NEW YORK (AP) — A U.S. federal court of appeals panel suspended a venture capital firm’s grant program for Black women business owners, ruling that a conservative group is likely to prevail in its lawsuit claiming that the program is discriminatory.
The ruling against the Atlanta-based Fearless Fund is another victory for conservative groups waging a sprawling legal battle against corporate diversity programs that have targeted dozens of companies and government institutions.
The case against the Fearless Fund was brought 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 “programs that exclude certain individuals because of their race such as the ones the Fearless Fund has designed and implemented are unjust and polarizing.”
Fearless Fund CEO and Founder Arian Simone said the ruling was “devastating” for the organizations and the women it has invested in.
“The message these judges sent today is that diversity in Corporate America, education, or anywhere else should not exist,” she said in statement. “These judges bought what a small group of white men were selling.”
Alphonso David, Fearless Fund’s legal counsel who serves as president and CEO of The Global Black Economic Forum, said all options were being evaluated to continue fighting the lawsuit.
The legal effort to dismantle workplace diversity programs has suffered its share of setbacks as well, reflecting polarized opinions among liberal and conservative judges on the issue. Last week, for example, a federal district judge in Ohio dismissed a lawsuit against the insurance company Progressive and fintech platform Hello Alice challenging a program that offers grants to help Black-owned small businesses purchase commercial vehicles. Similar lawsuits have been dismissed against Amazon, Pfizer and Starbucks.
The case against the Fearless Fund has been closely watched by civil rights groups, philanthropic organizations, employment lawyers and the venture capital industry as a bellwether for how the courts are viewing programs intended to level the playing field for racial minorities and other groups that have historically faced discrimination in businesses and workplaces.
In a 2-1 ruling, the panel of the U.S. Court of Appeals for the 11th Circuit in Miami found that Blum was likely to prevail in his lawsuit claiming the grant program violates section 1981 of the 1866 Civil Rights Act, which prohibits discrimination on the basis of race when enforcing contracts. The Reconstruction-era law was originally intended to protect formally enslaved people from economic exclusion, but anti-affirmative action activists have been leveraging it to challenge programs intended to benefit minority-owned businesses.
The court ordered the Fearless Fund to suspend its Strivers Grant Contest, which provides $20,000 to businesses that are majority owned by Black women, for the remainder of the lawsuit that is being litigated in a federal court in Atlanta. The ruling reversed a federal judge’s ruling last year that the contest should be allowed to continue because Blum’s lawsuit was likely to fail. However, the grant contest has been suspended since October after a separate panel of the federal appeals court swiftly granted Blum’s request for an emergency injunction while he challenged 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 First Amendment right to free speech.
“The fact remains, though, that Fearless simply —and flatly — refuses to entertain applications from business owners who aren’t ‘black females,'” the court’s majority opinion said, adding “every act of race discrimination” would be deemed expressive conduct under the Fearless Fund’s argument.
The appeals panel also rejected the Fearless Fund’s contention that Blum had no 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 had been injured by not being to do so.
Judge Robin Rosenbaum, an Obama appointee, disagreed in a blistering dissent, likening the plaintiffs’ claims of harm to soccer players trying to win by “flopping on the field, faking an injury.” Rosenbaum said none of the plaintiffs demonstrated that they had any real intention to apply for the grants in what she called “cookie-cutter declarations” that were ”threadbare and devoid of substance.”
The court’s ruling wasn’t surprising because of its conservative leaning and previous skepticism towards the argument presented by the Fearless Fund, said David Glasgow, executive director of the Meltzer Center for Diversity, Inclusion, and Belonging at New York University’s School of Law.
“We are going to see some pro-DEI outcomes in liberal circuits and anti-DEI outcomes in conservative circuits,” Glasgow said.
Glasgow said he expects one of the lawsuits to land in the conservative-dominated Supreme Court. Even so, he said it’s unlikely that any one ruling could settle the legal debate over corporate DEI because of the complexity and wide-ranging programs and policies that fall under the category.
The Strivers Grant Fund is one of several programs run by the foundation arm of the Fearless Fund, which was founded to address the wide racial disparity in funding for businesses owned by women of color. Less than 1% of venture capital funding goes to businesses owned by Black and Hispanic women, according to the nonprofit advocacy group digitalundivided.
The National Venture Capital Association, an trade group with hundreds of member VC firms, filed an amicus brief defending the Fearless Fund’s grant program as “modest but important” step to toward creating equal opportunity in an industry that has historically excluded Black women.
Only 2% of investment professionals at venture capital firms were Black women in 2022, according to a study conducted every two years by Deloitte and Venture Forward, the nonprofit arm of the National Venture Capital Association, and the consulting firm Deloitte. Just 1% of investment partners were Black women, according to study, which surveyed of 315 firms with 5,700 employees representing $594.5 billion in assets under management.
But in his statement, Blum said “our nation’s civil rights laws do not permit racial distinctions because some groups are overrepresented in various endeavors, while others are under-represented.”
Philanthropic groups are also watching the case because of its possible implications for charitable giving.
“If legal decisions curtail people’s ability to give in ways that align with their values or their experience, it’s going to hurt not only philanthropy and nonprofits, but our own country as a whole,” said Kathleen Enright, president and CEO of the Council on Foundations, whose organizations filed an amicus brief supporting the Fearless Fund with the nonprofit Independent Sector.
