Black-Women-Only Grant Program Likely Violates Federal Law, Isn’t Protected by First Amendment
From American Alliance for Equal Rights v. Fearless Fund Mgmt., LLC, decided today by the Eleventh Circuit, in an opinion by Judge Kevin Newsom, joined by Judge Robert Luck:
[We hold that] the Fearless Strivers Grant Contest, an entrepreneurship funding competition open only to businesses owned by black women, [likely] violates 42 U.S.C. § 1981, which prohibits private parties from discriminating on the basis of race when making or enforcing contracts …, [and] is … unlikely to enjoy First Amendment protection ….
[The] stated mission [of Fearless Fund] is to “bridge the gap in venture capital funding for women of color founders building scalable, growth aggressive companies.” In pursuit of that mission, Fearless supplies grants to businesses under its “Foundation” arm. Fearless makes those grants on the basis of a competitive application process.
The “Fearless Strivers Grant Contest” offers four winners $20,000 apiece and digital tools to assist with business growth, as well as mentorship….
The panel majority began by concluding that the contest is likely covered by 42 U.S.C. § 1981, a federal law that has been read as generally banning race discrimination (but not discrimination based on sex, religion, sexual orientation, and so on) in all public or private contracts (not just employment, public accommodations, education, and the like):
[A] winning entrant obtains $20,000 and valuable mentorship and, in return, grants Fearless permission to use its idea, name, image, and likeness for promotional purposes and agrees to indemnify Fearless to arbitrate any disputes that might arise. By any measure, that is a bargained-for exchange supported by good and sufficient consideration. It is, in other words, a contract.
On appeal, Fearless seeks to recast its contest as nothing more than a vehicle for conveying “discretionary gifts” that confer “no enforceable rights on contest entrants.” We don’t think so. As already explained, the contest ends in the formation of a contractual relationship between Fearless and the winner. And it’s no answer to say that the contest itself merely facilitates the making of the eventual contract. The Supreme Court has made clear that § 1981 protects “would-be contractor[s]”— here, the contestants—to the same extent that it protects contracting parties.
The majority also concluded that the grant program likely couldn’t be justified “under a judge-made exception [to § 1981] applicable to what Fearless calls valid ‘remedial programs.'” Section 1981 protects all racial groups, not just racial minorities, McDonald v. Santa Fe Trail Transp. Co. (19
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