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A federal judge rules MBDA violates the Constitution’s guarantee of equal protection

March 07, 2024
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By: Michele Hujber

A federal judge in Texas has ruled that the U.S. Department of Commerce’s Minority Business Development Agency’s presumption that businesses owned by Blacks, Latinos and other minorities are disadvantaged violates the Constitution’s guarantee of equal protection. Unless it appeals, the Department of Commerce, which oversees MBDA, will be forced to immediately cease using an applicant’s race or ethnicity in determining eligibility for the program. An appeal seems likely, but, according to an article in the Washington Post, it would go to the U.S. Court of Appeals for the 5th Circuit, which has a conservative majority.

Among other programs, MBDA administers the Capital Readiness Program, a $125 million technical assistance program to help underserved entrepreneurs grow and scale their businesses that is funded by the Department of Treasury’s State Small Business Credit Initiative (SSBCI).

The judge found the MBDA’s use of racial categories did not survive strict scrutiny. “While the government may have a role in remedying MBEs’ (minority business enterprises’) credit problems, the evidence doesn’t show it had a role in causing them—at least not as a participant. Accordingly, any policies aimed at fixing these issues may not use race-based classifications,” the ruling asserted.

The ruling follows the Supreme Court’s ruling against Harvard and the University of North Carolina regarding admissions last June. (Read SSTI coverage of this action here.) This most recent opinion cited the Supreme Court’s Harvard-UNC decision more than 30 times.

Soon after the Supreme Court’s ruling against Harvard and the University of North Carolina, a federal judge in Tennessee struck down a provision of the Small Business Administration’s 8(a) Business Development program that equated race with social disadvantage as unconstitutional, forcing the agency to overhaul it. The agency paused its 8(a) program for several weeks while it developed new guidelines.

mbda, minority business enterprises