MD Helicopters Inc. v. United States

435 F.Supp.3d 1003

MD HELICOPTERS INCORPORATED, Plaintiff,

v.UNITED STATES of America, et al., Defendants.

No. CV-19-02236-PHX-JAT

United States District Court, D. Arizona.

Signed January 24, 2020

Brett William Johnson, Colin Patrick Ahler, Derek Conor Flint, Eric Harmon Spencer, Snell & Wilmer LLP, Phoenix, AZ, for Plaintiff.

Anne Elizabeth Nelson, US Attorneys Office, Phoenix, AZ, James Mackey Ives, US Dept. of the Army US Legal Services Agency, Fort Belvoir, VA, for Defendants.

ORDER UNDER SEAL

James A. Teilborg, Senior United States District Judge

Plaintiff MD Helicopters, Inc. ("MDHI") alleges that Defendants the United States of America, the United States Department of the Army, and the Secretaries of Defense and the Army in their official capacities (collectively, "the Army"), violated the Administrative Procedure Act ("APA") by giving arbitrary and capricious reasons for not selecting MDHI to participate in the Future Attack Reconnaissance Aircraft Competitive Prototype ("FARA CP") program. (Doc. 135 at 1–2). It seeks to compel "the Army to advance MDHI's proposal" to Phase 1 of the FARA CP program. (Doc. 1 at 5). The parties have filed cross-motions for summary judgment on this claim.

I. BACKGROUND

A. Statutory Background: Other Transaction Authority

At the dawn of the space race, the Soviet Union successfully launched the Sputnik satellite into Earth's orbit, prompting a growing national concern that the United States had fallen behind its rivals technologically. Heidi M. Peters, Cong. Research Serv., R45521, Department of Defense Use of Other Transaction Authority: Background, Analysis, and Issues for Congress 1 (2019), https://crsreports.congress.gov/product/pdf/R/R45521. In response, Congress passed the National Aeronautics and Space Act of 1958, which established the National Aeronautics and Space Administration ("NASA"). Id. To enable NASA to pursue its mission without encountering unnecessary delay, Congress empowered it with authority to "enter into and perform contracts, leases, cooperative agreements, or other transactions as may be necessary in the conduct of its work and on such terms as it may deem appropriate." National Aeronautics and Space Act of 1958, Pub. L. No. 85-568, § 203(5), 72 Stat. 426, 430 (1958) (emphasis added). Congress has since extended the authority to enter into "other transactions" ("OTs") to several other executive agencies, including the Department of Defense ("DoD"). Peters, supra , at 1. As the Army puts it, OTs have several benefits in this context, including:

(a) attracting non-traditional defense contractors to propose prototype projects; (b) encouraging traditional defense contractors to use new and innovative techniques and processes to accelerate development of technologies that are relevant to both defense and commercial markets; and (c) using flexible business arrangements to accelerate development and transition to production.

(Doc. 70 at 6).

Two statutes currently govern DoD's authority to enter into OTs. The first authorizes the "Secretary of Defense and the Secretary of each military department" to "enter into transactions (other than contracts, cooperative agreements, and grants) ... in carrying out basic, applied, and advanced research projects." 10 U.S.C. § 2371(a). The second authorizes OTs for "carry[ing] out prototype projects that are directly relevant to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by [DoD], or to improvement of platforms, systems, components, or materials in use by the armed forces." 10 U.S.C. § 2371b(a)(1). This second statute also authorizes the government to enter into an OT for follow-on production, which may be awarded without using competitive procedures if certain conditions are met. 10 U.S.C. § 2371b(f).

B. Factual Background: The FARA CP Program and MDHI's Proposal

In October of 2018, the U.S. Army Contracting Command–Redstone issued Solicitation No. W911W6-19-R-0001 ("the Solicitation") for proposals for the FARA CP. (Docs. 1 at 2; 71 at 3; 136 at 2). Because the Army identified the need to act quickly with respect to updating its helicopter fleet, (see Doc. 42 at 3), it structured the FARA CP program "as a phased approach with aggressive deadlines," (Doc. 136 at 2). In particular, the Army elected to use OTs for prototype projects under 10 U.S.C. § 2371b to award funding to the selected participants. (Doc. 36-3 at 3–5, 9; see also Doc. 80 at 1, 5).

As the Solicitation outlined, the FARA CP program will progressively down-select among candidates until potentially only one entity remains. That process would begin with prospective bidders submitting proposals to the Army. (Doc. 36-3 at 3). From these, the Army would select several entities for the award of OT agreements. (Id. at 4–5). The Army would then advance the recipients of the OT agreements ("Performers") to Phase 1, giving them "nine months to develop preliminary designs and provide the [Army] team with the data and insight required for the [Army] to down-select to two (or possibly more based on funding available) Performers for Phase 2." (Id. at 4–5). The Solicitation estimated that, under the OT agreements, "[e]ach Phase 1 Performer [would] receive approximately $15 [million] between" fiscal years ("FYs") 2019-20. (Id. at 9). In later phases, Performers would design, build, and test their proposed aircraft before providing them to the Army for further evaluation. (Id. at 5–6). "If executed," the final phase of the FARA CP program contemplates the potential award of a follow-on production OT to a Performer for entry into subsequent full system integration, qualification, and production efforts. (Id. at 6).

In response to the Solicitation, MDHI submitted a proposal ("the Proposal") to participate in the FARA CP program. (Doc. 1 ¶ 7). After evaluating the Proposal, the Army notified MDHI that it was not selecting MDHI to participate in the FARA CP program because "MDHI's proposed design purportedly did not meet the Solicitation's requirements." (Id. ¶ 8). Shortly thereafter, MDHI filed a "bid protest objecting to the Army's ... action with the Government Accountability Office ("GAO")." (Id. ¶ 9). The GAO dismissed the protest, reasoning that while it had jurisdiction to review "a timely pre-award protest that an agency is improperly using its [OT] authority to procure goods or services," the GAO was not statutorily authorized to review OTs because they are not "procurement contracts." (Doc. 13-1 at 3); see also 4 C.F.R. § 21.5(m) ("GAO generally does not review protests of awards, or solicitations for awards, of agreements other than procurement contracts...."). MDHI then filed a complaint in this Court, alleging that the Army "failed to properly evaluate the Proposal" and "arbitrarily and capriciously ignored or misunderstood important aspects of the Proposal." (Doc. 1 ¶ 15).

II. JURISDICTION

Before reaching the merits, this Court must first address the question whether it has subject-matter jurisdiction over this action. See Belleville Catering Co. v. Champaign Mkt. Place, L.L.C. , 350 F.3d 691, 693 (7th Cir. 2003) (explaining that, notwithstanding the fact that no party contested jurisdiction, "inquiring whether the court has jurisdiction is a federal judge's first duty in every case"). The parties agree that this Court possesses subject-matter jurisdiction to review the Army's decision under 28 U.S.C. § 1331 and 5 U.S.C. § 702. (Docs. 66 & 70). Intervenors to this action have, however, argued that this Court lacks jurisdiction for two independent reasons. Citing Cooper v. Haase , 750 F. App'x 600, 601 (9th Cir. 2019) and Gabriel v. General Services Administration , 547 F. App'x 829, 831 (9th Cir. 2013), intervenors assert that "district courts lack jurisdiction over APA claims challenging the award of ... contracts." (Doc. 43 at 8). Separately, citing this Court's ruling in Fire-Trol Holdings L.L.C. v. United States Department of Agriculture Forest Service , No. CV-03-2039-PHX-JAT, 2004 WL 5066232, at *3–4 (D. Ariz. Aug. 13, 2004), intervenors argue that the sunset provision of the Administrative Dispute Resolution Act of 1996 ("ADRA") eliminated district courts' jurisdiction to hear the kind of "bid protest" cases that they formerly could under their "Scanwell jurisdiction." (Doc. 43 at 8).

In response, MDHI claims that, unlike Cooper and Gabriel , this Court may properly exercise jurisdiction because MDHI has not asserted a contract with the government. (Doc. 66 at 3). The parties argue further that Plaintiff's claim is not procurement-related because OTs are "not procurement contracts" and the ADRA's sunset provision terminated district court jurisdiction only over procurement matters. (Docs. 66 at 2–3; 70 at 10–12).

a. Legal Standard

"Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause." Ex Parte McCardle , 74 U.S. (7 Wall.) 506, 514, 19 L.Ed. 264 (1868). " ‘Federal courts are courts of limited jurisdiction,’ possessing ‘only that power authorized by Constitution and statute.’ " Gunn v. Minton , 568 U.S. 251, 256, 133 S.Ct. 1059, 185 L.Ed.2d 72 (2013) (quoting Kokkonen v. Guardian Life Ins. Co. of Am. , 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) ). Because a court lacking subject-matter jurisdiction also lacks the power to decide a case, courts "have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party." Arbaugh v. Y & H Corp. , 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). "The United States, as sovereign, is immune from suit save as it consents...." United States v. Sherwood , 312 U.S. 584, 586, 61 S.Ct. 767, 85 L.Ed. 1058 (1941) ; see also Tucson Airport Auth. v. Gen. Dynamics Corp. , 136 F.3d 641, 644 (9th Cir. 1998) ("[A] suit...