Midwest Fence Corp. v. U.S. Dep't of Transp.

Decision Date24 March 2015
Docket NumberCase No. 10 C 5627
Citation84 F.Supp.3d 705
PartiesMidwest Fence Corp., Plaintiff, v. United States Department of Transportation, et al., Defendants.
CourtU.S. District Court — Northern District of Illinois

James Raymond Dashiell, Courtney Dashiell Lorentz, Dashiell Law Offices, LLC, Arlington Heights, IL, for Plaintiff.

Andrew G. Braniff, Toni Michelle Jackson, Amy Mariko Kurren, Jennifer Levin Eichhorn, Patricia Stasco, Sarah C. Blutter, U.S. Department of Justice, Washington, DC, Gary Michael Griffin, Sunil Shashikant Bhave, Thor Yukinobu Inouye, Illinois Attorney General's Office, Marni M. Malowitz, Illinois State Police, Jorge V. Cazares, Preston L Pugh, Walter Jones, Jr., Christopher Michael Cascino, Rebecca Droller Fuentes, Tiffany Mary Ferguson, Pugh, Jones & Johnson, P.C., Michael T. Dierkes, Chicago, IL, Elizabeth M.S. Looby, Illinois Attorney General's Office, Thomas John Bamonte, Tiffany Iussig Bohn, Illinois State Toll Highway Authority, Downers Grove, IL, for Defendants.

MEMORANDUM OPINION AND ORDER
Harry D. Leinenweber, Judge, United States District Court

Before the Court is a constitutional challenge to federal and state programs designed to benefit disadvantaged business entities (“DBEs”) in the highway construction industry. Plaintiff Midwest Fence (hereinafter, Plaintiff or “Midwest”), a non-DBE fencing and guardrail contractor that is owned and controlled by white males, alleges that the DBE programs instituted by the United States Department of Transportation (USDOT), the Illinois Department of Transportation (“IDOT”), and the Illinois State Tollway Highway Authority (the “Tollway”) violate its right to equal protection under the law.

Plaintiff's lawsuit targets three groups of Defendants: (1) USDOT, the United States Secretary of Transportation, and the Administrator of the Federal Highway Administration (“FHWA”) (hereinafter, collectively, the “Federal Defendants); (2) IDOT and the Illinois Secretary of Transportation (hereinafter, collectively, the “IDOT Defendants or “IDOT”), and (3) the Tollway and its eleven-member board, which is headed by chairwoman Paula Wolff and also includes the Governor of Illinois and the Illinois Secretary of Transportation, who serve as ex officio board members (hereinafter, collectively, the “Tollway Defendants or the “Tollway”). Plaintiff has named all individuals in their official capacity.

Plaintiff and all three groups of Defendants have cross-moved for summary judgment. For the reasons stated herein, the Court grants the Federal Defendants', IDOT Defendants', and Tollway Defendants' Motions for Summary Judgment [ECF Nos. 369, 366, 378]. Midwest's Motion for Summary Judgment [ECF No. 372] is denied.

I. BACKGROUND

The Court has compiled the following factual record through thorough study of the parties' briefs, Local Rule 56.1 Statements of Material Facts, and supporting evidentiary materials. The Court takes judicial notice that certain public officials have changed during the course of this litigation.

A. The Parties

Midwest is a fencing and guardrail contractor incorporated in Delaware, with its principal place of business in Chicago, Illinois. White males own and control Midwest. Midwest is not a DBE under any of the DBE programs challenged in this lawsuit. From 20062010, Midwest generated average gross sales of approximately $18 million per year.

USDOT is an executive department of the federal government, headed by the United States Secretary of Transportation. At the time the operative Complaint was filed in this action (the “Complaint,” ECF No. 217), Ray LaHood served as Secretary of Transportation. Anthony Foxx now fills this role. The FHWA is an agency within USDOT, headed by the FHWA Administrator. At the time of the Complaint, Victor Mendez served as FHWA Administrator. Gregory Nadeau now serves as Acting FHWA Administrator. The FHWA is charged with the design, construction, and maintenance of the nation's highways.

IDOT is an executive department of the Illinois government, headed by the Illinois Secretary of Transportation. At the time of the Complaint, Ann Schneider served as Acting Secretary of IDOT, having just replaced Gary Hannig. Erica Borggren later replaced Schneider. Randall Blankenhorn now serves as Acting Secretary of IDOT. IDOT is charged with the planning, construction, and maintenance of the state's transportation network. IDOT receives both federal and state funding to accomplish its goals. For administrative purposes, IDOT divides the state of Illinois into nine districts.

The Tollway is an instrumentality and administrative agency of the state of Illinois, governed by an eleven-member board of directors, which includes the Governor of Illinois and the Secretary of IDOT. At the time of the Complaint, Pat Quinn served as Governor of Illinois and Schneider served as Acting Secretary of IDOT. At present, Bruce Rauner serves as Governor of Illinois and Blankenhorn serves as Acting Secretary of IDOT. The Tollway is authorized to construct, operate, regulate, and maintain Illinois' system of toll highways. The Tollway does not receive any federal funding to accomplish its goals.

B. The Challenged DBE Programs

The Federal, IDOT, and Tollway Defendants have instituted programs intended to increase the flow of public road construction dollars to contractors who qualify as DBEs. The federal DBE program (the “Federal Program”) sets an aspirational goal that USDOT expend at least 10% of its funds through DBEs. As a condition of receiving federal transportation funds, IDOT is required to implement the Federal Program in Illinois pursuant to the regulations contained in 49 C.F.R. pt. 26 (the Federal Regulations or the “Regulations”). Although the Regulations do not require IDOT to implement the Federal Program on its state-funded projects, IDOT voluntarily does so. IDOT has also implemented a Target Market Program under which it may take additional measures “to remedy particular incidents and patterns of egregious race or gender discrimination” in certain districts. 20 ILCS 2705/2705–600. The Tollway voluntarily implements its own DBE program, which mirrors the Federal Program in many respects. The following sections describe the mechanics of each DBE program.

1. The Federal Program

Under the Federal Program, which was first enacted in 1982, USDOT is to expend no less than 10% of authorized funds through DBEs—“small business concerns owned and controlled by socially and economically disadvantaged individuals.” Moving Ahead for Progress in the 21st Century Act (“MAP–21”), Pub.L. No. 112–141, § 1101(b), 126 Stat. 405 (2012). The 10% goal is set at the national level and is aspirational. 49 C.F.R. § 26.41. Congress has reauthorized the Federal Program on numerous occasions, most recently in 2012 under MAP–21. In determining whether reauthorization was appropriate, Congress reviewed statistical evidence, testimony, reports, and other evidence. Based on this material, Congress concluded that “discrimination and related barriers continue to pose significant obstacles for minority- and women-owned businesses seeking to do business in federally-assisted surface transportation markets across the United States.” Pub.L. No. 112–141 § 1101(b).

The Federal Regulations, along with the Small Business Act, 15 U.S.C. § 631 et seq., break down the definition of a DBE. First, a DBE must be a “small business concern” that falls within the size standards published by the Small Business Administration (“SBA”). 49 C.F.R. § 26.65 ; 13 C.F.R. § 121.201. Second, a DBE cannot have average annual gross receipts in excess of $23.98 million over the past three fiscal years. 49 C.F.R. § 26.65. Third, a DBE must be at least 51% owned, managed, and controlled “by one or more socially and economically disadvantaged individuals.” 15 U.S.C. § 637(d)(3)(C).

Socially disadvantaged individuals are persons “who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.” Id. § 637(a)(5). “Economically disadvantaged individuals” are a subset of socially disadvantaged individuals whose ability to compete in the marketplace has been diminished by capital and credit opportunities that are poor in comparison to those afforded to persons who are not socially disadvantaged. Id. § 637(a)(6)(A). There is a rebuttable presumption that certain groups—“women, Black Americans, Hispanic Americans, Native Americans, Asian–Pacific Americans, Subcontinent Asian Americans, or other minorities found to be disadvantaged by the SBA”—are socially and economically disadvantaged. 49 C.F.R. § 26.67(a) ; Pub.L. No. 112–141 § 1101(b)(2)(B). Persons who fall outside these specific groups may still qualify as socially or economically disadvantaged, but must prove their disadvantaged status by a preponderance of the evidence. 49 C.F.R. § 26.67(d). Personal assets in excess of $1.32 million negate a claim to “economic disadvantage.” See, id. § 26.67(a)(2)(i).

The Federal Regulations require recipients of federal transportation funds (“Recipients”) to set an overall DBE participation goal pursuant to a two-step process. Id. § 26.45. Recipients set goals as a percentage of all federal transportation funds they plan to expend in the next three years. Id. § 26.45(e)(1). The end goal must reflect what DBE participation would be in the absence of discrimination. Id. § 26.45(b). As long as Recipients administer their DBE programs in good faith, USDOT cannot penalize them for failing to reach their goals. Id. § 26.47(a).

The first step in setting a DBE participation goal is to determine the “relative availability of DBEs” in the Recipient's local market. Id. § 26.45(b). This figure is based on “demonstrable evidence of the availability of ready, willing, and able DBEs” relative to all other businesses that would be “ready, willing, and able” to bid on federally funded contracts. Id. The regulations set out a number...

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2 cases
  • Midwest Fence Corp. v. U.S. Dep't of Transp.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • November 4, 2016
    ...(1989).The district court granted the defendants' motions for summary judgment. Midwest Fence Corp. v. U.S. Dep't of Transportation , 84 F.Supp.3d 705 (N.D. Ill. 2015). We affirm. We join other circuits in holding that the federal DBE program 840 F.3d 936is facially constitutional. The prog......
  • Midwest Fence Corp. v. U.S. Dep't of Transp.
    • United States
    • United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
    • March 29, 2018
    ...interest in remedying a history of discrimination in highway construction contracting. Midwest Fence Corp. v. United States Dep't of Transp., 84 F.Supp.3d 705, 740 (N.D. Ill. 2015), aff'd, 840 F.3d 932 (7th Cir. 2016). The Seventh Circuit affirmed. After the Seventh Circuit issued its rulin......

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