Allied Construction Industries v. City of Cincinnati , 879 F.3d 215 ( 2018 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 18a0004p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
ALLIED CONSTRUCTION INDUSTRIES, ┐
Plaintiff-Appellee, │
│
> Nos. 16-4248/4249
v. │
│
│
CITY OF CINCINNATI, │
Defendant-Appellant (16-4248), │
│
LABORERS INTERNATIONAL UNION OF NORTH │
AMERICA, LOCAL 265, │
│
Intervenor-Appellant (16-4249).
│
┘
Appeal from the United States District Court
for the Southern District of Ohio at Cincinnati.
No. 1:14-cv-00450—Michael R. Barrett, District Judge.
Argued: October 11, 2017
Decided and Filed: January 4, 2018
Before: BOGGS, BATCHELDER, and KETHLEDGE, Circuit Judges.
_________________
COUNSEL
ARGUED: Terrance A. Nestor, CITY OF CINCINNATI, Cincinnati, Ohio, for Appellant in 16-
4248. David M. Cook, COOK & LOGOTHETIS, LLC, Cincinnati, Ohio, for Appellant in 16-
4249. Kevin R. McDermott, BARNES & THORNBURG LLP, Columbus, Ohio, for Appellee.
ON BRIEF: Terrance A. Nestor, Scott Crowley, CITY OF CINCINNATI, Cincinnati, Ohio, for
Appellant in 16-4248. David M. Cook, COOK & LOGOTHETIS, LLC, Cincinnati, Ohio,
Sharon Seidenstein, Jolene Kramer, WEINBERG, ROGER & ROSENFELD, PC, Alameda,
California, James Ray, LAW OFFICES OF JAMES RAY, Alexandria, Virginia, for Appellant in
16-4249. Kevin R. McDermott, BARNES & THORNBURG LLP, Columbus, Ohio, for
Appellee.
Nos. 16-4248/4249 Allied Constr. Indus. v. City of Cincinnati, et al. Page 2
_________________
OPINION
_________________
BOGGS, Circuit Judge. The City of Cincinnati (“City”) and Laborers International
Union of North America, Local 265 (“the Union”) appeal the district court’s grant of summary
judgment to Allied Construction Industries (“Allied Construction”), and the denial of the City’s
and the Union’s motions for summary judgment. The district court held that three City
ordinance provisions (“the Ordinance”) concerning bidder specifications for certain City projects
were preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”). We hold
that the City was acting as a market participant in enacting the Ordinance, and therefore these
provisions are not preempted by ERISA. Accordingly, we reverse.
I
A. Factual Background
On June 26, 2012, Cincinnati enacted Ordinance No. 282-2012, which codified Chapter
320 of the Municipal Code to provide guidelines for selecting the “lowest and best bidder” on
certain projects of the “Department of Sewers.” Cincinnati, OH., Ordinance No. 282-2012 (June
26, 2012). The Ordinance’s preamble noted that it was enacted, in part, to “ensure efficient use
of taxpayer dollars, minimize waste, and promote worker safety and fair treatment of workers.”
Id. On May 1, 2013, the City enacted Ordinance No. 114-2013, amending the Ordinance to
include bids for “Greater Cincinnati Water Works and the stormwater management utility
division.” Cincinnati, OH., Ordinance No. 114-2013 (May 1, 2013). The City stated that it
sought to employ skilled contractors that were committed to the City’s “safety, quality, time, and
budgetary concerns.” Id. Allied Construction alleges that three provisions in the Ordinance are
preempted by ERISA.
First, § 320-3 lists fifteen factors to be considered in selecting the lowest and best bidder,
two of which are at issue here. Section 320-3(j) requires the bidder to certify whether:
it provides, or contributes to, a health care plan for those employees working on
the project and shall provide a copy of the health plan upon request. The
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contributions toward a health care plan must be part of the employee’s regular
compensation, and not merely part of the employee’s compensation during the
period of time for which the employee is performing work on the project.
Cincinnati, OH., Code § 320-3(j) (2013).
Section 320-3(k) requires the bidder to certify whether:
it contributes to an employee pension or retirement program, including, but not
limited to, a 401K, a defined benefit plan, or similar plan, for its field employees
working on the project and shall provide a copy of the plan upon request. The
contributions toward a pension or retirement program must be a part of the
employee’s regular compensation, and not merely part of the employee’s
compensation during the period of time for which the employee is performing
work on the project.
Id. § 320-3(k).
Second, § 320-5 imposes an apprenticeship standard, requiring each bidder to certify that
“[f]or the duration of the project, the bidder will maintain or participate in an apprenticeship
program for the primary apprenticeable occupation on the project,” and that that apprenticeship
program must have graduated at least one apprentice for each of the past five years. Id. § 320-5.
The preamble to the amended Ordinance notes that the apprenticeship standard serves to remedy
a “projected shortfall of trained workers for work to be performed on behalf of [the City] . . .
between 2014 and 2020.” Cincinnati, OH., Ordinance No. 114-2013 (May 1, 2013). Allied
Construction asserts that the only apprenticeship program that meets the Ordinance’s
apprenticeship requirement is the Union’s apprenticeship program, which is not available to non-
Union contractors. As a result, Allied Construction argues that non-Union contractors cannot
feasibly satisfy the Ordinance’s bidding requirements.
Third, § 320-7 requires the winning contractor to pay $.10 per hour per worker into a pre-
apprenticeship training fund, managed by the City. Cincinnati, OH., Code § 320-7 (2013).
These payments “shall not be taken from the fringe benefits of the contractor’s employees.” Id.
B. Procedural Background
On May 30, 2014, Allied Construction filed suit against the City on behalf of its non-
Union members who were not selected as the winning bidder on certain City projects, and sought
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a temporary restraining order and an injunction halting the use of the Ordinance in selecting
bidders. The Union was granted leave to intervene on behalf of the City. After discovery, Allied
Construction, the Union, and the City each moved for summary judgment. The district court
granted Allied Construction’s motion for summary judgment, denying both the Union’s and the
City’s motions. The district court held that the City was not acting as a market participant when
it enacted the Ordinance, and that ERISA preempted the disputed provisions of the Ordinance.
The Union and the City appeal.
II
We review de novo the district court’s rulings on summary-judgment motions, drawing
our own “inferences and legal conclusions from the record.” Smith v. Wal-Mart Stores, Inc.,
167 F.3d 286, 289 (6th Cir. 1999). Summary judgment is appropriate if the record shows that
“there is no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a).
Under its preemption provision, ERISA supersedes “any and all State laws insofar as they
may now or hereafter relate to any employee benefit plan . . . .” 29 U.S.C. § 1144(a) (2012).
Under ERISA, the term “State law” “includes all laws, decisions, rules, regulations, or other
State action having the effect of law, of any State.” Id. § 1144(c)(1). The term “State” includes
“any political subdivisions thereof, or any agency or instrumentality of either, which purports to
regulate, directly or indirectly, the terms and conditions of employee benefit plans covered by
this subchapter.” Id. § 1144(c)(2). Allied Construction argues that assessing whether contractors
provide health-care and retirement benefits to their employees, and requiring contractors to
participate in an apprenticeship program, relate to ERISA’s employee-benefit plans.
The City and the Union argue that the Ordinance cannot be preempted by ERISA because
the City was acting as a market participant, rather than as a regulator, by codifying in the
Ordinance its preferences for bidders. While the Sixth Circuit has yet to explicitly apply the
market-participant doctrine to ERISA preemption, other circuits have done so. Moreover, the
Sixth Circuit has applied the market-participant doctrine in cases involving National Labor
Relations Act preemption, 29 U.S.C. §§ 151–169 (2012) (“NLRA”), and Federal Aviation
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Administration Authorization Act preemption, 49 U.S.C. § 14501 (2012) (“FAAAA”). Because
the rationale of the market-participant doctrine applies with equal force to ERISA as it does to
the NLRA and the FAAAA, we now hold that the market-participant doctrine applies to ERISA.
We also join the Ninth Circuit in using the Fifth Circuit’s Cardinal Towing framework to assess
whether a municipality was acting as a market participant in enacting an ordinance.
A. Applying the Market-Participant Doctrine to ERISA
In Bldg. & Constr. Trades Council of the Metro. Dist. v. Associated Builders
& Contractors of Mass./R.I., Inc., 507 U.S. 218 (1993) (“Boston Harbor”), the Supreme Court
analyzed whether a state agency’s bidding specifications for selecting contractors for the state-
funded clean-up of the Boston Harbor was subject to either Garmon1 or Machinists2 preemption
under the NLRA. The bidding specification required the winning bidder to abide by the terms of
a labor agreement reached between a state agency and a construction-management company. Id.
at 221–22. The Court held that the bidding specification was not preempted by the NLRA
because the state acted as a proprietor rather than a regulator in imposing the requirement. Id. at
227. The Court explained that “[w]hen a State owns and manages property . . . it must interact
with private participants in the marketplace. In so doing, the State is not subject to pre-emption
by the NLRA, because pre-emption doctrines apply only to state regulation.” Ibid.
A government entity acts as a regulator when “it performs a role that is characteristically a
governmental rather than a private role . . . .” Id. at 229. Thus, because “a private purchaser
may choose a contractor based upon that contractor’s willingness to enter into a prehire
agreement, a public entity as purchaser should be permitted to do the same.” Id. at 231. The
Court emphasized that the contractors who did not wish to entertain a state’s demands have a
choice to either “alter their usual mode of operation to secure the business opportunity at hand,
or seek business from purchasers whose perceived needs [do not include those requirements].”
1
San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236, 244 (1959) (forbidding state and local
regulation of activities that are protected by § 7 of the NLRA or constitute an unfair labor practice under § 8).
2
Machinists v. Wis. Emp’t Relations Comm’n, 427 U.S. 132, 147 (1976) (prohibiting state and municipal
regulation of areas “left ‘to be controlled by the free play of economic force’”).
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Id. Just as a private purchaser can seek certain concessions from a contractor, so too can a state
or municipality.
Here, the City argues that the market-participant doctrine outlined in Boston Harbor
should be applied to ERISA. The Ninth Circuit has applied the market-participant doctrine to
ERISA, and the Third Circuit has suggested that the doctrine applies, though it has not explicitly
held so. See Johnson v. Rancho Santiago Cmty. Coll. Dist., 623 F.3d 1011, 1023–24 (9th Cir.
2010); Associated Builders & Contractors Inc. N.J. Chapter v. City of Jersey City, 836 F.3d 412,
417 (3d Cir. 2016) (noting that the court “assume[s]” that the market-participant doctrine applies
to ERISA).
While the Sixth Circuit has applied Boston Harbor’s market-participant doctrine in
preemption cases involving the NLRA, see Mich. Bldg. & Constr. Trades Council v. Snyder,
729 F.3d 572, 579 (6th Cir. 2013), and the FAAAA, see Petrey v. City of Toledo, 246 F.3d 548,
555 (6th Cir. 2001), abrogated on other grounds by City of Columbus v. Ours Garage
& Wrecker Serv., Inc., 536 U.S. 424 (2002), we have not yet considered whether the market-
participant doctrine applies to ERISA preemption.
We do so now. Where a state or municipality acts as a proprietor rather than a regulator,
it is not subject to ERISA preemption. See Petrey, 246 F.3d at 555 (noting that other courts have
applied the market-participant doctrine to ERISA cases and finding “no good reason” to limit its
application). We next turn to the question of assessing whether particular municipal conduct
qualifies as market participation.
B. The Cardinal Towing Framework
In order to qualify under the market-participant doctrine, the challenged municipal
conduct must be proprietary, rather than regulatory. To be sure, “the line between regulatory and
proprietary conduct has soft edges.” Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 133 S. Ct.
2096, 2103 (2013). In Cardinal Towing & Auto Repair, Inc. v. City of Bedford, 180 F.3d 686
(5th Cir. 1999), the Fifth Circuit created a two-step framework to assess whether a municipality’s
conduct qualified as market participation, in the context of FAAAA preemption.
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First, does the challenged action essentially reflect the entity’s own interest in its
efficient procurement of needed goods and services, as measured by comparison
with the typical behavior of private parties in similar circumstances? Second,
does the narrow scope of the challenged action defeat an inference that its primary
goal was to encourage a general policy rather than address a specific proprietary
problem?
Id. at 693.
In Cardinal Towing, the city of Bedford, Texas solicited bids from towing companies to
be the exclusive provider of all towing requests made by the local police. Id. at 689. The city
required each bidder to guarantee a towing response time of fifteen minutes and have access to a
particular type of towing vehicle. Ibid. The Fifth Circuit concluded that the towing-contract
specifications “had an obvious connection to the City’s narrow proprietary interest in its own
efficient procurement of services,” and thus were not subject to preemption. Id. at 693. The bid
specifications “looked only to the bidder’s dealings with the City,” and did not specify that the
tow companies provide a certain type of towing vehicle for non-city tows. Id. at 694. There was
“no indication that [the city] was trying to generally encourage the possession of [a certain type
of towing vehicle].” Id. at 693.
The Ninth Circuit has adopted the two-step Cardinal Towing framework, see Johnson,
623 F.3d at 1023–24 (9th Cir. 2010), and the Second and Third Circuits have cited Cardinal
Towing to describe their own market-participant analysis. See e.g., Bldg. Industry Elec.
Contractors Ass’n v. City of New York, 678 F.3d 184, 189–90 (2d Cir. 2012); Hotel Emps. &
Rest. Emps. Union, Local 57 v. Sage Hosp. Resources, LLC, 390 F.3d 206, 215–16 (3d Cir.
2004). The Fifth Circuit did not indicate whether it would use Cardinal Towing’s framework
disjunctively or conjunctively. The Ninth Circuit has applied Cardinal Towing’s two steps
disjunctively, as two alternate methods, either of which is sufficient to demonstrate non-
regulatory market participation. Johnson, 623 F.3d at 1024; but see Sage Hosp., 390 F.3d at 216
(suggesting that the municipality must satisfy both steps of Cardinal Towing in order to be
proprietary, in a Third Circuit opinion).
While we have not previously expressly adopted Cardinal Towing’s framework, we have
cited it with approval in Petrey, 246 F.3d at 556–58. We now adopt Cardinal Towing’s two-step
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market-participant framework, and join the Ninth Circuit in treating its two parts disjunctively.
Thus, if, at step one, the Ordinance essentially reflects the City’s own interest in the efficient
procurement of goods and services, as compared to the typical behavior of private parties, we
infer that the conduct was proprietary rather than regulatory, and qualifies for the market-
participant doctrine. If, instead, the challenged conduct does not essentially reflect the City’s
own interest in efficient procurement, we would move to step two and consider whether the
Ordinance’s narrow scope nonetheless defeats the inference that the conduct was regulatory.
C. Applying Cardinal Towing to the Ordinance
1. Step One of Cardinal Towing
Next, we turn to applying the Cardinal Towing framework to the Ordinance. The first
step of Cardinal Towing asks whether the challenged action reflects the City’s own interest in its
efficient procurement of goods and services, as measured by comparison with the typical
behavior of private parties in similar circumstances. However, as other circuits have recognized,
the goal of “efficient procurement” does not restrict a state or municipality to selecting the
cheapest possible bidder. To the contrary, “just as private entities serve their purposes by taking
into account factors other than price in their procurement decision,” so too can a municipality.
Engine Mfrs. Ass’n v. S. Coast Air Quality Mgmt. Dist., 498 F.3d 1031, 1046 (9th Cir. 2007).
Here, the Ordinance imposes requirements for bidders on certain City projects. Section
320-3(j)–(k) requires bidders to certify whether they contribute to their employees’ health care
and retirement funds, and §§ 320-5 and 320-7 require each bidder to participate in an eligible
apprenticeship program and to contribute to a pre-apprenticeship training fund. The City
submitted evidence that many private parties utilize criteria similar to those that the City used in
the Ordinance. For instance, some private owners impose project standards by contracting with
companies under union agreements, requiring certain standards for labor safety, training, and
wages. In his report submitted in this case, Dr. Dale Belman, a professor at Michigan State
University, explained,
[p]rivate sector owners who undertake construction projects for their own use are
concerned with factors beyond the bid price for a project. This reflects a purpose
of minimizing the long term costs of a construction project where quality,
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timeliness, safety and predictability are as important as bid price in determining
the capital and operating costs of a construction project. In adopting the
ordinance, the [City] acted in a manner similar to other large owners who are
building for their own purposes.
Specifically as to the City’s preference to hire contractors who provide health care and
retirement benefits, embodied in § 320-3(j)–(k), a municipality might reasonably conclude that a
contractor who provides these benefits is less likely to experience significant employee turnover,
improving the stability and overall quality of a project. This is consistent with the City’s stated
goal to find contractors who are committed to the City’s “safety, quality, time, and budgetary
concerns.” Cincinnati, OH., Ordinance No. 114-2013 (May 1, 2013). Moreover, the
apprenticeship requirements in §§ 320-5 and 320-7 are connected to the City’s reasonable
concern over a possible shortfall of trained workers who would be available for City projects in
the future. See id. (noting that “there is a projected shortfall of trained workers for work to be
performed on behalf of [the City] between 2014 and 2020”). The City has a strong proprietary
interest in developing a skilled workforce for its many future projects.
Allied Construction argues that the effect of the Ordinance is to “rig” the bidding system
against non-union contractors. Perhaps this is so. But, “[t]hat a state or local governmental
entity may have policy goals that it seeks to further through its participation in the market does
not preclude the [market-participant] doctrine’s application, so long as the action in question is
the state’s own market participation.” Engine Mfrs. Ass’n, 498 F.3d at 1046.
For instance, in Boston Harbor, the Court held that a bidding specification that required
the winning contractor to abide by a labor agreement that included “union recognition,
compulsory union dues or equivalents, and mandatory use of union hiring halls, prior to the
hiring of any employees” was not preempted by the NLRA because the state agency was acting
as a market participant. Boston Harbor, 507 U.S. at 230. While requiring bidders to abide by a
labor agreement clearly discouraged non-union contractors and may not have resulted in the
cheapest possible project price, the state’s conduct was shielded from preemption under the
market-participant doctrine. The Court noted that the bidding specifications provided contractors
who were normally opposed to labor agreements with the same choice they would have had if
dealing with a private purchaser: “[t]hey may alter their usual mode of operation to secure the
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business opportunity at hand, or seek business from purchasers whose perceived needs do not
include a project labor agreement.” Id. at 231.
Allied Construction acknowledges that the City, as a contracting entity, “may negotiate
any contractual terms it wishes, through a [project labor agreement], with any contractor it
wishes.” Yet Allied Construction argues that the inclusion of these project demands in a bidding
ordinance, rather than through individual piecemeal agreements, transforms the action from
proprietary to regulatory.
For the purposes of the market-participant doctrine, this is a distinction without a
difference. See Snyder, 729 F.3d at 578 (rejecting a similar argument and noting that a state, as a
proprietor, is not limited to acting on a case-by-case basis). Regardless of whether the
preference is embodied in a bidding ordinance or an after-bid agreement, the City is acting as
would a private party by seeking a contractor that meets certain specifications, aimed towards the
efficient procurement of its own goods and services.3 Just as in Boston Harbor, contractors
opposed to these Ordinance specifications have a choice: they may alter their usual mode of
operation or seek business elsewhere by declining to bid on these particular City projects.
This does not foreclose the possibility that some forms of municipal conduct could be
considered regulatory, rather than proprietary, even when the municipality has entered the
marketplace. However, as long as the state or municipality’s bidding requirements can
reasonably be said to reflect its interests in efficient procurement, as measured by comparison to
the actions of private parties, the first step of Cardinal Towing is satisfied.
Here, the benefit-certification requirements in § 320-3(j)–(k) and the apprenticeship
requirements in §§ 320-5 and 320-7 reflect the City’s interests in the efficient procurement of
goods and services. Thus, the City satisfied the first part of Cardinal Towing, and therefore, the
City was acting as a market participant in enacting the Ordinance. As a result, the Ordinance is
not subject to ERISA preemption.
3
In Merit Constr. All. v. City of Quincy, 759 F.3d 122, 131 (1st Cir. 2014), the First Circuit considered a
similar ordinance, which required that bidders on city projects participate in an apprentice-training program.
However, the parties failed to raise the market-participant doctrine argument in their summary-judgment motions, so
the court declined to analyze the issue.
Nos. 16-4248/4249 Allied Constr. Indus. v. City of Cincinnati, et al. Page 11
2. Step Two of Cardinal Towing
Because the Ordinance reflected the City’s interests in the efficient procurement of goods
and services in step one of Cardinal Towing, we infer that the Ordinance is primarily proprietary.
Thus, the second step of Cardinal Towing—which asks whether, in any event, the scope of the
Ordinance is sufficiently narrow to defeat the inference that the Ordinance is regulatory—is not
triggered. However, for the sake of clarifying our newly adopted framework, we will briefly
explain the step-two analysis, had the Ordinance failed step one of Cardinal Towing.
To be sure, the Ordinance’s scope is broader than the ordinance at issue in Cardinal
Towing, where the city merely required that a certain type of tow truck be available for city jobs,
without regard for what type of tow truck the company used on non-city jobs. Cardinal Towing,
180 F.3d at 689. Here, the Ordinance considers whether bidders provide health-care and pension
contributions as “part of the employee’s regular compensation, and not merely part of the
employee’s compensation during the period of time for which the employee is performing work
on the project,” as factors in selecting the winning bidder. See Cincinnati, OH., Code § 320-
3(j)–(k) (2013). Thus, the Ordinance assesses bidders partially based on their compensation
practices on non-City projects. Of course, the Ordinance only imposes this consideration on a
select group of contractors: those contractors that affirmatively choose to bid on City projects.
One district court that has considered this issue has held that the mere fact that the municipal
ordinance applies only to contractors who affirmatively choose to bid on city projects dictates
that the ordinance is “sufficiently tailored” to the municipality’s proprietary interests. See
Associated Builders & Contractors, Inc. v. New Castle County, 144 F. Supp. 3d 633, 639
(D. Del. 2015) (holding that an ordinance requiring bidders on county projects to participate in
an apprenticeship program was “sufficiently tailored” to the county’s proprietary interest because
it only applied to bidders on the county’s projects). As discussed above, we decline to resolve
the narrow-tailoring inquiry at step two because step one of Cardinal Towing established that the
City was acting as a proprietor, rather than a regulator.
The City was acting as a market participant in enacting the Ordinance, and thus, the
Ordinance is not subject to ERISA preemption.
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IV
For the foregoing reasons, we REVERSE the district court’s grant of summary judgment
for Allied Construction, and direct the district court to enter judgment in favor of the City of
Cincinnati.