Arnold Ahlert: Judge Rejects the ‘Disparate Impact’ Fraud

On Monday, one of the Obama administration’s foremost racial arsonists was given his comeuppance by a federal judge. Labor Secretary Thomas Perez, who is on the American left’s short list for replacing U.S. Attorney General Eric Holder, was informed by Judge Richard J. Leon that his effort to find housing discrimination where none existed amounted to “wishful thinking on steroids.

Perez sought to apply the policy of “disparate impact” to housing. Judicial Watch explains this contemptible concept. “Under the theory of ‘disparate impact,’ a defendant can be held liable for discrimination for a race-neutral policy that statistically disadvantages a specific minority group even if that negative ‘impact’ was neither foreseen nor intended,” they write. “In such cases, defendants can be forced to pay for harm caused not by their own actions, but by economic and statistical realities, even if beyond their control.” (italics original)

Leon wasn’t buying it. He characterized the attempt to legitimize disparate impact as a vehicle to expand the possibility of filing discrimination cases as “hutzpah (sic) (bordering on desperation).” “This is yet another example of an administrative agency trying desperately to write into law that which Congress never intended to sanction,” he wrote, adding that the arguments made by Obama administration attorneys were “nothing less than an artful misinterpretation” of the law.

The law to which Leon referred is the Fair Housing Act, administered by the U.S. Department of Housing and Urban Development (HUD). In February 2013, HUD made disparate impact a policy tool, one the administration employed to build discriminatory cases against mortgage lending institutions that garnered them hundreds of millions of dollars.

In July of that year, Wells Fargo paid a $175 million settlement after the Department of Justice (DOJ) accused the bank of discriminating against thousands black and Hispanic borrowers—based on loan analyses made by the bank and its independent brokers from the years 2004 and 2009. Wells Fargo admitted no wrongdoing, claiming it was settling to avoid even costlier litigation expenses. That windfall was topped by a record-setting $335 million settlement made by Bank of America in 2011, following allegations of discrimination by Countrywide Lending, purchased by Bank of America in 2008. Once again the feds used disparate impact to allege that minority borrowers had received less favorable borrowing terms than whites.

Perez is an old hand at this shakedown racket. In 2011, the DOJ created the Fair Lending Unit staffed with more than 20 lawyers, economists and statisticians, determined to ferret out discriminatory lending practices at the more than 60 banks that were targeted at the time. The man in charge of that division was Special Counsel for Fair Lending Eric Halperin. Halperin ultimately answered to none other than Tom Perez, who headed the DOJ’s Civil Rights Division.

That would be the same Tom Perez who compared bankers to KKK Klansmen, insisting the only difference between the two groups was that bankers discriminate “with a smile” and “fine print,” but were nonetheless “every bit as destructive as the cross burned in a neighborhood.”

That would also be the same Tom Perez who in 2010 railed against the housing meltdown “fueled in large part by risky and irresponsible lending practices that allowed too many Americans to get unsustainable or unaffordable home loans.” It was then he promised that once the Fair Housing Unit was up and running, it “will use every tool in our arsenal, including, but not limited to, disparate impact theory.”

Perez is determined to protect disparate impact theory from being adjudicated by the Supreme Court. On Nov. 7, 2011 the Court agreed to hear Magner v. Gallagher, a case about racial discrimination in housing. As the Weekly Standard reveals, a Supreme Court decision on the theory was utterly anathema to Perez, whose effort to make the case “go away” became his self-admitted “top priority.” The case was about several property owners who alleged that St. Paul, Minnesota’s ramped up enforcement of the city’s housing code for rental units reduced the availability of low-income rentals, creating a disparate impact affecting black Americans. The district court tossed the suit, but the U.S. Court of Appeals for the Eighth Circuit reinstated it, complete with the concept of disparate impact. The city appealed that ruling to the Supreme Court, which was poised to decide for the first time whether disparate impact cases pursued under the auspices of the Fair Housing Act can be brought before the courts.

Perez, who has referred to disparate impact as the “lynchpin” of his civil rights agenda, didn’t want to take that chance. He managed to get the city to drop its case from the Supreme Court docket. Judicial Watch provided some of the sordid details, noting they had obtained documents “under the Minnesota Data Practices Act, showing that St. Paul City Attorney Sara Grewing arranged a meeting between the then-chief of DOJ’s Civil Rights Division, current Secretary of Labor Tom Perez, and Mayor Chris Coleman a week before the city’s withdrawal from the case, captioned Magner v. Gallagher. Following Perez’s visit, the city withdrew its case and thanked DOJ and officials at HUD for their involvement.”

In June of 2013, the Supreme Court agreed to hear another case revolving around disparate impact. Township of Mount Holly v. Mount Holly Gardens Citizens concerned the town’s efforts to redevelop a blighted neighborhood. A group of renters filed suit alleging the move violated the FHA because the majority of the renters were non-white and they were unable to afford the new mid-priced, single-family dwellings. The district court dismissed the argument ruling all the renters were equally affected. The Court of Appeals for the Third Circuit reversed that ruling, basing their decision on disparate impact.

Once again Perez prevailed, getting Mt. Holly to drop the case, and once again preventing the Supreme Court from issuing a ruling on disparate impact.

Judge Leon noticed. In a stunning rebuke of Perez himself, Leon accused the Labor Secretary of gaming the system, timing cases and arranging the aforementioned settlements he found “particularly troubling.”

It ought to trouble every American that the Obama administration remains determined to codify racial discrimination based on the idea that statistics can be a viable substitute for actual intent. To image how absurd this theory truly is, one need only apply it to the National Basketball Association where a “disproportionate” number of black American athletes, relative to the percentage of the nations’s overall population, earn a living.  Should white college basketball players who weren’t drafted by the NBA be able to file a lawsuit alleging discrimination, based on nothing more than that statistical discrepancy? Absent the necessity of proving intent to discriminate, the power of the government to file discrimination charges become virtually unlimited.

Leon noted there was nothing in the wording of the FHA or anything he read regarding Congress’s intent when it passed the FHA that supported HUD’s interpretation of the law. He further noted that complying with disparate impact theories would force various entities to compile information on a number of factors, including race, religion, gender, etc., that those entities are often banned from obtaining under state law.

Perez may be forced to work overtime yet again. The Supreme Court has agreed to hear Texas Department of Housing and Community Affairs v. The Inclusive Communities Project. State officials have been sued by the Inclusive Communities Project, a Dallas-based group advocating integrated housing. The ICP alleges the state allocated a disproportionate number of federal low-income housing tax credits to minority neighborhoods, a practice that “makes dwellings unavailable in particular areas, thereby perpetuating residential segregation in the Dallas area,” the group said in court papers. The federal appeals court that ruled in favor of the plaintiffs is one of 11 that have determined the Fair Housing Act allows disparate-impact claims. Texas officials, led by Attorney General Greg Abbott, are eager to have the Supreme Court hear the case. “The far-reaching scope of disparate-impact liability makes this a question of exceptional importance,” they said in their appeal.

The Equal Credit Opportunity Act used to hammer Wells Fargo and Bank of America may also be affected by the ruling. Miami attorney Paul Hancock, who filed a brief backing the Lone Star state on behalf of business groups led by the American Bankers Association, illuminated the implications if the Court decides to leave the theory of disparate impact intact. “It really pushes more toward advancement of racial quotas as the only way to avoid legal claims,” he said in a phone interview.

Disparate impact may do far more than that. After the election, the Obama administration intends to push its “Affirmatively Furthering Fair Housing” agenda. It requires HUD to gather data on segregation and discrimination. That data that will be used to racially diversify every city and suburb in America, superseding all local zoning ordinances and forcing those cities and suburbs to accept subsidized housing. “Geospatial data” will pinpoint alleged segregation hotspots that will be forced to comply with HUD’s efforts to racially balance the entire nation. “Unfortunately, in too many of our hardest hit communities, no matter how hard a child or her parents work, the life chances of that child, even her lifespan, is determined by the zip code she grows up in. This is simply wrong,” said HUD Secretary Shaun Donovan when he unveiled the federal rule at the NAACP convention in July.

That’s nothing less than an exponential expansion of the disparate impact theory.

By the time you read this, it is likely we will know which party controls the Senate. If it is Republicans, one of the first orders of business should be making it clear that Tom Perez’s chance of succeeding Eric Holder are zero. It will send a clear message that racial huckstering based on dubious legal theories will no longer be tolerated. After that, pruning as many race-addled zealots from HUD as possible would be a nice follow up.