UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

) METROPOLITAN WASHINGTON ) CHAPTER, ) ASSOCIATED BUILDERS AND ) CONTRACTORS, INC., et al. ) ) Plaintiffs, ) ) v. ) ) Civ. Action No. 12-853 (EGS) DISTRICT OF COLUMBIA, ) ) and ) ) VINCENT C. GRAY, in his ) official capacity as Mayor ) of the District of Columbia, ) ) Defendants. ) )

MEMORANDUM OPINION

In 1984, the District of Columbia (hereinafter “District”)

enacted the First Source Employment Agreement Act (hereinafter

“First Source Act” or “Act”), a residential preference statute

for the construction industry mandating that certain percentages

of construction jobs on projects funded in whole or in part, or

administered by the city, be filled by District residents. The

Act was amended in 2011 by the Workforce Intermediary

Establishment and Reform of First Source Amendment Act of 2011,

which was signed by Mayor Vincent C. Gray and passively approved

by Congress. The First Source Act, both as enacted and amended,

is intended to address the unique position in which the District finds itself as the only jurisdiction in the country that is

legally barred from imposing a commuter tax on non-residents who

come into the city to work. Nearly 70 percent of jobs in the

District are held by non-residents and this inability to levy a

commuter tax allegedly results in a significant financial

shortfall for the District, especially because the unemployment

rate in the District is much higher than in surrounding

jurisdictions. Plaintiffs, a non-profit commercial

organization, two construction companies, and four individuals

who live in Maryland and Virginia challenge the law as enacted

and amended as a violation of their constitutional rights. They

argue that for the purposes of judicial review of the First

Source Act, the District must be treated as if it is a state.

They contend that treating the District as a state would render

the First Source Act unconstitutional.

This case thus represents something of a twist in the long

line of cases in which the District has repeatedly confronted

the uncontroverted fact that its unique constitutional status

prevents it from enjoying benefits states take for granted. For

instance, in this nascent century alone, the District has been

told (yet again) that its citizens cannot elect representatives

with voting rights to the Congress of the United States, Adams

v. Clinton,

(D.D.C. 2000); cannot levy a

commuter tax, Banner v. United States,

(D.D.C.

2 2004); and cannot control expenditures of locally derived funds,

Council of the District of Columbia v. Gray, No. 14-655,

(D.D.C. May 19, 2014). Further, the

District is also prohibited from, inter alia, prosecuting its

own crimes,

(c); enacting legislation without

Congressional approval,

(e); 1-

206.02(c)(1); regulating its own courts or appointing its own

judges,

(a); and enacting zoning

regulations without submission to the National Capital Planning

Commission for review,

. These restrictions

apply to the District for the precise reason that it is not a

state, but rather an “exceptional” constitutional creation, over

which Congress retains ultimate legislative authority.

Even when the District finally gained some measure of

autonomy with the passage of the Home Rule Act in 1973, the

extent of home rule was limited; the grant of legislative

authority to the District in the Home Rule Act is cabined by the

power of Congress to determine what is in the best interest of

the District and its residents. In practice, since the

enactment of the Home Rule Act, this limited ability to

legislate has often meant that the prerogatives of the

District’s locally elected representatives are subordinate to

those of Congress. This year alone, Congress has blocked the

District’s ability to decriminalize marijuana possession, spend

3 its own money on abortions for poor residents, and has cut funds

for D.C. police officers to drive their police cruisers to and

from their homes if they live outside the District by adding

riders to the Congressional appropriations bill.1 These actions

by Congress are widely understood as further setbacks for home

rule in the District.

The Court is aware that similar state statutes, when

challenged under the Privileges and Immunities Clause of the

Constitution, have all been struck down as unconstitutional.

However, the District, unlike every other jurisdiction in the

country that imposes an income tax on its own residents, is

barred by the Home Rule Act from levying a commuter tax on

income earned by non-residents working here. While that fact

alone would result in a structural imbalance in any city, the

magnitude of the problem is unique in the District, where

approximately 70 percent of jobs are held by non-residents.

This structural imbalance is exacerbated by the fact that the

unemployment rate in the District is extremely high – higher

than both the national average and that of the entire Washington

metropolitan area – thus requiring the city to spend an

1 See Aaron C. Davis, House Republicans block funding for D.C. marijuana decriminalization, WASHINGTON POST, June 25, 2014, http://www.washingtonpost.com/local/dc-politics/house- republicans-block-funding-for-dc-marijuana- decriminalization/2014/06/25/d6854ba8-fc6e-11e3-8176- f2c941cf35f1_story.html (last accessed July 11, 2014). 4 inordinate amount of its resources on social welfare services in

an attempt to aid its un- and under- employed population.

These circumstances put the District in a different

position than other cities that have tried to enact similar

residence preference legislation. No other jurisdiction can lay

claim to being a unique constitutional community, and thus, no

other jurisdiction, by operation of our very constitutional

structure, could possibly face the challenges faced by the

District. Nevertheless, the District has not provided any

competent evidence that the First Source Act, as enacted and

amended, is a narrowly tailored means to address this unique

evil. Thus, having carefully considered the Defendants’ motion

to dismiss, the response and reply thereto, the supplemental

briefing, the applicable law, the oral argument, and the record

as a whole, Defendants’ motion to dismiss is GRANTED IN PART AND

DENIED IN PART.

I. Background

In 1984, the District enacted the First Source Employment

Agreement Act to “provide employment opportunities in entry-

level positions in District of Columbia government-assisted

projects for unemployed residents.”

(May 25,

1984). In 2011, the Council of the District of Columbia

unanimously amended the Workforce Intermediary Establishment and

Reform of First Source Amendment Act of 2011 (hereinafter

5 “Amended Act”), which became effective in 2012. The law, as

enacted and amended, was to counteract the effects of the

“District’s Congressionally-imposed ban on taxing any of the

income that leaves the city,” which results in “$1 billion to $2

billion a year in lost revenue.” Council of the Dist. of

Columbia, Comm. on Hous. and Workforce Dev., “Workforce

Intermediary Establishment and Reform of First Source Amendment

Act of 2011,” B19-50, Oct. 14, 2011, at 3, available at

http://dcclims1.dccouncil.us/images/00001/20120130131015.pdf

(last accessed Jul. 4, 2014) (hereinafter “Committee Report”).

The Act is administered by the District of Columbia Department

of Employment Services (“DOES”). Plaintiffs challenge four

elements of the First Source Act as enacted and amended: (1)

employment agreements; (2) construction contracts; (3) targeted-

hiring contracts; and (4) reporting requirements. Compl. ¶ 9.

A. The First Source Employment Agreement Act of 1984

The First Source Act requires that all “beneficiaries” of a

“government-assisted project” or contract enter into an

Employment Agreement with the District that provides that the

beneficiary will first attempt to fill jobs and vacancies from

the First Source Register, on which only District residents can

be listed. Compl. ¶¶ 10-12; see

(a)(1).2

2 For the purposes of this section, all citations to the First Source Act are to the version of the Act in effect prior to 6 Under the Act, a beneficiary is defined as, inter alia, (a) the

signatory of a contract executed by the Mayor that involves

District funds or funds administered by the District, or (b) a

beneficiary of a District governmental action, including

contracts, grants, and loans, that results in a financial

benefit of $100,000 or more.

§ 2-219.01(1)(A)-(1)(B). A

“government-assisted project” is one that is funded in whole or

in part by District funds or funds administered by the District,

and for which the District is a signatory to any contractual

agreement. Id. § 2-219.01(5).

The Act imposes additional requirements on government-

assisted projects that cost more than $100,000. For these

projects, 51 percent of new employees must be District residents

unless: (1) the beneficiary made a good faith effort to comply;

(2) the beneficiary is located outside of the “Washington

Standard Metropolitan Statistical Area” and none of the contract

is performed inside that area; (3) the beneficiary enters into a

workforce-development training program with DOES; or (4) DOES

certifies that there are not enough qualified District residents

to staff the project. Compl. ¶ 19;

(e)(3).

Beneficiaries that willfully breach an Employment Agreement may

be subject to penalties, which can include “monetary fines of 5%

February 24, 2012, the date which the amendments to the Act became effective. 7 of the total amount of the direct and indirect labor costs of

the contract.” Compl. ¶ 13 (quoting

-

219.03(e)(4)).

The Act also provides that “[w]henever the Mayor determines

that the goal of increasing employment opportunities for

District residents may be better served by establishing hiring

goals in specific job categories for specific government-

assisted projects,” the Mayor can provide for increased hiring

in specific categories by entering into agreements with

beneficiaries or their contractors and subcontractors.

.03a(a). A violation of this provision of the Act

is “treated in the same manner as a violation of any other

requirement” of the Act.

The Act includes reporting requirements for beneficiaries.

Every month, beneficiaries must submit a contract compliance

report to DOES. Compl. ¶ 29. This report must include, among

other things, the following for each covered project: (1) the

number of employees needed; (2) the number of current employees

transferred; (3) the number of job openings created; (4) the

number of job openings listed with DOES; (5) the number of

District residents hired during the reporting period; (6) the

cumulative number of District residents hired; (7) the total

number of employees hired during the reporting period; (8) the

cumulative number of employees hired; and (9) the name, social

8 security number, job title, hire date, residence, and referral

source information for all new hires.

(d).

Upon submission of a final request for payment from the

District, at the conclusion of a project, the beneficiary must

document compliance with the Act or submit a request for a

waiver, which includes material demonstrating good faith efforts

to comply, referrals, and job advertisements listed with DOES

and others.

§ 2-219.03(e)(2). Failure to submit the

required data could result in the imposition of penalties,

including “monetary fines of 5% of the total amount of the

direct and indirect labor costs of the contract.” Id. § 2-

219.03(e)(4).

B. The Workforce Intermediary Establishment and Reform of First Source Amendment Act of 2011

The Council of the District of Columbia passed the

Workforce Intermediary Establishment and Reform of First Source

Amendment Act of 2011 and it was enacted by Mayor Gray on

December 21, 2011. The Amended Act was transmitted to Congress

for review, and after the expiration of the requisite 30-day

passive review period with no joint resolution of disapproval by

Congress, it became effective on February 24, 2012. Defendants’

Motion to Dismiss (hereinafter “Defs.’ MTD”) at 5-6. The

Amended Act broadens the definition of “beneficiary” and

“government-assisted project.” Like the previous version of the

9 Act, a beneficiary is defined as a signatory to a contract

executed by the Mayor that involves D.C. funds or funds

administered by the District.

(1)(A).3 For

a project valued in excess of $300,000, a beneficiary is

[a] recipient of District government economic development action including contracts, grants, loans, tax abatements, land transfers for redevelopment, or tax increment financing that results in a financial benefit of $300,000 or more from an agency, commission instrumentality, or other entity of the District government, including a financial or banking institution which serves as the repository for $1 million or more of District of Columbia funds.

§ 2-219.01(1)(B). A “government-assisted project or

contract” includes

any construction or non-construction project or contract receiving funds or resources from the District of Columbia, or funds or resources which, in accordance with a federal grant or otherwise, the District of Columbia government administers, including contracts, grants, loans, tax abatements or exemptions, land transfers, land disposition and development agreements, tax increment financing, or any combination thereof, that is valued at $300,000 or more.

Id. § 2-219.01(5).

The Amended Act also expands the applicability of the

Employment Agreements that each beneficiary must enter into with

the District. Under the Amended Act, Employment Agreements must

include a provision that the first source for finding employees

3 For the purposes of this Section, all citations are to the Workforce Intermediary Establishment and Reform of the First Source Amendment Act of 2011, not the original version of the Act passed in 1984. 10 to fill all jobs created by the project or contract (or any

vacancy occurring during the job) will be the First Source

Register. Id. § 2-219.03(a)(1)-(a)(2). The Employment

Agreement must also include a provision that 51 percent of

employees hired will be District residents unless the Mayor

waives the requirement. A waiver is available if (1) DOES has

certified that the beneficiary made a good faith effort to

comply; (2) the beneficiary is located outside the area; none of

the work is performed in the area; the beneficiary published

each available job in a city-wide newspaper for 7 calendar days

and DOES certifies that there are not enough applicants from the

First Source Register for the job, or the eligible applicants

are not available for part-time work or do not have the means to

travel to the job site; or (3) the beneficiary enters into

workforce development training or placement arrangement with

DOES. Id. § 2-219.03(e)(3)(A)(i)-(A)(iii).

DOES will consider a number of factors in deciding whether

a beneficiary has made a good faith effort to comply sufficient

to justify a waiver, including:

(i) Whether [DOES] has certified that there is an insufficient number of District residents in the labor market who possess the skills required to fill the positions that were created as a result of the project or contract;

(ii) Whether the beneficiary posted the jobs on the [DOES] job website for a minimum of 10 calendar days;

11 (iii) Whether the beneficiary posted each job opening or part-time work needed in a District newspaper with city-wide circulation for a minimum of 7 calendar days;

(iv) Whether the beneficiary has substantially complied with the relevant monthly reporting requirements set forth in this section;

(v) Whether the beneficiary has submitted and substantially complied with its most recent employment plan that has been approved by [DOES]; and

(vi) Any additional documented efforts.

Id. § 2-219.03(e)(3)(B). A beneficiary can choose whether the

51 percent District hiring requirement will be cumulative of all

new hires, including employees hired by subcontractors, or met

by each beneficiary or individual subcontractor. Id. § 2-

219.03(e)(1)(B)(i)-(B)(ii). The targeted hiring and reporting

requirements have not changed in the Amended Act. Compl. ¶¶ 55,

60-62.

For projects or contracts receiving $5 million or more of

government assistance, the Amended Act includes several

additional hiring, including that District residents perform:

(1) at least 20 percent of journey worker hours by trade; (2) at

least 60 percent of apprentice hours by trade; (3) at least 51

percent of skilled laborer hours by trade; and (4) at least 70

percent of common laborer hours. Id. § 2-219.03(e)(1A)(A). In

addition, bids for these projects must include “an initial

employment plan outlining the bidder or offeror’s strategy to

12 meet the local hiring requirements” as well as other information

about health and retirement plans, ongoing efforts to hire

District residents, and past compliance with the Act. Id. § 2-

219.03(e)(1A)(F)(i). The winning bidder must also submit a

revised employment plan for approval prior to the commencement

of work. Id. § 2-219.03(e)(1A)(F)(ii).

The Amended Act calls for the imposition of harsher

penalties for noncompliance. In addition to a penalty equal to

5 percent of the direct or indirect labor costs for the project

or contract for willful breach of the employment agreement, id.

§ 2-219.03(e)(4)(A), failure to meet reporting requirements or

obtain a good faith waiver could result in imposition of a

penalty equal to 1/8 of 1 percent of the direct or indirect

labor costs for the project or contract for each percentage that

the beneficiary is deficient in meeting the hiring requirements,

id. § 2-219.03(e)(4)(B). Further, two violations can result in

debarment from the award of District projects or contracts for a

period not to exceed five years. Id. § 2-219.03(e)(4)(D).

C. Effect on Plaintiffs

Plaintiffs allege that the additional requirements imposed

by the Amended Act have created a situation in which

“contractors cannot possibly comply with the Act’s hiring and

quota requirements, and they are threatened with job losses,

business failures, and debarment from government contracting.”

13 Compl. at 3. While the aim of the First Source Act is to

promote employment in the District, Plaintiffs contend that it

“uses unlawful and unconstitutional means to try to shift to a

preferred group of people — District residents — first dibs on

jobs already created.” Id. ¶ 81. They allege that the real

issue with employment in the District is not a shortage of jobs,

but rather a shortage of qualified applicants. See id.

Members of Plaintiff ABC-Metro Washington (hereinafter

“Metro Washington”), including the two Corporate Plaintiffs,

have been or will be “beneficiaries” as defined by the Act and,

as such, have allegedly been or will be “forced to deviate from

their individual-merit, level-playing-field business philosophy”

because they must assess prospective employees based on where

they live rather than their ability to do the work. Compl. ¶¶

15, 20, 41, 68, 69. According to Metro Washington, its members

typically hire a permanent workforce, as opposed to a project-

based one. Id. ¶ 15. As a result, complying with the Act

“essentially requires” its members to either withhold work from

non-District residents or decline to bid on certain projects

because of a shortage of qualified District residents. Id.

Metro Washington’s members also purportedly incur increased

recruiting, training, hiring, and supervision costs as a result

of compliance with the Act. Compl. ¶¶ 16, 17, 42, 52, 58.

14 Metro Washington alleges that but for the Act, its members would

have not have incurred these costs.

The Act has allegedly resulted in a host of other problems

for Metro Washington’s membership, including less productivity,

higher overall labor costs, decrease in morale among non-

District employees, higher legal fees, debarment for violations,

fewer projects, layoffs, and higher costs associated with

preparing bids for projects. Compl. ¶¶ 16, 17, 64, 71, 75, 76,

79. Metro Washington alleges that the Amended Act will also

make it more difficult for its members to bid on projects that

receive more than $5 million in government assistance. Id. ¶

70. Moreover, Metro Washington and the Corporate Plaintiffs

claim they will incur additional costs in training employees on

the requirements of the Act, engaging with the District

government and leadership, and public relations. The Corporate

Plaintiffs further allege that they are discriminated against

because they are unable to assign trained employees to projects

if they cannot satisfy the 51 percent District hiring

requirement. Id. ¶¶ 23, 43, 53, 59.

Metro Washington argues that in addition to the harm to its

members, its own membership will decrease as its members will be

forced to reduce the amount of business they conduct because of

the increased cost of complying with the Amended Act. Id. ¶ 75.

Furthermore, Metro Washington alleges that its members that

15 cannot afford to comply with the Act will allegedly be forced to

close, thus further reducing membership. Id. ¶ 76. According

to Metro Washington, its members are allegedly at a significant

disadvantage as compared to contractors who choose not to comply

with the Act; are not bothered by compliance; are able to secure

a waiver; or already offer retirement benefits, health plans,

and training. Id. ¶¶ 44, 54, 72. Plaintiffs claim that no

general contractor has been able to meet, on a regular basis,

the 51 percent requirement for new hires. Id. ¶ 22. According

to Plaintiffs, this is the result of a number of factors,

including: (1) an insufficient number of skilled workers who

are District residents; (2) DOES’s failure to vet and screen

candidates and provide candidates with appropriate skills for a

particular job; (3) District residents’ lack of transportation,

which makes it difficult for them to report to job-sites on

time; (4) the disproportionately high number of District

residents who fail required drug tests; and (5) the

disproportionate number of District residents who quit within

the first few weeks or are let go because of poor attendance or

performance. Compl. ¶ 22. If the Act is upheld, Metro

Washington and the Corporate Plaintiffs contend that they will

be “forced” to bid on fewer projects in the District, and will

also have to increase their prices in order to cover the cost of

compliance with the Act. Id. ¶ 85.

16 The Individual Plaintiffs cannot be listed on the First

Source Register because they are not District residents, which

they allege places them at a significant disadvantage when

competing for jobs that are subject to an Employment Agreement

as defined by the Act. Id. ¶¶ 14, 43, 53, 59. They allege that

this results in discrimination and excludes them “from

consideration as part of a team of laborers on significant

District jobs not because of their skills but simply because

they do not live in the District.” Id. ¶ 83.

II. Standard of Review

A. Rule 12(b)(1)

A federal district court may only hear a claim over which

is has subject matter jurisdiction; therefore, a Rule 12(b)(1)

motion for dismissal is a threshold challenge to a court’s

jurisdiction. On a motion to dismiss for lack of subject matter

jurisdiction, the plaintiff bears the burden of establishing

that the Court has jurisdiction. Lujan v. Defenders of Wildlife,

(1992). In evaluating the motion, the Court

must accept all of the factual allegations in the complaint as

true and give the plaintiff the benefit of all inferences that

can be drawn from the facts alleged. See Thomas v. Principi,

(D.C. Cir. 2005). However, the Court is “not

required . . . to accept inferences unsupported by the facts

alleged or legal conclusions that are cast as factual

17 allegations.” Cartwright Int’l Van Lines, Inc. v. Doan,

(D.D.C. 2007) (internal quotation marks and

citations omitted).

B. Rule 12(b)(6)

A motion to dismiss pursuant to Rule 12(b)(6) tests the

legal sufficiency of the complaint. Browning v. Clinton,

(D.C. Cir. 2002). In order to be viable, a

complaint must contain “a short and plain statement of the claim

showing that the pleader is entitled to relief, in order to give

the defendant fair notice of what the . . . claim is and the

grounds upon which it rests.” Bell Atl. Corp. v. Twombly,

(2007) (internal quotation marks and citations

omitted). The plaintiff need not plead all of the elements of a

prima facie case in a complaint, Swierkiewicz v. Sorema N.A.,

(2002), nor must the plaintiff plead facts

or law that match every element of a legal theory. Krieger v.

Fadely,

(D.C. Cir. 2000) (citation omitted).

However, despite these liberal pleading standards, to

survive a motion to dismiss, “a complaint must contain

sufficient factual matter, accepted as true, to state a claim

for relief that is plausible on its face.” Ashcroft v. Iqbal,

(2009) (internal quotation marks and citation

omitted); Twombly,

. A claim is facially

plausible when the facts plead in the complaint allow “the court

18 to draw the reasonable inference that the defendant is liable

for the misconduct alleged.” Iqbal,

(citing

Twombly,

). While this standard does not amount

to a “probability requirement,” it does require more than a

“sheer possibility that a defendant has acted unlawfully.”

(citing Twombly,

).

“[W]hen ruling on a defendant’s motion to dismiss [pursuant

to Rule 12(b)(6)], a judge must accept as true all of the

factual allegations contained in the complaint.” Atherton v.

D.C. Office of the Mayor,

(D.C. Cir. 2009)

(quoting Erickson v. Pardus,

(2007)). The court

must also give the plaintiff “the benefit of all inferences that

can be derived from the facts alleged.” Kowal v. MCI Commc’ns

Corp.,

(D.C. Cir. 1994). Despite this, a

court need not “accept inferences drawn by plaintiffs if such

inferences are unsupported by the facts set out in the

complaint.”

Further, “[t]hreadbare recitals of the

elements of a cause of action, supported by mere conclusory

statements” are not sufficient to state a claim. Iqbal,

.

“In determining whether a complaint states a claim, the

court may consider the facts alleged in the complaint, documents

attached thereto or incorporated therein, and matters of which

it may take judicial notice.” Abhe & Svoboda, Inc. v. Chao, 508

(D.C. Cir. 2007) (internal quotation marks and

citations omitted). Among the documents subject to judicial

notice on a motion to dismiss are “public records.” Kaempe v.

Myers,

(D.C. Cir. 2004).

III. Analysis

A. Standing

Article III restricts the power of federal courts to the

adjudication of actual “cases” and “controversies.” U.S. Const.

art. III, § 2; see also Allen v. Wright,

(1984). This requirement has given rise to “several doctrines .

. . ‘founded in concern about the proper — and properly limited

— role of the courts in a democratic society.’”

(quoting

Warth v. Seldin,

(1975)). “In order to

establish the existence of a case or controversy within the

meaning of Article III, [a] party must meet certain

constitutional minima,” including a “requirement that . . . [the

party] has standing to bring the action.” Gettman v. DEA,

(D.C. Cir. 2002). Indeed, standing is “an

essential and unchanging part of the case-or-controversy

requirement of Article III,” Lujan,

, and is an

essential inquiry into whether the plaintiff is entitled to have

the Court decide the merits of the dispute, Allen,

-51 (citing Warth, 422 U.S at 498).

20 To establish the “irreducible constitutional minimum” of

standing, a plaintiff must demonstrate three things: (1)

“injury in fact,” which is (a) concrete and particularized and

(b) actual or imminent; (2) that there is a causal connection

between the complained of conduct and the injury alleged that is

fairly traceable to the defendant; and (3) that it is likely,

and not merely speculative, that a favorable decision will serve

to redress the injury alleged. See Lujan,

(internal quotation marks and citations omitted). Where, as

here, a plaintiff seeks prospective declaratory or injunctive

relief, allegations of past harm alone are insufficient. See,

e.g., Dearth v. Holder,

(D.C. Cir. 2011).

Rather, a plaintiff seeking declarative or injunctive relief

“must show he is suffering an ongoing injury or faces an

immediate threat of [future] injury.”

Plaintiffs are a trade organization, two corporations that

provide contracting services, and four individuals who work in

the construction industry. Plaintiff Metro Washington maintains

that it has both associational and organizational standing. See

Plaintiffs’ Opposition to Motion to Dismiss (hereinafter Pls.’

Opp’n) at 13. The District contends that the Individual and

Corporate Plaintiffs have failed to allege an injury in fact

sufficient to be the basis for Article III standing. Defs.’ MTD

at 17-18. Moreover, the District argues that Metro Washington

21 has failed to establish both associational and organizational

standing because the two Corporate Plaintiffs have not

established standing, and because Metro Washington has “failed

to allege any ‘direct conflict’ between its mission and the

First Source Act.” Defs.’ MTD at 18; Defendants’ Reply in

Support of Motion to Dismiss (hereinafter “Defs.’ Reply”) at 4.

1. Individual Plaintiffs

The four Individual Plaintiffs reside outside of the

District of Columbia but allegedly work on projects within the

District. They claim that the Act has “adversely affected their

ability to bid for or secure work on District projects in the

past and will likely continue to do so, and make matters worse

under the Amended Act.” Pls.’ Opp’n at 8 (emphasis in

original). They also argue that they do not “stand on an equal

footing” with other workers because they cannot register on the

First Source Register. Id. at 9. Thus, they are not part of

the hiring pool created by the Act and are at a “significant

disadvantage” in competing for jobs on projects that are subject

to the Act’s requirements. Id. at 9; see also Compl. ¶ 83 (“For

. . . the individual Plaintiffs, the impact of the Act is to

exclude them from consideration as part of a team of laborers on

significant District jobs not because of their skills or desires

but simply because they do not live in the District.”). These

22 injuries, according to the Individual Plaintiffs, are “ongoing

and imminent.” Pls.’ Opp’n at 9.

The District argues that this harm, such as it is, is not

the type of particularized injury required to support standing.

According to Defendants, the injuries that the Individual

Plaintiffs allege “are entirely derivative of alleged injuries

to their unnamed employer(s).” Defs.’ MTD at 17. The District

also argues that the Individual Plaintiffs’ claims are “fatally

attenuated” because the Complaint does not specify who they

worked for, when they worked, or where they worked. Id. at 18.

The District does not dispute that if the Individual Plaintiffs

have alleged an injury in fact, they would satisfy the remaining

standing requirements.

The majority of the requirements of the First Source Act as

enacted and amended do not directly apply to the Individual

Plaintiffs. Rather, the Act arguably impacts the bidding,

hiring, and reporting procedures for construction companies that

work on or bid for projects or contracts fully or partially

funded or administered by the District. The Individual

Plaintiffs argue that their ability to secure work is

nonetheless adversely affected by the Act’s requirements,

despite the fact that those requirements do not appear to apply

to them. See Pls.’ Opp’n at 8. They argue that this type of

injury has been found sufficient to confer standing in similar

23 cases. Id. (citing Util. Contractors Ass’n of New England, Inc.

v. City of Fall River, No. 10-10994-RZW,

(D. Mass. Oct. 4, 2011)). In Fall River, the court

considered a challenge to a local ordinance that required that a

certain percentage of workers on projects funded by local funds,

federal grants, or loans be Fall River residents.

, at *2-3. The court held that the individual

plaintiff in the case had standing because he alleged that he

could not compete fairly in the bidding process.

.

According to the court, in the context of standing, it is

immaterial whether the plaintiff has actually bid on or applied

for a job at a project covered by the ordinance, rather,

“‘injury in fact is the inability to compete on an equal

footing.’”

at *8 (quoting Ne. Fla. Chapter of Associated

Gen. Contractors of Am. v. City of Jacksonville, Fla.,

(1993)) (internal quotation marks omitted).

The Court finds that the individual Plaintiffs have alleged

a sufficient injury in fact for the purposes of Article III

standing. They have alleged a concrete injury – namely, that as

non-District residents, they cannot register for the First

Source Register and that their ability to compete for

construction jobs therefore has been and will continue to be

24 adversely impacted by the Act.4 As the Supreme Court instructed

in Lujan, “[a]t the pleading stage, general factual allegations

of injury resulting from the defendant’s conduct may suffice,

for on a motion to dismiss [courts] ‘presume that general

allegations embrace those specific facts that are necessary to

support the claim.’”

(quoting Lujan v. Nat’l

Wildlife Fed’n,

(1990)).

Indeed, the Individual Plaintiffs are in a similar position

as the plaintiffs found to have standing in Northeastern Florida

Chapter of Associated General Contractors of America v. City of

Jacksonville, Florida,

(1993). There, an

association of contractors challenged a local ordinance that

“set aside” contracts for minorities and women on equal

protection grounds. In that context, the Supreme Court held

that “[w]hen the government erects a barrier that makes it more

difficult for members of one group to obtain a benefit than it

is for members of another group, a member of the former group

seeking to challenge the barrier need not allege that he would

4 The District’s argument to the contrary is unavailing. The District contends that the Act does not prohibit the individual Plaintiffs from pursuing their profession in the District or regulate their ability to engage in business in the District as non-citizens. Defs.’ MTD at 19-20. However, as the discussion of Northeastern Florida indicates, the issue is whether the Individual Plaintiffs are in a less competitive position vis a vis their District counterparts on projects covered by the First Source Act. That they are still eligible for employment on those projects does not defeat their standing. 25 have obtained the benefit but for the barrier in order to

establish standing.”

. Instead, the “injury in fact”

is the “denial of equal treatment resulting from the imposition

of the barrier, not the ultimate inability to obtain the

benefit.”

In a challenge to a residential preference

statute like the First Source Act, “the ‘injury in fact’ is the

inability to compete on an equal footing in the bidding process,

not the loss of contract.”

(citing City of Richmond v. J.

A. Croson Co.,

(1989)).

Thus, the Individual Plaintiffs have established standing

because they have demonstrated that they are able and ready to

work on projects covered by the First Source Act and that the

Act prevents them from doing so on an equal basis. Id.; see

also Dynalantic Corp. v. Dep’t of Def.,

(D.C. Cir. 1997) (finding that a plaintiff that would not have

qualified for the Small Business Association’s set-aside program

and did not wish to participate in the program nevertheless had

standing because its injury was “its lack of opportunity to

compete for Defense Department contracts reserved” for firms

that could participate in the program).

The Individual Plaintiffs have also established causation

and redressability. Plaintiffs cannot be listed on the First

Source Register because only District residents can be listed.

And, but for the Act, the Individual Plaintiffs would not have

26 to contend with preferential hiring requirements for District

residents on projects valued at less than $5 million, or by

trade for certain large-scale projects for which the District’s

financial assistance is more than $5 million. It does not

defeat their standing, as the District argues, that they have

“failed to alleged [sic] any specifics as to when or how their

employment choices have been affected by any other entity’s

regulation by the District.” Defs.’ MTD at 18 (emphasis in

original).

2. Metro Washington and the Corporate Plaintiffs

Because Metro Washington is an association, it may sue in

its own right or on behalf of its members. Metro Washington

argues that it has satisfied the requirements for both

associational and organizational standing. Because the two

Corporate Plaintiffs are members of Metro Washington, the Court

will consider their standing in the context of Metro

Washington’s associational standing.

“[A]n association may have standing to assert the claims of

its members even where it has suffered no injury from the

challenged activity.” Hunt v. Wash. State Apple Adver. Comm’n,

(1977) (citations omitted). A plaintiff has

associational standing to sue on behalf of its members if: “(1)

at least one of its members would have standing to sue in his

own right, (2) the interests the association seeks to protect

27 are germane to its purpose, and (3) neither the claim asserted

nor the relief requested requires that an individual member of

the association participate in the lawsuit.” Chamber of

Commerce v. EPA,

(D.C. Cir. 2011); see also

Hunt,

.

The Corporate Plaintiffs are both members of Metro

Washington and claim to adhere to the organization’s philosophy

of rewarding employees based on individual merit and

performance. Compl. ¶¶ 4-6. They have been beneficiaries as

defined by the Act and anticipate that they will continue to be

beneficiaries for future projects. They allege that the Act has

made it more difficult for them to bid on projects that the

District funds in whole or in part, or that it administers, and

that they have had to increase the time spent on administrative

matters as a result of their compliance with the First Source

Act. Id. ¶ 16. For instance, Plaintiff Miller and Long alleges

that its experience under the First Source Act has been that it

has to screen approximately 60 District applicants to hire 25

workers, the majority of whom are not employed six months later.

Id. It contends that this screening number is three times

higher for District residents than for residents of Maryland and

Virginia.5 Id.

5 There are no specific allegations regarding Plaintiff Hawkins Electrical Construction of D.C. 28 In addition to these administrative costs, the Corporate

Plaintiffs allege that the requirements of the Act have imposed

additional costs that they would not have incurred but for the

Act, such as decreased productivity and morale, higher legal

fees, and costs associated with meeting reporting obligations.

Id. ¶¶ 17, 33, 42. The Corporate Plaintiffs also claim that

they “suffer a competitive disadvantage in comparison to

construction companies that do not try to comply with the Act,

that do not oppose entering into Employment Agreements that link

hiring to residency, or that are able to secure waivers or

exemptions.”6 Id. ¶¶ 18, 28, 34, 44, 54. The Corporate

Plaintiffs allege that they will continue to incur such costs

into the future under the Amended Act. Id.

The Corporate Plaintiffs further allege that they have

suffered a competitive economic injury because they have

incurred costs (for training, recruiting, hiring, and

supervision) and a disruption in business as a result of

complying with the Act. Pls.’ Opp’n at 12 (referencing specific

portions of the Complaint). According to Plaintiffs, such a

showing is sufficient to establish that they have suffered

6 The Corporate Plaintiffs do not seem to be alleging that they could not secure such waivers, though they compare themselves to hypothetical contractors who are able to secure waivers where they are not.

29 injury in fact. Id. Finally, the Corporate Plaintiffs argue

that they have been injured by the prospect of incurring the

penalties in the Amended Act; however, they have not alleged

that they have paid any penalties under the Act as enacted.7

According to the Corporate Plaintiffs, however, the “District’s

voluntary decision not to enforce the First Source Act does not

defeat” their standing. Id. (citing Util. Contractors,

, at *8 (holding that the fact that

defendant decided not to enforce the challenged regulation did

not defeat plaintiffs’ standing)).

In support of their argument, Plaintiffs cite to Air

Transport Association of America v. Export-Import Bank, where

the court determined that an association representing several

member airlines had alleged that its members had suffered a

competitive injury sufficient to confer standing.

(2012). The Air Transport Association (“ATA”)

challenged the decision of the Export-Import Bank to provide

loan guarantees to Air India, arguing that the guarantees

violated the Export-Import Bank Act. Before reaching the

merits, the court considered whether the ATA had associational

standing to proceed on behalf of nine member airlines by

7 Nor could they, according to the District, because “the imposition of penalties for noncompliance has never occurred” and no contractor has been fined for noncompliance since the law was enacted. Committee Report at 7. 30 assessing whether its members going forward would have standing

to sue in their own right.

. The ATA

argued that the Bank’s allegedly unlawful loan guarantees had

injured its members in the past and that the guarantees at issue

would imminently injure its members because foreign airlines

would be allowed to borrow at cheaper rates, thus increasing

competition in international travel.

. In deciding

whether the ATA had competitor standing, the court explained

that in order to invoke competitor standing, a plaintiff need

not show that the injury from increased competition has already

occurred.

. To the contrary, as long as a plaintiff

can “demonstrate an ‘imminent increase in competition,’ the

court recognizes that that ‘increase . . . will almost certainly

cause an injury in fact.”

(quoting La. Energy & Power Auth.

v. FERC,

(D.C. Cir. 1998)). Nevertheless, the

court stressed that the increase in competition must be imminent

and not merely speculative for a plaintiff to invoke competitor

standing.

Thus, to demonstrate “a constitutionally

sufficient competitive injury, a plaintiff must show that the

challenged action has the clear and immediate potential to cause

competitive harm.”

(internal citations and quotation marks

omitted).

Plaintiffs’ reliance on Air Transport is misplaced. Unlike

the Corporate Plaintiffs here, the ATA provided detailed factual

31 information about how new planes for foreign airlines would

compete with ATA member airlines on particular routes between

India and the United States. Id. at 58-59. This argument was

supported by declarations of industry experts. Id. On the

basis of this factual showing, the court held that the ATA had

alleged an appropriate injury. Id. at 63. No Plaintiff has

made such a factual showing here. Indeed, as Defendants argue,

the Complaint fails to provide any details about specific

projects or the impact of the Act on the Corporate Plaintiffs’

costs for those projects. Defs.’ MTD at 15 n.25, 17.

Defendants argue that the injuries claimed by the Corporate

Plaintiffs are thus not only speculative, but also that they are

nothing more than allegations of future injury that cannot

satisfy the requirements of Article III standing. Defs.’ Reply

at 6. Further, the District contends the Plaintiffs’ invocation

of competitor standing, which “recognize[es] that economic

actors ‘suffer [an] injury in fact when agencies lift regulatory

restrictions on their competitors or otherwise allow increased

competition’ against them,” is legally deficient. Id. at 7

(quoting Sherley v. Sebelius,

(D.C. Cir. 2010)

(quoting La. Energy & Power Auth. v. FERC,

(D.C. Cir. 1998)). According to the District, the “First Source

Act does not ‘lift restrictions’ on plaintiffs’ competitors, or

otherwise allow increased competition against them” because the

32 “provisions of the First Source Act apply identically to all

covered entities, both within and outside the District.”

Defendants are correct that the Corporate Plaintiffs have

not established a competitive injury sufficient to confer

standing, especially because the Act applies to all actors in

the market, and does not differentiate between contractors.

However, to the extent that the Corporate Plaintiffs have

alleged that they must incur additional costs to comply with the

Act, they have alleged a sufficient injury. For instance, in

Investment Co. Institute v. United States CFTC, the court found

that plaintiffs who alleged that they would face an “increased

regulatory burden and the associated costs of that regulation”

had alleged an injury in fact for the purposes of Article III

standing. 891 F. Supp. 2d. 162, 185 (D.D.C. 2012). The court

also held that a decision that invalidated the challenged

regulation would “fully redress” the injuries alleged.

Similarly, here, the alleged additional administrative and other

costs alleged by the Corporate Plaintiffs are directly traceable

to their current and future compliance with the First Source

Act, and a decision by this Court invalidating the Act, thereby

removing the requirement that they incur those costs, would

directly redress their injuries. Thus, the Corporate

Plaintiffs’ allegations of mandatory compliance with the First

Source Act, and the administrative requirements that are

33 necessary for compliance, are sufficient to satisfy the

constitutional requirement of injury in fact. See Ass’n of Am.

R.R.S. v. Dep’t of Transp.,

(D.C. Cir. 1994)

(stating that “there is undeniably a live, concrete ‘case or

controversy’; the [plaintiffs] allege that they are materially

harmed by the additional regulatory burden imposed upon them as

a result of a federal agency’s unlawful adoption of a rule, and

seek to have that rule overturned. We hold under the

circumstances that the [plaintiffs] ha[ve] standing”); Chevron

U.S.A., Inc. v. FERC,

(D.D.C. 2002)

(holding that compliance with reporting obligations was

sufficient injury in fact to confer standing on plaintiffs).

Under these circumstances, the Court holds that the

Corporate Plaintiffs have standing. Therefore, because they can

bring this action in their own right; because Metro Washington

has alleged that its individual merit philosophy is germane to

its purpose; and because the participation of its members is not

required to provide them with the relief they seek, the Court

finds that Metro Washington also has associational standing to

proceed.8

8 Because the Court finds that Metro Washington has associational standing, it need not consider whether it also has organizational standing.

34 B. Privileges and Immunities Clause

Plaintiffs contend that the First Source Act violates the

Privileges and Immunities Clause of the Constitution, which

provides that the “Citizens of each State shall be entitled to

all Privileges and Immunities of Citizens in the several 9 States.” U.S. Const. art. IV, § 2, cl. 1. The Clause prevents

states from enacting legislation that would discriminate against

residents of other states in favor of their own. See Supreme

Court of New Hampshire v. Piper,

, 285 n.18 (1985).

Defendants argue that Plaintiffs have failed to state a claim

with respect to the Privileges and Immunities Clause because,

assuming that the Clause applied to the District, the First

Source Act does not violate the Clause.

As an initial matter, the parties disagree over whether the

Privileges and Immunities Clause applies to the District of

Columbia because, by its express terms, it references

“[c]itizens of each State.” U.S. Const. art. IV, § 2, cl. 1.

Because the District is not a state, it is an open question

whether the Clause applies to it. See Banner v. United States,

9 The Privileges and Immunities Clause does not apply to corporations, thus the two Corporate Plaintiffs and Metro Washington do not have standing to challenge the First Source Act under the Clause. See W. & S. Life Ins. Co. v. Bd. of Equalization of Cal.,

(1981); Hemphill v. Orloff,

(1928). However, the Individual Plaintiffs do have standing to challenge the First Source Act under the Privileges and Immunities Clause.

35

(D.D.C. 2004). In their motion to

dismiss, Defendants did not address the applicability of the

Clause to the District, stating instead in a footnote that:

“While the District does not concede that the Clause applies to

it, for the purposes of this Motion, the District assumes that

it does.” Defs.’ MTD at 20 n.29. Plaintiffs construed this

footnote as a concession that the Clause applied for the

purposes of Defendants’ motion to dismiss, Pls.’ Opp’n at 16

n.7, which Defendants disputed in their reply, Defs.’ MTD at 8.

On the basis of this dispute, the Court ordered supplemental

briefing on the issue of whether the Privileges and Immunities

Clause applies to the District. See March 23, 2013 Minute

Order. The parties filed supplemental responses in April 2013 -

- Defendants argued that the Clause did not apply to the

District, whereas Plaintiffs argued that it did. See Defs.’

Supp. P&I Mem.; Pls.’ Supp. P&I Mem.

The D.C. Circuit has only addressed the applicability of

the Privileges and Immunities Clause to the District on two

occasions, both prior to the enactment of the Home Rule Act in

1973. First, in Duehay v. Acacia Mutual Life Insurance Co., the

court held that the Clause was inapplicable to the District

because “[i]t is a limitation upon the powers of the states and

in no way affects the powers of Congress over the territories

and the District of Columbia.”

(D.C. Cir.

36 1939). The Circuit again found that the Clause did not apply to

the District the following year in Neild v. District of

Columbia,

(D.C. Cir. 1940). There, citing Duehay,

the Court noted in a footnote that the “privileges and

immunities clause is a limitation upon the states only and in no

way affects the powers of Congress over the District of Columbia

or the territories.”

n.3. Since 1940, the

Supreme Court has found that the Clause does apply to certain

territories, though crucially, the organic acts for those

territories include a provision making the Privileges and

Immunities Clause applicable. See Chase Manhattan Bank v. South

Acres Dev. Co.,

(1978) (noting that Congress

explicitly extended the Privileges and Immunities Clause to Guam

in its Organic Act); Mullaney v. Anderson,

(1952)

(holding that the clause applied to Alaska, which was a

territory on its way to becoming a state). The Home Rule Act

contains no similar language; and the District, unlike other

territories, is partially governed by Congress.

The District has not moved to Dismiss on the grounds that

the First Source Act is a valid residence based classification

because the Privileges and Immunities Clause is not a bar on

District action. Rather, it argues that the First Source Act is

a valid residence preference under the Privileges and Immunities

Clause. Thus, for the purposes of this motion, the Court need

37 not reach the question of whether the Privileges and Immunities

Clause applies to the District because the District has not

sought relief on that issue.

The Supreme Court has long held that the “the privileges

and immunities clause is not an absolute.” Toomer v. Witsell,

(1948). Equal treatment for citizens,

residents, and nonresidents has only been required “with respect

to those ‘privileges’ and ‘immunities’ bearing upon the vitality

of the Nation as a single entity.” Baldwin v. Fish and Game

Comm’n of Montana,

(1978). When determining

whether a particular residency classification violates the

Privileges and Immunities Clause, the court must conduct a two-

step analysis. First, the activity purportedly threatened by

the classification must be “sufficiently basic to the livelihood

of the Nation” as to fall within the “purview” of the clause.

Supreme Court of Virginia v. Friedman,

(1988)

(internal quotation marks and citations omitted). Second, if

the “challenged restriction deprives nonresidents of a protected

privilege,” it is constitutionally impermissible if “the

restriction is not closely related to the advancement of a

substantial state interest.” Friedman,

(citing

Piper,

).

The first step of the analysis requires the court to

consider whether the Act burdens a privilege or immunity

38 protected by the Clause. United Bldg. & Constr. Trades Council

v. Mayor and Council of Camden,

(1984).

Because not all residency classifications are constitutionally

suspect, the court must determine whether the non-resident’s

interest is fundamental to promoting interstate harmony and thus

covered by the Clause. See Baldwin,

(explaining

that the protections of the Clause apply to fundamental rights,

which are those involving “basic and essential activities,

interference with which would frustrate the purposes of the

formation of the Union”). The Supreme Court has held that the

ability to pursue a common calling is “one of the most

fundamental of those privileges protected by the Clause.”

Camden,

(citing Baldwin,

).

Here, Plaintiffs argue that the First Source Act

unconstitutionally impedes their ability to pursue their common

calling. Compl. ¶ 90; Pls.’ Opp’n at 16-17. Though public

employment is distinct from private employment, the Supreme

Court has recognized that employment on public works projects is

a fundamental right protected by the Privileges and Immunities

Clause. Indeed, “[t]he opportunity to seek employment with such

private employers is sufficiently basic to the livelihood of the

Nation as to fall within the purview of the Privileges and

Immunities Clause even though the contractors and subcontractors

themselves are engaged in projects funded in whole or in part by

39 the city.” Camden,

. (internal quotation

marks and citations omitted). Nevertheless, this is not the end

of the inquiry – a regulation that discriminates against a

protected privilege may nonetheless be valid “where there is a

‘substantial reason’ for the difference in treatment.”

.

Where a protected privilege or immunity is implicated by a

particular state law or regulation, the state can defeat the

challenge by demonstrating that there is “something to indicate

that non-citizens constitute a peculiar source of the evil at

which the statute is aimed.” Hicklin v. Orbeck,

(1978); see also Camden,

. The Supreme Court

has explained that the Privileges and Immunities Clause “does

not preclude disparity of treatment in the many situations where

there are perfectly valid independent reasons for it.” Toomer,

. In those cases where such reasons exist, the

inquiry “must be concerned with whether . . . the degree of

discrimination bears a close relation to them.”

Courts

must also give “due regard [to] the principal [sic] that the

States should have considerable leeway in analyzing local evils

and prescribing appropriate cures.”

The District contends that the First Source Act is

necessary to counteract the grave economic disparity that it

faces as a result of its inability to levy a commuter tax on

40 non-residents, who hold 70 percent of jobs in the District.

Defs.’ MTD at 22; see also Banner,

. This

situation, legally mandated by Congress in the Home Rule Act,

creates a structural imbalance unlike that faced by any other

jurisdiction in the country, one which the First Source Act aims

to alleviate.

Plaintiffs argue to the contrary that the District has not

provided a substantial reason for the discrimination caused by

the First Source Act. According to Plaintiffs, “more tax

revenue” is not a sufficient reason for discriminating against

non-residents. Pls.’ Opp’n at 17-19. Further, Plaintiffs claim

the Act is not narrowly tailored to combat a particular source

of evil because “nonresidents are not a peculiar source of

unemployment in the District, nor are they the source of any

other local ‘evil.’”

at 19 (quoting Compl. ¶¶ 93, 114).

The fact that there are more non-residents than residents

working in the District, according to Plaintiffs, is a symptom

of other social and economic ills.

Plaintiffs point out that virtually every other residence

preference law that has been challenged on Privileges and

Immunities grounds has been found to be unconstitutional.

Plaintiffs are correct about the state of Privileges and

Immunities Clause jurisprudence. Every case of which the Court

is aware has found that the jurisdiction involved used the

41 residence preference law primarily as a means for economic

protectionism. Unlike the District, however, none of these

jurisdictions are legally barred from raising revenue through

the imposition of taxes, nor are they required to submit local

legislation to Congress for review.

For instance, plaintiffs challenging a Worcester,

Massachusetts law that required all contractors on public

projects to allocate 50 percent of all employee work hours to

city residents were granted a preliminary injunction against

enforcement of the law. Util. Contractors Ass’n of New England,

Inc. v. City of Worcester,

(D. Mass. 2002).

In finding that the plaintiffs were likely to succeed on the

merits, the court considered the constitutionality of the

ordinance. Though the city argued that adverse employment

conditions in Worcester were a substantial reason that justified

the discrimination, the court could not accept that nonresident

employees on public projects were the particular source of the

city’s employment issues.

. In ruling for the

plaintiffs, the court also considered whether the law had cured

the employment problems it was enacted to remedy.

Similar

ordinances have also been struck down in Fall River and Quincy,

Massachusetts. See Merit Constr. Alliance V. City of Quincy,

No. 12-10458,

(D. Mass. April 18,

2012) (finding, on a motion for preliminary injunction, that a

42 city ordinance requiring that 33 percent of employees on public

agency projects be city residents would violate the Privileges

and Immunities Clause despite the city’s argument that city

residents should see a return on investment through jobs from

projects that their tax dollars were funding); Util. Contractors

Ass’n of New England v. City of Fall River, No. 10994-RZW,

(D. Mass. Oct. 4, 2011) (holding, in

granting a motion for preliminary injunction, that a city

ordinance that required 100 percent of apprentices and 50

percent of all other employees on public works projects be city

residents would be invalid, especially because the city had

offered no justification for the classification).10

10 Plaintiffs also cite to Camden, in which the Supreme Court reversed and remanded a case involving a Privileges and Immunities Clause challenge to a municipal ordinance providing that at least 40 percent of the employees of contractors and subcontractors working on city funded or administered projects be city residents.

. The city of Camden argued that the ordinance was constitutional because it was “necessary to counteract grave economic and social ills,” including unemployment, a decline in population, and a reduction in the number of businesses located in the city.

. According to the city, the particular evil that the ordinance was intended to address was non-Camden residents employed on city public works projects.

The Court did not invalidate the statute, but remanded the case for further factual findings because it could not assess the city’s justification on the record before it.

. In remanding the case, the Camden Court emphasized that the fact that Camden was “expending its own funds or funds it administers in accordance with the terms of a grant” was “perhaps the crucial factor [] to be considered in evaluating whether the statute’s discrimination violates the Privileges and Immunities Clause.”

. In the wake of Camden, one court has upheld a residence preference 43 Similarly, in W.C.M. Window Co., Inc. v. Bernardi, a three

judge panel of the Seventh Circuit ruled that an Illinois

residence based classification violated the Privileges and

Immunities Clause.

(7th Cir. 1984). The Illinois

statute required that contractors on public works projects for

the state or municipalities employ Illinois laborers.

. Under the law, an Illinois laborer was defined as any

worker who had been a resident of the state for at least one

year.

. In arguing the law was constitutional, the

state failed to provide any evidence of the benefits of the

residential preference.

. The court thus ruled

that because the Illinois law implicated a fundamental right

protected by the Clause, and because the state had not satisfied

its “burden of justifying the discrimination,” the law was found

to be unconstitutional.

.

These cases, while instructive, simply do not describe the

situation presented here. The fact that the District is the

only jurisdiction in the country that cannot tax commuters11 puts

law as furthering a state’s interest in combating unemployment disparities. State v. Antonich,

(Wy. 1985) (holding that a state residence preference law narrowly addressed the goal of reducing unemployment and therefore did not violate the Privileges and Immunities Clause). 11 The Supreme Court recognized the right of one state to tax the income of non-residents in 1920 in Shaffer v. Carter,

(1920). The Court held that a state may levy a tax on a nonresident who holds a job or operates a business in a state so 44 it in a unique position compared to other jurisdictions that

have enacted similar legislation, and indeed, it is a particular

evil that only the District confronts.12 The Supreme Court has

made clear that “[e]very inquiry under the Privileges and

Immunities Clause must . . . be conducted with due regard for

the principle that the states have considerable leeway in

analyzing local evils and in prescribing appropriate cures,”

especially when a “government body is merely setting conditions

on the expenditure of funds it controls.” Camden,

(internal quotation marks and citations omitted); see

also Hicklin,

. The District’s determination

that the First Source Act is an appropriate response to the

unique burden placed on the District by the Congressionally-

long as that tax is no more onerous than that levied on a state resident. Id. at 52. The Court reasoned that a non-resident had an obligation to pay for the cost of the state’s government, from which the nonresident derived a benefit. Id. at 52-53. Following the rule of Shaffer, every state in the country that levies an income tax on its own citizens imposes a tax on nonresidents who work or do business in the state. See CCH State Tax Guide ¶¶ 15-157. Some states have reciprocal agreements with surrounding states whereby each agrees not to tax the income of nonresidents. Id. 12 Plaintiffs contend that the actual source of evil that the District confronts is Congress and the ban on a commuter tax in the Home Rule Act. While the Home Rule Act may be the legal source of the ban, the effect of the ban is only felt when a nonresident holds a job in the District and carries that revenue back to his or her home state.

45 imposed commuter tax ban is therefore entitled to some

deference.13

Thus, according to the District, the inability to impose a

commuter tax is District’s unique evil; however, the Court must

determine “‘whether the degree of discrimination bears a close

relation’” to that evil. Camden,

(quoting

Toomer,

). The District argues that it cannot

tax commuters by the terms of the Home Rule Act, resulting in a

particularly acute problem because approximately 70 percent of

the jobs in the District are held by commuters. Defs.’ MTD at

22. The District also argues that the unemployment rate in the

District exceeds that of surrounding jurisdictions and the

country as a whole – as of August 2011, when the amendments to

the Act were being considered, the unemployment rate in the

District as a whole was 11.1 percent. Committee Report at 3.

In some wards of the city, it was as high as 30 percent.

13 At oral argument, Plaintiffs urged the Court to decide that the District cannot even determine what constitutes a local evil for the purposes of a privileges and immunities challenge. According to Plaintiffs, when Congress determined that the District could not enact a commuter tax, it apparently determined that this ban was not a local evil as well. While Congress may dictate much of what the District may do, it cannot dictate which problems the District characterizes as most severe – as local evils. See Camden,

; Toomer,

(explaining that courts must give “due regard [to] the principal [sic] that the States should have considerable leeway in analyzing local evils and in prescribing appropriate cures”).

46 The unemployment rate in the Washington metropolitan area, by

contrast, was 5.3 percent in May 2012. Defs.’ MTD at 7.

According to the District, this results in a permanent

structural imbalance in the budget, whereby there is a “gap

between the cost of providing services and its capacity to raise

revenue.” Defs.’ MTD at 11 (citing a GAO report from 2003).

The District claims that the “First Source Act was enacted in an

effort to remedy the very real, significant, and well-

established structural imbalances in the District’s budget,” id.

at 12, presumably, by placing a modest thumb on the scale in

favor of District residents with respect to hiring in a narrow

subset of the District economy – construction jobs funded or

administered by the District government.

While the Court could be persuaded that the inability to

levy a commuter tax could be a peculiar evil that could justify

the residential preference in the First Source Act, the Court

finds “it impossible to evaluate the [District’s] justification

on the record as it now stands.” Camden,

; see

also Dynalantic Corp. v. Dep’t of Def.,

(D.D.C. 2007) (denying motions for summary judgment in a case

evaluating the constitutionality of the Small Business

Association’s set aside program for small businesses owned and

controlled by disadvantaged individuals because the parties had

not demonstrated whether the asserted compelling government

47 interest had a strong basis in evidence). At this stage in the

litigation, the District has not provided sufficient substantive

evidence for the Court to determine whether the First Source

Act’s residential hiring preferences for construction projects

funding in whole or in part by the District are narrowly

tailored to address the unique evil of the District’s inability

to levy a commuter tax. This is a fact-intensive inquiry that

cannot be resolved on a motion to dismiss -- there have been no

findings of fact made in this case, nor has there been any

discovery and no declarations have been filed by anyone. And it

would not be appropriate for the Court to make factual findings

or take judicial notice of the impact of the First Source Act at

this juncture. Thus, the District’s motion to dismiss

Plaintiffs’ privileges and immunities claim is hereby denied

without prejudice.

C. Commerce Clause

Plaintiffs also argue that the First Source Act violates

the Commerce Clause, which is “an implicit restraint on state

authority, even in the absence of a conflicting federal

statute.” United Haulers Ass’n v. Oneida-Herkimer Solid Waste

Mgmt. Auth.,

(2007). This restraint, known as

the Dormant Commerce Clause, prevents states from interfering

with Congress’s power to regulate interstate commerce. However,

for state action to implicate the Dormant Commerce Clause, the

48 action must take the form of regulatory activity. “Some cases

run a different course, however, and an exception covers States

that go beyond regulation and themselves ‘particpat[e] in the

market’ so as to ‘exercis[e] the right to favor [their] own

citizens over others.’” Dep’t of Revenue of Ky. v. Davis,

(2008) (quoting Hughes v. Alexandria Scrap Corp.,

(1976)). Because “[t]here is no indication of

a constitutional plan to limit the ability of States themselves

to operate freely in the free market,” Reeves, Inc. v. Stake,

(1980), the Dormant Commerce Clause is

inapplicable. “[W]hen a state or local government enters the

market as a participant it is not subject to the restraints of

the Commerce Clause.” White v. Mass. Council of Constr. Emp’rs,

Inc.,

(1983), and the state may preference

local interests. Thus, “in this kind of case there is ‘a single

inquiry: whether the challenged program constitute[s] direct

state participation in the market.’”

(quoting Reeves,

n.7).

The District argues that Plaintiffs fail to state a claim

because the First Source Act does not violate the Commerce

Clause. First, the District notes that the Act only applies to

projects that are funded, in whole or in part, or administered

by the District. Thus, according to the District, the First

Source Act does not apply to wholly private transactions.

49 Defs.’ MTD at 26. Further, the District contends that through

the First Source Act, it is acting as a market participant, not

a market regulator. Thus, under Supreme Court precedent, the

Dormant Commerce Clause does not apply.

According to the

District, a state may act as a market participant even where it

also regulates the relevant market.

at 27 (citing Davis,

).

In Hughes v. Alexandria Scrap Corp., the Supreme Court

first articulated the principle of a state as a market

participant for the purposes of the Dormant Commerce Clause.

(1978). There, the state of Maryland used its own

funds to encourage the removal of automobile hulks from state

streets and junkyards.

. The state eventually

amended the bounty statute to require different, more

cumbersome, documentation from out of state scrap processors

than in state processors.

. The district court

invalidated the amendment on the grounds that it violated the

Commerce Clause. The Supreme Court reversed, first noting that

Maryland was not regulating or prohibiting the flow of

automobile hulks, but was instead entering the market to bid up

their price.

. The Court thus held that the state

was a market participant and that “[n]othing in the purposes

animating the Commerce Clause prohibits a State, in the absence

of congressional action, from participating in the market and

50 exercising the right to favor its own citizens over theirs.”

.

The Supreme Court again addressed the market participant

exception in White. There, the Court considered a Boston city

ordinance that required that on all construction projects funded

in whole or part by city funds, or projects the city

administered, at least half of the work force be comprised of

city residents.

(1982). The Court held that

“[i]nsofar as the city expended only its own funds in entering

into construction contracts for public projects, it was a market

participant and entitled to be treated as such.”

at 214

(citing Hughes,

). Therefore, the Dormant Commerce

Clause did not apply, and the regulation was a valid exercise of

the state’s authority. Id. at 214-15.

The District argues that the First Source Act is consistent

with this line of cases, as the “District is simply favoring the

use of District labor as a condition of the District’s purchase

of construction services.” Defs.’ MTD at 27. The relevant

market here, according to the District, is the market for

construction services, and it is insisting on using its own

residents. This choice, the District argues, “does not violate

the Commerce Clause,” nor does it “impermissibly burden

interstate commerce, as it only affects District projects in the

District.” Id. at 27-28.

51 Plaintiffs argue that the First Source Act does violate the

Commerce Clause because, contrary to the District’s claims, the

District is acting as a market regulator, not a market

participant. Pls.’ Opp’n at 22-23. In making this argument,

Plaintiffs ignore the binding precedent of Hughes, White, and

their progeny, and instead focus on cases that are wholly

inapposite. For instance, Plaintiffs argue that the First

Source Act is invalid because the 2011 amendments provide for a

period of debarment for repeated violations of the Act.

Plaintiffs cite to Wisconsin Dep’t of Indus. Labor and Human

Relations v. Gould,

(1986), for the proposition

that the market participant exception does not apply to a state

statute that provides for debarment. However, the statute at

issue in Gould provided for debarment for repeat offenders of

the National Labor Relations Act,

et seq., a

federal statute that preempted the conflicting state statute.

. Plaintiffs cite to no cases that support

their position that the District is a market regulator.

Despite their best efforts, Plaintiffs cannot credibly

dispute the fact that the District is acting as a market

participant with respect to city-funded construction projects.

The First Source Act thus plainly does not violate the Commerce

Clause. See Shayne Bros., Inc. v. District of Columbia,

(holding that a District statute regarding

52 solid waste disposal that preferenced District waste providers

and provided for period of debarment after violations was not a

violation of the Commerce Clause). Accordingly, Defendants’

motion to dismiss Plaintiffs’ Commerce Clause claim is granted.

D. Equal Protection Clause14

“The Equal Protection Clause provides a basis for

challenging legislative classifications that treat one group of

persons as inferior or superior to others, and for contending

that general rules are being applied in an arbitrary or

discriminatory way.” Jones v. Helms,

(1981). Accordingly, courts apply strict scrutiny when the

challenged classification jeopardizes the exercise of a

fundamental right or categorizes individuals on the basis of an

inherently suspect characteristic such as race, alienage, or

national origin. See Hunt v. Cromartie,

(1999); Banner v. United States,

(D.C. Cir.

2005). However, “if a law neither burdens a fundamental right

nor targets a suspect class,” it will be upheld “so long as it

bears a rational relation to some legitimate end.” Romer v.

Evans,

(1996); Hettinga v. United States, 677

14 The Equal Protection Clause of the Fourteenth Amendment applies only to the states. Although the Fifth Amendment, which does apply to the District, does not contain an equal protection component, the Supreme Court has held that the Due Process Clause of the Fifth Amendment does contain one and that it applies to the District. Bolling v. Sharpe,

(1954).

(D.C. Cir. 2012) (“A statutory classification that

neither proceeds along suspect lines nor infringes fundamental

constitutional rights must be upheld against equal protection

challenge if there is any reasonably conceivable state of facts

that could provide a rational basis for the classification.”)

(internal quotation marks and citations omitted)). Rational

basis review is thus “highly deferential,” Calloway v. District

of Columbia,

(D.C. Cir. 2000), and it “is not a

license for courts to judge the wisdom, fairness, or logic of

legislative choices,” Heller v. Doe,

(1993).

Plaintiffs contend that they have stated an Equal

Protection claim because the First Source Act impermissibly

discriminates against the Individual Plaintiffs who do not

reside in the District. They are therefore treated differently

than similarly situated individuals on the basis of their state

of residency. Compl. ¶ 106; Pls.’ Opp’n at 25-26. Plaintiffs

concede that such a classification, based on state of residency,

should be scrutinized under rational basis review. Compl. ¶

107; see Heller v. Doe,

(explaining that “a

classification neither involving fundamental rights nor

proceeding along suspect lines . . . cannot run afoul of the

Equal Protection Clause if there is a rational relationship

between the disparity of treatment and some legitimate

governmental purpose”).

54 Plaintiffs make no real effort to defend their Equal

Protection claim. In their opposition, they state only that

“the First Source Act does not provide a rational basis for

treating nonresident employers and employees differently than

resident employers and employees.” Pls.’ Opp’n at 24. They

also argue that the District incorrectly relies on Banner, but

fail to explain how. Id. at 25-26. These conclusory

allegations are insufficient to survive a motion to dismiss.

The District is correct that Plaintiffs cannot state an

Equal Protection claim “because they cannot overcome the

presumption of rationality.” Defs.’ MTD at 31. As the District

points out, resident preferences similar to those embodied in

the First Source Act have been upheld by other courts. Id.

(citing Chance Mgmt., Inc. v. South Dakota,

, 1115

(8th Cir. 1996) (applying rational basis review and upholding a

residency requirement for obtaining a license as a video lottery

machine operator and explaining that “the state has a legitimate

interest in insuring that the state’s substantial investment in

its video lottery business ultimately benefits the South Dakota

taxpayers. The legislature could have rationally concluded that

a residency requirement would further this interest”); Smith

Setzer & Sons, Inc. v. S.C. Procurement Review Panel,

, 1322-24 (4th Cir. 1994) (affirming the decision of a

district court sustaining two South Carolina statutes that

55 provided for resident preferences requiring that state

educational and administrative bodies purchase South Carolina

goods if available because the statute was rationally related to

the state’s interest in “channelling tax dollars back into the

community”); Associated Gen. Contractors of Cal., Inc. v. City

and Cnty of San Francisco,

(9th Cir. 1987)

(upholding a city and county ordinance that gave preference to

locally owned businesses) overruled in other part by City of

City of Richmond v. J.A. Croson Co.,

(1989)).

Thus, the Court grants Defendants’ motion to dismiss with

respect to Plaintiffs’ Equal Protection claim; the District’s

goal of directing local funds to local residents is rationally

related to the means used by the Act.

E. First Amendment

The First Amendment protects against “compelled speech” in

two distinct areas: “true ‘compelled-speech’ cases, in which an

individual [or entity] is obliged [] to express a message he

disagrees with, imposed by the government; and ‘compelled-

subsidy’ cases, in which an individual [or entity] is required

by the government to subsidize a message he disagrees with.”

Johanns v. Livestock Mktg Ass’n,

(2005).

Plaintiffs allege that the First Source Act violates their

right to free speech under the First Amendment because it

“compel[s]” them to “express support” for the goals of the Act.

56 Compl. ¶ 112. According to the Corporate Plaintiffs, the First

Source Act forces them to “engage in speech,” such as

“compelling them to plan for and adopt policies and provide

detailed reports on their employees and on their business

practices solely on the basis of the residence of those

employees.” Pls.’ Opp’n at 27. They are also required to

submit “employment plans” to the District that are contrary to

their individual merit employment philosophy and to post various

information regarding jobs on District and newspaper websites.

As a result, they argue that they are “required not merely

to fund government speech, but to themselves adopt, promote, and

be identified with it such that the speech on the issue of

residence and who should get jobs is attributed to them.”

However, despite these arguments, it is clear that the

First Source Act does not require Plaintiffs to speak, in a

literal sense. They remain free to express their views opposing

the Act. The speech that they argue they are compelled to

engage in is incidental to the First Source Act’s regulation of

their conduct. Indeed, “it has never been deemed an abridgment

of freedom of speech or press to make a course of conduct

illegal merely because the conduct was in part initiated,

evidenced, or carried out by means of language, either spoken,

written, or printed.” Rumsfeld v. Forum for Academic &

Institutional Rights, Inc. (FAIR),

(2006)

57 (quoting Giboney v. Empire Storage & Ice Co.,

(1949)). In FAIR, the Supreme Court held that speech compelling

a law school to send out emails informing students of military

recruiting on campus did not violate the First Amendment and

that such speech was fundamentally different from

unconstitutional compelled speech, such as “forcing a student to

pledge allegiance.”

Similarly, the First Source Act, which

does not dictate the conduct of the speech, does not violate the

First Amendment.

F. Due Process

1. “Void for Vagueness”

“[T]he void for vagueness doctrine addresses at least two

connected but discrete due process concerns: first, that

regulated parties should know what is required of them so they

may act accordingly; second, precision and guidance are

necessary so that those enforcing the law do not act in an

arbitrary or discriminatory way.” FCC v. Fox Television

Stations, Inc.,

(2012). A law is

unconstitutionally vague if it “fails to provide a person of

ordinary intelligence fair notice of what is prohibited, or is

so standardless that it authorizes or encourages seriously

discriminatory enforcement.” United States v. Williams,

(2008). The vagueness doctrine does not require

“perfect clarity and precise guidance.” Ward v. Rock Against

58 Racism,

(1989). Regulations “cannot, in

reason, define proscribed behavior exhaustively or with

consummate precision.” United States v. Thomas,

(D.C. Cir. 1988).

Plaintiffs argue that the First Source Act is vague because

it gives “unfettered discretion” to the Mayor “to grant various

waivers, require alternatives to construction contracts, and

decide what fines to impose.” Pls.’ Opp’n at 30. According to

Plaintiffs, the language of the statute is fatal because it

states that exemptions can be made “[w]henever the Mayor

determine[s]” that such an exemption is necessary.

This

discretion, Plaintiffs contend, is not due to mere imprecision

in language, but rather is the result of “intentionally and

unlawfully delegating to the Mayor the authority to preempt

entire sections of the First Source Act.”

Plaintiffs’ vagueness challenge to the First Source Act “is

simply a garden-variety claim of uncertainty as to how the law

will be enforced.” Defs.’ MTD at 34. While the statute grants

authority to the Mayor to grant waivers, it provides objective

guidelines for the granting of those waivers. See

(e)(3)(A)(i)-(A)(iii) (explaining that a waiver is

available if (1) DOES has certified that the beneficiary made a

good faith effort to comply; (2) the beneficiary is located

outside the area; none of the work is performed in the area; the

59 beneficiary published each available job in a city-wide

newspaper for 7 calendar days and DOES certifies that there are

not enough applicants from the First Source Register for the

job; or the eligible applicants are not available for part-time

work or do not have the means to travel to the job site; or (3)

the beneficiary enters into workforce development training or

placement arrangement with DOES). When the section of the

statute regarding the fact that the Mayor can grant a waiver is

read in conjunction with the section of the statute providing

for standards by which waivers are granted, it is clear that the

statute is not vague. See Initiative & Referendum Inst. v. U.S.

Postal Serv.,

(D.D.C. 2010) (holding that

a portion of a statute challenged as vague must be read in

context). It is simply “common sense that [officials] must use

some discretion in deciding when and where to enforce city

ordinances.” Town of Castle Rock v. Gonzales,

(2005). The First Source Act, contrary to Plaintiffs’ claims,

does not link “wholly subjective judgments without statutory

definitions, narrowing context, or settled legal meanings.”

Williams,

.

The Due Process Clause does not prevent officials from

exercising discretion at all, but rather it prevents officials

from exercising discretion with no clear objective or standard.

See Armstrong v. D.C. Pub. Library,

, 80-82

60 (holding that a District regulation that barred entry to public

libraries based on the appearance of entrants and allowed

library personnel to deny entrance to potential patrons with an

objectionable appearance, but providing no guidelines for the

exercise of that discretion by library officials, was void for

vagueness and thus invalid under the Due Process Clause).

Plaintiffs reading of the Due Process Clause would render city

officials incapable of exercising any discretion. Because the

Mayor has “explicit guidelines [] to avoid arbitrary and

discriminatory enforcement” of the First Source Act, it is not

unconstitutional. Big Mama Rag, Inc. v. United States,

(D.C. Cir. 1980).

2. Substantive Due Process

Plaintiffs also argue that their Complaint “sets forth

factual allegations that establish the violation of their

substantive due process rights under the Constitution.” Pls.’

Opp’n at 31. However, apart from this statement in their

opposition, and three paragraphs in their Complaint alleging

that the First Source Act is overbroad, burdens constitutionally

protected conduct, and applies retroactively, Plaintiffs do not

explain how their Substantive Due Process rights are violated.

Compl. ¶¶ 118-120. While Plaintiffs allege a violation of

Substantive Due Process in their complaint, they only cite cases

that relate to Procedural Due Process in their opposition to

61 Defendants’ motion to dismiss. Thus, they have provided no

basis, conclusory or otherwise, for their claim. Plaintiffs’

confused allegations are simply insufficient to state a claim.

To the extent that Plaintiffs do attempt to state a claim

for a violation of Substantive Due Process, they have failed.

Substantive Due Process constrains government conduct that is

“so egregious, so outrageous, that it may fairly be said to

shock the contemporary conscience.” Cnty. of Sacramento v.

Lewis,

, 847 n.8 (1998). In this Circuit,

Substantive Due Process “normally imposes only very slight

burdens on the government to justify its actions. . . .” George

Washington Univ. v. District of Columbia,

, 206

(D.C. Cir. 2003). The First Source Act is simply not the type

of egregious government conduct that is barred by Substantive

Due Process. See Silverman v. Barry,

(D.C.

Cir. 1988) (holding that to show unfairness that violates the

substantive component of the Due Process Clause, a plaintiff

must show “a substantial infringement of state law prompted by

personal or group animus, or a deliberate flouting of the law

that trammels significant personal or property rights”).

G. Contracts Clause

“Article I, § 10 of the Constitution provides in pertinent

part that ‘[n]o state shall . . . pass any . . . law impairing

the Obligation of Contracts.’” Washington Serv. Contractors

62 Coal. v. District of Columbia,

, 818 (D.C. Cir.

1995). A law that substantially impairs contractual

relationships is thus invalid if the impairment to the

contractual relationship is substantial. Id. (citing Allied

Structural Steel Co. v. Spannaus,

(1978) and

Gen. Motors Corp. v. Romein,

(1992)).

Plaintiffs have failed to state a claim pursuant to the

Contracts Clause of the Constitution. They allege that the

Amended Act “has the effect of rewriting those contracts to

include later-enacted limitations regarding hiring, and

reporting.” Compl. ¶ 128. They do not identify which contracts

would be impaired, only that some hypothetical contracts that

some Plaintiff is a party to will be impacted.15 That is not

sufficient to state a claim.

IV. Conclusion

For the reasons stated above, it is hereby ORDERED that

Defendants’ Motion to Dismiss Plaintiffs’ Complaint is GRANTED

IN PART AND DENIED IN PART; and Counts II, III, IV, V, VI, and

VII of Plaintiffs’ Complaint are hereby dismissed. A separate

order accompanies this memorandum opinion.

SO ORDERED.

Signed: Emmet G. Sullivan United States District Judge

15 At the oral argument on June 25, 2014, Plaintiffs also conceded that the Amended Act did not apply retroactively. 63 July 14, 2014

64