In March of 2023, Christian Bruckner, Jeffrey Nuziard, and Matthew Piper filed a lawsuit in the U.S. District Court for the Northern District of Texas (Fort Worth Division), Jeffery Nuziard, et. al. v. Minority Business Development Agency, et. al., Case 4:23-cv-00278-P, challenging certain programs implemented by the Minority Business Development Agency (MBDA) and funding provided to the MBDA by the Infrastructure Investment and Jobs Act. As previously discussed, this lawsuit argues that certain programs implemented by the MBDA are racially discriminatory and violate the Constitution’s Equal Protection Clause because the programs are only available to “socially or economically” disadvantaged individuals, and only certain minority groups are presumed to be socially disadvantaged.
On June 5, 2023, the District Court granted Bruckner, Nuziard, and Piper’s motion for a preliminary injunction, and enjoined the Wisconsin MBDA Business Center, the Orlando MBDA Business Center, and the Dallas-Fort Worth MBDA Business Center
“from imposing the racial and ethnic classifications defined in 15 U.S.C. § 9501 and implemented in 15 U.S.C. §§ 9511, 9512, 9522, 9523, 9524, and 15 C.F.R. § 1400.1 against Plaintiffs or otherwise considering or using Plaintiffs’ race or ethnicity in determining whether they can receive access to the Center’s services and benefits.”
The District Court found that the MBDA’s presumption of social or economic disadvantage for certain ethnicities did not survive strict scrutiny and was therefore unconstitutional racial discrimination.
While many federal government contractors may not use MBDA Business Centers, the decision in Nuziard has the potential to significantly impact the Small Business Administration’s 8(a) program. This is because Nuziard successfully challenged the MBDA’s presumption that certain minority groups are socially or economically disadvantaged as unconstitutional racial discrimination, and the SBA’s 8(a) program applies the same type of presumption (and uses language very similar to that at issue in Nuziard) when determining who is socially disadvantaged.
Specifically, the MBDA is designed to provide support to minority business enterprises. Only entities that are 51% owned by “socially or economically disadvantaged individuals” are eligible to receive support. The MBDA’s implementing statute defines the term “socially or economically disadvantaged individual” as
an individual who has been subjected to racial or ethnic prejudice or cultural bias (or the ability of whom to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities, as compared to others in the same line of business and competitive market area) because of the identity of the individual as a member of a group, without regard to any individual quality of the individual that is unrelated to that identity.
Notably, this definition is very similar to the definition of “socially disadvantaged individual” in the Small Business Act:
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.
The MBDA’s implementing statute also presumes that any individual who is part of certain groups is presumed socially or economically disadvantaged:
In carrying out this chapter, the Under Secretary shall presume that the term “socially or economically disadvantaged individual” includes any individual who is—
(i) Black or African American;
(ii) Hispanic or Latino;
(iii) American Indian or Alaska Native;
(v) Native Hawaiian or other Pacific Islander; or
(vi) a member of a group that the Agency determines under part 1400 of title 15, Code of Federal Regulations, as in effect on November 23, 1984, is a socially disadvantaged group eligible to receive assistance.
The SBA’s 8(a) regulations also presume that members of certain groups are presumed to be socially disadvantaged.
There is a rebuttable presumption that the following individuals are socially disadvantaged: Black Americans; Hispanic Americans; Native Americans (Alaska Natives, Native Hawaiians, or enrolled members of a Federally or State recognized Indian Tribe); Asian Pacific Americans (persons with origins from Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos, Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust Territory of the Pacific Islands (Republic of Palau), Republic of the Marshall Islands, Federated States of Micronesia, the Commonwealth of the Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans (persons with origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives Islands or Nepal); and members of other groups designated from time to time by SBA according to procedures set forth at paragraph (d) of this section. Being born in a country does not, by itself, suffice to make the birth country an individual’s country of origin for purposes of being included within a designated group.
Accordingly, the language and approach under attack in Nuziard are materially similar to the language and approach used in the SBA’s 8(a) program. As such, Nuziard could be used to mount a collateral attack on the 8(a) program, under the rationale that if it is an unconstitutional denial of equal protection to presume that certain minority groups are socially or economically disadvantaged for purposes of MBDA programs, it is also unconstitutional for the SBA to do so in the context of the 8(a) program.
The District Court’s rationale in Nuziard further demonstrates this risk. First, the District Court framed the analysis as the government needs to establish a compelling interest in its racial discrimination by showing that:
(1) the policy must target a specific episode of past discrimination, not simply relying on generalized assertions of past discrimination in an industry; (2) there must be evidence of past intentional discrimination, not simply statistical disparities; and (3) the government must have participated in the past discrimination it now seeks to remedy.
The District found that the government failed to show a compelling interest. It held that the government’s reliance on congressional testimony and evidence regarding the effects of societal discrimination on minority business owners was not enough:
First, the Government “points generally to societal discrimination against minority business owners.” Vitolo, 999 F.3d at 361. Defendants point to congressional testimony on the effects of redlining, the G.I. Bill, and Jim Crow laws on black wealth accumulation as evidence of a specific episode of discrimination. But the Program does not target black wealth accumulation. It targets some minority business owners. Defendants also identify no specific episode of discrimination for any of the other preferred races or ethnicities. Instead, they point to the effects of societal discrimination on minority business owners. But ‘‘an effort to alleviate the effects of societal discrimination is not a compelling interest.” Shaw v. Hunt, 517 U.S. 899, 909–10 (1996).
The District Court also rejected the government’s reliance on statistical studies to show discrimination, as opposed to evidence of past intentional discrimination:
Second, the Government fails to offer evidence of past intentional discrimination. The Government offers no evidence of discrimination faced by some preferred races and ethnicities. And for those it does, the Government relies on studies showing broad statistical disparities with business loans, supply chain networks, and contracting among some minorities. These studies do not involve all of Defendants’ preferred minorities or every type of business. But even if they did, “statistical disparities don’t cut it.” Vitolo, 999 F.3d at 361. Because “when it comes to general social disparities, there are simply too many variables to support inferences of intentional discrimination.” Id. at 362. “While the Court is mindful of these 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.’” Greer’s Ranch Cafe, 540 F. Supp. 3d at 650 (quoting City of Richmond v. J.A. Croson Co., 488 U.S. 469, 499 (1989)).
Finally, the District Court found that the government failed to show that it had participated in the discrimination sought to be remedied:
Defendants, however, provide no argument on how they participated in the discrimination it seeks to remedy. Perhaps the argument could be made that the Government passively discriminated by failing to address the economic inequities among minority business owners. But to be a passive participant, it must be a participant. See Croson, 488 U.S. at 492 (government awarding contracts to those who engaged in private discrimination). And there’s no evidence that the Government passively participated by “financ[ing] the evil of private prejudice” faced by minority-owned businesses. Id.
Accordingly, the District Court concluded that “[t]he Government thus lacks a compelling interest in remedying the effects of past discrimination faced by some minority-owned businesses.”
The District Court in Nuziard also concluded that the presumptions used by the MBDA program are not narrowly tailored. The District Court rejected the government’s reliance on a Department of Commerce report that addressed contracting barriers to minority enterprises, finding that the report “does not show that race-neutral alternatives “have been considered and tried.” See Walker, 169 F.3d at 983. Nor has the Government shown a “serious, good faith consideration of workable race-neutral alternatives” in any other business context. See Grutter v. Bollinger, 539 U.S. 306, 339 (2003).” The District Court also found that the racial presumptions are not narrowly tailored because they are both under and over-inclusive:
It is underinclusive because it arbitrarily excludes many minority-owned 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. “This scattershot approach does not conform to the narrow tailoring strict scrutiny requires.” Vitolo, 999 F.3d at 364.
The Program is also overinclusive. It helps individuals who may have never been discriminated against. See Croson, 488 U.S. at 506–08 (holding that a minority business plan is overinclusive because it includes ethnicities in which there is no evidence of discrimination). It also helps all business owners, not just those in which disparities have been shown.
The District Court’s conclusions in Nuziard that the government failed to show either a compelling interest in presuming that certain minority groups are socially or economically disadvantaged or that the MBDA’s racial presumption is narrowly tailored are very similar to the arguments raised by Christian Bruckner in his prior lawsuit, and to the claims made in Ultima, which is a direct challenge to the 8(a) program that is currently pending. In those cases, the plaintiffs also argued that the government’s presumption that certain minority groups were socially disadvantaged did not satisfy the compelling interest standard because of a lack of evidence of the discrimination that the government was attempting to remedy. As such, the Nuziard decision may foretell the result of Ultima, or be used to mount a different attack on the 8(a) program.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.