Contractor’s Race-Bias Claims Face Fourth Trial

(CN) - A minority-owned contractor booted from a large public housing project in Virginia has standing to bring racial discrimination and retaliation claims, the 4th Circuit ruled.

Carnell Construction Co. is certified in Virginia as a "small, women- and minority-owned business" since its president and sole shareholder, Michael Scales, is black. In March 2008, the Danville Redevelopment and Housing Authority selected Carnell as the lowest bidder on site-preparation work for a planned low-income housing project.

The project was funded in part through a $20 million federal grant that allowed for public investors to contribute capital to public housing projects in exchange for tax credits. The housing authority then leased the project site and assigned its interest in the contract to Blaine Square LLC for those tax considerations.

Carnell began the work on the project in June 2008, but neither Carnell nor the Housing Authority were satisfied with the other's performance.

After mediation failed, the housing authority told Carnell to remove its people and equipment from the project site. Carnell complied and sought reimbursement for unpaid work.

This dispute led to three trials revolving around various racial discrimination and breach of contract claims. After the first trial, a jury award Carnell more than $3.1 million in damages on the company's race discrimination claims, but U.S. District Judge Glen Conrad later ordered a new trial after finding that some of the testimony offered on Carnell's behalf was false.

Judge Conrad then granted Blaine summary judgment before the second trial, saying there was no evidence it participated in such conduct or controlled those who allegedly did.

A jury was unable to agree as to the remaining claims, however, leading to a mistrial.

Carnell prevailed on its breach of contract claims at the third trial, but the jury found its racial discrimination claims failed. Citing the Virginia Public Procurement Act, Judge Conrad then shrank the $915,000 award to Carnell on the contract claims after finding that it failed to plead special contract damages.

A divided three-judge panel of the 4th Circuit ordered yet another new trial Thursday, finding that the last trial improperly let defense counsel impeach certain evidence.

Carnell had received a memo from the McGuireWoods law firm on how it should frame its racial discrimination claim, but the Richmond, Va.-based appeals court said the memo should have been excluded as unfairly prejudicial.

Though the trial court properly reduced the damages to Carnell on its contract claims, the strict notice requirements of the Virginia Public Procurement Act required the court to narrow further the scope of recoverable contract damages, according to the ruling.

Carnell's case marked the first published opinion in which the 4th Circuit addressed corporate standing in racial discrimination cases.

Sister circuits that have considered this question have nevertheless concluded that corporations do have standing to assert race discrimination claims, including claims brought under Title VI.

"Examining the present record, we conclude that Carnell has standing to bring its race discrimination claims under Title VI," Keenan wrote. "It is undisputed that Carnell properly was certified by the commonwealth of Virginia as a 'small, women- and minority-owned business' because its president and sole shareholder is American-American. Carnell publicly represented that it was eligible for consideration as a minority business enterprise when it contracted to work for the Housing Authority on a public project receiving federal funding assistance. Carnell alleged that the defendants discriminated against Carnell during its performance on the contract based on the minority status of its owner, and that Carnell suffered direct injury as a result of that racial discrimination."

Though the majority affirmed summary judgment for Blaine, Judge Henry Floyd wrote in dissent that Blaine could be liable.

He highlighted Gary Wasson's roles as executive director of the housing authority, president of the Danville Housing Corp. and managing member of Blaine.

As a result, Wasson, "is both puppet and puppeteer of the funding operation for the project," Floyd wrote.

Because Carnell has accused Wasson of carrying out at least some of the discriminatory behavior, his employer could be liable for his alleged actions even if it did not engage in them itself, the dissent states.

The majority meanwhile had relied on trial testimony that depicted Blaine as merely a passive entity who ensured the writing of checks to the housing authority for the purpose of paying the project's contractors.

The plain language of the Development Services Agreement attached to the project also granted the housing authority sole responsibility for managing it, according to the ruling.

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