DISPARATE IMPACT
National Association of Mutual Insurance Companies v. United States Department of Housing and Urban Development
Date: May 8, 2024
Issue: Whether the 2023 Disparate-Impact Rule from the U.S. Department of Housing and Urban Development (HUD), which recodifies its 2013 rule, conflicts with the Fair Housing Act (FHA) and the Supreme Court’s decision in Texas Department of Housing & Community Affairs v. Inclusive Communities Project Inc.
Case Summary: ABA filed a coalition amicus brief urging the D.C. Circuit to vacate HUD’s 2023 Disparate-Impact Rule.
In 2013, HUD published a disparate-impact rule formalizing a burden-shifting test for determining whether a given practice has an unjustified discriminatory effect (2013 rule). Under the 2013 rule, a policy that had a discriminatory effect on a protected class was unlawful if it was not necessary to achieve a substantial, legitimate, nondiscriminatory interest or if a less discriminatory alternative could also serve that interest.
After HUD published the 2013 rule, the American Insurance Association and the National Association of Mutual Insurance Companies (NAMIC) sued HUD challenging the 2013 rule, arguing disparate-impact claims are not cognizable under the FHA. In 2014, Judge Richard J. Leon of the U.S. District Court for the District of Columbia ruled disparate-impact claims are not permissible under the FHA. However, in 2015, the Supreme Court decided parties may bring disparate-impact claims under the FHA in Texas Department of Housing & Community Affairs v. Inclusive Communities Project Inc. The Court concluded claims based on statistical disparity fail without a showing of causation. In response to Inclusive Communities, NAMIC amended its complaint. While the amended complaint acknowledged disparate-impact claims are permitted under the FHA, the plaintiffs asserted the 2013 rule was inconsistent with the FHA and Inclusive Communities.
In September 2020, HUD issued a final rule amending the burden-shifting framework (2020 rule). The 2020 rule, however, was challenged in court by consumer groups, and in October 2020, a federal district court in Massachusetts stayed the effective date of the revised rule and enjoined enforcement of the revised rule. Afterward, HUD (under the Biden administration) published the 2023 rule that recodified the 2013 rule.
Judge Leon denied the National Association of Mutual Insurance Company’s motion for summary judgment, ruling HUD’s 2023 rule does not conflict with the FHA and Inclusive Communities. The court held that the 2023 rule does not exceed limitations on disparate-impact liability under the FHA placed by the Supreme Court in Inclusive Communities where those limitations avoid potential constitutional issues and prevent the FHA from forcing housing authorities to reorder their legitimate priorities.
On appeal, ABA filed a coalition amicus brief supporting NAMIC, arguing HUD exceeded its authority and acted contrary to law when it rejected the Supreme Court’s disparate-impact standard in Wards Cove. In Wards Cove, the Supreme Court clarified the statistical analysis needed to prove discrimination. First, a plaintiff must show a disparity occurred by making a proper statistical comparison. After proving a disparity existed a plaintiff must show “causation” by identifying the specific practices at issue and proving the identified practice caused the disparity.
ABA emphasized HUD is bound by Supreme Court precedent defining the standard for disparate-impact claims under the FHA. In promulgating its 2023 rule, HUD adopted an incorrect and improper standard for disparate-impact liability under the FHA which was inconsistent with the Court’s decision in Wards Cove ignored the limitations on the application of disparate-impact claims required by Inclusive Communities.
ABA also highlighted HUD’s 2023 rule brushes aside Wards Cove and the limitations it places on disparate-impact liability under the FHA. ABA argued the 2023 rule adopting the standard of the Civil Rights Act of 1991 is a substantial departure from Wards Cove in at least five significant ways:
- Wards Cove requires a plaintiff to demonstrate a specific employment practice created the disparate impact under attack, but HUD permits a plaintiff to challenge the decision-making process as a whole;
- Wards Cove requires each challenged practice to have a significantly disparate impact, but HUD decided not to codify a significance requirement;
- Wards Cove requires the ultimate burden of proving a specific employment practice has caused discrimination against a protected group to remain with the plaintiff at all times, but HUD formalizes a burden-shifting test;
- Wards Cove does not require the challenged practice to be “essential” or “indispensable” to the employer’s business for it to pass muster, but HUD requires the defendant to prove the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests; and
- Wards Cove requires any alternative practices to be equally effective in achieving legitimate goals, but HUD refused to adopt this standard.
ABA claimed HUD’s decision to announce the Civil Rights Act of 1991 as the standard for disparate impact under the FHA is an unauthorized and unlawful agency action. HUD has no power to emulate Congress and overrule Supreme Court statutory interpretation with which it may disagree. Agencies can seek relief from Congress if they believe new statutory standards should govern their enforcement of statutes, but they cannot achieve their objective simply through administrative rulemaking. HUD is bound by the limits of its authority, and HUD lacked the authority to adopt a standard for the FHA. This required an act of Congress to achieve in the context of Title VIII, according to ABA.
Bottom Line: HUD’s response brief is due July 3, 2024.
Documents: Brief
