Important Federal District Court Decision on Racial Classifications and Affirmative Action

On Tuesday, in Nuziard v. Minority Business Development Agency (MBDA) federal district court judge Mark T. Pittman issued an injunction against the MBDA's Business Center Program. These Centers may give assistance only to businesses owned by socially or economically disadvantaged individuals. A Business owned by a "Black, African American, Hispanic, Latino, American Indian, Alaska Native, Asian, Native Hawaiian, Pacific Islander, Puerto-Rican, Eskimo, Hasidic Jew, Asian Indian, or a Spanish-speaking American," is presumptively considered to be owned by a socially or economically disadvantaged individual. According to the opinion, and unlike similar federal programs, no individual outside of the designated groups can be eligible, no matter how socially or economically disadvantaged.

Most interesting from my perspective, Judge Pittman focused on the arbitrariness of the relevant classifications:

[T]he Program is not narrowly tailored because it is underinclusive and overinclusive in its use of racial and ethnic classification… It is underinclusive because it arbitrarily excludes many minorityowned business owners—such as those from the Middle East, North Africa, and North Asia. For example, it excludes those who trace their ancestry to Afghanistan, Iran, Iraq, and Libya. But it includes those from China, Japan, Pakistan, and India. The Program is also underinclusive because it excludes every minority business owner who owns less than 51% of their business.

In researching my book Classified, I hoped and really expected to find cases involving two issues that have received very little attention in the relevant academic literature.

First, what happens when a government agency rejects someone's claim to be a member of a designated minority group eligible for affirmative action? The conventional wisdom is that only one such case existed, involving Irish-American firefighters who claimed to be black. That struck me as very unlikely. My intuition was correct. I found a couple of dozen or so additional modern cases in which a party's racial status was adjudicated.

Second, while the Supreme Court has never directly addressed the issue, I thought there must be a fair number of cases discussing whether the classifications a government entity has adopted for affirmative action cases pass constitutional muster under the strict scrutiny test, which requires both a compelling government interest and the law be narrowly tailored to serve that interest. In other words, discussion not simply of whether affirmative action preferences are constitutional in the abstract as serving a compelling government interest, but whether the groups that are included and excluded meet the narrow tailoring requirement.

I was disappointed on that one. Very few cases address the issue, except in passing. The leading case, such as it is, is Peightal v. Metropolitan Dade County,  940 F.2d 1394 (11th Cir. 1991). In that case, the Eleventh Circuit held that while the decision to classify people by race and provide an affirmative action benefit to certain groups is subject to strict scrutiny, once a court concludes that the program itself meets the compelling interest test, if challenged the classification scheme used by the government is subject only to the very forgiving rational basis test.

Peightal seems obviously wrong. It's entirely implausible to me to read the Supreme Court's binding jurisprudence on these matters as saying that once the government demonstrates a compelling interest in racial and ethnic preferences, it can allocate those preferences in almost any way it desires.

I suspect that one reason Peightal came out as it did is that it would be very difficult if not impossible for the government to create a classification scheme for affirmative action that would meet the strict scrutiny/narrow tailoring requirement. The court wasn't prepared to issue a ruling that would call almost all racial preference programs into question, so it punted.

Judge Pittman acknowledged the problem in a footnote: "Fashioning a racial or ethnicity-based policy that is not underinclusive or overinclusive is extremely difficult and almost impossible in a multiethnic country like the United States." The logical inference to draw from this fact is not that courts should ignore the narrow tailoring requirement, but that racial and ethnicity-based policies are almost always unconstitutional.

Judge Pittman's ruling Nuziard called to mind Judge Amul Thapar's opinion in Vitolo v. Guzman, 999 F.3d 353 (6th Cir. 2021),which came out just as I was finishing my book manuscript:

The government's policy is plagued with other forms of underinclusivity. Consider the requirement that a business must be at least 51% owned by women or minorities…

The dispositive presumption enjoyed by designated minorities bears strikingly little relation to the asserted problem the government is trying to fix. For example, the government attempts to defend its policy by citing a study showing it was harder for black business owners to obtain loans from Washington, D.C., banks. Gov't Resp. 15. Rather than simply designating those owners as the harmed group, the government relied on the Small Business Administration's 364*364 2016 regulation granting racial preferences to vast swaths of the population. For example, individuals who trace their ancestry to Pakistan and India qualify for special treatment. But those from Afghanistan, Iran, and Iraq do not. Those from China, Japan, and Hong Kong all qualify. But those from Tunisia, Libya, and Morocco do not. This scattershot approach does not conform to the narrow tailoring strict scrutiny requires.

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."

Congratulations to the lawyers at the Wisconsin Institute for Law & Liberty, who represented the plaintiffs in both Nuziard and Vitolo.