Some Thoughts on Fearless Fund
Well. I am finally reading Students For Fair Admission v. Harvard and UNC. I had to because I wanted to comment on the Eleventh Circuit’s decision in Fearless Fund. In Fearless Fund, the 11th Circuit reversed a lower court’s refusal to grant a preliminary injunction against an exempt organization that made grants exclusively to Black women. It is one of the many cases filed in the wake of SFFA. So far, I have read SFAA’s majority opinion and Justice Thomas’ concurrence. I had hoped never to read any of it.
SFAA’s language about equality and discrimination is majestic and confessional. As if to admit that slavery and Jim Crow were the country’s greatest wrongs but also to ask “how long must we persist in collective recompense before we may claim to be forgiven and that equality is here?” The majority believes it’s been long enough in either case.
The Eleventh Circuit’s holding in Fearless Fund is not the end of the case, though it is not unreasonable to think the end is nigh, and it won’t be good for Fearless Fund or nonprofits that work to remedy the effects of slavery and Jim Crow. Fearless Fund hinges upon the presence of a contract – a quid pro quo – exchange. Because 42 U.S.C. 1981 prohibits discrimination in contracts, even between two private parties. Fearless Fund is a 501(c)(3) that takes applications and makes grants to businesses owned by Black women. If Black women don’t own at least 51% of the business, the owners are not eligible. According to the Court, Fearless Fund’s grant process amounts to a contract because Fearless Fund receives the right to use a successful grant applicant’s NIL in future advertising, and to discuss or disclose a successful applicant’s propriety business information. It’s a dubious conclusion that a contract is formed, but a defensible one nevertheless.
Thus, the case cannot yet be interpreted to mean that nonprofit organizations can’t make no strings attached grants and other disbursements in pursuit of charitable purposes, even if those grants are reserved exclusively for African Americans or another racial or gender category. A nonprofit, for example, can still make grants to fight the pipeline to prison that afflicts Black boys today. It might even admit that it funds only programs and activities that work with black boys, at least as long as the funding comes with no strings from which one can discern a contract.
But the bigger issue – the one that persists even after SFAA and Fearless Fund – is whether the Service should take the position that a tax-exempt organization violates law or clearly defined public policy by funding efforts to address social maladies unique to one demographic. May an organization fund scholarships solely for Black men severely overrepresented in prison and just as severely underrepresented in higher education? Fearless Fund does not necessarily impact an organization’s ability to do so, unless the awarding of a scholarship constitutes a contract between the organization and the recipient.
Current regulations allow organizations to engage in activities designed to “(ii) to eliminate prejudice and discrimination; or (iii) to defend human and civil rights secured by law.” Until SFAA, most people took the former to include “eliminating the effects of prejudice and discrimination, but the SFAA majority took what seems a very dim view of remediation as justifications for affirmative action and to a lesser extent DEI. In hindsight, we should have recognized that Bakke’s attempt to portray affirmative action as something justified by classroom diversity, rather than remediation of slavery and Jim Crow-ism, doomed remediation as a compelling interest. The constitutional law specialists probably saw this coming.
To this point, I have been very critical of the lawyers representing Fearless Fund. The argument that the First Amendment’s guarantee of free speech justifies grant-making to a single demographic seemed absurd, and in the tax-exempt arena, contrary to the lesson of Bob Jones. I had a long debate with an attorney directly involved in vetting the strategy a couple of weeks ago. The basic explanation was that there was no other argument to make, given the Supreme Court’s rejection of remediation of slavery and discrimination as a compelling state interest. I had not read SFAA when I yelled at the attorney for being so stupid. The First Amendment argument could never have worked without overruling Bob Jones. But now I see why the litigants bothered with the argument.
SFAA goes back, now, to the district court where it is seems pretty clear that the First Amendment argument will be summarily rejected if it’s not abandoned. I still think, despite the Court’s dim view of affirmative action as a tool by which to remedy slavery and Jim Crow-ism, that SFAA need not determine the outcome. Explicit race-based affirmative action in higher education has a much longer track record than affirmative action by exempt organizations seeking to balance the marketplace. One of the problems the Court had in SFAA is that without an end game, remediation efforts were based on an “ageless” justification extending infinitely backwards and forwards in time. Affirmative action might never end if based on remediation of historic discrimination, according to the majority. Fair enough, even if the Court’s conclusion that we have reached the end game – equality in higher education – is Pollyannaish at best, a straight out lie at worst.
I think a better case can be made that equality in the marketplace is not even close to a reality, especially for Black women entrepreneurs. That demographic must be the most underrepresented group in the marketplace, if not exceeded only by Black men. So I think it’s worth pursuing a factual predicate – the underrepresentation of Black women business owners — to meet the strict scrutiny standard applied without success in SFAA. But yeah, lots of luck with that.
I doubt the Service will start looking sideways at organizations that spend money on one demographic to the exclusion of others any time soon. But after eliminating considerations of race in education and private contracts, proponents will presumably set their sights on no-strings attached disbursements by exempt organizations focused on solving problems unique or nearly unique to a single demographic.
darryll k. jones