On May 1, 2024, the U.S. Court of Appeals for the Eleventh Circuit issued a sweeping decision impacting sovereign immunity for tribally-owned government contractors. The first-of-its-kind appellate decision concludes that by participating in the U.S. Small Business Administration’s (SBA) 8(a) Business Development Program (8(a) Program), tribally-owned entities waive sovereign immunity as to virtually all—if not all—claims connected in any way to the entity’s 8(a) Program participation, regardless of the tenuous nature of the connection. Tribally-owned government contractors should adjust their operations based on key takeaways from the Eleventh Circuit decision.
Background
In AQuate II LLC v. Myers, a tribally-owned limited liability company and federal government contractor, AQuate II LLC (AQuate), sued its former employee, Jessica Tedrick Myers (Myers), and her new employer, Kituwah Global Government Group LLC (Kituwah), another tribally-owned government contractor, claiming that the defendants stole the plaintiff’s trade secrets in order to gain a competitive advantage in bidding for the re-competition of the plaintiff’s existing federal contract.
In 2012, AQuate originally won a 5-year 8(a) set-aside contract to provide armed security services aboard a semi-submersible platform vessel as part of the United States’ ballistic missile defense program. AQuate won the contract again in 2017 for a new 5-year term.
Myers was employed by AQuate from 2013 through 2017. Myers left AQuate in 2017 to become Kituwah’s Director of Administration. When she left AQuate, she allegedly took with her copies of AQuate’s contracts, proposals, personnel lists, and other security information.
When the armed security contract came up for bids again in 2022, Myers allegedly contacted her former coworkers at AQuate to obtain information about AQuate’s pricing and compensation structure under the prior versions of the contract and, through Kituwah, made contingent employment offers to some of AQuate’s employees, all for the purpose of Kituwah submitting a successful bid for the armed security services contract.
When AQuate learned of the alleged scheme, it sued both Myers and Kituwah in Alabama federal court under the federal Defendant Trade Secrets Act and the Alabama Trade Secrets Act. AQuate also asserted a breach of contract claim against Myers. AQuate sought a preliminary injunction, requesting that the court enjoin the defendants from using AQuate’s trade secrets for any purpose. Kituwah and Myers filed a motion to dismiss, with Kituwah specifically arguing that AQuate’s claims were barred by sovereign immunity. The district court granted the motion.
In ruling on the motion, the district court recognized that the 8(a) Program regulations mandate that tribally-owned entities waive sovereign immunity related to their participation in the 8(a) Program. Specifically, 13 C.F.R. § 124.109(c)(1) states: “In order to be eligible to participate in the 8(a) BD program, a concern which is owned by an eligible Indian tribe (or wholly owned business entities of such tribe)” must include in its governing documents an “express sovereign immunity waiver . . . which designates United States Federal Courts to be among the courts of competent jurisdiction for all matters relating to SBA’s programs including, but not limited to, 8(a) BD program participation, loans, and contract performance.” However, the Court found that Kituwah had not waived sovereign immunity for AQuate’s trade secrets claims because the lawsuit did not “‘relate to’ participation in the 8(a) program.”
The Ruling
On appeal, the Eleventh Circuit noted that no other federal appellate court, and only three federal district courts (albeit with limited analysis), appear to have ever addressed the scope of 8(a) sovereign immunity waivers. Without persuasive precedent on which it could rely, the Court turned to the plain meaning of the phrase “relating to” in the 8(a) regulations. Taking guidance from various dictionary definitions, the Court concluded that the phrase “relating to” must be broadly applied to reach any activity that has some connection with or stands in relation to the 8(a) Program. Acknowledging that it may not be possible to impose a broader definition for “relating to,” the Court found that AQuate’s claims were covered by Kituwah’s sovereign immunity waiver because “Kituwah participated in the [8(a)] program by preparing and later submitting a bid for the [armed security services contract],” and AQuate asserted that Kituwah “stole trade secrets to boost its bid,” necessarily connecting Kituwah’s conduct with its 8(a) Program participation.
The Court continued: “Kituwah stole information about AQuate’s ‘compensation structure, proposals, contract terms, and bidding strategies’ for [the] contract—an 8(a) contract. And it did so to gain a competitive advantage in its own bid for the same 8(a) contract. In other words, but for its attempt to win the bid for the 8(a) contract, Kituwah would not have used stolen trade secrets or unlawfully solicitation information from current AQuate employees. That alleged misconduct ‘relates to’ Kituwah’s participation in the 8(a) program.” Based on this analysis, the Eleventh Circuit reversed the trial court’s dismissal and remanded the case for further proceedings.
Key Takeaways
- The AQuate decision could have broad implications across many types of litigated disputes. Eleventh Circuit decisions are only binding on the Eleventh Circuit itself and federal trial courts in Florida, Georgia, and Alabama. However, as the Court noted, no other court has offered a comprehensive view of 8(a) sovereign immunity waivers. Under such circumstances, the AQuate decision could be seen as a very persuasive analysis should the issue be addressed in other courts. And, although the AQuate suit only involved trade secrets claims, the language used in the decision sweeps broadly. A future court could—and likely will—find the AQuate decision applies equally to other types of litigation, such as employment, contract, unfair trade practices, and other commercial litigation matters, so long as the plaintiff can make out an argument that the dispute relates in some way to the defendant’s 8(a) Program participation.
- The use of a sovereign immunity defense must be used strategically and with a full understanding of the implications of an adverse decision. There is very little federal court commentary on 8(a) sovereign immunity waivers for good reason. Sovereign immunity may protect a tribally-owned business entity only in circumstances that can be reasonably segregated from the entity’s participation in the 8(a) Program. Tribally-owned entities that may seek to invoke sovereign immunity in future cases should be wary of advancing immunity arguments unless there is a reasonable and legitimate argument that the plaintiff’s claims do not relate to 8(a) Program participation. Advancing a sovereign immunity argument in a case where there is a cognizable connection between the claim and the tribally-owned entity’s participation in the 8(a) Program could contribute to the already unfortunate broad application of immunity waivers set out in AQuate.
- Tribally-owned entities should examine their non-disclosure agreements, teaming agreements, subcontracts, employee offer letters, and employment agreements to invoke sovereign immunity to the maximum extent possible. Despite the broad implications from AQuate, tribally-owned entities may still maintain a narrow pathway for preserving sovereign immunity under certain circumstances. Tribally-owned businesses should tailor the language of their employment and business agreements to draw employment and contractual relationships as far away as possible from the 8(a) Program. For instance, non-disclosure and teaming agreements can be written to mutually benefit the parties’ overall strategic goals, as opposed to specifically target an 8(a) procurement. And offer letters and employment agreements can be written in such a way so as to tie their continued employment to company business opportunities, as opposed to a specific 8(a) contract. Although there is no guarantee a court would afford a tribally-owned entity sovereign immunity in all situations, utilizing innovative, narrowly tailored contractual language could put sovereign immunity back on the map for tribally-owned government contractors.
Tribal government contractors should adapt their operations in response to important insights gleaned from the Eleventh Circuit’s ruling. For more information, please contact Matt Feinberg or another member of PilieroMazza’s Native American Law & Tribal Advocacy or Litigation & Dispute Resolution teams.
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