753 F.

2d 957
53 USLW 2437

TECTONICS, INC. OF FLORIDA and Forest Builders, Inc.,

Plaintiffs-Appellants,
v.
CASTLE CONSTRUCTION COMPANY, INC., a/k/a Alabama
Castle
Construction Company, Inc., Collins Company, Inc.,
etc., et al., Defendants-Appellees.
No. 83-7370.

United States Court of Appeals,

Eleventh Circuit.
Feb. 21, 1985.

Donald V. Watkins, Montgomery, Ala., for plaintiffs-appellants.

Thomas S. Lawson, Jr., Montgomery, Ala., for Collins Const. Co.
Charles M. Allen, II, Montgomery, Ala., for Castle Const. Co. and
Algernon Blair, Inc.
Appeal from the United States District Court for the Middle District of
Alabama.
Before GODBOLD, Chief Judge, JOHNSON and CLARK, Circuit
Judges.
CLARK, Circuit Judge:

In February 1982, Tectonics, Inc. of Florida and Forest Builders, Inc.

(Tectonics) filed a complaint in the Southern District of Florida against Castle
Construction, the Collins Company and Algernon Blair, Inc. with regard to the
bidding on a small business set-aside contract. Jurisdiction was based on
diversity of citizenship. The defendants succeeded in an attempt to remove the
case to Alabama where the district court dismissed the case for failure to state a

claim upon which relief could be granted. This appeal followed.

2

The question presented by Tectonics' appeal is whether a second low bidder can
maintain separate state causes of action for damages against a low, successful
bidder of a federal contract, when the latter company has misrepresented itself
as a small business as defined in 15 U.S.C.A. Sec. 631(a) and regulations issued
pursuant thereto by the Small Business Administration.

The United States Corps of Engineers issued an invitation for bids on a contract
for construction at Red Stone Arsenal in Alabama. The invitation was limited to
bids from small businesses as defined by the federal statute just mentioned.
Tectonics, Inc. of Florida and Forest Builders, Inc. as joint venturers certified
that they were small businesses within the statute and were the second lowest
bidder for the construction contract. The defendant Collins Company, Inc.
(Collins) gave a similar certificate to the Corps and was the successful bidder
on the contract. Tectonics did not make a bid protest because it had relied upon
Collins' misrepresentation that it was a small business. Later as a result of a
protest filed by another company regarding a different construction contract,
the Small Business Administration (SBA) decided that Collins was not a small
business as defined by federal law. After becoming aware of this determination,
Tectonics filed its complaint.

The complaint alleges that defendants Castle Construction Company, Inc. and
Algernon Blair, Inc. provided 80% of Collins' original capitalization,
indemnified the surety under the performance and bid bonds, provided
employees to provide the bid estimates, and placed their corporate officers as
directors of Collins. The complaint alleges that the defendants by so doing
fraudulently misrepresented Collins as a small business company and thereby
prevented Tectonics from being the successful bidder of the contract. The
complaint seeks recovery on theories of fraud and deceit, unjust enrichment,
and interference with a business relationship, and seeks compensatory and
punitive damages.1

The issues presented by this appeal are as follows: (1) Do the facts as alleged in
the complaint state a cause of action under Alabama law? (2) In enacting the
statute, did Congress provide a private cause of action for a second low bidder
under facts as alleged by the appellants in their complaint? (3) If Alabama law
provides a cause of action and Congress did not provide a private cause of
action pursuant to the statute, does the federal law preempt the state law and
deny a second low bidder an action for damages against the successful low
bidder? (4) Did the former Fifth Circuit in its opinion in Royal Services, Inc. v.
Maintenance, Inc., 361 F.2d 86 (5th Cir.1966), hold that federal law preempted

such a cause of action in a state court and thereby become precedent for our
decision in this case pursuant to this circuit having adopted Fifth Circuit case
law prior to October 1, 1981 pursuant to Bonner v. Prichard, 661 F.2d 1206
(11th Cir.1981)?
6

The district court dismissed Tectonics' complaint holding "[t]hat Congress did
not intend to give a civil remedy to the second lowest bidder against the lowest
and successful bidder." (Dist.Ct.Op. p. 5). The district court believed that
Royal, supra, was controlling. We agree with the district court that Congress
did not intend to provide a civil private cause of action to the second lowest
bidder under facts such as alleged here. However, we do not interpret the
congressional legislation or the federal constitutional supremacy clause to
preempt a state remedy under these facts, if a remedy is permitted, and we do
not construe Royal, supra, as so holding. Finding that a party is not precluded
from asserting such a cause of action if it is permitted pursuant to Alabama law,
we reverse the district court.

7I. DOES ROYAL CONTROL?

8

In Royal, plaintiff alleged in a similar fashion that the defendant successful low
bidder was not a qualified small business pursuant to the governing statute, and
that defendant's ill-gotten contract with the United States Air Force permitted a
diversity action under the laws of Florida whereby Royal could sue as a thirdparty beneficiary. The court in Royal defined the question presented as: "Did
Congress ... manifest an intent, in the event the certification [by the low bidder]
was untrue and such bidder was awarded the contract, to give a cause of action
against such bidder to the next lowest bidder for loss of profits?" Further, the
court said: "... we think no intent so to do may be implied therefrom [the
statute]." Royal, supra, at 92. The court found under Florida law a third-party
beneficiary could recover from one of the parties to a contract only if the
contract disclosed an intention that the plaintiff have a cause of action. Finding
no intent, the court held that the plaintiff had no cause of action. These two
holdings were the basis of the Royal decision.

We adopt the following paragraph stated by the court in Royal:

10

The declared purpose of the Small Business Act is to preserve and expand full
and free competition for the economic well-being and security of the Nation,
by encouraging and developing the actual and potential capacity of small
business, through aiding, counseling, encouraging, assisting and protecting the
interests of small businesses. We think the purpose was public in character,
viz., the preservation and expansion of full and free competition to insure the

Nation's economic well-being and security, and that there was no intent to
create civil rights of action in private persons.
11

Royal, supra, at 92.

12

The fact that Congress did not create a private cause of action by manifesting an
intent that the second lowest bidder would have a cause of action under facts
such as alleged here,2 does not mean that a cause of action may not be
maintained under state law. We shall discuss this aspect of the law in the next
section of the opinion. First, however, we must complete the discussion of the
Royal opinion.

13

The court in Royal points out that the plaintiff had alleged a theory of recovery
based upon negligence but that this was not briefed and the court did not
consider such a theory. Further, the court mentioned that Royal did not include
in its complaint but did assert in its brief that it had a claim pursuant to the
federal false statement penal statute contained in 15 U.S.C.A. Sec. 645(a). The
court went on to point out that this criminal statute indicated no congressional
intention to create a civil remedy in behalf of the United States or a private
person and stated that what it had said with respect to the Small Business Act
applied also to Sec. 645(a). Thus, our construction of the opinion in Royal is
that it goes no further than holding that Congress did not intend to create a
private cause of action pursuant to the Small Business Act or pursuant to the
federal false statement penal statute.

II. DOES THE SMALL BUSINESS ACT OR THE UNITED STATES

14
CONSTITUTION PREEMPT A STATE CAUSE OF ACTION?
15
16

We are required to go beyond the question answered in Royal, supra, which

merely held that the Small Business Act did not create a private cause of action.
The court in Royal thus presaged the holding in Cort v. Ash, 422 U.S. 66, 95
S.Ct. 2080, 45 L.Ed.2d 26 (1975). Cort and its progeny have laid down guiding
principles to assist in deciding when Congress intended the remedy of a private
cause of action to derive from the violation of a federal statute. Cort, although
denying a federal private cause of action to parties injured as a result of the
violation of the federal statute involved therein, nevertheless held that it was
entirely appropriate for the plaintiffs to seek any remedy created by state law.

17

Nevertheless, there are instances where federal legislation can preempt any
state cause of action. For example, in Silkwood v. Kerr-McGee Corp., 464 U.S.
238, 104 S.Ct. 615, 78 L.Ed.2d 443 (1984), the Supreme Court observed that

"state law can be preempted in either of two general ways." Id. 104 S.Ct. at 621.
18

First, if it is Congress' intent to occupy a given field, then any state law within
that field is preempted. Id.; see also Pacific Gas and Electric Co. v. State
Energy Resources Conservation and Development Commission, 461 U.S. 190,
103 S.Ct. 1713, 75 L.Ed.2d 752 (1983). Thus, Congress may preempt state
authority to act by using explicit preemptive language in a statute. Fidelity
Federal Savings & Loan Ass'n v. De La Cuesta, 458 U.S. 141, 102 S.Ct. 3014,
73 L.Ed.2d 664 (1982). Absent explicit preemptive language, Congress' intent
to supersede state law altogether may be inferred because: (1) the scheme of the
federal law is so pervasive that the reasonable inference is that Congress left no
room for the states to supplement it; (2) the field in which the federal law
touches is one where the federal interest is so dominant that it will be assumed
to preclude the enforcement of state laws on the same subject; or (3) the object
that is sought to be obtained by the federal law and the character of the
obligations imposed by it reveal a strong federal purpose. Pacific, 103 S.Ct. at
1722; Fidelity, 102 S.Ct. at 3022.

19

Second, where "Congress has not entirely displaced state regulation over the
matter in question, state law is still preempted to the extent it actually conflicts
with federal law, that is, when it is impossible to comply with both state and
federal law, ... or where the state law stands as an obstacle to the
accomplishment of the full purposes and objectives of Congress." Silkwood,
104 S.Ct. at 621 (citations omitted).

20

We now examine the Small Business Act, which has the purpose of preserving
and expanding "full and free competition for the economic well-being and
security of the Nation, by encouraging and developing the actual and potential
capacity of small business, through aiding, counseling, encouraging, assisting
and protecting the interests of small business." Royal, 361 F.2d at 92.3

21

To effectuate the purposes of the Act, the Small Business Administration and
the contracting procurement or disposal agency are required to give small
businesses preferential treatment with respect to "set-aside" contracts. See 15
U.S.C.A. Sec. 644. Bidders are also permitted to challenge the status of any
other bidder by filing a written protest with the government contracting officer
within the appropriate time limits. See 13 C.F.R. Sec. 121.3-5 (1984).

22

As early as 1958, it was recognized that the programs of the SBA were "by no
means a complete answer to the problems of small businesses ...." Pub.L. 85536, 85th Cong.2d Sess., reprinted in 1958 U.S.Code Cong. & Ad.News 3071,

3074 (emphasis added). Similarly, an examination of the statutory scheme and

legislative history of the Small Business Act leads us to conclude that Congress
did not intend to occupy the entire field of small business concerns to the extent
that all state remedies would be foreclosed for neither the statute nor the
applicable regulations expressly preclude state action in this field or dictate
preemption. Cf. Automated Medical Laboratory v. Hillsborough County, 722
F.2d 1526, 1530 (11th Cir.1984) ("Pre-emption of state law by federal statute or
regulation is not favored in the absence of persuasive reasons.").
23

This, however, does not end our analysis for as noted in Silkwood even if
Congress has not expressly preempted the area, a remedy based on state law
will be precluded if it conflicts with the Small Business Act or if it is an
obstacle to the accomplishment of the purposes and objectives of the Act. In
Silkwood, the Supreme Court indicated:

24

We do not suggest that there could never be an instance in which the federal
law would preempt the recovery of damages based on state law. But insofar as
damages for radiation injuries are concerned, preemption should not be judged
on the basis that the federal government has so completely occupied the field of
safety that state remedies are foreclosed but on whether there is an
irreconcilable conflict between the federal and state standards or whether the
imposition of a state standard in a damages action would frustrate the objectives
of the federal law.
Silkwood, 104 S.Ct. at 626.4

25

Therefore, we now determine (1) whether the SBA prevents a state cause of
action based upon the Act as a standard in determining whether the appellees
have either committed fraud, been unjustly enriched or interfered with a
business relationship and (2) whether the maintenance of such an action would
result in an irreconcilable conflict between the federal and state standards or
frustrate the objectives of federal law.

26

As indicated earlier, the policy of the Small Business Act is to encourage free
competition and the development of small businesses, and to ensure that small
businesses receive a fair proportion of government contracts. See 15 U.S.C.A.
Sec. 631. Another "primary goal [is] to assure that government contracts [are]
performed in a timely and competent manner." Iconco v. Jenson Const. Co.,
622 F.2d 1291, 1298 (8th Cir.1980).

27

Allowing this suit will neither result in an irreconcilable conflict between

federal and state standards nor frustrate the aforementioned objectives. Rather,
allowing the suit to proceed will be consistent with and promote the
achievement of the goals and policies of the Act. As stated in Iconco:
28a contract set aside for small businesses has been performed by a concern that is
If
not small, the intent of Congress has not been advanced. Allowing an unsuccessful
bidder to recover on unjust enrichment and fraud theories, when the proof justifies
such recoveries, is consistent with the salutary purpose of the Act.
29

Id. at 1298 (emphasis added).

30

The appellees argue that to allow a state cause of action for a violation of a
federal law would disrupt the bidding process. This has been noted by one of
the courts when it determined that a private cause of action for lost profits or
similar actions cannot be inferred from the provisions of the Small Business
Act. See Savini Construction Co. v. Crooks Brothers Construction Co., 540
F.2d 1355, 1358-59 (9th Cir.1974). The Savini court stated:

31 [the bidder] known that, ... it would be subject to a suit for profits, it might well
Had
have declined to accept the award. Or, having accepted, it might have refused to
continue to work on the contract following the Size Appeals Board determination
that it was originally ineligible to bid. The likelihood that one such event would
occur is substantial. And the occurrence of any would undermine the Congressional
intent to insure competency in the execution of government contracts....
32

Id. at 1358-59. We disagree with the Savini court's dictum. As in Iconco v.

Jenson Const. Co., supra, we find that "[t]he mere threat of legal action,
without more, is not sufficient ... to discourage either the submission of bids or
the acceptance of a contract award." Id. at 1299. "The only effect of a judgment
for the plaintiff is to deprive [the] defendant of a benefit which ... Congress
never intended it to have." Id. (emphasis added).

33

By allowing a state cause of action, if it is permitted under state law, we do not

imply that relief would be permissible under all circumstances. For example, if
the plaintiff were seeking an injunction to stop the performance of a
government contract we might well have a different view. That issue is not
before us. The critical question is whether the maintenance of the cause of
action will be disruptive to the full performance of an established government
contract. If it will seriously disrupt the performance of the contract, the action
should not be maintained. Here the appellees have not established that the cause
of action will affect the performance of this contract. Speculation that the
maintenance of the action will either alter the contractual obligations between

the appellees and the government or prevent the contract from being fully
completed is not sufficient to deny the sufficiency of plaintiffs' complaint.5
34

Thus, we hold that Congress, by enacting the Small Business Act, did not
preempt the field so as to preclude a state cause of action based upon the Act as
a standard in determining whether the actions of fraud, unjust enrichment or
interference with a business relationship are available to a second low bidder
against a low successful bidder of a federal contract when the latter has
misrepresented itself as a small business.

35 WHETHER A STATE CAUSE OF ACTION IS AVAILABLE UNDER

III.
ALABAMA LAW
36

A state court is " 'free to look to the provisions of a federal statute for guidance
in applying its longstanding common-law remedies' unless Congress has
prohibited the state from looking to the statute's provisions as a standard in
determining whether there has been a common-law breach of duty." Hofbauer
v. Northwestern National Bank of Rochester, Minnesota, 700 F.2d 1197, 1201
(8th Cir.1983) (citing Iconco, supra ); see also Iconco, supra. As we have
pointed out, the Small Business Act does not itself create a federal cause of
action. However, it does not prevent a state court from finding fraud, unjust
enrichment or interference with a business relationship where there has been a
violation of the statute.

37

As this issue was not addressed by the district court, we do not address it on
appeal. On remand, the district court must determine whether the Supreme
Court of Alabama would use the Small Business Act as a standard in
determining fraud, unjust enrichment or interference with a business
relationship.

38

REVERSED and REMANDED.

GODBOLD, Chief Judge, dissenting:

39

This is a subtle case because of the interplay of Royal Services, Inc. v.

Maintenance, Inc., 361 F.2d 86 (5th Cir.1966), which is binding upon us,
traditional principles of preemption, and policies of federalism and comity.
Added to this are matters of effective judicial administration involving
certification of an issue to a state supreme court.

I. Royal Services, Inc.

40

41

It is unquestioned that there is no private federal cause of action for violation of

the Small Business Act and the regulations thereunder. Also it cannot be
questioned that heretofore Alabama has not by statute or decision incorporated
into its body of tort law a right in one bidder to sue another bidder for violation
of provisions of the Small Business Act. Nevertheless, plaintiff contends that
the standards of conduct created by the Act, if broken, give rise to a tort action
under Alabama law. Royal Services seems to me to hold to the contrary.

42

The plaintiff in Royal Services was a second low bidder, like plaintiff here,
suing the successful bidder on the ground that the successful bidder had
misrepresented to the government its status as a small business concern.
Plaintiff asserted two grounds: first, that, based on Florida law, plaintiff was the
third-party beneficiary of the contract between the low bidder and the
government (in which contract defendant had made the alleged
misrepresentation), and, second, defendant had negligently miscertified itself.
On appeal plaintiff did not argue the negligence theory, and the court did not
consider it.

43

With respect to the claim based on alleged third-party beneficiary status, the
Fifth Circuit looked to Florida law to find its test for determining when there is
a third-party beneficiary relationship, and found that Florida used an "intent"
test. 361 F.2d at 91. The court assumed without deciding that this was the
proper test to be applied. Id. To find the answer to the intent issue the court
looked to the contract and the Small Business Act and the regulations
thereunder. The court held that the construction of the Act and the regulations
was a matter of federal, not state, law. The federal court examined these federal
sources and, as a matter of federal law, concluded that they evidenced no intent
to create a cause of action. No federal cause of action was involved in the case
or under discussion; the only cause of action alleged and the only cause of
action discussed was the state law cause of action for breach of contract as
asserted by a third-party beneficiary. Thus, the court's decision was that no
state-law civil cause of action was intended to be created. The court said:

44 Congress by the pertinent provisions of the Small Business Act and the rules
Did
and regulations promulgated thereunder and the requirement that a bidder prior to
the opening of the bids make a good faith certification respecting his status as a
small-business concern manifest an intent, in the event the certification was untrue
and such bidder was awarded the contract, to give a cause of action against such
bidder to the next lowest bidder for loss of profits?
45

We shall turn now to Royal's first contention. Clearly, there is no express

provision in the Small Business Act or the rules and regulations promulgated

thereunder giving a civil remedy to the second lowest bidder for loss of profits
or for damages suffered because of an untrue statement made by the successful
bidder in his certification respecting his status as a small-business concern, and
we think no intent so to do may be implied therefrom.
46

The declared purpose of the Small Business Act is to preserve and expand full
and free competition for the economic well-being and security of the Nation,
by encouraging and developing the actual and potential capacity of small
business, through aiding, counseling, encouraging, assisting and protecting the
interests of small businesses. We think the purpose was public in character,
viz., the preservation and expansion of full and free competition to insure the
Nation's economic well-being and security, and that there was no intent to
create civil rights of action in private persons.

47

Id. at 92.

48

While the Royal Services court did not employ the word "preemption" as a
word of art, its conclusions answer authoritatively the traditional steps in a
preemption analysis, discussed in Part II below. The only difference between
Royal Services and this case is that one second low bidder sued on a contract
theory under Florida law and the other second low bidder sued on a tort theory
under Alabama law. The majority correctly says that in Royal Services the
court was answering the question whether in enacting the Small Business Act
Congress intended to confer such a benefit on a second low bidder that it could,
as third party beneficiary of the contract between the government and the low
bidder, sue the low bidder. The court answered that question "No." What is
important is the reason the court gave for answering in the negative. As set out
above in the quoted material from the decision, after discussing the general
purposes of the Act the court gave its reason (which does not even appear in the
majority opinion in this case). It was:

49

We think had Congress intended to give a civil remedy to the second lowest
bidder against the lowest and successful bidder, because the latter made an
untrue statement in his certification respecting his status as a small-business
concern, it would have done so, either by express provision or by clear
implication. It did not do so in the Small Business Act.

50

361 F.2d at 92. In short, the intent element required by Florida law for a thirdparty beneficiary suit was not present because Congress did not intend to give a
civil remedy to the second low bidder. The majority does not explain why it
makes a difference that the state court civil remedy under examination was a

suit on contract while in the present case the civil remedy under examination is
a suit in tort.II. Preemption
51

Under traditional preemption analysis, the federal law concerning right to sue
for violation of the Act or the regulations preempts state law, and there can be
no state cause of action. This court recently set out the steps in a preemption
analysis. Automated Medical Laboratories, Inc. v. Hillsborough County, 722
F.2d 1526 (11th Cir.1984). Initially the court must ascertain whether there is
"any explicit declaration of congressional design to displace state regulation."
Id. at 1530. The parties do not suggest any such declaration in the Small
Business Act or in the legislative history.

52

Finding no explicit intent, "we must next examine Congress's implicit intent in
enacting the federal scheme." Id. There are three tests for determining whether
Congress has implicitly preempted state law, only one of which need be
satisfied for preemption to exist:

53

First, is the federal scheme "so pervasive as to make reasonable the inference
that Congress left no room for the states to supplement it." Id. at 1531. Federal
regulation of federal government contracts and procurement is pervasive and
comprehensive. Among the areas regulated by statute and agency rules are who
can submit bids, when they are to be submitted, whether there are to be setasides for small businesses and minority contractors, how bids are to be
evaluated, the discretion the government agency has to select among competing
bids, the procedures for challenging competing bidders, and the standards for
determining eligibility of bidders. As an example, 13 C.F.R. contains 41 pages
of regulations on the topic "Small Business Size Standards." These regulations
determine eligibility of small businesses to bid on business contracts such as the
one at issue. They provide for the initial determination of eligibility, a
competitor's method of protest, procedure for investigating, informally
evaluating compliance with eligibility compliance, appeals procedures, and
sanctions for bidding when not eligible. 13 C.F.R. Sec. 121 et seq. (1983). With
this wide scope and specificity, it is reasonable to conclude that Congress has
occupied the field and has left no room for state regulation of the federal
procurement process.

54

Second, is the area "a field in which the federal interest is so dominant that the
federal system must be assumed to preclude" state enforcement? The
government interests in this area are uniquely federal. One such interest is the
need to have work performed for the government on a timely basis, at the least
expensive cost possible, by competent contractors. All federal procurement
regulations are targeted at achieving this goal. The goal is sometimes tempered

by other federal concerns such as assisting small business in gaining a share of

the market and thereby promoting competition and aiding minority businesses
in attaining a fair share of government contracts. But even these are federal
interests, attainable under Congress's commerce clause powers or its civil rights
authority.
55

When Congress has these mixed goals of procurement and assistance to

selected businesses, the balance to be struck between these goals is a federal
question. The federal government has a strong interest in seeing that the groups
prescribed for set-asides are aided, while at the same time the government's
interest that its contracts be awarded and performed in an efficient manner is
not injured. In choosing between certainty on eligibility for small business setasides and speed in having contracts performed, Congress has explicitly struck
that balance by specifying that a bidder's certification will be binding on a
specific contract unless a protest by a competitor is filed on a timely basis and
contains adequate factual allegations concerning the bidder's ineligibility.
Congress has decided that it would rather have a business later found to be
ineligible perform small business set-aside work than to delay performance by
permitting late challenges. In light of these factors, it is reasonable to conclude
that Congress has preempted the field on procurement contracts and eligibility
for small business set-asides.

56

Third, is there a conflict between the federal scheme and the challenged state
regulation? Some of the courts that have considered whether there is a private
right of action under federal law against a competing bidder have addressed the
issue of whether an action for damages would conflict with the federal scheme.
They have concluded that it would. E.g. Savini Construction Co. v. Crooks
Brothers Construction Co., 540 F.2d 1355 (9th Cir.1974); Mid-West
Construction Co. Ltd. v. U.S., 181 Ct.Cl. 774, 387 F.2d 957 (1968); Northland
Equities, Inc. v. Gateway Center Corp., 441 F.Supp. 259 (E.D.Pa.1977). These
conclusions apply here, because there is no difference between a federal
damages remedy and a state damages remedy if the ultimate question is
whether such a remedy conflicts with the goals of the federal scheme.

57

Rogers v. Ray Gardner Flying Service, Inc., 435 F.2d 1389 (5th Cir.1970) is
factually similar to the present case, but different in analysis. The result is,
however, the same. Plaintiff contended that Oklahoma state law, under which
negligence of a bailee of an airplane would not be imputed to the bailor, had
been widened by a provision of the Federal Aviation Act that arguably imposed
bailor liability. The Fifth Circuit analyzed the issue in terms of whether
Congress intended to preempt the state law of bailments to the extent of
expanding its scope. The court stated its disbelief that Congress would

undertake to alter the tort laws of numerous states in so oblique a fashion and
found no intent to supersede state laws of bailments as related to operation of
airplanes. The court remanded the case for entry of summary judgment for
defendant. Whether one examines preemption in an affirmative manner, asking
whether the federal scheme occupies the field and therefore excludes state
regulation, as I have done, or in a negative manner, as in Rogers, asking
whether there is an absence of congressional intent to expand by federal statute
an unoccupied area of state law, the result is the same in this case. We know
from Royal Services that Congress did not intend a state right to recover based
upon violation of the Act.
58

In Savini Construction Co., the court pointed to one of the conflicts created by
a damages remedy.

59 Crooks Brothers [the low bidder] known that, depending on the post-award
Had
outcome of the size appeal, it would be subject to suit for its profits, it might well
have declined to accept the award. Or, having accepted, it might have refused to
continue work on the contract following the Size Appeals Board determination that
it was originally ineligible to bid. Finally, although Crooks Brothers might have
continued to execute the contract, serious problems of quality and speed of work
could have arisen given the possible deprivation of profits at the conclusion of the
project.
60

540 F.2d at 1359. In this case the possible harm to the low bidder is even more
speculative and difficult to ascertain in advance of bidding, because, unlike
Savini, the plaintiff here did not even file a size protest on a timely basis. The
low bidder here had no notice of its possible liability to Tectonics until suit was
filed. To permit the interjection of Alabama's tort law to create this additional
burden on federal bidders erects a hurdle to the accomplishment of the federal
scheme.

61

Northland Equities, Inc. v. Gateway Center Corp., 441 F.Supp. 259

(E.D.Pa.1977), concerned an attempt by an unsuccessful bidder under federal
procurement procedures to assert a federal cause of action on the ground that
the successful bidder had failed to comply with bid specifications. The court, in
granting summary judgment for defendant, considered Savini Construction and
the analogy of rejection of claims of unsuccessful bidders under the Small
Business Act.

62

The rejection of SBA claims, despite a clear congressional expression of

concern for the welfare of small businesses, strongly suggests the impropriety
of creating a private action for damages under the procurement laws. By

deterring unsuccessful bidders from acting at an early date to overturn an

award, such a policy would similarly frustrate existing enforcement
mechanisms under the procurement statutes. Presently, an unsuccessful offeror
has several available methods by which he can challenge an award which he
believes was improperly made. He can file a protest with the contracting officer
who is required to consider all protests submitted before or after an award is
made (41 C.F.R. Secs. 1-2.-407-8); he can file a protest with the General
Accounting Office (GAO), where the Comptroller General must investigate the
award and issue a report affirming or voiding the award (4 C.F.R. Secs. 20.0.10); and finally, he can seek judicial review of the award and injunctive relief
in federal court.
63

441 F.Supp. at 259. Like administrative procedures are available to plaintiff in

the present case. The Northland court went on to hold:

64

Now, years after the 1971 award to Gateway, plaintiff seeks lost profits, bid
costs and punitive damages. While this court by no means wishes to condone
possible fraud, neither does it want to encourage possible speculative plaintiffs
to wait until a building is constructed and inhabited before attacking the
propriety of the initial award. This would wreak havoc on procurement. In
order to be compatible with statutory goals, a remedial scheme must guarantee
that the bidder will act at a time when the proper bidder can still be selected.
By telling the unsuccessful bidder that he may wait until after his competitor
has performed and then sue to recover possible lost profits, the courts would
provide an irresistible disincentive to his coming forth at an earlier time. Any
award goes into the private pocket of the unsuccessful bidder, not into the
public treasury, even though the government suffers by not having procured the
most advantageous bid.

65

It is judicious to consider not only the ill effect on procurement, but also the
strain on the effectiveness of the already burgeoning federal court system,
before ascribing to Congress the intention to open up a new right of private
action. Having thoroughly considered this issue, this court finds that a private
cause of action for damages and lost profits under the procurement statutes
cannot be implied.

66

441 F.Supp. at 263-64.

67

All three of the tests for preemption laid out in Automated Medical are satisfied
in this case, though only one need be satisfied, which means that federal law
preempts. 722 F.2d at 1533.

68

The majority follows the opinion of the Eighth Circuit in Iconco v. Jensen
Const. Co., 622 F.2d 1291, 1298 (8th Cir.1980). That case affirmed a judgment
in favor of the second low bidder against the low bidder, on state law grounds
of fraud and unjust enrichment, based upon miscertification by the low bidder
of its small business status. The Eighth Circuit held that Iowa was free to look
to the Small Business Act for standards to apply in fashioning its common law.
It examined the Small Business Act and found nothing in the statutory and
regulatory schemes to support an implied prohibition against a state doing this.
This is precisely the opposite of the finding of Congressional intent that the
Fifth Circuit had reached in Royal Services. The Eighth Circuit did not
overlook Royal Services. Rather it addressed Royal Services and specifically
considered and rejected the holding of the Fifth Circuit that implying a private
action by an unsuccessful bidder against a successful one was inconsistent with
Congressional intent:

69 the extent, however, that the language used in those cases [Royal Services and
To
Savini Construction ] supports the conclusion that any private suit by an
unsuccessful bidder against a successful one is inconsistent with Congressional
intent and would jeopardize the proper administration of the government's contract
procurement system, we respectfully disagree for the reasons we have stated.
70

622 F.2d at 1299. Having rejected the Royal Services finding of Congressional
intent, the court adopted an opposing construction of Congressional intent. Id.
Moreover, the Eighth Circuit misread Royal Services as involving only the
issue of whether a federal cause of action could be inferred from the Act. Id. As
we have pointed out above, the case concerned the existence of a Florida cause
of action. This court is bound by Royal Services. It is not free to reject it and to
climb aboard a decision by another circuit that has reached an opposing
conclusion and rejected Royal Services' basis for decision as well.

III. The state law "window"

71
72

What the majority seems to say is that Alabama is free to incorporate into its
tort law a cause of action for breaches of duties set out in the Small Business
Act, and the decision remands the case to the district court for it to decide
whether Alabama has or will make such a choice. In an abstract sense Alabama
can, of course, incorporate into its tort law whatever breaches of duty it
perceives accord with its state policies, so long as not barred by the Supremacy
Clause. But in this instance Royal Services has decided that the federal policy is
that the federal statute, statutory scheme and regulations did not intend to create
a private state cause of action. If there is a non-preempted "window" left for a
state-law cause of action, created as a matter of state policy, it is a narrow one

at best. Under our system of federalism, where comity is important and federalstate systems have a decent regard for each other and for each other's views and
policies, it seems to me doubtful that a state would create a new area of tort
liability by incorporating into its common law of torts provisions of a federal
statute when the federal court of the circuit in which the state is located has
held that in enacting the statute Congress did not intend a private state cause of
action. This would bring state policy into collision with federal policy. The
possibility reinforces that this court's decision on preemption is incorrect.
IV. Certification, Comity and Federalism
73

If this court follows neither Royal Services nor traditional preemption analysis,
then this case is a paradigm for certification by this court to the Alabama
Supreme Court. If that court responds that there is no state cause of action, the
matter will be at an end. 1 Rather than take this direct and straightforward
approach the court remands to the district court for it to decide whether there is
an Alabama cause of action. This is an anomalous assignment for a federal
court when decision of this new state-law issue necessarily implicates the
extent to which the state, as a matter of comity, wishes to give effect to
expressed federal interests. Under Alabama certification procedures the federal
district court can certify the cause of action question to the Alabama Supreme
Court, and I hope that it will consider doing so. Should the district court decide
the issue for itself without certifying to the Alabama Supreme Court, regardless
of how it decides, we can predict what will happen. The case will come back to
this court on a second appeal, and this court will then have to revisit the
question of whether we should certify the question to the Alabama Supreme
Court. Surely this additional circumlocution is unnecessary.

The claim of fraud alleges that if it had not been for the material
misrepresentation made by Collins that it was a small business that the contract
in question would have gone to the plaintiffs. Tectonics alleges that the
misrepresentation was intentional and that the company has relied upon it to
their detriment
The claim of unjust enrichment alleges that the defendants in the action had
received money and benefits in the form of profits from the contract. Tectonics
claims that it would be inequitable to allow the defendants to retain the benefits
of the misrepresentation by the Collins Company that it was a small business.
The claim of interference with a business relationship alleges that Tectonics had
a business relationship with the Corps of Engineers by virtue of the company's

past successful bidding and satisfactory performance of government

construction contracts. The defendants by contrast were aware that Collins was
not a small business and that the size of Collins and resources available to it
from the other companies would give Collins an economic advantage over
other businesses bidding for the project. Castle and Algernon Blair allegedly
aided Collins by providing the surety for and preparing the bid, by providing
corporate officers and financial capitalization and by agreeing not to give this
information to other small businesses or to the government.
Tectonics claims that it could raise these causes of action under Florida or
Alabama law. Since this case was removed to Alabama, on remand the district
court must consider whether these causes of action will lie there.
2

The dissent construes Royal Services to hold that Congress intended to preempt
a state cause of action when it enacted the SBA. The decision must be read in
the context in which the panel was deciding the case. The plaintiff sought relief
as a third party beneficiary of the contract between the United States and the
defendant. The panel stated after quoting Florida law: "Thus, it will be seen that
the test under Florida law is the intent of the parties to the contract that a third
person shall be benefited by it." Id. at 91. The court then made the analysis
quoted by the dissent at page 965
The panel's analysis and conclusion that Congress did not intend a private cause
of action was to explain the approval of the district court's holding that the
complaint failed to state a cause of action under Florida law. This conclusion
stemmed from an initial finding that there was no intent on the part of the
government to benefit a third party (next lowest bidder) when contracting with
the lowest bidder. Id. at 92. Thus, the third party beneficiary claim under
Florida law failed because the Small Business Act had not provided the
necessary element of intent. However, Royal cannot be properly read as
preempting state causes of action arising from violations of the Act.
This view is bolstered by two cases referred to by the court in its discussion,
J.I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964);
and Blaney v. Florida National Bank of Orlando, 357 F.2d 27 (5th Cir.1966).
See Royal at 92 n. 9. In Case the Supreme Court held that Congress in the
Securities Exchange Act intended to create a private federal cause of action
whereby holders of securities could sue a corporation which had breached the
Act. In Blaney, the court writing through Chief Judge Tuttle held that the
plaintiff did not have a private federal cause of action pursuant to regulations
promulgated by the Board of Governors of the Federal Reserve System,
pointing out that Congress had not intended such a cause of action when it
enacted the Federal Reserve Act. The court was careful to point out that it was

merely holding that in the absence of diversity our court lacked jurisdiction
because there was not a federal cause of action, but that plaintiff could pursue a
cause of action under state law. Id. at 28, 30. The majority agrees with the
dissent that Congress did not intend to create a private cause of action, which
was the holding of Royal Services. It is just as clear that neither Congress nor
our court in Royal Services forbade a plaintiff seeking relief based on fraud to
pursue that claim under state law.
3

Section 631 of the Small Business Act provides in pertinent part:

It is the declared policy of the Congress that the Government should aid,
counsel, assist, and protect, insofar as is possible, the interests of small-business
concerns in order to preserve free competitive enterprise, to insure that a fair
proportion of the total purchases and contracts or subcontracts for property and
services for the Government ... be placed with small-business enterprises, to
insure that a fair proportion of the total sales of Government property be made
to such enterprises, and to maintain and strengthen the over-all economy of the
Nation.
15 U.S.C.A. Sec. 631(a).

Silkwood is particularly helpful in consideration of this case and the

preemption position taken by the dissent. Mrs. Silkwood's estate was awarded
$10,000,000 for punitive damages which verdict was reversed by the Court of
Appeals for the Tenth Circuit, 667 F.2d 908 (10th Cir.1981). The Supreme
Court described the holding of the court of appeals as follows:
In reaching its conclusion with respect to the punitive damages award, the Court
of Appeals adopted a broad preemption analysis. It concluded that "any state
action that competes substantially with the AEC (NRC) in its regulation of
radiation hazards associated with plants handling nuclear material" was
impermissible. 667 F.2d at 923. Because "[a] judicial award of exemplary
damages under state law as punishment for bad practices or to deter future
practices involving exposure to radiation is not less intrusive than direct
legislative acts of the state," the court determined that such awards were
preempted by federal law. Id.

104 S.Ct. at 620. The United States as amicus curiae contended that the award of
punitive damages was preempted because it conflicted with the federal remedial
scheme, contending that the NRC is authorized to impose penalties on licensees
when the federal standards have been violated. In response to this contention,
the Supreme Court said:
However, the award of punitive damages in the present case does not conflict

with that scheme. Paying both federal fines and state-imposed punitive damages
for the same incident would not appear to be physically impossible. Nor does
exposure to punitive damages frustrate any purpose of the federal remedial
scheme.
104 S.Ct. at 626
5

The dissent at page 967 raises the question as to whether there is a conflict
between the federal scheme and plaintiffs' cause of action. Perhaps the dissent
overlooks that we have the case on the grant by the district court of defendants'
motion to dismiss the complaint for failure to state a claim upon which relief
can be granted. We reiterate that if the defendant can establish that the cause of
action conflicts with the interest of the government, it has the right to plead that
and the district court can consider it at the appropriate time. We specifically
reject the holding in Savini Construction Co. v. Crooks Brothers Construction
Co., 540 F.2d 1355 (9th Cir.1974), relied upon by the dissent. The dissent urges
that Savini was correct in holding that a damages remedy conflicted with the
Small Business Act when it said:
Had Crooks Brothers [the low bidder] known that, depending on the postaward outcome of the size appeal, it would be subject to suit for its profits, it
might well have declined to accept the award.
Id. at 1359. If the low bidder knows that it is not an eligible small business
concern entitled to a government contract, it well knows that it is subject to a
suit for damages growing out of fraud, as is brought here. If it does not know
that, it is the holding of the majority that it should know. We see no justiciable
or conscionable reason for permitting a large business to establish a bogus
corporation which it controls, have it meet the definition of a small business
company, and secure a government contract to which the large company would
not be entitled if it followed the law. We see no difference in a bidder who has
been deprived of a contract through the fraud of a non-eligible company having
a cause of action than Mrs. Silkwood's estate having a cause of action to
recover for punitive damages as was approved by the Supreme Court in
Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 104 S.Ct. 615, 78 L.Ed.2d 443
(1984). We do not suggest in the slightest that the defendant company in this
case was guilty of any wrongdoing whatsoever. We merely say that if the
plaintiffs' allegations are true, plaintiffs have a cause of action which is not
preempted by the Small Business Act.

If this court chose to certify, it would not need to address the preemption issue
until we learn from the authoritative source, the state supreme court, whether a
cause of action exists. If none exists we will not have cluttered up the law

books and fly-specked the law by a discussion, which will have become
hypothetical at best, concerning whether federal law preempts a non-existent
state cause of action. If the Alabama court responds that there is a state cause of
action, we could then address the preemption question bearing in mind the
contours and scope of the cause of action that the state court has defined