District Court Strikes Down Race Preference in USDA's and SBA's Contracting Schemes

From Judge Clifton Corker's opinion today in Ultima Servs. Corp. v. U.S. Dep't of Agric. (E.D. Tenn.) [UPDATE: link fixed]:

This case concerns whether, under the Fifth Amendment's guarantee of equal protection, Defendants the United States' Department of Agriculture ("USDA") and the Small Business Administration ("SBA") may use a "rebuttable presumption" of social disadvantage for certain minority groups to qualify them for inclusion in a federal program that awards government contracts on a preferred basis to businesses owned by individuals in those minority groups.

The court generally answers this "no"; here's an excerpt, though if you're interested in the details you should read the whole opinion:

"The liberty protected by the Fifth Amendment's Due Process Clause contains within it the prohibition against denying to any person the equal protection of the laws." United States v. Windsor (2013); see also Bolling v. Sharpe (1954); Ctr. for Bio-Ethical Reform v. Napolitano, 648 F.3d 365, 379 (6th Cir. 2011) ("The Fifth Amendment, of course, does not itself contain a guarantee of equal protection, but instead incorporates, as against the federal government, the Equal Protection Clause of the Fourteenth Amendment."). Courts, therefore, "evaluate equal protection claims against the federal government under the Fifth Amendment just as [they] would evaluate equal protection claims against state and local governments under the Fourteenth Amendment." …

To satisfy the compelling-interest prong [of the strict scrutiny applicable to race classifications], the government must both identify a compelling interest and provide evidentiary support concerning the need for the proposed remedial action. The Supreme Court has held that the government has a compelling interest in "remediating specific, identified instances of past discrimination that violated the Constitution or a statute." Students for Fair Admissions, Inc. Additionally, the government must present goals that are "sufficiently coherent for purposes of strict scrutiny."

Defendants assert that their use of the rebuttable presumption in the 8(a) program is to remedy the effects of past racial discrimination in federal contracting. But Defendant USDA admits it does not maintain goals for the 8(a) program. And Defendant SBA admits that it does not require agencies to have goals for the 8(a) program. Defendants also do not examine whether any racial group is underrepresented in a particular industry relevant to a specific contract in the 8(a) program. Without stated goals for the 8(a) program or an understanding of whether certain minorities are underrepresented in a particular industry, Defendants cannot measure the utility of the rebuttable presumption in remedying the effects of past racial discrimination. In such circumstances, Defendants' use of the rebuttable presumption "cannot be subjected to meaningful judicial review." The lack of any stated goals for Defendants' continued use of the rebuttable presumption does not support Defendants' stated interest in "remediating specific, identified instances of past discrimination[.]"If the rebuttable presumption were a tool to remediate specific instances of past discrimination, Defendants should be able to tie the use of that presumption to a goal within the 8(a) program.

Even if Defendants stated a sufficiently compelling interest, they still must demonstrate "a strong basis in evidence" to support the use of the race-based rebuttable presumption…. Recently, the Sixth Circuit addressed a challenge similar to the one Ultima raises here. In [that case], the Sixth Circuit reviewed the way in which Defendant SBA distributed coronavirus relief funds to help restaurants impacted by the coronavirus pandemic. Defendant SBA distributed the funds on a first come, first served basis. But during the first 21 days that the funds were available Defendant SBA distributed funds to priority applicants, which included restaurants that were "socially and economically disadvantaged." To determine which restaurants qualified as socially and economically disadvantaged, Defendant SBA relied on the same statutory and regulatory framework at issue here—particularly, the race-based rebuttable presumption. The plaintiff, a white, male 50% owner of a restaurant, sued to end Defendant SBA's racial preferences in distributing funding and sought a temporary restraining order and preliminary injunction. The district court denied both of the plaintiff's motions, and the plaintiff appealed those denials. The Sixth Circuit concluded that the plaintiff had a likelihood of success on the merits of his claims and that Defendant SBA's rebuttable presumption likely was unconstitutional because it did not serve a compelling interest and was not narrowly tailored….

Michael Rosman and Michelle Scott (Center for Individual Rights) and M. Dale Conder, Jr. (Rainey, Kizer, Reviere & Bell P.L.C.) represent plaintiff. I am on the CIR Board of Legal Advisors, though I wasn't at all involved with this case.