Fearless Fund Case – 11th Circuit Opinion

Black young woman with glasses looking interested

We have previously written about the Fearless Fund case and Section 1981 of the Civil Rights Act of 1866. The Council on Foundations has a helpful summary of the case prior to this week’s decision by the 11th Circuit available here.

On June 3, 2024, the 11th Circuit held: (1) that the plaintiff, American Alliance for Equal Rights (the “Alliance”), has standing to sue the Fearless Fund entities (collectively, “Fearless”), including the Fearless Foundation, and (2) that preliminary injunctive relief to prevent Fearless from closing its entrepreneurship funding competition open only to businesses owned by black women is appropriate because Fearless’s contest (a) is substantially likely to violate Section 1981, (b) is substantially unlikely to enjoy First Amendment protection, (c) and inflicts irreparable injury. The decision was 2-1 with the two Trump-appointees in the majority and the Obama-appointee dissenting.

According to The Washington Post:

“This is the first court decision in the 150+ year history of the post-Civil War civil rights law that has halted private charitable support for any racial or ethnic group,” Jason Schwartz, a lawyer with Gibson, Dunn & Crutcher, which is representing Fearless Fund, said in a statement emailed to The Washington Post. “The dissenting judge, the district court and other courts have agreed with us that these types of claims should not prevail.”

Appeals court blocks Fearless Fund from awarding grants to Black women

The Council on Foundations and Independent Sector issued a joint press release criticizing the opinion:

“Philanthropy comes from the heart, because giving is about supporting the causes and people we care about most,” said Council on Foundations President and CEO Kathleen Enright. “It’s different for all of us, and that’s a strength. The last thing we want to see is a legal environment that further restricts how private resources can be dedicated to the public good. That’s why we’ll continue to stand for the First Amendment protected right to give charitably according to our values. At the end of the day, we want to make it easier to give – not harder.”

“The court’s decision threatens the right of the charitable sector to address urgent, unmet needs and to strengthen communities nationwide in a diversity of ways,” said Independent Sector President and CEO Dr. Akilah Watkins. “In undercutting philanthropy’s basic First Amendment protection, this ruling makes it harder to support historically marginalized groups, and jeopardizes our work to promote equity and justice. Now, more than ever, our sector is called upon to advocate for equitable policies and systems that help us build a nation where all people thrive.”

This was certainly a disappointing result, if not entirely unexpected. While the court’s holding may be seen as increasing certain risks for nonprofits operating race-focused programs, that’s an oversimplification of this matter. The pursuit of eliminating prejudice and discrimination remains a charitable exempt activity under Section 501(c)(3). See, e.g., Charitable: Eliminating Prejudice and Discrimination. And Section 1981 specifically relates to the making, performance, modification, and termination of contracts.

A key to mitigating Section 1981 risk in programs that address racial equity issues is to avoid characterization of the necessary elements of such programs as contracts. Sometimes, this is easier said than done. Customary parts of certain programs like grant agreements may bear inherent risks. But organizations, leaders, and professionals that value equity and justice are working on information to share to mitigate some of these risks while continuing to fight against misapplication of Section 1981, which was enacted after the Civil War to guarantee recently emancipated slaves the same rights to make and enforce contracts “as enjoyed by white citizens.”

Stay informed and advocate for equity. It benefits all of us.