Sixth Circuit Enjoins Use of Race and Sex Preferences for Coronavirus Relief Funding

A divided panel grants a preliminary injunction against privileging relief applications based on the race or sex of the applicant.

Yesterday, a divided panel of the U.S. Court of Appeals for the Sixth Circuit granted a temporary injunction barring the Small Business Administration from prioritizing applications for COVID-19 relief funding based upon the race or sex of the business owner applying for the relief. Judge Amul Thapar wrote for the court, joined by Senior Judge Alan Norris. Judge Bernice Donald dissented.

Judge Thapar's opinion in Vitolo v. Guzman begins with a simple and straightforward description of the case and holding: "This case is about whether the government can allocate limited coronavirus relief funds based on the race and sex of the applicants. We hold that it cannot."

The policy at issue prioritizes applications for relief funding from businesses owned by women and racial minorities. The American Rescue Plan Act of 2021–the most recently enacted coronavirus relief bill–authorized $29 billion for restaurant owners suffering economic hardship. The money is allocated to qualifying businesses on a first-come, first-served basis until the funding runs out. The catch, however, is that for the first 21 days of processing applications, the SBA will only consider applicants that are at least 51 percent owned and controlled by women, veterans or the "socially and economically disadvantaged." This latter category is defined to cover those who have been "subjected to racial and ethnic prejudice" or "cultural bias," and the SBA presumes that members of specific racial and ethnic groups satisfy this criterion. According to the plaintiffs in this case, this policy constitutes unconstitutional race and sex discrimination, as those who are not members of the relevant groups risk missing out on relief funding.  In its defense, the government acknowledged the use of race and sex to prioritize relief applications, but argued that the limited use of race and sex here was nonetheless constitutional.

After addressing the plaintiff's standing and the government's claim of mootness, the majority turned to the Equal Protection analysis, finding that the government had failed to demonstrate that the use of race and sex served a compelling (or even substantial) governmental interest as well as that the use of race and sex here was not sufficiently tailored to satisfy heightened scrutiny.

Although the government argued the policy was justified to remedy past societal discrimination, the majority noted that the Supreme Court has held that the use of race to remedy past discrimination only when three criteria are met: 1) "the policy must target a specific episode of past discrimination," and not societal discrimination at large; 2) "there must be evidence of intentional discrimination in the past," not merely statistical disparities; and 3) "the government must have had a hand in the past discrimination it now seeks to remedy."  The court further concluded that even if a compelling interest had been shown, the policy in question was not narrowly tailored to satisfy that interest.

Writes Judge Thapar:

The stark realities of the Small Business Administration's racial gerrymandering are inescapable. Imagine two childhood friends—one Indian, one Afghan. Both own restaurants, and both have suffered devastating losses during the pandemic. If both apply to the Restaurant Revitalization Fund, the Indian applicant will presumptively receive priority consideration over his Afghan friend. Why? Because of his ethnic heritage. It is indeed "a sordid business" to divide "us up by race." League of United Latin Am. Citizens v. Perry, 548 U.S. 399, 511 (2006) (opinion of Roberts, C.J.). And the government's attempt to do so here violates the Constitution.

Turning to the sex-based preference, the majority also concluded that the government failed to satisfy either prong of the Equal Protection analysis there either.

Judge Thapar's opinion for the court concludes:

It has been twenty-five years since the Supreme Court struck down the race-conscious policies in Adarand. And it has been nearly twenty years since the Supreme Court struck down the racial preferences in Gratz. As today's case shows once again, the "way to stop discrimination on the basis of race is to stop discriminating on the basis of race." Parents Involved, 551 U.S. at 748 (plurality opinion).

The government shall fund the plaintiffs' grant application, if approved, before all later-filed applications, without regard to processing time or the applicants' race or sex. The government, however, may continue to give veteran-owned restaurants priority in accordance with the law. This preliminary injunction shall remain in place until this case is resolved on the merits and all appeals are exhausted.

As noted above, Judge Donald dissented. Her dissent begins:

It took nearly 200 years for the Supreme Court to firmly establish that our Constitution permits the government to use race based classifications to remediate past discrimination. See Regents of Univ. of Cal. v. Bakke, 438 U.S. 265 (1978). It took only seven days for the majority to undermine that longstanding and enduring principle.

The majority's conclusion that Plaintiffs are entitled to injunctive relief requires us to make several assumptions. The majority's reasoning suggests we live in a world in which centuries of intentional discrimination and oppression of racial minorities have been eradicated. The majority's reasoning suggests we live in a world in which the COVID-19 pandemic did not exacerbate the disparities enabled by those centuries of discrimination. The majority's reasoning suggests that we live in a world in which Congress passed the Restaurant Revitalization Fund ("RRF") not to aid the nation's economic recovery, but to arbitrarily provide special treatment to racial minorities and women.

The majority's reasoning leads it to a puzzling, if not predictable, conclusion that the twenty-one-day priority period in the RRF—a short-term, narrowly tailored, carefully calibrated measure designed to assist businesses most devastated by the pandemic—is unconstitutional. Because I find that the RRF is a carefully targeted measure  necessitated by an unparalleled pandemic, and because Plaintiffs have not demonstrated irreparable harm or a likelihood of success on the merits, I dissent.

While acknowledging that the case presents "controversial, thorny, and unsettled" questions of constitutional law, Judge Donald objected to the court's resolution of these questions in the context of an emergency appeal of a denial of an injunction.

Her dissent concludes:

The majority states that "[w]hen the government promulgates race-based policies, it must operate with a scalpel." But what good is a scalpel if the government is stripped of its other policymaking tools. In this case, the government was uniquely situated to identify a pattern of nationwide discrimination and created legislation designed to provide a temporary remedy. That is not unconstitutional; that is the government doing its job. We are not in the business of telling Congress what it cannot do except in the most extreme of circumstances.

For the foregoing reasons, I would hold that Plaintiffs are not entitled to injunctive relief, and that their emergency motions should have been dismissed.

On a final note, I reiterate that this case should have never come to this point. As I mentioned above, we should have disposed of the initial emergency motion on narrow jurisdictional grounds. But because of the Court's unusual procedure in handling this appeal, we are now left with a binding published opinion, etched in the stone of time. I urge my colleagues on this Court to consider establishing clear procedures for  emergency matters so that we are not again placed in a position where we must address constitutional questions of profound importance on a moment's notice without development of the record.

I dissent.

Two other little tidbits. First, I found Judge Donald's invocation of Bakke at the start of her dissent to be curious. While it is certainly true that Justice Brennan's plurality endorsed the use of racial classifications for the purposes of remedying past discrimination, Justice Powell's controlling opinion was far more circumspect and specifically rejected the claim that the University of California's use of racial classifications in admissions could be used to redress societal discrimination or counter the "historic deficit of traditionally disfavored minorities in medical schools and in the medical profession." Whatever arguments there may be that the use of race here is constitutional, I am not sure Bakke is the best case to help make that point.

Second, while overturning the work of the district court, Judge Thapar's opinion drops a footnote defending the work of trial courts. Footnote 2 reads: "While we  ultimately disagree with the district court, we appreciate the district judge's diligence in handling this matter. District courts are extremely busy, and this judge is no exception. Yet he moved promptly at every turn and made sure to provide the parties with thorough rulings." This recognition that federal judges generally do their best to reach the proper outcome, and that judges can reach differing conclusions in good faith, is most welcome.