Over the past few years an increasing number of lawsuits have been filed around the country challenging federal agencies over their affirmative-action-style programs that provide race- and gender-based presumptions or preferences.
While we rarely discuss these concepts in our columns, one recent decision caught our eyes, as we believe it could have a major impact on the bidding and administration of transportation projects funded by the U.S. Department of Transportation. The case, Mid-America Milling Company LLC v. United States Department of Transportation, was filed in the U.S. District Court for the Eastern District of Kentucky by highway contractors that contended the DOT’s Disadvantaged Business Enterprise program was unconstitutional.
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In late 2024, the court issued a decision agreeing with the highway contractors, finding that the DOT’s DBE program violated the equal protection clause of the Constitution. This resulted in the court granting a preliminary injunction prohibiting the DOT from mandating the use of race- and gender-based rebuttable presumptions for DOT contracts on which the highway contractors bid. The decision is an interesting read, and we will highlight below some of its findings.
The DOT’s DBE program
The DOT’s DBE program was enacted in 1983 to remedy ongoing and continuing effects of past discrimination on federally funded transportation contracts. The program requires state DOTs and local transportation agencies that receive federal financial assistance to establish goals for the participation of DBEs in their contracting programs as well as to set contract-specific DBE goals.
The precise question of which businesses can qualify as DBEs can be complex. However, in general the business must be: a) “small” (i.e., it cannot exceed a specific revenue value) and b) owned and controlled by socially and economically disadvantaged individuals. DOT regulations provide a rebuttable presumption that African Americans, Hispanics, Native Americans, Asian-Pacific and Subcontinent Asian Americans, and women are socially and economically disadvantaged, with other individuals potentially qualifying on a case-by-case basis. While the presumption of being a DBE is rebuttable, there is nevertheless a presumption that a small business owned by these racial groups and women is disadvantaged.
The dispute
The plaintiffs in the case were Mid-America Milling LLC and Bagshaw Trucking Inc., heavy construction and highway contractors who operate within Kentucky and Indiana and regularly bid on DOT-funded contracts that have associated DBE goals. Neither plaintiff had the rebuttable presumption of disadvantage.
The plaintiffs argued that they had previously lost out on federally funded contracts to DBE firms, even when their bids were lower than the winning DBE firms. Mid-America alleged that federal highway contracts make up about 65% of its annual business and that it had lost at least 82 contracts (since January 2022) because of the DBE program in the state of Indiana alone. Likewise, Bagshaw represented that federal highway contracts constituted from $3 million to $4 million of its total revenue over a 14-month period.
The plaintiffs claimed that the Kentucky and Indiana DBE programs were essentially forms of discrimination, preventing contractors like themselves from competing for contracts on equal footing. Their suit asked the court to issue a preliminary and permanent injunction that prevented the DOT from applying race- and gender-based classifications in the federal DBE program.
The case
The court first evaluated the DOT’s position that the plaintiffs did not have the right to bring the litigation. The court concluded that they did, as they met the standard of demonstrating that they were “able and ready to bid on contracts and that a discriminatory policy prevents it from doing so on an equal basis.”
The court based this conclusion on the plaintiffs’ allegations, which indicated that they: a) bid on contracts containing DBE goals many times in the past, b) Kentucky and Indiana routinely advertised contracts open for bid, c) many of the contracts the plaintiffs bid on contained DBE goals, and d) even though they were not disadvantaged, the plaintiffs still bid on those contracts at regular intervals.
The court then turned to the merits of the issue, considering prior case law that evaluated DBE programs by different agencies and in different settings. Citing that the DOT based its DBE program on evidence of broad societal impacts and discrimination, the court found that the DOT failed to present evidence of specific instances of past discrimination against the many groups who had preference under its DBE program.
Relying upon prior case law, the court stated that the “preferences for Pakistanis but not Afghans; Japanese but not Iraqis; Hispanics but not Middle Easterners – is not supported by any record evidence at all.” The court stated that the DOT’s “imprecision is its fatal flaw.”
“If (the DOT) wants to grant preferences to certain groups, it must specifically show how (the DOT) has previously discriminated against those groups,” the court ruled. “It cannot group all minority-owned businesses into one gumbo pot but then try to scoop out only the sausage and not the okra.”
The court rejected the DOT’s argument that its DBE program was not overbroad because it gave preferences for only some minority groups. The court’s decision was interesting:
A contract business owned by (a) man from Pakistan receives the rebuttable presumption, but the business owned (by) a man from Afghanistan does not. Why? … This “unclear connection” amounts to a “scattershot approach” that “does not conform to the narrow tailoring strict scrutiny requires.” ... The government’s argument is akin to saying that all bourbons are made up of at least 51% corn, but that only certain bourbons should actually be called “bourbon.”
The court was clearly concerned with the fact that some minority groups received a presumption, while others do not.
The court also took issue with the fact that the DOT’s DBE program did not have a “logical end point.” It noted that the program had been around since the Cold War and that a lot had happened since then. The fact that it was subject to periodic review by Congress did “not make unconstitutional conduct constitutional.”
“Because the DBE program’s racial preferences are not tethered to a foreseeable conclusion, the race-based presumption fails to be narrowly tailored,” the court ruled.
Based on its analysis, the court granted the preliminary injunction in a decision dated Sept. 23, 2024. The court specifically declined to extend this injunction nationwide, finding that this would be “unwise” and encourage parties to “forum shop” to find a sympathetic court to support their positions around the country. Consequently, the injunction was limited to only those DOT contracts upon which the plaintiffs bid.
Interestingly, while the DOT complied with the injunction for bids that the plaintiffs placed in Indiana and Kentucky, it refused to abide by the injunction with respect to contracts on which the plaintiffs bid in other states. This resulted in the plaintiffs asking the Kentucky court to clarify the scope of the preliminary injunction. The court did so in an order dated Oct. 31, confirming that the preliminary injunction applied only to the plaintiffs but extended to all states in which the plaintiffs operate or bid on DOT contracts impacted by DBE goals – not merely Indiana and Kentucky.
Takeaways
With the political climate being what it is, there are numerous lawsuits being filed around the country that challenge programs like DBEs, as well as executive orders – ranging from vaccine mandates under the Biden administration to Department of Government Efficiency actions under the Trump administration. The plaintiffs requested a broad remedy to enjoin the DOT from enforcing its DBE program nationwide. This court exercised restraint in not doing so. That does not mean that another plaintiff, in another court, could not obtain that nationwide reach – which makes this decision all the more interesting.
Finally, it is clear that with this decision there are lots of things the DOT has to work out, particularly given the fact that this was an order issued prior to the Trump administration reassuming office. We understand that as of mid-February, the plaintiffs and the DOT had asked for a 90-day stay to permit the DOT the opportunity to consider its position and give the parties an opportunity to explore settlement.
The proposed 90-day stay would not affect the current injunction against the DOT’s use of the rebuttable presumption under the DBE program for DOT-funded contracts the plaintiffs had bid upon. So, readers should stand by to see where this all lands.
