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Court halts organization’s grants to Black women entrepreneurs

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Juneteenth commemorates a key stage in the end of slavery, June, 19, 1865. That’s the day when official word arrived in Galveston, Texas, that President Abraham Lincoln had signed the Emancipation Proclamation 2½ years earlier.

But even as we celebrate the newest U.S. federal holiday, we are aware that work remains to ensure fairness throughout the country.

The latest challenge involves Fearless Funds, an Atlanta-based venture capital (VC) firm's nonprofit grant program. Grant issuance was halted this month by a federal appeals court panel ruling.

Grants program, lawsuit background: Fearless Funds was sued last August by a group led by affirmative-action opponent Edward Blum. Blum-championed cases against Harvard and the University of North Carolina led to the U.S. Supreme Court last summer overturning of race-conscious college admissions.

The Fearless Foundation, a 501(c)(3) nonprofit component of the VC firm, operates a contest through its Fearless Funds that awards grants and mentoring opportunities four times per year to small businesses owned by Black women.

The Foundation says it started the program to help “bridge the gap in venture capital funding for women of color,” since Black women secured less than 1 percent of all venture-capital funding last year.

The American Alliance for Equal Rights, a 501(c)(3) organization of which Blum is president, filed its suit alleging that the Fearless Funds grant contest violates § 1981 of the 1866 Civil Rights Act’s ban on racial discrimination in contracting. Its lawsuit wants the court to find that nonprofit charitable programs intended to advance civil rights can violate § 1981.

That section has been cited in recent reverse discrimination cases, which is what Alliance’s lawsuit contends is happening with the Freedom Funds grants. The legal filing says three Alliance members, anonymous female small business owners, are excluded from consideration for Fearless grants because they are not Black.

Initial grant OK reversed: Last September, a Georgia federal district court denied Alliance’s request for a preliminary injunction against Fearless Funds grants.

That court said Fearless’ conduct in awarding grants is “expressive,” and that the First Amendment may bar Alliance’s claims. Therefore, the district court could not “conclude that § 1981 allows the Plaintiff injunctive relief prohibiting the Foundation’s chosen speech and expression.”

But an appellate court took a different view.

Earlier this month, a three-member panel on the U.S. Court of Appeals for the 11th Circuit ruled 2-to-1 that Fearless Foundation should be temporarily blocked from issuing grants reserved for businesses owned by minority women. The ruling said awarding the grants would probably discriminate against business owners of other races.

As for the First Amendment protection, the 11th Circuit panel found that the district court’s finding that free speech can protect categorical race-based exclusion “risks sowing the seeds of antidiscrimination law’s demise.”

Watching what happens next: The Fearless Foundation officials say they are weighing all their options.

“This is devastating for the Fearless Fund and Foundation, and for the women in which we have invested in,” Arian Simone, CEO of the Fearless Fund, said in a statement following the appellate court ruling. “The message these judges sent today is that diversity in Corporate America, education, or anywhere else should not exist. If this was truly about exercising free speech with your dollars — an American tradition as old as this nation itself — the results would have been different. Instead, these judges bought what a small group of white men were selling.”

Some say the 11th Circuit panel ruled incorrectly, since Fearless Funds money is not from a contract, but rather a charitable donation, and that type of giving is protected under the First Amendment.

“This is the first court decision in the 150-plus year history of the post-Civil War civil rights law that has halted private charitable support for any racial or ethnic group,” Alphonso David, president of the Global Black Economic Forum and Fearless Fund's legal counsel, told TechCrunch in an emailed statement. He added that all options were being evaluated to continue fighting the lawsuit.

Dar’shun Kendrick, a lawyer and Georgia state representative, told TechCrunch that the latest ruling only prevented the awarding of Fearless Fund grants, and was not a decision on the actual merits of the case.

Regardless of whether or how the case proceeds, you can be sure it will be closely watched by civil rights groups, philanthropic organizations, employment lawyers, the venture capital industry, and, of course, politicians as an indicator of where the courts — and our country — are as far as social justice and diversity, equity, and inclusion (DEI) programs.

In addition to affecting affirmative action programs, the lawsuits’ ultimate outcome could dramatically affect philanthropic efforts by private and community foundations that distribute billions of dollars each year.

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