Trend #5 – U.S. Supreme Court Rulings Continue To Impact The Class Action Landscape

By Gerald L. Maatman, Jr. and Jennifer A. Riley

Duane Morris Takeaway: As the ultimate referee of law, the U.S. Supreme Court traditionally has defined the playing field for class action litigation and, through its rulings, has impacted the class action landscape. The past year did not buck that trend. On June 29, 2023, the U.S. Supreme Court ruled in Students for Fair Admissions, Inc., et al. v. President & Fellows of Harvard College, 600 U.S. 181 (2023), that two colleges and universities that considered race as a factor in the admissions process violated the Equal Protection Clause of the U.S. Constitution and Title VI of the Civil Rights Act of 1964. The ruling is fueling controversy along with a wave of claims that is likely to expand.

Check out the video below to see Duane Morris partner Jennifer Riley discuss the impact of U.S. Supreme Court rulings on the class action landscape in 2023, and what is coming in 2024.

Trend #5 – U.S. Supreme Court Rulings Continue To Impact The Class Action Landscape

  1. The U.S. Supreme Court’s Decision

Students for Fair Admissions, an advocacy group, brought two lawsuits alleging that the use of race as a factor in admissions by Harvard and the University of North Carolina, respectively, violated Title VI and the Equal Protective Clause of the Fourteenth Amendment. The U.S. Supreme Court agreed.

After reviewing the language of the Fourteenth Amendment (no State shall “deny to any person . . . the equal protection of the laws”), the Supreme Court began its analysis by recapping its early jurisprudence, including its decision in Brown v. Board of Education, 347 U. S. 483, 493 (1954), wherein it held that the right to a public education “must be made available to all on equal terms.” Students, 600 U.S. at 201, 204. The Supreme Court noted that these decisions, and others like them, reflect the broad “core purpose” of the Equal Protection Clause: “[D]o[ing] away with all governmentally imposed discrimination based on race.” Id. at 206.

The Supreme Court explained that, accordingly, any exceptions to the Equal Protection Clause’s guarantee must survive a daunting two-step examination known as “strict scrutiny,” which asks, first, whether the racial classification is used to “further compelling governmental interests” and, second, whether the government’s use of race is “narrowly tailored” or “necessary” to achieve that interest. Id. at 206-07. In Grutter v. Bollinger, 539 U.S. 306, 325 (2003), the Supreme Court endorsed the view that “student body diversity is a compelling state interest” but insisted on limits in how universities consider race. In particular, the Supreme Court sought to guard against two dangers: (i) the risk that the use of race will devolve into “illegitimate . . . stereotyp[ing]” and (ii) the risk that race will be used as a negative to discriminate against those racial groups that are not the beneficiaries of the race-based preference. To manage its concerns, Grutter imposed a third limit on race-based admissions programs. “At some point,” the Supreme Court held, “they must end.” Students, 600 U.S. at 212.

In Students for Fair Admissions, the U.S. Supreme Court held that the defendants’ race-conscious admissions systems failed each factor and, therefore, ran afoul of the Equal Protection Clause. As an initial matter, the U.S. Supreme Court found that defendants failed to operate their race-based admissions programs in a manner that is “sufficiently measurable to permit judicial [review].” Id. at 214-17. Second, the U.S. Supreme Court held that the race-based admissions systems failed to comply with the twin commands of the Equal Protection Clause that race may never be used as a “negative” and that it may not operate as a stereotype. Id. at 218-219. The U.S. Supreme Court explained that “college admissions are zero-sum. A benefit provided to some applicants but not to others necessarily advantages the former group at the expense of the latter.” Id. Third, the U.S. Supreme Court held that the admissions programs lack a “logical end point” as Grutter required. Id. at 221. As a result, the U.S. Supreme Court determined that the admissions programs “cannot be reconciled with the guarantees of the Equal Protection Clause.” Id. at 230.

  1. The Ruling’s Early Impact

On July 19, 2023, in Ultima Services Corp., et al. v. U.S. Department of Agriculture, No. 20-CV-00041, 2023 WL 4633481 (E.D. Tenn. July 19, 2023), a district court extended Students for Fair Admissions to the government contracting context and held that the Small Business Association’s use of racial preferences to award government contracts likewise violates the Equal Protection Clause.

Section 8(a) of the Small Business Act instructs the Small Business Administration (the SBA) to contract with other agencies “to furnish articles, equipment, supplies, services, or materials to the Government,” 15 U.S.C. § 637(a)(1)(A), and to “arrange for the performance of such procurement contracts by [subcontracting with] socially and economically disadvantaged small business concerns,” 15 U.S.C. § 637(a)(1)(B). The SBA adopted a regulation creating a “rebuttable presumption” that “Black Americans; Hispanic Americans; Native Americans; Asian Pacific Americans [; and] Subcontinent Asian Americans” are “socially disadvantaged.” 13 C.F.R. § 124.103(b)(1).

The district court held that the § 8(a) program does not satisfy strict scrutiny. First, the Administration did not assert a compelling interest. The district court reasoned that while the government “has a compelling interest in remediating specific, identified instances of past discrimination,” the program lacked any such stated goals. Id. at *11. Second, the district court held that, even if the SBA had a compelling interest in remediating specific past discrimination, the § 8(a) program was not narrowly tailored to serve that alleged compelling interest. Id. at *14. The § 8(a) program had no logical end point or termination date, was both underinclusive and overinclusive relative to its “imprecise” racial categories, and failed to review race-neutral alternatives.

The district court concluded that the defendants’ use of the rebuttable presumption violated Ultima’s Fifth Amendment right to equal protection, and it enjoined defendants from using the rebuttable presumption of social disadvantage in administering the program. Id. at *18.

Although the district court in Ultima limited its holding to the use of a “rebuttable presumption” in administration of § 8(a) programs, in addressing the requirement that racially conscious government programs must have a “logical end point,” it cited Students for Fair Admissions and noted that “its reasoning is not limited to just [college admissions programs].” Id. at *15 n.8. Thus, the first opinion considering the impact of Students for Fair Admissions extended it beyond college admissions, reflecting the decision’s potential to fuel claims asserted under 42 U.S.C. § 1981, Title VII, and other anti-discrimination statutes.

  1. Implications For Class Action Litigation

The Supreme Court’s decision has also caused private sector employers to question whether the ruling impacts their diversity, equity, and inclusion (DEI) initiatives. While politicians moved quickly to stake out positions on the issue, the plaintiffs’ class action bar and advocacy groups moved to take advantage of the uncertainty to line up a deluge of claims.

In the wake of Students for Fair Admissions, the Office for Federal Contractor Compliance Programs (OFCCP), the office responsible for overseeing affirmative action programs for federal contractors, promptly updated its website to state that its affirmative action programs are separate from those that educational institutions implemented to increase racial diversity in their student bodies. The OFCCP stated that “[t]here continue to be lawful and appropriate ways to foster equitable and inclusive work environments and recruit qualified workers of all backgrounds.”

Likewise, in response to the decision, EEOC Chair Charlotte Burrows, a Democratic appointee, promptly issued a statement declaring that the decision “does not address employer efforts to foster diverse and inclusive workforces or to engage the talents of all qualified workers, regardless of their background. It remains lawful for employers to implement diversity, equity, inclusion, and accessibility programs that seek to ensure workers of all backgrounds are afforded equal opportunity in the workplace.”

By contrast, Andrea Lucas, a Republican-appointed EEOC Commissioner, emphasized a different sentiment in a Fox News interview regarding the impact of Students for Fair Admissions: “I think this [decision] is going to be a wake-up call for employers. . . . Even though many lawyers don’t use the word affirmative action, it’s rampant today. . . . Pretty much everywhere there is a ton of pressure . . . across corporate America to take race-conscious . . . actions in employment law. That’s been illegal and it is still illegal.” As to potential challenges, she added: “I have noticed an increasing number of challenges to corporate DEI programs and I would expect that this decision is going to shine even more of a spotlight about how out of alignment some of those programs are. . . I expect that you are going to have a rising amount of challenges.”

Consistent with predictions, in the wake of the U.S. Supreme Court’s ruling, Republican Attorneys General from 13 states and Senator Tom Common of Arkansas sent a letter to the CEOs of Fortune 100 companies stating: “[T]oday’s major companies adopt explicitly . . . discriminatory practices [including], among other things, explicit racial quotas and preferences in hiring, recruiting, retention, promotion, and advancement.” They urged the companies to cease unlawful hiring practices. In response, 21 Democratic Attorneys General sent a letter condemning the Republican Attorneys General’s “attempt at intimidation”: “While we agree with our colleagues that “companies that engage in racial discrimination should and will face serious legal consequences…[w]e write to reassure you that corporate efforts to recruit diverse workforces and create inclusive work environments are legal and reduce corporate risk for claims of discrimination.”

On September 19, 2023, Students for Fair Admissions filed a lawsuit in the U.S. District Court for the Southern District of New York seeking to end race-conscious admissions at the U.S. Military Academy. . See Students for Fair Admissions v. U.S. Military Academy at West Point, et al., No. 7:23 Civ. 08262 (S.D.N.Y.). The group alleged that the admissions program at West Point, which takes race into account in its admissions process for future Army officers, is unconstitutional and unnecessary for a service that relies on soldiers following orders regardless of skin color.

The group filed a similar action against the U.S. Naval Academy on October 5, 2023, in the U.S. District Court for the District of Maryland. See Students for Fair Admissions v. U.S. Naval Academy, et al., No. 23-CV-2699 (D. Md.). The group seeks to prevent the Naval Academy in Annapolis, Maryland from taking race into account in the selection of an entering class of midshipmen. After filing suit, the group promptly sought a preliminary injunction.

On December 20, 2023, a federal judge denied a request to temporarily bar the Naval Academy from using race in its admissions process while the parties litigate the case. Students for Fair Admissions v. U.S. Naval Academy, No. 23-CV-2699, 2023 WL 8806668, at *1 (D. Md. Dec. 20, 2023) (noting that plaintiff’s requested injunctive relief “would undoubtedly alter the status quo,” and, at this stage, the parties have not developed a factual record from which the court can determine whether the Naval Academy’s admissions practices will survive strict scrutiny).

On October 4, 2023, another advocacy group, the America First Legal Foundation asked the EEOC to launch an investigation into Salesforce’s allegedly “unlawful employment practices” claiming that, through its programs promoting diversity and equality, it engaged in unlawful race-based and sex-based discrimination. The group has lodged similar accusations against than a dozen other companies alleging that they maintain programs that aim to increase workplace representation of women and minorities at the expense of White, heterosexual men. The American Alliance for Equal Rights filed lawsuits against additional companies, including law firms, claiming that their grants and programs excluded individuals based on their race.

Finally, on December 19, 2023, a Wisconsin attorney represented by the Wisconsin Institute for Law & Liberty filed suit alleging that a clerkship program maintained by the Wisconsin State Bar is unconstitutional because its eligibility requirements and selection processes discriminate among students based on various protected traits, primarily race. See Suhr v. Dietrich, et al., Case No. 23-CV-01697 (E.D. Wis.). He claims that members of Bar leadership are violating his First Amendment rights because they are using his mandatory dues as a practicing attorney to fund the program.

As these questions continue to percolate, and courts start to weave a patchwork quilt of rulings, such uncertainty is likely to fuel class action filings and settlements in the workplace class action space at an increasing rate. Companies should expect to see more governmental enforcement activity, litigation focused on alleged “reverse” discrimination, and claims challenging DEI initiatives.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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