Va. Chapter, Associated Gen. Contractors v. Kreps, Civ. A. No. 77-0478.

CourtUnited States District Courts. 4th Circuit. United States District Court (Western District of Virginia)
Citation444 F. Supp. 1167
Docket NumberCiv. A. No. 77-0478.
PartiesVIRGINIA CHAPTER, ASSOCIATED GENERAL CONTRACTORS OF AMERICA, INC., etc. and Rowland Electric Company, Inc., Plaintiffs, v. Juanita KREPS, Secretary of Commerce of the United States of America, et al., Defendants.
Decision Date24 January 1978

444 F. Supp. 1167

Juanita KREPS, Secretary of Commerce of the United States of America, et al., Defendants.

Civ. A. No. 77-0478.

United States District Court, W. D. Virginia, Abingdon Division.

January 24, 1978.

444 F. Supp. 1168
444 F. Supp. 1169
William H. King, Jr., James F. Stutts, Richard L. Williams, McGuire, Woods & Battle, Richmond, Va., for plaintiffs

Deborah M. Seymour, Drew S. Days, III, Robert T. Moore, Dept. of Justice, Washington, D. C., Paul R. Thomson, Jr., U. S. Atty., Roanoke, Va., for Federal defendants.

John H. Tate, Jr., Gwyn & Tate, Marion, Va., for Smyth County defendants.


TURK, Chief Judge.



In this action plaintiffs, Virginia Chapter, Associated General Contractors of America, Inc. and Rowland Electric Company, Inc. seek a preliminary injunction pursuant to Rule 65(a) restraining defendants, federal, state and local officials from enforcing certain portions of the Public Works Employment Act of 1976, and particularly one of the 1977 amendments to the act. Plaintiffs sue under the Fifth Amendment of the United States Constitution, 42 U.S.C. § 1981, 42 U.S.C. § 2000d and 42 U.S.C. § 6727, alleging jurisdiction under 28 U.S.C. § 1331, 28 U.S.C. § 1337 and 28 U.S.C. § 1343. They seek declaratory relief by virtue of 28 U.S.C. § 2201, 28 U.S.C. § 2202, and plaintiff Rowland Electric Company, Inc. seeks damages for lost profits. They allege venue is proper in the Western District of Virginia by virtue of 28 U.S.C. § 1391(e).

Plaintiffs filed suit on December 6, 1977 and the court heard argument on plaintiff's application for a preliminary injunction on December 12, 1977. The court allowed both sides additional time to file supporting briefs after argument. As required by Rule 52(a) and 65(a) of the Federal Rules of Civil Procedure, this memorandum opinion serves as the court's findings of fact and conclusions of law regarding plaintiffs' application for a preliminary injunction. See Fed.R.Civ.P. 52(a); Fed.R.Civ.P. 65(a); Blackwelder Furniture Company v. Seilig Manufacturing Company, Inc., 550 F.2d 189, 192 n. 1 (4th Cir. 1977).



The essence of plaintiffs' complaint is that Congress, by its 1977 amendments to the Public Works Employment Act of 1976, created an impermissable racial classification that violates the equal protection guarantee

444 F. Supp. 1170
implicit in the Fifth Amendment.1 Specifically, plaintiffs claim one of the 1977 amendments, 42 U.S.C. § 6705(f)(2), is an illegal racial "quota" which cannot withstand the strict judicial scrutiny required of racial classifications. 42 U.S.C. § 6705(f)(2) provides
Except to the extent that the Secretary determines otherwise, no grant shall be made under this chapter for any local public works project unless the applicant gives satisfactory assurance to the Secretary that at least 10 per centum of the amount of each grant shall be expended for minority business enterprises. For purposes of this paragraph, the term "minority business enterprise" means a business at least 50 per centum of which is owned by minority group members or, in case of a publicly owned business, at least 51 per centum of the stock of which is owned by minority group members. For the purposes of the preceding sentence, minority group members are citizens of the United States who are Negroes, Spanish-speaking, Orientals, Indians, Eskimos, and Aleuts.

Plaintiffs allege that the 10% Minority Business Enterprise requirement (hereinafter "MBE requirement") for local contracts awarded under the Public Works Employment Act of 1976 (hereinafter "PWEA") deprives them of their right to be free from racial discrimination, a right protected by the Due Process Clause of the Fifth Amendment. Plaintiffs allege the 10% MBE requirement is a naked racial "quota", not a "goal" or remedy designed to alleviate the present effects of past racial discrimination against minority enterprises. They state that, "racially focused remedies are not constitutionally permissable unless there has been a documented finding of previous discrimination which the remedy is designed to address, and, even then, the remedy may go no further than a correction of the past injuries." Complaint, ¶ 25.

Plaintiffs seek injunctive relief to prevent federal defendants from requiring local entities to grant assurances that at least 10% of all monies expended for local grants will be contracted to MBE companies. Plaintiffs seek injunctive relief to prevent federal defendants from taking any actions to penalize noncompliance with the 10% MBE requirement, and to prevent defendants from approving, advertising or awarding bids for projects which employ the 10% MBE requirement. Plaintiffs further ask to enjoin defendants from "approving or effectuating any approval given or in any way implementing the award by its grantee and agent, Smyth County, Virginia, of the Health and Social Service Center funded pursuant to the terms of the Act to any bidder other than the lowest qualified bidder." Complaint, ¶ 33. Plaintiffs seek a declaration that 42 U.S.C. § 6705(f)(2) is unconstitutional as violative of the Fifth Amendment, and a declaration that the policy, practice, custom and usage whereby federal, state and local agents have implemented the act is also unconstitutional. Plaintiff Rowland Electric Company, Inc. desires lost profits for its failure to gain the subcontract for electrical work on the Smyth County Center because of the 10% MBE requirement. Finally, plaintiffs seek an award of their costs, expenses and attorneys' fees in this litigation.



The court finds it has subject-matter jurisdiction over plaintiffs' claims under at

444 F. Supp. 1171
least two statutory grants of jurisdiction. Because plaintiffs have made good-faith allegations of at least $10,000 as the amount in controversy, St. Paul Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 38, 82 L.Ed. 516 (1938), the court has jurisdiction under 28 U.S.C. § 1331. Also, because plaintiffs' claims arise under an Act of Congress regulating commerce jurisdiction under 28 U.S.C. § 1337 is proper. E. g., Winningham v. United States Department of HUD, 512 F.2d 617, 621-22 (5th Cir. 1975)





The Public Works Employment Act of 1976 became law on July 22, 1976. 42 U.S.C. § 6701 et seq; P.L. 94-369. At that time Congress appropriated $2 billion for implementation of the act, with all funds to be spent prior to September 30, 1977. 42 U.S.C. § 6710; P.L. 94-447. The act was to be administered by the Secretary of Commerce, through the Economic Development Administration (hereinafter "EDA"), which was to distribute funds to state and local governments under the act. Grantees were required to contract out project construction to private firms through competitive bidding. 42 U.S.C. §§ 6701-6705; P.L. 94-369, Title I, SS. 102-106.

From October 26, 1976 until February 9, 1977, EDA received, processed, considered, approved and denied applications from state and local governments for assistance under the act. This period, referred to by the parties as "Round I" of the PWEA, resulted in the approval of approximately 2,000 projects. Even before EDA had finished processing applications under Round I, H.R. 11 and S. 427 were introduced in the House of Representatives on January 11, 1977 and in the Senate on January 25, 1977, respectively to provide additional funding under the act. After hearings and debate, the PWEA of 1977 became law on May 13, 1977. It amended the PWEA of 1976 and authorized the expenditure of an additional $4 billion for a "Round II" program of grants. The 10% MBE requirement was added by the 1977 amendments and is only applicable to grants made under Round II of the act.


Round I

The Report of the House Committee on Public Works and Transportation accompanying the legislation that authorized Round I stated that the PWEA, ". . . has a twofold purpose: (1) to alleviate the problem of nationwide unemployment, and (2) to stimulate the national economy by assisting State and local governments to build badly needed public facilities." Report No. 94-1077, 94th Cong., 2d Sess., at 2, U.S.Code Cong. & Admin.News 1976, pp. 1746, 1747. The report further stated:

The Bill is carefully and expressly designed to avoid the long lag time sometimes associated with public works programs. . . . To be eligible for a grant, a project must be started within 90 days of its approval if Federal funds are available. The bill also provides that applications must be acted upon by the administrative agency within 60 days of the date of its receipt. Id., at 3, U.S.Code Cong. & Admin.News 1976, p. 1748.

The congressional intent to obtain speedy action by EDA was manifested by the following provision of 42 U.S.C. § 6706 relating to the 60 day period:

Failure to make such final determination within such period shall be deemed to be an approval by the Secretary of the grant requested.

42 U.S.C. § 6706 also required that regulations to implement the act be issued within 30 days of its enactment.

On December 23, 1976, EDA published a list of 1988 projects which had been provisionally selected for funding under Round I. 41 F.Reg. 56146. By February 9, 1977, final

444 F. Supp. 1172
project processing had been completed, and a total of approximately 2,000 projects had been approved. The 23,500 rejected applicants had requested a total of approximately $21.8 billion


Round II

The 1977 amendments to the PWEA were designed to resolve certain problems encountered in administering Round I. See, Report of the Committee on Public Works and Transportation, U.S. House of Representatives, "Local Public Works Capital Development and Investment Act Amendments," H...

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    ...the issues presented by the 10% minority business enterprises provision of the PWE Act. E. g., Virginia Chapter, Associated General Contractors v. Kreps, 444 F.Supp. 1167 (W.D.Va.1978); Wright Farms Construction, Inc. v. Kreps, 444 F.Supp. 1023 (D.Vt.1977), holding the 10% race quota uncons......
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    ...where the public interest rests." Rum Creek, 926 F.2d at 353 (quoting Virginia Chapter, Associated Gen. Contractors v. Kreps, 444 F.Supp. 1167, 1185-86 (W.D.Va. 1978)). Of course, the Court must be keenly aware of considerations of comity and federalism that necessarily are in tension anyti......
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