Court Opinion

ID: 2747689
Source: CourtListenerOpinion
Date Created: 2014-11-03 21:01:07.953062+00
Date Added: 2024-06-11T10:15:36.480920
License: Public Domain

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

AMERICAN INSURANCE )
ASSOCIATION, et al., )
)
Plaintiffs, )
)
v. ) Civil Case No. 13-00966 (RJL)
)
UNITED STATES DEPARTMENT )
OF HOUSING AND URBAN ) F
DEVELOPMENT, et al., ) I L E D
) NQV 03 2014
Defendants. ) Clerk U
, .s. m ti m
VJ Courts for the Dirsfrict Sfa grim};
MEMORANDUM OPINION

(November 3, 2014) [Dkt. ##16, 20]

 

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 CastroZ—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

1 Plaintiffs are two non-proﬁt trade associations whose members sell homeowner’s insurance in
every state and territory of the United States. See Compl. 111] 7-8.
2 Plaintiffs originally named Shaun Donovan—in his ofﬁcial capacity as Secretary of HUD—as a

defendant in this case. See Compl. 1f 10. However, on July 28, 2014, Julian Castro assumed
ofﬁce as the 16th United States Secretary of Housing and Urban Development, replacing
Secretary Donovan. Accordingly, pursuant to Federal Rule of Civil Procedure 25(d), Secretary
Castro shall be, and hereby is, substituted for Shaun Donovan as a named defendant in this
action. See Fed. R. Civ. P. 25(d).

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 (z'.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.

relief above the speculative level.” BeZZAtZ. Corp. v. Twombly, 550 US. 544, 545
(2007). Moreover, the court need not “accept legal conclusions cast in the form of
factual allegations,” nor “inferences drawn by plaintiffs if such inferences are
unsupported by the facts set out in the complaint.” Kowal v. MCI Commc ’ns Corp, 16
F.3d 1271, 1276 (DC. Cir. 1994).
II. Rule 56(a) Summary Judgment

Under Federal Rule of Civil Procedure 56(a), summary judgment is appropriate
when the evidence in the record demonstrates that “there is no genuine dispute .as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a); see, e.g., Celorex Corp. v. Catretl, 477 US. 317, 322 (1986). When evaluating
cross motions for summary judgment, “the court shall grant summary judgment only if
one of the moving parties is entitled to judgment as a matter of law upon material facts
that are not genuinely disputed.” Select Specially Hosp. -Bl00mingt0n, Inc. v. Sebelz‘us,
774 F. Supp. 2d 332, 338 (D.D.C. 2011) (internal quotation marks and citation omitted).
The court must accept as true the evidence of, and draw “all justiﬁable inferences” in
favor of, the party opposing summary judgment. Anderson v. Liberty Lobby, Inc, 477
US. 242, 255 (1986) (citation omitted). A genuine issue exists only where “the evidence
is such that a reasonable jury could return a verdict for the nonmoving party.” Id. at 248.

The nonmoving party may not rely solely on unsubstantiated allegations or conclusory

statements. See Greene v. Dalton, 164 F.3d 671, 675 (DC. Cir. 1999).

ll

ANALYSIS

1. Standing

A plaintiff establishes Article III standing by demonstrating that he or she has
suffered an injury-in-fact, traceable to the defendant’s actions, that a favorable judgment
would redress. See, e.g., Lujan v. Defenders of Wildlife, 504 US. 555, 560-61 (1992).
As trade associations proceeding on their members’ behalf, plaintiffs have standing as
long as one of their members has standing, the suit is germane to the plaintiffs’ purpose,
and the suit does not require the participation of the plaintiffs’ individual members. See,
e.g., Hunt v. Washington State Apple Advertising Comm ’n, 432 US. 333, 343 (1977).
The Government does not challenge that the plaintiffs satisfy the last two requirements of
associational standing. The issue, then, is whether any of plaintiffs’ members have
standing under Article III. Unfortunately for the defendants, they do.

A. Plaintiffs’ Standing is Self-Evident

When, as here, the plaintiffs are “an object of the action (or foregone action) at
issue,” the Supreme Court has explained that “there is ordinarily little question that the
action or inaction has caused him injury, and that a judgment preventing or requiring the
action will redress it.” Lujan, 504 US. at 561-62 (emphasis added). Indeed, our Court
of Appeals has stated that when “the complainant is ‘an object of the [agency] action . . .

at issue,”’ such as a rulemaking, the complainant’s “standing to seek review of

administrative action is self—evident.” Sierra Club v. EPA, 292 F.3d 895, 899-900 (BC.

12

Cir. 2002) (quoting Lujan, 504 US. at 561-62). In such a case, there “should be ‘little
question that the action or inaction has caused [the plaintiff] injury, and that a judgment
preventing or requiring the action will redress it.’” Id. at 900 (quoting Lujan, 504 US. at
561-62).

Our Circuit Court has afﬁrmed this principle of self-evident standing on numerous
occasions in a wide variety of circumstances, and various members of our Court have so
ruled. See, e.g., Aﬂum v. United States, 566 F.3d 1150, 1158 (DC. Cir. 2009) (store
owner challenging regulations implementing penalties for trafﬁcking in food stamp
beneﬁts); South CoastAir Quality Mgmt. Dist. v. EPA, 472 F.3d 882, 895-96 (DC. Cir.
2006) (association of petrochemical reﬁners challenging a pollution regulation scheme);
Fundfor Animals, Inc. v. Norton, 322 F.3d 728, 733—34 (DC. Cir. 2003) (environmental
group challenging endangered species designation); Int ’1 Fabricare Inst. v. EPA, 972 F.2d
384, 390 (DC. Cir. 1992) (public water systems operators challenging water standards);
Fla. Bankers Ass ’n v. US. Dep’t ofTreasury, _ F. Supp. 2d _, Civ. No. 13-529
(JEB), 2014 WL 114519, at *5-*6 (D.D.C. Jan. 13, 2014) (bank association challenging
bank regulations); Banner Health v. Sebeiius, 797 F. Supp. 2d 97, 107-08 (CKK) (D.D.C.
201]) (hospitals challenging Medicare reimbursement regulations); Russell—Murray
Hospice v. Sebelius, 724 F. Supp. 2d 43, 53 (RMU) (D.D.C. 2010) (hospice care provider

challenging Medicare reimbursement regulations); Am. Petroleum Inst. v. Johnson, 541 F.

Supp. 2d 165, 176-77 (PLF) (D.D.C. 2008) (companies engaged in natural gas industry

13

challenging deﬁnition of navigable waters); Nat ’1 Ass ’11 ofors. v. Taylor, 549 F. Supp.

2d 33, 48 n.8 (CKK) (D.D.C. 2008) (manufacturers challenging statutory lobbying

restrictions).
As described above, the Disparate-Impact Rule was clearly intended to apply to the

“provision and pricing of homeowner’s insurance,” which is precisely the business

engaged in by plaintiffs’ members. See supra pp. 6-8.11 As such, I easily ﬁnd that the
plaintiffs’ standing to challenge the Rule is self-evident and that the plaintiffs are not
required to submit any additional evidence. See Sierra Club, 292 F.3d at 900
(explaining that when standing is self-evident, the plaintiff or its members need not bring
forward additional evidence).

However, even assuming, arguendo, that standing was not self-evident, the
. . . . . . 12 . . . .
plaintlffs have already submitted addltlonal ev1dence demonstrating Injury-1n-fact to

. . . . . l3 .
their members that further cements the1r standlng to br1ng this case. And, w1th respect

” The notion that insurers are an object of the Rule is made even more obvious by the fact that
certain disparate-impact complaints against plaintiffs’ members, including the complaint initiated
by HUD itself, were ﬁled only after HUD issued the Rule. See infra n.13.

12

Plaintiffs include with their Reply afﬁdavits and a declaration of six insurance industry
professionals, each of whom details the unreasonably harmful effects the Disparate—Impact Rule
will have on the business of homeowner’s insurance. See Pls.’ Reply, Ex. 1 (Declaration of
Peter Schwartz) (“Schwartz Decl.”) [Dkt. #27—1]; Pls.’ Reply, Ex. 2 (Afﬁdavit of Bill Essman)
(“Essman Afﬁdavit”) [Dkt. #27-2]; Pls.’ Reply, Ex. 3 (Afﬁdavit of Kathleen Rudolph)
(“Rudolph Afﬁdavit”) [Dkt. #27-3]; Pls.’ Reply, Ex. 4 (Afﬁdavit of Kevin J. Christy) (“Christy
Afﬁdavit”) [Dkt. #27—4]; Pls.’ Reply, Ex. 5 (Afﬁdavit of Martin M. Doto) (“Doto Afﬁdavit”)
[Dkt. #27-5]; Pls.’ Reply, Ex. 6 (Afﬁdavit of Victoria L. McCarthy) (“McCarthy Afﬁdavit”)
[Dkt. #27-6]; see also Rainbow/PUSH Coal, 396 F .3d at 1239 (explaining that the evidence to
establish standing may take the form of afﬁdavits submitted in response to a motion to dismiss).
'3 At least one of plaintiffs’ members has already been subject to three HUD complaints since

14

to traceability and redressability, plaintiffs have additionally, and easily, satisﬁed those
requirements as well.14 Finally, with regard to whether this agency action is ripe for
review, the question presented here——whether disparate-impact claims are cognizable

under the F HA—is a purely legal question of statutory interpretation that does not depend

promulgation of the Rule, including one initiated by HUD itself. See Schwartz Decl. 11114-12.

In light of these pending complaints, it is beyond dispute that plaintiffs’ members face a
signiﬁcant threat of litigation and agency enforcement actions as a result of the Rule, which is
sufﬁcient injury. See, e. g., Chamber of Commerce v. Fed. Election Comm ’n, 69 F.3d 600, 603
(DC. Cir. 1995). Furthermore, plaintiffs have averred signiﬁcant compliance costs as a result of
the Rule. See Compl. ‘11 26; Essman Afﬁdavit 11 4; Rudolph Afﬁdavit $111 9, 13; Christy Afﬁdavit
11 5; Doto Afﬁdavit 11 5; McCarthy Afﬁdavit 11 6. Where an agency rule “inﬂuences [plaintiffs’]
business decisions such that they have incurred and likely will incur substantial costs as a result
of the new [rule], those declarations are sufﬁcient to establish that plaintiffs have been ‘injured’
for purposes of the standing analysis.” Am. Petroleum Inst. v. Johnson, 541 F. Supp. 2d at
176-77.

14 The pre-Rule question of disparate-impact liability under the statutory language of the FHA
has never been resolved conclusively in our Circuit, see Greater New Orleans Fair Hons. Action
Ctr., 639 F .3d at 1085 (assuming, without deciding, that disparate-impact liability is available),
and judges in this District have reached differing results. Compare Nat ’l Cmt. y Reinvestment
Coal. v. Accredited Home Lenders Holding Co., 573 F. Supp. 2d 70, 77-79 (EGS) (D.D.C. 2008)
(holding, without explanation, that the FHA permits disparate-impact claims), with Brown, 654
F. Supp. at 1115—16 (HHG) (holding that it does not, at least against private defendants). More
importantly, the question of disparate-impact liability for insurers under the Fair Housing Act
was a much more uncertain question prior to the Rule, and the Rule purports to resolve the
question in favor of insurer liability. See Saunders v. Farmers Ins. Exchange, 537 F.3d 961, 964
(8th Cir. 2008) (stating that “we have recognized a disparate impact Fair Housing Act claim
against private actors in another context,” but acknowledging that, “at least with respect to
insurers, the question is not free from doubt”) (emphasis in original); Mackey v. Nationwide Ins.

Cos, 724 F.2d 419, 423-25 (4th Cir. 1984) (holding that the FHA does not apply to insurance);
but see Ojo v. Farmers Group, Inc, 600 F.3d 1205, 1208 (9th Cir. 2010) (applying FHA

prohibition on racial discrimination to denial and pricing of homeowner’s insurance); Not 7 Fair
Hons. Alliance, Inc. v. Prudential Ins. Co. 0fAm., 208 F. Supp. 2d 46, 59-60 (EGS) (D.D.C.
2002). At a minimum, the Rule resolves whatever uncertainty existed as to the availability of
disparate-impact liability. Because the Rule changed the law, it is traceable to plaintiffs’ alleged
injuries, and an order enjoining enforcement of the Rule would redress those injuries.

15

on the application of the Rule to any particular facts. As such, I find that plaintiffs’
claims are over ripe for judicial review!
11. Administrative Procedure Act

Because the issue before me is whether disparate—impact claims are cognizable
under the Fair Housing Act, I must, in the ﬁnal analysis, determine whether the text of the
FHA unambiguously evidences Congress’s intent for such claims to be cognizable under
the Act. Plaintiffs argue, in essence, that only disparate-treatment (intentional
discrimination) claims are unambiguously cognizable under the plain text of the FHA.
See Pls.’ Mem. at 10. Unfortunately for the defendants, I agree.

Pursuant to the APA, courts must set aside any agency action that is in excess of
that agency’s “statutory jurisdiction, authority, or limitations.” 5 U.S.C. § 706(2)(C).
Courts must also set aside agency action that is “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” Id. at § 706(2)(A). Judicial
review of an agency’s interpretation of a statute that it administers15 is governed by the
framework laid out by the Supreme Court in Chevron, USA, Inc. v. Natural Resources
Def. Council, Inc, 467 US. 837 (1984). In Chevron, the Court held that “[i]fthe intent
of Congress is clear [as to a speciﬁc issue], that is the end ofthe matter; for the court, as

well as the agency, must give effect to the unambiguously expressed intent of

 

‘5 Congress has vested the Secretary of HUD with “[t]he authority and responsibility for
administering [the FHA].” 42 U.S.C. § 3608(a).

l6

Congress.”16 Id. at 842-43; see also Conn. Nat 7 Bank v. Germain, 503 US. 249, 253-54
(1992) (noting that “courts must presume that a legislature says in a statute what it means
and means in a statute what it says there”). If the court determines, however, that “the
statute is silent or ambiguous with respect to the specific issue,” the court must advance to
step-two of the Chevron analysis and determine “whether the agency’s answer is based on
a permissible construction ofthe statute.”17 Chevron, 467 US. at 843.

Here, however, an analysis under Chevron step-two is unnecessary. For the
following reasons, I agree with the plaintiffs that the FHA unambiguously prohibits only
intentional discrimination. Accordingly, the Disparate-Impact Rule exceeds HUD’s
“statutory jurisdiction, authority, or limitations,” 5 U.S.C. § 706(2)(C), and thereby
violates the APA.

A. Statutory Language
The Supreme Court has made clear that statutes will only prohibit practices
resulting in a disparate impact—in the absence of any discriminatory intent—when they

contain clear language to that effect. See Smith v. City ofJackson, 544 US. 228, 235-36

 

‘6 In attempting to ascertain the intent of Congress, the court is not limited to analysis of an
enabling statute’s text alone. Indeed, the court may consider “the text, structure, purpose, and
history of an agency’s authorizing statute to determine whether a statutory provision admits of
congressional intent on the precise question at issue.” Hearth, Patio & Barbecue Ass ’n v. Dep ’t
ofEnergy, 706 F.3d 499, 503 (DC. Cir. 2013).

‘7 To uphold an agency’s interpretation of an enabling statute, the court need not ﬁnd that the
interpretation is “the best interpretation of the statute,” United States v. Haggar Apparel Co. , 526
US. 380, 394 (1999) (citation omitted), or that it is the “most natural one by grammatical or
other standards,” Pauley v. BethEnergy Mines, Inc, 501 US. 680, 702 (1991) (citing EEOC v.
Commercial Ofﬁce Products Co., 486 US. 107, 115 (1988)).

17

(2005) (plurality opinion); Bd. of Educ. of the City Sch. Dist. of the City of New York v.
Harris, 444 US. 130, 138-39 (1979) (Harris); see also Washington v. Davis, 426 US.
229, 239 (1976). Defendants contend, nevertheless, that Congress’s intent to recognize
claims based on disparate impact under the FHA can somehow be found in the language
of three particular sections of the Act. See Defs.’ Mem. at 23-24; see also 42 U.S.C.
§ 3604 (prohibiting refusal to sell or rent property “because of” a protected
characteristic); id. § 3605 (prohibiting discrimination in real estate-related transactions
“because of” a protected characteristic; id. § 3606 (prohibiting discrimination in the
provision of brokerage services “on account of” a protected characteristic).18 An analysis
of the ordinary meaning of the words used by Congress in those sections, however,
compels me to disagree. How so?

The operative verbs in § 3604 are “refuse,” “make,” “deny,” and—~of
course—“discriminate.” 42 U.S.C. § 3604(a). The ordinary meaning of “refuse” is “to
show or express a positive unwillingness to do or comply with.” Webster’s Third New

International Dictionary 1910 (1966) (“Webster’s Third”). The ordinary meaning of

‘3 Defendants further argue that similarities between the language contained in § 3604(a) and the
language contained in two provisions of Title VII of the Civil Rights Act of 1964 (“Title VII”)
and the Age Discrimination in Employment Act (“ADEA”)—both of which provide for claims

based on disparate impact—indicate that disparate-impact claims should also be cognizable
under the FHA. See Defs.’ Mem. at 22-23; see also 42 U.S.C. § 2000e-2(a)(2); 29 U.S.C.

§ 623(a)(2). Because the FHA fails to include definitions of the operative terms in §§ 3604,
3505, and 3606, the analysis must begin with the words’ ordinary meanings. See Schindler
Elevator Corp. v. UnitedStates ex rel. Kirk, 131 S. Ct. 1885, 1891 (2011) (citing Gross v. FBL
Financial Servs., Inc, 557 US. 167, 175 (2009) (“Statutory construction must begin with the
language employed by Congress and the assumption that the ordinary meaning of that language

18

“make”——as used in the phrase “make unavailable”—is “to produce as a result of action,

effort, or behavior” or “to cause to happen to or be experienced by someone.” Webster’s
Third 1363. The plain meaning of “deny” is “to refuse to grant” or “to turn down or give

a negative answer to.” Webster’s Third 603. Finally, the plain meaning of

“discriminate”19 is “to make a difference in treatment or favor on a class or categorical
basis in disregard of individual merit.” Webster’s Third 648 (emphasis added).

The use of these particular verbs is telling, and indicates that the statute is meant to
prohibit intentional discrimination only. When Congress intends to expand liability to
claims of discrimination based on disparate impact, it uses language focused on the result
or effect of particular conduct, rather than the conduct itself. See, e. g, 42 U.S.C.
§ 2000e-2(a)(2) (employer shall not “limit, segregate, or classify his employees . . . in any
way which would deprive 0r tend to deprive any individual of employment opportunities”

or “otherwise adversely aﬂect his status as an employee” (emphasis added)); 29 U.S.C.

accurately expresses the legislative purpose.” (internal quotation marks and citation omitted)».
‘9 HUD contends that the term “discriminate”—as it is used in the FHA “may encompass
actions that have a discriminatory effect but not a discriminatory intent.” 78 Fed. Reg. 11,460,
11,466. Please! HUD bases this position on the Supreme Court’s interpretation of the now
repealed Emergency School Aid Act (“ESAA”). See id. n.49. Under the ESAA, schools were
ineligible to receive further federal funding if they employed any practice “which results in the
disproportionate demotion or dismissal of . . . personnel from minority groups” or “otherwise
engage[s] in in discrimination . . . in the hiring, promotion, or assignment of employees.”
Harris, 444 US. at 138 (quoting § 706(d)(1)(B) of the ESAA). In Harris, the Supreme Court
held—despite its acknowledgment that “discriminate,” standing alone suggests intentional
discrimination—that a discriminatory—impact test should apply to § 706(d)(1)(B). See id. at 139,
141. In reaching its conclusion, however, the Court relied heavily on the fact that the
discrimination clause was closely linked with the clause containing clear effects~based language.
See id. at 143. Here, because there is no such linkage to any effects-based language, Harris is

 

l9

§ 623(a)(2) (same); see also Smith, 544 US. at 235—36. Indeed, Congress drafted the
disparate—impact provision of the ADEA with “key textual differences” from the
provision prohibiting disparate-treatment. See Smith, 544 US. at 236 n.6; compare 29
U.S.C. §623(a)(l), with 29 U.S.C. § 623(a)(2).

In the FHA, Congress has included no such effects-based language. Each of the
F HA’s operative terms’ deﬁnitions describe intentional acts, which are—more often than
not—motivated by speciﬁc factors. The FHA lists its prohibited motivations for these
intentional acts following the “because of’20 and “on account of” clauses in §§ 3604,
3605, and 3606.21 However, the FHA contains no prohibitions on conduct that “tends to”
cause a particular result. The focus of these sections is clearly not the effect of conduct,
but rather the motivation for the conduct itself.

Defendants, nevertheless, contend that § 3604(a)’s prohibition on discrimination is
analogous to the language contained in the sections of Title VII and the ADEA that
provide for claims based on disparate impact. See Defs.’ Mem. at 22-23; see also 42

U.S.C. §2000€-2(a)(2); 29 U.S.C. § 623(a)(2); Griggs, 401 us. at 432; Smith, 544 us.

inapposite, and the term “discriminate” retains its plain meaning as an intentional act.

20 The plain meaning of the term “because”—as used in the preposition “because of”—is “for the
reason that” or “on account of the cause that.” Webster ’3 Third 194. Thus, the terms following
the “because of” clauses in the FHA supply the prohibited motivations for the intentional

acts—i. e. to refuse to sell rent or otherwise make unavailable or deny—that the Act makes
unlawful. See 42 U.S.C. §§ 3604, 3605.

21 The FHA prohibits discrimination motivated by the following protected characteristics: race,
color, religion, sex, handicap, familial status, and national origin. See 42 U.S.C. §§ 3604, 3605,
3606.

20

BACKGROUND

1. Statutory Background

Congress enacted Title VIII of the Civil Rights Act of l968—c0mmonly known as
the Fair Housing Act—“following urban unrest of the mid 19605 and in the aftermath of
the assassination ofthe Rev. Dr. Martin Luther King, Jr.” H.R. Rep. No. 71 l, 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

at 235—36. Plaintiffs, not surprisingly, argue that § 3604(a)’s language is far more
analogous to the sections of Title VII and the ADEA that provide for claims based on
disparate treatment only. See Pls.’ Mem. at 14-16; see also 42 U.S.C. § 2000e-2(a)(l)
(Title VII prohibition on disparate treatment); 29 U.S.C. § 623(a)(1) (ADEA prohibition
on disparate treatment); Ricci v. DeStefano, 557 US. 557, 577 (2009) (noting that 42
U.S.C. § 2000e-2(a)(l) provides for disparate treatment only); Smith, 544 US. at 236 n.6
(stating that 29 U.S.C. § 623(a)(1) “does not encompass disparate-impact liability”) . I
believe the plaintiffs’ analysis is far superior.

The statutory language in § 3604(a) is materially identical to the statutory
language used in the disparate-treatment prohibitions in Title VII and the ADEA.
Compare 42 U.S.C. § 3604(a), with 42 U.S.C. § 20006-2(a)(1), and 29 U.S.C.
§ 623(a)(l). Indeed, just as Title VII and the ADEA make it unlawful to “refuse to hire
or to discharge any individual, or otherwise to discriminate against any individual . . .
because of such individual’s” protected characteristic, 42 U.S.C. § 2000e-2(a)(l)
(emphasis added); 29 U.S.C. § 623(a)(l), so too does the FHA make it unlawful to
“refuse to sell or rent . . . or to refuse to negotiate . . . or otherwise make unavailable or
deny, a dwelling to any person because of race, color, religion, sex, familial status, or
national origin,” 42 U.S.C. § 3604(a) (emphasis added). It takes hutzpah (bordering on

desperation) for defendants to argue that § 3604(a) more closely resembles the statutory

21

language in the disparate-impact provisions of Title VII and the ADEA,22 both of which
contain explicit effects—focused language that is conspicuously lacking in § 3604(a).

In addition to the clear meaning of the FHA’s plain text, the striking similarities
between the statutory language of § 3604(a) and the disparate-treatment provisions of
Title VII and the ADEA leave this Court with no doubt that Congress intended the FHA
to prohibit intentional discrimination only. Put simply, Congress knows full well how to
provide for disparate-impact liability, cf Conn. Nat 7 Bank, 503 US. at 253-54, and has
made its intent to do so known in the past by including clear effects—based language when
it so chooses, see Smith, 544 US. at 235-36. The fact that this type of effects-based
language appears nowhere in the text of the FHA is, to say the least, an insurmountable
obstacle to the defendants’ position regarding the plain meaning of the Fair Housing Act.

B. Congressional Intent

Even assuming, arguena’o, that the plain text of the Fair Housing Act did not
unambiguously provide for disparate-treatment claims only, Congress’s intent to so limit
the FHA would still be readily discernable. How so?

1. Statutory Scheme

When Congress amended the FHA in 1988, it did not make any changes to the

22 Speciﬁcally, Title VII and the ADEA’s prohibitions on disparate impact state that it is
unlawful for an employer “to limit, segregate, or classify his employees . . . in any way which
would deprive or tend to deprive any individual of employment opportunities or otherwise

adversely affect his status as an employee, because of such individual’s” protected
characteristics. 42 U.S.C. § 20006—2(a)(2); 29 U.S.C. § 623(a)(2).

22

operative language of §§ 3604 and 3606. See generally Pub. L. No. 100-430. 102 Stat.

1619 (1988 Amendments). Soon thereafter, however, Congress enacted two other
anti—discrimination statutes that explicitly provide for disparate-impact claims by using
clear effects-based language. In 1990, Congress enacted the Americans with Disabilities
Act (“ADA”), which authorizes claims of disparate impact upon a showing that a
particular practice “adversely affects” a disabled employee. See 42 U.S.C. § 121 12(b);
see also Raytheon Co. v. Hernandez, 540 U.S. 44, 53 (2003) (noting disparate-impact
claims are cognizable under the ADA). Indeed, the ADA contains numerous examples
of explicit effects-based language, clearly indicating Congress’s intent to provide for
liability, even in the absence of discriminatory intent. See, e.g., 42 U.S.C. § 121 12(b)(1)
(“in a way that adversely affects”); id. at § 12112(b)(2) (“that has the effect of
subjecting”); id. at § 12112(b)(3)(A) (“that have the effect of discrimination”).

The same is true of Title VII. In order to codify the Supreme Court’s holding in

Griggs, Congress amended Title VII in 1991 to include language expressly authorizing
claims based on disparate impact. See Civil Rights Act of 1991, Pub. L. No. 102-166,
105 Stat. 1071 (1991) (codified at 42 U.S.C. § 2000e—2(k)(1)(A) (“[a]n unlawful
employment practice based on disparate impact is established under this subchapter only
if. . . .”)); see also Griggs, 401 U.S. at 431. These two statutes powerfully demonstrate

that Congress knows how to craft statutory language providing for disparate-impact

liability when it intends to do so. Cf. Conn. Nat ’1 Bank, 503 U.S. at 253-54. As such,

23

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.

Defendants further contend that three “exemptions from liability”23 added to the
FHA in the 1988 Amendments—like the “reasonable factor other than age” (“RFOA”)24
exemption in the ADEA, see 29 U.S.C. § 623(f)(1)-“presuppose the availability of
disparate impact claims” under the FHA. See Defs.’ Mem. at 29; see also Smith, 544
U.S. at 23 8—39 (discussing RFOA exemption in ADEA). I disagree. The RFOA
exemption speciﬁcally authorizes conduct that is “otherwise prohibited [by the ADEA],”
when that conduct is based on a reasonable factor other than age. See 29 U.S.C.

§ 623(f)(l). Unfortunately for defendants, however, the three provisions they cite in the

 

23 See 42 U.S.C § 3605(c) (“Nothing in this subchapter prohibits a person engaged in the
business of furnishing appraisals of real property to take into consideration factors other than
[protected characteristics].”); id. § 3607(b)(1) (“Nothing in this subchapter limits the
applicability of any reasonable local, State, or Federal restrictions regarding the maximum
number of occupants permitted to occupy a dwelling”); id. § 3607(b)(4) (“Nothing in this
subchapter prohibits conduct against a person because such person has been convicted by any
court of competent jurisdiction of the illegal manufacture or distribution of a controlled
substance”).
24 The RFOA exemption in the ADEA states—in pertinent part—that

It shall not be unlawful for an employer, employment agency, or labor

organization . . . to take any action otherwise prohibited under [this act]

where age is a bona ﬁde occupational qualiﬁcation reasonably necessary to

the normal operation of the particular business, or where the

differentiation is based on reasonable factors other than age.

29 U.S.C. § 623(f)(l) (emphasis added).

24

FHA merely provide safe-harbors, clarifying that nothing in the FHA prohibits the
speciﬁc conduct discussed. These provisions make no mention of conduct “otherwise
prohibited” under the FHA. See 42 U.S.C § 3605(0); id. § 3607(b)(l); id. § 3607(b)(4).
Rather, they describe conduct that Congress intended to protect with a “complete
exemption from FHA scrutiny.” City ofEdmonds v. Oxford House, Inc, 514 US. 725,
728 (1995). Moreover, under the burden-shifting framework applied to claims of
disparate-treatment by many jurisdictions, see, e. g., 2922 Sherman Avenue Tenants’
Ass ’n, 444 F.3d at 682, these safe-harbor provisions provide per se legitimate bases as
defenses to claims of disparate treatment. Considering the unambiguous meaning of the
FHA’s plain text, and the lack of any language referencing conduct otherwise prohibited
under the FHA, defendants’ contention that the cited provisions presuppose the presence
of disparate-impact liability appears to be nothing more than wishful thinking on steroids!
2. The McCarran-Ferguson Act

Congressional intent to provide only for FHA claims based on intentional
discrimination is evident for yet another reason: the expansion of the FHA to include
disparate-impact liability against insurers would run afoul of previously enacted federal

legislation.25 Congress enacted the McCarran-Ferguson Act (“McCarran-Ferguson”), 59

25 It would simply defy logic for Congress to intentionally draft legislation in such a way as to
contradict previously enacted federal statutes. Cf. FDA v. Brown & Williamson Tobacco Corp,
529 US. 120, 137-39 (2000) (observing that Congress could not have intended to grant the FDA
authority to regulate tobacco products, where doing so would run afoul of previously established
congressional policy); Smoking Everywhere, Inc. v. FDA, 680 F, Supp. 2d 62, 70 (RJL) (D.D.C.
2010) (“Because this result would effectively dismantle the existing regulatory wall Congress

25

Stat. 33 (1945) (codiﬁed at 15 U.S.C. §§ 1011 et seq), to ensure the primacy of state law

in the realm of insurance regulation. See id. § 1012(a) (“The business of insurance, and
every person engaged therein, shall be subject to the laws of the several States which
relate to the regulation or taxation of such business”); see also Ambrose v. Blue Cross &
Blue Shield of Va, Inc, 891 F. Supp. 1153, 1167 (ED. Va. 1995) (“Congress declared
the primacy of state law in the regulation of the business of insurance”).
McCarran-Ferguson states that “[n]o 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 business, unless such Act
speciﬁcally relates to the business of insurance.” 15 U.S.C. § 1012(b);26 see also
Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d 1351, 1360-61 (6th Cir. 1995) (“[B]ecause
the [FHA] does not mention insurance, it is covered by the McCarran-Ferguson Act and
cannot be construed in such a way as to invalidate, impair, or supersede any state law
enacted to regulate the business of insurance”).

The expansion of the FHA to include disparate-impact liability would not only
have a wide-ranging disruptive effect on the pricing and provision of homeowner’s

insurance, but would also require insurers to collect and analyze certain types of

erected between tobacco products and drug-device combinations, 1 can easily infer that Congress
did not intend tobacco products to be drugs merely because they deliver nicotine.” (emphasis in
original)).

26 Cf. Humana Inc. v. Forsyth, 525 US. 299, 310 (1999) (“When federal law does not directly
conﬂict with state regulation, and when application of the federal law would not frustrate any
declared state policy or interfere with a State’s administrative regime, the McCarran-Ferguson

26

race—based data on their clients and prospective clients.27 See Essman Affidavit W 5-9

(describing steps required before one of plaintiffs” members will be able to collect and
analyze data on its customers’ protected characteristics in order to ensure compliance
with Disparate-Impact Rule). These practiceswexpressly prohibited in many
states28—will regularly result in the FHA being “reverse-preempted” McCarran-Ferguson.
See Ojo v. Farmers Group, Inc, 600 F.3d 1205, 1209 (9th Cir. 2010) (en banc) (stating
that application of the FHA may be reverse-preempted if it “invalidate[s], impair[s], or
supersede[s] the provisions of the Texas Insurance Code”). Indeed, recognition of
disparate-impact liability under the FHA additionally raises serious concerns regarding

widespread federal encroachment upon state insurance regulation. See Saunders v.

Farmers Ins. Exchange, 537 F.3d 961, 967 (8th Cir. 2008) (noting that suits “challenging
the racially disparate impact of industry-wide rate classiﬁcations may usurp core

rate-making functions of the State’s administrative regime”).29

Act does not preclude its application”).

27 Insurers would, of course, also be required to collect and analyze data on their clients’ and
prospective clients’ other protected characteristics, including color, religion, sex, familial status,
national origin, and handicap as well.

28 State insurance regulations ordinarily prohibit the consideration of protected characteristics in
the evaluation and pooling of risk, and at least one state prohibits even the collection of such
data. See Md. Code Ann. Ins. § 27-501(c)(1) (“[A]n insurer or insurance producer may not make
an inquiry about race, creed, color, or national origin in an insurance form, questionnaire, or
other manner of requesting general information that relates to an application for insurance”); see
also, e.g., 215 Ill. Comp. Stat. 5/424(3); Alaska Stat. § 2136.090; Ky. Rev. Stat. Ann. §
304.12-085; Mass Gen. Laws Ann. ch. 175 § 4C; Me. Rev. Stat. tit. 24-A, § 2303(1)(G); Okla.
Stat. Ann. tit. 36, § 985; SC. Code Ann. § 38-75-1210(B)(1); Tenn. Code Ann. §
56-5-303(a)(2)(d); Tex. Ins. Code Ann. § 544.002.

29 See also NAACP v. Am. Family Mut. Ins. Co, 978 F.2d 287, 290—91 (7th Cir. 1992) (“Risk

27

Moreover, in order to ensure that their facially neutral underwriting practices do
not result in any disparate outcomes amongst protected groups, insurers would be
required to turn a blind eye to established actuarial principles in favor of race-based
insurance decisions. See Rudolph Afﬁdavit W 1 1-15; see also Michael J. Miller,
Disparate Impact and Unfairly Discriminatory Insurance Rates, Casualty Actuarial
Society E-Forum 276, 277 (2009) (describing risk-based pricing decisions as being in
“inevitable and irreconcilable conflict” with disparate-impact liability).30 Indeed,
insurers “would have to use the newly-acquired data to adjust outcomes for individual
insureds based solely on this data—Le. adjusting (upward or downward) the premium
charged to achieve parity of ‘impact.”’ Rudolph Afﬁdavit 1l15; see also Christy

Afﬁdavit W 5—6; Doto Afﬁdavit W 5-6; McCarthy Afﬁdavit W 6-7. No reasonable

interpretation of Congress’s intent would conclude that it intended for the FHA to act in

discrimination is not race discrimination . . . . No insurer openly uses race as a ground of
ratemaking, but is a higher rate per $1,000 of coverage for ﬁre insurance in an inner city
neighborhood attributable to risks of arson or to racial animus?”).
30 Kathleen Rudolph, a Vice President of Business Compliance at one of plaintiffs” member
organizations clariﬁes that——if the FHA provides for disparate-impact liability against providers
of homeowner’s insurance—~her employer will be forced to
undertake three steps to assure effective compliance with the HUD rule, and each
of those steps would mark departures from [the company’s] current business
practices. The three-step process would comprise: (l) collecting data on
characteristics of [the company’s] insureds of interest to HUD (including race,
religion, gender and national origin); (2) cross—referencing this newly-collected
data against the pricing determined by the current risk assessment and
differentiation model . . . ; and (3) making corrective underwriting, rating and
pricing adjustments to recalibrate away from risk and towards parity of ‘impact.’
Each of these steps would create fundamental conﬂicts with [the company’s]
existing State regulatory obligations.

28

such a way as to “invalidate, impair, or supersede any law enacted by any State for the
purpose ofregulating the business of insurance.” 15 U.S.C. § 1012(b); cf Ricci, 557
US. at 581 (“Allowing employers to violate the disparate-treatment prohibition [of Title
VII] based on a mere good-faith fear of disparate-impact liability would encourage
race-based action at the slightest hint of disparate impact”); id. at 594 (Scalia, J .,
concurring) (“[I]t is clear that Title VII not only permits but affirmatively requires
[remedial race-based actions] when a disparate—impact violation would otherwise result.”
(emphasis in original)). To the contrary, it is utterly incomprehensible that Congress
would intentionally provide for disparate-impact liability against insurers in the FHA,
where doing so would require those same insurers to collect and evaluate race-based data,
thereby engaging in conduct expressly proscribed by state law. See supra note 28.

C. Judicial Treatment

Finally, defendants contend that previous holdings of other Federal Circuit Courts
that recognized disparate-impact liability under the FHA, preclude this Court from
finding that the FHA unambiguously prohibits disparate treatment only. See Defs.’
Mem. at 20—21. Please! The Supreme Court itself has made clear that a statute is not
ambiguous simply because there is a lack of judicial consensus as to its proper meaning,

see Reno v. Koray, 515 US. 50, 64-65 (1995),31 and “judges cannot cause a clear text to

Rudolph Affidavit 11 12.
31 See also Hoffman v. Blaski, 363 US. 335, 358 (1960) (Frankfurter, J ., dissenting) (noting that
the Court’s interpretation of the statute at issue was “contrary to the rulings of every Court of

29

become ambiguous by ignoring it,” Deal v. United States, 508 US. 129, 136 (1993).

And as I noted previously, our own Circuit Court has never ruled on the speciﬁc
question of whether disparate-impact liability is cognizable under the FHA.32 While
eleven Circuit Courts of Appeals to date have addressed this question in the afﬁrmative,33
those decisions are not only not binding upon this Court, but more importantly were—~for
the most part—decided before the Supreme Court‘s decision in Smith v. City of Jackson,
where the Supreme Court made it clear that an inquiry into the availability of
disparate-impact liability turns on the presence, or absence, of effects-based language.
See Smith, 544 US. at 23 5-36; see also supra note 5.

Moreover, it is remarkable that none of the Circuit Courts that have recognized
claims of disparate impact subsequent to the Supreme Court’s decision in Smith have
either discussed Smith in any detail, or reconsidered their Circuit precedent in light of its

holding. See, e.g., Inclusive Cmtys. Project, Inc. v. Tex. Dep’t ofHous. and Cmty.

 

Appeals but one which has considered the problem, and is contrary to the view of more than half
the District Courts as well").

32 One district judge in this Circuit, however, did rule on this very issue in the aftermath of the
Supreme Court’s decision in Smith. See Nat ’l Cmty. Reinvestment Coal. v. Accredited Home
Lenders Holding Co. , 573 F. Supp. 2d 70 (EGS) (D.D.C. 2008). After referencing the parties’
arguments—both for and against recognition of disparate-impact liability under the F HA~—the
judge ruled that “Smith does not preclude disparate impact claims pursuant to the FHA.” Id at
79. Unfortunately, however, he did not choose to explain in his opinion the reasoning behind
his conclusion. Accordingly, it was of no assistance to this Court in resolving this case.

33 Interestingly, the Second Circuit reached its conclusion in Huntington Branch, NAACP v.
Town of Huntington only to have the Solicitor General argue to the contrary in its amicus brief
before the Supreme Court. See Huntington Branch, NAACP, 844 F.2d at 93 5-36; Brief for
United States as Amicus Curiae at 10, 14, 16, Town of Huntington v. Huntington Branch,
NAACP, 109 S. Ct. 276 (1989) (No. 87-1961).

30

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 US. 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

3 Compare, e. g., Remarks on Signing the Fair Housing Amendments Act of 1988, 24 Weekly
Comp. Pres. Doc. 1140, 1141 (Sept. 13, 1988) (President Reagan stating that 1988 FHA
amendments did “not represent any congressional or executive branch endorsement of the notion,
expressed in some judicial opinions, that [T]itle 8 violations may be established by a showing of
disparate impact . . . without discriminatory intent . . . . Title 8 speaks only to intentional
discrimination”), and Brown v. Artery Org, Inc, 654 F. Supp. 1106, 1115 (HHG) (D.D.C. 1987)
(discriminatory impact does not establish FHA violation by a private actors), with 134 Cong.
Reg. 23,711 (Sen. Kennedy) (describing President Reagan’s statement as “ﬂatly inconsistent with
Congress’s understanding of the law”).

4 Since 2011, the Supreme Court has granted certiorari three times on the issue of whether
disparate-impact liability is cognizable under the FHA, most recently last month Texas
Department of Housing and Community Affairs v. Inclusive Communities Project. See No.
13-1371, 2014 WL 4916193 (US. Oct. 2, 2014) (Texas Department ofHousing); Twp. ofMount
Holly v. Mt. Holly Gardens Citizens in Action, Inc. (Mount Holly), 133 S. Ct. 2824 (2013);
Magner v. Gallagher, 132 S. Ct. 548 (2011). While Texas Department of Housing is currently
before the Court, and likely to be decided this term, both Mount Holly and Magner were settled
before the Court could decide the issue. The circumstances behind the Magner settlement,
however, are particularly troubling. Indeed, a Congressional Joint Staff Report found that—in
negotiating a quid pro quo deal that facilitated Magner’s settlementuthen-Assistant Attorney

4

Aﬂairs, 747 F.3d 275, 280 (5th Cir. 2014), cert. granted, No. 13-1371, 2014 WL 4916193
(US. Oct. 2, 2014); Aﬂordable Hous. Dev. Corp. v. City ofFresno, 433 F.3d 1182,

1 194-95 (9th Cir. 2006); Darst-Webbe TenantAss ’n Bd. v. St. Louis Hons. Auth, 417
F.3d 898, 902 (8th Cir. 2005). Indeed, Circuit Judge Steven Colloton of the Eighth
Circuit appropriately, but unsuccessfully, cautioned his colleagues that “there has been
little consideration . . . and virtually no discussion of [the textual basis for
disparate—impact liability under the FHA] since the Court in Smith explained how the text
of Title VII justiﬁed the decision in Griggs,” and “recent developments in the law suggest
that the issue is appropriate for careful review.” See Gallagher v. Magner, 636 F.3d 380,
383 (8th Cir. 2010) (Colloton, J., dissenting from denial of rehearing en bane).

In short, Smith represents a sea change in approach to the analysis of statutory
provisions with respect to disparate-impact liability, compare Smith, 544 US. at 235-3 6,
with Griggs, 401 US. at 432-35, and thus, defendants’ reliance on pre-Smith case law as
supporting their position is, to say the least, unavailing.

CONCLUSION

This is, yet another example of an Administrative Agency trying desperately to

write into law that which Congress never intended to sanction.34 While doing so might

have been more understandable—and less troubling—prior to the Supreme Court’s

34 See, e. g., Brown & Williamson Tobacco Corp, 529 US. at 137-39 (attempted FDA regulation

oftobacco products); Avenal Power Center v. EPA, 787 F. Supp. 2d 1, 4 (RJL) (D.D.C. 2011)
(self-serving EPA misinterpretation of Clean Air Act time requirements); Smoking Everywhere,

31

decision in Smith, in its aftermath it is nothing less than an artful misinterpretation of
Congress’s intent that is, frankly, too clever by half. Defendants, of course, were
somehow hoping that a favorable Chevron analysis would muster the judicial deference
necessary to salvage their much desired Rule. But alas, it did not. Fortunately for us all,
however, the Supreme Court is now perfectly positioned in Texas Department of Housing
to ﬁnally address this issue in the not-too—distant future. In the meantime, for all of the
foregoing reasons, the Court GRANTS plaintiffs’ Motion for Summary Judgment and
DENIES defendants’ Motion to Dismiss or, in the Alternative, for Summary Judgment.
Accordingly, the United States Departments of Housing and Urban Development’s
Disparate Impact Rule, promulgated in 78 Fed. Reg. 11,460-1 1,482, and codiﬁed at 24
C.F.R. § 100.500, is hereby VACATED. An Order consistent with this decision

accompanies this Memorandum Opinion.

    

RICHARD . LE N
United States D1strict Judge

Inc, 680 F. Supp. 2d at 70 (RJL) (attempted FDA regulation of e—cigarettes).

32

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
US. 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. US. Dep ’t of Hous. and Urban Dev., 639
F.3d 1078, 1085 (DC. 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 (DC. 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

General Thomas Perez “exert[ed] arbitrary authority” to settle the case and “placed ideology over
objectivity and politics over the rule of law . . . . Rather than allowing the Supreme Court to
freely and impartially adjudicate an appeal that the Court had afﬁrmatively chosen to hear,
[Perez] openly worked to get the appeal off of the Court’s docket.” Staff of H. Comm. On
Oversight and Gov’t Reform et a1., 113th Cong, DOJ’s “Quid Pro Quo ” with St. Paul: How
Assistant Attorney General Thomas Perez Manipulated Justice and Ignored the Rule ofLaw 64
(Comm. Rep. 2013).

5 See, e.g., Langlois v. Abington Hous, Auth, 207 F.3d 43, 49-50 (lst Cir. 2000); Huntington
Branch, NAACP v. Town ofHuntington, 844 F.2d 926, 935-36 (2d Cir. 1988); Resident Advisory
Bd. v. Rizzo, 564 F.2d 126, 146-47 (3d Cir. 1977); Smith v. Town ofClarkton, 682 F.2d 1055,
1065 (4th Cir. 1982); Hanson v. Veterans Admin, 800 F.2d 1381, 1386 (5th Cir. 1986); Arthur v.
City ofToledo, 782 F.2d 565, 574-75 (6th Cir. 1986); Metro. Hous. Dev. Corp. v. Vill. of
Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977); United States v. City ofBlack Jack, 508
F.2d 1179, 1184-85 (8th Cir. 1974); Halet v. Wend Inv. Co, 672 F.2d 1305, 1311 (9th Cir.
1982); Mountain Side Mobile Estates P ’ship v. US. Dep ’t ofHous, and Urban Dev., 56 F.3d
1243, 1250-51 (10th Cir. 1995); United States v. Marengo Cnty. Comm ’n, 731 F.2d 1546, 1559

5

Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 76 Fed. Reg.
70,921, 70,921 (Nov. 16, 201 1) (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 372-3 83, 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. 1 1,460. 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

n.20 (11th Cir. 1984).

6 Plaintiffs’ concerns included, inter alia, (1) the statutory language of the FHA did not provide a
cause of action for disparate-impact liability; (2) in many states, the application of the rule would
result in reverse—preemption of the FHA pursuant to the McCarran-Ferguson Act, 15 U.S.C. §§
1011 et seq; (3) the rule was premature given the fact that the Supreme Court had recently
granted certiorari in Magner, and was poised to determine this very issue; (4) the analytic
framework for determining the validity of a disparate-impact claim was at variance with the
burden—of-proof framework laid out in Wards Cove Packing Co. v. A tonio, 490 US. 642 (1989),
for disparate-impact claims in non-Title VII cases; and (5) the application of disparate-impact
liability to the provision and pricing of homeowner’s insurance would require a disastrous
departure from long-established risk-based underwriting practices. See Plaintiffs’ Joint
Appendix of Administrative Record Materials (“JA”) [Dkt. #36] at 372-3 83, Comments from the
National Association of Mutual Insurance Companies on the Proposed Rule (January 17, 2012);
see id. at 455-59, Comments from the American Insurance Association on the Proposed Rule
(January 17, 2012).

7 Notably, in a recent decision from the United States District Court for the Northern District of
Illinois, Judge Amy St. Eve ruled that “HUD’s response to the insurance industry’s concerns
[regarding the Disparate Impact Rule] was arbitrary and capricious,” and remanded the case to
HUD “for further explanation.” Properly Cas. Insurers Ass ’17 ofAm. v. Donovan, No. 13 C
8564, at 46-47 (ND. 111. Sept. 3, 2014). Judge St. Eve found that HUD failed to adequately

address the insurance industry’s concerns or explain its decisions regarding application of the

6

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. § lOO.500(a). A practice shown to have a discriminatory effect
may still be legal ifit is supported by a legally sufﬁcientjustification. 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. § lOO.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)(l). Ifthe 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,

Disparate-Impact Rule to the provision and pricing of homeowner’s insurance. See id.

7

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. 1 1,460, 11,475.
111. 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 Holly8

8 Petitioners in Mount Holly ﬁled their Petition for a Writ of Certiorari on June 11, 2012. See
Petition for a Writ of Certiorari, Mount Holly, No. 1 1-1507 (June 11, 2012), available at
http://sblog.s3.amazonaws.com/wp-content/uploads/2012/07/1 1-1507-Mount-Holly-v.-Mount-H
olly—Gardens-Citizens-in-Action-Petition.pdf. The Supreme Court granted certiorari on June 17,
2013, solely on the issue of whether “disparate impact claims [are] cognizable under the Fair

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 ofthe 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 ofthe issues,9 I

heard oral argument on the parties’ motions on July 22, 2014.10

Housing Act.” See Mount Holly, 133 S. Ct. 2824 (2013); see also supra note 4.

9 See Plaintiffs’ Opposition to Defendants’ Motion to Dismiss or for Summary Judgment and
Reply in Support of Plaintiffs’ Motion for Summary Judgment (“Pls.’ Reply”) (Feb. 24, 2014)
[Dkt. #27]; Defendants’ Reply Memorandum in Support of Their Motion to Dismiss or, in the
Alternative, for Summary Judgment (“Defs’ Reply”) (Mar. 18, 2014) [Dkt. #31].

‘0 At the conclusion of oral argument, I invited the parties to submit supplemental briefs on any
issues raised during the arguments. See Transcript of Oral Argument at 49:3-24, American
Insurance Ass ’n v. US. Dep ’t ofHous. and Urban Dev., No. 1:13-cv—00966 (D.D.C. July 22,
2014). The parties submitted their supplemental briefs on August 5, 2014. See Supplemental
Memorandum to Plaintiffs’ Motion for Summary Judgment (“‘Pls.’ Supp’l Mem.”) (Aug. 5,
2014) [Dkt. #38]; Supplemental Memorandum to Defendants” Motion to Dismiss or, in the
Alternative, for Summary Judgment (“Defs’ Supp’l Mem.”) (Aug. 5, 2014) [Dkt. #39].

9

STANDARD OF REVIEW

1. Rule 12(b) Dismissal

The court may dismiss a complaint or any portion of it for lack of subject—matter
jurisdiction or for failure to state a claim upon which relief may be granted. See Fed. R.
Civ. P. 12(b)(1), (6). In considering a motion to dismiss, the court may only consider
“the facts alleged in the complaint, any documents either attached to or incorporated in
the complaint and matters of which [the court] may take judicial notice.” E.E. O. C. v. St.
Francis Xavier Parochial Sch, 117 F.3d 621, 624 (DC. Cir. 1997). To survive a motion
to dismiss, a plaintiff must plead “factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). On a motion to dismiss for lack of standing, a trial
court may allow the plaintiff to supplement the complaint with affidavits to demonstrate
standing. See Wart/z v. Seldin, 422 U.S. 490, 501-02 (1975); see also Rainbow/PUSH
Coal. v. FCC, 396 F.3d 1235, 1239 (DC. Cir. 2005) (permitting affidavits in response to
a motion to dismiss for want of standing).

In considering a motion under Rule 12(b), the court must construe the complaint
“in favor of the plaintiff, who must be granted the beneﬁt of all inferences that can be
derived from the facts alleged.” Schuler v. United States, 617 F.2d 605, 608 (DC. Cir.

1979) (internal quotation marks and citation omitted). However, factual

allegations—even though assumed to be true—must still "be enough to raise a right to

10.