In the aftermath of the decision issued in July by the U.S. District Court for the Eastern District of Tennessee in Ultima Servs. Corp. v. U.S. Dep't of Agric., the Small Business Administration (SBA) has halted all pending 8(a) applications, and has further advised existing 8(a) companies that if they previously relied on the rebuttable presumption of social disadvantage, they must now submit social disadvantage narratives in order to confirm continuing eligibility.
As is always the case with a nationwide injunction issued by a District Court, there is some uncertainty as to whether the decision will be overturned on appeal. While we cannot be sure what will happen, we think it is unlikely an appeal will be successful.
First, the appeal will be heard by the Sixth Circuit Court of Appeals, and the District Court’s Ultima decision relies heavily on a similar case recently decided by that court. That case involved race-based preferences used to determine how COVID relief funds would be issued to businesses. That program was struck down on the same grounds used by the District Court in Ultima. If the Sixth Circuit faithfully applies this precedent, a similar outcome in Ultima is likely.
Next, even if the case reaches the Supreme Court, the District Court relied on the recent Students for Fair Admissions cases decided by the Supreme Court earlier this year, addressing affirmative action programs. Those cases held that if there is no “logical end point” to a race-based government program, it is not “narrowly tailored” enough to pass what’s called a strict scrutiny test. The Ultima court found that like the affirmative action programs struck down in Students for Fair Admissions, the use of the rebuttable presumption in the 8(a) Program does not have a stated end point or a built-in metric by which the SBA could determine if and when any part of it is no longer needed.
Finally, even if there is eventually a successful challenge on the merits of the Ultima decision, based on the precedent discussed above, it is unlikely that the injunction will be stayed until that time. Rather, it is more likely that it will remain in effect, and 8(a) participants should consider the impact of the Ultima decision on its operations going forward.
Joseph P. Kirkwood is a member of the Firm’s corporate transactional and government contracting practice groups.
Hannah Supernor is a member of the Firm’s litigation practice group.
To speak with an attorney from NOVA Business Law Group, LLC, contact us at 703-766-8081.