On September 23, 2024, the United States District Court for the Eastern District of Kentucky (the “Court”) issued an Opinion and Order in Mid-America Milling Co., LLC, et al., v. U.S. Department of Transportation, et. al., No. 3:23-CV-00072-GFVT, 2024 WL 4267183 (E.D. Ky. Sept. 23, 2024). The Court granted a preliminary injunction related to the United States Department of Transportation (USDOT) Disadvantaged Business Enterprise (DBE) program (the “DBE Program”). Specifically, the Court found that the race- and gender-based rebuttable presumptions used in the DBE Program violate the U.S. Constitution’s guarantee of equal protection under the Fourteenth Amendment. The Court limited the scope of the preliminary injunction to the plaintiffs, Mid-America Milling Co., LLC and Bagshaw Trucking Inc. (the “Plaintiffs”), in the states in which they operate — Kentucky and Indiana.
Background
DBE Program
By way of background, in 1983,1 Congress enacted, and has subsequently reauthorized,2 the DBE Program, requiring that 10% of USDOT’s construction funds be paid to small businesses owned and controlled by socially and economically disadvantaged individuals.3 Minority- and women-owned businesses are presumed to be socially and economically disadvantaged (the “rebuttable presumption”), while other applicants applying for DBE certification are required to prove, by a preponderance of the evidence, that they are socially and economically disadvantaged.4 Pursuant to federal law, recipients of USDOT funding are required to implement the requirements set forth in the DBE Program, including implementing their own DBE programs and DBE goals, which may be met through race- or gender-neutral means or through contract goals and good faith efforts.5
Plaintiffs
The Plaintiffs regularly bid on contracts funded by the USDOT. Neither Plaintiff, however, qualifies as a “DBE” via the rebuttable presumption, and the Plaintiffs assert that they are denied the opportunity to compete for transportation contracts on equal footing. The Plaintiffs contend that they previously lost out on federally funded contracts to DBE firms, even when they submitted lower bids. The Plaintiffs filed suit seeking: (1) a declaratory judgment and (2) a preliminary and permanent injunction enjoining the USDOT from applying race- and gender-based classifications in its DBE program.
Standing
Prior to rendering a decision on the motion to dismiss and preliminary injunction, the Court examined whether the Plaintiffs had standing to bring their claims. A plaintiff must have: (1) suffered an injury in fact; (2) that is fairly traceable to the challenged conduct of the defendant; and (3) that is likely to be redressed by a favorable judicial decision.6
In an equal protection case, an injury in fact arises “[w]hen the government erects a barrier that makes it more difficult for members of one group to obtain a benefit than it is for members of another group.”7 Specifically, the injury “is the denial of equal treatment resulting from the imposition of the barrier, not the ultimate inability to obtain the benefit.”8 Thus, in order to demonstrate that an injury in fact is imminent, a plaintiff must demonstrate that it is “able and ready to bid on contracts and that a discriminatory policy prevents it from doing so on an equal basis.”9 The Court determined that Plaintiffs need not necessarily identify specific contracts that they plan to bid on in the near future, so long as the Plaintiffs have 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.”10 The Plaintiffs’ assertion that they routinely bid on contracts in Kentucky and Indiana, and that those contracts typically include a DBE participation goal, is adequate to demonstrate the imminence of the injury to the Plaintiff.
The Court recognized the split of authority regarding the causation and redressability requirements for standing in a DBE case. The Court followed the U.S. Court of Appeals for the Seventh Circuit’s approach (i.e., that the barrier to entry is the cause of the injury, and removal of the barrier redresses the injury) rather than the stringent severability test followed by the U.S. Court of Appeals for the Tenth Circuit (i.e., that the rebuttable presumption given to racial minorities and women are severable from the program as a whole, and the program would have just as much DBE participation if the rebuttable presumption is eliminated). The Court held that the race- and gender-based presumptions are material to the DBE Program and eliminating them would redress the injury harming Plaintiffs. The Plaintiffs showed a likelihood of success on standing by (1) establishing an injury that resulted from the denial of equal treatment, which is traceable to the DBE Program’s race- and gender-based presumption, and (2) establishing that the injury is redressable by a favorable decision by the Court.
Plaintiffs’ Challenge to the Race-Based Presumption – Strict Scrutiny Examination
The Court determined that the race-based presumption violates the Constitution’s guarantee of equal protection under the Fourteenth Amendment. The Fourteenth Amendment prohibits any state from denying a person equal protection under the law. The use of racial classifications are only permissible if the government’s use of the classification can pass a strict scrutiny test, a heightened two-step examination employed by courts when a government action involves a suspect classification — race, religion, national origin or citizenship. First, the government must demonstrate that the racial classification furthers a compelling government interest. Second, if a compelling interest has been demonstrated, the government must prove that the use of race is narrowly tailored to achieve that compelling interest.
The U.S. Supreme Court has identified only two compelling interests that permit race-based government action: (1) remediating specific, identified instance of past discrimination that violated the constitute or a statute; or (2) avoiding imminent and serious risks to human safety in prisons.11 In order for the government to have a compelling interest in remediating past discrimination, courts review three criteria: (1) is there evidence of specific past discrimination; (2) is there evidence that the past discrimination was intentional; and (3) did the government have a hand in the past discrimination.
In Mid-America, the Court adopted the Sixth Circuit’s skepticism of broad evidence of past societal discrimination, relying heavily on a 2023 opinion from the Eastern District of Tennessee, Ultima Services Corp. v. U.S. Department of Agriculture, 683 F. Supp. 3d 745 (E.D. Tn. 2023), to reason that the DBE Program does not serve a compelling interest for the use of a race-based rebuttable presumption. The court in Ultima held that the federal government did not demonstrate a compelling interest for the use of a race-based rebuttable presumption in the Small Business Administration’s (SBA) Section 8(a) program, a rebuttable presumption similar to that found in the DBE Program, because the SBA’s use of racial classifications was not supported with precise evidence. Similarly, the Court acknowledged in the Mid-America Opinion and Order that the federal government’s evidence of discrimination against minority-owned businesses exists generally, but it did not offer evidence of past discrimination against the groups to which the USDOT grants a rebuttable presumption under its DBE Program. Specifically, the Court stated that, “Simply compiling an extensive portfolio of studies that show disparities exist for minority-owned businesses generally speaking does not support a government imposed racial preference for only some of those groups.”12
The Court further found that the DBE Program’s race-based rebuttable presumption is not narrowly tailored. The Court cited the landmark U.S. Supreme Court decision in Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, 600 U.S. 181 (2023), which reaffirmed that narrow tailoring requires an examination of whether race-neutral alternatives could adequately achieve the federal government’s compelling interest and that the use of racial classifications must have a logical endpoint. The Court stated that the USDOT has broadly demonstrated discrimination against minority-owned businesses, but then carves out preferences for only select minority groups. Finally, the Court concluded that the DBE Program, which has been in existence for four decades, lacks a logical endpoint, thus it remains untethered to a foreseeable conclusion.
Plaintiffs’ Challenge to the Gender-Based Presumption – Intermediate Scrutiny Examination
The Court determined that the gender-based classifications also violate the Constitution’s guarantee of equal protection. The use of gender-based classifications is only permissible if the federal government can pass intermediate scrutiny. To pass intermediate scrutiny, the federal government must demonstrate that the classification serves important governmental objectives and the classification is substantially and directly related to those objectives.
The Court found that the USDOT’s proffered evidence — disparity studies and statistical surveys — to be lacking and dubious as it did not support an inference of specific and intentional discrimination. The Court acknowledged that it is sympathetic to the anecdotal evidence provided by some women who feel as though they are disadvantaged, but ultimately determined that there is no clear record that women-owned contractors regularly bid for USDOT funded contracts but fail to receive them because of blatant discrimination. The Court held that USDOT is unlikely to “provide an exceedingly persuasive justification for its gender-based presumption,”13 thus the gender-based classification cannot pass constitutional muster.
Preliminary Injunction
While the Plaintiffs requested a broad remedy, enjoining the USDOT from implementing or enforcing the DBE Program’s race and gender presumptions and the DBE participation goal nationwide, the Court held that granting a nationwide injunction would be unwise. Due to policy concerns (e.g., forum shopping) and precedent, the Court determined redressability to be appropriately limited to the Plaintiffs. The Court enjoined the USDOT from mandating the use of race- and gender-based rebuttable presumptions for USDOT contracts upon which the Plaintiffs bid in Kentucky and Indiana.
Implications of the Ruling
This decision is the latest in a series of cases that have challenged race- and gender-based classifications in federal- and state-level government programs. Although the preliminary injunction specifically applies to the Plaintiffs and only in the states in which they operate, this challenge is particularly notable as the DBE Program is used on large-scale infrastructure projects across the United States. The success of the Plaintiffs’ preliminary injunction may inspire similar challenges by litigants across the nation. Currently, it is difficult to anticipate the USDOT’s next steps as the Court granted the USDOT leave to refile its motion to dismiss. It is also possible that the USDOT may file an interlocutory appeal to challenge the Court’s ruling on the motion to dismiss, or opt to adjust the DBE Program in order to address the concerns raised by the Court.
Further developments in Mid-America will be closely monitored and future updates will be posted to our Infra Insight Blog, addressed in a future eAlert and discussed in an upcoming webinar.
1 Surface Transportation Assistance Act, Section 105(f) (1983).
2 Most recently, the USDOT’s DBE Program was reauthorized in the Infrastructure Investment and Jobs Act, Pub. L. 117-58 (Nov. 15, 2021).
3 49 C.F.R. § 26.5.
4 49 C.F.R. §§ 26.5, 26.67(a)(3)(i)-(d).
5 49 C.F.R. §§ 26.21, 26.51.
6 Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016).
7 Ne. Fla. Chapter, Associated Gen. Contractors of Am. v. Jacksonville, 508 U.S. 656, 666 (1993).
8 Id.; see also Parents Involved in Cmty. Schs. v. Seattle Sch. Dist. No. 1, 551 U.S. 701, 719 (2007).
9 Id.
10 Adarand Constructors, Inc., 515 U.S. at 211.
11 Students for Fair Admissions, Inc. v. President and Fellow of Harvard College, 600 U.S. 181, 206-207 (2023).
12 Mid-America Milling Co., 2024 WL 4267183 at *18.
13 Mid-America Milling Co., 2024 WL 4267183 at *11.
