Federal appeals judges rule against Atlanta-based small business grant fund for black women

A panel of the Eleventh Circuit Court of Appeals has suspended the activity of an Atlanta venture capital fund. small business grant program for Black women on Monday, a major victory for conservative efforts to dismantle diversity, equity and inclusion programs in corporate America.

In a 2-1 decision, the justices said the Fearless Fund competition likely violated the federal Civil Rights Act of 1866 that prohibits the use of race in making contracts. The three-judge panel, consisting of two judges appointed by former President Donald Trump and another appointed by former President Barack Obama, also found that Fearless Fund would likely not qualify for First Amendment protection and that his program inflicted irreparable harm.

As a result, the appeals court panel overturned a September ruling by a lower court judge and issued a preliminary injunction.

This case represents one of the most significant legal challenges to DEI programs in corporate America, and today’s decision is a setback for supporters of these initiatives.

In August 2023, the American Alliance for Equal Rights, a conservative nonprofit organization, sued Fearless and her foundation over its Fearless Strivers grant competition, which awarded $20,000 in small business grants to Black women . The Alliance was founded by Edward Blum, the activist behind the group that successfully challenged affirmative action at colleges and universities.

Blum’s organization alleged that the grant program violates Section 1981 of the Reconstruction Era Civil Rights Act of 1866, which prohibits discrimination on the basis of race in entering into and enforcing contracts. The Alliance argued that Fearless was entering into a contract with the applicant and that because the grants were restricted to black women, this was racial discrimination.

“Our nation’s civil rights laws do not allow for racial distinctions because certain groups are overrepresented in various initiatives, while others are underrepresented,” Blum said in a statement. “Programs that exclude people based on race, like those the Fearless Fund designed and implemented, are unfair and polarizing. A significant majority of Americans believe that an individual’s race should not be a factor in our nation’s public policies.”

But Fearless argued that it wasn’t actually a contract, but a charitable donation, and that this type of donation is protected by the First Amendment.

Historically, Black women entrepreneurs receive a fraction of what other founders receive. Between 2009 and 2017, just 0.0006% of venture capital funding went to companies started by black women, according to the nonprofit advocacy group Digitalundivided. Black founders – both men and women – receive only about 1% of U.S. venture capital funding, according to Crunchbase.

Alphonso David, attorney for Fearless Fund, said the group is evaluating next legal steps.

“The majority ruled that an 1866 law designed to grant economic freedom to newly freed slaves actually prohibited the Fearless Foundation from making grants to black women. We disagree,” David said in a statement. “As the dissenting judge noted, the discrimination in access to funding that the Fearless Foundation seeks to remedy is long-standing and irrefutable. It is the first court ruling in the more than 150-year history of the post-Civil War Civil Rights Act that ends private charitable support for any racial or ethnic group.

In September 2023, a Georgia district court judge ruled against the Alliance and allowed the grant program to continue. The group immediately appealed, and the Eleventh Circuit suspended the program while the case moved through the court.

In January this year, the Fearless Fund and the Alliance made their case to the appeals panel.

“The fact remains that Fearless simply – and categorically – refuses to accept applications from business owners who are not “black women.” If this refusal were deemed “expressive” enough to warrant protection under the Free Speech Clause, then so would any act of racial discrimination, regardless of whom it was directed to,” Justice Kevin Newsom wrote, appointed by Trump, in Monday’s decision.

But Obama-appointed Justice Robin Rosenbaum, in her dissent, compared the Alliance to athletes faking injuries to influence referees.

“But while the American Alliance has described the alleged injuries to its members, it has shown nothing but failure on the ground,” she wrote.

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