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Chicago United Industries, Ltd. v. City of Chicago

January 15, 2010


The opinion of the court was delivered by: Judge Robert M. Dow, Jr.


This case arises out of a dispute between the City of Chicago and one of its contractors, Chicago United Industries, Ltd. ("CUI"). The nature of Plaintiffs'claims has evolved significantly since the suit initially was filed in August of 2005. In the most recent iteration of the complaint -- the Third Amended Complaint -- CUI and its owners, Plaintiffs George Loera and Nick Massarella, assert six claims against the City of Chicago (the "City"), Mary Dempsey ("Dempsey"), and Louis Langone ("Langone")*fn1 (collectively "Defendants"). The Court previously entered summary judgment in favor of Defendants on the individual plaintiffs' claims in Counts I, II, and IV*fn2, and denied Plaintiffs'motion for reconsideration of that ruling. [203, 249]. Therefore Loera and Massarella are no longer parties to this lawsuit. In addition, the Court dismissed Counts I and II. [109]. The remaining counts allege a procedural due process violation against the City and Dempsey (Count III), a First Amendment retaliation claim against all Defendants (Count IV), and breach of contract claims against the City (Count VI). The Third Amended Complaint also seeks injunctive relief (Count V). This matter is before the Court on Defendants'motion for summary judgment [269].*fn3 For the reasons set forth below, Defendants' motion for summary judgment [269] is granted. Having granted summary judgment on the merits of all of CUI' s remaining claims, Defendants Dempsey and Langone's motion for summary judgment based on qualified immunity [274] is denied as moot.

I. Background

A. Factual Background

The Court takes the relevant facts primarily from the parties'Local Rule ("L.R.") 56.1 statements*fn4 Defendants'Statement of Facts ("Def. SOF") [272], Plaintiff's Response to Defendant' s L.R. 56.1 Statement ("Pl. Resp.") [297], Plaintiff's Statement of Additional Facts ("Pl. SOF") [303], and Defendant' s Response to Plaintiff's Statement of Additional Facts ("Def. Resp.") [311].*fn5

CUI has been doing business with the City of Chicago for more than 20 years as a supplier of various commodities. Pl. Resp. ¶ 8. CUI is wholly owned by George Loera ("Loera") and Nick Massarella ("Massarella"). Pl. Resp. ¶ 1. Loera, who is Hispanic, is a 51% owner of CUI. Id. For approximately the past 20 years, CUI has been certified by the City as a minority-owned business enterprise ("MBE"). Id.

1. The City's MBE/WBE Program

The City's Department of Procurement Services ("DPS"), through its commissioner, the Chief Procurement Officer, is charged by state law and municipal ordinance with entering into, and administering, contracts on behalf of the City. Def. SOF ¶ 9. Defendant Mary Dempsey served as the Interim Chief Procurement Officer for the DPS from February 7, 2005 through August 31, 2005. Def. SOF ¶ 3. Barbara Lumpkin served as Chief Procurement Officer from September 16, 2005 to October 15, 2007. Def. SOF ¶ 21.

The DPS is also responsible for managing the City's Minority-Owned Business Enterprise ("MBE") and Women-Owned Business Enterprise ("WBE") program. Id. The MBE/WBE program is designed to support minority and women-owned businesses by awarding such enterprises a certain percentage of City contracts. Def. SOF ¶ 25. Vendors become MBEs and WBEs by applying for certification with DPS's Certification Unit. Def. SOF ¶ 26.

Once a vendor is certified as an MBE or WBE, it is eligible to bid on "Target Market" contracts, which are City contracts on which only MBEs and WBEs may bid. Def. SOF ¶ 29. To the extent practicable, all contracts of $10,000 or less are to be Target Market contracts. Def. SOF ¶ 30. For all City contracts valued at more than $100,000, the prime contractor is required to spend a certain percentage of the dollar value of the contract with MBE and WBE vendors. Def. SOF ¶ 31. The City's Regulations Governing Certification of Minority and Women-Owned Businesses provide that MBE/WBE certification is limited to an applicant' s areas of specialty. See Def. SOF ¶ 32; Certification Regulations, § VIII.I, Def. Exs., Vol. II, Ex. 18. DPS's Compliance Unit is charged with reviewing contracts valued over $100,000 to make sure that they have the appropriate MBE and WBE level of participation and that those MBEs and WBEs are certified in the contract areas in which they are participating. Def. SOF ¶ 33.

If a prime contractor wants to replace the MBE subcontractor on its contract with another MBE, or if it desires a waiver of its initial MBE goals, it must follow the procedure set forth in the City's Contract Monitoring & Compliance Procedures. Pl. SOF ¶ 120. The only DPS unit authorized to permit substitutions of MBE or WBE subcontractors by the prime contractor is the Contract Monitoring and Compliance Unit. Def. SOF ¶ 36.

Section 2-92-490(g) of the Chicago Municipal Code directs the contract compliance officer, in coordination with the chief procurement officer, to establish procedures that are consistent with the principles of due process of law for the decertification of MBEs and WBEs. Def. SOF ¶ 37. Pursuant to that directive, the DPS has issued decertification regulations, which require notice and a hearing prior to any decertification. Def. SOF ¶ 38.

In 2005, the City required all MBEs and WBEs to re-apply for certification. Def. SOF ¶¶ 13, 153. While MBE and WBE vendors'new applications were pending, they were issued courtesy letters, which continued their certification for a specified number of months. Def. SOF ¶ 154. After reapplying, CUI received its certification in November 2007. Def. SOF ¶ 153.

On March 3, 2005, Dempsey issued a memorandum to all vendors stating, among other things, that if a vendor is proposed for decertification or debarment, that vendor is permitted to continue performing on its existing contracts with the City until a decision is made by DPS on the proposed action. Def. SOF ¶¶ 39, 42. The March 3, 2005 memorandum also stated that, unless and until the Chief Procurement Officer makes a final decision on the proposed debarment or decertification, "the firm or individual is not precluded from bidding on any future contracts." Def. SOF ¶ 41. In addition to vendors, the memorandum was sent to City of Chicago Commissioners and several City of Chicago sister agencies and entities. Def. SOF ¶ 42.

2. City Notifies CUI of Its Intent to Decertify CUI as an MBE and Its Intent to Debar CUI

On March 17, 2005, the City issued a Preliminary Notice of Intent to Decertify CUI as an MBE based on the allegation that CUI was operating as a broker.*fn6 Def. SOF ¶ 11. In April 2005, CUI submitted a written response to the notice of intent to decertify. Def. SOF at ¶ 12. The City never issued a formal decision regarding CUI' s MBE certification as it pertained to the March 17 notice, and CUI was never formally decertified. Def. SOF ¶ 13. CUI remains a certified MBE to this day. Id.

On March 31, 2005, the City issued a notice of intent to debar CUI from doing business with the City based on the allegation that CUI had submitted a false shipping ticket in connection with a delivery of aluminum sign blanks (unpainted traffic signs) to the City' s Department of Transportation ("CDOT"). Def. SOF ¶ 14. On April 29, 2005, CUI submitted a written response to the notice of intent to debar. Def. SOF ¶ 15.

No further official action was taken with respect the notice of intent to debar CUI until August 24, 2005, at which time the City debarred CUI and its owners from doing business with the City. Def. SOF ¶ 16. The City immediately terminated all existing contracts that it had with CUI based on CUI' s debarment. Def. SOF ¶ 17. The Third Amended Complaint alleges that the decision to debar CUI was based largely on Defendant Langone' s claim he had hand counted a shipment of 12,000 sign blanks from CUI, and that the shipment was short by 222 signs. Plaintiffs maintain that Langone could not possibly have counted the signs by hand twice in twenty-four hours as he claimed. On August 30, 2005, Plaintiffs filed the instant suit, seeking an injunction against enforcement of the debarment. Def. SOF ¶ 18. The following day, Judge Shadur, the district court judge assigned to the case at that time, entered a temporary restraining order enjoining the Defendants from enforcing the debarment and from canceling any of CUI's existing contracts with the City. Def. SOF ¶ 19.

3. Events of March 2005 -- August 2005

As noted above, the City never formally decertified CUI, and did not debar CUI until August 24, 2005. However, according to CUI, between the time that the City issued the notices regarding CUI' s potential decertification and debarment and the filing of this suit, the City avoided doing business with CUI, thereby effectively revoking its MBE certification or "de facto decertifying" CUI. As discussed below, in support of its de facto decertification claim, CUI contends that between March and August of 2005 the City essentially stopped doing business with CUI by reducing orders on CUI's contracts, refusing to award contracts to CUI, refusing to extend CUI' s contracts, and improperly allowing prime contractors to replace CUI as their MBE subcontractor.

a. The City Reduces Orders on Contracts with CUI

Michelle Power, CUI' s bookkeeper, testified that beginning in March or April of 2005, CUI experienced a noticeable decrease in orders from the City. Pl. SOF ¶ 30. Power testified that it was at least six to nine months before CUI slowly saw an influx of orders from the City again. Id. CUI' s account manager, Michelle Massarella, also testified that leading up to March 2005, orders from the City slowed down. Id.

Between April and August of 2005, the City had 49 contracts with the City, Pl. SOF ¶ 84, all of which were Depends Upon Requirement ("DUR") contracts, meaning that, under the terms of the contracts, the City was authorized to increase or decrease the quantity of goods it ordered based on its needs. See Pl. Resp. ¶ 208-10. CUI's records show that between June and August of 2005, the City placed a total of 21 orders on those 49 contracts. Pl. SOF ¶ 86. By contrast, between June and August of the previous year, the City placed 180 orders on the same 49 contracts. Id. CUI' s records also show that between April and August of 2005 the City placed no orders on 26 of its 49 contracts with CUI. Pl. SOF ¶ 84. During the same time span the prior year, the City placed had 99 orders on those same 26 contracts. Pl. SOF ¶ 85. However, CUI' s records also show that between April and August of 2004, the City placed no orders on 14 of the 26 contracts on which it placed no orders the following year. Def. Resp. ¶ 85. Moreover, 5 of the 26 contracts on which the City placed no orders in the summer of 2005 expired during the disputed period. Def. Resp. ¶ 85. Finally, the bulk of the 99 orders placed in 2004 were on the sewer brick contract (41 orders), which expired prior to the disputed period. Def. Resp. ¶ 85.

b. City's Refusal to Award Contracts to CUI

On three occasions during the summer of 2005, CUI was not awarded City contracts based on the DPS's determination that CUI was a so-called non-responsible vendor. Specifically, on June 8, 2005, DPS sent Loera a letter signed by Dempsey, stating that CUI' s bid for the Piranha Hydraulic Ironworker and Accessories contract was rejected because CUI "has been deemed as a non-responsible vendor." Def. SOF ¶ 45. DPS sent Loera similar letters, also signed by Dempsey, on July 21, 2005 (rejecting CUI' s bid for the Segway Human Transport Units contract) and on July 25, 2005 (rejecting CUI' s bid for the Plastic Containers for Narcotics Seizures contract). Def. SOF ¶¶ 46, 48.

Dempsey and Brandie Knazze, the purchasing manager of DPS' s small orders unit, testified that a non-responsible vendor is one that the City has determined is not a responsible entity with whom the City should contract based on the vendor' s performance on prior contracts, financial capacity, and ability to fulfill the terms and conditions of the contract. Def. SOF ¶ 44. The letters informing CUI of the non-responsible bidder determinations did not mention the March notice of intent to decertify or CUI' s MBE certification status, nor did the letter explain why CUI had been deemed a non-responsible vendor. Pl. Resp. ¶ 49.

On six other occasions during the summer of 2005 the City failed to award contracts to CUI despite the fact that CUI was the lowest bidder. Specifically, in June of 2005 CUI was the lowest bidder on a contract for air conditioners for the fire department. See Pl. Apx. Vol. VIII, Ex. I-1, Jun. 2, 2005 Bid Tab. On June 17, 2005, City employee Tom Daily sent an e-mail to DPS' s Knazze stating that "[t]he lowest bidder for the air conditioners is Chicago United," and asking whether he could "recommend this vendor or do I disqualify them because of the problems they currently have with DPS[?]" Pl. SOF ¶ 65. The quantities on the bid specification were then changed, and CUI's bid was rejected. Id.

In June or July of 2005, CUI was the sole bidder on a contract for rental of tables and chairs for Senior Fest 2005. Pl. SOF ¶ 66. An e-mail dated July 26, 2005 from Dorothy Gardner to Pamela Pagone of the City states that "the City of Chicago is not doing business with [CUI] at this time," and that the contract would be rebid. Id. CUI was not awarded the contract, which was eventually awarded on August 29, 2005, while CUI was debarred from doing business with the City. Def. Resp. ¶ 66.

On July 21, 2005, CUI was the lowest bidder on a contract for helix light poles. Pl. SOF ¶ 67. This contract was awarded to another contractor on August 29, 2005, at which time CUI was debarred from doing business with the City. Def. Resp. ¶ 67.

Also on July 21, 2005, CUI was the lowest bidder on a contract for reinforced rod formed steel cages. Pl. SOF ¶ 68. This contract was awarded to another contractor on September 8, 2005. Pl. Apx. Vol. VIII, Ex. I-13. In a March 30, 2006 letter, Michael Picardi, the Commissioner for the City's Department of Streets and Sanitation, informed CUI that "DPS refused to consider CUI's sample because at the time of submission your company was on the disbarred list." Def. Resp. at ¶ 68; Pl. Resp. at ¶ 55.

On August 16, 2005, CUI was the lowest bidder on a contract for manhole and catch basin frames and perforated lids. Pl. SOF ¶ 69. This contract was awarded to another contractor on September 7, 2005. Id. The Award Checklist for this contract was prepared by Contract Administrator Patricia Farina on August 24, 2005, during the time period that CUI was debarred from doing business with the City. Def. Resp. ¶ 69.

On August 24, 2005 -- the same day CUI was debarred -- CUI was the sole bidder on a contract for large sewer pipes. Pl. SOF ¶ 70. On that day, Dempsey wrote a letter to CUI rejecting CUI's bid. Id.

c. City's Refusal to Extend Existing CUI Contracts

DPS employees, including Lorel Blameuser (unit manager for all commodities contracts) and Claude Humphrey (Deputy Procurement Officer for Contract Administration), testified that the City typically utilizes available contract extensions where the vendor has performed satisfactorily on the contract, the cost of goods has not changed or a reasonable price increase is approved, and the City's requirements and funding on the contract have not changed. Pl. SOF ¶ 72. Various CUI employees, including Loera, Gabriela Jaime (CUI's contract specialist), and Michelle Massarella, testified that the City had almost always extended CUI' s contracts prior to April 2005. Pl. SOF ¶ 74. John O' Vehicles and Heavy Equipment) and Lumpkin testified that the Chief Procurement Officer has the ultimate authority to decide whether to approve or reject contract extensions. Pl. SOF ¶ 73.

CUI identifies six contracts that expired between April and August of 2005 that the City elected not to extend.*fn7 Pl. SOF ¶ 76. The City also failed to extend a seventh contract with CUI -- the sewer brick contract --around the time the City issued the notice of debarment and decertification letters. The sewer brick contract was set to expire on February 28, 2005. Pl. Resp. ¶ 50. In January 2005, CUI requested a one year extension of the sewer brick contract as well as a 3% price increase. Id. On February 23, 2005, Dempsey issued a letter to CUI stating that the City had elected to extend CUI' s sewer brick contract for 730 days and to grant the 3% price increase. Id.; Pl. Apx. Vol. VIII, I-44. Humphrey testified that sometime between February and May of 2005, while CUI's contract extension was pending, the City Water Department needed sewer bricks. Def. SOF ¶ 51; Humphrey Dep., 142-44. CUI refused to Brien (DPS' s unit manager for the Contract Division unit of deliver the brick until the contract was formally modified and extended because CUI had experienced problems getting paid in the past. See id.; Pl. Resp. ¶ 51. Instead of formally extending the sewer brick contract with CUI, the City placed an emergency order for sewer bricks with Joseph Metz & Sons. Def. SOF ¶ 52. By buying the sewer bricks from Joseph Metz & Sons on an emergency basis, the City paid $57,752.35 (or 42.4%) more than it would have under an extension of CUI' s contract with the price increase. Pl. Resp. ¶ 51; Humphrey Dep. 157-58. On May 24, 2005, Dempsey wrote a letter to CUI terminating the sewer brick contract "due to [CUI] being unable to continue and maintain the original contract terms and conditions." Def. SOF ¶ 51.

d. Internal DPS Discussions Regarding CUI's Certification Status

Humphrey testified that between March and August 2005, there were numerous conversations within DPS about CUI and its MBE certification and projects, including conversations involving Dempsey. Pl. SOF ¶ 39. Humphrey testified that in the spring of 2005 he was under the impression that CUI' s MBE certification had expired or was about to expire. Id. Sometime after April 2005, Humphrey and Blameuser spoke with Dempsey and Lori Lightfoot, the then-Interim First Deputy Procurement Officer, about CUI' s MBE certification status. Pl. SOF ¶ 40. According to Humphrey, Dempsey told them that CUI was under evaluation, and that no final decision regarding its certification had been made. Id. Humphrey further testified that, at that meeting, "we were given a directive [by Lightfoot] to handle Chicago United on a normal basis, business as usual, in regards to their projects." Def. Resp. ¶ 40; Humphrey Dep. p. 45-46.

In July 2005, Humphrey again spoke with Lightfoot about CUI. Pl. SOF ¶ 41. At that time, she advised him that CUI was going to be debarred and that prime contractors should be informed that they could no longer get MBE credit for using CUI as a subcontractor. Pl. SOF ¶ 41; Def. Resp. ¶ 41. A day or two later, Aileen Velasquez (a deputy procurement officer) told Humphrey that it was "business as usual" with CUI. Pl. SOF at ¶ 41; Humphrey Dep. p. 60. Humphrey testified that his staff "had started to reach out to firms and * * * had to backtrack." Def. Resp. ¶ 41; Humphrey Dep. p. 61.

Blameuser testified that while the "letter * * * was pending regarding [CUI's] decertification, as well as their pending of their debarment," the contract administration department "didn' t know what was exactly happening" with CUI. Blameuser Dep. p. 83-84. According to Blameuser, her manager Aileen Velazquez and Humphrey told her that everything was in a state of flux with CUI at that time. Pl. SOF ¶ 42; Blameuser Dep. p. 85, 140. Blameuser's notes from a May 24, 2005 DPS staff meeting state: "CUI -- no new projects as a prime or subcontractor allowed." Pl. SOF ¶ 45. Blameuser's notes from a June 7, 2005 staff meeting read: "CUI, No extension of contracts with extension opinions * * * No final on their status. Certification/decertification." Id.

Theresa McDonnell, head purchase contract administrator within the Work Services Division of DPS, testified that in March of 2005, Blameuser told her that anything related to CUI was "on hold" until a decision was made regarding CUI' s certification. Pl. SOF ¶ 38. McDonnell further testified that Humphrey directed her to replace CUI as the MBE subcontractor on a contract because its certification "was being looked at." McDonnell Dep. p. 46-47. According to McDonnell, Humphrey also told her to bring anything having to do with CUI to his attention because CUI' s certification was in question and was being reviewed by management. Pl. SOF ¶ 46; McDonnell Dep. p. 25.

Knazze testified that she was aware that, as a rule, vendors who were proposed for decertification we not to be treated any differently than other vendors. Pl. SOF ¶ 50. However, she further testified that her manager, Aileen Velasquez, told Knazze to see her before taking any action regarding vendors who were proposed for decertification, including CUI, which Knazze did. Id.

Tom Wolfe, an employee of the City's Water Department, testified that in or about August 2005, Gigi Brooms, the assistant to the commissioner of contracts in DPS, told him he "couldn' t use" CUI. Pl. SOF ¶ 31. He testified that he did not know whether this directive was related to debarment and/or decertification proceedings against CUI. Wolfe Dep. p. 25. Wolfe testified that his department had an emergency need for tapping sleeves and valves at that time, and that he did not solicit a quote from CUI for the goods as a result of the directive. Pl. SOF ¶ 32.

On June 6, 2005, O'Brien sent an email to Lightfoot (cc'ing Dempsey, among others), asking whether CUI had been decertified. Pl. SOF ¶ 48. In that e-mail O'Brien stated that he had advised two prime contractors -- Standard Truck Center, Inc. and Standard Equipment Company -- that they could no longer receive MBE credit for using CUI as a subcontractor. Id.

On April 16, 2005, Dempsey wrote and signed a memorandum to Miguel d' Escoto, Commissioner of CDOT, with a CUI invoice for sign blanks attached, stating, "Is CDOT still ordering from Chicago United Industries? An explanation of the attached would be appreciated in light of the serious concerns raised earlier by CDOT concerning this vendor." Pl. SOF ¶ 52.

e. Statements by City Employees to Prime Contractors Regarding CUI's Certification Status and Replacement of CUI as an MBE Subcontractor on City Contracts

McDonnell testified that she told two vendors -- Midwest Service Center, Inc. ("Midwest") and Air One Equipment ("Air One") -- to replace CUI as an MBE subcontractor during the summer of 2005. Def. Resp. ¶ 46. In the summer of 2005, Midwest submitted paperwork to DPS proposing to use CUI as an MBE subcontractor on its contract with the City for centrifugal pumps. Def. SOF ¶¶ 88, 92. McDonnell testified that she requested that Midwest replace CUI at the request of her manager, Humphrey, because CUI's certification was under review. Def. SOF ¶ 93. Midwest replaced CUI as an MBE subcontractor on the centrifugal pumps contract. Def. SOF ¶ 94.

In the summer of 2005, Air One submitted paperwork to DPS seeking to renew a contract with the City on which CUI was an MBE subcontractor. Def. SOF ¶ 95. Air One sought to continue to use CUI as an MBE subcontractor. Def. SOF ¶ 96. The parties dispute whether Air One submitted a current MBE certification letter for CUI. Def. SOF ¶ 96; Pl. Resp. ¶ 96. McDonnell testified that she told Air One to replace CUI as an MBE because the documentation submitted by Air One showed that CUI' s certification had expired. Def. SOF ¶ 98; McDonnell Dep. p. 22-25. However, according to Air One' s President, Sandra Frey, McDonnell told her to replace CUI because they were going to be debarred and/or decertified. Pl. SOF ¶ 55. Air One re-submitted the documentation to McDonnell, again ...

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