On March 5, 2024, a federal judge ordered the Department of Commerce’s Minority Business Development Agency (MBDA) to immediately stop considering a business owner’s race or ethnicity in determining whether an applicant may receive business-related benefits and services from MBDA Business Centers nationwide, including assistance with accessing capital and pursuing government contracting opportunities.[1] Judge Mark T. Pittman, U.S. District Judge for the Northern District of Texas, ruled that MBDA’s use of the presumption that certain individuals—including African Americans, Latinos, American Indians or Alaska Natives, Asians, and Native Hawaiians or other Pacific Islanders—are “socially or economically disadvantaged individuals” is unconstitutional. Government contractors should be aware of these developments as the decision could impact current and future programs focused on increasing the participation of historically underrepresented groups in the federal marketplace. Below, PilieroMazza breaks down the case, Jeffrey Nuiziard, et al. v. Minority Business Development Agency, et al., and its potential impact on minority-owned businesses.             

Minority Business Development Agency          

The MBDA was first established as the Office of Minority Business Enterprise by President Nixon in 1969. The Minority Business Development Act of 2021—included in the Bipartisan Infrastructure and Investment and Jobs Act—made the MBDA permanent and authorized the creation of regional MBDA offices and rural business centers. It also increased the capacity of the agency’s existing programs with a budget of $550 Million over five years.[2]  

The MBDA has a nationwide network of dozens of Business Centers, Advanced Manufacturing Centers, Export Centers, and one Federal Procurement Center. According to Don Cravins Jr., the first-ever MBDA Under Secretary, in 2023, the MBDA National Network helped businesses secure over $1.2 Billion in capital, over $1.6 Billion in contracts, and nearly $300 Million in export deals.[3]

Background

The three named plaintiffs in the case, all of whom are white men, claimed they were unable to obtain assistance from the MBDA for their respective small businesses—including a sexual and lifestyle health clinic, a project management corporation, and an architecture firm—due to their race. Relying on the Supreme Court’s landmark decision in Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, 600 U.S. 181 (2023), in which the Court held that affirmative action programs based on race are unconstitutional, the plaintiffs argued that MBDA’s use of a racial presumption for program participation violates the Equal Protection Guarantees of the Fifth Amendment’s Due Process Clause. Petitioners also claimed that the program was unlawful under the Administrative Procedure Act, but the District Court declined to grant summary judgement on that ground.

The Decision

In his lengthy 93-page opinion, Judge Pittman opined about the dangers of programs operated on facially race-based presumptions. While he found that remedying past discrimination in government contracting is a compelling governmental interest, the court ultimately determined that the race-based presumption was not narrowly tailored to satisfy its remedial purpose. Instead, the ultimate design of the program punishes those business owners who are not presumptively entitled to MBDA assistance.  

Judge Pittman was not persuaded by the fact that business owners may still apply for a designation as socially or economically disadvantaged and be found eligible to participate in MBDA business center programming.[4] Instead, he found the application process only proves that those who are “not on the list” must “overcome additional hurdles” to receive business assistance from the agency.[5]

Despite recognizing that the agency’s work “may alleviate opportunity gaps faced by (minority business entrepreneurs)” the Court concluded that “two wrongs do not make a right.”[6] As such, Judge Pittman sided with the plaintiffs and found that the racial presumption failed the strict scrutiny test,­ the highest standard of review courts use to evaluate the constitutionality of race-based affirmative action programs ­ and thus MBDA’s practices violate the Fifth Amendment’s equal protection guarantees.

In closing, Judge Pittman declared “[t]oday the clocks run out” on MBDA’s 55-year legacy of using an unconstitutional race-based presumption to determine program eligibility.[7] Now, the agency established to address challenges faced by minority-owned businesses must open its doors to business owners and entrepreneurs of all races.

Takeaways 

In the wake of the Supreme Court striking down affirmative action programs in Students for Fair Admissions, Inc., this decision marks the latest shift in the law relating to programs designed specifically to assist individuals and groups that have been historically socially and economically disadvantaged in the United States. Last year, PilieroMazza reported on the Ultima case (linked here and here) where a federal judge in Tennessee issued an injunction on the Small Business Administration’s 8(a) Business Development Program’s use of a rebuttable presumption based on race to determine program eligibility.

For businesses already utilizing MBDA Business Centers, the decision may affect the types of services and programs that the centers can offer. It is likely that certain programs will be overhauled. Without any eligibility requirements for participation, the number of entrepreneurs seeking assistance from the business centers may dramatically increase, impacting the services and benefits that existing participants can access.

Individuals who had previously not met the presumption for eligibility to utilize MBDA Business Centers, may now access MBDA’s offering of programs without first having to prove that they are “socially or economically disadvantaged”. It is unclear how the agency will change their customized business development and industry-focused services tailored for U.S. minority business enterprises after the decision. The Department of Commerce and the MBDA have yet to update their websites or provide any guidance about how they will address the required program changes.

It is likely this decision will be appealed to the U.S. Court of Appeals for the Fifth Circuit.

[1] Jeffrey Nuizard, et al., v. Minority Business Development Agency, et al., No. 4:23-CV-0041-00278-P (N.D. Tex. March 5, 2024).

[2] Infrastructure Investment and Jobs Act, Pub. L. No. 117-58 (2021).

[3] Minority Business Development Agency 2023 Year in Review, A Message from Under Secretary Donald R. Cravins, Jr., https://www.mbda.gov/2023yearinreview (last visited March 8, 2024).

[4] 13 C.F.R. § 1400.3 Request for determination. (“A group wishing to apply for designation as socially or economically disadvantaged under Executive Order 11625 shall submit a written application to the Director of the Minority Business Development Agency, United States Department of Commerce, Washington, DC, 20230”.)

[5] Jeffrey Nuizard, et al., v. Minority Business Development Agency, et al. at 38.

[6] Id. at 92.

[7] Id. at 93.