Last week, Sixth Circuit judge Amul Thapar struck a blow against bias in Vitolo v. Guzman, a 2–1 decision holding that the government may not limit coronavirus relief funds based upon the applicants’ race and sex. At issue was the Small Business Administration’s allocation of a fund of almost $29 billion designated for grants to restaurant owners to meet payroll and other expenses under the American Rescue Plan Act that was enacted in March.
The money was subject to distribution on a first-come, first-served basis. During the initial 21-day period of grant awards, the law gave priority to restaurants that have at least 51 percent ownership by women, veterans, or the “socially and economically disadvantaged.” SBA regulations defined the latter term with the presumption that it includes members who belong to any of a list of several racial- or ethnic-minority groups. Anyone not belonging to those groups could not qualify unless they proved racial or ethnic discrimination or cultural bias by a preponderance of the evidence.
Antonio Vitolo, the plaintiff, owns 50 percent of a restaurant that has been struggling during the pandemic, and his wife also has a 50 percent ownership stake. He is white, and she is Hispanic. Since 51 percent of the business is not owned by a woman or race given government preference — a mere one-percentage-point margin in the ownership stake below the threshold — the restaurant’s grant application was frozen. Vitolo claimed the government’s race and sex preferences were unconstitutional, and the court agreed.
“Government policies that classify people by race are presumptively invalid,” Thapar explained for the panel, citing Supreme Court precedent going back over three decades. The government could overcome that presumption only with a showing “that favoring one race over another is necessary to achieve a compelling state interest.” The government claimed its compelling interest was “in remedying past societal discrimination against minority business owners.” But to satisfy the test, three criteria must be met:
First, the policy must target a specific episode of past discrimination. It cannot rest on a “generalized assertion that there has been past discrimination in an entire industry.” . . . Second, there must be evidence of intentional discrimination in the past. . . . Third, the government must have had a hand in the past discrimination it now seeks to remedy. So if the government “show[s] that it had essentially become a ‘passive participant’ in a system of racial exclusion practiced by elements of [a] local . . . industry,” then the government can act to undo the discrimination. [citations omitted]
The government failed to meet any of these requirements, Thapar asserted. It pointed “generally to societal discrimination against minority business owners” but “does not identify specific incidents of past discrimination.” It also showed “little evidence of past intentional discrimination against the many groups to whom it grants preferences.” That included a complete lack of record evidence for the SBA’s “schedule of racial preferences”—“preferences for Pakistanis but not Afghans; Japanese but not Iraqis; Hispanics but not Middle Easterners.”
There was also no evidence of government participation (active or passive) in the discrimination it sought to remedy. The SBA vaguely observed “that prior, race-neutral relief efforts failed to reach minorities” without offering evidence that those policies were “enacted or administered . . . in a discriminatory way.” Even if there had been a compelling interest, the government had failed to narrowly tailor its funds to further that interest by considering “workable race-neutral alternatives.”
The court conducted a similar analysis to strike down the prioritization of women-owned restaurants. Supreme Court precedent renders sex-based discrimination presumptively invalid in the absence of an “exceedingly persuasive justification.” The government had failed to show that the preference served an “important governmental interest.” It gave only a few statistical disparities involving women-owned businesses without an inference of intentional discrimination, and it prioritized “all women-owned restaurants” regardless of whether they were “economically disadvantaged.”
In the context of both race and sex, the government had a “ready alternative: Give priority to restaurant owners who did not receive prior aid.” The court granted a preliminary injunction preventing the government from awarding grants based on applicants’ race or sex.
The panel was divided, and Judge Bernice Donald dissented. The question for the Biden administration is whether to request en-banc review or petition the Supreme Court to take the case. Judge Thapar’s decision was well-grounded, and an appeal would increase the likelihood that the Court would deliver a nationwide blow to state-sanctioned discrimination.