CEI Files Amicus Brief in Magner v. Gallagher, to Guard Against Financial Meltdowns and Racial Preferences

To help prevent another financial crisis, CEI helped file an amicus brief in a pending Supreme Court case, Magner v. Gallagher. The case tests whether race-conscious “disparate-impact” causes of action can be judicially read into laws, like the Fair Housing Act, that ban racial discrimination, effectively turning the colorblind intentions of such laws upside down. “Disparate impact” is when a neutral policy happens to impact more minorities than whites, like a standardized test that whites pass at a higher rate than some minority group, even though test scores are calculated the same way for members of all races. The Supreme Court sometimes declines to interpret anti-discrimination statutes as banning neutral practices that have a “disparate impact,” but in other cases, it interprets then as banning “disparate impact,” deferring to the statutory interpretation of civil-rights agencies, like the EEOC, that like “disparate impact” rules because they expand agencies’ power to regulate businesses and interfere with their race-neutral criteria for things like hiring, lending, or leasing apartments.

Banks and mortgage companies have been under pressure from lawmakers and regulators to give loans to minorities with bad credit, in order to avoid liability for “racially disparate impact,” and to provide “affordable housing” and promote racial “diversity.” (Recently, the Obama administration has ratcheted up such pressure, demanding that targeted banks make preferential loans to minorities with bad credit, notes Investor’s Business Daily, extracting such racial preferences in recent settlements with banks.) Such pressure played a key role in triggering the mortgage crisis, judging from a story in The New York Times. For example, “a high-ranking Democrat telephoned executives and screamed at them to purchase more loans from low-income borrowers, according to a Congressional source.” The executives of government-backed mortgage giants Fannie Mae and Freddie Mac “eventually yielded to those pressures, effectively wagering that if things got too bad, the government would bail them out.” Taxpayers have now spent $170 billion bailing them out (and unlike the private banks, which repaid their bailouts, Fannie and Freddie never have, and never will, repay their bailouts, which continue to expand monthly).

In the amicus brief in Magner, Pacific Legal Foundation attorneys note that the legislative history and plain language of the Fair Housing Act does not support a disparate-impact cause of action, contrary to the Obama Administration’s claims. (CEI and the Cato Institute joined the Pacific Legal Foundation’s amicus brief, along with the Center for Equal Opportunity.)

The brief also contains two arguments that I’ve previously made, such as the fact that deferring to the Obama administration’s recent interpretation of the Fair Housing Act as including a “disparate impact” cause of action would violate a principle of statutory interpretation known as the canon of constitutional doubts, and the fact that it conflicts with the federalism canon of statutory construction set forth in the Supreme Court’s decision in United States v. Bass.

Disparate-impact lawsuits should not be allowed under the Fair Housing Act, and laws with similar prohibitions on discrimination, for the following reasons:

1) Doing so would alter the state-federal balance in far-reaching ways, by rendering race-neutral rules (like rules for preserving order in public housing projects) suspect (see United States v. Bass, 404 U.S. 336, 349-50 (1971) (“unless Congress conveys its purpose clearly, it will not be deemed to have significantly changed the federal state balance”).

(2) Applying racial disparate-impact rules to the Fair Housing Act would violate the canon of constitutional doubts (by encouraging race-conscious actions), since Justice Scalia in Ricci v. DeStefano (2009), noted the tension between the Equal Protection Clause and Title VII disparate-impact law as applied to racial discrimination claims. See Ricci v. DeStefano, 129 S.Ct. 2658, 2682 (2009) (Scalia, J., concurring)(noting that given the strict scrutiny that applies to racial classifications, Title VII disparate-impact law, which is race-conscious, raises serious constitutional questions under the equal-protection clause; “the war between disparate impact and equal protection will be waged sooner or later, and it behooves us to begin thinking about how—and on what terms—to make peace between them.”); compare Miller v. Johnson, 515 U. S. 900, 923 (1995) (“Although we have deferred to the [Justice] Department’s interpretation in certain statutory cases . . . we have rejected agency interpretations to which we would otherwise defer where they raise serious constitutional questions. . . When the Justice Department’s interpretation of the Act compels race-based districting, it by definition raises a serious constitutional question . . . and should not receive deference”); NLRB v. Catholic Bishop of Chicago, 440 U.S. 490 (1979) (construing statutory language in federal labor laws extremely narrowly not to cover religious schools to avoid potential constitutional issue – even though doing so was much harder than construing the Fair Housing Act not to include disparate-impact claims); Northwest Austin Municipal Utility District No. 1 v. Holder, 129 S. Ct. 2504, 2513 (2009) (construing Voting Rights Act’s reach narrowly to avoid possible constitutional federalism problems).

(3) The Fair Housing Act is distinguishable from the Age Discrimination in Employment Act (ADEA), which the Court recognized as containing an implicit disparate-impact provision in Smith v. City of Jackson, 544 U.S. 228 (2005), since age-based classifications are not constitutionally suspect, Massachusetts v. Murgia, 427 U.S. 307 (1976)(age classifications are not subject to strict scrutiny); compare Richmond v. J.A. Croson Co., 488 U.S. 489 (1989) (racial balance requirement intended to help minorities triggered “strict scrutiny” because of its racial focus), but race-based classifications, such as racial disparate-impact claims, are constitutionally suspect, see Justice Scalia’s concurrence in Ricci v. DeStefano, 129 S.Ct. 2658, 2682 (2009), which noted that given the strict scrutiny that applies to racial classifications, “the war between disparate impact and equal protection will be waged sooner or later, and it behooves us to begin thinking about how—and on what terms—to make peace between them.”

(4) Even when an agency would otherwise receive great deference in interpreting a statute, it will not receive any deference from the courts where its interpretation would raise potential constitutional problems. See Edward J. DeBartolo Corp. v. Florida Gulf Coast Building & Constr. Trades Council, 485 U. S. 568, 574-575 (1988) (construing National Labor Relations Act narrowly to avoid potential free-speech problems, despite the broad deference that the NLRB’s interpretation usually receives).