[00:00:00] Speaker 02:
Okay, so we will hear argument in number 21, 2374, LAX Electronics against United States.

[00:00:08] Speaker 02:
Mr. Huffman, please begin.

[00:00:11] Speaker 03:
May I please record?

[00:00:13] Speaker 03:
I believe I hit the critical points home repeatedly in the briefs.

[00:00:20] Speaker 03:
Here, the government failed to follow its own

[00:00:32] Speaker 03:
enclosure 14 in removing automatic connector from the QPL.

[00:00:42] Speaker 03:
Section 12B1 of that enclosure states that the products should again be included on the QPL once deficiencies have been corrected.

[00:00:56] Speaker 03:
Now, as I stated repeatedly throughout the briefs,

[00:01:01] Speaker 03:
Automatic Connector submitted detailed corrective action reports correcting the alleged deficiencies which were wholly ignored by the DLA.

[00:01:13] Speaker 03:
And I'd like to also note that many of the alleged deficiencies were based on mill standard 790, a standard to which automatic was being held.

[00:01:29] Speaker 03:
had not yet even been fully implemented by the DLA and had not been incorporated into the subject solicitations yet.

[00:01:43] Speaker 03:
And instead, the DLA simply claimed that because of repeated findings, that because of alleged repeated findings, automatic corrective action reports were not sufficient.

[00:01:59] Speaker 03:
This was nothing more than a conclusory statement, which automatic did not even learn about until it had received the administrative record in the COFC manner.

[00:02:11] Speaker 03:
The DLA's allegation of repeated findings was not even supported by the record, which is even more problematic here.

[00:02:20] Speaker 03:
The DLA's refusal to even review the merits of automatic scars was in violation of the procedure set forth

[00:02:30] Speaker 03:
violates automatic due process rights here.

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In this case, the DLA's improper actions have prevented Automatic Connector from even qualifying to compete for contracts against FAR 9.205 and 206-2.

[00:02:55] Speaker 03:
And I'd like to direct the court's attention to the aircraft breaking

[00:03:02] Speaker 03:
And further, it's critical to note that the government even misrepresented the COFC, a critical fact that the COFC relied upon in rendering its decision.

[00:03:14] Speaker 03:
The government alleged here that automatics

[00:03:16] Speaker 03:
or that automatic connector did not respond to DLA's notice of removal.

[00:03:23] Speaker 02:
Do I understand that that was a mistake that was acknowledged and then corrected and that the Court of Federal Claims decided didn't change the result?

[00:03:37] Speaker 03:
Well, yes, Your Honor.

[00:03:38] Speaker 03:
But I believe that was a critical error here.

[00:03:46] Speaker 03:
Judge Bruggenkid clearly relied upon that misrepresentation in rendering its decision.

[00:03:51] Speaker 03:
It was one of the very first things that he had cited in his original decision.

[00:03:58] Speaker 03:
And that doesn't change the... And I think the important thing here is that the DLA is trying to use those

[00:04:13] Speaker 03:
arguments to say that Automatic had failed to correct the deficiencies when Automatic was never even given any notice of that fact.

[00:04:31] Speaker 01:
When did Automatic point to that mistake and direct the Court of Federal Claims to the mistake that the government had made?

[00:04:41] Speaker 03:
I'm sorry, can you say that again, Your Honor?

[00:04:43] Speaker 01:
Sure.

[00:04:43] Speaker 01:
The timing of when Automatic or LAX told the Court of Federal Claims that the government had made this mistake about your alleged lack of response, it appeared to me that you all didn't even point that mistake out until after you lost on the original motion.

[00:05:00] Speaker 01:
Is that correct?

[00:05:02] Speaker 03:
Yes, Your Honor.

[00:05:04] Speaker 01:
So if that's correct, how could that be a critical

[00:05:09] Speaker 01:
problem or error by the judge, if you all didn't even point it out to the judge.

[00:05:16] Speaker 03:
Well, as an initial matter, it was the court's decision that raised that issue very strongly in its original opinion.

[00:05:29] Speaker 03:
And quite frankly, I don't think it's reasonable for the

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government to attempt to blame the opposing party for its own misrepresentations to the court.

[00:05:49] Speaker 03:
Here, the correspondence involved another attorney at my office, the principal attorney at my office.

[00:06:07] Speaker 03:
And quite frankly, it was simply a matter of taking the government's representations of face value.

[00:06:15] Speaker 03:
Of course, there was no reason for me, quite frankly, to doubt the government's representations until I received a decision and ran it past somebody.

[00:06:35] Speaker 03:
ran up past somebody in my office and I was told, we did respond to that.

[00:06:39] Speaker 03:
Why are we saying this?

[00:06:42] Speaker 03:
Or why is the judge saying this?

[00:06:45] Speaker 01:
OK, well, then let's turn to the substance of that response.

[00:06:49] Speaker 01:
As I understand it, the response was, you need to take a look at our corrective action, our CARs.

[00:06:57] Speaker 01:
And didn't the judge or the Court of Federal Claims address, in both the original opinion and then very clearly in the reconsideration decision, that those corrective action

[00:07:09] Speaker 01:
we're not going to make a difference, or at least that there was substantial evidence to support DPL's view, or DLA's view, excuse me, that those corrective actions were not going to be sufficient.

[00:07:23] Speaker 03:
Well, certainly, Your Honor, but I think the record makes it very clear that those corrective action reports were not substantially reviewed.

[00:07:34] Speaker 03:
The DLA repeatedly stated that

[00:07:41] Speaker 03:
repeatedly stated that those corrective action reports are not sufficient based upon repeated findings.

[00:07:52] Speaker 03:
Now we go and look at the record and say, what repeated findings are we even talking about here?

[00:07:57] Speaker 03:
And they simply don't exist, Your Honor.

[00:08:01] Speaker 03:
I mean, that's very problematic, especially when these findings are largely based on

[00:08:10] Speaker 03:
military standards that hadn't even been fully implemented at that point.

[00:08:16] Speaker 03:
So I believe that the government would, that the DLA was holding on that to a higher standard that wasn't even incorporated with that.

[00:08:26] Speaker 03:
And I think that was the critical problem here.

[00:08:31] Speaker 03:
And then on top of that, we're being told that we need to

[00:08:42] Speaker 03:
ourselves up to these standards we submit detailed corrective action reports and just simply get those corrective action reports linked away simply saying there's repeat findings we're not even going to consider them there's no I didn't I don't see any evidence in the record that supports any fine any finding that the DLA ever reviewed those corrective action reports on their merits and

[00:09:13] Speaker 03:
As a result, first of all, those improper actions violate the procedures of the DOD manual.

[00:09:26] Speaker 03:
There is no indication that the DLA ever reviewed those corrective action reports as required under the DOD manual, where it states that those parts are supposed to be

[00:09:43] Speaker 03:
once again included under the QPL, once any deficiencies are corrected.

[00:09:50] Speaker 03:
So my clients never even got any response saying, these corrective action reports aren't sufficient, and here's why.

[00:10:04] Speaker 03:
So my clients just simply left guessing here.

[00:10:07] Speaker 01:
Do you agree that we apply the Huffman test to determine if the DOD manual is binding policy?

[00:10:18] Speaker ?:
Which?

[00:10:19] Speaker 01:
I'm sorry.

[00:10:20] Speaker 01:
Yeah, the Hamlet decision.

[00:10:22] Speaker 01:
The Hamlet?

[00:10:24] Speaker 01:
Is that what we apply?

[00:10:27] Speaker 03:
I'm not sure.

[00:10:28] Speaker 03:
I don't necessarily agree that the Hamlet standard applies, because the difference there

[00:10:34] Speaker 03:
I believe that the difference in the Hamilton case was there was a question as to whether what standard was even being applied there.

[00:10:44] Speaker 03:
So this is a separate type of instance where the DLA clearly availed itself to the DOD manual.

[00:10:55] Speaker 03:
The DOD held itself out.

[00:10:57] Speaker 03:
The DOD held out publicly this manual as the standard to which it would be operating.

[00:11:04] Speaker 03:
And Judge Grouping, I believe, correctly held that that was the standard towards the DLA apply, and correctly considered it as part of its larger analysis, even though I disagree with his holding that it didn't, that the DOD manual was not binding here.

[00:11:32] Speaker 01:
Excuse me.

[00:11:33] Speaker 01:
I think you suggest that DOD simply holding itself out publicly as if it was going to follow this policy is sufficient to make it binding policy on DOD.

[00:11:45] Speaker 01:
If that is your argument, do you cite any authority that that is essentially the test?

[00:11:52] Speaker 03:
I do not, Your Honor.

[00:11:53] Speaker 03:
But I believe that this is a matter of, frankly, common sense.

[00:12:00] Speaker 03:
to allow the DOD to post these standards on their website, hold it out publicly, and then not avail itself to those procedures.

[00:12:14] Speaker 03:
Simply, first of all, not only renders it meaningless, but it also prevents contractors of no new process when it is removed from the QPL.

[00:12:24] Speaker 03:
And quite frankly, I believe that's the absolute definition of an arbitrary

[00:12:30] Speaker 03:
conduct in contradiction to 5 USC 706.

[00:12:36] Speaker 03:
And I believe I'm into my rebuttal time.

[00:12:40] Speaker 03:
But I can answer any other questions.

[00:12:44] Speaker 02:
Thank you.

[00:12:45] Speaker 02:
We'll hear from the government.

[00:12:51] Speaker 00:
Yes, your honor.

[00:12:53] Speaker 00:
Good morning, your honors.

[00:12:54] Speaker 00:
May it please the court?

[00:12:55] Speaker 00:
This court should sustain the trial court's judgment that the agency's decision to remove the two specifications from the qualified products list was not arbitrary and capricious.

[00:13:08] Speaker 00:
Automatic's first argument is that the agency failed to follow its own procedures.

[00:13:14] Speaker 00:
As we have argued in our brief,

[00:13:16] Speaker 00:
The agencies, the DODM or the manual that we are talking about is not a binding regulation.

[00:13:22] Speaker 00:
This is a manual under the Defense Logistics Agency.

[00:13:27] Speaker 00:
It is designed to have a program where agencies can buy these parts and ensure that there is a standardized process and quality assurance.

[00:13:36] Speaker 00:
And that is the purpose of the manual.

[00:13:38] Speaker 00:
It is not to confer rights

[00:13:40] Speaker 00:
to contractors.

[00:13:42] Speaker 00:
Again, the attorney for the appellant has not meaningfully argued how the agency satisfied the factors in Hamlet, specifically noting which the court had focused on factor two, noting that the agency had not followed the procedural requirements to give it the force of law.

[00:14:03] Speaker 00:
noting its informal publication on its website, and also factor number three, that the agency intended to establish a binding regulation.

[00:14:13] Speaker 00:
And again, the trial court citing language from enclosure 14, noting the precatory language that adverse actions, this is page 212 of the joint appendix,

[00:14:25] Speaker 00:
might be warranted that I believe what opposing counsel has pointed to from appendix page 213, the product or process should again be included once they have been corrected.

[00:14:38] Speaker 00:
The agency certainly did not indicate, it indicated a desire to maintain a flexible process and this language does not demonstrate intent to create a binding regulation.

[00:14:52] Speaker 00:
But even if it did, the agency did not violate the DODM in removing the products produced under these specifications from the qualified products list.

[00:15:07] Speaker 00:
DODM paragraph 12b1 says that they must notify them of the reasons of the removal and that the company should have an opportunity to respond, which it did here.

[00:15:22] Speaker 00:
And also, contrary to opposing counsel's assertions, the agency did explain that it

[00:15:32] Speaker 00:
considered the corrective actions.

[00:15:34] Speaker 00:
This is on page 639 of the joint appendix, but that it did not believe that they would be effective.

[00:15:39] Speaker 00:
And this was, I think, well explained in appendix page, joint appendix 10 through 11 of the trial court's opinion as to why the record was sufficient.

[00:15:51] Speaker 00:
It says that the memo is plain that DLA considered automatics corrective actions insofar as it did not believe they would be effective.

[00:16:01] Speaker 00:
And to support this assertion, the memo points to automatics past incidents, referencing past audits, stop shipments, and corrective actions that were not implemented, or at least no record which could be produced to the auditor.

[00:16:14] Speaker 01:
Can I ask you about that, though?

[00:16:15] Speaker 01:
Mr. Hoffman says that's just merely conclusory.

[00:16:21] Speaker 01:
seems to suggest it's all based on the history, that there are no findings now.

[00:16:28] Speaker 01:
That is, I think, in 2019, but at the pertinent time.

[00:16:31] Speaker 01:
And it's just essentially a conclusory assertion.

[00:16:34] Speaker 01:
The history with this company has been so bad, we don't want to deal with them any further.

[00:16:40] Speaker 01:
I think this is essentially his argument.

[00:16:42] Speaker 01:
Is there something in the record more than that?

[00:16:45] Speaker 00:
Your Honor, the agency certainly made clear in its 29th, I mean, certainly looking at the history and the 2016 audit, which is at pages 403 through 407 of the record.

[00:16:59] Speaker 00:
And then I think the agency's letter removing them from the QPL has to be looked in at the context of the 2019 audit.

[00:17:08] Speaker 00:
which is at pages 5 to 63 through 572 of the Joint Appendix and the accompanying stop shipment letter, which is at 573 through 574.

[00:17:17] Speaker 00:
The agency there, after the audit in 2019, explained numerous serious problems with automatics compliance with DLA requirements.

[00:17:29] Speaker 00:
Notably, the fact that it still had issues with Group A and B testing.

[00:17:37] Speaker 00:
This is on not just not performing Group B tests to the instructions.

[00:17:41] Speaker 00:
This is at 566 through 567 of the Joint Appendix.

[00:17:45] Speaker 00:
And we would note that this was also testing issues regarding Group A and B were noted in the 2016 audit at pages 404 through 405.

[00:17:57] Speaker 00:
And also the agency had followed up in correspondence at 470 and 471.

[00:18:02] Speaker 00:
It's just one example of the joint appendix with additional issues regarding testing.

[00:18:08] Speaker 00:
The agency had also noted in the audit report, and this is at 569, that there was a failure to document corrective actions, for example, from the

[00:18:19] Speaker 00:
2016 audit that they could not, that the personnel that they talked to could not identify issues that they had rectified from that audit.

[00:18:28] Speaker 00:
And the agency also noted a number of serious issues, failure to, they had changed their machining process, which was required to get special approval.

[00:18:37] Speaker 00:
from the DLA, which they had not done, and in fact had certified that their processes were the same, that there were traceability requirements and failures with the quality control system.

[00:18:50] Speaker 00:
And we'd also note with their other qualification, which was

[00:18:54] Speaker 00:
MIL-PRF-5539, for example, the audit in 2019 discussed retention reports.

[00:19:03] Speaker 00:
And that was an issue for the first specification, 39012.

[00:19:08] Speaker 00:
But since September 2018, actually, pardon me, since July 2017, and this was at 456, the joint appendix for specification 5539C, they had been placed in a stop shipment status that had never been lifted.

[00:19:24] Speaker 00:
So the agency had sent, they provided this audit in June of 2019, automatic sent its corrective action reports in August of 2019.

[00:19:38] Speaker 00:
And given all the serious deficiencies noted in this 2019 audit, the agency did consider them and was simply not satisfied based on the duration and seriousness of the issues that they would not be corrected.

[00:19:51] Speaker 02:
Can I ask you a question about the relationship between a couple of different pieces of the cases?

[00:19:57] Speaker 02:
If I look at appendix page 9 of the Court of Federal Claims opinion, just at the end of, I guess, Roman 1 before Roman 2, the court says, we conclude that the DOD manual is not a binding regulation.

[00:20:12] Speaker 02:
Nevertheless, it's the standard the agency applied.

[00:20:16] Speaker 02:
And so we're going to consider the rationality

[00:20:21] Speaker 02:
Is your view that the case is over if we decide that the DOD manual is not binding?

[00:20:31] Speaker 02:
Or is your view, rather, as I think the Court of Federal Claims view, is that the case is not over.

[00:20:39] Speaker 02:
We still have to look at the reasonableness of what the agency did.

[00:20:45] Speaker 00:
Your Honor, the claim that was presented to the Court of Federal Claims was that the agency's action was arbitrary because they didn't follow this manual.

[00:20:55] Speaker 00:
We would submit, based on the Hamlet case and the Lincoln case and other cases that we cited from the Court of Federal Claims, that it's not a basis for finding arbitrary and capricious action.

[00:21:06] Speaker 00:
We believe the court can, again, I don't think this was the nature of its claim.

[00:21:10] Speaker 00:
The court can review the rationality of the action, and that would be based generally in the arbitrary of capricious standard under Motor Vehicles Association versus State Farm, looking at the traditional APA factors, whether they

[00:21:24] Speaker 00:
relied on factors Congress didn't intend, failed to consider an important aspect of the problem, offered an explanation that runs counter to the evidence or an implausible explanation.

[00:21:34] Speaker 00:
But again, I mean, our view is the case should be over because this is not a binding regulation, and he did not otherwise challenge the rationality of the agency's action.

[00:21:48] Speaker 00:
Your Honor, I just wanted to touch upon one other point, and that is the claim that the agency held automatic to a standard that it had not fully implemented.

[00:22:00] Speaker 00:
We would note that the specification for 39012

[00:22:04] Speaker 00:
was implemented in May of 2017 and it was addressed as a required standard at Joint Appendix pages 231, 233, and 241.

[00:22:14] Speaker 00:
We also know that there were three emails from the DLA auditor that specifically called the fact that 39012 had recently transitioned to this standard

[00:22:25] Speaker 00:
and that traceability of all parts was going to be held to a higher standard.

[00:22:31] Speaker 00:
That was in a September 2017 email, which is at appendix page, Joint Appendix 471.

[00:22:38] Speaker 00:
Also in a September 2018 email, the agency reiterated that specification.

[00:22:44] Speaker 00:
That is at appendix page 512.

[00:22:45] Speaker 00:
And then again, yet again, in October 2018,

[00:22:50] Speaker 00:
at Joint Appendix, page 561.

[00:22:52] Speaker 00:
The agency, again, reminded it that it would be held to that standard.

[00:22:59] Speaker 00:
If the court has no further questions, we respectfully request the affirmance of the trial court's judgment.

[00:23:04] Speaker 00:
Thank you.

[00:23:08] Speaker 02:
Mr. Huffman, I think you have about two and a half minutes.

[00:23:12] Speaker 03:
The government's argument indicates, in the government's argument,

[00:23:18] Speaker 03:
Opposing counsel indicated that because the government made the argument that because the DOD manual was not binding,

[00:23:44] Speaker 03:
And as a result, that would end the case right now.

[00:23:49] Speaker 03:
I do not believe so, because in the context of this action, it should be remembered here that this was brought as a bid protest action.

[00:24:03] Speaker 03:
And the standard is arbitrary and capricious.

[00:24:08] Speaker 03:
So regardless of whether the DOT manual is formally binding,

[00:24:15] Speaker 03:
Again, that is the standard to which the DLA held itself out.

[00:24:20] Speaker 03:
And the DLA should be held to that standard.

[00:24:25] Speaker 03:
And its actions in contradiction to that manual should be found to be arbitrary and capricious in the context of this bid protest action.

[00:24:36] Speaker 03:
The government also indicated that there were findings that automatic

[00:24:44] Speaker 03:
corrective action reports were not effective.

[00:24:47] Speaker 03:
And again, I believe, Your Honor, did pick up on the fact that that was nothing more than a conclusory statement.

[00:24:58] Speaker 03:
And while the government may try to cite to prior issues that may have been found to be somewhat similar to the allegations of

[00:25:16] Speaker 03:
Improper actions here or deficiencies here Those are nothing more than various testing and reporting issues and there are not product failures And while while those issues are important, that is hardly a reason to effectively deliver a contractor It should be noted that automatic connector wasn't bit has been in business for over 50 years has had any product failures and this action is crippling the business and effectively the barring

[00:25:45] Speaker 03:
automatic connector as a contractor.

[00:25:50] Speaker 03:
And as a result, I believe that it should be entitled to due process here, which it's not yet.

[00:25:58] Speaker 02:
Okay.

[00:25:58] Speaker 02:
I think your time has elapsed and I thank, we thank you for the argument.

[00:26:03] Speaker 02:
Thank both council and the cases submitted.