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Chem Service Inc. v. Environmental Monitoring Systems Laboratory Cincinnati of United States Environmental Protection Agency

argued: September 23, 1993.

CHEM SERVICE, INC., APPELLANT
v.
ENVIRONMENTAL MONITORING SYSTEMS LABORATORY CINCINNATI OF THE UNITED STATES ENVIRONMENTAL PROTECTION AGENCY; THOMAS A. CLARK, IN HIS CAPACITY AS DIRECTOR OF THE ENVIRONMENTAL MONITORING SYSTEMS LABORATORY CINCINNATI OF THE UNITED STATES ENVIRONMENTAL PROTECTION AGENCY; UNITED STATES ENVIRONMENTAL PROTECTION AGENCY; NSI ENVIRONMENTAL SOLUTIONS, INC.



On Appeal From the United States District Court For the Eastern District of Pennsylvania. D.C. Civil Action No. 92-0989.

Before: Stapleton, Roth and Lewis, Circuit Judges.

Author: Roth

Opinion OF THE COURT

ROTH, Circuit Judge :

This case arises from a dispute over three cooperative research and development agreements ("CRADAs") entered into by the Environmental Monitoring Systems Laboratory-Cincinnati ("EMSL-CI") of the Environmental Protection Agency ("EPA"). Chem Service, Inc., a non-party to the CRADAs, brought suit against EMSL-CI, the laboratory's director, and EPA, seeking to enjoin the government from performing certain functions agreed to under the CRADAs. The district court held that Chem Service lacked standing under the Administrative Procedure Act ("APA") to bring this suit, because it did not fall within the zone of interests Congress intended to protect when establishing the authority for government laboratories to enter these types of cooperative arrangements. We disagree and find that, as to its first claim, Chem Service does fall within the zone of interests. We will therefore remand to the district court to determine whether the sections of the CRADAs in dispute are actually procurement contracts, pursuant to 31 U.S.C. § 6303, which would require the government to comply with the federal procurement laws.

I.

In 1986, Congress passed the Federal Technology Transfer Act ("FTTA"), Pub. L. No. 99-502, 100 Stat. 1785, codified at 15 U.S.C. § 3710a et seq. (1988). Among the primary purposes of the FTTA was that of increasing the nation's economic competitiveness by encouraging technology transfer from federal government-operated laboratories to private industry. To effectuate this purpose the FTTA authorized federal agencies to permit the director of any government-operated laboratory to enter into CRADAs with private entities. 15 U.S.C. § 3710a(a)(1). In defining the term CRADA,*fn1 Congress intended to establish a new type of contractual relationship between a federal laboratory and a non-federal party for research and development purposes. Congress specifically intended that a CRADA was not to be a procurement contract, a grant agreement, or a cooperative agreement within the definition of 31 U.S.C. §§ 6303 and 6305 (1988).*fn2

On January 4, 1991, EMSL-CI entered into a CRADA with NSI Technology Services Corporation ("NSI") pursuant to the FTTA.*fn3 EMSL-CI entered into similar CRADAs with Ultra Scientific, Inc., ("Ultra") on January 21, 1991, and with Spex Industries, Inc., ("Spex") on May 9, 1991. The language of these CRADAs provides that they were designed to continue the efforts of EMSL-CI in refining and distributing reference materials for calibration of analytical instruments.*fn4 Plaintiff Chem Service is in the business of selling organic chemical analytical and reference standards, although it did not enter into a CRADA with EMSL-CI. Chem Service contends that contrary to the expressed purpose of CRADAs as established by Congress, included within these CRADAs is the authorization for NSI, Spex and Ultra to sell reference materials manufactured according to pre-existing technologies. Chem Service urges that the commercial exploitation of such pre-existing technologies violates the provisions of the FTTA, which was established to encourage cooperative research and development efforts.

Prior to entering into the CRADAs, EPA ran several programs for the production and distribution of reference materials. Two of these programs were the Repository for Toxic and Hazardous Materials ("THM") and the Pesticides Repository. In 1989, NSI contracted with EPA to provide support services for both the THM Repository and the Pesticides Repository. The contract covered the period from October 1, 1989, to September 30, 1990, with the government retaining the option to extend the term of the contract for up to four additional annual periods. This contract was awarded in compliance with the federal procurement laws and the Federal Acquisition Regulation.*fn5

The contract between EPA and NSI provided that the "[THM] Repository contractor [NSI] will produce, test, and distribute analytical reference standards of high-purity for the calibration of measurement instrument systems and tests of analytical methods." Joint Appendix at A-264. Specifically, the contract required NSI to "synthesize chemicals that are unobtainable, overly expensive, or unavailable in satisfactory pure form . . . [and] produce calibration standards or other special materials by preparing solutions of each chemical and transferring and sealing aliquots in individual glass ampules." Id. at A-264-65. The contract also required NSI to maintain the integrity and purity of bulk stock of THM Repository chemicals, procure additional chemicals, verify the purity and identity of new chemicals stocks, and conduct stability studies on the THM Repository.

In 1991, EMSL-CI and NSI entered into a CRADA. Chem Service averred in its amended complaint that the "CRADA between NSI and EMSL-CI authorizes, but does not require, NSI to produce and distribute additional reference samples after the existing ampule inventory is exhausted." Id. at A-177.*fn6 The CRADA's Statement of Work provides that "EPA is primarily entering into this CRADA to assure the availability of accurate and reliable liquid organic standards for EPA methods. . . . The standards will come from two sources; those available from the EPA [THM] Repository and those produced by NSI [under the CRADA]." Id. at A-62. Reference materials produced under both the competitive contract with NSI and the CRADA with NSI were intended by EPA to support EPA regulatory methods and agency endorsed monitoring programs. Id. at A-63 & A-264.

Prior to the NSI CRADA, EPA provided THM Repository reference materials free of charge to federal laboratories and non-federal parties. The NSI CRADA altered this arrangement. It provided that a one year supply of these reference materials would be provided "to the EPA Family" on a complimentary basis, but after this supply was distributed, NSI was authorized to sell the reference materials. Id. at A-62-66. The CRADA provided that EPA would receive a percentage of the receipts from these sales by NSI, to compensate EPA for the use of equipment and materials provided under the competitive contract, and for research and development. Id. at A-49-50.*fn7

In addition, prior to finalizing the CRADAs, EMSL-CI began developing specifications for reference material standards in conjunction with the American Association for Laboratory Accreditation ("A2LA"), a private organization. During this period, Chem Service received accreditation by A2LA. Chem Service contends that in order to obtain and maintain its accreditation by A2LA it was, and is, required to submit to rigorous testing by independent laboratories and inspections by A2LA.

On June 18, 1991 EMSL-CI and A2LA entered into a Memorandum of Understanding ("MOU"). According to the terms of the MOU, the parties entered this agreement "to establish the relationship between A2LA's Certification Program for Reference Materials and USEPA's Certified Reference Materials which are produced for USEPA by commercial firms under Cooperative Research and Development Agreements." Id. at A-142. The MOU provides that EMSL-CI and A2LA will work together to develop equivalent technical specifications and requirements for reference materials. In addition, the MOU states that the parties agree that the certification program run by each entity with respect to reference materials would contain these equivalent technical specifications. These specifications were later finalized.

Chem Service maintains that the MOU commits the defendants to limiting the label "EPA Certified" to reference materials which meet the same technical specifications as "A2LA Certified" standards. Chem Service contends that the defendants allow NSI, Ultra and Spex to sell pre-CRADA, pre-MOU Repository reference materials labeled as "EPA Certified" even though these reference materials were not produced according to the specifications agreed pursuant to the terms of the MOU.

Chem Service asserts two grounds for relief. First, Chem Service contends that the production and distribution of reference material by NSI and Spex, under the CRADAs, using technology that was developed and existed prior to the CRADAs, is essentially a government procurement contract that should be governed by the Competition in Contracting Act, Pub. L. No. 98-369, title VII, 98 Stat. 1175, and other government procurement laws.*fn8 Chem Service asserts that, because the relevant sections of the CRADAs do not involve the research or development of new technology, they exceed the statutory authority provided by the FTTA for technology transfer between federal laboratories and non-federal parties. Chem Service further claims that the marketing of reference materials under the NSI, Spex and Ultra CRADAs is a means of providing government funding of a non-government party in violation of the FTTA.

Chem Service's second contention is that its competitors, NSI, Spex and Ultra, are selling products certified by EPA as meeting the same minimum technical specifications as Chem Service's products when the competing products have not in fact been produced to those specifications.

Chem Service filed its original complaint in the district court on February 18, 1992. NSI was granted leave to intervene as a defendant in July 1992. After a period of discovery, the government moved to dismiss the complaint or, in the alternative, for a motion in limine, restricting judicial review to the administrative record. NSI filed a similar motion in October. Following these motions, Chem Service filed a brief in reply and a motion for leave to amend its complaint. The defendants withdrew their motions to dismiss, without prejudice. The district court granted Chem Service's motion to amend its complaint, and Chem Service filed its amended complaint on November 5, 1992. Defendants then filed motions to dismiss the amended complaint. On January 11, 1993, the district court granted the defendants' motion, concluding that Chem Service lacked standing to challenge the actions taken by EMSL-CI, its director, and EPA. Chem Service filed a timely Notice of Appeal. II.

The district court had jurisdiction over this case under 5 U.S.C. §§ 702, 703, and 704 (1988) and 28 U.S.C. § 1331 (1988). Appellate jurisdiction for this appeal from a final order of the district court is predicated upon 28 U.S.C. § 1291 (1988).

A motion to dismiss in accordance with Fed. R. Civ. P. 12(b)(6) may be granted if it appears beyond a doubt that the plaintiff can prove no set of facts to support the relief requested. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Pennsylvania ex rel. Zimmerman v. Pepsico, Inc., 836 F.2d 173, 179 (3d Cir. 1988). In deciding such a motion, we must "accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom," Rocks v. Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989), and "read the facts alleged in the complaint in the light most favorable to the [non-moving party]." H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 249, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989). This court's review of the district court's order to dismiss the complaint for lack of standing is plenary. Blasband v. Rales, 971 F.2d 1034, 1040 (3d Cir. 1992).

III.

A person who seeks standing to challenge agency action must show (1) injury in fact and (2) that his interest is "arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee" on which the claim is based. Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 153, 25 L. Ed. 2d 184, 90 S. Ct. 827 (1970). Defendants did not assert in district court or on appeal that Chem Service lacked injury in fact. There is no disagreement that the plaintiff alleges injury in fact, which is required by the constitutional limitation on federal court ...


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