The U.S. Supreme Court’s June decision barring the use of race in college admissions was watched carefully by nonprofit legal experts, who predicted the ruling would be used as a basis for litigation targeting race-based philanthropic grant making.
A lawsuit argues that a company’s grants to Black women entrepreneurs violate civil-rights laws.
In two cases brought by conservative nonprofit Students for Fair Admissions, the Supreme Court found that affirmative-action programs aimed at diversifying the student bodies at Harvard University and the University of North Carolina were unconstitutional.
Now, as the first cases that attempt to apply the decision to philanthropy have arrived, many grant makers and nonprofits are feeling legally exposed.
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In one case, the American Alliance for Equal Rights, a nonprofit run by Edward Blum, the conservative legal strategist behind the Students for Fair Admissions cases, filed suit against the Fearless Fund, an Atlanta-based venture-capital firm, and its associated foundation. In its filing in U.S. District Court for the Northern District of Georgia, the Alliance argues that the Fearless Fund, which makes grants to Black women entrepreneurs, runs afoul of Section 1981 of civil rights rules first enshrined into law during the Reconstruction era barring discrimination based on race when two parties agree to a contract.
The case, one of a few that are being heard in lower courts, doesn’t squarely deal with college admissions. But legal experts say the Supreme Court ruling has opened the door for conservative lawyers eager to test whether invoking diversity in other activities, such as grant making, will be viewed by the courts as discriminatory. Another case filed by the American Alliance for Equal Rights targets diversity fellowships offered by two law firms, while a separate action has been filed against the Abundant Birth Project, a San Francisco Bay Area effort to provide cash stipends to pregnant Black women.
Grant making that singles out race as a factor invites lawsuits, says Jonathan Berry, a lawyer who led the Department of Labor’s regulatory office under former President Trump.
“I would expect more lawsuits like these to crop up in the next few years, and if there is enough of them and thorny-enough issues get implicated, I would expect the Supreme Court to step in,” he says.
A Contract or a Gift?
A key question in the Fearless Fund case is whether a grant agreement should be interpreted as a gift, which would give grant makers great discretion over who receives funds, or a contract that falls under civil-rights law and thus bars excluding recipients on the basis of race. If a grant agreement provides benefits to both parties and gives them legal recourse to sue if the provisions of the grant aren’t followed, it can generally be seen as a contract. But there isn’t a solid accumulation of case law providing an exact definition, says Gene Takagi, principal at NEO Law Group, a law firm that advises nonprofits.
“You can draft a grant agreement so that it is not a contract,” he says. “But we don’t exactly know where that line is” legally, he says.
Takagi predicts that the pending lawsuits will have a chilling effect on some grant-making activity, compelling foundations to steer clear of any grants that specify the race of a recipient. Some, he says, will adjust their grant language to try to make it clear that they are providing a gift rather than entering into a contractual relationship, or they will attempt to use proxies for race, such as making grants to recipients in certain ZIP codes that have a large population of Black or Latino residents, for instance. Others, he says, will “be bold” and continue their current practice of supporting grantees based on race, such as providing grants to Black-led organizations.
“If you’re a very rich organization with access to lawyers, that’s much easier to say than a smaller organization that might be wiped out” by legal fees associated with a lawsuit, he says.
But nonprofits that support racial-justice work should not be afraid to stand on principle, says Carmen Rojas, president of the Marguerite Casey Foundation. Four years ago, philanthropy largely embraced the Black Lives Matter movement, she says. She fears that the affirmative-action lawsuits could lead foundations to “water down” their approach by focusing grants on census tracts with disproportionately Black areas, rather than specifically saying a grant is meant to help Black people.
Experts predict the lawsuits will have a chilling effect.
The lawsuits, she says, are “nefarious in their desire to push the pendulum from 2020 to a whole different moment in which not only are we not talking about race but where we’re afraid to actually imagine race as a factor shaping our lives.”
Mitigating Risks
Before the Supreme Court decision and in the months since, nonprofits have worked to develop a coordinated response. The Hewlett Foundation commissioned a legal brief outlining the risks to nonprofits of the ruling, and the MacArthur Foundation has met regularly with foundation leaders, including members of ABFE (formerly known as the Association of Black Foundation Executives), Asian American/Pacific Islanders in Philanthropy, Hispanics in Philanthropy, and Native Americans in Philanthropy.
Susan Taylor Batten, president of ABFE, says a legal fund to support nonprofits that have been sued is “on the table” but that donors have not finalized plans.
Meanwhile, in December the Council on Foundations and Independent Sector, two membership organizations of grant makers and nonprofits, filed a friend of the court brief in the Fearless Fund case. They argued that grant making is protected free expression and not bound by discrimination law. The Fearless Fund’s support of Black women entrepreneurs, they said, was a noble attempt to right past wrongs, as Black business founders have been woefully underfunded.
Akilah Watkins, Independent Sector’s president, urges foundation and charity leaders to “take a beat” before making any major changes to their grant making that could reverse years of effort. Rather than stop making grants designed to benefit members of a specific race or using proxies for race, Watkins suggests that grant makers investigate the language they use to publicize and complete their grants to ensure that they cannot be interpreted as contracts.
“This is a good time for all of us to do that internal housekeeping,” she says.
