Coral Const. Inc. v. San Francisco

• Decision Date: 18 April 2007
• Docket Number: No. A107803.,A107803.
• Citation: 57 Cal.Rptr.3d 781,149 Cal.App.4th 1218
• Court: California Court of Appeals Court of Appeals
• Parties: CORAL CONSTRUCTION, INC., Plaintiff and Respondent, v. CITY AND COUNTY OF SAN FRANCISCO et al., Defendants and Appellants. Schram Construction, Inc., Plaintiff and Respondent, v. City and County of San Francisco et al., Defendants and Appellants.

57 Cal.Rptr.3d 781

149 Cal.App.4th 1218

CORAL CONSTRUCTION, INC., Plaintiff and Respondent, v. CITY AND COUNTY OF SAN FRANCISCO et al., Defendants and Appellants.

Schram Construction, Inc., Plaintiff and Respondent, v. City and County of San Francisco et al., Defendants and Appellants.

No. A107803.

Court of Appeal, First District, Division 4.

April 18, 2007.

[57 Cal.Rptr.3d 783]

Dennis J. Herrera, City Attorney, Wayne K. Snodgrass, Sherri Sokeland Kaiser, James M. Emery, Deputy City Attorneys, Moscone, Emblidge & Quadra LLP, G. Scott Emblidge, Rachel J. Sater, San Francisco, Meyers, Nave, Riback, Silver & Wilson, Mara E. Rosales, Joseph M. Quinn, San Francisco, K. Scott Dickey, for Appellants.

Bingham McCutchen LLP, Michael Isaku Begert, Sujal J. Shah, Rianne E. Nolan, Renee M. DuPree, Nancy M. Wang, Elizabeth M. Hall, San Francisco, Lawyers' Committee for Civil Rights, Oren Sellstrom, Woodland, for Amicus Curiae on Behalf of Appellants.

Pacific Legal Foundation, John H. Findley, Sharon L. Browne, Paul J. Beard II, Sacramento, Counsel for Respondents.

REARDON, Acting P.J.

Since 1984, the City and County of San Francisco has operated under various iterations of its Minority/Women/Local Business Utilization Ordinance (Ordinance). The Ordinance, in its several forms, has called for race- and gender-conscious remedies to ameliorate the effects of past discrimination in the awarding of City contracts.

More than 10 years ago the California electorate adopted Proposition 209, the California Civil Rights Initiative, thereby adding article I, section 31 (§ 31) to our Constitution. This amendment prohibits all state and local governments and entities from discriminating against, or granting preferential treatment to, "any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting." (§ 31, subd. (a).) This appeal centers on the prohibition against distribution of race- and gender-based preferences in public contracting.

Subsequent to the adoption of section 31, the City enacted another version of the Ordinance. Two construction companies¹ challenged the Ordinance on grounds that certain provisions patently violated section 31.

On cross-motions for summary judgment, the trial court struck down the Ordinance as violative of section 31 and rejected the City's arguments that (1) section 31 is preempted by the International Convention on the Elimination of All Forms of Racial Discrimination (Race Convention), a human rights treaty ratified by Congress in 1994; (2) section 31 offends the Hunter/Seattle² political restructuring arm of equal protection jurisprudence; and (3) pervasive past discrimination in public contracting converts the Ordinance into a remedial measure required by the federal equal protection clause such that the superior mandate of that clause preempts section 31. The City has appealed.

We conclude that the trial court correctly determined that section 31(1) is not preempted by the Race Convention and (2) does not offend the Hunter/Seattle restructuring arm of equal protection jurisprudence. We further hold that the Ordinance is not required to maintain the City's eligibility for federal funds. However, the trial court failed to adjudicate the matter of whether the Ordinance is mandated by the federal Constitution as a narrowly tailored remedial program to remedy ongoing, pervasive discrimination in public contracting. Accordingly, we will remand the matter to the trial court for the limited purpose of adjudicating this issue. In all other respects, the judgment is affirmed.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. History of the Ordinance

1. 1984 and 1989 Ordinances

In Associated Gen. Contractors of Cal. v. Coalition (9th Cir.1991) 950 F.2d 1401 (AGCC ID), involving a challenge to the 1989 Ordinance, the reviewing court summarized the early history of the Ordinance, as follows:

"In April 1984, the San Francisco Board of Supervisors (the `Board') passed the Minority/Women/Local Business Utilization Ordinance ..., which required the City to set aside designated percentages of its contracting dollars to minority-owned business enterprises [MBE's] and women-owned business enterprises [WBE's]. In addition, the 1984 Ordinance required that MBEs, WBEs and locall[y]-owned business enterprises (`LBEs') receive a five percent bidding preference to be taken into account when the City calculated the low bid on city contracts.

"AGCC, an organization of contractors engaged in the building and construction industry, ... challenged the implementation of the 1984 Ordinance in court. In reviewing the ordinance, this circuit upheld the provisions favoring WBEs and LBEs against AGCC's constitutional challenge but invalidated the provisions favoring MBEs. AGCC v. City and County of San Francisco, 813 F.2d 922, 928-44 (9th Cir. 1987), petition dismissed, 493 U.S. 928, [110 S.Ct. 296, 107 L.Ed.2d 276] (1989) (AGCC I). In addition, we ruled that all bidding preferences, insofar as they applied to contracts over $50,000, violated [the] San Francisco City Charter....

"Shortly after our decision in AGCC I, the Supreme Court considered a similar minority set-aside plan in City of Richmond v. J.A. Croson Co., 488 U.S. 469, 109 S.Ct. 706, 102 L.Ed.2d 854 [Croson] [citations] (1989). In that decision, a deeply divided Supreme Court struck down the racial set-aside plan adopted by the city of Richmond, Virginia. At the same time, however, the Court confirmed that municipalities could employ race-conscious remedies to redress discrimination in certain circumstances. [Citations.] Prior to Croson, the City had been investigating continued discrimination in city contracting. In that capacity, it had received, among other information, testimony from 42 witnesses, and written submittals from 127 minority, women, local, and other business representatives. Subsequently, in an attempt to determine whether Croson's criteria for permitting race-conscious ordinances were met with respect to San Francisco, the City held an additional ten public hearings, commissioned two statistical studies, and sought written submissions from the public. Out of this process emerged the 1989 Ordinance...." (AGCC II, supra, 950 F.2d at pp. 1403-1404, fn. omitted.)

The summary continued: "Rather than providing the set-asides mandated by the 1984 Ordinance, the 1989 Ordinance gives bid preferences to prime contractors who are members of groups found disadvantaged by previous bidding practices." (AGCC II, supra, 950 F:2d at p. 1404.) AGCC contested the 1989 Ordinance as well, arguing that it violated the federal equal protection clause and failed to satisfy the Croson standards for race-conscious remedies. The Ninth Circuit concluded that the City was "likely to demonstrate a 'strong basis in evidence' supporting its decision to adopt a race-conscious plan" (id. at p. 1416, fn. omitted) and that the Ordinance was narrowly tailored to redress the consequences of discrimination (id. at pp. 1416-1418).

2. 1998 Ordinance

The 1989 Ordinance expired on October 31, 1998. In the interim period the City's Board of Supervisors (Board) and the City's Human Rights Commission (HRC) conducted further investigations to determine whether discrimination in contracting had been eradicated or mitigated. This effort included 14 public hearings (eight of which occurred in 1997 and 1998), live testimony from 254 witnesses, videotaped testimony from numerous other witnesses, statistical disparity studies and other documentary evidence pertinent to alleged discrimination and bidding irregularities.

Minority contractors observed that, as compared with nonminority contractors, City inspectors imposed more onerous requirements on them, scrutinized their work more closely and treated them more harshly if they made mistakes. For example, while inspectors would waive compliance with certain requirements for majority-owned firms, they forced minority contractors to redo the same work on the same programs, at substantial cost. As well, one minority contractor spoke of being harassed and subjected to racist and derogatory remarks from City inspectors. Another complained of being subjected to more rigorous background-vetting despite his extensive qualifications and experience.

Upon review of all the materials, the Board made findings of continued discrimination in public contracting and subcontracting against minority- and women-owned businesses, concluding that a new MBE/WBE ordinance was needed and that race-neutral measures employed by the City had not been helpful in preventing such discrimination. The Board adopted the 1998 version of the Ordinance, which was in effect at the time the instant complaints were filed.

The 1998 Ordinance provided for a bid discount program which required City departments to give specified discounts to contract bids submitted by certified WBE's or MBE's. (S.F.Admin.Code, §§ 12D.A.9(A)(2), 12D.A.5, 12D.A.6(b).) Additionally, it contained a subcontracting program requiring bidders for certain prime contracts to document their good-faith efforts to use MBE and WBE subcontractors. (Id., § 12D.A.17.) As summarized by the HRC director, the subcontracting program works this way: "`[B]idders for certain types of prime City contracts must demonstrate their good faith efforts to provide certified MBEs and WBEs an equal opportunity to compete for subcontracts. A bidder may comply with the Subcontracting Program by documenting its good faith efforts to inform MBEs and WBEs of subcontracting opportunities. Bidders who show that they plan to use MBE and WBE subcontractors at a level one would expect absent discrimination need not document their good faith efforts.'"³

"Good-faith efforts" which a prime contractor must demonstrate to comply with the MBE/WBE participation goals include: identifying specific items on the project to be performed by MBE's/WBE's...