6th Circ. Blocks SBA’s COVID-19 loan priority for minorities

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Law360 (May 28, 2021, 7:16 p.m. EDT) – A divided panel from the Sixth Circuit has banned the Small Business Administration from prioritizing pandemic relief for restaurants based on race and gender, accusing the government of “racial racial cheating” and using “unconstitutional criteria.”

Thursday’s ruling overturns a May 19 Tennessee federal judge’s ruling dismissing a Caucasian restaurant owner’s request for a temporary injunction. In his ruling, U.S. District Judge Travis R. McDonough held that Antonio Vitolo, owner of Jake’s Bar and Grill LLC, had not rebutted the government’s demonstration that he had a compelling interest in ending the effects of historical discrimination.

But the majority of the panel said Thursday that the district court should have issued an injunction because the government is the one that failed to justify its “discriminatory policy”. The SBA injected explicit racial and ethnic preferences into the prioritization process by presuming that some candidates are “socially disadvantaged” solely on the basis of these factors, US circuit judges Alan E. Norris and Amul R. Thapar said.

“The additional burden of proof faced by white males and other non-presumed disadvantaged groups contrasts sharply with the lenient standards of proof set by the American Rescue Plan Act,” the majority said.

The SBA generally highlighted societal discrimination against minority business owners, but did not identify specific incidents of past discrimination, according to the majority decision. And because “an effort to mitigate the effects of societal discrimination is not in a compelling interest,” government policy is not admissible, the majority said.

“When the government promulgates policies based on race, it has to operate with a scalpel,” the majority said. “And its cuts must be informed by data suggesting intentional discrimination. The large statistical disparities cited by the government are not enough.”

Justices Norris and Thapar also dismissed the government’s claim that the issue was moot because the priority period for loans ended while the case was pending. The government has not lifted the “high hurdle” for mootness, they said, adding that racial and gender preferences continue to affect whether an applicant receives a grant before the money does not run out.

The majority added: “As today’s case shows once again, the ‘way to stop discrimination on the basis of race is to stop discrimination on the basis of race.'”

U.S. Circuit Judge Bernice Bouie Donald disagreed, noting in her dissent that it took nearly 200 years for the U.S. Supreme Court to establish that the Constitution allows the government to use classifications based on race to address past discrimination.

“It took only seven days for the majority to undermine this long-standing and enduring principle,” the judge said.

The reasoning of the majority suggests “we live in a world in which centuries of intentional discrimination and oppression of racial minorities have been eradicated,” a world in which the pandemic has not exacerbated these disparities, and a world in which the Congress passed the Restaurant Revitalization Fund to “arbitrarily grant special treatment to racial minorities and women,” according to dissent.

Justice Donald has said the fund is a carefully targeted measure made necessary by an unprecedented pandemic, and Vitolo has not shown that he will be irreparably harmed by the way it is distributed.

But the majority’s reasoning “leads them to a puzzling, if not predictable, conclusion that the 21-day priority period in the RRF – a short-term, narrowly tailored and carefully calibrated measure designed to help the businesses most devastated by the crisis. pandemic – is unconstitutional, “she said.

Justice Donald also said she was disappointed with the court’s use of the emergency appeal record. The case needs to be developed further, and it should happen in the district court, not the Sixth Circuit, she said.

“This case should never have come to this point,” she said, adding that the emergency motion should have been rejected.

“In this case, the government was uniquely positioned to identify a pattern of nationwide discrimination and created legislation designed to provide a temporary remedy,” Justice Donald said. “It is not unconstitutional; it is the government doing its job. We are not telling Congress what it cannot do except in the most extreme circumstances.”

The Wisconsin Institute for Law & Liberty, which represents Vitolo, celebrated the decision in a statement Friday. Institute president and general counsel Rick Esenberg said the government “was trying to allocate limited COVID relief funds on the basis of race and gender.”

“The Court of Appeal ruled that he could not and that we were probably going to succeed in our claim that this program is unconstitutional,” he said.

Congress established the $ 28.6 billion Restaurant Revitalization Fund in March as part of the American Rescue Plan Act of 2021. After reviewing evidence showing that the government’s initial response to the pandemic – the loans paycheck protection program – did not disproportionately reach minority-owned businesses, Congress chose to privilege, in some cases, businesses owned by women or by people “socially and economically disadvantaged” “.

Vitolo, who requested $ 104,590.20 from the fund, argued in his May 12 lawsuit that the practice of prioritizing certain groups violates the equal protection clause and due process clause of the US Constitution by impermissibly granting benefits based on race and gender. Vitolo applied for a grant on the first day of the opening of the application period, but the SBA will only process their application when those of all minority and female applicants received in the first three weeks of the program are met, has t -he declares.

He was seeking a temporary restraining order that would prevent the SBA from paying its Restaurant Revitalization Fund rewards unless it does so in a way that ignores race and gender, a temporary injunction that would require the SBA to process requests in the order they are received. , regardless of race and gender, a declaratory judgment that the SBA’s practices are unconstitutional and a permanent injunction against the practice.

Judge McDonough rejected this position, finding that the owner of the restaurant had not shown a likelihood of success.

Congress has considered the evidence that the PPP has failed to reach minority-owned businesses because past systems of discrimination have resulted in a current lack of relationships between these businesses and banks, he said. note.

“This same phenomenon has caused minority-owned businesses to enter the pandemic with more financial insecurity, and therefore weaken at disproportionate rates as the pandemic unfolded,” the judge told the time.

The Small Business Administration did not immediately return a request for comment on Friday.

US Circuit judges Alan E. Norris, Bernice Bouie Donald and Amul R. Thapar were part of the Sixth Circuit panel.

Vitolo is represented by Daniel P. Lennington of the Wisconsin Institute for Law & Liberty.

The government is represented by Marleigh D. Dover and Jack Starcher of the Civil Division of the US Department of Justice.

The cases are Antonio Vitolo et al. v. Isabella Casillas Guzman, case numbers 21-5517 and 21-5528, both before the United States Court of Appeals for the Sixth Circuit.

–Additional report by Dave Simpson. Editing by Bruce Goldman.

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