The United States Court of Appeals for the Eleventh Circuit ruled that a grant program -- which is available only to black females -- likely violates Section 1981, a civil war era civil rights act.  As a result, the court entered a preliminary injunction halting the selection of new grantees.  

What is this case about?

Fearless Fund is a venture capital company that sponsors grant contests available to black female entrepreneurs; by its terms, women of other races are not eligible. Grantees are awarded $20,000 in exchange for Fearless Fund’s right to disclose their business ideas and use their name, image, and likeness for promotional purposes. Although Fearless Funds originally labeled the contest rules “a contract,” after this suit was filed, it eliminated that reference from the posted rules.

American Alliance for Equal Rights, a non-profit organization focusing on combatting race discrimination, filed suit against Fearless Fund, alleging that its black-only grants violated Section 1981 because it explicitly excludes non-black candidates from consideration. The Alliance sought a preliminary injunction prohibiting Fearless Fund from selecting new grantees.

The suit was filed in the United States District Court for the Northern District of Georgia, and the district judge denied the request for a preliminary injunction on the ground that Fearless Fund’s program could potentially be speech protected by the First Amendment. The Alliance appealed.

The Court of Appeals’ decision

Section 1981 states that “[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . as is enjoyed by white citizens. 42 U.S.C. § 1981(a). This statute prohibits intentional discrimination in the making and enforcing of contracts, which includes discrimination against white individuals and retaliation.

The Alliance has standing

Fearless Fund challenged the Alliance’s standing – or ability to bring the lawsuit on behalf of its members. Similar lawsuits have recently been dismissed for an organization’s lack of standing. For example, Do No Harm’s lawsuit against Pfizer, Inc.’s diversity fellowship program was tossed out of court on the grounds that Do No Harm (another advocacy organization) did not identify a member harmed by the program and therefore lacked standing to proceed with the claim.

Here, however, the Alliance provided affidavits from several of its non-black female members, attesting:

• they would have applied for the grant but for the exclusionary eligibility criteria;
• how they met the other eligibility criteria; and
• how they would use the grant money if selected.

The dissenting opinion characterized these Alliance members as “floppers” – making an analogy to soccer players that fake injuries or fouls to manipulate referees. In response, the Court stated:

“Let us not forget:  We’re talking about real-live, flesh-and-blood individuals who were excluded from the opportunity to compete in Fearless’s contest solely on account of the color of their skin. Respectfully, victims of race discrimination – whether white, black, or brown – are not floppers.

(Emphasis in original).

The appellate court thus determined that the Alliance provided sufficient evidence to demonstrate it has standing to sue.

The grant contest is a contract

Fearless Fund argued that its grant program was not a “contract” subject to Section 1981. The Eleventh Circuit made short work of this argument, finding not only did Fearless Fund explicitly call it a contract prior to the suit being filed, but that it met all the hallmarks of a legal contract – agreement supported by consideration, mutual consent, and mutual obligation. 

The grant is not protected by the First Amendment

Fearless Fund contended that its grant program was a form of expressive conduct protected by the First Amendment. The Eleventh Circuit, however, noted that the Supreme Court has expressly held that the First Amendment does not protect the act of discriminating on the basis of race; while advocating for race discrimination may be protected speech, practicing race discrimination is not.

Preliminary injunction granted

Having found that the Alliance has standing, that the grant is a contract, and that the First Amendment does not protect actual discrimination, the Eleventh Circuit ruled that the Alliance was likely to succeed on the merits of its claim and granted the entry of a preliminary injunction preventing Fearless Fund from awarding additional grants.

What’s next?

This matter has been remanded to the district court for further proceedings, including a determination on whether a permanent injunction should be issued against Fearless Fund.

This has been a closely watched case due to the past dearth of challenges to these types of race-conscious programs. But as we have seen since the Supreme Court’s decision in Students for Fair Admissions, various interest groups are actively seeking to challenge initiatives and programs that potentially run afoul of the non-discriminatory provisions of Section 1981 and Title VII. (The introductory quote above by Chief Justice Roberts comes from that decision.) Companies and employers are well-advised to review all selection practices to determine whether risks exist.