United States Court of Appeals
for the Federal Circuit
__________________________
DGR ASSOCIATES, INC.,
Plaintiff-Appellee,
v.
UNITED STATES,
Defendant-Appellant,
and
GENERAL TRADES & SERVICES, INC.,
Defendant.
__________________________
2011-5080
__________________________
Appeal from the United States Court of Federal
Claims in case no. 10-CV-396, Judge Thomas C. Wheeler.
__________________________
Decided: August 2, 2012
__________________________
DARCY V. HENNESSY, Hennessy, Boe & Gondring, P.A.,
of Mission, Kansas, argued for plaintiff-appellee. With
her on the brief was LESLIE A. BOE.
STEVEN M. MAGER, Trial Attorney, Commercial Liti-
gation Branch, Civil Division, United States Department
of Justice, of Washington, DC, argued for defendant-
appellant. With him on the brief were TONY WEST, Assis-
DGR ASSOCIATES v. US 2
tant Attorney General, JEANNE E. DAVIDSON, Director,
and PATRICIA M. MCCARTHY, Assistant Director.
__________________________
Before RADER, Chief Judge, PLAGER, and WALLACH,
Circuit Judges.
PLAGER, Circuit Judge.
This case involves a dispute over whether a party who
prevailed in a bid protest against the United States is
entitled to an award of attorneys’ fees and costs under the
Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412.
The Court of Federal Claims determined that the
Government’s position in the underlying bid protest was
not substantially justified, and awarded attorneys’ fees,
costs, and expenses. 1 However, given the then-existing
disagreement among all three branches of the Federal
Government over the law applicable to this bid protest,
we conclude that the Court of Federal Claims erred in
finding that the United States’ position was not
substantially justified, and accordingly reverse.
I. The Bid Protest Case
To understand the issues in the litigation over the
EAJA award, it is necessary first to understand the issues
in the original bid protest litigation. 2 The relevant facts
are set forth at length in the Court of Federal Claims’ bid
protest opinion, DGR, 94 Fed. Cl. at 193-199, and need
not be repeated here. For purposes of this attorneys’ fee
dispute, a brief summary will suffice.
1 DGR Assocs. Inc. v. United States, 97 Fed. Cl. 214
(2011) (“EAJA opinion”).
2 DGR Assocs., Inc. v. United States, 94 Fed. Cl. 189
(2010) (“bid protest opinion”).
3 DGR ASSOCIATES v. US
A. Legal and Regulatory Background
The Small Business Act (“the Act”) establishes various
programs that assist qualifying small businesses in
obtaining Federal contracts, and sets forth the
requirements incident thereto. 15 U.S.C. §§ 631-657.
Two of the programs are involved in this case: the so-
called Section 8(a) Program (§ 637(a)(1)(B)), which assists
small businesses owned and controlled by socially and
economically disadvantaged individuals, and the
HUBZone Program (§ 657(a)), which assists small
businesses that are located in historically underutilized
business zones. Among its requirements, the Act
mandates that each Government agency establish annual
contracting goals for the various small business programs
created by the Act, including these two. Id. § 644(g)(1).
The Small Business Administration (“SBA”) is
charged with carrying out the requirements of the Act and
issuing such rules and regulations as it deems necessary.
Id. §§ 633(a), 634(b). In its regulations the SBA decreed
that there should be “parity” between the 8(a) and
HUBZone programs. By so decreeing, the SBA gave the
Federal agencies’ contracting officers substantial
discretion to consider and designate contracts for either
program without having to prioritize one program over
the other. See, e.g., 13 C.F.R. §§ 124.503(j), 125.18,
126.605, 126.607. Whether this parity policy is consistent
with the terms of the Act itself lies at the heart of the
dispute in this case.
B. Factual Background
In December 2009, the Air Force solicited bids for a
service contract for Eielson Air Force Base in Alaska.
Appellee DGR had previously performed the requested
services pursuant to a contract that expired that year.
Because the Air Force had not yet satisfied its contracting
DGR ASSOCIATES v. US 4
goal under the 8(a) program for fiscal year 2009, the Air
Force announced that it would award the contract
pursuant to a section 8(a) competition.
DGR however requested that the Air Force instead set
aside the contract for qualified HUBZone small business
concerns rather than for 8(a) program participants. In
support of its position, DGR cited a decision from the
Government Accountability Office (“GAO”), Mission
Critical Solutions, B-401057, 2009 CPD ¶ 9 (Comp. Gen.
May 4, 2009), which concluded that the Small Business
Act gave priority to the HUBZone program over the 8(a)
program. (The GAO is an administrative arm of the
Congress assigned various missions, including a role in
the bid protest process.)
The Air Force nevertheless declined DGR’s request,
citing in opposition to the GAO ruling an August 2009
memorandum from the Department of Justice (“DOJ
memorandum”) that was issued in reaction to the GAO’s
Mission Critical decision. The DOJ memorandum
reviewed the Act, the SBA’s parity regulations, and the
GAO decision, and concluded that the Act does not compel
prioritization of the HUBZone program over the 8(a)
program; that SBA’s parity regulations are based on a
permissible interpretation of the Act; and that the GAO
decision is not binding on Executive Branch agencies
while the DOJ memorandum is.
DGR then filed a formal agency-level protest, which
the Air Force in due course denied. In its denial the Air
Force, in addition to referencing the DOJ memorandum,
also cited a July 2009 memorandum from the Office of
Management and Budget (“OMB memorandum”) that was
issued also in reaction to the GAO’s Mission Critical
decision and which directed Executive Branch agencies to
continue to follow SBA’s parity regulations.
5 DGR ASSOCIATES v. US
Pursuant to the established appeal procedures, DGR
next filed its protest with the GAO; not surprisingly the
protest was sustained by the GAO despite the contrary
Department of Justice and OMB directives. DGR Assocs.
Inc., B-402494, 2010 CPD ¶ 115 (Comp. Gen. May 14,
2010). The GAO confirmed the interpretation it had
reached in Mission Critical that the terms of the statute
specifically prioritized the HUBZone program over the
8(a) program. The GAO further noted that the Court of
Federal Claims had affirmed that interpretation in
Mission Critical Solutions v. United States, 91 Fed. Cl.
386 (2010). The Air Force was told to rebid the contract
consistent with the GAO reading of the Act.
However, again not surprisingly, the Air Force
declined to comply with the GAO’s conclusion, citing the
OMB and DOJ memoranda and, in addition, a May 2010
memorandum from the Department of Defense (“DOD
memorandum”) instructing that the OMB memorandum
continues to reflect Executive Branch policy. The Air
Force further cited a March 2010 Department of Justice
memorandum, which concluded that the Court of Federal
Claims’ decision in Mission Critical applied only to the
specific contract at issue in that case and not to the
operation of SBA’s parity rules more generally.
The Air Force subsequently awarded the competitive
8(a) contract to General Trades & Services, Inc, after
which DGR timely filed suit in the Court of Federal
Claims protesting the bid award and seeking to invalidate
the award.
Before the Court of Federal Claims, the Government
presented two arguments in response to DGR’s suit: (1) as
a jurisdictional matter, DGR waived its right to bring suit
by not filing its court action prior to the closing date for
receipt of proposals; and (2) on the merits, the statute did
DGR ASSOCIATES v. US 6
not require the Air Force to prioritize the HUBZone
program over the 8(a) program.
The trial court rejected the Government’s
jurisdictional argument, noting that it was “directly at
odds with government policy to seek resolution of protests
within the agency.” DGR, 94 Fed. Cl. at 203. Regarding
the Government’s merits argument, the court saw “no
need to modify the detailed, analytical and persuasive
reasoning of the Chief Judge” in the Mission Critical case,
and affirmed the conclusion that the Act itself gave
priority to the HUBZone program over the 8(a) program.
Id. at 205. Accordingly, the court upheld DGR’s bid
protest, thus invalidating the contract award to General
Trades & Services; the trial court subsequently awarded
attorneys’ fees and costs under the EAJA to DGR.
Although it does not affect the issues in this case, not long
after, Congress abrogated the Court of Federal Claims’
merits decisions in DGR and Mission Critical by
amending the Small Business Act to clarify that the
HUBZone program does not take priority over the 8(a)
program. Pub. L. No. 111-240, 124 Stat. 2504 (Sept. 27,
2010).
II. The Attorneys’ Fees Issue—The Case Before Us
A. Legal Background
The EAJA provides that, when a timely application is
filed, an eligible prevailing party shall be awarded
attorneys’ fees and other expenses incurred by that party
in any civil action brought by or against the United States
“unless the court finds that the position of the United
States was substantially justified . . . .” 28 U.S.C.
§ 2412(d)(1)(A). The purpose of the Act is to ensure that
litigants “will not be deterred from seeking review of, or
defending against, unjustified governmental action
7 DGR ASSOCIATES v. US
because of the expense involved.” Scarborough v.
Principi, 541 U.S. 401, 407 (2004).
B. Factual Background
DGR timely filed its application for attorneys’ fees
and costs under the EAJA based on its successful bid
protest against the Air Force in the Court of Federal
Claims. DGR, 97 Fed. Cl. at 217. As noted, that court
ruled that DGR was entitled to attorneys’ fees and
associated costs because the Government’s position in the
bid protest was not substantially justified. Id. at 217-20.
Specifically, the court held that the Government’s
jurisdictional argument “was patently unreasonable, and
not substantially justified,” and that the Government’s
merits-based argument also “was not reasonable” in view
of the “unambiguous wording of the statute, and the
existing case law precedent.” Id. at 219. The court
awarded DGR $37,227.72 in attorneys’ fees, costs, and
expenses, comprised of attorneys’ fees for 210 hours at an
hourly rate of $175 based on a cost of living adjustment,
and $477.72 in costs and expenses. Id. at 220-21. The
Government appeals the award. We have jurisdiction
pursuant to 28 U.S.C. § 1295(a)(3).
DISCUSSION
We review an award of attorneys’ fees and expenses
under the EAJA for abuse of discretion. Pierce v.
Underwood, 487 U.S. 522, 558 (1988). To constitute an
abuse of discretion, a court must either make a clear error
of judgment in weighing relevant factors or exercise
discretion based upon an error of law. Sciele Pharma Inc.
v. Lupin Ltd., No. 2012-1288, 2012 WL 2520908, at *3
(Fed. Cir. July 2, 2012).
The sole issue on appeal is whether the Government’s
position in the underlying bid protest litigation was
DGR ASSOCIATES v. US 8
substantially justified. A position is substantially
justified if it is “justified to a degree that could satisfy a
reasonable person.” Pierce, 487 U.S. at 565. The
Government’s “position” includes both the underlying
agency action that gave rise to the civil litigation and the
arguments made during the litigation itself. 28 U.S.C.
§ 2412(d)(1)(B), (2)(D); Comm’r, INS v. Jean, 496 U.S.
154, 161-62 (1990); Patrick v. Shinseki, 668 F.3d 1325,
1330 (Fed. Cir. 2011). We address the Government’s
positions at each stage of these proceedings.
I. Agency Action
The Court of Federal Claims’ EAJA opinion does not
discuss the Air Force’s actions at the agency level so we do
not have the benefit of the court’s view. It is perhaps not
unreasonable to infer, consistent with that court’s overall
position, that it found the Government’s actions not
substantially justified during that stage of the
proceedings as well.
On appeal, DGR supports that position with its
argument that, because the SBA’s parity regulations were
contrary to the plain language of the Act, it was unlawful
for the Air Force to apply those regulations. We cannot
agree. In the first place, substantive regulations
governing an agency’s activities have the “force and effect
of law” and are binding not only on parties outside the
agency, but also bind the agency itself. Coal. for Common
Sense in Gov’t Procurement v. Sec’y of Veterans Affairs,
464 F.3d 1306, 1317 (Fed. Cir. 2006). Indeed, it is a “well-
established legal principle that a federal agency must
comply with its own regulations.” Army & Air Force
Exch. Serv. v. Sheehan, 456 U.S. 728, 733 (1982).
The SBA’s parity regulations, which had been in effect
since 1998 and that placed the HUBZone and 8(a)
programs on an equal footing, were fully applicable to the
9 DGR ASSOCIATES v. US
Air Force and mandated the Air Force to proceed
consistent with those regulations unless and until they
were declared invalid by a court of competent jurisdiction.
When a District Court having such authority was
confronted with the potential conflict between a previous
version of the SBA’s parity regulations and an argument
that the Act’s language gave priority to the HUBZone
program, the court declined to invalidate the parity
regulations. Contract Mgmt., Inc. v. Rumsfeld, 291 F.
Supp. 2d 1166, 1176-77 (D. Haw. 2003), aff’d on other
grounds, 434 F.3d 1145, 1148 (9th Cir. 2006) (noting that
although the plaintiff had challenged the SBA’s parity
regulations in the district court, it did not do so on
appeal). And although the subsequent decisions from the
GAO and the Court of Federal Claims took positions
against the validity of the SBA’s parity regulations,
neither has the authority to invalidate properly-
promulgated regulations of an Executive Branch agency.
See 31 U.S.C. §§ 3551-3556 (establishing GAO jurisdiction
over bid protests); Lion Raisins, Inc. v. United States, 416
F.3d 1356, 1370 n.11 (Fed. Cir. 2005) (noting “no APA
review is available in the Court of Federal Claims”).
The Air Force was bound by the DOJ, OMB, and DOD
memoranda instructing Executive Branch agencies to
continue to comply with the SBA’s parity regulations
notwithstanding the GAO and Court of Federal Claims’
contrary positions. In view of the Air Force’s legal
obligation to place the HUBZone and 8(a) programs on an
equal footing during the procurement phase of these
proceedings, we conclude that the Government’s position
in support of the Air Force’s actions were substantially
justified at the agency level.
DGR ASSOCIATES v. US 10
II. The Litigation
The next question then is whether the United States
was substantially justified in defending in court the Air
Force’s decision to comply with those regulations. As
earlier noted, the Government presented both a
jurisdictional argument and a merits-based argument
during the litigation phase of this case. We first address
the Government’s main argument on the merits of
whether the Small Business Act gives priority to the
HUBZone program over the 8(a) program, and then turn
to the Government’s subsidiary jurisdictional argument.
A. The Government’s Merits-Based Argument
In the underlying bid protest, the Government argued
that the Small Business Act and the SBA’s implementing
regulations did not require the Air Force to give priority
to HUBZone small business concerns. DGR, 97 Fed. Cl.
at 218. The Court of Federal Claims rejected the
Government’s position because in the court’s view the
Government’s interpretation of the Act “contradicted the
plain meaning of the Small Business Act.” Id. at 219. In
the subsequent EAJA action, the Government argued that
its position in the bid protest litigation nevertheless was
substantially justified because “interpretation of the
statute was a novel issue . . . .” Id. The Court of Federal
Claims rejected the Government’s justification argument,
holding that “the unambiguous wording of the statute,
and the existing case law precedent” rendered the
Government’s merits-based argument in the underlying
litigation “not reasonable.” Id.
We cannot agree. While the Government’s position
must be “more than merely undeserving of sanctions for
frivolousness,” it is sufficient for purposes of establishing
substantial justification that there was a “genuine
dispute” such that “reasonable people could differ as to
11 DGR ASSOCIATES v. US
[the appropriateness of the contested action].” Pierce, 487
U.S. at 565-66 (alteration in original) (citation omitted).
At the time DGR initiated the underlying bid protest,
presumptively reasonable people in all three branches of
the Government had reached differing conclusions as to
whether the Small Business Act permitted participating
agencies to place the HUBZone and 8(a) programs on an
equal footing.
Of the various Government agencies to opine on the
matter, the Small Business Administration, the
Department of Justice, the Office of Management and
Budget, and the Department of Defense all considered the
SBA’s parity regulations to be consistent with the Act.
The opposite conclusion had been reached by the
Government Accountability Office in four separate
decisions in three separate bid protests. 3
Even the Federal courts were split on the matter.
Although the Court of Federal Claims in Mission Critical
had concluded that the SBA’s parity regulations were
inconsistent with the plain meaning of the Act, the
District Court for the District of Hawaii had rejected a
challenge to the regulations on the grounds that the
regulations “sufficiently promote the congressional
objective of parity between the HUBZone and 8(a)
programs.” Contract Mgmt., 291 F. Supp. 2d at 1177. 4
3 Int’l Program Grp., Inc., B-400278, B-400308,
2008 CPD ¶ 172 (Comp. Gen. Sep. 19, 2008); Mission
Critical Solutions, B-401057, 2009 CPD ¶ 9 (Comp. Gen.
May 4, 2009); Small Bus. Admin.—Reconsideration, B-
401057.2, 2009 CPD ¶ 148 (Comp. Gen. July 6, 2009);
DGR Assocs. Inc., B-402494, 2010 CPD ¶ 115 (Comp. Gen.
May 14, 2010).
4 We note, however, that the District Court’s con-
clusion in Contract Management regarding the SBA’s
parity regulations is difficult to reconcile with the court’s
ultimate conclusion that the Small Business Act “man-
DGR ASSOCIATES v. US 12
Thus, at the time DGR filed its bid protest in the Court of
Federal Claims, there was a genuine dispute among all
three branches of Government as to whether the Air Force
was required to give priority to the HUBZone program
over the 8(a) program.
That alone should be sufficient reason to conclude
that the Department of Justice’s merits-based argument
in the underlying litigation was, if not actually correct, at
least sufficiently grounded in law to be substantially
justified under the relatively low threshold standard
described above. There is more. Though the
Congressional resolution of this issue came after the
litigation in the Court of Federal Claims, there had been
an earlier indication of the Congress’ view of the matter.
Following the GAO’s Mission Critical decision, the Senate
proposed amending the Act to clarify that when a contract
could be awarded pursuant to more than one small
business program, Federal agencies have discretion as to
which program to apply. See H.R. 2647, 111th Cong.
§ 838 (July 23, 2009) (Engrossed amendment Senate).
While the amendment was under consideration in the
House, the Department of Justice issued its 2009
memorandum in reaction to the GAO’s Mission Critical
decision.
One and a half months later, the Senate receded,
noting “that the Department of Justice has concluded that
no change to the Small Business Act is required to ensure
that contracting officers . . . have discretion whether or
not to award contracts pursuant to the HUBZone
program,” and “direct[ing] the Secretary of Defense to
continue to administer the HUBZone program in a
date[es] that participating agencies set aside contract
opportunities to qualified HUBZone small business con-
cerns when the statutory criteria are met.” Id. at 1174.
13 DGR ASSOCIATES v. US
manner consistent with the Department of Justice
opinion.” H.R. Rep. No. 111-288, at 789 (2009).
In view of this clear statement from Congress
affirming the SBA regulations at issue, it is difficult for us
to conclude that the Government was not substantially
justified in believing that the Small Business Act
permitted participating agencies to place the HUBZone
and 8(a) programs on an equal footing. We conclude,
therefore, that the Court of Federal Claims made a clear
error of judgment in weighing the factors relevant to the
question of whether the Government’s merits-based
argument was substantially justified.
B. The Government’s Jurisdictional Argument
Whether the Government was substantially justified
in its jurisdictional argument presents a considerably
closer call, and if it were the primary issue in this case the
Government might well lose on that call. Lawyers for the
Department of Justice will sometimes lard their briefs on
appeal with thinly-grounded jurisdictional objections to
this court (or the trial forum) considering the particular
appeal on its merits. If successful, it avoids the
Government having to address the merits of the cause;
however, such jurisdictional dodges are not always well
grounded, and thus not always, or even often, successful.
Here, the Government argued that the Court of
Federal Claims lacked jurisdiction over DGR’s bid protest
because DGR did not file suit until after the closing date
for receipt of proposals. DGR, 97 Fed. Cl. at 218. Though
the argument is fundamentally counterintuitive since
court suits usually follow the conclusion of administrative
action rather than precede it, the Government supported
its argument with some language from an earlier opinion
of this court in Blue & Gold Fleet L.P. v. United States,
492 F.3d 1308, 1313 (Fed. Cir. 2007):
DGR ASSOCIATES v. US 14
[A] party who has the opportunity to object to the
terms of a government solicitation containing a
patent error and fails to do so prior to the close of
the bidding process waives its ability to raise the
same objection subsequently in a bid protest ac-
tion in the Court of Federal Claims.
The Court of Federal Claims summarily rejected the
Government’s position, noting that to do otherwise “would
have parties running into the Court of Federal Claims to
challenge solicitation errors, instead of pursuing other
[administratively] available avenues.” DGR, 97 Fed. Cl.
at 218. To avoid such an outcome, the court held that:
The correct interpretation of Blue & Gold Fleet is
that, if a party has challenged a solicitation im-
propriety before the close of the bidding process,
the party is not precluded from later filing its pro-
test at the Court of Federal Claims. A party must
do something before the closing date to preserve
its rights, and must thereafter pursue its position
in a timely manner.
Id.
On appeal, the Government urges that its jurisdic-
tional argument was substantially justified because Blue
& Gold Fleet inferentially tied the waiver rule to the
Court of Federal Claims’ statutory grant of jurisdiction,
thereby implying that the rule was jurisdictionally pre-
clusive. But we agree with the Court of Federal Claims
that the Government’s jurisdictional argument has little
merit.
In Blue & Gold Fleet the point made is straightfor-
ward—if there is a patent, i.e., clear, error in a solicitation
known to the bidder, the bidder cannot lie in the weeds
hoping to get the contract, and then if it does not, blind-
15 DGR ASSOCIATES v. US
side the agency about the error in a court suit. The trial
court aptly noted that reading more into the statement
such as the Government was doing would be inconsistent
with the principle of exhaustion of administrative reme-
dies.
In the briefs and argument before this court the juris-
dictional issue was a minor part of both the Government’s
case and DGR’s response—in their principal briefs the
Government devoted three pages to it (pp. 42-44), and
DGR four (pp. 15-18); the focus was on the merits case.
By itself, it is questionable whether we would hold the
Government’s jurisdictional argument in this case sub-
stantially justified. When viewed in the overall context,
as we are required to do, see Jean, 496 U.S. 154, 161-62
(1990) (“While the parties’ postures on individual matters
may be more or less justified, the EAJA—like other fee-
shifting statutes—favors treating a case as an inclusive
whole, rather than as atomized line-items”), we conclude
that the Government’s position in this case was “justified
to a degree that could satisfy a reasonable person,” which
is all the Supreme Court and this court require. Pierce,
487 U.S. at 565; White v. Nicholson, 412 F.3d 1314, 1315
(Fed. Cir. 2005).
Beyond that, “a position can be justified even though
it is not correct, and . . . it can be substantially (i.e., for
the most part) justified if a reasonable person could think
it correct . . . .” Pierce, 487 U.S. at 566 n.2. In this case,
the Government has in its favor at least one reasonable
mind that had come to the same view as the Government
regarding our statement in Blue & Gold Fleet. See
Easterhill Boat Serv. Corp. v. United States, 91 Fed. Cl.
483, 487 (2010) (“The appeals court [in Blue & Gold Fleet]
could have allowed contractors to file agency-level pro-
tests to preserve their pre-award claims, or to object in a
manner other than by filing suit in federal court. Instead,
DGR ASSOCIATES v. US 16
the court ruled that a contractor wishing to object to
terms of a solicitation must file suit in the Court of Fed-
eral Claims before the bidding process ends, or not at
all.”).
Viewing the Government’s conduct in this case in its
entirety, we are persuaded that the Court of Federal
Claims abused its discretion when it concluded that the
Government’s position was not substantially justified.
During the agency stage of these proceedings, the Air
Force was bound by law to follow the SBA’s parity
regulations. And during the subsequent litigation the
Government was justified in defending the Air Force’s
actions in view of the genuine dispute among all three
branches of the Government over whether the Act
prioritized the HUBZone program over the 8(a) program.
Though the Government’s jurisdictional argument
may have been less defensible than its merits-based
argument and would have been better omitted, we
conclude that as a whole the Government’s basis for
litigating its case was substantially justified. The
question before us is not whether DGR had a reasonable
case to bring, or even whether the Government’s position
on the law proved to be correct. It is whether the
Government was substantially justified in pursuing its
overall view of the case in light of the then-state of the
law. We think it was, and the EAJA provides for fee-
shifting only when it was not.
CONCLUSION
The Court of Federal Claims’ decision to award DGR
attorneys’ fees and costs under the EAJA is reversed.
REVERSED