Mid-America Milling Company v. United States Department of Transportation, Case No. 3:23-cv-00072  was filed in the United States District Court for the Eastern District of Kentucky to challenge the federal Department of Transportation’s Disadvantaged Business Enterprise program. Participants in the program are often referred to as DBEs. The plaintiffs in Mid-America question the DOT’s use of a rebuttable presumption to determine whether an individual is socially disadvantaged and argue it is unconstitutional racial discrimination. Specifically, they contend the department’s use of a rebuttable presumption that businesses owned by women and certain races and ethnicities are socially disadvantaged is unconstitutional disparate treatment on the basis of race and sex. We previously discussed Mid-America in November 2023.

The DOT has moved to dismiss the plaintiffs’ claims with the argument that they lack standing because they have failed to identify any specific contracts they lost due to any preference given to DBEs. On February 6, the plaintiffs filed their opposition to the federal government’s motion to dismiss. The opposition does not raise any new claims or arguments against the program. It focuses instead on establishing the plaintiffs’ standing to bring their claims.

They argue that:

• It is sufficient for them to plead that they regularly bid on contracts that contain DBE participation goals and that the plaintiffs cannot compete for those contracts on an equal footing with DBEs;
• They have “lost out … to DBE firms based on race and gender,” despite being the lowest bidder;
• They have standing because they suffered and continue to suffer “harms to their dignity because of the DBE Program’s race and gender discrimination”; and
• They do not need to join state or local agencies to this lawsuit because they are challenging a federal law implemented by the DOT, and the state and local agencies only follow the DBE program as established by DOT.

The federal government now has an opportunity to respond to the plaintiffs’ arguments and, after its reply is filed, the District Court will decide whether to dismiss the complaint or permit the lawsuit to proceed with substantive briefing and litigation over the constitutionality of the DBE program’s use of the rebuttable presumption.

A more detailed summary of the plaintiffs’ arguments is provided below.

The underlying basis for the plaintiffs’ case is that the mere presence of DBE preferences causes “dignitary harm” to the plaintiffs, because other bidders receive a preference or advantage based on their race or sex:

The DBE Program injects an unequal race- and gender-based bias into the system of awarding federal contracts for road-construction projects. It is wholly beside the point that “any firm can bid on … any contract,” or that “the low bidder [may not be selected for a contract] for reasons unrelated to DBE status.” Plaintiffs do not challenge the fact that DBE and non-DBE firms alike have an opportunity to bid on, or potentially receive, contracts—indeed, Plaintiffs have a “long history” of bidding on federally funded surface transportation contracts impacted by the DBE Program’s discriminatory goals. What Plaintiffs take issue with here is the race- and gender-based inequality of that opportunity. Plaintiffs have a “constitutional right to be considered for [these contracts] without the burden of invidiously discriminatory disqualifications.” City of Jacksonville, 508 U.S. at 666 (citing Turner, 396 U.S. at 362). However, Plaintiffs, who are not DBEs, are “being forced to compete” against an unequal system that imposes race- and gender-based contracting goals prioritizing DBE firms. Vitolo, 999 F.3d at 359 (citing Parents Involved, 551 U.S. at 719)….

Pls,’ Opp’n to Defs.’ Mot. To Dismiss pp. 13-14.

Defendants discount that [sic] fact that DBE status is not a neutral concept; it is set forth on the basis of race and gender through a presumption of eligibility. Likewise Defendants ignore that the DBE Program creates a system of awarding federal contracts that is divided into two separate programs on the basis of race and gender—one in which everyone is considered equally without regard to race and gender, and the other in which only racial minorities and women are prioritized for preferential treatment. Plaintiffs challenge this unequal governmental prioritization of race and gender in the awarding of federal contracts. “It does not matter that the plaintiffs might not otherwise qualify for priority consideration” as a DBE firm because it is the government’s consideration of race and gender as a factor for awarding contracts that is causing the equal protection injuries. See, e.g., Vitolo, 999 F.3d at 359. (emphasis in original)

Id., p. 14.

The plaintiffs argue that removing the rebuttable presumption of social disadvantage available to entities owned by women and certain races would render the DBE Program race and gender neutral, and therefore constitutional, because everyone would be on the same footing when applying to be certified as a DBE. That is, everyone would undergo the same test to determine whether they are socially disadvantaged, instead of the current system that permits entities owned by women and certain races to be presumed socially disadvantaged, while everyone else must prove social disadvantage:

Absent the race- and gender-based presumptions, the DBE Program would cease to discriminate against Plaintiffs on the basis of race and gender. Thus, the harms caused to Plaintiffs would be remedied because the “badge of inequality” would be removed, and Plaintiffs would no longer be “forced to compete” for contracts subject to “invidiously discriminatory disqualifiers.” City of Jacksonville, 508 U.S. at 666; Parents Involved, 551 U.S. at 719; Inner City Contracting, 87 F.4th at 751–52; Moore, 993 F.2d at 1224.

Id., p. 18.

The plaintiffs also respond to the federal government’s argument that the complaint should be dismissed because it fails to include state and local agencies that issue the contracts subject to the DBE Program. The plaintiffs only sued the DOT, and not the state agencies that implement the program’s participation goals. They argue they do not need to join any state agencies because those agencies are implementing federal law, and it is sufficient that the plaintiffs seek to invalidate that federal law:

Here, the inquiry begins and ends with the first question of necessity. Defendants argue that Kentucky and Indiana are necessary parties because “the Infrastructure Act and the DOT DBE program’s implementing regulations require recipients of DOT funds to have [and administer] a state DBE program of their own” and “[t]he Court ‘cannot accord complete relief among existing parties’ in their absence.” However, Defendants’ acknowledgements of federal requirements only confirm that Plaintiffs’ challenge is properly limited to the named federal Defendants. Indeed, it is federal law that creates and sets forth the DBE Program according to racial and gender-based classifications: state and local agencies that receive Infrastructure Act funding must administer their own programs for disadvantaged small businesses in accordance with federal law. E.g., P.L. 117-58 § 11101(e)(3); 49 C.F.R. §§ 26.3, 26.21. Likewise, it is federal Defendants who “are responsible for interpreting and implementing the federal DBE program and Sections 11101(e)(2)–(3) of the Infrastructure Act, including the race and gender presumptions,” that harm Plaintiffs. Thus, Plaintiffs challenge and seek relief from federal law and Defendants’ interpretations and implementations thereof, “not [from] those state, local, or private entities or actors that merely operate under the rules of Defendants’ discriminatory program.”

Local or state entities do not become indispensable parties merely because they must comply with innumerable federal laws each day. And while state or local action may often be taken independent of federal law, Plaintiffs do not challenge this characteristic of federalism here. Rather, since Plaintiffs’ challenges squarely concern federal Defendants’ violations of the United States Constitution, this case concerns only the existing parties; no state or local agency recipient of funds under the Infrastructure Act is either implicated or indispensable for disposing this action. (emphasis in original)

Id., pp. 22-23.

The federal government will now have an opportunity to file a reply in Mid-America that responds to the plaintiffs’ arguments. Once it has done so, the District Court will decide whether to grant the federal government’s motion to dismiss or permit the lawsuit to proceed. If the District Court denies the motion to dismiss, we anticipate either or both parties will file summary judgment motions that address the substance of the plaintiffs’ complaint: whether the DBE Program’s use of a rebuttable presumption that entities owned by women and certain races are socially disadvantaged is unconstitutional.

If the plaintiffs prevail on that claim, the result will not necessarily invalidate the entire DBE Program. Instead, an order such as the one issued in Ultima might be issued to bar the DOT from applying a rebuttable presumption of social disadvantage and require entities to prove their social disadvantage as a condition of being certified as a DBE.