Rothe Development Corporation v. United States Department of Defense

This federal contract case concerns the constitutionality of � 1207 of the National Defense Authorization Act of 1987 (“the 1207 program”), Pub. L. No. 99-661, 100 Stat. 3859, 3973 (1986) (as amended), codified at 10 U.S.C. � 2323 (1994), which permits the United States Department of Defense (“DOD”) to preferentially select bids submitted by small businesses owned by socially and economically disadvantaged individuals (“SDBs”). The 1207 program operates by increasing the bid of a non-minority-owned firm by up to ten percent via a mechanism called a “price-evaluation” adjustment. Rothe Development Corporation (“Rothe”) appeals the April 27, 1999 decision of the United States District Court for the Western District of Texas granting summary judgment in favor of the government that the 1207 program is constitutional, as enacted and as applied in this case in which Rothe lost an Air Force contract to a SDB due to application of the 1207 program. Rothe Dev. Corp. v. United States Dep’t of Defense, 49 F. Supp.2d 937, 953 (W.D. Tex. 1999) (“Rothe I”).

In reviewing the program, the district court applied a deferential standard of review, and relied extensively on evidence post-dating the reauthorization of the 1207 program collected in an amicus brief filed on behalf of the government, and in a 1998 government study. Rothe contends that the 1207 program violates its equal protection rights under the Due Process Clause of the Fifth Amendment to the United States Constitution, because the program lacks the evidentiary foundation required to justify the enactment and application of a race-based classification. In defending the program, the government argues that Congress had sufficient evidence from which to conclude that the DOD had at least been a “passive participant” in perpetuating the lingering effects of past, private discriminatory conduct that significantly handicapped minorities from obtaining defense contracts, such that race-based remedial relief was justified, and moreover, that the 1207 program was narrowly tailored in addressing this remedial need. The government also argues that evidence post-dating the program’s last reauthorization in 1992 justified the program even if we find that the pre-reauthorization evidence alone was insufficient. Because we conclude that the district court improperly applied a deferential legal standard rather than “strict scrutiny,” and also impermissibly relied on post-reauthorization evidence to support the program’s constitutionality as reauthorized, we vacate the judgment of the district court and remand for further proceedings consistent with this opinion.