by Deepak Gupta
Let's put this in perspective: For the second time in just two years, an eleventh-hour settlement before oral argument has denied the conservatives on the Supreme Court the opportunity to do away with disparate-impact claims under the Fair Housing Act (and by extension, the Equal Credit Opportunity Act). The settlement in the previous case, Magner v. Gallagher, provoked heated controversy on Capitol Hill, with allegations by Republicans that the Justice Department's Civil Rights Division exerted undue pressure on the municipal defendant. This settlement may be viewed in a similar light in some quarters.
As I remarked to Bloomberg last week, when news of the deal first came to light, the Mount Holly settlement amounts to a temporary stay of execution for a critically important civil-rights enforcement tool. 11 of the 11 circuits that have considered the question have concluded that disparate-impact claims are indeed cognizable under the FHA. In light of that unanimity, and the federal government's longstanding position, the Court's decision to grant certiorari on the question twice in two years cannot bode well for disparate impact. That's why civil rights and consumer advocates were so eager for a settlement.
So what happens now? First, I think we can expect a replacement vehicle to land on the doorstep of One First Street within short order. The D.C. Circuit — the only regional circuit that has not yet weighed in on whether disparate impact is cognizable under the FHA, and a court with influential conservatives — is the logical place to bring that challenge. That's presumably why two insurance trade groups, represented by veteran Supreme Court advocate Kannon Shanmugam of Williams & Connolly, have already filed a lawsuit in federal district court in Washington, directly challenging the HUD rule. (Kannon also wrote an amicus brief for insurance groups in Mount Holly, so you can get a preview of how he'll brief the case here.)
As I noted in a previous post, the insurance groups claim not only that the rule is contrary to the FHA but also that it is reverse-preempted under the McCarran-Ferguson Act because (as applied to insurance companies) it impermissibly regulates the "business of insurance," a province of state regulation. If the court adopts the far narrower McCarran-Ferguson reverse-preemption theory, the case could cease to be a vehicle for a broader challenge to disparate impact. But I doubt that the financial services industry will allow that to happen. I've already heard talk that groups representing the mortgage industry and others affected by disparate impact liability are considering intervening in the case to prevent that soft landing. Either way, a replacement vehicle will be available soon enough. And a case brought by industry and designed as a test case won't be removed from the docket with a settlement.
What about the practical implications going forward? That will be the subject of a webinar next Wednesday, November 20 that I'll be jointly presenting with the industry-side law firm Ballard Spahr. Among other things, we'll discuss the use of disparate-impact evidence by regulators to support "pattern and practice" intentional discrimination claims — a trend that can be expected to accelerate as agencies brace for the impact of a Supreme Court decision.