(Bloomberg Law) -- A venture capital firm will shut down a program that provided grant funding to Black women entrepreneurs in order to end a discrimination case brought by a conservative advocacy group led by longtime diversity, equity, and inclusion opponent Edward Blum.
The Fearless Fund and the American Alliance for Equal Rights agreed to a settlement that will prompt the litigation’s dismissal, according to a Wednesday court filing.
The case is one of several filed by conservative advocacy groups that aim to challenge DEI. Groups opposing these programs have targeted both funding for businesses with diverse ownership and DEI programs that help recruit diverse candidates for jobs.
The dueling interests around diversity efforts have heightened the risk of legal scrutiny for law firms, corporate employers, and venture capital funds alike.
The US Court of Appeals for the Eleventh Circuit said in a 2-1 decision June 3 that the Fearless Fund grant contest is substantially likely to violate Section 1981 of the 1866 Civil Rights Act, which prohibits racial discrimination in businesses’ legal contracts.
“The parties agree that Fearless will cease operating the Strivers Grant Contest, which was already in its final stage,” said Alphonso David, co-counsel for the Fearless Fund in a statement on the deal. “The agreement is very narrow and does not restrict or relate to any other investment or charitable activity of the Fearless Fund or the Foundation going forward.”
Settling the case—rather than seeking further review by the full Eleventh Circuit or the US Supreme Court—also could limit the reach of the precedent set by the June decision, he said.
“The impact of resolving this matter is significant in that a decision by two judges on the 11th Circuit will not bind the country,” David said.
“The American Alliance for Equal Rights encouraged the Fearless Fund to open its grant contest to Hispanic, Asian, Native American and white women but Fearless has decided instead to end it entirely,” Blum said in a statement. Blum has been a staunch opponent of DEI and brought the lawsuits that resulted in the Supreme Court’s 2023 Harvard decision curtailing affirmative action in college admissions.
Similar Programs at Risk
Fearless Fund wasn’t unique in offering business grants contingent on the founder’s race, according to Blum, who said in an email that AAER “has filed a dozen similar lawsuits and more are forthcoming in the future.”
Ilya Shapiro, an attorney with the Manhattan Institute who authored an amicus brief supporting AAER’s challenge, said the Eleventh Circuit decision will still carry substantial weight in how courts view similar funding programs.
“It’s quite clear that at least in that circuit, race-based programs like the one that Fearless was running are illegal,” Shapiro said.
The June appeals court decision in the Fearless Fund case reversed a September 2023 ruling in the US District Court for the Northern District of Georgia allowing the Strivers Grant Contest to continue. In that ruling, Judge Thomas W. Thrash Jr. found the Fearless Fund’s efforts to increase access to capital for Black women entrepreneurs could be a protected form of expression under the First Amendment.
The Eleventh Circuit panel rejected that reasoning and remanded the case to the lower court.
Fearless Fund also announced Wednesday the launch of a new $200 million fund offering loans of up to $250,000 to “under-resourced founders” who have been in business for at least a year. The fund didn’t immediately specify whether the program would include race-based eligibility criteria.
Attorneys from Gibson Dunn & Crutcher LLP, Global Black Economic Forum, Ben Crump Law PLLC, and Alston & Bird LLP represented Fearless Fund in the litigation.
Attorneys from Consovoy McCarthy PLLC and Chambliss & Fawcett LLP represented AAER.
The case is Am. All. for Equal Rights v. Fearless Fund Mgmt., LLC, N.D. Ga., No. 23-cv-3424, stipulation of dismissal filed 9/11/24 .
To contact the reporters on this story: Chris Marr in Atlanta at cmarr@bloombergindustry.com; Rebekah Mintzer in New York at rmintzer@bloombergindustry.com
To contact the editor responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com
(Updated with additional context throughout and statements from Blum and Shapiro.)
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