A new lawsuit filed in federal court in Louisiana challenges the Small Business Administration’s long‑standing practice of automatically treating members of certain racial and ethnic groups as “socially disadvantaged” for purposes of federal benefits. The case, brought by the Center for Individual Rights on behalf of an AI company and a conservative youth organization, argues that the SBA’s core 8(a) regulation is unconstitutional in light of recent Supreme Court rulings on affirmative action.
On November 17, the Center for Individual Rights filed a lawsuit in federal court in Louisiana targeting a key Small Business Administration regulation used to determine eligibility for “socially and economically disadvantaged” status, according to a complaint described by The Daily Wire. The suit focuses on the SBA’s 8(a) program, which derives its name from a provision of the Small Business Act of 1953 and is implemented through regulations that, the lawsuit says, have not undergone significant updates since 1998.
The lawsuit names as defendants Small Business Administration Administrator Kelly Loeffler and Attorney General Pam Bondi, reflecting the current administration at the time of filing, The Daily Wire reports. The plaintiffs seek to end the automatic presumption of social disadvantage for individuals of certain racial and ethnic groups — a designation that, according to the complaint, underpins access to contracts, grants, loans, investment capital, and other benefits in at least 20 different federal programs.
The plaintiffs include Revier Technologies, an artificial intelligence company owned by Matthew Schultheis, and Young America’s Foundation, a conservative organization. Revier Technologies alleges it was denied a "Small Business Credit Initiative" subsidy because Schultheis is white, while Young America’s Foundation says interns in its college program were barred from a Department of Homeland Security fellowship that relied on the SBA’s “socially disadvantaged” classification.
“The federal government’s pervasive use of race as a proxy for determining who is ‘socially disadvantaged’ — and therefore who receives contracts, grants, loans, investment capital, opportunities, and other benefits — is unconstitutional, and it must be stopped,” the lawsuit states, according to The Daily Wire.
The complaint argues that the 8(a) framework cannot survive heightened constitutional scrutiny after the Supreme Court’s 2023 decision striking down race-conscious admissions programs at Harvard University and the University of North Carolina. It contends that the SBA’s use of racial and ethnic categories is not “narrowly tailored” and lacks a “logical end point,” pointing to examples in the regulations: individuals of Han Chinese heritage are presumed socially disadvantaged while Uyghur heritage from Kyrgyzstan is not; Pakistanis are included, but Afghans are not; and “Hispanic Americans” include anyone of Spanish origin, so even descendants of Spanish conquistadors qualify as presumed disadvantaged.
The lawsuit further notes that, under existing SBA rules, minority status carries a rebuttable presumption of social disadvantage, but argues that in practice there has been no functioning process for rebutting that presumption or for removing groups from the favored list. According to the complaint, SBA “does not have criteria to evaluate whether a group should be removed from this list because it is no longer suffering the present effects of past discrimination.”
The filing builds on earlier legal challenges involving the same regulatory framework. Center for Individual Rights lawyers previously sued in 2020 on behalf of a white-owned company that alleged it lost out on contracts because race was tied to “disadvantaged” status, The Daily Wire reports. A separate 2018 case revealed that, despite references to a rebuttable presumption, there was effectively no mechanism to contest a minority group’s presumed disadvantaged status.
In July 2023, a federal judge issued a preliminary injunction requiring the SBA to change how it identifies which firms qualify as disadvantaged for contracting purposes. In response, the Biden administration directed prospective 8(a) contractors to submit written statements describing how they personally experienced discrimination due to “racial, ethnic, or cultural bias,” according to the Daily Wire account. However, the underlying regulation governing the presumption remained on the books, and other federal programs that rely on the same definition continued to do so.
The Department of Transportation operates a separate “disadvantaged business enterprise” program that also incorporates race-based presumptions. Together, the SBA and Transportation Department programs constitute some of the largest race-conscious contracting efforts in the federal government. The Daily Wire reports that in 2021, 10% of all surface transportation funds — more than $37 billion — were earmarked for disadvantaged businesses.
According to the outlet, the Transportation Department’s program was later subjected to a preliminary injunction in September 2024, in a case alleging it violated the Constitution’s equal protection guarantees, although that order applied only to the parties in that case. In May 2025, the Trump administration informed a federal judge in Kentucky that it agreed the program’s use of race- and sex-based presumptions of disadvantage was unconstitutional, and the administration subsequently issued an interim final rule in October 2025 eliminating presumptive eligibility based on race or sex in favor of individualized evidence of social disadvantage.
Center for Individual Rights attorney Mike Petrino told The Daily Wire that his current suit against the SBA attacks a central regulation that many agencies rely on. He said the young, white business owner he represents could be evaluated under an individualized system without his race counting against him. “Our client from Louisiana is from a humble background, he’s faced struggles in life, he’s socially disadvantaged,” Petrino said.
Critics of the existing set‑aside contracting structure, including those cited in the complaint and in The Daily Wire report, argue that it has fostered corruption by encouraging arrangements in which firms with preferred status obtain contracts and then partner with non‑disadvantaged companies that perform much of the work. They also warn that the shift to essay-based assessments could be difficult to administer objectively and may, in practice, replicate outcomes based heavily on race.
Eliminating the federal set‑aside programs altogether, rather than changing how they address race, would require congressional action, Petrino said. For now, he and other critics contend that billions of dollars in federal business will continue to turn on how applicants describe their experiences of disadvantage in written narratives. The federal government also operates other contracting preferences for small businesses that do not rely on racial or ethnic classifications.
In a statement last month, Loeffler, the SBA administrator, said a full review of the 8(a) program was underway with an eye to curbing abuse and fraud. “For years, bureaucrats have turned a blind eye to rampant abuse within the contracting program for ‘socially and economically disadvantaged’ small businesses,” she wrote, referencing a Daily Wire story. “That ends now – as SBA works to complete its full-scale audit of the 8(a) Program.” The SBA did not respond to questions from The Daily Wire about the new lawsuit.