On Aug. 2, 2023, the conservative American Alliance for Equal Rights sued the Atlanta-based, Black women-founded Fearless Fund and its foundation over a grant it was giving out to Black female entrepreneurs, alleging it was discriminating against non-Black businesspeople.
In a 2-1 ruling in June, a three-judge 11th U.S. Circuit Court of Appeals panel ruled against Fearless and issued a preliminary injunction against the grant.
Lynnise Pantin is a lawyer and vice dean for experiential education at the Columbia University Law School and is the founding director of the school’s Entrepreneurship and Community Development Clinic. Pantin and her students help aspiring New York entrepreneurs or those who already have businesses but can’t afford legal services. Their clients often come from marginalized backgrounds.
She spoke with The Atlanta Journal-Constitution to break down the legal arguments and potential impacts of the case.
This interview has been edited for clarity and length.
Q: What exactly is the Alliance arguing in the suit?
A: The Fearless Fund had a grant competition where they were awarding $20,000, mentorship and business development tools.
They had sort of a competition, and only Black women-owned businesses were eligible to participate in the contest. So, the Alliance sues. They basically bring forward three anonymous members who they assert are non-Black business owners that wish to participate in this contest, but they’re upset because they cannot enter because of their race. And so, the Alliance lawsuit is challenging whether or not the contest is legal, on the grounds that the contest is a contract. Because of that … the Alliance is saying that these race-based eligibility requirements violate Section 1981 [of the Civil Rights Act of 1866].
Q: It sounds like their argument is based primarily on contract law.
A: They’re using contract principles and alleging that because the 1866 Civil Rights Act prohibits discrimination in contracts, they’re saying this is a contract and they’re being discriminated against. And therefore, it should be struck, (Fearless) shouldn’t be allowed to have this contest.
Q: What is Fearless arguing in response to that?
A: They’re basically saying ... ‘What’s the harm here? ... Why do you have to come to the Fearless Fund for our money when there’s (billions in) venture capital money that exists, that those non-Black entrepreneurs could have availed themselves of?’
I think another piece of that is they’re saying the contest isn’t a contract. … So if it’s not a contract, then they’re going to argue that Section 1981 is not going to be applicable.
A third part of their argument is that they felt, ‘We have a right to express ourselves. This is a First Amendment right to express our belief that Black women are marginalized and we are going to express that belief through charitable giving, by giving out these grants.’
Q: What have the courts ruled in this case so far?
A: This is where I think it gets a little bit tricky.
It was a panel of judges from the 11th Circuit and they ruled against Fearless Fund, finding for the Alliance.
Earlier … the trial court said, ‘Well, you can keep giving out the funds.’
But the 11th Circuit (panel) says, ‘You know what, actually, we think that there is a likely violation. We think this is a contract, a likely violation of the federal law. So, we are going to order the lower court to grant the preliminary injunction against Fearless. Basically, Fearless, you are enjoined from continuing your contest until the lawsuit comes to a successful completion.’
Q: How can the court tell a private business or foundation what to do with its money?
A: I think that’s a really interesting question and, for me, I’ve grappled with this. You look at the money that exists in venture capital and you see that there’s such a disparity.
I’ve always looked at that as like a really big problem but there’s very little that the government can do, right? You can’t tell people what to do with their money, so you can’t sue primarily white VCs for giving money to primarily white founders. That’s why I would say it’s very disappointing to see that the Alliance was successful to actually sort of use this Civil Rights statute against women of color, the Fearless Fund, who are actually looking to support marginalized communities, the same community that I believe the statute was actually put in place to protect.
If you read the text of the law, it says, ‘All persons within the jurisdiction of the United States will have the same right in every state and territory to make and enforce contracts.’ So that’s one piece of it. This is a federal statute that allows the government to have a say in private affairs when it involves contract law. And so that’s how the government can have a role in saying how you can spend your money.
Q: Do you think this ruling limits venture capital investing?
A: I would say that the ruling read narrowly is only going to affect the grant program. So, this particular program that limits applications only to Black women founders … and probably others like it, it’s a no in the 11th Circuit. So plausibly, it’s only relevant to Georgia, Florida and Alabama (the states under that circuit’s jurisdiction).
But obviously, the Alliance has deep pockets. And if there’s a fund in Chicago that is doing the same thing, I’m sure that this Alliance is going to come for that fund, too. So basically, I think it would have a chilling effect across all funds that have a similar grant program.
But as far as (making) venture capital (investments), I don’t think the decision necessarily limits the investment by Fearless Fund or any other funds that support entrepreneurs of color. The decision doesn’t necessarily limit venture capital investments. … But I imagine that the lawsuit is going to have a chilling effect on venture [capitalists] who want to invest in Fearless Fund and others like it because they’re afraid of the lawsuit.
Q: Are there other potential impacts because of the court’s ruling?
A: This is going to force people to just get smarter about how we support marginalized communities.
People have the right to support marginalized communities, right, and we have to recognize that these racial disparities really exist. And we have to figure out ways that we can address them in a way that we can sort of abide by the federal law at the same time.
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