Judge clarifies restraining order against Colorado, allows COVID-19 relief grants to proceed

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The federal judge who halted Colorado’s distribution of COVID-19 relief funds to small businesses based on their minority-owned status has clarified that his temporary restraining order does not affect all aid from the program.

Last week, U.S. District Court Judge William J. Martínez partially blocked the state from awarding grants through the Disproportionately Impacted Business Grant program. The General Assembly enacted the initiative this year to aid struggling businesses that lost revenue amid the pandemic, and allowed applicants to qualify if they were a minority-owned enterprise.

Although businesses could also receive aid if they met a number of other criteria, it was the minority ownership provision that a white business owner challenged, and that the judge temporarily blocked. But after the state informed the court that it was suspending all awards to businesses in response to the temporary restraining order, Martínez clarified that was not his intent.

The order doesn’t block “issuing awards under the Disproportionately Impacted Businesses Grant Program which do not implicate any minority-owned business preferences,” the judge wrote in an order on Friday.

Office of Economic Development and International Trade administers the program.

Stephen E. Collins, a white man who owns event-planning company Resort Meeting Source, filed a lawsuit earlier this month after applying for aid through the grant program. He argued that the race-based criterion disadvantaged him and was unconstitutional. Martínez initially agreed with him, blocking the state from awarding grants on the basis of minority ownership through Oct. 26.

But the Colorado Attorney General’s Office responded that Collins was approved for a $10,000 grant through the program, as had every other qualified business. The program is actually undersubscribed, and none of the 11 award recipients ended up being a minority-owned business. Because Collins had not suffered an injury and got what he wanted, the state asked Martínez to dismiss the lawsuit.

Collins countered that he brought his claims as a class action lawsuit, and it is possible the state would apply the minority-owned business criterion in the future to the disadvantage of other white-owned businesses.

The state’s “current intention — revealed after the filing of the complaint — to award a grant to Plaintiffs at some point in the future changes nothing,” wrote attorneys for Collins. Furthermore, “the minority-owned business preference remains on the books, and defendants remain free to apply it in all subsequent rounds of funding under the same program.”

Martínez instructed the state and Collins to weigh in further, setting deadlines just before the expiration of his temporary restraining order on Oct. 26.

“Plaintiffs raise significant constitutional arguments in their response, some of which the court did not anticipate being raised,” he acknowledged.

The Office of Economic Development and International Trade did not immediately respond to questions about when it would resume grant awards following the judge’s clarification.

The COVID-19 aid program to disproportionately impacted businesses came about after another white business owner challenged the General Assembly’s first attempt to set aside $4 million for minority owned businesses. The current program includes several other criteria, but still provides a preference for owners of minority-owned businesses that meet at least one other eligibility requirement.

The General Assembly found that minority-owned businesses had less timely access to aid and were more likely to close early in the pandemic than white-owned companies. Last year, the Federal Reserve Bank of Cleveland cautioned that based on historic differences across racial groups in obtaining start-up funding, “if COVID-19 sparks a swell of permanent minority business closures, starting new firms in communities that lost businesses could prove difficult.”

The case is Collins et al. v. Meyers.