AAER v. Fearless Foundation Settlement Update
On September 11, the parties in American Alliance for Equal Rights (AAER) v. Fearless Foundation announced a settlement, resulting in the case’s dismissal in the federal district court where it had been pending for more than a year. At issue was the legality of the Fearless Strivers grant program, which awarded $20,000 grants to Black woman-owned businesses through the Fearless Foundation, a 501(c)(3) established by Fearless Fund, a venture capital firm. Both Fearless Fund and Foundation have the advancement of Black woman entrepreneurs—a group that is significantly underrepresented among those receiving venture funding—at the core of their missions. AAER claimed that the grant program created a contractual relationship between Fearless Foundation and its grantees and that the exclusion of non-Black women from eligibility violated Section 1981 of the Civil Rights Act of 1866, which prohibits discrimination on the basis of race or ethnicity when making or enforcing contracts.
While the judge in the Northern District of Georgia court where the case was filed initially denied AAER’s request for a preliminary injunction, finding that the grant program was likely expressive conduct entitled to First Amendment protections, a panel of judges at the 11th Circuit reversed that decision on appeal. In its June ruling, the 11th Circuit held that the grant program was likely not protected by the First Amendment because although the expression of viewpoints advocating exclusions on the basis of race is protected speech, those protections do not extend to the act of excluding individuals based on race.
Because both the district and appeals court agreed with AAER that the grant program likely created a contractual relationship and that the plaintiffs had standing to bring this action against Fearless, the case was remanded to the district court with instructions to enter a preliminary injunction. Fearless was therefore enjoined from closing the grant cycle and making any awards while the case proceeded through trial. Notably, although the 11th Circuit’s ruling was not a final decision on the merits of the case, it did significantly lower the likelihood of a favorable outcome for Fearless.
As part of the agreement to settle the case, Fearless announced it will permanently close the grant program rather than broadening its criteria in line with AAER’s requests. By choosing to settle at this stage rather than moving through trial, Fearless ensures that the impact of the case will be limited to the 11th Circuit states of Alabama, Florida, and Georgia. An unsuccessful appeal to the U.S. Supreme Court would have meant this case could have potentially had a legal impact nationwide. For the time being, the settlement of this case means that the situation for organizations located outside of the 11th Circuit does not significantly change. As before, while some courts in other judicial circuits might find the 11th Circuit’s ruling to be persuasive, it is not binding precedent that those courts must follow. Grantmakers in the 11th Circuit should continue to work with their legal counsel to ensure that their grant programs are legally compliant in light of the 11th Circuit’s ruling, including taking steps to ensure that their grant programs do not create contractual relationships with grantees in order to avoid the reach of Section 1981.
