N.A. of Mut. Ins. Cos. v. U.S. Dep't of Hous. & Urban Dev.

693 F.Supp.3d 20

NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES, Plaintiff, v. UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, et al., Defendants.

Civil Case No. 13-966 (RJL)

United States District Court, District of Columbia

Signed September 19, 2023

Kannon K. Shanmugam, William T. Marks, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Washington, DC, for Plaintiff.

Brian C. Rosen-Shaud, James D. Todd, Jr., Junis Lee Ross Baldon, U.S. Department of Justice, Civil Rights Division, Washington, DC, for Defendant United States Department of Housing and Urban Development.

Brian C. Rosen-Shaud, James D. Todd, Jr., U.S. Department of Justice, Civil Division, Washington, DC, for Defendant Maria L. Fudge.

Chris Fedeli, Federal Communications Commission, Washington, DC, for Amici Judicial Watch, Inc., Allied Educational Foundation.

Glenn Schlactus, Relman Colfax PLLC, Washington, DC, Stephen M. Dane, Dane Law LLC, Perrysburg, OH, for Amici National Fair Housing Alliance, Poverty & Race Research Action Council, National Housing Law Project, Latinojustice Prldef.

Glenn Schlactus, Relman Colfax PLLC, Washington, DC, Thomas Samuel Silverstein, Lawyers' Committee for Civil Rights, Washington, DC, Stephen M. Dane, Dane Law LLC, Perrysburg, OH, for Amicus Lawyers' Committee for Civil Rights Under Law.

Glenn Schlactus, Relman Colfax PLLC, Washington, DC, for Amicus National Low Income Housing Coalition.

Ryan P. Haygood, NAACP Legal Defense & Educational Fund, Inc., New York, NY, for Amicus NAACP Legal Defense and Educational Fund, Inc.

Ryan P. Haygood, NAACP Legal Defense & Educational Fund, Inc., New York, NY, Stephen M. Dane, Dane Law LLC, Perrysburg, OH, for Amici American Civil Liberties Union, National Consumer Law Center, National Community Reinvestment Coalition.

Carter G. Phillips, Sidley Austin LLP, Washington, DC, for Amicus Chamber of Commerce of the United States of America.

John Longstreth, K & L Gates LLP, Washington, DC, Paul F. Hancock, K&L Gates LLP, Miami, FL, for Amici American Financial Services Association, Consumer Mortgage Coalition, Independent Community Bankers of America, Mortgage Bankers Association.

Felicia Kirsten Watson, National Association of Home Builders, Washington, DC, for Amicus National Association of Home Builders of the United States, Inc.

John Longstreth, K & L Gates LLP, Washington, DC, for Amici American Bankers Assn., Consumer Bankers Association, Financial Services Roundtable.

Stephen M. Dane, Dane Law LLC, Perrysburg, OH, for Amicus AARP.

MEMORANDUM OPINION

[Dkt. ## 60, 64]

RICHARD J. LEON, United States District Judge

The U.S. Department of Housing and Urban Development has promulgated a Rule that creates a legal framework for establishing disparate-impact claims under the Fair Housing Act. That Disparate-Impact Rule first came to be in 2013, after which two associations whose members sell homeowner's insurance challenged it as exceeding HUD's authority. As originally conceived, this action posed the question whether disparate-impact claims are permissible at all under the Fair Housing Act. In 2014, I answered that question in the negative, Am. Ins. Ass'n v. HUD, 74 F. Supp. 3d 30, 32 (D.D.C. 2014), but the Supreme Court in Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc. (Inclusive Communities), 576 U.S. 519, 135 S.Ct. 2507, 192 L.Ed.2d 514 (2015), several months later answered the same question in the affirmative. Consequently, this action moved in a different direction after it went on appeal to our Circuit Court. Undaunted, the associations still argued that the Disparate-Impact Rule is unlawful, but they advanced a new theory that the Rule expands the Supreme Court's judicially approved disparate-impact liability concept beyond certain parameters laid out in Inclusive Communities.

Amazingly that theory has remained untested for seven years, in what is sure to be a case study in government by rulemaking! In that time—a period covering three Presidential administrations—the Disparate-Impact Rule was substantially overhauled, then stayed, then revived to its original form. Along the way, one of the two associations dropped out of the action, leaving the National Association of Mutual Insurance Companies ("NAMIC") as the only plaintiff. The good news for NAMIC is that its challenge is, at long last, ripe for decision. The bad news for NAMIC is that its post-Inclusive Communities arguments for invalidating the Disparate-Impact Rule, creative as they might be, are unconvincing. Indeed, because I have concluded that the Rule does not conflict with the Fair Housing Act as applied to insurers' underwriting and rating practices, I must DENY NAMIC's motion for summary judgment and GRANT HUD's cross-motion for summary judgment.

BACKGROUND

I. The Fair Housing Act and the 2013 Rule

Enacted in 1968, Title VIII of the Civil Rights Act of 1968—commonly known as the Fair Housing Act ("FHA")—furthers the congressional policy "to provide, within constitutional limitations, for fair housing throughout the United States." Civil Rights Act of 1968, Pub. L. No. 90-284, § 801, 82 Stat. 73, 81 (codified at 42 U.S.C. § 3601). The FHA makes 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" certain protected characteristics. 42 U.S.C. § 3604(a). It also makes it unlawful to "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" the same characteristics. Id. § 3604(b).¹

Absent from the FHA, however, is explicit language specifying the types of discrimination claims created by those provisions. While it was undisputed that the FHA prohibits housing policies and practices that intentionally discriminate on the basis of a protected characteristic, 2922 Sherman Ave. Tenants' Ass'n v. District of Columbia, 444 F.3d 673, 682 (D.C. Cir. 2006); see Inclusive Cmtys., 576 U.S. at 558, 135 S.Ct. 2507 (Alito, J., dissenting) ("Everyone agrees that the FHA punishes intentional discrimination."), it was much less clear (at least until 2015) whether the FHA also recognizes so-called disparate-impact liability—that is, a housing policy or practice "that [is] not intended to discriminate but in fact ha[s] a disproportionately adverse effect on" individuals with a protected characteristic, Ricci v. DeStefano, 557 U.S. 557, 577, 129 S.Ct. 2658, 174 L.Ed.2d 490 (2009); see Greater New Orleans Fair Hous. Action Ctr. v. HUD, 639 F.3d 1078, 1085 (D.C. Cir. 2011) ("We have not decided whether [the FHA] permits disparate impact claims."). In 2011, the Supreme Court granted certiorari in Magner v. Gallagher, 565 U.S. 1013, 132 S.Ct. 548, 181 L.Ed.2d 395 (2011), to address that very question. See Petition for Writ of Certiorari at i, Magner, No. 10-1032 (U.S. Feb. 14, 2011).

Just nine days later, HUD, supposedly having "long interpreted" the FHA to allow disparate-impact liability, proposed a rule that would "establish uniform standards for determining when a housing practice with a discriminatory effect violates the Fair Housing Act." Implementation of the Fair Housing Act's Discriminatory Effects Standard, 76 Fed. Reg. 70,921, 70,921 (proposed Nov. 16, 2011) (to be codified at 24 C.F.R. pt. 100).² The parties in Magner settled their case, however, before the Supreme Court could address its merits. 565 U.S. 1187, 132 S.Ct. 1306, 181 L.Ed.2d 1035 (2012). The rulemaking nevertheless continued. HUD published its final Rule in February 2013 (the "2013 Rule"), "formaliz[ing] its long-held recognition of discriminatory effects liability under the Act" and creating a three-step "burden-shifting test for determining whether a given practice has an unjustified discriminatory effect, leading to liability under the Act." Implementation of the Fair Housing Act's Discriminatory Effects Standard ("2013 Rule"), 78 Fed. Reg. 11,460, 11,460 (Feb. 15, 2013) (to be codified at 24 C.F.R. pt. 100).

Under the first step of the framework, a plaintiff had the burden of proving "that a challenged practice caused or predictably will cause a discriminatory effect," 24 C.F.R. § 100.500(c)(1) (2013), that is, when the practice "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. § 100.500(a). If that burden was met, the defendant bore the burden at the second step of proving that the practice was "necessary to achieve one or more substantial, legitimate, nondiscriminatory interests." Id. § 100.500(c)(2). If that burden was also met, the burden returned at the third step to the plaintiff to prove 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). At the last two steps, the burden could not be met with hypotheticals or speculation; hard evidence was required. Id. § 100.500(b)(2).

The 2013 Rule expressly applied to providers of homeowner's insurance, such as the members of the two original plaintiffs in this action, NAMIC and the American Insurance Association ("AIA"). 2013 Rule, 78 Fed. Reg. at 11,474-75; Compl. [Dkt. #1] ¶¶ 7-8.³ Indeed, they commenced this action against HUD and its Secretary (hereinafter referred to collectively and in the singular, "HUD") after the 2013 Rule was issued, claiming violations of the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 551 et seq., and the FHA. Compl. ¶ 1. Their position then was that the FHA prohibited only intentional discrimination and so HUD's promulgation of a Rule recognizing disparate-impact liability exceeded its statutory jurisdiction, authority, and...