Center for Individual Rights Senior Litigation Counsel Michael Petrino
Plaintiffs in a federal lawsuit filed in Louisiana that challenged a regulation giving certain racial groups preferred treatment in federal contracts have dismissed their complaint after the Small Business Administration (SBA) opted to rewrite the rule.
The plaintiffs in the lawsuit, Revier Technologies Inc. and the Young America’s Foundation (YAF), agreed to dismiss the complaint without prejudice on Oct. 14 in the Eastern District of Louisiana. The Washington, D.C.-based Center for Individual Rights (CIR) called the lawsuit’s outcome a win because the SBA’s Section 8(a) rule presumed certain racial groups were "disadvantaged" while white applicants had to prove a disadvantage to compete for program funds or opportunities.
But intervenors in the litigation, including the group Democracy Forward, said the lawsuit’s dismissal means the Section 8(a) program will remain intact and will continue to provide mentorships, technical aid and federal contracting prospects to businesses seeking such help.
Democracy Forward, however, acknowledged that the SBA rule will no longer contain a presumption that some minority groups were “socially disadvantaged for the purposes of program eligibility.”
The lawsuit was filed on behalf of Louisiana resident Matthew Schultheis, the founder of Revier Technologies, who was denied investment capital through federal programs because he is white, according to the CIR.
Similarly, students in the YAF’s college chapters found they could not compete on a level playing field for a paid cybersecurity fellowship at the Department of Homeland Security due to the federal presumption, which multiple federal agencies adopted.
CIR’s senior litigation counsel, Michael Petrino, said entrepreneurs like Schultheis should be judged on merits and not race when seeking capital through federal programs.
In an email to the Louisiana Record, Petrino said the government capitulated by agreeing to rewrite the rule in question, which presumed people of certain races, including “Hispanic Americans” and “Asian Pacific Americans,” were “socially disadvantaged” and so would automatically qualify for contracts offered by the SBA.
The rule was integrated into several other federal programs, including one within the Treasury Department and one in the Department of Homeland Security, which affected the plaintiffs, he said.
“The government conceded that the presumption of social disadvantage was unconstitutional and, while the lawsuit was pending, rewrote the regulation to remove the racial presumption,” Petrino said. “Now, neither the SBA, nor any other federal program referencing this regulation, can lawfully apply the racial presumption.”
CIR has argued that federal officials have approved billions of dollars in contracts and other benefits over 40 years that were not constitutional.
“Everyone outside the favored groups was shut out or forced to jump through hoops to prove disadvantage,” CIR reported.
But Democracy Forward argued that the Revier Technologies lawsuit attempted to achieve “far-reaching relief” that could have undermined long-term federal efforts to expand economic opportunities to entrepreneurs facing historical disadvantages. Continuing the Section 8(a) program will assure federal support for small businesses working in underserved communities, according to Democracy Forward.
The rewritten regulation will allow applicants to show they were subjected to a discriminatory policy by offering evidence rather than subjective statements, the CIR said. Affirmative action programs can be used as evidence of discriminatory policies, the center reported.
