Appeals To Watch: Federal Circuit Addresses The Presumption Of Prejudice And Novel Theories To Recover False Claims Act Defense Fees In System Studies And Tolliver Appeals

Published date24 January 2022
Subject MatterGovernment, Public Sector, Government Contracts, Procurement & PPP
Law FirmArnold & Porter
AuthorMr Nathaniel Castellano

The U.S. Court of Appeals for the Federal Circuit heard argument in two significant Government contracts appeals in November 2021. The first, System Studies & Simulation v. U.S., No. 21-1469, may finally lay rest to the notion of "presumed prejudice" in bid protest cases. The second, The Tolliver Group, Inc. v. U.S., No. 20-2341, involves a novel contractual theory for recovering the costs of defending against False Claims Act allegations, as well as the Department of Justice's practices for seeking dismissal of qui tam cases. For audio recordings of the oral arguments in these appeals, see

Both appeals were argued by Huntsville, Alabama attorney Brad English (along with Emily Chancey, Jon Levin, and Michael Rich). Brad also argued the Harmonia Holdings appeal that I featured in my most recent contribution to the REPORT, Harmonia Delayed: Anticipating the Federal Circuit's Next Decision on Bid Protest Timeliness, 35 NCRNL ' 61. Just a few weeks ago, the Federal Circuit issued a clear and unanimous decision in the Harmonia Holdings appeal, deftly avoiding for now any serious disruptions to the current bid protest timeliness rules. Harmonia Holdings Group, LLC v. United States, ' F.4th ', 2021 WL 5816288 (Fed. Cir. Dec. 7, 2021). See in this issue Postscript: Harmonia Better Late Than Never, 36 NCRNL ' 6. As a Huntsville native myself, I always enjoy seeing Rocket City procurement lawyers and professionals impacting the field. Roll Tide.

Presumption Of Prejudice

The first appeal, System Studies, will hopefully resolve an issue that frequently complicates bid protest litigation: presumed prejudice. The decision may also provide further clarity as to the U.S. Court of Federal Claims' discretion to decide when an evaluation error is prejudicial to an agency's award decision, rather than remanding the procurement to the agency to decide in the first instance whether the award decision will change.

To succeed, a protester must establish not only an error in the procurement, but also that any error is prejudicial. While the prejudice requirement has been described in many different ways over the decades, it is most clearly rooted in the Administrative Procedure Act requirement that, when a court reviews agency action, "due account shall be taken of the rule of prejudicial error." 5 USCA ' 706; American Relocation Connections, L.L.C. v. U.S., 789 F. App'x 221 (Fed. Cir. 2019). The fundamental rule that a court should not disturb an agency's actions based on an error that would not make any difference to the outcome seems simple enough, but it can be messy in application and does not always produce a satisfying result. See Protests: The "No Prejudice" Rule, 11 N&CR ' 20; Prejudice in Award Controversies: What Comes First?, 17 N&CR ' 29.

When the Federal Circuit was first articulating what a plaintiff needs to demonstrate to succeed in a bid protest under 28 USCA ' 1491(b), the court described two paths to victory'one where "the procurement official's decision lacked a rational basis" and another where the "procurement procedure involved a violation of regulation or procedure." Impresa Construzioni Geom. Domenico Garufi v. U.S., 238 F.3d 1324, 1332-33 (Fed. Cir. 2001), 43 GC ' 29. Curiously, the court then stated that: "When a challenge is brought on the second ground, the disappointed bidder must show 'a clear and prejudicial violation of applicable statutes and violations.' '' (Emphasis added.).

By limiting its articulation of the prejudice requirement to "the second ground," the Federal Circuit gave way to a line of Court of Federal Claims decisions holding that prejudice may be presumed if a protester succeeds on the first ground, i.e., establishes that an agency's actions lack a rational basis. However, the Federal Circuit has never endorsed any presumption of prejudice, and there is significant U.S. Supreme Court and Federal Circuit precedent indicating that prejudice must be demonstrated in every case under APA review, without exception. Shinseki v....

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