The Appeals Court noted that the District Court mistakenly determined that the challenged program was authorized by the Surface Transportation and Uniform Relocation Assistance Act of 1987 (STURAA).  However, the Court noted that the Subcontracting Compensation Clauses (SCC) program is authorized by 15 U.S.C. 644(g) or section 502 of the Act that required the setting of agency goals for the use of Disadvantaged Business Enterprises (DBE).  The Appeals Court further explained that, as an agency of the federal government, the Central Federal Lands Highway Division (CFLHD) was not itself subject to STURAA because STURAA’s goals applied to states’ receiving funds.  Specifically, the Appeals Court said

“The district court assumed, without explanation, that the case presented a challenge to the constitutionality of the DBE regulatory program promulgated under provisions of STAA and STURAA.  Id. At 242.  Its opinion did not address the standing issue urged upon us by the Government, and made no reference to the SCC program.  The existence of the Small Business Act and the Act’s mandate of agency goals for socially and economically disadvantaged small business participation were virtually ignored by the district court.  Rather, the district court concluded, erroneously, that CFLHD ‘was required by the federal regulations under which CFLHD operates’ to adopt STAA’s and STURAA’s 10% set-aside."

Although the Appeals Court disagreed with the method of the District Court, it agreed with the District Court’s conclusion.  In reviewing Croson, Fullilove, and Metro, the Appeals Court concluded

“The lesson that we glean from Fullilove and Croson is that the federal government, acting under congressional authority, can engage more freely in affirmative action than states and localities.  Ellis 961 F. 2d at 915-15.  The validity of that proposition was reaffirmed in Metro Broadcasting, Inc. v. FCC, 497 U.S. 547 . . . where the Court put to rest any lingering doubts about the continuing vitality of Fullilove:

Croson cannot be read to undermine our decision in Fullilove.  In fact, much of the language and reasoning in Croson reaffirmed the lesson of Fullilove that race-conscious classifications adopted by Congress to address racial and ethnic discrimination are subject to a different standard than such classifications prescribed by state and local governments.”  (Fullilove)