Race-Based Grantmaking Case Settles, Similar Cases Still Pending

A recently settled lawsuit involving race-based grantmaking should be closely monitored as similar cases are pending and could ultimately make their way to the Supreme Court. Patterson Belknap analyzes the case on its website.

In the Eleventh Circuit’s American Alliance for Equal Rights v. Fearless Fund Management, LLC, the plaintiffs claimed that a hedge fund’s grant program for Black women-owned businesses violated 42 U.S.C. § 1981, the federal law prohibiting racial discrimination in contracting.

The plaintiffs argued the grants qualified as contracts due to the obligations imposed on applicants, including indemnification and promotional use of their likeness. The terms of the recent settlement remain undisclosed.

Previously, a divided three-judge panel had ruled that Fearless Fund likely could not offer grants exclusively to Black women because such exclusionary criteria likely violated federal law. According to the majority, the grants were contracts; the fund had no valid affirmative action-based defense; and the plaintiff could bring suit while identifying its members by pseudonyms rather than their actual names.

The ruling also dismissed potential defenses, including First Amendment protections. The settlement resolution leaves open the question whether Fearless Fund will need to modify the criteria for its grant program.

The Eleventh Circuit’s ruling is now binding law in Alabama, Florida, and Georgia. The court’s holding that race-based contracting is not permissible under § 1981, solidifies this interpretation in those states. However, the case leaves unresolved questions about whether gifts that are not contracts are applicable to § 1981 scrutiny- an aspect significant for philanthropies.

For law firms, and for companies sponsoring grant programs, the case highlights the legal risks associated with race-based criteria, especially in states within the Eleventh Circuit.

Similar race-based grantmaking cases are before the Fifth, Sixth, and Ninth Circuits, where final opinions have not yet been issued. Any of these cases could ultimately make their way to the Supreme Court.