The dismissal of a Fair Housing Act case leaves a hole in the housing industry’s interpretation of disparate impact claims, attorneys say. 

Magner v. Gallagher was supposed to be heard by the U.S. Supreme Court this month, but oral arguments were dropped after both parties agreed to a dismissal.

The original lawsuit was filed by rental property owners in St. Paul, Minn., who said aggressive building code enforcement led to escalating economies of scale, forcing certain groups of residents to become disparately impacted by rising rents levied to cover costs.

The Fair Housing Act and the scope of its legal coverage was the central issue in the Supreme Court case. The act prohibits housing discrimination on the basis of race, color, religion, sex, familial status or national origin.

Attorneys hoped a Supreme Court ruling in Magner would determine whether the Fair Housing Act covers disparate impact claims like those of the rental plaintiffs. Furthermore, the financial services industry was waiting for additional clarity on which test should be applied when ruling on disparate impact claims.

“The dismissal of the case means that an important opportunity for clarity with respect to disparate impact claims under the Fair Housing Act and (by analogy) ECOA (Equal Credit Opportunity Act) has been lost,” attorneys for Ballard Spahr said in a note Wednesday.

The firm calls the dismissal a lost opportunity, but says there is still a need for clarity on this issue.

“Regardless of when the Supreme Court has its next opportunity to take up this issue, we believe that there is an opportunity for the circuits to re-evaluate their previous holdings regarding disparate impact claims through en banc rehearings,” Ballard Spahr attorneys wrote.

“A compelling argument can be made that the Supreme Court’s precedents with regard to disparate impact claims make it clear that such claims cannot be brought under the Fair Housing Act or ECOA, and a Court of Appeals sitting en banc could evaluate and recognize this precedent,” they said.

The Supreme Court’s initial acceptance of the case prompted numerous financial firms and industry trade groups to file friends of the court briefs. They argued there is a significant difference between disparate treatment during the lending process and disparate impact claims alleging a specific process impacted one group disproportionately.

“Such differentials may prompt disparate impact lawsuits,” the trade groups who submitted a brief wrote. “Even though lenders can defend such suits on the basis that their practices are undertaken in accordance with federal regulation, lenders will still face the reputational and monetary costs incurred in doing so.”

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