Introduction
Long lead-up
Supreme Court review
Comment


Introduction

On June 17 2013, the Supreme Court granted certiorari in Mount Holly v Mt Holly Gardens Citizens in Action, Inc (1) to decide whether disparate impact claims are cognisable under the Fair Housing Act. It did so over the US government's strenuous objection that the US Department of Housing and Urban Developement's (HUD) new rule interpreting the Fair Housing Act is dispositive. The court simultaneously declined to grant certiorari on the question of the appropriate standard for evaluating disparate impact claims if the act is deemed to allow them. The repercussions of the Supreme Court's decision will be far reaching, assuming that a settlement does not prevent the court from reaching the issue.

Long lead-up

In 2002 the township of Mount Holly proposed a redevelopment project in the predominately African-American and Hispanic low-income neighbourhood of Mount Holly Gardens, a subdivision of Mount Holly, New Jersey known as the 'Gardens'. The township declared the Gardens to be a blighted area and proceeded with a plan to acquire all of the houses there through exercise of its powers of eminent domain, and replace them. In 2008 current and former Gardens residents filed suit in the district of New Jersey. They alleged, among other things, disparate impact and intentional discrimination in violation of the Fair Housing Act. The case proceeded slowly through dispositive briefing until, in January 2011, the district court granted the township's motion for summary judgment. It held that the respondents had not established either intentional discrimination or a prima facie case of disparate impact. The plaintiffs appealed. The Third Circuit reversed the decision, holding that the Fair Housing Act permits disparate impact claims and that plaintiffs had established a prima facie case of disparate impact.(2)

While this was unfolding, the Supreme Court was poised to decide whether the Fair Housing Act permits disparate impact claims in Magner v Gallagher. However, the court never rendered a decision, as the plaintiff in Magner (the City of Saint Paul) dismissed the appeal in February 2012, in a much-criticised settlement engineered by the Justice Department to avoid Supreme Court review of the disparate impact question.(3)

In June 2012 the township of Mount Holly petitioned for a writ of certiorari. The questions presented were:

"(1) Whether disparate impact claims are cognizable under the Fair Housing Act; and (2) whether, if such claims are cognizable, they should be analyzed under the burden shifting approach used by three circuits, under the balancing test used by four circuits, under a hybrid approach used by two circuits, or by some other test."

The court invited the solicitor general to offer the government's views on whether certiorari should be granted.

Seven months later, and after the HUD issued a new rule declaring that the Fair Housing Act permits disparate impact claims, the solicitor general responded to the court's invitation. In May 2013 the solicitor general finally filed a brief advising against the granting of certiorari and arguing that the HUD's new rule is entitled to deference. Apparently the court was unpersuaded, as it granted certiorari on June 17 2013, but limited its review to the first question only.(4)

Supreme Court review

The only issue before the Supreme Court is whether disparate impact claims are cognisable under the Fair Housing Act. The township argues that disparate impact theories are irreconcilable with the plain language of the act and are contrary to recent Supreme Court analysis of analogous statutes. Specifically, the act bars actions taken "because of" certain factors, such as race and national origin. However, it contains no language providing for liability based on the effects of non-discriminatory actions. The Supreme Court has interpreted similar language in Title VI and the Age Discrimination in Employment Act to hold that the applicable provisions of those statutes address intentional discrimination only.(5) In contrast, the court has required 'effects' language – language not found in the act – in order to hold that a statute permits disparate impact claims.(6) Thus, the township's arguments against the application of an effects test appear to be very well founded.

The plaintiffs are likely to argue that the rulemaking of the HUD, which is charged with interpreting the Fair Housing Act, is entitled to deference. The HUD's February 2013 rule reiterates the government's long-standing view that the FHA permits disparate impact claims, and sets forth a particularly plaintiff-friendly construction of such claims.(7)The Supreme Court, however, has been increasingly willing to hold that even hotly debated statutory language is unambiguous, and therefore that the court need not consider agencies' interpretations of those statutes.(8) In deciding to take up the Mount Holly case in the first instance, contrary to the solicitor general's view that the HUD's interpretation should be dispositive, the court may have signalled a willingness to look beyond the government's interpretation of the Fair Housing Act.

Comment

The Fair Housing Act applies to a broad range of housing-related activity – not only to the approval or denial of loan applications, but also to the alleged failure to provide equal "information regarding the availability of loans" or "application requirements", the "type of loan, . . . loan amount, interest rate, cost, duration, or other terms offered", and the servicing of loans generally.(9)

But the impact of Mount Holly may be even broader than that. Any decision that the court renders arguably might apply equally to the analysis of the Equal Credit Opportunity Act, which makes it unlawful for any creditor to discriminate "on the basis of" protected attributes, and similarly lacks any of the 'effects' language that the Supreme Court has held is necessary to support disparate claims.(10) The Equal Credit Opportunity Act is much broader than the FHA, and applies to nearly all extensions of credit to consumers, such as credit cards, auto loans, mortgage loans, and instalment loans. The Equal Credit Opportunity Act also applies to business-purpose credit transactions.(11) The Consumer Financial Protection Bureau has also stated that it will evaluate creditors' loan activities through a disparate impact lens.(12) Other regulatory and enforcement authorities similarly take the position that banks are subject to the disparate impact standard.(13)

Unfortunately for an industry eager to have the court address this important issue, a settlement in Mount Holly appears imminent. According to local press reports, the remaining Gardens residents have offered to settle for $1.2 million, and the parties are engaged in active settlement talks with a magistrate judge.(14) Perhaps the third time the court takes up the issue, it will finally have an opportunity to reach a decision.

For further information please contact Angela E Kleine at Morrison & Foerster LLP's San Francisco office by telephone (+1 415 268 7000), fax (+1 415 268 7522) or email (akleine@mofo.com). Alternatively, contact Thomas J Noto at Morrison & Foerster LLP's Washington DC office by telephone (+1 202 887 0764), fax (+1 202 887 0764) or email (tnoto@mofo.com).

Endnotes

(1) No 11-1507

(2) Mt Holly Gardens Citizens in Action, Inc v Township of Mt Holly, 658 F3d 375 (3d Cir 2011); id at 381-82.

(3) See www.mofo.com/files/Uploads/Images/130212-HUD-Issues-Aggressive-New-Fair-Housing-Rule.pdf , and, for example, the Congressional Reports on the related investigation at http://oversight.house.gov/wp-content/uploads/2013/04/DOJ-St-Paul.pdf (Republicans) and http://democrats.oversight.house.gov/images/stories/2013-04-14-Dem-Memo-DOJ-Magner.pdf (Democrats).

(4) See Docket Report at www.supremecourt.gov/Search.aspx?FileName=/docketfiles/11-1507.htm.

(5) See Alexander v Sandoval, 532 US 275 (2001) (Title VI does not permit disparate impact claims because authorising language is absent from the statute); Smith v City of Jackson, Miss, 544 US 228, 240-41 (2005) (the Age Discrimination in Employment Act § 4(a)(1), which does not contain the requisite 'effects' language, does not permit disparate impact claims); see also id at 249 (O'Connor, J, dissenting) ("Neither petitioners nor the plurality contend that the first paragraph, § 4(a)(1), authorizes disparate impact claims, and I think it obvious that it does not. That provision plainly requires discriminatory intent …").

(6) See, eg, Smith, 544 US at 233-38 (2005) (because Title VII § 703(a)(2) and ADEA § 4(a)(2) contain the 'effects' language, they permit disparate impact claims); Ricci v DeStefano, 129 S Ct 2658 (2009); Griggs v Duke Power Co, 401 US 424, 426 n1, 429-30 (1971) (interpreting "effects" language in Title VII).

(7) This is clear in at least three key areas: www.mofo.com/files/Uploads/Images/130212-HUD-Issues-Aggressive-New-Fair-Housing-Rule.pdf .

(8) See, eg, Janus Capital Group, Inc v First Derivative Traders, 131 SCt 2296, at 2304 n8 (2011) ("Because we do not find the meaning of 'make' in Rule 10b-5 [as in to 'make' a statement] to be ambiguous, we need not consider the Government's assertion that we should defer to the SEC's interpretation of the word", and noting its "disagreement with the SEC's broad view" of Section 10); Freeman v Quicken Loans, Inc, 132 SCt 2034, 2040 (2012) (declining to consider whether the HUD's interpretation was entitled to deference because the statutory language was "unambiguous"); see also Chevron USA Inc v Natural Resources Defence Council, Inc, 467 US 837, 842-43 (1984) ("If the intent of Congress is clear, 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.").

(9) 24 CFR §§ 100120(b), 100130(b).

(10) Regulation B, however, states that the legislative history of the Equal Credit Opportunity Act supports the application of an effects test to determinations of creditworthiness. See 12 CFR 1002.6(a).

(11) CFPB Consumer Laws and Regulations: ECOA, available at http://files.consumerfinance.gov/f/201306_cfpb_laws-and-regulations_ecoa-combined-june-2013.pdf.

(12) See www.mofo.com/files/Uploads/Images/130604-CFPB-Auto-Lenders.pdf .

(13) See Interagency Task Force on Fair Lending, Policy Statement on Discrimination in Lending, 59 Fed Reg 18,266 (Apr 15, 1994), available at www.occ.treas.gov/news-issuances/federal-register/94fr9214.pdf ; CFPB Compliance Bulletin at www.consumerfinance.gov/f/201404_cfpb_bulletin_lending_discrimination.pdf.

(14) See, eg, www.philly.com/philly/news/20130618_U_S__Supreme_Court_to_hear_Mount_Holly_case.html (quoting township and plaintiff attorneys); www.courierpostonline.com/article/20130515/NEWS01/305150034/?nclick_check=1 (describing township meeting in which remaining residents proposed settling for $1.2 million).

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