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«Argued March 10, 2016 Decided September 9, 2016 No. 15-5176 ROTHE DEVELOPMENT, INC., APPELLANT v. UNITED STATES DEPARTMENT OF DEFENSE AND UNITED ...»

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United States Court of Appeals


Argued March 10, 2016 Decided September 9, 2016

No. 15-5176







Appeal from the United States District Court for the District of Columbia (No. 1:12-cv-00744) David F. Barton argued the cause and filed the briefs for appellant.

Meriem L. Hubbard, Ralph W. Kasarda, and Joshua P.

Thompson were on the brief for amici curiae Pacific Legal Foundation and Center for Equal Opportunity in support of appellant.

Steven J. Lechner was on the brief for amicus curiae Mountain States Legal Foundation in support of appellant.

Michael E. Rosman was on the brief for amicus curiae Center for Individual Rights in support of appellant.

2 Teresa Kwong, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief was Mark L. Gross, Attorney. R. Craig Lawrence, Assistant U.S.

Attorney, entered an appearance.

Sherrilyn Ifill, Janai Nelson, Christina Swarns, and Daniel W. Wolff were on the brief for amici curiae NAACP Legal Defense and Educational Fund, Inc., Asian Americans Advancing Justice, AAJC, and the Leadership Conference of Civil and Human Rights in support of appellees.

Christine V. Williams was on the brief for amici curiae Native American Contractors Association, et al. in support of appellees.

Before: HENDERSON, GRIFFITH and PILLARD, Circuit Judges.

Opinion for the Court filed by Circuit Judge PILLARD.

Opinion concurring in part and dissenting in part filed by Circuit Judge HENDERSON.

PILLARD, Circuit Judge: Plaintiff-Appellant Rothe Development, Inc. (Rothe) alleges that the statutory basis of the Small Business Administration’s 8(a) business development program, Amendments to the Small Business Act, Pub. L. No. 95-507, ch. 1, sec. 202(a), 92 Stat. 1757, 1761 (1978) (codified at 15 U.S.C. § 637), violates its right to equal protection under the Due Process Clause of the Fifth Amendment. Congress created the 8(a) program to extend government contracting opportunities to small business owners whose access to such opportunities was impaired by those individuals’ experience of racial or ethnic prejudice or 3 cultural bias. Rothe contends that the statute contains a racial classification that presumes that certain racial minorities are eligible for the program. But, in fact, Congress considered and rejected statutory language that included a racial presumption. Congress chose instead to hinge participation in the program on the facially race-neutral criterion of social disadvantage, which it defined as having suffered racial, ethnic, or cultural bias.

The challenged statute authorizes the Small Business Administration (SBA) to enter into contracts with other federal agencies, which the SBA then subcontracts to eligible small businesses that compete for the subcontracts in a sheltered market. 15 U.S.C. § 637(a)(1)(A)-(D). Businesses owned by “socially and economically disadvantaged” individuals are eligible to participate in the 8(a) program. Id.

§ 637(a)(1)(B).1 The statute defines socially disadvantaged individuals as persons “who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.” Id. § 637(a)(5).

Rothe is a small business that bids on Defense Department contracts, including the types of subcontracts that the SBA awards to economically and socially disadvantaged businesses through the 8(a) program. Rothe does not purport to be owned by an individual who has experienced racial or ethnic prejudice or cultural bias, and alleges that it “cannot participate in and has no desire to participate in the section 8(a) program.” 1 App. 74 (Compl. 33). It objects to the program because it believes that the statute contains an 1 Businesses owned by economically disadvantaged Indian tribes or Native Hawaiian organizations also qualify for the 8(a) program, see 15 U.S.C. § 637(a)(4)(A), but Rothe does not challenge that aspect of the statute.

4 unconstitutional racial classification that prevents Rothe from competing for Department of Defense contracts on an equal footing with minority-owned businesses.

We disagree, because the provisions of the Small Business Act that Rothe challenges do not on their face classify individuals by race.2 Section 8(a) uses facially raceneutral terms of eligibility to identify individual victims of discrimination, prejudice, or bias, without presuming that members of certain racial, ethnic, or cultural groups qualify as such. That makes it different from other statutes that either expressly limit participation in contracting programs to racial or ethnic minorities or specifically direct third parties to presume that members of certain racial or ethnic groups, or minorities generally, are eligible. Congress intentionally took a different tack with section 8(a), opting for inclusive terms of eligibility that focus on an individual’s experience of bias and aim to promote equal opportunity for entrepreneurs of all racial backgrounds.

In contrast to the statute, the SBA’s regulation implementing the 8(a) program does contain a racial classification in the form of a presumption that an individual who is a member of one of five designated racial groups (and within them, 37 subgroups) is socially disadvantaged. See 13 C.F.R. § 124.103(b). This case does not permit us to decide whether the race-based regulatory presumption is constitutionally sound, for Rothe has elected to challenge 2 We refer to those statutory provisions collectively as “section 8(a),” after the section of the public law that originally authorized the SBA’s contracting program, see Small Business Act of 1958, Pub. L. No. 85-536, § 8(a)(1)-(2), 72 Stat. 384, 389-91, but otherwise cite the codified versions of the relevant provisions. We refer to the contracting program as a whole, including the SBA’s regulations, as the “8(a) program.” 5 only the statute. Rothe alleged in its complaint that the “racial classification of section 8(a) of the Small Business Act, defined herein, is facially unconstitutional.” Compare 1 App. 68 (Compl. 1) and id. at 76-77 (claims for relief), with W. States Paving Co. v. Wash. State Dep’t of Transp., 407 F.3d 983, 990-91 (9th Cir. 2005) (plaintiff challenged both a statute’s race-neutral definition of social disadvantage and the agency’s racial presumption). Rothe’s definition of the racial classification it attacks does not include the SBA’s regulation.

See infra 7; 1 App. 71-72 (Compl.); Appellant Br. 2-3.

Rothe’s counsel’s statements during oral argument confirm the limited scope of Rothe’s challenge. When we asked counsel whether Rothe was challenging a racial classification that appeared “[i]n the statute or in the regulations,” he specified that Rothe was challenging the presumption “[i]n the statute.” Oral Arg. Tr. 4. We followed up: “[I]s the constitutional flaw in the statute alone, or is it in the statute and the regulations together?” Counsel for Rothe reiterated: “It’s in the statute alone....” Id. at 5. It is thus clear that the regulations are beyond the scope of Rothe’s challenge. If there were any doubt, we would be obliged to read the complaint narrowly to reach the same conclusion.

See Am. Fed’n of Gov’t Emps., AFL-CIO v. United States, 330 F.3d 513, 517-19 (D.C. Cir. 2003) (construing plaintiffs’ suit in a manner that avoided raising an equal protection problem).

Because the statute lacks a racial classification, and because Rothe has not alleged that the statute is otherwise subject to strict scrutiny, we apply rational-basis review, which the statute readily survives. Rothe’s evidentiary and nondelegation challenges to the decision below also fail. We therefore affirm the judgment of the district court granting summary judgment to the SBA and Department of Defense, 6 see Rothe Dev., Inc. v. Dep’t of Def., 107 F. Supp. 3d 183, 212-13 (D.D.C. 2015), albeit on different grounds.


The central question on appeal is whether section 8(a) of the Small Business Act warrants strict judicial scrutiny. The parties and the district court seem to think it does. See Appellant Br. 10; Appellee Br. 16; Rothe, 107 F. Supp. 3d at 189, 207; but see Oral Arg. Tr. 23 (Judge Griffith: “In your view does the statute create racial classifications, or is it the regulations?” Counsel for the government: “I believe it’s the regulations....”). That fact does not relieve us of our duty to assess independently the legal issue before us. See United States v. Bigley, 786 F.3d 11, 17 (D.C. Cir. 2015) (Brown, J., concurring in the judgment) (“But we are required to ‘conduct an independent review’ of a legal issue, despite the government’s concession on appeal.” (quoting United States v. Russell, 600 F.3d 631, 636 (D.C. Cir. 2010)); cf. The Anaconda v. Am. Sugar Refining Co., 322 U.S. 42, 46 (1944) (A party “cannot stipulate away” what “the legislation declares”).

There are at least three ways a plaintiff can plead an equal protection violation. A plaintiff may allege that the government has expressly classified individuals based on their race, see Parents Involved in Cmty. Sch. v. Seattle Sch.

Dist. No. 1, 551 U.S. 701, 712, 716, 720 (2007); that the government has applied facially neutral laws or policies in an intentionally discriminatory manner, see Yick Wo v. Hopkins, 118 U.S. 356, 373-74 (1886); or that facially neutral laws or policies “result in racially disproportionate impact and are motivated by a racially discriminatory purpose,” Adarand Constructors, Inc. v. Peña, 515 U.S. 200, 213 (1995) (citing Arlington Heights v. Metro. Hous. Dev. Corp., 429 U.S. 252 7 (1977), and Washington v. Davis, 426 U.S. 229 (1976)).

Rothe advances only the first theory—that, on its face, section 8(a) of the Small Business Act contains a racial classification.

See 1 App. 68 (Compl. 1) (seeking “to obtain a declaration that the racial classification of section 8(a) of the Small Business Act, defined herein, is facially unconstitutional”).

“[A]ll racial classifications imposed by government ‘must be analyzed by a reviewing court under strict scrutiny.’” Grutter v. Bollinger, 539 U.S. 306, 326 (2003) (quoting Adarand, 515 U.S. at 227); see Fisher v. Univ. of Tex. at Austin, 133 S. Ct.

2411, 2419 (2013) (“[U]nder Grutter, strict scrutiny must be applied to any admissions program using racial categories or classifications.”).

According to Rothe, three provisions instantiate the statute’s racial classification: (1) the statutory definition of socially disadvantaged individuals; (2) a government-wide goal of letting 5% of federal contracts to small businesses owned by socially disadvantaged individuals; and (3) the findings section of the statute, which Rothe contends includes a presumption that members of the specified racial groups are socially disadvantaged. In our view, none of the three components—separately or together—imposes an express racial classification subject to strict scrutiny.


Rothe first alleges that 15 U.S.C. § 637(a)(5)’s “definition of the term ‘socially disadvantaged’ contains a racial classification.” 1 App. 71 (Compl. 21). We disagree.

The statute defines socially disadvantaged individuals as “those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.” 15 U.S.C.

§ 637(a)(5). That definition does not “distribute[] burdens or 8 benefits on the basis of individual racial classifications.” Parents Involved, 551 U.S. at 720. “[T]he term ‘socially...

disadvantaged’ is race-[]neutral on its face....” W. States Paving Co., 407 F.3d at 988 (O’Scannlain, J.). It speaks of individual victims of discrimination. On its face, section 637(a)(5) envisions an individual-based approach that focuses on experience rather than on a group characteristic. Many individuals—of all races—have experienced discrimination on account of their race or ethnicity, and victims of discrimination do not comprise a racial or ethnic group; a person of any racial or ethnic background may suffer such discrimination. And the statute recognizes that not all members of a minority group have necessarily been subjected to racial or ethnic prejudice or cultural bias.

The focus on individuals who have experienced discrimination distinguishes section 637(a)(5) from the racial classification the Supreme Court considered in Regents of the University of California v. Bakke, 438 U.S. 265 (1978). There, the university’s medical school reserved 16 of 100 spaces in its class for “disadvantaged” students. Id. at 272, 279 (opinion of Powell, J.). But under the Bakke program, an explicit factor in determining disadvantage was an applicant’s race—not his or her individual experience of racial or ethnic discrimination. Id. at 274-75 & n.4. Thus, Justice Powell concluded, the program “was a minority enrollment program with a secondary disadvantage element” and therefore qualified as a racial classification. Id. By contrast, section 637(a)(5) does not provide for preferential treatment “based on [an applicant’s] race—a group classification long recognized as ‘in most circumstances irrelevant and therefore prohibited,’” Adarand, 515 U.S. at 227 (quoting Hirabayashi v. United States, 320 U.S. 81, 100 (1943)), but rather on an individual applicant’s experience of discrimination. In other words, this is not a provision in which “the race, not the 9 person, dictates the category.” Palmore v. Sidoti, 466 U.S.

429, 432 (1984) (describing racial classifications).

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