Sherbrooke Turf v. Minnesota Dept of Transp

• Decision Date: 06 October 2003
• Docket Number: No. 02-1665.,No. 02-3016.,02-1665.,02-3016.
• Citation: 345 F.3d 964
• Parties: SHERBROOKE TURF, INC., Plaintiff-Appellant, v. MINNESOTA DEPARTMENT OF TRANSPORTATION, et al., Defendants-Appellees, United States of America, et al., Intervenor Defendant Appellees. Gross Seed Company, Plaintiff-Appellant, v. Nebraska Department of Roads, et al., Defendants-Appellees, United States Department of Transportation, et al., Intervenor Defendant Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 964

345 F.3d 964

SHERBROOKE TURF, INC., Plaintiff-Appellant, v. MINNESOTA DEPARTMENT OF TRANSPORTATION, et al., Defendants-Appellees, United States of America, et al., Intervenor Defendant Appellees.

Gross Seed Company, Plaintiff-Appellant, v. Nebraska Department of Roads, et al., Defendants-Appellees, United States Department of Transportation, et al., Intervenor Defendant Appellees.

No. 02-1665.

No. 02-3016.

United States Court of Appeals, Eighth Circuit.

Submitted: May 15, 2003.

Filed: October 6, 2003.

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Counsel who presented argument on behalf of the appellants was Thomas R. Olson of St. Paul, Minnesota. Also appearing on the briefs was Kimberly Asher Price, and Kristine A. Kubes.

Counsel who presented argument on behalf of appellees FHA, U.S. DOT and USA in 02-1665, and appellees Federal Highway and U.S. Department of Transportation in 02-3016 was Matt Michael Dummermuth of Washington, D.C. Also appearing on the briefs were Kirk Van Tine, Paul M. Geier, James A. Rowland, Edward V.A. Kussy, Ralph F. Boyd, Jr., Mark L. Gross, and Teresa Kwong. Counsel who presented argument on behalf of appellees Minnesota Department of Transportation, Tinklenberg, and Molnau in 02-1665 was Jeffery Scott Thompson of St. Paul, Minnesota. Also appearing on the brief was Mike Hatch. Counsel who presented argument on behalf of appellees Craig and Nebraska Department of Roads in 02-3016 was Stephen D. Mossman of Lincoln, Nebraska. Also appearing on the brief were J.L. Spray and Jeffery T. Schroder.

Before LOKEN, Chief Judge, FAGG and MURPHY, Circuit Judges.

LOKEN, Chief Judge.

Since 1982, the federal highway statutes have required that ten percent of federal highway construction funds be paid to small businesses owned and controlled by "socially and economically disadvantaged individuals," as that term is defined in § 8(d) of the Small Business Act (15 U.S.C. § 637). See Surface Transportation Assistance Act of 1982, Pub.L. No. 97-424, § 105(f), 96 Stat.2097, 2100. Two non-minority contractors filed these separate actions challenging the current statute and Department of Transportation (DOT) regulations, as implemented in Minnesota and Nebraska. In the Minnesota action, plaintiff Sherbrooke Turf, Inc. ("Sherbrooke"), sued the Minnesota Department of Transportation (MnDOT) and its Commissioner to enjoin this aspect of the State's federally-assisted highway program. In the Nebraska action, plaintiff Gross Seed Company ("Gross Seed") sued the Nebraska Department of Roads (NDOR) and its Director.¹ In each case, with the constitutionality of a federal statute at issue, the United States and DOT intervened as additional defendants. In the Minnesota action, the Associated General Contractors of America and its Minnesota affiliate appeared as amicus on behalf of plaintiff Sherbrooke.

Sherbrooke and Gross Seed provide landscaping services to prime contractors on federally assisted highway projects. In each lawsuit, the district court² held that the subcontractor plaintiff has standing to assert its constitutional claims. We agree. The stipulated facts demonstrate that Sherbrooke and Gross Seed have bid on federally assisted highway projects in the past, will continue to bid in the future, and suffer competitive harm when contracts are awarded to others under DOT's Disadvantaged Business Enterprises (DBE) program. See Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 211-12, 115 S.Ct. 2097, 132 L.Ed.2d 158 (1995). Turning to the merits, the district courts concluded that the DBE program as implemented in Minnesota and Nebraska satisfies strict scrutiny review, both facially and as applied, as the Tenth Circuit concluded following the Supreme Court's remand in Adarand. Adarand Constructors, Inc. v. Slater, 228 F.3d 1147 (10th Cir.2000) (Adarand II), cert. granted then dismissed as improvidently granted, 532 U.S. 941, 121 S.Ct. 1401, 534 U.S. 103, 122 S.Ct. 511 (2001). Sherbrooke and Gross Seed appeal, arguing the district courts erred in concluding that the federal DBE program satisfies strict scrutiny and in concluding that Minnesota and Nebraska need not establish that their implementation of the DBE program survives independent strict scrutiny review as well. We affirm.

I. The Legislative Background.

Prior to the 1982 statute designating ten percent of federal highway funds for minority small business contractors, a comparable provision in the Public Works Employment Act of 1977 was upheld in Fullilove v. Klutznick, 448 U.S. 448, 100 S.Ct. 2758, 65 L.Ed.2d 902 (1980). However, the constitutionality of mandatory set-asides based on racial factors was placed in doubt by later Supreme Court's decisions — City of Richmond v. J.A. Croson Co., 488 U.S. 469, 498-99, 109 S.Ct. 706, 102 L.Ed.2d 854 (1989), which struck down the City's thirty percent set-aside for minority small businesses, and Adarand, which held that all government race-based classifications are subject to strict judicial scrutiny. 515 U.S. at 235, 115 S.Ct. 2097. Following Adarand, the District of Minnesota invalidated the statutory ten percent set-aside of federal highway funds and DOT's then-existing regulations, "as applied to highway construction contracts in the State of Minnesota." In re Sherbrooke Sodding Co., 17 F.Supp.2d 1026, 1037-38 (D.Minn.1998). As a result, the DBE program was suspended in Minnesota in 1999.

In the wake of these judicial decisions, Congress passed the Transportation Equity Act for the 21st Century ("TEA-21"), which continued the ten percent designation subject to DOT implementation. Pub.L. No. 105-178, § 1101(b)(1), 112 Stat. 107, 113. DOT then promulgated the new implementing regulations here at issue in 49 C.F.R. pt. 26. See 64 Fed.Reg. 5096 (Feb. 2, 1999).

The revised DBE program provides contracting advantages to small businesses owned and controlled by "socially and economically disadvantaged individuals." "Socially disadvantaged individuals are 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). "Economically disadvantaged individuals are those 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." 15 U.S.C. § 637(a)(6)(A). In determining whether a contractor qualifies as a DBE, grantee States must employ a rebuttable presumption that women and members of most racial minority groups are socially and economically disadvantaged. See TEA-21, § 1101(b)(2)(B), 112 Stat. at 113, incorporating 15 U.S.C. § 637(d)(3)(C) and 13 C.F.R. § 124.103(b). An individual whose personal net worth exceeds $750,000 is not economically disadvantaged. See 49 C.F.R. § 26.67(b). Small businesses do not qualify if their earnings exceeded $16.6 million per year in the previous three fiscal years. TEA-21 § 1101(b)(2)(A), 112 Stat. at 113.

II. Strict Scrutiny Review.

Sherbrooke and Gross Seed contend that the federal highway DBE program, on its face and as applied in Minnesota and Nebraska, violates the equal protection component of the Fifth Amendment's Due Process Clause. Adarand established that a federal program employing race-based classifications or remedies "must be analyzed by a reviewing court under strict scrutiny." 515 U.S. at 227, 115 S.Ct. 2097.³ Though the DBE program confers benefits on "socially and economically disadvantaged individuals," a term that is facially race-neutral, the government concedes that the program is subject to strict judicial scrutiny, no doubt because the statute employs a race-based rebuttable presumption to define this class of beneficiaries and authorizes the use of race-conscious remedial measures. See Adarand, 515 U.S. at 212-13, 115 S.Ct. 2097.⁴ Thus, the statute's race-based measures "are constitutional only if they are narrowly tailored to further compelling governmental interests." Grutter v. Bollinger, ___ U.S. ___, ___-___, 123 S.Ct. 2325, 2337-38, 156 L.Ed.2d 304 (2003). The Court has cautioned courts conducting this review that strict scrutiny is rigorous but not always "fatal in fact." Adarand, 515 U.S. at 237, 115 S.Ct. 2097 (quotation omitted).

A. Compelling Governmental Interest.

To survive strict scrutiny, the government must first articulate a legislative goal that is properly considered a compelling government interest. Neither Sherbrooke nor Gross Seed challenges the district courts' conclusion that Congress and DOT acted to further a compelling interest. As the Tenth Circuit said in Adarand II, "we readily conclude that the federal government has a compelling interest in not perpetuating the effects of racial discrimination in its own distribution of federal funds and in remediating the effects of past discrimination in the government contracting markets created by its disbursements." 228 F.3d at 1165; accord Croson, 488 U.S. at 492, 109 S.Ct. 706.

In addition to identifying a compelling government interest, the government must demonstrate a "strong basis in the evidence" supporting its conclusion that race-based remedial action was necessary to further that interest. "Racial classifications are suspect, and that means that simple legislative assurances of good intention cannot suffice." Croson, 488 U.S. at 500, 109 S.Ct. 706. Sherbrooke and Gross Seed argue that Congress lacked strong evidence supporting its conclusion that race-based classifications and remedial measures were necessary. They argue that, in enacting TEA-21, Congress had no "hard evidence" of widespread intentional race discrimination in the contracting industry, relying instead on misrepresentations contained in "Appendix I," a Department of Justice summary of more than fifty documents and thirty congressional hearings on minority-owned...