Federal Race-/Sex-Based Restaurant Revitalization Fund Grants Blocked

A court issues a temporary restraining order, finding plaintiff's claim was likely to succeed on the merits.

From yesterday's decision by Judge Reed O'Connor in Greer's Ranch Cafe v. Guzman (N.D. Tex.):

Plaintiff Philip Greer … owns and operates Plaintiff Greer's Ranch Café—a restaurant which lost nearly $100,000 in gross revenue during the COVID-19 pandemic …. Greer seeks monetary relief under the $28.6-billion Restaurant Revitalization Fund ("RRF") created by the American Rescue Plan Act of 2021 ("ARPA") and administered by the Small Business Administration ("SBA"). Greer prepared an application on behalf of his restaurant, is eligible for a grant from the RRF, but has not applied because he is barred from consideration altogether during the program's first twenty-one days from May 3 to May 24, 2021.

During that window, ARPA directs SBA to "take such steps as necessary" to prioritize eligible restaurants "owned and controlled" by "women," by "veterans," and by those "socially and economically disadvantaged." {"Economically disadvantaged individuals are those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged. In determining the degree of diminished credit and capital opportunities the Administration shall consider, but not be limited to, the assets and net worth of such socially disadvantaged individual…." "Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities. Individuals who are members of the following groups are presumed to be socially disadvantaged: Black Americans; Hispanic Americans; Native Americans (including Alaska Natives and Native Hawaiians); Asian Pacific Americans; or Subcontinent Asian Americans.")} …

As to race-based classifications, Plaintiffs challenge SBA's implementation of the "socially disadvantaged group" and "socially disadvantaged individual" race-based presumption and definition from SBA's Section 8(a) government-contract-procurement scheme into the RRF- distribution-priority scheme as violative of the Equal Protection Clause. Defendants argue the race-conscious rules serve a compelling interest and are narrowly tailored, satisfying strict scrutiny….

Defendants propose as the government's compelling interest "remedying the effects of past and present discrimination" by "supporting small businesses owned by socially and economically disadvantaged small business owners … who have borne an outsized burden of economic harms of [the] COVID-19 pandemic."  To proceed based on this interest, Defendants must provide a "strong basis in evidence for its conclusion that remedial action was necessary."

As its strong basis in evidence, Defendants point to the factual findings supporting the implementation of Section 8(a) itself in removing obstacles to government contract procurement for minority-owned businesses, including House Reports in the 1970s and 1980s and a D.C. District Court case discussing barriers for minority business formation in the 1990s and 2000s. Assuming arguendo that the evidence is relevant, even the case cited by Defendants recognizes the well-established principle about the industry-specific inquiry required to effectuate Section 8(a)'s standards:

"The fact that Section 8(a) is constitutional on its face, however, does not give the SBA … or any other government agency carte blanche to apply it without reference to the limits of strict scrutiny. Rather, agencies have a responsibility to decide if there has been a history of discrimination in the particular industry at issue …."

[The defendants' evidence] lacks the industry-specific inquiry needed to support a compelling interest for a government-imposed racial classification. While the Court is mindful of … statistical disparities and expert conclusions based on those disparities, "[d]efining these sorts of injuries as 'identified discrimination' would give … governments license to create a patchwork of racial preferences based on statistical generalizations about any particular field of endeavor." City of Richmond v. J.A. Croson Co. (1989)….

Thus, the Court concludes that the government has failed to prove that it likely has a compelling interest in "remedying the effects of past and present discrimination" in the restaurant industry during the COVID-19 pandemic. For the same reason, the Court finds that Defendants have failed to show an "important governmental objective" or "exceedingly persuasive justification" necessary to support a sex-based classification…. Accordingly, the Court concludes that Plaintiffs are likely to succeed on the merits of their claim that Defendants' use of race-based and sex-based preferences in the administration of the RRF violates [equal protection principles] ….

Comments

[JohnnyAppleseed]

I hope everyone realizes that they’re still going to do this anyway. When the federal bureaucracy decides not to disregard Judge O’Connor, what’s the bureaucracy going to do? Arrest itself?

[jdgalt1]

The feds will still do it anyway, but first they’ll go through the motions of producing a bogus study that purports to show lasting effects of past and present discrimination against blacks in pretty much the entire economy. Then the media will declare that disagreement with the study, like belief that the election was stolen, amounts to insanity, and all the sheep will go along with them.

[JohnW in Md]

Having been on the inside of the bureaucracy, I can say that they do take judges’ orders seriously. What they will do is try to have the TRO lifted.

[Noscitur a sociis]

I’m curious why the law firm didn’t have the plaintiff apply for funds before filing the lawsuit. That would seem to definitively resolve the government’s standing question, which otherwise seems to have some force.

[tkamenick]

Because the denial for the funds would take longer than this period of no-whites-permitted.

[Noscitur a sociis]

I wasn’t suggesting that they should have waited until the application was actually denied (though that could only help the case), just that I can’t see a reason why they wouldn’t have told him to submit the application that he’d apparently already completed.

[Brett Bellmore]

It’s unclear to me how the federal government can ever have a legally compelling interest in doing something the Constitution forbids it to do. In this case, violate the equal protection clause.

[TwelveInchPianist]

Yup. “Compelling interest” is just a magic phrase that judges can use to make parts of the constitution disappear.

[Michael Masinter]

So I suppose on that reasoning that the Freedmen’s Bureau was unconstitutional.

[TwelveInchPianist]

Did the Freedmen’s Bureau violate the Equal Protection clause?

[Brett Bellmore]

It would have been if it had treated freed slaves differently based on their skin color.

[floridalegal]

There is litigation in Texas over near identical language and restrictions for farmers. If the Covid Relief bill was a general/over all time in history legislation, there might be a basis for greater priority for historical disadvantage recipients. Covid and government mandate to shut down due to Covid, applied to everyone and every farmer. In reality, Congress was shoveling out truckloads of money and the hope was that there would be so much money sloshing around that voters would reward the politicians for decades out of appreciation.

[Ben_]

There are lots of these cases now. Faust vs. Vilsack in Wisconsin is one. Vitolo vs. Guzman in Tennessee is another.

[Missy1040]

There are so many problems on so many levels with an all or nothing presumption that all applicants of race are automatically predefined as economically disadvantaged, with no litmus test. Greene’s case could easily succeed in that there may be many, many applicants that pass the race test but those same applicants are not “economically disadvantaged”. The language does not say socially or economically disadvantaged”, it says social and economically disadvantaged”. And what about applicants that are economically disadvantaged? No preference for them??? Those that got no PPP, and/or no other funding at all?? Wouldn’t they have been the group to get priority?

Not sure why Greene failed to follow directions and submit his application, because as it stands now with the massive number of applicants, he has probably missed his eligibility as the pool is first come first served.