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Two recent federal court decisions shed new light on the ongoing wave of DEI-related challenges following the Supreme Court’s 2023 Students for Fair Admissions, Inc. On June 3, 2024, in American Alliance for Equal Rights v. Fearless Fund Management, LLC (“Fearless Fund”), an Eleventh Circuit three-judge panel granted a preliminary injunction and effectively shuttered a minority grant program until the case is litigated to conclusion. No. 23-13138, 2024 WL 2812981, at *1 (11th Cir. June 3, 2024). The decision in Fearless Fund came about two weeks after a federal District Court judge refused to enjoin a similar minority grant program in Roberts v. Progressive Preferred Insurance Co. (“Hello Alice”), No. 1:23 CV 1597,
2024 WL 2295482, at *1 (N.D. Ohio May 21, 2024).
These recent developments mark significant updates to the changing landscape in the DEI arena. While both cases involved 14 U.S.C. § 1981 challenges to grant programs that identify black-owned small businesses as eligible applicants, the courts reached opposite conclusions on an important procedural question: Do the plaintiffs have “standing” to sue in federal court? (Generally, plaintiffs have standing if: (1) they have suffered an injury that is concrete, actual, or imminent; (2) the injury was caused by a defendant; and (3) it is likely that the injury will be redressable by the court.) While the standing decisions present as inconsistent at first blush, they are reconcilable and instructive for those who are contemplating how to best proceed with
their own DEI programs and initiatives.
In Fearless Fund, the American Alliance for Equal Rights (“AAER”) challenged under 14 U.S.C. § 1981 the Fearless Fund’s Strivers Grant Contest, a grant competition for black women-owned businesses. In August 2023, the trial court denied AAER’s motion for preliminary injunction, finding that AAER had standing but also that the grant contest was protected expression under the First Amendment. No. 23-13138, 2023 WL 6520763, at *1-2 (11th Cir. Sept. 30, 2023). However, days later, the Eleventh Circuit reached the opposite conclusion and temporarily enjoined Fearless Fund “from closing the application window or picking a winner” while AAER’s appeal was pending. Id. at *1.
In June 2024, a three-judge panel unsurprisingly reversed the trial court and granted AAER’s preliminary injunction request. Although the District Court found that AAER had standing, Fearless Fund argued on appeal that AAER lacked standing on the grounds that it had not sufficiently pled that that its members, none of whom were identified in the Complaint except by pseudonym, were “able and ready” to enter the contest. Id. at *4-6. The court held that the facts of this case sufficiently identify several AAER members who would be “able and ready” to apply for a Fearless Fund grant in a specific and identified timeframe in the absence of the race-based restriction. Id. at *5-6 (citing Carney v. Adams, 141 S.Ct. 493 (2020)). Second,
the court held that it would not require an organizational plaintiff to identify the name of the members on whose behalf it was suing to establish standing. Id. at *4 (quoting Doe v. Stincer, 175 F.3d 879, 884 (11th Cir. 1999)). The court likewise rejected Fearless Fund’s First Amendment argument, reasoning that if the refusal to entertain applications from business owners that are not of a certain race is “deemed sufficiently ‘expressive’ to warrant protection under the Free Speech Clause, then so would be every act of race discrimination, no matter at whom it was directed.” Id. at *9.
As of this writing, there have been no new developments, but Fearless Fund has three clear options: (1) honor the ruling and continue to litigate the underlying case on the merits; (2) request hearing en banc before the full Eleventh Circuit; or (3) appeal to the Supreme Court.
In Hello Alice, Progressive Preferred Insurance Company ran a grant program that required applicants to be majority black-owned businesses. 2024 WL 2295482. Roberts, a white business owner, challenged this eligibility requirement under 14 U.S.C. § 1981, and the court dismissed his lawsuit for lack of standing. Id. at *4-8. The court noted that analyses on standing differ depending on the relief requested. Id. at *4-5. For retrospective relief (i.e., damages), the court held that plaintiffs must allege that “under a race-neutral policy, they would have received the benefit.” Id. at *4 (quoting Aiken v. Hackett, 281 F.3d 516, 519 (6th Cir. 2002)). The court then found that Roberts claimed damages for his “injury” but
failed to sufficiently allege that he would have received a grant had he been eligible to apply. Id. at *5-7. For prospective relief (i.e., an injunction), the court held that a plaintiff must plead that it was “‘able and ready’ to apply to the program . . . but that a discriminatory policy prevent[ed] it from doing so on an equal basis.” Id. at *5 (quoting Beztak Land Co. v. City of Detroit, 298 F.3d 559, 566 (6th Cir. 2002)). The court then found that Roberts sued after the application window for the grant program closed, and that upcoming Hello Alice grant programs were race-neutral. Id. at *7-8. Therefore, Roberts was not “able and ready” to apply to a past grant program, and he had no basis to suggest that his race
would prevent him from applying in the future. Id.
In summary, the differing results on standing challenges between Fearless Fund and Hello Alice turned on differences in timing and the nature of relief requested. In Fearless Fund, AAER requested prospective relief only, asking for declaratory and injunctive relief. Standing was found at the trial and appellate levels because the Strivers Grant Contest was ongoing, and AAER sufficiently pled that its members would be denied the opportunity to apply. Since AAER had no claim for damages, it did not need to demonstrate that its members would have won the contest if eligible to apply. In Hello Alice, the court’s legal approach to standing was not materially different, but the facts and requested relief were. Roberts’ claim for
damages failed because he could not plead facts showing he would have been awarded a grant if eligible to apply. His claim for prospective injunctive and declaratory relief failed because the minority grant program at issue had concluded and “the record before the [c]ourt suggests that the Grant, as challenged, was offered as a one-time opportunity in 2023” with no expectation that it would be offered in the future. 2024 WL 2295482, at *8.
In the event other courts rule in accord with Fearless Fund and Hello Alice, which will play out over the next several years at least, the lessons are clear: Plaintiffs will face significant hurdles when seeking damages. Grant contests almost always have subjective criteria, and it is difficult to imagine how plaintiffs might prove they would have been awarded grants without the grant maker itself agreeing. By contrast, plaintiffs will have better luck pursuing prospective equitable relief when challenging ongoing (not past) programs that favor minority applicants.
Special thank you to Summer Associate Mariah Harrelson for her assistance in this update's preparation.
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