A Bridge Too Far?: New Supreme Court Decision May Undermine DOJ's Assault on DEI

Not quite there.

The DOJ's new Civil Rights Fraud Initiative plans to use False Claims Act lawsuits against universities with DEI programs, claiming their federal funding certifications are fraudulent. But the Supreme Court's recent decision in Kousisis v. United States, and particularly Justice Thomas's concurrence, suggests this strategy faces a fatal flaw: civil rights compliance appears immaterial to research grants' "fundamental purpose."

How is race-neutrality like painting a bridge? What sounds like a riddle is actually the question underlying a new Supreme Court precedent and an ambitious new Department of Justice program.

The Supreme Court's recent decision in Kousisis v. United States couldn't have come at a more interesting time. Just as DOJ rolls out its new Civil Rights Fraud Initiative—wielding the False Claims Act against universities and contractors who allegedly discriminate through DEI programs—the Court has provided a refresher course on fraud's materiality requirement. And buried in Justice Thomas's concurrence is a discussion that should make DOJ's civil fraud lawyers very nervous.

What Did the Supreme Court Decide in Kousisis?

Let's start with what happened in Kousisis. Stamatios Kousisis and his company Alpha Painting secured $85 million in contracts to restore Philadelphia landmarks (including the Girard Point Bridge) by promising to use disadvantaged business enterprises (DBEs) for their paint supplies. Instead, they used a DBE as a mere pass-through—a paper pusher that tacked on a few percent while the real suppliers did the work. When caught, they argued that PennDOT got what it paid for: quality paint jobs at the agreed price. No economic loss, no fraud, right?

Wrong, said the Court. In rejecting the defendants' proposed economic-loss requirement, Justice Barrett's majority opinion confirmed that you can commit fraud even when delivering full value. Promise Yankees tickets and deliver Mets tickets of equal worth? That's still fraud if the misrepresentation was material.

But here's where it gets interesting for DOJ's new initiative. While the majority reserved the question of materiality's proper standard—the defendants hadn't contested it—Justice Thomas dove right in. And what he found should give pause to anyone planning to build a fraud prosecution empire on civil rights compliance certifications.

Thomas examined whether DBE requirements could meet the "essence of the bargain" materiality test from Universal Health Services v. Escobar. His key insight? The DBE provisions were "irrelevant to the contracts' fundamental purpose—bridge repair." PennDOT was buying paint jobs, not social policy. The work was completed satisfactorily regardless of DBE compliance. As Thomas noted, the DBE conditions "had no bearing on petitioners' ability to complete their projects."

How Does This Affect DOJ's Civil Rights Fraud Initiative?

This observation cuts to the heart of DOJ's Civil Rights Fraud Initiative. According to Deputy Attorney General Todd Blanche's memorandum, the Initiative will use the FCA to target federal funding recipients who certify compliance with anti-discrimination laws while allegedly "engaging in racist preferences, mandates, policies, programs, and activities." Universities are explicitly in the crosshairs.

But apply Thomas's logic here. When the National Science Foundation awards a grant for particle physics research, what's the "essence of the bargain"? Discovering new particles or ensuring the university doesn't use race-conscious admissions? When NIH funds cancer research, is it buying medical breakthroughs or HR policies? When the Department of Transportation contracts for highway construction, does it fundamentally care about concrete and asphalt or the contractor's diversity initiatives?

Under Thomas's framework, the answer seems clear: the government is buying research, roads, and services—not social policies. Civil rights compliance, however important as a policy matter, appears peripheral to these contracts' fundamental purposes.

How could Kousisis apply in practice?

Consider how this plays out. A university receives millions in federal research grants while maintaining allegedly discriminatory DEI programs in admissions or hiring. Under the Civil Rights Fraud Initiative, DOJ would argue the university's compliance certifications were fraudulent. But was Title VI compliance material to a grant studying quantum mechanics? Under Thomas's analysis, probably not. The "essence of the bargain" was quantum research, not the university's admission policies.

The government might counter that federal funds shouldn't support any discriminatory institutions, period. Fair enough as a policy position. But Thomas's concurrence suggests that policy preferences don't automatically translate into materiality for fraud purposes. If they did, the government could make any political priority "material" simply by adding it to funding certifications. Today it's DEI policies, tomorrow it could be environmental practices, next week labor relations. Where would it end?

Justice Sotomayor, concurring only in the judgment, tried to distinguish the DBE requirements in Kousisis by emphasizing that PennDOT explicitly made them material terms and faced potential federal sanctions for noncompliance. But this won't save DOJ's theory. First, most federal grants include boilerplate compliance certifications without making them explicit payment conditions. Second, and more fundamentally, Thomas's point is that regulatory requirements don't become material just because the government says so—they must relate to the contract's core purpose.

The timing is exquisite. Just as DOJ prepares to unleash the FCA on universities and contractors over DEI, the Supreme Court has reminded us that materiality is "demanding" and can't be satisfied by regulatory requirements unrelated to a contract's fundamental purpose.

How will this work across various federal projects?

This doesn't mean DOJ's initiative is dead on arrival. Some funding relationships might involve civil rights compliance as a core purpose—grants specifically for diversity programs, for instance, or contracts where discrimination would directly impair performance. But the vast majority of federal funding goes toward concrete deliverables: research results, construction projects, healthcare services. Under Thomas's framework, civil rights compliance seems incidental to these transactions.

The real lesson from Kousisis may be this: if you're going to build a fraud prosecution strategy around regulatory compliance, you'd better make sure the regulations relate to what the government is actually buying. Otherwise, you might find yourself explaining to a skeptical judge why a university's admission policies matter to its ability to sequence genomes or why a contractor's diversity training affects its capacity to pave highways.

As Justice Thomas warned, a demanding approach to materiality is "all that prevents an 'extraordinarily expansive view of liability' from rendering the federal wire-fraud statute nearly limitless in scope." DOJ's Civil Rights Fraud Initiative seems designed to test those limits. Thanks to Kousisis, we now know where at least one justice would draw the line: at the contract's fundamental purpose. And when that purpose is research, construction, or services—not social policy—civil rights compliance may be a bridge too far.

Not All Quids Are Created Equal

Keep spreading the news.

DOJ’s proposed dismissal of the criminal bribery indictment of New York Mayor Eric Adams, in return for his agreement to help with the Trump administration’s immigration crackdown, has drawn criticism from various quarters. Many of those have been on the right, including not only the conservative AUSAs who resigned in protest, but also commentators from the Wall Street Journal, the National Review, and others who usually back Trump’s positions—particularly on immigration.

But others, in defense of the decision, have analogized the arrangement to a typical DOJ cooperation deal with a criminal defendant. The typical rhetorical question: doesn’t DOJ agree to drop charges against defendants all the time in return for their help with prosecutions or other law enforcement proceedings?

The answer: Yes, but there is a fundamental difference here. Which explains why Adams, his counsel Alex Spiro, and Acting Deputy Attorney General Emil Bove have so strenuously denied that there was any such quid-pro-quo deal.

There are several situations in which federal prosecutors may cut a deal with a criminal target or defendant in return for cooperation. The most common is under a "cooperation plea agreement," otherwise known as a "5K" deal. The defendant agrees to plead guilty, to provide information to the government about others involved in the crime or about separate crimes, and to testify about those crimes and other persons in trial or before a grand jury, if necessary.

In return, the government agrees that it will tell the sentencing judge about the defendant's cooperation and, if the cooperation has been truthful and valuable, recommend that the judge reduce the defendant's sentence accordingly. The formal method for this recommendation is via a motion for a sentencing reduction under Section 5K1.1 of the Federal Sentencing Guidelines; hence the term "5K." The judge does not have to agree to lower the sentence, but usually will, because otherwise it would be hard to persuade future defendants to accept such deals.

In some cases, in return for cooperation, the government may agree not to charge the cooperator at all. This may involve a Deferred Prosecution Agreement or a Non-Prosecution Agreement, or in some cases granting the cooperator immunity from prosecution, as long as his or her testimony is truthful.

And in other cases, law enforcement agencies may actually put suspects on its payroll, having them work as confidential informants to provide information on ongoing crimes, in return for money, or perhaps informal promises not to pursue charges against them.

But there is a major difference between those situations and the deal that DOJ apparently cut with Adams. Ordinary, legitimate cooperators offer to act in their individual capacities--providing information or testimony--in return for the benefit of avoiding or reducing criminal liability.

Adams is a public official, who was elected to act on behalf of the people of New York, and use his powers only for their benefit. The agreement he apparently made here was to take actions in his official capacity--using his power as Mayor to influence city immigration policy, such as by opening the Rikers jail to ICE--in return for personal benefits (i.e., having the charges dropped). And the deal was also structured so that if he did not use his official power in that way, the charges could be re-filed.

Agreeing to act on your own behalf in return for a benefit to you is generally legal. Agreeing to use your official powers in return for a personal benefit is not. Ordinarily, DOJ does not enter into such deals--it prosecutes them. Indeed, that is what Adams was originally charged with.

Think of it another way: If someone were to offer Mayor Adams $10,000 in return for his taking some official action to help the payer—say, by granting a building permit—few would claim that was allowed. The illegality would lie in Adams using his position of public trust for private benefit. Why would it be any different if the benefit to Adams is his freedom rather than cash?

The issue is not that DOJ is trading off one federal law enforcement interest for another. It is that Adams, with DOJ’s help, is trading his office for a free pass.

As Ye Sow: Vaccine Mandate Precedent Could Spell Trouble for Trump's Anti-DEI Order

Not what I expected

Trump's executive order using False Claims Act threats to eliminate contractor DEI programs may be invalid under recent precedents. The same red-state challenges that killed Biden's vaccine mandates established that presidential procurement power can't be used for broad policy goals unrelated to contract efficiency—a principle that could doom Trump's anti-DEI initiative.

For a long time, when I heard the phrase “hoist by his own petard,” I pictured some sort of medieval knight with a long lance, which somehow reached backward, hooking onto the seat of his pants and lifting him in the air with the force of his own jousting. I know I’m not the only one who imagined this.

But no—a petard is a type of small bomb. In the metaphor, the fool blows himself up.

I feel even more confident that many of those who celebrate President Trump’s incipient war on DEI were also very much against President Biden’s COVID-vaccine policies. How ironic it would be if their successful attacks on the latter helped Trump’s opponents defeat the former.

How Does Trump's Anti-DEI Order Weaponize the False Claims Act?

Trump’s executive order entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” aims to use the threat of Department of Justice enforcement of the False Claims Act (FCA) to pressure federal contractors and grant recipients to abandon DEI programs. In essence, the order requires contractors to certify that their DEI policies do not violate federal anti-discrimination laws, particularly Title VII of the Civil Rights Act. If it turns out that they do, their certifications could be deemed “false,” and they could be exposed to ruinous FCA penalties. In addition, the law encourages whistleblowers in such companies to report violations, in return for a potential share of any DOJ recovery.

But it is not clear that President Trump has the authority to issue such an executive order. And it is a series of challenges to Biden’s vaccine mandates, as well as his minimum wage policy, that show why.

What Did Courts Say About Biden's Contractor Vaccine Mandates?

In 1949, Congress enacted the Federal Property and Administrative Services Act (FPASA) to create the modern system of federal government procurement. For decades afterwards, presidents issued executive orders directing that federal contractors comply with certain requirements, sometimes seemingly aimed at advancing policies rather afield of ordinary contract management concerns. And for decades, the courts allowed it.

But in the wake of the COVID pandemic, Biden issued Executive Order 14042, requiring contractors to have their employees vaccinated. Opponents of vaccine mandates—including a number of red state governments—filed challenges, asserting that the order exceeded the President’s authority under FPASA.

Several courts agreed. Reviewing the history of FPASA and executive orders regarding contracting, the Sixth Circuit concluded that the statute was meant to help in “making the government’s entry into contracts less duplicative and inefficient”—that is, that it was focused on “government efficiency, not contractor efficiency.” Then it gave that requirement teeth, holding that Biden’s order did not meet the standard because it was directed to the conduct of contractors, rather than that of the government. Thus, it held the order invalid.

In separate cases brought by other states, the Fifth and Eleventh Circuits went further. Both held that Biden’s vaccine order ran afoul of the “major questions doctrine,” which requires that policy changes of “vast economic and political significance” required specific Congressional authorization. That is, both courts determined that an executive order on government contracting could not be used to accomplish a broader policy goal that was not clearly aimed at efficiency at all.

More recently, several other red states challenged a separate executive order issued by President Biden, which imposed a $15 minimum wage on contractors. While the Tenth Circuit rejected the challenge, the Ninth Circuit held that the minimum wage order, like the vaccine orders, exceeded the president’s FPASA authority.

The Hoist: Why FPASA May Not Support Anti-Discrimination Requirements

Under those precedents, Trump’s anti-DEI order could suffer the same fate. Although another executive order dating from 1965 (which Trump rescinded) had long barred discrimination and required that contractors adopt certain affirmative action policies, the Sixth and Eleventh Circuit in the vaccine cases went out of their way to cast doubt on the notion that such anti-discrimination requirements related to “economy and efficiency” and were authorized by FPASA. In the process, they cited a comment in a 1979 Supreme Court decision pointing out that “nowhere in [FPASA] is there a specific reference to employment discrimination.”

As those courts held, it is arguable that anti-discrimination rules—and at least Trump’s battle against wokeness—are about something other than economy and efficiency. Meanwhile, the federal courts have increasingly moved to restrict the executive branch’s authority to set policy through rules binding on private actors—witness the Supreme Court’s disavowal of Chevron deference and adoption of the major questions doctrine. The same logic used to rein in executive rulemaking under Obama and Biden could well be harnessed to limit Trump’s ambitious vision for the presidency.

Of course, the jousting match doesn’t necessarily end there. Were pro-DEI plaintiffs to successfully challenge Trump’s order on these grounds and further entrench the precedent, it could prevent a future Democratic president from re-instituting rules aimed at promoting minority-owned contractors.

The moral for those who now inhabit the White House and those who hope to regain it: be careful where you put that petard.