MEMORANDUM OPINION AND ORDER
Plaintiffs are non-profit organizations that promote fair housing
policies and practices and three individuals from Toledo, Ohio. Plaintiffs
are suing Prudential Insurance Company and Prudential Property &
Casualty Company (collectively, "Prudential") under the Fair Housing Act
("FHA"), 42 U.S.C. § 3601 et seq., and 42 U.S.C. § 1981, alleging
that Prudential engages in policies and practices that discriminate
against minority applicants for homeowners insurance. Specifically, the
plaintiffs challenge the use of certain "redlining" procedures, which
Prudential utilizes to deny homeowners insurance in certain areas,
including the entire District of Columbia, and the use of factors such as
credit history to determine eligibility for homeowners insurance.
Pending before the Court is defendants' motion to dismiss the complaint
pursuant to Fed.R.Civ.P. 12(b)(6). Defendants' motion to dismiss asserts
four primary arguments: (1) that plaintiffs lack standing to bring this
case; (2) that the FHA doesn't apply to provision of homeowners
insurance; (3) that disparate impact claims are not available under the
FHA, and even if they are, that plaintiffs have failed to state a
disparate impact claim, and such claims should be barred by the equitable
doctrine of laches; and (4) that plaintiffs have failed to state a claim
pursuant to section 1981, and that the statute of limitations bars any
section 1981 claims.
The Court finds that, because sections 3604 and 3605 of the FHA may be
reasonably construed to apply to the provision of homeowners insurance,
plaintiffs have stated legally cognizable claims under sections 3604 and
3605 of the FHA. Furthermore, because defendants' challenge to
plaintiffs' standing and defendants' laches defense are based on facts
outside the complaint, resolution of such issues is inappropriate at this
stage of the proceedings. Accordingly, after careful consideration of
defendants' motion to dismiss, the response and reply thereto, the
argument of counsel, and the applicable statutory and
case law, the Court denies defendants' motion to dismiss.
I. Procedural History
Plaintiffs in this matter are National Fair Housing Alliance, Inc.
("NFHA"),*fn1 Housing Opportunities Made Equal of Richmond, Inc.
("HOME"), Fair Housing Council of Suburban Philadelphia ("FHCSP"), Toledo
Fair Housing Center ("TFHC"). Metropolitan Milwaukee Fair Housing
Council, Inc ("MMFHC") (together, "Fair Housing Group plaintiffs"), and
Dr. Monica Holiday-Goodman. Justina Alsup, and Robert Scales (together.
"Individual Plaintiffs"). The Fair Housing Group plaintiffs are all
non-profit organizations that work to promote fair housing in their
respective geographic areas across the United States.
In September 1997, the Fair Housing Group plaintiffs, with the
exception of FHCSP, filed a Housing Discrimination Complaint against
Prudential with the U.S. Department of Housing and Urban Development
("HUD") alleging that Prudential discriminates against African-American
and Hispanic homeowners and prospective homeowners through several
underwriting practices and policies, many of which are challenged in this
lawsuit. FHCSP filed a similar HUD action against Prudential in October
2001. The HUD complaints allege that Prudential's discriminatory acts
constitute a continuing violation of the FHA. Efforts to mediate the HUD
complaint filed by the Fair Housing Group plaintiffs have not been
On October 23, 2001, plaintiffs filed this lawsuit against Prudential.
On December 20, 2001, defendants filed a motion to dismiss.
II. Factual Allegations
In reviewing a motion to dismiss under Fed.R.Civ.P. 12(b). the Court
must assume the factual allegations pled by the plaintiffs to be true.
See Sparrow v. United Air Lines Inc., 216 F.3d 1111 (D.C.Cir. 2000).
Therefore, the Court briefly reviews the facts alleged in plaintiffs'
Plaintiffs detail allegedly discriminatory polices and practices of
Prudential, claiming that Prudential had discriminated, and continues to
discriminate, on the basis of race and color, in the provision, terms and
conditions of its homeowners insurance products.
In the areas of the country served by the Fair Housing Group
plaintiffs, homeowners are typically required to have homeowners insurance
coverage in order to qualify for a mortgage or home equity loan, and must
maintain insurance for the life of the loan. Compl. ¶ 32. Thus,
plaintiffs allege. adequate and cost-effective homeowners insurance is
necessary to home ownership. Id.
Different types of homeowners insurance exist. For example, a "market
value" policy generally only will insure up to the home's market value.
Id. ¶ 31. A "replacement cost" policy commonly covers the costs of
replacing the house, in the event of damage to the physical structure of
the home, and "guaranteed replacement cost" provides broader replacement
coverage, typically replacing the home using "substantially similar"
materials. Id. The complaint notes that many homeowners prefer
replacement cost or guaranteed cost coverage because the cost to replace
a home that is destroyed or severely damaged may be greater than the
home's market value. Id. ¶ 35. In particular, older homes in urban
areas generally would
have replacement costs that exceed their market values. Prudential offers
various types of homeowners insurance policies, including "market value
policies," and "replacement cost" and "guaranteed replacement cost"
Plaintiffs claim that Prudential, for several years, has engaged in and
continues to engage in discriminatory "redlining" with respect to
homeowners insurance throughout the country. Specifically, plaintiffs
allege that certain minimum underwriting requirements for certain types
of coverages, such as a "replacement cost" policy, have a discriminatory
impact on past, present and prospective African-American and Hispanic
homeowners in predominantly African-American and Hispanic neighborhoods.
Id. ¶¶ 3, 44. According to plaintiffs, Prudential's requirements are
not justified or supported by business necessity or actuarial data and
there are less restrictive, non-discriminatory alternatives available to
meet any legitimate business objectives. Id. ¶ 55.
Plaintiffs have "tested" Prudential to identify practices and policies
that are implemented and maintained by the company, and which have a
discriminatory impact on minority homeowners, or which represent
disparate treatment on the basis of race or intentional discrimination.
Id. ¶¶ 62-63. Plaintiffs contend that Prudential maintains
underwriting policies that disparately affect minority homeowners and
minority neighborhoods. Id. ¶¶ 44-56. They identify the following
(1) Prudential's minimum underwriting requirements for
obtaining replacement cost coverage include the
age of the home, the market value of the home and
the difference between the replacement cost and
the market value;
(2) Since 1994, Prudential does not have a policy of
selling homeowners insurance policies in the
District of Columbia; to the extent that
Prudential has re-entered the District, it has
done so for select clients and without notice to
the D.C. Insurance Commissioner or the public;
(3) Prudential rates territories by segregating
neighborhoods into zones that reflect their racial
(4) Prudential uses credit scores or credit ratings of
applicants to determine eligibility for homeowners
Id. at ¶¶ 45-54.
Plaintiffs claim that Prudential has long known that its underwriting
guidelines and policies have a disparate impact on the basis of race, but
has deliberately chosen not to remedy the discriminatory conduct. Id.
¶ 57. As such, plaintiffs claim that Prudential has engaged in
intentional discrimination on the basis of race by continuing to utilize
these guidelines and policies. Id.
Plaintiffs also contend that Prudential's practices demonstrate
disparate treatment of minority homeowners. In particular, Prudential
points to the following alleged practices as evidence of intentional
discrimination and disparate treatment on the basis of race:
(1) Prudential does not apply underwriting rules
consistently to existing and potential homeowners
in African-American and Hispanic neighborhoods;
(2) Prudential has chosen to place no or relatively
few agent offices in predominantly
African-American and Hispanic neighborhoods, as
compared with other neighborhoods;
(3) Prudential has utilized sales techniques and
practices that discourage existing or potential
homeowners in African-American and Hispanic
neighborhoods from purchasing
homeowners insurance (e.g., poor agent
responsiveness, not providing price quotes by
telephone or by mail);
(4) Prudential has deliberately failed to train agents
in anti-discrimination and equal opportunity
laws, or in the benefits of assisting
African-American and Hispanic customers in
predominantly African-American and Hispanic
Id. ¶¶ 57-66.
The individual plaintiffs, Dr. Monica Holiday-Goodman, Justina Alsup
and Robert Scales, own houses in Toledo, Ohio. Id. ¶¶ 78-80. All of
the individual plaintiffs are African-American, and own homes in
neighborhoods that are, or were, predominantly African-American. Id. Both
Dr. Holiday-Goodman and Ms. Alsup applied to Prudential for homeowners
insurance in April 1997. Id. ¶¶ 78, 79. Prudential initially told Dr.
Holiday-Goodman that no agent was assigned to her address. Id. ¶ 78.
Later, when Dr. Holiday-Goodman was able to speak with a representative,
she was told that, if the market value of her home was less than 50% of
its replacement cost, she could not purchase either a market value policy
or a replacement value policy. Id. She was directed to the Ohio Fair
Plan. Dr. Holiday-Goodman asked that Prudential mail her a quote for a
market value policy, but never received such a quote. Id. On February 6,
1998, she filed a complaint against Prudential with HUD, which is still
Mr. Scales had a similar experience. A Prudential agent told Mr. Scales
that the company could not insure his house because of the differential
between the market value and the cost of replacing the house if it were
to burn down. Id. ¶ 80. The market value of his house was $41,500;
when he called the toll-free number for Prudential, to which he was
referred, he was told that there was a $50,000 minimum value for market
value coverage. Id. On July 29, 1997, Mr. Scales filed a HUD complaint
against Prudential, which is still pending. Id.
Ms. Alsup was told by Prudential that she would have to pursue the Ohio
Fair Plan because she had no insurance history, and that Prudential
required two or three years of insurance history. Id. ¶ 79. On
December 8, 1997, Ms. Alsup filed a HUD complaint against Prudential,
which is still pending. Id. ¶ 79. The complaint states that Ms. Alsup
still owns a house in Toledo, but now resides in Las Vegas, Nevada. Id.
¶ 26. The complaint does not indicate when Ms. Alsup moved to Nevada.
Defendants' motion to dismiss raises four primary arguments. First,
defendants argue that plaintiffs lack standing to bring the instant
lawsuit. Second, Prudential contends that the FHA does not apply to the
provision of homeowners insurance. Third, Prudential argues that disparate
impact claims are not cognizable under the FHA, and that plaintiffs fail
to sufficiently state a claim of discrimination based on disparate
impact. Finally, defendants challenge the sufficiency and timeliness of
the individual plaintiffs' section 1983 claims.
A. Standard of Review
Fed.R.Civ.P. 8(a)(2) requires only that a complaint include a "short
and plain statement of the claim showing that the pleader is entitled to
relief." In Sparrow v. United Air Lines, Inc., the D.C. Circuit held
that, in an employment discrimination case, "plaintiff need not set forth
the elements of a prima facie case at the initial pleading stage".
216 F.3d 1111 (D.C.Cir. 2000). The Supreme Court recently emphasized
that, to survive a motion to dismiss for failure to state a claim, a
need not plead facts beyond those which would "`give the defendant fair
notice of what the plaintiffs claim is and the grounds upon which it
rests.'" Swierkiewicz v. Sorema, 534 U.S. 506, 122 S.Ct. 992, 998, 152
L.Ed.2d 1 (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2
L.Ed.2d 80 (1957)).
The Court will not grant a motion to dismiss for failure to state a
claim pursuant to Fed.R.Civ.P. 12(b)(6) "unless it appears beyond doubt
that the plaintiff can prove no set of facts in support of his claim
which would entitle him to relief." Conley, 355 U.S. at 45-46, 78 S.Ct.
99; Kowal v. MCI Communications Corp., 16 F.3d 1271, 1276 (D.C.Cir.
1994). Accordingly, at this stage of the proceedings, the Court accepts
as true all of the complaint's factual allegations. Hishon v. King &
Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); accord
Doe v. United States Dep't of Justice, 753 F.2d 1092, 1102 (D.C.Cir.
1985). Plaintiff is entitled to "the benefit of all inferences that can
be derived from the facts alleged." Kowal, 16 F.3d at 1276. However, the
movant is entitled to judgment if there are no allegations in the
complaint which, even if proven, would provide a basis for recovery.
Haynesworth v. Miller, 820 F.2d 1245, 1254 (D.C.Cir. 1987).
Defendants contend that plaintiff Fair Housing Group plaintiffs lack
standing to bring this action.*fn2 Defendants argue that a generalized
frustration of an organization's mission is not sufficient to establish
standing. See American Legal Found. v. FCC, 808 F.2d 84, 92 (D.C.Cir.
1987) (plaintiff organization must allege "more than allegations of
damage to an interest in `seeing' the law obeyed or a social goal
furthered"). However, the Fair Housing Group plaintiffs assert an injury
to their mission that arises from their expenditure of time and resources
on the litigation — time and resources that have been diverted from
other activities of the organizations.
The Supreme Court has held that standing to bring a FHA claim is
coextensive with constitutional standing. Havens Realty Corp. v.
Coleman, 455 U.S. 363, 372, 102 S.Ct. 1114, 71 L.Ed.2d 214 (1982) (citing
Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 103 n. 9, 99
S.Ct. 1601, 60 L.Ed.2d 66 (1979)). Pursuant to Article III, a plaintiff
must allege an "injury in fact" that is concrete and particularized, and
actual or imminent. Lujan v. Defenders of Wildlife, 504 U.S. 555,
560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). The injury must be fairly
traceable to the challenged conduct of the defendants and it must be
likely that the injury will be "redressed by a favorable judicial
decision." Id. An organization may assert an injury in fact that arises
from a drain on the organization's resources caused by the defendants'
conduct (and the ensuing litigation), if the conduct results in an
impairment of the organization's work and constitutes "far more than
simply a setback to the organization's abstract social interests." Havens
Realty Corp., 455 U.S. at 378-79, 102 S.Ct. 1114. While the D.C. Circuit
has suggested that money spent on "testing" is, by itself, insufficient
to establish standing because such harm is "self-inflicted," Fair
Employment Council of Greater Washington, Inc. v. BMC Mktg. Corp.,
28 F.3d 1268, 1276-77 (D.C.Cir. 1994), the Circuit also suggested that,
if the defendants' conduct caused independent harms to other programs of
plaintiff organizations, sufficient injury would exist. Id.
The complaint alleges that Prudential's discriminatory policies and
practices caused damage to the Fair Housing Group plaintiffs because they
were required to divert scarce resources away from activities of the
organizations such as education, counseling and community outreach, in
order to identify and counteract the discriminatory polices and
practices. Compl. ¶ 73. In addition, the Fair Housing Group plaintiffs
claim that, because of Prudential's conduct, they were required to devote
time, resources and money toward efforts to educate past, present and
prospective homeowners, as well as the general public, that discrimination
in residential property insurance is illegal. Id. ¶ 74. The Fair
Housing Group plaintiffs also contend that they were frustrated in their
missions to eradicate discrimination in housing and home ownership, and
in their efforts to carry out the programs and services that they
provide, such as providing counseling services to persons looking for
housing or affected by discriminatory housing practices. Id. ¶ 75.
Finally, the organizational plaintiffs allege that they have suffered
from Prudential's lack of equally available, competitively priced and
high-quality homeowners insurance, and from the resulting decline in home
values and home ownership by residents in predominantly African-American
and Hispanic neighborhoods. Id. ¶ 76.
The D.C. Circuit, in assessing an organization's standing to sue under
the Fair Housing Act, remarked that the issue of standing is "answered
chiefly by comparing the allegations of the particular complaint to those
made in prior standing cases." Spann, 899 F.2d at 29 (quoting Allen v.
Wright, 468 U.S. 737, 751-52. 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984)). In
Havens Realty, HOME Richmond, one of the organizational plaintiffs in
this matter, alleged that defendants' racial steering practices had
frustrated its efforts to assist in providing equal access to housing
through counseling and referral services. 455 U.S. at 379, 102 S.Ct.
1114. HOME Richmond also claimed that the defendants' conduct caused it
to "devote significant resources to identify and counteract" the
allegedly discriminatory steering practices. Id. In finding that these
allegations, if true, left "no question" that the organization had
suffered an injury in fact sufficient for standing purposes, the Supreme
Court noted that the defendants' conduct had allegedly caused a "drain on
the organization's resources — constitut[ing] far more than simply
a setback to the organization's abstract social interests." Id.
Here, the Fair Housing Group plaintiffs have clearly alleged injury to
their programs and activities. The organizations provide counseling and
referral services, as did HOME Richmond in Havens Realty. The complaint
alleges in detail that these services, as well as plaintiffs' educational
programs, are burdened and harmed by the conduct of defendants. This is
not a case where the only activity undertaken by the plaintiffs is the
pursuit of Fair Housing Act litigation, which might arguably parallel the
facts in American Legal Foundation, 808 F.2d at 91, or Fair Employment
Council of Greater Washington, 28 F.3d at 1277.*fn3
Finally, the defendants allege that the Fair Housing Group plaintiffs
cannot assert an injury arising from "identifying and counteracting"
"because NFHA Plaintiffs are in the business of doing precisely that."
Defs.' Mot. at 11. Defendants suggest that the fact that Fair Housing
Group plaintiffs are funded through federal HUD grants and prior
litigation settlements negates their assertion that scarce resources have
been diverted to this litigation, the "very activit[y] that finance[s]
substantially all of their operations." Id. at 3. They elaborate:
[Plaintiffs] test and then sue insurers, and use HUD
grants and litigation settlements to educate the
public about discrimination. They cannot establish
"injury" by circularly asserting that Prudential's
alleged discrimination caused them to do what they
have made millions of dollars doing over the past
Id. at 11. Yet, defendants cite no legal authority for the proposition
that plaintiffs use of funds recovered through litigation against other
private defendants negates plaintiffs' injury and, at oral argument,
defense counsel admitted that he knew of none.
The Court need not address defendants' theory that plaintiffs cannot be
injured by the need to counteract discrimination because they have
recovered funds to fight other sources of discrimination, an argument
that borders both on the offensive and absurd. Defendants' argument is
based on facts not contained within the complaint, and will not be
considered in the Court's analysis of plaintiffs' standing at this stage
in the proceedings.
In sum, the Fair Housing Group plaintiffs have sufficiently alleged an
injury in fact caused by defendants' conduct. Plaintiffs allege that they
have expended resources on counteracting Prudential's discrimination
through their educational, counseling and referral programs. Plaintiffs'
injury lies in their expenditure of scarce resources on identifying and
C. Fair Housing Act Claims
1. Fair Housing Act
All plaintiffs allege violations of the Fair Housing Act.
Specifically, they allege that the defendants have violated
42 U.S.C. § 3604 (a), 3604(b), and 3605(a)-(b)(1).
Section 3604 makes it unlawful:
(a) 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, sex, familial status, or national
(b) To 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
race, color, religion, sex, familial status, or
42 U.S.C. § 3604 (emphasis added). Furthermore,
section 3605 makes it unlawful:
(a) [T]o discriminate in making available . . . a
[residential real estate-related] transaction, or
in the terms and conditions of such a
transaction, because of race, color, religion,
sex, familial status, or national origin.
(b) [T]he term "residential real estate-related
transaction" means any of the following:
The making or purchasing of loans or providing other
financial assistance — for purchasing,
constructing, improving, repairing, or maintaining a
dwelling . . .
42 U.S.C. § 3605 (emphasis added). Plaintiffs contend that the
emphasized portions of these provisions of the FHA are properly
construed to prohibit racial discrimination in the sale of homeowners
2. Applicability of the FHA to Sale of Homeowners Insurance
The Supreme Court has indicated that the FHA should be broadly
construed to effectuate its remedial purpose to foster "truly integrated
and balanced living patterns." Trafficante v. Metropolitan Life Ins.
Co., 409 U.S. 205, 211-12, 93 S.Ct. 364, 34 L.Ed.2d 415 (1972) (quoting
114 Cong. Rec. 3422 (1968)). While neither the Supreme Court nor the
D.C. Circuit has considered the question of whether the FHA should be
extended to apply to the sale of homeowners insurance, other circuits
have addressed this issue. The "split" of authority on this issue,
however, is not as divided as the defendants portray it to be.
Prudential relies primarily on a Fourth Circuit case, Mackey v.
Nationwide Insurance Co., 724 F.2d 419 (4th Cir. 1984), which held that
FHA's prohibition on discrimination does not extend to the sale of
homeowners insurance. In arguing that the FHA does cover the sale of
homeowners insurance, plaintiffs rely on precedent from the Sixth
Circuit, Seventh Circuit and district courts in Tennessee, Pennsylvania,
Missouri and the District of Columbia. See Nationwide v. Cisneros,
52 F.3d 1351 (6th Cir. 1995); United Farm Bureau v. Metropolitan Human
Relations Comm'n, 24 F.3d 1008 (7th Cir. 1994); NAACP v. American
Family, 978 F.2d 287 (7th Cir. 1992); Wai v. Allstate Ins. Co.,
75 F. Supp.2d 1, 5-8 (D.D.C. 1999); Lindsey v. Allstate Ins. Co.,
34 F. Supp.2d 636 (W.D.Tenn. 1999); Strange v. Nationwide Mutual Ins.
Co., 867 F. Supp. 1209 (E.D.Pa. 1994); Canady v. Allstate Ins. Co., 3
Fair Housing, Fair Lending, (P-H) (W.D.Mo. Oct. 2, 1996).
Plaintiffs argue that discrimination in the sale of homeowners
insurance is prohibited by both section 3604 and section 3605 of the
i. Section 3604
The Court's analysis of whether plaintiffs have stated a claim pursuant
to section 3604 turns on whether it is appropriate to rely on HUD
regulations interpreting this section. In 1989, Congress enacted the Fair
Housing Amendments Act of 1988, which permitted HUD to issue regulations
implementing the FHA. That same year, HUD issued regulations that
interpreted section 3604 of FHA to prohibit discrimination in the
provision of insurance. See 54 Fed. Reg. 3232 (Jan. 23, 1989). Defendants'
reliance on Mackey, 724 F.2d 419, is problematic because Mackey was
decided in 1984, several years before HUD issued its regulations. No
court since 1989 has followed Mackey's holding that the FHA does not
apply to the sale of homeowners insurance.
Plaintiffs argue that the 1989 HUD regulations clearly establish that
the sale of homeowners insurance is covered by section 3604 of the FHA.
The HUD regulations interpreting section 3604 provide that "[i]t shall be
unlawful, because of race, color, . . . or national origin, to engage in
conduct relating to the provision of housing or of services and
facilities in connection therewith that otherwise makes unavailable or
denies dwellings to persons." 24 C.F.R. § 100.70 (b).*fn4 The
regulation also sets out four specific types of activities prohibited by
section 100.70(b), quoted above. One of the proscribed activities is:
Refusing to provide property or hazard insurance for
dwellings or providing such services or insurance
because of race, color, religion, sex, handicap,
familial status, or national origin.
24 C.F.R. § 100.70 (d)(4).