Case: 19-1743    Document: 34     Page: 1   Filed: 02/26/2020




   United States Court of Appeals
       for the Federal Circuit
                  ______________________

                     XOTECH, LLC,
                    Plaintiff-Appellant

                             v.

                    UNITED STATES,
                    Defendant-Appellee
                  ______________________

                        2019-1743
                  ______________________

     Appeal from the United States Court of Federal Claims
 in No. 1:18-cv-01483-NBF, Senior Judge Nancy B. Fire-
 stone.
                  ______________________

                Decided: February 26, 2020
                 ______________________

    WILLIAM T. WELCH, McMahon, Welch & Learned,
 Reston, VA, argued for plaintiff-appellant.

     ERIC LAUFGRABEN, Commercial Litigation Branch,
 Civil Division, United States Department of Justice, Wash-
 ington, DC, argued for defendant-appellee. Also repre-
 sented by JOSEPH H. HUNT, ALLISON KIDD-MILLER, ROBERT
 EDWARD KIRSCHMAN, JR.; BEVERLEY E. HAZLEWOOD, Office
 of General Counsel, United States Small Business Admin-
 istration, Washington, DC; WAYNE T. BRANOM, III, Con-
 tract and Fiscal Law Division, United States Army Legal
 Services Agency, Fort Belvoir, VA.
Case: 19-1743    Document: 34        Page: 2   Filed: 02/26/2020




 2                                 XOTECH, LLC v. UNITED STATES




                  ______________________

     Before LOURIE, TARANTO, and STOLL, Circuit Judges.
 LOURIE, Circuit Judge.
      XOtech, LLC (“XOtech”) appeals from a decision of the
 United States Court of Federal Claims (“the Claims Court”)
 affirming the Small Business Administration Office of
 Hearings and Appeals’ determination that XOtech is not
 eligible to compete for government contracts set aside for
 service-disabled-veteran-owned contractors. See XOtech,
 LLC v. United States, 142 Fed. Cl. 313 (2019) (“Decision”).
 Because we agree with the Claims Court that service-disa-
 bled veterans do not control “all decisions” of XOtech as re-
 quired by 13 C.F.R. § 125.13(d), we affirm.
                        BACKGROUND
                               I
      “In an effort to encourage small businesses, Congress
 has mandated that federal agencies restrict competition for
 some federal contracts.” Kingdomware Techs., Inc. v.
 United States, 136 S. Ct. 1969, 1973 (2016). To that end,
 the Small Business Act requires many federal agencies to
 set aside contracts to be awarded to certain categories of
 small     businesses.        Service-disabled-veteran-owned
 (“SDVO”) small businesses are one such category. 15
 U.S.C. § 644(g)(1)(B). SDVO status is highly beneficial in
 competing for government contracts because it permits
 designated contractors to compete for government business
 against fewer competitors. In order for a business to be
 eligible to compete for SDVO contracts, service-disabled
 veterans (“SDVs”) must own and control the business. See,
 e.g., 15 U.S.C. §§ 632(q)(2), 637(d)(3)(E).
     The Small Business Administration (“SBA”) has prom-
 ulgated regulations establishing criteria for determining
 whether SDVs own and control businesses having various
 corporate forms. See 13 C.F.R. §§ 125.12, 125.13. For a
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 XOTECH, LLC v. UNITED STATES                                3



 limited liability company (“LLC”), at issue here, one or
 more SDVs must directly and unconditionally own at least
 51% of each class of member interest for the company to be
 owned by SDVs. 13 C.F.R. § 125.12, (a), (c). For an LLC to
 be controlled by SDVs, one or more SDVs must (1) control
 the company’s long-term decision making, 13 C.F.R.
 § 125.13(a); (2) conduct the company’s day-to-day manage-
 ment and administration of business operations, id.; (3)
 hold the highest officer position, id. § 125.13(b); (4) serve
 as managing members, id. § 125.13(d); (5) have “control
 over all decisions of the limited liability company,” id.; and
 (6) “meet all super majority voting requirements,” id.
 § 125.13(f). This appeal concerns whether an SDV “con-
 trol[s] . . . all decisions” of XOtech under § 125.13(d).
                                II
      XOtech is organized as an LLC under the Georgia Lim-
 ited Liability Company Act (“Georgia LLC Act”). Under the
 Georgia LLC Act, an LLC may be either member-managed
 or manager-managed. GA. CODE ANN. § 14-11-304(a), (b)
 (2019). In a member-managed company, the owners are
 the members and possess the “right and authority to man-
 age the affairs of the limited liability company and to make
 all decisions with respect thereto.” Id. § 14-11-304(a). In a
 manager-managed company, management of the company
 is vested in one or more managers who have authority to
 manage the company as provided in the operating agree-
 ment. Id. § 14-11-304(b).
     XOtech was originally organized in 2000 as a member-
 managed company, with Gary Marullo, an SDV, as the only
 member. XOtech was later transformed from a member-
 managed company into a manager-managed company,
 with Mr. Marullo as the only manager. In 2012, XOtech’s
 Operating Agreement was amended to change XOtech from
 a single-manager company into a multiple-manager com-
 pany.
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 4                               XOTECH, LLC v. UNITED STATES




     Under its current Operating Agreement, XOtech has
 four “Members” who are its owners, and each Member’s
 voting interest corresponds to their respective ownership
 interest. The ownership interests of XOtech’s Members are
 as follows:

  Member                         Ownership Percentage

  Gary Marullo                            90.28%

  Kathy Marullo                              3.72%

  Jena Marullo-Webb                          2.00%

  Joshua Marullo                             4.00%

 J.A. 70.
      Certain decisions are reserved to Members and require
 an affirmative vote of a “Majority Interest,” including “(a)
 the sale, exchange, lease or other transfer or disposition of
 all, or substantially all, of the Company’s assets outside of
 the ordinary course of business, and (b) any reorganization,
 merger, liquidation, recapitalization or liquidation of the
 Company.” J.A. 89 ¶ 6.03. A Majority Interest consists of
 the vote of Members owning a majority of the company, as
 well the vote of all “Senior Members.” Mr. Marullo cur-
 rently is the only Senior Member. Thus, by virtue of his
 90% ownership interest and status as the only Senior Mem-
 ber, Mr. Marullo controls all decisions reserved to Mem-
 bers, which are the most significant and transformative
 decisions affecting the company.
    The Operating Agreement also designates three “Man-
 agers”: Mr. Marullo, as well as his wife, Kathy, and his son,
 Joshua, neither of whom is an SDV. Unless specified oth-
 erwise in the Operating Agreement, Managers “have full
 and complete authority, power and discretion to manage
 and control the business, affairs and properties of the
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 XOTECH, LLC v. UNITED STATES                                 5



 Company, to make all decisions regarding such matters
 and to take all action necessary or convenient to carry out
 the business and affairs of the Company.” J.A. 89 ¶ 6.01.
 The Operating Agreement vests authority for several spe-
 cific functions in the Managers, including hiring employ-
 ees, binding XOtech to contracts, borrowing money,
 determining the amount and timing of distributions to
 Members, and prosecuting or defending any proceeding in
 XOtech’s name. J.A. 89 ¶ 6.01, 92 ¶ 7.01. Each Manager
 has equal voting power, and a majority vote of Managers is
 required to make a management decision. Thus, any man-
 agement decision requires the vote of at least one non-SDV,
 and the two non-SDV Managers can make management de-
 cisions without Mr. Marullo’s vote.
     The number of Managers is determined by a Majority
 Interest of Members, and a Manager may be removed at
 any time, with or without cause, also by a Majority Interest
 of Members. Mr. Marullo therefore has the authority uni-
 laterally to set the number of Managers and to remove
 Managers at will.
                                III
     In 2017, the Department of the Army issued a Request
 for Proposals seeking an SDVO contractor to provide logis-
 tics support for various Army Reserve facilities. XOtech
 submitted a proposal and ultimately was awarded the con-
 tract. An unsuccessful bidder protested the award to the
 SBA, challenging, among other things, XOtech’s eligibility
 to compete for SDVO contracts. The Director of the SBA’s
 Office of Government Contracting determined that XOtech
 did not meet the requirements for SDVO status and sus-
 tained the protest. Specifically, the Director determined
 that, although Mr. Marullo, an SDV, owned XOtech, he
 lacked sufficient control over XOtech’s operations because
 he required the vote of at least one non-SDV to make man-
 agement decisions. The SBA Office of Hearings and Ap-
 peals affirmed the Director’s decision. See Matter of:
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 6                              XOTECH, LLC v. UNITED STATES




 XOtech, LLC, SBA No. VET-277, 2018 WL 8786645 (Sept.
 14, 2018).
      XOtech filed a bid protest in the Claims Court, and
 both XOtech and the government moved for judgment on
 the administrative record. The court determined that not
 all decisions of XOtech are controlled by SDVs because its
 Operating Agreement requires Mr. Marullo to have the
 vote of at least one non-SDV to make management deci-
 sions. Decision, 142 Fed. Cl. at 318. The court also deter-
 mined that Mr. Marullo’s ability to remove non-SDV
 Managers at will does not give him control over all deci-
 sions of XOtech because that removal authority does not
 restrict the ability of non-SDV managers to make decisions
 before removal, nor does it enable Mr. Marullo to undo
 their decisions. Id. at 319. The court thus granted the gov-
 ernment’s motion for judgment on the administrative rec-
 ord.
    XOtech appealed.       We have jurisdiction under 28
 U.S.C. § 1295(a)(3).
                         DISCUSSION
     We review decisions of the Claims Court on cross-mo-
 tions for judgment on the administrative record de novo,
 applying the same standard of review as the trial court.
 Palantir USG, Inc. v. United States, 904 F.3d 980, 989
 (Fed. Cir. 2018) (citing Glenn Def. Marine (Asia), PTE Ltd.
 v. United States, 720 F.3d 901, 907 (Fed. Cir. 2013)). Cross-
 motions for judgment on the administrative record are gov-
 erned by Rule 52.1(c) of the Rules of the United States
 Court of Federal Claims. “In deciding these motions, the
 [Claims Court] considers ‘whether, given all the disputed
 and undisputed facts, a party has met its burden of proof
 based on the evidence of record.’” Palantir, 904 F.3d at 989
 (quoting A & D Fire Prot., Inc. v. United States, 72 Fed. Cl.
 126, 131 (2006)).
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 XOTECH, LLC v. UNITED STATES                               7



     Bid protests are reviewed under the Administrative
 Procedure Act. Palantir, 904 F.3d at 989. Therefore, an
 agency’s decision may be set aside only if it is “arbitrary,
 capricious, an abuse of discretion, or otherwise not in ac-
 cordance with law,” or “without observance of procedure re-
 quired by law.” Id. (quoting 5 U.S.C. § 706(2)(A), (D)).
      On appeal, XOtech makes two principal arguments.
 First, XOtech argues that its non-SDV Managers cannot
 block any management decision that Mr. Marullo takes be-
 cause he has the authority to remove any Managers that
 disagree with him and proceed with his decision. Second,
 XOtech argues that Mr. Marullo’s inability to prevent non-
 SDV Managers from making decisions that he opposes does
 not preclude SDVO status because the ability of the non-
 SDV Managers to bind XOtech is no different from that of
 an ordinary employee to whom decision-making authority
 has been delegated. In a business of any appreciable size,
 XOtech argues, at least some decision-making authority
 must be delegated to employees to conduct day-to-day busi-
 ness, which does not in itself alter control of a company for
 purposes of SDVO status. And where non-SDV Managers
 can be removed at will by an SDV, those Managers are no
 different from ordinary employees whose delegated author-
 ity can be revoked at any time. Thus, argues XOtech, the
 ability of non-SDV Managers who are removable at will to
 make management decisions without Mr. Marullo’s vote
 does not wrest control over all decisions of Mr. Marullo be-
 cause those decisions are merely an exercise of authority
 delegated by Mr. Marullo in the same way as with any re-
 movable employee.
     In response, the government argues that XOtech can-
 not satisfy the requirement that SDVs control all decisions
 of XOtech because its Operating Agreement requires the
 vote of at least one non-SDV to make management deci-
 sions. Mr. Marullo’s ability to remove Managers is insuffi-
 cient to retain control over all decisions, the government
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 8                              XOTECH, LLC v. UNITED STATES




 argues, because it does not permit him to veto or undo de-
 cisions taken by non-SDV Managers.
      We agree with the government and the Claims Court
 that XOtech is not an SDVO business. To determine who
 controls the decisions of a company, we look to the terms of
 its governing documents. Here, XOtech’s Operating Agree-
 ment vests management authority in three Managers who
 have equal voting power, and every management decision
 requires a majority vote. J.A. 90 ¶ 6.06–6.08. Since Mr.
 Marullo is the only SDV Manager, the vote of at least one
 non-SDV is required for any management decision. If any
 portion of an LLC’s decision-making authority requires the
 vote of a non-SDV, then SDVs cannot be said to control all
 decisions of the company. To establish SDV control, one or
 more SDVs must be able to independently exercise control
 of all decisions, without the consent of any non-SDVs. That
 is not the case here.
     XOtech concedes that where a governing document re-
 quires a supermajority for certain decisions and SDVs do
 not control a supermajority of votes, SDVs lack the requi-
 site control for SDVO status under 13 C.F.R. § 125.13. Ap-
 pellant’s Br. 21. We agree, but that reasoning precludes
 SDVO status for XOtech. Here, XOtech’s Operating Agree-
 ment requires a simple majority for management decisions,
 and SDVs do not control a majority of management voting
 power. Thus, SDVs do not control those decisions and lack
 the requisite control for SDVO status. In fact, Mr.
 Marullo’s lack of control is even more pronounced, for not
 only does Mr. Marullo require the vote of at least one non-
 SDV to make a management decision, his wife and son—
 neither of whom is an SDV—together compose a majority
 of Managers who can make decisions even without the vote
 of Mr. Marullo.
     Moreover, Mr. Marullo’s ability unilaterally to remove
 other Managers is insufficient to retain control of all deci-
 sions. Until Mr. Marullo actually removes the non-SDV
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 XOTECH, LLC v. UNITED STATES                               9



 Managers, all management decisions require the vote of at
 least one non-SDV. Mr. Marullo cannot preempt the non-
 SDV Managers from making decisions, and he cannot undo
 decisions that they have made even after their removal.
     XOtech attempts to minimize the significance of the
 authority of non-SDV Managers to make decisions without
 Mr. Marullo’s vote by likening them to employees to whom
 decision-making authority is delegated. XOtech’s argu-
 ment is unavailing. The ability of employees to make deci-
 sions during day-to-day operations results from a
 delegation of management authority, and the source of that
 delegated authority is XOtech’s management structure,
 which Mr. Marullo does not independently control. Ulti-
 mately, the hiring, firing, and delegation of authority to
 employees are decisions reserved to Managers who are not
 controlled by SDVs.
     The government has established a program to benefit
 firms owned by SDVs, and if a firm wishes to obtain the
 benefits of that designation, then it must comply with the
 rules and structure its business accordingly. In this case,
 XOtech at one time presumably qualified for SDVO status
 when Mr. Marullo was the sole Manager, but it chose to
 amend its governing documents to include non-SDVs as a
 majority of Managers and define management authority in
 such a way as to require at least one of their votes for man-
 agement decisions. As noted, Mr. Marullo has authority to
 remove the non-SDV Managers and reassert SDV control
 over all decisions of XOtech. But unless and until he has
 done so, management decisions require the vote of at least
 one non-SDV. Thus, SDVs do not control “all decisions” of
 the company, and XOtech is not eligible for contracts set
 aside for SDVO contractors.
                        CONCLUSION
     We have considered XOtech’s remaining arguments
 but find them unpersuasive. For the foregoing reasons, the
 judgment of the Claims Court is affirmed.
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 10                            XOTECH, LLC v. UNITED STATES




                      AFFIRMED
