Nila Kartika Wati
A landmark legal battle currently unfolding in the United States District Court for the District of Columbia is poised to redefine the boundaries of private philanthropy and the reach of Reconstruction-era civil rights protections. At the center of the controversy is a lawsuit filed in December 2025 by the American Alliance for Equal Rights (AAER) against the Hispanic Scholarship Fund (HSF), one of the nation’s most prominent providers of financial aid to Latino students. The case represents a significant escalation in the legal movement to dismantle race-conscious programs, utilizing a strategy that turns a law originally designed to protect formerly enslaved people against the very groups it was intended to uplift.
The litigation centers on Section 1981 of the Civil Rights Act of 1866, a foundational piece of American law enacted to ensure that "all persons" have the same right to "make and enforce contracts" as white citizens. While the statute was a direct response to the "Black Codes" of the post-Civil War South—which restricted the economic and legal freedom of Black Americans—it is now being leveraged to argue that scholarship programs restricted by ethnicity constitute illegal discrimination. The outcome of this case could have sweeping implications for thousands of nonprofit organizations, foundations, and corporate diversity initiatives across the United States.
The Origins of Section 1981 and the Black Codes
To understand the weight of the current legal challenge, it is necessary to examine the historical context of the statute in question. In 1865, following the conclusion of the Civil War, several Southern states, including Mississippi and South Carolina, passed restrictive laws known as Black Codes. These laws were designed to maintain a racial hierarchy and ensure a stable, subservient labor force. For instance, Mississippi law allowed authorities to arrest and forcibly return Black workers to their employers if they quit their jobs without a reason deemed satisfactory by white officials.
In response, the 39th United States Congress passed the Civil Rights Act of 1866. The Act’s primary objective was to invalidate the Black Codes and provide a legal basis for the citizenship and rights of newly freed African Americans. Section 1981, specifically, was intended to guarantee that Black citizens could participate in the economy—buying property, suing in court, and entering into contracts—without facing race-based barriers. For over 150 years, this law has served as a shield against discrimination. However, in the current legal climate, it is increasingly being used as a sword by activists who argue that any race-exclusive benefit, regardless of its remedial intent, violates the principle of colorblindness.
The Lawsuit Against the Hispanic Scholarship Fund
The Hispanic Scholarship Fund was established in 1975 with the mission of empowering Latino families through higher education. Over the decades, it has awarded hundreds of millions of dollars in scholarships and provided support services to tens of thousands of students. The AAER lawsuit, spearheaded by conservative legal activist Edward Blum, alleges that HSF’s eligibility criteria, which require applicants to be of Hispanic heritage, illegally discriminate against non-Hispanic students.
Blum, who also led the successful challenge against affirmative action in college admissions in the 2023 Supreme Court case Students for Fair Admissions v. Harvard, argues that HSF’s scholarship process constitutes a contract. According to the complaint, when a student applies for an HSF scholarship, they enter into a contractual relationship in which they "license away their name, image, and likeness; hand over their personal data; and agree to a class-action waiver" in exchange for the opportunity to receive funding. Because this "contract" is only available to Hispanic applicants, AAER contends it violates the equal-rights-to-contract provision of Section 1981.
Legal experts note that this "contract theory" is a relatively novel application of the law in the context of charitable giving. Traditionally, scholarships have been viewed as gifts or grants rather than bilateral contracts. If the court accepts AAER’s reasoning, it could transform the way nonprofits interact with their beneficiaries, potentially subjecting any organization that collects data or requires a waiver to the strictures of Section 1981.
A Growing Chronology of Legal Challenges
The case against HSF is not an isolated incident but rather the latest development in a coordinated legal campaign. Since the Supreme Court’s 2023 ruling on college admissions, there has been a surge in litigation targeting race-conscious programs in the private and nonprofit sectors.
- August 2023: AAER filed a lawsuit against the Fearless Fund, a venture capital firm that provided grants specifically to Black women entrepreneurs. The lawsuit used the same Section 1981 argument, claiming the grant program was a discriminatory contract.
- September 2024: The Fearless Fund settled its case, agreeing to end its race-based grant program. This settlement was seen as a major victory for Blum and a warning sign for the nonprofit sector.
- December 2024 – Present: A database maintained by the Meltzer Center for Diversity, Inclusion, and Belonging indicates that more than 30 similar cases have been filed against various organizations since late 2024.
- December 2025: The lawsuit against the Hispanic Scholarship Fund was officially filed in the US District Court for Washington, DC.
- February 2026: A pivotal hearing was held where HSF’s legal team presented a motion to dismiss, arguing that the scholarship program is a protected form of expression and charitable activity under the First Amendment.
The "Juan Crow" Legacy and Educational Disparities
Defenders of the HSF and other minority-focused organizations argue that these programs are essential to counteracting the "badges and incidents of slavery" and subsequent eras of systemic exclusion. In an amicus brief filed in support of HSF, the Lawyers’ Committee for Civil Rights Under Law detailed the history of "Juan Crow"—a system of state-sanctioned discrimination against people of Mexican and Latin American descent.
In the early 20th century, particularly in Texas and California, zoning laws and local policies were used to segregate Mexican-American students into underfunded and inferior "Mexican schools." By 1940, roughly 80 percent of Mexican-American students in California attended segregated institutions. In Texas, the state constitution mandated separate schools for Black students, a practice that was frequently extended to Mexican-Americans. This history of institutionalized exclusion has resulted in long-term economic and educational gaps that persist today.
Data from the advocacy group UnidosUS highlights the contemporary impact of these historical inequities:
- Completion Rates: Only 52 percent of Latino students complete their degrees within four years, compared to 65 percent of their white peers.
- Financial Strain: Due to a significant racial wealth gap, 80 percent of Latino students report working while enrolled in college to cover costs.
- Poverty Levels: Despite having some of the highest workforce participation rates in the country, Hispanic families are statistically more likely to live in poverty and have lower median incomes than white families.
"These programs are designed to resolve a legacy of discrimination," Eric Rodriguez, senior vice president of policy and advocacy at UnidosUS, stated. "They address the economic barriers that Latino students face in accessing and completing higher education, which remains a major challenge across the country."
Reactions from the Nonprofit Sector
The nonprofit community has responded to the HSF lawsuit with a mixture of alarm and solidarity. The Council on Foundations (CoF) and several other legal advocacy groups have joined the Lawyers’ Committee in submitting amicus briefs. They argue that the lawsuit threatens the First Amendment rights of charities to determine how best to fulfill their missions and serve specific communities.
Ben McDearmon, director of Legal Resources at CoF, expressed concern over the "chilling effect" the litigation is having on the sector. "This case would say you can’t really consider race at all in any program or you run the risk that at some point you entered into a contract," McDearmon noted. He warned that if the court adopts a broad definition of "contract" based on website interactions or data collection, it could effectively shut down organizations looking to remedy past harms or advance racial equity.
Critics of the lawsuit also point out the historical irony of the legal strategy. Sabrina Talukder, senior counsel with the Lawyers’ Committee, told reporters that the case aims to "turn civil rights protections upside down." By using a law intended to integrate marginalized groups into the economy to instead strike down programs that facilitate that integration, the litigation re-entrenches the very inequalities the Civil Rights Act of 1866 sought to erase.
Broader Implications and Future Outlook
The outcome of American Alliance for Equal Rights v. Hispanic Scholarship Fund will likely have consequences far beyond the Latino community. If the court rules in favor of AAER, it could set a precedent that endangers any organization providing services or aid to specific demographic groups. This includes organizations with long histories of support for Jewish, Irish, Black, or indigenous communities, such as the United Negro College Fund or the Hebrew Immigrant Aid Society.
Furthermore, the case may force a total re-evaluation of how nonprofits handle applicant data and user agreements. If a privacy policy or a media release form is enough to transform a charitable act into a commercial contract under Section 1981, the legal risk for the entire $450 billion philanthropic sector will increase exponentially.
As the judge in Washington, DC, deliberates on the motion to dismiss, the legal and nonprofit worlds remain on high alert. The decision will serve as a bellwether for whether the American judiciary will continue the trend of applying "colorblind" standards to private charitable efforts, or whether it will uphold the right of organizations to address specific, historically rooted disparities in pursuit of a more equitable society. For now, the Hispanic Scholarship Fund continues its operations, but the shadow of the 1866 Civil Rights Act—now a double-edged sword—hangs over its future.
