REVISED, January 24, 2000
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 98-60679
_____________________
W H SCOTT CONSTRUCTION COMPANY, INC
Plaintiff-Appellee
v.
CITY OF JACKSON, MISSISSIPPI; HARVEY JOHNSON, In his official
capacity as Mayor of the city of Jackson, MS; LOUIS E ARMSTRONG,
In his official capacity as a present member of the Jackson City
Council; MARGARET BARRETT, In her official capacity as a present
member of the Jackson City Council; CHIP RENO, In his official
capacity as a present member of the Jackson City Council; KENNETH
STOKES, In his official capacity as a present member of the
Jackson City Council; WILLIAM BROWN, In his official capacity as
a member of the Jackson City Council; ROBERT WILLIAMS, In his
official capacity as a present member of the Jackson City
Council; BEN ALLEN, In his official capacity as a present member
of the Jackson City Council
Defendants-Appellants
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Mississippi
_________________________________________________________________
December 23, 1999
Before KING, Chief Judge, and REYNALDO G. GARZA and EMILIO M.
GARZA, Circuit Judges.
KING, Chief Judge:
Defendants-Appellants City of Jackson, Mississippi, et al.,
appeal the district court’s grant of summary judgment to
Plaintiff-Appellee W.H. Scott Construction Company, Inc., in
1
Plaintiff-Appellee’s equal protection challenge to a policy
encouraging minority participation in city construction
contracts. We affirm.
I.
In 1985, the City of Jackson (the “City”) adopted a Minority
Business Enterprise Program (“MBE Program” or the “Program”).
The Program, designed to remedy the effects of past
discrimination, established a “goals” program for the utilization
of minority-owned businesses (“MBEs”), as well as those owned by
women (“WBEs”), in City contracts.1 The Program was managed by
the City’s Office of Business Development (“OBD”). Initially,
the minority-participation goal was 5% of all City contracts,
relative to the overall City budget, including contracts for
goods, services, and construction. Later the goal was increased
to 15%. The Program’s Liaison Officer within the OBD was charged
with, among other duties, “[c]oordinat[ing] procurement
activities with each City department head to ensure that the
maximum amount of dollars and contracts are afforded to minority
firms.”
Prior to implementing the Program and the original 5% goal,
the City established an advisory committee of local businesses
and conducted a series of hearings to document discrimination
against minority business owners. The 5% goal, however, was not
1
Although the Program, as well as the other City initiatives
referenced infra, established goals for the utilization of WBEs,
these goals are not specifically at issue in this case.
Therefore, we will not focus on them in our discussion.
2
based on any objective data. According to Willie Cole, manager
of the OBD, it was a “guess” that was adopted because the City
“felt like there was at least enough minority business out there
to do five percent of business to the City of Jackson.” The goal
was later increased to 15% because it was found that 10% of
businesses in Mississippi were minority-owned. The 15% goal
applied to all areas of procurement.
After the Program’s adoption, the City’s Department of
Public Works (the “Department”) began submitting reports of its
contracting activities to the OBD. In 1988, the Department
established its own policy for the use of the City’s goals. The
Department began including a “Special Notice to Bidders No. 1"
(the “Special Notice”) as part of the specifications for all City
construction contracts. The Special Notice encouraged prime
construction contractors to include in their bids 15%
participation by subcontractors certified as Disadvantaged
Business Enterprises (“DBEs”) and 5% participation by those
certified as WBEs. The Department implemented these goals to
effectuate its policy as stated in the Special Notice:
It is the policy of the City of Jackson Department of
Public Works (DPW) that small business concerns
(DBE/WBE)...shall have the maximum opportunity to
participate in the performance of contracts financed in
whole or in part with City funds. The Minority
Business Enterprise Program will be implemented in such
manner that participation of minorities and women will
be equitably distributed throughout the construction
industry.
A prime contractor could, however, support a lack of such
participation with a showing of good-faith efforts to meet the
3
goals.
The Special Notice defined a DBE as “[a] small business
concern which is owned and controlled by socially and
economically disadvantaged individuals.” In turn, “[t]he term
‘socially and economically disadvantaged individuals’ has the
meaning such term has under Section 8(d) of the Small Business
Act (15 U.S.C. § 637(d)) and relevant subcontracting regulations
promulgated pursuant thereto.” The Small Business Act (“SBA”)
defines socially disadvantaged individuals as “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 defined as “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). Section 8(d) of the SBA pertains to
eligibility for disadvantaged status under subcontracting
provisions like the one at issue in the Special Notice. It
states that prime contractors are to “presume that socially and
economically disadvantaged individuals include Black Americans,
Hispanic Americans, Native Americans, Asian Pacific Americans,
and other minorities, or any other individual found to be
disadvantaged by the Administration pursuant to section 8(a) of
the Small Business Act.” 15 U.S.C. § 637(d)(3)(C). Therefore,
4
Sections 8(d) and 8(a) are both implicated in a determination of
disadvantage.
In 1991, the Mississippi legislature passed a bill that
would allow cities to set aside 20% of procurement for minority
businesses. According to an affidavit submitted by Willie Cole,
the Jackson City Council voted to implement the set-aside,
contingent on the City’s adoption of a disparity study conducted
pursuant to City of Richmond v. J.A. Croson, Co., 488 U.S. 469
(1989). Cole stated that he drafted “The Minority Business
Development Division Policy Document” (the “Policy Document”) in
1993 for the OBD to use as a guide until such disparity study
could be conducted. The Policy Document was based on research
from other cities and reiterated the goal of 15% minority
participation in the City’s contracts.
The City finally retained a company to conduct a disparity
study in 1994. The study analyzed the City’s contracting
activities within the Department of Public Works, as well as
those within other City government departments, and concluded
that the total underutilization of African-American- and Asian-
American-owned firms was statistically significant. The study
recommended that the City implement a range of MBE goals from 10-
15%, depending on the trade at issue. The City, however, was not
satisfied with the study and chose not to adopt its conclusions.
Instead, the City retained its 15% MBE goal while it searched for
another company to conduct a disparity study. Without adoption
of the study, the City never implemented the 20% set-aside
5
authorized by the state legislature.
In June 1997, the City advertised for the construction of
the Thalia Mara Hall toilet expansion project (the “Project”)
through its Department of Public Works. The Department included
its Special Notice in the Project’s specifications.
Sealed bids were opened on July 22, and Plaintiff-Appellee W.H.
Scott Construction Company, Inc. (“Scott”) was the lowest bidder.
On July 23, Scott informed the Department of its “attempt[s] to
secure DBE participation” in subcontracting for the Project,
including advertisements stating that it was “requesting bids
from qualified MBEs/WBEs....” Although Scott managed to get
11.5% WBE participation, it reported that the bids from DBE
subcontractors had not been low bids and that, therefore, its
DBE-participation percentage would be only 1%. The Director of
the Department encouraged Scott to “employ a minority vendor”
from whom to purchase materials in order to meet the goal.
Despite Scott’s failure to meet the DBE goal, on July 28,
the Department drafted a memorandum to Mayor Harvey Johnson (the
“Mayor”) recommending approval of the Scott bid. The memorandum
noted that the Scott bid exceeded the established budget for the
1996-97 fiscal year by $33,600 and that Scott had proposed a 1%
minority-participation rate. Three weeks later, Scott wrote to
the Department that it would not consider the Department’s
suggestions for increasing its minority participation. Scott
sent a copy of the letter to the Mayor. The Department and the
Mayor, as well as the City’s finance and legal departments,
6
approved Scott’s bid anyway, and it was then placed on the City
Council’s agenda.
On September 2, the City Council voted against the Scott bid
without comment. The vote was 4-3, with all of the African-
American Council members voting against Scott and all of the
white Council members voting for Scott. After the vote, Scott’s
president contacted City Council member Louis Armstrong to find
out why the bid was rejected. An argument ensued, and Armstrong
stated, “We have been left out of the process for 400 years,
we’re going to do what we have to do.” The City alleges that the
Scott bid was rejected because it exceeded the budget established
for the Project, not because Scott failed to reach the DBE
participation goal.
The City subsequently combined the toilet work at Thalia
Mara Hall with a renovation project, adding to the specifications
and increasing the estimated cost of the project from
approximately $200,000 to between $300,000 and $350,000. On
December 16, 1997, the City Council awarded the combined project
to Arcon Construction Company. At that meeting, Armstrong and
the Mayor explained that the Scott bid had been rejected because
it exceeded the amount allocated to the original Project from the
City’s 1996-97 funds. The City, they said, had decided to expand
the project, using funds allocated for the 1997-98 fiscal year,
in hopes of getting a better price.
Scott maintained that rejection of its bid was racially
motivated, and it filed the instant suit. In its complaint,
7
Scott alleged that the City’s minority-participation policy (the
“Policy”), as implemented through the Special Notice,
discriminated against nonminority contractors. Scott sought a
declaratory judgment holding the Special Notice unconstitutional
under the Equal Protection Clause, a permanent injunction
enjoining the City from enforcing its Policy, and compensatory
damages. Both Scott and the City filed motions for summary
judgment. Scott, having become aware of the City’s Program and
Policy Document during discovery, expanded its challenge to
include them as part of the relevant Policy.
The district court granted Scott’s motion. It agreed with
Scott that the relevant Policy included not just the Special
Notice issued by the Department of Public Works, but that it also
included the Program and Policy Document, which were issued by
the OBD and applied to all City contracts. The district court
concluded first that, under Northeastern Florida Chapter of the
Associated General Contractors of America, et al. v. City of
Jacksonville, 508 U.S. 656, 666 (1993), Scott had standing to
challenge the Policy, regardless of whether its bid was rejected
because of the Policy or because the bid was over budget. The
court then found that the Policy was unconstitutional because,
under City of Richmond v. J.A. Croson, Co., 488 U.S. 469 (1989),
the Policy lacked the requisite findings to justify its 15%
minority-participation goal and survive strict scrutiny. It
should be noted, however, that the district court restricted its
final judgment to striking minority-participation goals for the
8
City’s construction contracts only.
Thereafter, the court conducted an evidentiary hearing on
the issues of causation and damages. At the conclusion of the
hearing, the court rendered a bench opinion, which included its
findings of fact and conclusions of law. The court found that
Scott’s bid was rejected because Scott lacked sufficient minority
participation, not because it exceeded the City’s budget.
Further, the court awarded Scott $11,643 for lost profits. The
City now appeals.
II.
We review the grant of summary judgment de novo, applying
the same criteria used by the district court in the first
instance. See Norman v. Apache Corp., 19 F.3d 1017, 1021 (5th
Cir. 1994); Conkling v. Turner, 18 F.3d 1285, 1295 (5th Cir.
1994). After consulting applicable law to ascertain the material
factual issues, we consider the evidence bearing on those issues,
viewing the facts and inferences to be drawn therefrom in the
light most favorable to the non-movant. See King v. Chide, 974
F.2d 653, 655-56 (5th Cir. 1992). Summary judgment is proper “if
the pleadings, depositions, answers to interrogatories,
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(c).
With respect to the district court’s bench opinion, we
review the court’s findings of fact for clear error; its
9
conclusions of law are reviewable de novo. See Sepulvado v. CSC
Credit Serv., Inc., 158 F.3d 890, 895 (5th Cir. 1998).
III.
On appeal, the City contests both the district court’s grant
of summary judgment, as well as the court’s findings in its bench
opinion. We address each issue in turn.
A. Summary Judgment
1. Standing
In Northeastern Florida, 508 U.S. at 666, the United States
Supreme Court held that, for standing purposes, “a party
challenging a set-aside program...need only 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.” The
district court found that the City’s Policy placed minority and
nonminority businesses on unequal footing and, thus concluded
that Scott had standing. We agree that Scott has standing, but,
before addressing the district court’s conclusions, we must first
clarify the scope of those conclusions.
The district court began its analysis on standing by
defining the challenged Policy as including the Department’s
Special Notice, as well as the City’s Program and Policy
Document. The City maintains that the district court should have
limited its analysis to the Special Notice. We need not decide
whether the district court should have so limited its analysis,
because even if we assume, arguendo, that the analysis should
have been so limited, Scott nevertheless prevails.
10
The OBD manages the City’s Program pursuant to internal
guidelines set forth in its own Policy Document. The OBD’s task
in administering the Program is to effect strategies encouraging
minority participation in all contracts that the City lets,
whether through the Department of Public Works or other City
departments, for the City’s goods, services and construction
projects.2 The Department of Public Works is the department
responsible for letting construction contracts, and it adopted
its own policy for doing so–-the Special Notice.
The foregoing is relevant to a discussion of standing
because Scott does not have standing to challenge programs
relating to every contract let by the City. It is “able and
ready to bid,” within the meaning of Northeastern Florida, 508
U.S. at 666, only on construction contracts. See Contractors
Ass’n of Eastern Pennsylvania, Inc. v. City of Philadelphia, 6
F.3d 990, 997-98 (3rd Cir. 1993) (restricting construction
contractors’ standing to challenge city ordinance, which
established city-wide DBE participation goals, to standing to
challenge ordinance’s construction provisions, because “the
Contractors only have a personal interest in obtaining
construction contracts” that they are “ready and able” to bid on
(internal quotations omitted)). Indeed, the only evidence
2
These strategies are not limited to examining past
procurement activity and setting minority-participation goals
accordingly. The Program also includes strategies for developing
networks between minority businesses and the public/private
sector, and providing technical assistance and training sessions
for minority businesses.
11
presented in this case, and the focus of the district court’s
discussion, involved the participation of minority subcontractors
in construction contracts and the impact of the 15% goal on
Scott’s ability to compete in the construction industry3; no
evidence was offered on the contracting activities or Program
implementation in other City departments. See id. at 998-99
(“Accordingly, no evidence has been presented on other areas of
City contracting. To consider application of the Ordinance to
these contracts without the benefit of the adversary process
would require us to proceed without ‘data relevant and adequate
to an informed judgment.’”(quoting New York v. Ferber, 458 U.S.
747, 768 (1982))). We recognize that the Program is specifically
referenced in the Special Notice. For purposes of this opinion,
however, our focus is the manner in which, and the extent to
which, the Department’s implementation of the Program was
enforced. Therefore, we restrict our analysis to the
Department’s Special Notice.
Such restriction does not, however, alter the outcome of the
district court’s opinion. As noted above, the district court’s
final judgment restricted its holding to goal-oriented programs
3
In its brief, even Scott focuses our inquiry on this narrow
issue. It begins its argument by stating that “Scott challenged
the City’s policy of establishing a ‘goal’ of minority
participation of subcontractors in construction contracts awarded
by the City .... The City argues that the District Court erred in
granting summary judgment to Scott and declaring the City’s
policy unconstitutional.”
12
that affect City construction contracts.4 Thus, even though the
City avers that summary judgment was improper because there was a
question of fact as to what Policy was at issue, the question
does not affect the scope of the outcome.
The City contends, however, that Scott does not have
standing to challenge the Special Notice because Scott failed to
meet its threshold burden of proving that it was unable to bid on
construction contracts “on an equal basis.” Northeastern
Florida, 508 U.S. at 666. Specifically, the City avers that the
Department’s Special Notice does not disadvantage nonminority
contractors because it neither makes bidding for contracts more
difficult for nonminority contractors, nor does it impair
nonminority contractors’ ability to be awarded those contracts.
Usually, the City observes, if a nonminority contractor has the
low bid, it will receive the contract even though its bid might
lack minority participation and other bids include minority
participation. The City notes that Scott itself has received six
contracts since the Special Notice took effect, despite its
failure in each case to garner 15% minority participation. The
City argues further that minority and nonminority contractors
compete on an equal basis because the Special Notice applies
equally to minority and nonminority contractors.
In order to have standing, Scott must demonstrate: (1) an
4
In its “Conclusion,” the district court states, “The City
of Jackson Policy establishing goals of 15% minority
subcontractor participation in all City construction contracts
violates the 14th Amendment.”
13
“injury in fact,” meaning the “invasion of a legally protected
interest that is (a) concrete and particularized, and (b) actual
or imminent, not conjectural or hypothetical; (2) a causal
relationship between the injury and the challenged conduct,”
meaning that the “injury fairly can be traced to the challenged
action of the defendant, and has not resulted from the
independent action of some third party not before the court; and
(3) a likelihood that the injury will be redressed by a favorable
decision,” meaning that “the prospect of obtaining relief from
the injury as a result of a favorable ruling is not too
speculative.” Northeastern Florida, 508 U.S. at 663-64 (internal
quotations and citations omitted).
In equal protection cases challenging affirmative action
policies, “injury in fact” is defined as “the inability to
compete on an equal footing in the bidding process.” Id. at 666.
The City’s arguments are unavailing under this standard. For
Scott’s injury to be concrete and particularized, it need not
prove that it lost contracts because of the Department’s Policy;
Scott need only prove that the Special Notice forces it to
compete on an unequal basis. See id. (“The ‘injury in fact’...is
the denial of equal treatment resulting from the imposition of
[a] barrier, not the ultimate inability to obtain the benefit.”).
The question, therefore, is whether the Special Notice imposes an
obligation that is borne unequally by DBE contractors and non-DBE
14
contractors.5
Contrary to the City’s assertions, the inconsistency with
which the obligation is enforced is irrelevant, because it has
not negated the existence of the obligation. If a non-DBE
contractor is unable to procure 15% DBE participation, it must
still “satisfy the Department of Public Works that adequate good
faith efforts have been made to meet the contract goal” or risk
termination of its contract. Such efforts include advertising in
trade-association journals and “minority focus media,” direct
solicitation and follow-up with specific DBEs, and assistance in
obtaining bonding or insurance required by the contractor.
Further, imposition of the Special Notice on both DBE and non-DBE
contractors does not speak to whether DBE and non-DBE contractors
shoulder the same duties under the Special Notice.
The district court relied on the analysis of Concrete Works
of Colorado, Inc. v. City and County of Denver, 36 F.3d 1513
(10th Cir. 1994), to conclude that the Policy required Scott to
compete on an unequal basis with DBE contractors. In Concrete
Works, the Tenth Circuit held that where a city ordinance
5
The parties and the district court uniformly use the terms
“minority” and “nonminority” to describe “DBE”s and “non-DBE”s,
presupposing that certification as a DBE involves a racial
classification. Despite the apparent presupposition, the City
argues infra that DBE classification is not dependent on race,
but rather disadvantage. The distinction, however, is relevant
only to our constitutional analysis and the degree of scrutiny to
be applied to the classification. It is not relevant to an
Article III “case or controversy” requirement. Therefore, for
clarity’s sake, we presume no such racial classification in our
standing analysis and address only the differing obligations of
DBEs and non-DBEs, whether race-based or not.
15
expressly allowed minority contractors to use their own work to
satisfy minority participation goals, but nonminority contractors
were required to seek out minority subcontractors, “the extra
requirements impose costs and burdens on nonminority firms that
preclude them from competing with MBEs...on an equal basis.”6
Id. at 1518-19. The district court applied this analysis,
reasoning that the Policy at hand affords DBE contractors a
similar advantage. The district court, however, was relying on
language in the OBD’s Policy Document, which it considered part
of the relevant Policy.7 Although we are focusing our inquiry on
the Department’s Special Notice, exclusive of the OBD’s Policy
6
Admittedly, the City of Jacksonville’s ordinance at issue
in Northeastern Florida differs from the Department’s Special
Notice in that the Jacksonville provision required 10% of the
funds spent on city contracts to go to MBEs, and nonminority
contractors were foreclosed from bidding on those projects
reserved for MBEs. See Northeastern Florida, 508 U.S. at 658.
The Special Notice, on the other hand, does not impose a rigid
quota, nor does it foreclose non-DBE contractors’ opportunity to
bid. Non-DBE contractors in Jackson may submit bids on every
construction contract. Nevertheless, what is dispositive for our
standing analysis is that both the Jacksonville ordinance and the
Department’s Special Notice “make[] it more difficult for members
of one group to obtain a benefit than it is for members of
another.” Id. at 666.
7
The language in the Policy Document that the district court
relied upon states in relevant part:
The City may count as its M/WBE participation
expenditures to M/WBEs that perform a commercially
useful function in the work of a contract. An M/WBE is
considered to perform a commercially useful function
when it is responsible for execution of a distinct
element of the work of the contract and carrying out
its responsibilities by actually performing, managing
and supervising the work involved.
16
Document, we interpret the Special Notice’s provisions similarly.
The Special Notice states under the heading “OBLIGATION”
that “[t]he Contractor and any subsequent Subcontractor shall
ensure that small business concern (DBE/WBE) have [sic] the
maximum opportunity to participate in the performance of the
work included in this contract.” Further, “[f]ailure on the
part of the contractor to carry out the requirements set forth
shall constitute a breach of contract ....” Under the
subheading “GOALS,” the Special Notice states that “[t]he goal
may be attained by subcontracting to, procuring materials from,
and renting equipment from small business concerns (DBE/WBE).”
Unlike the ordinance at issue in Concrete Works, this language
does not expressly authorize a DBE contractor to satisfy DBE-
participation goals by keeping the requisite percentage of work
for itself. It would be nonsensical, however, to interpret it
as precluding a DBE contractor from doing so. If a DBE
contractor performed 15% of the contract dollar amount, it could
satisfy the participation goal and avoid both a loss of profits
to subcontractors and the time and expense of complying with the
“good faith” requirements. See Monterey Mechanical Co. v.
Wilson, 125 F.3d 702, 707 (9th Cir. 1997)(finding standing where
the challenged law exempted minority contractors from goal and
“good-faith” requirements); Concrete Works, 36 F.3d at 1518-19.
Non-DBE contractors obviously do not have this option. Thus,
the Special Notice places Scott and other non-DBE contractors at
a competitive disadvantage with DBE contractors.
17
Scott has made an adequate showing that future injury is
imminent, entitling it to seek declaratory and injunctive
relief. The record indicates that Scott frequently bids on the
City’s construction contracts, and Scott represented that it
would continue to do so in the relatively near future.
Therefore, as long as DBE preferences are used in the
Department’s Special Notice, Scott is threatened with imminent
injury. In this way, standing’s other prerequisites, causation
and redressability, are also established, for removing the
preferences that cause Scott to compete on an unequal basis will
alleviate that “injury in fact.”8
2. Constitutional Analysis
The district court found that the City’s Policy--defined as
including the Special Notice, the Program, and the Policy
Document-–created race-based preferences in the City’s
construction contracting. It therefore applied strict scrutiny
to the racial classification and found the Policy violative of
the Equal Protection Clause. Although we address only the
Department’s Special Notice, we reach the same conclusion.9
8
The Supreme Court explained that causation and redressability
were collapsed into its definition of injury in fact. See
Northeastern Florida, 508 U.S. at 666 n.5 (stating, “It follows
from our definition of ‘injury in fact’ that petitioner has
sufficiently alleged both that the city’s ordinance is the
‘cause’ of its injury and that a judicial decree directing the
city to discontinue its program would ‘redress’ the injury.”).
9
Because the parties focus our inquiry here on racial
preferences, we will not address the analysis under intermediate
scrutiny required for sex-based preferences.
18
The City contends that the Special Notice should not be
subjected to strict scrutiny. First, the City argues that
strict scrutiny should not be applied to policies that merely
encourage participation “goals,” rather than mandate strict
“quotas.” We agree with the district court, however, that it is
irrelevant whether the Special Notice establishes “goals” or
“quotas” for DBE participation. As the D.C. Circuit noted, the
distinction is immaterial because “[a]ny one of these techniques
induces an employer to hire with an eye toward meeting a
numerical target. As such, they can and surely will result in
individuals being granted a preference because of their race.”
Lutheran Church-Missouri Synod v. FCC, 141 F.3d 344, 350 (D.C.
Cir. 1998); see also Monterey Mechanical, 125 F.3d at 711
(stating that “the relevant question is not whether a statute
requires the use of such measures, but whether it authorizes or
encourages them” (quoting Bras v. California Pub. Utils.
Comm’n, 59 F.3d 869, 875 (9th Cir. 1995)); Concrete Works, 36
F.3d at 1516-19 (reviewing policy establishing “goals” rather
than “quotas” under strict scrutiny).
Next, the City contends that application of strict scrutiny
is inappropriate because the Department’s Special Notice does
not create a racial classification. The City avers that the
Special Notice’s DBE classification creates a preference based
on “disadvantage,” not race, and that a relaxed standard of
review applies to such preferences. The City is correct that
race-neutral preferences are not subject to strict scrutiny, but
19
we are not persuaded that the Special Notice is race-neutral.
First, although the Special Notice does not state
explicitly that a DBE is the same as an MBE, it does state
explicitly that the Department is implementing the MBE Program
so that “participation of minorities and women will be equitably
distributed throughout the construction industry.” Further,
even by its own terms, the Special Notice creates race-based
presumptions that warrant strict scrutiny.
The Special Notice relies on Section 8(d) of the SBA for
its definition of a DBE. As noted above, Section 8(d) states
that prime contractors are to “presume that socially and
economically disadvantaged individuals include Black Americans,
Hispanic Americans, Native Americans, Asian Pacific Americans,
and other minorities, or any other individual found to be
disadvantaged by the Administration pursuant to section 8(a) of
the Small Business Act.” 15 U.S.C. § 637(d)(3)(C). Sections
8(d) (the “8(d) program”) and 8(a) (the “8(a) program”), as well
as their implementing regulations, were also at the heart of the
contract at issue in Adarand Constructors, Inc. v. Pena, 515
U.S. 200 (1995).
In Adarand, a non-DBE subcontractor’s low bid was rejected
for a DBE subcontractor’s bid under a prime construction
contract let by a division of the Department of Transportation.
The prime contract provided that the prime contractor would
receive additional compensation if it hired subcontractors
certified as “socially and economically disadvantaged
20
individuals,” as that term was defined under Section 8(d).
Like the City has argued here, the government in Adarand argued
that “[t]he Subcontracting Compensation Clause program is...a
program based on disadvantage, not on race, and thus that it is
subject only to the most relaxed judicial scrutiny.” 515 U.S.
at 212-13 (internal quotations omitted).
In analyzing the 8(a) and 8(d) programs, the Supreme Court
noted the inconsistencies between the two sections’ implementing
regulations. Both programs provided explicitly for a race-based
presumption of social disadvantage. See 13 C.F.R.
§ 124.105(b)(1996). With respect to a determination of economic
disadvantage, however, the provisions were conflicting. Those
wishing to participate in the 8(a) program had to make an
individualized showing of economic disadvantage. See 13 C.F.R.
§ 124.106(a)(1996). It was unclear, however, whether
subcontractors in the 8(d) program were required to make
individualized showings, or whether, as Section 8(d) itself
suggests, the race-based presumption applied to both social and
economic disadvantage. Compare 13 C.F.R. §
124.106(b)(1996)(apparently requiring 8(d) participants to make
an individualized showing of economic disadvantage, though one
that is “less restrictive” than that required for 8(a)
participants) with 15 U.S.C. § 637(d)(3)(C), 48 C.F.R.
§ 19.703(a)(2)(1996)(apparently allowing 8(d) subcontractors to
rely on race-based presumptions for both social and economic
disadvantage). Nevertheless, in response to the government’s
21
argument that a relaxed level of scrutiny should apply because
its program was based on “disadvantage, not on race,” the Court
stated:
To the extent that the statutes and regulations
involved in this case are race neutral, we agree. [The
government] concede[s], however, that the race-based
rebuttable presumption used in some certification
determinations...is subject to some heightened level
of scrutiny. The parties disagree as to what that
level should be.
Adarand, 515 U.S. at 212-13 (internal quotations and citations
omitted). The Court held that strict scrutiny should apply. The
question of whether the SBA’s implementing regulations were
interpreted as requiring 8(d) subcontractors to make
individualized showings of economic disadvantage was relevant
only to the result of the application of strict scrutiny, not to
whether strict scrutiny should apply. See Adarand, 515 U.S. at
238-39 (remanding for determination of “whether any of the ways
in which the Government uses subcontractor compensation clauses
can survive strict scrutiny, and any relevance distinctions such
as [those involving a finding of economic disadvantage under the
8(a) and 8(d) programs] may have to that question....”).10 Thus,
10
On remand, the lower court held that, while Congress
might well have the authority under Section 5 of the Fourteenth
Amendment to “recognize a nation-wide evil” as a compelling
government interest for the SBA’s racial presumptions, the
subcontractor compensation clause at issue was not narrowly
tailored to serve that interest. Adarand Constructors v. Pena,
965 F. Supp. 1556, 1573-75, 1580-81 (D. Col. 1997)(noting that,
as relied upon in federal subcontractor compensation clauses, the
relevant SBA provisions and regulatory schemes were overinclusive
and underinclusive, and that the inconsistencies within them
“preclude a finding of narrow tailoring”). In response, the
Small Business Administration amended the SBA’s implementing
regulations, lowering the evidentiary burden for nonminority
22
we too are required to strictly scrutinize the Department’s
Special Notice.
In Croson, the Supreme Court applied strict scrutiny to the
City of Richmond’s Minority Business Utilization Plan, requiring
the City to demonstrate that there was a compelling interest for
the plan and that the plan was narrowly tailored to serve that
interest. See Croson, 488 U.S. at 493. The Court made clear
that combating racial discrimination is a compelling government
interest. See id. at 492. The Court noted, though, that a
governmental entity can enact a race-conscious program to remedy
past or present discrimination only where it has actively
applicants to claim eligibility for disadvantaged status from
“clear and convincing evidence” to “preponderance of the
evidence” (reducing under-inclusion), see 13 C.F.R. §
124.103(c)(1)(1999), and clarifying that the race-based
presumption of disadvantage is rebuttable (reducing over-
inclusion), see 13 C.F.R. § 124.103(b)(3)(1999).
The effect of these, and other amendments, to the SBA’s
regulatory scheme are not relevant to our discussion here, even
though the amendments would make it easier for nonminorities to
be certified as DBEs for purposes of the Department’s Special
Notice and thus add nominal credence to the City’s claim that DBE
status is not based exclusively, at least, on race. First, these
amendments did not exist at the time of the events in question
and cannot be relied upon now as bases for decisions then.
Second, even if these amendments were relevant, they would not
forestall application of strict scrutiny. Neither the SBA itself
nor its regulations have been declared unconstitutional–-Adarand
only addressed their use within a specific type of government
contract–-and racial presumptions remain incorporated explicitly
in the SBA. Therefore, strict scrutiny still applies to use of
these presumptions. The only difference today is that while the
executive branch is bound to follow and implement the SBA, its
regulations must be narrowly tailored to achieve its remedial
objective. See 63 F.R. 35726, *35728 (June 30, 1998)(noting that
the proposed amendment was “[i]n response to Adarand
Constructors, Inc. v. Pena, 115 Sup. Ct. 2097 (1995), which
requires [disadvantaged business] programs...to be ‘narrowly
tailored’”).
23
discriminated in its award of contracts or has been a “‘passive
participant’ in a system of racial exclusion practiced by
elements of the local construction industry.” Id. Therefore,
the governmental entity must “identif[y] that discrimination
with the particularity required by the Fourteenth Amendment,”
id., so that there is “‘a strong basis in evidence for its
conclusion that remedial action was necessary,’” id. at 500
(quoting Wygant v. Jackson Bd. of Educ., 476 U.S. 267, 277
(1986)). Specifically, the Court stressed that a governmental
entity must establish a factual predicate, tying its set-aside
percentage to identified injuries in the particular local
industry. See id. at 499 (noting that the “defects are readily
apparent in this case. The 30% quota cannot in any realistic
sense be tied to any injury suffered by anyone.”).
The Court provided some guidance in determining what types
of evidence would justify the enactment of a remedial scheme.
It stated,
[i]f the City of Richmond had evidence before it that
nonminority contractors were systematically excluding
minority businesses from subcontracting opportunities
it could take action to end the discriminatory
exclusion. Where there is a significant statistical
disparity between the number of qualified minority
contractors willing and able to perform a particular
service and the number of such contractors actually
engaged by the locality or the locality’s prime
contractors, an inference of discriminatory exclusion
could arise.
...Moreover, evidence of a pattern of individual
discriminatory acts can, if supported by appropriate
statistical proof, lend support to a local
government’s determination that broader remedial
relief is justified.
24
Id. at 509 (emphases added)(citations omitted). Given Croson’s
emphasis on statistical evidence, other courts considering equal
protection challenges to minority-participation programs have
looked to disparity indices, or to computations of disparity
percentages, in determining whether Croson’s evidentiary burden
is satisfied. See Concrete Works, 36 F.3d at 1526-27; O’Donnell
Constr. Co. v. District of Columbia, 963 F.2d 420, 426 (D.C.Cir.
1992); Associated Gen. Contractors of California v. Coalition
for Economic Equity, 950 F.2d 1401, 1414 (9th Cir. 1991); Cone
Corp. v. Hillsborough County, Fla., 908 F.2d 908, 916 (11th Cir.
1990). Disparity studies are probative evidence of
discrimination because they ensure that the “relevant
statistical pool,” Croson, 488 U.S. at 501, of qualified
minority contractors is being considered.11
In the instant case, the City argues that it was error for
the district court to ignore its statistical evidence supporting
the Department’s use of racial presumptions in its DBE-
participation goals. The City highlights the disparity study it
commissioned in response to Croson, which noted:
White males and African Americans were the only two
11
We do not mean to embrace “the disparity study” as the
determinative piece of statistical evidence for the enactment of,
or justification for, a municipality’s affirmative action
program. Nor do we attempt to craft a precise mathematical
formula to assess the quantum of evidence that rises to the
Croson “strong basis in evidence” benchmark. The sufficiency of
a municipality’s findings of discrimination in a local industry
must be evaluated on a case-by-case basis. We note only that an
emphasis on disparity studies is particularly relevant to the
case at hand because the City contests the district court’s
treatment of its own study.
25
groups to obtain public works contracts. White males
received 999 contracts, 94 percent of all contracts,
and $264.9 million, 97.7 percent of all Public Works
contract dollars. African Americans received 59
contracts, 6 percent, and $6.15 million, 2.3 percent
of contract dollars. No women owned firms or firms
owned by other ethnic groups received contracts ....
The study concluded that “the City Council [should] consider a
range of goals of 10-15 percent for both MBEs and WBEs.”
Unfortunately, whatever probity the study’s findings might
have had on our analysis is of no moment. The City refused to
adopt the study when it was issued in 1995, and its belated
reliance is unpersuasive. Furthermore, the study was restricted
to the letting of prime contracts by the City under the City’s
Program; it did not include an analysis of the availability and
utilization of qualified minority subcontractors, the relevant
statistical pool, in the City’s construction projects.
We do not doubt in the least that the City of Jackson
struggles, as it says, “to reverse the effects of its shameful
racial history.” It is not alone. The Supreme Court, however,
has dictated that strict scrutiny applies to racial
classifications, regardless of the race of those burdened or
benefitted by the classification, see Croson, 488 U.S. at 494
(citing Wygant v. Jackson Bd. of Educ., 476 U.S. 267, 279-80
(1986)), and it has announced the type of proof that will
survive strict scrutiny, see id. at 509. Had the City adopted
particularized findings of discrimination within its various
agencies, and set participation goals for each accordingly, our
outcome today might be different. Absent such evidence in the
26
City’s construction industry, however, the City lacks the
factual predicates required under the Equal Protection Clause to
support the Department’s 15% DBE-participation goal. That is,
it has failed to establish a compelling interest justifying the
Special Notice. Because the Special Notice fails a strict
scrutiny analysis on this ground, we decline to address whether
it is narrowly tailored.
B. Bench Opinion
Scott sought damages from the City under 42 U.S.C. § 1983,
which requires the City’s actions to have been found “violative
of...constitutional rights and [to] have caused compensable
injury ....” Carey v. Piphus, 435 U.S. 247, 255 (1978)(quoting
Wood v. Strickland, 420 U.S. 308, 319 (1975))(internal
quotations omitted). Therefore, following its Opinion and Order
declaring that goals for the participation of DBE subcontractors
in the City’s construction contracts violated the Fourteenth
Amendment, the district court held an evidentiary hearing to
determine whether Scott’s bid was rejected because of its
failure to meet the unconstitutional goals, and, if so, what
damages Scott was entitled to. The district court found that
Scott’s bid was rejected because Scott failed to include 15% DBE
participation, and it awarded Scott approximately $11,600 in
lost profits.
The City has consistently maintained that Scott’s bid was
rejected because it exceeded the 1996-97 budget, not because
Scott failed to meet the DBE-participation goal. On appeal, the
27
City contends that material facts regarding causation were in
dispute and that the district court erred by relying on these
facts in its award of damages to Scott. The City would be
correct if it had requested a jury for resolution of these
issues, but because it did not, we review the district court’s
findings of fact for clear error. See Sepulvado, 158 F.3d at
895. A district judge’s assessment of damages is also a finding
of fact which, absent error of law, is entitled to the
deferential clearly erroneous standard of review. See Broehms
v. Crowell, 139 F.3d 452, 459 (5th Cir. 1998). A finding of fact
is clearly erroneous when, although there is enough evidence to
support it, the reviewing court is left with a firm and definite
conviction that a mistake has been committed. See Henderson v.
Belknap (In re Henderson), 18 F.3d 1305, 1307 (5th Cir. 1994).
If the district court’s account of the evidence is plausible in
light of the record viewed in its entirety, the court of appeals
may not reverse it even though convinced that, had it been
sitting as the trier of fact, it would have weighed the evidence
differently. See Anderson v. City of Bessemer City, 470 U.S.
564, 573-74 (1985).
The district court determined that Scott’s bid was rejected
for failure to comply with the DBE goal based on testimony
elicited at the hearing. Both sides presented plausible
testimony regarding the rejection of Scott’s bid, and the
district judge noted:
[T]his is a contest between credibility of the
testimony of W.H. Scott, the president of W.H. Scott
28
Construction Company, Inc., the plaintiff, and Louis
Armstrong, the councilman for the City of Jackson who
was then and presently is serving as president of that
body. Based upon the court’s determination of the
credibility of these witnesses, there is
circumstantial evidence to consider.
In considering the circumstantial evidence, the court noted that
again it was “faced with the question of which side to believe
and must be guided by the burden of proof which is on the
plaintiff to prove its case by a preponderance of the evidence.”
The court was finally persuaded by three pieces of
circumstantial evidence that Scott’s bid was rejected because it
did not meet the DBE goal. First, the only discussions between
the Department and Scott prior to the rejection of Scott’s bid
focused solely on Scott’s lack of minority participation, not on
budgetary concerns. In addition, although the City maintains
that the City Council was not aware of those discussions between
Scott and the Department, and thus would not have based its
rejection of Scott’s bid on a failure to comply with the Special
Notice, Louis Armstrong offered conflicting accounts of whether
or not he had discussed Scott’s bid with the Department’s
manager prior to the City Council vote. Second, Armstrong first
testified that he had not discussed Scott’s bid with the other
City Council members prior to their vote, but he then
equivocated and testified that he had spoken to one or two of
them. Third, although the City claimed to have wanted to expand
the building project rather than accept Scott’s bid, the
district court noted that one of the reasons the City proffered
for expansion of the project–-a $125,000 water-proofing
29
assignment--never even occurred.
Given the deferential standard under which we review these
findings and the “credibility contest” the district court faced,
we conclude that it is plausible in light of the entire record
that the City Council rejected Scott’s low bid because Scott
failed to meet the Special Notice’s DBE-participation goal, not
because Scott’s bid exceeded the City’s budget. Furthermore,
because no arguments were presented contesting the amount of
damages awarded Scott, we affirm the award of lost profits in
the amount of $11,643.
IV.
For the foregoing reasons, the district court’s judgment is
AFFIRMED.
30