6th Circ. Blocks SBA COVID-19 Minority Loan Priority

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

Thursday’s ruling overturns a May 19 ruling by a Tennessee federal judge denying a white restaurant owner’s request for a temporary restraining order. 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 priority 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-presumptively disadvantaged groups is in stark contrast to the lenient standards of proof set by the American Rescue Plan Act,” said the majority.

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 a compelling interest,” government policy is not admissible, the majority said.

“When the government enacts policies based on race, it has to operate with a scalpel,” the majority said. “And its cuts must be informed by data that suggests intentional discrimination. The wide 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 was ending while the case was pending. The government has not passed the “high hurdle” of mootness, they said, adding that race and gender preferences continue to weigh on whether an applicant receives a grant before the money. is not exhausted.

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

U.S. Circuit Judge Bernice Bouie Donald disagreed, noting in her dissent that it took almost 200 years for the U.S. Supreme Court to establish that the Constitution allows the government to use classifications based on race. to remedy 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 said the fund was 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 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 in a unique position to identify a pattern of nationwide discrimination and created legislation intended 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 Appeals ruled that this was not the case and that we are likely to be successful 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 – has failed to reach minority-owned businesses, Congress has chosen to give preference, in some cases, to women-owned businesses or those that are “socially and economically disadvantaged ”.

Vitolo, who demanded $ 104,590.20 from the fund, argued in his May 12 lawsuit that the practice of prioritizing certain groups violated the equal protection clause of the U.S. Constitution and the due process clause by granting impermissibly 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 not process their application until those of all minority and female applicants received in the first three weeks of the program are satisfied, did he declare.

He was seeking a temporary restraining order that would prevent the SBA from paying out its Restaurant Revitalization Fund awards 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 the owner of the restaurant had not shown any chance 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 pushed minority-owned businesses to enter the pandemic with more financial insecurity, and therefore falter at disproportionately higher 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 sat on 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. vs. Isabella Casillas Guzman, Case Numbers 21-5517 and 21-5528, both before the United States Court of Appeals for the Sixth Circuit.

– Additional reports from Dave Simpson. Edited by Bruce Goldman.

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