White business owner challenges race-based government benefits before Fourth Circuit 

RICHMOND, Va. (CN) — The Fourth Circuit heard a challenge from a white small business owner who claims a government contracting and training program for owners who are socially and economically disadvantaged racially discriminates. 

Marty Hierholzer, a Navy veteran, operates MJL Enterprises out of Norfolk, Virginia. The contracting company provides medical, maintenance and repair equipment to military bases and veteran hospitals. 

Hierholzer has twice unsuccessfully applied for acceptance into the U.S. Small Business Administration's business development program, a nine-year program that offers benefits ranging from business development assistance and free training to access to contracts expressly set aside for program participants.

To qualify as socially disadvantaged, applicants must either be a part of a designated racial group that the government presumes to be socially disadvantaged — list includes Black, Hispanic and Native Americans — or they can prove they are individually socially disadvantaged by presenting evidence of at least one objective, distinguishing feature that warrants that status.

Hierholzer asserted in his applications, to no avail, that his status as a service-disabled veteran qualifies him as socially disadvantaged. 

After Hierholzer filed suit to challenge the program, Virginia-based federal judge found that he lacked standing since he didn't show he lost a contract bid because of his race; rather, he didn't qualify because he could not meet the program's race-neutral requirements.

Hearing Hierholzer's appeal Tuesday, Chief U.S. Circuit Judge Albert Diaz, a Barack Obama appointee, pointed out that Hierholzer still wouldn't qualify as socially disadvantaged even if the court ruled in his favor. 

Glenn Roper, Hierholzer's attorney from Pacific Legal, replied, "What it would do is it would give him the opportunity to apply without having an unconstitutional barrier under the race-based presumption."

Government attorney Ellen Noble highlighted to the three-judge panel that Hierholzer's inability to qualify for the program regardless of race bars his ability to challenge the provision. 

"If you don't require them to be eligible for the benefit they are trying to compete for, or get, then it would open the door to Walmart coming in and challenging this presumption," Noble said. 

Once applicants show they are socially disadvantaged, they must show they are also economically disadvantaged by having a net worth of $850,000 or less, an adjusted gross income of $400,000 or less and assets totaling $6.5 million or less. 

U.S. Circuit Judge James Andrew Wynn, another Obama appointee, asked if a stay in proceedings was best until all matters were resolved in Tennessee. 

"Why not wait and see what happens?" Wynn asked. 

Hierholzer also argued against the lower court ruling that the case is moot following a Tennessee federal court's 2023 ruling in Ultima Services Corp. v. United States Department of Agriculture. That judge granted an injunction in favor of a similarly situated white business owner, blocking the use of race as a presumption of being socially disadvantaged. 

But the injunction order in Ultima does not qualify as final, Hierholzer claims, until all appeals are exhausted in the Tennessee case, giving the Fourth Circuit jurisdiction to rule on his case. 

Since Ultima, applicants and existing participants have had to complete a questionnaire and submit a narrative to evaluate social and economic disadvantages without reliance on the presumption.

Noble emphasized that Hierholzer has yet to reapply to the program following the Ultima ruling, and said the court could rule on Hierholzer's lack of standing without even reaching a mootness argument.

Roper contended that his client didn't need to reapply because standing is based on when the challenge is filed — in this case, before Ultima. 

In a statement following the hearing, Roper said he was grateful for the opportunity to argue the appeal.

"The Small Business Association's reliance on a racial presumption to determine eligibility for its business development program fundamentally infringes on the constitutional right to equal protection," Roper said. "The district court's dismissal of this case was misguided, and we are optimistic that the Fourth Circuit will rectify this mistake, allowing our clients to have their day in court."

Noble did not respond to a request for comment. U.S. Circuit Judge Stephanie Thacker, a third Obama appointee, completed the panel.