Summary of 11th Circuit Ruling in American Alliance for Equal Rights v. Fearless Fund
Background
On August 2, 2023, American Alliance for Equal Rights (AAER) filed a complaint against Fearless Fund claiming their Fearless Striver Grant Contest grant program violates Section 1981 of the Civil Rights Act of 1866. According to the official rules listed on Fearless Fund’s website, the grants are to be distributed by Fearless Foundation and eligibility is limited to businesses that are majority owned by Black women.
The U.S. District Court for the Northern District of Georgia denied AAER’s request for a preliminary injunction on September 26, 2023. AAER immediately appealed to the 11th Circuit and a three-judge panel granted an injunction pending appeal on September 30, 2023, the day the grant cycle was scheduled to close.
In December of 2023, the Council filed an amicus brief in support of Fearless Fund’s argument that its grant program was a form of protected expressive conduct under the First Amendment and that any application of Section 1981 to compel Fearless Fund to expand its grantee pool must survive strict scrutiny, which is the most exacting level of judicial review.
Oral arguments were held before the 11th Circuit on January 31, 2024.
Ruling
The 11th Circuit released its ruling on June 3, holding 2-1 that AAER has standing to bring a claim on behalf of its 3 anonymous members in federal court and that the District Court erred in denying AAER’s request for a preliminary injunction. In doing so, the 11th Circuit found that the plaintiffs were likely to succeed on the merits of the case. Notably, the majority opinion concluded that Fearless Fund’s grant program was not likely protected under the First Amendment.
In particular, the 11th Circuit found the District Court misapplied relevant precedent in applying constitutional protections to the enforcement of state or federal nondiscrimination laws. They held that “the Supreme Court has continued to recognize and enforce the critical distinction between advocating race discrimination and practicing it.” In other words, the Court held that the First Amendment can be invoked as protecting a right to advocate for Black women-owned businesses, but it doesn’t protect the act of excluding non-Black business owners from entering into a contractual relationship with the defendant. The District Court and the 11th Circuit agreed that the specific terms of the grant program in this case likely creates a contract—so Section 1981 applies—but it should be noted that not all foundation grant programs necessarily create a contract between the grantor and grantee.
Takeaways
While this ruling is not a final judgment on the merits, it is significant that the 11th Circuit found AAER is likely to succeed on the merits in reaching its determination that injunctive relief is appropriate. Unless the defendants successfully appeal this ruling, the case will return to the District Court and the grant program will remain on hold as it has for more than eight months since the 11th Circuit issued an injunction pending appeal. The direct impact of this ruling is limited to the 11th Circuit states of Alabama, Florida, and Georgia.
Foundations and other charitable organizations—especially those in the 11th Circuit—should continue to monitor the progress of this case and any related appeals. For many organizations, ensuring that their grants do not represent contracts with their grantees is still likely the best defense to a potential Section 1981 challenge. And while the 11th Circuit rejected the First Amendment argument in this case as applied to these particular facts, we do not know how that argument might hold up in other cases involving grant programs operating under different sets of circumstances.
