Bayaud Enterprises, Inc. v. U.S. Department of Veterans Affairs

          OPINION AND ORDER DENYING MOTION FOR TEMPORARY RESTRAINING ORDER

          MARCIA S. KRIEGER SENIOR UNITED STATES DISTRICT JUDGE.

         THIS MATTER comes before the Court pursuant to the Plaintiffs' Emergency Motion for Temporary Restraining Order (# 40).

         FACTS

         Although this case involves complex questions of statutory analysis, the operative facts, as set forth in the Amended Complaint (# 39), are straightforward. Two federal statutes, the Javits-Wagner-O'Day Act (“JWOD”), 41 U.S.C. 46 et seq., and the Veteran's Benefits, Health Care, and Information Technology Act (“VBA”), 38 U.S.C § 8101 et seq., are arguably applicable and sometimes come into conflict.

         JWOD seeks to create employment opportunities for the blind and severely disabled, and does so by requiring federal agencies seeking to purchase goods and services to make such purchases, whenever possible, from eligible non-profit agencies employing such persons. 41 U.S.C. § 8503-04. JWOD is implemented through a statutorily-created agency (“AbilityOne”) that maintains a “procurement list.” The procurement list identifies products and services made available by eligible employers that meet the requisite statutory criteria. JWOD requires that federal agencies intending to purchase goods or services found on a procurement list obtain them from the JWOD-eligible business(es).

         The VBA seeks to promote veteran-owned businesses, and does so by requiring the Veteran's Administration (“VA”) to purchase goods and services from such businesses in certain circumstances. 38 U.S.C. § 8127. Needless to say, in circumstances where the VA seeks to purchase goods and services where there is both a supplier on the AbilityOne procurement list and veteran-owned businesses seeking to supply the products, the statutes appear to give conflicting instructions as to which supplier must be given the contract.

         The VA has taken various steps and implemented various guidelines and instructions that seek to resolve that the conflict. In 2017, the VA announced a policy (“the 2017 Class Deviation”) that attempted to resolve the conflict by prioritizing purchases from JWOD-eligible entities, but only with regard to products and services that had been listed on a procurement list as of January 7, 2010 or earlier; any products or services the VA that were not on that 2010 list would be purchased pursuant to the VBA's veteran preferences.

         Several JWOD-affiliated entities, including the Plaintiffs herein, commenced litigation in various fora challenging the 2017 Class Deviation. Bayaud Enterprises, one of the Plaintiffs here, is an entity that employs blind and severely disabled individuals in fulfilling several contracts with the VA, providing medical transportation services, mailroom operations, and switchboard services. SourceAmerica, the other named Plaintiff here, is an agency that represents the interests of JWOD-eligible employers generally, and sues here in a representative capacity.

         Although Bayaud alleges that the services it provides have been listed on the procurement lists since at least 2007, it contends that the VA informed it that, due to the 2017 Class Deviation, the VA would be considering whether veteran-owned businesses were providing the same services when it came time to renew Bayaud's contracts. As a consequence, the Plaintiffs commenced this action (# 1), alleging that the 2017 Class Deviation was impermissible in various respects, including that it violated the requirements of JWOD and that it was promulgated without adequate notice-and-comment procedures in violation of the Administrative Procedures Act and the Constitution's guarantee of Due Process protections.

         In the interim, other legal challenges to the 2017 Class Deviation were percolating through other federal courts. Most notably, a veteran-owned supplier of eyewear challenged both the pre- and post-2010 listings of various eyecare products and services on the JWOD-favored procurement list and sought an injunction requiring the VA to apply the VBA's preferences for veteran businesses to its purchases of eyewear products. The Court of Federal Claims agreed with the supplier and enjoined the VA to apply the VBA's provisions to any future contracts for the purchase of eyewear. The U.S. appealed the matter to the Federal Circuit, and in anticipation that the Federal Circuit's ruling on the question would prove dispositive, this Court stayed proceedings in this case pending the outcome of that appeal.

         In October 2018, the Federal Circuit affirmed the Court of Claims. PDS Consultants, Inc. v. U.S., 907 F.3d 1345 (Fed. Cir. 2018). Although the Federal Circuit's PDS opinion is central to this case, only a brief summary is needed here. The court rejected the government's argument that JWOD applied to all contracting decisions, but determined that the VBA applied only to competitive decisions - i.e. that the VBA's preferences only came into play after a contemplated contract had already passed through the JWOD's mandatory contracting filter, and was then to be competitively-bid. Instead, the Federal Circuit held that the VBA applied to “all contracting determinations.” 907 F.3d at 1358. The court applied the canon of statutory construction that a more specific statute (the VBA being applied only to VA contracting decisions, and only where sufficient numbers of veteran-owned businesses compete) takes precedence over a more general one (JWOD applying to all federal contracting decisions). 907 F.3d at 1359. It also noted that Congress had included an exclusion for JWOD-eligible contracts in prior legislation, but had not included such language in the VBA. Id. Finally, the court concluded that, where two statutes conflict, the later-enacted statute - here, the VBA -- should be given controlling effect. Id. Thus, the Federal Circuit ruled that “where a product or service is on the [procurement] 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. . . We find that, by passing the VBA, Congress increased employment opportunities for veteran-owned businesses in a narrow category of circumstances, while leaving intact significant mechanisms to protect such opportunities for the disabled.” Id. at 1360.

         Almost immediately upon issuance of the Federal Circuit's Mandate in PDS, the VA issued additional purchasing guidance to its employees and suppliers (“the 2019 Class Deviation”). The 2019 Class Deviation, adopting the language from PDS quoted above, concluded that the VBA takes priority over JWOD in all VA contracting decisions. Thus, it directs that VA contracting officers first apply the provisions of the VBA, giving preference to any eligible veteran-owned business, and to proceed to award contracts to entities on the AbilityOne procurement list only if no such eligible veteran-owned business bids. The Plaintiffs here then filed an Amended Complaint (# 39), alleging that the 2019 Class Deviation violates the APA, the Due Process clause, and the Rehabilitation Act.

         The Plaintiffs have also moved (# 40) for a Temporary Restraining Order enjoining the VA from implementing the 2019 Class Deviation and requiring it to award contracts consistent with JWOD pending the outcome of this case. They argue that this Court should conclude that PDS was wrongly-decided, that JWOD's provisions should be deemed to preempt the VBA's where the statutes conflict, and that allowing the VA to reassign the contracts Bayaud (and, more generally, those of SourceAmerica's ...