On November 4, 2008, the U.S. Court of Appeals for the Federal Circuit issued an opinion in Rothe Development Corporation v. Department of Defense, holding that a statute providing for race-based preferences in DOD procurements was unconstitutional.  We discussed this decision previously when it was released, noting that the ultimate consequences of the decision were uncertain.  We observed that the procedural time limits allowing appeal needed to pass before anything would be considered “final.”  Now that it seems that the Government is not appealing the Federal Circuit’s decision to the U.S. Supreme Court, District Judge Xavier Rodriguez (the original judge from the Western District of Texas) issued an Order on February 26, 2009 enjoining in whole the enabling statute at 10 U.S.C. § 2323, not merely those portions of the statute that relate to race-based preferences.

a. The Statute, the Whole Statute, and Nothing But the Statute

The Government asked the Court not to enjoin the entire statute, arguing that other portions of the statute, including “the race-neutral small business contracting programs [such as the HUBZone provisions, which can apply to any person of any race, provided they are located in an historically under-utilized business zone,] and educational institution grant, scholarship and technical assistance programs,” should remain valid.  However, Judge Rodriguez declined to grant the Government’s request.  Observing that creating a carve-out in section 2323(a) for qualified HUBZone businesses (namely, those businesses not singled out on the basis of race) would result in a “court imposed fundamental rewrite of this congressional statute,” Judge Rodriguez observed that the Federal Circuit’s instruction was clear and that enforcement of the statute in its entirety must be enjoined.

While Judge Rodriguez appeared open to the argument that the Federal Circuit’s decision may not have reached so far as to strike down section 2323(c) (providing DOD support for colleges and universities historically serving minority groups), Judge Rodriguez observed that subsection (c) relied in large part on subsection (a), and so when that portion of the statute was struck down as unconstitutional, the entire statute fell – including provisions (however admirable) relating to the educational institutions.

b. DOD Issues "Preliminary" Guidance

On March 10, 2009, DOD issued "preliminary guidance" on how the Order should be implemented.   DOD advised that "any activity, which includes but is not limited to the award of contracts and orders under contracts, advance payments, and the award of grants or scholarships or the addition of funds to existing grants and scholarships, that rely exclusively on the authority of 10 U.S.C. § 2323 should cease."  Beyond this, DOD encouraged individuals to consult with the attorneys in the DOD Office of General Counsel with any additional questions.

c. DOD Again Waives the Price Evaluation Adjustment Requirement – To No Effect

Coincidentally it would seem, only one week before the District Court issued its Order, DOD re-issued on February 19, 2009 a waiver of the price evaluation adjustment that was at the heart of Rothe’s original lawsuit.  See 74 Federal Register 7671.  Back in the mid-1990s, this price evaluation adjustment gave a Korean-owned small-disadvantaged business a competitive advantage over Rothe, which prompted Rothe’s lawsuit.  Even though DOD annually has suspended the price evaluation adjustment since 1999 (due to the fact that DOD consistently has hit its small business goals), this provision again has been suspended from March 2009 until March 2010 under the newly published notice.

Given the District Court’s new Order, it seems that the entire issue of “suspension” or “waiver” is moot.

Judge Rodriguez seemed to resist the prospect of striking down the entire statute, but he felt that the direction from the Federal Circuit was clear.  Although the reasoning in the Federal Circuit’s decision would seem to apply only to unconstitutional race-based preferences, the Government was asking the Judge to "red-line" the statute and carve-out certain limited exceptions.  This seems like a job best left to legislators, not judges.  If lawmakers in Congress choose to re-enact the provisions at 10 U.S.C. § 2323, the Federal Circuit already has provided a fine outline on how they can do it – namely by narrowly tailoring the statute, and ensuring that they have a "strong basis in evidence" supporting the legislation.  Undoubtedly, this will not be the end.  But for now, with regard to 10 U.S.C. § 2323, it may well be. 

The statute is dead.  Long live the statute. 

Authored by:

David S. Gallacher

(202) 218-0033