11th Circuit Grants Preliminary Injunction in Fearless Fund, Halting Privately-Funded Grant Program Promoting Black-Female Owned Businesses

Background

On June 3^rd, 2024, in a 2-1 ruling, the 11^thCircuit U.S. Court of Appeals granted a preliminary injunction against Fearless Fund (“Fearless”), enjoining the Fearless Strivers Grant Contest, a privately-funded grant competition open only to businesses owned by black women.  In another victory for the American Alliance for Equal Rights (“Alliance”) and Edward Blum, the legal strategist behind the Supreme Court’s recent rulings against college race-based admissions, the 11^thCircuit held that the Alliance had standing to sue on behalf of three pseudonymously named business owners who were “ready and able” to enter the Contest but “were excluded from the opportunity to compete . . . solely on account of the color of their skin.”  The Court determined that plaintiffs were likely to prevail in the lawsuit, finding that privately funded businesses like Fearless can violate 42 U.S.C. § 1981, originally enacted as Section 1 of the Civil Rights Act of 1866, through contract-based programs restricted to persons of color.  

The Eleventh Circuit Opinion

The 11^thCircuit’s decision, reversing Justice Thomas W. Thrash Jr.’s initial denial of a preliminary injunction on September 26, 2023, and confirming the circuit court’s order on September 30^thwhich temporarily enjoined the Contest pending Alliance’s appeal, comes after submission of amicus briefs and oral argument, and highlights the potential for success of legal efforts challenging private entities’ Diversity, Equity and Inclusion (“DEI”) programs.  

The 11^thCircuit panel held that Fearless entered into “contracts” with contestants within the meaning of Section 1981, rather than conveying “discretionary gifts.”  The Court rejected Fearless’ claim that its commitment to Black female-owned businesses constituted “expressive conduct” protected by the First Amendment.  Qualifying Fearless’ refusal to “entertain applications” from non-black-female business owners as engaging in discrimination, and likening it to a business owner summarily firing employees of only one race, the Court concluded that permitting such “speech” under the First Amendment would risk “sowing the seeds of antidiscrimination law’s demise.”

Circuit Judge Robin S. Rosenbaum, an Obama appointee, disagreed in a blistering dissent, likening the Alliance’s claims of harm to soccer players “flopping on the field, faking an injury.”

Key Takeaways

Though prolonged litigation under Justice Thrash Jr.’s guidance will likely prevent immediate legal repercussions from the 11^thCircuit’s decision, employers should consider the following actions when implementing DEI initiatives and programs:

• Reconsider DEI programs restricted to specific races and instead consider using programs designed to uplift underserviced groups and engage persons from diverse backgrounds.
• Ensure that private grant programs, even charitable in nature, are open to all applicants, as these programs may be deemed contracts, depending on the particular requirements of the grant program.
• Note that the 11th Circuit’s opinion is limited to the merits of a preliminary injunction, leaving open the possibility that Fearless Fund succeeds on the merits.
• Monitor DEI-centered litigation in their respective federal jurisdiction. There is a significant likelihood of a future circuit split, leading to Supreme Court review.