Part 2:
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Michael Rosman, general counsel of the Center for Individual Rights,
a conservative public interest law firm that sued the SBA on behalf of a White business owner, Celeste Bennett, praised the court ruling. In a statement, Rosman said that “
we and our client are pleased that we were able to achieve a significant goal of the litigation: eliminating the explicit use of race in determining who is entitled to participate in a very advantageous federal contracting set-aside program.”
The upending of the 8(a) program marks one of the first casualties in the business world of the Supreme Court’s landmark decision holding that race-conscious admissions programs at Harvard and the University of North Carolina violate the Constitution’s guarantee of equal protection.
The 8(a) program’s reliance on the presumption of social disadvantage was similarly unconstitutional, District Judge Clifton L. Corker wrote in his July 19 order enjoining the SBA from using the presumption.
Corker, who was appointed by former president Donald Trump, referred to the Harvard case nine times, in what observers called one of the first interpretations of the Supreme Court’s affirmative action ruling. “The facts in Students for Fair Admissions, Inc. concerned college admissions programs, but its reasoning is not limited to just those programs,” Corker wrote in a footnote.
The SBA changes come amid a broad legal assault on diversity, equity and inclusion (DEI) initiatives in the private sector, one that has only intensified in the wake of the Harvard and UNC decisions. Edward Blum, the conservative activist behind the two college admissions cases, has several pending lawsuits targeting private-sector DEI programs. And in July, more than
a dozen Republican attorneys general fired off letters warning the nation’s largest companies that explicit racial quotas and preferences in hiring and promotions would invite legal action.
Supporters of affirmative action rally outside the U.S. Supreme Court in Washington on Oct. 31, 2022. (Eric Lee for The Washington Post)
That a judge struck down the SBA’s use of the presumption of social disadvantage “wasn’t completely surprising to us because we’ve known that there’s been
a number of cases that have been brought [and] funded by conservative legal foundations that have always questioned any affirmative action,” said Antonio Franco, managing partner at PilieroMazza, based in Washington, which works with government contractors to apply for the 8(a) program.
After the Harvard-UNC rulings, Franco said he remembered thinking it was “only a matter of time before that same kind of ruling comes out with regard to the 8(a) program.”
Other government business programs meant to benefit disadvantaged groups may also be vulnerable, Franco added. He cited the Transportation Department’s Disadvantaged Business Enterprise program, which dispenses transportation-related construction contracts to minority-owned businesses. Though different from the 8(a) program in some respects, it relies on the same social disadvantage presumption.
Pottroff said the Harvard-UNC rulings have essentially made no SBA program safe from scrutiny and legal challenges, including the Service-Disabled Veteran-Owned Small Business program, Women-Owned Small Business program, the Small Disadvantaged Business program and the Historically Underutilized Business Zones program — all of whose certifications are key in helping disadvantaged business owners win contracts throughout the federal government.
“I am very concerned that the [8(a)] program itself is going to be on the chopping block at some point, and I think that is why SBA is swiftly implementing things and trying to appease the courts … because they don’t want the entire program to be on the chopping block,” she added.
To qualify for the 8(a) program, a small business must meet several requirements — including being 51 percent owned by U.S. citizens who are socially and economically disadvantaged. Economic disadvantage is defined as having a personal net worth of $850,000 or less, an adjusted gross income of $400,000 or less and assets totaling $6.5 million or less. Social disadvantage is defined as racial prejudice — or cultural bias — within American society stemming from circumstances beyond an individual’s control, and people of certain races and ethnicities were automatically assumed to be socially disadvantaged without further proof.
Those who did not benefit from the presumption of social disadvantage were required to write a narrative citing specific instances in which an objective distinguishing feature negatively impacted a business owner’s advancement in the business world, and that disadvantage must be “chronic and substantial,” according to Pottroff.
Often, business owners who applied to 8(a) through the narrative did so on the basis of their gender, sexual orientation or a disability, she said, and they were often extensive and detailed documents. Though they had a high success rate, Pottroff said, crafting narratives requires the help of lawyers and imposes a substantial financial burden.
The ruling against the 8(a) program came in a lawsuit filed in March 2020 by Ultima Services Corp., an administrative and technical support business.
Ultima’s owner, Celeste Bennett, claimed she was precluded from being awarded a contract under the 8(a) program because she is White.
Filed against both the U.S. Department of Agriculture and the SBA, the lawsuit claimed that Ultima lost out on USDA contracts that went instead to businesses participating in the 8(a) program. Because Bennett did not benefit from the presumption of social disadvantage, she argues that the program discriminated against her.
The lawsuit argues that 8(a)’s so-called “rebuttable presumption” of social disadvantage — the presumption that Black, Hispanic, Native American and Asian people are in all cases socially disadvantaged — violates the Fifth Amendment, which covers due process rights but also incorporates the 14th Amendment’s equal protection clause when applied to the federal government, according to Corker’s order.
In his decision,
Corker wrote that the SBA and the USDA failed to establish a “compelling interest” in their use of the presumption, meaning they did not provide enough evidence that it was needed to remedy the effects of past discrimination. Moreover, Corker wrote that the presumption’s reliance on broad racial categories was not “narrowly tailored” to address past discrimination. The judge cited the Harvard case in reaching both decisions.
In a March 2022 deposition, Bennett said she had never applied to the 8(a) program. When asked why, she responded, “Because I am White, and I would never be accepted into the program.” She added that — for businesses that did not benefit from the presumption — the process for establishing social disadvantage was a “farce.”
Bennett said she started her business, Lusa, in Maryland with $5,000 and acquired Ultima in 2002 with $20,000 that she borrowed from her father, who also owned a government contracting business. In the deposition, Bennett added that she later borrowed approximately $500,000 from her father’s company after being denied loans at several banks over the course of about five years.
In 2019, court documents show Lusa was awarded two contracts from the Natural Resources Conservation Service worth $3.8 million through a women-owned small-business program.
Asked during her deposition why she chose to take advantage of the program for women but wanted to challenge a similar program for minorities, Bennett replied, “Because I don’t set the rules, and I need to play.”