A legal advocacy group led by conservative activist Edward Blum succeeded in convincing a federal judge to block a Texas nonprofit from issuing grants to minority business owners, in yet another strike against DEI programs.
The preliminary injunction against San Diego-based Founders First Community Development Corp. is a victory for the American Alliance for Equal Rights—a group run by Blum—which has been on a campaign to stymie diversity programs through the courts. This suit is another part of a spate of other legal challenges to programs aimed at promoting diversity.
Founders First is enjoined from closing its current application period for its Texas Job Creators Program until future directives from the courts, said Judge Reed O’Connor with the US District Court for the Northern District of Texas. Founders First can’t select grant recipients or enforce the contest’s racial eligibility requirements, O’Connor said.
O’Connor, a President George W. Bush appointee, has ruled against several Biden administration policies in high-profile suits concerning Obamacare, the Title IX Rule barring transgender discrimination in schools, transgender bathroom bans in schools, and more.
Founders First discriminates against an unnamed white male AAER member—”Member A”—by opening a contest for tens of thousands of dollars in small business grant money only to people who “identify as one of the following: Latinx, Black, Asian, Women, LGBTQIA+, Military Veteran, or [someone] located in a Low to Moderate Income area,” AAER said. The grant program awards $50,000 to “10 diverse-led businesses in Texas,” the complaint said.
AAER alleged the Texas Job Creators Grant amounts to illegal discrimination under 42 U.S.C. § 1981 of the Civil Rights Act of 1866, a Civil War-era anti-discrimination statute.
Absent an injunction, business owner “Member A” is unable to apply because he doesn’t identify as one of Founders’ preferred groups and “risks forever losing his chance to compete in an application process that is race neutral—a right that the Supreme Court has described as ‘foundational,’ ‘fundamental,’ ‘transcendent,’ and ‘universal,’” O’Connor wrote in a July 31 opinion.
“While Founders contends that a preliminary injunction disserves the public interest because Texas Grants support small businesses, the Court does not see how the public is served by a program with racially discriminatory practices,” O’Connor said.
The Alliance identified three “irreparable harms,” including racial discrimination, lost opportunity to apply, and potential mootness, wrote O’Connor. “The Court agrees that Founders’ discrimination is irreparably harming the Alliance and its members, including Member A, by subjecting them to ‘a discriminatory classification’ that prevents Member A and other members ‘from competing on an equal footing.’”
Blum’s group has brought similar lawsuits against business and law firm diversity, equity, and inclusion programs—known as “DEI” programs—including at firms such as Perkins Coie, Morrison & Foerster, and Winston & Strawn. The US Court of Appeals for the Eleventh Circuit last year ordered a pause on an Atlanta venture fund’s grants for Black women entrepreneurs in a case brought by the AAER. The Eleventh Circuit heard oral arguments in that case earlier this year.
Founded in 2021, AAER is a nationwide membership organization that’s “dedicated to ending racial classifications and racial preferences in America,” according to the complaint. Blum is the group’s president.
The group often relies on the 1866 Civil Rights Act’s Section 1981, which affirmed that all citizens are equally protected by the law. Under that statute, “[a]ll persons within the jurisdiction of the United States shall have the same right … to make and enforce contracts … as is enjoyed by white citizens,” AAER said. The grant program violates Section 1981 by declining to contract with the white male AAER member on the basis of race, the complaint said.
Consovoy McCarthy PLLC and Lawfair LLC represent the plaintiff. Gibson, Dunn & Crutcher LLP represents Founders First Community Development Corp.
The case is Am. All. for Equal Rights v. Founders First Community Development Corp., N.D. Tex., No. 24-00327, Opinion 7/31/24