White plaintiffs attack federal programs that presume racial disadvantage

An agency created 54 years ago to bolster minority-owned businesses is fighting for its existence amid a legal challenge from White entrepreneurs who contend its mission is misguided and unconstitutional.

The Minority Business Development Agency, housed within the Department of Commerce, is one of several federal programs under siege over a fundamental assumption ingrained in Washington policy: that certain racial and ethnic groups are inherently disadvantaged in American society and therefore entitled to preferential treatment.

The legal offensive, which also has targeted programs run by the Department of Transportation and the Small Business Administration, is part of a broader conservative backlash against affirmative action and diversity efforts in government contracting and the private sector — a campaign that intensified after the Supreme Court in June overturned race-conscious college admissions.

Experts say the federal programs may be uniquely vulnerable: The categories of disadvantaged minorities were drawn up in the early 1970s with little research or debate — and sometimes based on naked politics — creating a patchwork in which some programs presume a minority group to be disadvantaged while others do not.

There was “never really a logic to it,” said John Skrentny, a sociology professor at the University of California at San Diego who has researched the origins of the federal government’s presumptions. “It’s a lot of important policy built on a house of cards.”

Of the targeted programs, the Minority Business Development Agency is the most imminently imperiled. Established in 1969 by President Richard M. Nixon by executive order, the agency seeks to remedy past and ongoing discrimination in the business world. It runs more than three dozen centers across the country that help minority-owned businesses secure financing and navigate the federal contracting process. The agency was made permanent in 2021 under the Infrastructure Investment and Jobs Act, which greatly increased its funding to $550 million over five years.

Earlier this year, three White male business owners sued the agency, alleging they were excluded from federal assistance because they don’t identify as Black, Latino, Native American, Asian, Pacific Islander or any other eligible minority group. The plaintiffs seek to invalidate the government’s presumption that certain races suffer inherently from social and economic disadvantage.

The plaintiffs include Jeffrey Nuziard, who owns a chain of Texas clinics that offer treatments for erectile dysfunction, weight loss and general sexual health; Matthew Piper, owner of a Wisconsin-based architecture firm whose suit alleges he pulled himself out of “extreme financial poverty” to become an architect; and Christian Bruckner, whose lawsuit says he escaped communist Romania with his parents in the 1970s to live in the United States, where he eventually started a Florida project management business despite being permanently disabled in a car wreck in 1989.

“They are all interested in finding new ways to grow their business and would value the advice, grants, consulting services, access to programs, and other benefits offered by the MBDA,” the lawsuit states. “But that agency won’t help them because of their race.”

Weeks before the Supreme Court ruled on college admissions, a federal judge in Texas enjoined the agency’s centers in Orlando, Milwaukee and Dallas-Fort Worth from using specific racial categories when considering the plaintiffs’ eligibility for assistance. In issuing the injunction, Judge Mark T. Pittman, a Trump appointee, held that the plaintiffs would “likely” succeed on the merits of their case.

In the coming months, Pittman is expected to rule on the constitutionality of the Minority Business Development Act, a section of the Infrastructure Act that made the agency permanent. He is also expected to decide whether to block the agency from using racial categories to determine eligibility, and from using the word “minority” in its name.

“Our goal is open the agency to all businesses that need help, but we do recognize that this lawsuit could either fundamentally transform the agency or end it entirely,” said Dan Lennington, deputy counsel at the Wisconsin Institute for Law & Liberty, which is representing the plaintiffs.

Whatever happens in trial court, Lennington said, the case is likely to be appealed to the U.S. Court of Appeals for the 5th Circuit, which is composed mostly of conservative judges. “We feel very strong” about the case, Lennington said.

The MBDA and Department of Commerce did not respond to requests for comment.

The Justice Department, which is representing the Minority Business Development Agency, argues in court filings that the agency, its social disadvantage presumptions and its business center program are constitutional. The government points to “overwhelming Congressional evidence, compiled over decades, that demonstrates that members of certain groups have suffered, and continue to suffer, social or economic disadvantage that stunts their ability to participate in America’s free enterprise system.”

That evidence includes studies showing that minority-owned businesses face discrimination when seeking loans and bidding on private contracts, according to a recent government filing. Moreover, the federal government participates in that discrimination when choosing which business to award contracts, the filings say, adding that the presumptions are necessary to remedy the effects.

In fiscal 2022, MBDA clients secured $1.6 billion in private and government contracts, agency data show. The agency also helped businesses raise $1.2 billion in capital, as well as create or retain roughly 16,000 jobs. Black-owned businesses received $680 million in contracts, the most of any group, followed by Hispanic-owned businesses at $526 million.

The Justice Department emphasized that the program’s services are not restricted to groups presumed disadvantaged, but rather are open to any socially or economically disadvantaged person. Members of racial groups not presumed socially or economically disadvantaged can petition for a presumption, and they can also qualify for services through an “assertion of individual social or economic disadvantage,” according to a Nov. 17 filing by the government.

Socially disadvantaged people are defined as those who have been subjected to prejudice because of their identity, while economically disadvantaged people are those whose identity has impaired their capital and credit opportunities.

“In this action, Plaintiffs attack not just the MBDA presumptions, but the very existence of the MBDA, alleging harm in even the Agency’s name,” the filing says.

The Minority Business Development Agency is not the only government program under attack. In October, a trucking business and a milling business sued the Department of Transportation, alleging that its Disadvantaged Business Enterprise program, which awards contracts to minority businesses for transportation infrastructure projects, discriminates against White people and those from the Middle East, both of whom do not benefit from the presumption of disadvantage. In 2021, the program was authorized to award at least $37 billion in contracts to minority-owned businesses under the Infrastructure Act.

The lawsuit, which was also filed by the Wisconsin Institute for Law & Liberty, says the program is among the government’s largest — and perhaps oldest — affirmative action programs. But in light of the Supreme Court’s June decision on college admissions, the “DBE program must end,” the lawsuit says.

As in the MBDA case, the DBE lawsuit alleges that the program’s presumption that certain groups are socially and economically disadvantaged is unconstitutional. It seeks a preliminary injunction barring the DBE program from using race- and gender-based classifications when awarding contracts.

The Department of Transportation declined to comment.

Similar allegations have prevailed against the Small Business Administration’s 8(a) program, which certifies minority-owned small businesses for government contract set-asides. In July, a federal judge in Tennessee ruled that its reliance on the “rebuttable presumption” of social disadvantage violated the Constitution’s guarantee of equal protection.

The ruling forced the SBA to drop its use of the presumption. Minority business owners instead must write essays recounting specific instances where their race set them back to prove that they are socially disadvantaged.

Since those changes were implemented, the White business owner who filed the initial suit alleges that the agency continues to effectively rely on its presumptions and has asked the court to appoint a monitor to review the essays — or make the essays public. District Judge Clifton L. Corker, a Trump appointee, has not yet ruled on those requests.

Skrentny said he’s not surprised the programs are coming under attack. The racial categories were formulated through a “back of a napkin” process, he said, by officials who either assumed certain groups were disadvantaged or included them for political reasons.

“The Nixon administration thought that African Americans were voting 95 percent Democratic, but they thought that they could make some inroads in the Mexican American population,” Skrentny said, noting that he reviewed memos from the era in which officials pointed to the potential electoral benefits of offering the programs to Latinos.

In 1973, “black Americans, American Indians, Oriental Americans, Eskimos, and Aleuts” were the first to be considered socially and economically disadvantaged by the SBA, according to a 2004 paper published in the Public Contract Law Journal. At the time, the agency defined socially disadvantaged business owners as those “who have been deprived of opportunity to develop and maintain a competitive position in the economy because of social and economic disadvantage,” according the paper. Other groups could petition to be included in the list.

Over the next two decades, more racial categories were added, including “Asian Indians,” “Asian Pacific Americans” and “Subcontinent Asian Americans.” But which groups were included — and which ones were not — became a source of tension that, at times, exposed an uneven application of the social disadvantage presumptions across different programs, expert say.

In 1980, Hasidic Jews were denied inclusion on the list because the agency said it could not grant disadvantaged status to a religious group, according to the 2004 paper. Yet, contrary to the SBA’s rationale, Hasidic Jews were presumed to be socially and economically disadvantaged by the Office of Minority Business Enterprise, now the Minority Business Development Agency. Hasidic Jews remain on the agency’s list of those presumed disadvantaged.

George La Noue, professor emeritus of public policy at the University of Maryland, said that challenges to federal programs for minorities picked up momentum amid the government’s response to the coronavirus pandemic. In June 2021, a federal judge temporarily blocked a $4 billion relief program for “socially disadvantaged farmers,” which presumed certain minority farmers were disadvantaged, siding with the White farmer who sued. The case was dismissed in September 2022 after Congress replaced the minority relief program with one that was race-neutral.

In a separate case, a panel on the U.S. Court of Appeals for the 6th Circuit in May 2021 upheld an injunction blocking the SBA from relying on the racial criteria when considering the application of the White plaintiff.

The Supreme Court’s ruling on race-conscious college admissions has only put more pressure on programs that rely on social disadvantage presumptions, La Noue said.

“I expect there are going to be more lawsuits,” he said, “and the government will not be able to defend them.”