Rothe Development, Inc. v. United States Department of Defense

836 F.3d 57, 2016 U.S. App. LEXIS 16556, 2016 WL 4719049
CourtCourt of Appeals for the D.C. Circuit
DecidedSeptember 9, 2016
Docket15-5176
StatusPublished
Cited by20 cases

This text of 836 F.3d 57 (Rothe Development, Inc. v. United States Department of Defense) is published on Counsel Stack Legal Research, covering Court of Appeals for the D.C. Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rothe Development, Inc. v. United States Department of Defense, 836 F.3d 57, 2016 U.S. App. LEXIS 16556, 2016 WL 4719049 (D.C. Cir. 2016).

Opinion

Opinion concurring in part and dissenting in part filed by Circuit Judge HENDERSON

PILLARD, Circuit Judge:

Plaintiff-Appellant Rothe Development, Inc. (Rothe) alleges that the statutory basis of the Small Business Administration’s 8(a) business development program, Amendments to the Small Business Act, Pub. L. No. 95-507, ch. 1, sec. 202(a), 92 Stat. 1757, 1761 (1978) (codified at 15 U.S.C. § 687), violates its right to equal protection under the Due Process Clause of the Fifth Amendment. Congress created the 8(a) program to extend government contracting opportunities to small business owners whose access to such opportunities was impaired by those individuals’ experience of racial or ethnic prejudice or cultural bias. Rothe contends that the statute contains a racial classification that presumes that certain racial minorities are eligible for the program. But, in fact, Congress considered and rejected statutory language that included a racial presumption. Congress chose instead to hinge participation in the program on the facially race-neutral criterion of social disadvantage, which it defined as having suffered racial, ethnic, or cultural bias.

The challenged statute authorizes the Small Business Administration (SBA) to enter into contracts with other federal agencies, which the SBA then subcontracts to eligible small businesses that compete for the subcontracts in a sheltered market. 15 U.S.C. § 637(a)(l)(A)-(D). Businesses owned by “socially and economically disadvantaged” individuals are eligible to participate in the 8(a) program. Id. § 637(a)(1)(B). 1 The statute defines socially disadvantaged individuals as persons “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.” Id. § 637(a)(5).

Rothe is a small business that bids on Defense Department contracts, including the types of subcontracts that the SBA awards to economically and socially disad *62 vantaged businesses through the 8(a) program. Rothe does not purport to be owned by an individual who has experienced racial or ethnic prejudice or cultural bias, and alleges that it “cannot participate in and has no desire to participate in the section 8(a) program.” 1 App. 74 (Compl. ¶ 33). It objects to the program because it believes that the statute contains an unconstitutional racial classification that prevents Rothe from competing for Department of Defense contracts on an equal footing with minority-owned businesses.

We disagree, because the provisions of the Small Business Act that Rothe challenges do not on their face classify individuals by race. 2 Section 8(a) uses facially race-neutral terms of eligibility to identify individual victims of discrimination, prejudice, or bias, without presuming that members of certain racial, ethnic, or cultural groups qualify as such. That makes it different from other statutes that either expressly limit participation in contracting programs to racial or ethnic minorities or specifically direct third parties to presume that members of certain racial or ethnic groups, or minorities generally, are eligible. Congress intentionally took a different tack with section 8(a), opting for inclusive terms of eligibility that focus on an individual’s experience of bias and aim to promote equal opportunity for entrepreneurs of all racial backgrounds.

In contrast to the statute, the SBA’s regulation implementing the 8(a) program does contain a racial classification in the form of a presumption that an individual who is a member of one of five designated racial groups (and within them, 37 subgroups) is socially disadvantaged. See 13 C.F.R. § 124.103(b). This case does not permit us to decide whether the race-based regulatory presumption is constitutionally sound, for Rothe has elected to challenge only the statute. Rothe alleged in its complaint that the “racial classification of section 8(a) of the Small Business Act, defined herein, is facially unconstitutional.” Compare 1 App. 68 (Compl. ¶ 1) and id. at 76-77 (claims for relief), with W. States Paving Co. v. Wash. State Dep’t of Transp., 407 F.3d 983, 990-91 (9th Cir. 2005) (plaintiff challenged both a statute’s race-neutral definition of social disadvantage and the agency’s racial presumption). Rothe’s definition of the racial classification it attacks does not include the SBA’s regulation. See infra 63-64; 1 App. 71-72 (Compl.); Appellant Br. 2-3.

Rothe’s counsel’s statements during oral argument confirm the limited scope of Rothe’s challenge. When we asked counsel whether Rothe was challenging a racial classification that appeared “[i]n the statute or in the regulations,” he specified that Rothe was challenging the presumption “[i]n the statute.” Oral Arg. Tr. 4. We followed up: “[I]s the constitutional flaw in the statute alone, or is it in the statute and the regulations together?” Counsel for Rothe reiterated: “It’s in the statute alone .... ” Id. at 5. It is thus clear that the regulations are beyond the scope of Rothe’s challenge. If there were any doubt, we would be obliged to read the complaint narrowly to reach the same conclusion. See Am. Fed’n of Gov’t Emps., AFL-CIO v. United States, 330 F.3d 513, 517-19 (D.C. Cir. 2003) (construing plaintiffs’ suit in a manner that avoided raising an equal protection problem).

*63 Because the statute lacks a racial classification, and because Rothe has not alleged that the statute is otherwise subject to_ strict scrutiny, we apply rational-basis review, which the statute readily survives. Rothe’s evidentiary and nondelegation challenges to the decision below also fail. We therefore affirm the judgment of the district court granting summary judgment to the SBA and Department of Defense, see Rothe Dev., Inc. v. Dep’t of Def., 107 F.Supp.3d 183, 212-13 (D.D.C. 2015), albeit on different grounds.

I.

The central question on appeal is whether section 8(a) of the Small Business Act warrants strict judicial scrutiny. The parties and the district court seem to think it does. See Appellant Br. 10; Appellee Br. 16; Rothe, 107 F.Supp.3d at 189, 207; but see Oral Arg. Tr. 23 (Judge Griffith: “In your view does the statute create racial classifications, or is it the regulations?” Counsel for the government: “I believe it’s the regulations .... ”). That fact does not relieve us of our duty to assess independently the legal issue before us. See United States v. Bigley, 786 F.3d 11, 17 (D.C. Cir. 2015) (Brown, J., concurring in the judgment) (“But we are required to ‘conduct an independent review’ of a legal issue, despite the government’s concession on appeal.” (quoting United States v. Russell, 600 F.3d 631, 636 (D.C. Cir. 2010))); cf. The Anaconda v. Am.

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836 F.3d 57, 2016 U.S. App. LEXIS 16556, 2016 WL 4719049, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rothe-development-inc-v-united-states-department-of-defense-cadc-2016.