Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-06-55522/USCOURTS-ca9-06-55522-2/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

PATRICK O. OJO, Attorney, on 

behalf of himself and all others

similarly situated,

Plaintiff-Appellant, No. 06-55522

v. D.C. No.

FARMERS GROUP, INC.; FIRE  CV-05-05818-JFW

UNDERWRITERS ASSOCIATION; FIRE OPINION INSURANCE EXCHANGE; FARMERS

UNDERWRITERS ASSOCIATION;

FARMERS INSURANCE EXCHANGE,

Defendants-Appellees. 

Appeal from the United States District Court

for the Central District of California

John F. Walter, District Judge, Presiding

Filed April 9, 2010

Before: Alex Kozinski, Chief Judge, Pamela Ann Rymer,

Michael Daly Hawkins, Susan P. Graber,

M. Margaret McKeown, William A. Fletcher,

Ronald M. Gould, Richard R. Clifton, Milan D. Smith, Jr.,

Sandra S. Ikuta and N. Randy Smith, Circuit Judges.

Per Curiam Opinion

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COUNSEL

Sanford Svetcov, Susan K. Alexander, Maria V. Morris,

Coughlin Stoia Geller Rudman & Robbins LLP, San Francisco, California; Andrew S. Friedman, Wendy J. Harrison,

Gustave A. Hanson, Bonnett Fairbourn Friedman & Balint,

P.C., Phoenix, Arizona, for the plaintiffs-appellants.

Harriet S. Posner, Whitney Walters, Carl Alan Roth, Skadden,

Arps, Slate, Meagher & Flom LLP, Los Angeles, California,

for the defendants-appellees.

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Linda F. Thome, Civil Rights Division, United States Department of Justice, Washington, D.C., for amicus curiae the

United States.

D. Scott Chang, Stephen M. Dane, John P. Relman, Relman

& Dane PLLC, Washington, D.C.; Joseph D. Rich, Lawyers’

Committee for Civil Rights Under Law, Washington, D.C.,

for amici curiae National Fair Housing Alliance, Lawyers’

Committee for Civil Rights Under Law, Greater Houston Fair

Housing Center, Austin Tenants’ Council, and Fair Housing

Council of Greater San Antonio.

OPINION

PER CURIAM:

In this appeal we are asked to determine whether a disparate impact suit alleging the discriminatory provision of

homeowner’s insurance in violation of the federal Fair Housing Act (“FHA”), 42 U.S.C. §§ 3601-19, is reverse-preempted

by the McCarran-Ferguson Act, 15 U.S.C. § 1012, because it

invalidates, impairs, or supersedes Texas insurance law. In

order to do so, we must answer two preliminary questions.

First, we must decide whether the FHA prohibits discrimination in the denial and pricing of homeowner’s insurance. Second, we must determine whether the reverse-preemption

standard set forth in the McCarran-Ferguson Act applies to

claims brought under latter-enacted civil rights statutes such

as the FHA. We answer yes to both questions. Having

resolved these issues, in a separate order filed concurrently

with this opinion we certify to the Supreme Court of Texas

the dispositive question of whether Texas law permits an

insurance company to price insurance by using credit-score

factors that have a racially disparate impact that, were it not

for the McCarran-Ferguson Act, would violate the FHA.

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I

Plaintiff-Appellant Patrick O. Ojo is an African-American

resident of Texas and the owner of a homeowner’s propertyand-casualty policy issued by Farmers Group, Inc.

(“Farmers”). Ojo sued Farmers and its affiliates, subsidiaries,

and reinsurers (collectively “Defendants”) in federal court on

behalf of himself and other minorities. He claims that Defendants, acting in concert, use a number of “undisclosed factors” in their credit-scoring system that disparately impact

minorities, in violation of the federal Fair Housing Act

(“FHA”), 42 U.S.C. §§ 3601-19. Ojo does not claim that

Defendants intentionally discriminated against any members

of the putative plaintiff class.

Defendants moved to dismiss all claims pursuant to Federal

Rules of Civil Procedure 12(b)(1) and 12(b)(6). The district

court concluded that the Texas Insurance Code preempted

Ojo’s FHA claims under the reverse-preemption standard set

forth in the McCarran-Ferguson Act, 15 U.S.C. § 1012. Ojo

appealed, and a divided three-judge panel of our court initially

reversed the district court, holding that Texas law does not

reverse-preempt Ojo’s FHA claim. Ojo v. Farmers Group,

Inc., 565 F.3d 1175 (9th Cir. 2009). We ordered the case

reheard en banc pursuant to Ninth Circuit Rule 35-3, and it is

now pending before us.

II

[1] It is unlawful under the FHA “[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 race.” 42 U.S.C.

§ 3604(b). This provision has been interpreted to prohibit not

just intentional discrimination but also actions that have a discriminatory effect based on race (disparate-impact discrimination). See Pfaff v. U.S. Dep’t of Hous. & Urban Dev., 88 F.3d

739, 745-46 (9th Cir. 1996). Where a plaintiff raises a prima

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facie case of disparate-impact discrimination under the FHA,

the burden shifts to the defendant to either rebut the facts

underpinning the prima facie case or to demonstrate a “legally

sufficient, nondiscriminatory reason” for the practices causing

the disparate impact. Affordable Hous. Dev. Corp. v. City of

Fresno, 433 F.3d 1182, 1194-95 (9th Cir. 2006) (internal quotation marks omitted).

We have not yet had occasion to decide whether or not the

FHA applies to homeowner’s insurance. We now hold that the

FHA prohibits racial discrimination in both the denial and

pricing of homeowner’s insurance. 

Although there is a circuit split on the issue, we conclude

that the Sixth and Seventh Circuits have the better of the argument. See Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d

1351, 1359-60 (6th Cir. 1995) (giving Chevron deference to

the Secretary of Housing and Urban Development’s interpretation of the FHA and holding that the FHA applies to homeowner’s insurance); NAACP v. Am. Family Mut. Ins. Co., 978

F.2d 287, 300-01 (7th Cir. 1992) (same). Section 3604(a) of

the FHA makes it unlawful to “otherwise make unavailable or

deny” a dwelling because of race. 42 U.S.C. § 3604(a). Similarly, Section 3604(b) makes it unlawful to discriminate

because of race “in the provision of services or facilities” in

connection with “the terms, conditions, or privileges of sale

or rental of a dwelling.” Id. § 3604(b). The terms “make

unavailable” and “service” are ambiguous. See NAACP, 978

F.2d at 298.

[2] When statutory language is ambiguous, we defer to a

“permissible construction” of that statute by the agency

charged with administering that statute. Chevron U.S.A., Inc.

v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43

(1984). Here, Congress has charged the Department of Housing and Urban Development (“HUD”) with the duty to make

rules to carry out the FHA. See 42 U.S.C. § 3614a. HUD in

turn has determined explicitly that the FHA does indeed pro5400 OJO v. FARMERS GROUP

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hibit discrimination in the provision of homeowner’s insurance. See 24 C.F.R. § 100.70(d)(4). The terms of the FHA

reasonably can bear this construction. For example, the denial

of homeowner’s insurance can make housing unavailable:

Mortgage lenders require prospective borrowers to obtain

homeowner’s insurance, so without insurance, there may be

no loan, and without a loan, there may be no home available

to a person who wants to buy the home. Homeowner’s insurance can also be seen as a “service” connected to the sale of

a dwelling. In sum, HUD’s construction of the FHA is reasonable and Chevron requires us to defer to it.

The Fourth Circuit has held that the FHA does not apply to

homeowner’s insurance. Mackey v. Nationwide Ins. Cos., 724

F.2d 419, 424-25 (4th Cir. 1984). However, it is the only circuit to have done so, and its decision pre-dated a regulation

promulgated by HUD that interprets the FHA to apply to

homeowner’s insurance. See 24 C.F.R. § 100.70(d)(4); Implementation of the Fair Housing Amendments Act of 1988, 54

Fed. Reg. 3232-01 (January 23, 1989) (effective date March

12, 1989). As Judge Easterbrook observed, “Events have

bypassed Mackey. . . . No matter how a court should have

understood the Fair Housing Act in 1984, . . . the question

today is whether the Secretary’s regulations are tenable. They

are.” NAACP, 978 F.2d at 301. 

III

[3] The outcome of Ojo’s appeal also depends on whether

the McCarran-Ferguson Act is capable of “reversepreempting” claims brought under latter-enacted civil rights

statutes such as the FHA. The McCarran-Ferguson Act states

the following: 

No Act of Congress shall be construed to invalidate,

impair, or supersede any law enacted by any State

for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such busiOJO v. FARMERS GROUP 5401

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ness, unless such Act specifically relates to the

business of insurance . . . .

15 U.S.C. § 1012(b). Under the McCarran-Ferguson Act, state

law preempts a federal statute if (1) the federal law does not

specifically relate to insurance; (2) the state law is enacted for

the purpose of regulating insurance; and (3) the application of

federal law to the case might invalidate, impair, or supersede

the state law. Humana Inc. v. Forsyth, 525 U.S. 299, 307

(1999). Here, it is undisputed that the FHA does not specifically relate to insurance and that the relevant provisions of

Texas law are enacted for the purpose of insurance regulation.

[4] We hold that the FHA can indeed be reverse-preempted

by the McCarran-Ferguson Act. By using the phrase “No Act

of Congress,” the text of McCarran-Ferguson could not be

clearer. “ ‘No Act of Congress’ differs from ‘no act on the

books in 1946’ or ‘no act other than a civil rights statute.’ ”

NAACP, 978 F.2d at 294. By its plain terms, the McCarranFerguson Act applies to the FHA.

Precedents are in accord with our interpretation. Although

the McCarran-Ferguson Act predates Title VII of the Civil

Rights Act of 1964, the Supreme Court has never expressed

reluctance in applying McCarran-Ferguson to latter-enacted

statutes. See, e.g., Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41

(1987) (applying McCarran-Feguson to the Employee Retirement Income Security Act of 1974). Four justices of the

Supreme Court have once already concluded that the

McCarran-Ferguson Act applies to Title VII. Ariz. Governing

Comm. for Tax Deferred Annuity and Deferred Comp. Plans

v. Norris, 463 U.S. 1073, 1099-1103 (1983) (Powell J., joined

by Burger, C.J., Blackmun and Rehnquist, JJ., concurring in

part and dissenting in part). And the majority of our sister circuits to address the question have determined that the

McCarran-Ferguson Act applies to civil rights statutes. See

Saunders v. Farmers Ins. Exchange, 537 F.3d 961, 963 n.1

(8th Cir. 2008); Dehoyos v. Allstate Corp., 345 F.3d 290, 297

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(5th Cir. 2003); Cisneros, 52 F.3d at 1360-61; NAACP, 978

F.2d at 295. 

Only the Second Circuit has held that the McCarranFerguson Act does not apply to Title VII, and that decision

predates Norris, Pilot Life, and the decisions of the other circuits. See Spirt v. Teachers Ins. and Annuity Ass’n, 691 F.2d

1054, 1065 (2d Cir. 1982), vacated on other grounds, 463

U.S. 1223 (1983). The Second Circuit’s decision is also based

on the incorrect assumption that interpreting McCarranFerguson to apply to Title VII would “prevent” Congress

from requiring insurers to comply with civil rights statutes.

See id. at 1066. Such is not the case. “Congress did not tie its

hands; instead it prescribed the consequences of silence and

specificity in other acts past and future.” NAACP, 978 F.2d at

295. The McCarran-Ferguson Act is merely the default; if

Congress does not want McCarran-Ferguson to operate on a

particular statute, it need only say so directly.

IV

[5] Having determined that the FHA applies to homeowner’s insurance and that the McCarran-Ferguson Act can

reverse-preempt the FHA, the remaining dispositive question

is whether application of the FHA to Ojo’s case might invalidate, impair, or supersede the provisions of the Texas Insurance Code that authorize insurance companies to use credit

scoring in setting insurance rates. If Texas law permits insurance companies to use credit scores even if the factors used

to compute scores may have a racially disparate impact, then

allowing Ojo to sue Defendants under the FHA for this practice would impair Texas law. On the other hand, if Texas law

prohibits the use of credit-score factors that would violate the

FHA on the basis of a disparate-impact theory, then the FHA

would complement—rather than displace and impair—Texas

law, and Ojo’s FHA disparate-impact suit would not be

reverse-preempted by the MFA. See Humana, 525 U.S. at

310-14. Because this question of Texas law is unsettled, and

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because the issue’s resolution will have pervasive implications for future claims brought against Texas insurers, we

have concluded that the appropriate course of action is to certify this issue to the Supreme Court of Texas. We stay further

proceedings in this case pending resolution of our certified

question.

FURTHER PROCEEDINGS STAYED.

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