The legal retreat marks a major turn in the nation’s years-long debate over racial preferences. Both initiatives had been intended to expand economic opportunities for racial minorities: The Minority Business Development Agency helps participating companies access capital and other resources, while the other, run by Small Business Administration, opens pathways to billions in federal contracting dollars.
But in each case, after judges ruled that racial preferences were unconstitutional, the Justice Department opted not to appeal the rulings, choosing instead to quietly undo fundamental aspects of the programs’ missions.
“It’s pretty simple — they aren’t appealing because they will lose,” Dan Lennington, a lawyer with the Wisconsin Institute for Law & Liberty, which represented the plaintiffs in the case against the Minority Business Development Agency case in Texas, said in an email. “And losing at a higher court is worse because it would create important precedent and accelerate challenges to other programs. … Their litigation strategy appears to be containment — they want to prevent the wholesale dismantling of Biden’s racial equity agenda before he leaves office.”
Asked about the court cases, a senior administration official, who spoke on the condition of anonymity because some of the litigation is ongoing, said that “we review every decision carefully to decide on the right path to achieving our core goal of achieving a level playing field for everyone.” The official said the judges in those adverse decisions “ignore the reality that the playing field for many entrepreneurs still is not equal.”
The administration’s decision to forgo appeals disappointed some representatives of minority-owned businesses.
“Once we capitulate to some basic tenets of equity, I think we become complicit to the goal of those who are trying to dismantle and decimate [diversity and inclusion] initiatives and programs,” said Lenwood V. Long Sr., chief executive of the African American Alliance of CDFI (community development financial institutions) CEOs, a coalition of leaders intent on building “power in Black communities by challenging and influencing financial sectors to operate more equitably.”
The court retreats come amid a multi-front legal battle between the Biden administration, which has promoted racial equity efforts, and a phalanx of conservative legal groups which have been motivated, in large part, by a Supreme Court more inclined to uproot racial preferences in academia and government.
During Biden’s first three years in office, the White House sought to create more programs tailored to minorities. Federal contracts for “small disadvantaged companies” — a category largely composed of minority-owned businesses — climbed nearly 30 percent, from $59 billion to $76 billion, government figures show.
Biden also signed major pieces of legislation that allotted benefits based on racial preferences. Provisions in the American Rescue Plan, for example, prioritized racial minorities in the distribution of $28.6 billion for restaurants, $4 billion to help farmers repay their loans, and as much as $4 billion in assistance for homeowners.
Almost immediately, those programs came under legal attack from conservative public interest law firms. During the Biden administration, conservative legal groups have filed more than a dozen lawsuits challenging racial preferences in federal programs.
Many of the challenges from conservatives have succeeded, while the outcome of others are pending. Meanwhile, scores of state programs that carve out preferences for minorities also are at risk. There is no comprehensive list of the programs, but they permeate the federal government and range from the very small, like internships, to multibillion-dollar initiatives tethered to government contracts. Most federal agencies — including Commerce, Transportation, Agriculture and Energy — have civil rights offices or disadvantaged business programs that oversee diversity programs.
Legal scholars agreed with Lennington’s assessment that the Justice Department risked losing on appeal, which runs the risk of a loss in a higher court that would set precedents disqualifying other diversity programs.
Government affirmative action under fire
By far the largest program that uses racial preferences is the so-called “8(a) program,” which is run by the SBA but affects almost every aspect of the bureaucracy. It is one of the key programs now under legal attack.
It enables designated small companies to win set-asides and sole-source contracts that can be worth millions. To be eligible, a company must be majority-owned by people who are both socially and economically disadvantaged. People who are Black, Hispanic, Asian or Native American qualify as socially disadvantaged.
In making the case for its expansion, the White House noted that less than 10 percent of federal agencies’ contracting dollars typically go to small disadvantaged businesses.
The program is “one of the most effective economic instruments … to achieve this commitment to underserved communities,” the SBA reported to Congress.
Across the government, contracts with small disadvantaged businesses have risen nearly 30 percent during the Biden administration, though some demographics saw bigger increases than others. Federal contracts for Black-owned companies rose 9 percent, from $9.4 billion to $10.2 billion. Among companies owned by Asian Americans, they rose 31 percent to $20.5 billion. Native American firms recorded a 54 percent jump, to $23.3 billion.
After a White entrepreneur challenged the 8(a) program, a federal judge in Tennessee ruled that the government could not give preferential treatment to people based on race, despite what the government has identified as long-standing barriers to wealth faced by minorities. The judge found that the programs’ use of broad racial categories to direct benefits to minorities violated the Constitution’s equal protection clause, which echoed the Supreme Court’s decision in overturning affirmative action in college admissions.
The Justice Department declined to appeal the SBA ruling when it was rendered last July. Instead, the SBA scrambled to come into compliance with the court order that it could no longer presume certain minorities were disadvantaged. It’s now having applicants prove their disadvantage through essays.
Though the government could still appeal to the U.S. Court of Appeals for the 6th Circuit, the agency appears to have adapted to the July injunction, having formalized the essay-writing process and training new staff to read the narratives.
“This does seem to be functioning,” SBA Administrator Isabel Casillas Guzman told The Washington Post. “And we’re moving forward with this process and still able to really onboard people who have faced disadvantage in this country.”
The plaintiff, a White female contractor who alleges she lost out on contracts because of 8(a) preferences, is challenging the SBA’s implementation of the essay-writing process, arguing the program did not fully comply with the injunction. She questions whether the process is less rigorous for participants that previously benefited from the presumption.
The government argues that is not the case. While it has so far opted not to appeal the injunction, it continues to oppose the plaintiff’s request that the court further restrict the program.
‘Containment’ strategy
The other court case, brought by three White entrepreneurs in Texas, concerns the Minority Business Development Agency — a 55-year-old program established to help minority-owned businesses access capital and government contracts.
A Texas judge ordered the agency to open its doors to all races, including White people, in March.
The Justice Department is not appealing. In a June 28 letter to House Speaker Mike Johnson (R-La.), Solicitor General Elizabeth B. Prelogar wrote that, while the Justice Department is committed to defending the programs, “it would not be in the best interests of the United States to seek further review of the district court’s judgment in this particular case.”
Prelogar did not provide further explanation, other than characterizing the decision as narrow in scope with minimal impact on the agency’s mission — though that mission has been broadly expanded to include everyone, not just minorities.
“The injunction does not currently prevent MBDA from continuing to fulfill its mission, which is our fundamental priority,” Commerce Department Secretary Gina Raimondo and Deputy Secretary Don Graves said in a joint statement acknowledging the Justice Department’s decision not to appeal.
If the administration had chosen to appeal, the case would have been heard by the U.S. Court of Appeals for the 5th Circuit, which is composed of a majority of Republican-appointed judges and is fast gaining a reputation as one of the most conservative appeals courts in the nation.
Legal experts characterized the Justice Department’s backing down on both cases as a sort of cost-benefit analysis that found long odds of winning in conservative-leaning appeals courts.
“They might well want to avoid a holding that goes far in undermining or even striking down other programs that serve historically discriminated-against minorities,” said Noah Feldman, a constitutional law professor at Harvard University. “Or they could fear that an appeals court would go further than the district court and find there was insufficient evidence of prior discrimination here, with implications for other programs.”
Many losses, one appeal
Biden administration programs for minorities faced setbacks when conservative groups challenged elements of the American Rescue Plan in 2021. One of them was a $29 billion SBA grant program for restaurants struggling during the pandemic, which prioritized businesses owned by women, veterans and minorities.
In May 2021, the U.S. Court of Appeals for the 6th Circuit found the program violated the Constitution’s equal protection clause, forcing the SBA to drop its race- and sex-based preferences.
Since then, a number of cases challenging race-based government programs have cited the case against restaurant aid in the American Rescue Plan — Vitolo v. Guzman — as a precedent for the unconstitutionality of race-based preferences.
In June 2021, a federal judge in Florida temporarily blocked the $4 billion debt relief program for minority-owned farms, also authorized under the American Rescue Plan Act — one of several preliminary injunctions blocking the program after it saw a flood of challenges. The Justice Department did not appeal any of the temporary orders. Before the cases could advance to a stage where courts could decide on permanent remedies, Congress repealed the debt relief program when it passed the Inflation Reduction Act in August 2022. The new debt relief program focused on economic need, rather than race. The cases were dismissed.
More recently, in June, a federal judge in Texas temporarily blocked an Agriculture Department disaster relief program from giving preferences to minority and female farmers.
As with the others, the government has not appealed.
