The 11th Circuit Court of Appeals issued an injunction to prevent a tax-exempt organization’s grant program from issuing grants to Black women entrepreneurs on the basis that it may be found to violate anti-discrimination laws; the question on everyone’s mind is how did we get here?
Background.
The June 2023 Supreme Court ruling overturning affirmative action in college and university admissions programs has sent shockwaves through the higher education and the nonprofit sectors. The ruling upended decades of legal precedent and carefully crafted admissions policies based on those legal precedents. Not only have many colleges and universities been busy reworking their applications, recruitment and admissions policies over the summer, but many in the nonprofit sector that have scholarship programs have been on edge as well, sorting through guidance from the Department of Education to determine the ruling’s applicability to their programs and policies. Ostensibly the Supreme Court’s ruling only applies to race-based preferences made in college and university admissions that receive federal funding, and Department of Education guidance emphasizes that limitation. However, a push has been made by conservative activists on multiple fronts to see how far the ruling can be stretched.
In July, some thirteen conservative state attorneys general penned a letter cautioning the CEOs of the 100 biggest U.S. companies that diversity, equity and inclusion (DEI) programs could be a form of discrimination under the Supreme Court’s ruling. The letter declared “Treating people differently because of the color of their skin, even for benign purposes is unlawful and wrong.” Importantly, the letter latches on to language in the opinion that asserts any racial preference necessarily imposes an equivalent harm on individuals outside of the preferred racial group, “every racial classification helps, in a narrow sense, some races and hurts others.” Further, the letter argues that these principles apply equally to Title VII and other federal and state discrimination laws. The letter concludes by urging CEOs to immediately cease any and all race-based preferences in employment and contracting practices. Clearly these attorneys general feel that the Supreme Court’s ruling has consequences and application outside of higher education. Legal experts, however, assert that conflating affirmative action in education admissions with DEI more broadly in business is just a deliberate attempt “to muddy the waters.”
The 11th Circuit Wades Into The Mud.
Fearless Fund operates a grant program called the Fearless Strivers Grant Contest, which issues $20,000 grants four times a year to businesses owned at least 51% by Black women entrepreneurs. The Fund has the mission of addressing the “unacceptable disparities that exist for Black women and other women of color in the venture capital space.” Black women received less than 1% of the $288 billion in venture capital funding in 2022. This grant program is what we in the exempt organization world would call a no-brainer as far as exempt purposes go.
The American Alliance for Equal Rights, led by conservative anti-affirmative action activist Edward Blum (who also formed Students for Fair Admissions which filed the Supreme Court cases that overturned affirmative action in June) sued Fearless Fund on behalf of white and Asian women entrepreneurs who are ineligible for the grants. The suit is based on the claim that the grant program discriminated on the basis of race in violation of the Civil Rights Act of 1866, which prohibits racial discrimination in contracts. Widely viewed as a test case to push the boundaries and see how far the Supreme Court’s ruling in the affirmative action cases can be expanded, this case wasn’t expected to go very far. This is especially true given that the law the suit is based on was enacted to ensure Black formerly enslaved people would have the same rights to enforce contracts after the Civil War as whites. Thus, the law, just like the grant program it is being used to invalidate, has the purpose of remedying discrimination and leveling the playing field for Black businesses.
Despite this contradiction, the 11th Circuit Court of Appeals voted 2 to 1 on appeal to grant the injunction to prevent the grant program from closing its application window and granting funds on the basis that there is a “substantial likelihood of success on the merits” of the case. In plain terms this means that the majority of the 11th Circuit believes that the program will ultimately be found to impermissibly discriminate on the basis of race due to its “racially exclusionary” policies. Judge Charles R. Wilson, the lone dissenter on the case, disagreed with the majority, stating that “It is a perversion of Congressional intent to use anti-discrimination laws against a remedial program whose purpose is to ‘bridge the gap in venture capital funding for women of color founders’ – a gap that is the result of centuries of intentional racial discrimination.”
Implications.
As of now the only certainties are that the 11th Circuit’s injunction against Fearless Fund will be appealed and that these conservative activists will continue to file suits. (To read about their latest suits challenging DEI scholarship programs at some of the biggest law firms in the country click here.) For now, we urge those operating in the tax-exempt organization grant and scholarship space to keep calm and carry on, keeping in mind that the Supreme Court’s affirmative action ruling is limited to the higher education admissions context. But given the conservative majority on the Supreme Court and the number of cases being filed, it’s probably not a bad idea to have a pair of boots on hand, as things might get muddier.
To read the 11th Circuit’s ruling and Judge Wilson’s dissent click here.
For Department of Education Guidance on the Supreme Court rulings click here and here.