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Local 2855 v. United States


decided: July 11, 1979.



Before Adams and Rosenn, Circuit Judges, and Layton,*fn* District Judge.

Author: Adams


This class action was instituted by Local 2855 of the American Federation of Government Employees and by civilian employees of the Department of the Army to contest the decision of the Army to contract out to a private concern the stevedoring and terminal services previously performed by government employees at the Military Ocean Terminal in Bayonne, New Jersey. The district court dismissed the suit for lack of subject matter jurisdiction. In an opinion delivered from the bench, it justified this result on the ground that the decision to contract out involved the exercise of discretionary, managerial prerogatives that were based upon an evaluation of cost factors.*fn1 Although our approach differs somewhat from that adopted by the district court, its judgment will be affirmed.


It is a stated policy of the federal government to rely on the private enterprise system to supply its needs except when the national interest requires that the government provide directly the products and services it uses. This policy is outlined in Office of Management and Budget (OMB) Circular No. A-76, which is addressed to the heads of executive departments and agencies, and is detailed with greater specificity in the directives and regulations issued by them to facilitate its implementation.

Among the limited situations in which the government is permitted to provide a commercial or industrial product or service for its own use is one that obtains when comparative cost analysis indicates that procurement from a private source will result in significantly higher costs to the government. Systematic cost evaluations of existing government activities must be scheduled at least once every three years to determine whether continued reliance on the government to supply the product or service is justified.

Pursuant to the obligations imposed on it by the OMB Circular, by Department of Defense Directive 4100.15, and by Army Regulation 235-5, the Military Traffic Management Command (MTMC) conducted a survey of terminal operation functions at its Military Ocean Terminal in Bayonne, New Jersey (MOTB), in early 1975. Until then, the practice at MOTB was to process cargo both by a private contractor and by civil service personnel. As a result of its cost analysis, MTMC recommended that the Army utilize a private contractor to perform the stevedoring and terminal services then being performed by the plaintiff civil service employees. After various cost projections were updated and additional information compiled, the Army Audit Agency, which studied the MTMC's recommendation, concluded that a substantial cost saving would be realized over a 10-year period if these functions were contracted out.*fn2

Based on these analyses, the Secretary of the Army decided to terminate all in-house performance of stevedoring and terminal services. Reduction in force notices (RIFs), effective June 15, 1976, were sent to the government employees who had been rendering the stevedoring and terminal services,*fn3 and a private contractor was engaged to perform the work.


In this suit the affected employees and their union essentially launch a three-pronged attack on the decision by the Army to contract out the services in question. First, they contend that the cost-analysis studies were faulty on a number of grounds, and that had the available options and their costs been properly evaluated, the use of civil service labor would have been found to be less costly to the government than contracting out. Second, plaintiffs maintain that the RIFs abrogated statutory and regulatory provisions that specify the circumstances in which RIFs may be issued and that grant the plaintiffs preferences as veterans, thereby depriving them of a due process property interest. Finally, plaintiffs argue that the contracting out in this case constitutes an illegal personal service contract, designed to circumvent the government's obligations to civil service employees.

A. General Considerations Regarding the Reviewability of the Army's Decision

Whether and to what extent we may entertain the plaintiffs' challenges to the Army's decision is controlled by the Administrative Procedure Act (APA),*fn4 which contemplates that judicial review be available at the behest of any person adversely affected or aggrieved by agency action*fn5 "except to the extent that (1) statutes preclude judicial review; or (2) agency action is committed to agency discretion by law."*fn6

The Supreme Court has emphasized repeatedly that the APA's " "generous review provisions' must be given a "hospitable' interpretation,"*fn7 and that "only upon a showing of "clear and convincing evidence' of a contrary legislative intent should the courts restrict access to judicial review."*fn8 Thus, in the absence of a specific statutory preclusion of review, agency action may be determined to be "committed to agency discretion by law" only when a fair appraisal of the entire legislative scheme, including a weighing of the practical and policy implications of reviewability, persuasively indicates that judicial review should be circumscribed.*fn9 Examination of those cases in which matters have been held nonreviewable yields a number of criteria that bear upon the reviewability of the Army's decision in the present case.

A predicate to nonreviewability is that the agency have Broad discretionary powers, not merely that its action involve Some discretion. For, as the Ninth Circuit put it, "almost every agency action involves some degree of discretion of judgment. Yet it cannot be said that, for this reason, every agency action is unreviewable."*fn10 In the same vein, the legislative history of the APA, referred to in Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 410, 91 S. Ct. 814, 821, 28 L. Ed. 2d 136 (1971), indicates that the committed to agency discretion exception to judicial review is intended to be "applicable in those rare instances where "statutes are drawn in such broad terms that in a given case there is no law to apply.' S.Rep.No.752, 79th Cong. 1st Sess., 26 (1945)."

The existence of broad discretionary power in an agency often suggests that the challenged decision is the product of political, military, economic, or managerial choices that are not really susceptible to judicial review. Indeed, given the separation of powers between the judiciary and the other branches of government, it would appear unseemly in such circumstances for a court to substitute its judgment for that of an executive or agency official.*fn11 Judge Hastie summed up the lesson of earlier cases in this regard in the following manner:

A mere difference of judgment between a person disadvantageously affected by agency action and the responsible head of the agency over the merits of particular administration action as a means of achieving a legislative objective, when Congress has assigned authority to make and act upon such determinations to the agency, is not judicially reviewable. (Citations omitted) . . . (This is so when) the statutory standard is expressed in such general concepts that it requires and must contemplate the exercise of discretion in choice among various rational alternatives none of which can fully satisfy all demands of competing interests. (Citation omitted). Moreover, the absence of any provision in the (pertinent statute) for judicial review of the Secretary's determination suggests that Congress recognized that the (agency head) is at least as competent as a court to achieve such an accommodation of diverse and often conflicting social and economic interests as must be made . . . . We are concerned here with a type of determination that "does not present questions of an essentially legal nature in the sense that legal education and lawyers' learning afford peculiar competence for their adjustment". Frankfurter, J., concurring in Driscoll v. Edison Light & Power Co., 1939, 307 U.S. 104, 122, 59 S. Ct. 715, 724, 83 L. Ed. 1134.*fn12

In addition, we note that courts have been especially inclined to regard as unreviewable those aspects of agency decisions that involve a considerable degree of expertise or experience, or that are based upon economic projections and cost analyses, at least when the agency has broad leeway to devise the formula to be applied in any particular situation and when there are no discernible guidelines against which the agency decision may be measured. Thus, in Panama Canal Co. v. Grace Line, Inc., 356 U.S. 309, 78 S. Ct. 752, 2 L. Ed. 2d 788 (1958), the Supreme Court held that the ratemaking procedure and the tolls established for the Panama Canal fell within the "committed to agency discretion" exception to judicial review. The Court explained:

As we have seen, the present conflict rages over questions that at heart involve problems of statutory construction and cost accounting: whether an operating deficit in the auxiliary or supporting activities is a legitimate cost in maintaining and operating the Canal for purpose of the toll formula. These are matters on which experts may disagree; they involve nice issues of judgment and choice, (State of) New York v. United States, 331 U.S. 284, 335, (67 S. Ct. 1207, 1234, 91 L. Ed. 1492,) which require the exercise of informed discretion. Cf. United States ex rel. McLennan v. Wilbur, 283 U.S. 414 (, 51 S. Ct. 502, 75 L. Ed. 1148); Interstate Commerce Commission v. Humboldt S.S. Co., 224 U.S. 474, 484-85 (, 32 S. Ct. 556, 559, 56 L. Ed. 849.)*fn13

Determination that a matter is unreviewable because it is committed to agency discretion does not, however, "slam(s) the door to the courthouse airtight."*fn14 Even when a court ascertains that a matter has been committed to agency discretion by law, it may entertain charges that the agency lacked jurisdiction, that the agency's decision was occasioned by impermissible influences, such as fraud or bribery, or that the decision violates a constitutional, statutory or regulatory command.*fn15 For the APA circumscribes judicial review only "To the extent that . . . agency action is committed to agency discretion by law;" it does not foreclose judicial inquiry altogether.

B. Plaintiffs' Challenge to the Army's Cost Analysis Studies

The foregoing considerations lead to the conclusion that Congress never intended that the plaintiffs be afforded a judicial forum to contest the studies and evaluations that formed the basis for the Army's decision, inasmuch as that managerial decision and the studies and evaluations upon which it rested involved "questions of judgment requiring close analysis and nice choices."*fn16

This conclusion is confirmed by an examination of the statutory scheme. Congress invested the head of every executive and military department with general authority to "prescribe regulations for the government of his department, the conduct of its employees, the distribution and performance of its business, and the custody, use, and preservation of its records, papers, and property."*fn17 The head of a department is permitted by statute to "delegate to subordinate officials the authority vested in him . . . by law to take final action on matters pertaining to the employment, direction, and general administration of personnel under his agency . . . ."*fn18 Furthermore, Congress instructed that "under regulations prescribed and administered by the Director of the Bureau of the Budget (now the OMB), each agency shall review systematically the operations of each of its activities, functions, or organization units, on a continuing basis," for the purpose of "determining the degree of efficiency and economy in the operation of the agency's activities, functions, or organization units . . . ."*fn19

Applying the approach most recently employed by the Supreme Court in Southern Ry. Co. v. Seaboard Allied Milling Corp., 442 U.S. 444, 99 S. Ct. 2388, 60 L. Ed. 2d 1017 (U.S., 1979), we observe that the statute is, for the most part, "written in the language of permission and discretion."*fn20 Also,

(t)he statute is silent on what factors should guide (a department's management-related decisions); not only is "(t)he extent of this inquiry . . . not . . . marked . . . with certainty," cf. United States v. Louisiana, supra, 290 U.S. (70), at 77, (54 S. Ct. 28, at 32, 78 L. Ed. 181) but on the face of the statute there is simply "no law to apply" in determining if (a) decision is correct. Cf. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 410, 91 S. Ct. 814, 820, 28 L. Ed. 2d 136. Similar circumstances have been emphasized in cases in which we have inferred nonreviewability. See Barlow v. Collins, 397 U.S. 159, 166 (, 90 S. Ct. 832, 25 L. Ed. 2d 192); Schilling v. Rogers, 363 U.S. 666, 674 (, 80 S. Ct. 1288, 1294, 4 L. Ed. 2d 1478.)*fn21

OMB Circular A-76, Department of Defense Directive 4100.15, and Army Regulation 235-5 likewise fail to provide meaningful criteria against which a court may analyze the Army's decision. In fact, the OMB Circular explicitly recognizes that "(n)o specific standard or guideline is prescribed for deciding whether savings are sufficient to justify continuation of an existing Government commercial activity and each activity should be evaluated on the basis of the applicable circumstances."*fn22 And although Army Regulation 235-5 identifies factors that must be considered in the decisionmaking process and specifies cost elements that must be included, it speaks only in general terms. As to the ultimate decision whether to continue a government activity, it announces that "no precise standard is prescribed in view of the varying circumstances."*fn23

Perhaps most significant is the fact that the scales are weighted heavily against continuation of in-house operations by the Army. An in-house operation is deemed an exception to the general policy of relying on the private enterprise system, and "must be fully justified and supported by specific data" demonstrating that "a compelling reason" exists for the exception.*fn24 In addition, Army Regulation 235-5 sets as "a guide in assessing a confidence factor for the cost analysis" that "the cost of in-house operation ordinarily should be at least 10 percent less than the cost of obtaining the product or service from commercial sources."*fn25 Moreover, the Army is implicitly permitted to consider nonquantifiable and non-cost-related factors in deciding against continued in-house performance of a function,*fn26 thereby making possible the Army's reliance, in this case, on such benefits as greater flexibility in adjusting to workload fluctuations and the ability to reallocate manpower authorizations to support combat forces.*fn27

Thus the statutory and regulatory provisions do not provide rules or specifications that would permit a court to adjudicate plaintiffs' disagreements with the formulas, factors, and cost projections relied upon by the Army.*fn28 The absence of fixed standards reflects an understanding that the type of decision made by the Army here is necessarily a matter of judgment and managerial discretion, and is by and large an inappropriate subject for judicial review. Accordingly, we hold that the substance of the Army's decisionmaking process, undertaken pursuant to these directives, is committed to agency discretion by law.*fn29

C. Plaintiffs' Remaining Contentions

Although we conclude that the decision by the Army here falls within the committed to agency discretion exception to reviewability, we still have the obligation, as mentioned earlier, to scrutinize the action taken in order to determine whether specific constitutional, statutory or regulatory dictates have been abridged. In their complaint, plaintiffs raise three specific violations of law, and we now consider each of them in turn.

First, plaintiffs contend that the RIFs were issued in contravention of 5 C.F.R. § 351.201, which is said to delimit the situations in which a RIF may legally be issued to a government employee. That regulation of the Civil Service Commission, however, allows the release of a government employee from employment when required by a "reorganization." As defined in 5 C.F.R. § 351.203(g), reorganization means "the planned elimination, addition, or redistribution of functions or duties in an organization." Elimination of the plaintiffs' jobs through the decision to contract out resulted from just such a reorganization, and is thus not assailable on this ground. Moreover, 5 C.F.R. § 351.201 merely describes the procedures to be utilized in decreasing the federal work force. The decision whether a particular position is to be preserved or abolished is for the agency to make.*fn30

Plaintiffs also assert that since many of the class members are veterans, they are protected from discharge by the various statutory and regulatory provisions granting preference in government employment to veterans. According to plaintiffs, these provisions create a reasonable expectation of continued employment or tenure, unless there is sufficient cause for removal. This due process property interest, the argument continues, is sufficiently strong to withstand the allegedly arbitrary, capricious and illegal actions by the Army that would deprive the plaintiffs of such rights.

The flaw in this argument is that it reads too much into the provisions granting preferences to veterans. Whatever property interest the members of the class may have, its substantive dimensions are defined by the law that created it.*fn31 Nothing in the civil service statute or regulations prohibits the government from abolishing positions held by veterans or other civil servants and contracting out the work previously performed by them. Indeed, as discussed above, 5 C.F.R. § 351.201 specifically allows the issuance of RIFs pursuant to a reorganization. Stripped of this purported property interest, plaintiffs' argument is no more than an attempt to secure judicial review of an action that is alleged to be arbitrary and capricious. But, as we have already held, such action is committed to agency discretion by law and is therefore unreviewable.

Finally, plaintiffs allege that the contracting out in this case constitutes an illegal personal service contract under the guidelines laid down in the Pellerzi Standards and the Mondello Supplement, promulgations that are intended to prevent "the procuring of services by contract in such a manner that the contractor or his employee are in effect employees of the government."*fn32 Plaintiffs are precluded, however, from obtaining judicial review of this claim at this time because they failed to exhaust the elaborate administrative remedy that was available to them.*fn33


In view of the foregoing, the judgment of the district court will be affirmed.

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