Grant program for Black women comes under tough questioning in key anti-DEI lawsuit

A small venture capital firm faced tough questions from conservative judges Wednesday as it defended a grant program for Black women-owned businesses in a lawsuit that has become emblematic of a growing legal backlash against corporate diversity programs.

The Fearless Fund, which provides early stage funding for businesses owned by women of color, is asking a three-judge panel in a U.S. federal court of appeals to lift an injunction against one of its programs, the Strivers Grant Contest, which provides $20,000 to businesses that are majority owned by Black women. The conservative group American Alliance for Equal Rights, filed a lawsuit last fall arguing that the program discriminates against people of other races.

The hearing in Miami on Wednesday is intended to decide whether the grant will remain suspended for the duration of the lawsuit. Questions by the conservative-leaning panel — consisting of two judges appointed by former President Donald Trump and one appointed by President Barack Obama — suggests the Fearless Fund will have an uphill battle.

Judge Kevin Newsom, a Trump appointee, pushed back against the Fearless Fund's argument that the grants are protected by the First Amendment because they are charitable donations. He asked the Fearless Fund's attorneys whether the same protection would apply to a contest open only to white applicants. That's a question frequently raised by Edward Blum, the conservative activist who leads the American Alliance for Equal Rights and who was behind the Supreme Court case that ended affirmative action in college admissions.

"I think that's a pretty simple yes or no," Newsom said, interrupting when the attorney for the Fearless Fund, Jason Schwartz, started to reply.

Schwartz replied that a white-only contest set up under the same parameters would indeed be protected by the First Amendment.

"No matter how repugnant I might find that, the First Amendment protects all speech," Schwartz said.

Pressed to explain how the case differs from a business that excludes minorities, Schwartz argued that charitable donations intended to promote a cause differ from commercial transactions such as employment and housing.

The American Alliance has argued that the Fearless Fund's contest is not a charitable donation but a contract whose racial requirements violate section 1981 of the 1866 Civil Rights Act, which prohibits discrimination on the basis of race when enforcing contracts. It was originally intended to protect formally enslaved people from economic exclusion.

The Fearless Fund case has become a rallying point for civil rights activists who argue that a ruling dismantling the program would endanger other donations or programs designed to help disadvantaged groups. The Fearless Fund was founded to address the huge racial disparity in funding for businesses owned by women of color. Less than 1% of venture capital funding, for example, goes to businesses owned by Black and Hispanic women, according to the nonprofit advocacy group digitalundivided.

"Less than 1% of all venture capital funds go to women of color. And so we are here fighting them to say, can we at least have 1%? They're saying, no, we want all the pie," Ben Crump, a civil rights attorney who is also representing the Fearless Fund Fund, said a news conference following the hearing.

"That's why this case is so consequential and so landmark, because it will have a chilling effect not only on women and women of color, but even diversity in America," he said.

The Fearless Fund was founded with backing from prominent companies like J.P. Morgan Chase & Co., Bank of America and Mastercard, which funds the Strivers Grant Contest. But since the lawsuit was filed, the Fearless Fund has had trouble securing new investment, said co-founder Arian Simone.

"When people hear lawsuits, sometimes the spirit of fear has gotten to them. So yes, we have been financially impacted due to this lawsuit. We were looking for upwards about eight figures of investments that fell through this past fall," Simone at the news conference.

In court, Newsom expresses skepticism at the Fearless Fund's arguments that its grants are not discriminatory given that it's a tiny player in venture funding industry and business owners who are not eligible have many other avenues of accessing capital.

"The thing about that I just don't think I either fully buy or understand is that it seems like, at its core, the premise of your argument is that, so long as there are lots of other sources of funding out there are not discriminating on the basis of race, we can," Newsom said.

Schwartz argued that charities have the right to choose what to fund based on the problem they are trying to address.

"In the context of small giving, you can't say it's not remedial just because it's not solving everyone's problems," Schwartz said. "The answer can't possibly be give to everyone or no one."

A different panel of the same court of appeals temporarily halted the Strivers Grant Context last fall, reversing a lower court's decision that refused to block it.