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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.

Fast forward to the new claim involving Mount Holly: although the U.S. is, again, not a party to the case, the Supreme Court last October asked the Justice Department to file a brief advising whether it thought the Court should accept the case for review.

To no one’s surprise, the brief that Justice recently filed told the Court it should not take the case. The question of whether disparate impact claims are available under the FHA “does not warrant review,” it declared. The brief was filed by Solicitor General Donald B. Verrilli, Jr., and right under his name is that of Thomas E. Perez.

Verrilli and Perez argue that disparate impact claims are a “reasonable construction of the statute’s text, structure, and history” and that there is no conflict in the courts of appeal on this issue. But the brief ends with an argument you wouldn’t expect from Justice, given Perez’s sub rosa involvement in getting the Magner case dismissed -- especially in light of recent revelations that he violated federal law and Justice Department rules by using his personal email account to facilitate the deal.

Verrilli and Perez fault Mount Holly for even raising the issue of whether disparate impact claims are valid under the FHA. Mount Holly, they write, had the “opportunity to raise both questions” in the lower courts when the Magner case was before the Supreme Court,” and therefore can’t bring it up now.

With stunning chutzpah, the government is arguing that Mount Holly should have been aware that disparate impact was a live issue when review was granted in Magner v. Gallagher and should have raised the issue in its own case.

This is wrong for two reasons. First, the timeliness of Mount Holly’s claim that disparate impact does not constitute a violation of the FHA has no relation whatsoever to someone else’s lawsuit, such as the Magner case. Second, even if Mount Holly mistakenly thought disparate impact was not a live legal issue when Magner was before the Supreme Court, Mount Holly would have learned it was a live issue when the scandal became public over the government’s quid pro quo deal that bought off St. Paul and caused the city to dismiss the Magner case. Therefore, the government’s very actions in Magner make the Mount Holly disparate impact claims in the current case timely.

It should also be noted that while the brief criticizes Mount Holly for not raising this issue when Magner was before the Supreme Court, it fails to inform the Court that a senior Justice Department official (whose name is on the brief) helped get that very case dismissed before the Court could hear oral arguments.

Should we be surprised by any of these convoluted machinations?

Probably not, given what happened the last time disparate impact was being considered by the Supreme Court. The House report concluded that the quid pro quo in the Magner case “manipulated the rule of law and pushed the limits of justice to make” the deal happen.

The Supreme Court should accept the Mount Holly case. And if Justice approaches Mount Holly with a Magner-esque deal, the city should reject it so the Court can finally rule on the validity of disparate impact claims.

Hans von Spakovsky is a lawyer in Washington. He is writing this essay in a purely private capacity.