[Federal Register Volume 86, Number 120 (Friday, June 25, 2021)]
[Proposed Rules]
[Pages 33590-33597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13240]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 100
[Docket No. FR-6251-P-01]
RIN 2529-AB02
Reinstatement of HUD's Discriminatory Effects Standard
AGENCY: Office of the Assistant Secretary for Fair Housing and Equal
Opportunity, HUD.
ACTION: Proposed rule.
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SUMMARY: In 2020, HUD published a rule titled ``HUD's Implementation of
the Fair Housing Act's Disparate Impact Standard'' (``2020 Rule'').
Prior to the effective date of the 2020 rule, the U.S. District Court
for the District of Massachusetts issued a preliminary injunction in
Massachusetts Fair Housing Center v. HUD, staying HUD's implementation
and enforcement of the rule. Consequently, the 2020 Rule never took
effect. After reconsidering the 2020 Rule, HUD is proposing to recodify
its previously promulgated rule titled, ``Implementation of the Fair
Housing Act's Discriminatory Effects Standard'' (``2013 Rule''), which,
as of the date of publication of this Proposed Rule, remains in effect
due to the preliminary injunction. HUD believes the 2013 Rule better
states Fair Housing Act jurisprudence and is more consistent with the
Fair Housing Act's remedial purposes.
DATES: Comment due date: August 24, 2021.
ADDRESSES: Interested persons are invited to submit written comments
regarding this rule to the Regulations Division, Office of General
Counsel, Department of Housing and Urban Development, 451 7th Street
SW, Room 10276, Washington, DC 20410. All communications should refer
to the above docket number and title. There are two methods for
submitting public comments.
1. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
www.regulations.gov. HUD strongly encourages commenters to submit
comments electronically. Electronic submission of comments allows the
commenter maximum time to prepare and submit a comment, ensures timely
receipt by HUD, and enables HUD to make them immediately available to
the public. Comments submitted electronically through the
www.regulations.gov website can be viewed by other commenters and
interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
2. Submission of Comments by Mail. Comments may be submitted by
mail to the Regulations Division, Office of General Counsel, Department
of Housing and Urban Development, 451 7th Street SW, Room 10276,
Washington, DC 20410-0500.
Note: To receive consideration as public comments, comments must be
submitted through one of the two methods specified above. Again, all
submissions must refer to the docket number and title of the rule.
No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
Public Inspection of Public Comments. All properly submitted
comments and communications submitted to HUD will be available for
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the
above address. Due to security measures at the HUD Headquarters
building, an appointment to review the public comments must be
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). Individuals with speech or
hearing impairments may access this number via TTY by calling the
Federal Relay Service at 800-877-8339. Copies of all comments submitted
are available for inspection and downloading at www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Kathleen M. Pennington, Acting
Associate General Counsel for Fair Housing, Office of General Counsel,
U.S. Department of Housing and Urban Development, 451 7th Street SW,
Washington, DC 20410-0500, email [email protected] or
telephone number 202-402-3330 (this is not a toll-free number). Persons
with hearing and speech impairments may contact this phone number via
TTY by calling the Federal Relay Service at 800-877-8399 (this is a
toll-free number).
SUPPLEMENTARY INFORMATION:
I. Background
Title VIII of the Civil Rights Act of 1968, as amended (``Fair
Housing Act'' or ``Act''), prohibits discrimination in the sale,
rental, or financing of dwellings and in other housing-related
activities because of race, color, religion, sex, disability, familial
status, or national origin.\1\ Through the Fair
[[Page 33591]]
Housing Act, Congress codified its remedial purpose, providing that
``[i]t is the policy of the United States to provide, within
constitutional limitations, for fair housing throughout the United
States.'' \2\ The Act's protections are meant to be ``broad and
inclusive.'' \3\ Congress passed the Act in the wake of the
assassination of Dr. Martin Luther King, Jr., recognizing that
``residential segregation and unequal housing and economic conditions
in the inner cities'' were ``significant, underlying causes of the
social unrest'' \4\ and that both open and covert race discrimination
were preventing integrated communities.\5\ As the Supreme Court
reiterated more recently, the Act's expansive purpose is to ``eradicate
discriminatory practices within a sector of the Nation's economy'' and
to combat and prevent segregation and discrimination in housing.\6\
Congress considered the realization of this policy ``to be of the
highest priority.'' \7\
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\1\ 42 U.S.C. 3601-3619, 3631. This preamble uses the term
``disability'' to refer to what the Act and its implementing
regulations term a ``handicap'' because that is the preferred term.
See, e.g., Hunt v. Aimco Props., L.P., 814 F.3d 1213, n.1 (11th Cir.
2016) (noting the term disability is generally preferred over
handicap).
\2\ 42 U.S.C. 3601.
\3\ Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 209
(1972).
\4\ Tex. Dep't of Hous. & Cmty. Affairs v. Inclusive Cmtys.
Project, Inc., 576 U.S. 519, 529 (2015) (citing Report of the
National Advisory Commission on Civil Disorders 91 (1968) (Kerner
Commission Report).
\5\ Id. at 529 (citing Kerner Commission Report).
\6\ Id. at 539.
\7\ Trafficante, 409 U.S. at 211 (1972).
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The Act gives HUD the authority and responsibility for
administering and enforcing the Act, including the authority to conduct
formal adjudications of complaints and to promulgate rules to interpret
and carry out the Act.\8\ Through that authority, HUD proposes this
rulemaking.
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\8\ See 42 U.S.C. 3608(a), 3612, 3614a.
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Discriminatory Effects Law Under the Fair Housing Act Prior to HUD's
2013 Rule
HUD's 2013 Rule broke no new ground, but instead largely codified
longstanding judicial and agency consensus regarding discriminatory
effects law. Courts had long found that discrimination under the Act
may be established through evidence of discriminatory effects, i.e.,
facially neutral practices with an unjustified discriminatory effect.
Indeed, all federal courts of appeals to have addressed the question
had held that liability under the Act could be established by a showing
that a neutral policy or practice either has a disparate impact on a
protected group or creates, perpetuates, or increases segregation, even
if such a policy or practice was not adopted for a discriminatory
purpose.\9\ As the Sixth Circuit explained, the Act ``proscribes not
only overt discrimination but also practices that are fair in form, but
discriminatory in operation.'' \10\
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\9\ See, e.g., Graoch Assocs. # 33, L.P. v. Louisville/Jefferson
County Metro Human Relations Comm'n, 508 F.3d 366, 378 (6th Cir.
2007) (citing Arthur v. City of Toledo, 782 F.2d 565, 575 (6th Cir.
1986)); Hallmark Developers, Inc. v. Fulton County, Ga., 466 F.3d
1276, 1286 (11th Cir. 2006) (citing Hous. Investors, Inc. v. City of
Clanton, Ala., 68 F. Supp. 2d 1287, 1298 (M.D. Ala. 1999));
Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926, 937
(2nd Cir. 1988) (citing Metro Hous. Dev. Corp. v. Vill. of Arlington
Heights, 558 F.2d 1283, 1290 (7th Cir. 1977), aff'd, 488 U.S. 15
(1988) (per curium); Betsey v. Turtle Creek Assocs., 736 F.2d 983,
987 n.3 (4th Cir. 1984) (citing Metro Hous. Dev. Corp v. Vill. of
Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977)); Metro.
Housing Dev. Corp. v. Village of Arlington Heights, 558 F.2d 1283,
1290 (7th Cir. 1977) (citing Trafficante v. Metropolitan Life Ins.
Co., 409 U.S. 205, 209-10 (1972)); United States. v. City of Black
Jack, Missouri, 508 F. 2d 1179, 1184-86 (8th Cir. 1974).
\10\ Graoch Assocs. #33, L.P., 508 F.3d at 374 (quoting Griggs
v. Duke Power Co., 401 U.S. 424, 431 (1971) (a Title VII case)).
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HUD had for decades--consistent with this judicial consensus--
concluded that facially neutral practices that have an unjustified
discriminatory effect on the basis of a protected characteristic,
regardless of intent, violate the Act.\11\ For example, in 1994, HUD,
along with nine other agencies and the Department of Justice, issued a
joint policy statement that recognized disparate impact liability under
the Act.\12\
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\11\ 78 FR, 11460, 11461 (Feb. 15, 2013) (citing, e.g., HUD v.
Twinbrook Village Apts., No. 02-00025600-0256-8, 2001 WL 1632533, at
*17 (HUD ALJ Nov. 9, 2001) (``A violation of the [Act] may be
premised on a theory of disparate impact.''); HUD v. Carlson, No.
08-91-0077-1, 1995 WL 365009 (HUD ALJ June 12, 1995) (``A policy or
practice that is neutral on its face may be found to be violative of
the Act if the record establishes a prima facie case that the policy
or practice has a disparate impact on members of a protected class,
and the Respondent cannot prove that the policy is justified by
business necessity.''); HUD v. Ross, No. 01-92-0466-18, 1994 WL
326437, at *5 (HUD ALJ July 7, 1994) (``Absent a showing of business
necessity, facially neutral policies which have a discriminatory
impact on a protected class violate the Act.''); HUD v. Carter, No.
03-90-0058-1, 1992 WL 406520, at *5 (HUD ALJ May 1, 1992) (``The
application of the discriminatory effects standard in cases under
the Fair Housing Act is well established.'').
\12\ 78 FR 11460, 11461 (citing Policy Statement on
Discrimination in Lending, 59 FR 18266, 18269 (Apr. 15, 1994)).
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Although there had been some minor variation in the application of
the discriminatory effects framework prior to the 2013 Rule, HUD and
the federal appellate courts were largely in agreement. HUD has always
used a three-step burden-shifting approach,\13\ as did many federal
courts of appeals prior to the 2013 Rule.\14\ Thus, HUD's 2013 Rule
simply codified a familiar standard.
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\13\ See, e.g., HUD v. Pfaff, 1994 WL 592199, at *8 (HUD ALJ
Oct. 27, 1994); HUD v. Mountain Side Mobile Estates P'ship, 1993 WL
367102, at *6 (HUD ALJ Sept. 20, 1993); HUD v. Carter, 1992 WL
406520, at *6 (HUD ALJ May 1, 1992); Twinbrook Village Apts., 2001
WL 1632533, at *17 (HUD ALJ Nov. 9, 2001); see also Policy Statement
on Discrimination in Lending, 59 FR. 18266, 18269 (Apr. 15, 1994)
(applying three-step test without specifying where the burden lies
at each step).
\14\ See, e.g., Oti Kaga, Inc. v. S. Dakota Hous. Dev. Auth.,
342 F.3d 871, 883 (8th Cir. 2003); Lapid -Laurel, L.L.C. v. Zoning
Bd. of Adjustment, 284 F.3d 442, 466-67 (3d Cir. 2002); Langlois v.
Abington Hous. Auth., 207 F.3d 43, 49-50 (1st Cir. 2000); Huntington
Branch NAACP v. Town of Huntington, 844 F.2d 926, 939 (2d Cir.
1988).
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HUD's 2013 Discriminatory Effects Rule
In February 2013, after notice and public comment, and taking
decades of caselaw into consideration, HUD published the 2013 Rule,
which ``formalize[d] its long-held recognition of discriminatory
effects liability under the Act and, for purposes of providing
consistency nationwide, formalize[d] a burden-shifting test for
determining whether a given practice has an unjustified discriminatory
effect, leading to liability under the Act.'' \15\ In promulgating the
2013 Rule, HUD noted the Act's ``broad remedial intent;'' \16\ HUD's
prior positions, including that discriminatory effects liability was
``imperative to the success of the civil rights law enforcement;'' \17\
and the consistent application of discriminatory effects liability in
the four previous decades (with minor variations) by HUD, the
Department of Justice, nine other federal agencies, and federal
courts.\18\
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\15\ 78 FR 11460.
\16\ See also 2011 Notice of Proposed Rulemaking, 76 FR 70911,
70922 (Nov. 16, 2011) (``In keeping with the `broad remedial intent'
of Congress in passing the Fair Housing Act, and consequently the
Act's entitlement to a `generous construction' HUD . . . has
repeatedly determined that the Fair Housing Act is directed to the
consequences of housing practices, not simply their purpose.'')
(citing Havens Realty v. Coleman, 455 U.S. 363, 380 (1982); City of
Edmonds v. Oxford House, Inc., 514 U.S. 725, 731-732 (1995)
(internal citations removed)).
\17\ 78 FR 11460, 11461 (citing 126 Cong. Rec. 31,166-31,167
(1980) (statement of Sen. Mathias reading into the record letter of
HUD Secretary)).
\18\ 78 FR 11460, 11461-62.
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Among other things, the 2013 Rule codified a three-part burden-
shifting framework consistent with frameworks on which HUD and courts
had long relied: (1) The plaintiff or charging party is first required
to prove as part of the prima facie showing that a challenged practice
caused or predictably will cause a discriminatory effect; (2) if the
plaintiff or charging party makes this prima facie showing, the
defendant or respondent must then prove that the challenged practice is
necessary to achieve one or more substantial,
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legitimate, nondiscriminatory interests of the defendant or respondent;
and (3) if the defendant or respondent meets its burden at step two,
the plaintiff or charging party may still prevail by proving that the
substantial, legitimate, nondiscriminatory interests supporting the
challenged practice could be served by another practice that has a less
discriminatory effect.\19\
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\19\ 78 FR 11460, 11482; see, e.g., Inclusive Cmtys. Project,
Inc., 576 U.S. at 527 (overviewing the 2013 Rule's burden shifting
framework).
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The 2015 Inclusive Communities Supreme Court Decision
In 2015, the Supreme Court confirmed that the Act provides for
discriminatory effects liability in Texas Department of Housing and
Community Affairs v. Inclusive Communities Project, Inc.\20\ The Court
was asked to answer two questions: (1) Whether disparate-impact claims
are cognizable under the Act, and (2) if they are, what standards and
burdens of proof should apply?\21\ The Court declined to consider the
second question.\22\
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\20\ Inclusive Cmtys. Project, Inc., 576 U.S. at 519, 532-35.
\21\ See Petition for a Writ of Certiorari, in Tex. Dep't of
Hous. & Cmty. Affairs et al., v. Inclusive Cmtys. Project, Inc., 573
U.S. 991, No. 13-1371, 2014 U.S. S. Ct. Briefs LEXIS 1848, at *9;
See Questions Presented in, Tex. Dep't of Hous. & Cmty. Affairs et
al., v. Inclusive Cmtys Project, Inc., 573 U.S. 991, The United
States Supreme Court 1, 1, https://www.supremecourt.gov/qp/13-01371qp.pdf.
\22\ Inclusive Cmtys. Project, Inc., 573 U.S. 991 (2014), 2014
U.S. LEXIS 4912 at *1 (``Petition for writ of certiorari to the
United States Court of Appeals for the Fifth Circuit granted limited
to Question 1 presented by the petition.''); See also Questions
Presented in, Inclusive Cmtys Project, Inc., 573 U.S. 991, The
United States Supreme Court 1, 1, https://www.supremecourt.gov/qp/13-01371qp.pdf.
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The Court found that Congress's use of the phrase ``otherwise make
unavailable'' in Sec. 804(a) and the term ``discriminate'' in Sec.
805(a) parallel language that the Court had previously held to provide
for discriminatory effects liability under other civil rights
statutes.\23\ Moreover, the Court held that Congress's 1988 amendment
of the Act without altering the relevant text of Sec. Sec. 804(a) or
805(a) indicated that Congress ``accepted and ratified the unanimous
[pre-1988] holdings of the [c]ourts of [a]ppeals finding disparate-
impact liability.'' \24\ The Court further held that Congress's
addition of provisions that presuppose disparate impact liability as
part of the 1988 amendments further provided ``convincing confirmation
of Congress' understanding that disparate-impact liability exists under
the FHA.'' \25\ The Court further observed that disparate impact claims
are ``consistent with the FHA's central purpose'' of ``eradicat[ing]
discriminatory practices within a sector of our [n]ation's economy.''
\26\
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\23\ Inclusive Cmtys. Project, Inc., at 534 (citing Griggs v.
Duke Power Co., 401 U.S. 424 (1971); Bd. of Educ. v. Harris, 444
U.S. 130 (1979); Smith v. City of Jackson, 544 U.S. 228 (2005)).
\24\ Id. at 536.
\25\ Id. at 537.
\26\ Id. at 539 (citing 42 U.S.C. 3601).
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As the Court recognized: ``Much progress remains to be made in our
Nation's continuing struggle against racial isolation. . . . But since
the passage of the Fair Housing Act in 1968 and against the backdrop of
disparate-impact liability in nearly every jurisdiction, many cities
have become more diverse. The FHA must play an important part in
avoiding the Kerner Commission's grim prophecy that our Nation is
moving toward two societies, one black, one white--separate and
unequal. The Court acknowledges the Fair Housing Act's continuing role
in moving the Nation toward a more integrated society.'' \27\
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\27\ Id.at 546-47 (internal citations and quotations omitted).
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In reaching this holding, the Court explained that from its first
decision to recognize disparate impact liability, in Griggs v. Duke
Power Co., it ``put important limits'' on the scope of liability.\28\
For example, with respect to employment discrimination claims under
Title VII of the Civil Rights Act, Griggs explained that an employer
can justify a practice that has a disparate impact with a ``business
necessity'' defense, such that Title VII ``does not prohibit hiring
criteria with a `manifest relationship' to job performance.'' \29\
Similarly, after holding that the Act provided for disparate impact
liability, the Inclusive Communities Court noted that, under the Act,
``disparate-impact liability has always been properly limited in key
respects.'' \30\ Quoting Griggs, the Court explained that it has always
been true that disparate impact liability under the Act ``mandates the
`removal of artificial, arbitrary, and unnecessary barriers,' not the
displacement of valid governmental policies.'' \31\
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\28\ Id. at 531.
\29\ Id. (quoting Griggs, 401 U.S. at 431-32).
\30\ Id. at 540.
\31\ Id. (quoting Griggs, 401 U.S. at 431).
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The Court then sketched out some of these long-standing limitations
on the scope of disparate-impact liability, including: (i) The
requirement that ``housing authorities and private developers [have]
leeway to state and explain the valid interest served by their policies
. . . analogous to the business necessity standard under Title VII;''
and (ii) the requirement that a ``claim that relies on a statistical
disparity must fail if the plaintiff cannot point to a defendant's
policy or policies causing that disparity.'' \32\
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\32\ Id. at 541, 542.
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HUD accounted for these same well-settled limitations in the 2013
Rule, which requires a charging party or plaintiff to challenge a
specific practice causing the alleged discriminatory effect and permits
a defendant to defend a practice that causes such an impact by
demonstrating that it is necessary to achieve a substantial,
legitimate, nondiscriminatory interest. The Court did not call into
question the 2013 Rule's framework for analyzing discriminatory effects
claims, nor did it suggest that HUD should make any modifications to
that framework. To the contrary, the Court cited HUD's 2013 Rule
multiple times with approval.\33\ For instance, the Court noted that
the burden-shifting framework of Griggs and its progeny, adopted by HUD
in the 2013 Rule, adequately balanced the interests of plaintiffs and
defendants by giving housing providers the ability ``to state and
explain the valid interest served by their policies.'' \34\ Multiple
courts have since read Inclusive Communities as affirming or endorsing
the 2013 Rule's burden-shifting test.\35\
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\33\ Id. at 527 (explaining the 2013 Rule, its burden shifting
framework, and how the second prong is analogous to Title VII's
requirement that a challenged practice be job related), 528 (noting
the Court of Appeals for the Fifth Circuit relied on HUD's 2013
Rule), 541 (citing the 2013 Rule in explaining that disparate impact
liability is properly limited to give housing authorities and
private developers leeway to state and explain the valid interest
served by their policies via step two of the burden shifting
framework); 542 (approvingly noting that HUD recognized in its 2013
Rule that disparate impact liability ``does not mandate that
affordable housing be located in neighborhoods with any particular
characteristic'').
\34\ Id. at 540-541.
\35\ See, e.g., MHANY Mgmt. Inc. v. Cnty. of Nassau, 819 F.3d
581, 618 (2d Cir. 2016) (``The Supreme Court implicitly adopted
HUD's approach''); Ave 6E Invs., LLC v. City of Yuma, 818 F.3d 493,
512-513 (9th Cir. 2016) (citing the 2013 Rule in describing the
three-prong analytical structure set forth in Inclusive
Communities); Nat'l Fair Hous. All. v. Travelers Indem. Co., 261 F.
Supp. 3d 20, 28-29 (D.D.C. 2017) (stating that the Supreme Court
``carefully explained that disparate-impact liability has always
been properly limited'' and that ``disparate-impact liability under
the FHA can be proven under a burden-shifting framework analogous to
that used in employment discrimination cases.'') (internal citations
and quotations omitted); Prop. Cas. Insurers Ass'n of Am. v. Carson,
No. 13-CV-8564, 2017 U.S. Dist. LEXIS 94502, at *28-*30 (N.D. Ill.
June 20, 2017) (finding that HUD's 2013 adoption of the 3-step
burden-shifting framework a reasonable interpretation of the Act,
finding that ``in short, the Supreme Court in Inclusive Communities
. . . did not identify any aspect of HUD's burden-shifting approach
that required correction.''); Burbank Apartments Tenant Ass'n v.
Kargman, 474 Mass. 107, 126-27 (Mass. 2016) (explaining that it was
following the ``burden-shifting framework laid out by HUD and
adopted by the Supreme Court in [Inclusive Communities].''); but see
Inclusive Cmtys. Project v. Lincoln Prop. Co., 920 F.3d 890, 902
(5th Cir. 2019) (noting that ``debate exists regarding whether in
ICP the Supreme Court adopted the [2013] regulation's approach or
modified it'' but that it believed that ICP ``announced a more
demanding test'' through the announcement of ``safeguards'' to
incorporate into the burden shifting framework, such as a ``robust
causality'' requirement'').
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HUD's 2016 Notice: Application of the Fair Housing Act's Discriminatory
Effects Standard to Insurance
In 2016, HUD published a notice (``2016 Notice'') supplementing its
response to certain comments concerning homeowners insurance received
during rulemaking for the 2013 Rule.\36\ The notice responded to an
order issued in Property Casualty Insurers Association of America
(PCIAA) v. Donovan. In that case, the U.S. District Court for the
Northern District of Illinois had issued a decision upholding the 2013
Rule's burden-shifting framework for analyzing discriminatory effects
claims,\37\ while remanding for further consideration of certain
comments concerning homeowners insurance.\38\ In its 2016 Notice, HUD
stated, inter alia, that ``[a]fter careful reconsideration of the
insurance industry comments in accordance with the court's decision . .
. HUD has determined that categorical exemptions or safe harbors for
insurance practices are unworkable and inconsistent with the broad fair
housing objectives and obligations embodied in the Act. HUD continues
to believe that the commenters' concerns regarding application of the
discriminatory effects standard to insurance practices can and should
be addressed on a case-by-case basis.'' \39\
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\36\ 81 FR 69012, 69012.
\37\ Prop. Cas. Insurers Ass'n of Am. v. Donovan, 66 F. Supp. 3d
1018, 1051-53 (N.D. Ill. 2014).
\38\ Id. at 1049, 1054.
\39\ 81 FR 69012, 69012.
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HUD's 2020 Disparate Impact Rule
On June 20, 2018, HUD published an Advance Notice of Proposed
Rulemaking (``ANPRM''), inviting public comment on ``what changes, if
any'' should be made to the 2013 Rule.\40\ HUD then published a Notice
of Proposed Rulemaking on August 19, 2019 (``2019 Proposed Rule''). In
the 2019 Proposed Rule, HUD proposed to ``amend HUD's interpretation of
the Fair Housing Act's disparate impact standard to better reflect the
Supreme Court's 2015 ruling in Inclusive Communities, and to provide
clarification regarding the application of the standard to State laws
governing the business of insurance.'' \41\
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\40\ 83 FR 28560.
\41\ 84 FR 42854.
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In response to the 2019 Proposed Rule, HUD received approximately
45,000 comments, most of which opposed the proposed changes and many of
which raised significant legal and policy concerns with the 2019
Proposed Rule. Commenters objected that the proposed changes did not
align with caselaw and made discriminatory effects claims effectively
impossible to plead and prove in many instances, thus contravening the
core holding of Inclusive Communities.\42\ HUD's own experience
investigating, charging, and litigating discriminatory effects cases
aligned with these comments, as will be detailed later.
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\42\ See, e.g., 85 FR 60317, 60319 (overview of some of the
comments making these points).
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On September 24, 2020, HUD published the 2020 Rule, which, inter
alia, removed the definition of discriminatory effect, added pleading
elements that made it far more difficult to initiate a case, altered
the burden-shifting framework, created new defenses, and limited
available remedies in disparate impact claims.\43\ Some of these
changes are described more fully below, along with HUD's explanation
for why it now believes they are unwarranted.
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\43\ 85 FR 60288.
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Massachusetts Fair Housing Ctr. v. HUD Order Staying Implementation of
the 2020 Rule.
Following publication of the 2020 Rule, HUD was sued in three
separate federal courts--Massachusetts Fair Housing Ctr., et al. v.
HUD, No. 3:20-cv-11765 (D. Mass.); National Fair Housing Alliance, et
al. v. HUD, No. 3:20-cv-07388 (N.D. Cal.); Open Communities, et al. v.
HUD, No. 3:20-cv-01587 (D. Conn.). The plaintiffs in each case
contended that the 2020 Rule was invalid because it was inconsistent
with the Act and that its promulgation violated the Administrative
Procedure Act (``APA''). Prior to the effective date of the 2020 Rule,
the U.S. District Court for the District of Massachusetts in
Massachusetts Fair Housing Ctr. v. HUD issued a preliminary injunction
staying the implementation and postponing the effective date of the
2020 Rule. The district court ordered HUD to ``preserve the status quo
pursuant to the regulations in effect as of the date of this Order.''
\44\
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\44\ Mass. Fair Hous. Ctr. v. HUD, No. 20-11765-MGM, 2020 U.S.
Dist. LEXIS 205633, at *20-21 (D. Mass. Oct. 25, 2020).
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In its order, the district court preliminarily found that many
significant changes made by the 2020 Rule were likely not supported by
Inclusive Communities or other case law. Similarly, the court concluded
that the 2020 Rule did not appear to bring clarity to the
discriminatory effects framework, but rather introduced new concepts
that had never been part of disparate-impact caselaw without fully
explaining their meaning. In support of its conclusions, the court
pointed to numerous provisions in the 2020 Rule as problematic,
including Sec. 100.500(b) (``requiring at `the pleadings stage,' among
other things, that plaintiffs `sufficiently plead facts to support' . .
. `[t]hat the challenged policy or practice is arbitrary, artificial,
and unnecessary to achieve a valid interest or legitimate objective
such as a practical business, profit, policy consideration, or
requirement of law'''); Sec. 100.500(c)(2) (permitting defendants to
```rebut a plaintiff's allegation under (b)(1) . . . that the
challenged policy or practice is arbitrary, artificial, and unnecessary
by producing evidence showing that the challenged policy or practice'
merely `advances a valid interest'''; Sec. 100.500(c)(3) (requiring
``at the third step of the burden-shifting framework that the plaintiff
prove `a less discriminatory policy or practice exists that would serve
the defendant's identified interest (or interests) in an equally
effective manner without imposing materially greater costs on, or
creating other material burdens for, the defendant''' (emphasis in
original)); Sec. 100.500(d)(1) and (d)(2)(iii) (``conflating of a
plaintiff's prima facie burden and pleading burden''); and Sec.
100.500(d)(2)(i) (the outcome prediction defense).\45\
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\45\ Id. at *9, *10 n.2, *17-18.
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The district court stated that the ``practical business, profit,
policy consideration'' language, the ``outcome prediction'' defense,
changes to the third element of the burden-shifting framework, and the
conflating of a plaintiff's prima facie burden and pleading burden, ran
the risk of ``effectively neutering'' discriminatory effects liability
under the Act, and were all likely unsupported by Inclusive Communities
or other judicial decisions.\46\ The district court also stated that
the 2020 Rule's use of ``new and undefined terminology, altered burden-
shifting framework, and perplexing defenses'' accomplished ``the
opposite of clarity'' and was likely ``arbitrary and capricious.'' \47\
The court stated that ``[t]here can be no doubt that the 2020 Rule
weakens, for housing
[[Page 33594]]
discrimination victims and fair housing organizations, disparate impact
liability under the Fair Housing Act. . . . In addition, the 2020 Rule
arms defendants with broad new defenses which appear to make it easier
for offending defendants to dodge liability and more difficult for
plaintiffs to succeed. In short, these changes constitute a massive
overhaul of HUD's disparate impact standards, to the benefit of
putative defendants and to the detriment of putative plaintiffs.'' \48\
The court stated that the 2020 Rule's ``massive changes . . . pose a
real and substantial threat of imminent harm'' to the Massachusetts
Fair Housing Center by raising the burdens and costs of pursuing claims
under a discriminatory effects theory.\49\
---------------------------------------------------------------------------
\46\ Id. at *17-18.
\47\ Id. at *18-*19.
\48\ Id. at *10.
\49\ Id. at *19.
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II. HUD'S Reconsideration of the 2020 Rule
On January 26, 2021, President Biden issued a Memorandum ordering
the Department to ``take all steps necessary to examine the effects of
the [2020 Rule], including the effect that amending the [2013 Rule] has
had on HUD's statutory duty to ensure compliance with the Fair Housing
Act'' and ``take any necessary steps . . . to implement the Fair
Housing Act's requirements that HUD administer its programs in a manner
that . . . furthers . . . HUD's overall duty to administer the Act []
including by preventing practices with an unjustified discriminatory
effect.'' \50\
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\50\ See 86 FR 7487, 7488.
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Consistent with the President's Memorandum, HUD has reconsidered
the 2020 Rule and proposes that the 2013 Rule be recodified. In so
proposing, HUD considered prior public comments on the various
rulemakings described above, HUD's responses to those comments, HUD's
2016 supplemental explanation regarding the 2013 Rule's applicability
to the insurance industry, legal precedent including Inclusive
Communities, the Massachusetts Fair Housing Center court's order, and
HUD's own experience with discriminatory effects cases over 40 years.
In HUD's experience, the 2013 Rule sets a more appropriately
balanced standard for pleading, proving, and defending a fair housing
case alleging a policy or practice has a discriminatory effect. The
2013 Rule provides greater clarity about what each party must show by
relying on concepts that have a long history in judicial and agency
precedent. It appropriately balances the need to ensure that frivolous
claims do not go forward with a realistic understanding of the
practical challenges to litigating these claims. With regard to the
2020 Rule, HUD's experience investigating and prosecuting
discriminatory effects cases informs that many of the points made by
commenters and the Massachusetts District Court are, in HUD's opinion,
correct, including that the changes the 2020 Rule makes, such as
amending pleading standards, changing the burden shifting framework,
and adding defenses, all favoring respondents, will at the very least
introduce unnecessary confusion and will at worst make discriminatory
effects liability a practical nullity.
HUD now proposes to recodify the 2013 Rule's discriminatory effects
standard and invites comments on this proposal. HUD believes that this
standard is more consistent with the Act's purpose, prior caselaw under
the Act, including Inclusive Communities, other civil rights
authorities, including the Equal Credit Opportunity Act and Title VII,
and HUD's prior interpretations of the Act. While HUD previously stated
that the 2020 Rule was simply intended to implement the Supreme Court's
opinion in Inclusive Communities, HUD now believes that Inclusive
Communities maintained the fundamentals of long-established disparate-
impact precedent rather than changing them. Moreover, based on HUD's
experience investigating and litigating discriminatory effects cases,
HUD believes that the practical effect of the 2020 Rule's amendments is
to severely limit HUD's and plaintiffs' use of the discriminatory
effects framework in ways that substantially diminish that frameworks'
effectiveness in accomplishing the purposes that Inclusive Communities
articulated.
By comparison, in HUD's experience, the 2013 Rule has provided a
workable and balanced framework for investigating and litigating
discriminatory effects claims that is consistent with the Act, HUD's
own guidance, Inclusive Communities, and other jurisprudence.
As noted above, the Court in Inclusive Communities heavily relied
on Griggs, which is the foundation of Title VII disparate impact
jurisprudence, to illustrate the well-settled principles of disparate
impact under the Act, all of which are fully consistent with the 2013
Rule.\51\ In Griggs, the Court explained that, under Title VII,
``[w]hat is required by Congress is the removal of artificial,
arbitrary, and unnecessary barriers to employment when the barriers
operate invidiously to discriminate on the basis of racial or other
impermissible classification.'' \52\ Quoting from its foundational
decision in Griggs, the Supreme Court in Inclusive Communities observed
that ``[d]isparate-impact liability mandates the `removal of
artificial, arbitrary, and unnecessary barriers,' not the displacement
of valid governmental policies.'' \53\ This quotation from a seminal
decision of longstanding disparate impact doctrine is properly read as
maintaining existing law, not profoundly changing it. As Inclusive
Communities explicitly stated, ``disparate-impact liability has always
been properly limited in key respects'' (emphasis added), making clear
that it was not adding additional pleading or proof requirements or
calling for a significant departure from pre-existing precedent under
the Act and Title VII.\54\ Furthermore, reading Inclusive Communities
to support a heightened pleading standard is contradicted by the fact
that the ``heartland'' cases cited by the Court would not have survived
a motion to dismiss under that standard because plaintiffs in those
cases did not have specific facts to plausibly allege that a policy or
practice was arbitrary, artificial, or unnecessary until after
discovery.\55\ Finally, because Inclusive Communities considered a
judgment reached after discovery and bench trial, the Court had no
occasion or opportunity to consider the proper pleading standards for
cases brought under the Act. The parties did not brief or argue such
questions to the Court, making it particularly unlikely that the Court
intended to reach them.
---------------------------------------------------------------------------
\51\ See generally Inclusive Cmtys. Project, Inc., 576 U.S. 519
(2015).
\52\ Griggs v. Duke Power Co., 401 U.S. 424, 430-31 (1971).
\53\ Inclusive Cmtys. Project, Inc., 576 U.S. at 540 (quoting
Griggs, 401 U.S. at 431); see also Inclusive Cmtys. Project, Inc.,
576 U.S. at 544 (cautioning against proof standards that ``displace
valid governmental and private priorities, rather than solely
`remov[ing] . . . artificial, arbitrary, and unnecessary barriers'
'') (quoting Griggs, 401 U.S. at 431) (alterations in original).
\54\ Id. at 540.
\55\ See, e.g., Town of Huntington, NY v. Huntington Branch,
NAACP, 488 U.S. 15 (1988); United States v. City of Black Jack, 508
F.2d 1179, 1184, 1187-88 (8th Cir. 1974) (specific facts produced
during the case supported the court's determination that the policy
was one of those ``artificial, arbitrary, and unnecessary''
practices that is properly invalidated under disparate impact
doctrine); Greater New Orleans Fair Hous. Action Ctr. v. St. Bernard
Parish, 641 F. Supp. 2d 563, 567-568 (E.D. La. 2009) (relying on
information gathered after the pleadings to find disparate impact).
---------------------------------------------------------------------------
For these reasons and others, HUD believes that Inclusive
Communities' quotation of Griggs' decades-old ``artificial, arbitrary,
and unnecessary'' formulation is best construed as
[[Page 33595]]
maintaining continuity with longstanding disparate-impact
jurisprudence, as reflected in the 2013 Rule. Accordingly, HUD proposes
to recodify the 2013 Rule.
HUD believes other changes the 2020 Rule made create problems that
could be cured by a return to the 2013 Rule. For example, the 2020 Rule
eliminated the 2013 Rule's definition of ``discriminatory effect,''
stating that the definition was unnecessary because it ``simply
reiterated the elements of a disparate impact claim.'' \56\ In
eliminating this definition, the 2020 Rule erased ``perpetuation of
segregation'' as a recognized type of discriminatory effect distinct
from disparate impact, contrary to well established precedent.\57\ HUD
now proposes to reaffirm that perpetuation of segregation remains, as
it always has been, a basis for contending that a policy has an
unlawful discriminatory effect. HUD now believes that for clarity, a
discriminatory effects rule should explicitly state that perpetuation
of segregation is a type of discriminatory effect, distinct from
disparate impact.
---------------------------------------------------------------------------
\56\ 84 FR 42854; 85 FR 60288, 60306-07, 60332.
\57\ See, e.g., Graoch Assocs. # 33, L.P., 508 F.3d at 378 (6th
Cir. 2007) (there are ``two types of discriminatory effects which a
facially neutral housing decision can have: The first occurs when
that decision has a greater adverse impact on one racial group than
on another. The second is the effect which the decision has on the
community involved; if it perpetuates segregation and thereby
prevents interracial association it will be considered invidious
under the Fair Housing Act independently of the extent to which it
produces a disparate effect on different racial groups.''); Ave. 6E
Invs. v. City of Yuma, 818 F.3d 493, 503 (9th Cir. 2016) (``[A]s the
Supreme Court recently reaffirmed [in ICP], the FHA also encompasses
a second distinct claim of discrimination, disparate impact, that
forbids actions by private or governmental bodies that create a
discriminatory effect upon a protected class or perpetuate housing
segregation without any concomitant legitimate reason.'') (emphasis
added); see also Huntington Branch, NAACP v. Huntington, 844 F.2d
926, 937 (2nd Cir. 1988); Metro. Hous. Dev. Corp. v. Vill. of
Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977); Nat'l Fair
Hous. All. v. Bank of Am., NA., 401 F. Supp. 3d 619, 641 (D. Md.
2019) (allowing claim to proceed past motion to dismiss where
plaintiff pleaded facts sufficient to allege that defendant's
policies ``forestall housing integration and freeze existing racial
segregation patterns''); Hallmark Devs., Inc. v. Fulton Cnty., 386
F. Supp. 2d 1369, 1383 (N.D. Ga. 2005).
---------------------------------------------------------------------------
The 2020 Rule also eliminated from the Act's prohibitions policies
or practices that could ``predictably result[ ] in a disparate impact
on a group of persons,'' i.e., those for which the disparate impact has
not yet manifested but will predictably do so.\58\ As HUD stated in
2013, the Act prohibits discrimination that is predictable because it
defines an ``aggrieved person'' as any person who ``believes that such
person will be injured by a discriminatory housing practice that is
about to occur.'' \59\ And consistent with the Act's plain language,
courts have found that predictable discriminatory effects may violate
the Act: ``[t]o establish a prima facie case of racial discrimination,
the plaintiff need prove no more than that the conduct of the defendant
actually or predictably results in racial discrimination; in other
words, that it has a discriminatory effect.'' \60\ The 2020 Rule did
not adequately explain how the Act and caselaw construing it can be
read to require waiting until harm is inflicted before an action with
predictable discriminatory effects can be challenged, nor does HUD
perceive that any such explanation would be availing, given the plain
language of the Act and the caselaw interpreting it. Thus, HUD proposes
to recodify the 2013 Rule to correct this error.
---------------------------------------------------------------------------
\58\ 84 FR 42854; 85 FR 60288, 60306-07, 60322.
\59\ 42 U.S.C. 3602(1)(2) (emphasis added).
\60\ See Inclusive Cmtys. Project, Inc., 576 U.S. at 539-40
(2015) (describing City of Black Jack, 508 F.2d at 1184 as ``at the
heartland of disparate-impact liability'').
---------------------------------------------------------------------------
In addition, the 2020 Rule created new and confusing defenses at
both the pleading and post-pleading stage, including that the
challenged policy or practice is ``reasonably necessary to comply with
a third-party requirement.'' \61\ The 2020 Rule's preamble stated that
this defense would not require a showing that the challenged policy is
the only way to comply with such a requirement, only that the policy
serves that purpose.\62\ HUD now believes that this defense is
inconsistent with the Act, which specifies that state and local laws
requiring or permitting discriminatory housing practices are invalid.
The defense would preclude many otherwise proper discriminatory effects
claims, because, for example, a plaintiff may not have any practical
means of knowing whether some other party's policies also contributed
to the defendant's practice. Nothing in Inclusive Communities suggests
this defense is required, let alone reasonable, for HUD to create.
Accordingly, HUD proposes to eliminate these provisions by recodifying
the 2013 Rule.
---------------------------------------------------------------------------
\61\ 85 FR 60288, 60316-17.
\62\ 85 FR 60288, 60290.
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The 2020 Rule also created a new ``outcome prediction'' defense,
which would in practice exempt most insurance industry practices (and
many other housing-related practices that rely on outcome predictions,
such as lending practices) from liability under a disparate impact
standard. This is inconsistent with HUD's repeated finding, including
in the 2020 Rule, that ``a general waiver of disparate impact law for
the insurance industry would be inappropriate.'' \63\ Although unclear,
it appears that this defense would suggest using comparators that are,
in HUD's experience, inappropriate. At the very least, the defense
introduces unnecessary confusion into the doctrine.
---------------------------------------------------------------------------
\63\ 85 FR 60321 (citing ``Application of the Fair Housing Act's
Discriminatory Effects Standard to Insurance'' 81 FR 69012).
---------------------------------------------------------------------------
The 2020 Rule limited remedies in discriminatory effects cases in
three respects. It specified that ``remedies should be concentrated on
eliminating or reforming the discriminatory practice so as to eliminate
disparities between persons in a particular protected class and other
persons.'' \64\ It prohibited HUD in administrative proceedings from
pursuing anything but ``equitable remedies'' except that ``where
pecuniary damage is proved, HUD will seek compensatory damages or
restitution.'' \65\ And it restricted HUD from seeking civil penalties
in discriminatory effects cases unless the respondent had been adjudged
within the last 5 years to have committed intentional unlawful housing
discrimination under the Act.\66\ HUD believes that these limitations
have no basis in law and run contrary to public interest and the
purpose of the Act. While the 2020 Rule cited Inclusive Communities as
supporting these limitations,\67\ no part of Inclusive Communities
suggested such limitations.\68\ Moreover, they are in conflict with the
plain language of the Act, which provides in all cases for a wide
variety of remedies, including injunctive relief, actual damages,
punitive damages, and civil penalties.\69\
[[Page 33596]]
Whereas Congress has chosen to limit the remedies available in
disparate-impact cases under Title VII,\70\ it has made no such choice
with respect to the Act. Thus, HUD proposes to eliminate these
provisions by recodifying the 2013 Rule.
---------------------------------------------------------------------------
\64\ 85 FR 60288, 60333.
\65\ Id.
\66\ Id.
\67\ Id.
\68\ See Inclusive Cmtys. Project, 576 U.S. at 544-45 (noting
considerations for courts on how to properly construct remedial
orders (i.e., be consistent with the Constitution, concentrate on
the elimination of the offending practice, strive to be race-
neutral), but in no way suggesting that remedial orders should be
the sole or favored remedy in disparate impact cases, or that civil
penalties in administrative proceedings are somehow inappropriate).
\69\ See, e.g., 42 U.S.C. 3601 note (``Nothing in the Fair
Housing Act as amended by this Act limits any . . . remedy available
under the Constitution or any other Act of the Congress not so
amended''); 42 U.S.C. 3612(g)(3) (``If the administrative law judge
finds that a respondent has engaged . . . in a discriminatory
housing practice, such administrative law judge shall promptly issue
an order for such relief as may be appropriate, which may include
actual damages suffered by the aggrieved person and injunctive or
other equitable relief. Such order may, to vindicate the public
interest, assess a civil penalty against the respondent. . .''); 42
U.S.C. 3612(p) (``[i]n any administrative proceeding brought under
this section, or any court proceeding arising therefrom, or any
civil action under section 812, the administrative law judge or the
court . . . in its discretion, may allow the prevailing party, other
than the United States, a reasonable attorney`s fees and costs.'');
42 U.S.C. 3613(c)(1) (``in a civil action under subsection (a), if
the court finds that a discriminatory housing practice has occurred
. . . the court may award to the plaintiff actual and punitive
damages, and subject to subsection (d), may grant as relief, as the
court deems appropriate, any permanent or temporary injunction,
temporary restraining order, or other order . . . .'').
\70\ 42 U.S.C. 2000e-5(g)(1).
---------------------------------------------------------------------------
In sum, HUD now believes that the 2013 Rule is preferable to the
2020 Rule. It believes the 2013 Rule is more consistent with judicial
precedent construing the Fair Housing Act, including Inclusive
Communities, as well as the Act's broad remedial purpose. Based on its
experience interpreting and enforcing the Act, HUD also believes the
2020 Rule, if put into effect, threatens to limit the effectiveness of
the Act's discriminatory effects doctrine in ways that are inconsistent
with the doctrine continuing to play its critical role in ``moving the
Nation toward a more integrated society.'' \71\ On the other hand, HUD
believes that the 2013 Rule provided clarity, consistency, and a
workable, balanced framework, recognized by the Supreme Court, under
which to analyze discriminatory effects claims, and under which HUD can
better ensure it has the tools to further its ``duty to administer the
Act [ ] including by preventing practices with an unjustified
discriminatory effect.'' \72\
---------------------------------------------------------------------------
\71\ Inclusive Cmtys. Project, 576 U.S. at 547.
\72\ 86 FR 7487, 7488.
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III. This Proposed Rule
For the reasons described above, HUD proposes to amend Sec. Sec.
100.5 and 100.500 to recodify the discriminatory effects regulation
specified in the 2013 Rule. As HUD has stated, the 2013 Rule was
consistent with Inclusive Communities.\73\ The vast majority of courts
that considered this issue subsequent to Inclusive Communities also
found that the 2013 Rule was consistent with Inclusive Communities.\74\
HUD thus proposes this rule because it believes the 2013 Rule
accurately reflects the discriminatory effects framework under the Act,
whereas the 2020 Rule does not.
---------------------------------------------------------------------------
\73\ See, e.g., Defendants' Opposition to Plaintiff's Motion for
Leave to Amend Complaint, Prop. Cas. Ins. Assoc. of Am. v. Carson
and the U.S. Dep't of Hous. and Urb. Dev., No. 1:13-cv-08564 (N.D.
Ill. 2017); Defendants' Memorandum in Support of Their Motion for
Summary Judgment and in Opposition to Plaintiffs' Motion for Summary
Judgment, Am. Ins. Assoc. v. U.S. Dep't of Hous. and Urb. Dev. et
al., No. 1:13-cv-00966 (RJL) (D.D.C. 2016).
\74\ See, e.g., MHANY Mgmt. Inc. v. County of Nassau, 819 F.3d
581, 618-619 (2d Cir. 2016) (deferring to HUD's [2013] regulation,
noting that ``the Supreme Court implicitly adopted HUD's [burden
shifting] approach [in 24 CFR 100.500(c)]''); Ave. 6E Invs., LLC,
818 F.3d at 512-13 (9th Cir. 2016) (citing Inclusive Communities and
the 2013 Rule at 100.500(c) for the same proposition); Nat'l Fair
Hous. All. v. Travelers Indem. Co., 261 F. Supp. 3d 20, 29 (D.D.C.
2017) (citing Inclusive Communities and HUD's 2013 Rule at
100.500(c) as standing for the same proposition); Prop. Cas.
Insurers Ass'n of Am. v. Carson, No. 13-CV-8564, 2017 U.S. Dist.
LEXIS 94502, at *29-30 (N.D. Ill. June 20, 2017) (finding that HUD's
2013 adoption of the 3-step burden-shifting framework was a
reasonable interpretation of the Act and that ``in short, the
Supreme Court in Inclusive Communities . . . did not identify any
aspect of HUD's burden-shifting approach that required
correction.''); Burbank Apartments Tenant Ass'n v. Kargman, 474
Mass. 107, 126-27 (Mass. 2016) (explaining that it was following the
``burden-shifting framework laid out by HUD and adopted by the
Supreme Court in [Inclusive Communities].'').
---------------------------------------------------------------------------
HUD does not propose to amend Sec. 100.70. The 2020 Rule made
changes unrelated to Sec. 100.500 by simply adding examples to an
already non-exhaustive list of prohibited activities under the Act at
Sec. 100.70(d)(5).\75\ Specifically, it noted that enacting or
implementing ``building codes,'' ``permitting rules,'' or
``requirements'' that restrict or deny housing opportunities or
otherwise make unavailable or deny dwellings to persons because of a
protected class is prohibited.
---------------------------------------------------------------------------
\75\ 85 FR 60326.
---------------------------------------------------------------------------
IV. Findings and Certifications
Regulatory Review--Executive Orders 13563 and 12866
Executive Order 13563 (``Improving Regulation and Regulatory
Review'') directs agencies to propose or adopt a regulation only upon a
reasoned determination that its benefits justify its costs, emphasizes
the importance of quantifying both costs and benefits, of harmonizing
rules, of promoting flexibility, and of periodically reviewing existing
rules to determine if they can be made more effective or less
burdensome in achieving their objectives. Under Executive Order 12866
(``Regulatory Planning and Review''), a determination must be made
whether a regulatory action is significant and therefore, subject to
review by the Office of Management and Budget (``OMB'') in accordance
with the requirements of the order. This proposed rule was determined
to be a ``significant regulatory action'' as defined in section 3(f) of
Executive Order 12866 (although not an economically significant
regulatory action, as provided under section 3(f)(1) of the Executive
Order).
Because the 2020 Rule never took effect, and therefore did not
affect the obligations of any regulated entities, this proposed rule is
only recodifying the 2013 Rule and will have no impact on regulated
entities except to affirm that the 2013 Rule remains in effect.
Furthermore, the 2013 Rule itself had little direct effect on regulated
entities because it only ``formalize[d] the longstanding interpretation
of the Fair Housing Act to include discriminatory effects liability''
and ``[was] not a significant departure from HUD's interpretation to
date or that of the majority of federal courts.'' \76\ Therefore, HUD
does not believe that deeper analysis is needed on the impact of this
rule. However, HUD invites comment on this question.
---------------------------------------------------------------------------
\76\ 78 FR 11460, 11480.
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The docket file is available for public inspection in the
Regulations Division, Office of the General Counsel, Room 10276, 451
7th Street SW, Washington, DC 20410-0500. Due to security measures at
the HUD Headquarters building, please schedule an appointment to review
the docket file by calling the Regulations Division at 202-708-3055
(this is not a toll-free number). Individuals with speech or hearing
impairments may access this number via TTY by calling the Federal Relay
Service at 800-877-8339 (this is a toll-free number).
Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') (5 U.S.C. 601 et seq.)
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements, unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
This rule amends the Code of Federal Regulations to accurately reflect
HUD's discriminatory effects regulation as it currently exists. As a
result, all entities, big and small, have a responsibility to comply
with the law.
As discussed above, this Proposed Rule would continue to apply the
2013 Rule, which has been in effect uninterrupted for over seven years.
HUD concludes, as it did when it published the 2013 Rule, that the
majority of entities, large or small, currently comply and will remain
in compliance with the Fair Housing Act. All entities, large and
[[Page 33597]]
small, have been subject to the Fair Housing Act for over fifty years
and subject to the 2013 Rule for over seven years. For the minority of
entities that have failed to institutionalize methods to avoid engaging
in illegal housing discrimination and plan to come into compliance as a
result of this rulemaking, the costs will simply be the costs of
compliance with a preexisting statute and regulation. This proposed
rule does not change that substantive obligation; it merely recodifies
the regulation that more accurately reflects the law. Any burden on
small entities is simply incidental to the pre-existing requirements to
comply with this body of law. Furthermore, HUD anticipates that this
Proposed Rule would eliminate confusion for all entities, including
small Fair Housing Advocacy organizations, by ensuring HUD's regulation
accurately reflects the current standards. Accordingly, the undersigned
certifies that this Proposed Rule would not have a significant economic
impact on a substantial number of small entities. HUD invites comments
on this certification. HUD specifically invites comments on the number
of small entities which commenters believe may be affected by this
regulation.
Environmental Impact
This proposed rule sets forth nondiscrimination standards.
Accordingly, under 24 CFR 50.19(c)(3), this rule is categorically
excluded from environmental review under the National Environmental
Policy Act of 1969 (42 U.S.C. 4321).
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either: (i) Imposes substantial direct compliance costs on state and
local governments and is not required by statute, or (ii) preempts
state law, unless the agency meets the consultation and funding
requirements of section 6 of the Executive Order. This proposed rule
would not have federalism implications and would not impose substantial
direct compliance costs on state and local governments or preempt state
law within the meaning of the Executive Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) (``UMRA'') establishes requirements for federal agencies to
assess the effects of their regulatory actions on state, local, and
tribal governments, and on the private sector. This proposed rule would
not impose any federal mandates on any state, local, or tribal
governments, or on the private sector, within the meaning of the UMRA.
List of Subjects in 24 CFR Part 100
Aged, Civil rights, Fair housing, Incorporation by reference,
Individuals with disabilities, Mortgages, and Reporting and
recordkeeping requirements.
For the reasons discussed in the preamble, HUD proposes to amend 24
CFR part 100 as follows:
PART 100--DISCRIMINATORY CONDUCT UNDER THE FAIR HOUSING ACT
0
1. The authority citation for 24 CFR part 100 continues to read as
follows:
Authority: 42 U.S.C. 3535(d), 3600-3620.
Subpart A--General
0
2. In Sec. 100.5, revise paragraph (b) and remove paragraph (d) to
read as follows:
Sec. 100.5 Scope.
* * * * *
(b) This part provides the Department's interpretation of the
coverage of the Fair Housing Act regarding discrimination related to
the sale or rental of dwellings, the provision of services in
connection therewith, and the availability of residential real estate-
related transactions. The illustrations of unlawful housing
discrimination in this part may be established by a practice's
discriminatory effect, even if not motivated by discriminatory intent,
consistent with the standards outlined in Sec. 100.500.
* * * * *
Subpart G--Discriminatory Effect
0
3. Revise Sec. 100.500 to read as follows:
Sec. 100.500 Discriminatory effect prohibited.
Liability may be established under the Fair Housing Act based on a
practice's discriminatory effect, as defined in paragraph (a) of this
section, even if the practice was not motivated by a discriminatory
intent. The practice may still be lawful if supported by a legally
sufficient justification, as defined in paragraph (b) of this section.
The burdens of proof for establishing a violation under this subpart
are set forth in paragraph (c) of this section.
(a) Discriminatory effect. A practice has a discriminatory effect
where it actually or predictably results in a disparate impact on a
group of persons or creates, increases, reinforces, or perpetuates
segregated housing patterns because of race, color, religion, sex,
handicap, familial status, or national origin.
(b) Legally sufficient justification. (1) A legally sufficient
justification exists where the challenged practice:
(i) Is necessary to achieve one or more substantial, legitimate,
nondiscriminatory interests of the respondent, with respect to claims
brought under 42 U.S.C. 3612, or defendant, with respect to claims
brought under 42 U.S.C. 3613 or 3614; and
(ii) Those interests could not be served by another practice that
has a less discriminatory effect.
(2) A legally sufficient justification must be supported by
evidence and may not be hypothetical or speculative. The burdens of
proof for establishing each of the two elements of a legally sufficient
justification are set forth in paragraphs (c)(2) and (3) of this
section.
(c) Burdens of proof in discriminatory effects cases. (1) The
charging party, with respect to a claim brought under 42 U.S.C. 3612,
or the plaintiff, with respect to a claim brought under 42 U.S.C. 3613
or 3614, has the burden of proving that a challenged practice caused or
predictably will cause a discriminatory effect.
(2) Once the charging party or plaintiff satisfies the burden of
proof set forth in paragraph (c)(1) of this section, the respondent or
defendant has the burden of proving that the challenged practice is
necessary to achieve one or more substantial, legitimate,
nondiscriminatory interests of the respondent or defendant.
(3) If the respondent or defendant satisfies the burden of proof
set forth in paragraph (c)(2) of this section, the charging party or
plaintiff may still prevail upon proving that the substantial,
legitimate, nondiscriminatory interests supporting the challenged
practice could be served by another practice that has a less
discriminatory effect.
(d) Relationship to discriminatory intent. A demonstration that a
practice is supported by a legally sufficient justification, as defined
in paragraph (b) of this section, may not be used as a defense against
a claim of intentional discrimination.
Dated: June 17, 2021.
Jeanine Worden,
Acting Assistant Secretary, Office of Fair Housing and Equal
Opportunity.
[FR Doc. 2021-13240 Filed 6-24-21; 8:45 am]
BILLING CODE 4210-67-P