579 F.Supp. 574 (N.D.Ill. 1983), 79 C 1512, Organization of Minority Vendors, Inc. v. Illinois Central Gulf R.R.

Docket Nº:79 C 1512.
Citation:579 F.Supp. 574
Party Name:ORGANIZATION OF MINORITY VENDORS, INC., an Illinois corporation, et al., Plaintiff, v. ILLINOIS CENTRAL GULF RAILROAD, et al., Defendant.
Case Date:December 09, 1983
Court:United States District Courts, 7th Circuit, Northern District of Illinois

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579 F.Supp. 574 (N.D.Ill. 1983)

ORGANIZATION OF MINORITY VENDORS, INC., an Illinois corporation, et al., Plaintiff,



No. 79 C 1512.

United States District Court, N.D. Illinois, Eastern Division.

Dec. 9, 1983

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Robert S. Atkins, Robert F. Coleman, Kenneth P. Ross, Freeman, Atkins & Coleman, Chicago, Ill., for plaintiffs.

Joseph Nagle, Evan B. Karnes II, Chicago, Ill., for Richard B. Ogilvie, Trustee of the property of the Chicago, Milwaukee, St. Paul and Pacific R.R. Co., debtor.

George Hennig, Thomas H. Morsch, Edna S. Epstein, Sidley & Austin, Chicago, Ill., for Kappers Co., Inc.

Warren C. Ingersoll, Lord, Bisssel & Brook, Chicago, Ill., for Railhead Corp.

Thomas J. Healey, Jeffrey K. Mercer, Chicago, Ill., for Illinois Central Gulf R.R.

O.L. Houts, Chicago, Ill., for William M. Gibbons, Trustee Chicago, Rock Island and Pacific R.R. debtor.

Stanley J. Adelman, Blaine Winship, Mark J. Friedman, Sonnenschein, Carlin, Nath & Rosenthal, Chicago, Ill., for The R.A. Pinney Co., Inc., Richard A. Pinney, Atlas Ry. Supply Co., Robert Holden, Sec'y, C.A. Bair, Pres., Unity Ry. Supply Co., and H.R. O'Connor.

Robert W. Gettleman, Jeffrey B. Schamis, D'Ancona, Pflaum, Wyatt & Riskind, Chicago, Ill., for Z.S. Frank, Wheels, Inc.

Jay Zabel, Martin Cohn & Associates, Ltd., Chicago, Ill., for John J. Hickey, Louis J. Gruber, Rails, Ltd.

Thomas E. Greenland, William R. Carney, James P. Daley, Chicago, Ill., for Chicago & North Western Trans. Co.


MORAN, District Judge.


At the heart of this seven-count complaint against twenty defendants is the claim that plaintiffs were subjected to racial discrimination by several railroads in the solicitation of bids and the awarding of contracts for supplies and services. Plaintiffs are the Organization of Minority Vendors (OMVI), an Illinois not-for-profit corporation organized for the purpose of protecting the civil rights and economic interests of businesses which qualify as minority business enterprises (MBEs) under regulations of the United States Department of Transportation (DOT) and fifteen individual black- or Hispanic-owned and controlled businesses which qualify as MBEs. 1 They bring this lawsuit as a class action on behalf of all similarly situated black- and Hispanic-owned and controlled business enterprises against two groups of defendants.

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The first group consists of three Chicago based railroads: Illinois Central-Gulf Railroad, Chicago and Northwestern Transportation Company, and Chicago, Milwaukee, St. Paul and Pacific Railroad Company (railroad defendants) 2. The second group of defendants consists of eighteen allegedly white male-owned and/or -controlled corporations and some of their owners and officers. These corporations are established suppliers of goods and services to the railroad defendants (contractor defendants).

Before the court are a variety of motions from the defendants which attack each count of the complaint. This court will summarize the statutory context of plaintiff's action, the history of this litigation, and the motions before the court, before addressing the merits of these motions.

Statutory Background

The Railroad Revitalization and Regulatory Reform Act of 1976 (the 4-R Act), 45 U.S.C. § 801, et seq., was enacted to "provide the means to rehabilitate and maintain the physical facilities, improve the operations and structure, and restore the financial stability of the railway system of the United States." § 801(a). The Act provided hundreds of millions of dollars in federal financial assistance to railroads.

Section 905(a) of the Act was a general non-discrimination provision:

No person in the United States shall on the ground of race, color, national origin, or sex be excluded from participation in, or denied the benefits of, or be subjected to discrimination under, any project, program, or activity funded in whole or in part through financial assistance under this Act.

45 U.S.C. § 803. The legislative history indicates that the non-discrimination provision was enacted as part of "an established national policy, since at least the passage of the Civil Rights Act of 1964, to encourage and assist in the development of minority business enterprise." 1976 U.S.Code Cong. and Adm.News, p. 58. Because of the "significant assistance to be provided the railroad industry" by the 4-R Act, Congress decided that "encouragement for the participation of minority businesses was appropriate." Id. at 59.

Section 905(b) set forth a compliance mechanism which permitted the Secretary of Transportation (Secretary) to cut off funding for railroad recipients of 4-R Act funds which engaged in discrimination. 3 The Secretary could also refer a case of discrimination to the Attorney General or take action under Title VI of the Civil Rights Act, 42 U.S.C. 2000d, et seq.

Section 905(d) authorized the Secretary to "prescribe such regulations and take such actions as are necessary to monitor, enforce, and affirmatively carry out the purposes" of the anti-discrimination requirement. 45 U.S.C. § 803(d). Section 905(e) provided that "[a]ny determination made or actions taken by the Secretary pursuant to [the anti-discrimination] section

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shall be subject to judicial review." 45 U.S.C. § 803(e).

Another section of the comprehensive railroad legislation enacted in conjunction with § 905 required the Secretary to establish a Minority Business Resource Center (MBRC) as part of the Federal Railroad Administration (FRA). 49 U.S.C. § 1657a. MBRC's function was, in part, to facilitate the participation of minority business enterprises in the federally-funded railroad improvement projects.

Pursuant to authority granted under 905(d) and in light of the establishment of the MBRC, the Secretary promulgated regulations, 49 CFR § 265, et seq., which provided for the establishment of affirmative action programs by the railroad recipients of 4-R Act funds and certain of their contractors in order to "insure that minorities and MBEs are afforded ample consideration with respect to employment and contractual opportunities produced as a result of the implementation of the Act...." Id. at 265.1. The regulations required that each funding agreement between a railroad and the federal government for financial assistance under the Act include a non-discrimination provision. Id. at 265.7. One clause to be included in these funding contracts provided that:

The recipient shall not discriminate against any business organization in the award of any contract because of race, color, national origin or sex of its employees, managers or owners. Except as otherwise required by the regulations or orders of the Administrator, the recipient shall take affirmative action to insure that business organizations are permitted to compete and are considered for awards of contracts without regard to race, color, national origin or sex.

§ 265.7(v).

Even in the absence of prior discriminatory behavior a recipient of federal railroad funds was expected to

take affirmative action to insure that no person is excluded from participation in or denied the benefits of the project, program or activity on the grounds of race, color, national origin or sex, and that minorities and MBEs are afforded a reasonable opportunity to participate in employment and procurement opportunities that will result from financial assistance provided under the Rail Acts.

§ 265.7(5)

Sections 265.9-.13 required each recipient of federal funds under the Act to establish a detailed affirmative action program "to insure that ... minorities and MBEs receive a fair proportion of employment and contractual opportunities" created by the 4-R program. § 265.9

In their affirmative action plans recipients of the 4-R funds were required to identify specific actions which they would take to

(ii) Provide for adequate and timely consideration of the availability and potential of MBEs in all procurement decisions;

(iii) Assure that MBEs will have an equitable opportunity to compete for contracts, by arranging solicitation time for the preparation of bids, quantities, specifications, and delivery schedules so as to facilitate the participation of MBEs and by assisting MBEs who are potential contractors in preparing bid materials and in obtaining and maintaining suitable bonding coverage in those instances where bonds are required.

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(vi) Where appropriate because of prior underutilization of MBEs, establish specific goals and timetables to utilize MBEs in the performance of contracts awarded.

§ 265.13. 4]

The DOT's effort to ensure substantial MBE participation in the 4-R Act program

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was not an isolated instance of bureaucratic beneficence:

It is the policy of the Department of Transportation to encourage and increase the participation of businesses owned and controlled by minorities, including women, (MBEs) in contracts and projects funded by the Department. Economically and socially disadvantaged individuals, including minorities and women, have traditionally been underrepresented as owners and managers of businesses in this country. The executive and legislative branches of the federal government have long recognized the need to promote the development of businesses owned by the economically and socially disadvantaged to achieve the goal of equal opportunity. To overcome the traditional underrepresentation of these groups in the business community, the federal government has used its procurement authority and...

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