A federal court has thrown out the lawsuit from a white Colorado Springs barbershop owner who challenged the constitutionality of a state COVID-19 relief program because it gave a preference for financial aid to businesses owned by people of color.
In an April 19 order, U.S. District Court Chief Judge Philip A. Brimmer noted the state has not even finished setting up the program. Therefore, there is no way to know whether Etienne Hardre and his company, Locals Barbershop & Salon, would even have standing to sue.
“[P]laintiffs brought this case before any implementing regulations had been adopted and without information regarding their own eligibility for economic assistance,” Brimmer wrote. Because legal standing is based on harm from a law or action, dismissal of Hardre’s lawsuit was a “risk inherent” in filing a premature complaint, the judge added.
Hardre received free representation from the Pacific Legal Foundation, which litigates cases involving property rights, economic liberty and free speech. Wen Fa, an attorney based in the foundation’s Sacramento office, said he was disappointed by the court’s order and is considering Hardre’s options.
“Like many other small businesses, Locals Barbershop has suffered devastating economic losses as a result of the pandemic and government-imposed shutdown orders,” Fa said. “The court did not rule on the merits, and we believe that Colorado’s preference for minority-owned business for relief funds continues to violate both the Constitution and the fundamental principle of equal justice before the law.”
Should Hardre or another potential plaintiff ask the court to again examine the aid program once it is operational, the standard of strict scrutiny would come into play, in which the use of race-based criteria must be narrowly-tailored to advance a compelling governmental interest.
“Winning this case would mean that our republic still exists," Hardre told the Pacific Legal Foundation in February. "It would give me hope that the mechanics that our Founders put into place so long ago, at such a great cost, still exist in some form."
At issue was Senate Bill 1, passed in a special legislative session in December focused on various COVID-19 relief measures. As enacted, the legislation provided $57.1 million to state agencies, with financial aid intended for three main recipients: small businesses, arts and cultural organizations, and businesses owned by people of color.
Hardre filed a federal lawsuit, alleging the nearly $4 million destined for such businesses violated the Equal Protection Clause of the 14th Amendment.
In response to the litigation, the General Assembly at the beginning of the 2021 legislative session modified Senate Bill 1 to refer to “disproportionately impacted” businesses. Such businesses could also qualify for grants, loans, technical assistance and professional development if they had five or fewer employees, were in an economically distressed area, or if the business owner had a low income stream. Minority-owned businesses will still be given a preference if they met at least one of the other criteria.
"Four million [dollars] out of 64 counties?” said bill sponsor Rep. Shane Sandridge, R-El Paso County, at the time. “I think if anybody needs to be offended, I think [minority business owners] should be offended that it’s so little.”
Hardre asked the federal court to halt the implementation of the program through the state’s Office of Economic Development and International Trade. Jeff Kraft, the office’s director of business funding and incentives, testified in early April that the grant and loan programs were not finalized.
Eligibility criteria, Kraft said, will likely be set in mid-June, although he believed the law would exclude businesses who previously received federal assistance through the CARES Act, such as the Paycheck Protection Program.
Hardre claimed Locals Barbershop saw its 2020 revenue drop by at least one-third in 2020, but that he was able to receive $360,000 through three federal programs. He also acknowledged he was looking for investors to expand to a second location in Colorado Springs.
Nevertheless, he argued, the state did not have a compelling justification for giving racial preferences in COVID-19 relief to ameliorate discrimination.
"Colorado could adopt race-neutral remedies, such as stimulus payments and other relief based on geographic areas or sectors of the economy most impacted by the COVID-19 pandemic, without reference to race," his attorneys suggested in an amended complaint.
In response, the attorney general's office argued the $4 million program, out of reportedly $300 million to be distributed to small businesses in total, was tailored to address the specific concern of unequal access to aid based on race. The legislation cited an analysis from the Brookings Institution showing businesses in neighborhoods with majority-white populations received Paycheck Protection Program funds faster, while the U.S. Securities and Exchange Commission reported that women-, Hispanic-, and Asian American-owned small businesses were likelier to close between February and April 2020 than the nationwide closure rate. Forty-one percent of Black-owned businesses shut down, greater than any other demographic.
Consequently, the government "has a compelling government interest to remedy the prior discrimination faced by minority-owned businesses in receiving federal aid and to prevent a disproportionate share of minority-owned small businesses from going out of business," lawyers for the state wrote.
In assessing Hardre’s claim and request for a preliminary injunction, Brimmer noted any harm to Hardre must take the form of a government-created barrier making it more difficult for members of a certain group to access a benefit. But if Hardre’s receipt of federal money ultimately makes him ineligible for any state relief, the judge noted, he will have no basis to challenge the minority-owned business preference.
“[I]t is presently unknown how several key provisions of the Act will be implemented, and it is those provisions of the Act that will determine plaintiffs’ eligibility for relief,” Brimmer wrote. “Until OEDIT develops guidelines, it is impossible to know whether plaintiffs will be harmed.”
The judge declined to monitor OEDIT’s development of regulations, and instead dismissed Hardre’s claim entirely.
Rep. Leslie Herod, D-Denver, who also sponsored Senate Bill 1, said the modification to the law was designed to put on the record that the $4 million aid to disproportionately impacted businesses was addressing a unique need rooted in data.
"Frankly, I would be hard-pressed to believe that many Coloradans don't think that minority-owned businesses have been disproportionately impacted by this pandemic," she said.
Oregon was also the subject of a legal challenge to its own program to support the Black community amid the pandemic. At $62 million, a substantially larger amount than Colorado's program, the Oregon Cares Fund initially survived a court challenge before the state settled the lawsuit earlier this year. The agreement allowed the fund to release the final $8.8 million deposited with the federal court.
Clark D. Cunningham, a law professor at Georgia State University, told The New York Times he did not believe the Equal Protection Clause would serve to block targeted relief in Oregon's case, even if race were the criterion.
“The idea that, in this case, a lumber company could use the 14th Amendment as a weapon to prevent the descendants of slaves from receiving an economic benefit in a time of disaster is utterly inconsistent with the historical context,” he said.
The case is Hardre v. Markey.