On September 23, 2024, the United States District Court for the Eastern District of Kentucky 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), granting a preliminary injunction on the basis that the race- and gender-based rebuttable presumptions used in the U.S. Department of Transportation (“USDOT”) Disadvantaged Business Enterprise (“DBE”) program violates the United States Constitution’s guarantee of equal protection under the Fourteenth Amendment. The court limits 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.
By way of background, in 1983, Congress enacted the DBE program and has reauthorized the federal law requiring that ten percent of the USDOT construction funds be paid to small businesses owned and controlled by socially and economically disadvantaged individuals. Under the federal law, certain racial groups and women are presumed to be socially and economically disadvantaged (the “rebuttable presumption”), while other applicants for DBE status are required to prove, by a preponderance of the evidence, that they are socially and economically disadvantaged. Pursuant to this federal law, recipients of USDOT funding are required to have a DBE program and DBE goals, whether met through race- or gender-neutral means or through contract goals and good faith efforts.
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.
As a refresher for those of us who have not had a constitutional law class in the last decade, the Fourteenth Amendment to the U.S. Constitution guarantees equal protection to “all persons . . . without regard to any differences of race, of color, or of nationality.” Any government actions that include race classifications are subject to a two-step strict scrutiny analysis: (1) is the use of a race classification in furtherance of a compelling government interest and, (2) if so, is the use of race narrowly tailored to achieve that compelling interest.
The court in Mid-America relies 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 USDOT’s DBE program does not serve a compelling interest for the use of a race-based rebuttable presumption. The Ultima opinion explained 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 USDOT’s DBE program, because the SBA’s use of racial classifications was not supported with precise evidence. Similarly, the court in Mid-America acknowledged that the federal government’s evidence of discrimination against minority-owned businesses exists generally, but it does not offer evidence of past discrimination against the groups to which the USDOT grants a rebuttable presumption under its DBE program.
In addition, the court in Mid-America found that the USDOT’s DBE program’s race-based rebuttable presumption is not narrowly tailored. The court cited to the landmark U.S. Supreme Court decision in Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, 600 U.S. 181 (2023) (“Students for Fair Admissions”), which reaffirmed that narrow tailoring requires an examination of whether race-neutral alternatives could adequately achieve the federal government’s compelling interest. In the case of the USDOT’s DBE program, the court contends that the federal government has broadly demonstrated discrimination against minority-owned businesses, but then carves out preferences for only select minority groups. Further, the court held that the USDOT’s DBE program lacks a logical end point, thus remaining untethered to a foreseeable conclusion, as required by Grutter v. Bollinger, 539 U.S. 306 (2003), and discussed in Students for Fair Admissions.
This decision is the latest in a number of cases that have challenged race and gender classifications in government programs at the federal and state level. Look for our upcoming eAlert providing further analysis of the Mid-America case, including the court’s analysis of the federal government’s standing claim and the Plaintiffs’ challenge of the gender-based rebuttable presumption.
