Litigating Bad Faith: Why Winning the Battle May Not Win the Protest

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1 BNA Document Bid Protests Litigating Bad Faith: Why Winning the Battle May Not Win the Protest By Andrew E. Shipley Andrew E. Shipley is a partner in Perkins Coie LLP's Government Contracts Group. In a recent pair of bid protest decisions -- one of which involved sanctions against the government for falsifying the administrative record with a fabricated document -- the Court of Federal Claims made clear that bad faith litigation tactics by the government are separate from and do not necessarily taint the underlying procurement decision. Indeed, even though the court found that the government's conduct raised serious questions about the integrity of the administrative record, it presumed that the government made its procurement decisions in good faith and dismissed the plaintiff's complaint. This article discusses these companion cases in depth and provides some practice tips that flow from them. Background. In Costal Environmental Group, Inc. v.united States, plaintiff protested the EPA's decision to award a remediation services contract to another bidder. In response, the EPA took corrective action by terminating for convenience the awarded contract and canceling the procurement. Plaintiff objected to the corrective action, arguing that instead of canceling the procurement, the EPA should have revived the bids of the non-selected offerors. Although the court dismissed the original protest as moot, it allowed plaintiff to file a supplemental complaint challenging the corrective action. The supplemental complaint contained a new claim entitled, Bad Faith Cancellation of the Procurement. Plaintiff sought, among other things, a declaration that the EPA's cancellation of the procurement was done in bad faith and without a compelling reason or rational basis. The government filed a supplemental administrative record to add documents relevant to this new claim for relief. The Show Cause Order. In reviewing the government's supplemental administrative record, the court noticed inconsistencies between it and certain factual contentions previously advanced by the government. In particular, to support the motion to dismiss the original protest, the EPA had represented that it intended to issue a new solicitation for soil remediation services in the near future and that plaintiff would be entitled to compete for this contract if it chose to do so. After briefing had closed, the EPA notified the court that funding constraints caused by sequestration led to a change in plans and that the agency would instead rely on an existing contract to meet its needs. The court, however, could find no basis in the record for either of these representations. To the contrary, the evidence suggested that the EPA never intended to issue a new solicitation and that sequestration had nothing to do with its decision to use an existing contract to perform the remaining remediation work. Thus, the court grew concerned that the government had made factual contentions

2 without evidentiary support and directed the government to show cause why it should not be found in violation of Rule 11. Plaintiff subsequently filed a motion for sanctions under Rule 11. The Fabricated Document. In preparing its response to the show cause order, agency counsel discovered a problem with one of the documents used to supplement the administrative record. The Determination and Findings ( D&F ) that purported to provide the basis for the EPA's corrective action had been created 10 months after the date shown on the document and backdated to the time the corrective action was taken. In addition, agency counsel believed that one of the factual assertions made in the D&F -- that the agency terminated the procurement because of rising protest costs -- was inaccurate. The D&F had been certified by the contracting officer and executed on her behalf by her supervisor, the Acquisitions Section Chief for EPA Region 7. The Government's Innocence Defense. The government's response to the show cause order addressed three topics: 1) the inconsistencies between agency counsel's statements to the court and the administrative record concerning the intent to issue a new solicitation in the near future; 2) the inconsistencies between agency counsel's statements to the court and the administrative record regarding the role sequestration played in the decision not to issue a new solicitation; and 3) the inaccurate, backdated D&F. The government explained that the statements made by agency counsel to the court were based on information received from agency personnel. In particular, the contracting officer and her supervisor had advised counsel that the EPA intended to issue a new solicitation. Similarly, the contracting officer and the Special Emphasis Remedial Section Chief in the Superfund Division for Region 7 had advised agency counsel that sequestration impacted the agency's procurement plans. The government submitted contemporaneous s from EPA employees to support both representations. With respect to the backdated D&F, the agency argued that while it had no formal recordkeeping requirements, its typically prepared a D&F whenever it terminated a contract. The contracting officer failed to do so in this instance, but when she learned that the administrative record would be supplemented, she prepared a D&F, edited it at the direction of the Acquisitions Section Chief, and backdated it to the time of termination. The contracting officer claimed simply committed an honest human mistake devoid of any attempt to deceive. The acquisitions chief claimed she did not know that the D&F had been backdated or that it contained misinformation. The Ruling on the Show Cause Order. As an initial housekeeping matter, the court directed the government to compile a new corrected administrative record that included the s discussing the EPA's decision to terminate the procurement but excluded the backdated D&F. But because the government never sought to withdraw or strike the D&F from the record (instead, the government proposed to leave the D&F in the record), the court held that the government could not invoke Rule 11's safe harbor provision. The safe harbor provision precludes sanctions if the challenged document is timely withdrawn or corrected. Turning to the show cause order, the court noted that the existing supplemental administrative record should have contained all of the documents relevant to the agency's decision to cancel the procurement and subsequent decision not to solicit a new contract. The court observed that such documents clearly existed, as demonstrated by the s attached to the government's response to the show cause order. The court chastised the government's conduct in assembling an incomplete administrative record as at best, misguided, but declined to impose sanctions. As for the agency's representation that it had originally intended to issue a new solicitation, the court declined to impose sanctions because the s attached to the government's show cause order response supported this assertion

3 and had been included in the corrected administrative record. The court concluded, however, that the agency's representations regarding the impact of sequestration were highly problematic because the funding for the remediation work came from a bankruptcy settlement fund held in trust. Thus, sequestration did not impact the availability of this funding. The court found that in advancing this argument, prior agency counsel had effectively ignored the evidence in the administrative record and the documentation supplied by the plaintiff, all available to him prior to the filing of the reply brief The court concluded that prior counsel had engaged in sanctionable conduct by asserting facts he had failed to investigate. But the court declined to impose sanctions, relying instead on its discussion of the issue as sufficient to deter further similar conduct by defendant and its legal representation. The court characterized the inaccurate, backdated D&F and the EPA's certification of the administrative record as the two most serious areas of concern. The court concluded that the contracting officer intended to make it appear that the D&F had been prepared and signed ten months earlier than it was, knew that it would be included in the supplemental administrative record, and sought to deceive counsel and the court regarding the authenticity of the document. The court further concluded that her supervisor, the Region 7 acquisition chief, also sought to deceive counsel and the court. The court further found that the backdated D&F contained inaccurate information as to why the EPA terminated the procurement and that the acquisition chief falsely certified that the supplemental record reflected the actions taken by the EPA. Based on these conclusions, the court found that the contracting officer and the acquisition chief had acted in bad faith. In determining whether to impose sanctions, the court observed that it and counsel had to expend significant resources to address concerns about the integrity of the administrative record compiled by the EPA. Thus, the court ordered the EPA to reimburse plaintiff for its reasonable attorney's fees in addressing the D&F issue and to pay a penalty to the court of $1,000. The Ruling on the Merits. In a companion decision issued the same day, the COFC dismissed the supplemental protest because the corrected administrative record -- i.e., one without the government's false representations and fabricated D&F -- contained no evidence that the government had failed to act in good faith with respect to the corrective action itself. Indeed, the corrected administrative record contained no documentation whatsoever regarding the rationale for the EPA's decisions. The court cited Am-Pro Protective Agency, Inc. v United States for the proposition that government contract officials are strongly presumed to exercise their duties in good faith and that plaintiff bears a heavy burden of proof in overcoming this presumption. 1 The court further explained that where, as was the case here, no regulation requires the agency to provide an explanation for its decision, the presumption of good faith carries the day unless it is rebutted by record evidence suggesting that the agency decision is arbitrary and capricious. The court found that plaintiff could not cite to any evidence in the corrected administrative record that the EPA had failed to act in good faith with respect to its corrective action. Among other things, the court found no support in the corrected administrative record that the EPA had canceled the procurement out of animus toward the plaintiff or as a litigation avoidance tactic. Consequently, the court entered judgment for the government. In short, the court presumed that the EPA's contracting officials had acted in good faith in taking corrective action even though those same officials tried to deceive the court as to the reasons for that corrective action. The court simply ignored their duplicitous conduct and based its decision on a sanitized record scoured clean of government wrongdoing. Interestingly, contractors are not afforded the same benefit. Under the Forfeiture of Fraudulent Claims Act, 28 USC 2514, a contractor forfeits all of its contract claims against the United States if it commits or attempts to commit fraud in connection with any claim under that contract. The companion Coastal Environmental opinions highlight the difference between winning litigation skirmishes and winning the protest. They also offer lessons for advocates on both sides of the aisle: Tip Number 1: Investigate Before You Advocate.

4 Rule 11(b) states that in presenting a pleading, motion or other paper to the court, an attorney certifies to the best of his or her knowledge, information and belief, formed after an inquiry reasonable under the circumstances that the factual contentions have evidentiary support or will likely have such support after a reasonable opportunity for discovery. The court expressed significant concern over agency counsel's failure to investigate the inconsistency between the assertion that sequestration impacted the EPA's decision to cancel the procurement and contradictory information contained in plaintiff's response brief. The court opined that counsel had a duty to engage in further inquiry when confronted with such evidence and could not rely upon information previously provided by agency personnel. Instead, he should have pressed his client to square its advice with plaintiff's conflicting evidence. Although the court found agency counsel's conduct to be sanctionable, it declined, after careful consideration, to impose sanctions. Attorneys in future cases may not be treated so leniently, especially given the court's clear instruction as to the obligations imposed by Rule 11. Tip Number 2: To be Safe, Fix Problems Before the Court Fixes Them for You. The government labored under the misapprehension that by explaining how the problems in the supplemental administrative record had occurred, and by submitting a corrected administrative record, it had adequately addressed the court's concerns. The court quickly disabused the government of this notion. The court pointed out that the government never moved to strike or withdraw the D&F from the docket and had instead proposed that it remain on the docket. As the court explained, common sense dictated that the only way to fix the problem was by moving to withdraw or strike that document from the administrative record. The government's failure to take such actions foreclosed its ability to invoke Rule 11's safe harbor provisions. Should you ever find yourself in the unfortunate position of having represented to the court a fact you later discover to be incorrect, you should take prompt corrective action. Rule 11(c)(2) precludes the court from considering a motion for sanctions if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets. Tip Number 3: Stay Focused on the Goal. It is safe to assume that contractors generally prefer to win contract awards without the need to litigate whether the competition was fairly and reasonably conducted. In that respect, protests are a means to an end used only after nonlitigious means have failed to achieve the desired goal. Once litigation starts, however, the original goal is sometimes overshadowed by ancillary skirmishes -- in short, the lawsuit may take on a life of its own. While it is impossible to know all that occurred in the Coastal Environmental case based on the published decisions alone, it is worth noting that the court spent far more time discussing the motion for sanctions (a 32 page opinion) than it did the underlying merits of the protest (a 16 page opinion). There can be little doubt that, from the court's point of view, the need to protect the integrity of the judicial process warranted this expenditure of time and energy. For the plaintiff, however, little was gained with respect to its original protest goals -- it was not granted any of its prayers for relief. Tellingly, in deciding the merits of plaintiff's protest, the court drew no adverse inferences from the contracting officials' bad faith litigation tactics. One could easily envision the court deciding otherwise -- after all, why should contracting officials who sought to deceive the court as to the basis for their corrective actions be entitled to a continuing presumption of good faith? Why shouldn't their demonstrated willingness to lie about the very corrective action at issue in the protest serve to rebut the presumption? One cannot tell from the opinions themselves whether plaintiff made this argument, although the court's comment that it would not assign improper motives to the EPA based on innuendo suggests it may have. Alternatively, the court could have ruled that the government's uncorrected supplemental administrative record supported a finding that the corrective action was arbitrary and capricious as the premises for that action proved to be unfounded. The clear divide the court drew between the government's bad faith litigation tactics and the underlying procurement decision serves as a useful reminder that one must keep one's eye on the ball throughout the life of a lawsuit. The plaintiff's supplemental complaint alleged that the government acted in bad faith with respect to the corrective action it

5 took. One would think that, by proving that the government had lied to the court regarding the basis for its corrective action, plaintiff had moved a long way toward proving this claim. But the court confined its bad faith inquiry to the limited universe of Rule 11. Thus, for the plaintiff, scoring a win on this issue meant only that it recovered its reasonable attorney's fees. By no means is this article intended to suggest that plaintiff could have or should have litigated the protest differently. The court on its own volition directed the government to show cause why it should not be held in violation of Rule 11 and plaintiff would have been remiss had it not addressed the issues raised by the court's show cause order or filed its own motion for sanctions. The point to keep in mind is that protest litigation, like nearly all other litigation, is a means to an end, not the end itself. When ancillary issues arise, it is important to place them in context and to allocate resources appropriately. Simply put, litigation costs time and money -- a reality courts sometimes overlook -- so it is important for the litigant to stay focused on the goal and not have budget or other resources drained by ancillary matters. Even when a successful outcome translates (as it did here) into a reimbursement of attorney's fees, that rarely results in a full and complete reimbursement. Conclusion. Courts give great deference to agency procurement decisions. Nowhere is that more evident than in the recent Coastal Environmental decisions in which contracting officials who misrepresented facts and even fabricated a document to justify their procurement actions were nonetheless presumed to have acted in good faith. Aside from reinforcing the great latitude given to agencies, these cases provide useful insights into how one should handle unexpected issues that invariably arise in the course of litigation. By keeping in mind your dual roles as officer of the court and as counselor (not just an attorney) for your client, you will successfully navigate whatever comes your way. 1 Some commentators have suggested that the Am-Pro case has confused the role of good faith in government contracts and that there should be no requirement to prove bad faith in order to show that a government official acted improperly with respect to procurement decisions, see, e.g., Ralph C. Nash, Jr., The Government Contracts Decisions of the Federal Circuit, 78 Geo. Wash. L. Rev. 586, 603 (April 2010). Copyright 2014, The Bureau of National Affairs, Inc.