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Tyler v. United States Department of Education Rehabilitation Services Administration

United States Court of Appeals, Tenth Circuit

September 26, 2018

NOEL TYLER, as interim director of the Oklahoma Department of Rehabilitation Services, Plaintiff Counter Defendant -Appellant,
v.
UNITED STATES DEPARTMENT OF EDUCATION REHABILITATION SERVICES ADMINISTRATION, Defendant-Appellee, and DAVID ALTSTATT, SR., Intervenor Defendant Counterclaimant - Appellee.

          Appeal from the United States District Court for the Western District of Oklahoma D.C. No. 5:16-CV-00137-W

          Peter A. Nolan, Winstead PC, Austin, Texas (Richard Olderbak, Oklahoma Office of Attorney General, Department of Rehabilitation Services, Oklahoma City, Oklahoma, with him on the briefs), for Plaintiff-Appellant.

          Kay Sewell, Assistant United States Attorney, Oklahoma City, Oklahoma (Robert J. Troester, Acting United States Attorney, Chad A. Readler, Acting Assistant Attorney General, Mark B. Stern and Laura E. Myron, Attorneys, Appellate Staff, United States Department of Justice, Washington, D.C., with her on the briefs), for Defendant-Appellee.

          Kevin R. Donelson, (Anh Kim Tran with him on the briefs), Fellers, Snider, Blankenship, Bailey & Tippens, P.C., Oklahoma City, Oklahoma, for Intervenor Defendant Counterclaimant-Appellee.

          Before MATHESON, McHUGH, and EID, Circuit Judges.

          MATHESON, CIRCUIT JUDGE.

         The Oklahoma Department of Rehabilitation Services ("ODRS") appeals from the district court's affirmance of an arbitration decision rendered under the Randolph-Sheppard Act (the "RSA"), 20 U.S.C. §§ 107 et seq. The statute authorizes designated state agencies such as ODRS to license and assign blind vendors to operate vending facilities on federal property. It establishes an arbitration scheme to resolve disputes arising from this program.

         In accordance with the statute, the Department of Education ("DOE") convened an arbitration panel (the "Panel") to hear the grievances of David Altstatt, a blind vendor, challenging ODRS's selection of another blind vendor, Robert Brown, for a particular vending assignment. Both Mr. Altstatt and Mr. Brown had applied for the assignment. The Panel found for Mr. Altstatt and ordered ODRS to remove Mr. Brown from the disputed assignment, appoint Mr. Altstatt in Mr. Brown's place, and pay damages and attorney fees to Mr. Altstatt.

         ODRS brought suit in district court against DOE, seeking to vacate the Panel's decision, which the Randolph-Sheppard Act subjects to judicial review as a final agency action under the Administrative Procedure Act (the "APA"), 5 U.S.C. §§ 551 et seq. Mr. Altstatt intervened as a defendant and counterclaimant, requesting that the court affirm the arbitration decision. DOE participated in the litigation only to the extent of filing the administrative record of the Panel proceedings. The district court entered judgment in favor of Mr. Altstatt and ordered ODRS to comply with the Panel's decision. ODRS now appeals.

         Exercising jurisdiction under 28 U.S.C. § 1291, we affirm the district court's decision as to the Panel's award of injunctive relief in the form of Mr. Brown's removal and Mr. Altstatt's appointment to the disputed assignment, but we reverse as to the Panel's award of damages and attorney fees.

         I. BACKGROUND

         This section provides background on: (A) the RSA, (B) Mr. Altstatt's grievances against ODRS, (C) the Panel's decision in favor of Mr. Altstatt, and (D) the federal district court proceedings.

         A. The Randolph-Sheppard Act

         The RSA, 20 U.S.C. §§ 107 et seq., enacted in 1936 and amended in 1954 and 1974, established a federal program (the "RSA Program") to enhance blind individuals' economic opportunities by granting them priority to operate vending facilities on federal property. States participate in the RSA Program through state licensing agencies ("SLAs") designated by the DOE, which administers the RSA. Id. §§ 107a(a), 107(b). SLAs promulgate and implement policies and standards, which DOE must approve, governing the licensure and selection of blind vendors to operate vending facilities on federal property. 34 C.F.R. § 395.4; see also id. § 395.3(a)(7).

         As amended in 1974, the RSA establishes a two-tiered scheme for resolving blind vendors' grievances arising from SLAs' operation of the RSA program. First, SLAs must hear and render a decision on a blind vendor's grievance. 20 U.S.C. § 107d-1(a). Second, a vendor who is dissatisfied with the SLA's decision may then request arbitration by a panel convened by DOE. Id. RSA arbitration decisions are subject to judicial review in federal court as final agency actions under the APA. Id. § 107d-2.

         B. Mr. Altstatt's Grievances against ODRS

         ODRS, Oklahoma's designated licensing agency, issues licenses to blind vendors and assigns them to manage vending contracts with the federal government. See Okla. Admin. Code § 612:25-4-1(a). In late 2012, ODRS initiated a selection process for a licensed blind vendor to assume the management of the Fort Sill vending contract (the "Contract") with the Army. It solicited applications through a position announcement (the "Announcement"), which enumerated "eligibility criteria specific to this announcement." App., Vol. 7 at 1135, 1139. To be eligible, the applicant must not "have had any delinquency on taxes for the past 3 years." Id. at 1139. In accordance with its regulations, Okla. Admin. Code §§ 612:25-4-57, 612:25-4-59, ODRS convened a selection committee (the "Committee") to interview the candidates, evaluate their applications, and make a recommendation for the Contract assignment. The Committee recommended Mr. Brown over the other candidates, which included Mr. Altstatt. ODRS accepted the Committee's recommendation and selected Mr. Brown to manage the Contract.

         After Mr. Brown's selection, Mr. Altstatt filed a grievance with ODRS, complaining about the Committee's selection procedures. He argued that Mr. Brown's selection was null and void because the Committee had not considered a required scoring factor under ODRS's regulations.[1] ODRS, after a full evidentiary hearing, ordered the Committee to reconvene within 30 days to consider the previously omitted factor. In the meantime, ODRS appointed Mr. Brown as the interim Contract manager so that he could begin preparations to operate Fort Sill's vending facility. ODRS also assigned each candidate a score for the previously omitted factor based on the available data and provided this information to the Committee. The reconvened Committee considered the additional scores and again recommended Mr. Brown for the Contract assignment. ODRS again accepted the Committee's recommendation.

         Following ODRS's interim appointment of Mr. Brown and again after ODRS's permanent re-selection of Mr. Brown, Mr. Altstatt filed grievances with ODRS to challenge these actions. He complained, among other things, that (1) ODRS's re-selection process was "infirm," App., Vol. 7 at 1227, (2) one of the Committee members-Charles Pride-was biased, and (3) Mr. Brown was ineligible for the Contract assignment because he was delinquent on his taxes. Mr. Altstatt also filed a complaint with DOE to request arbitration of his grievances against ODRS.

         ODRS granted Mr. Altstatt a second full evidentiary hearing. After the hearing, it affirmed Mr. Brown's interim and permanent appointments, concluding that they "complied with the applicable regulations and due process." App., Vol. 4 at 718-19. Dissatisfied with ODRS's decision, Mr. Altstatt filed a second complaint with DOE requesting arbitration of his grievances.

         C. The Panel's Decision

         In July 2014, DOE notified the parties that it was consolidating Mr. Altstatt's requests for arbitration and "authoriz[ing] the convening of [the Panel] to hear and render a decision on the issues raised in the two complaints." App., Vol. 5 at 766, 768. DOE stated that "[t]he central issue is whether [ODRS]'s process for selecting a blind vendor for the Ft. Sill food service contract violated the Randolph-Sheppard Act, implementing regulations and state rules and regulations." Id.

         In his second complaint to DOE, Mr. Altstatt had specified that he sought the following relief: "that the selection process for the putative winner, Robert Brown, be declared invalid and that Altstatt be awarded the current Contract and profits which he would have received during the period of time in which he would have been operating the Contract from ODRS." App., Vol. 4 at 715. DOE's notices to the parties incorporated this language by reference: "A complete statement of . . . the relief sought is contained in this complaint for arbitration." App., Vol. 5 at 765, 767. The notices did not advise the parties of any limitations on the types of relief the Panel could award.

         In January 2016, after a hearing in November at which "[c]ounsel for the parties presented opening statements and then called witnesses to give sworn testimony," the Panel rendered a decision in favor of Mr. Altstatt. App., Vol. 4 at 635, 643. As relevant to this appeal, the Panel concluded that ODRS's re-selection of Mr. Brown for the Contract assignment was invalid because (1) "[ODRS's] utiliz[ation] of the same . . . Committee again after it had violated its own rules deprived Altstatt of due process and was fundamentally unfair," (2) "one of the committee members (Pride) was personal friends with Brown and was known to socialize with him," and (3) "Brown was not eligible [for the Contract assignment] by the clear meaning of the words set forth in the [Announcement]" for having been delinquent in his taxes in the relevant time period. Id. at 641-42. The Panel ordered that ODRS remove Mr. Brown from the Contract assignment, appoint Mr. Altstatt in Mr. Brown's place, and pay damages[2] and attorney fees to Mr. Altstatt.

         D. Federal District Court Proceedings

         ODRS sued DOE in the U.S. District Court for the Western District of Oklahoma, seeking judicial review of the Panel's decision. Mr. Altstatt intervened as a defendant and counterclaimant, requesting that the court affirm the arbitration decision. After filing the administrative record of the Panel proceedings, DOE obtained the parties' stipulation that it "is a nominal defendant in terms of the rights, claims and remedies sought to be reviewed [in the case]." Dist. Ct. Doc. 21 at 4. The court accepted the parties' stipulation and designated DOE a nominal defendant, such that it "[was] not required to participate in any substantive proceedings . . . unless [specifically] directed to do so." Id. at 1.[3]

         Disallowing any discovery, the court ordered ODRS and Mr. Altstatt to submit briefs on all of the issues. In its brief, ODRS attacked, as arbitrary or capricious and unsupported by substantial evidence, the Panel's following bases for concluding that its permanent selection of Mr. Brown for the Contract assignment was contrary to the RSA: (1) the re-selection process was infirm, (2) Mr. Pride and Mr. Brown were friends at the relevant time, and (3) Mr. Brown was ineligible for the Contract Assignment because of his tax delinquency. ODRS also challenged each type of relief granted by the Panel: (1) the removal of Mr. Brown from the Contract assignment as violating Mr. Brown's due process, (2) the appointment of Mr. Altstatt to the Contract assignment as exceeding the scope of the Panel's remedial authority under the RSA and alternatively as arbitrary or capricious, (3) the damages award as barred by sovereign immunity, and (4) the attorney fee award as exceeding the scope of the Panel's remedial authority under the RSA and alternatively as barred by sovereign immunity.

         After receiving briefs from ODRS and Mr. Altstatt on these issues, the district court upheld the Panel's decision in favor of Mr. Altstatt and all relief granted. The court rejected on the merits all but one of ODRS's claims-the due process challenge to the Panel's order to remove Mr. Brown from the Contract assignment. The court determined that ODRS lacked standing to assert the rights of Mr. Brown, a non-party to the litigation, through this claim. The court later entered final judgment, in which it affirmed the "Findings of Fact and Conclusions of Law set forth in the [Panel's decision] . . . in favor of [Mr.] Altstatt." App., Vol. 8 at 1384. It further ordered ODRS to remove Mr. Brown as the Contract manager, replace him with Mr. Altstatt, and pay damages and attorney fees to Mr. Altstatt as provided for in the Panel's decision.

         ODRS appealed from the district court's affirmance of the Panel's decision, reasserting all of the arguments it presented below. After oral argument, we ordered the parties, including DOE, to submit supplemental briefs on issues pertaining to sovereign immunity and the scope of the Panel's remedial power under the RSA. DOE attached to its supplemental brief a document titled "Revised Interim Policies and Procedures for Convening and Conducting an Arbitration Pursuant to Sections 5(a) and 6 of the Randolph-Sheppard Act as Amended" ("RSA Arbitration Policies"). This document, which the Commissioner of DOE's Rehabilitation Services Administration approved in 1978, establishes the policies and procedures governing the arbitration of blind vendors' grievances against SLAs under the RSA.

         II. DISCUSSION

         We begin with our standard of review. We then turn to ODRS's various challenges to the Panel's decision, providing additional background as needed.

         A. Standard of Review

         "We review de novo a district court's decision in an APA case." Biodiversity Conservation All. v. Jiron, 762 F.3d 1036, 1059 (10th Cir. 2014). Accordingly, we apply the standards for reviewing final agency actions set forth in the APA:

To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall-
. . .
(2) hold unlawful and set aside agency action, findings, and conclusions found to be-
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(B) contrary to constitutional right, power, privilege, or immunity;
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
(D) without observance of procedure required by law; [or]
(E) unsupported by substantial evidence in a case . . . reviewed on the record of an agency hearing provided by statute . . . .

5 U.S.C. § 706 (emphases added).

         B. ODRS's Challenges under the APA

         ODRS raises various APA challenges to (1) the Panel's conclusion that ODRS's permanent selection of Mr. Brown for the Contract assignment violated the RSA, and (2) specific types of relief awarded to Mr. Altstatt, whom the Panel determined should have received the Contract assignment instead of Mr. Brown. We affirm the district court's decision as to the Panel's order to remove Mr. Brown from the Contract assignment and replace him with Mr. Altstatt, but we reverse as to the Panel's award of damages and attorney fees.

         We first review the Panel's conclusion that Mr. Brown's selection violated the RSA. ODRS attacks as arbitrary or capricious or as unsupported by substantial evidence the Panel's reasons for this conclusion: infirmity in ODRS's re-selection process, the friendship between Mr. Brown and Mr. Pride, and Mr. Brown's ineligibility. We need only consider ODRS's arguments regarding the Panel's third reason-Mr. Brown's ineligibility for the Contract assignment due to tax issues. Based on our review of the record, we conclude that the Panel's finding of ineligibility was not arbitrary or capricious or unsupported by substantial evidence. Because this reason alone supports the Panel's conclusion that Mr. Brown's selection violated the RSA, we do not consider ODRS's arguments regarding the Panel's remaining reasons.

         We then turn to the Panel's remedies awarded to Mr. Altstatt. ODRS challenges: (a) Mr. Altstatt's appointment to the Contract assignment as exceeding the scope of the Panel's remedial authority under the RSA and as arbitrary or capricious; (b) the damages award as violating sovereign immunity; and (c) the attorney fee award as exceeding the scope of the Panel's remedial authority and as violating sovereign immunity.[4] We conclude that (a) the Panel had statutory authority to order Mr. Altstatt's appointment to the Contract; (b) ODRS is entitled to sovereign immunity from the damages award; and (c) the Panel exceeded its statutory authority in awarding Mr. Altstatt attorney fees.[5]

         1. The Panel's Conclusion that ODRS Violated the RSA

         Under the APA, the reviewing court must "hold unlawful and set aside agency action," 5 U.S.C. § 706(2), that is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," id § 706(2)(A), or "unsupported by substantial evidence," id. § 706(2)(E). ODRS contends the Panel's finding that Mr. Brown was ineligible for the Contract assignment due to tax issues "is not supported by substantial evidence and is arbitrary." Aplt. Br. at 40. We disagree.

         We (a) summarize the evidence before the Panel relating to the tax eligibility requirement for the Contract assignment and Mr. Brown's tax issues; (b) provide legal background on the federal contracting regulations ODRS relies on to challenge the Panel's finding that Mr. Brown was tax delinquent and therefore ineligible for the Contract assignment; and (c) analyze the Panel's finding in light of the administrative record and conclude that the finding was neither unsupported by substantial evidence, nor was it arbitrary or capricious.

         a. Relevant evidence in the administrative record

         We summarize the evidence relating to (i) the Contract assignment's tax eligibility requirement and (ii) Mr. Brown's tax issues in the period leading up to ODRS's selection process.

         i. The tax eligibility requirement

         The Announcement for the Contract assignment enumerated several "eligibility criteria," including that applicants must not "have had any delinquency on taxes for the past 3 years." App., Vol. 7 at 1139.

         The administrative record contains the affidavit of Michael Jones, who served as ODRS's Division Administrator from July 2011 to April 2013. App., Vol. 7 at 1124-25. In his affidavit, Mr. Jones stated that he "wrote the applicant requirements for the [Announcement]." Id. at 1124. He stated that "[o]ne of these requirements was that the successful applicant could not have any tax delinquencies" and that he had "included the tax delinquency provision . . . based on requirements found in the Defense Finance Acquisition Regulations, or 'DFARS' that govern all federal contracts." Id. at 1124, 1125. He also stated that, "if [this requirement] was not met, [it] would be grounds for the federal contracting officer administering [the Contract] to 'debar' or deem the selected manager disqualified from continuing to work at the facility." Id. at 1124.

         At the arbitration hearing, ODRS called Mike Hamrick, its Operations Coordinator for the RSA Program, to testify. He testified that the tax eligibility requirement is not in ODRS's rules and regulations but instead "comes from the DFARS." App., Vol. 6 at 1049. He also testified that ODRS had not undertaken to check whether the candidates for the Contract assignment satisfied the tax eligibility requirement, "since it w[as] the Army's [rather than ODRS's own] requirement[]." Id. at 1050.

         ii. Mr. Brown's tax issues

         The administrative record contains notices of two federal tax liens filed against Mr. Brown's property within the three years preceding the application due date for the Contract assignment, December 21, 2012. App., Vol. 7 at 1141-42. In both notices, the Internal Revenue Service (the "IRS") stated that "taxes . . . have been assessed against [Mr. Brown and his wife]" and that the United States "ha[s] made a demand for payment of this liability, but it remains unpaid." Id. In the first notice, prepared on February 18, 2011, the IRS assessed an unpaid balance of $15, 117.95 from tax years 2008 and 2009. In the second notice, prepared on November 1, 2012, the IRS assessed an unpaid balance of $6, 481.96 from tax year 2010. In both notices, the IRS also stated that "there is a lien in favor of the United States on all property and rights to property belonging to [Mr. Brown and his wife] for the amount of these taxes." Id.

         The administrative record also contains Mr. Brown's sworn affidavit, in which he states that he had entered into an installment payment plan for his unpaid taxes with the IRS before ODRS selected him for the Contract assignment:

At the time that I received the invitation to apply [for the Contract assignment] I was concluding negotiation of a payment plan with the U.S. Internal Revenue Service for certain personal income taxes that had not been properly filed on my behalf in prior years. I did enter into an agreed payment plan before the [ODRS] selection process had concluded. My monthly payments at an agreed amount began in February, 2013. To the extent that the IRS has filed any liens relating to taxes owed by me, those claimed taxes due are covered by the repayment plan and I have been assured that the IRS will not attempt any collection or treat me as a delinquent taxpayer while I am making the agreed payments according to the agreed payment plan.

Id. at 1126.

         In his affidavit, Mr. Brown also stated that he had "discussed the above matter with Division Manager Mike Jones before applying for the selection process" and that Mr. Jones had "referred to particular U.S. Army regulations for contracting (DFARS) as the reason for including in the [Announcement] a section stating that the successful applicant would need to be clear of any tax delinquency." Id. at 1127. Mr. Brown stated that Mr. Jones had "advised [him] that DFARS itself contained a provision saying that taxes covered by an agreed repayment plan do not constitute a delinquency, and that [ODRS] would not consider [his] tax matter covered by a payment plan to be a delinquency." Id.

         Mr. Jones's affidavit corroborated Mr. Brown's affidavit. In his affidavit, Mr. Jones stated: "Prior to submitting his application for the [Contract assignment], Robert Brown advised me that he had learned that he had some unpaid federal taxes but that he had previously entered into a payment plan to satisfy his tax obligations and was making his payments as agreed." Id. at 1125. Mr. Jones also stated: "Applying both the DFARS standards and common sense, I determined that the payment plan being in place and not being breached meant that Mr. Brown did not have a tax 'delinquency' that would disqualify him from the selection process or from performing [the Contract] if selected, and I advised him of that position." Id.

         Mr. Brown also testified at the arbitration hearing regarding unpaid taxes and his installment plan with the IRS. He elaborated on the plan's terms: "I was to pay back a set amount monthly, and then if there were ever any issues where I might [] be late, then they needed me to make sure I contacted them so that I would continue to be considered in good standing." App., Vol. 6 at 1031.

         b. Legal background

         The Federal Acquisition Regulations System ("FARS") is a set of regulations jointly promulgated by the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration to establish "uniform policies and procedures for acquisition by all executive agencies." 48 C.F.R. §§ 1.101, 1.103. Under the regulations, "[a]cquisition means the acquiring by contract with appropriated funds of supplies or services . . . by and for the use of the Federal Government through purchase or lease . . . ." Id. § 2.101.

         Under FARS, a federal contractor may be debarred "based upon a preponderance of the evidence" for, among other things, "[d]elinquent Federal taxes in an amount that exceeds $3, 500." Id. § 9.406-2(b)(1)(v).[6] FARS provides that:

(A) Federal taxes are considered delinquent for purposes of this provision if both of the ...

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