A couple of weeks ago I was chatting with a friend of mine who is heavily tied into the venture community. She asked whether we had put out anything on the Fearless Fund litigation. I said we hadn’t because no one knew yet what impact this lawsuit would have, if any. “Okay,” she said, “but most other people don’t know that.” Right. That’s right. Sometimes you forget that not everyone is a lawyer and that even people who are lawyers aren’t necessarily putting out practical, easy-to-understand explanations. We’re going to try to fill in that gap.
This post is for anyone who has heard of the Fearless Fund litigation but doesn’t feel like they have a good handle on what exactly is going on in that case—what is being claimed, who is being affected, what are the implications, and what exactly is happening today. And when we don’t have that kind of information, things feel really scary. This is not to say that this lawsuit isn’t scary (or, at a minimum, nausea-inducing). But it is to say that it may not be as scary as you think (at least not yet).
The Parties. On August 2, 2023, American Alliance for Equal Rights (AAER) filed suit against Fearless Fund in federal court in Atlanta. (Case No. 1:23-cv-03424-TWT for all you dorks out there). AAER is an organization that purports to represent a group of non-Black women business owners. The leader of AAER is Edward Blum, that same good citizen who spearheaded the recent affirmative action case decided by the U.S. Supreme Court. Also note, in case you didn’t realize it, the people bringing this case are women. It’s not Ed Blum on his own. He needed plaintiffs that could claim they were harmed by not having access to Fearless Fund’s grant program. We’re doing it to each other, ladies.
Fearless Fund is a venture capital fund led by Arian Simone that invests pre-seed to Series A startups led by women of color. Fearless Fund has a grant program (The Fearless Strivers Grant Contest) that awards $20,000 grants to black women. The defendants here are the Fearless Fund Foundation, management company, and the fund and GP for Fund II (which we’ll jointly refer to as “FF”).
The Claim. The plaintiffs here are claiming that they would have applied for the Strivers Contest but they weren’t eligible because they are not Black. The legal basis for the claim is a statute that most of us have never heard of: 42 U.S.C. § 1981. That is Title 42, Section 1981 of the United States Code (which is a big book of federal statutes). Section 1981 is part of, wait for it, the Civil Rights Act of 1866. That’s right, the CRA that was meant to start addressing the gargantuan harm caused by the nearly two hundred years of enslaving Black human beings. Section 1981 in particular was supposed to address private contracting by ensuring that people couldn’t refuse to enter into contracts with, or offer the same contractual terms to, Black Americans.
Unlike the Equal Protection Clause, however, section 1981 was explicit about the group that it was not protecting (white people): “All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . as is enjoyed by white citizens.”
How does this relate to the affirmative action case? It relates in that it was brought by the same person with the same agenda (purportedly to make things “race neutral”—i.e., ignoring the necessary and obvious remedial nature and intent of these laws). It does not relate in that these are totally different types of parties and a different law at issue. The affirmative action case, SFFA v. Harvard College, was brought against a university that received federal dollars and under a statute that governs entities receiving federal dollars. But, Jessie, wasn’t that case about the Equal Protection clause? Yes and no. The claim was not under EP, but the analysis was an EP analysis because the Court had held that the analysis is the same under EP and under the federal statute. Too much detail? Too bad, I love this stuff. If strictly construed, the opinion in SFFA v. Harvard College should only be applicable to cases against other entities receiving federal funding. Thus, it would not apply to the Fearless Fund case. At the same time, it looks like some EP law has been applied to section 1981, so tom(ay)to, tom(ah)to.
What’s going on with the lawsuit now? AAER filed their lawsuit in August and immediately moved for an order restraining Fearless Fund from proceeding with its grant program. That motion has since morphed into a request for a preliminary injunction (PI) to do the same thing. This is where we first get a look at the parties’ respective arguments (exciting!) because PI briefing requires the parties to explain why this case is or is not likely to succeed when it goes forward to full litigation.
Plaintiff’s Case: Their motion for a PI parroted the complaint. Fearless Fund’s program is only open to Black women and it involves some form of “contract” between Fearless Fund and the applicants. Thus, it is discriminating based on race and violates section 1981.
Defendants’ Case: Defendants filed their opposition on August 31 laying out four substantive arguments. First, AAER doesn’t have standing because they haven’t named any actual plaintiffs (they were anonymous in the complaint) and failure to receive a discretionary gift is not enough of a harm. Second, giving money is protected speech (not sure what the merit is here, but we know this Supreme Court looooooves the First Amendment, except the part about separating church and state). Third, there is no real contract here because Fearless Fund is granting the money (the term contract used to be in the program rules but they have now removed it). Fourth, the Strivers Contest is a valid remedial measure.
Who has the better argument? On the face of the statute and looking at statutory intent, of course Fearless Fund has the better argument. Unfortunately, as with the Second Amendment (that clearly does not support a private citizen’s right to bear arms), the Supreme Court has issued decisions against the plain language of the statute. There is SCOTUS precedent out there saying this statute applies to all race-based discrimination. Side note on how ridiculous this is: how can you argue that white citizens are being deprived of the same contractual rights as white citizens under the statute?!?!?! I’d like to see some conservative textualist (I’m looking at you, Neil Gorsuch) explain that one. Regardless, it is this precedent, I assume, that explains why FF’s counsel didn’t argue that the statute doesn’t apply to programs that discriminate against white people. Honestly, I was disappointed not to see that.
In terms of the other arguments, it’s hard to say without digging deeper into the cases cited in the briefing. Each side makes a compelling argument in its papers, but lawyers are often misleading in their interpretation of cases when they’re advocating.
What comes next? On September 26, there will be a hearing before the judge at which both sides will orally argue their positions. Judges often rule on preliminary injunction requests at the hearing, but not always. So we may get a ruling that day or we may not. Keep in mind this is just a preliminary motion—it doesn’t decide anything about the substance of the case. Once this motion is decided, the case will proceed, at which point I assume FF will file a motion to dismiss the complaint setting out all the legal arguments why the claim on its face is meritless.
Who’s making these decisions? The case is before the Honorable Thomas W. Thrash, Jr., Senior U.S. District Judge. What does that mean? It means he’s been a judge for a long time and now works with a reduced workload. Judge Thrash is from Birmingham, Alabama, went to UVA and Harvard Law, and was appointed by President Clinton. Cases are typically assigned at random.
What does this all mean though? The biggest concern with a case like this is not just one grant program, it’s the potential application far beyond this program to other grant programs and then onward to funds that focus on racial and ethnic minorities in their investment strategies. That does concern me. But then I wonder why they didn’t bring this case against FF for its investing rather than its grant program. The reason is likely that they couldn’t find female startup founders who were actively seeking venture investment who wanted to participate in this bullsh*t. Let’s stick together here, ladies, for f*ck’s sake.
What does this mean for those of us who focus on women? Nada. Section 1981 is about race only. Also, discrimination based on gender is reviewed with a lower degree of scrutiny than discrimination based on race, so it’s a harder case.
We’re going to be monitoring this all the way to the end and will be sending out updates directly to All Places clients who might be impacted, or through this newsletter or LinkedIn to the entire community. We’re all in this together.