District Court Enjoins Trump Executive Order Requiring Broad Anti-DEI Compliance Certifications that Exposed Contractors to False Claims Act Liability

On February 21, a federal district court in Maryland entered a nationwide preliminary injunction prohibiting the Trump Administration from enforcing two key provisions of Presidential Executive Order 14173, entitled “Ending Illegal Discrimination and Restoring Merit Based Opportunity,” which was issued on January 21.  The first provision, referred to as the “Certification Provision,” created significant False Claims Act (FCA) exposure for federal contractors who maintained diversity, equity and inclusion (DEI) programs.  The second, the “Enforcement Threat Provision,” directed the Attorney General to take measures to “encourage the private sector to end illegal discrimination and preferences, including DEI” and to “deter such programs or principles” by identifying “potential civil compliance investigations” for deterrence purposes.

In Executive Order 14173, President Trump declared that entities such as the federal government, major corporations, financial institutions, and the medical industry have adopted race- and sex-based preferences under the guise of "diversity, equity, inclusion, and accessibility" (DEIA), which he claimed could violate the nation's civil rights laws.  The Executive Order did not explain how such DEI/DEIA programs might violate the law.  Rather, it offered, that in “case after tragic case, the American people have witnessed first-hand the disastrous consequences of illegal, pernicious discrimination.”  The Order instructed “all executive departments and agencies to terminate all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements.”  The Order also revoked several existing executive orders that promoted diversity, including the 1965 Presidential “Equal Employment Opportunity” Order.

The Certification Provision in Order 14173 created potential exposure to FCA liability in every federal contract and grant award.  The Order required all federal contracts include terms requiring the contracting party to:

• Certify that it does not operate “Diversity, Equity, and Inclusion” programs that violate federal anti-discrimination laws and
• Acknowledge that compliance with these laws is material to the government’s contract payment decisions as defined in the False Claims Act, 31 U.S.C. 3729(b)(4).

The Certification Provision represented a potential expansion of FCA liability for corporations who do business with the federal government.  A vendor who falsely certifies (whether expressly or implicitly) compliance with a federal government contract’s material conditions when seeking payment has long been an established basis of False Claims Act liability.  For example, in the past federal contractors who falsely certified their compliance in meeting contractor set-aside goals for hiring small and disadvantaged subcontractors were found to violate the FCA regardless of the quality of the building or product contractually provided.

Additionally, the Enforcement Threat Provision in Order 14173 directed the Attorney General to, among other things, develop a plan of “specific steps or measures to deter DEI programs or principles (whether specifically denominated ‘DEI’ or otherwise) that constitute illegal discrimination or preferences” including “civil compliance investigations” and “litigation.”   This provision creates potential FCA exposure because it does not define what is an “illegal DEI” program and how it differs, if at all, from a legal DEI program.  Without clarifying examples, the Order’s sweeping condemnation of DEI programs arguably targets all DEI initiatives as being illegal.

In National Ass’n of Diversity Officers in Higher Education, et al., v. Donald J Trump, et al., several organizations filed suit in Maryland federal district court seeking to enjoin the enforcement of portions of Order 14173 and Order 14151 on the grounds that the Orders were unconstitutional.  In a lengthy order, the Court granted the preliminary injunction prohibiting enforcement of the Certification and Enforcement Threat provisions. 

The Court found that the Certification Provision violated the “First Amendment because on its face it constitutes a content-based restriction on the rights of federal contractors and grantees.”  The Court concluded “that the clear purpose, and clear effect, of the Certification Provision is to restrict speech related to topics such as equity, inclusion, and diversity that also falls outside the scope of federal funding.”  The Court noted further that the “government refused to even attempt to clarify what the Certification Provision means.”

The Court also found that the Enforcement Threat Provision violated the First and Fifth Amendments of the Constitution.  It described the provision as “textbook viewpoint-based discrimination” in violation of the First Amendment. The Court observed that the “White House and Attorney General have made clear . . . that viewpoints and speech considered to be in favor of or supportive of DEI or DEIA are viewpoints the government wishes to punish and, apparently, attempt to extinguish.” The Court further noted that by threatening the private sector with enforcement actions based on vague, undefined standards, the provision was unconstitutional under the Fifth Amendment's due process clause.

Finally, the Court extended the protections of its preliminary injunction to all non-parties similarly situated to the plaintiffs.  The Court observed that the “Certification and Enforcement Threat Provisions are content- and viewpoint-based restrictions that chill speech as to anyone the government might conceivably choose to accuse of engaging in speech about ‘equity’ or ‘diversity’ or ‘DEI’ . . .”.

Please contact A. Brian Albritton, Raquel Ramirez Jefferson or any member of the Phelps Health Care or White Collar Defense and Investigations teams if you have questions or need advice or guidance.