In the case of Associated General Contractors v. Cal. Dept. of Transp. (9th Cir. 11-16228 4/16/13) a 9th Circuit panel rejected the appeal of the Associated General Contractors (“AGC”) in which AGC sought a ruling that the 2009 Disadvantaged Business Enterprise Program by the California Department of Transportation (Caltrans) contained unconstitutional preferences to African American, Native American, Asian Pacific American, and women-owned firms on certain transportation contracts.
The U.S. Department of Transportation distributes funds to states for transportation-related projects and the most recent federal statute provides for race and gender-based preferences in the transportation contracting industry in response to pervasive and ongoing discrimination. The Act directs the Secretary of Transportation to ensure that 10% of funds distributed to states and municipalities are expended on “disadvantaged business enterprises” (“DBEs”.)
Each state that receives federal funds must implement a preference program that complies with federal regulations. The regulations define “disadvantaged business enterprises” as small businesses owned or controlled by “socially and economically disadvantaged” individuals.
Caltrans set an overall goal of 13.5% for disadvantaged business participation in its contracts. Caltrans expected to meet one-half of the 13.5% goal using race-neutral measures. On November 14, 2007, Caltrans submitted its proposed program to the U.S. Department of Transportation for approval. On April 2, 2009, the Department of Transportation approved Caltrans’ program designed for fiscal year 2009.
On June 11, 2009, AGC filed a complaint alleging that Caltrans’ implementation of the Act violated inter alia the Fourteenth Amendment of the U.S. Constitution, Title VI of the Civil Rights Act, and Article I, section 31 of California Constitution. On March 23, 2011, the district court granted Caltrans’ and Intervenors’ motions for summary judgment. The Court held that Caltrans’ program was “clearly constitutional,” as it was supported by a strong basis in evidence of discrimination in the California contracting industry and was narrowly tailored to those groups which had actually suffered discrimination. AGC appealed. During the pendency of the case, Caltrans conducted a further disparity study that found, as before, discrimination within the industry.
The appellate court affirmed the trial court ruling focusing on two issues. The first is that AGC did not identify any members who have suffered or will suffer harm as a result of Caltrans’ affirmative action program, and therefore AGC had not established that it has associational standing to bring suit. The panel further held that even if AGC could establish standing, its appeal would fail. The panel held that Caltrans’ program survived strict scrutiny by (1) having a strong basis in evidence of discrimination within the California transportation contracting industry; and (2) being narrowly tailored to benefit only those groups that have actually suffered discrimination.
While Proposition 209 bans preferences in state contracts, this decision avoids 2009’s ban entirely because federal funds are involved.
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