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American Insurance Association v. United States Department of Housing and Urban Development

United States District Court, District of Columbia

November 3, 2014

AMERICAN INSURANCE ASSOCIATION, et al., Plaintiffs,
v.
UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, et al., Defendants.

MEMORANDUM OPINION

RICHARD J. LEON UNITED STATES DISTRICT JUDGE

Plaintiffs American Insurance Association ("AIA") and National Association of Mutual Insurance Companies ("NAMIC") (together "plaintiffs")[1] brought this action against the United States Department of Housing and Urban Development ("HUD") and Julian Castro[2]—in his official capacity as Secretary of the United States Department Housing and Urban Development—("Secretary") (together "defendants") on June 26, 2013, see Complaint ("Compl.") [Dkt. #1], challenging defendants' promulgation of a final rule, see Implementation of the Fair Housing Act's Discriminatory Effects Standard, 78 Fed. Reg. 11, 460 (Feb. 15, 2013) (codified at 24 C.F.R. § 100.500) ("Disparate-Impact Rule" or "Rule"), providing for liability based on disparate impact under the Fair Housing Act ("FHA" or the "Act"), Pub. L. No. 90-284, 82 Stat. 81 (1968) (codified at 42 U.S.C. § 3601 et seq.). Plaintiffs claim that defendants violated the Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq., 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). See Plaintiffs' Memorandum in Support of Motion for Summary Judgment ("Pls.' Mem.") [Dkt. 16-1] at 8-9. Now before the Court are plaintiffs' Motion for Summary Judgment ("Pls.' Mot.") [Dkt. #16] and defendants' Motion to Dismiss or, in the Alternative, for Summary Judgment ("Defs.' Mot.") [Dkt. #20]. After due consideration of the parties' pleadings, the arguments of counsel, the relevant law, and the entire record in this case, the Court agrees with plaintiffs that the FHA prohibits disparate treatment only, and that the defendants, therefore, exceeded their authority under the APA. Accordingly the plaintiffs' Motion for Summary Judgment is GRANTED, the defendants' Motion to Dismiss or, in the Alternative, for Summary Judgment is DENIED, and the Disparate-Impact Rule is VACATED.

BACKGROUND

I. Statutory Background

Congress enacted Title VIII of the Civil Rights Act of 1968—commonly known as the Fair Housing Act—"following urban unrest of the mid 1960s and in the aftermath of the assassination of the Rev. Dr. Martin Luther King, Jr." H.R. Rep. No. 711, 100th Cong., 2d Sess. 15 (1988). Congress's goal in enacting the Fair Housing Act was to "provide, within constitutional limitations, for fair housing throughout the United States." 42 U.S.C. § 3601. To accomplish this purpose, the FHA made 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." Id. § 3604(a). Moreover, the FHA made 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 those same protected characteristics. Id. § 3604(b).

Twenty years later, Congress amended the FHA, see Fair Housing Amendments Act of 1988, Pub. L. No. 100-430, 102 Stat. 1619 ("1988 Amendments"), to include sex, familial status, and handicap as protected characteristics. See 42 U.S.C. §§ 3604(a) (sex and familial status), (f)(1) (handicap); see also Id . §§ 3604(f)(2), 3605, 3606. The 1988 Amendments further vested HUD with the authority to engage in formal adjudications of housing discrimination claims, see Id . § 3612, as well as the authority to issue rules—following a notice and comment period—to effectuate the goals of the FHA, see id. § 3614a. The 1988 Amendments did not, however, make any changes to the operative language of § 3604(a) & (b) or § 3606. See Pub. L. No. 100-430, 102 Stat. 1619.

II. Promulgation of the Disparate-Impact Rule

In the absence of explicit language providing for disparate-impact liability when it was enacted in 1968, it is not surprising that there has been a difference of opinion along ideological/political lines—since at least the Supreme Court's decision in Griggs v. Duke Power Co., 401 U.S. 424, 432 (1971)—as to whether or not such claims were cognizable under the FHA.[3] To date, the Supreme Court has not had the opportunity to answer this particular question.[4] And, while eleven Circuit Courts of Appeals have found that disparate-impact claims are cognizable under the FHA, [5] the overwhelming majority of these opinions preceded the Supreme Court's decision in Smith v. City of Jackson, 544 U.S. 228 (2005), which set forth the appropriate analytical framework when a court is attempting to discern whether disparate-impact liability arises in a particular statutory context. As for our Circuit, to date it too has never addressed this issue. See, e.g., Greater New Orleans Fair Hous. Action Ctr. v. U.S. Dep't of Hous. and Urban Dev., 639 F.3d 1078, 1085 (D.C. Cir. 2011) ("We have not decided whether [the FHA] permits disparate impact claims."); 2922 Sherman Avenue Tenants' Ass 'n v. District of Columbia, 444 F.3d 673, 679 (D.C. Cir. 2006). However, on November 16, 2011—just nine days after the Supreme Court granted certiorari in Magner v. Gallagher to address this very issue, see Magner, 132 S.Ct. 548 (2011)—HUD, calculatingly, proposed a rule that would specifically provide for disparate-impact liability under the FHA. See Implementation of the Fair Housing Act's Discriminatory Effects Standard, 76 Fed. Reg. 70, 921, 70, 921 (Nov. 16, 2011) (HUD proposed "to prohibit housing practices with a discriminatory effect, even where there has been no intent to discriminate").

Following HUD's notice of the proposed rule, plaintiffs submitted comments explaining their numerous concerns about the harmful effects the Rule was likely to cause.[6] See JA at 372-383, 455-59. Despite these concerns—and those raised by many others—HUD promulgated the final Rule without substantial changes on February 15, 2013.[7] See 78 Fed. Reg. 11, 460. Not surprisingly, the preamble to the Disparate-Impact Rule expressly extended the availability of disparate-impact liability to the provision and pricing of homeowner's insurance for the first time. See Id . at 11, 475. So much for any contention that the FHA unambiguously provided for such liability!

The Disparate-Impact Rule itself states 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." 24 C.F.R. § 100.500. The Rule defines 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." Id. § 100.500(a). A practice shown to have a discriminatory effect may still be legal if it is supported by a legally sufficient justification. See Id . § 100.500. "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." Id. § 100.500(b)(l)(i)-(ii).

The Disparate-Impact Rule employs a burden-shifting framework for assessing disparate-impact liability under the FHA. See Id . § 100.500(c)(1)-(3). Initially, "the charging party . . . has the burden of proving that a challenged practice caused or predictably will cause a discriminatory effect." Id. § 100.500(c)(1). If the plaintiff or charging party meets this burden, "the respondent or defendant has the burden of proving that the challenged practice is necessary to achieve one or more [of their] substantial, legitimate, nondiscriminatory interests." Id. § 100.500(c)(2). Finally, if the respondent or defendant satisfies its burden, the plaintiff or charging party "may still prevail upon proving that the substantial, legitimate, nondiscriminatory interests supporting the challenged practice could be served by another practice that has a less discriminatory effect." Id. § 100.500(c)(3).

Importantly here, the Rule expressly applies to entities that provide homeowner's insurance, such as plaintiffs' members. See 78 Fed. Reg. 11, 460, 11, 475. Indeed, the proposed notice of rule-making explicitly listed the "provision and pricing of homeowner's insurance" as an example of a "housing policy or practice" that may have a disparate impact on a class of persons, 76 Fed. Reg. 70, 921, 70, 924, and in the final rule-making, HUD directly considered some of the very concerns that were raised by insurers during the notice-and-comment period, but did not meaningfully alter the substance of the Rule in response to those concerns, see 78 Fed. Reg. 11, 460, 11, 475.

III. Procedural History

Plaintiffs commenced this action on June 26, 2013. On August 15, 2013, however, defendants filed an Unopposed Motion to Stay Proceedings ("Motion to Stay") [Dkt. #12] because the Supreme Court had recently granted certiorari in Mount Holly[8] (June 17, 2013) to resolve the precise statutory question at issue in this case, and a stay of proceedings—pending the Supreme Court's decision—would "at a minimum streamline the proceedings in this case, if not eliminate the need for litigation entirely." See Mot. to Stay at 1. I granted the motion by minute order on August 29, 2013.

On November 15, 2013 the Supreme Court dismissed the writ of certiorari in Mount Holly because the parties had reached a settlement. On December 16, 2013, the parties filed a joint status report and motion, informing me of the Mount Holly dismissal, and seeking a lift of the stay in this case. See Joint Mot. to Lift the Stay and Status Report [Dkt. #14]. I granted the parties' motion on December 20, 2013, and set a briefing schedule for dispositive motions. See Order (Dec. 20, 2013) [Dkt. #15]. That same day, plaintiffs filed their Motion for Summary Judgment. See Pls.' Mot. Defendants then filed their Motion to Dismiss or, in the Alternative, for Summary Judgment on February 3, 2014. See Defs.' Mot. Following full briefing of the issues, [9] I heard oral argument on the parties' motions on July 22, 2014.[10]

STANDARD OF REVIEW

I. Rule 12(b) Dismissal


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