FEARLESS FUND: What happened & what you need to know

Oct 11

The lawsuit against the Fearless Fund has sparked widespread attention, raising critical questions for nonprofit and philanthropic organizations. Central to the case is whether race-based initiatives, aimed at supporting underfunded groups and addressing systemic inequalities, serve the public interest or violate anti-discrimination laws. Fearless Fund was established to address the gap that exists in venture capital funding for women of color-led businesses. The case has caused a shift in how organizations can seek or provide funding for programs targeting specific racial groups.

Courts are currently debating what is in the greater “public interest”—race-neutral initiatives only or actively trying to remediate systemic inequality with race-based initiatives.

Below are a few key insights from the case and ruling.

Here’s what happened:

On August 2, 2023, the American Alliance for Equal Rights (AAER) filed a complaint on behalf of three of its members against Fearless Fund and related entities.

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.

September 26, 2023: A U.S. District Judge denied AAER's request to halt the grant awards process, saying that the program qualifies as charitable giving, a form of protected speech under the First Amendment.

September 30, 2023: A three-person panel on the U.S. Court of Appeals for the 11th Circuit blocked the grant program, saying it was “racially exclusionary” and “substantially likely” to violate a federal law prohibiting racial discrimination in contracting.

Between December 6, 2023, and June 3, 2024, several legal actions were taken. The Fearless Fund sought to reinstate the program by filing a brief with the U.S. Court of Appeals and arguments were presented before a three-judge appeals panel in Miami. Ultimately, the 11th Circuit upheld the injunction in the case.

September 11, 2024: The parties settled the case, with Fearless Foundation agreeing to close the grant program permanently.y.

Here’s what you need to know:

The key word is CONTRACT. You can call something a grant, but if you are requiring any specific activities/requirements in exchange for the money (agreements, accepting the “rules” of the program etc), it’s more likely to be considered a contract, which courts are more likely to find discriminatory.
Specifying that "only applicants of a specific race can apply" in eligibility criteria is considered discrimination and poses a legal liability.
Unrestricted and "trust-based" philanthropy, which operates without formal grant agreements or explicit rules, is less susceptible to litigation.
Qualitative descriptions of overcoming race and discussing unique identity positions seem safe to include as application questions or vetting strategies, but race-based quotas and quantitative benchmarks for admissions or giving are liabilities.
Data to talk about racial injustice to justify any racial focus of a service provided is still okay to use.
Instead of using race as an eligibility criterion, it’s recommended that the application include a qualitative question about how applicants are advancing the organization/funder's racial equity goals.
For organizations that serve or provide services to a specific racial group: that activity is considered an expressive/first amendment right.
It has been recommended that organizations review mission statements and legal documents to ensure that their activities are described in “expressive” terms.
It is recommended that organizations review their insurance policies to ensure that they cover anti-discrimination litigation and that any stated racial focus does not render their policies void.

Purpose Possible is not a legal entity, and the information provided here is for informational purposes only. It should not be considered legal advice. Please consult with a legal professional for specific legal guidance.

Here are some headlines about the Fearless Fund Decision: