The U.S. Supreme Court lost its opportunity to decide this term whether disparate impact claims are available under the Fair Housing Act, but the question may be on the Court’s docket next year now that a New Jersey township has filed a petition for certiorari.

The justices were poised to decide the issue this year in Magner v. Gallagher, but the case disappeared from the Court’s docket just a few weeks before its scheduled oral argument on February 29, 2012, when the City of Saint Paul dismissed its appeal, reportedly due to pressures from government agencies or civil rights groups.

At the time, it was unclear when the justices would get another chance to tackle the question, but the issues raised in the petition for certiorari in Mount Holly v. Mount Holly Gardens Citizens in Action, Inc.—filed just four months after Magner’s dismissal—are virtually a carbon-copy of those raised in Magner.

Mount Holly concerns a New Jersey Township’s plan to redevelop a blighted residential area occupied predominantly by low- and moderate-income minority households. Certain residents sought to prevent the redevelopment. After litigating unsuccessfully for several years in state court, the residents filed suit in federal court, alleging that the redevelopment plan had a disparate impact on minorities and therefore violated the Fair Housing Act.

The suit alleged that a disproportionate number of minorities would be affected by the relocation required by the plan and would be unable to afford the new housing proposed under the plan.

The district court dismissed the case on summary judgment after concluding the plaintiffs had failed to establish a disparate impact claim. But the Third Circuit Court of Appeals reversed and found that plaintiffs had established a prima facie case of disparate impact under the Fair Housing Act.

Mount Holly’s petition to the Supreme Court focuses on the purely legal question of whether such disparate impact claims are permissible under the Fair Housing Act.

The Fair Housing Act makes it unlawful to “refuse to sell or rent after the making of a bona fide offer … or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” Despite the lack of textual support for disparate impact claims in the Fair Housing Act, the federal appeals courts have permitted the claims to proceed.

The Consumer Financial Protection Bureau—joined by The U.S. Department of Housing and Urban Development and the Department of Justice—recently insisted that disparate impact claims are viable under the Fair Housing Act and the Equal Credit Opportunity Act. Indeed, in November 2011, while Magner was still pending before the Supreme Court, HUD issued a proposed disparate impact rule which sets forth standards to determine when housing policies have a disproportionate negative effect on protected classes and thus may be deemed a violation of the Fair Housing Act.

If the Supreme Court agrees to hear the Mount Holly case, the CFPB and HUD will have the opportunity to test their interpretations of the Fair Housing Act and ECOA against the plain text of the statutes themselves. Indeed, many expect HUD to finalize its proposed rule on disparate impact claims under the Fair Housing Act in order to argue that its interpretation of the rule is entitled to the deference accorded to federal agencies.

However, when these identical issues were before the Court in Magner, it was widely believed that the Supreme Court would hold that disparate impact claims were not available under the Fair Housing Act, based on the absence of critical language in the Act authorizing such claims.

Moreover, the Court’s recent decision in Freeman v. Quicken Loans suggests that the Court will not defer to the government’s interpretation of the statute if that interpretation strays from the plain text of the statute itself. In Freeman, the Court rebuffed HUD’s argument that its interpretation of RESPA was entitled to deference, largely because HUD’s interpretation was not supported by the plain language of the statute.

We are hopeful that the opportunity lost in Magner will be regained in Mount Holly and that the uncertainty about disparate impact claims under the Fair Housing Act and, by analogy, ECOA, will finally be resolved. Ballard Spahr represents one of the non-township defendants in the case.

Ballard Spahr’s Consumer Financial Services Group also produces the CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe, use the link provided to the right.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Mortgage Banking Practice Leader Richard J. Andreano, Jr., at 202.661.2271 or andreanor@ballardspahr.com, or Christopher J. Willis at 678.420.9436 or willisc@ballardspahr.com.


 

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