Eleventh Circuit Panel Hears Argument on Temporary Injunction in Latest Legal Threat to DEI Programs

A.J. Peters, Of Counsel

On Wednesday, January 31, 2024, a three-judge panel of the Eleventh Circuit U.S. Court of Appeals heard oral argument in American Alliance for Equal Rights v. Fearless Fund Management, LLC et al., in which the Court had issued a temporary injunction against a Black women-owned venture capitalist firm’s grant program, which seeks to provide financial and other assistance exclusively to Black women entrepreneurs.[1]  This case will likely resonate with other diversity, equity, and inclusion (DEI) initiatives nationwide.

The Lawsuit

Fearless Fund is an Atlanta-based venture capital company founded in 2019 with the goal of breaking down barriers Black women face in trying to secure resources and funding to grow their businesses.  Fearless Fund has partnered with Bank of America, JPMorgan Chase, Fifth Third Bank, and Mastercard in recent years, and it runs a separate non-profit organization called the Fearless Foundation.  Fearless Foundation gives charitable donations and grants to entrepreneurs from overlooked demographics, such as Black women.  According to non-profit advocacy groups, less than 1% of all venture capital funding goes to businesses owned by Black and Hispanic women.

In August 2023, the American Alliance for Equal Rights (AAER) filed a lawsuit against Fearless Fund.  The AAER is a non-profit headed by the same legal strategist, Edward Blum, who brought a legal challenge to race-based admissions programs in the U.S. Supreme Court in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, 143 S. Ct 2141, 2166 (2023).  The AAER’s new lawsuit specifically targets the Fearless Foundation’s Strivers’ Grant Contest (the “Contest”) that awards support, including $20,000, to recipient small businesses in a contest “open only to Black females.”

U.S. District Court: Preliminary Injunction Denied

The AAER lawsuit challenges the Contest on the basis of 42 U.S.C. § 1981 of the Civil Rights Act of 1866 (“Section 1981”), a Reconstruction-era statute that protects the right of “all persons … to make and enforce contracts” without respect to race.  AAER claims its unnamed members, who are not Black, have been harmed by being excluded from the Contest.  AAER initially sought from the U.S. District Court for the Northern District of Georgia a preliminary injunction that would prohibit the Fearless Fund from closing its latest application period or selecting new award recipients until the court could reach a declaratory judgment on the Section 1981 challenge.

On September 27, 2023, District Court Judge Thomas Thrash denied AAER’s preliminary injunction request on the basis of Fearless Fund’s First Amendment right to promote its beliefs and its mission in favor of promoting Black women business owners.

Eleventh Circuit Court of Appeals: Injunction Pending Appeal Granted

A three-judge panel of the Eleventh Circuit took up AAER’s emergency appeal and issued an order granting AAER’s requested temporary injunction on September 30, 2023.  In a 2-1 decision, the appellate court disagreed that Fearless Fund’s First Amendment rights would protect the Contest’s race-based eligibility rules because the non-profit was not engaged in “expressive services” or protected “pure speech” by issuing the grants.  The panel found that AAER had shown a substantial likelihood of success in ultimately showing that the Contest’s race-based eligibility for grants would violate Section 1981’s protection of the contracting rights of applicants who are not Black.

January 31, 2024 Hearing

The parties agreed to move the Eleventh Circuit to expedite the appeal for oral argument, which was scheduled for January 31, 2024.  During Wednesday’s oral arguments, a new three-judge panel of the Eleventh Circuit (with one judge from the September panel) raised tough questions, mostly directed at counsel for Fearless Fund.  Fearless Fund’s attorney emphasized that “Americans speak with their money … [and] magnify their message with their money” and Fearless Fund has a constitutional right to express its belief in the importance of an overlooked population of the economy through its charitable giving.  The panel expressed skepticism regarding this premise, and asked questions such as whether Fearless Fund’s freedom of speech argument would equally apply to a similar contest expressly favoring white applicants.  The panel also questioned how the act of granting money can be considered protected speech.  Numerous amicus briefs were submitted on both sides of the argument.  Although the appeal was expedited, it is unknown how quickly the Eleventh Circuit will issue its decision.  Ultimately the decision is likely be appealed to the U.S. Supreme Court.

Employer Considerations

The Fearless Fund case has become a rallying point for civil rights activists concerned that, just as school affirmative action programs have been subject to cancellation through the legal system, so too may charitable programs designed to help level the playing field for disadvantaged groups.  Other initiatives may also be implicated in the continuing attacks on DEI programs, such as hiring and promotional practices in the workplace.  Campbell Litigation is available to assist employers with the ever-changing legal landscape regarding DEI initiatives, both within and outside of the workplace.

[1] The Eleventh Circuit’s September 30, 2023 order granting an injunction against Fearless Fund pending appeal can be found here: https://fingfx.thomsonreuters.com/gfx/legaldocs/klpyzmjbqvg/09302023fearless.pdf