Interstate Material Corp. v. City of Chicago

• Decision Date: 04 December 1986
• Docket Number: No. 85-2986,85-2986
• Citation: 501 N.E.2d 910,103 Ill.Dec. 593,150 Ill.App.3d 944
• Parties: , 103 Ill.Dec. 593 INTERSTATE MATERIAL CORP., Plaintiff-Appellant, v. The CITY OF CHICAGO, Harold Washington, Mary Skipton, W.R. Spicer, McNair Grant, George Jackson, Samuel Patch, Anita Ponder, Paul Spieles, and Unknown Members of the Committee Which Acts on Minority Business Certification Applications for the City of Chicago, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 910

501 N.E.2d 910

150 Ill.App.3d 944, 103 Ill.Dec. 593

INTERSTATE MATERIAL CORP., Plaintiff-Appellant, v. The CITY OF CHICAGO, Harold Washington, Mary Skipton, W.R Spicer, McNair Grant, George Jackson, Samuel Patch, Anita Ponder, Paul Spieles, and Unknown Members of the Committee Which Acts on Minority Business Certification Applications for the City of Chicago, Defendants-Appellees.

No. 85-2986.

Appellate Court of Illinois First District, Fourth Division.

Dec. 4, 1986.

Rufus Cook (Cook Partners, Ltd., Chicago, of counsel), for plaintiff-appellant.

Judson H. Miner, Acting Corp. Counsel of City of Chicago, Chicago (Mary K. Rochford, John T. Maher, of counsel), for defendants-appellees.

Justice JOHNSON delivered the opinion of the court:

Plaintiff, Interstate Material Corporation (Interstate), an Illinois company that manufactures ready-mix concrete and supplies building materials, appeals from the trial court's denial of its motion for a preliminary injunction to bar defendant, City of Chicago (City), from revoking its certification as a minority business enterprise (MBE). Briefly stated, the issue presented for our review is whether the trial court erred in denying Interstate's motion for a preliminary injunction.

We reverse.

Interstate's complaint and attached documents represented the following. Interstate submitted an application to the City for recertification as an MBE on July 15, 1985. On July 19, 1985, Interstate received formal written notification that its recertification had been denied. The letter, which was attached to Interstate's complaint, stated that "[a]fter a careful review of your application, the City of Chicago [determines that] the firm does not meet the eligibility standards * * * that certified businesses [be] at least 51 percent owned and controlled by minorities or women[,] [that the] minority or women owners * * * direct the management, policies and daily operations of the firm [and that the] business [be] * * * independently operated * * *." The City's letter noted that Interstate's "application and supporting documents [do] not indicate that your firm is at least 51 percent owned by minorities." The City stated that its own "investigation further disclosed that the organizational structure of your firm does not allow for minority control. Further, your firm has not demonstrated to be an independently operated business."

The City's letter advised Interstate that the City's decision was "final." It also informed Interstate, "if you feel that you were wrongly denied certification as a [n] * * * MBE, you may file an appeal in writing to the U.S. Department of Transportation. The appeal must be signed and dated no later than 180 days from the date of this denial."

Interstate subsequently requested that the City reconsider its decision, in a letter dated July 23, 1986. In that correspondence, also attached to its pleading, Interstate noted that it had been verbally advised, in a telephone conversation with a City MBE program official on July 18, of the reasons for the City's conclusion that Interstate was not an MBE. Interstate's letter responded to these telephonically-transmitted reasons for denial of recertification. In a letter dated August 2, attached to Interstate's complaint, the City again denied Interstate's request for recertification, restating and delineating further its specific reasons for denial. Thereafter, on August 26, Interstate again responded in writing in greater detail to the City's conclusion that Interstate was not an MBE. This letter was also attached to Interstate's pleading. Interstate's complaint does not disclose whether the City responded to this correspondence.

In its complaint, Interstate alleged that when it applied for recertification, Interstate "requested the opportunity to address the committee [of the City which reviews MBE applications], present evidence in its own behalf, and to rebut unfavorable evidence[,] [and that] [t]hese requests were denied by the [City]." Interstate alleged that it also "requested the names of the committee members assigned to review the application, to assure itself of an impartial committee[,] [and that] [t]his request was summarily denied by the [City]."

Interstate's complaint further stated that when Interstate subsequently responded to the City's reasons for denial, Interstate "sought to be allowed to present further documentation. It further sought to address the committee in order to present the committee with information on the nature of the industry in which it is engaged to explain the documentation of its qualifications, to refute any adverse information received by the committee, and to address the standards to be applied by the committee in making its determination. The [City] persisted in denying Interstate any form of hearing before the committee." Interstate alleged that "[s]ubsequent to the August 2, 1985 letter [of the City], Interstate has persisted in its efforts to secure a hearing and establish its eligibility for continued certification as [an MBE], and [the City] ha[s] persisted in denying Interstate a hearing and certification."

Interstate filed a four-count verified complaint against the City on October 3, 1985. It alleged that the manner in which the City had denied Interstate's request for MBE recertification violated 42 U.S.C. sec. 1983 (1985) and deprived Interstate of due process of law under the United States Constitution (U.S. Const., amend. XIV) (count I); violated 42 U.S.C. secs. 1981 and 1983 (1985) and various provisions of the United States Department of Transportation's (USDOT's) MBE regulations (49 C.F.R. secs. 23.1 et seq. (1985) (count II); violated Interstate's right to due process under the Illinois Constitution (Ill. Const. 1970, art. I, sec. 2) (count III); and contravened the City's Executive Order which established the City's MBE program (City of Chicago Executive Order 85-2 (April 3, 1985)) (count IV). Interstate requested a declaration that the City's action violated procedural due process and the City's Executive Order, injunctive relief to prevent the City from decertifying Interstate without a hearing pursuant to which uniform procedures and standards would be applied to determine Interstate's eligibility for recertification, and compensatory and punitive damages. Interstate also sought a mandatory injunction to compel the City's adoption of recertification procedures that comport with due process.

In its motion for a preliminary injunction, Interstate requested that the court enjoin the City "from any action which interferes with Interstate's ability to participate in federally assisted and other City of Chicago projects as a[n] [MBE], unless and until Interstate is properly found to be ineligible after being afforded due process," and that the court bar the City "from decertifying Interstate on the basis of unlawful, arbitrary and discriminatory standards." The trial court denied Interstate's motion on the ground that the administrative remedy of an appeal to USDOT "afford[s] substantial due process." Interstate appeals.

Inasmuch as the City did not file an answer to Interstate's verified complaint, the factual basis of Interstate's motion for preliminary injunction is derived from Interstate's pleadings and any verified supplement thereto. (H.K.H. Development Corp. v. Metropolitan Sanitary District (1964), 47 Ill.App.2d 46, 51, 196 N.E.2d 494, 496.) As a result the well pleaded factual allegations of Interstate's complaint must be taken as true for the purposes of review of the trial court's denial of Interstate's preliminary injunction motion. (See City of Chicago v. Geraci (1975), 30 Ill.App.3d 699, 702, 332 N.E.2d 487, 490.) In addition, we note that in its complaint, Interstate alleged that it was certified as an MBE by the City in July 1983. It further stated that in July 1985, it submitted an application to the City for recertification. Thus, based on Interstate's verified complaint, we must assume it was certified as an MBE in July 1983, and that in July 1985 it was denied recertification as an MBE.

As currently structured, the City of Chicago's MBE program is patterned after USDOT regulations for the award to MBEs of government contracts funded by USDOT monies. (See 49 C.F.R. secs. 23.1 et seq. (1985); City of Chicago Executive Order 85-2 (April 3, 1985).) Under these regulations, recipients of USDOT funds are required, inter alia, to undertake a variety of measures to ensure that MBEs "have the maximum opportunity to participate in the performance of contracts financed in whole or in part" with USDOT funds. (49 C.F.R. sec. 23.43(a)(1) (1985).) Among the measures required, USDOT regulations call for a "set-aside" of a certain percentage of federally-funded government contracts to MBEs. (49 C.F.R. sec. 23.45 (1985).) USDOT regulations define an MBE as "a small business concern, * * * which is owned and controlled by one or more minorities or women." (49 C.F.R. sec. 23.5(f) (1985).) USDOT defines "owned and controlled" as "at least 51 per centum owned by one or more minorities or women or, in the case of a publicly owned business, at least 51 per centum of the stock of which is owned by one or more minorities or women; and * * * management and daily business operations * * * controlled by one or more such individuals." 49 C.F.R. sec. 23.5(f) (1985).

In April 1985, the City of Chicago established a "set-aside" program that applies to the award of all city contracts, regardless of whether those agreements are fully or partially funded by USDOT grants. (City of Chicago Executive Order 85-2 (April 3, 1985).) Under the City's program, the "Purchasing Agent [of the City of Chicago] shall establish a goal of awarding not less that 25% of the annual dollar value of all City contracts to qualified MBEs * * *." (City of Chicago Executive Order 85-2, sec. 2 (April 3, 1985).) The City program further requires that "[t]o the extent...