The recent ruling against the Fearless Fund’s grant contest by a federal appeals court panel is an act of judicial overreach that could upend charitable giving in the United States.
In a two-to-one vote, the U.S. Court of Appeals for the 11th Circuit held that the 501(c)(3) arm of the Fearless Fund venture capital firm — the Fearless Foundation — could not run its Strivers Grant Contest, which awards $20,000 grants to businesses owned by Black women.
Although this case might sound like an extension of last summer’s Supreme Court affirmative action decision on university admissions, it potentially goes much deeper. If other courts follow suit, the judges’ warped interpretation of a civil-rights statute would hamstring charitable efforts to support racial justice and have a chilling effect on philanthropic funding nationwide.
The appeals court ruled that a lawsuit brought by the American Alliance for Equal Rights was likely to succeed in its claim that the contest violated section 1981 of the Civil Rights Act of 1866. That law states that all persons shall have the same rights as “white citizens” to make and enforce contracts.
Since the judges considered the contest a type of contract, and because the contest excluded people who are not Black, it was, in the court’s view, a textbook violation of equal rights and constituted racial discrimination in contracting.
The logic used in this case could have far-reaching implications for how charities operate, particularly those formed to remedy structural inequities resulting from past discriminatory practices. It could, for example, extend to identity-based scholarships, remedial programs that take race, gender, or even religion into account, and virtually any charitable support that has contract-like features, such as grants, loans, or investments in charitable programs.
Attack on Philanthropic Missions
As I explained in an amicus brief filed on the side of the Fearless Fund, by construing a civil-rights law to prohibit certain types of philanthropic funding, the case indirectly attacks charitable organizations’ ability to fulfill their missions. In doing so, it attacks the missions themselves.
The ruling is as disappointing as it is fundamentally flawed. The court’s cursory analysis ignores the most important feature of the case: the Fearless Foundation is a charity doing what charities do. While noting that the plaintiff, the American Alliance for Equal Rights, is a 501(c)(3) organization, the court never acknowledges that the foundation operated by the Fearless Fund is also a 501(c)(3) charity and that the contest is how it provides charitable support.
The Fearless Fund was founded in 2018 to help Black women-owned businesses. It should come as no surprise, then, that its foundation runs charitable programs that directly benefit businesses owned by, well, Black women. There is no separation between the foundation’s mission and its charitable funding. Even assuming Section 1981 of the Civil Rights Act applies to the contest, charitable support of this kind is how the group expresses its mission, meaning it’s a form of speech that should be protected by the First Amendment.
Charity is, by definition, exclusive: Not everyone is eligible for it.
Ignoring the Fearless Foundation’s charitable status, however, allowed the court to conclude that the grant contest was no different than any other contest, or sweepstakes, held by a noncharitable institution — except that it was exclusively for Black women-owned businesses. While this appeals to the notion that everyone should get a shot at some generic winnings, it’s an unfair characterization of the organization’s charitable activity or, for that matter, any charitable activity.
Charity is, by definition, exclusive: Not everyone is eligible for it. But instead of considering the context of the Fearless Foundation program, the court likens the organization’s conduct to regular commercial activity, such as hiring employees, which it is not.
Affront to Nonprofit Law
Unfortunately, the court’s failure to wrestle with the charitable nature of the grant contest vastly oversimplifies the issue and calls into question decades of nonprofit law and practice. Taking race into account for philanthropic purposes has been embedded in charity at least since the 1950s when the “elimination of prejudice and discrimination” became part of the legal meaning of philanthropy. The court ignores this history.
The court also fails to grapple with the central purpose of Section 1981 of the Civil Rights Act, which was enacted by Congress under the 13th Amendment of the Constitution to eliminate the vestiges of slavery. It’s both ironic and disturbing that a Civil War-era law intended to protect Black Americans from economic exclusion has been converted into a statute that could prevent charities from addressing those historical inequities.
The ruling demands even greater scrutiny because the court does not cite any precedent for applying Section 1981 to the distribution of charitable funds. In fact, its dramatic expansion of the law’s scope comes completely out of the blue.
Until last week, Section 1981 was not seen as a barrier to philanthropy. And while the Supreme Court’s decision last June barring affirmative action in higher education admissions may have spurred this lawsuit, it’s not relevant here. That case was decided under an unrelated civil-rights statute, enacted at a different time for a different purpose.
The appeals court decision was, in the end, a form of judicial activism that aims to rewrite a law that has stood since the reconstruction era. Any such dramatic expansion of a civil-rights statute should only be done by Congress, not through new and unprecedented interpretations by courts.
The numerous shortfalls in the 11th Circuit’s opinion means that other courts will likely disagree with its approach, and this matter may ultimately be resolved by the Supreme Court.
Until then, charities engaged in racial justice or similar work should not despair or feel they must rethink their funding priorities and strategies. Instead, they should speak out against the appeals court decision and continue to perform their important work in the way they think best accomplishes their mission. Retrenchment and fear are not the answer to the Fearless Fund lawsuit.
