No. 84-5543.United States Court of Appeals, District of Columbia Circuit.Argued May 3, 1985.
Decided November 5, 1985. As Amended November 15, 1985.
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Milton Eisenberg, Washington, D.C., with whom Francis J. O’Toole and Jack B. Gordon. Washington, D.C., were on the brief, for appellant Grumman Ohio Corp. John T. Boese and Richard Lehfeldt, Washington, D.C., entered appearances for appellant.
Michael J. Ryan, Asst. U.S. Atty., Washington, D.C., for appellees. Joseph E. diGenova. U.S. Atty., Royce C. Lamberth, R. Craig Lawrence, Richard A. Stanley, Asst. U.S. Attys. and Trudy B. Levy, Asst. Chief Counsel. Urban Mass Transportation Administration, Washington, D.C., were on the brief, for federal appellees.
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Richard C. Gering, Chicago, Ill., with whom David N. Webster, Washington, D.C., was on the brief, for appellee-intervenor Regional Transp. Authority.
Appeal from the United States District Court for the District of Columbia (Civil Action No. 83-02034).
Before WALD and STARR, Circuit Judges, and PARKER,[*]
District Judge.
Opinion for the Court filed by Circuit Judge STARR.
Dissenting opinion filed by Circuit Judge WALD.
STARR, Circuit Judge.
[1] This appeal has its roots in contract litigation pending in the United States District Court for the Northern District of Illinois between a bus manufacturer and a regional transit authority. In that action, the federal court in Chicago determined that the parties there (Grumman Ohio Corporation, the bus manufacturer, and the Regional Transportation Authority of Chicago, the purchaser of buses) were required to submit their contract dispute to a federal administrative agency, the Urban Mass Transportation Administration (UMTA), for extrajudicial resolution. When the dispute was thereafter submitted to UMTA, however, that agency refused to provide the type of arbitral forum and procedure requested by Grumman. Suit was then brought by Grumman in the United States District Court for the District of Columbia to compel UMTA to fill what Grumman viewed as the agency’s arbitral role. The District Court in Washington, however, granted summary judgment in favor of UMTA, holding that UMTA was not required to resolve a common-law dispute. Grumman timely appealed, contending that UMTA was required to arbitrate the Regional Transportation Authority-Grumman dispute, with the full panoply of hearing procedures. We now affirm. I
[2] UMTA is an agency within the Department of Transportation charged with responsibility under the Urban Mass Transportation Act of 1964, Pub.L. No. 88-365, 78 Stat. 302 (1964) (codified as amended at 49 U.S.C. app. § 1601-18 (1982)), for furthering the improvement and development of mass transportation. Pursuant to that charge, UMTA provides funding to local transportation agencies to assist in defraying the cost of purchasing new buses. Regional Transportation Authority (“RTA”) of Chicago, Illinois is a local agency which received funding through a UMTA grant. The funds were used to purchase buses manufactured by Grumman Flxible Corporation, the predecessor of Grumman of Ohio Corporation (both referred to as “Grumman”). The relationship between UMTA and RTA was thus one of grantor and grantee respectively, while the relation between RTA and Grumman was one of purchaser and vendor respectively.
[4] White Book at I-27-I-28, Joint Appendix at 351-52. [5] Use of White Book specifications was binding on UMTA grantees at all times relevant to the case at hand, see 46 Fed.Reg. 49,038 (1981) (“Current DOT policy is that grantees must use the `White Book’ specifications when purchasing Advanced Design Buses. . . .”), although mandatory use of White Book specifications has since been rescinded, see 47 Fed.Reg. 44,457Except as otherwise provided in this contract, any dispute concerning a question of fact arising under this contract which is not disposed of by an agreement shall be decided by the Contracting Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the Contractor. The decision of the Contracting Officer shall be final
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and conclusive unless within 30 days from the date of receipt of such copy, the Contractor mails or otherwise furnishes to UMTA a written appeal. The decision of UMTA’s duly authorized representative for the determination of such appeals shall be final and conclusive unless determined by a court of competent jurisdiction to have been fraudulent, or capricious, or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence. In connection with any appeal proceeding under this clause, the Contractor shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, the Contractor shall proceed diligently with the performance of the contract and in accordance with the Contracting Officer’s decision.
This clause does not preclude consideration of law questions in connection with decisions provided for in this clause, provided that nothing in this contract shall be construed as making final the decision of any administrative official, representative, or board on a question of law.
(1982). As a UMTA grantee, RTA was hence required to include the Disputes Clause in its contract to purchase buses. RTA solicited bids for the purchase of 205 buses and entered into a contract with Grumman for their sale and delivery. The contract accordingly contained the Disputes Clause. [6] A dispute subsequently arose between RTA and Grumman when the buses were discovered to have stress problems in their understructures. While the problem proved correctable and Grumman made the required repairs, RTA demanded consequential damages resulting from the loss of service of the buses during the repair period. RTA brought suit in Illinois state court, whereupon Grumman removed the action to United States District Court for the Northern District of Illinois (the “Illinois litigation” or the “RTA-Grumman litigation”), Regional Transportation Authority v. Grumman Flxible Corp., 532 F.Supp. 665 (N.D.Ill. 1982). UMTA, it is important to note, was not a party to the Illinois litigation. In that litigation, Grumman moved to dismiss the complaint on the grounds that RTA had failed to exhaust the administrative remedy embodied in the Disputes Clause. The federal court in Chicago determined that the particular dispute was indeed within the scope of the Disputes Clause and thus dismissed the suit, without prejudice, so the prescribed administrative procedures could be exhausted. [7] In the wake of this decision in the Illinois litigation, RTA submitted the dispute, along with additional claims, to the RTA Contracting Officer who, in an ex parte proceeding, found in favor of RTA. In accordance with the Disputes Clause, Grumman notified the UMTA Administrator that it was appealing the Contracting Officer’s decision. Grumman specifically requested “a copy of UMTA’s procedures for processing appeals of this nature, including procedures for a formal hearing in Washington, D.C. with stenographic transcription, sworn testimony, etc., and the procedures for prehearing discovery (interrogatories, depositions, and the like).” Joint Appendix at 72. Grumman went on to state its assumption “that all proceedings in this matter are de novo, that the Contracting Officer’s determination is to be accorded no evidentiary or other weight or consideration, and that RTA bears the burden of proving each and every element of the claims it has asserted.” Id. [8] UMTA’s reply set forth a detailed set of procedures by which Grumman was to submit a written statement indicating the specific portions of the Contracting Officer’s
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decision that were being challenged, along with Grumman’s position with regard to each disputed finding and the rationale for its position. Under these procedures, UMTA would furnish a copy of that submission to RTA for comment. RTA’s response would then be provided to Grumman, and both parties would be allowed to submit further comments. UMTA also designated the individual who would render decision in the matter, based entirely on the foregoing written submissions with no formal hearing or discovery. Joint Appendix at 78-79.
[9] In this same reply, UMTA set out its reasoning for adopting the limited, paper procedure it was offering. Because of its importance to our resolution of the present appeal, we now set forth the pertinent part of UMTA’s reply to Grumman:[10] Id. at 78A-79. [11] To no avail, Grumman protested these proposed procedures as inadequate. Noting Grumman’s failure to address the merits of the appeal and finding that the Contracting Officer’s determination was reasonable on its face, UMTA sustained the Contracting Officer’s determination. Joint Appendix at 188. However, UMTA’s designated decision-maker took pains to emphasize the limited nature of his decision:Since UMTA is not a direct party to the contract between a grantee and the selected manufacturer, the Disputes Clause was viewed as a mechanism whereby UMTA’s assistance could be sought in resolving issues relating to the specifications, and to ensure that competition would continue to be fostered by having consistent interpretations of the contract requirements. . . . The Disputes Clause was intended to allow UMTA to decide, on a de novo basis, only those issues directly related to the interpretation and effectiveness of the White Book Specification. It was never intended to apply to issues relating to performance or damages arising out of post-delivery problems. The grant agreement between UMTA and RTA in fact specifically provides that:
“No Government Obligations to Third Parties. The Government shall not be subject to any obligations or liabilities by contractors of the Recipient or their subcontractors or any other person not a party to this Agreement in connection with the performance of this Project without its express, written consent and notwithstanding its concurrence in or approval of the award of any contract or subcontract or the solicitation thereof.” Thus, where the issues do not relate directly to the White Book Specifications, UMTA’s review is far more limited in scope. . . . I]f the appeal raises issues which are primarily local in nature, UMTA’s review will be limited to determining whether RTA’s decision was reasonable. If the appeal raises questions which are primarily Federal in nature, we will review them on a de novo basis.
[12] Id. at 78A-79. [13] Following UMTA’s decision, both Grumman and RTA returned to court as plaintiffs in separate actions in separate jurisdictions. RTA again filed suit in the Northern District of Illinois, renewing its claims advanced in the original Illinois litigation and setting forth other claims included in its submission to the RTA Contracting Officer. Grumman moved to stay the reincarnated Illinois litigation, pending the outcome of Grumman’s suit in federal district court here. That motion was granted, see Memorandum Opinion and Order of October 3, 1983 reprinted in Joint Appendix at 225, and thus the federal litigation here in Washington proceeded while the Illinois lawsuit was held in abeyance.I would emphasize the limited nature of my review, for this appeal does not concern the type of dispute for which the Disputes Clause was intended. Rather, this appeal concerns matters to be resolved between the two parties in a court of competent jurisdiction under applicable State law, without UMTA involvement or reference to the Disputes Clause.
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[14] Grumman’s action in the District of Columbia was not against RTA at all but was, rather, brought against UMTA, seeking both injunctive and declaratory relief. Specifically, Grumman sought (1) a declaratory judgment that UMTA’s decision was invalid and contrary to law, and (2) a permanent injunction requiring UMTA to provide de novo review of the Contracting Officer’s decision under the procedures Grumman found implied by the Disputes Clause. Both Grumman and UMTA filed motions for summary judgment. Holding that Grumman was not entitled to more than the procedures offered by UMTA, the District Court granted summary judgment in favor of UMTA. The court also agreed with UMTA’s view that the agency’s decision in the contract dispute between Grumman and RTA was due no collateral estoppel effect in the Illinois litigation and that RTA and Grumman were thus entitled to trial de novo in that action. See Memorandum of July 13, 1984, reprinted inJoint Appendix at 533. [15] The litigation has thus continued along both fronts. The RTA-Grumman suit remains in the Northern District of Illinois. That action is, of course, not within our purview. It is solely the District of Columbia litigation between Grumman and UMTA that is on appeal here. Specifically, we are called upon to review the District Court’s determination that UMTA was not required to provide the forum and procedures requested by Grumman.
II
[16] Before turning to the question of UMTA’s obligations under the Disputes Clause, we first address a jurisdictional issue raised by UMTA. The District Court, UMTA contends, lacked subject matter jurisdiction over this case.[1] The agency dismisses the possibility of jurisdiction under the Administrative Procedure Act or the Declaratory Judgment Act, since neither statute constitutes, under settled law, an independent fount of federal jurisdiction. See Califano v. Sanders, 430 U.S. 99, 107, 97 S.Ct. 980, 985, 51 L.Ed.2d 192 (1977) (“[T]he APA does not afford an implied grant of subject-matter jurisdiction permitting subject matter review of agency action.”); Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 878, 94 L.Ed. 1194 (1960) (Declaratory Judgment Act not an independent source of federal jurisdiction).
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argument fails, for it takes into account only statutory law, whereas this circuit, consistent with Supreme Court teaching,[3] has found section 1331 jurisdiction to lie in an action arising under federal common law. In Trans-Bay Engineers Builders, Inc. v. Hills, 551 F.2d 370 (D.C. Cir. 1976), the court was
[19] Id. at 377. Such a claim was held to establish section 1331 jurisdiction. Since this sort of claim is made in this case, and is in fact the only reasonable basis for the relief sought, we conclude that federal question jurisdiction indeed exists here.asked to determine whether the Secretary of HUD ha[d] an obligation to plaintiff Trans-Bay that [was] not rooted in a contract between them, but rather on equitable rights generated by HUD’s course of activities pursuant to federal statutes, including the contracts it has sponsored, and prescribed for others, as a condition of federal aid. The claim of right [was] dependent on federal common law.
III
[20] We come now to the only substantive issue raised by Grumman on appeal — whether UMTA has a duty to provide the forum and procedure requested by Grumman, by virtue of UMTA’s required inclusion of the Disputes Clause in the RTA-Grumman contract and Grumman’s reading of that clause.[4] In making this determination, we must keep in mind the relationships between the three entities involved. As we have seen, UMTA and RTA are parties to a grant contract providing federal funds to finance RTA’s purchase of buses for service to the citizenry of Chicago. Had a dispute arisen under the UMTA-RTA grant contract, UMTA would plainly be bound by the terms of that contract. However, the Disputes Clause in which Grumman would discern UMTA’s duty is not, of course, to be found in the contract to which UMTA itself is a party. That clause is, rather, part of the RTA-Grumman procurement contract to which UMTA was not and is not a party. Under any contract law theory, therefore, UMTA has no obligation to Grumman.[5] Thus, UMTA’s obligation to
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provide full-blown adjudicatory procedures to Grumman must be found in some other source.
A
[21] No statute to which we have been referred imposes any such obligation. No agency practice or procedure of UMTA for resolving common-law contract disputes has been cited to us.[6] Nor are there any formally promulgated regulations that obligate UMTA to provide Grumman and RTA a full-blown arbitral forum. The only pertinent regulations are those requiring grantees, such as RTA, to adhere to the White Book in negotiating procurement contracts with bus manufacturers. See 42 Fed.Reg. 13,816 (1977). Those regulations plainly require inclusion of the Disputes Clause in any procurement contract; however, upon careful reading, the regulations do not in any explicit terms impose any duty on UMTA to provide a forum for a contract dispute in which UMTA has no real interest. That is, while the regulations clearly require RTA and Grumman to submit a contract dispute to UMTA for resolution, the regulations do not explicitly require UMTA to accept the task of resolving that dispute by way of a full, adjudicatory-style arbitration. As we read the Disputes Clause, it is entirely consistent with the language of the clause for UMTA not to afford a full-blown arbitral forum for a garden-variety, non-federal dispute.
(1983) (“[S]ubstantial involvement is not expected between the executive agency, and the local government, or other recipient when carrying out the activity contemplated in [a grant] agreement.”) Id. § 6304(2). We are reluctant, in the face of adamant and sensible agency objections to being deeply mired — at great administrative cost — in disputes in which it has no conceivable interest whatever, to import elaborate procedures spawned in one setting and transplant them to alien soil. It has never been done before; indeed, there is not a hint of deviation from settled agency practice; and at bottom, it makes no sense whatever in the real world to force UMTA to preside over battles in which federal interests are minimal at best.
B
[23] We are left then with the question whether UMTA may be bound under some theory of implicit adoption of a regulation or may be equitably estopped to deny the existence of a duty. Grumman invokes cases that, in its view, argue for just that result. I Morton v. Ruiz, 415 U.S. 199, 94 S.Ct. 1055, 39 L.Ed.2d 270
(1974), for example, the Supreme Court held that an agency (there, the Bureau of Indian Affairs) may be bound not only by laws and regulations but by its own internal procedures as well. “Where the rights of individuals are affected, it is incumbent upon agencies to follow their own procedures. This is so even where the internal procedures are possibly
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more rigorous than otherwise would be required.” Id. at 235, 94 S.Ct. at 1074. The Morton Court, on that basis, held that a policy of the Bureau of Indian Affairs (“BIA”), denying general welfare assistance to Indians not living directly on a reservation, was an important substantive policy which, under the procedures of the Bureau of Indian Affairs Manual, had to be published in order to be effective. Similarly in Danks v. Fields, 696 F.2d 572 (8th Cir. 1982), the BIA was found to have failed to comply with the terms set forth in its grazing permits by attempting to initiate a fee increase after the deadline set forth in the permits. BIA’s argument there, namely that the date was merely a goal, was rejected. Since “the [BIA] Area Director set th[e] deadline and made it an explicit term of each permit he issued[, the BIA was] not . . . free to ignore the terms simply because [it] found them to be inconvenient.”Id. at 577.
[24] The difficulty in applying Morton v. Ruiz and Danks v. Fields to our case is that, here, no established procedure, written or otherwise, to provide a forum for disputes such as that between RTA and Grumman was extant at UMTA. While contracts funded under a UMTA grant were required to contain the Disputes Clause, the Disputes Clause does not, as we have seen, impose by its terms an obligation on UMTA to provide an arbitral forum: indeed, since UMTA was not a party to the RTA-Grumman procurement contract, we would be hard pressed to explain how such an obligation could arise from the terms of the contract alone. Of course, we have more in our case than the RTA-Grumman purchase contract; there is also the UMTA-RTA grant contract. Nonetheless, while the UMTA-RTA grant contract requires inclusion of the Disputes Clause, Grumman has cited no language in the grant contract clearly indicating a self-imposed duty on UMTA to provide a forum for common-law disputes. [25] In fact, language in both the grant contract and the White Book itself indicates that UMTA was not obligated in any fashion to third parties such as Grumman. As we have seen, supra pages 6-7, UMTA quoted the following provision of the UMTA-RTA grant contract in its letter explaining the procedures it intended to follow:[26] Joint Appendix at 79 (quoting UMTA-RTA grant contract). Furthermore, the White Book’s statement requiring the Disputes Clause to be included in procurement contracts makes explicit reference to the External Operating Manual. See White Book at I-15, Joint Appendix at 339 (“The Contractor shall comply with the following required Urban Mass Transportation Administration clauses, which are located in Appendix 12 of the External Operating Manual.”). The External Operating Manual in turn states:“No Government Obligations to Third Parties. The Government shall not be subject to any obligations or liabilities by contractors of the Recipient or their subcontractors or any other person not a party to this Agreement in connection with the performance of this Project without its express, written consent and notwithstanding its concurrence in or approval of the award of any contract or subcontract or the solicitation thereof.”
[27] External Operating Manual IIIC-1, reprinted in Joint Appendix at 243, 247. While this language might be read in limited fashion so as to shield UMTA and the Government only from liability arising from grantees’ breaches of contract or torts, the language certainly calls into question the basis of any purported obligationUMTA and the Federal Government are not obligated or liable to any person or organization other than the project sponsor.
The grantee is the responsible party, without recourse to UMTA regarding the settlement and satisfaction of all contractual and administrative issues arising out of procurements entered into, in support of a grant. This includes but is not limited to: disputes, claims, protests of award, source evaluation or other matters of a contractual nature.
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on UMTA’s part. Where the basis for the applicability of Morton v. Ruiz and Dank v. Fields (i.e., that UMTA had a duty to provide the forum and procedure requested by Grumman) is so weakly established, the quoted language flatly eschewing any obligation to third parties such as Grumman takes on greater importance.[7]
C
[28] This, however, does not end our inquiry. Underlying portions of Grumman’s brief appears, understandably, to be a plea for equitable estoppel. See Appellant’s Brief at 27-29. While “[i]t is clear that `[t]he fundamental principle of equitable estoppel applies to government agencies, as well as private parties,'”General Accounting Office v. General Accounting Office Personnel Appeals Board, 698 F.2d 516, 526 n. 57 (D.C. Cir. 1983) (quotin Investors Research Corp. v. Securities Exchange Comm’n, 628 F.2d 168, 174 n. 34 (D.C. Cir.), cert. denied, 449 U.S. 919, 101 S.Ct. 317, 66 L.Ed.2d 146 (1980)), “traditionally there has been a reluctance to apply the doctrine against the government,” id.
(citations omitted).
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UMTA as to the right of contractors such as Grumman to the forum and procedure which Grumman requested. What we find, rather, is simply the rather odd judgment of UMTA in selecting a Disputes Clause more suitable for federal procurement contracts for inclusion in the procurement contracts of its non-federal
grantees.[9] The dissent, however, observes that UMTA affirmatively assured concerned bus manufacturers in 1977 that the Disputes Clause provided ample protection to them and was “based on procedures for handling disputes in Federal Government contracts.” Joint Appendix at 356. This one-sentence, shorthand response set forth in a twelve-page UMTA statement of rationale is clearly helpful to Grumman’s position, but we are unpersuaded that this abbreviated statement provides a sufficient foundation upon which to force UMTA to build an elaborate dispute-resolution center to which bus manufacturers could repair to avoid local court-houses and juries (or extrajudicial forums, which Grumman may well be able to seek under the RTA-Grumman contract in the Illinois litigation). Our reluctance is buttressed by the fact that UMTA has never sat in judgment on such “local” disputes; moreover, UMTA’s interpretation of the Disputes Clause is entirely sensible in the context of federal grants.
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[33] It is not for us to order the selection of an alternative arbitrator in the RTA-Grumman dispute, now that UMTA has declined to provide a full dress extrajudicial forum for resolution of RTA’s dispute with Grumman. Our sole consideration, rather, is the determination of whether UMTA may be forced to fill that role. On that question, we conclude that UMTA, while having pursued a rather curious course of action in requiring inclusion of this particular Disputes Clause in a grantee’s procurement contract,[11] is under no duty to provide an arbitral forum nor to provide any particular set of procedures for resolution of a contract to which UMTA is not a party.[12] For that reason, the judgment of the United States District Court for the District of Columbia is [34] Affirmed.In Lindy v. Lynn, supra, it was also claimed that section 1331 jurisdiction would lie where the action arose under a mortgage loan regulated by the Federal Housing Administration. The Third Circuit held that jurisdiction was lacking, stating: “[T]he fact that a contract is subject to federal regulation does not, in itself, demonstrate that Congress meant that all aspects of its performance or nonperformance are to be governed by federal law. . . .” 501 F.2d at 1369. This case likewise lends support to UMTA’s argument that section 1331 jurisdiction is lacking.
(1965); Bowles v. Seminole Rock Co., 325 U.S. 410, 413-14, 65 S.Ct. 1215, 1217, 89 L.Ed. 1700 (1945). UMTA’s professed non-interest in state common law issues, as opposed to its strong interest in the consistent interpretation of its own technical specifications, would provide a reasonable basis for its interpretation of the regulation as not including the RTA-Grumman dispute.
The D.C. court opinion does not articulate what seems to us to be an important distinction. If the dispute actually arose in the context of a grant contract (that is, the contract between UMTA and RTA), UMTA would, it seems, be bound by the interpretation given the clause in a procurement contract. Here, however, the clause does not appear in a grant contract, but only in a contract funded through a grant. The key distinction is between procurement contracts, in which the Government is a party, and contracts funded under grants, in which the Government is not a party at all. Since UMTA is not a party to the contract in which the Disputes Clause is included, the exercise for the court here in Washington was not, upon analysis, one of contract interpretation but rather one of searching for a duty vel non
outside the contract. While the D.C. court opinion does not set out on such a search, we nonetheless agree with that court’s ultimate conclusion, since such a duty, for the reasons we have set forth in the text, is not to be found.
The Illinois court’s January 18, 1985 Memorandum Opinion characterizes the D.C. court’s approach as “puzzling.” The Illinois court notes the D.C. court determination that the issue is one of contract interpretation and finds confusing the D.C. court’s resort to the intent of the reluctant arbitrator rather than to the intent of the parties to the contract. While this point does have force, for the reasons we have just stated, we also believe that the Illinois court’s opinion loses sight of the difference between the proceedings in the two courts.
The Illinois court is, of course, hearing a contract dispute between the parties to the contract. In that case, the intent of the parties obviously controls. The Illinois court has already found that the parties’ intent was to submit disputes within the scope of the Disputes Clause to UMTA for decision and, on that basis, found a failure to exhaust administrative remedies. The scene then shifted to the D.C. court where the court here was not, in reality, interpreting a contract. It should have been, instead, trying to determine the existence vel non of a duty on the part of a non-party (UMTA) to arbitrate the dispute. The intent of the parties to the contract has little relevance to that question, unless equitable grounds may arise from such an intent. In a word, in the case before the D.C. court, the intent of UMTA has more, though still not controlling, relevance.
In the end, the D.C. court’s opinion does not in any way contradict the earlier opinion of the Illinois court. Under the law of that case, the parties did intend to submit this very dispute to UMTA, and they had thus failed to exhaust administrative remedies. In the wake of that ruling in Chicago the parties submitted the dispute, but UMTA refused to grant the full procedures called for by the Disputes Clause in a procurement setting. The parties have now exhausted their administrative remedies, and the dispute is appropriately back before the Illinois court.
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that this result is sensible policy. But good policy is not always good law. Reluctantly, I conclude that the “White Book” is a regulation binding on the agency until revoked, and that the only reasonable interpretation of the White Book requires the agency to hold a hearing and decide this dispute. I therefore respectfully dissent.
I.
[37] The Urban Mass Transportation Act was passed in part “to provide assistance to State and local governments and their instrumentalities in financing [mass transportation] systems, to be operated by public or private mass transportation companies as determined by local needs.” 49 U.S.C. app. § 1601(b)(3). To carry out that broad purpose, Congress authorized the Secretary of Transportation to make grants “on such terms and conditions as the Secretary may prescribe” to local governments for the development of mass transportation facilities, 49 U.S.C. app. § 1602(a)(1), and to approve or disapprove the acquisition of mass transit equipment by local governments with federal funds “on such terms and conditions as he may prescribe.” 49 U.S.C. app. § 1604(d)(1). The Secretary may also “issue such regulations as he deems necessary to administer” the urban mass transit grant program established by the statute. 49 U.S.C. app. § 1604(d)(2).
[40] 2.17 DISPUTES
[41] Baseline Advanced Design Transit Coach Specifications at I-27 to I-28, J.A. at 351-52.Except as otherwise provided in this contract, any dispute concerning a question of fact arising under this contract which is not disposed of by agreement shall be decided by the Contracting Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the Contractor. The decision of the Contracting Officer shall be final and conclusive unless within 30 days from the date of receipt of such copy, the Contractor mails or otherwise furnishes to UMTA a written appeal. The decision of UMTA’s duly authorized representative for the determination of such appeals shall be final and conclusive unless determined by a court of competent jurisdiction to have been fraudulent, or capricious, or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence. In connection with any appeal proceeding under this clause, the Contractor shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, the Contractor shall proceed diligently with the performance of the contract and in accordance with the Contracting Officer’s decision.
This clause does not preclude consideration of law questions in connection with decisions provided for in this clause, provided that nothing in this contract shall be construed as making final the decision of any administrative official, representative, or board on a question of law.
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[42] In Batterton v. Marshall, 648 F.2d 694 (D.C. Cir. 1980), this court explained the general distinction between agency rules and non-binding agency action:[43] Id. at 701-02 (footnotes omitted); see also Columbia Broadcasting System, Inc. v. United States, 316 U.S. 407, 62 S.Ct. 1194, 86 L.Ed.2d 1563 (1942). Under this standard, it is plain that the White Book, as well as the UMTA regulation requiring grant recipients to use White Book specifications in federally subsidized ADB purchases, qualifies as a binding regulation. The Urban Mass Transportation Act clearly delegates legislative rulemaking authority to the Secretary of Transportation, which he explicitly invoked both in promulgating the regulation requiring the use of certain uniform specifications and terms in ADB purchases, and in setting out those specifications and terms in the White Book.[2] The White Book established mandatory and binding conditions on grant recipients, which were plainly intended to have the force of law. UMTA must therefore obey its terms.“[L]egislative” or “substantive” rules can be issued only if Congress has delegated to the agency the power to promulgate binding regulations in the relevant area. Legislative rules thus implement congressional intent; they effectuate statutory purposes. In so doing, they grant rights, impose obligations, or produce other significant effects on private interests. They also narrowly constrict the discretion of agency officials by largely determining the issue addressed. Finally, legislative rules have substantive legal effect. . . .
Non-binding action, in contrast, merely expresses an agency’s interpretation, policy, or internal practice or procedure. Such actions or statements are not determinative of issues or rights addressed. They express the agency’s intended course of action, its tentative view of the meaning of a particular statutory term, or internal house-keeping measures organizing agency activities. They do not, however, foreclose alternate courses of action or conclusively affect rights of private parties. Although an agency empowered to enact legislative rules may choose to issue non-legislative statements, an agency without legislative rulemaking authority may issue only non-binding statements. Unlike legislative rules, non-binding agency statements carry no more weight on judicial review than their inherent persuasiveness commands.
II.
[44] I turn next to the crux of this case. UMTA has decided that under the Disputes Clause, it need not determine the merits of disputes between grant recipients and their contractors de novo
unless, in the agency’s view, some interest of the federal government is at stake. The majority devotes only a single, conclusory sentence to this central question: it declares that “[a]s we read the Disputes Clause, it is entirely consistent with the language of the clause for UMTA not to afford a full-blown arbitral forum for a garden-variety, non-federal dispute.” Maj.Op. at 345. However, the Disputes Clause has a much longer history in the law than the White Book. For many years before the White Book was promulgated, the clause had been used in contracts
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between federal agencies and their contractors. In that context, the clause was universally understood to require that agencies give independent consideration to a contractor’s claims. I believe that the language of the clause, particularly when read against the acknowledged meaning of the clause in federal procurement contracts, compels us to hold UMTA’s interpretation of the Disputes Clause unreasonable and therefore unlawful.
A
[45] When the White Book was first proposed, UMTA tentatively settled on use of the standard Disputes Clause in contracts between federal agencies and their contractors.[3] Some bus manufacturers then commented that the Disputes Clause gave them too little protection; in particular, the manufacturers objected that reviewing courts should be able to set aside UMTA determinations if “`erroneous,'” rather than only if “`so grossly erroneous as necessarily to imply bad faith.'” See
Statement of Rationale for UMTA Response to Manufacturer Comments and Requests on April 4, 1977 Issue of ADB Specifications at 4, J.A. at 356. UMTA replied that the Disputes Clause “is based on procedures for handling disputes in Federal Government contracts, and does provide to the Contractor the protection being sought.” Id. (emphasis added). UMTA’s reply was plainly a reference to the substantial body of law interpreting the Disputes Clause in federal procurement contracts; under those cases, the courts have given considerable protection to government contractors by, for example, steadfastly enforcing the separate provision in the clause that reserves questions of law to determination by the court. UMTA reassured the bus manufacturers by noting, in effect, that established procedures for the enforcement of the Disputes Clause in government procurement contracts would carry over to enforcement of the clause in contracts between federal grantees and their contractors.
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In 1969, for example, the Court of Claims stated that:
[48] Southwest Welding Mfg. Co. v. United States, 413 F.2d 1167, 1184-85 (Ct.Cl. 1969) (footnote omitted).[4] There are many cases in accord, including a substantial number decided before UMTA issued the White Book. See, e.g., Schnip Building Co. v. United States, 645 F.2d 950, 960 (Ct.Cl. 1981); Lykes Bros. S.S. Co. v. United States, 459 F.2d 1393, 1403 (Ct.Cl. 1972). These cases cannot be meaningfully distinguished on the ground that they concern agreements between federal agencies and their contractors, rather than an agreement between the recipient of a federal grant and its contractor. The essential point is that UMTA deliberately took language with an unquestioned meaning in procurement contracts, transposed precisely that language into grant recipient contracts, and reassured worried bus manufacturers at the time of promulgation that the procedures accompanying use of the clause in procurement contracts would govern the relationship between grant recipients and bus manufacturers. UMTA cannot now be allowed to say that in making these explicit and implicit representations, it was only fooling.The “Disputes” article under which these Board decisions were rendered, does not countenance a rubber-stamping of the contracting officer’s decision. Under the “Disputes” article, his decision enjoys no presumptive validity whatever. It is vacated by the appeal to the [agency]. The latter then owes the contractor a de novo hearing and a de novo decision based on the applicable law, the contract terms, and a preponderance of the evidence. The Board cannot abdicate that responsibility by applying Wunderlich Act-type tests to the contracting officer’s decision. Those tests are reserved for a court engaged in any subsequent judicial review of a Board decision.
B
[49] In my judgment, the text of the Disputes Clause further weakens UMTA’s position. The clause first requires that “any dispute concerning a question of fact arising under this contract which is not disposed of by agreement” be submitted to the contracting officer, who is always employed by the federal procurement agency or grant recipient and is therefore an interested party. The contractor — here, Grumman — may then appeal the decision of the Contracting Officer to UMTA, which must afford the contractor “an opportunity to be heard and to offer evidence.” UMTA’s decision, in turn, may be reviewed in court only to determine whether it was “fraudulent, or capricious, or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence” or incorrectly decided a “question of law.”
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review of all UMTA decisions on grievances presented by a contractor. But if this limitation on judicial review were enforced with respect to UMTA decisions on local issues, the contractor would be entirely deprived of any unbiased de novo
consideration of its claims. Cf. Grumman Aerospace Corp. v. United States, 579 F.2d 586, 592 (Ct.Cl. 1978) (de novo
proceeding before board of contract appeals or court “is the first in which the contractor is afforded due process”). Even UMTA does not urge this extreme result; instead, UMTA apparently suggests that courts, despite the express language of the Disputes Clause, should evaluate de novo UMTA decisions on matters UMTA found to be local.
III.
[52] There is no doubt that an agency is bound by its legislative regulations until they are altered or revoked. In this case, UMTA has in fact altered its regulations: recipients of UMTA grants for the purchase of ADBs are no longer required to use White Book specifications, although they may do so if they wish. See 47 Fed.Reg. 44,457 (1982); 46 Fed.Reg. 49,038 (1981). In abolishing mandatory use of the White Book, UMTA did not state whether it intended to affect the future resolution of disputes under contracts signed when the use of White Book specifications was mandatory for the recipients of UMTA grants. In any event, UMTA did not decide this dispute based on any theory that it has changed its regulations. Its claim from the start has been that the White Book “was never intended to apply to issues relating to performance or damages arising out of post-delivery problems.” Letter from Arthur E. Teele, Jr., to William K. Sweeney at 2 (Mar. 30, 1983), J.A. at 78A. Because we may uphold the agency’s decisions only on the rationale it set forth, I consider only whether the agency’s interpretation of its regulation is reasonable. I express no view on any authority the agency may have to alter its regulation as applied to disputes arising under contracts signed when the use of the White Book in UMTA-subsidized purchases of ADBs was mandatory.
[53] CONCLUSION
[54] I close where I began, with an expression of sympathy for UMTA’s efforts to prevent local contract fights between municipalities and private corporations from becoming enmeshed in federal administrative machinery far from the place of the dispute. But when UMTA promulgated the White Book, it failed to recognize the reasons supporting local resolution of local controversies in the text of the Disputes Clause. UMTA’s decision was based only on an interpretation of the unaltered text of the Disputes Clause, and in my view that interpretation
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was plainly unreasonable. I would reverse the judgment of the district court, and remand the case to the district court with instructions to set aside the decision of the agency and to direct the agency to conduct further proceedings consistent with this opinion.
The majority never quite decides whether the White Book is a regulation, although its statement that no “formally promulgated regulations” require UMTA to provide an arbitral forum apparently gives some weight to UMTA’s decision not to propose the White Book for notice and comment. For the reasons stated above, that fact is not entitled to weight here.