Law Update

Federal Court Upholds Chicago in Dropping Minority Contractor

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A federal appeals court has ruled in favor of the Chicago school system in a dispute with a minority-owned company that held various contracts with the district between 1987 and 2003.

The company, RJB Properties Inc., based in Orland Park, Ill., was paid $18 million over seven years as a provider of milk to the city’s schools. As a minority-owned business, the company received preferential treatment in winning contracts under the 415,000-student district’s affirmative action policy.

But an investigation by the office of the district’s inspector general concluded in 2001 that the company did not actually produce or transport milk, but instead acted as a broker that used other suppliers to do so, according to court papers.

The inspector general’s report also suggested, but never definitively concluded, that RJB was involved in a pattern of suspicious activity, including overcharging the school district for milk, not disclosing pertinent information about its relationships with other businesses, and making fraudulent statements to the school district.

After the Chicago district spurned RJB’s proposals to provide janitorial services and milk in 2003 and 2005 and awarded those contracts to other companies, RJB sued, claiming that the district had violated the company’s equal-protection and procedural due-process rights. RJB maintained that the Chicago district had besmirched the company’s reputation, which prevented it from obtaining other business contracts.

In a Nov. 15 ruling, a unanimous three-judge panel of the U.S. Court of Appeals for the 7th Circuit, in Chicago, affirmed a lower court’s dismissal of the lawsuit.

Judge Joel M. Flaum wrote that although the school district later did business with other companies that its inspector general had criticized, “the [school] board had a rational reason to treat RJB differently. … Indeed the board rationally could have concluded that the [office of inspector general’s] unique (and more numerous) allegations against RJB made RJB more likely to engage in future misconduct and less likely to perform the janitorial contract to the board’s satisfaction.”

In addition, the district’s “rational suspicions” that RJB overcharged it for milk were enough to justify the board’s decision not to do business with it, Judge Flaum said.

A spokesman for RJB Properties referred a call to a company official who was not immediately available for comment. In court papers, the company maintained that it had never overcharged for milk, refused to turn over documents, or acted as a minority pass-through company.

Vol. 26, Issue 14, Page 14

Published in Print: December 6, 2006, as Federal Court Upholds Chicago in Dropping Minority Contractor
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