Federal Government

US can't consider race or sex in distributing pandemic funds to restaurants, 6th Circuit says

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The U.S. Small Business Administration gave an unconstitutional preference to minority- and women-owned restaurants in allocating COVID-19 relief funds, a federal appeals court ruled last week.

In a 2-1 decision May 27, the 6th U.S. Circuit Court of Appeals at Cincinnati ruled that the federal government violates the equal protection clause when it considers race or sex in awarding the grants.

The author of the majority opinion is Judge Amal Thapar, who was once considered one of the front-runners for the U.S. Supreme Court during the Trump administration. Former President Donald Trump had appointed Thapar to the appeals court.

The court ruled in the case of Antonio Vitolo and his wife, who own a restaurant called Jake’s Bar and Grill. Vitolo is white, and his wife is Hispanic, and they each own 50% of the restaurant.

The government requires small businesses that get preferences for restaurant revitalization funds to be at least 51% owned by women, veterans or “socially and economically disadvantaged” people.

A person is presumed socially disadvantaged if they are a member of a designated racial or ethnic group. A person is considered economically disadvantaged if they are socially disadvantaged, and they face diminished capital and credit opportunities.

The preferences are taken into consideration during the first 21 days that the Small Business Administration awards grants to restaurants. After priority applications submitted during that period are processed, the Small Business Administration processes grant requests in the order that they were received.

The 6th Circuit majority said Vitolo and his wife are entitled to an injunction requiring the government to grant their application, if approved, before all later-filed applications, without regard to race or sex.

The appeals court said the government has not shown a compelling interest justifying preferences based on race or an important governmental interest justifying preferences based on sex.

Statistical disparities showing that minority businesses failed more than white businesses during the pandemic, or that female-owned businesses sought fewer dollars in relief funds during the pandemic, aren’t enough justification for the preferences, the court said.

The appeals court said the government failed to identify specific incidents of past discrimination and offered little evidence of past discrimination affecting the many groups getting preferences.

“Indeed, the schedule of racial preferences detailed in the government’s regulation—preferences for Pakistanis but not Afghans; Japanese but not Iraqis; Hispanics but not Middle Easterners—is not supported by any record evidence at all,” the opinion said. “When the government promulgates race-based policies, it must operate with a scalpel. And its cuts must be informed by data that suggest intentional discrimination.”

Even if the Small Business Administration had shown that its policy was justified by the required governmental interest, its preferences weren’t narrowly tailored to further the interest, according to the appeals court.

The opinion cited other options available to the government. One possibility would be to grant priority consideration to business owners who weren’t able to obtain needed capital or credit. Or the government could grant priority consideration to small businesses that had not yet received relief funds.

Thapar’s opinion was joined by Judge Alan Norris. Judge Bernice Bouie Donald, a former member of the ABA Journal’s board of editors, dissented.

“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,” Donald wrote. “It took only seven days for the majority to undermine that longstanding and enduring principle.”

The case is Vitolo v. Guzman.

Vitolo was represented by the Wisconsin Institute for Law and Liberty, according to coverage of the decision by Reuters Legal, the Associated Press and a press release. The restaurant is located in Harriman, Tennessee.

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