PHILADELPHIA – The Pennsylvania Unified Certification Program has reversed the City of Philadelphia’s decision to decertify Devault Group, Inc. as a disadvantaged business enterprise, the center point of litigation between the company, the City and the U.S. Department of Transportation.
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.”
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.
UPDATE
The hearing schedule for a preliminary injunction to prevent the plaintiff’s decertification as a “Disadvantaged Business Enterprise” was suspended by U.S. Magistrate Judge Lynne A. Sitarski on Dec. 9, pending notification of the decision on same by the UCP.
On Dec. 13, plaintiff counsel filed notice to the Court that the UCP had reversed the City’s decision to decertify Devault’s DBE status, and provided correspondence from the organization to that effect.
“The Committee deliberated and concluded, based primarily on your testimony, that the City had failed to meet its burden of proof that that Devault did not meet the requirements of 26.71. Therefore, the Committee has reversed the City’s decision to decertify the firm, and Devault remains certified in the North American Industry Classification System (NAICS) codes it currently holds in the statewide DBE directory,” Jenee Oliver, UCP Appeals Committee Chair, said.
“The Committee is aware that Devault has requested certification in additional NAICS codes. The City has not yet made a decision concerning Devault’s eligibility for DBE certification in these codes. Consequently, the firm’s eligibility in these codes was not at issue in the present case before the Committee. The City’s consideration of Devault’s eligibility in the requested NAICS codes is governed by section 26.71(n) of the DBE regulation. This section states the firm must demonstrate, by a preponderance of the evidence, that its socially and economically disadvantaged owner independently controls the firm with respect to the types of work covered by the additional NAICS codes in question. Therefore, the firm, not the City, bears the burden of proof on this issue.”
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;
• 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