ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Tuesday, June 18, 2024

11th Circuit Grants Injunction 42 USC § 1981 Against Venture Capital Support for Black Women

Early in my contracts course, I cover freedom of contract.  I teach a case about the common law right to refuse to enter into a contract if you don't want to do so.  I follow that up with two cases, Barfield v. Commerce Bank & Gregory v. Dillard's, Inc., both discussed in this guest post by Charles Calleros. Those two cases are about 42 U.S.C. § 1981, which provides that “[a]ll persons . . . shall have the right to make and enforce contracts . . . as is enjoyed by White citizens.” 

Screenshot 2024-06-11 at 10.03.25 AMThanks to Melissa Murray and Kate Shaw and last week's episode of the Strict Scrutiny Podcast, I just learned of a new case out of the Eleventh Circuit interpreting §1981 in a new context. The case is American Alliance for Civil Rights v. Fearless Fund Management, LLC, and it involves a § 1981 challenge to the Fearless Strivers Grant Contest (the Contest), an entrepreneurship funding competition open only to businesses majority-owned by black women.  The Contest awards winners $20,000, plus access to digital tools and mentorship.  The plan was to run the Contest four times, with each iteration of the Contest open to applicants for one month.

The Eleventh Circuit panel determined first that the plaintiffs had standing and second that the Contest is substantially likely to violate § 1981. The panel remanded the case with instructions to the District Court that it preliminarily enjoin the Contest. The standing issue is an important one and the basis for an eloquent dissent in the case.  In order to claim that one was denied opportunity to "make and enforce a contract" under § 1981, a plaintiff has to show that they were "able and ready" to enter into a contract.  

Dillard'sPlaintiffs presented evidence that they were willing and able to enter the contest.  The unnamed plaintiffs were business owners that could use $20,000 and specified how they would use the grants if successful.  However, they never entered the contest because they are not majority-owned by Black women.  The Dillard's case is interesting because the plaintiffs there had their claims dismissed because they left the store (after being surveilled, harassed, insulted, or denied counter service) without attempting to buy something.  The court required them to take the next step, despite the fact that it may have been impossible to them buy anything if, for example, the employee at the jewelry counter wouldn't show how them anything.  Here, the plaintiffs had not in fact attempted to enter the Contest. 

Moreover, while anonymity is not a bar to recovery under § 1981, it seems to me that it raises certain issues of redressability not addressed in the opinion.  In order for plaintiffs to have a redressable injury, they need not merely have a right to enter the Contest but have a reasonable shot at winning it.  Unless we know more about the corporations and their suitability as applicants, how can the court determine whether they suffer any injury by not entering the contest. There wasn't any doubt that, but for Dillard's alleged discriminatory conduct, plaintiffs were able and ready to make purchases there.  Enter. Lose. Sue.  Why don't these corporations have to jump through the same hoops as natural persons? 

Moreover, there is a recognized exception non-discrimination laws in the affirmative action context.  The majority breezily concludes that the Contest does not fall within the exception because it creates an "absolute bar" to applicants other than Black women.  That seems a bit much, as it would prohibit all grants and awards that target a particular racial group.  As the dissent notes in a footnote, "Black women received only .0006% of [venture capital] funding raised by startups between 2009 and 2017.” That vital information is nowhere acknowledge in the majority opinion.  Viewed in context, the Contest is very far an "absolute bar" to people other than Black women receiving venture capital funding.  In fact, initiatives like the Contest may be the only way that Black women entrepreneurs may have access to capital.

Thurgood-marshallThe Fearless Fund (Fearless) contended that its Contest was not a contract. That argument was pretty weak, given that the Contest rules specified "“BY ENTERING THIS CONTEST, YOU AGREE TO THESE OFFICIAL RULES, WHICH ARE A CONTRACT.” Rather clumsily, Fearless tried to amend its rules after getting sued, but a rose by any other name . . . .  Fearless next attempted to argue that it was engaged in expressive conduct protected by the First Amendment, an argument to which the Eleventh Circuit was unsympathetic. I too would be concerned if the First Amendment could become a justification for race-based discrimination.

This seems like it might be a nice case to teach with Barfield  and Gregory. The challenging issue here, which is not really a contracts issue, is whether a remedial statute such as § 1981 can be used to enjoin a Contest designed to give Black women, the very people § 1981 was passed to protect, the opportunity to compete for venture capital funding.  As it turns out, the Supreme Court determined long ago that § 1981 prohibits all discrimination based on race, including  discrimination against white people.  The opinion made that determination was authored by Justice Thurgood Marshall (right)!

Robin_Rosenbaum_(cropped)My instinct is not to try to apply a statute that expressly states that its about race in a color-blind way, but Justice Marshall provided a discussion of the legislative history behind the statute and is quite convincing that it was designed to protect all people from discrimination on the basis of race.  In any case, the Eleventh Circuit is bound by his decision.  The concurring opinion from Judge Rosenbaum (left) points towards a way out, at least in this case.  Her introduction is worth quoting at length:

No one doubts the sincerity of an Arsenal (soccer) player’s desire to beat Tottenham. But he can’t be allowed to try to win by flopping on the field, faking an injury near Tottenham’s goal. . . . Referees’ vigilance prevents players who have a sincere desire to defeat their opponents—but who try to do so through manufactured fouls— from commandeering referees to improperly exercise their adjudicatory authority to award unwarranted penalty kicks. . . .

Here, no one doubts the sincerity of American Alliance for Equal Rights’s desire to challenge what it views as “distinctions and preferences made on the basis of race and ethnicity.” . . .  But as American Alliance has portrayed its members’ alleged injuries, it has shown nothing more than flopping on the field. Although three of American Alliance’s members pay lip service to the idea they are “ready and able” to participate in Fearless’s Contest, their declarations show, in context, that none has a genuine interest in actually entering the Contest. Indeed, not one has established that she is, in fact, able and ready to enter the Contest and would do so in the upcoming period if the Contest were open to non-Black women. So American Alliance’s alleged injuries don’t show “a real controversy with real impact on real persons” among its membership. . . . Rather, they reflect an attempt to manufacture an “injury” to allow American Alliance to challenge the Contest. That is not enough for standing. 

There was an nteresting lone concurrence from Justice Thomas in last week's mifepristone case indicating his skepticism about associational standing generally.  He specifically references last term's Students for Fair Admissions case, brought by the law firm that brought this one.  Justice Thomas has got me thinking about why associational standing is appropriate here.  Why can't these injured parties bring the case on their own with the law firm acting as counsel of record rather than party of record?

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