Lawyers who launched a fair-lending case in Baltimore against Wells Fargo that ended with a $175 million settlement three years ago had an effective weapon: a federal legal standard recognizing discrimination by effect as well as intent.
Housing advocates and civil rights activists now worry a challenge being heard by the Supreme Court jeopardizes this long-standing Fair Housing Act protection.
"It would send a real damaging signal if the court were to invert one of the bedrock civil rights protections," said Barbara A. Samuels, managing attorney for the American Civil Liberties Union of Maryland's Fair Housing Project. "It would take away an important tool."
The case has the potential to turn fair-housing enforcement here and around the country "upside down," said Robert Strupp, executive director of Baltimore Neighborhoods Inc.
Samuels was inside and Strupp was outside Supreme Court chambers this past week as arguments unfolded in the challenge by the state of Texas to what is known as the "disparate impact" standard. The principle allows courts to rule for plaintiffs charging housing discrimination if policies or practices affect protected groups more than others, even if there's no claim of intentional discrimination.
Civil rights lawyers say intent can be much harder to prove, and the law was meant to address the effects of discrimination, not individual people's racial prejudice.
Federal rules were amended in 2013 to specifically include the "disparate impact" protection, but the principle under the 1968 Civil Rights Act — known as the Fair Housing Act — has been applied by courts for decades. The law bars housing discrimination on the basis of race, color, ethnicity, religion, gender, disability or family status.
Organizations supporting the Supreme Court challenge, including the U.S. Chamber of Commerce and a group of financial services associations, say they want to protect lenders from unfair lawsuits. Paul F. Hancock, a lawyer who wrote a friend-of-the-court brief on behalf of these groups, said lending standards applied equally can exclude on average more members of minority groups. That could subject lenders to lawsuits on the basis of a discriminatory effect.
Jess Sharp, managing director of the Center for Capital Markets Competitiveness of the U.S. Chamber of Commerce, said lenders and insurance companies are concerned about applying sound business practices that could hit members of minority groups harder than others. Tighter lending standards imposed since the real estate market collapse have heightened the risk.
The standard puts lenders in an "impossible position," Sharp said. The government on the one hand says, "Be much more selective about the kind of loans you make," but by doing so "you can find yourself accused of discrimination."
The current Supreme Court challenge was brought by the Texas Department of Housing and Community Affairs, which was accused of perpetuating racial segregation in Dallas by approving more tax credits for affordable housing in black neighborhoods than in predominantly white areas. This is the third time in less than four years that the court has agreed to hear a case on "disparate impact," but the is the first case to be heard. The other two cases were settled before arguments could occur.
Some civil rights advocates say they're worried, particularly because the court has agreed to hear the challenge three times. To date, appellate courts hearing housing cases have sustained the standard.
"Without question, the court is poised to do damage to a key means of vindicating claims under the Fair Housing Act," said Sherrilyn Ifill, president and director-counsel of the NAACP Legal Defense and Education Fund, in a forum on the case a week before arguments were heard. She said the law — passed by Congress days after the Rev. Martin Luther King Jr. was assassinated — recognized that housing segregation was a core issue in promoting racial justice.
The U.S. Department of Housing and Urban Development, which backs the "disparate impact" standard, said in a statement that the principle has been supported consistently in agency practice and precedent from 11 of 13 federal circuit courts of appeals.
Hancock's brief argues that different branches of government have offered conflicting interpretations of whether the Fair Housing Act allows disparate-impact claims. The Supreme Court has never addressed the disagreement, the brief argues.
Because appellate courts have sustained the standard, Samuels and other civil rights advocates consider the matter settled and consistent with the intent of the law. She said the law was meant to "address the effects of discrimination. … It was not focused on rooting out individual biases."
Samuels said that the standard is not only important in lawsuits, but it encourages government agencies and businesses to consider "the impact of their decisions," intentional or not, on the community. She said housing advocates in the past 20 years have persuaded insurance companies — without extensive legal action — to change practices that often left older properties in predominantly African-American city neighborhoods with little or no coverage.
Focusing on intentional discrimination might have made sense decades ago, when people were more open about their racist attitudes, she said. Nowadays, such "smoking gun" evidence, as she put it, is harder to find.
"Few people in 2015 would be so unguarded or so oblivious that they would say something" that made clear their intent to bar African-Americans from, say, renting an apartment or buying a house in a certain neighborhood, Samuels said.
Without the "disparate impact" principle, she said, lawyers pursuing civil rights cases would be more apt to investigate the racial attitudes of business people and public officials — perhaps not the outcome the challengers want.
Evidence of racial bias — such as spoken or written statements — is rare but does come up in some cases. It emerged, for instance, in Baltimore City's case against Wells Fargo, accusing the company of discriminatory practices.
Filed originally by the city in 2008, the suit — joined eventually by the U.S. Department of Justice — accused Wells Fargo of steering black people toward more risky loans, foreclosing on hundreds of homes, creating blighted neighborhoods and boosting public safety costs.
John P. Relman, a Washington lawyer who worked on the case, said the "disparate impact" standard was an important basis for the lawsuit when it was first filed, but in the end the case did not hinge on that principle. After the case was filed, he said, employees of Wells Fargo stepped forward with evidence of discriminatory intent, saying they were trained how to sign black patrons up for subprime mortgages.
Still, he said, the impact standard provides "an important alternative claim that can help to shore up the case."
Wells Fargo — the country's biggest home mortgage originator — denied that it pursued discriminatory practices, but agreed to a $175 million settlement in 2012, with payouts made to Baltimore and seven other cities across the country. Baltimore received $7.5 million, and about 1,000 city residents split $2.5 million.
Relman declined to speculate on the meaning of the court's decision to take up the challenge, or where it could go from here.
Larry Gibson, a law professor at the University of Maryland Francis King Carey School of Law, was not so reluctant. He said he read the transcript of the hourlong argument, and did not like what he saw.
"I'm quite pessimistic," he said, adding that he was concerned because the conservative-leaning court already has backed state bans on affirmative action in college admissions and weakened protections in the 1965 Voting Rights Act. He's worried now about this and whether protections against employment discrimination will be next.
Striking down the disparate impact principle, Gibson said, "would be just one more decision by this court to remove remedies for past discrimination."