A legal battle between a program that awards grants to female entrepreneurs of color and a conservative nonprofit organization is expected to raise broader legal questions on the use of diversity programs in corporate America.

The 11th U.S. Circuit Court of Appeals in Atlanta ruled on Saturday to temporarily block the Fearless Fund from running its Strivers Grant Contest, which awards $20,000 grants to small businesses that are led by at least one woman of color and other requirements.

The panel of judges decided 2-1 that the venture capital fund is "racially discriminatory."

The American Alliance for Equal Rights filed a racial discrimination lawsuit against the program in August, claiming it violates the Reconstruction-era Civil Rights Act of 1866, which prohibits racial discrimination in contracts.

The Fearless Fund argues that the grants are awards and not contracts and are protected by the First Amendment.

The mission of the Fearless Fund is to bridge the gap in venture capital funding for women of color. It says that less than 1 percent of total venture capital funding raised by U.S. companies in 2018 was allocated toward businesses founded by women of color. The program also tries to help grow small businesses started by women of color.

The order pausing the Fearless Fund is another turn in what could be a long legal fight. The temporary injunction reverses a ruling by a U.S. District Court judge last week that denied the Alliance's effort to halt the program.

Conservative activist Edward Blum, founder of the American Alliance for Equal Rights, worked for years to overturn affirmative action policies in colleges and universities. Blum won a major legal victory in June when the Supreme Court effectively ended race-conscious policies in higher education.

In a statement to NPR on Monday, Blum said his organization is pleased by the court's most recent decision and hopeful for a favorable outcome.

"The members of the American Alliance for Equal Rights are gratified that the 11th Circuit has recognized the likelihood that the Fearless Strivers Grant Contest is illegal. We look forward to the final resolution of this lawsuit," Blum said.

Attorney Von Bryant, who represents the interests of venture capitalists, says the Alliance is failing to consider the many disadvantages people of color have experienced for generations in entrepreneurship.

"In the context of historically systemic racism, what the Fearless Fund grant is really trying to do is be a beacon for people who have historically and presently had an uphill battle for funding," Bryant said. "This program is trying to address that."

Bryant says an important question is at stake.

"The plaintiffs in this case are fighting for quote 'equality,' but is that equitable?" he asks.

Bryant also notes that in addition to funding, the Fearless Fund program provides valuable mentorship and networking opportunities that are disparately unavailable to Black female entrepreneurs.

The temporary injunction pauses the grants while a separate panel decides what happens next in the case.

"We strongly disagree with the decision and remain resolute in our mission and commitment to address the unacceptable disparities that exist for Black women and other women of color in the venture capital space," the Fearless Fund said in a statement to the Associated Press.

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