More Justice Department Chicanery: Thomas Perez and ‘Disparate Impact’

One of the administration’s favorite legal theories, “disparate impact,” may get taken up again by the Supreme Court. Will the administration try to engineer some kind of payoff to take the issue away from the Court -- again?

In June 2012, the town of Mount Holly, N.J., petitioned the Supreme Court to review the legitimacy of racial discrimination claims premised solely on a disparate impact theory under the Fair Housing Act. Under this theory, a policy -- such as requiring high credit scores for loans -- can be completely neutral, but if it yields a disparate impact on a particular racial or gender group, an institution using that policy can be held liable for discrimination. In other words, an entity can be found to have discriminated even if it didn’t actually intend to discriminate.

Thomas Perez, the assistant attorney general for Civil Rights at the Justice Department and President Obama’s nominee to be Labor secretary, has used disparate impact to extort huge settlements from the financial industry under the Fair Housing Act (FHA).

Here, Mount Holly is alleged to have discriminated simply because it wanted to redevelop and rebuild a rundown housing development in a high-crime area where almost half the residents are black. Thus, the rebuilding plan would have had a statistically larger impact on black residents than white residents.

The issue of whether a mere disparate impact claim violates the FHA, or whether the more rigorous standard of intentional discrimination is required was before the Supreme Court last year. In that case, Magner v. Gallagher, the city of St. Paul, MN, was accused of violating the FHA because it aggressively enforced the health and safety provisions of its housing code. Slumlords sued the city, claiming that enforcement had a disparate impact because the majority of their tenants were racial minorities.

In other words, they were using the FHA to obstruct the city’s attempt to improve the horrible living conditions of poor families.

Thomas Perez concocted a quid pro quo deal to have the Magner case dismissed -- even though the U.S. was not a party in the case. At the time, the federal government was considering intervening in a separate False Claims Act case worth almost $200 million against St. Paul. The city had received tens of millions of dollars from the federal government based on what career attorneys within the Justice Department called a “particularly egregious example of false certifications” by the city.

Perez told St. Paul that the Justice Department would stay out of the False Claims Act case if the city withdrew the Magner case that the Supreme Court had agreed to hear. The city jumped at the deal.

A report from the House Oversight and Government Reform Committee later concluded that Perez “sought, facilitated, and consummated this deal because he feared that the Court would find disparate impact unsupported by the text of the Fair Housing Act.” According to the same report, Perez also attempted to hide both the deal and his involvement in it.

He even called a key lawyer in the U.S. Attorney’s Office in Minnesota and told him to make sure there wasn’t “any mention of the Magner case” in the False Claims Act case files.