Coral Construction v. City and County of San Francisco

On Aug. 2, 2010, the state Supreme Court issued a decision in the long-running Proposition 209 challenge to the city and county of San Francisco ordinance that provides preferential treatment in the award of city contracts based on race and gender. Coral Construction v. City and County of San Francisco 2010 S.O.S. 4449. The court rejected two of the city's three arguments against the Proposition 209 challenge and remanded the case back to the Superior Court. San Francisco has provided bid preferences (treating bids as lower than the actual bid amount) to minority-owned business enterprises and women-owned business enterprises seeking city contracts since 1984 under a series of ordinances adopted by the Board of Supervisors.

Richmond v. Croson (1989) 448 U.S. 469 brought into question the ongoing validity of the city's bid preference ordinance. In Croson, the court found that a city's minority-owned business preference program violated the Equal Protection Clause of the U.S. Constitution. However, four justices suggested the possibility that in an "extreme case" where the facts showed a pattern of deliberate race-based discrimination by a public entity, narrowly tailored racial preferences might be warranted as a remedy.

In 1996, California voters approved Proposition 209, prohibiting preferential treatment based on race or sex in public programs under a new Section 31 to Article I of the state constitution. Following its adoption, the city conducted investigations to determine whether it had discriminated on the basis of race or gender in the award of city contracts. Based on facts from the investigations, the Board found that city departments had discriminated against minority-owned and women-owned business enterprises. The Board adopted an ordinance in 1998 that preserved bid preferences for such businesses.

In 2000, the state Supreme Court invalidated the city of San Jose's bid preference program for minority-owned and women-owned business enterprises in Hi-Voltage v. San Jose (2000) 24 Cal.4th 537. The court held Section 31 does not tolerate race- and gender-based preferences that the equal protection clause does not require but merely permits. However, like the plurality in Croson, the court held out the possibility that the federal Equal Protection Clause might sometimes require race-conscious remedies to counteract intentional discrimination.

In 2001, following the decision in Hi-Voltage, the Pacific Legal Foundation filed suit on behalf of Coral Construction seeking declaratory and injunctive relief to invalidate the city's 1998 bid preference ordinance. Coral asserted that the city's ordinance should be declared invalid because it violated Section 31's ban on preferential treatment based on race or gender.

While Coral's suit was proceeding in Superior Court, the city conducted additional investigations into its past and continuing contracting processes. Finding that race- and gender-based discrimination continued in city contracting, the Board reenacted its bid preference ordinance in 2003. Shortly thereafter, Schram Construction filed a separate action challenging the validity of the 2003 ordinance. The Superior Court consolidated the Schram and Coral cases.

The parties filed cross motions for summary judgment. The city contended that its 2003 ordinance was valid despite the provisions of Section 31 on three bases. First, the city argued that Section 31 violated the federal "political structure doctrine" - an aspect of federal equal protection articulated in Washington v. Seattle School Dist. No. 1 (1982) 458 U.S. 457 and Hunter v. Erickson (1969) 393 U.S. 386 . Second, the city argued that invalidation of its ordinance would lead to the loss of federal funds, and race and gender preference are not prohibited under Section 31 where the prohibitions would result in the loss of federal funding (federal funding exception). Finally, the city argued that the federal Equal Protection Clause required the city to address and remedy discrimination against minority-owned and women-owned business enterprises (federal compulsion argument).

The Superior Court granted plaintiffs' summary judgment motion and denied the city's. The court held that the city's 2003 ordinance violated Section 31; that Section 31 did not violate the political structure doctrine; and that the ordinance was not required to avoid a loss of federal funds.

The Court of Appeal upheld the determinations on the political structure doctrine and the federal funding exception; however, it found that the Superior Court did not reach the city's equal protection argument and remanded the case for a determination on that issue. Plaintiffs appealed to the state Supreme Court seeking to preserve the Superior Court's decision in their favor. The Supreme Court granted review.

The state Supreme Court's decision explained that the political structure doctrine provides equal protection against a political structure that subtly distorts governmental processes in such a way as to place special burdens on the ability of minority groups to achieve beneficial legislation. The city argued that the doctrine defeats Section 31 because those seeking race or gender preferences are burdened by being required to amend the state constitution to achieve their aims, while those seeking preferences on other bases (e.g., veteran status) need not. The Court rejected the city's argument. While the doctrine provides equal protection against political obstructions to equal treatment, it does not provide equal protection against political obstructions to preferential treatment. Accordingly, the Court held that Section 31 does not violate the political structure doctrine.

The Court next considered the city's argument that it should be able to present evidence to show that the city's minority-owned and women-owned business enterprise preference program was necessary to prevent the loss of federal funds. The Court rejected the city's argument concluding that relevant federal regulations permit preferences but do not require them - since preferences are not required, failure to provide preferences cannot result in the loss of federal funds.

The city's final argument was that the federal Equal Protection Clause under the 14th Amendment compelled it to provide bid preferences to remedy its own discrimination. The Court upheld the Court of Appeal judgment remanding the issue to the Superior Court for a factual determination. The Court ruled that the city, on remand, could defeat plaintiffs' motion for summary judgment only by showing that triable issues of fact exist on each element of the its federal compulsion argument: that the city has intentionally discriminated against minority-owned and women-owned business enterprises; the purpose of the city's bid preference ordinance is to remedy such discrimination; the ordinance is narrowly tailored to achieve that purpose; and that race- and gender-based preferences are the only, or at least most likely, means of rectifying the past discrimination.

In a footnote, the Court identified a key dispute to be adjudicated by the Superior Court, which addressed whether the city's responses to Coral's requests for admission are properly part of the record. The city's admissions "appear to concede:" that it has not been the policy of the city to discriminate against minority-owned and women-owned business enterprises since at least 1984; that the city cannot identify an instance of discrimination in the award of a specific contract after 1996; and the city has not identified discrimination by any specific contract-awarding authority after 1996.

The decision also discussed facts that seem to present a daunting challenge to the city. For example, in 1998, the Board found that minority-owned and women-owned business enterprises were not receiving a proportional share of city contracts and that the city's department heads and general managers were overwhelmingly Caucasian males operating under an "old boy network." In contrast, the Board found in 2003 that minority-owned and women-owned business enterprises now received a larger than proportional share of some types of contracts. For example, the city used African-American minority-owned business enterprises at 10 times the expected rate for professional services subcontracts, and the city used Latino minority-owned business enterprises at more than twice the expected rate for construction contracts. Moreover, the Board's 2003 findings conspicuously omitted the 1998 statement that decision-makers in the city's contracting process were overwhelmingly Caucasian males.

The case will continue to be closely watched to see whether San Francisco can demonstrate that its contracting practices embody the "extreme case" of intentional discrimination discussed in Croson and Hi-Voltage that would justify the city's continued use of minority-owned and women-owned business enterprise bid preferences in awarding city contracts.

Randy Parent is an attorney in the San Francisco office of Liebert Cassidy Whitmore, a business, education and employment law firm representing California's public agencies.

Reprinted and/or posted with the permission of Daily Journal Corp. (2010).

Coral Construction v. City and County of San Francisco