PHILADELPHIA – A Bucks County trucking firm now seeks a preliminary injunction to prevent the City of Philadelphia and the U.S. Department of Transportation from revoking its certification to qualify as a “Disadvantaged Business Enterprise.”
Devault Group, Inc. of Holland first filed suit in the U.S. District Court for the Eastern District of Pennsylvania on Sept. 30 versus the City of Philadelphia and U.S. Secretary of Transportation Pete Buttigieg, of Washington, D.C.
The U.S. Department of Transportation’s “Disadvantaged Business Enterprise” program started in 1980 through what the suit calls “a regulatory scheme” issued under Title VI of the Civil Rights Act of 1964, and that federal statutes governing the program require that “not less than 10 percent” of the funds made available to the DOT “shall be expended through small business concerns owned and controlled by socially and economically disadvantaged individuals.”
According to the litigation, the phrase “socially and economically disadvantaged individual” is “defined by statute to include women as well as “Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans and other minorities or any other individual found to be disadvantaged by the Administration pursuant to section 8(a) of the Small Business Act.”
Furthermore, every recipient of DOT funding from the Department must participate in a Unified Certification Program (UCP) and the suit explained that Philadelphia International Airport is involved in such a program.
“Devault Group Inc. is a specialized trucking firm. Devault operates ready-mix concrete barrel trucks, which it uses to procure and deliver ready-mix concrete to customers. Many of Devault’s customers are construction companies that work on projects funded by the Department of Transportation. Devault is owned and controlled by Melissa Hagstotz. Ms. Hagstotz is a woman, and is therefore presumed under federal law to qualify as ‘a socially and economically disadvantaged individual,” the suit said.
“In 2018, Devault applied for ‘disadvantaged business enterprise’ certification through the Philadelphia International Airport. The airport conducted a robust investigation evaluation of Devault to determine whether it was eligible for DBE certification, and it reviewed Devault’s financial records, leases agreements, books and records, and contracts. The airport also interviewed Melissa and conducted an on-site inspection of Devault on June 23, 2020, visiting each of its three business locations: (a) 16 Lempa Road, Holland, Pennsylvania 18966; (b) 3025 Castor Avenue, Philadelphia, Pennsylvania 19134; and (c) 3301 61st Street, Philadelphia, Pennsylvania 19153. On Sept. 29, 2020, the airport certified Devault Group Inc. as a ‘disadvantaged business enterprise’ and allowed it to participate in the DBE program under NAICS Code 236220—Construction Management, Commercial, and Institutional Building. The airport, however, denied Devault’s request to be certified as a ‘disadvantaged business enterprise’ under NAICS Code 484220—Specialized Freight Trucking, Local.”
Devault Group appealed the airport’s denial of its certification under NAICS Code 484220. On Dec. 3, 2020, the UCP appeals committee heard and received evidence and testimony from Devault. Four days later, the appeals committee overturned the airport’s decision to deny Devault Group certification under the NAICS Code 484220.
The airport’s decision was based on an allegation of a “close relationship between Devault and Castor Materials, Inc.,” a corporation owned and controlled Ms. Hagstotz’s father, William Hagstotz III.
The airport alleged that “Devault functionally passes business through to Castor. Castor is Devault’s only supplier and Devault is Castor’s only delivery company.” It also alleged that “Devault and Castor are connected by a web of physical, financial, and operational ties – all of which are established by substantial evidence obtained via subpoenas, surveillance, and investigative interviews.” For these and other reasons, the airport concluded that this relationship with Castor “prevents [Melissa] Hagstotz from controlling Devault.
“Because Castor is owned and controlled by a white male (William Hagstotz III), the airport intends to revoke Devault’s ‘disadvantaged business enterprise’ certification because of Mr. Hagstotz’s race. If Mr. Hagstotz had been a member of a racial minority group listed in 49 C.F.R. Section 26.5, the airport would have left Devault’s certification alone,” the suit stated.
“Devault is suffering injury in fact from the threatened loss of its DBE status. This injury is fairly traceable to the City of Philadelphia, which owns Philadelphia International Airport, and the Department of Transportation, which is enforcing and administering a racially discriminatory DBE certification program. And this injury will be redressed by the relief that Devault is requesting from this Court.”
UPDATE
Devault filed a motion for preliminary injunction on Nov. 29, seeking to stop the defendants from revoking its DBE status in advance of a scheduled Dec. 3 hearing on the matter, citing the “urgent relief” needed in the instant case.
“All four factors of the preliminary-injunction test favor relief. Devault will suffer irreparable harm if the city is not promptly enjoined. And Devault is likely to succeed on the merits of its claims that the city is violating federal law by threatening to revoke its DBE status because it is allegedly controlled by a white male rather than a member of a racial-minority group. The pending harms to Devault outweigh any harm that a preliminary injunction might inflict on the City of Philadelphia, and the public interest strongly favors restraining the City’s racially discriminatory and patently unlawful actions,” the motion stated.
Plaintiff counsel explained that a court must consider four factors: (1) Whether the movant has established “a reasonable probability of eventual success in the litigation”; (2) Whether the movant “will be irreparably injured…if relief is not granted”; (3) “The possibility of harm to other interested persons from the grant or denial of the injunction”; and (4) “The public interest.”
“The City has announced that it intends to revoke Devault’s ‘disadvantaged business enterprise’ certification because it is allegedly controlled by a white man, Mr. William Hagstotz III. But the City never would have threatened to revoke Devault’s certification as a DBE if Mr. Hagstotz were a member of a racial-minority group rather than white. The City’s racially discriminatory action is a patent violation of 42 U.S.C. Section 1981, Title VI and the Equal Protection Clause,” the injunction motion stated.
“First, Devault will suffer a violation of its constitutional rights if the city revokes its DBE status because Mr. Hagstotz is white rather than a member of racial minority group, and violations of constitutional rights qualify as irreparable injury per se. Second, Devault will suffer irreparable injury if its DBE certification is revoked, because it will be difficult to quantify its harm in a suit for money damages. If Devault becomes ineligible to compete for contracts under the DBE set-aside, then it will be hard to prove in court whether it would have obtained those contracts in a counterfactual world, and even harder to calculate and prove the amount of financial harm inflicted by Devault’s exclusion from the DBE program.”
Additionally, Devault said the denial of a preliminary injunction would harm its operations and that the granting of such an injunction is in the public interest.
“The denial of a preliminary injunction will inflict irreparable harm on Devault’s employees. Devault employs 25 truck drivers. And if Devault loses its DBE certification, it will no longer be able to work on projects as a DBE, which will force Devault to lay off its drivers. A preliminary injunction will ensure compliance with federal anti-discrimination statutes and the Constitution, which is by definition in the public interest,” the motion said.
For counts of procedural and substantive due process violations of the Fourteenth Amendment to the U.S. Constitution and 42 U.S.C. Section 1983 and negligence, the plaintiff is seeking the following reliefs:
• A declaration that the City of Philadelphia is violating 42 U.S.C. Section 1981(a), Title VI, and the Equal Protection Clause by threatening to revoke Devault’s DBE certification;
• A declaration that the Secretary Buttigieg is violating 42 U.S.C. Section 1981(a), Title VI, and the Equal Protection Clause by establishing, maintaining and using racially-discriminatory criteria to govern the awarding of government contracts;
• Enter a preliminary and permanent injunction that prevents the City of Philadelphia and the Philadelphia International Airport from revoking or threatening to revoke Devault’s DBE certification;
• Permanently enjoin Secretary Buttigieg from establishing, using or maintaining racially-discriminatory criteria to govern the awarding of government contracts;
• Order the City of Philadelphia to pay nominal and compensatory damages to Devault;
• Award costs and attorneys’ fees under 42 U.S.C. Section 1988, plus all other relief that the Court deems just, proper, or equitable.
The plaintiff is represented by Walter S. Zimolong of Zimolong, LLC in Villanova, and Jonathan F. Mitchell of Mitchell Law, in Austin, Texas.
The defendants are represented by Lydia M. Furst and Michael Wu-Kung Pfautz of the City of Philadelphia’s Law Department, plus Amber Trzinski Fox of the U.S. Department of Justice’s Employment Litigation Section, in Washington, D.C.
U.S. District Court for the Eastern District of Pennsylvania case 2:21-cv-04295
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com