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As we come to the end of 2023, I wanted to take the opportunity to summarize the status of the various legal challenges on issues that are relevant to small business contractors.
Summary of Cases:
Ultima Services Corp. v. U.S. Dept. of Agriculture, et. al.
Summary of Proceedings: In Ultima Services Corporation v. U.S. Department of Agriculture et al., Case No. 2:20-CV-00041, Ultima Services Corporation filed suit in the U.S. District Court for the Eastern District of Tennessee (Greenville Division) to challenge the constitutionality of the Small Business Administration’s 8(a) Business Development Program. The central issue in the case is whether the 8(a) program’s presumption that certain small business owners are socially disadvantaged violates the Fifth Amendment’s guarantee of equal protection. On July 20, 2023, the District Court issued an injunction that barred the SBA from applying the rebuttable presumption of social disadvantage contained at 13 C.F.R. § 124.103(b)(1) when it determines which individually owned entities are eligible to enter the SBA’s 8(a) program. The court found such a presumption was unconstitutional in that it applied only to certain races and ethnicities.
On September 15, 2023, Ultima filed a motion with the District Court that asked the court to (i) bar the SBA from applying a less stringent standard for establishing social disadvantage than what was used prior to issuance of the injunction; (ii) bar the exercise of any option, or issue of a task order under existing 8(a) contracts awarded to 8(a) entities that received the benefit of the rebuttable presumption; (iii) either appoint a monitor to review the SBA’s evaluation of the social disadvantage narratives submitted in response to the injunction, or require the SBA to disclose those social disadvantage narratives (with identifying information redacted); and, (iv) of greatest concern to Alaska Native Corporations and Tribes, bar the award of any 8(a) contracts in the administrative and technical support industry for an undetermined length of time.
The government opposed Ultima’s motion, and the National Center for American Indian Enterprise Development (NCAIED) and the Tunica-Biloxi Tribe of Louisiana filed an amicus brief to oppose Ultima’s request for an order barring the award of any 8(a) contracts in the administrative and technical support industry.
Ultima filed its reply brief on October 6, 2023, and continued to argue for an injunction against the award of 8(a) contracts in the administrative and technical support industry.
Current Status: The Court has not issued an order on Ultima’s request or scheduled further hearings or briefings. On December 1, 2023, the chairman of the U.S. House Committee on Small Business, Roger Williams, issued a letter to the SBA to request information about the agency’s response to the Ultima court ruling. Representative Williams’s letter seeks copies of the SBA’s internal policies and processes for reviewing social disadvantage narratives, as well as statistical data about how many social disadvantage narratives have been reviewed and how they have been resolved.
Next Steps: The district court will either hold a hearing or rule on Ultima’s request for additional relief. We do not know when the court will issue a decision.
Maverick Gaming LLC v. United States
Summary of Proceedings: This case was filed by Maverick Gaming LLC. The company claimed the authorization Tribal gaming operations received under the Indian Gaming Regulatory Act (IGRA) to provide gambling options—such as sports betting—unavailable to other commercial card venues amounts to unconstitutional racial classification. At its core, Maverick Gaming’s argument is that gaming benefits provided to Tribes by the federal government should be viewed as a benefit granted due to a racial classification, as opposed to a political one. The case was dismissed by the federal district court because the Shoalwater Bay Tribe was deemed a necessary party that could not be joined.
Current Status: Maverick Gaming is appealing the dismissal to the 9th Circuit. Appellate briefing is complete and oral argument may be held in Seattle in March 2024.
Next Steps: The 9th Circuit may determine whether the State of Washington can properly limit gaming to Indian Tribes. We anticipate a decision in 2024.
Nuziard v. Minority Bus. Development Agency
Summary of Proceedings: In March 2023, Christian Bruckner, Jeffrey Nuziard, and Matthew Piper filed a lawsuit in the U.S. District Court for the Northern District of Texas (Fort Worth Division), Jeffery Nuziard, et. al. v. Minority Business Development Agency, et. al., Case 4:23-cv-00278-P. The suit challenged certain programs implemented by the Minority Business Development Agency (MBDA) and funding provided to the MBDA by the Infrastructure Investment and Jobs Act. The plaintiffs argue that certain programs implemented by the MBDA are racially discriminatory and violate the Constitution’s Equal Protection Clause because the programs are available only to “socially or economically” disadvantaged individuals and only certain minority groups are presumed to be socially disadvantaged.
The district court granted the plaintiffs’ motion for a preliminary injunction to enjoin the Wisconsin, Orlando, and Dallas-Fort Worth Minority Business Development Agency (MBDA) from imposing racial classifications or using the plaintiffs’ race or ethnicity to determine whether they can receive access to MBDA’s services and benefits.
Current Status: The federal government did not appeal the district court’s preliminary injunction. It has answered the plaintiffs’ complaint and filed cross-motions for summary judgment. The district court has not yet ruled on the cross-motions or set a hearing date.
Next Steps: The district court will decide the cross-motions for summary judgment, which should resolve the case.
Nebraska, et al. v. Martin Walsh, et al.
Summary of Proceedings: The States of Arizona, Idaho, Indiana, Nebraska, and South Carolina challenged the President’s ability to raise the federal contractor minimum wage using Executive Order 14026. On January 6, 2023, the U.S. District Court for the District of Arizona denied the states’ motion for a preliminary injunction and granted the government’s motion for summary judgment, which effectively dismissed the case.
Current Status: The States have appealed the district court’s decision to the 9th Circuit Court of Appeals. The appellate briefing is complete and the oral argument is scheduled for February 6, 2024, in San Francisco.
Next Steps: The 9th Circuit will decide whether President Biden had the authority to increase the federal contractor minimum wage with Executive Order 14026 or if the increase requires Congressional action. We anticipate a decision in 2024.
Mid-America Milling Company, LLC, et. al. v. U.S. Department of Transportation, et. al.
Summary of Proceedings: On October 26, 2023, Mid-America Drilling Company filed a legal challenge to the federal Department of Transportation’s Disadvantaged Business Enterprise program in the Federal District Court for the Eastern District of Kentucky. The company claimed that the DOT’s use of a rebuttable presumption when determining “socially disadvantaged” applicants for purposes of the DOT’s DBE Program is unconstitutional racial discrimination. The plaintiffs in Mid-America are represented by the Wisconsin Institute for Law & Liberty, Inc., the same firm that represented the plaintiffs in the Nuziard case.
Current Status: On December 15, 2023, the plaintiffs filed a motion for a preliminary injunction, citing Ultima and offering the same arguments that were successfully asserted in Ultima and Nuziard. The injunction sought by the plaintiffs would bar DOT from:
implementing or enforcing the DBE Program’s race and gender presumptions and DBE participation goal as set forth in P.L. 117-58, § 11101(e) and in 49 C.F.R. §§ 26.21, 26.41, 26.45, 26.47, 26.5, 26.51, 26.53, 26.67, 26.69, and 13 C.F.R. §§ 124.101, 124.103, 124.104, 124.105, and/or as otherwise applied to the DBE Program and other DBE programs and services, until further order of this Court.
The federal government has not yet filed any answer to Mid-America’s complaint or response to the motion for a preliminary injunction.
Next Steps: The government will file a response to Mid-America’s motion for a preliminary injunction and then Mid-America will have the opportunity to file a reply. The district court should rule on the motion at some point in 2024.
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