Correct ruling; wrong reasons. A private institution should be left to do whatever it pleases. If you don't like their racist policies, then don't send your kids there.
true, the article above that talks about the lower court ruling - is messed up. but assuming this information is correct:
http://www.ksbe.edu/article.php?story=20061205113215671
"We took this case en banc to reconsider whether a Hawaiian private, non-profit K-12 school that receives no federal funds violates Section 1981 by preferring Native Hawaiians in its admissions policy"
I think this is the right decision.
I'm sure there is some sort of state action--maybe a state subsidy, or something. Otherwise, there is no issue.