Rothe Development Corp. v. Department of Defense, 2008-1017.
| Decision Date | 04 November 2008 |
| Docket Number | No. 2008-1017.,2008-1017. |
| Citation | 545 F.3d 1023 |
| Parties | ROTHE DEVELOPMENT CORPORATION, Plaintiff-Appellant, v. DEPARTMENT OF DEFENSE and Department of the Air Force, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Federal Circuit |
David F. Barton, The Gardner Law Firm, of San Antonio, Texas, argued for plaintiff-appellant. Of counsel was Jay K. Farwell.
Karen L. Stevens, Attorney, Appellate Section, Civil Rights Division, United States Department of Justice, of Washington, DC, argued for defendants-appellees. With her on the brief were Grace Chung Becker, Acting Assistant Attorney General, and Mark L. Gross, Attorney. Of counsel was Gregory B. Friel, Attorney.
J. Scott Detamore, Mountain States Legal Foundation, of Lakewood, Colorado, for amicus curiae Mountain States Legal Foundation.
Paul J. Beard II, Pacific Legal Foundation, of Sacramento, California, for amici curiae Pacific Legal Foundation and Center for Equal Opportunity.
Before MICHEL, Chief Judge, MAYER, Circuit Judge, and STEARNS,* District Judge.
This case concerns the constitutionality of 10 U.S.C. § 2323 ("Section 1207"), which, in relevant part, (1) sets a "goal" that five percent of federal defense contracting dollars for each fiscal year be awarded to certain entities including small business concerns owned and controlled by "socially and economically disadvantaged individuals"; (2) incorporates the Small Business Act's presumption that Black Americans, Asian Americans, Hispanic Americans, and Native Americans are socially disadvantaged individuals; and (3) provides that the Department of Defense shall give specified forms of assistance to the listed entities and may, when practicable and necessary to achieve the five percent goal, make advance payments to those entities and award contracts to them at prices up to ten percent above fair market cost.
Plaintiff-Appellant Rothe Development Corporation ("Rothe") filed its first complaint in this case in November, 1998, bringing an equal protection challenge to Section 1207 both on its face and as applied by Defendants-Appellants the Department of Defense and Department of the Air Force (together, "DOD") earlier that year, when DOD awarded a contract to an Asian-American-owned business despite the fact that Rothe—owned by a Caucasian woman—was the lowest bidder. Since this case began in 1998, Congress has reenacted Section 1207 a number of times, the district court has rendered judgment in this case three times, and we have remanded the case twice without reaching the ultimate question of constitutional muster. Most recently, the district court granted summary judgment to DOD on Rothe's facial challenge, Rothe Dev. Corp. v. U.S. Dep't of Def., 499 F.Supp.2d 775 (W.D.Tex.2007) ("Rothe VI"), and, after Rothe's claim for monetary relief became moot, entered a final judgment in favor of DOD on September 25, 2007. Rothe appealed, and we heard oral argument on September 2, 2008.
Now, in our third opinion in this case, we must decide whether Section 1207, on its face, as reenacted in 2006, violates the right to equal protection (as incorporated against the federal government by the Due Process Clause of the Fifth Amendment). Because we will hold that Congress did not have a "strong basis in evidence" before it in 2006, upon which to conclude that DOD was a passive participant in racial discrimination in relevant markets across the country and that therefore race-conscious remedial measures were necessary, we will reverse the district court's judgment in part, and will hold that Section 1207 (i.e., 10 U.S.C. § 2323) is unconstitutional on its face.
Section 1207, relevant sections of the Small Business Act, pertinent regulations, and their history are set out in detail in the district court's thorough opinion. See Rothe VI, 499 F.Supp.2d at 784-94. A brief review follows here.
Congress first enacted Section 1207 in 1986, for a three-year period. See National Defense Authorization Act of 1987, Pub.L. No. 99-661, § 1207, 100 Stat. 3816, 3973 (Nov. 14, 1986). The statute, titled "Contract Goal for Minorities," provided that, except where compelling national security considerations required otherwise:
a goal of 5 percent of the amount of [DOD procurement, R&D, military construction, and maintenance contracts] shall be the goal of the Department of Defense in each of fiscal years 1987, 1988, and 1989 for the total combined amount obligated for contracts and subcontracts entered into with [inter alia,] small business concerns, including mass media, owned and controlled by socially and economically disadvantaged individuals (as defined by section 8(d) of the Small Business Act (15 U.S.C. 637(d)) and regulations issued under such section), the majority of the earnings of which directly accrue to such individuals....
Id. § 1207(a) (emphasis added).
Section 8(d) of the Small Business Act and relevant regulations, in turn, provided at that time that Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and other minorities were presumed to be "socially and economically disadvantaged individuals." See 15 U.S.C. § 637(d)(3)(C)(ii) (1990).
Subsection (e) of Section 1207, titled "Competitive Procedures and Advanced Payments," directed DOD to take certain measures to attain the goal of directing five percent of contract dollars to businesses owned by socially and economically disadvantaged individuals (such businesses, "SDBs"). Most prominently, the statute provided that
[t]o the extent practicable and when necessary to facilitate achievement of the 5 percent goal described in subsection (a), the Secretary of Defense may enter into contracts using less than full and open competitive procedures (including awards under section 8(a) of the Small Business Act), but shall pay a price not exceeding fair market cost by more than 10 percent in payment per contract to contractors or subcontractors described in subsection (a).
Pub.L. No. 99-661, § 1207(e)(3) (emphasis added). DOD implemented this directive by applying a price evaluation adjustment ("PEA") to bids submitted by non-SDB bidders, increasing those bids by ten percent before comparing them to the bids submitted by SDBs.
In 1989, before Section 1207 was set to expire, Congress reenacted the statute for another three years. See National Defense Authorization Act for Fiscal Years 1990 and 1991, Pub.L. No. 101-189 § 831(b), 103 Stat. 1352, 1507 (Nov. 29, 1989). In 1992, Congress reenacted Section 1207 again, this time for seven years. See National Defense Authorization Act for Fiscal Year 1993, Pub.L. No. 102-484, § 801(a)(1)(B), 106 Stat. 2315, 2442 (Oct. 23, 1992).
In 1998, Congress amended the statute without yet reenacting it. This amendment required DOD to suspend the PEA mechanism for an entire year after any fiscal year in which the five percent goal had been met. See Strom Thurmond National Defense Authorization Act for Fiscal Year 1999, Pub.L. No. 105-261, § 801, 112 Stat.1920, 2080-81 (Oct. 5, 1999). Because the five percent goal was met for fiscal year 1998, the PEA was suspended in 1999. See Suspension of the Price Evaluation Adjustment for Small Disadvantaged Businesses, 64 Fed.Reg. 4847 (Feb. 1, 1999).
Congress reenacted Section 1207 in 1999, again in 2002, and most recently in 2006. See National Defense Authorization Act for Fiscal Year 2000, Pub.L. No. 106-65, § 808, 113 Stat. 512, 705 (Oct. 5, 1999); Bob Stump National Defense Authorization Act for Fiscal Year 2003, Pub.L. No. 107-314, § 816, 116 Stat. 2610 (Dec. 2, 2002); National Defense Authorization Act for Fiscal Year 2006, Pub.L. No. 109-163, § 842, 119 Stat. 3136 (Jan. 6, 2006). The statute is now set to expire at the end of fiscal year 2009 if it is not reenacted before then. See 10 U.S.C. § 2323(k)(1) ().
As the district court noted, DOD met the five percent goal in every fiscal year from 1998 to 2006, and thus the PEA was serially suspended through March 9, 2008. See Rothe VI, 499 F.Supp.2d at 792-93. In February of 2008, while this appeal was pending, DOD published notice that it met the five percent goal in fiscal year 2007 as well, and that DOD would continue to suspend the PEA through March 9, 2009. Suspension of the Price Evaluation Adjustment for Small Disadvantaged Businesses, 73 Fed.Reg. 9304 (Feb. 20, 2008).
The present Section 1207, i.e., as reenacted in 2006, and relevant regulations differ from the original enactment and regulations to some degree, as the district court discussed. See Rothe VI, 499 F.Supp.2d at 790-94. First, in addition to the PEA suspension clause added by the 1998 amendments, the present statute provides that whenever the PEA is not suspended, the size of the adjustment made to non-SDB bids need not be ten percent, and must be smaller if non-SDBs are being denied a reasonable opportunity to compete.2 See 10 U.S.C. § 2323(e)(3)(A) (); see also id. § 2323(g)(1)(A) (); id. § 2323(g)(2) (...
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