A subsidy program for black women entrepreneurs is discriminatory, the appeals court rules

NEW YORK — A U.S. federal appeals court panel has suspended a venture capital firm's grant program for Black women entrepreneurs, ruling that a conservative group is likely to prevail in the lawsuit alleging the program is discriminatory.

The ruling against the Atlanta-based Fearless Fund is another victory for conservative groups waging an extensive legal battle against corporate diversity programs that have targeted dozens of companies and government institutions.

The case against the Fearless Fund was filed last year by the American American Alliance for Equal Rights, a group led by Edward Blum, the conservative activist behind the Supreme Court case that ended affirmative action in college admissions.

Blum applauded the ruling, saying that “programs that exclude certain individuals because of their race, like the one the Fearless Fund designed and implemented, are unjust and polarizing.”

Fearless Fund CEO and founder Arian Simone said the ruling was “devastating” for the organizations and women it has invested in.

“The message these justices sent today is that diversity should not exist in corporate America, education or anywhere else,” she said in a statement. “These judges bought what a small group of white men sold.”

Alphonso David, legal counsel for the Fearless Fund and president and CEO of The Global Black Economic Forum, said all options are being evaluated to proceed with the lawsuit.

Legal efforts to dismantle workplace diversity programs have also suffered setbacks, due to polarized opinions among liberal and conservative justices on the issue. Last week, for example, a federal district judge in Ohio dismissed a lawsuit against the insurance company Progressive and the fintech platform Hello Alice, challenging a program that provides subsidies to help black-owned small businesses buy commercial vehicles. Similar lawsuits against Amazon, Pfizer and Starbucks have been dismissed.

The case against the Fearless Fund is being closely watched by civil rights groups, philanthropic organizations, labor lawyers and the venture capital industry as a bellwether for how the courts view programs intended to level the playing field for racial minorities and other groups historically faced with discrimination in companies and in the workplace.

In a 2-1 ruling, the panel of the U.S. Court of Appeals for the 11th Circuit in Miami ruled that Blum was likely to prevail in his lawsuit alleging the subsidy program was in violation section 1981 of the Civil Rights Act of 1866, which prohibits discrimination on the basis of race in contract enforcement. The Reconstruction-era law was originally intended to protect formally enslaved people from economic exclusion, but anti-affirmative action activists have used it to challenge programs designed to benefit minority-owned businesses.

The court ordered the Fearless Fund to suspend the Strivers Grant Contest, which provides $20,000 to businesses majority owned by Black women, for the remainder of the lawsuit, which is being heard in a federal court in Atlanta. The ruling overturned a federal judge ruled last year that the competition could go ahead because Blum's lawsuit would likely fail. However, the grant competition has been suspended since October following a separate panel of the The federal appeals court quickly granted Blum's request for an emergency injunction while challenging the federal judge's original order.

The appeals court panel, consisting of two judges appointed by former President Donald Trump and one appointed by former President Barack Obama, rejected the Fearless Fund's arguments that the grants are not contracts but charitable donations protected by the right to freedom of speech of the First Amendment.

“The fact remains, however, that Fearless simply – and outright – refuses to entertain applications from entrepreneurs who are not 'black women,'” the court majority said, adding that “any act of racial discrimination” would count as expressive conduct are considered. under the Fearless Fund's argument.

The appeals panel also rejected the Fearless Fund's claim that Blum lacked standing because the lawsuit was filed on behalf of three anonymous women who failed to demonstrate that they were “ready and able” to apply for the grant or that they were injured because they are not there to do that.

Judge Robin Rosenbaum, an Obama appointee, disagreed in a blistering dissent, likening the plaintiffs' claims of damages to football players trying to win by “flopping on the field and feigning an injury.” Rosenbaum said none of the plaintiffs showed they had any real intent to apply for the grants in what she called “cookie-cutter statements” that were “threaded and devoid of substance.”

The panel's ruling was not surprising given its conservative tilt and previous skepticism of the Fearless Fund's argument, said David Glasgow, executive director of the Meltzer Center for Diversity, Inclusion, and Belonging at the School of Law New York University.

“We will see some pro-DEI results in liberal circuits and anti-DEI results in conservative circuits,” Glasgow said.

Glascow said he expects one of the lawsuits to end up in the conservative-dominated Supreme Court. Still, he said it's unlikely that one ruling could settle the legal debate over corporate DEI, due to the complexity and broad programs and policies that fall under the category.

The Strivers Grant Fund is one of many programs administered by the foundation arm of the Fearless Fund, which was created to address the stark racial disparity in the financing of businesses owned by women of color. According to the nonprofit digitalundivided, less than 1% of venture capital funding goes to companies owned by Black and Hispanic women.

The National Venture Capital Association, a trade group with hundreds of member venture capital firms, has filed an amicus brief defending the Fearless Fund grant program as a “modest but important” step toward creating equal opportunity in an industry that has historically been black excluded women.

According to a survey conducted every two years by Deloitte and Venture Forward, the nonprofit arm of the National Venture Capital Association, and the consulting firm Deloitte, in 2022, only 2% of investment professionals at venture capital firms were Black women. Only 1% of investment partners were Black women, according to a survey of 315 firms with 5,700 employees representing $594.5 billion in assets under management.

But in his statement, Blum said that “our nation's civil rights laws do not allow for racial discrimination because some groups are overrepresented in various endeavors, while others are underrepresented.”

Philanthropic groups are also keeping an eye on the matter because of the possible consequences for charitable giving.

“If legal decisions limit people's ability to give in ways that align with their values ​​or their experiences, it will harm not only philanthropy and nonprofits, but our own country as a whole,” said Kathleen Enright, president and CEO of the Council. Foundations, whose organizations filed an amicus brief in support of the Fearless Fund at the nonprofit Independent Sector.

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AP writers Thalia Beaty and Haleluya Hadero in New York contributed to this story.

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The Associated Press Women in the Workforce and State Government Coverage receives funding from Pivotal Ventures. AP is solely responsible for all content. Find APs standards for working with philanthropies, a list of supporters and funded coverage areas AP.org.

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