Rothe Dev., Inc. v. Dep't of Def., Civil Action No. 12–cv–0744 (KBJ)

Decision Date05 June 2015
Docket NumberCivil Action No. 12–cv–0744 (KBJ)
Citation107 F.Supp.3d 183
Parties Rothe Development, Inc., Plaintiff, v. Department of Defense, et al., Defendants.
CourtU.S. District Court — District of Columbia

David F. Barton, Gardner Law, San Antonio, TX, for Plaintiff.

Andrew G. Braniff, Rachel R. Hranitzky, Barbara Ann Schwabauer, Patricia L. Stasco, U.S. Department of Justice, Daniel Franklin Van Horn, U.S. Attorney's Office, Washington, DC, for Defendants.

MEMORANDUM OPINION

KETANJI BROWN JACKSON, United States District Judge

Section 8(a) of the Small Business Act, 15 U.S.C. § 637(a) (2012), establishes a business development program for "socially and economically disadvantaged small business concerns[.]" Id. § 637(a)(1)(B). Plaintiff Rothe Development, Inc. ("Rothe" or "Plaintiff") is a small business based in San Antonio, Texas that has filed the instant action against the Department of Defense ("DOD") and the Small Business Administration (collectively, "Defendants") to challenge the constitutionality of the Section 8(a) program on its face. (See Compl., ECF No. 1, ¶ 1.) Rothe argues that the statute's definition of "socially disadvantaged" small business owners, 15 U.S.C. § 637(a)(5), is a racial classification that violates Rothe's right to equal protection under the Due Process Clause of the Fifth Amendment of the United States Constitution. (See Compl. ¶¶ 1–2.) Rothe also claims that Section 8(a) violates the nondelegation doctrine. (See id. ; see also id. ¶ 30.)

The constitutional challenge that Rothe brings in the instant case is nearly identical to the challenge brought in the case of DynaLantic Corp. v. United States Department of Defense, 885 F.Supp.2d 237 (D.D.C.2012). The plaintiff in DynaLantic sued the DOD, the Small Business Administration, and the Department of the Navy alleging, inter alia , that Section 8(a) was unconstitutional both on its face and as applied to the military simulation and training industry. See DynaLantic , 885 F.Supp.2d at 242. The DynaLantic court disagreed with the plaintiff's facial attack; it explained in a lengthy opinion the reasoning behind the Court's conclusion that the Section 8(a) program is facially constitutional. See id. at 248–80, 283–91. Here, Rothe relies on substantially the same record evidence and nearly identical legal arguments, and it urges this Court to strike down the race-conscious provisions of Section 8(a) on their face and thus to depart from DynaLantic's holding in the context of the instant case. (See, e.g. , Mot. Hr'g Tr., Oct. 20, 2014, at 27:21 (Plaintiff's counsel asserting that the DynaLantic court "was just wrong").)

Before this Court at present are the parties' cross-motions for summary judgment, as well as the parties' motions to limit or exclude the proffered testimony of each other's expert witnesses—commonly referred to as " Daubert motions" based on the Supreme Court's seminal ruling on the admissibility of expert testimony in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). As explained fully below, this Court concludes that Defendants' experts meet the relevant qualification standards under Federal Rule of Evidence 702 and offer what appear to be reliable and relevant opinions; therefore, Plaintiff's Daubert motion to exclude Defendants' proffered expert testimony will be DENIED . By contrast, this Court finds sufficient reason to doubt the qualifications of one of Plaintiff's experts and to question the reliability of the testimony of the other; consequently, Defendants' Daubert motions to exclude Plaintiff's expert testimony will be GRANTED . With respect to the cross-motions for summary judgment, this Court agrees with the DynaLantic court's reasoning, and thus this Court, too, concludes that Section 8(a) is constitutional on its face. Accordingly, Plaintiff's motion for summary judgment will be DENIED , Defendants' cross-motion for summary judgment will be GRANTED , and judgment will be entered in Defendants' favor. A separate order consistent with this memorandum opinion will follow.

I. BACKGROUND
A. The Section 8(a) Program

Congress enacted the Small Business Act of 1953 ("the Act"), 15 U.S.C. §§ 631 –57s, in order to encourage and develop the "capacity of small business" in America, and thereby to promote national "economic well-being" and "security[.]" 15 U.S.C. § 631(a) (1958). Section 8(a) of the Act grants the Small Business Administration the authority to acquire procurement contracts from other government agencies and to award or otherwise arrange for performance of those contracts by small businesses "whenever [the agency] determines such action is necessary[.]" Id. § 637(a). This authority remained "dormant for a decade" after the Act's passage, DynaLantic, 885 F.Supp.2d at 253, but over the course of many years and after a series of executive orders and legislative amendments, see id. at 253–57, the current Section 8(a) program emerged with the express purpose of helping socially and economically disadvantaged individuals who own small businesses "compete on an equal basis in the American economy[,]" 15 U.S.C. § 631(f)(2)(A) (2012).

The Section 8(a) program provides small businesses that socially and economically disadvantaged individuals own—the Small Business Administration refers to such businesses as "small disadvantaged businesses" or "SDBs," see Small Disadvantaged Business Program, 73 Fed.Reg. 57,490 (Oct. 3, 2008) —with valuable "technological, financial, and practical assistance, as well as support through preferential awards of government contracts[,]" DynaLantic, 885 F.Supp.2d at 243 ; see also 15 U.S.C. § 636(j)(10)(A) ; 13 C.F.R. § 124.404.1 SDBs can receive myriad types of assistance and support under the Section 8(a) program, including help "develop[ing] and maintain[ing] comprehensive business plans[,]" 15 U.S.C. § 636(j)(10)(A)(i) ; "nonfinancial services" such as "loan packaging, [ ] financial counseling, [ ] accounting and bookkeeping assistance, [ ] marketing assistance, and [ ] management assistance[,]" id. § 636(j)(10)(A)(ii) ; assistance "obtain[ing] equity and debt financing [,]" id. § 636(j)(10)(A)(iii) ; and the opportunity to compete for certain government contracts that are limited to Section 8(a) program participants, see id. § 637(a)(1)(D). Moreover, once admitted into the Section 8(a) program, participating SDBs may stay in the program for up to nine years, provided that they continue to meet the eligibility criteria for qualifying for—and remaining in—the program. See id. § 636(j)(10)(C) ; 13 C.F.R. § 124.2. Specifically, at all times applicants and participants must: (1) be a "small" business, as that term is defined in 13 C.F.R. § 121, see 13 C.F.R. §§ 124.101, 124.102 ; (2) demonstrate their business's potential to succeed, see id. § 124.101 ; and (3) have a majority owner or owners who are current U.S. residents and citizens of good character, and who are also "socially and economically disadvantaged" as the statute defines those terms, id.

The dispute in the instant case centers on the statutory definition of "socially disadvantaged individuals." Section 637 of Title 15 of the U.S.Code defines "[s]ocially disadvantaged individuals" as "those 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." 15 U.S.C. § 637(a)(5) ; see also id. § 631(f)(1)(B) (individuals may be "socially disadvantaged because of their identification as members of certain groups that have suffered the effects of discriminatory practices or similar invidious circumstances over which they have no control"). Pursuant to the statute, "such groups include, but are not limited to, Black Americans, Hispanic Americans, Native Americans, Indian tribes, Asian Pacific Americans, Native Hawaiian Organizations, and other minorities[.]" Id. § 631(f)(1)(C). Thus, the statute establishes "a rebuttable presumption" that members of these particular groups, and certain other groups, are "socially disadvantaged[,]" 13 C.F.R. § 124.103(b)(1), and if an individual business owner is not a member of a presumptively socially disadvantaged group, then he or she "must establish individual social disadvantage by a preponderance of the evidence[,]" id. § 124.103(c)(1). See also id . § 124.103(c)(2) (explaining that sufficient "[e]vidence of individual social disadvantage" has several "elements[,]" including "[a]t least one objective distinguishing feature that has contributed to social disadvantage" and "[p]ersonal experiences of substantial and chronic social disadvantage in American society").

In addition to defining "socially disadvantaged individuals[,]" the statute also defines "[e]conomically disadvantaged individuals[.]" 15 U.S.C. § 637(a)(6)(A). These are "socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged." Id. Factors that determine economically disadvantaged status include "income for the past three years[,] ... personal net worth, and the fair market value of all assets, whether encumbered or not." 13 C.F.R. § 124.104(c). As explained, a small business that can demonstrate its ability to succeed and that is owned by an individual citizen of good character who is considered socially and economically disadvantaged within the statutory definitions is eligible to participate in the Section 8(a) program. See id. § 124.101.

The Section 8(a) program is but "one of a number of government-wide programs [that are] designed to encourage the issuance of procurement contracts to" certain small businesses, DynaLantic, 885 F.Supp.2d at 244 (citing 15 U.S.C. § 644 ), including businesses that are owned by women, businesses that are owned by service-disabled veterans, and businesses that are located in...

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