It has been a point of pride for state officials to give hundreds of millions of dollars in grants to small businesses owned by women and people of color to help them recover from the pandemic.
Now the notion of prioritizing historically disadvantaged groups is being challenged in US District Court in Boston by two white male business owners who have sued the State of Massachusetts alleging that a new grant program not open to them amounts to racial discrimination.
The plaintiffs are represented by the Pacific Legal Foundation, a conservative law firm based in California. The firm, which is pursuing similar cases across the country, is seeking class action status for the case.
The Massachusetts lawsuit, filed in May, has already had an impact: the state has agreed to temporarily delay awarding grants — ranging from $10,000 to $75,000 — which would have gone to businesses owned by women, immigrants, people of color, LGBTQ+ people, and others who are considered socially and economically disadvantaged.
“To paraphrase the Supreme Court, eliminating discrimination means all of it, and that should include government grants to small businesses,” said Andrew Quinio, an attorney at Pacific Legal, which is representing the white entrepreneurs — Brian Dalton of the New England Firearms Academy in Woburn and John Troisi of Big Jack’s Auto Service & Towing in Dedham.
The Supreme Court’s ban on affirmative action in college admissions put a spotlight on the issue, but efforts to dismantle race-conscious initiatives have been underway for some time and are expected to accelerate because of the court’s June ruling.
Already, Edward Blum — whose suit against Harvard and the University of North Carolina Chapel Hill led to that ruling – has taken his fight to the private sector. His group, American Alliance for Equal Rights, filed a lawsuit in US District Court in Atlanta last week against Fearless Fund Management, accusing the Atlanta venture capital firm of racial discrimination when it set up a grant program for Black women.
In Massachusetts, the initiative in the crosshairs is known as the Inclusive Recovery Grant Program. The Legislature created the program with $75 million in funding, and the state began accepting applications on March 31.
Run by quasi-public state agency Massachusetts Growth Capital Corporation, the program focuses on providing grants to small business owners hurt by the pandemic and who are part of groups that are historically underrepresented, and socially and economically disadvantaged. In a previous pandemic-era program, MGCC awarded $687.2 million in relief grants to about 15,100 small business owners with 43 percent of the money going to people of color and 46 percent to women.
The outcome of the lawsuit could determine the fate of other diversity, equity, and inclusion programs the state offers. The suit names agency chief executive Larry Andrews and economic Secretary Yvonne Hao, who chairs the MGCC board, as defendants in their official roles administering the program.
A spokesperson for the state economic development office said implementation of grant programs, including the Inclusive Recovery Grant Program, has been under review since Governor Maura Healey took office in January.
“We are evaluating our options to ensure that this program can continue in the most effective and equitable manner,” the spokesperson said in a statement.
In their complaint, Dalton and Troisi say their businesses suffered during the pandemic, yet when they tried to apply for the inclusive grant program they were deemed ineligible. They allege the state’s exclusion of straight white male entrepreneurs violated their constitutional rights under the 14th Amendment, which extends the rights of equal protection to state law.
The court filing included a sample online application. If a prospective applicant did not meet at least one of the eligible criteria, such as “minority-owned” or “woman-owned,” the system flagged the application as “ineligible.” The rejected applicant was then encouraged to visit the MGCC’s website to review other funding programs.
Dalton is a retired police officer who runs a training academy to teach proper use of firearms. Troisi owns an auto repair and emergency roadside services business.
Dalton and Troisi declined to speak with a Globe reporter. But in a June interview on Fox News, Dalton called the state program “blatantly unconstitutional.”
He said he felt he was facing discrimination for being a straight white male. “The New England Firearms Academy is all inclusive. We leave nobody behind,” Dalton said. “We stress this in class and to have this happen was really just a kick.”
The case has also drawn the attention of the Black Economic Council of Massachusetts and business advocacy group Amplify Latinx, which petitioned the court in late July to join as parties in the case to defend the state program.
Both groups argue that eliminating the program would have an outsized impact on their organizations, whose members include Black and Latinx entrepreneurs. They want their voices heard on the matter, according to Iván Espinoza-Madrigal, executive director of the Lawyers for Civil Rights in Boston, which is serving as their legal counsel.
In their filing, the Black Economic Council and Amplify Latinx assert that the program is necessary because entrepreneurs of color were disproportionately hurt when the pandemic shut down the economy in 2020.
What’s more, entrepreneurs of color had less access to federal relief programs such as the Paycheck Protection Program; white business owners nationally received 79 percent of the full amount requested from that program, compared with only 61 percent of Latinx-owned businesses and 43 percent of Black-owned businesses, according to a Federal Reserve survey cited in the court filing.
Espinoza-Madrigal believes the state is on solid legal ground because the law allows for people of color to receive relief for discrimination.
The Pacific Legal Foundation’s effort is an “overreach,” he said.
“The Supreme Court’s ruling on affirmative action is limited to higher education institutions,” said Espinoza-Madrigal, adding that the court “made clear it wasn’t eliminating all uses or references to race, and to pretend otherwise is completely misplaced.”
Pacific Legal, founded in 1973, is known for taking cases to the Supreme Court and winning. In the most recent term, the foundation successfully litigated a case that restricted the government’s authority to protect wetlands in the Clean Water Act. In another high-profile case, the high court sided with the foundation’s efforts to ban states from the practice of “home equity theft,” which allowed lenders to reap profits from foreclosed homeowners.
More recently, the foundation has been challenging race-based programs. Its lawyers sued Cook County in Illinois over a small business grant program that gave preferences to firms owned by women, people of color, and other disadvantaged groups. In March, Cook County rescinded and restructured the program, and the case was closed.
Quinio, who is handling the Massachusetts case, said the state’s race-conscious initiatives are not unusual.
“If we had the capacity and manpower and the time, we would look at all of the grant programs that use race,” he said.
Mina Makarious, a partner at law firm Anderson & Kreiger who specializes in public sector law and is not involved in the litigation, said the law may not be definitive at the moment, but that doesn’t mean entities should back away from diversity programs.
“If a client were asking me, should we drop all of these kinds of efforts? I would say no,” said Makarious. “You just have a heightened bar from the Supreme Court to explain what you’re doing and why you’re doing it.”
Shirley Leung is a Business columnist. She can be reached at email@example.com.