United States: Challenge To 8(A) Business Development Statute Gets Rebuked

On Friday, September 9, 2016, the U.S. Court of Appeals for the D.C. Circuit ("D.C. Circuit Court of Appeals") held that the statute creating the Small Business Administration's "8(a) Program" is not unconstitutional. Nevertheless, in addition to being appealed, the ruling creates possibilities for future successful challenges to certain aspects of the 8(a) Program and its administration.

The case, Rothe Dev., Inc. v. U.S. Dep't of Def., No. 1:12-cv-00744 (D.C. Cir. Sept. 9, 2016), involved a challenge to the constitutionality of Section 8(a) of the Small Business Act (the "Act"). Rothe claimed that Section 8(a) of the Small Business Act violated its constitutional right to equal protection under the Due Process Clause because Section 8(a) "contains a racial classification that presumes that certain racial minorities are eligible for the program" and there is no such presumption for individuals who are not members of those groups.

The issue before the D.C. Circuit Court of Appeals was whether the U.S. District Court for the District of Columbia ("D.C. District Court") had properly granted summary judgment in favor of the Defendant.

Section 8(a) Background

Section 8(a) establishes the government's right to offer various forms of assistance to companies that are majority owned and controlled by "socially economically disadvantaged individuals." Companies that participate in the 8(a) Program are eligible to receive "sole-source" contracts (up to a ceiling of $4 million for goods and services and $6.5 million for manufacturing), which permit participants to avoid competing against other contractors for the applicable work.

The plaintiff, Rothe, claimed that Section 8(a) of the Act violated its constitutional right to equal protection under the law by establishing a presumption that certain minorities are eligible for the Program, and therefore the benefit of, among other things, set-aside contracts.

The Court's Ruling Creates the Possibility for Successful Appeal

In order to assess whether a law violates a particular party's right to equal protection, the reviewing court will apply one of a number of "standards of review." The standard of review sets forth the burden that the defendant must meet in order to demonstrate that the challenged law is constitutional. To guide lower courts in their review of cases alleging a violation of the equal protection rights, the Supreme Court has established three standards of review: rational basis, intermediate scrutiny, and strict scrutiny.

In its Order granting summary judgment to the defendant, the D.C. District Court applied the strict scrutiny standard, which is the most rigorous standard to overcome. Despite applying the most rigorous standard and requiring the government to demonstrate that the 8(a) Program satisfied a "compelling interest" that was "narrowly tailored" to satisfy the goals and issues identified, the D.C. District Court found in favor of the government. The D.C. District Court found that Congress identified a compelling need and addressed it a meaningful and tailored manner.

On appeal, the D.C. Circuit Court of Appeals upheld the grant of summary judgment but, importantly, overturned the D.C. District Court's application of the strict scrutiny standard and employed the rational basis standard instead. The D.C. Circuit Court of Appeals justified its decision to employ the rational basis standard because "Congress chose [] to hinge participation in the program on the facially race-neutral criterion of social disadvantage, which it defined as having suffered racial, ethnic, or cultural bias." As a result, the D.C. Circuit Court of Appeals concluded that "[b]ecause the statute lacks a racial classification . . . we apply rational-basis review, which the statute readily survives."

The D.C. Circuit Court of Appeals' decision to apply the rational basis standard of review was somewhat surprising for a number of reasons. First, each party to the case agreed that strict scrutiny was the proper standard of review; the defendant simply argued that Section 8(a) of the Act withstood even the most rigorous review. Second, the D.C. District Court had applied the strict scrutiny standard, which required the D.C. Circuit Court of Appeals to overturn that aspect of the decision while upholding the decision to grant summary judgment in favor of the defendant. Third, the D.C. Circuit Court of Appeals' decision to apply the rational basis standard also conflicts with two cases (involving the same plaintiff) that directly addressed the constitutionality of the 8(a) Program and applied the strict scrutiny standard. DynaLantic Corp. v. Dep't of Def., 115 F.3d 1012, 1013 (D.C. Cir. 1997); DynaLantic Corp. v. United States Dep't of Def., 885 F. Supp. 2d 237 (D.D.C. 2012).

In the first DynaLantic case, which was decided by the D.C. Circuit Court of Appeals in 1997, the government argued "that the 8(a) statute is not itself race-conscious; only the implementing SBA regulations are." The majority of the D.C. Circuit Court of Appeals found "the government's statutory analysis rather dubious" because "the Act includes as a congressional finding that certain racial groups—the same groups as are identified in [the SBA regulation]—are socially disadvantaged." DynaLantic Corp., 115 F. 3d at 1017.

In the second DynaLantic case, the D.C. District Court applied the strict scrutiny review standard, just as it did in Rothe, to determine whether Section 8(a) of the Act was unconstitutional. DynaLantic Corp., 885 F. Supp. 2d at 250. The D.C. Circuit employed the heightened level of review because Section 8(a) limited certain contract awards to companies or individuals that are "socially and economically disadvantaged." Id. at 250-51. The DynaLantic court and found that the Act satisfied a compelling interest and that it was narrowly tailored to address the issues identified by Congress and summarized in the Act's "findings." The second DynaLantic case was appealed but ultimately settled before the Rothe decision was issued.

The D.C. Circuit Court of Appeals' decision to apply the rational basis standard of review may expose the decision to further appeal. Judge Henderson of the D.C. Circuit Court of Appeals issued a Dissent, in which she disagreed with the majority's application of the rational basis standard. In her Dissent, Judge Henderson cites a number of sections within the Act that classify individuals based on race, which conflicts with the majority's ruling that Section 8(a) of the Act is race-neutral. For example, Judge Henderson cites Section 8(a)(5) of the Act, which defines "socially disadvantaged individuals" as "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). Judge Henderson also cites Section 2(f) of the Act at length because it designates specific racial groups as being presumptively disadvantaged.

According to Judge Henderson, all of the information taken together clearly indicates that Section 8(a) is not racially neutral and, as a result, the proper standard of review is strict scrutiny (Judge Henderson's Dissent does not indicate disagreement with the outcome under the strict scrutiny standard).

The Court's Ruling Creates a Likelihood of Future Challenges to SBA's Implementing Regulations

The scope of Rothe's challenge to the 8(a) Program was an important aspect of the D.C. Circuit Court of Appeals' ruling. The D.C. District Court and the D.C. Circuit Court of Appeals emphasized Rothe's decision to limit the challenge to the constitutionality of Section 8(a) of the Act itself, not SBA's implementing regulations. As a result, both courts limited their respective reviews and rulings to the Act itself.

Nevertheless, the D.C. Circuit Court of Appeals noted that, in contrast to Section 8(a) of the Act, "the SBA's regulation implementing the 8(a) program does contain a racial classification in the form of a presumption that an individual who is a member of one of five designated racial groups (and within them, 37 subgroups) is socially disadvantaged." The D.C. Circuit Court of Appeals' distinction between the "racially neutral" language in the Act and the "racial classifications" in the regulations is an important one because it creates a likelihood that any challenge to the implementing regulations will be significantly more difficult to overcome.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions