Last-Minute Settlement Saves ‘Disparate Impact’ — Again

by Hans A. von Spakovsky & Michael Flynn

“Disparate impact” — a legal theory favored by the administration in bringing discrimination lawsuits — has once again ducked its day in court. For the second time in two years, a settlement has been engineered with the parties challenging the dubious theory, effectively keeping the Supreme Court from ruling on its validity.

The Wall Street Journal reports that a “tentative settlement” was reached Thursday in the case of Township of Mount Holly v. Mt. Holly Gardens Citizens in Action. The case arose from a plan by the city of Mount Holly, N.J., to improve “blighted,” crime-ridden areas of the town. The proposed project would have bulldozed rundown housing stock in a mostly minority neighborhood and replaced it with modern housing. Residents of the neighborhood filed suit against the city under the Fair Housing Act, claiming the redevelopment would have a “disparate impact” upon minorities. In the settlement, the residents of the demolished neighborhood will be given some of the new duplexes.

The settlement deprives the Supreme Court of a chance to rule on the constitutionality of disparate impact. That doctrine allows plaintiffs to allege discrimination based solely on a disproportionate effect on minorities, without any evidence of discriminatory intent. Early predictions had a conservative majority striking down the doctrine, since the Fair Housing Act requires proof of intentional discrimination to establish violations.

Similarly, the case of Magner v. Gallagher was dismissed last term before the Court had a chance to rule on the validity of disparate impact. Magner involved slumlords who claimed that the city of St. Paul, Minn.’s attempt to improve the terrible conditions in rental properties through its housing code had a disparate impact on African Americans. Despite a lack of evidence of discriminatory intent, the Eighth Circuit sided with the landlords, a terrible result not just legally but from the standpoint of public health and safety.

After the Supreme Court agreed to hear the Magner case, Thomas Perez, the former attorney general for civil rights at the Justice Department and the current labor secretary, engineered a quid pro quo deal to get it out of the hands of the justices. St. Paul dismissed the pending case in exchange for the Justice Department’s agreeing to forgo pursuit of two False Claims Act claims against the city for false certifications in connection with obtaining federal housing grants. Those claims could have recovered as much as $200 million for American taxpayers.

The Obama administration and Eric Holder’s Department of Justice (DOJ) have used the dubious disparate-impact legal theory to bring numerous challenges against businesses. DOJ has successfully targeted banks and mortgage companies for supposed lending violations despite the complete absence of discriminatory conduct.

And DOJ is not alone. The new Consumer Financial Protection Bureau established by the Dodd-Frank law announced it would use the disparate-impact analysis in its enforcement activity. And the Equal Employment Opportunity Committee last year released guidance that uses disparate-impact theory to ban employers from conducting criminal-background checks on prospective employees.

Obviously, the administration has a lot riding on the suspect doctrine. If the Supreme Court threw out the disparate-impact theory under the Fair Housing Act, the White House would lose one of its favorite tools, and it would bring into question its use under other federal laws.

Appellants before the Supreme Court have the right to withdraw their appeal at any time, but the timing of this latest settlement, coming on top of the noxious deal the Obama administration set up to get rid of the Magner case, leads one to wonder exactly who was involved in getting this case settled and what the exact details are — including who is putting up the money for the deal. 

Fortunately, a third case raising the issue is headed for the Supreme Court. In June, the American Insurance Association and the National Association of Mutual Insurance Companies—organizations whose members sell homeowners insurance—filed suit in federal court challenging HUD’s new regulation formalizing the use of disparate impact under the Fair Housing Act. Hopefully, neither the administration nor the civil-rights industry will be able to intimidate or bribe these trade groups into settling this case.

— Hans A. von Spakovsky is a senior legal fellow and Michael Flynn is a member of the Young Leader’s Program at the Heritage Foundation.

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