D.C. Circuit Rules That The 8(a) Program Is Constitutional, But Its Reasoning Raises Questions

David Black and Joseph Hornyak are Partners in Holland & Knight's Tysons office

On September 9, 2016, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) issued a split decision holding that § 8(a) of the Small Business Act does not violate the Equal Protection Clause of the U.S. Constitution. Rothe Development, Inc. v. Department of Defense, No. 15-5176. Although the Court's decision comes as welcome news to participants in SBA's 8(a) Business Development program, the Court's rationale raises new questions. In its defense of § 8(a) against constitutional attack, the Court adopted an interpretation of the statute that may expose SBA's regulatory presumption that members of certain groups are "socially disadvantaged" to legal uncertainty. It also remains to be seen whether the U.S. Supreme Court takes an interest in this case after a 20-year hiatus from reviewing race-based preferences in public procurement.

Summary of the Decision

In the lower court proceeding, the District Court, SBA, and Rothe Development had unanimously agreed that the statutory definition of "socially disadvantaged individuals" at 15 U.S.C. § 637(a)(5) was subject to heightened "strict scrutiny" review under the Equal Protection Clause because the statute expressed a clear racial classification. The District Court upheld the constitutionality of § 8(a) in 2015 after concluding that the statute satisfied the legal standard for "strict scrutiny" - i.e., it was narrowly tailored to achieve an established compelling government interest. Observes expected that the primary issue on appeal would be whether the District Court's "strict scrutiny" analysis would pass constitutional muster at the D.C. Circuit.

The D.C. Circuit took an alternate and surprising path to affirming the District Court's judgment. The D.C. Circuit held that § 8(a) was subject only to the lesser (and easier to satisfy) "rational basis" constitutional review. The Court reached this conclusion because it reasoned that the statute's definition of "socially disadvantaged individuals" did not contain a racial classification. This definition states that socially disadvantaged individuals are "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) (emphasis added). Relying on the italicized clause and the legislative history of the Small Business...