An Atlanta-based venture capital fund’s small grant program exclusively for black females has been blocked by the 11th Circuit Court of Appeals because it violates an 1866 civil rights act and doesn’t enjoy First Amendment protection because it inflicts irreparable harm. The ruling against the Fearless Fund is hailed as a major victory in the campaign to dismantle corporate diversity, equity and inclusion (DEI) programs.
Consider these damning quotes from American Alliance for Equal Rights v. Fearless Fund Mgmt., LLC, in the majority 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.
A winner 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, critics say, that is a bargained-for exchange supported by good and sufficient consideration. It is basically a contract.
On appeal, Fearless claimed that its contest as nothing more than a vehicle for conveying “discretionary gifts” that confer “no enforceable rights on contest entrants.” Yet the plaintiff argues that, and the judges agreed, that the contest ends in the formation of a contractual relationship between the venture capital fund and the winner.
A private, race-conscious remedial program, the judges said, is valid if it (1) addresses “manifest racial imbalances” and (2) doesn’t “unnecessarily trammel” the rights of others or “creates an absolute bar to” the advancement of other employees. But “Fearless’s contest,” they continued, “create[s] an absolute bar” to the advancement of non-black business owners.
