Antitrust Law Daily Wrap Up, ANTITRUST—S.D. Cal.: Service provider fails to allege conspiracy in government procurement program, (Aug 22, 2014)

By Linda O’Brien, J.D., LL.M.

A janitorial services provider, claiming that nonprofit companies participating in a procurement program unlawfully influenced the award of government contracts, failed to adequately allege how each individual defendant was involved in an alleged antitrust conspiracy, the federal district court in San Diego has decided (Bona Fide Conglomerate, Inc. v. SourceAmerica, August 20, 2014, Curiel, G.).

The AbilityOne program is a government procurement system on which nonprofit service providers and producers of goods substantially employing either blind or severely disabled persons (affiliates) can list their pre-approved products and services for purchase by the federal government. The AbilityOne Commission administers the program through two Central Nonprofit Agencies (CNAs)—National Industries for the Blind (NIB) and SourceAmerica. In turn, the CNAs match government contracts with local nonprofit agencies. Bona Fide Conglomerate provides janitorial and grounds maintenance services to the federal government and is an affiliate in the AbilityOne program.

Bona Fide filed suit against SourceAmerica, along with 11 other AbilityOne affiliates, alleging that the entities rigged the process through which service providers may compete for government contracts through the AbilityOne program, in violation of Section 1 of the Sherman Act. Specifically, Bona Fide alleged that SourceAmerica’s board of directors was comprised almost entirely of executives and directors of AbilityOne affiliates that compete for contracts in the AbilityOne program. Although the officers of SourceAmerica decided which affiliate would be awarded a given contract, the directors allegedly influenced the officers to ensure that they are awarded contracts over others. The defendants moved for dismissal.

To state a Section 1 claim, a plaintiff must show (1) a contract, combination or conspiracy among two or more persons or distinct business entities; (2) by which the persons or entities intended to restrain trade; and (3) which actually injures competition. Bona Fide asserted that the defendants violated Section 1 of the Sherman Act for (1) standard setting by agreeing to require top secret security clearance or Cleaning Industry Management Standard certification as a prerequisite to contract awards and (2) bid rigging by agreeing to allocate contracts to defendant affiliates in the AbilityOne program. Although the plaintiff made various allegations regarding the structure of the SourceAmerica board of directors, the plaintiff failed to allege the role of the board or SourceAmerica’s executives in directing the SourceAmerica organization or setting bid standards. Thus, the court determined that the plaintiff failed to allege the existence of a contract, combination, or conspiracy sufficient to state a claim under the Sherman Act. Finally, finding the plaintiff’s pleading defects curable, the court granted Bona Fide leave to amend its complaint.

The case is No. 14cv0751-GPC-DHB.

Attorneys: Andrew Edward Schouten (Wright, L'Estrange & Ergastolo) for Bona Fide Conglomerate, Inc. Allen R. Bachman (Gordon & Rees, LLP) for SourceAmerica. Michael A. Attanasio (Cooley Godward Kronish) for Pride Industries, Inc. Dan Bacal (Law Offices of Dan Bacal) for Kent, Campa & Kate, Inc. Amanda M. Lorenz (Cozen O'Connor) for ServiceSource, Inc. Jeffrey M. Shohet (DLA Piper U.S. LLP) for Job Options, Inc.

Companies: Bona Fide Conglomerate, Inc.; SourceAmerica; Pride Industries, Inc.; Kent, Campa & Kate, Inc.; ServiceSource, Inc.; Job Options, Inc.

Cases: Antitrust CaliforniaNews