The DOJ’s Partisan Disparate-Impact Litigation Agenda, Part 1

Bob Driscoll, a former Bush administration civil-rights official, has said the Obama DOJ’s Civil Rights Division is something “more like a government-funded version of an advocacy group such as the ACLU or the NAACP Legal Defense Fund than like government lawyers who apply the facts to the law.” One prominent example of this refusal to neutrally enforce the rule of law, instead favoring a partisan agenda, is the DOJ’s disparate-impact litigation strategy.  

This February, the City of St. Paul unexpectedly withdrew a pending appeal in front of the Supreme Court, the case of Magner v. Gallagher. Plaintiffs had sued the city government under disparate-impact liability for enforcing its safe housing code, which allegedly hurt minorities. Under disparate-impact liability, illegal discrimination occurs when actions disproportionately hurt minorities, regardless of intent. St. Paul’s appeal — which had a genuine chance of winning — could have seen the Supreme Court invalidate disparate-impact liability in fair-housing cases, ending a major source of civil-rights lawsuits. This concerned the DOJ enough that Thomas Perez, head of the Civil Rights Division, took extreme steps to personally lobby St. Paul to drop its appeal.

Apparently Perez struck a “quid pro quo with St. Paul to withdraw its lending discrimination case . . . in exchange for the feds abandoning a separate False Claims Act lawsuit [Newell] against the city.” Some in the DOJ even thought that the deal “made it look like Justice was ‘buying off St. Paul.’” But at the very least, Newell would have meant millions of dollars in liability for the city, and had the support of the “Department of Housing and Urban Development, Justice’s career attorneys and the U.S. Attorney in Minnesota.”    

The Holder DOJ has pursued an aggressive disparate-impact litigation strategy in fair-housing cases, extracting numerous settlements from prominent banks. This includes the “largest federally-brokered fair-lending payout” in history, at $335 million, from Countrywide Financial Corp, along with the second-largest settlement, $175 million from Wells Fargo.

But it isn’t just the DOJ who wanted to preserve disparate impact — outside third parties also worry about demise of this kind of litigation. Instead of returning leftover settlement funds to either the U.S. Treasury or defendants, disparate-impact litigation funds left-leaning third-party groups, even those without a direct connection to the lawsuit. For example, in United States v. AIG Federal Savings Bank and Wilmington Finance, “AIG agreed to pay $6.1 million to ‘aggrieved persons who may have suffered as a result of the alleged violations,’” along with “a minimum of $1,000,000 to qualified organization(s) to provide credit counseling, financial literacy, and other related educational programs targeted at African-American borrowers.” Similarly, in United States v. Sterling, the DOJ ordered that any remaining funds from a $2.625 million lawsuit settlement go to “qualified” organizations.   

The DOJ has not grounded its strategy in sound constitutional theory. As the Supreme Court said in University of California Regents v. Bakke, “[p]referring members of any one group for no reason other than race or ethnic origin is discrimination for its own sake. This the Constitution forbids.” Unfortunately, disparate-impact litigation does just this. Instead of promoting equal protection under the law, it grasps at “ensur[ing] equal results,” treating people like depersonalized “components of a racial, religious, sexual or national class.”         

Disparate impact liability manufactures unconstitutional incentives, as Justice Scalia’s Ricci concurrence explains.  It essentially “mandat[es] that third parties . . . discriminate on the basis of race.” According to Justice O’Connor in Watson v. Fort Worth Bank & Trust (1989), an employment case, “the inevitable focus on statistics in disparate impact cases could put undue pressure on employers to adopt inappropriate prophylactic measures.”  Many will resort to “quotas and preferential treatment” to avoid “expensive litigation and potentially catastrophic liability . . .”

In my Part 2 post, I’ll address the statutory and statistical problems with disparate-impact litigation, along with the unintended consequences of this agenda. 

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