The “Black Women-Owned Business Grants” complaint

Certain media have been amplifying the recently-filed case American Alliance for Equal Rights v. Fearless Fund Management LLC. Read the Complaint here.

Who is the plaintiff? Here, the complaint speaks pretty well for itself: "Plaintiff, American Alliance for Equal Rights, is a nationwide membership organization dedicated to challenging distinctions and preferences made on the basis of race and ethnicity." It's an organization with a specific mission to make the law it wants through filing strategic lawsuits. It is not a party who suffered harm in the ordinary course of doing something else, which is in tension with at least the spirit of the constitution's case or controversy requirement.

Who are the defendants? Defendants are related private companies that do business under the name "Fearless Fund." According to the website, "[o]ur mission is to bridge the gap in venture capital funding for women of color founders building scalable, growth aggressive companies. Fearless Fund is built by women of color for women of color."

One of Fearless Fund's founders is Keshia Knight Pulliam; Fearless Fund lists investor partners including Coca-Cola, Bumble, JP Morgan Chase, and Spanx.

What laws were allegedly broken? Plaintiff alleges that Defendants violated 42 USC § 1981 through a program under which only Black women-owned businesses are eligible for a grant of $20,000. This program's upcoming application deadline served as the basis for the plaintiff's application for a "temporary restraining order" by August 17. Section 1981 is a federal statute that prohibits race discrimination in "contracts."

Why is this case showing up in my news feed? This case is part of a campaign designed to capitalize on recent momentum to scare private businesses away from racial equity initiatives. Specifically, the Supreme Court's ruling that certain race-conscious admissions processes violated the United States Constitution carried an ideological result that plaintiff would like to see in the private sector.

Some articles are also citing a complaint filed in Indiana against Comcast in April 2022, which challenged a grant program where only woman- or minority-owned businesses were eligible to apply. Rather than defending the case, Comcast settled the case and abandoned the program. But according to its website, Comcast is bringing the program back, likely after vetting it with lawyers.

What else do I need to know about the case and the underlying legal issues?

The constitutional doctrines that were the basis for the SCOTUS ruling do not apply to private businesses. The law applicable to private businesses is statutory and has not changed.

But organizations like plaintiff seek to threaten and confuse private businesses, hoping that such businesses will preemptively capitulate and tamp down their racial equity efforts. For example, plaintiff leverages generalized rhetorical pronouncements from the SCOTUS decision such as "Eliminating racial discrimination means eliminating all of it," while glossing over the underlying legal principles that make a critical distinction between private businesses and state action.

The judiciary has no power to regulate private businesses directly. The only way the judiciary can regulate private businesses is through interpreting statutes and regulations propagated by the other branches of government. Here, the relevant statute is Section 1981, which already has a body of caselaw that interprets it. That is the law that a court would apply in assessing whether a particular race-based scholarship, grant, or other opportunity is legal.

Any relevant takeaways?  Employers can keep their wits about them during this time of political division over racial equity initiatives. In managing DEI-related risk, remember the long-term risks associated with reversing course on publicly-stated values based on an ideologically-grounded legal campaign. Employers are best served when they make mission-and values-oriented legal risk decisions. To do so, aligned partnerships between the DEI, HR, and Legal functions are a must.