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.