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Cornelius v. Lacroix

decided: January 14, 1988.

ISAAC J. CORNELIUS AND CORNELIUS CONTRACTORS CORP., PLAINTIFFS-APPELLEES, CROSS-APPELLANTS,
v.
DAVID B. LACROIX AND MILWAUKEE SEWERAGE DISTRICT, DEFENDANTS-APPELLANTS, CROSS-APPELLEES



Appeals from the United States District Court, Eastern District of Wisconsin, No. 83 C 470, Myron L. Gordon, Judge.

Cummings, Cudahy and Manion, Circuit Judges.

Author: Cudahy

CUDAHY, Circuit Judge.

This case presents a sharp variation on our recent decision in Baja Contractors, Inc. v. City of Chicago, 830 F.2d 667 (7th Cir. 1987), which held in part that a certified minority business enterprise ("MBE") probably had a property interest in retaining MBE status during the period granted by the certification. Id. at 677. Not all MBE programs are alike; thus, although we apply Baja Contractors we reach a contrary result, reversing the district court's determination that plaintiff Cornelius Contractors Corp. ("Cornelius") had a property interest in MBE status.

I.

The facts are laid out in Judge Gordon's opinion on various post-trial motions. See Cornelius v. LaCroix, 631 F. Supp. 610, 616-17 (E.D. Wis. 1986).*fn1 Defendant Milwaukee Metropolitan Sewerage District (the "District"), established an MBE policy in 1978, the stated purpose of which was "to ensure that small minority and women's business enterprises will be allowed the maximum feasible opportunity to compete for contracts and subcontracts." District's Appendix at 282. The policy required prime contractors to increase the participation of MBEs in District projects. The policy statement defined an "MBE" as "a business, at least 51 percent of which is owned and controlled by minority group members or women." Id. (emphasis added). The "control" provision required the minority owners to exercise actual day-to-day management.

Prior to July 1982, the District had no formal MBE certification process. The District did, however, allow firms to register as purported MBEs. The District then published a list of businesses that filed the registration forms. The list was published to help prime contractors locate possible MBEs for their projects. It contained the following disclaimer:

The attached list of contractors is for informational purposes only. It is a list of contractors who have indicated to the District that they come within the definition of a Minority Business Enterprise and that they are interested in performing work for the District either directly or as subcontractors. Its inclusion does not imply the endorsement or approval of the Metropolitan Sewerage District or of the county of Milwaukee or either of its Commissions, the Department of Natural Resources, [or] the Environmental Protection Agency in any way of any of the firms listed or even that they are minority business enterprises.

District's Opening Brief at 9.

In 1981, plaintiff Cornelius filed a registration form that effected its automatic inclusion in the directory. Cornelius was fifty-one percent owned by Isaac Cornelius, a Native American. Four white male principals of Super Excavators, Inc., a prime contractor, owned the other forty-nine percent. The five stockholders comprised Cornelius' board of directors. Each director had one vote and decisions were made by majority vote.

Cornelius benefited greatly from the MBE program. The company's gross receipts increased twentyfold over a three-year period. By early 1983, eighty percent of Cornelius' work was on projects where prime contractors listed it as an MBE. Super Excavators was usually the prime contractor on those projects. The District accepted prime contractors' bids without challenging the use of Cornelius to satisfy the prime contractors' MBE requirements.

In July 1982, the District revised its MBE policy, requiring an extensive certification process "to reduce the potential for fraud and abuse." District's Appendix at 285. On October 15, 1982, the District began implementation of this new process by sending a letter to all contractors that had registered as MBEs or had been used as MBEs on past contracts. The letter informed contractors that prior registrations were no longer effective and invited them to apply for MBE certification under the new procedures. District's Appendix at 279.

Cornelius applied for certification in November 1982. While the application was pending the District continued to allow prime contractors to use Cornelius as an MBE on projects. After an exchange of information, the application was completed on January 24, 1983.

On March 17, 1983, the District sent Cornelius a letter denying MBE certification. District's Appendix at 281. The letter gave two reasons for the denial. First, Isaac Cornelius was the only minority person among the five board members. Because the company was governed by majority vote, the white directors effectively "controlled" Cornelius. Second, the principal business administrator was one of the white board members. Arguably these factors were in violation of the requirement that minority members exercise actual management. The letter stated that Cornelius could "contest these findings" until April 17, 1983, but it did not outline the ...


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