HUD suffered a blow today when Judge Richard Leon of the District of D.C. ruled that the Fair Housing Act (FHA) only permits claims of discrimination based on disparate treatment. Therefore, HUD exceeded its rulemaking authority when it promulgated a rule, “Implementation of the Fair Housing Act’s Discriminatory Effects Standard,” in February 2013 providing for claims of discrimination based on disparate impact. Judge Leon granted the plaintiffs’ motion for summary judgment and vacated the rule.

Until February 2013, HUD had never promulgated a rule that purported to enshrine disparate impact as a cognizable claim under the FHA and instead relied on precedent. As Judge Leon notes in his opinion, HUD received a scare in 2011 when the Supreme Court granted certiorari in Magner v. Gallagher, which argued that disparate impact claims were not cognizable under the FHA. Although the Court has been prevented from ruling on the question by last-minute settlements in both Magner and Mt. Holly v. Mt. Holly Citizens in Action, one day a FHA case would likely be decided (in fact, the court has a third chance to rule on this issue this very term in Texas Dept. of Housing v. Inclusive Communities Project). And so, hoping that Chevron deference would accomplish what the text of the FHA likely could not, HUD promulgated a rule enshrining disparate impact causes of action under the FHA.

Judge Leon writes, “I must, in the final analysis, determine whether the text of the FHA unambiguously evidences Congress’s intent for [disparate impact] claims to be cognizable under the Act.” (Mem. Op. at 16) He determined that the text of the FHA did not support such an interpretation, and that “only disparate treatment (intentional discrimination) claims are cognizable under the FHA.” (Mem. Op. at 16) The text of the FHA only prohibits disparate treatment, and there is no clear language prohibiting practices that result in “discriminatory effects” or “disparate impact.” For instance Smith v. City of Jackson, Justice Stevens wrote that “the text [of the Age Discrimination in Employment Act] focuses on the effects of the action on the employee rather than the motivation for the action of the employer.” Smith v. City of Jackson, 544 U.S. 228, 236. In contrast, Judge Leon writes, the text of the FHA focuses only on discriminatory actions, not discriminatory effects.

Judge Leon also notes that it is clear Congress did not intend for the FHA to encompass disparate impact claims because it did not amend the statute to do so. (Mem. Op. at 22-26) Congress amended or enacted three major civil rights laws in the late 80s and early 90s. It amended the FHA in 1988, enacted the Americans with Disabilities Act in 1990, and amended Title VII in 1991. Congress provided for disparate impact causes of action in the ADA and the 1991 amendments to Title VII. It made no such change to the FHA. If Congress wants to include disparate impact provisions in a statute, it knows how to do so. It did not do so here, which strongly suggests that it did not want the FHA to include claims based on disparate-impact liability.

The fact that the rule extended disparate impact liability to homeowners insurance also brings the rule into conflict with the McCarran-Ferguson Act. (Mem. Op. at 25-29) The McCarran-Ferguson Act is intended “to ensure the primacy of state law in regard to insurance regulation.” (Mem. Op. at 26) By requiring insurers to collect demographic data on customers, the disparate-impact rule conflicts with a number of state statutes. Judge Leon writes that it is impossible to believe that Congress intended the FHA to trump state insurance regulations. “To the contrary, it is utterly incomprehensible that Congress would intentionally provide for disparate-impact liability against insurers in the FHA, where doing so would require those same insurers to collect and evaluate race-based data, thereby engaging in conduct expressly prohibited by state law.” (Mem. Op. at 29)

How did Chevron deference come into this decision? The portion of the opinion dedicated to Chevron was much shorter than might have been expected because Judge Leon determined, for the reasons detailed above, that the rule failed the first step of the Chevron test. There is no ambiguity as to whether Congress intended the FHA to include disparate-impact liability. It unambiguously intended the FHA to prohibit only disparate treatment. Therefore, there was no need for him to consider whether HUD’s interpretation of the statute was reasonable – he had already determined that HUD’s interpretation was flatly wrong. The disparate impact rule exceeds HUD’s authority and therefore violates the APA. (Mem. Op. at 16-17)

The full text of the opinion is available here: https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2013cv0966-45