January 12, 2016
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 10 C 5627 - Harry
D. Leinenweber, Judge.
Bauer and Hamilton, Circuit Judges, and Peterson, District
Hamilton, Circuit Judge.
Midwest Fence Corporation challenges federal and state
programs that offer advantages in highway construction
contracting to disadvantaged business enterprises, known as
DBEs. For purposes of federally funded highway construction,
DBEs are small businesses that are owned and managed by
"individuals who are both socially and economically
disadvantaged/' 49 C.F.R. § 26.5, primarily racial
minorities and women, who have historically faced significant
obstacles in the construction industry due to discrimination,
§ 26.67(a). Pursuant to the federal DBE program, states
that accept federal highway funding must establish DBE
participation goals for federally funded highway projects and
must attempt to reach those goals through processes tailored
to actual market conditions.
Midwest Fence is a specialty contractor that focuses its
business on guardrails and fencing. Because of its size and
specialization, it usually bids on projects as a
subcontractor. Midwest Fence is not a DBE. It alleges that
the defendants' DBE programs violate its Fourteenth
Amendment right to equal protection under the law. Midwest
Fence named as defendants the United States Department of
Transportation (USDOT), the Illinois Department of
Transportation (IDOT), and the Illinois State Toll Highway
Authority (the Toll way).
the defendants' DBE programs, government contracting
decisions may be made with reference to racial
classifications, so these programs are subject to strict
scrutiny. They can survive an equal protection challenge only
if the defendants show that their programs serve a compelling
government interest and are narrowly tailored to further that
interest. Adarand Constructors, Inc. v. Vena, 515
U.S. 200, 227 (1995). Remedying the effects of past or
present discrimination can be a compelling governmental
interest. Shaw v. Hunt, 517 U.S. 899, 909 (1996),
citing City of Richmond v. J. A. Croson Co., 488
U.S. 469, 498-506 (1989).
district court granted the defendants' motions for
summary judgment. Midwest Fence Corp. v. U.S. Dep't
of Transportation, 84 F.Supp.3d 705 (N.D. 111. 2015). We
affirm. We join other circuits in holding that the federal
DBE program is facially constitutional. The program serves a
compelling government interest in remedying a history of
discrimination in highway construction contracting. The
program provides states with ample discretion to tailor their
DBE programs to the realities of their own markets and
requires the use of race-and gender-neutral measures before
turning to race- and gender-conscious ones. The IDOT and
Tollway programs also survive strict scrutiny. These state
defendants have established a substantial basis in evidence
to support the need to remedy the effects of past
discrimination in their markets, and the programs are
narrowly tailored to serve that remedial purpose.
Legal and Factual Background
The Federal DBE Program
we review a grant of summary judgment, we base our decision
on facts that are either undisputed or reflect disputed
evidence in the light reasonably most favorable to the
non-moving party, Midwest Fence. Stevens v. Interactive
Financial Advisors, Inc., 830 F.3d 735, 739 (7th Cir.
2016); see also Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 255 (1986). We lay out in broad strokes the federal
DBE program, which dates back to 1983 and has been
reauthorized as recently as 2015 in the Fixing America's
Surface Transportation Act, Pub. L. No. 114-94, §
1101(b), 129 Stat. 1312, 1323-25 (2015); see also Moving
Ahead for Progress in the 21st Century Act, Pub. L. No.
112-141, § 1101(b), 126 Stat. 405, 414-16 (2012). After
reviewing substantial data, testimony, and studies regarding
highway construction markets across the United States,
Congress determined that discrimination continued to
"pose significant obstacles for minority- and
women-owned businesses seeking to do business" in those
markets. § 1101(b)(1)(A), 126 Stat, at 415. Congress
found there was a strong basis to continue the DBE program to
try to remedy the ongoing effects of discrimination. §
1101(b)(1)(E), 126 Stat, at 415.
program establishes a national goal of spending at least 10%
of federal highway funds in contracting with disadvantaged
businesses. 49 C.F.R. § 26.41. DBEs are small businesses
owned and controlled by socially and economically
disadvantaged individuals. See § 26.5. Women and racial
and ethnic minorities are presumed to be socially and
economically disadvantaged, but they still must certify their
disadvantaged status and provide economic evidence. §
26.67(a). The presumption can be rebutted. § 26.67(b).
Presumption or not, no business can qualify as a DBE if the
controlling owner's net worth exceeds $1.32 million or if
the firm's gross receipts for the previous three fiscal
years average more than $23.98 million per year. §§
federal program provides a framework for states to implement
their own programs. States establish their own goals for DBE
participation in federally funded transportation projects by
(1) determining the relative availability of DBEs
"ready, willing and able" to participate in those
projects; and (2) examining local conditions to adjust the
base figure if necessary. See § 26.45.
regulations require states to use race- and gender-neutral
means to the maximum extent possible to meet their goals,
providing a non-exhaustive list of techniques for promoting
DBE participation. See § 26.51; see also § 26.5
(defining "race-neutral" to include
gender-neutral). If a state cannot meet its goal through
neutral means, it must set contract-specific DBE
subcontracting goals on projects with subcontracting
possibilities. § 26.51(d)-(e). The federal program
expects states to monitor their DBE participation
continuously. If a state is on track to exceed its DBE goal,
it must reduce or eliminate contract goals as necessary,
§ 26.51(f)(2), and states may adjust their overall goals
at any time to reflect changed circumstances, §
federal program allows states to seek waivers of goal-setting
provisions, §26.15, and permits states themselves to
decide on an individual basis whether bidders have made good
faith efforts to satisfy a specific contract goal when they
fall short, § 26.53(a)(2). Guidance as to what
constitutes good faith efforts is found in 49 C.F.R. pt. 26
app. A. The federal regulations also require states to
address overconcentration, meaning that states must ensure
that the use of DBEs in a particular sector does not unduly
burden non-DBEs in that sector. 49 C.F.R. § 26.33. The
federal program also requires periodic reauthorization by
IDOT's Implementation of the DBE Program
exchange for federal funding, IDOT has implemented a DBE
program. State law requires Illinois to follow the federal
program for solely state-funded projects and federally funded
projects alike. 30 Ill.Comp.Stat. 575/6(d).
uses a number of race- and gender-neutral initiatives to
facilitate DBE participation in its contracts, including a
DBE mentoring program, a highway construction training
program, a Small Business Initiative to encourage smaller
firms to participate in competitive bidding on prime
contracts, a Small Business Advisory Committee to provide
IDOT with input on small business issues, and an
"unbundling" effort to reduce contract size so that
a greater range of businesses can bid. IDOT also operates DBE
resource centers, works to eliminate barriers in the process
required to qualify firms to bid on prime contracts, hosts
networking and industry forums, and engages in numerous other
efforts to draw DBEs into the market.
race- and gender-neutral initiatives have never enabled IDOT
to reach its participation goal (which is 22.77%), so it also
sets individual contract goals on many contracts. In
compliance with the federal regulations, IDOT sets those
goals on contracts that have subcontracting possibilities. An
IDOT engineer identifies the types of work included in the
prime contract and estimates the value of each line item. An
IDOT compliance officer then determines whether at least two
DBEs are available to perform the work for each line item.
The compliance officer then adds up the estimated cost of the
line items and divides it into the total contract cost to set
a DBE participation goal for the contract. For example, if
$100, 000 of line items on a $1 million contract could be
performed by DBEs, the contract goal would be 10%. IDOT's
Office of Business and Workforce Diversity examines the goal
to determine whether it is realistic.
individual contract goals are important but not rigid. Prime
contractors can still win contracts if they are unable to
meet DBE participation goals. The bidding process requires
each prime contractor to submit a sealed bid accompanied by a
list of the DBEs the contractor will use to achieve the DBE
goal. The lowest bidder is awarded the contract if it meets
the DBE goal or if IDOT determines that the bidder has made
good faith efforts to do so. In the latter instance, IDOT
grants a "front-end waiver" to the prime
contractor. Whether a front-end waiver is appropriate depends
on a variety of factors, including the contractor's
method of soliciting DBEs, the follow-up and assistance the
contractor offered DBEs, work with local officials, and so
also matters. According to IDOT, contractors need not use a
more expensive DBE subcontractor if the price differential is
too great. The unwritten "rule of thumb, "
according to IDOT's former deputy director of business
and workplace diversity is 5%.
front-end waiver is denied, the prime contractor can appeal
to IDOT's reconsideration officer. If reconsideration is
denied, the contract goes to the next lowest bidder or is
rebid. The practical availability of these front-end waivers
is a focus of Midwest Fence's challenges to the Illinois
The Tollway Program
Tollway adopted its own DBE program in 2005. Unlike IDOT, the
Tollway received no federal funding during the relevant time,
so it was not subject to the federal regulations. For the
most part, though, its program mirrors IDOT's program.
The Tollway treats a business as a DBE if it is certified
under the federal regulations or if the City of Chicago or
Cook County deems it a "Minority or Women-Owned
IDOT, the Tollway uses race- and gender-neutral measures such
as unbundling contracts, implementing a Small Business
Initiative, partnering with other agencies to provide
supportive services, conducting seminars on doing business
with the Tollway, and making information available on its
website. Those measures have not produced substantial DBE
participation, however, so the Tollway also sets DBE
participation goals. It does so one contract at a time. Most
of its goals are achieved through subcontract dollars. It
sets those goals by comparing line items in its contracts to
an availability table in a 2006 National Economic Research
Associates study which identifies DBE availability by
industry code and serves as evidence supporting the
Tollway's DBE program.
theory at least, the Tollway grants good faith efforts
waivers based on criteria like those in the federal
regulations. These criteria include whether the contractor
solicited DBEs through all reasonable and available means,
unbundled contract work items into economically feasible
units, provided DBEs with sufficient information, engaged in
good faith negotiations with DBEs, and so on. Cf. 49 C.F.R.
pt. 26 app. A (federal guidance concerning good faith
efforts). Midwest Fence again disputes the availability of
those waivers in practice, calling the Tollway's contract
goals de facto quotas.
Fence filed this lawsuit in 2010 alleging that the federal
DBE program, IDOT's implementation of it, and the
Tollway's own program violate its Fourteenth Amendment
right to equal protection. Against the federal program,
Midwest Fence asserts the following primary theories:
• The federal regulations prescribe a method for setting
individual contract goals that places an undue burden on
non-DBE subcontractors, especially certain kinds of
subcontractors, including guardrail and fencing contractors
like Midwest Fence.
• The presumption of social and economic disadvantage is
not tailored adequately to reflect differences in the
circumstances actually faced by women and the various racial
and ethnic groups who receive that presumption.
• The federal regulations are unconstitutionally vague,
particularly with respect to "good faith efforts"
to justify a front-end waiver.
Fence also asserts that IDOT's implementation of the
federal program is unconstitutional for essentially the same
reasons. Finally Midwest Fence challenges the Tollway's
program on its face and as applied. Midwest Fence sought
declaratory and injunctive relief from all defendants, and
monetary relief from IDOT and the Tollway
sides moved for summary judgment, and the district judge
granted the defendants' motions. Midwest Fence
Corp., 84 F.Supp.3d at 713. The judge found that Midwest
Fence had standing to bring most of its claims. Id.
at 722-23. On the merits, the district court upheld the
facial constitutionality of the federal DBE program.
Id. at 729.
to IDOT, the court concluded that Midwest Fence did not rebut
the evidence of discrimination that IDOT offered to justify
its program, id. at 733, and that Midwest Fence had
presented no "affirmative evidence" that IDOT's
implementation unduly burdened non-DBEs, failed to make use
of race-neutral alternatives, or lacked flexibility,
id. at 737.
court noted that Midwest Fence's challenge to the
Toll-way's program paralleled the challenge to IDOT's
program. Id. It concluded that the Tollway, like
IDOT, had established a "strong basis in evidence"
for its program. Id. at 739. Finally, the district
court concluded that, like IDOT's program, the
Tollway's program imposed a minimal burden on non-DBEs,
employed a number of race-neutral measures, and offered
substantial flexibility. Id. at 740. Midwest Fence
has appealed the final judgment. We have jurisdiction under
28 U.S.C. § 1291.
Standing to Challenge the DBE Programs Generally
addressing the merits of Midwest Fence's equal protection
claims, we must address the defendants' argument that
Midwest Fence lacks standing under Article III of the
Constitution to bring them at all. See Northeastern
Florida Chapter of the Associated General Contractors v. City
of Jacksonville, 508 U.S. 656, 663 (1993) (standing is
"an essential and unchanging part of the
case-or-controversy requirement of Article III"),
quoting Lujan v. Defenders of Wildlife, 504 U.S.
555, 560 (1992). The district court found that Midwest Fence
has standing, with one narrow exception.
standard of review depends on the procedural posture of the
case, whether we are dealing with bare allegations in the
pleadings, a paper record of evidence on summary judgment, or
evidence at trial. The party invoking federal jurisdiction
bears the burden of establishing standing, and the elements
of standing must be supported with the quantum of evidence
required at each successive stage of litigation. "At the
summary-judgment stage, 'the plaintiff can no longer rest
on ... mere allegations, but must set forth by affidavit or
other evidence specific facts.'" Edgewood Manor
Apartment Homes, LLC v. RSUI Indemnity Co., 733 F.3d
761, 771 (7th Cir. 2013) (internal quotation marks omitted),
quoting Defenders of Wildlife, 504 U.S. at 561;
accord, Six Star Holdings, LLC v. City of Milwaukee,
821 F.3d 795, 801-02 (7th Cir. 2016); Hummel v. St.
Joseph County Board of Comm'rs, 817 F.3d 1010, 1016
(7th Cir. 2016). Here, defendants moved for summary judgment
in part on the basis that Midwest Fence lacks standing, so
the legal issue is whether Midwest Fence offered evidence
that could support a finding of standing.
invoke a federal court's jurisdiction, a plaintiff must
allege and then show (1) injury in fact, (2) a causal
relationship between the injury and the challenged conduct,
and (3) a likelihood that the injury will be redressed by a
favorable decision. Northeastern Florida, 508 U.S.
at 663-64. Northeastern Florida involved a
race-conscious ordinance enacted to increase participation in
public contracting. The issue was whether standing requires a
plaintiff challenging ...