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UPDATE: Petitioners Withdraw Major Fair Housing Case Pending Before U.S. Supreme Court
On February 10, the parties in a major fair housing case under review by the U.S. Supreme Court requested that the Court dismiss the case. As reported previously by BuckleySandler, the City of St. Paul, Minnesota withdrew its petition in Magner v. Gallagher, No. 10-1032, due to concerns that "a victory could substantially undermine important civil rights enforcement throughout the nation." A Supreme Court decision in Magner likely would have definitively decided whether disparate impact claims are cognizable under the Fair Housing Act (FHA), and if they are, the applicable legal standards for such claims. Under the disparate impact theory of discrimination, a plaintiff can establish "discrimination" based solely on the results of a neutral policy, without having to show any intent to discriminate. The result of the Supreme Court review would have had profound impact both in private litigation and government enforcement actions, and as such had drawn significant attention from civil rights groups, state attorneys general, and financial services trade groups. The withdrawal of Magner means that these important questions will remain open.
In Magner, the City had asked the Supreme Court to consider whether the FHA permits disparate impact claims. Private landlords, seeking to limit the City's "aggressive" enforcement of its housing code, sued the City for violating the FHA. The landlords argue that the City's attempts to close housing that violates its housing code reduces the amount of affordable housing available to minority renters. The landlords claim that as a result, the City's enforcement efforts have a disparate impact on minority renters in violation of the FHA. Although the District Court ruled for the City, the Eighth Circuit reversed, holding that the landlords had stated a cognizable claim under the FHA. The City petitioned the Eighth Circuit for rehearing en banc, but the court denied the petition. As previously reported, the U.S. Supreme Court granted the City's petition for certiorari on November 7, 2011. The parties and numerous amici had submitted briefs to the Court, and oral argument was scheduled for February 29.
Magner was the Supreme Court's first opportunity to evaluate whether disparate impact claims can exist under the FHA since Smith v. City of Jackson, 544 U.S. 228 (2005). In City of Jackson, the Court held that disparate impact claims are grounded in Title VII's statutory text, not merely in the broader purpose of the legislation. Since City of Jackson, the courts of appeals have offered almost no guidance as to whether the FHA permits disparate impact claims. Reviewing parallel language in the Equal Credit Opportunity Act in Garcia v. Johanns, 444 F.3d 625 (D.C. Cir. 2006), the D.C. Circuit stated in dicta that "[t]he Supreme Court has held that this ["effects"] language gives rise to a cause of action for disparate impact discrimination under Title VII and the ADEA. ECOA contains no such language."
The City issued a statement explaining its unusual decision to withdraw its petition at this late stage, explaining that if the City prevailed, the decision "would undercut important and necessary civil rights cases throughout the nation. The risk of such an unfortunate outcome is the primary reason the city has asked the Supreme Court to dismiss the petition." The City has stated that it will continue to pursue the case in federal district court in Minnesota.
In a separate attempt to resolve through federal agency action the question of whether the FHA permits disparate impact claims, on November 15, 2011, the U.S. Department of Housing and Urban Development (HUD) issued a proposed rule interpreting the FHA as authorizing disparate impact claims, and proposing the applicable standards for such claims. HUD has yet to promulgate a final rule. The absence of a decision in Magner will focus substantial additional attention on HUD's rulemaking process and decisions, and in particular the standards and associated burdens of proof HUD asserts apply to disparate impact claims. Click here for BuckleySandler's previous reporting on the HUD proposed rule.
Petitioners Withdraw Major Fair Housing Case Pending Before U.S. Supreme Court
On February 10, several media outlets reported that a major fair housing case under review by the U.S. Supreme Court had been dismissed by agreement of the parties. The case, Magner v. Gallagher, No. 10-1032, described previously in a BuckleySandler alert, poses the question of whether disparate impact claims are cognizable under the Fair Housing Act. The result of the Supreme Court review would have had profound impact both in private litigation and government enforcement actions, and as such had drawn significant attention from civil rights groups, state attorneys general, and financial services trade groups. The City of St. Paul, which raised the question on appeal, reportedly decided not to pursue the appeal out of concern that “a victory could substantially undermine important civil rights enforcement throughout the nation.” Instead, the City will now take its case to trial in the U.S. District Court for the District of Minnesota. For additional reports regarding these developments, please click here and here.
Two Federal Appeals Courts Address Enforceability of Arbitration Agreements
This week, the U.S. Courts of Appeals for the Second and Eleventh Circuits issued rulings regarding the enforceability of arbitration clauses in customer agreements. On January 31, the Eleventh Circuit, on remand from the U.S. Supreme Court, reversed its earlier unpublished decision that affirmed a district court ruling allowing a consumer class action to proceed against a bank because the class action waiver in the arbitration agreement at issue was substantively unconscionable. The underlying case involves allegations that the bank improperly ordered customer transactions in order to maximize overdraft fees. The bank sought to enforce the arbitration clause in its customer agreement. Given the U.S. Supreme Court's holding in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), which held that the Federal Arbitration Act establishes a broad policy requiring arbitration of such disputes, and preempts state law that may allow class actions despite customer arbitration agreements, the Eleventh Circuit vacated its earlier decision and remanded the case to the district court for further proceedings and reconsideration of the bank's original motion to compel arbitration.
On February 1, the Second Circuit decided not to enforce an arbitration agreement, notwithstanding the Supreme Court's decision in Concepcion. In this case, merchants sued a credit card provider arguing that the card provider's interchange fee system violated federal antitrust laws. The card company moved to compel arbitration and enforce a class action waiver provision in the merchant agreement. The Second Circuit vacated a district court decision to enforce the arbitration agreement. That decision in turn was vacated by the Supreme Court and remanded. The Second Circuit, though, did not find that Concepcion altered its original analysis, and the Second Circuit again held that the class action waiver agreement was unenforceable in this case because the practical effect would be to preclude the merchants' ability to pursue statutory rights, an issue not addressed by Concepcion. Consistent with prior Supreme Court caselaw untouched by Concepcion, the merchants proved as a matter of law that the costs of individual arbitration with the lender would be so costly as to deprive them of statutory protections granted by the antitrust laws.
The Fair Housing Act, Disparate Impact Claims, and Magner v. Gallagher
In the February 2012 volume of The Banking Law Journal, BuckleySandler partner Jeff Naimon published "The Fair Housing Act, Disparate Impact Claims, and Magner v. Gallagher", in which the authors review the text of the Fair Housing Act, its legislative history, and past federal appellate court decisions holding that the FHA permits disparate impact claims. They argue that recent Supreme Court decisions cast doubt on the past federal appellate court decisions, and show that the statutory text of the FHA, unlike the text of some other civil rights laws, does not permit disparate impact claims. They also discuss the case currently pending before the Court in which the Court may address for the first time whether the FHA permits disparate impact claims.
U.S. Supreme Court Rules Credit Repair Organizations Act Does Not Override Arbitration Agreements
On January 10, the U.S. Supreme Court ruled (8-1) that the Credit Repair Organizations Act (CROA) does not override the Federal Arbitration Act’s (FAA) broad requirement that arbitration agreements be enforced according to their terms. CompuCredit Corp. v. Greenwood, No. 10-948, 2012 WL 43514 (Jan. 10, 2012). This case involves a proposed class of consumers alleging CompuCredit violated the CROA when it marketed and provided a no-deposit credit card to consumers with poor credit and then charged fees against the credit limit. CompuCredit sought to compel arbitration to enforce the terms of the card agreement, which mandated individual arbitration of disputes. The district court and Ninth Circuit both sided with the proposed class, finding the arbitration clause in conflict with the CROA’s “right to sue” provision and therefore void. On appeal, the consumer respondents urged the Supreme Court to follow the Ninth Circuit and hold that because the CROA requires a disclosure that a consumer has the right to sue a violating credit repair organization, and because the CROA prohibits waiver of any right given under the CROA, the right to file suit cannot be waived by an arbitration agreement. The Supreme Court rejected the Ninth Circuit’s line of reasoning and reversed, holding instead that (i) the FAA establishes a liberal policy requiring enforcement of arbitration agreements according to their terms, (ii) the CROA is silent on arbitration and its disclosure provisions do not create a right to sue that overrides the broad FAA mandate, and (iii) Congress could have specifically prohibited arbitration provisions in the CROA.