E-Alert Case Updates

North Carolina Minority Business Enterprise Program Deemed Unconstitutional, in Part

H.B. Rowe Co. v. Tippett
No. 09-1050 (4th Cir., 2010)
By Colleen K. O’Brien, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

In 1983, the North Carolina General Assembly enacted a statute designed to remedy racial and gender-based discrimination in state highway construction contracts. That statute, N.C. GEN. STAT. § 136-28.4 (the North Carolina Minority Business Enterprise Program), requires the North Carolina Department of Transportation to establish aspirational goals for the participation in road construction contracts by minority-owned and women-owned businesses. The goal is for contractors to award 10% of their subcontractor work to minority-owned businesses, and 5% of their subcontractor work to women-owned businesses. Contractors who cannot meet this aspirational goal can conform to the statute by demonstrating that they utilized good faith efforts to comply, such as the unsuccessful solicitation of minority and women-owned subcontractors.

The lawsuit here was initiated by contractor H.B. Rowe. H.B. Rowe was the lowest bidder on a North Carolina road construction project. H.B. Rowe’s bid included 6.6% women subcontractor participation and zero minority subcontractor participation. Its contract was denied because there was a lack of good faith compliance with the statute’s minority subcontractor participation goal. There was evidence that H.B. Rowe did not solicit enough minority subcontractors. When H.B. Rowe lost the bid, it filed suit in District Court, challenging the constitutionality of N.C. GEN. STAT. § 136-28.4.

H.B. Rowe argued that the North Carolina Minority Business Enterprise Program violated its rights under the Fourteenth Amendment’s Equal Protection clause. The District Court granted summary judgment in favor of the State, finding that the statute was constitutional in its entirety.

On appeal, the 4th Circuit first considered the constitutionality of the race-based aspect of the statute. To be constitutional, racial classifications must withstand strict scrutiny, which means that the statute must be narrowly tailored to a compelling government interest. Even racial preferences in statutes intended to benefit minority groups are subject to strict scrutiny by the Court. To justify a race-conscious measure, a state must identify past discrimination with specificity and present strong evidence that the remedial action is necessary.

In defense of the statute, North Carolina presented evidence that the statute was necessary to remedy past race discrimination. First, it presented a 2004 study commissioned by the North Carolina General Assembly. The study found that contractors underutilized minority subcontractors. The study also found that generally, low value contracts were awarded to minority-owned businesses. Second, North Carolina relied on anecdotal evidence collected from telephone surveys of construction company employees. The telephone surveys elicited evidence of a “good old boy” network of white contractors that discriminated against minority subcontractors.

Based on the evidence presented, the Court of Appeals concluded that North Carolina met its burden of producing strong evidence for the necessity of minority participation goals to remedy discrimination against certain minority subcontractors. Further, the statute was narrowly tailored because it was flexible. The statute’s goals were only aspirational, not rigid, and good faith efforts to conform with the statute waived compliance.

Next, the Court considered the constitutionality of the gender-motivated aspect of the statute. To be constitutional, the gender classification must withstand intermediate scrutiny, which means that the statute must be substantially related to an important governmental objective. The 2004 study demonstrated that contractors over-utilized women-owned subcontractor businesses. North Carolina failed to provide empirical or anecdotal evidence that women-owned businesses were disadvantaged. Consequently, the Court invalidated the part of the statute aimed at women-owned businesses.

The majority opinion was written by Judge Diana Motz, and Judge Beaty and Judge Niemeyer concurred. Although he concurred in the judgment, in a separate opinion, Judge Niemeyer took issue with the fact that the General Assembly’s studies were commissioned after the statute took effect. Therefore, to Judge Niemeyer, there was a lack of evidence concerning whether disparities existed at the time the program began. Even though he pointed out deficiencies in the statute, he concurred with the judgment of the majority opinion. Judge Beaty wrote a concurring opinion to emphasize the history of discrimination against minorities and to stress that the statute served North Carolina’s high interest in attempting to remedy this past discrimination.