It was the kind of opportunity that the owner of any small start-up might jump at: a skill-based contest to award $20,000 in grant funding to a deserving business.
And the winner of the Fearless Strivers Grant Contest wouldn’t just receive money, she would also receive mentorship and win digital tools to help her grow her business online.
But there was a catch: not just anyone could apply. According to the contest’s rules, it was only “open to black women who are legal U.S. residents.”
“I was contacted by a woman in New York who said, ‘Have you seen this? Is this fair? Is this legal? I’m an Asian woman and I’m not allowed to apply,’” said Edward Blum, the spirited conservative activist who has made it his mission to end race-based preferences in virtually every sector of American public life.
Blum ran the contest past his lawyers. They said it was actionable. So, in early August, Blum’s American Alliance for Equal Rights filed suit, challenging the grant-awarding contest by the Fearless Fund, a relatively small Atlanta-based venture-capital firm that confidently and expressly describes itself as “built by women of color for women of color.”
Blum’s lawsuit against the Fearless Fund is his next step after a big win last summer in his Students for Fair Admissions lawsuits against Harvard and the University of North Carolina, which ended with the Supreme Court overturning affirmative action in college admissions.
His lawsuit against the Fearless Fund moves the fight for equal rights for all from college campuses to the business world. At its heart, the lawsuit is about nonemployment contracting — it contends that the Fearless Fund’s racially discriminatory contest is a violation of the Civil Rights Act of 1866, and specifically Section 1981, which prohibits racial discrimination in making and enforcing contracts.
But the lawsuit also addresses free-speech rights. Fearless Fund leaders argue that their race-based discrimination is expressive conduct protected by the First Amendment, an argument that a district judge agreed with in September in denying a preliminary injunction to temporarily block the group from awarding its grants.
Just days later, an Eleventh Circuit appeals court panel reversed the district court judge, issuing a temporary injunction in the case, blocking the grants, and writing that the “racially exclusionary” contest is “substantially likely” to violate federal law.
The Eleventh Circuit is expected to hear the case early next year.
While the case is unlikely to make new law, it is still “a big deal” for other reasons, said William A. Jacobson, a Cornell Law professor and co-founder of the Rhode Island–based Equal Protection Project, which has filed an amicus brief in support of Blum. If the Eleventh Circuit upholds the district court ruling, it would punch a “massive hole” in the nation’s anti-discrimination laws based on the First Amendment, and seemingly allow race-based discrimination of all stripes to flourish, Jacobson said.
“If discriminatory conduct can be excused under the First Amendment as expression, then it’s hard to imagine what sort of discrimination wouldn’t survive,” he said. “We’re simply asking the court of appeals to uphold prior precedent, that other than pure expressions of speech, which this clearly is not, that the First Amendment is not a defense to discrimination, because what wouldn’t then be protected?”
“You could say I’m not going to hire black employees because I want to send a message.”
Dan Morenoff, executive director of the American Civil Rights Project, which also co-filed a brief supporting Blum, said that if the Eleventh Circuit deems the Fearless Fund contest illegal, it “should have major ripples” in nonemployment contracting generally, beyond the venture capital world.
“Every company that has established a policy of requiring a particular allocation of a supplier contract by race, they’re all covered by this,” he said. “And there are a lot of those.”
Lawyers for the Fearless Fund have blasted the lawsuit, saying it is based on a “cynical legal theory.” And, of course, they argue that Blum and the nonblack litigants — the Asian business owner from New York who alerted Blum to the contest and two other white female business owners in Virginia — “want to propagate a system that privileges some and shuts out most. They want us to pretend that inequities do not exist.”
The Fearless Fund, which is backed by financial giants such as Bank of America and MasterCard, has been operating for about four years, according to a report in Rolling Stone.
The group’s leaders argue on their website that businesses built by women “are historically underfunded, particularly women of color,” who receive less than 1 percent of venture-capital funding. Since its founding, the Fearless Fund has invested $26.5 million in more than 40 businesses owned by women of color and awarded over $3 million in small grants to more than 300 other businesses, according to Rolling Stone.
The businesses the group has supported include women’s underwear makers, developers of skin-care products and organic period products, a vegan restaurant, and fitness trainers.
Blum noted that the “vast majority of venture-capital funding today” is directed to high-tech businesses that have “potentially enormous financial scale” and are typically founded by people with advanced degrees and experience in technology, engineering, and science.
His legal team says the vast majority of the disparity in business funding is between men and women, not between women of different races. And most women are prohibited from entering the Fearless Fund’s racially exclusionary contest. “Its contest also excludes women who are Hispanic or Middle Eastern, even though these groups receive less funding than black women,” a brief filed in November by Blum’s lawyers contends.
“The venture capital funding gaps between the races is never a legal or moral justification to exclude certain men and women from public programs by race or ethnicity,” he said in a follow-up email. “The American Alliance for Equal Rights believes it is legally permissible to provide benefits to businesses and individuals who are under-resourced, but those benefits must be made available to all races and ethnicities.”
Blum’s lawsuit was filed in U.S. District Court in north Georgia. During trial, the Fearless Fund’s lawyers argued that Blum’s group didn’t have standing and that the Fearless Strivers Grant Contest is a legally protected affirmative-action program — arguments U.S. District Judge Thomas W. Thrash dismissed.
They also argued that even though the grant contest’s rules explicitly state that a “contract” is established with applicants, the contest didn’t really involve a contractual arrangement at all but was instead a “charitable donation.” Thrash didn’t buy that, either.
But in a late-September order, Thrash denied a preliminary injunction, writing that the Fearless Fund’s racial discrimination was protected by the First Amendment because the group conveys a particular message: “Black women-owned businesses are vital to our economy.”
“That grant applicants enter a contract with the Foundation upon entry into the Contest does nothing to remove this case from the realm of First Amendment expressive conduct,” he wrote.
Just days later, the Eleventh Circuit panel issued the injunction that Thrash wouldn’t, writing that the majority of the panel’s judges disagree with Thrash’s reasoning.
“The defendants do not provide ‘expressive services’ or otherwise engage in ‘pure speech,’” the panel wrote. “Although the First Amendment protects the defendants’ right to promote beliefs about race, it does not give the defendants the right to exclude persons from a contractual regime based on their race.”
A Bill Clinton–appointed judge on the panel dissented, arguing that the 1866 civil-rights law in question was only intended to protect racial minorities and that the Asian plaintiff shouldn’t qualify as a minority victim because of her affiliation with two other white plaintiffs. The majority disagreed: “The Supreme Court has held that Section 1981 ‘was meant, by its broad terms, to proscribe discrimination in the making or enforcement of contracts against, or in favor of, any race.’”
Morenoff said that any concerns that the anti-discrimination provisions of the Civil Rights Act of 1866 could conflict with the First Amendment were cleared up with the passage of the 14th Amendment. “The whole point of the 14th Amendment, the reason it exists at all, is to say, whatever the constraints on Congress’s power to enact the Civil Rights Act of 1866, it’s constitutional now,” he said.
Morenoff’s American Civil Right’s Project, in its brief filed in conjunction with the Manhattan Institute and the Buckeye Institute, also disagreed with the contention that the Fearless Fund’s race-based discrimination is protected because it is expressive.
Some would attempt to cast appellees’ racial discrimination as expressive. But their discrimination is only “expressive” to the extent that refusal to deal with or serve a class of people is. It’s as expressive as a motel owner’s refusal to allow black people to stay at his establishment. It’s as expressive as Ollies Barbecue’s insistence on serving black people at a separate counter. And it’s as expressive as a school’s refusal to admit black students—or to give black students preferences, to the detriment of Asian-American students. None of these discriminatory practices were rescued by their incidental effect on speech.
The brief also took aim at the argument that the Fearless Fund was involved in charity, writing that “they invest through contracts, rather than dispensing charity.”
“They do not refuse to contract with applicants on the basis of their ideas or expression,” the brief says. “They refuse to contract with applicants whose skin is the wrong color, no matter what their ideas or how they express them.”
“I think that this law is actually very clear, and has been very clear for a long time,” Morenoff said, calling it an important case because “so much of American business seems to have decided the law somehow just doesn’t apply.”
He doesn’t buy the notion that venture-capital firms won’t invest in businesses started by black women because of their race. Anything like a functioning capital market should address that.
“If there really are entrepreneurs with equally good ideas who are not getting capital on the same terms as others, there should be investors running to take advantage of that,” he said.
If a firm like the Fearless Fund targeted women of any race who grew up in poverty, or who came from an economically disadvantaged background, that would likely be legal, he said.
“If you are targeting people . . . based on real demonstrable need, I’m the kind of person who doesn’t terribly care what the complexion of the people in need are,” Morenoff said.
Blum, who has filed dozens of lawsuits targeting race-based preferences, said he gets emails from people almost every day pointing out allegations of discrimination.
The Fearless Fund contest stood out to him, he said, because challenging it wouldn’t require much in the line of depositions and empirical analysis, and it is a relatively easy case to bring.
“This is what it is, no Asians need apply, no Hispanics need apply,” he said. “That is a simple paper case for a not-for-profit like mine.”
Blum said that on most days he gets up early in the morning and spends hours scouring the internet for potential lawsuits and legal challenges. While his overarching goal is to stamp out racially exclusive policies and programs, he said he doesn’t necessarily have a road map for doing that. Rather, he takes the cases as they come, he said.
“I’m a sniper,” he said. “I crawl on my belly at midnight and wait for the sun to come up and take a shot.”