Massachusetts Federal Court Suspends Effective Date and Orders Application of HUD Final Rule Revising FHA’s disparate impact standards; 2 other lawsuits filed challenging the rule | Ballard Spahr srl

On October 25, a Massachusetts Federal District Court filed a preliminary injunction maintaining and postponing the effective date of the final rule published by the HUD last month (“Rule 2020”) revising its disparate impact standards of the Fair Housing Act of 2013 (“Rule 2013 “). The order also bars the HUD from enforcing the 2020 rule and keeps the 2013 rule in place until further court orders. The 2020 Rule would come into effect on October 24, 30 days after its publication in the Federal Register September 24, 2020.

The court order suspends and postpones the effective date of the 2020 rule pending the entry into force of the final judgment on the Massachusetts Fair Housing Center and Housing Works, Inc. claims against HUD on the 28th. September. The Massachusetts lawsuit is one of three lawsuits challenging the 2020 rule under the APA.

In Inclusive communities, the United States Supreme Court ruled that disparate impact claims are recognizable under the FHA. Such allegations allege that a prima facie neutral policy or practice nonetheless violates the FHA because it has a discriminatory effect on a prohibited basis. The FHA prohibits discrimination based on characteristics such as race, sex, disability, and family status. Discrimination claims can be brought under the FHA against lenders, landlords and others involved in real estate transactions

In their complaint, the Massachusetts plaintiffs argue that contrary to HUD’s assertion that the 2020 rule “simply aligns the 2013 rule with the Supreme Court’s decision in Inclusive communities“, The 2020 Rule” is directly contrary to Inclusive communities; introduces new pleading and evidentiary requirements, and new defenses, which overturn accepted practice and undermine the application of the FHA. More specifically, the complainants allege:

  • Under the 2020 Rule, to declare a claim that “a specific and identifiable policy or practice” has a discriminatory effect on a protected category, a claimant must plead facts sufficiently to support five elements. It then allows the defendant, at the pleading stage, to establish that the plaintiff has not sufficiently pleaded the facts to support one of the elements required. This, in effect, “requires that a complainant, without the benefit of discovery, not only to meet the overwhelming demands of the new five-part pleading requirements of the 2020 Rule, but also to anticipate in their complaint every practical political consideration. , profit-oriented, or a legal requirement that a defendant could invoke to defend their discriminatory policy or practice… None of the new elements that a plaintiff must allege under the advocacy provisions of the 2020 Rule is ‘is required by or compatible with the FHA or Inclusive communities. “
  • Rule 2020 “invents new broad and unjustifiable defenses” by allowing a defendant to rebut a plaintiff’s claim that the contested policy or practice is “arbitrary, artificial and unnecessary” by producing evidence demonstrating that the contested policy or practice “advances a valid interest. “In contrast, the 2013 Rule requires the defendant to demonstrate that the interest is’ substantial, legitimate, [and] non-discriminatory. Further, even if a plaintiff survives a motion to dismiss at the pleadings stage, the 2020 Rule allows a defendant “to escape liability by demonstrating that the discriminatory policy or practice is intended to predict an outcome, the prediction represents a valid interest, and the outcome predicted by policy or practice does not or would not have a disparate impact on protected classes compared to individuals in the same situation who are not part of the protected class.
  • The 2020 Rule requires a claimant to prove “not only that there is a practice with less discriminatory effects, but also that the alternative practice serves the identified interest of the defendant” in an equally effective manner without imposing substantial costs. higher or create other material burdens for the defendant. ‘ ” By “[r]asking a victim to identify a less expensive or less burdensome alternative for defendants introduces a profit defense to justify discriminatory practices – a result completely at odds with the language and history of the FHA and the law. civil rights in general. The HUD has failed to provide adequate rationale “for radically rewriting the 2013 rule and creating these heightened evidentiary burdens, which are inconsistent with decades of HUD policy, guidance and decisions,” and failed to “Significantly considered the negative impact of the 2020 rule”. on access to equitable housing.

Based on these allegations, the complainants claim that the 2020 rule violates the ABS and should be rescinded for the following reasons:

  • The 2020 rule “is against the law” because it is inconsistent with the text of the FHA and undermines its fundamental objectives.
  • The 2020 rule is “arbitrary and capricious” for reasons that include the failure of the HUD to provide a “reasoned justification for its decisions to abandon the 2013 rule” or “to adequately reflect the negative impact of its decision. rule 2020 on the ability of aggrieved parties to bring valid lawsuits in cases of discrimination in housing and lending ”and because“ the HUD has claimed to rely on Inclusive communities as the basis for his radical departure from the 2013 Rule is a pretext.
  • The 2020 rule was adopted without adequate notice or comment because the HUD replaced the ‘algorithmic model’ defense in its proposal for the 2020 rule with a ‘new and entirely different’ defense, ‘outcome prediction’ in the 2020 rule ‘ without notifying the public of, or any opportunity to comment, the “outcome forecast” defense that was first announced when the Rule of 2020 was released. “

In granting the plaintiffs’ motion for a preliminary injunction and the stay of the date of entry into force of the 2020 rule, the district court found that the plaintiffs had shown a substantial likelihood of success on the merits of their claim that the 2020 rule is arbitrary and capricious in violation. of the APA. He emphasized the wording of the first of the five elements that a claimant must rely on supporting facts for the claimant to assert that “a specific and identifiable policy or practice” has a discriminatory effect on a protected category. This element requires a claimant to plead sufficient facts to substantiate “that the impugned policy is arbitrary, artificial and unnecessary to achieve a valid interest or a legitimate objective such as a practical enterprise, profit, political consideration or demand for the law “.

According to the court, the language “like a practical business, a profit, a political consideration” – is not, to the knowledge of the court, in any court decision. The court further declared:

The same is true of other important provisions of the 2020 Rule, including the new defense of “predicting the outcome”, the requirement at the third stage of the burden transfer framework that the claimant prove “that there is a less discriminatory practice that would serve the interests of the defendant. interest (or interests) identified in a just as efficiently without imposing significantly higher costs on, or create other material charges for the defendant ”; and the amalgamation of the prima facie burden of a plaintiff and the burden of advocacy…. These important alternations, which risk effectively neutralizing the liability for disparate impact under the Fair Housing Act, seem insufficiently justified. (emphasis included).

In addition to discussing the need to align disparate impact standards with Inclusive communities, HUD also said the changes were needed to provide greater clarity to the public. The court said the second explanation for the HUD “seems[s] arbitrary and capricious ”and agreed with the complainants that“ the 2020 rule, with its new and undefined terminology, altered load-transfer framework and confusing defenses accomplish the opposite of clarity ”.

It should be noted, however, that although the tribunal recognized that the complainants had shown a substantial likelihood of success on the merits based on the provisions of Rule 2020 referenced above, it rejected the complainants’ argument according to which there was no legal support for the 2020 The requirement of the rule that a claimant must plead facts showing “[t]that the contested policy or practice is arbitrary, artificial and unnecessary to achieve a valid interest or a legitimate objective such as a practical business, profit, political consideration or a legal requirement. The court observed that, as the HUD pointed out, the language “arbitrary, contrived and unnecessary” comes directly from Inclusive communities.

Finally, the court concluded that the plaintiffs had demonstrated a significant risk of irreparable harm if the injunction was not issued. According to the court, “the massive changes to the 2020 rule pose a real and substantial threat of imminent damage to the [the plaintiffs’] mission by increasing burdens, costs and accountability effectiveness of disparate impacts. Additionally, since the APA does not provide for pecuniary damages, such damages are not recoverable if Rule 2020 is allowed to come into force but is subsequently rescinded. “

The court also found that the balance of prejudice and the public interest warranted a preliminary injunction. He said the HUD had “not identified any particular risk of harm that the government or the public would face in the event of an injunction issue, especially given the existence of the 2013 rule, which was and continues to be applicable, for both parties, in the area of ​​disparate impact litigation. In addition, the tribunal concluded that it was in the public interest “to require agencies to adequately justify their claims. significant changes to their regulations, in particular those that weaken anti-discrimination provisions ”.

The other two lawsuits challenging the 2020 rule under the APA were filed on Oct. 22 by housing groups in federal district courts in California and one Connecticut federal district court. Like the Massachusetts trial, these trials challenge the premise that Inclusive communities requested the changes made by the 2020 Rule and allege that the 2020 Rule’s pleading and shifting standard is arbitrary, capricious and against the law. Unlike the other complaints, the Connecticut complaint also alleges that the provision in Rule 2020 that restricted the discretion of the HUD to seek monetary penalties is arbitrary, capricious and against the law.

About Wesley V. Finley

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