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Non-appropriated fund contracting.

CAFC and COFC Consider Jurisdiction Applying "NAFI Doctrine"-Reaching Different Results

In the following two cases, both the Court of Federal Claims (COFC) and the Court of Appeals for the Federal Circuit (CAFC) consider whether the COFC can properly exercise jurisdiction over a contract award or over a bid protest involving a non-appropriated fund instrumentality (NAFI). While the COFC decision determines that the exercise of jurisdiction is proper, (1) the CAFC decision determines that the exercise of jurisdiction is improper. (2) Practitioners may be puzzled by these two cases which reach different results but which have marked similarities.

In Southern Food, Inc. v. United States, the COFC considered a post-award protest requesting declaratory and injunctive relief from the United States, acting through the United States Army Community and Family Support Center (USACFSC). (3) In this protest, Southern Foods requested a declaratory judgment that USACFSC's decision to award a food service contract to United States Foodservice, Inc. (USF) was "arbitrary, capricious, an abuse of discretion, or otherwise contrary to law." (4) The protester also requested that the COFC order USACFSC to set aside the award to USF and re-solicit the requirement. While the United States moved to dismiss the protest on jurisdictional grounds, the COFC denied the motion to dismiss and considered the protest on the merits. (5) This article will focus primarily on the jurisdictional issues raised in this case.

In Southern, USACFSC awarded a food service contract on 24 February 2006 as part of the Joint Services Prime Vendor Program (JSPV Program). (6) The JSPV Program is a group of separate contracts between commercial vendors and the Army which supply all of the food requirements for the Army's Morale, Welfare, and Recreation (MWR) activities. The JSPV Program is regulated by Army non-appropriated fund (NAF) regulations. The particular contract at issue affected food services at Fort Knox, Kentucky and Fort Campbell, Kentucky. The solicitation stated that only NAFs would be obligated for this contract. (7)

The government argued that the entity which awarded the food service contract, USACFSC, is a NAFI and as such, the COFC has no jurisdiction over the protest. (8) Conversely, while the COFC agreed that USACFSC is a NAFI, the court nevertheless found that the court does have jurisdiction over this protest involving a NAFI contract. (9)

The Southern court meticulously explained the circumstances under which the COFC has jurisdiction over NAFI contracts. (10) The COFC's jurisdiction over actions against the United States over government contracts originates from the Tucker Act. (11) The Tucker Act is a specific waiver of sovereign immunity and grants jurisdiction to the COFC to hear contract claims filed against the United States; the act states in pertinent part:
 The United States Court of Federal Claims shall have jurisdiction
 to render judgment upon any claim against the United States founded
 either upon the Constitution, or any Act of Congress or any
 regulation of an executive department or upon any express or
 implied contract with the United States.... (12)


The Alternative Dispute Resolution Act (ADRA) 13 amends the Tucker Act by specifically granting the COFC jurisdiction over protests. The ADRA states that the COFC has jurisdiction to:
 render judgment on an action by an interested party objecting to a
 solicitation by a Federal agency for bids or proposals for a
 proposed contract or to a proposed award or the award of a contract
 or any alleged violation of statute or regulation in connection
 with procurement or a proposed procurement. (14)


The so-called "NAFI Doctrine" is a limit on the COFC's jurisdiction under the Tucker Act and the ADRA. This doctrine originated in United States v. Hopkins (15) in which the United States Supreme Court case defined a NAFI as a federal entity that "does not receive its monies by congressional appropriation." (16) The Hopkins Court stated that because the Tucker Act does not waive sovereign immunity with respect to NAFIs (with the exception of military exchanges), the COFC has no jurisdiction in these cases. Hence, if the NAFI Doctrine applies then the COFC has no jurisdiction over the matter.

In AINS v. United States, (17) the CAFC relied upon earlier decisions concerning the NAFI Doctrine in crafting the following four-part test for determining whether a court could exercise jurisdiction under the Tucker Act:
 A government instrumentality is a NAFI if: (1) It does "not receive
 its monies by congressional appropriation"; (2) It derives its
 funding "primarily from its own activities, services, and product
 sales"; (3) Absent a statutory amendment, there is no situation in
 which appropriated funds could be used to fund the federal entity;
 and (4) There is "a clear expression by Congress that the agency
 was to be separated form general federal revenues." (18)


Consequently, if all four of the above factors are met, then a government entity is a NAFI and thus, the COFC does not have Tucker Act jurisdiction. Conversely, if an entity cannot meet all four factors, then it is not a NAFI under the test and so, COFC does have jurisdiction. (19) The court indicated that it would strictly construe its jurisdiction over protests and claims in light of this four-part test. (20)

In applying the AINS test to the instant case, the COFC found that because USACFSC did not meet all four prongs, the COFC could not exercise jurisdiction over the case. (21) Specifically, the court reasoned that USACFSC did not meet the first prong of the test. In reaching its conclusion, the COFC references Army Regulation (AR) 215-1 which states that all Army NAFIs receive some appropriated funds. (22) Therefore, because USACFSC does receive appropriated funds, its funding source precludes it from being considered a NAFI under the NAFI Doctrine and thus, the COFC may exercise jurisdiction. (23)

Interestingly, in a separate unpublished decision, Smith v. United States, (24) the CAFC applied the NAFI Doctrine and summarily decided that the doctrine precluded the COFC from exercising Tucker Act jurisdiction. The CAFC considered Smith on appeal of an earlier unpublished COFC decision (25) dismissing a contractor's claim for lack of jurisdiction. (26) Unlike the CAFC's rigorous application of the AINS test in the case by that name (27) and also unlike the COFC's application of the test in Southern, (28) in Smith, the CAFC did not appear to apply the test at all. (29) In its brief analysis, the CAFC determined that the COFC did not have jurisdiction to hear a breach of contract claim filed against an Air Force NAFI. (30)

On 4 November 1998, on behalf of the Air Force's MWR Office, an Air Force contracting officer awarded a concession contract to Rodgers Travel Service (Rodgers), a company owned by Mr. Rodger Smith. (31) The purpose of the contract was to "serve the recreational needs of Air Force servicemen through the MWR." (32) The contract required the contractor to pay a concession fee that was based on the total sales of travel services. (33) In July of 2005, Rodgers filed a claim with the Air Force contracting officer seeking reimbursement of concession fees that he had paid on international airline tickets in the amount of $3,116. (34) About four months later, prior to the contracting officer's issuance of a decision on the claim, Rodgers filed an appeal at the COFC under the Contract Disputes Act (35) seeking reimbursement of the concession fees and also its other expenses totaling $82,635.97. (36) The COFC dismissed the appeal for lack of jurisdiction because the appeal concerned a contract between a Rodgers and a NAFI, which is not an entity subject to the Tucker Act. (37)

Rodgers appealed the COFC's decision to the CAFC which affirmed the lower court's decision. (38) The CAFC purportedly based its decision on the NAFI Doctrine stating that the CAFC "lacks jurisdiction over an action against the United States in which congressionally appropriated funds cannot be used to pay the resulting judgment." (39) Nevertheless, the court did not apply the AINS test to the facts of this case. (40)

Although Smith II is an unpublished decision without precedential value, it is intriguing that the CAFC did not analyze this case using the AINS test, a test the CAFC created in 2004 for the purpose of applying the NAFI Doctrine. (41) If the Smith II court had applied the AINS test, it seems probable that it would have exercised jurisdiction because Air Force NAFIs generally do receive some appropriated funds, thus failing the first prong of the test. (42) Whether the Smith II decision signals a move by the CAFC away from a strict application of the AINS test remains a topic for future editions of the Year in Review.

Major Marci A. Lawson

(1) S. Foods, Inc. v. United States, 76 Fed. Cl. 769, 771 (2007).

(2) Smith v. United States, (Smith II) No. 2007-5008, 2007 U.S. App. LEXIS 5686 (Mar. 8, 2007).

(3) S. Foods, Inc., 76 Fed. Cl. at 770.

(4) Id.

(5) Id. at 771.

(6) Id.

(7) Id.

(8) Id. at 774. The court stated that, "non-appropriated fund instrumentalities (NAFIs) are federal government entities whose 'monies do not come from congressional appropriation but rather primarily from their own activities, services, and product sales.'" Id. (citing El-Sheikh v. United States, 177 F.3d 1321, 1322 (Fed. Cir. 1999)).

(9) Id. at 776.

(10) Id. at 775-76.

(11) 28 U.S.C.S. [section] 1491(a)(1) (LexisNexis 2008).

(12) Id.

(13) Id. [section] 1491(b).

(14) Id. [section] 1491(b)(1).

(15) 427 U.S. 123 (1976).

(16) Id. at 125 n.2.

(17) AINS, Inc. v. United States, 365 F.3d 1333, 1342 (Fed. Cir. 2004). In this case, the CAFC determined that the United States Mint did, in fact, meet all four of the above factors and so, the COFC did not have jurisdiction over a claim filed against the Mint. Id.

(18) Id. (citations omitted).

(19) Id.

(20) S. Foods, Inc. v. United States, 76 Fed. Cl. 769, 775 (2007). The jurisdictional key is whether a government entity is a NAFI under the NAFI Doctrine's four-part test and not merely whether the government considers the entity to be a NAFI. Id. So, if an entity is a NAFI under the NAFI Doctrine, then the COFC may not exercise Tucker Act jurisdiction. Id.

(21) Id.

(22) U.S. DEP'T OF ARMY, REG. 215-1, MILITARY MORALE, WELFARE, AND RECREATION PROGRAMS AND NONAPPROPRIATED FUND INSTRUMENTALITIES paras. 3-7, 3-8, 3-9 (31 July 2007).

(23) S. Foods, Inc., 76 Fed. Cl. at 775.

(24) Smith II, No. 2007-5008, 2007 U.S. App. LEXIS 5686, at *9 (Mar. 8, 2007).

(25) Smith v. United States (Smith I), No. 05-1246C, slip. op. (Ct. Fed. Cl. Aug. 22, 2006). The CAFC reviews jurisdictional issues de novo. Smith II, 2007 U.S. App. LEXIS 5686.

(26) Id.

(27) AINS, Inc. v. United States, 365 F.3d 1333, 1342 (Fed. Cir. 2004).

(28) S. Foods, Inc., 76 Fed. Cl. at 775.

(29) Smith II, 2007 U.S. App. LEXIS 5686, at *4-*5.

(30) Id.

(31) Id. at *2.

(32) Id.

(33) Id.

(34) Id.

(35) 28 U.S.C. [section] 1491(a)(1) (LexisNexis 2008). The court stated that enough time had elapsed after Rodgers filed its claim with the contracting officer such that the contracting officer's failure to issue a decision could be considered a deemed denial under the Contract Disputes Act. See Smith II, 2007 U.S. App. LEXIS 5686, at *4 n.3; see also 41 U.S.C.S. [section] 605(c)(5) (LexisNexis 2008).

(36) Smith II, 2007 U.S. App. LEXIS 5686, at *2-*3.

(37) Id. at *3.

(38) Id. at *9.

(39) Id. at *4.

(40) Id. at *4-*6. In affirming the lower court's decision, it appears that the CAFC rather summarily agreed with the Air Force's characterization of the entity as a NAFI. After determining that the entity was a NAFI, the CAFC then concluded that the COFC could not exercise jurisdiction under the NAFI Doctrine. Id.

(41) Id. In AINS, before articulating the "AINS test," the CAFC declared, "the NAFI Doctrine has evolved slowly since the Supreme Court first recognized the existence of NAFIs ... [we] distill[s] from case law an analytic four-factor test." AINS, Inc. v. United States, 365 F.3d 1333, 1342 (Fed. Cir. 2004).

(42) U.S. DEP'T OF THE AIR FORCE, INSTR. 65-106, APPROPRIATED FUND SUPPORT OF MORALE, WELFARE, AND RECREATION (MWR) AND NONAPPROPRIATED FUND INSTRUMENTALITIES (NAFIs) 9-10 (11 Apr. 2006).
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Title Annotation:Contract and Fiscal Developments of 2007 - the Year in Review
Author:Lawson, Marci A.
Publication:Army Lawyer
Date:Jan 1, 2008
Words:2074
Previous Article:Government property.
Next Article:Competitive sourcing.
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