Dunnet Bay Constr. Co. v. Borggren

• Decision Date: 19 August 2015
• Docket Number: No. 14–1493.,14–1493.
• Citation: 799 F.3d 676
• Parties: DUNNET BAY CONSTRUCTION COMPANY, an Illinois Corporation, Plaintiff–Appellant, v. Erica J. BORGGREN, in her official capacity as Acting Secretary for the Illinois Department of Transportation, et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

799 F.3d 676

DUNNET BAY CONSTRUCTION COMPANY, an Illinois Corporation, Plaintiff–Appellant

v.Erica J. BORGGREN, in her official capacity as Acting Secretary for the Illinois Department of Transportation, et al., Defendants–Appellees.

No. 14–1493.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 12, 2014.

Decided Aug. 19, 2015.

Edward R. Gower, Attorney, Hinshaw & Culbertson, Springfield, IL, for Plaintiff–Appellant.

Mary Ellen Welsh, Attorney, Office of the Attorney General, Chicago, IL, Ralph W. Kasarda, Attorney, Pacific Legal Foundation, Sacramento, CA, for Defendants–Appellees.

Before ROVNER, WILLIAMS, and TINDER, Circuit Judges.

Opinion

TINDER, Circuit Judge.

Plaintiff–Appellant Dunnet Bay Construction Company sued Defendants–Appellees Illinois Department of Transportation (IDOT) and its then-Secretary of Transportation Gary Hannig in his official capacity, alleging that IDOT's Disadvantaged Business Enterprise (DBE) Program discriminates on the basis of race. The district court granted summary judgment to Defendants, concluding that Dunnet Bay lacked standing to raise an equal protection challenge based on race and that the DBE Program survived the constitutional and other challenges. Dunnet Bay appeals. For the reasons that follow, we affirm.

I. BACKGROUND

Dunnet Bay is a corporation that engages in general highway construction. It is prequalified to bid and work on IDOT projects and competes for federally assisted highway construction contracts awarded by IDOT. Dunnet Bay is owned and controlled by two white males. Between 2007 and 2009, its average annual gross receipts were over $52 million.

IDOT is the agency of the State of Illinois responsible for administering, building, operating, and maintaining the state highway system. It also is responsible for administering federally funded highway construction contracts in accordance with federal and state law, including the regulations promulgated by the U.S. Department of Transportation (USDOT), see 49 C.F.R. Part 26. IDOT administers a small business initiative program, which reserves certain work on contracts for small business enterprises. Gary Hannig was the Secretary of IDOT from February 2009 through the end of June 2011.

In order to receive federal-aid funds for highway contracts, IDOT must have a “disadvantaged business enterprise” participation program that complies with federal regulations. The Transportation Equity Act for the 21st Century (“TEA–21”), Pub.L. No. 105–178, 112 Stat. 107 (1998), as amended by the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, 23 U.S.C. § 101 Note, Pub.L. No. 109–59, 119 Stat. 1144 (2005), and the governing regulations require state recipients of federal-aid funds for highway contracts like IDOT to submit to the United States Department of Transportation (USDOT) a written plan that demonstrates, inter alia, that they are not discriminating against minorities and women in the award of contracts. Section 1101(b) of the TEA–21 provides that “not less than 10 percent of the amounts made available for any program under ... [TEA–21] shall be expended with small business concerns owned and controlled by socially and economically disadvantaged individuals.” A DBE is defined as a for-profit small business concern that is at least 51% owned and controlled by one or more socially and economically disadvantaged individuals. 49 C.F.R. § 26.5. There is a rebuttable presumption that women and members of racial minority groups are socially and economically disadvantaged, id., but an individual owner of any race or gender may qualify as “socially and economically disadvantaged.” See id. Under the applicable regulation, “a firm is not an eligible DBE in any Federal fiscal year if the firm (including its affiliates) has had average annual gross receipts ... over the firm's previous three fiscal years, in excess of $22.41 million.” 49 C.F.R. § 26.65(b) (2009).

States must set an overall goal for DBE participation in federally assisted contracts. 49 C.F.R. § 26.45(a). That goal “must be based on demonstrable evidence of the availability of ready, willing and able DBEs relative to all businesses ready, willing and able to participate on [federal]-assisted contracts” and “must reflect [the state's] determination of the level of DBE participation [one] would expect absent the effects of discrimination.” Id. § 26.45(b). A state is not permitted to use quotas for DBEs but may use set-aside contracts for DBEs in limited circumstances. Id. § 26.43. A state “must meet the maximum feasible portion of” its overall DBE participation goal through race-neutral means, using contract goals to meet any portion that is not projected to be met with race-neutral means. Id. § 26.51(a), (d). In setting specific contract goals, a state should consider such factors as “the type of work involved, the location of the work and the availability of DBEs for the work of the particular contract.” Id. § 26.51(e)(2).

Under the regulations, a contract may be awarded to a bidder who demonstrates that it has obtained enough DBE participation to meet the DBE contract goal, or demonstrates that it made adequate good faith efforts to meet the goal even if it did not meet the goal, id. § 26.53(a), which means that it “took all necessary and reasonable steps to achieve a DBE goal ... which, by their scope, intensity, and appropriateness to the objective, could reasonably be expected to obtain sufficient DBE participation, even if they were not fully successful.” 49 C.F.R. Pt. 26, App. A, § I. If a bidder demonstrates that it made adequate good faith efforts, it must not be denied award of the contract on the ground that it failed to meet the goal. Id. § 25.53(a)(2). If the apparent successful bidder fails to either meet the DBE contract goal or demonstrate good faith efforts, the state “must, before awarding the contract, provide the [bidder] an opportunity for administrative reconsideration.” Id. § 26.53(d). If the state determines that the apparent successful bidder failed to show good faith efforts, the state must send the bidder a written explanation of the basis for the finding. Id. § 26.53(d)(4).

IDOT administers the DBE program in Illinois. IDOT prepared and submitted to USDOT for approval a DBE program governing federally funded highway construction contracts. IDOT established a statewide aspirational goal for DBE participation of 22.77%. IDOT typically achieved somewhere between 10% and 14% DBE participation. For fiscal year 2009, IDOT attained 11.15% minority participation on all construction projects. For fiscal year 2010, IDOT projected that it would achieve 4.12% DBE participation through race-neutral means, leaving 18.65% DBE participation to be met by using contract goals. The Federal Highway Administration (FHWA) expressed concern about states not reaching their DBE goals and indicated to IDOT that it would like to see the DBE participation opportunities increased.

IDOT has five regions that are subdivided into a total of nine districts. Each district is headed by a district engineer who is responsible for the highways in his or her district. The district engineers report to the regional engineers who report to the Director of Highways/Chief Engineer. A district engineer and equal employment opportunity (EEO) officer review each construction contract to decide whether the contract presents DBE participation opportunities. At all relevant times, Christine Reed was IDOT's Director of Highways/Chief Engineer and was responsible for goal setting. Reed reviewed recommendations for contract goals and small business initiatives. Contracts had been withdrawn from bidding by Secretary Hannig's predecessor to review DBE goals. After the goals were reviewed, the contracts were re-advertised with higher DBE goals.

Under IDOT's DBE program, if a bidder fails to meet the DBE contract goal, then it may request a modification of the goal, and provide documentation of its good faith efforts to meet the goal. These requests for modification are also known as “waivers.” Historically, IDOT has granted goal modification requests. In calendar year 2007, it granted 57 of 63 pre-award goal modification requests; the six other bidders ultimately met the contract goal with post-bid assistance from IDOT. In calendar year 2008, IDOT granted 50 of 55 pre-award goal modification requests; the other five bidders ultimately met the DBE goal. And in calendar year 2009, IDOT granted 32 of 58 goal modification requests; the other contractors ultimately met the goals. In calendar year 2010, IDOT received 35 goal modification requests; it granted 21 of them and denied the rest.

Secretary Hannig became IDOT's Secretary in February 2009. He named William Grunloh his Chief of Staff. From the beginning of his term, Secretary Hannig told Reed that he wanted IDOT to make a “very strong effort” in setting and attempting to achieve DBE goals. As with prior IDOT Secretaries, Secretary Hannig was concerned about increasing DBE participation in federal contracts. Indeed, his first directive to IDOT's entire staff was to increase participation for minority companies. In a March 2009 meeting with Reed, Secretary Hannig made it “very clear that waivers would not be a part of a common practice of his administration.” As a result, Reed told the regional engineers that “the Secretary was not interested in entertaining waivers as part of his administration” and told a contracting organization that “request [s] for waivers would be closely scrutinized and would be very difficult to get.” In an April meeting about DBE participation for a bridge project, Secretary Hannig was “very adamant that waivers were not going to be an acceptable part of his administration unless [they were] absolutely positively appropriate.”

IDOT's Director of the Office of Business and Workforce Diversity (OBWD) Larry Parrish, who recommended whether waiver requests were granted or denied and sought...