Fearless Fund reaches a settlement to end its awards to Black female entrepreneurs—What are the implications for other grantmakers?

The Fearless Fund and Fearless Foundation, which made awards restricted to Black female entrepreneurs, announced a settlement on September 10 with the American Alliance for Equal Rights (AAER) and will end its Fearless Strivers Grant Contest that was targeted in a racial discrimination lawsuit by AAER. The settlement means that states within the U.S. Court of Appeals for the 11th Circuit’s jurisdiction will be subject to the rationale behind the court’s preliminary injunction that found grants awarded through contracts cannot be restricted based on race. For grantmakers outside of these states, the implications are less clear.

The Atlanta Journal-Constitution article notes that Arian Simone, Fearless Fund co-founder and CEO, decided to settle because the decision would apply nationwide if they lost in an appeal to the U.S. Supreme Court.

Background on the case provided by CNN and others clarifies that the court’s ruling was largely based on the Fearless Foundation’s use of contracts in its grants, as the court found that anti-discrimination contracting law likely made restricting the awards to Black female entrepreneurs impermissible. Section 1981 prohibits discrimination based on race or ethnicity when making or enforcing contracts. A release from the Council on Foundations explains, “The most recent ruling before the settlement, from the U.S. Court of Appeals for the 11th Circuit, said that AAER had standing to sue and that the grant program was likely to violate Section 1981 of the Civil Rights Act of 1886 because it created a contractual relationship between Fearless Foundation and its grantees.”

In the press release, the Council and the Independent Sector—a national membership organization for changemakers, nonprofits, foundations, and corporations—recommend that “foundations continue their race-based and race-conscious grantmaking programs; however, they should ensure that their grants are considered gifts and do not create contractual relationships with grantees.” Note that this is a general recommendation, even though the settlement only affects the 11th Circuit.

Lawyers writing about the case in JD Supra suggest further caution, warning that the preliminary ruling and settlement do not mean that courts will view non-contractual awards restricted based on race as acceptable—the Fearless Fund case did not explore this issue. At least three other circuits are considering cases about grantmaking.

This article was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.