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HUD Housing Disparate Impact Rules Vacated – How an APA Case Could Clarify Complicated Private Litigation

Posted in Agency Authority, Judicial Review & Remedies

The United States District Court for the District of Columbia vacated the Department of Housing and Urban Development (HUD) 2013 rules (ostensibly) under the Fair Housing Act (FHA) establishing disparate-impact liability in a case revolving on homeowners’ insurance coverage policies.  Plaintiffs in American Insurance Association v. Department of Housing and Urban Development claimed that HUD violated the Administrative Procedure Act (APA) by exceeding its statutory authority when it expanded the scope of the FHA to recognize not only disparate-treatment claims (i.e. intentional discrimination) but also disparate-impact claims (i.e. facially neutral practices with discriminatory effects).  The district court granted plaintiffs’ motion for summary judgment, but the Administration is certain to appeal the ruling, setting the stage for a significant appellate argument over agency authority under the FHA.  This case presents a needed forum to clarify the scope of the FHA (and HUD’s authority under the FHA) with far fewer obstacles than the long and torturous history of private disparate-impact litigation.

Background:  Title VIII of the Civil Rights Act of 1968 – known as the Fair Housing Act (FHA) – makes it unlawful to “refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, or national origin,” amended in 1988 to include sex, familial status, and handicap.  Additionally, the FHA makes it unlawful “[t]o discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith,” because of the same protected characteristics.  HUD was delegated, in the 1988 amendments, authority to formally adjudicate complaints of housing discrimination and to promulgate regulations under the APA to effectuate the goals of the FHA.

Intercircuit Conflict in Private Litigation:  Over the past 40 years the courts have entertained claims and evidence that a facially neutral policy or practice could have a disparate impact on one or more protected classes.  The courts of appeal divided over how the FHA might recognize disparate impact.  At least three courts of appeals use a three-step burden-shifting approach similar (though not identical) to the HUD regulation; one court of appeals uses a four-part balancing test; two courts of appeals use a hybrid of these two approaches; one uses a different test for public and private defendants; and one appears to have adopted the approach of the HUD regulations.  The United States Court of Appeals for the District of Columbia Circuit is silent and has given no precedent on the issue to guide the district court.  The vitality of the conflict may be in doubt as these precedents predate a United States Supreme Court (SCOTUS) decision that the availability of disparate-impact liability turns on the presence, or absence, of effects-based language in the statute.

The predicate question to that process has never been definitively answered and is presently before SCOTUS in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, U.S. No. 13-1371 (petition for certiorari granted limited to the question of, Oct. 2, 2014):  “Are disparate-impact claims cognizable under the Fair Housing Act?”  SCOTUS has dismissed two previous petitions to resolve this question in individual cases.  SCOTUS has not yet asked the Solicitor General for the views of the United States, but that may be forthcoming.

The HUD Regulation:  In 2013, a quarter century after enactment of the FHA amendments that delegated rulemaking authority, HUD promulgated the Disparate-Impact Rule providing that “[l]iability may be established under the Fair Housing Act based on a practice’s discriminatory effect . . . even if the practice was not motivated by a discriminatory intent.”  HUD defined a practice as having a “discriminatory effect” where “it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.”  Under HUD’s rule, a practice may have a discriminatory effect but is still legal if “[a] legally sufficient justification exists where the challenged practice . . . [i]s necessary to achieve one or more substantial, legitimate, nondiscriminatory interests . . . [and] [t]hose interests could not be served by another practice that has a less discriminatory effect.”  HUD expressly opined in the final rule preamble that the rule applies to entities that provide homeowner’s insurance, i.e. plaintiffs.

Chevron Analysis:  The court first analyzed the verbiage used by Congress – particularly its verbs and operative terms – and concluded that the FHA reached only intentional discrimination.  The court concluded with the parallel language analysis:

In addition to the clear meaning of the FHA’s plain text, the striking similarities between the statutory language of § 3604(a) and the disparate-treatment provisions of Title VII and the [Age Discrimination in Employment Act (ADEA)] leave this Court with no doubt that Congress intended the FHA to prohibit intentional discrimination only.  Put simply, Congress knows full well how to provide for disparate-impact liability, …, and has made its intent to do so known in the past by including clear effects-based language when it so chooses, ….  The fact that this type of effects-based language appears nowhere in the text of the FHA is, to say the least, an insurmountable obstacle to the defendants’ position regarding the plain meaning of the Fair Housing Act.

This is classic Chevron USA v. Natural Resources Defense Council, or just plain Chevron Step 1 analysis:  “If the intent of Congress is clear [as to a specific issue], that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.”  Accordingly, the district court vacated HUD’s rule – lack of authority cannot result in remand without vacatur because the agency cannot correct the deficiency.

The court continues a structured analysis by reaching the issue of statutory ambiguity, but reaches the same conclusions.    “Even assuming, arguendo, that the plain text of the Fair Housing Act did not unambiguously provide for disparate-treatment claims only, Congress’s intent to so limit the FHA would still be readily discernable.”  The court examines and rejects defense of the rule based on what the court considered to be near contemporaneous enactment of specific disparate impact provisions in the Americans with Disabilities Act (ADA) and CRA’s Title VII employment discrimination provisions – although these enactments came later than the FHA amendments, not before, which weakens the notion that Congress knew well how to enact disparate impact provisions.  Similarly, the court rejected the idea the FHA amendments implicitly amended Congress prior and long-standing anti-preemption-of-State-insurance-law provision of the McCarran-Ferguson Act.

The district court did not discuss deference to the agency’s interpretation of its own jurisdiction / authority under City of Arlington v. FCC in its alternative Chevron Step 2 analysis and this may be a missing link of significant proportion, for here, unlike purely private litigation, the challenge is not to private action that may have a disparate impact, but to HUD’s own action in defining disparate impact.  The issue will arise in the D.C. Circuit, as surely as this case will be appealed.

Unlike all the private and public liability cases that preceded American Insurance Association v. HUD, this case presents direct APA review of the statutory question without the burdens of proof, burden shifting, and evidentiary issues.  If Texas Department of Housing and Community Affairs does not resolve the statutory interpretation question, American Insurance Association will.