VA CVE Verification: Federal Court Rules Veteran Can “Control” SDVOSB Remotely

In an important decision impacting many SDVOSB verification applicants, the U.S. Court of Federal Claims has held that the VA’s SDVOSB regulations did not prevent a service-disabled veteran from controlling his company remotely.

In KWV, Inc. v. United States, No. 12-882C (2013), the Court held that a veteran could control his Rhode Island-based construction company by electronic means, even though the veteran spent half of the year residing in Florida.

The Court’s decision involved KWV, Inc., a Rhode Island construction company owned 60% by James Maron.  Mr. Maron, a Korean War veteran, had more than 30 years of experience in the construction industry.

Beginning in 2008, KWV bid upon and won a handful of government contracts as a self-certified SDVOSB.  In January 2011, KWV applied for VA CVE verification as a SDVOSB.

KWV’s VA CVE verification application was initially denied due to problems with the company’s governing documents.  KWV then amended its documents and requested reconsideration.  The CVE subsequently performed a thorough investigation of KWV, including a site visit and interviews.  In February 2012, KWV was verified as a SDVOSB.

After its verification, KWV bid upon and won a task order under a VA set-aside contract.  An unsuccessful competitor, Alares LLC, filed a SDVOSB status protest with the VA, challenging KWV’s eligibility to receive the task order.  Alares contended that Mr. Maron’s two non-veteran sons actually controlled the company.  As evidence, Alares pointed in part to the fact that Mr. Maron resided in Florida for a substantial portion of the year.

The VA OSDBU, which has authority to decide SDVOSB eligibility protests under VA contracts, initiated an investigation into KWV’s eligibility.  In response to questions posed by the VA OSDBU, KWV indicated that Mr. Maron did, in fact, reside in Florida for part of the year, but spent nearly one-half of the year in Rhode Island.  KWV stated that when Mr. Maron was in Florida, he controlled KWV by electronic means, including telephone, email and other equipment.

The VA OSDBU did not agree.  It issued a decision finding that because of his Florida residency, Mr. Maron did not have enough control over the day-to-day management of KWV.  The VA OSDBU ordered KWV’s SDVOSB verification revoked, and held that KWV was ineligible for the task order it had won.

Rather than accepting the VA OSDBU’s decision, KWV decided to fight.  It filed a lawsuit in the U.S. Court of Federal Claims, challenging the VA OSDBU’s ruling and seeking an injunction prohibiting the VA from deeming KWV an ineligible company.

In ruling on KWV’s request for a preliminary injunction, Judge Charles F. Lettow noted that in order to ultimately win its case against the VA, KWV would have to demonstrate that the VA had acted arbitrarily and capriciously.  Judge Lettow held that KWV was “likely” to prevail under this standard.

Judge Lettow wrote that the CVE had previously conducted a thorough review of KWV’s SDVOSB eligibility and deemed the company eligible.  In contrast, “the OSDBU investigation appears to have been cursory.”  The VA OSDBU did not conduct a site visit or ask any follow-up questions, and much of the decision consisted of a “word-for-word recitation” of the VA’s regulations, rather than analysis of KWV’s particular situation.

Judge Lettow noted that Mr. Maron had ample management experience in construction and had no other jobs, “allowing him to focus solely on KWV.”  Although Mr. Maron spent part of the year in Florida, he “employs various electronic means to keep track of the day-to-day business of KWV,” and traveled to Rhode Island when necessary for meetings.

Judge Lettow concluded: “[t]here is nothing in the record to suggest credibly that Mr. Maron could not meet the requirements of the control standard . . . and the government has manifestly failed to articulate any other rationale” for denying SDVOSB status to KWV.  Judge Lettow issued a preliminary injunction setting aside the VA OSDBU decision, requiring the VA to restore KWV to its list of verified SDVOSBs, and requiring the VA to extend KWV’s SDVOSB eligibility for 72 days, to compensate for “the days it was wrongly removed from eligibility.”

After issuing the preliminary injunction, the court adopted an accelerated schedule for the remainder of the case, “expected to be no more than several months.”  Based on the decision on the preliminary injunction, it would be a major surprise if KWV did not ultimately prevail on the merits.  I will keep you posted on any published developments, although the VA may throw in the towel and decide not to contest the case any further.

The KVW, Inc. case is an important decision for SDVOSBs, as it confirms that geographic location is not a prerequisite of control.  For many SDVOSBs, whose veteran owners may spend most or part of the year away from company headquarters, the KVW ruling is welcome news.

Judge Lettow’s decision is also important in that it shows that a VA OSDBU SDVOSB eligibility decision must be fully explained and should be the product of a thorough investigation.  For protested SDVOSBs, whose contracts (and ongoing eligibility) hang in the balance, anything less is unfair.

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