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State v. United States Marine Corps

United States District Court, D. Hawaii

August 21, 2019



          Leslie E. Kobayashi United States District Judge.

         On March 8, 2019, Plaintiff State of Hawai'i, Department of Human Services, Division of Vocational Rehabilitation, Ho 'opono - Services for the Blind (“Ho 'opono”), its “Supplemental Memorandum in Support of Its Motion for Declaratory and Injunctive Relief, ” which is construed as its amended motion for a preliminary injunction (“Amended Motion”).[1] [Dkt. no. 61.] On April 12, 2019, Intervenor the Severson Group, LLC (“TSG”) and Defendant United States Marine Corps, by and through General Robert B. Neller, Incumbent Commandant of the Marine Corps, in his official capacity (“Marine Corps”), filed their respective memoranda in opposition to the Amended Motion. [Dkt. nos. 62 (“TSG Opp.”), 63.] On May 10, 2019, Ho 'opono filed its reply memoranda. [Dkt. nos. 76, 77.] The Marine Corps' April 12, 2019 memorandum in opposition was withdrawn and replaced by an amended memorandum, filed on May 29, 2019. [Dkt. nos. 85 (notice of withdrawal), 86 (“Marine Corps Opp.”).]

         The Amended Motion came on for an evidentiary hearing on June 14, 2019. [Minutes, filed 6/14/19 (dkt. no. 91).] The parties filed their closing briefs on June 28, 2019. [Dkt. nos. 96 (Marine Corps' brief), 97 (TSG's brief), 98 (Hoopono's brief).] On July 16, 2019, this Court issued an entering order informing the parties of its ruling on the Amended Motion. [Dkt. no. 99.] The instant Order supersedes that entering order. Hoopono's Amended Motion is hereby granted, and a preliminary injunction is hereby entered, pending the resolution of the arbitration between the Marine Corps and Ho 'opono.


         The relevant background is set forth in this Court's May 11, 2018 Order Granting Plaintiff's Motion for Temporary Restraining Order (“TRO Order”). [Dkt. no. 32.[2] It will only be briefly restated here.

         Ho 'opono is the state licensing agency (“SLA”) for purposes of the Randolph-Sheppard Vending Stand Act (“RSA”), 20 U.S.C. § 107, et seq., in Hawai'i. TRO Order, 2018 WL 2187977, at *1. Hoopono's licensed blind vendor and teaming partner Blackstone Consulting, Inc. (“BCI” and collectively “Ho 'opono Contractor”) operated the food service facilities at the Marine Corps Base Hawai'i (“MCBH”) pursuant to a five-year contract that commenced on March 1, 2013 and was worth approximately $14 million.[3] Id. at *1-2. The contract ran through the end of February 2018, but the Marine Corps exercised the extension clause to extend the contract through May 15, 2018. Id. at *2. Hoopono's “services . . . consistently received satisfactory ratings, with one excellent rating.” Id. at *1.

         The instant case arises from a dispute concerning Hoopono's bid for the subsequent contract period. On September 25, 2017, the Marine Corps issued Solicitation No. M003-18-17-R-0003 for a new MCBH food services contract, with a base term of one year and four option years (“Solicitation”). On October 24, 2017, the Marine Corps issued an amendment to the Solicitation, adding certain minimum staffing requirements (“Amendment 1”). Two further amendments were issued thereafter, but they are not relevant to the instant case. Id. at *2-3.

         Ho 'opono submitted its response to the Solicitation (“Ho 'opono Proposal”) on November 17, 2017, but it was rated as unacceptable as to its food services operations plan and its staffing and transition plan. Thus, the Ho 'opono Proposal was given an overall technical rating of unacceptable, meaning that Hoopono's past performance and the price in the Ho 'opono Proposal were not considered, and the RSA priority was not applied. The Ho 'opono Proposal was excluded from the competitive range, and the contract was ultimately awarded to TSG, a private vendor that submitted the only proposal found to be in the competitive range (“TSG Proposal”). Id. at *3 & n.10. The amount of the contract awarded to TSG was $18, 419, 014.74. Id. at *4. TSG's contract was scheduled to begin on April 15, 2018. Following a thirty-day overlap with Ho 'opono for transition purposes, TSG was scheduled to begin sole operation of the MCBH food service facilities as of May 16, 2018. Id. However, the TRO Order requires the Marine Corps to maintain Ho 'opono as the MCBH food services vendor, and it prohibits the Marine Corps from putting its contract with TSG into effect, until this Court rules on the issue of whether Ho 'opono is entitled to a preliminary injunction. Id. at *9.

         On June 28, 2018, TSG filed a motion to intervene. [Dkt. no. 38.] The motion was orally granted on August 10, 2018, and in an order filed on August 22, 2018. [Dkt. nos. 50 (minutes of hearing on the motion to intervene), 53 (order).]

         I. Stipulated Facts

         A. Food Service Operations

         After this Court issued the TRO Order, the Marine Corps suspended TSG's performance of the new contract by issuing a Stop Work Order. Any contractor who receives a Stop Work Order can request an equitable adjustment, or it can make a claim under the Contract Disputes Act (“CDA”). The contractor can pursue administrative or judicial remedies if it is dissatisfied with the Marine Corps' final decision on the CDA claim. [Amended Stipulation Re: Pltf.'s Suppl. Motion for Declaratory and Injunctive Relief (“Stipulated Facts”), filed 6/27/19 (dkt. no. 95), at ¶ 3.[4]

         In August 2018, the Marine Corps and Ho 'opono entered into a sole-source, one-year, bridge contract worth $3, 991, 901.20. Under the bridge contract, the Ho 'opono blind vendor receives a share of the net profits, but is also responsible for a share of any net losses. [Id. at ¶ 5.] The net profits “average up to $9, 000 a month.” [Id.]

         Since June 2018, i.e., since the TRO Order has been in effect, the Marine Corps has issued ten Contractor Discrepancy Reports (“CDRs”) and completed two Contractor Performance Assessment Reports (“CPARs”) to address concerns regarding the Ho 'opono Contractor's “level of staffing, staff turnover, food safety, cleanliness, property accountability, and completion of contractor employee background checks.” [Id. at ¶ 2.] The Ho 'opono Contractor responded to each CDR in a timely manner. [Id.] Some of the concerns were “rebutted or refuted . . . to the satisfaction of the contracting officer, ” but, in other instances, the compensation to the Ho 'opono Contractor was decreased as a result of the CDR. [Id.] There have been no written notices of performance concerns since April 1, 2019. [Id.]

         B. Arbitration Proceedings

         On June 29, 2018, the Marine Corps submitted a letter to the United States Department of Education (“US DOE”), designating the Marine Corps' arbitration panel member, but the U.S. DOE has not directed Ho 'opono to identify its panel member. Ho 'opono is waiting for further direction from the U.S. DOE. [Id. at ¶ 6.] Ho 'opono “has not failed to timely respond to any request from the [US DOE] related to this dispute.” [Id. at ¶ 11.]

         TSG submitted requests to intervene in the arbitration on July 5, 2018 and September 13, 2018, but no action has been taken on those requests. [Id. at ¶ 7.]

         On April 29, 2019, the Marine Corps made a formal request to the U.S. DOE that the arbitration panel be convened, and Ho 'opono joined in that request on May 20, 2019. However, as of the date of the hearing on the Amended Motion, the Secretary of the U.S. DOE had not convened the arbitration panel. [Id. at ¶¶ 8-10.]

         II. Evidence Submitted for the Amended Motion

         Virgil Stinnett replaced Mr. Young as Hoopono's licensed blind vendor at MCBH, as of November 1, 2018. [Amended Motion, Decl. of Virgil Stinnett (“Stinnett Decl.”) at ¶ 3.] As Hoopono's licensed blind vendor at MCBH, Mr. Stinnett receives approximately $9, 000 per month. [Id. at ¶ 14.] If the Ho 'opono Contractor is displaced at MCBH during the pending arbitration, Mr. Stinnett “may never be able to recover from this financial set back, ” even if Ho 'opono ultimately prevails in the arbitration and is reinstated at MCBH. [Id. at ¶ 19.]

         TSG “is a service-disabled veteran-owned small business, and a participant in the U.S. Small Business Administration's [(“SBA”)] 8(a) Program.”[5] [TSG Opp., Decl. of Robert Severson (“Severson Decl.”) at ¶ 3.[6] Mr. Severson states that, during the transition period with Ho 'opono, TSG “incurred project-specific costs of approximately $20, 000” for items such as “equipment, uniforms, travel costs, hiring costs, shipping, supplies, administrative, and management payroll costs” (“Start-up Costs”).[7] [Id. at ¶¶ 6-7.] The Start-up Costs do not include TSG's “overall overhead costs.” [Id. at ¶ 7.] TSG expected to receive $3.5 million in annual revenue under the MCBH contract. [Id. at ¶ 9.] Mr. Severson emphasizes that, because TSG's MCBH contract had a base-year and four option years, TSG “has already lost the opportunity to perform the base year, ” and it is “at risk of the entire period of performance running out before the [arbitration] is resolved.” [Id. at ¶ 10.]

         Mr. Severson acknowledges that, if TSG's MCBH contract is ultimately terminated, TSG “may be able to submit a termination settlement proposal or request for equitable adjustment.” [Id. at ¶ 11.a.] However, he argues TSG is being irreparably harmed by the TRO Order because TSG has no means to obtain immediate recovery of the Start-up Costs and the costs that it incurred because of the Stop Work Order.[8] [Id.] Further, he asserts “it is unlikely” that TSG will recover all of its Start-up Costs and other costs, such as the costs to prepare the TSG Proposal, even if it submits a termination settlement proposal or a request for equitable adjustment. [Id. at ¶ 11.b.] TSG has also incurred legal fees and other costs in this action, as well as in other proceedings in which TSG has attempted to protect its interest in the MCBH contract. [Suppl. Severson Decl. at ¶ 17.]

         In addition, Mr. Severson asserts the TRO Order is causing TSG non-monetary harm, including: depriving TSG of “the opportunity to build upon its strong past performance record by adding a contract with substantial size and scope”; [Severson Decl. at ¶ 13;] and “increase[ing] the risk that TSG will lose valuable personnel, ”[9] [id. at ¶ 14]. He speculates that, if TSG were performing the MCBH contract, TSG “would be able to leverage it to win more contracts in the future.” [Id.]


         I. Jurisdiction

         At the outset, the Marine Corps argues this Court lacks jurisdiction to issue an injunction in this case because Ho 'opono has not, and cannot, present an independent claim for judicial relief at this time. RSA arbitration decisions are subject to judicial appeal and review under the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701-06, as final agency actions. See Sauer v. U.S. Dep't of Educ., 668 F.3d 644, 647 (9th Cir. 2012) (citing 20 U.S.C. § 107d-2(a)). The Marine Corps argues this matter will not be ripe for judicial review until the U.S. DOE arbitration panel issues a final decision.

         A district court in the Eastern District of Virginia has addressed the same issue, and its analysis is persuasive. The district court stated:

the suit for injunctive relief is based on Plaintiffs' independent legal right to arbitrate the Government's alleged failure to comply with the Randolph Sheppard Act. . . . [T]he RSA, provides that:
Whenever any State licensing agency determines that any department, agency, or instrumentality of the United States that has control of the maintenance, operation, and protection of Federal property is failing to comply with the provisions of this chapter or any regulations issued thereunder (including a limitation on the placement or operation of a vending facility as described in section 107(b) of this title and the Secretary's determination thereon) such licensing agency may file a complaint with the Secretary who shall convene a panel to arbitrate the dispute pursuant to ...

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