After ruling on the proper standard to be applied to the case, the Supreme Court declined to render a decision on the merits. In submitting the case to the lower courts for consideration in light of the principles announced by the Court in Adarand Constructors, Inc. v. Pena, ___ U.S. ___, 115 S. Ct. 2097, 132 L. Ed. 2d 158 (1995) (Adarand III), the question presented was "'whether any of the ways in which the government uses subcontractor compensation clauses [SCC] can survive strict scrutiny.'" 1997 WL 295363, 1, citing Adarand III, 115 S. Ct. at 2119.
On the parties' cross-motions for summary judgment, the district court granted the plaintiff's motion and thereby enjoined the defendants from administering, enforcing, soliciting bids for or allocating any funds under the SCC program. This action "effectively precludes the implementation of the statutes or regulations that grant presumptive eligibility for government preference in contracting on the basis of race, i.e., the use of presumptions of social and economic disadvantage in § 8(d) of the Small Business Act[,] 72 Stat. 384, as amended, 15 U.S.C. § 631, et seq. (SBA) and the use of percentage goals found in and promulgated pursuant to § 644(g)\2 of the SBA, the Surface Transportation and Uniform Relocation Assistance Act of 1987 (STURAA) and the Intermodal Surface Transportation Efficiency Act of 1991, Pub. L. No. 102-240, 105 Stat. 1914 (ISTEA)...." Adarand IV, 1997 WL 295363 at 1. The court believed that these enactments, either per se or through their implementing regulations, allowed presumptive eligibility for a "preferred status" in federal contracts based on race. Id.
The district court then reviewed the Supreme Court's directives to the lower courts, focusing on the "unresolved questions" regarding the details of the complex regulatory schemes implicated by the use of the SCC's, the lack of clarity in the SBA regulations relating to "socially disadvantaged" and "economically disadvantaged" individuals and the inconsistency between the SBA definitions of "social" and "economic" disadvantage under section 8(a) and "economic" disadvantage under section 8 (d) of the statute. These concerns devolved to the implementing regulations as well. Thus, the Supreme Court directed the lower courts to determine whether the distinctions had any relevance to the question of whether the way in which the government uses SCC's can survive "strict scrutiny." Id. at 6.
Because of the Supreme Court's concerns regarding the
"complex regulatory regimes implicated by use of [SCC's]\7," the
district court took great pains to review the purposes, goals and
manner of implementation of sections 8(a) and 8(d) of the SBA, 15
U.S.C. §§ 637(a) and (d), the implementing regulations
thereof, 13 C.F.R. § 124.105 (a), (b) and (c), section 644(g) of
the SBA, and the goals and definitions set out in STURAA and ISTEA
relating to eligibility for and awarding minority highway construction
contracts. Id. at 6 to 13. The court concluded:
Significantly, both STURAA and ISTEA state the term 'socially and
economically disadvantaged individual[s]' has the meaning of such term
under § 8(d) of the SBA 'and relevant subcontracting regulations
promulgated pursuant thereto.' (citations omitted). Accordingly, under
STURAA and ISTEA, the race-based presumption contained in 15 U.S.C.
§ 637(d) applies for the purposes of determining both social and
economic disadvantage, although the somewhat contradictory regulations
promulgated pursuant to the SBA also apply. Thus, business concerns
owed and controlled by Black Americans, Hispanic Americans, Native
Americans, Asian Pacific Americans, in addition to other groups or
individuals certified under the more restrictive tests provided by the
SBA's 8(a) program are considered both socially and economically
disadvantaged for the purposes of STURAA and ISTEA. (citations
omitted).
Id. at 11.\8
Standing
In concluding that plaintiff had standing to bring the
action, the district court essentially relied on the Supreme Court's
review and analysis of relevant law regarding "forward looking relief"
against any future use of subcontractor compensation clauses.
Id. at 13 to 15.\9
According to the district court, there appears to be only one compelling interest recognized by the Supreme Court to justify racial classifications: remedying past wrongs. The court then launched into the type of fact-finding necessary to support a determination of "compelling interest." In so doing, he discussed at some length Congress' powers as the national legislature under section 5 of the Fourteenth Amendment and determined that while Congress must still establish that the interest in eliminating the targeted evil is so compelling, it has a unique role as the national legislature to look at the whole of the United States for situations that may generate a compelling governmental interest in applying race-based remedies. Id. at 21. \11
Narrow Tailoring
As stated earlier,
once a determination of "compelling governmental interest" has been
made, there remains the determination as to whether the statutes and
regulations are narrowly tailored to meet such interest.\12 Citing
Croson v. City of Richmond, 488 U.S. 469, 109 S. Ct. 706, 102
L. Ed. 2d 854 (1989), the district court stated that the better
identified discriminatory barriers are, the more likely it will be for
a court to find the measures enacted to eliminate those barriers are
narrowly tailored. Id. \13at 25. As guides for his determination
of narrow tailoring, Judge Kane used the five factors set out in
United States v. Paradise, 480 U.S. 149, 187 (1986): (1) the
efficacy of alternative remedies; (2) the planned duration of the
remedy;
(3) the relationship between the percentage of minority
group members in the relevant population or workforce; (4) the
availability of waiver provisions if the hiring plan could not be met;
and (5) the effect of the remedy upon innocent third parties. He then
concluded that the challenged statutes and regulations were not
narrowly tailored because they were both under inclusive and over
inclusive, i.e. over inclusive because they presume that all
those in the named minority groups are economically and socially
disadvantaged, and under inclusive because they exclude certain
minorities whose members are economically and socially disadvantaged
due to past and present discrimination. Id. at 29. The court
also determined that because the challenged statutes and regulations
include a presumptive disadvantage, they "do not provide a
reasonable assurance that the application of racial criteria will be
limited to accomplishing the remedial objectives of Congress."
Id. at 30. Judge Kane further concluded, "The inconsistencies
between these statutes and regulations and the resultant uncertainty
as to who may or may not participate in the race-based SCC program
preclude a finding of narrow tailoring." Id. at 31.\14 Finally,
the court determined that because the percentage goals for minority
subcontracting contained in the statutes and regulations were rooted
in the same race-based presumptions as the SCC's, they were
insufficiently narrowly tailored.\15
Conclusion
The SCC program did not survive strict
scrutiny. Therefore, Adarand's motion for summary judgment was granted
and defendant's motion was denied. The significance of this decision
is that section 106(c) of STURAA, section 1003(b) of ISTEA, section
8(d) of the SBA, 15 U.S.C. 644(g) \16 and the implementing regulations
and the SCC program arising pursuant to those statutes and regulations
are unconstitutional as applied to highway construction in the State
of Colorado, depriving plaintiff of its constitutional rights.
Footnotes
\1 At the beginning of the decision, the district court expressed extreme frustration at the prudence of the remand, stating that it was difficult to perceive because both parties had stipulated to the absence of any dispute of material fact and the "unresolved questions" posed by Justice O'Connor in Adarand III concerned only issues of statutory construction, which "the higher courts are better equipped to decide as a matter of law", i.e. "whether, under the proper interpretation, the statutes involved can be described as in furtherance of a compelling interest and narrowly tailored to meet that interest...." Adarand IV, 1997 WL 295363, 1. The court believed that concerns of judicial efficiency and swift resolution favored resolution of the issues by the higher courts. Id. This frustration with the higher courts pervaded the district court's opinion. This frustration with the higher courts pervaded the district court's opinion.\2 See discussion of § 644(g) at note 16 infra.[Back]
\3 Adarand Constructors, Inc. v. Skinner (Adarand I), 790 F. Supp. 240 (D. Colo. 1992).[Back]
\4 Adarand Constructors, Inc. v. Pena (Adarand II), 16 F. 3d 1537 (10th Cir. 1994) and Adarand III. [Back]
\5 The significance of this concern will be seen later. [Back]
\6 Adarand III, 115 S. Ct. at 2117, quoting Fullilove v. Klutznick, 448 U.S. 448, 519) (Marshall, J. concurring in judgment).[Back]
\8 A significant fact here was that at the time of the challenged contract award, Gonzales Construction (the awardee), owed and operated by Frankie Gonzales, was certified as a disadvantaged business enterprise (DBE) by the State of Colorado Department of Highways. In granting Gonzales DBE certification, the State presumed that Frankie Gonzales was both socially and economically disadvantaged, i.e. no specific findings as to his status, or that of his company, were made. Adarand IV, supra, at 13.[Back]
\9 The Supreme Court determined that plaintiff had standing, based upon the deposition testimony of Adarand's general manager. The Court found that Adarand had '"made an adequate showing that sometime in the relatively near future it will bid on another government contract that offers financial incentives to a prime contractor for hiring disadvantaged subcontractors.'" Id. at 13, quoting Adarand III at 2105.[Back]
\10 Here, too, the district court chided the Supreme Court for not giving any meaning to the phrase "compelling interest", "either by definition or by illustration." Id. at 16.[Back]
\11 Reviewing both pre- and post-enactment evidence submitted by the defendants, the court concluded that Congress had a strong basis in evidence for enacting the challenged statutes, "which thus serve a 'compelling governmental interest.'" Id. at 25.[Back]
\12 In beginning this analysis, the district court expressed uncertainty as to which party bore the burden of showing that the statutory and regulatory scheme was not narrowly tailored to serve a compelling interest. Citing Concrete Works v. City and County of Denver, 36 F. 3d 1513 (10th Cir. 1994), the court concluded that the governmental entity must present evidence from which a court can conclude that there was a firm basis for deciding that remedial action was appropriate, but that the challenger bore the ultimate burden of showing that the evidence did not support an inference of prior discrimination and thus the particular remedy was not sufficiently narrowly tailored. Id.[Back]
\13 Here, again, Judge Kane respectfully admonished the Supreme Court majority for offering little guidance as to how a race-based remedial approach can be narrowly tailored. Id. Indeed, later in the discussion, he said, "Contrary to the Court's pronouncement that strict scrutiny is not 'fatal in fact,' I find it difficult to envisage a race-based classification that is narrowly tailored...." Id. at 29.[Back]
\14 The court believed that without a well-defined set of consistent definitions, the SCC program could not provide the reasonable assurance that the application of the race-based remedies would be limited to accomplishing Congress' objectives. Id. at 31, citing Fullilove, 488 U.S. at 487.[Back]
\15 The court gave short shrift to the last two elements set out in United States v. Paradise, that of duration of remedy and burden on the majority. In fact, the district court said that because he had found the SCC program not narrowly tailored on the basis of other relevant factors, he need not rule on the issue of whether the program would last longer than the discriminatory effect it was designed to eliminate. Id. at 34. With respect to burden on the majority, the court said, "The actual 'burden' shouldered by nonminority firms is relatively light in this connection when we consider the scope of this public works program as compared with overall construction contracting opportunities." Id.[Back]
\16 It is unclear what the significance will be in other circumstances of the Court's holding that 15 U.S.C. § 644(g) of the SBA is unconstitutional. Although the decision was limited to highway construction in Colorado, § 644(g) has widespread effect as it establishes a five per cent Government-wide goal for the participation of small business concerns owned and controlled by socially and economically disadvantaged individuals for the total value of all prime contract and subcontract awards for each fiscal year. This section, including its other provisions, provides the basis for all of the Department's goals for small, minority owned and women owned businesses.[Back]