C.S. McCrossan Const., Inc. v. Rahn

• Decision Date: 25 February 2000
• Docket Number: No. CIV. 97-896 JP/JHG.,CIV. 97-896 JP/JHG.
• Citation: 96 F.Supp.2d 1238
• Parties: C.S. McCROSSAN CONSTRUCTION, INC., a Minnesota corporation, and Charles S. McCrossan, an individual, Plaintiffs, v. Pete K. RAHN, Secretary, New Mexico State Highway and Transportation Department, in his official capacity, and Les French, State Purchasing Agent, in his official capacity, Defendants.
• Court: U.S. District Court — District of New Mexico

96 F.Supp.2d 1238

C.S. McCROSSAN CONSTRUCTION, INC., a Minnesota corporation, and Charles S. McCrossan, an individual, Plaintiffs, v. Pete K. RAHN, Secretary, New Mexico State Highway and Transportation Department, in his official capacity, and Les French, State Purchasing Agent, in his official capacity, Defendants.

No. CIV. 97-896 JP/JHG.

United States District Court, D. New Mexico.

February 25, 2000.

Matthew P. Holt, Holt & Babington, Las Cruces, NM, John Randall Jefferies, James J. Trimble, Fennemore Craig, Phoenix, AZ, William R. Babington, Jr., Holt & Babington, PC, Las Cruces, NM, for Plaintiffs.

Bennett S. Cohn, Katherine M. Moss, NM Attorney General's Office, Steven L. Bunch, NM Highway & Transportation Department, Santa Fe, NM, for Defendants.

MEMORANDUM OPINION AND ORDER

PARKER, District Judge.

The parties have submitted this case for decision without trial on the stipulated record. Having carefully considered the stipulated record in light of the parties' arguments, written and oral, I find for the Defendants with respect to the Equal Protection Clause claim and for Plaintiff Charles S. McCrossan with respect to the Privileges and Immunities Clause claim.

I. Background

Plaintiff Charles S. McCrossan, a Minnesota resident, owns a majority of the stock of Plaintiff McCrossan Construction, a Minnesota corporation. Plaintiffs are engaged in the business of highway construction. Defendants are charged with awarding New Mexico state highway construction contracts in accordance with N.M. Stat. Ann. § 13-4-2 (1997 Repl. Pamp.) ("resident contractor preference" or "preference provision"). N.M. Stat. Ann. § 13-4-2(E) requires non-resident contractors to under-bid resident contractors by five percent to win state highway construction contracts. N.M. Stat. Ann. § 13-4-2(B)(1) defines corporate resident contractors as those whose majority shareholders are state citizens domiciled in New Mexico. Plaintiff McCrossan Construction has bid on New Mexico state highway construction contracts for which it has been the low bidder but by less than five percent. Defendants have applied the resident contractor preference to deny Plaintiff McCrossan Construction those contracts.

The parties essentially agree upon the legal issues presented. Plaintiffs have asked the court to find that the resident contractor preference violates the Equal Protection Clause and the Privileges and Immunities Clause of Article IV, Section 2 ("Privileges and Immunities Clause") of the United States Constitution.¹ Plaintiffs sue under 42 U.S.C. § 1983 seeking declaratory and injunctive relief, and an award of attorneys' fees under 42 U.S.C. § 1988.

II. Equal Protection Clause

In considering whether a statute such as the Public Works Contract Code preference provision violates the Equal Protection Clause of the United States Constitution, a court must initially examine the nature of the classification at issue. Where, as here, the statute involves neither a fundamental right nor a suspect classification, the "rational basis" standard should apply. Heller v. Doe, 509 U.S. 312, 319-20, 113 S.Ct. 2637, 125 L.Ed.2d 257 (1993). Applying that standard requires that two questions be answered: "(1) Does the challenged legislation have a legitimate purpose? and (2) Was it reasonable for the lawmakers to believe that use of the challenged classification would promote that purpose?" Western & Southern Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648, 668, 101 S.Ct. 2070, 68 L.Ed.2d 514 (1981).

Plaintiffs argue that the Supreme Court's decision in Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751 (1985) compels a finding that the resident contractor preference in the New Mexico Public Works Contract Code lacks a legitimate purpose. In Metropolitan Life the Court reviewed the validity of an Alabama statute which granted a preference to in-state insurers by imposing a higher tax on gross premiums earned by out-of-state insurers conducting business in Alabama. Id. at 871, 105 S.Ct. 1676. For purposes of the challenged statute, Alabama defined an in-state insurer as "a company that both is incorporated in Alabama and has its principal office and chief place of business within the State." Id. 470 U.S. at 872 n. 2, 105 S.Ct. at 1678 n. 2. The state argued that encouraging the formation of insurance companies in Alabama, one of the statute's purposes, was legitimate. The Court disagreed and in a 5-4 decision found that the stated purpose violated the Equal Protection Clause. The majority characterized the purpose put forward by Alabama as "purely and completely discriminatory, designed only to favor domestic industry within the State, no matter what the cost to foreign corporations also seeking to do business there." Id. at 878, 105 S.Ct. 1676. The Court then remanded the case for consideration of some fifteen other unspecified purposes not raised on appeal.

Defendants urge a narrow reading of Metropolitan Life and cite to various cases generally upholding preference statutes and ordinances. Plaintiffs acknowledge the existence of these cases which affirm the constitutionality of contract preference statutes, but argue that this case is more like an Alaska case in which a preference was found to be unconstitutional. Compare Smith Setzer & Sons, Inc. v. South Carolina Procurement Review Panel, 20 F.3d 1311 (4th Cir.1994); Associated Gen. Contractors of Cal., Inc. v. City and County of San Francisco, 813 F.2d 922 (9th Cir.1987) overruled in other part by City of Richmond v. J.A. Croson Co., 488 U.S. 469, 109 S.Ct. 706, 102 L.Ed.2d 854 (1989); Bristol Steel and Iron Works v. State, 507 So.2d 1233 (La.1987); Gary Concrete Prods. v. Riley, 285 S.C. 498, 331 S.E.2d 335 (1985); and Galesburg Constr. Co. v. Board of Trustees, 641 P.2d 745 (1982); with Lynden Transport, Inc. v. State, 532 P.2d 700 (Alaska 1975). Plaintiffs argue that the breadth of the definitions at issue in each case explains the difference in result. Plaintiffs' position is that all cases upholding preference statutes have involved statutory or regulatory schemes classifying preference status based on activities within the jurisdiction. In contrast, Plaintiffs argue, the New Mexico resident contractor preference and the Alaska statute found unconstitutional in Lynden assign preference solely on the basis of residency, without a legitimate purpose.

Plaintiffs continue that even if the Public Works Contract Code resident contractor preference provision has a legitimate purpose, that statute is not rationally related to that purpose. In support they rely on Rayco Constr. Co. v. Vorsanger, 397 F.Supp. 1105 (E.D.Ark.1975). The statute at issue in Rayco gave a preference to those who "satisfactorily performed prior public contracts" and paid state and county taxes in Arkansas for two years prior on "plant and equipment ... or on other real or personal property...." Id. at 1108. The court found the statute unconstitutional because the limitation to prior satisfactory performance of public contracts had no rational relationship to the law's aim of ensuring capable contracting. The statute also failed because of the lack of evidence tending to show that the tax payment provision served the state's fiscal interest "in any significant way." Id. at 1112. Plaintiffs argue that in this case there is an abundance of evidence proving that the New Mexico Public Works Contract Code preference provision not only fails to serve the state's interest but runs counter to it and that therefore the preference statute is not rationally related to its purpose.

A. Standing

Defendants concede the standing of the corporate Plaintiff McCrossan Construction to assert an Equal Protection Clause claim but challenge that of the individual Plaintiff, Charles S. McCrossan. Defendants argue that Plaintiff Charles S. McCrossan, as an individual, has suffered no harm and therefore cannot pursue any claims. They incorporate their argument on the question of individual standing made with respect to the same argument in the Privileges and Immunities context. This Memorandum and Opinion and Order will do the same for the analysis of that question. See infra III.A. Suffice it to say that Plaintiff Charles S. McCrossan does have standing to litigate both the constitutional claims at issue.

B. Legitimate purpose

The New Mexico Public Works Contract Code does not state the purpose of the resident contractor provision. Defendants' expert identifies the purposes as promoting development of the state economy and encouraging the creation and retention of jobs and income for the state's residents, alternately described as preventing economic leakage and encouraging an economic ripple effect. At oral argument, counsel for Defendants essentially agreed with those purposes.² Plaintiffs fairly characterize the putative purposes as threefold. They claim that the statute purports to promote economic development in New Mexico, to direct state funds to state taxpayers, and to support New Mexico's road construction industry. All three, Plaintiffs argue, are not legitimate.

Metropolitan Life suggests initially that a state's desire to protect its economic interests is not a valid purpose. Broadly read, it supports Plaintiffs' position. A closer look, however, reveals two principal reasons why Plaintiffs' reliance is misplaced. First, Metropolitan Life involved taxes on certain businesses. While Plaintiffs liken the Public Works Contract Code preference provision to a tax in that it imposes an additional economic burden on them which then reverts to the state, it is in fact not a tax. The Ninth Circuit Court of Appeals addressed a similar argument in Associated Gen. Contractors, 813 F.2d at 943. In upholding a San Francisco city ordinance giving city contract preference to businesses that maintained a San Francisco presence and paid certain fees from a city address, the court noted that "[u]nlike the...