Thanks for visiting! Welcome to a new way to research case law. You are viewing a free summary from Descrybe.ai. For citation and good law / bad law checking, legal issue analysis, and other advanced tools, explore our Legal Research Toolkit — not free, but close.
Chem Service, Inc. v. Environmental Monitoring Systems Laboratory-Cincinnati of the United States Environmental Protection Agency
Citation: 12 F.3d 1256Docket: No. 93-1196
Court: Court of Appeals for the Third Circuit; December 26, 1993; Federal Appellate Court
Chem Service, Inc. filed a lawsuit against the Environmental Monitoring Systems Laboratory-Cincinnati (EMSL-CI) and the EPA, seeking to prevent the government from executing functions under three cooperative research and development agreements (CRADAs). The district court ruled that Chem Service lacked standing under the Administrative Procedure Act (APA) because it was outside the zone of interests protected by the relevant congressional provisions. The appellate court, however, determined that Chem Service does fall within this zone regarding its first claim and remanded the case for the district court to ascertain if the disputed CRADA sections qualify as procurement contracts under federal law, necessitating compliance with federal procurement statutes. The Federal Technology Transfer Act (FTTA), enacted in 1986, aimed to enhance economic competitiveness by facilitating technology transfer from federal laboratories to private companies and authorized the formation of CRADAs for research purposes. Congress specifically defined CRADAs to be distinct from procurement contracts, grants, or cooperative agreements. EMSL-CI established CRADAs with NSI Technology Services Corporation, Ultra Scientific, Inc., and Spex Industries, Inc., aimed at developing reference materials for analytical instrument calibration. Chem Service, which sells analytical standards but did not enter a CRADA, argues that the CRADAs improperly allow these entities to commercialize existing technologies, contrary to the FTTA's intent. Prior to the CRADAs, the EPA had programs for reference material production, with NSI previously contracted to support these efforts under federal procurement laws. The contract between the EPA and NSI mandates NSI to produce, test, and distribute high-purity analytical reference standards for calibration and testing. NSI is tasked with synthesizing chemicals that are rare, costly, or impure, and must prepare solutions stored in sealed glass ampules. The agreement requires NSI to uphold the integrity of its chemical stocks, verify new chemicals' purity, and conduct stability studies. In 1991, a Cooperative Research and Development Agreement (CRADA) was established between EMSL-CI and NSI, allowing NSI the option, but not the obligation, to produce and distribute additional reference samples after existing inventories are depleted. The CRADA’s Statement of Work indicates that its primary purpose is to ensure the availability of reliable liquid organic standards for EPA methods, sourced from both the EPA THM Repository and NSI's production. Prior to the NSI CRADA, the EPA provided THM Repository reference materials for free to various parties. The new CRADA stipulated that a complimentary one-year supply would be offered to the EPA Family, after which NSI could sell the materials, with a portion of the sales revenue going to the EPA for equipment and R&D compensation. Additionally, EMSL-CI began developing specifications for reference materials with the American Association for Laboratory Accreditation (A2LA). Chem Service, which received A2LA accreditation, asserts that maintaining this status requires rigorous testing and inspections. On June 18, 1991, EMSL-CI and A2LA executed a Memorandum of Understanding to align their certification programs for reference materials, agreeing to develop equivalent technical specifications, which were subsequently finalized. Chem Service argues that the Memorandum of Understanding (MOU) mandates the defendants to restrict the 'EPA Certified' label to reference materials that comply with 'A2LA Certified' standards. Chem Service claims that defendants NSI, Ultra, and Spex are marketing pre-CRADA, pre-MOU reference materials as 'EPA Certified,' despite these materials not meeting the agreed technical specifications. Chem Service presents two main arguments for relief: 1. The production and distribution of reference materials by NSI and Spex under the CRADAs, utilizing pre-existing technology, constitute a government procurement contract subject to the Competition in Contracting Act and other procurement laws. Chem Service asserts that the CRADAs exceed the statutory authority for technology transfer under the Federal Technology Transfer Act (FTTA) since they do not involve new technology development. Furthermore, it contends that marketing these materials represents improper government funding to non-government parties, violating the FTTA. 2. Chem Service claims that competitors NSI, Spex, and Ultra are selling EPA-certified products that are purportedly equivalent to Chem Service’s products in terms of minimum technical specifications, although those competitors' products were not produced to those specifications. Chem Service filed its original complaint on February 18, 1992, with NSI intervening in July 1992. After discovery, motions to dismiss were filed by the government and NSI; however, these were later withdrawn. The district court allowed Chem Service to amend its complaint, leading to further motions to dismiss from the defendants. Ultimately, on January 11, 1993, the court granted the defendants' motion, ruling that Chem Service lacked standing. Chem Service subsequently filed a timely Notice of Appeal. The district court’s jurisdiction is based on specific statutory provisions, and appellate jurisdiction is established under 28 U.S.C. 1291. The standard for granting a motion to dismiss under Fed. R.Civ. P. 12(b)(6) requires that the plaintiff must be unable to prove any set of facts supporting the relief sought. The appellate review of the dismissal for lack of standing is conducted with a plenary standard, accepting all allegations in the complaint as true. To establish standing to challenge agency action, a plaintiff must demonstrate (1) injury in fact and (2) that their interest is arguably within the zone of interests protected by the relevant statute or constitutional guarantee. The defendants did not contest Chem Service's claim of injury in fact in either the district court or on appeal, confirming the existence of injury as a constitutional requirement for federal court jurisdiction. The focus then shifts to whether Chem Service meets the prudential standing rules, particularly the zone of interests requirement. Under the Administrative Procedure Act (APA), individuals aggrieved by agency actions are entitled to judicial review, provided they identify a final agency action affecting them. It is acknowledged that the Cooperative Research and Development Agreements (CRADAs) related to EMSL-CI qualify as final agency actions. Chem Service must demonstrate that it is adversely affected by this agency action within the relevant statute's meaning. The plaintiff's alleged injury must align with the interests the statute aims to protect. The Supreme Court's "zone of interest" test assesses whether a plaintiff should be allowed to challenge an agency decision based on Congress's intent. If the plaintiff's interests are only marginally related to the statute's objectives, they may be denied the right to review. The test is not overly stringent, and the Court can consider various statutory provisions to discern Congressional intent. The relevant statute is that which directly forms the basis of the complaint. Recent rulings indicate a more stringent interpretation of what constitutes a "relevant" statute in applying the zone of interest test, cautioning against overly broad interpretations that could undermine the test's purpose. Chem Service is appealing for judicial review of Collaborative Research and Development Agreements (CRADAs) under the Administrative Procedure Act (APA). The central issue is whether Chem Service's alleged interests fall within the zone of interests the relevant statute is designed to protect, without needing to establish actual protection of those interests. The district court ruled that Chem Service lacked standing, determining that its claimed injury did not align with the interests protected by the Federal Technology Transfer Act (FTTA), which was the statute the court chose to focus on. The court dismissed Chem Service’s argument regarding the FTTA's relationship with federal procurement laws and relied on its interpretation of case law, specifically Air Courier Conference. To evaluate whether the district court erred by limiting its inquiry, references will be made to the Supreme Court's rulings in Clarke and Air Courier Conference. In Clarke, the Securities Industry Association (SIA) challenged a ruling by the Comptroller of the Currency related to national banks providing discount brokerage services. The Comptroller claimed that SIA's interests were not within the zone of interests intended to be protected by the relevant statutes. However, the Supreme Court found that Congress intended to address not only the equality of state and national banks but also to mitigate the risks associated with unrestricted branching of national banks, thus placing SIA within the zone of interests. This analysis underscores the need to consider broader statutory contexts when determining the zone of interests in legal challenges. Congressional rejection of amendments to allow national banks to branch without state law consideration was deemed significant by the Court, indicating that Congress intended for the Securities Industry Association (SIA) to challenge agency violations of the law. The Court determined that SIA, as a competitor alleging injury from national banks providing discount brokerage services without adhering to state branching laws, was within the protective zone of interests established by the National Bank Act, thereby granting SIA standing to contest the Comptroller’s ruling. In a contrasting case, Air Courier Conference, the Court found that a postal employees' union lacked standing to challenge the United States Postal Service's suspension of the Private Express Statutes (PES). The union failed to demonstrate alignment with Congress’s protective intent regarding the PES, which prioritized maximizing postal revenue rather than the employment of postal workers. The Court refused to consider the entire Postal Reorganization Act (PRA) for standing analysis, distinguishing it from previous cases where broader statutory provisions were considered. The Court noted that the only connection between labor-management provisions of the PRA and the PES was their inclusion in the same codification, without any substantive legislative intent linking them. In the current dispute involving Chem Service, the district court found that Chem Service did not fall within the protective ambit of the Federal Technology Transfer Act (FTTA) based on its purpose and legislative history, which aimed to enhance the commercial utilization of patents from federal laboratories. The Stevenson-Wydler Technology Innovation Act of 1980 prioritized federal technology transfer, yet federal laboratories encountered significant challenges due to a lack of clear legal authority for cooperative research projects. The Federal Technology Transfer Act (FTTA) amended the Stevenson-Wydler Act to enhance technology transfer by explicitly granting government-operated laboratories the authority to enter into Cooperative Research and Development Agreements (CRADAs) with non-federal entities, aiming to boost the transfer of commercially useful technologies to the private sector. The district court noted that the Act focuses on enhancing national competitiveness rather than protecting individual business interests, and it found no explicit congressional grant of the right for private entities to sue regarding CRADAs. However, precedent indicates that Congress does not need to explicitly confer such rights for entities with vested interests to challenge legal noncompliance by agencies. Importantly, the FTTA clarifies that CRADAs should not be used to bypass federal procurement laws. The definition of CRADA establishes it as an agreement for joint research efforts that aligns with laboratory missions, excluding procurement contracts or cooperative agreements as defined under federal law. CRADAs thus represent a distinct contractual mechanism within the overarching federal procurement framework. Congress, through 15 U.S.C. 3710a(d)(1), explicitly prohibits laboratories from including agreements classified as procurement contracts or cooperative agreements within a Cooperative Research and Development Agreement (CRADA). Legislative history supports the interpretation that CRADAs are not intended to replace procurement contracts or cooperative agreements. The case draws parallels to Clarke, where the statute created a sufficient nexus to infer Congressional intent. In contrast, Air Courier Conference lacked a convincing connection between the relevant provisions. The statutory language governing CRADAs establishes a limited exception to procurement laws, guiding the interpretation of the Federal Technology Transfer Act (FTTA). The Competition in Contracting Act (CICA) allows bidders to challenge procurement violations, emphasizing that while the FTTA does not mandate a bidding process for CRADAs, any agreement resembling a procurement contract must adhere to procurement laws. The agreements between the EPA and NSI for the THM Repository reveal significant similarities, raising questions about whether the CRADA is being misused to bypass federal procurement laws. Consequently, Chem Service has the standing to challenge the CRADAs, as the FTTA’s definition of a CRADA establishes an integral relationship with procurement laws, aligning potential bidders' interests with protections under the FTTA. Chem Service's second claim alleges that competitors NSI, Spex, and Ultra are selling pre-CRADA reference materials certified as meeting the same technical specifications required under a Memorandum of Understanding (MOU) between EMSL-CI and A2LA. Chem Service argues that these competitors have a competitive advantage by marketing these materials as 'certified' despite not being produced to MOU standards. Chem Service seeks enforcement of the MOU terms to apply to these pre-CRADA materials, asserting standing to pursue this claim under the Administrative Procedure Act (APA), despite not being a party to the MOU. The determination of Chem Service's standing hinges on whether the MOU constitutes final agency action affecting Chem Service, and whether it falls within the zone of interests that Congress intended to protect. The MOU aims to establish a relationship between A2LA’s Certification Program and USEPA’s Certified Reference Materials, and requires compliance to obtain certification. Chem Service contends it is within the zone of interests as a regulated party, claiming it is subjected to higher certification standards than its competitors due to its agreement with A2LA. Chem Service likens its situation to an aircraft manufacturer facing stricter safety standards than a competitor that pays a fee to the FAA. However, a critical distinction is noted: Chem Service cannot identify any specific statutory authority comparable to aviation safety regulations that governs the certification of reference materials. Chem Service references statutory language allowing individuals aggrieved by FAA-delegated inspectors to seek agency review (49 U.S.C.App. 1355(b)), but fails to identify similar authority regarding its relationship with A2LA. Entering a voluntary agreement with A2LA does not make Chem Service a regulated party. The case of Associated Gas Distributors v. FERC established that parties benefiting from licensing enforcement have standing to challenge illegal exemptions, but is distinguishable here. In that case, the court found plaintiffs' interests aligned with Congressional intent to limit market entry, whereas Chem Service claims competitors received favorable EPA treatment harming its interests without citing relevant statutes for standing. Congress intended the FTTA to foster cooperation between federal labs and the private sector, which is insufficient for Chem Service’s standing to challenge actions under the MOU. Chem Service's comparison to a pilot protected under airworthiness certification (Amey v. United States) is also distinguishable, as there is no specific statute like that governing reference material certification. Ultimately, Chem Service lacks standing to challenge the EPA's actions under the MOU, but it does have standing under the FTTA to contest CRADAs, as Congress intended to prevent federal labs from circumventing procurement laws. The district court's dismissal of the second claim for lack of standing is affirmed, while the dismissal related to the first claim is reversed, with the case remanded for further proceedings. The definition of cooperative research and development agreements (15 U.S.C. 3710a(d)(1)) is outlined, clarifying the nature and exclusions of such agreements. An executive agency must use a procurement contract to formalize relationships with state or local governments when the main goal is to acquire property or services for the government’s direct benefit, or when determined appropriate by the agency. A grant agreement is required when the relationship's primary purpose is to transfer value to support a public purpose without substantial agency involvement. Conversely, a cooperative agreement is used when such a transfer occurs but with expected substantial involvement from the agency. NSI Environmental Solutions, Inc., as the assignee of NSI Technology Services Corporation, has assumed all rights and interests in a Cooperative Research and Development Agreement (CRADA) with EMSL-CI. Reference materials, defined as substances with established properties, are essential for compliance with environmental laws. The Federal Acquisition Regulation (FAR) governs procurement contracts but excludes grants and cooperative agreements. In reviewing motions to dismiss complaints, courts must consider facts favorably to the non-moving party. Chem Service alleged that certain CRADA provisions violated multiple laws including the Advertising Act and the Government Contracts Act. The laboratory involved can provide various resources, with or without reimbursement, but cannot provide funds to non-Federal parties. The Senate Committee Report for H.R. 3773, the Federal Technology Transfer Act (FTTA), contained an error regarding the definition of cooperative research and development arrangements, specifically omitting the word "not" in relation to procurement contracts and cooperative agreements. During Senate discussions, Senator Gorton identified this misleading omission. Under the Competition in Contracting Act (CICA), the General Accounting Office (GAO) generally reviews protests by bidders but does not typically review cooperative agreements unless there is evidence suggesting a procurement contract was improperly avoided. Protests must demonstrate that a cooperative agreement was misused to bypass competitive procurement laws. The determination hinges on whether the contract's primary purpose is to acquire services or property for the federal government or to transfer value for a public purpose. Additionally, concerns arise regarding EPA's provision of reference materials to certain companies in exchange for revenue, questioning compliance with the FTTA’s objectives and whether this arrangement constitutes unauthorized government funding. The government’s assertion that Chem Service lacked standing due to the prior production of reference materials is not addressed in this context.