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Politics & MoneyMortgage

Disparate impact case comes back to haunt DOJ

A U.S. Justice Department attorney is taking heat from several lawmakers who believe he may have played a role in pushing a key housing discrimination case off the U.S. Supreme Court docket, according to a letter Congressional leaders sent to Attorney General Eric Holder this week.

The lawmakers claim DOJ Assistant Attorney Thomas Perez wanted to prevent the Supreme Court from establishing unfavorable legal precedent for lending discrimination cases in its review of the Magner v. Gallagher case. Shortly before its scheduled hearing, the Magner appeal was dropped and lawmakers are now suggesting in a letter to Holder that Perez was able to get the main party in the case — the City of St. Paul — to dismiss it in return for the department’s acquiescence in another case against the city.

The Magner decision was supposed to establish whether housing discrimination cases require proof of “an actual intent” to discriminate or if an institution or organization’s lending process violates the Fair Housing Act by simply having a ‘disparate impact’ on one group.

Lenders have been advocating for “an actual intent” interpretation since they believe its possible for objective lending standards to have a disparate impact on specific groups without lenders intending to discriminate.

The Department of Housing and Urban Development has an opposing view. In late 2011, the organization proposed a final Fair Housing Act rule that would allow for lending discrimination cases to survive by having borrowers simply show a “discriminatory effect” without proof of actual intent.

Essentially, there were two schools of thought when the Magner v. Gallagher case came along, and the Supreme Court was supposed to be the decider.

But the City of St. Paul  — the plaintiff in the appeal — quickly dropped the case right before it was scheduled for Supreme Court review in February. The original discrimination suit involved landlords who claimed St. Paul’s housing code had a disparate impact on minorities. The City of St. Paul was ready to argue in front of the Supreme Court that housing discrimination should be based on proof that a party “intended to discriminate,” not on disparate impact claims alone.

The senior ranking lawmakers and oversight chairs, who sent Holder the letter, wrote: “Mr. Perez fretted that a decision in the city’s favor would dry up the massive mortgage lending settlements his division was obtaining by suing banks for housing discrimination based on disparate effects rather than any proof of intent to discriminate.”

The letter sent to holder by Senate and House committee leaders suggests that in exchange for St. Paul dropping the Supreme Court appeal, the Justice Department decided not to intervene in another $180 million case against the City of St. Paul involving an unrelated False Claims Act suit.

The Justice Department denies any decision was made based on a type of a quid-pro-quo deal. “The decision not to intervene (in the False Claims Act case) allowed the private plaintiffs to continue to pursue their claims against the city,” the DOJ told HousingWire.

“The decision was appropriate and made following an examination of the relevant facts, law and policy considerations at issue. The Department has broad discretion under the False Claims Act to achieve global resolutions that consider policy and other pending litigation factors.”

This week, chairs of the House Government and Oversight, TARP and Judiciary Committees pushed Holder to release internal documents that could shed more light on the department’s dealings with the two cases.

Click here to read the letter in its entirety.


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