The Sacramento Municipal Utilities District (SMUD) continues to operate a Minority Business Enterprise program which specifically grants preference in contracting based on race and gender. This is a clear violation of California's Proposition 209. Here are the specifics of the Pacific Legal Foundation lawsuit against SMUD.
SHARON L. BROWNE, No. 119246 Attorneys for Plaintiffs SUPERIOR COURT OF THE STATE OF
CALIFORNIA UNITED UTILITIES, INC., a California corporation; and C & C CONSTRUCTION, INC., a California corporation, Plaintiffs, v. SACRAMENTO MUNICIPAL UTILITIES DISTRICT, a public utility; LINDA DAVIS, LARRY CARR, SUSAN PATTERSON, HOWARD POSNER, GENEVIEVE SHIROMA, PETER R. KEAT, and KARAL COTTRELL, in their official capacities as members of the Board of Directors of the Sacramento Municipal Utilities District; and JAN SCHORI in her official capacity as General Manager and Chief Executive Officer of the Sacramento Municipal Utilities District, Defendants. No. COMPLAINT FOR DECLARATORY Plaintiffs United Utilities, Inc., and C & C Construction, Inc., bring this action against Defendants Sacramento Municipal Utilities District, Linda Davis, Larry Carr, Susan Patterson, Howard Posner, Genevieve Shiroma, Peter R. Keat, Karal Cottrell, and Jan Schori (hereinafter referred to collectively as SMUD) for declaratory and injunctive relief under Code of Civil Procedure sections 1060 and 526. INTRODUCTION 1. This action challenges
SMUD's discriminatory Equal Business Opportunity Program on its face as a violation of
Article I, Section 31 of the California Constitution. In adopting this historic
initiative, the people of California stated that race can no longer be a factor in
deciding who should be awarded public contracts. Although the discriminatory Equal
Business Opportunity Program (Program) purports to "[p]rovide full and equal business
contracting to all segments of the business community," it in fact categorizes
businesses on the basis of race and grants preferential treatment to, and discriminates
against, individuals based on that immutable characteristic. A true and correct copy of
the SMUD's internet page, "SMUD Equal Business
Opportunity Program" [http://www.smud.org/ PARTIES 2. Plaintiff United Utilities, Inc., is a corporation organized and existing under the laws of the State of California and is and was at all times mentioned herein qualified to do business in California. Plaintiff United Utilities, Inc., is a general contracting firm whose principal place of business is in Rancho Cordova, California. United Utilities, Inc., has complied with all applicable licensing requirements as a licensed general contractor. United Utilities, Inc., has bid on SMUD projects in excess of $50,000 in the past as a prime contractor and subcontractor and intends to do so again in the future. As a non-minority-owned business, United Utilities, Inc., is designated an "Other Business Enterprise" under the Program. 3. Plaintiff C & C Construction, Inc., is a corporation organized and existing under the laws of the State of California and is and was at all times mentioned herein qualified to do business in California. C & C Construction, Inc., is a general contracting and engineering firm whose principal place of business is in Loomis, California. C & C Construction, Inc., has complied with all applicable licensing requirements as a licensed general contractor. C & C Construction, Inc., has bid on SMUD projects in excess of $50,000 in the past as a prime contractor and intends to do so in the future. As a non-minority-owned business, C & C Construction, Inc., is designated as an "Other Business Enterprise" under the Program. 4. Defendant Sacramento Municipal Utilities District is a public utility organized under the Municipal Utility District Act, Public Utilities Code § 11501, et seq., to provide utility services. SMUD is a political subdivision or governmental instrumentality of the State of California and must comply with Article I, Section 31 of the California Constitution (hereinafter Section 31). 5. Defendants Linda Davis, Larry Carr, Susan Patterson, Howard Posner, Genevieve Shiroma, Peter R. Keat, and Karal Cottrell (Directors) are members of the SMUD Board of Directors. Plaintiffs are informed and believe that the Directors have charge of the management and operation of SMUD, and exercise authority collectively to make policy for SMUD. Linda Davis, Larry Carr, Susan Patterson, Howard Posner, Genevieve Shiroma, Peter R. Keat, and Karal Cottrell are named as defendants in their official capacity as Directors. 6. Defendant Jan Schori is the General Manager and Chief Executive Officer of SMUD. Ms. Schori has been delegated the authority to develop and implement the Program. Jan Schori is named as defendant in her official capacity as General Manager and Chief Executive Officer. ALLEGATIONS ARTICLE I, SECTION 31, OF THE CALIFORNIA CONSTITUTION 7. On November 5, 1996, more than three years ago, the people of California adopted Proposition 209, the California Civil Rights Initiative, amending their Constitution to provide: The state shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting. California Constitution, article I, § 31(a). 8. Section 31 applies not only to state agencies, but also to cities, counties, and special districts, including SMUD. Section 31 defines the "state" as: The state itself, any city, county, city and county, public university system, including the University of California, community college district, school district, special district, or any other political subdivision or governmental instrumentality of or within the state. California Constitution article I, § 31(f). 9. The purpose of Section 31 is to prohibit the state and local governments in California from using race as a factor in determining which individuals or businesses are awarded public contracts. SMUD'S EQUAL BUSINESS OPPORTUNITY PROGRAM 10. After the people amended their Constitution to prohibit the state from discriminating on the basis of race, the Directors adopted Resolution No. 98-10-06 to continue enforcement of SMUD's Program "which include[s] race and gender conscious contracting components." Resolution No. 98-10-06. This Resolution charged the General Manager, Ms. Schori, with the authority to revise and implement the Program. Id. As discussed below, the Program is designed for the specific purpose of providing preferential treatment to particular businesses based on the owner's race while discriminating against others based on that same immutable characteristic. 11. Pursuant to Resolution No. 98-10-06, Ms. Schori created the program that is at issue in this case. The challenged Program sets forth a quota for the amount of business that should be awarded to Minority-Owned Business Enterprises (MBEs) in SMUD's public contracting. It imposes quotas and recruitment requirements on prime contractors for the hiring of MBE subcontractors, and contains other forms of preferences for MBEs. A true and correct copy of SMUD's Equal Business Opportunity Program is attached hereto as Exhibit 2 and is incorporated herein by reference. This injection of race consciousness into SMUD's public contracting demonstrates an unconstitutional preference for MBEs in violation of Section 31. SMUD Provides "Price Advantages" to Bids Submitted by MBEs 12. SMUD's Program provides preferential treatment in its consideration of bids submitted by MBEs. SMUD proclaims unabashedly that "[a] key feature of the [Program] is a five percent price advantage to businesses owned by ethnic groups and women who have experienced statistically significant under-utilization." A true and correct copy of SMUD's internet page, "SMUD Equal Business Opportunity Program, Definition of A Minority/ Woman Owned Business Enterprise" [http://www.smud.org/info/ contract/ EBOP2.html], is attached hereto as Exhibit 3 and is incorporated by reference herein. [See quotes from Exhibit 3. Editor] Under this scheme, "[t]he price advantage is only afforded to certified minority and/or women owned businesses." Id. With regard to construction contracts, proposals submitted by African American or Hispanic American owned businesses are awarded a 5% "price advantage," whereas proposals submitted by businesses owned by individuals of any other race do not receive such preferential treatment. Id. That is, proposals for construction contracts submitted by African American and Hispanic American owned businesses are evaluated as if they were 5% lower than the actual bid price, thus providing a competitive advantage to those business owners solely on the basis of their race. 13. In furtherance of the discriminatory scheme established under the Program, SMUD also provides preferential treatment to bids submitted by prime contractors that employ Asian Pacific American or African American owned businesses as subcontractors rather than businesses owned by individuals of any other race. In SMUD's evaluation of a bid, a 5% price advantage is accorded to the prime contractor on the portion of any proposal that will be performed by Asian Pacific American or African American owned businesses. That is, for evaluation purposes, SMUD considers the amount of subcontracts directed to Asian Pacific American or African American owned businesses, and evaluates the prime contractor's proposal as if the cost of these portions of the proposal were 5% lower than the actual cost. This scheme discriminates against all other races, and gives a competitive advantage to those prime contractors discriminating on SMUD's behalf. SMUD Requires Prime Contractors to Discriminate in the Selection of Subcontractors 14. Before a bid will be deemed responsive and considered by SMUD, the prime contractor must either demonstrate that it has satisfied SMUD's race-based quotas for subcontracting with a sufficient number of businesses owned by individuals of a particular race (quota option) or demonstrate that the contractor has satisfied SMUD's "good faith effort" requirements to meet that quota (recruitment option). Prime contractors failing to satisfy SMUD's quota or recruitment requirements--thereby failing to demonstrate sufficient preferential treatment in favor of MBE subcontractors--are deemed nonresponsive and their bids are rejected by SMUD. 15. To satisfy the subcontractor quota option, prime contractors must provide a list of all subcontractors and suppliers with their bid, identifying each business owner by race, and designating what percentage of the total price of the bid is attributable to each business. Exhibit 2 at 6-1. With regard to construction contracts, the prime contractor must demonstrate that 8% of the work (by value) is to be performed by businesses owned by Asian Pacific Americans and 8% is to be performed by businesses owned by African Americans, for the bid proposal to be deemed responsive. 16. If a prime contractor fails to satisfy SMUD's quota for Asian Pacific American and African American subcontractors, the prime contractor must show that it has satisfied the recruitment option under the Program. Id. at 6-1, 6-6. SMUD's recruitment option requires prime contractors to provide SMUD with specific documentation of its recruiting efforts. This documentation must include:
Id. at 6-6. No similar requirements are imposed for recruitment of businesses owned by individuals of other races. SMUD Awards a Preference to Prime Contractors That Achieve SMUD's Racial Quotas 17. Once a prime contractor has demonstrated compliance with the Program and its bid is deemed responsive, the bid proceeds to the evaluation stage where it is compared to bids by other prime contractors. SMUD evaluates proposals on a variety of weighted criteria, including the merits of the proposal and the experience of the prime contractor. For example, the most heavily weighted criterion is the bid price, constituting 40% of the evaluation. The bidder's experience is weighted 30%. The history of similar projects and the project plan are 10% each. However, in this evaluation, SMUD continues its discriminatory treatment by conditioning 10% of a prime contractor's bid evaluation on the prime contractor's achievement of SMUD's race-based subcontracting quotas. Whether or not the prime contractor receives the full 10% or merely a portion thereof depends upon SMUD's award of "evaluation credits." "Evaluation credits" are bestowed in proportion to the prime contractor's subcontracting of 8% of the value of the contract to businesses owned by Asian Pacific Americans and 8% of the value to businesses owned by African Americans. Id. at 6-4. Thus, if a prime contractor fails to meet the quota, it stands to lose some or all of its "evaluation credits" and is placed at a competitive disadvantage in SMUD's evaluation of bids in comparison to those prime contractors willing to discriminate on SMUD's behalf. This evaluation of prime contractors on their achievement of SMUD's race-based subcontracting quotas--in effect awarding bonus points to contractors who are willing to discriminate on SMUD's behalf--confers preferential treatment to African American and Asian Pacific American business owners and discriminates against individuals of all other races in violation of Section 31. SMUD's Program Results in Actual Harm to Prime Contractors and Subcontractors 18. The harm to non minority prime contractors and subcontractors is not hypothetical or de minimus. Recently, United Utilities, Inc., attempted to bid on subcontracts for Request for Proposal No. 0014.GVM, Operations & Maintenance Contracts for the Central Valley Financing Authority Carson Cogeneration Project and the Sacramento Cogeneration Authority Proctor & Gamble Cogeneration Project. United Utilities, Inc., was informed by prime contractors that because of SMUD's discriminatory Program requirements, United Utilities, Inc., would not be awarded any subcontracts for this project. Instead, any bid submitted by United Utilities, Inc., would be used only to evaluate the reasonableness of bids submitted by businesses owned by individuals who were members of the favored racial groups. 19. C & C Construction, Inc., has only narrowly avoided great harm due to SMUD's discriminatory Program. C & C Construction, Inc., bid on two contracts: Request for Proposal No. 0050.LR, Bradshaw/Grantline Substation; and Request for Proposal No. 0045.LR, Replacement of Existing Fencing with Masonry Walls. In both instances, C & C Construction, Inc., was informed that although it was the lowest bidder, SMUD would award the contracts to other--higher--bidders after application of the race-based "price advantages." C & C Construction, Inc., was awarded the contracts only after it submitted letters protesting SMUD's discriminatory actions. FIRST CAUSE OF ACTION DECLARATORY RELIEF 20. Plaintiffs incorporate by reference and reallege each and every allegation in Paragraphs 1-19 above. 21. Article I, Section 31 of the California Constitution prohibits state and local governments--including SMUD--from granting preferential treatment to, or discriminating against, any group or individual on the basis of race, color, ethnicity, or national origin in the operation of public contracting. 22. As designed and implemented, SMUD's discriminatory Program subjects Plaintiffs to unequal and disadvantageous treatment in their competition for SMUD's public contracts, and requires and encourages Plaintiffs to discriminate against others, all to the present and continuing injury of Plaintiffs. This preferential and discriminatory treatment manifests itself in, and is achieved through:
23. An actual justiciable controversy exists between the parties concerning the constitutionality of SMUD's public contracting policies and practices. Plaintiffs contend that SMUD's policies and practices embodied by the Program grant preferential treatment to, and discriminate against, prime contractors and subcontractors on the basis of race in violation of Article I, Section 31 of the California Constitution. Plaintiffs are informed and believe that Defendants contend otherwise. 24. A judicial determination of rights and responsibilities arising from this actual controversy is necessary and appropriate at this time. WHEREFORE, Plaintiffs pray for judgment as hereinafter set forth. SECOND CAUSE OF ACTION INJUNCTIVE RELIEF 25. Plaintiffs incorporate by reference and reallege each and every allegation set forth in Paragraphs 1-24 above. 26. Plaintiffs United Utilities, Inc., and C & C Construction, Inc., contend that SMUD's Program is unconstitutional, granting preferential treatment to, and discriminating against, individuals on the basis of race through:
27. Unless and until enjoined by order of this Court, Defendants will cause great injury to Plaintiffs in that Plaintiffs will be discriminated against on the basis of race under the Program, and Plaintiffs must continue to grant unlawful preferences in their solicitation and award of subcontracts, exposing them to potential liability under both 42 U.S.C. § 1983, as a quasi-governmental actor, and Article I, Section 31 of the California Constitution, or be denied SMUD's public contracts on the basis that they did not comply with an unconstitutional Program. 28. Plaintiffs United Utilities, Inc., and C & C Construction, Inc., have no adequate remedy at law, and pecuniary compensation would not provide Plaintiffs adequate relief. Without an injunction restraining the enforcement and administration of the Program, Defendants will continue to enforce the Program's unconstitutional provisions, granting some individuals preferential treatment and discriminating against others, including Plaintiffs, on the basis of race, and Plaintiffs will continue to suffer additional constitutional injury resulting from SMUD's requirement that Plaintiffs either grant preferences and discriminate on the basis of race in their solicitation and award of subcontracts, or be denied SMUD's public contracts. 29. WHEREFORE, Plaintiffs pray for judgment as hereinafter set forth. PRAYER FOR RELIEF Based on the allegations above, Plaintiffs pray for judgment as follows: 1. for a declaration that the Equal Business Opportunity Program adopted by the Defendants is unconstitutional, invalid, and unenforceable because it grants preferential treatment to MBEs on the basis of race while discriminating against non-MBE on the basis of race in violation of Article I, Section 31 of the California Constitution; 2. for preliminary and permanent injunctions, enjoining the Defendants from enforcing or attempting to enforce the Equal Business Opportunity Program or any other public contracting program that grants preferential treatment to, or discriminates against, individuals on the basis of race, now and in the future; 3. for costs of suit; 4. for attorneys' fees; and 5. for such other and further relief as the Court may deem proper. DATED: June ____, 2000. Respectfully submitted, SHARON L. BROWNE By ____________________________ STEPHEN R. McCUTCHEON, JR. Attorneys for Plaintiffs END Lawsuit Against SMUD Page |
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