NO. 14-1493 UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT DUNNET BAY CONSTRUCTION COMPANY, Plaintiff-Appellant, v. GARY HANNIG, in his official capacity as Secretary of Transportation for the Illinois Department of Transportation, et al., Defendants-Appellees. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS CASE NO. 3:10-cv-03051-RM-SMJ Honorable Richard Mills AMICUS BRIEF OF AMERICAN ROAD AND TRANSPORTATION BUILDERS ASSOCIATION In Support of Plaintiff-Appellant Dunnet Bay Construction Company for Reversal Michael L. Shakman Edward W. Feldman Thomas M. Staunton MILLER SHAKMAN & BEEM LLP 180 N. LaSalle St., Suite 3600 Chicago, IL 60601 (312) 263-3700 Nick Goldstein Assistant General Counsel AMERICAN ROAD AND TRANSPORTATION BUILDERS ASSOCIATION 1219 28th Street NW Washington, DC 20007 (202) 289-4434 Attorneys for American Road and Transportation Builders Association Case: 14-1493 Document: 14 Filed: 06/09/2014 Pages: 28
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
NO. 14-1493
UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
DUNNET BAY CONSTRUCTION COMPANY, Plaintiff-Appellant, v. GARY HANNIG, in his official capacity as Secretary of Transportation for the Illinois Department of Transportation, et al., Defendants-Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
CASE NO. 3:10-cv-03051-RM-SMJ Honorable Richard Mills
AMICUS BRIEF OF AMERICAN ROAD AND TRANSPORTATION BUILDERS ASSOCIATION
In Support of Plaintiff-Appellant
Dunnet Bay Construction Company for Reversal
Michael L. Shakman Edward W. Feldman Thomas M. Staunton MILLER SHAKMAN & BEEM LLP 180 N. LaSalle St., Suite 3600 Chicago, IL 60601 (312) 263-3700
Nick Goldstein Assistant General Counsel AMERICAN ROAD AND TRANSPORTATION BUILDERS ASSOCIATION 1219 28th Street NW Washington, DC 20007 (202) 289-4434
Attorneys for American Road and Transportation Builders Association
TABLE OF CONTENTS Identity of Amicus, Its Interest in the Case and Source of Its Authority to File the Brief ................................................................... 1 Statement Required by Fed. R. App. P 29(c)(5) ........................................................ 1 Argument ................................................................................................................... 2 1. The Opinion applies a standard that would effectively eliminate strict scrutiny review of an alleged unlawful quota and replace it with a deferential standard when a contractor attempts to challenge a state agency’s implementation of federal DBE goals. .................................................. 3 2. The Opinion erodes the federal policy permitting waivers for contractors who make “good faith efforts” to meet DBE goals. .......................... 9 3. The Opinion applies an erroneous test of standing that denies a contractor required to implement a quota system the right to challenge the quota on equal protection grounds ............................................. 15 Certificate of Compliance ........................................................................................ 24 Certificate of Service ................................................................................................ 25
Adarand Constructors, Inc. v. Penna, Secretary of Transportation, et al., 515 U.S. 200 (1995) ............................................................................................ 13, 18 Fisher v. Univ. of Texas at Austin, 133 S. Ct. 2411 (2013) ..................................... 13 Monterey Mechanical Co. v. Wilson, 125 F.3d 702 (9th Cir. 1997) .................. 20, 22 Northeastern Florida Chapter of Associated General Contractors of America v. City of Jacksonville, Florida, 508 U.S. 656 (1993) ...................................... 16-19, 22 Northern Contracting, Inc. v. Illinois Dept. of Transp., 473 F.3d 715 (7th Cir. 2007) ............................................................................. 4-8, 13 Ricci v. DeStefano, 557 U.S. 557 (2009) .................................................................... 3 Warth v. Seldin, 422 U.S. 490 (1975) ................................................................. 18-19 W.H. Scott Constr. Co. v. City of Jackson, 199 F.3d 206 (5th Cir. 1999) ............... 21
erroneous theory, in most cases prime contractors would have no standing to
complain about losing contracts due to an unlawful subcontractor quota system.
We discuss each point below.
1. The Opinion applies a standard that would effectively eliminate strict scrutiny review of an alleged unlawful quota and replace it with a deferential standard when a contractor attempts to challenge a state agency’s implementation of federal DBE goals.
The federal DBE program seeks to encourage public contracting to DBEs, while
complying with Supreme Court decisions that generally bar racial or other quotas.
See Opinion of February 12, 2014 (“Opinion”) 65 (Dkt. #180, R.4434), quoting Ricci
v. DeStefano, 557 U.S. 557, 582 (2009) (citing prior authority). Underlying the DBE
program is a potential tension between the legitimate goal of encouraging increased
participation for all DBEs (businesses that are 51% owned by persons who meet the
definition of socially or economically disadvantaged) without violating the rules
against generalized use of racial or other quotas. The issue presented by this case is
likely to reoccur as state agencies, responding to political or other pressure, attempt
to maximize the participation of women and minorities (who are generally
presumed to be DBEs) in public works projects. The Opinion establishes an
erroneous standard of review that would, if upheld, effectively eliminate meaningful
judicial review of political manipulation of the DBE program by state agencies.
The Opinion correctly notes that “[a]ll entities receiving funds from [the Federal
Highway Administration] FHWA must have a DBE program which meets [federal]
requirements,” and correctly described the “non-mandatory, non-exclusive and non-
exhaustive actions” that may be used to determine if a contractor “took all
necessary and reasonable steps to achieve a DBE goal. . .” Opinion 62-63 (Dkt.
#180, R.4431-32).
But then the district court went astray by misreading the leading decision in
this Circuit, Northern Contracting, Inc. v. Illinois Dept. of Transp., 473 F.3d 715
(7th Cir. 2007), as stating the sole, and very limited, basis for review of DBE
programs. The district court applied Northern Contracting even though that case
arose in a very different context that does not exist here. Its ruling would effectively
turn what should be strict scrutiny review into a deferential exercise of
administrative agency review. The district court concluded that because the Illinois
Department of Transportation (“IDOT”) complied with the federal guidelines for
how a state agency should determine its DBE goal, a low bidder who lost a contract
because it did not meet that goal could not challenge the loss on the ground that the
state agency had converted the goal to an unlawful quota.1
Based on its reading of Northern Contracting, the Opinion described the scope of
judicial review as follows:
A state entity such as IDOT implementing a congressionally mandated program may rely "on the federal government's compelling interest in remedying the effects of past discrimination in the national construction market." . . . . In these instances, the state is acting as an agent of the federal government and is "insulated from this sort of constitutional attack, absent a showing that the state exceeded its federal authority." [Northern Contracting] . . . at 721. Accordingly, any "challenge to a state's application of federally mandated program must be limited to the question of whether the state exceeded its authority."
1 As amicus it is not the ARTBA’s role to say whether a fact-finder presented with the evidence Dunnet Bay assembled would find that DBE goals were converted to a minority quota. But as Dunnet Bay argues in its brief (Dunnet Bay Brief passim), the evidence was sufficient to permit a fact-finder to reach that conclusion.
Id. at 722. Therefore, the Court must determine if IDOT exceeded its authority granted under the federal rules or if Dunnet Bay's challenge is foreclosed by Northern Contracting. [Opinion 65-66 (Dkt. #180, R.4434-35); (italics added).]
The degree of deference afforded IDOT by the district court is evidenced by its
apparent determination that even if its goals operated as a de facto quota, IDOT did
not “exceed[] its authority” in refusing to award the Eisenhower Expressway project
to Dunnet Bay Construction Company because “IDOT did in fact employ a thorough
process before arriving at the [DBE goal] figure [of 22.2%].” It added:
Additionally, because the federal regulations do not specify a procedure for arriving at contract goals, it is not apparent how IDOT could have exceeded its federal authority. Any challenge on this factor fails under Northern Contracting. [Opinion 67 (Dkt. #180, R.4436).]
As amicus, ARTBA is concerned that under this standard judicial review is
reduced to a deferential and mechanical determination focused solely upon whether
an agency could document compliance with federal regulations, even in the face of
significant evidence that a goal was applied as a quota. The district court appeared
at times to slide from deferential review to no review at all, by stating “it is not
apparent how IDOT could have exceeded its federal authority.” Opinion at 67 (Dkt.
#180, R.4436).2
Dunnet Bay presented evidence that representatives of the office of the Governor
of Illinois repeatedly stated that the DBE program was intended to increase
2 ARTBA’s concern is increased by the fact that the federal regulations only describe various non-exclusive “methods a recipient [of federal funds] may use to calculate DBE availability”, and thus do not provide definitive guidance even on how to calculate goals. Northern Contracting, Inc. v. Illinois, 473 F.3d 715, 718 (7th Cir. 2007).
ARTBA’s members also pride themselves on providing maximum value for their
bids, which greatly benefits the project’s public owner-agency and the taxpayers. To
do so, prime contractors require as much certainty as possible in the bidding
process, including the prices of their subcontractors’ bids and the manner in which
public agencies will administer compliance for programs like DBE participation. A
prime contractor will interpret uncertainty in the waiver process as added risk and
therefore increase the overall price of its bid. Ultimately this will lead to more
expensive projects and less value for the taxpayers.
Even more importantly, a no-waiver rule also turns a goal-based DBE program
into a de facto quota. Consistent and fair administration of legally-proper waiver
principles is, therefore, important to ARTBA’s members.
In the face of substantial evidence to the contrary presented by Dunnet Bay, the
district court concluded that IDOT had neither a no-waiver policy nor a waiver
policy that was so difficult to meet that it operated as a de facto quota. The district
court granted IDOT summary judgment on the waiver issue. In reaching that
conclusion the district court appears to have mixed the question whether IDOT
applied a quota to Dunnet Bay’s bid with whether IDOT applied a quota to other
contractors on separate contracts. The district court resolved the issue factually by
concluding that because IDOT granted waivers to other contractors, it did not apply
a quota to Dunnet Bay. Opinion 68-69 (Dkt. #180, R.4437-38). 3 Dunnet Bay
3 It is important to note that the waiver the district court refers to was not granted until March 4, 2010, after Dunnet Bay filed this case (Dkt. #1, R.25) and IDOT had appeared (no Docket #, R.271). Opinion 69 (Dkt. #180, R.4438). In
minority and female organizations, and (iv) had a track record of
generating substantial DBE participation.
(b) Both IDOT and the court recognized that Dunnet Bay’s DBE
outreach efforts may have been impeded by IDOT’s failure to list
Dunnet Bay as a qualified bidder, thus discouraging DBE firms from
responding when Dunnet Bay sought DBE subcontractors.
(c) Dunnet Bay received ten quotes from DBE subcontractors
shortly after the bid opening on January 15, 2010; at least one of those
bids arrived late as a direct result of IDOT’s failure to list Dunnet Bay;
if Dunnet Bay had received those DBE subcontractor quotes earlier, it
would have almost tripled its DBE utilization.
See Opinion 19-20, 26 (Dkt. #180, R.4388-89, 4395).
Despite these facts and others, the district court upheld IDOT’s internal review
of the decision not to grant a waiver by applying the following reasoning:
The [federal] regulations refer to eight non-exhaustive factors which can be considered in assessing good faith. . . .
The factors to be considered are non-mandatory, non-exhaustive
and nonexclusive. A contractor who does not meet the goals "must show that it took all necessary and reasonable steps to achieve a DBE goal." 49 C.F.R. § Pt. 26 App. A. Based on this standard, a reconsideration officer such as [IDOT’s William] Grunloh has significant discretion and will often be called on to make a "judgment call" regarding the efforts of the bidder. Accordingly, it is not surprising that another IDOT official might disagree with the decision. The Court is unable to conclude that Bill Grunloh erred in determining Dunnet Bay did not make adequate good faith efforts. Perhaps the strongest evidence that Dunnet Bay did not take "all necessary and reasonable steps to achieve a DBE goal" is that its DBE participation was under 9% while other bidders were able to reach the 22% goal.
Accordingly, the Court concludes that IDOT's decision on reconsideration of the rejection of Dunnet Bay's bid was consistent with the regulations and did not exceed IDOT's authority under federal law. [Opinion 71-72 (Dkt. #180, R.4440-41); italics added.]
The district court entirely missed the point of Dunnet Bay’s evidence. If
affirmed, its reasoning would permit a state agency to treat DBE project goals as
quotas so long as another bidder met the quota and the agency employed an
internal review procedure through which the agency’s reviewing officer was given
“significant discretion” to make a “judgment call” and rejected the complaining
contractor’s waiver request. If district courts review allegations that a state agency
has used an illegal quota by deferential review of the agency’s internal
reconsideration process, the strict scrutiny standard mandated by the Supreme
Court in Adarand Constructors, Inc. v. Penna, 515 U.S. 200 (1995), and applied by
this Court in Northern Contracting will have been eliminated.4
The district court’s reasoning is wrong for several reasons. First, the extent to
which Dunnet Bay took advantage of eight federally-approved but non-binding
techniques to recruit DBE firms, or others of its own invention, to line up DBE
firms is a different issue than whether IDOT administered the DBE program as a
quota. If the fact-finder accepts Dunnet Bay’s evidence on that issue to explain why
Dunnet Bay, the low bidder, did not get the contract, then Dunnet Bay’s good faith
4 As the Supreme Court recently stated, “[s]trict scrutiny is a searching examination, and [it is] the government [that] bears the burden to prove that the reasons for any racial classification are clearly identified and unquestionably legitimate.” Fisher v. Univ. of Texas at Austin, 133 S. Ct. 2411, 2419 (2013) (citations and quotations omitted).
Dunnet Bay on the rebid) reached 22%. In this case, the fact that a 22% “goal” was
achieved following public statements by IDOT and the Governor’s office that there
would be no waivers, and following the rejection of Dunnet Bay’s low bid for failing
to reach 22%, is fully consistent with the conclusion that everyone understood that a
quota was being applied and bidders had to meet the quota, whether lawful or not.
ARTBA is concerned that affirmance of the Opinion would set a bad precedent
by allowing an agency to insist on meeting a DBE “goal” and then asserting that
because the goal was met it proves the reasonableness of the goal, as opposed to
proving that the goal was really a quota.
3. The Opinion applies an erroneous test of standing that denies a contractor required to implement a quota system the right to challenge the quota on equal protection grounds.
An issue of great concern to ARTBA and its members is that the Opinion
effectively eliminates standing for prime contractor-members who are required to
engage in unlawful discrimination at the subcontractor level in order to prevent
rejection of their otherwise-qualifying bids.
The standing issue should have been straightforward. Dunnet Bay was the low
bidder for a $10 million contract. It alleged, and presented evidence, that IDOT
rejected its bid because of a DBE quota. It alleged that but for the allegedly
unlawful quota, it would have been awarded the contract. Therefore, it alleged a
$10 million harm directly caused by the application of an unconstitutional quota.
Standing is clear under controlling case law, and as a matter of common sense. In
Northeastern Florida Chapter of Associated General Contractors of America v. City
of Jacksonville, Florida, 508 U.S. 656, 663 (1993), the Supreme Court held:
The doctrine of standing is "an essential and unchanging part of the case-or-controversy requirement of Article III," . . . . It has been established by a long line of cases that a party seeking to invoke a federal court's jurisdiction must demonstrate three things: (1) "injury in fact," by which we mean an invasion of a legally protected interest that is "(a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical," . . . .; (2) a causal relationship between the injury and the challenged conduct, by which we mean that the injury "fairly can be traced to the challenged action of the defendant," and has not resulted "from the independent action of some third party not before the court," . . . .; and (3) a likelihood that the injury will be redressed by a favorable decision, by which we mean that the "prospect of obtaining relief from the injury as a result of a favorable ruling" is not "too speculative," . . . [internal citations omitted.]
Dunnet Bay alleged all three elements. It alleged that it would have been awarded
a specific contract but for IDOT’s quota. (Dkt. #1, R.33). It also alleged:
. . . [i]n that IDOT’s no-waiver policy results in a rejection of any bid as non-responsive that fails to meet the contract goal despite evidence of a bidder’s good faith efforts to do so, the 22% contract goal constitutes an unlawful quota. [Dkt. #1, R.33.]
Dunnet Bay thus alleged a direct, concrete and particularized injury to it as a result
of a racial quota in the form of its loss of a $10 million contract. In the language of
Northeastern Florida, that was an “injury in fact” that was “causally connected” to
the quota; and it would “be redressed by a favorable decision.” Its allegations met
all the standing requirements specified by the Supreme Court. That should have
been the end of the matter. Nevertheless, the district court held that Dunnet Bay
lacked standing to complain. This Court should correct that error.
one to violate the law in order to compete against other bidders. Dunnet Bay was,
therefore, also injured because the quota system forces contractors into a Hobson’s
choice: either become party to unlawful discrimination or lose your chance for a
contract.
Dunnet Bay essentially complained that because of IDOT’s de facto quota it
would have had to engage in discrimination itself in favor of some subcontractors
and against others on the basis of minority status to get the Eisenhower
Expressway contract. Courts have found standing where a government program
requires a contractor to discriminate, or attempt to discriminate, against others. In
Monterey Mechanical Co. v. Wilson, 125 F.3d 702, 707 (9th Cir. 1997), the court
stated:
Even if a general contractor suffers no discrimination itself, it is hurt by a law requiring it to discriminate, or try to discriminate, against others, on the basis of their ethnicity or sex. A person required by the government to discriminate by ethnicity or sex against others has standing to challenge the validity of the requirement, even though the government does not discriminate against him.
That standard fits squarely to the facts alleged here: Assume that IDOT’s quota did
not discriminate against Dunnet Bay on the basis of its owners’ race or ethnicity, as
the district court concluded (erroneously, as discussed below). Nonetheless, by
denying Dunnet Bay standing the district court denied Dunnet Bay the opportunity
to prove that IDOT required it to discriminate against non-minority subcontractors.
Dunnet Bay has standing to challenge the quota under Monterey Mechanical
Co., supra. The district court was wrong to conclude otherwise. Under its approach,
prime contractors could never challenge government programs that require them to
contractor that did not have to meet the same requirements it did.” Opinion at 76
(Dkt. #180, R.4445).
Dunnet Bay was not required to prove that there was another contractor who
benefited from the challenged quota. For standing purposes, if an unlawful practice
or policy imposes a loss on the plaintiff, the plaintiff is not also required to show
who won from its loss, so long as it has a plausible basis to allege that it was the
loser. As the Court stated in Northeastern Florida:
When the government erects a barrier that makes it more difficult for members of one group to obtain a benefit than it is for another group, a member of the former group seeking to challenge the barrier need not allege that he would have obtained the benefit but for the barrier to establish standing. The “injury in fact” in an equal protection case of this variety is the denial of equal treatment resulting from the imposition of the barrier, not the ultimate inability to obtain the benefit.
508 U.S. at 666 [italics added].
Thus, both under Monterey Mechanical Co., which recognizes a contractor’s
standing to object when a government program requires it to discriminate among
subcontractors, and under Northeastern Florida, Dunnet Bay had standing.
Respectfully submitted, American Road and Transportation Builders Association By: s/ Thomas M. Staunton One of its attorneys
Nick Goldstein Assistant General Counsel American Road & Transportation Builders Association 1219 28th Street NW Washington, DC 20007 (202) 289-4434 Michael L. Shakman Edward W. Feldman Thomas M. Staunton Miller Shakman & Beem LLP 180 N. LaSalle Street Chicago, Illinois 60601 [email protected][email protected][email protected] 312-363-3700
CERTIFICATE OF COMPLIANCE WITH FEDERAL RULE OF APPELLATE PROCEDURE 32
This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B)
because this brief contains 6,402 words, excluding the parts of the brief exempted
by Fed. R. App. P. 32(a)(7)(B)(iii).
This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5), as
modified by Seventh Circuit Rule 32(b), and the type style requirements of Fed. R.
App. P. 32(a)(6) because this brief has been prepared in a proportionally spaced
typeface using Microsoft Office Word 2010 in 12 point Century Schoolbook plain,
roman style font.
American Road and Transportation Builders Association By: s/ Thomas M. Staunton One of its attorneys
Dated: June 9, 2014 Nick Goldstein Assistant General Counsel American Road & Transportation Builders Association 1219 28th Street NW Washington, DC 20007 (202) 289-4434 Michael L. Shakman Edward W. Feldman Thomas M. Staunton Miller Shakman & Beem LLP 180 N. LaSalle Street Chicago, Illinois 60601 [email protected][email protected][email protected] 312-363-3700
Attorneys for American Road and Transportation Builders Association
I hereby certify that on June 9, 2014, I caused the foregoing to be electronically
filed with the Clerk of the Court for the United States Court of Appeals for the
Seventh Circuit by using the CM/ECF system. I certify that all participants in the
case are registered CM/ECF users and that service will be accomplished by the
CM/ECF system.
American Road and Transportation Builders Association By: s/ Thomas M. Staunton One of its attorneys
Dated: June 9, 2014 Nick Goldstein Assistant General Counsel American Road & Transportation Builders Association 1219 28th Street NW Washington, DC 20007 (202) 289-4434 Michael L. Shakman Edward W. Feldman Thomas M. Staunton Miller Shakman & Beem LLP 180 N. LaSalle Street Chicago, Illinois 60601 [email protected][email protected][email protected] 312-363-3700