Judges Halt Race and Gender Priority for Restaurant Relief Grants

Lawsuits brought by white business owners challenging a policy that prioritized applicants for pandemic relief grants on the basis of gender and race have thrown the federal government’s Restaurant Revitalization Fund into turmoil.

Tens of thousands of applicants who expected an easier path through the $28.6 billion aid program are now stuck in limbo, and nearly 3,000 restaurant owners whose grants were approved have been told they can’t be paid.

The money is running out fast: The program has distributed $27.5 billion to about 100,000 applicants, an agency official said on Monday.

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When they created the Restaurant Revitalization Fund in March, lawmakers ordered the Small Business Administration, which runs the program, to include a 21-day exclusivity period. During that time, only applications from women, military veterans and “socially and economically disadvantaged” individuals — defined by the agency as those from certain racial and cultural groups who also had limited financial means — would be approved. Others could file their applications, but had to wait to have their requests reviewed.

The fund began taking applications on May 3 and was soon overwhelmed. More than 362,000 businesses applied, seeking $75 billion — nearly three times what Congress had allocated. Little, if any, money would have been left for applicants outside the priority groups.

Some restaurant owners sued, claiming that the priority period was discriminatory. Several judges agreed, prompting the agency to alter its approach. In court filings on Friday, the agency said it had — in late May, in response to the legal actions — stopped payment on priority applications. The 2,965 people whose approvals were revoked will be paid only “once it completes processing all previously filed non-priority applications, and only then if the R.R.F. is not first exhausted,” the agency said. Other applicants who expected to be part of the priority queue — tens of thousands of them, according to industry groups — are stalled, waiting to hear if they’ll be approved.

About 72,000 of the applicants who have already been paid were covered by the priority process, Patrick Kelley, the head of the agency’s Capital Access office, said on Monday. They received $18 billion of the $27.5 billion that has been handed out.

Han Nguyen, a spokesman for the S.B.A., said the agency was frustrated by the decision. “While we cannot comment on the specifics of the litigation, it is the North Star of the U.S. Small Business Administration to assist underserved small businesses, and we’ll continue to do so,” he said.

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On May 27 — three days after the 21-day priority period ended — a three-judge panel from the U.S. Court of Appeals for the Sixth Circuit sided with Antonio Vitolo, an owner of Jake’s Bar and Grill in Harriman, Tenn., who said he had “been pushed to the back of the line” because he is a white man.

In a 2-to-1 decision, the court said, “When the government promulgates race-based policies, it must operate with a scalpel.” The Small Business Administration’s “scattershot approach” was unconstitutional, the court found.

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A similar case in Texas by the owners of two restaurants — the Lost Cajun in Keller, Texas, and Penn Hotel Sports & Raw Bar in Hershey, Pa. — accused the government of “actively and invidiously discriminating against American citizens solely based upon their race and sex.” Judge Reed O’Connor ruled against the agency on May 28, ordering it to evaluate the plaintiffs’ claims “in accordance with a race-neutral, sex-neutral ‘first come, first served’ policy.”

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