Selling Assets During a Protest?  Careful You Don’t Jump the Shark

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In the past, we have cautioned readers about the potential impact of transactions on pending awards, particularly on the ability of a contractor to protest.  A recent decision from the Court of Federal Claims (COFC) shows that transactions during a protest may also pose risks to a contractor’s standing.

On September 9, COFC dismissed a protest filed by Lank Shark Shredding LLC after Land Shark sold assets after the protest had been filed.  Land Shark had filed a May 2019 complaint challenging the Department of Veterans Affairs’ (VA) cancellation of a service-disabled veteran-owned small business (SDVOSB) set-aside contract for shredding services.  The solicitation had been canceled because only Land Shark had submitted a timely proposal and the VA determined that Land Shark’s proposal suffered from pricing and technical defects.

Background: Company Sold Assets After Protest Was Filed

During oral argument in June 2021, it was revealed for the first time that Land Shark had sold “its name, assets, and business interest, and that these transactions raised questions regarding whether the case caption should be amended to reflect Land Shark’s new name, Disabled Veterans Security, LLC, … and whether any entity had standing to bring this case.”

Land Shark then moved to substitute the new entity as the protestor or to amend the case caption to reflect the new name.  It explained that in December 2020 another SDVOSB had acquired all of its assets required to perform its government contract work and its ongoing uncontested government contracts.

In another transaction that same month, Land Shark sold its commercial shredding business to another company, which hired a number of former Land Shark employees.  Land Shark also explained that the renamed entity, Disabled Veterans Security (DVS), was in the process of verifying its SDVOSB status.

Government Stated that Case Caption Should Be Adjusted

In response, while the government agreed that the case caption should be amended, it moved to dismiss on the basis that “no entity remain[ed] in a position where it could fill the shoes of the former Land Shark Shredding, LLC with respect to the quotation it submitted in March 2019” and that DVS was not a verified SDVOSB, meaning it was ineligible to compete for the set-aside.

The COFC agreed that the caption should be changed because Land Shark had retained its interest in the protest as that was excluded from the asset sale.  It also agreed with the government that the case should be dismissed because DVS was not an actual bidder on the solicitation and could not establish that it had a substantial chance of award.  In addition, the court held that DVS could not establish that it was a complete successor-in-interest to Land Shark because it “no longer own[ed] the assets or employ[ed] the personnel that it did when it submitted its quotation in March 2019.”

The COFC noted that Land Shark had not demonstrated that the new entity had the operational resources, including equipment and employees, needed to perform the shredding contract.  While the COFC agreed that DVS could eventually obtain those resources, that was not sufficient to demonstrate that it could provide the assets and services proposed in Land Shark’s quotation.  For all those reasons, the COFC concluded that DVS did not have standing as an interested party and dismissed the case for lack of jurisdiction.

Key Takeaways for Government Contractors

For contractors considering any transactions during the pendency of a protest, Land Shark Shredding LLC cautions that the impact of that transaction on the protest must be carefully considered.  If the protest has significant value to the company, it may be appropriate to consider delaying the transaction until the protest is resolved.  Otherwise, you may be opening the door to a Land Shark result.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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