A federal judge in Texas has ruled that a nonprofit grant program for small businesses in the state is discriminatory because it favors businesses owned by minorities, women and LGBTQ people, in the latest legal victory for affirmative action critic Edward Blum.
U.S. District Judge Reed O'Connor in Fort Worth agreed on Wednesday with the American Alliance for Equal Rights, which was founded by Blum, that Founders First Community Development Corporation's program violates Section 1981 of the Civil Rights Act of 1866, which bans race discrimination in contracts.
Blum's group says that Founders First requires that grant recipients be minorities, women, or LGBTQ people unless they are military veterans or operate in low-income areas. Founders First has denied that it considers race or other protected characteristics in choosing grant recipients.
Blum also founded Students for Fair Admissions, which last year convinced the U.S. Supreme Court to hold in a landmark ruling that colleges cannot use race-based admissions policies.
O'Connor on Wednesday blocked Founders First from closing the current application period for the program or selecting recipients for a total of $50,000 in grants pending the outcome of the lawsuit filed by Blum's group in April. Founders First has awarded more than $1.35 million in grants to businesses so far in 2024, according to its website.
"Though Founders argues that collecting race data is acceptable when it’s done for 'legitimate reasons,' Founders fails to identify a legitimate reason for doing so before winners are selected," wrote O'Connor, an appointee of Republican former President George W. Bush.
Founders First and its lawyers did not immediately respond to requests for comment.
Blum in a statement said he was grateful that O'Connor recognized the grant program should be open to all applicants.
“Providing resources to emerging small businesses is a worthwhile endeavor, but excluding some owners because they are not the preferred race is unfair, polarizing and illegal," he said.
The Supreme Court's 2023 decision, which involved policies at Harvard and the University of North Carolina and only applied directly to college admissions, has been seized on by Blum and other conservative critics of affirmative action programs in cases challenging workforce diversity efforts, law firm fellowships, and small business grant programs.
While many of those cases are in early stages, some companies and law firms have abandoned or changed the terms of diversity initiatives in response to lawsuits or the threat of litigation.
Blum's group in June won a ruling from the Atlanta-based 11th U.S. Circuit Court of Appeals blocking venture capital fund Fearless Fund from making grants to Black women-owned businesses pending the outcome of a legal challenge.
Founders First selects ten grant recipients each year for the program, which is designed to help small businesses create new jobs.
Blum's group in its lawsuit says Founders First illegally discriminates against straight white men who are not veterans and are not located in geographic areas covered by the program, in violation of Section 1981.
The group in its complaint pointed to a member identified as "Member A" who it says is otherwise eligible for the grant program but cannot apply because he is a straight white male and does not live in a low-income area.
Founders First says it only asks applicants for their race so it can track the demographics of grant recipients.
But O'Connor on Wednesday said "overwhelming evidence," including statements on Founders First's website and the makeup of its pool of past grant recipients, suggested that the group prefers non-white applicants.
The judge wrote that the experience of "Member A" shows that Blum's group and its members would be irreparably harmed absent an injunction.
"Member A risks forever losing his chance to compete in an application process that is race neutral — a right that the Supreme Court [in the Harvard case] described as 'foundational,' 'fundamental,' 'transcendent,' and 'universal,'" O'Connor wrote.
The case is American Alliance for Equal Rights v. Founders First Community Development Corporation, U.S. District Court for the Northern District of Texas, No. 4:24-cv-00327.
For AAER: Steven Begakis of Consovoy McCarthy
For Founders First: Gregg Costa of Gibson Dunn & Crutcher
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