830 F.2d 667 (7th Cir. 1987), 86-1990, Baja Contractors, Inc. v. City of Chicago

Docket Nº:86-1990.
Citation:830 F.2d 667
Party Name:BAJA CONTRACTORS, INC., et al., Plaintiffs-Appellees, v. The CITY OF CHICAGO, et al., Defendants-Appellants.
Case Date:September 16, 1987
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 667

830 F.2d 667 (7th Cir. 1987)

BAJA CONTRACTORS, INC., et al., Plaintiffs-Appellees,

v.

The CITY OF CHICAGO, et al., Defendants-Appellants.

No. 86-1990.

United States Court of Appeals, Seventh Circuit

September 16, 1987

Argued Jan. 20, 1987.

Rehearing Denied Oct. 20, 1987.

Frederic R. Klein, Schiff, Hardin & Waite, Chicago, Ill., for defendants-appellants.

Michael J. Daley, Niesen Elliott & Meier, Chicago, Ill., for plaintiffs-appellees.

Before FLAUM and RIPPLE, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

RIPPLE, Circuit Judge.

Appellees, Baja Contractors, Inc. (Baja) and Humberto Jaimes, filed suit under 42 U.S.C. Sec. 1983 against the City of Chicago and certain City employees, Mary Skipton, Leroy Bannister, Paul Spieles, McNair Grant and Sam Patch (referred to collectively as the City), alleging that the City's administration of the Minority Business Enterprise (MBE) program violated the fourteenth amendment's due process clause. After having granted Baja MBE certification, the City classified Baja as a "concrete contractor." It later refused to permit Baja to use its MBE certification to receive credit for work done as a "concrete supplier" without reapplication. When Baja reapplied, it was denied certification. After a hearing on Baja's motion for a preliminary injunction, the district court issued a preliminary injunction restraining the City from, inter alia, determining that

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Baja is not a concrete supplier under the MBE program until the City conducted a review of Baja's application "in accordance with due process requirements established to preserve and protect Baja's property rights pursuant to applicable laws." Baja Contractors, Inc. v. City of Chicago, No. 86 C 2655, Amended Preliminary Injunction at 6 (N.D.Ill. June 12, 1986); R.41 at 6. For the reasons set forth in this opinion, we reverse the judgment of the district court.

I

Facts

A. Introduction

Baja, an Illinois corporation, was formed in 1983 by Humberto Jaimes and Andres Hortatsos. In August, 1983, the Illinois Department of Transportation certified Baja to perform "miscellaneous concrete construction" work on state contracts as a disadvantaged/minority business enterprise. In December 1984, Baja applied to the City for MBE certification. On the application, it listed the nature of its business as "concrete contractor." The City granted this application for certification on February 28, 1985 and listed Baja as a "concrete contractor" in its directory of MBEs. However, when Baja started working on a City contract supplying concrete, city officials notified Baja that it needed a separate MBE certification as a concrete supplier. Baja then filed an application for certification as a concrete supplier. The City denied this application. After attempting to appeal the denial of certification within the City administration, 1 Baja sought injunctive relief.

Before analyzing Baja's procedural due process claim against the City, we will first describe the structure of the City's MBE program and then discuss in greater detail Baja's efforts to obtain MBE certification as a concrete supplier.

B. The City's MBE Program

The purpose of the MBE program is to afford businesses owned and controlled by members of historically disadvantaged groups, including minority groups and women, an increased opportunity to compete for contracts. The City's MBE program initially was implemented because the City received funds from the United States Department of Transportation (USDOT) and was required by the USDOT to establish an MBE program approved by the USDOT that would apply to all federally-funded contracts. The City's program was established pursuant to USDOT regulations contained in 49 C.F.R. part 23. 2 In

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August 1980, the City's first MBE program was submitted to the USDOT for approval. On June 16, 1981 a revised version of the program was submitted. See R.48, Defendants' Ex. 24.

In April 1985, Mayor Harold Washington issued Executive Order 85-2 (Executive Order), designed to augment the City's existing MBE program. The Executive Order mandated that the specifications for construction contracts contain a requirement that the "bidder commit to the expenditure of 25% of the dollar value of the contract (including any modifications) with one or more MBEs and 5% of the dollar value with one or more WBEs [women business enterprises]." R.1, Ex. A at 4-5. The Executive Order also required the City's Purchasing Agent to "[i]ssue rules and regulations to implement the procedures designed by the Contract Compliance Officer...." Id. at 7. Under the Executive Order, the Contract Compliance Officer was directed to:

Establish uniform procedures to apply for certification as MBE or WBE, and to appeal from denial of certification as MBE or WBE. Each application for certification shall be in writing, and executed under oath by an officer or owner of the applicant, and shall contain such information as may assist the Contract Compliance Officer in determining the status of the applicant.

Id. at 8. The City has drafted regulations to implement the Executive Order, but a final set of rules under the Executive Order had not been issued at the time of this appeal. The district court found that the Executive Order did not incorporate the USDOT regulations, but rather required the promulgation of rules to implement its mandate separately from the federal regulations. See Tr. of May 14, 1986 at 18. However, much of the language contained in the Executive Order parallels the text of the USDOT regulations. For example, the City's definition of an MBE is identical to the definition contained in the USDOT regulations. Compare R.1, Ex. A at 3 with 49 C.F.R. Sec. 23.5(f) (1986). In addition, for federally-funded projects, a contractor must comply with both the USDOT regulations and the Executive Order. See Minority Business Enterprise Commitment and Women Business Enterprise Commitment; Appellants' App. at 52.

The USDOT regulations express concern over maintaining the integrity of the MBE program by preventing nonminority owned enterprises from controlling MBEs. The regulations recognize that:

Substantial concern has been expressed about the infiltration of DOT-assisted programs by "fronts"--businesses that claim to be owned and controlled by minorities, women, or other disadvantaged individuals, but which, in fact are ineligible for participation is [sic] DOT-assisted programs as MBEs, WBEs or disadvantaged businesses.

The Department wants to take this opportunity to reemphasize the importance of scrutiny of all firms seeking to participate in DOT-assisted programs. We believe strongly that recipients should take prompt action to ensure that only firms meeting the eligibility criteria of 49 CFR Part 23 participate as MBEs, WBEs, or disadvantaged businesses in DOT-assisted programs. This means not only that recipients should carefully check the eligibility of firms applying for certification for the first time, but also that they should review the eligibility of firms with existing certifications in order to ensure that they are still eligible.

49 C.F.R. part 23, subpart D, app. A, at 150. In its Executive Order, the City responded to the concern expressed in the USDOT regulations about MBEs serving as "fronts" by directing the Contract Compliance Officer to:

Investigate the status of certified MBEs and WBEs to determine whether they should retain certification. An investigation of the status of all currently certified MBEs and WBEs shall be undertaken

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immediately after the effective date of this Order, with priority given to investigation of previously certified firms to which contracts or subcontracts are awarded after the effective date hereof.

R.1, Ex. A at 8-9.

The Executive Order set time limitations for the City to consider an application for MBE certification. The Executive Order provides that "[i]nitial certification of any entity as MBE or WBE, or denial of such certification, shall be completed no later than 60 days after receipt of bid or proposal for a contract or subcontract contemplating the applicant's participation as MBE or WBE." Id. at 8. However, the Executive Order does not specify any process of appeal from the City's decision. The USDOT regulations, on the other hand, do provide for an appeal from denial of certification. 3 However, the denial of certification is not stayed during an appeal. See 49 C.F.R. part 23, subpart D, app. A, at 150 (1986).

C. Baja's Application for MBE Certification

On February 28, 1985, the City notified Baja by letter that it had received certification as a disadvantaged business enterprise. 4 Baja further was informed that it would be listed as a "concrete contractor" in the City's directory of MBEs and that the firm's eligibility would be reviewed on an annual basis. R.1, Ex. B.

In May 1985, Baja started working as a concrete supplier at the O'Hare Airport Development Project as a subcontractor for the Turner Construction Company (Turner). After Baja had started working at O'Hare, a city employee contacted Mr. Jaimes and notified him that Baja needed MBE certification as a concrete supplier in order to work on the contract at O'Hare. In response, Baja sent the City a letter on July 15, 1985 requesting certification as a concrete supplier. Appellants' App. at 53; R.1, Ex. D.

In September 1985, Mr. Triplett, a city employee, inspected Baja's concrete plant at O'Hare. Mr. Triplett indicated that he was inspecting the operation to determine whether Mr. Jaimes was running the operation himself. In the report to the City regarding his site inspection, Mr. Triplett indicated that Peter J. Poulos & Sons, Inc. (Poulos) leased the concrete mixer to Baja and supplied three workers. Further, a consultant from Material Service Corp. was in charge of quality control for the mixer. Baja also leased trucks from Material Service Corp....

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