Opinion ID: 176919
Heading Depth: 1
Heading Rank: 1

Heading: Efficient procurement of goods and services, as measured by comparison to private market behavior

Text: The plaintiffs contend that the PSA does not meet the first Cardinal Towing prong both because it does not reflect the District's interest in efficient procurement of goods and services and because it is not comparable to private market behavior. In particular, they first contend that a state entity can have no interest in efficient procurement when it spends federal funds and that the Agreement as a whole simply pays off political supporters without actually providing the District with any benefits in terms of efficient procurement. Second, they contend that no private party would have entered into an agreement providing so few benefits and that no private party in the District's position could have lawfully entered into such an agreement. These contentions rely on too narrow an understanding of what counts as an interest in efficient procurement and of how similar a challenged state action must be to private market behavior to qualify as non-preempted market participation under Cardinal Towing's first prong. Even if the plaintiffs' contentions were true, they would not render the District's direct participation in the market essentially regulatory. Under a proper understanding of Cardinal Towing's first prong, we conclude that the PSA reflects the District's interest in the efficient procurement of goods and services, as measured by comparison to typical private market behavior. i. Efficient procurement At the outset, we reject the plaintiffs' suggestion that the PSA cannot reflect the District's interest in efficient procurement to the extent it applies to a construction project funded in part by federal monies. In support of this contention, the plaintiffs point to the Second Circuit's decision in Healthcare Association of New York State, Inc. v. Pataki, 471 F.3d 87 (2d Cir.2006), which held that a state regulation barring the use of state-appropriated funds to encourage or discourage union organizing was preempted to the extent it applied to federal funds that merely passed through the state. Id. at 90-91, 109. Contrary to the plaintiffs' reading, however, Pataki does not suggest that a state can never have a proprietary interest in the efficient procurement of goods and services when it uses federal money. Rather, Pataki holds that, although a state has a proprietary interest in sav[ing] money and getting what [it] paid for with its own funds, it does not have a similar interest in saving another government entity's money. Id. at 109. Here, the District does not claim a proprietary interest in getting what [it] paid for, but rather in completing construction projects without labor disruptions. We have no doubt that this is a legitimate interest in efficient procurement whether the state agency expends its own funds or funds that the federal government has given it. The plaintiffs further contend that the PSA does not advance an interest in efficient procurement because it presents several downside risks while offering no benefits in terms of costs, labor availability, or timeliness for the construction. Whether the PSA's benefits outweighed its costs, however, bears only on whether the District made a good business decision, not on whether it was pursuing regulatory, as opposed to proprietary, goals. We must keep in mind that congressional intent is the touchstone of our preemption analysis, Engine Mfrs., 498 F.3d at 1040, and we have no reason to think that Congress intended to allow beneficial state contracts while preempting similar contracts in which the state got a bad deal. Moreover, we have made clear that efficient procurement under Cardinal Towing's first prong does not necessarily mean cheap procurement, but rather procurement that serves the state's purposes. Engine Mfrs., 498 F.3d at 1046. Thus, in Engine Manufacturers, we upheld as lawful market participation a state rule requiring state and local government entities to ensure that any new street sweepers, garbage trucks, and other vehicles that they procured met specified emissions standards. Id. at 1035, 1048. Even though the state entity pursued environmental, as opposed to economic, goals through its participation in the market, the market participant doctrine still applied. Gould, however, necessarily places limits on what can qualify as an interest in efficient procurement under Cardinal Towing's first prong. Although efficient procurement means procurement that serves the state's purposes, id., pursuit of some purposes will make a state's participation in the market tantamount to regulation. Gould, 475 U.S. at 289, 106 S.Ct. 1057. In Gould, the state enacted a statute forbidding government procurement agencies from doing any business with labor law violators. Id. at 283-84, 106 S.Ct. 1057. Despite the state's assertion that it was acting as a market participant, the Supreme Court concluded that the law unambiguously acted as a supplemental sanction for violations of the NLRA, and was preempted. Id. at 288. Gould establishes that, where the state seeks to affect private parties' conduct unrelated to the performance of contractual obligations to the state, the state's direct participation in the market does not reflect its interest in efficient procurement of goods and services. See id. at 289, 106 S.Ct. 1057 (explaining that [i]t is the conduct being regulated ... that is the proper focus of concern (internal quotations and citation omitted)); see also Boston Harbor, 507 U.S. at 228-29, 113 S.Ct. 1190 (describing the statute in Gould as address[ing] employer conduct unrelated to the employer's performance of contractual obligations to the state); see also Bldg. and Constr. Trades Dep't, AFL-CIO v. Allbaugh, 295 F.3d 28, 36 (D.C.Cir.2002) (A condition that the Government imposes in awarding a contract or in funding a project is regulatory only when, as the Supreme Court explained in Boston Harbor, it `addresse[s] employer conduct unrelated to the employer's performance of contractual obligations to the [Government].' (alterations in original) (quoting Boston Harbor, 507 U.S. at 228-29, 113 S.Ct. 1190)). Unlike the regulation in Gould, nothing on the face of the PSA indicates that it serves purely regulatory purposes unrelated to the performance of contractual obligations to the state. The PSA does not reward or sanction private parties for their conduct in the private market, but rather addresses only how construction contractors and subcontractors will perform work on the District's projects. Plaintiffs contend that the PSA's primary purpose was to reward the unions that supported the Measure E campaign. Yet, the District intended for the PSA to serve legitimate proprietary goals, including containing costs, optimizing productivity, and boosting the economy. Private parties undertaking large construction projects commonly enter into pre-hire project labor agreements like the PSA challenged here. Whether or not plaintiffs are correct that the District had ulterior motives in adopting the PSA, we are quite certain that Congress did not intend for the NLRA's or ERISA's preemptive scope to turn on state officials' subjective reasons for adopting a regulation or agreement. Cf. N. Ill. Chapter of Associated Builders and Contractors, Inc. v. Lavin, 431 F.3d 1004, 1007 (7th Cir.2005) (Federal preemption doctrine evaluates what legislation does, not why legislators voted for it or what political coalition led to its enactment. (emphasis in original)). ii. Comparison to private market behavior The plaintiffs next contend that the PSA cannot satisfy Cardinal Towing's first prong because it is not sufficiently comparable to private market behavior. In particular, they contend that no private party would have entered into a project labor agreement providing so few benefits and that no private party in the District's position could have lawfully entered into such an agreement. However, even if true, those considerations would not preclude the PSA from being sufficiently analogous to private market behavior to satisfy Cardinal Towing's first prong. First, the plaintiffs' contention that no private party would have entered into a deal with so few benefits again reflects its misunderstanding that Congress intended to allow state market participation to escape preemption only where the state gets a good deal. As explained above, whether the PSA was a good deal for the District does not bear on whether the Agreement is regulatory or proprietary. Indeed, we cannot credibly ascribe to Congress an intent to use preemption to impose economic rationality on state contracting decisions. Second, the plaintiffs also miss the mark in contending that a private purchaser in the District's position could not have lawfully entered into the PSA because the NLRA bars such pre-hire agreements unless the contracting party is an employer engaged primarily in the building and construction industry, which a school district is not. [7] See 29 U.S.C. § 158(f). This provision of the NLRA does not mean that the District's entry into the PSA is not market participation; it simply means that the District can participate in the market in a way in which private parties cannot. The NLRA itself creates this disparity by explicitly excluding states and their political subdivisions from the NLRA's prohibitions. See id. § 152(2) (the term `employer'... shall not include ... any State or political subdivision thereof); § 158(a) (providing that [i]t shall be an unfair labor practice for an employer  to engage in certain enumerated actions (emphasis added)). Were we to hold, as the plaintiffs urge, that a state's direct participation in the market becomes regulation subject to preemption whenever a private party could not lawfully participate in the market in the same way, we would effectively subject state employers to the NLRA's proscriptions. This would conflict with the clear congressional intent to exempt state employers from the NLRA's reach. Contrary to the plaintiffs' suggestion, the Supreme Court's statement in Boston Harbor that Congress does not preempt state proprietary action where analogous private conduct would be permitted does not suggest otherwise. See Boston Harbor, 507 U.S. at 231-32, 113 S.Ct. 1190. In Boston Harbor, the Court upheld as lawful market participation a state agency's requirement that all contractors working on the cleanup of Boston Harbor agree to a project labor agreement that the agency's construction management company had negotiated with a labor union. Id. at 221-22, 232, 113 S.Ct. 1190. The agreement in Boston Harbor, unlike the PSA here, fell squarely within NLRA provisions exempting construction industry employers from the prohibition of pre-hire agreements because the state agency's project management company, rather than the agency itself, entered into the agreement with the union. Id. at 221-22, 113 S.Ct. 1190. But the Court in no way suggested that the fact that the project manager, rather than the agency, entered into the agreement was dispositive. To the contrary, the basis for the Court's holding was Congress's clear intent to accommodate conditions specific to [the construction] industry, including the short-term nature of employment that impeded post-hire collective bargaining and the contractor's need for predictable costs and a steady labor supply. Id. at 231, 113 S.Ct. 1190. In light of the general goals behind the passage of [these provisions], the Court concluded that Congress did not intend to preempt state entities from adopting such agreements for state construction projects, while allowing such agreements in the construction industry generally. Id. at 231-32, 113 S.Ct. 1190. Indeed, the identity of the parties who signed the project labor agreement in Boston Harbor only formally distinguishes that agreement from the PSA here. The agreements' practical effects are the same. Here, as in Boston Harbor, a pre-hire agreement binds all contractors and subcontractors working on covered projects. Moreover, the agency in Boston Harbor approved and adopted the labor agreement, which the project manager had entered into on [the agency's] behalf, and, like the District, required all bidders to submit to the agreement as a condition of accepting work on the project. Id. at 222, 113 S.Ct. 1190. Boston Harbor makes clear that congressional intent controls our preemption analysis, see id. at 224, 231, 113 S.Ct. 1190, and we find no indication in the NLRA that Congress intended to allow state entities to adopt project labor agreements only if they use a construction-industry middleman exempt from the NLRA's proscriptions. In sum, we hold that the District's PSA reflects its interest in the efficient procurement of goods and services, as measured by comparison to typical private market behavior. It therefore qualifies as market participation exempt from preemption under Cardinal Towing's first prong.