The Case
Understanding Section 1981 and Grants for Businesses of Color
“Fearless Foundation [is] an organization led by Black women that helps combat underfunding in venture capital by providing grants, tools, and mentorship to women of color.” (Amicus Brief)
“On August 2, 2023, the American Alliance for Equal Rights (AAER) filed a complaint on behalf of three of its unnamed members in the Northern District of Georgia against Fearless Fund…The lawsuit alleged that a grant program run by Fearless Foundation violates 42 U.S.C. Section 1981, a federal statute enacted as part of the Civil Rights Act of 1866 that prohibits discrimination on the basis of race in the making or enforcement of contracts.”
“AAER alleges that the grant program constitutes a contractual relationship between Fearless Foundation and grant applicants and that the restriction of eligibility to businesses owned by Black women violates Section 1981.” (Fearless Fund Case Summary)
“In June 2024, the U.S. Court of Appeals for the 11th Circuit ordered an immediate temporary pause to the grant program, finding it likely violated the law.”
“In September 2024, the parties settled the case, with Fearless Fund agreeing to voluntarily end the grant program. Because the case settled before the court was able to decide the legality of the grant program on the full evidentiary record, the decision of the appeals court has limited impact.”
“However, the ruling suggests that federal courts…could determine that grants or other programs with contractual obligations violate section 1981 if decisions about who receives funds or services are made on the basis of the race or ethnicity of the applicant, regardless of the reparative or other beneficial goals of the programs.”
Investing in Racial Equity Through Charitable Grants and Services from the Lawyers’ Committee for Civil Rights Under Law
The Reporting
Investing in Racial Equity Through Charitable Grants and Services from the Lawyers’ Committee for Civil Rights Under Law
Read the full case summary: Fearless Fund Case Summary from the Council on Foundations
Read the Amicus Brief: Amicus Brief from the Council on Foundations
More Detail
Key Points
Why It Matters for Nonprofits
“The Fearless Fund decision does not mean an end to racially informed grantmaking or nonprofit work…The decision has, however, created a landscape where using race as an explicit eligibility criterion for grants and services that could be interpreted as contracts is riskier. That said, there are many lawful ways to engage in grantmaking and programs to advance racial equity within this new landscape.”
“In order to sue under section 1981 [of the Civil Rights Act of 1866], there must be a contract. Whether any specific agreement or relationship creates a legal contract does not depend on labels alone.”
What Makes a Contract
“In Fearless Fund, the appeals court pointed to several facts that it said supported a finding of a contract. In exchange for entering the contest for the $20,000 grant, the applicant:
gave Fearless Fund publicity and intellectual property rights to use the applicant’s name, image, and likeness as well disclose their business plan/idea,
agreed to arbitration for any disputes, and
promised to indemnify Fearless Fund for any related liability costs arising from the grant. In addition, the grant application originally stated in all caps that applicants were agreeing to the ‘OFFICIAL RULES, WHICH ARE A CONTRACT.’”
Going Forward
“...in many cases, organizations that receive only private (nongovernmental) funds can engage in charitable grantmaking and services specifically for members of certain racial or ethnic groups, provided that the funds or services do not create a contract by imposing conditions or obligations on the recipients to receive the charitable support.”
“Depending on the legal needs of the funder, grants may be distributed with either no grant agreement (in the case of giving to 501(c)(3) organizations), or with an agreement that is limited to the minimal legal requirements. Whether a grant or service creates a contract depends on the facts of the specific situation and likely requires legal review”
Investing in Racial Equity Through Charitable Grants and Services from the Lawyers’ Committee for Civil Rights Under Law
Further Reading
Sourced from The Lawyers' Committee for Civil Rights Under Law
The Lawyers' Committee for Civil Rights Under Law is a nonpartisan, nonprofit organization formed in 1963 at the request of President John F. Kennedy to mobilize the private bar to provide legal services to address racial discrimination. Their guide "Investing in Racial Equity" provides practical legal guidance for philanthropic organizations seeking to advance racial equity within the current legal landscape.
One-page Primer: Investing in Racial Equity Through Charitable Grants and Services from the Lawyers’ Committee for Civil Rights Under Law
Sourced from the Council on Foundations
The Council on Foundations has tracked this case closely and filed an amicus brief arguing that philanthropies have a constitutional right under the First Amendment to donate to causes aligned with their values, including efforts to support historically marginalized groups. Their case summary provides detailed timeline and legal analysis.
Read the full case summary: Fearless Fund Case Summary from the Council on Foundations
Read the Amicus Brief: Amicus Brief from the Council on Foundations
