The opinion
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
MARK ONE ELECTRIC CO. )
INC., and SK DESIGN GROUP, )
INC., )
)
Plaintiffs, ) Case No.: 4:20-cv-00790-HFS
v. )
)
CITY OF KANSAS CITY, )
MISSOURI )
and )
PHILLIP YELDER,
Defendants.
Memorandum and Order
A preliminary injunction is sought by two prominent local
subcontractors who have been entitled to affirmative action
certificates. They were deprived of certificates on October 1, 2020,
because they failed to qualify for an owner's personal net worth
limitation, recently imposed by Kansas City. The cap on affirmative
action entitlement was imposed pursuant to a consultants’
recommendation which was part of the conclusions of a restudy of the
program in 2016. The recommendation was not specifically founded on
local conditions but was favored by the consultants as one safeguard
against legal challenges against affirmative action programs.1
A temporary restraining order was denied in early October, 2020
(Doc. 15), primarily on grounds of plaintiffs’ unlikelihood of success
which is a required factor to be considered. Dataphase Systems, Inc. v. C
L Systems, Inc., 640 F.2d 109 (8th Cir. 1981). The issue has resurfaced
for more thorough consideration at this time; but for reasons stated
below I reach the same conclusion.
Plaintiffs Mark One Electric Co. and SK Design Group have been
entitled to preference respectively as women-owned and minority owned
electrical and engineering businesses which have been notably
successful for some decades. Mark One is quite ubiquitous, and SK
Design Group has apparently gained a considerable reputation in the
business community. Adoption of the recommended personal net worth
cap on certificates was delayed for several years and was contested
1 There is in fact a legal challenge to the whole program pending before a colleague and being defended by the City
in part by reliance on the "small business" justification. Staco Electric v. City of Kansas City, Mo., 20-00165-DGK.
before the City Council some months before the effective date in
October, 2020. Litigation was filed at the last minute. Plaintiffs contend
the personal net worth limitation on ownership cannot be
constitutionally justified because it has not been "narrowly tailored,"
does not survive strict scrutiny, disregards continuing discrimination
based on gender and racial /national origin bias, even against financially
successful persons, and that in any event there are grave financial
dangers for plaintiffs during litigation that require protection until the
merits have been fully litigated. Plaintiffs acknowledge that their claims
are unusual, but contend that this is “a case of first impression.”
The City cites several cases on the constitutional merits, all
favoring its position, and contends the recommendation supporting the
cap is sufficient justification for the legislation, that the assertion of
serious financial dangers during litigation is conclusory and
inadequately unsupported, and that the last-minute litigation does not
deserve relief. My review favoring defendants additionally questions
the contention that strict scrutiny review is appropriate in evaluating a
common-place legislative boost to "small business," as defined by
legislators. The dividing line chosen between sectors of the same
protectable classes probably raises no constitutional suspicion.
A.The Merits.
The basic complaint here, against legislation withholding benefits
from financially successfully persons and businesses, while assisting
"small business" enterprises, has been uniformly rejected as a legal
issue. When equal protection language, relied on by plaintiffs here, was
activated, the Court applied that concept to federal as well as State
legislation even though such language is not literally applicable to the
federal government. Bolling v. Sharpe, 347 U.S. 497 (1954). The Court
stated it would be “unthinkable” to have materially different standards of
“fairness” between federal and local programs, as plaintiffs suggest
should occur here. As further discussed, the personal net worth line
drawn here between those entitled to favorable certificates and those
denied such certificates is commonly used federally and frequently by
the states. Using a personal net worth cap on benefits creates neither
literally nor intentionally a “suspect class” form of discrimination, but is
a routine aspect of legislation that burdens the more prosperous or
deprives them of benefits. Judicial notice may be taken of the current
Stimulus legislation which cuts off certain benefits at the $75,000
income level for individuals.
When a temporary restraining order was denied in this case in
October, 2020, reliance was placed on the most pertinent case sustaining
a federal affirmative action exclusion of prosperous persons (and
companies) who would otherwise qualify for a class suffering ethnic
origin or racial discrimination (or disadvantage). Adarand Constructors,
Inc. v. Slater, 228 F.2d 1147 (10th Cir. 2000).
Even if a compelling reason were needed for the cap, such a
reason was offered here. The 2016 reevaluation of the program resulted
in the consultants' recommendation that the City "Adopt a personal net
worth test along the lines of the USDOT DBE program requirements.
This narrow tailoring measure has been critical to the unanimous judicial
holdings that the program meets strict constitutional scrutiny." Doc 5-1,
page 129. As predicted, the complaint in Staco early last year did assert
that the City’s program was not narrowly tailored because it did not at
that time have the personal net worth limitation. With the limitation
now in place, it is no longer subject to the objection voiced by those who
are claiming a constitutional violation in Staco.
I believe both parties and the consultants may have confused an
issue here with one that does require "strict scrutiny" analysis. In
determining who should be included in a protectible class great care is
needed not to be too inclusive. City of Richmond v. J. A. Croson Co.,
488 U.S. 469 (1989). But assuming sound class qualification, as is not
questioned here, simply dividing the class into a group needing a
particular remedy and those deemed ineligible is a different question.
Even plaintiffs do not question the federal "small business" classification
requirement, which also has some exclusionary effect, although one
they can live with ($16.5 million for the businesses, as against $1.32
million for the personal net worth limit, 13 C.F.R 121.201 and 49 C.F.R.
26.67). Both limitations simply split the group in a manner that,
however politically debatable, is not judicially controversial, and
certainly not exposed to strict scrutiny.
The most fully reasoned case supporting the City’s exclusion of
benefits from plaintiffs (by dividing the protected class into groups
deemed most in need of relief from groups deemed less needy) is Jana-
Rock Const. Inc. v. New York State Board of Econ. Dev., 438 F.3d 195
(2d Cir. 2006). Like this case, it was a challenge to allegedly
underinclusive remedial measures by a party seeking to force itself into
the protected group. The Second Circuit acknowledged a right to go to
court to seek inclusion in the protected class but found the exclusion
permissible, and not subject to strict scrutiny.
The plaintiff in Jana-Rock sought to be included in an affirmative
action program covering, inter alia, Hispanics based on parental nativity
in Spain. New York, however, had defined the disadvantaged class as
being limited to those with Latin American ancestry. While the Circuit
noted that creation of an ethnic-based class needed narrow tailoring and
was subject to strict scrutiny, the State’s action in splitting the class as
more broadly defined and including only those deemed more needy did
not require using strict scrutiny twice. Jana-Rock, at 200. Only a
rational basis was needed in defining Hispanics to include only Latin
Americans—thus separating beneficiaries from those excluded from
benefits. This ruling (rather more controversial than this case – because
dealing with ethnicity rather than financial prosperity) fully supports the
City’s separating out companies with wealthy ownership as being less in
need of affirmative action assistance.
Plaintiffs’ contention that women and those with atypical ethnic
origins in Kansas City do sometimes suffer from status discrimination is
of course commonly understood and is accepted as true, but it remains a
legislative choice (not subject to strict scrutiny) to set outward bounds
on relief. As defendants’ brief notes, Oprah Winfrey would have no
constitutional right to affirmative action benefits if there was a
legislative decision (as here and in Slater) to exclude the wealthy.
But even if a compelling reason were required to exclude plaintiffs
from coverage, they have not impeached or quarreled with the reason
suggested by the consultants. At this stage of the proceedings I again
conclude the plaintiffs have very unlikely prospects of success on the
merits. Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d, at 112-
13. Perhaps the current prospects of ultimate success on the merits may
still be termed quite modest or rather minimal, subject of course to
further reconsideration before final judgment.
B. Harm from Denial & the Public Interest.
Plaintiffs offer brief declarations signed by their officials that
reflect considerable worry, opinions or guesses that past sources of
business they had when possessing certificates would be totally lost in
the future, and that some employees would be rendered jobless. Docs.
25-3 and 4. The SK Design Group's past projects generally have "an
MBE participation goal." Doc. 25-3, page 2. Over $5 million in 2019
earnings were "due to" the certificate. The clients "require" MBE
participation on their projects. SK Design Group "will almost certainly
lose these clients." Communication from prime contractors on projects
being pursued seek "confirmation" of MBE status. A loss of business
opportunities provided by the certification will prevent SK Design
Group from keeping "all" of its 21 employees employed. Mark One's
revenues would be "significantly and negatively" impacted by loss of
certification. Doc. 25-4, page 1. Mark One has received client
communication "expressing confusion" and "questioning" Mark One's
status, "as they consider the company for existing and future projects."
At argument on December 16, 2020, counsel did not, however, suggest
any subcontract cancellations after the loss of certificates. I thus assume
the loss of certification did not interfere with contracts already awarded.
There was no claim or proof of contractor "warnings" about future
subcontracting during litigation, and no new information has been
tendered for subsequent weeks. We thus have only fears and opinions
held by the plaintiff subcontractors. The deciding parties are not
plaintiffs but would be contractors, although defendant Yelder, Director
of the Human Relations Department, would have an unspecified role in
enforcing the program. Plaintiffs have filed nothing from the deciding
parties, and offer no hearsay warning to plaintiffs about future dealings
on projects that may shortly be let. Plaintiffs of course have the burden
of proof and persuasion at this time.
The City responds to the claim of anticipated harm by advising
that the certificates issued to subcontractors are only pertinent to any
contractor achievement of affirmative action “goals” that are set for an
entire contract, which are "flexible" and determined on a "contract-by-
contract basis." "Any combination" of certified subcontractors can be
used to satisfy goals "if such goals are set for contracts." Doc 29, page
20, with ordinance citations. Plaintiffs' future loss of business
contentions are thus "speculative," according to the City.
While I acknowledge there may be cause for worry by plaintiffs,
the absence of reported problems in existing contracts or in new
contracting during more than three months since plaintiffs lost their
certificates does indicate that the expressed concerns during litigation
are highly speculative and the declarations filed are too conclusory to
make confident predictions for the ensuing months. "Flexible" City
goals during litigation may avoid dire consequences favoring a
preliminary injunction. Plaintiffs are free to present new information to
this court or an appellate court if some dramatic loss of opportunity
occurs during litigation.
Defendants note that a threat of irreparable harm during litigation
must be "certain and great and of such imminence that there is a clear
and present need for equitable relief." Roudachevski v. All-American
Care Ctrs., Inc., 648 F.3d 701, 706 (8th Cir. 2011). The record does not
support a finding of a threat of irreparable harm at this time in the
context of relative injuries to the parties and the public. Dataphase, at
113.
A related and quite significant factor is the public interest. A
purpose of the personal net worth limitation is to enhance business
opportunities for certificate holders who are deemed to be more in need
of help. Thus, if there are some business losses during litigation because
of the new certificate requirement, the gains of other certificate holders
should probably be considered as balancing out the losses plaintiffs may
suffer. The public interest, a required consideration under Dataphase, as
intended by the City Council, would be served by increased
opportunities for eligible but less well-heeled potential subcontractors.
Such a transfer of new business should probably not be interfered with
by judges, who should avoid impeding the results of lawful public
policy.
To be realistic, I should probably note unexplored possibilities of
corporate reorganization or merger, which might avoid the impact of the
certification change, although that might not advance the objective of the
changed certification requirement.
In a case where the merits, as presently developed, so strongly
favor defendants, the plaintiffs’ motion for a preliminary injunction,
(Doc. 24) should be and is hereby DENIED.
s/ HOWARD F. SACHS
HOWARD F. SACHS
UNITED STATES DISTRICT JUDGE
January 11, 2021
Kansas City, Missouri