On October 26, 2023, a new legal challenge to the federal Department of Transportation’s (DOT) Disadvantaged Business Enterprise program was filed in the Federal District Court for the Eastern District of Kentucky.

Raising the same arguments pressed in Bruckner, Nuziard, and Ultima, the new case, Mid-America Milling Company, LLC, et. al. v. U.S. Department of Transportation, et. al., Case No. 3:23-cv-72, challenge the DOT’s use of a rebuttable presumption when determining “socially disadvantaged” applicants for purposes of the DOT’s DBE Program.

The DBE Program is designed to remedy ongoing discrimination and the continuing effects of past discrimination in federally assisted highway, transit, airport, and highway safety financial assistance transportation contracts. The program requires state and local transportation agencies that receive financial assistance to establish goals for the participation of disadvantaged business enterprises in their contracting programs, as well as establishing contract-specific DBE subcontracting goals.

To participate in the program, a business must be considered “small” according to size standards set by the Small Business Administration and the DOT, as well as owned and controlled by socially and economically disadvantaged individuals.

DOT regulations provide that African Americans, Hispanics, Native Americans, Asian-Pacific and Subcontinent Asian Americans, and women are presumed to be socially and economically disadvantaged. Other individuals may also qualify as socially and economically disadvantaged on a case-by-case basis. To be regarded as economically disadvantaged, an individual must have a personal net worth that does not exceed $1.32 million.

The plaintiff in Mid-America challenges the DOT’s use of a rebuttable presumption when determining whether an individual is socially disadvantaged, arguing such an approach is unconstitutional racial discrimination. Specifically, the plaintiff asserts that the DOT’s use of a rebuttable presumption distinguishes between individuals on the basis of race and/or sex, and its disparate treatment of different races and sexes does not survive strict scrutiny because:

• the rebuttable presumption does not address specific and intentional instances of discrimination or unequal treatment by the federal government, as opposed to general societal issues;
• the rebuttable presumption applies racial categories that are “overbroad,” “underinclusive,” “imprecise,” “arbitrary,” and “undefined;” and
• the DBE Program has been in place for decades and the DOT has not indicated when it will no longer be needed.

The plaintiffs ask for an order that declares the race and gender-based classifications in the DBE Program unconstitutional, and an order to enjoin the federal government from applying both the rebuttable presumption of social disadvantage in the DBE Program and the Infrastructure and Investment and Jobs Act’s set-aside of 10% of surface transportation funding for small business concerns owned and controlled by socially and economically disadvantaged individuals.

The plaintiffs in Mid-America are represented by the Wisconsin Institute for Law & Liberty, Inc., the same firm that represented the plaintiffs in the Bruckner and Nuziard cases. In Bruckner, the plaintiffs offered the same arguments asserted here, and against the same DOT programs, but lost on standing grounds. In Nuziard, the plaintiffs successfully challenged certain programs implemented by the Minority Business Development Agency as unconstitutional because the programs were available only to “socially or economically” disadvantaged individuals and only certain minority groups were presumed to be socially disadvantaged.

Assuming the plaintiffs can establish standing for their claims, and based on recent decisions on similar issues, the DOT’s use of a rebuttable presumption of social disadvantage in the DBE Program may be impacted by Mid America. In Ultima, a different federal district court recently found the SBA’s use of a rebuttable presumption of social disadvantage in the 8(a) Program unconstitutional. There is no functional difference between the presumptions of social disadvantage in the 8(a) Program and DBE Program. Moreover, the United States Supreme Court’s decision in Students for Fair Admissions, Inc. (SFFA) v. President & Fellows of Harvard Coll., 600 U.S. 181, 228 (2023), provides a template for both plaintiffs and courts in challenges to federal government contracting programs that confer advantages upon certain classes based on race.

The impact of a successful challenge in Mid-America is uncertain. The DOT argued in the Bruckner case that the 10% set aside for socially and economically disadvantaged small businesses in the Infrastructure and Investment and Jobs Act is only a goal and not mandatory. Moreover, we have also seen the Small Business Administration pivot relatively quickly to individual determinations of social disadvantage after the decision in Ultima barred the use of the rebuttable presumption of social disadvantage in the 8(a) program. The DOT may take a similar approach here.

A copy of the complaint in Mid-America can be found here, and we will continue to monitor this case.

The opinions expressed in this article are solely those of the author.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.