Court Extends Fearless Foundation Rationale to Sexual Orientation and Gender Identity

August 5, 2024

The American Alliance for Equal Rights (AAER) has secured another injunction against a nonprofit, the mission of which is to address underrepresentation in business ownership. This time, a court enjoined an exempt organization’s grant program eligible to black, Latinx, and LGBTQIA people in addition to veterans, moms, and people living in low-income areas. AAER is the exempt law firm responsible for SFFA and the impending take-down of the Fearless Foundation’s grant program for black women entrepreneurs.

But this most recent case is different. The granted preliminary injunction implies that AAER is likely to prevail, sure enough. But the inclusion of a wider pool of eligible recipients — veterans, moms, and low-income applicants — distinguishes the latest case from Fearless Foundation where only African American women were eligible. In this case, the Court simply didn’t believe the pool of eligible persons is as wide as Founders asserts. The injunction is preliminary so one must wonder what the result would be if the nonprofit proves what the Court did not believe — that eligibility is not limited by race, gender, or orientation. I am not a constitutional law specialist but I tend to think that SFFA and Fearless Foundation mean that race (at least) can’t even be a single criteria.

The Founders First Community Development Corporation is a 501(c)(3) whose mission, according to its 990 is “to help underserved, underrepresented small business owners overcome challenges they face due to lack of access to capital, and to assist them in increasing business capacity resulting in higher revenue grown and providing more jobs.” In pursuit of that goal Founders conducts grant competitions opened to business owners. Founders has grant competition programs for LGBTQIA+, and Latina women, or Black women. It also conducts grant competitions for veteran- and “mom owned-businesses. Here is how a Ft. Worth federal district court judge described Founders in an order granting an injunction:

Founders sets strict eligibility requirements for those who want to apply. To participate in the contest, applicants must identify as one of the following: Latinx, Black, Asian, Women, LGBTQIA+, a Military Veteran, or someone located in a low to moderate income area. Eligible applicants must also satisfy three broad conditions: (i) they must own a for-profit service-based business in Texas; (ii) their business must have two to twenty employees and make $100,000 to $3,000,000 a year; and (iii) their business must be able to add at least one job that pays an average of $50,000 in yearly salary and benefits in the next 12 months. Once those eligibility requirements are met, Founders evaluates the applications based on eight merit-based criteria to score the applicants before ultimately selecting the grant recipients.

As with Fearless Fund, the Court granted standing, “willy-nilly,” based on AAER’s assertions of an unidentified members:

Member A is ready and able to immediately apply during the upcoming grant cycle but is unable to because he does not identify as one of Founders’ preferred groups. Member A is a straight white civilian male who does not live in one of the specified economic areas. Other than not meeting the contest’s demographic requirements, Member A otherwise satisfies all the other eligibility requirements.

. . .

There is overwhelming evidence that Founders requires applicants to be “Latinx, Black, Asian, Women, LGBTQIA+, Military Veteran, or located in a low to Moderate Income area.” Thus, Member A has standing4 because he is put “on unequal footing with other applicants based on race.” SFFA v. Univ. of Tex., 37 F.4th 1078, 1086 (5th Cir. 2022). Second, Founders does not challenge that this suit is germane to the Alliance’s mission, so the second prong of associational standing is met. Third, the Alliance’s Section 1981 claim “[does] not require the participation of [its] individual members” because “the harm” is “their inability to compete on equal footing (and not their ultimate inability to obtain the grant).” AAER v. Fearless Fund Mgmt., [2023 BL 339923], 2023 WL 6295121 , at *4 (N.D. Ga. Sept. 27), aff’d on standing, 103 F.4th 765, 771-75 (11th Cir. 2024). Finally, the Court determines “[t]he Alliance’s identification of its affected members by … pseudonyms … poses no bar to its standing.” AAER v. Fearless Fund Mgmt., 103 F.4th 765 , 773 (11th Cir. 2024).

The Court then rejected — more as a matter of fact than of law — Founders’ assertion that eligibility for its grant program is not limited by race, gender, or orientation:

Despite this back drop, Founders argues that it “does not discriminate on the basis of race[,]” and thus, the contest does not treat races differently and therefore does not violate Section 1981. In making this claim, Founders relies on a declaration from Founders’ executive director, Shaylon Scott, and a declaration from Michael Farmer, the sole white male with no additional demographic category to be awarded a Texas Grant.

Countering the declarations of Ms. Scott and Mr. Farmer however is overwhelming evidence that Founders prefers applicants from its listed demographics as discussed above. Further, their claims are not supported by any policy, webpage, email, or other Founders document. Worse still, the Texas Grant’s application requires disclosure of race and demands demographic information. The application elicits answers to a host of demographic questions, and requires a “headshot of the founder,” as well as a “video[.]” Though Founders argues that collecting race data is acceptable when it’s done for “legitimate reasons,” Founders fails to identify a legitimate reason for doing so before winners are selected.

The Court finds that Founders’ repeated and unequivocal statements that applicants must belong to one of its preferred demographic groups, far outweighs any probative value in Ms. Scott’s singular post-lawsuit declaration that it does not, and Mr. Farmer’s assessment of the program. This evidence demonstrates that, at best, Mr. Farmer’s award is a fringe outlier that eluded Founders demographic eligibility requirements.

Nor does Founders’ assertion that the webpage was unclear about race and that the program uses volunteers negate the evidence that it uses race in implementing the program. First there is nothing unclear about the webpage. Founders emphatically proclaims applicants must be Latinx, Black, Asian, or otherwise meet one of the specified demographic categories. Even when Founders altered the webpage in an attempt to provide more clarity, it retained statements affirming applicants must be people of color, women, members of the LGBTQ community, military veterans or someone within a low or moderate income area.

Finally, that Founders utilizes volunteer judges to evaluate the applications does not demonstrate race is not utilized because those judges are trained by Founders’ executive director, the same person who has emphasized that the applicants must meet one of the preferred categories. For the reasons stated above, the Court holds at this stage that Plaintiff is likely to succeed on the merits, and thus, has carried part of its burden for a preliminary injunction.

Since the order concerns a preliminary injunction, perhaps the outcome will be different if Founders proves the expanded eligibility criteria at trial. The Court didn’t say that expanded criteria would save the program. It did not have to explicitly address that issue because once it determined, if only preliminarily, that no such criteria existed the case was on all fours with Fearless Foundation. Should the expanded criteria save the Founders?

darryll k. jones