Published: Tuesday, June 4, 2024
NEW YORK – A U.S. Federal Court of Appeals panel has suspended a grant program offered by a venture capital company to Black women entrepreneurs, ruling that a conservative organization is likely going to win its lawsuit claiming the program was discriminatory.
The decision against Atlanta’s Fearless Fund represents another victory for conservative organizations in their long-running legal fight against corporate diversity programs, which has targeted dozens companies and government agencies.
The American American Alliance for Equal Rights brought the case against the Fearless Fund last year. Edward Blum is the conservative activist who was behind the Supreme Court decision that ended affirmative actions in college admissions.
Blum applauded this ruling. He said that “programs which exclude individuals based on their race, such as those designed and implemented by the Fearless Fund are unjust and polarizing.”
Fearless Fund’s CEO and founder Arian Simone called the decision “devastating” to the organizations it invested in and the women who have received funding.
She said that the message sent by these judges today was that diversity should not be present in corporate America, education or anywhere else. “These judges bought into what a small number of white men was selling.”
Alphonso David is the legal counsel for Fearless Fund and also serves as President and CEO of The Global Black Economic Forum. He said that all options are being considered to continue fighting this lawsuit.
In addition, the legal efforts to eliminate workplace diversity programs have also suffered setbacks. This reflects polarized views among conservative and liberal judges. A federal district court judge dismissed, last week, a lawsuit filed against the insurance company Progressive, and fintech platform Hello Alice, challenging a grant program to assist Black-owned small business in purchasing commercial vehicles. Amazon, Pfizer, and Starbucks have all had similar lawsuits dismissed.
Civil rights groups, philanthropic groups, employment lawyers, and venture capitalists have closely followed the case against the Fearless Fund as an indicator of how courts view programs designed to equalize the playing field for minorities, and other groups who have faced discrimination at work and in business.
The panel of the U.S. Court of Appeals, 11th Circuit, in Miami, ruled 2-1 that Blum would likely prevail in his suit claiming that the grant program violates Section 1981 of the Civil Rights Act of 1866, which prohibits race-based discrimination in the enforcement of contracts. The Reconstruction era law was intended to protect people who were formally enslaved from economic exclusion. However, anti-affirmative-action activists have used it to challenge programs that benefit minority-owned business.
The court ordered that the Fearless Fund suspend its Strivers Grant Contest that provides $20,000 in grants to businesses owned primarily by Black women for the duration of the litigation in the federal court in Atlanta. The court reversed the decision of a federal judge last year, who had ruled that Blum’s suit was unlikely to succeed and therefore contestants should continue to compete. The grant contest is suspended since October, after a panel of federal appeals court granted Blum an emergency injunction as he challenged the original federal judge’s order.
The panel of judges, which consisted of two former presidents Donald Trump and Barack Obama, dismissed the Fearless Fund’s argument that the grants were not contracts, but rather charitable donations, protected by the First Amendment’s right to free expression.
The court’s majority opinion stated that “every act” of discrimination would be considered expressive conduct according to the Fearless Fund argument.
The appeals committee also rejected the Fearless Fund’s contention that Blum did not have standing, because the lawsuit was brought on behalf of anonymous women who had failed to prove that they were “ready and capable” to apply for the grants or that their injuries had resulted from being unable to do so.
Judge Robin Rosenbaum disagreed with the Obama-appointed judge in a blisteringly dissent. Rosenbaum compared the plaintiffs’ claims to those of soccer players who “flop on the field and fake an injury” to winning by “faking a serious injury.” She said that none of the applicants demonstrated any real intent to apply for grants through what she called “cookie cutter declarations,” which were “threadbare, devoid of substance.”
David Glasgow, executive Director of the Meltzer Center for Diversity, Inclusion, and Belonging, New York University School of Law, explained that the court’s decision was not surprising due to its conservative leaning and skepticism about the argument made by the Fearless Fund.
Glasgow stated that “we will see pro-DEI results in liberal circuits, and anti-DEI results in conservative circuits.”
Glasgow said he expects one of the lawsuits to land in the conservative-dominated Supreme Court. Glasgow said that despite the fact that a single ruling is unlikely to settle the legal debate on corporate DEI, due to the wide range of programs and policies included in the category and their complexity and breadth, it was still likely that one lawsuit would land before the conservative-dominated Supreme Court.
The Strivers Grant Fund was one of many programs offered by the Fearless Fund Foundation, founded to combat the large racial gap in funding of businesses owned by women. According to digitalundivided, less than 1% venture capital funding is given to Black and Hispanic female-owned businesses.
The National Venture Capital Association (a trade association with hundreds of members VC firms) filed an amicus brief defending Fearless Fund’s grant program, describing it as a “modest, but important”, step toward equal opportunity for Black women in an industry which has traditionally excluded them.
According to a study done every two years by Deloitte and Venture Forward – the nonprofit arm the National Venture Capital Association – and Deloitte Consulting, only 2% of venture capital investment professionals in 2022 were Black women. According to the study, only 1% of partners in investment were Black women. The survey surveyed 315 firms, with 5,700 employees and $594,5 billion of assets under management.
Blum stated in his statement that “our nation’s laws on civil rights do not allow racial discrimination because some groups over-represent in certain endeavors while others under-represent.”
The case could have a significant impact on charitable giving.
The Fearless Fund, which is run by the nonprofit Independent Sector, has filed an amicus brief in support of it.
_____
This story was contributed by
_____
Pivotal Ventures provides financial support to the Associated Press for its coverage of women in the workplace and state governments. AP is responsible for all content. AP.org has AP’s guidelines for working with philanthropies as well as a list and description of funded coverage areas.
___
The third reference in this story has been corrected to reflect the correct last name of Meltzer Center for Diversity, Inclusion, and Belonging’s executive director. Glasgow is the correct spelling, not Glascow.