Circuits Split Re Whether States Must Show Independent Compelling Interest in Defending Disadvantaged Business Enterprise Program

Per Northern Contracting, Inc. v. Illinois, --- F.3d ---, 2007 WL 38666 (7th Cir. Jan. 8, 2007):

The only question that we must answer in this appeal is whether Northern Contracting [NCI] can prove that IDOT's DBE [Disadvantaged Business Enterprise] program does not pass constitutional muster. Since the program involves racial classifications, we must employ strict scrutiny in making this determination. See Adarand Constructors v. Pena, 515 U.S. 200, 235 (1995). In order to survive strict scrutiny, a government program that uses racial classifications must be narrowly tailored to serve a compelling governmental interest.

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[W]e agree with the district court that IDOT has satisfied its burden here. As a state entity implementing a congressionally mandated program, IDOT relies primarily on the federal government's compelling interest in remedying the effects of past discrimination in the national construction market. In the post-Adarand era, two other circuits have considered the question of whether a state may properly rely on the federal government's compelling interest in implementing a local DBE plan for highway construction contracting, and both have concluded that a state may properly do so. See Western States Paving Co., Inc. v. Washington State Dep't of Transp., 407 F.3d 983, 997 (9th Cir.2005) ("When Congress enacted TEA-21, it identified a compelling nationwide interest in remedying discrimination in the transportation contracting industry. Even if such discrimination does not exist in Washington, the State's implementation of TEA-21 nevertheless rests upon the compelling interest identified by Congress."), cert. denied, 126 S.Ct. 1332 (Feb. 21, 2006); Sherbrooke Turf, Inc. v. Minn. Dep't of Trans., 345 F.3d 964, 970 (8th Cir.2003) ("When the program is federal, the inquiry is (at least usually) national in scope. If Congress or the federal agency acted for a proper purpose and with a strong basis in the evidence, the program has the requisite compelling government interest nationwide, even if the evidence did not come from or apply to every State or locale in the Nation."), cert. denied, 541 U.S. 1041 (2004).

NCI has not articulated any reason for us to break ranks with our sister circuits. Indeed, prior to the Supreme Court's decision in Adarand, we considered the question of whether the federal government's interest in remedying discrimination in highway construction contracting provided sufficient justification for the state to engage in a federally mandated DBE program, and we concluded that it did. See Milwaukee County Pavers Ass'n v. Fielder, 922 F.2d 419, 423 (7th Cir.1991) ... As in Milwaukee County Pavers, NCI has not challenged the constitutionality of the applicable federal statutes and regulations on appeal. And as the more recent decisions of the Eighth and Ninth Circuits make clear, our compelling interest analysis in this context should not be altered by Adarand. Therefore, the question of compelling interest must be decided in favor of IDOT. The only question is whether IDOT's program is narrowly tailored to achieving this compelling interest.

We are convinced that IDOT has satisfied its burden of demonstrating that its program is narrowly tailored. Our holding in Milwaukee County Pavers that a state is insulated from this sort of constitutional attack, absent a showing that the state exceeded its federal authority, remains applicable. See Milwaukee County Pavers, 922 F.2d at 424-25; Tennessee Asphalt Co. v. Farris, 942 F.2d 969, 975 (6th Cir.1991) (citing Milwaukee County Pavers for the same point); see also Western States Paving, 407 F.3d at 1003-04 (McKay, J., concurring in part and dissenting in part) (noting the continuing applicability of Milwaukee County Pavers and concluding that the plaintiffs should be limited to challenging the state's adherence to its grant of federal authority). [FN5] In Adarand, the Supreme Court did not seize the opportunity to conclude that our decision in Milwaukee County Pavers, along with the Sixth Circuit's in Tennessee Asphalt, was incorrect. The Court only decided that federal programs involving racial classifications must also be subjected to strict scrutiny. See Adarand, 515 U.S. at 235. It did not invalidate our conclusion that a challenge to a state's application of a federally mandated program must be limited to the question of whether the state exceeded its authority. Here, because NCI has not challenged on appeal the district court's grant of summary judgment for the federal government, it has forfeited the opportunity to challenge the federal regulations.
FN5. The Ninth Circuit in Western States Paving concluded that a state is still susceptible to an as-applied challenge to the narrow tailoring of its DBE program. See Western States Paving, 407 F.3d at 997-98. The court concluded that our decision in Milwaukee County Pavers did not address the situation of an as-applied challenged to such a program. See id. at 998 n. 9. But as Judge McKay's separate opinion correctly observed, the majority in Western States Paving misread our decision in Milwaukee County Pavers. See id. at 1003-04. Relatedly, the Eighth Circuit, in Sherbrooke Turf, Inc. v. Minn. Dep't of Trans., 345 F.3d 964, 970 (8th Cir.2003), concluded that this portion of our decision in Milwaukee Pavers was compromised by the fact that the challenge in our prior decision occurred " [u]nder the prior law--when the ten percent federal set-aside was more mandatory ." Sherbrooke, 345 F.3d at 970. We are unconvinced by this reasoning--all recipients are still required to have compliant DBE programs in order to be eligible for federal transportation funds, however federal law makes more clear now that compliance could be achieved even with no DBE utilization if that were the result of a good faith use of the process.