Safeco Insurance Company of America v City of White House Memorandum

    IN THE UNITED STATES DISTRICT COURT FOR 
THE MIDDLE DISTRICT OF TENNESSEE 

NASHVILLE DIVISION

SAFECO INSURANCE COMPANY 
OF AMERICA

Plaintiff/
Counter-Defendant

]
]
]
]
] No. 3:87-0883

v. ]
]

THE CITY OF WHITE HOUSE, 
TENNESSEE, 1

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]
]

Defendant/
Counter-Plaintiff

FATHERLY CONSTRUCTION CO. 
Plain tiff/Intervenor

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UNITED STATES OF AMERICA 
Defendant/Intervenor

v. ]
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]

MEMORANDUM

Pending before the Court in the above-styled action are several motions including (1) a 

motion for summary judgment by Safeco Insurance Company of America ("Safeco") (Doc. No. 

202); (2) a motion by the United States Environmental Protection Agency ("EPA") for partial 

summary judgment (Doc. No. 232); (3) a motion by the City of White House ("the City") for 

summary judgment (Doc. No. 247); (4) a motion by Eatherly Construction Company

("Eatherly") for summary judgment (Doc. No. 252); a motion by EPA for partial summary 

judgment (Doc. No. 257); and a motion by EPA and the City for reconsideration of the Court’s 

decision permitting Eatherly to intervene in this action (Doc. No. 237). For the reasons stated 

below, the Court denies summary judgment with respect to the motions by Eatherly and Safeco.

1 This document was entered on 
the docket in compliance with 
Rule 58 and/or Rule 79(a),



The Court grants partial summary judgment with respect to the motions by EPA and the City. 

Finally, the Court denies the motion for reconsideration by EPA and the City.

I. BACKGROUND

This case is on remand from the 6th Circuit Court of Appeals. It arises out of Eatherly’s 

withdrawal of its winning bid for a contract to construct a sanitary sewer system for the City of 

White House, Tennessee. Safeco is Eatherly’s insurer.

The City’s construction project was financed by EPA. EPA has an affirmative action 

policy, articulated in 40 C.F.R. §§ 33.005 and 33.240, which requires contractor-bidders to 

make good faith efforts to utilize minority-owned and woman-owned subcontractors when 

possible. Eatherly provided the lowest bid and won the contract but allegedly failed to 

sufficiently document its efforts to utilize minority-owned and woman-owned subcontractors. 

As a result, EPA refused to certify Eatherly’s compliance with EPA’s regulations. Ultimately 

Eatherly withdrew its bid. The City then used the second lowest bidder and sued Safeco for the 

difference in the money it had to expend on the project. The City and the United States assert 

that Eatherly seeks to avoid its obligations under the contract through the use of constitutional 

arguments because the contract is unfavorable to Eatherly.

Previously this Court held that Eatherly and the City formed a valid contract and that 

Eatherly breached the contract by withdrawing its bid. The 6th Circuit upheld the Court’s 

decision that the parties formed a valid contract. The Court held, however, that a genuine issue 

of material fact existed regarding whether Eatherly breached the contract. The Court of Appeals 

remanded the case for trial on the question of whether Eatherly made a good faith effort to

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comply with EPA’s requirements. Safeco Ins. Co. v. City of White House. Tenn.. 36 F.3d 540, 

547-48 (6th Cir. 1994).

H. STANDARD OF REVIEW

Rule 56(c) of the Federal Rules of Civil Procedure provides in part that summary 

judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, 

and admissions on file, together with affidavits, if any, show that there is no genuine issue as 

tn any material fact and that the moving party is entitled vo judgment as a matter cf law." Fed. 

R. Civ. P. 56(c). .

The Advisory Committee for the Federal Rules has noted that "[t]he very mission of the 

summary judgment procedure is to pierce the pleadings and to assess the proof in order to see 

whether there is a genuine need for trial." Advisory Committee Notes on Rule 56, Federal Civil 

Judicial Procedure and Rules (West Ed. 1990).

An alleged factual dispute existing between the parties is not sufficient to defeat a 

properly supported summary judgment motion; there must be a genuine issue of material fact. 

Anderson v. Liberty Lobby. Inc.. 477 U.S. 242, 247-48, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 

202 (1986). The substantive law involved in the case will underscore which facts are material 

and only disputes over outcome determinative facts will bar a grant of summary judgment. Id ., 

477 U.S. at 248, 106 S. Ct. at 2510.

While the moving party bears the initial burden of proof for its motion, the party that 

opposes the motion has the burden to come forth with sufficient proof to support its claim, 

particularly when that party has had an opportunity to conduct discovery. Celotex Corp. v. 

Catrett. 477 U.S. 317, 323, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). It is true,

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however, that "[i]n ruling on a motion for summary judgment, the court must construe the 

evidence in its most favorable light in favor of the party opposing the motion and against the 

movant Further, the papers supporting the movant are closely scrutinized, whereas the 

opponent’s are indulgently treated." Bohn Aluminum & Brass Corp, v. Storm King Corp,. 303 

F.2d 425, 427 (6th Cir. 1962) (citations omitted).

To determine if a summary judgment motion should be granted, the court should use the 

standard it would apply to a motion for a directed verdict under Rude 5C(a) of the Federal Rules 

of Civil Procedure. .Anderson. 477 U.S. at 250, 106 S. Ct. at 2511. The court must determine 

that a reasonable jury would be unable to return a verdict for the non-moving party in order to 

enter summary judgment. M-, 477 U.S. at 249, 106 S. Ct. at 2511. Thus, "[wjhere the record 

taken as a whole could not lead a rational trier of fact to find for the non-moving party, there 

is no ’genuine issue for trial.’" Street v. J.C. Bradford & Co.. 886 F.2d 1472, 1478 (6th Cir. 

1989) (citations omitted).

m . DISCUSSION

In construing the evidence in the light most favorable to the parties opposing each motion 

for summary judgment, as required under Bohn Aluminum & Brass Corp.. 303 F.2d at 427, the 

Court finds that no genuine issues of material fact exist with respect to the facial constitutionality 

of EPA’s regulations. The Court finds that genuine issues do exist with respect to the 

constitutionality of the application of the regulations in this matter.

A. Summary Judgment Motions

Eatherly and Safeco argue that the Court should grant their motions for summary 

judgment for several reasons. They assert that regulations 40 C.F.R. §§ 33.005 and 33.240 are

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facially unconstitutional based on the Supreme Court’s decision in Adarand Constructors. Inc.

v. Pena.  U .S . , 115 S.Ct. 2097 (1995). They assert that the EPA regulations cannot

survive the strict scrutiny analysis mandated by Adarand. because they establish a racial 

preference and set standards and goals that benefit individuals solely based on race. They assert 

that the regulations are not justifiable based on specific past discrimination, and create an 

arbitrary standard requiring Eatherly to award subcontracts to an undefined number of minority 

business without regard to their availability or qualification. They argue that EPA refused to 

certify Eatherly’s compliance despite Eatherly’s good faith efforts to comply. They argue that 

EPA’s regulations are unconstitutionally vague. Finally, they assert that the regulations are 

unconstitutional as applied. Based on these arguments, Safeco and Eatherly seek summary 

judgment.

EPA and the City of White House reject these arguments. They assert that the EPA 

regulations are facially constitutional and do not trigger strict scrutiny because they do not 

provide businesses controlled by women and minorities with any advantage in contract award 

decisions. They assert that the ability of Eatherly and other companies to successfully comply 

with these regulations indicates that the regulations are not unconstitutionally vague. 

Furthermore, they assert that neither Safeco nor Eatherly have standing to challenge the 

constitutionality of EPA’s regulations. Based on these arguments, EPA and the City seek 

summary judgment as to the facial constitutionality of EPA’s regulations. EPA and the City 

argue that the constitutionality of the manner in which EPA’s regulations were applied to 

Eatherly is a matter unfit for summary judgment.

The Court finds that both Safeco and Eatherly have standing to challenge the

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constitutionality of EPA’s regulations. Standing exists where a party satisfies both the 

requirements of Article HI and prudential limitations. In the current action Eatherly alleges an 

injury in fact based on its claim that it lost the contract because it failed to satisfy EPA’s 

unconstitutional requirements. Eatherly’s loss is traceable to EPA’s allegedly unconstitutional 

and/or unconstitutionally applied regulations. Furthermore, if the Court were to rule in 

Eatherly’s favor, Eatherly’s loss would arguably be redressed; if the Court finds that EPA has 

rtctsd unconstitu iicnally, Eatherly will not be liable for the difference in project costs. Due to 

the fact that Safeco, as Eatherly’s surety, stands in Eatherly’s shoes for the purposes of this 

action, the Court finds that both Eatherly and Safeco have standing to challenge the 

constitutionality of EPA’s regulations. See S.J. Groves and Sons. Co. v. Fulton County. 920 

F.2d 752, 759 (11th Cir. 1991) (finding that a prime contractor had standing to challenge an 

affirmative action program where the contractor was denied a contract because he allegedly 

failed to make good faith efforts to meet the program’s goals).

After reviewing the parties’ arguments, the Court concludes that EPA’s regulations are 

facially constitutional. EPA’s regulations do not trigger strict scrutiny analysis because they 

merely seek to ensure that minority firms are fairly notified of and considered for subcontracting 

opportunities. The regulations establish no set-asides, numerical goals, penalties, or financial 

incentives. EPA does not require that contractors award subcontracts to minority subcontractors. 

Rather, EPA requires them to make good faith efforts to take the affirmative steps listed in 40 

C.F.R. § 33.240.

Moreover, the Court finds that the regulations at issue are not unconstitutionally vague. 

The contract contains instructions for successful bidders outlining these parties’ affirmative

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outreach responsibilities. In addition, the "Notice to Bidders" indicates the steps that successful 

bidders should take to comply with 40 C.F.R. § 33.240.

For these reasons, the Court denies the motions for summary judgment by Safeco and 

Eatherly. The Court grants summary judgment in favor of EPA and the City with respect to the 

fecial constitutionality of EPA’s regulations. The Court concludes that genuine issues of 

material fact exist with respect to whether EPA’s regulations were constitutionally applied in the 

current matter and thus denies summary judgment with respect to this issue.

B. Motion to Reconsider

EPA and the City of White House argue that the Court should reverse its previous 

decision permitting Eatherly to intervene in this action. They argue that it is too late to add an 

additional party to this action, that Eatherly lacks standing to challenge the constitutionality of 

EPA’s regulations, and that permitting this intervention renders the case too confusing.

Safeco and Eatherly argue that the Court should deny the motion for reconsideration in 

order to ensure effective representation of Eatherly’s interests. They argue that intervention is 

appropriate under Rule 24, Fed. R. Civ. P., based on common issues of law and fact that unite 

the interests of Eatherly and Safeco.

The Court concludes that Eatherly’s intervention in this action will cause no undue 

prejudice or delay to EPA or the City. Accordingly, the Court affirms its prior decision 

permitting Eatherly to intervene and denies the motion to reconsider.

IV. CONCLUSION

For the aforementioned reasons, the Court DENIES Safeco’s Motion for Summary

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Judgment (Doc. No. 202). The Court GRANTS EPA’s Motion for Partial Summary Judgment 

(Doc. No. 232). The Court GRANTS the City of White House’s Motion for Summary 

Judgment (Doc. No. 247). The Court DENIES Eatherly’s Motion for Summary Judgment (Doc. 

No. 252). The Court GRANTS EPA’s Motion for Partial Summary Judgment (Doc. No. 257). 

Finally, the Court DENIES the motion by EPA and the City of White House for Reconsideration 

(Doc. No. 237).

An Order consistent with the foregoing reasoning will be entered contemporaneously with 

this Memorandum. -

Entered this the iff day of , 1996.

JOHN T. NIXON, CHIEF JUDGE 
UNITED STATES DISTRICT COURT

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