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Starry Associates, Inc. v. United States

United States Court of Appeals, Federal Circuit

June 22, 2018

STARRY ASSOCIATES, INC., Plaintiff-Appellee
UNITED STATES, Defendant-Appellant INTELLIZANT, LLC, Defendant

          Appeal from the United States Court of Federal Claims in No. 1:16-cv-00044-EGB, Senior Judge Eric G. Bruggink.

          Lars Eric Anderson, Odin, Feldman & Pittleman, PC, Reston, VA, argued for plaintiff-appellee. Also represented by Shiva S. Hamidinia; James Y. Boland, Venable LLP, Tysons Corner, VA.

          Alexis J. Echols, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellant. Also represented by Chad A. Readler, Robert E. Kirschman, Jr., Douglas K. Mickle.

          Before O'Malley, Linn, and Hughes, Circuit Judges.


         The sole issue in this appeal is the meaning of the term "special factor" in 28 U.S.C. § 2412(d)(2)(A), a subsection of the Equal Access to Justice Act ("EAJA"). When a trial court finds that a "special factor" exists, it is authorized to increase the statutory attorney fee rate in certain cases brought by or against the government.

         In this case, the United States Court of Federal Claims ("Claims Court") entered judgment in favor of Plaintiff-Appellee Starry Associates, Inc. ("Starry") on its bid protest claim, concluding that the Department of Health and Human Services ("HHS") acted arbitrarily and capriciously in cancelling its solicitation seeking to procure certain business operations services. Starry Assocs., Inc. v. United States (Merits Decision), 127 Fed.Cl. 539 (2016). The Claims Court thereafter awarded Starry attorney fees at the rates actually billed to Starry by its counsel, finding that the "extreme measures that [Starry] was forced to pursue to vindicate its right to a rational and lawful federal procurement process, combined with the shocking disregard of the truth by" HHS, constituted a "special factor" justifying an award of fees above the EAJA's "default rate" of $125 per hour. Starry Assocs., Inc. v. United States (Fees Decision), 131 Fed.Cl. 208, 215 (2017).

         We hold that the Claims Court erred as a matter of law in holding that an agency's improper or dilatory conduct during the administrative process that gave rise to the litigation between the parties can constitute a "special factor" under § 2412(d)(2)(A). Accordingly, we vacate the Claims Court's fee award and remand for further proceedings.

         I. Background

         A. The Bid Protests

         None of the material facts are in dispute. On November 13, 2014, HHS's Program Support Center ("PSC") issued a Request for Quotations ("solicitation" or "RFQ"), seeking to procure business operations services that would support PSC's implementation of HHS's Unified Financial Management System ("UFMS"). Merits Decision, 127 Fed.Cl. at 540. The RFQ was set aside for small businesses and was to be awarded to the lowest priced, technically acceptable offeror. Id. Starry was the incumbent provider of on-site operational support for UFMS. Id.

         Because UFMS is built on Oracle software, the RFQ required key personnel to have experience with that software, as well as with UFMS. Id. HHS was also looking for expertise regarding several of its other systems that worked in coordination with UFMS: the Managing Accounting and Credit Card System ("MACCS"), a system for accounting purchases made by government credit card holders, and GovNet-NG, a reporting system used to distribute operational reports. Id. Both are proprietary systems developed by Starry. Id. at 540-41.

         Three companies timely submitted quotations, with Defendant Intellizant, LLC ("Intellizant") offering the low-priced bid. Id. at 541. It was therefore evaluated for technical acceptability along with past performance and certain statutory compliance. Id. HHS thereafter convened a three-person Technical Evaluation Panel ("TEP") which, after reviewing Intellizant's proposal for only two or three days, reached a mixed evaluation. Id. at 541-42. Two of the three members found Intellizant acceptable for all factors, while the third rated the company technically unacceptable. Id. at 542. Of the two members who found the proposal acceptable, one noted that several pieces of information were missing, while the other "found no problems with Intellizant's proposal" and expressly relied on "[p]revious experience with the contractor" in making her determination. Id. The Contracting Officer ("CO") then evaluated the proposal and determined that Intellizant was technically acceptable. Id.

         Starry, which submitted a more expensive proposal that was not evaluated, was notified of the award, and filed its first protest at the Government Accountability Office ("GAO"). Id. at 544. It alleged that HHS's evaluation of Intellizant was unreasonable because of the company's lack of experience with the contract requirements and lack of qualified key personnel. HHS thereafter informed GAO and Starry of its intent to take corrective action, explaining that it did "not intend to reevaluate the requirement or solicit new proposals." Id. Instead, it intended to thoroughly review the file and ensure the evaluation was complete and accurate. Id. GAO dismissed Starry's protest as academic, and Starry, believing the scope of this corrective action was insufficient, sent a letter to the clerk of court for the Claims Court, stating it intended to file a bid protest. Id. In response, the CO sent Starry a letter indicating that HHS would reevaluate proposals and make a new award decision. Id. Starry subsequently withdrew its notice of intent to protest. Id.

         Although the TEP's second evaluation lasted months and culminated in the issuance of a new report, virtually no contemporaneous documentation of the panel's decision-making process exists. Id. The panel was again unable to reach a consensus, with the same member again rating Intellizant as technically unacceptable. Id. The other panel member who initially listed concerns with the proposal did not have any reservations this go around. Id. And, again, the CO agreed with the majority's evaluation and found Intellizant to be technically acceptable, and notified the relevant parties of that result. Id.

         Starry filed a second protest at the GAO, reasserting its prior challenges and further claiming that John Davis, who served as Accounting Services Division Manager at PSC, was biased in favor of Intellizant due to his employment with the company immediately prior to joining HHS, and tainted the procurement by exerting undue influence over the TEP. Id. GAO held a hearing, took testimony from Davis and the CO, and sustained the protest in part and denied it in part, finding that the CO failed to evaluate either whether Intellizant's personnel could perform the relevant tasks or whether Intellizant could provide the necessary personnel to meet the solicitation's requirements. Id. at 545-46. GAO found that Starry's allegations of bias were "without merit" based on Davis's sworn testimony that he had recused himself from the procurement process. Id. at 546. It recommended reevaluation of the proposal and provided that, if HHS found Intellizant to be lacking, it must terminate the award and evaluate the next-in-line offeror. Id.

         Patrick Joy, the interim head of contracting activity at PSC, later testified that he was notified by HHS counsel after the hearing that the agency was likely to lose the protest, and that Davis "raised the possibility of revising the RFQ to drop from the solicitation the awardee's need to support GovNet and MACCS," the areas in which Intellizant had been marked as deficient. Id. According to this testimony, Joy instructed Davis not to take any action with regard to the solicitation prior to a GAO decision. Id. After GAO issued its decision, counsel for HHS sent an email to Joy, the CO, and others, stating that GAO's recommendations were not mandatory and that alternatives included "canceling the solicitation and competing under a new vehicle [or] amending the [request for production] and soliciting new [offers] under the current vehicle." Id. Email records and deposition testimony revealed that Davis was involved in the decision-making process, and that Joy left Davis the power to decide whether to cancel the solicitation. Id. Davis later emailed Joy with his decision to cancel the RFQ, stating that he had instructed his staff to "review and revise, where needed, a few of our support contracts" for UFMS. Id. at 546-47. Throughout this process, Davis provided conflicting accounts as to why he believed that an RFQ calling for compatibility with GovNet and MACCS was not required. Id.[1]

         Six days after Davis emailed Joy with his decision to cancel the RFQ, counsel for HHS informed GAO and Starry that it intended to cancel the solicitation rather than reevaluate Intellizant, stating "it has been determined that two of the three systems proposed to be supported under the instant procurement were included in the solicitation by error." Id. at 548. Starry then filed its third bid protest, arguing that HHS's decision to cancel the solicitation was merely a pretext so that Davis could secure future work for Intellizant. Id. It claimed that Davis decided to eliminate the requirements of the solicitation as to which Intellizant was unqualified and later to re-solicit the remaining work in order to avoid GAO's earlier recommendation to reevaluate, which Starry believed would have resulted in it winning the original procurement. Id. GAO denied the protest by written decision, finding that the agency's proffered rational for cancellation was reasonable-even crediting the allegations of bias, the result was not affected, in GAO's view, because the "cancellation was otherwise reasonably justified." Id.

         B. The Claims Court's Merits Decision

         Starry filed suit against the government in the Claims Court on January 11, 2016. On July 15, 2016, the Claims Court issued a decision granting Starry's motion for judgment on the administrative record. See generally id. at 539. It concluded that HHS acted irrationally in its decision to cancel the award based on its purported revision of its needs vis-à-vis MACCS and GovNet support, as it did not provide sufficient support for its decision. Id. at 548-49. The Claims Court did not reach the issue of whether the procurement was prejudicially tainted by bias. Id. at 548.

         The Claims Court did, however, express dissatisfaction with the conduct of HHS and certain of its employees, including statements such as (1) "[a]nother instance of a cavalier disregard for the truth of representations made to the GAO was Mr. Davis' assurance that he was recused from the procurement process," id. at 549; (2) "Mr. Joy and his colleagues accepted [Davis's] representation at face value in short order and conducted no independent analysis of the agency's needs," id.; and (3) Davis's "deposition leaves no question, however, that the rationale was completely illusory," id. The Claims Court determined that injunctive relief was appropriate under this court's decision in PGBA, LLC v. United States, 389 F.3d 1219, 1228-39 (Fed. Cir. 2008), set aside the cancellation of the RFQ, and required HHS ...

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