U.S. District Court Strikes Down HUD’s Fair Housing Act Disparate Impact Rule

By: Paul F. Hancock, Andrew C. Glass, Roger L. Smerage, and Olivia Kelman

On Monday, November 3, 2014, Judge Richard J. Leon of the U.S. District Court for the District of Columbia struck down the disparate impact rule promulgated by the U.S. Department of Housing and Urban Development (“HUD”) in March 2013 under the Fair Housing Act.  The court held that HUD had issued the rule—codified at 24 C.F.R. § 100.500—in contravention of the plain language of the Fair Housing Act.  The case is styled American Insurance Association, et al. v. United States Department of Housing & Urban Development, et al., Case No. 1:13-cv-00966-RJL (D.D.C.).

In reaching his conclusion, Judge Leon reasoned that the Fair Housing Act “prohibits disparate treatment only, and … the defendants [HUD and its secretary], therefore, exceeded their authority” under the Administrative Procedures Act, 5 U.S.C. §§ 551, et seq., when they promulgated a rule purporting to allow Fair Housing Act claims under a disparate impact theory. Under that theory, a plaintiff may seek to establish liability for actions performed without any intent to discriminate simply because the actions may have a disproportionate effect on groups sharing certain statutorily defined characteristics, such as race or national origin. The court concluded that the Fair Housing Act, which does not contain any “language focused on the result or effect of particular conduct,” lacked the requisite “clear language” needed to “prohibit practices resulting in a disparate impact … in the absence of any discriminatory intent.”

Judge Leon noted that the language in the Fair Housing Act is comparable to language in other civil rights statutes that the U.S. Supreme Court has concluded does not support disparate impact claims. Judge Leon also noted that in other civil rights statutes, Congress knew how to include language that supports disparate impact claims, stating “the fact that Congress chose not to amend the FHA in 1988 to include clear effects-based language—while doing so at the same time for two similar anti-discrimination statutes—clearly illustrates that it never intended for claims of disparate impact to be cognizable under the FHA.”

Judge Leon further stated that given the absence of clear language or congressional intent to provide for disparate impact claims under the Fair Housing Act, HUD proposed its rule “calculatingly,” just days after the U.S. Supreme Court agreed to address the question of disparate impact liability under the Fair Housing Act in Magner v. Gallagher, Case No. 10-1032, which case subsequently settled before the Supreme Court could render a decision. Accordingly, Judge Leon concluded that HUD’s rule was “another example of an Administrative Agency trying desperately to write into law that which Congress never intended to sanction,” thus rejecting HUD’s argument that its rule was entitled to judicial deference.

Finally, Judge Leon noted that the issue of whether the Fair Housing Act supports disparate impact claims is currently pending on writ of certiorari to the U.S. Supreme Court in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc., Case No. 13-1371, such that resolution of the issue by the highest court is forthcoming. The Supreme Court will likely schedule argument in that case in early 2015 and is likely to issue a decision by June 2015.

HUD may seek to take an appeal of Judge Leon’s decision to the U.S. Court of Appeals for the District of Columbia. K&L Gates LLP will continue to monitor and provide updates on developments in the American Insurance Association matter as well as The Inclusive Communities Project matter.