . Plaintiffs have not made that case. Plaintiffs, therefore, have not met their burden of showing that they are likely to prevail on the merits of Count One.
2. Count II
Plaintiffs stand on even weaker ground on their claim that the VA violated the APA by not subjecting the 2019 Class Deviation to notice-and-comment rulemaking. The APA exempts from the rulemaking process "matter[s] relating to ... public ... contracts." 5 U.S.C. § 553(a)(2). This exception—known as the "proprietary rules exception"—provides that "[t]he requirements for the general use of public rulemaking procedures do not apply to an agency's setting of rules for the conduct of a proprietary type of agency business." JAMES T. O'REILLY, ADMINISTRATIVE RULEMAKING , § 3:19 (2019). Although the case law is sparse on this exception, based on the exception's legislative history, the D.C. Circuit has observed that Congress intended for it to cover both narrow "managerial" proprietary decisions and broader proprietary "matters of interpretation and policy." Nat'l Wildlife Fed'n v. Snow , 561 F.2d 227, 231–32 (D.C. Cir. 1976). The VA's adoption of the 2019 Class Deviation without notice and comment fits easily within the latter class of excepted proprietary decisions.
Plaintiffs assert that the proprietary rules exception does not cover "new agency policies altering procurement contract processes ." See Pls.' Reply at 17 (emphasis added); see also Hr'g Tr. at 32. For this proposition, Plaintiffs rely on Misso Services Corporation v. United States Small Business Administration , a nearly 40-year-old unpublished district court opinion. See Pls.' Reply at 17 (citing No. 81-0283, 1981 WL 30841 (D.D.C. Dec. 23, 1981) ). In Misso , the court required the Small Business Administration to comply with notice-and-comment procedures before issuing a substantive policy change that precluded the plaintiff from continuing to conduct its business. See id. at *8. The court in Misso did not, however, address the proprietary rules exception, 5 U.S.C. § 553(a)(2), in its opinion. See generally id. Misso , therefore, does not help Plaintiffs show that they are likely to prevail on the merits of Count Two.
V. CONCLUSION AND ORDER
For the foregoing reasons, the court denies Plaintiffs' Motion for Temporary Restraining Order and Preliminary Injunction, ECF No. 3.