The parties to Magner v. Gallagher recently agreed to the dismissal of the case before the U.S. Supreme Court — less than three weeks before oral arguments.

The dismissal means that an important opportunity for clarity with respect to disparate impact claims under the Fair Housing Act and, by analogy, the Equal Credit Opportunity Act, has been lost. 

While the federal courts of appeal and the U.S. Housing and Urban Development Department had adopted disparate impact analysis under the Fair Housing Act, it was widely believed that the Supreme Court would reach the opposite conclusion, based on the absence of critical language in the Fair Housing Act authorizing disparate impact claims. Even the public statements of the city of St. Paul, the primary defendant in the case, reflected the city’s belief that “St. Paul likely would have won in the United States Supreme Court.”

The city said it withdrew its appeal because it did not want to eliminate disparate impact analysis from civil rights enforcement and said a win could "completely eliminate 'disparate impact' civil rights enforcement, including under the Fair Housing Act and the Equal Credit Opportunity Act. This would undercut important and necessary civil rights cases throughout the nation," the city said in a statement.

Cities and other agencies have used the disparate impact doctrine to combat redlining, housing discrimination and predatory lending.

Query, then, why the city petitioned for certiorari on the disparate impact issue, fully briefed the issue urging the Supreme Court to find that disparate impact claims are not available under the Fair Housing Act, and accepted the assistance of numerous friends of the court briefs supporting its position, only to realize three weeks before oral arguments that to prevail on its primary argument would be an “unfortunate outcome.” 

But whatever machinations led to the city’s reversal of its position, the immediate implication of the dismissal of Magner is that the status quo will continue — the circuits’ adoption of disparate impact will remain the law for the time being, and HUD will presumably finalize the disparate impact rule it announced recently. It will then presumably argue that its interpretation of the Fair Housing Act is entitled to deference by reviewing courts, but I don’t see that as a particularly strong argument. Deference only goes so far, and does not allow a federal agency to create a theory of liability not provided for in the statute itself.

Indeed, if HUD finalizes its proposed rule, it seems reasonably likely that the rule itself may be subject to a challenge via litigation.

But regardless of when the Supreme Court has its next opportunity to take up this issue, I believe that there is an opportunity for the circuits to re-evaluate their previous holdings regarding disparate impact claims through en banc, or full appellate court, rehearings. 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.

This is because the Federal Rule of Appellate Procedure governing en banc rehearings indicates that a conflict between Supreme Court precedent and the Court of Appeals’ decision is one of the proper occasions for such a full court rehearing, rather than the traditional three-panel hearings that occur before appellate courts. I hope that parties litigating disparate impact cases under the Fair Housing Act or the Equal Credit Opportunity Act will ask the federal courts of appeals to examine this issue carefully in light of the Supreme Court’s grant or certiorari in Magner.

So, although the dismissal of this case is an opportunity lost for the moment, the battle over disparate impact claims in the consumer lending context is far from over. 

Willis is a partner at Ballard Spahr in Atlanta and chairman of the firm's Fair Lending Task Force.