1
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
OPEN COMMUNITIES ALLIANCE and
SOUTHCOAST FAIR HOUSING,
Plaintiffs,
-against-
UNITED STATES DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT, and
BEN CARSON, in his official capacity as United States
Secretary of Housing and Urban Development,
Defendants.
Civil No.
COMPLAINT FOR
DECLARATORY AND
INJUNCTIVE RELIEF
INTRODUCTION
1. This suit challenges a Final Rule recently published by Defendant U.S. Department
of Housing and Urban Development (“HUD”) that would eviscerate the federal Fair Housing Act’s
(“FHA”) discriminatory effects standard and thereby set the clock back a half century in the fight
for fair housing in the United States. Titled “HUD’s Implementation of the Fair Housing Act’s
Disparate Impact Standard,” the Final Rule (hereinafter, “2020 Final Rule”) would immediately
render it virtually impossible for most victims of discrimination to prevail in HUD’s administrative
enforcement process when alleging that they have been injured by a policy or practice with an
unjustified discriminatory effect. 85 Fed. Reg. 60,288 (Sep. 24, 2020). If given deference by the
judiciary, it would also close the courthouse doors to victims of discrimination.
2. Since shortly after the FHA’s passage in 1968, the discriminatory effects
framework, which prohibits policies and practices that cause a disparate impact or perpetuate
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segregation and are not justified, has provided a crucial tool for challenging structural
discrimination. See Resident Advisory Board v. Rizzo, 564 F.2d 126 (3d Cir. 1977); Metro. Hous.
Dev. Corp. v. Vill. of Arlington Heights, 558 F.2d 1283 (7th Cir. 1977) (Arlington Heights II);
United States v. City of Black Jack, Mo., 508 F.2d 1179 (8th Cir. 1974). In its 2015 decision in
Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc. (ICP),
the U.S. Supreme Court relied upon a unanimous body of case law, Congress’s awareness of that
case law when amending the statute in 1988, the statutory text of the FHA, and the purpose of the
FHA to conclude that discriminatory effects claims are cognizable. 576 U.S. 519 (2015).
3. A litany of cases challenging wide-ranging policies and practices demonstrates the
vital societal importance of a robust FHA discriminatory effects framework. Targets of
discriminatory effects liability include exclusionary zoning ordinances that prevent the
development of affordable housing in predominantly white suburbs; public housing authority
policies that prevent people of color from obtaining Housing Choice Vouchers in surrounding
suburbs; and landlord policies of evicting victims for domestic violence occurring in their home,
including women tenants who are survivors of domestic violence. See, e.g., Mhany Mgmt., Inc. v.
Cnty. of Nassau, 819 F.3d 581, 616–20 (2d Cir. 2016) (holding that plaintiffs established a prima
facie case that defendants’ zoning policy had a disparate impact on Black and Latinx residents and
perpetuated residential racial segregation); Comer v. Cisneros, 37 F.3d 775, 795 (2d Cir. 1994)
(holding that plaintiffs had standing to challenge a suburban housing authority’s residency
requirement for admission to the Section 8 Voucher program); Determination of Reasonable
Cause, Alvera v. Creekside Village Apartments, No. 10-99-0538-8 (Dep’t of Hous. & Urban Dev.
Apr. 13, 2001) (concluding that a “policy of evicting innocent victims of domestic violence
because of that violence has a disproportionate adverse impact on women”). If organizations like
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Plaintiffs Open Communities Alliance and SouthCoast Fair Housing no longer have a reasonable
prospect of success in bringing these claims, the societal costs and consequences will be
monumental.
4. The 2020 Final Rule is founded on the thin pretext that changes to HUD’s 2013
Final Rule, “Implementation of the Fair Housing Act’s Discriminatory Effects Standard”
(hereinafter, “2013 Final Rule”), 78 Fed. Reg. 11,459 (Feb. 15, 2013), are needed to ensure
consistency with aspects of the Supreme Court’s 2015 decision in ICP. That could not be further
from the truth. In ICP, the Supreme Court confirmed the lower court consensus that discriminatory
effects claims are cognizable; recognized that combatting segregation is a central purpose of the
FHA; and cited the 2013 Final Rule in a manner that led the U.S. Court of Appeals for the Second
Circuit to conclude that the Supreme Court implicitly adopted it. Id. at 527, 535–36, 542, 546–47;
see also Mhany Mgmt., Inc., 819 F.3d at 618.
5. The 2020 Final Rule diverges so sharply from both the Supreme Court’s decision
in ICP and decades of lower court case law—which Congress effectively ratified through the Fair
Housing Amendments Act of 1988—that it is contrary to law in violation of the Administrative
Procedure Act (APA). 5 U.S.C. § 706(2)(A).
6. First, every court to address the question has held that perpetuation of segregation
claims, where proof of a violation is established through evidence of a policy or practice’s
segregative effect, are actionable, yet HUD purports to write such claims out of the FHA.
7. Second, no court has ever adopted the heightened pleading standard that is imposed
on plaintiffs or complainants by the 2020 Final Rule, or its burden-shifting approach.
8. Third, every court to address the question has permitted some showing of a less
discriminatory alternative in response to a defendant’s justification of a challenged policy, and has
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rejected the notion that a plaintiff or complainant must show that that alternative would be “equally
effective” and result in “no materially greater costs” or “other material burdens” for a defendant
or respondent. Indeed, upon information and belief, no defendant has been so bold as to even
suggest such a standard. Yet HUD, through its 2020 Final Rule, seeks to deny plaintiffs and
complainants the opportunity to show less discriminatory alternatives in many situations, and
otherwise imposes new requirements on them out of whole cloth.
9. Fourth, no court has ever held that entire categories of policies or practices that
might otherwise be subject to challenge are exempt from discriminatory effects liability, yet HUD
creates, again out of whole cloth, exemptions for predictive models and for actions constrained by
other purported legal requirements. These have no basis in the FHA.
10. Fifth, the 2020 Final Rule completely cuts off HUD’s discretion to request civil
monetary penalties for violations, simply because the claim is based on disparate effects liability.
11. Lastly, the 2020 Final Rule violates HUD’s statutory duty to affirmatively further
fair housing by eliminating perpetuation of segregation claims under the FHA, and by eliminating
the ability of plaintiffs to pursue most other disparate impact claims.
12. The 2020 Final Rule also violates the APA because it is arbitrary and capricious.
5 U.S.C. § 706(2)(A). With respect to all of the changes mentioned supra and others, HUD
consistently failed to provide a reasoned basis for its decisions. In particular, HUD has:
(a) Failed to acknowledge that its changes were, in fact, substantive changes to the
discriminatory effects standard;
(b) Failed to identify changes in circumstances between the promulgations of the 2013
Final Rule and the 2020 Final Rule, respectively, that would justify the changes to
the standard;
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(c) Failed to relate the changes to specific language in the Supreme Court’s ICP
decision or any lower court decisions;
(d) Failed to account for the costs likely to result from the 2020 Final Rule; and
(e) Failed to adequately address public comments submitted in response to the Notice
of Proposed Rulemaking that preceded issuance of the 2020 Final Rule.
13. In addition, some of the changes adopted by HUD in the 2020 Final Rule were
promulgated without proper procedure because they were not adequately described in the proposed
regulation, thereby depriving the public of the opportunity to comment, and because they exceed
HUD’s statutory authority.
14. Plaintiffs Open Communities Alliance and SouthCoast Fair Housing have already
begun to experience injuries as a direct result of the 2020 Final Rule, and it is imminent and certain
that those injuries will worsen in the absence of injunctive relief.
15. In furtherance of their respective organizational missions, both Plaintiffs have
active administrative complaints pending with HUD that address systemic violations of the FHA.
Claims raised in their complaints are at imminent risk of dismissal due to HUD’s elimination of
perpetuation of segregation claims and the changes to the burden-shifting framework in the 2020
Final Rule.
16. Implementation of the 2020 Final Rule will also perceptibly impair Plaintiffs’
ability to provide direct counseling services to individual households, including households
seeking to use Housing Choice Vouchers to move to predominantly white, high-opportunity areas,
as well as to conduct outreach and education regarding fair housing issues. As a result, Plaintiffs
are already being forced to divert scarce resources to less effective and more time-consuming
strategies for overcoming the harmful effects of the unlawful 2020 Final Rule.
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17. Furthermore, the evisceration of the discriminatory effects standard and the
elimination of any real risk of liability is already starting to affect the behavior of the types of
entities, such as local governments and property management companies, that are frequently
defendants or respondents in FHA lawsuits and administrative complaints. Again, this reduction
in the real and perceived likelihood of consequences for discriminatory conduct is making
Plaintiffs’ direct services, education, and outreach less effective and more difficult, thereby
requiring the diversion of resources to counteract the effects of the 2020 Final Rule.
18. Plaintiffs seek permanent injunctive relief vacating the 2020 Final Rule and barring
HUD from implementing and applying the Rule, including to Plaintiffs’ pending administrative
complaints. Such an order would have the effect of restoring the 2013 Final Rule as the standard
governing HUD’s administrative enforcement practices, ensuring a fair and workable framework
for complaints alleging that policies or practices have a disparate impact on members of a protected
group or perpetuate the segregation of a protected group.
PARTIES
19. Plaintiff Open Communities Alliance (“OCA”) is a non-profit corporation located
in Hartford, Connecticut. OCA’s mission is to combat residential racial segregation and advance
access to housing opportunity for Connecticut residents through engaging and empowering
families, providing outreach and education to communities and stakeholders, researching and
documenting the causes and effects of segregation, and enforcing federal and state fair housing
laws. OCA also provides individual counseling and assistance to Connecticut residents using
government housing subsidies to ensure that they have full access to information about available
housing options in a range of neighborhoods. OCA has an established track record of developing
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and implementing substantive projects, collaborations, legal challenges, and publications
throughout its history.
20. Plaintiff SouthCoast Fair Housing (“SouthCoast”) is a non-profit corporation
incorporated in New Bedford, Massachusetts. SouthCoast’s mission is to eliminate housing
discrimination and ensure equal access to housing through fair housing education, outreach,
advocacy, and enforcement services in Rhode Island, and in Bristol and Plymouth Counties in
Massachusetts. SouthCoast also works directly with individual clients to help them connect with
resources and file formal complaints if they have been discriminated against. SouthCoast has an
established record of community outreach, landlord investigation, and data collection and analysis.
21. Defendant U.S. Department of Housing and Urban Development (“HUD” or “the
Agency”) is a cabinet agency within the executive branch of the United States government and is
an agency within the meaning of 5 U.S.C. § 552(f)(1). HUD promulgated the 2020 Final Rule and
is responsible for its implementation and enforcement.
22. Defendant Ben Carson is sued in his official capacity as the Secretary of HUD.
JURISDICTION AND VENUE
23. This Court has jurisdiction over the claims alleged in this Complaint pursuant to
5 U.S.C. §§ 701–706, 28 U.S.C. § 1331, 28 U.S.C. § 2201, and 28 U.S.C. § 2202.
24. HUD’s issuance of the Rule on September 24, 2020 constitutes an agency action
within the meaning of the APA, 5 U.S.C. §§ 702, 704, and, therefore, the Rule is judicially
reviewable. Each Plaintiff meets the definition of a “person” within the meaning of the APA, 5
U.S.C. § 551(2), and is authorized to bring suit under that statute, 5 U.S.C. § 702.
25. Venue in this judicial district is proper under 28 U.S.C. § 1391 because Plaintiff
OCA has its principal place of business in this judicial district.
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FACTUAL ALLEGATIONS
I. Definition of Disparate Impact.
26. Compared to a claim of intentional discrimination, “a plaintiff bringing a disparate-
impact claim challenges practices that have a ‘disproportionately adverse effect on minorities’ and
are otherwise unjustified by a legitimate rationale.” Texas Dep’t of Hous. & Cmty. Affairs, 576
U.S. 519, 524 (2015) (hereinafter ICP) (citing Ricci v. DeStefano, 577 U.S. 557, 557 (2009)). A
plaintiff may also challenge a policy or practice that actually or predictably perpetuates the
residential segregation of members of a protected group. See, e.g., 78 Fed. Reg. at 11,482;
Huntington Branch, N.A.A.C.P. v. Town of Huntington, 844 F.2d 926 (2d Cir. 1988), aff’d in part
sub nom. Town of Huntington, N.Y. v. Huntington Branch, N.A.A.C.P., 488 U.S. 15 (1988).
27. This type of claim can be brought to challenge facially neutral policies that have a
disparate impact on members of protected classes and also to root out elements of discriminatory
intent, as it “permits plaintiffs to counteract unconscious prejudices and disguised animus that
escape easy classification as disparate treatment.” ICP, 576 U.S. at 540. Plaintiffs can also use
disparate impact claims to challenge policies that further entrench or perpetuate segregation in
certain communities. Huntington Branch, 844 F.2d at 938.
28. In 2015, the Supreme Court formally recognized disparate impact claims as
cognizable under the FHA, following a lengthy legislative history, as well as decades of circuit
case law recognizing their availability and importance. ICP, 576 U.S. at 530.
II. Enactment of the FHA.
29. Not unlike the current climate in the United States, the time preceding the passage
of the FHA was marked by substantial civil unrest and racial tension, directed at issues ranging
from police brutality, the right to vote for Black Americans, and outrage at segregation perpetuated
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by “unequal housing conditions and social and economic isolation.” Morgan Williams & Stacy
Seichnaydre in Gregory D. Squires et al., The Fight for Fair Housing: Causes, Consequences, and
Implications of the 1968 Federal Fair Housing Act, 169 (Gregory D. Squires ed., 2018).
30. The legacy of a variety of forms of housing discrimination considered to be licit at
the time—including mortgage and insurance redlining, restrictive covenants, racial zoning,
intentional segregation in the siting and occupancy of public housing, and urban renewal practices
that razed predominantly Black communities—contributed significantly to this social context.
31. Increased unrest following the assassination of Rev. Dr. Martin Luther King, Jr.
placed added pressure on Congress to resolve issues of discrimination in housing that were
perpetuating segregation throughout the country, resulting in the passage of the FHA in 1968. ICP,
576 U.S. at 540.
32. The legislative debate in Congress over the FHA clearly demonstrates that
residential segregation was a primary concern behind the law’s passage. Senator Edward W.
Brooke (R-MA), who co-sponsored the FHA with Senator Walter Mondale (D-MN), stated that
“residential segregation [had] become central to” the country’s “major domestic problems,”
making it “the key question” of the 1960s. 114 Cong. Rec. 2688 (1968). Senator Mondale stated
that residential segregation had made it impossible “to solve the problems of de facto school
segregation, slum housing, crime and violence, disease, blight, and pollution.” 113 Cong. Rec.
22,841 (1967). Senator Brooke also recognized the importance of eliminating policies and
practices that were “facially neutral in themselves but ha[d] profound racial effects.” 114 Cong.
Rec. 2688 (1968). Congress’s intent, in the words of Senator Mondale, was to replace segregated
living patterns with “truly integrated and balanced living patterns.” Id. at 3422.
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33. Thus, in addition to providing enforcement mechanisms for rooting out intentional
discrimination in housing, “it became clear that for the FHA to be an effective tool in reversing
the destructive housing patterns prompting its passage, it would need to reach the consequences of
housing practices, not simply the motivation behind them.” Williams & Seichnaydre, supra, at
170. By 1988, when the FHA Amendments were passed, “all nine Courts of Appeals to have
addressed the question had concluded the Fair Housing Act encompassed disparate-impact
claims.” ICP, 576 U.S. at 535. The Supreme Court recognized Congress’s awareness of this
“unanimous precedent” and construed this awareness and failure to change the core text of the
FHA as “convincing support for the conclusion that Congress accepted and ratified the unanimous
holdings of the Courts of Appeals finding disparate-impact liability.” Id. at 536. Given that history,
described in more detail below, the Supreme Court emphasized that “recognition of disparate-
impact claims is consistent with the FHA’s central purpose.” Id. at 539.
III. Development of Disparate Impact Case Law & HUD Interpretations.
A. Establishment and Development of the Burden-Shifting Framework
34. Starting shortly after passage of the FHA, courts of appeals began recognizing
disparate impact claims and establishing similar standards for evaluating them.
35. In 1974, the Eighth Circuit became the first appeals court to recognize a claim of
discriminatory effect, in United States v. City of Black Jack, 508 F.2d 1179 (8th Cir. 1974). The
Court held that a zoning ordinance that prohibited new multi-family and low-income integrated
housing in a majority-white neighborhood violated the FHA due to its discriminatory effect on
minorities. Id. at 1186.
36. Even in this very early case, a framework for evaluating disparate impact claims
began to emerge. The court determined that the plaintiff first has the burden of showing that the
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conduct of the defendant actually or predictably resulted in a discriminatory effect. Id. at 1184.
The burden then shifts to the defendant to show that their conduct was necessary to achieve a
compelling interest. Id. at 1185. The court applied several factors in evaluating whether the
conduct was necessary, including whether the conduct was constitutionally permissible and
whether less drastic means were available to serve the interest. Id. at 1186–87.
37. Several other circuits subsequently adopted a burden-shifting framework for
disparate impact claims. Despite slight variations, all required the plaintiff to establish a prima
facie case of disparate impact, after which the burden shifted to the defendant to demonstrate a
legitimate justification for the challenged policy or practice. See, e.g., Resident Advisory Bd., 564
F.2d at 148–49 & 149 n.37; Huntington Branch, 844 F.2d at 934–39; Langlois v. Abington Hous.
Authority, 207 F.3d 43, 49–51 (1st Cir. 2000) (holding defendant has the burden of proffering a
“valid,” “rational,” “substantial,” and “legitimate” justification, as well as the burden of showing
a less discriminatory alternative).
38. Other courts of appeals adopted a similar approach, framed as a balancing test, to
disparate impact analysis. In Arlington Heights II, the Seventh Circuit found that Arlington
Heights’s refusal to rezone certain property in a manner that would allow for new low-income
housing could violate the FHA if it were shown to have a disparate effect on minorities. 558 F.2d
at 1288. The court identified four “critical factors” that should be weighed to evaluate a disparate
impact claim: the strength of the disparate impact shown by the plaintiff; the presentation of
evidence of discriminatory intent that falls short of the Washington v. Davis threshold for Equal
Protection claims; the defendant’s interest in the use of the challenged action; and lastly, whether
the plaintiff is seeking to affirmatively compel the defendant to provide housing, or instead seeking
to prevent the defendant from impeding property owners from providing housing. Id. at 1288–90;
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see also Smith v. Town of Clarkson, 682 F.2d 1055, 1065 (4th Cir. 1982); Graoch Assocs. #33,
L.P. v. Louisville/Jefferson Cty. Metro Human Relations Comm’n, 508 F.3d 366, 372–74 (6th Cir.
2007); Arthur v. City of Toledo, 782 F.2d 565, 574–75 (6th Cir. 1986); Mountain Side Mobile Ests.
P’ship v. Sec’y of Hous. & Urban Dev., 56 F.3d 1243, 1252 (10th Cir. 1995).
B. Clarification of Pleading Standards
39. In roughly 40 years of disparate impact jurisprudence, courts have continued to
refine the pleading and burden-shifting frameworks for evaluating claims of disparate impact
under the FHA.
40. For example, although the Tenth Circuit applies a balancing test and the Eighth
Circuit applies a burden-shifting standard, both have held that in showing a legitimate justification
for the challenged policy, the burden of proof is on defendants to show a “manifest relationship”
between the challenged policy and their interests, rather than a heightened standard of showing the
policy is necessary to serve a compelling interest. See Mountain Side Mobile Ests. P’ship, 56 F.3d
at 1254; Charleston Hous. Auth. v. U.S.D.A., 419 F.3d 729, 740–42 (8th Cir. 2005).
41. The Third Circuit has clarified that the less discriminatory alternative prong of the
burden-shifting framework does not require that the alternative be equally effective to the
challenged policy or practice. Mt. Holly Gardens Citizens in Action, Inc. v. Twp. of Mount Holly,
658 F.3d 375, 385–87 (3d Cir. 2011).
42. It is clear from these examples that courts have had ample time and opportunity to
change, refine, or eliminate prongs of the disparate impact pleading standards. Yet none chose to
raise pleading standards to the heights of the 2020 Final Rule or, to incorporate affirmative
defenses that defendants can use at the pleading stage.
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C. Availability of Perpetuation of Segregation Claims
43. In addition to recognizing FHA claims challenging policies that have a disparate
impact on members of protected classes, courts have also routinely held that policies that
perpetuate segregation violate the FHA.
44. In Arlington Heights II, the Seventh Circuit held that the FHA would be violated if
a policy were shown to perpetuate segregation in the overwhelmingly white village. Arlington
Heights II, 558 F.2d at 1290.
45. In Huntington Branch, the Second Circuit similarly held that the city’s refusal to
rezone violated the FHA by perpetuating segregation. Huntington Branch, 844 F.2d at 939.
46. In recognizing disparate impact claims for the first time, the Eleventh Circuit cited
Huntington Branch when holding that claims related to a challenged policy’s segregative effect
are actionable. Jackson v. Okaloosa Cty., Fla., 21 F.3d 1531, 1541, n.15 (11th Cir. 1994). The
Eleventh Circuit reaffirmed the availability of segregative effect claims in 2009. Hallmark
Developers, Inc. v. Fulton Cty., Ga., 466 F.3d 1276, 1286 (11th Cir. 2006).
47. The Third Circuit notably clarified that evidence that a policy perpetuates
segregation is not needed to establish a claim of adverse impact, and that perpetuation of
segregation and adverse impact are alternative claims. Mt. Holly Gardens Citizens in Action, Inc.,
658 F.3d at 385.
D. HUD’s 2013 Discriminatory Effects Rule
48. On November 16, 2011, HUD published a Proposed Rule titled Implementation of
the Fair Housing Act’s Discriminatory Effects Standard. 76 Fed. Reg. 70,921 (Nov. 16, 2011). In
doing so, HUD elaborated on a decades-long interpretation of the FHA as allowing discriminatory
effects claims. See, e.g., HUD v. Twinbrook Vill. Apartments, No. 02-000256-8, 2001 WL
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1632533, at *17 (HUD ALJ Nov. 9, 2001); HUD v. Pfaff, No. 10-93-0084-8, 1994 WL 592199, at
*7–9 (HUD-ALJ Oct. 27, 1994), rev’d on other grounds, 88 F.3d 739 (9th Cir. 1996); HUD v.
Carter, No. 03-90-0058-1, 1992 WL 406520, at *5 (HUD-ALJ May 1, 1992).
49. The Proposed Rule reaffirmed HUD’s position that discriminatory effects claims
are cognizable under the FHA, laid out the burdens of proof for such claims, and defined key terms.
HUD received 99 comments following the proposed rule’s publication, a substantial majority of
which were in support of HUD’s rulemaking.
50. On February 15, 2013, HUD published a Final Rule in the Federal Register titled
Implementation of the Fair Housing Act’s Discriminatory Effects Standard. 78 Fed. Reg. 11,459
(Feb. 15, 2013).
51. The 2013 Final Rule largely retained the definitions and burden-shifting framework
of the Proposed Rule. Specifically, the 2013 Final Rule adopted the burden-shifting framework
used by most federal courts of appeals, placing the burden of “proving that a challenged practice
caused or predictably will cause a discriminatory effect” on the plaintiff; the burden of “proving
that the challenged practice is necessary to achieve one or more substantial, legitimate,
nondiscriminatory interests of the respondent or defendant” on the defendant; and then allowing
that a plaintiff 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.” 24 C.F.R. § 100.500(c)(3) (2013).
52. The 2013 Final Rule defined the term “discriminatory effect” as a practice that
“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.” 24 C.F.R. § 100.500(a) (2013). This definition
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explicitly acknowledges perpetuation of segregation claims as an independent basis for liability
under the Act.
53. In the preamble to the 2013 Final Rule, HUD responded to comments both in
support of and opposing the balance it struck among competing policy and legal considerations.
HUD explained that the burden-shifting standard it adopted was consistent with trends in the
federal appellate case law, which had gravitated away from a balancing test, and which “does not
require either party to prove a negative.” 78 Fed. Reg. at 11,474.
54. HUD rejected comments arguing that plaintiffs should have to prove that a less
discriminatory alternative under the third prong of the burden-shifting framework would be
“equally effective” as the challenged practice. HUD explained that the 2013 Final Rule “already
states that the less discriminatory alternative must serve the respondent’s or defendant’s interests,”
that such language is consistent with Congressional and judicial interpretations of the disparate
impact standard, and that such a requirement is not appropriate in the housing context where the
practices covered by the FHA are “not readily quantifiable.” 78 Fed. Reg. at 11,473.
55. With respect to perpetuation of segregation claims, HUD noted that the federal
courts to address the issue had been unanimous in holding that they were available, and drew from
the legislative history and purpose of the FHA to reinforce the undeniable point that Congress
passed the FHA in large part to eliminate and redress residential segregation. 78 Fed. Reg. at
11,469–70.
E. Texas Department of Housing & Community Affairs v. Inclusive Communities
Project
56. On June 25, 2015, the U.S. Supreme Court issued its decision in ICP. The Court
affirmed that disparate impact claims are cognizable under the FHA. 576 U.S. at 519.
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57. However, in granting the petition for certiorari, the Court declined to review the
appropriate standard for assessing disparate impact claims. And in his majority opinion in ICP,
Justice Kennedy did not explicitly articulate a standard for disparate impact or discriminatory
effects claims.
58. Instead, the Court’s cautionary language in ICP focused on three main points
already addressed by the body of preexisting appellate court disparate impact cases that HUD
codified in its 2013 Final Rule. First, the Court emphasized that plaintiffs or complainants need to
show a robust causal relationship between a challenged practice and a statistical disparity—and
cannot rely on a showing of disparity, absent this evidence of causation, in order to make out a
prima facie case. Id. at 542–43. Second, the Court stressed that remedies to meritorious disparate
impact claims should focus on the removal of discriminatory barriers rather than the imposition of
quotas. Id. at 544–45. Lastly, the Court stated that review of disparate impact claims should not
result in the second-guessing of reasonable policy alternatives. Id. at 544.
59. Notably, the Court cited HUD’s 2013 Final Rule with apparent approval on
multiple occasions, including with respect to aspects of the burden-shifting framework for
discriminatory effects claims. Id. at 527.
60. Additionally, the Court emphasized that one of the central purposes of the Fair
Housing Act was to combat residential racial segregation and to promote a more integrated society.
Id. at 529–30, 540, 546–47.
F. Development of Post-ICP Case Law
61. In the more than five years since the Supreme Court decided ICP, federal district
and appellate courts have interpreted and applied ICP’s discussion of disparate impact claims in a
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variety of contexts. None of their decisions, however, involved the complete reworking of the
disparate impact standard that HUD adopts in the 2020 Final Rule, as challenged in this suit.
62. For example, the Second Circuit held that the Supreme Court had implicitly
endorsed the standards of the 2013 Final Rule in ICP. Mhany Mgmt. Inc., 819 F.3d at 618–20. It
further found that the 2013 Final Rule was entitled to deference under Chevron U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Id at 619. Accordingly, the court
imposed on the plaintiff the burden of proving that there is an alternative policy or practice that
could serve a defendant’s interests with less discriminatory effect, reversing decades of circuit
precedent that imposed the burden on the defendant. Id.
63. Other courts of appeals have likewise affirmed the use of the burden-shifting
approach articulated in the 2013 Final Rule. See, e.g., Ave. 6E Invs., LLC v. City of Yuma, Ariz.,
818 F.3d 493, 510, 513 (9th Cir. 2016) (citing the 2013 Final Rule as authority for the proper
burden-shifting framework, without noting any inconsistency between the 2013 HUD rule and the
Supreme Court’s decision in ICP); Reyes v. Waples Mobile Home Park L.P., 903 F.3d 415, 423–
24 (4th Cir. 2018) (similar). Overall, out of more than 40 federal appellate and district court
decisions in disparate impact FHA cases following ICP, only one decision—that of the Fifth
Circuit in Inclusive Communities Project v. Lincoln Property Co., 920 F.3d 890 (5th Cir. 2019)—
found any inconsistency between the 2013 Final Rule and the Supreme Court’s decision in ICP.
Case 3:20-cv-01587 Document 1 Filed 10/22/20 Page 17 of 66
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The weight of case law post-ICP therefore supports the disparate impact burden-shifting
framework that existed prior to the 2020 Final Rule.
1
G. HUD’s Rulemaking Process, 2017-Present
64. The current leadership of HUD has made clear from the start that they intend to
undermine the scope of the FHA and its use in challenging housing policies that cause
discriminatory effects, or that stand in the way of creating integrated and inclusive communities.
65. Prior to assuming his position, in a June 23, 2015 op-ed, HUD Secretary Ben
Carson attacked disparate impact liability under the FHA, along with the 2015 Affirmatively
Furthering Fair Housing rule (“AFFH Rule”) as “social engineering” akin to other “failed socialist
experiments” like school busing. Ben Carson, Experimenting with Failed Socialism Again:
Obama’s New Housing Rules Try to Accomplish What Busing Could Not, The Washington Times
(June 23, 2015) https://www.washingtontimes.com/news/2015/jul/23/ben-carson-obamas-
housing-rules-try-to-accomplish-/. Notably, Carson’s opinion piece also took aim at the ICP
decision, endorsing Justice Alito’s dissent regarding the “unintended consequences” of permitting
disparate impact liability. Id.
66. Then-candidate Donald Trump reportedly pledged that he would repeal the 2015
AFFH Rule, which obligated governments receiving federal funding to identify and address fair
housing impediments in their communities. Kerry Picket, NY Official: Trump Will Discontinue
1
Moreover, the Fifth Circuit’s determination in Lincoln Property Co. turned on its interpretation
of the robust causality requirement referenced in ICP, a view that HUD declined to adopt in its
2020 Final Rule. 85 Fed. Reg. at 60,313 (stating that “HUD recognizes the concerns that
commenters have with the Lincoln Property Co. decision and does not intend to endorse the
decision”). Notably, in other parts of its decision, the Fifth Circuit continued to impose the burden
of showing a valid interest in the policy on defendants, and did not propose that plaintiffs bear the
burden of showing that their proposed less discriminatory alternative would be “equally effective”
as the challenged policy. 920 F.3d at 906, 909; Inclusive Communities Project v. Lincoln Property
Co., 2017 WL 2984048, *8 (N.D. Tex. 2017).
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19
Fed Takeover of Local Ordinances, Daily Caller (June 8, 2016),
https://dailycaller.com/2016/06/08/ny-official-trump-will-discontinue-fed-takeover-of-local-
ordinances/.
67. Once the current HUD leadership assumed office, these promises to stop measures
to advance fair housing were carried out. HUD attempted to suspend—without notice and
comment—a rule designed to afford Housing Choice Voucher holders greater access to low-
poverty communities that provide increased access to opportunity. This action was challenged
successfully by Plaintiff Open Communities Alliance. Open Cmtys. All. v. Carson, 286 F. Supp.
3d 148 (D.D.C. 2017). Then, in 2018, HUD suspended the 2015 AFFH Rule. Notice, Affirmatively
Furthering Fair Housing: Extending Deadline for Submission of Assessment of Fair Housing for
Consolidated Plan Participants, 83 Fed. Reg. 683 (Jan. 5, 2018). More recently, HUD again
bypassed notice and comment to issue a Final Rule dramatically gutting the AFFH Rule. See
Preserving Community and Neighborhood Choice, 85 Fed. Reg. 47,899 (Aug. 7, 2020).
68. In writing about HUD’s recent action on the AFFH Rule, President Trump echoed
the well-worn but false trope that the development of affordable housing in suburban areas,
presumptively linked to residential integration, would lead to decreased property values and
increased crime.
Case 3:20-cv-01587 Document 1 Filed 10/22/20 Page 19 of 66
20
69. President Trump has consistently reinforced this message, stating that his political
adversaries “are absolutely determined to eliminate single-family zoning, destroy the value of
houses and communities already built, just as they have in Minneapolis and other locations that
you read about today. Your home will go down in value and crime rates will rapidly rise.” The
White House, Remarks by President Trump on Rolling Back Regulations to Help All Americans,
WhiteHouse.Gov (July 16, 2020), https://www.whitehouse.gov/briefings-statements/remarks-
president-trump-rolling-back-regulations-help-americans/.
Case 3:20-cv-01587 Document 1 Filed 10/22/20 Page 20 of 66
21
70. This hostility toward fair housing laws and enforcement informed HUD’s approach
to rulemaking on disparate impact under the FHA. In 2017, HUD issued a notice soliciting public
comments pursuant to Executive Order 13777, Enforcing the Regulatory Reform Agenda, seeking
input on what regulations the department should eliminate. 82 Fed. Reg. 22,344 (May 15, 2017).
The fundamental premise of both the executive order and the notice, without substantiating
evidence, was that HUD had engaged in harmful overregulation.
71. On June 20, 2018, HUD issued an Advanced Notice of Proposed Rulemaking
(“ANPR”) titled Reconsideration of HUD’s Interpretation of Fair Housing Act’s Disparate Impact
Standard. 83 Fed. Reg. 28,560 (June 20, 2018). The ANPR posed six questions to the public for
comment. Each of the questions posed in the ANPR was a leading question clearly framed to
prompt members of the public to comment on the need to revise the 2013 Final Rule to make it
more difficult for complainants to establish liability.
72. Despite this leading framing, the overwhelming majority of unique public
comments on the ANPR were in support of the 2013 Final Rule and its consistency with the ICP
decision, disclaiming any need for revisions.
H. Promulgation of the 2020 Final Rule
73. On August 19, 2019, HUD issued a Notice of Proposed Rulemaking titled HUD’s
Implementation of the Fair Housing Act’s Disparate Impact Standard. 84 Fed. Reg. 42,854 (Aug.
19, 2019).
74. Again, HUD premised the need for changes to the 2013 Final Rule on alleged, but
unidentified, inconsistencies between that rule and the Supreme Court’s decision in ICP.
75. Among other changes, HUD proposed eliminating the definition of discriminatory
effects, changing what plaintiffs and defendants must show at each step of the burden-shifting
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22
analysis in ways that impose a significantly heavier burden on plaintiffs, creating multiple
exemptions from liability for defendants including for discriminatory algorithms, and restricting
the availability of punitive damages or civil monetary penalties.
76. HUD received 45,758 comments in response to the 2019 Proposed Rule. 85 Fed.
Reg. 60,289 (Sept. 24, 2020). The overwhelming majority of commenters opposed these changes
and made several arguments for why these changes were unnecessary and violated the statute and
prevailing case law.
77. Commenters objecting to the 2019 Proposed Rule include, among many others,
Plaintiff Open Communities Alliance
2
; the National Fair Housing Alliance on behalf of its
members, including Plaintiff SouthCoast Fair Housing, Inc.
3
; the American Civil Liberties Union
4
;
the Lawyers’ Committee for Civil Rights Under Law
5
; and the Poverty & Race Research Action
Council.
6
78. Notwithstanding these voluminous comments, on September 24, 2020, HUD
published a Final Rule (hereinafter “2020 Final Rule”) that shares most of the key, harmful and
2
Open Communities Alliance, Comment Letter on HUD’s Implementation of the Fair Housing
Act’s Disparate Impact Standard (hereinafter “OCA Comment”) (Oct. 18, 2019),
https://beta.regulations.gov/comment/HUD-2019-0067-3356.
3
National Fair Housing Alliance, Comment Letter on HUD’s Implementation of the Fair Housing
Act’s Disparate Impact Standard (hereinafter “NFHA Comment”) (Oct. 18, 2019),
https://beta.regulations.gov/comment/HUD-2019-0067-3079.
4
American Civil Liberties Union, Comment Letter on HUD’s Implementation of the Fair Housing
Act’s Disparate Impact Standard (hereinafter “ACLU Comment”) (Oct. 17, 2019),
https://beta.regulations.gov/comment/HUD-2019-0067-3539.
5
Lawyers’ Committee for Civil Rights Under Law, Comment Letter on HUD’s Implementation
of the Fair Housing Act’s Disparate Impact Standard (hereinafter “Lawyers’ Comm. Comment”)
(Oct. 18, 2019), https://beta.regulations.gov/comment/HUD-2019-0067-3244.
6
Poverty Race Research Action Council, Comment Letter on HUD’s Implementation of the Fair
Housing Act’s Disparate Impact Standard (hereinafter “PRRAC Comment”) (Oct. 16, 2019),
https://beta.regulations.gov/comment/HUD-2019-0067-1907.
Case 3:20-cv-01587 Document 1 Filed 10/22/20 Page 22 of 66
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legally unjustified provisions of the 2019 Proposed Rule. Unless enjoined, the 2020 Final Rule
will go into effect on October 26, 2020.
79. The 2020 Final Rule creates the following revisions to the disparate impact
standard:
(a) Eliminates the existing definition of discriminatory effect, including perpetuation of
segregation as an independent basis for liability.
(b) Requires plaintiffs to plead facts to support five elements: (1) that the challenged policy 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; (2) that the challenged
policy or practice has a disproportionately adverse effect on members of a protected class; (3)
that there is a robust causal link between the challenged policy or practice and the adverse
effect on members of a protected class, meaning that the specific policy or practice is the direct
cause of the discriminatory effect; (4) that the alleged disparity caused by the policy or practice
is significant; and (5) that there is a direct relation between the injury asserted and the injurious
conduct alleged. 24 C.F.R. § 100.500(b)(1)-(5).
(c) Changes the burdens of proof, which had been set forth in 24 C.F.R. § 100.500(c) (2013), to
establish that a policy or practice has a discriminatory effect by requiring that (i) a plaintiff
prove by a preponderance of the evidence the elements (2) through (5) above; (ii) a defendant
rebut a plaintiff’s allegation under element (1) by producing evidence showing that the
challenged policy or practice advances a valid interest; and (iii) in situations where a defendant
rebuts the plaintiff’s showing regarding the elements (2) through (5), requiring a plaintiff prove
by the preponderance of the evidence either that the interest advanced by the defendant is not
valid, or that a less discriminatory policy or practice exists that would serve the defendant’s
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24
interest in an “equally effective manner without imposing materially greater costs on, or
creating other material burdens for, the defendant.” 24 C.F.R. § 100.50(c)(1)-(3).
(d) Creates a new defense at the pleading stage and subsequent stages for defendants that can show
that their policy or practice was “reasonably necessary to comply with a third-party
requirement” such as a “[f]ederal, state, or local law”; “[b]inding or controlling court, arbitral,
administrative order or opinion”; or “[b]inding or controlling regulatory, administrative or
government guidance or requirement.” 24 C.F.R. § 100.50(d)(1), (d)(2)(iii).
(e) Creates another new defense after the pleading stage for defendants that can demonstrate that
their “policy or practice is intended to predict an occurrence of an outcome, the prediction
represents a valid interest, and the outcome predicted by the policy or practice does not or
would not have a disparate impact on protected classes compared to similarly situated
individuals not part of the protected class.” 24 C.F.R. § 100.50(d)(2)(i). However, this defense
is not adequate if the plaintiff demonstrates that an alternative, less discriminatory policy
would result in the same outcome of the policy without imposing materially greater costs on
or burdens for the defendant.
(f) Creates an exemption for homeowners’ insurance policies and practices that have a disparate
impact where the application of disparate impact liability would impair state regulation of the
business of insurance. 24 C.F.R. § 100.50(e).
(g) Restricts the availability of civil money penalties. 24 C.F.R. § 100.50(f).
(h) Provides for the severability of the framework of the burdens and defenses provisions.
24 C.F.R. § 100.50(g).
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25
80. The 2020 Final Rule does not discuss retroactivity, and thus it presumably will
apply to complaints currently pending with HUD as well as to discriminatory conduct that occurred
prior to its effective date.
THE 2020 FINAL RULE IS ARBITRARY, CAPRICIOUS, AND CONTRARY TO LAW
81. The 2020 Final Rule upends the well-established burden-shifting standard for
disparate impact claims by requiring plaintiffs to allege unprecedented prima facie elements,
creating new and onerous burdens of proof, and establishing novel defenses from liability.
82. The 2020 Final Rule replaces the disparate impact standard recognized by the 2013
Final Rule with one that dramatically raises the bar for bringing disparate impact claims, all under
the guise of complying with ICP. None of the changes this suit challenges, however, is required
by the Court’s decision in ICP, and HUD fails to provide adequate reasoning for the changes it
makes.
83. Most notably, the 2020 Final Rule:
(a) Eliminates liability based on a perpetuation of segregation claim, without acknowledging the
change or addressing the impact on parties interested in combatting segregation;
(b) Imposes an onerous, five-part pleading requirement that, among other things, obligates
plaintiffs to allege that a challenged policy or practice is “arbitrary, artificial, and unnecessary”
to achieve any “valid interest”—including “profit”;
(c) Abandons the well-established burden-shifting standard for disparate impact claims;
(d) Provides no opportunity for plaintiffs to respond to defendants’ assertions that their
discriminatory policies and practices serve valid interests by showing that there are less
discriminatory alternatives to promote those interests;
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26
(e) In circumstances where the rule seemingly permits plaintiffs to raise less discriminatory
alternatives, obligates them to prove that the less discriminatory alternative is “equally
effective” as the challenged practice and does not impose materially greater costs or burdens
on defendants;
(f) Adds new exemptions to liability for defendants with no support in statute or precedent; and
(g) Sharply limits the circumstances in which HUD will seek civil money penalties against
defendants in discriminatory effects cases.
84. In promulgating the Rule, HUD did not account for the voluminous comments
addressing how these changes would make it harder to advance disparate impact claims.
Commenters explained that raising the burden on plaintiffs to bring disparate impact claims, and
making it easier for defendants to escape liability, would result in many discriminatory housing
practices and policies remaining in place. HUD fails to acknowledge or address this impact, and
likewise fails to address how, in light of these challenges, the 2020 Final Rule would be more
likely to reduce housing discrimination and serve the purposes of the FHA than the 2013 Final
Rule.
I. HUD’s Elimination of Liability Based on the Perpetuation of Segregation Is
Arbitrary, Capricious, and Contrary to Law.
85. The 2020 Final Rule eliminates the 2013 Final Rule’s definition of “discriminatory
effect,” which confirmed that liability can be established under the FHA where a policy or practice
either results in a disparate impact on a group of persons, or “creates, increases, reinforces, or
perpetuates segregated housing patterns.” 24 C.F.R. § 100.500(a).
86. Courts have long recognized that a claim based on perpetuation of segregation is
an alternative basis for liability from a claim based on disparate impact. See, e.g., Huntington
Branch, 844 F.2d at 937 (“The discriminatory effect of a rule arises in two contexts: adverse impact
Case 3:20-cv-01587 Document 1 Filed 10/22/20 Page 26 of 66
27
on a particular minority group and harm to the community generally by the perpetuation of
segregation.”); Arlington Heights II., 558 F.2d at 1291; United States v. City of Black Jack, 508
F.2d at 1184–86. For the 2013 Final Rule, HUD recognized this precedent in crafting the definition
of “discriminatory effect,” noting that “[t]he Fair Housing Act was enacted to replace segregated
neighborhoods with ‘truly integrated and balanced living patterns.’” 78 Fed. Reg. 11,460 (quoting
Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 211 (1972)). HUD concluded that “[r]ecognizing
liability for actions that impermissibly create, increase, reinforce, or perpetuate segregated housing
patterns directly addresses the purpose of the Act.” Id. In particular, segregative-effects claims
have been especially crucial against municipalities that use their land-use powers to block
integrated housing developments in majority-white areas, in part because such claims can
challenge a particular action as well as overall policy, and focus on harm to the community and
not just to a racial minority or other protected class. See Robert G. Schwemm, Segregative-Effect
Claims Under the Fair Housing Act, at 713, https://uknowledge.uky.edu/law_facpub/618 (2017).
These cases comprise much of what Justice Kennedy referred to in ICP as the “heartland” of FHA
discriminatory effects jurisprudence. 576 U.S. at 539–40.
87. In its Preamble to the 2020 Final Rule, HUD seeks to obfuscate the effect of its
removal of “perpetuation of segregation” as an independent basis for liability under the Act. It
claims that its removal of the phrase “perpetuates segregated housing patterns” does not change
any obligation under the FHA, since perpetuation of segregation could still be “a harm prohibited
by disparate impact liability.” 85 Fed. Reg. at 60,306 (emphasis added). However, permitting
evidence of segregative effect to serve as proof of injury in support of a disparate impact claim is
not the same as recognizing an independent claim of perpetuation of segregation. HUD’s removal
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28
of this longstanding liability standard, its failure to acknowledge that it is changing its policy, and
its failure to articulate a valid reason for doing so, is arbitrary and capricious.
88. Further, HUD’s new requirements for stating a prima facie case of disparate impact
would undermine plaintiffs’ ability to bring a perpetuation of segregation claim. Notwithstanding
HUD’s generic statement, the 2020 Final Rule requires plaintiffs to prove, as an element of a prima
facie case, that the “challenged policy or practice has a disproportionately adverse effect on
members of a protected class.” 85 Fed. Reg. at 60,332 (to be promulgated at 24 C.F.R. §
100.500(b)(2)). This interpretation is contrary to law and HUD’s previous policy, as under the
perpetuation of segregation theory, the harm is to the community as a whole, and does not
necessarily have a disproportionately adverse effect on a particular group. 78 Fed. Reg. at 11,469
(“[T]he Act prohibits two kinds of unjustified discriminatory effects: (1) harm to a particular group
of persons by a disparate impact; and (2) harm to the community generally by creating, increasing,
reinforcing, or perpetuating segregated housing patterns.” (citing Graoch Assocs., 508 F.3d at 378;
Huntington Branch, 844 F.2d at 937; Arlington Heights II, 558 F.2d at 1290; Hallmark Developers,
Inc. v. Fulton County, 386 F. Supp. 2d 1369, 1383 (N.D. Ga. 2005)). Likewise, plaintiffs may not
be able to show that there is a “significant” alleged disparity, as required by the rule. 85 Fed. Reg.
at 60,332 (to be promulgated at 24 C.F.R. § 100.500(b)(4)).
89. By misrepresenting the import of its omission, HUD also ignores numerous
comments attesting to the importance of preserving the perpetuation of segregation theory to
combat discriminatory housing policies and advance the goals of the FHA. See, e.g., OCA
comment at 4–5; NFHA comment at 43–44; Lawyers’ Comm. Comment; Former DOJ Officials,
Comment Letter on HUD’s Implementation of the Fair Housing Act’s Disparate Impact Standard
(hereinafter “Former DOJ Officials Comment”) (Oct. 18, 2019) (on file with the ACLU); PRRAC
Case 3:20-cv-01587 Document 1 Filed 10/22/20 Page 28 of 66
29
Comment; Leadership Conf. on Civ. and Hum. Rts. Comment Letter on HUD’s Implementation
of the Fair Housing Act’s Disparate Impact Standard (Oct. 17, 2019) (on file with the ACLU).
HUD should heed the Supreme Court’s call that “[t]he FHA must play an important part in
avoiding the Kerner Commission’s grim prophecy that ‘[o]ur Nation is moving toward two
societies, one black, one white—separate and unequal,’” and that the FHA has a “continuing role
in moving the Nation toward a more integrated society.” ICP, 576 U.S. at 547 (quoting Kerner
Commission Report 1.).
II. HUD’s Heightened Pleading Standard for Disparate Impact Claims Is
Arbitrary, Capricious, and Contrary to Law.
90. The 2020 Final Rule creates a nearly insurmountable pleading and burden-shifting
standard for plaintiffs bringing disparate impact claims that is arbitrary, capricious, and contrary
to law.
91. Arbitrary, artificial, and unnecessary. HUD’s requirement that plaintiffs allege that
a policy or practice is “arbitrary, artificial, and unnecessary to achieve a valid interest” is contrary
to law. The 2020 Final Rule’s pleading requirements essentially shift the burden to the plaintiff to
show that a defendant has no valid interest in the challenged policy. However, decades of precedent
have established that it is a defendant’s burden to demonstrate a valid interest in order to avoid a
disparate impact claim. See, e.g., Langlois, 207 F.3d 43; Huntington Branch, 844 F.2d 926;
Resident Advisory Bd. v. Rizzo, 564 F.2d 126; Reyes, 903 F.3d at 423-24
; Lincoln Property Co.,
920 F.3d 890; Arthur v. City of Toledo, 782 F.2d 565; Metro. Hous. Dev. Corp., 558 F.2d 1283;
U.S. v. City of Black Jack, 508 F.2d 1179; Ave. 6E Invs., LLC v. City of Yuma, 818 F.3d at 512-13;
Mountain Side Mobile Ests. P’ship, 56 F.3d 1243.
92. Likewise, in ICP, the Supreme Court placed this burden squarely on the shoulders
of the defendant. The Court explained that “[a]n important and appropriate means of ensuring that
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30
disparate-impact liability is properly limited is to give housing authorities and private developers
leeway to state and explain the valid interest served by their policies.” 576 U.S. at 541 (emphasis
added). Although the Court mentioned that disparate impact claims are aimed at combatting
arbitrary, artificial, and unnecessary laws, id. at 522, 540, 543–44, the Court never asserted that
the plaintiff must allege that the challenged policy meets each of those descriptions. HUD fails to
consider whether the clear alternative—requiring the defendant to prove a valid interest in the first
instance—would achieve the interest highlighted by the Court in ICP.
93. Additionally, HUD does not explain why plaintiffs should be required to allege that
a defendant’s policy or practice falls into all three categories. For example, a policy may be
arbitrary and unnecessary without being “artificial”—i.e., a pretext to cover up discriminatory
intent. Yet HUD does not address how challenging it will be for plaintiffs to credibly allege that
challenged policies or practices possess all three flaws, even though commenters raised this
specific issue. NFHA Comment at 13–16.
94. By requiring plaintiffs to credibly allege that the policy or practice at issue serves
no purpose in achieving a valid interest, HUD arbitrarily and capriciously reverses the position it
took in promulgating the 2013 Final Rule, without displaying awareness of the change in position
or providing good reasons for the new policy. HUD states that ICP does not preclude the
requirement from being part of a prima facie case, but that does not explain why it should be
included. Nor does HUD explain what was deficient in its prior reasoning, embodied in the 2013
Final Rule, that assigning the burden of persuasion on valid interest to the defendant avoided the
undesirable outcome of requiring either party to prove a negative. 78 Fed. Reg. at 11,474.
95. HUD contends that placing this burden on the plaintiff will aid in the timely
resolution of frivolous disparate impact clams. But in promulgating the 2013 Final Rule, HUD
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31
rejected that contention, reasoning that, “[g]iven how the discriminatory effects framework has
been applied to date by HUD and by the courts, HUD does not believe that the rule will lead to
frivolous investigations or create excessive litigation exposure for respondents or defendants.” 78
Fed. Reg. at 11,472. HUD does not explain what has changed to justify its reversal in position.
96. Further, numerous commenters raised substantial issues with HUD’s proposal to
require plaintiffs to allege that the policy is arbitrary, artificial, and unnecessary, including that:
plaintiffs are not well positioned to know the interests served by a policy, see NFHA Comment at
11, 17; ACLU Comment, Lawyers’ Comm. Comment; Former DOJ Officials Comment; NYC
Bar, Comment Letter on HUD’s Implementation of the Fair Housing Act’s Disparate Impact
Standard (hereinafter “NYC Bar Comment”) (Oct. 15, 2019) (on file with the ACLU); there are
rarely policies that do not serve some valid interest—particularly a profit interest—making it
difficult for plaintiffs to get past the pleading stage, see ACLU Comment; and that overall, this
requirement will increase the difficulty of bringing a disparate impact claim, see OCA Comment
at 5, NFHA Comment at 16–18, ACLU Comment, Former DOJ Officials Comment, NYC Bar
Comment. HUD does not address any of these problems with this first requirement, rendering its
decision to require plaintiffs to allege it as an element of a prima facie case arbitrary and capricious.
97. Disproportionately adverse effect. HUD requires that plaintiffs allege that a policy
or practice has a “disproportionally adverse effect on members of a protected class,” without
addressing how this requirement undermines perpetuation of segregation claims. Under a
perpetuation of segregation claim, the challenged policy or practice may not have a
disproportionately adverse effect on a member of a protected class, as harms of segregation may
impact the whole community. See, e.g., 78 Fed. Reg. at 11,469. Under the 2013 Final Rule, HUD
explained that for a plaintiff to “establish a prima facie case of discriminatory effects liability,”
Case 3:20-cv-01587 Document 1 Filed 10/22/20 Page 31 of 66
32
the plaintiff “must show that members of a protected class are disproportionately burdened by the
challenged action, or that the practice has a segregative effect.” 78 Fed. Reg. 11,468. HUD offers
no reasoned basis for reversing its policy of recognizing such effects as sufficient for a prima facie
case; does not consider including that additional clause; and fails to address the impact of leaving
that clause out of its 2020 Final Rule.
98. Burdens of proof. The 2013 Final Rule laid out a clear burden-shifting standard, in
three stages. First, a plaintiff proved that a challenged practice caused a discriminatory effect (stage
one). Next, the burden moved to the defendant, to persuade the decisionmaker that the challenged
practice was necessary to achieve certain interests (stage two). 24 C.F.R. § 100.500(c)(1), (2)
(2013). If the defendant did so, the ball moved back to the plaintiff’s court, where the plaintiff had
the opportunity to prove that the defendant’s “substantial, legitimate, nondiscriminatory interests
. . . could be served by another practice that has a less discriminatory effect” (stage three). 24
C.F.R. § 100.500(c)(3) (2013). In codifying this standard in the 2013 Final Rule, HUD explained
that granting a plaintiff the opportunity to raise less discriminatory alternatives was consistent with
near-unanimous precedent among the circuits, which varied only in which party had the burden of
proof on that point. 78 Fed. Reg. at 11,473. HUD emphasized that giving the plaintiff this
opportunity was crucial to create an “incentive” “to consider possible ways to produce a less
discriminatory result”; otherwise, “[e]ncouraging covered entities not to consider alternatives
would be inconsistent with Congress’s goal of providing for fair housing throughout the country.”
Id.
99. The 2020 Final Rule decimates this burden-shifting standard, replacing it with a
confusing, nonlinear series of “showings” that a plaintiff must make to first plead and then prove
Case 3:20-cv-01587 Document 1 Filed 10/22/20 Page 32 of 66
33
its prima facie case.
7
First, once a plaintiff has alleged the first element of the required five-part
pleading requirement—that a policy is “arbitrary, artificial, and unnecessary”—a defendant may
rebut the allegation by producing evidence showing the policy “advances a valid interest (or
interests).” 85 Fed. Reg. at 60,332–33 (to be promulgated at 24 C.F.R. § 100.500(c)(2)). HUD
does not explain why defendants have only the burden of production, rather than persuasion, as to
their valid interest, even though every court to address the question has held that defendants or
respondents in FHA cases have the burden of persuasion to justify their policy. Moreover, under
the 2020 Final Rule, if a defendant produces such evidence, the analysis stops there. Unlike the
2013 Final Rule, the 2020 Final Rule offers no opportunity for a plaintiff to then suggest that a
less discriminatory policy that exists. In other words, the 2020 Final Rule offers no pathway for a
plaintiff to move from stage two to stage three: It is simply silent on what happens after a defendant
rebuts the first element—whether the case ends; whether the plaintiff then reverts to stage one to
allege (and then prove) the remaining elements; or something else. The most natural reading of the
text would support the dismissal of the case, cutting off plaintiffs’ ability to further prove their
claims.
100. Meanwhile, to prove a prima facie case, a plaintiff is required to prove, by a
preponderance of the evidence, elements (2) through (5). Id. at 60,332 (to be promulgated at 24
C.F.R. § 100.500(c)(1)). If a defendant rebuts the plaintiff’s evidence as to elements (2) through
7
While acknowledging that it cannot prescribe standards for the federal courts, HUD seems to
anticipate that its new pleading requirements will in fact be adopted by them. See, e.g., 85 Fed.
Reg. at 60,288 (stating that the “Final Rule establishes a uniform standard” for determining FHA
violations), 60,307 (attempting to square requirements with Federal Rules of Civil Procedure). Yet
the pleading regime laid out by the Rule is at significant odds with the basics of civil procedure: It
requires a plaintiff to plead affirmative defenses by anticipating and pleading around the “valid
interest or legitimate objective” of a defendant, even before a defendant raises it. 85 Fed. Reg. at
60,332 (to be promulgated at 24 C.F.R. § 100.500(b)(1).
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(5), the plaintiff must then prove by a preponderance of the evidence either that the asserted
interest(s) are not valid, or that “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.” Id. at 60,333 (to
be promulgated at 24 C.F.R. § 100.500(c)(3). Again, it is not clear how this series of steps
interacts—or does not—with those required for the first element of the five-element pleading
requirement.
101. By splitting the familiar first stage of the burden-shifting standard into two, and
then assigning separate burden shifts to each, HUD has created a confusing landscape wherein a
plaintiff has the critical opportunity to offer a less discriminatory alternative only if a defendant
successfully rebuts elements (2) through (5) of its prima facie case, but not if the defendant rebuts
the first element alone.
102. HUD offers no reason for reversing its policy or departing from longstanding legal
precedent as to the burden-shifting standard, instead claiming that plaintiffs can still prove that
there are less discriminatory alternatives. See, e.g., 85 Fed. Reg. at 60,321. But that is not what the
text of the 2020 Final Rule says. The text of the Rule does not give them that opportunity as part
of rebutting defendants’ showing of a valid interest—notwithstanding HUD’s acknowledgement
that the plaintiff’s ability to raise the existence of a less discriminatory alternative “has been
recognized consistently by courts in Title VII and Title VIII disparate impact cases.” Id.
103. Additionally, the public did not have an opportunity to comment on HUD’s
decision to strip the plaintiff of this opportunity to demonstrate a less discriminatory alternative.
The proposed rule gave no indication of these changes, instead laying out three stages similar to
the 2013 Final Rule: once the defendant rebuts the plaintiff’s assertion that the policy is arbitrary,
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artificial, and unnecessary, the defendant can produce evidence that the policy advances a valid
interest, and then the plaintiff can prove by a preponderance of the evidence that a less
discriminatory policy or practice exists. 84 Fed. Reg. at 42,863. HUD’s edits in creating the 2020
Final Rule are inconsistent with what was proposed, which only increases the confusion.
104. Finally—and assuming that a plaintiff can even reach the third stage—the
requirement that a plaintiff prove that the less discriminatory alternative serve a defendant’s
interest “in an equally effective manner” is a complete reversal from the position HUD took in
promulgating the 2013 Final Rule. At that time, HUD explicitly rejected the suggestion that the
less discriminatory alternative proposed by a plaintiff had to be “equally effective” in serving the
defendant’s interests. 78 Fed. Reg. at 11,473. HUD reasoned that the 2013 Rule’s language, which
required the plaintiff to prove “that the substantial, legitimate, nondiscriminatory interests
supporting the challenged practice could be served by another practice that has a less
discriminatory effect,” 24 C.F.R. § 100.500(c)(3), “is consistent with the Joint Policy Statement,
with Congress’s codification of the disparate impact standard in the employment context, and with
judicial interpretations of the Fair Housing Act.” 78 Fed. Reg. at 11,473 (footnote omitted). HUD
went on to reason that borrowing the “equally effective” modifier from the “superseded Wards
Cove case, is even less appropriate in the housing context than in the employment area in light of
the wider range and variety of practices covered by the Act that are not readily quantifiable,” and
went on to question whether “Wards Cove even governs Fair Housing Act claims.” Id.
105. Although HUD now reverses its position and adds the “equally effective” modifier,
HUD does not provide credible reasons for the new policy—particularly in light of the prior
considerations outlined in the 2013 Final Rule. The only reason HUD provides is that the
requirement is “consistent” with ICP, but nowhere in the Court’s opinion does it require a plaintiff
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to show that a less discriminatory alternative is “equally effective” at advancing defendant’s
interest. The ICP Court does state that the FHA should not be construed “to impose onerous costs
on actors who encourage revitalizing dilapidated housing in our Nation’s cities merely because
some other priority might seem preferable.” ICP, 576 U.S. at 541. But the Court was not speaking
directly to the burden-shifting framework or what standard plaintiffs must meet when advancing a
less discriminatory alternative. Further, there is quite some distance between an alternative that
may not be “equally effective” at achieving a defendant’s interests, and one that places an
“onerous” burden on defendants.
106. HUD does not explain why it is imposing a higher standard than is even alluded to
by ICP. Instead, it restates that its new requirement balances the relevant interests by requiring
that a less discriminatory alternative “is one that will not unduly harm defendants.” 85 Fed. Reg.
at 60,321. Once again, there are less discriminatory alternatives that may not “unduly” harm
defendants, though they may not “equally” serve their interests—and HUD neither acknowledges
nor explains this gulf in its reasoning.
107. HUD has also inserted new requirements that a less discriminatory alternative serve
a defendant’s interest without “imposing materially greater costs on, or creating other material
burdens for, the defendant.” 85 Fed. Reg. at 60,333 (to be promulgated at 24 C.F.R. §
100.500(c)(3)). HUD appears to base these added requirements solely on language from ICP,
quoted above in Paragraph 105, that refers to the avoidance of “onerous” costs. 576 U.S. at 541. It
is arbitrary and capricious to require plaintiffs to show that a less discriminatory alternative would
not result in materially greater costs (or other material burdens), as that requirement is a much
more difficult showing than one focused solely on the avoidance of the more severe category of
“onerous” costs—and HUD has offered no reason for creating such a requirement.
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III. HUD’s Creation of Exemptions from the Disparate Impact Burden-Shifting
Standard is Arbitrary, Capricious, and Contrary to Law.
108. In the 2020 Final Rule, HUD has created two new defenses for defendants in
discriminatory effects cases, separate from the burden-shifting standard laid out in 24 C.F.R.
§ 100.500(b)–(c). Fashioning new exemptions and attempting to weave them into the disparate
impact standard is contrary to decades of jurisprudence. When challenged, HUD does not point to
a single precedent wherein a court authorizes a particular defense that is not subject to the
applicable burden-shifting or balancing test, instead stating without explanation that it “believes
that the proposed framework is consistent with existing case law.” 85 Fed. Reg. at 60,315.
109. Instead, HUD denies that it is creating “a practice-specific exemption or safe
harbor,” 85 Fed. Reg. at 60,316, but does not explain its reasoning as to why the two defenses
listed are not exemptions or safe harbors. If, as HUD states, “a defendant who can prove the
defense has necessarily shown that the defendant cannot be liable,” 85 Fed. Reg. at 60,316, HUD
needs to explain why the exemptions are necessary at all, as the defendant could already avoid
liability without the exemptions.
110. Further, HUD has already spoken on the issue of exemptions. In promulgating the
2013 Rule, HUD refused requests to create explicit exemptions, noting that “creating exemptions
beyond those found in the Act would run contrary to Congressional intent.” 78 Fed. Reg. at 11,475
(citing Graoch Assocs., 508 F.3d at 375 (explaining that “we cannot create categorical exemptions
from it without a statutory basis. . . . [and] [n]othing in the text of the FHA instructs us to create
practice-specific exceptions”); see also id. at 11,477 (“HUD notes further that Congress created
various exemptions from liability in the text of the Act, and that in light of this and the Act’s
important remedial purposes, additional exemptions would be contrary to Congressional intent.”).
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HUD does not acknowledge that it is changing its policy toward the creation of exemptions, or
provide any reasons for their creation in light of its past position.
111. There are limited exemptions to the disparate impact standard listed in 24 C.F.R. §
100.10, but they all correspond to statutory exemptions. HUD does not have the statutory authority
to create exemptions to the disparate impact standard out of whole cloth, and does not point to any
legislative intent for it to create these exemptions specifically.
112. The first exemption HUD creates allows a defendant to establish either that a
plaintiff failed to plead facts in support of a prima facie case, or that a plaintiff failed to establish
that a policy or practice has a discriminatory effect, if the defendant shows it was “reasonably
necessary to comply with a third party requirement.” 85 Fed. Reg. at 60,333 (to be promulgated at
24 C.F.R. § 100.500(d)(1), (2)(iii). HUD lists three such requirements, including “[f]ederal, state,
or local law”; “[b]inding or controlling court, arbitral, administrative order or opinion”; and
“[b]inding or controlling regulatory, administrative or government guidance or requirement.” Id.
113. HUD’s explanation of this defense is internally inconsistent, rendering its reasoning
in promulgating the defense arbitrary and capricious. On the one hand, HUD states that it “believes
that this defense should be permitted only when the policy or practice is legally mandated by a
third party.” 85 Fed. Reg. at 60,317 (emphasis added). HUD cites dicta from ICP to support the
proposition that, where federal law substantially limits a defendant’s discretion, a plaintiff may not
have demonstrated a causal connection sufficient to make out a prima facie case of disparate
impact. 576 U.S. at 543. Yet elsewhere, HUD avers that “[t]he defendant should not be required
to show that its policy is the only possible way to comply with the third-party requirement, so long
as its policy is reasonably necessary . . . there may have been other ways of complying with the
restricting law or order.” 85 Fed. Reg. at 60,290 (emphasis added). Nowhere did the Supreme
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Court in ICP state that discriminatory effects liability should not attach where the law (or other
authority) that purportedly binds the defendant is not federal in nature.
114. This caveat means that HUD has created a defense that denies plaintiffs any
opportunity to address whether, despite the third party’s requirement, there were less
discriminatory options available to the defendant. While the Court in ICP may have been
concerned with ensuring that plaintiffs present sufficient evidence of a causal connection, the
exemption HUD has crafted allows for defendants to escape liability while electing to move
forward with more discriminatory policies and practices. HUD does not address why defendants
should be exempt from such a showing, what the harm will be to plaintiffs prevented from
addressing their claims by defendants invoking this defense, or how this defense advances its
interest in affirmatively furthering fair housing.
115. The second exemption was created by HUD with no opportunity for the public to
comment. In the 2019 Proposed Rule, HUD crafted a defense that would apply “[w]here a plaintiff
alleges that the cause of a discriminatory effect is a model used by the defendant, such as a risk
assessment algorithm,” and the defendant is able to show that the model’s inputs do not rely on
substitutes or close proxies for protected classes, but is predictive of a valid objective; that the
model is produced, maintained, or distributed by a recognized third party—not the defendant; and
that the model has been subjected to critical review and validated by a third party. 84 Fed. Reg. at
42,862.
116. In response to concerns from commenters, HUD eliminated the proposed defense
and replaced it with completely new language. The new exemption now permits a defendant to
escape liability where:
The policy or practice is intended to predict an occurrence of an outcome, the
prediction represents a valid interest, and the outcome predicted by the policy or
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practice does not or would not have a disparate impact on protected classes
compared to similarly situated individuals not part of the protected class, with
respect to the allegations under paragraph (b). This is not an adequate defense,
however, if the plaintiff demonstrates that an alternative, less discriminatory policy
or practice would result in the same outcome of the policy or practice, without
imposing materially greater costs on, or creating other material burdens for the
defendant.
85 Fed. Reg. at 60,333 (to be promulgated at 24 C.F.R. § 100.500(d)(2)(i)).
117. This exemption is not a logical outgrowth of the exemption for use of algorithms
that was proposed. If HUD had proposed this exemption, commenters would have had the
opportunity to address the confusing nature of the exemption, and concerns about its impact on
plaintiffs’ ability to advance disparate impact claims. In particular, commenters could have had
the opportunity to address the lack of statutory authorization for such an exemption, the vague and
confusing wording of the exemption, and the wide range of potentially harmful policies that could
be inoculated from liability by the exemption. By inserting this exemption at the last minute, HUD
deprived the public of the right to notice and comment, and did not fulfill its procedural obligations
under the APA.
IV. Taken as a Whole, the Final Rule’s Entirely New Standard Is Arbitrary,
Capricious, and Contrary to Law.
118. Taken together, the changes to the disparate impact standard that HUD would
implement through the 2020 Final Rule are contrary to law as they upend a well-established
standard. They are also arbitrary and capricious, as HUD fails to address its change in position or
the comments addressing the harms this change will engender to those impacted by housing
discrimination, and does not provide a good reason for the change. Finally, HUD does not
adequately address the costs of its new Rule.
119. While the circuits were not unanimous in articulating a disparate impact standard
in advance of the 2013 Final Rule, there was a commonality to the circuits’ approach that the 2013
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Final Rule embraced and the 2020 Final Rule rejects. None of the circuit courts rejected a
perpetuation of segregation claim, as the 2020 Final Rule does. They also did not impose a standard
that simultaneously (1) puts the burden on plaintiffs to allege that a policy is arbitrary, artificial,
and unnecessary; (2) denies plaintiffs the opportunity to show less discriminatory alternatives
where defendants have produced evidence that the policy advances a valid interest; (3) requires
plaintiffs to propose an equally effective less discriminatory alternative in the situations where
they are permitted to respond to defendants’ rebuttals; and (4) creates explicit exemptions from
the disparate impact standard.
120. The standard is also completely unlike the disparate impact standard recognized in
Title VII or ADEA caselaw. Courts have long held that the FHA is to be interpreted in accordance
with relevant interpretations of Title VII of the Civil Rights Act of 1964, which addresses
employment discrimination on the basis of membership in an enumerated protected class. See, e.g.,
Resident Advisory Bd. v. Rizzo, 564 F.2d at 146; Betsey v. Turtle Creek Assocs., 736 F.2d 983,
986-88 (4th Cir. 1984); Graoch Assocs., 508 F.3d at 372-74 (holding courts should apply a burden-
shifting framework based on established Title VII jurisprudence). The Supreme Court likewise
recognized the connection in interpretation between the FHA and Title VII in ICP, noting Title
VII’s equivalent language and function to the FHA’s. Id. at 520. What HUD has created and
intends to implement through the 2020 Final Rule is an impermissible construction of the FHA’s
disparate impact standard, and falls outside the reasonable bounds of interpretation.
121. Congress, meanwhile, was aware of the contours of the burden-shifting standard
applied by the circuit courts and recognized through Title VII law when it significantly amended
the FHA in 1988. Yet it declined to change the language of the FHA or reject the standards
developed in the circuits, as HUD does now. Congress’s ratification of the disparate impact
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standard was cited by the Supreme Court in support of its holding in ICP. 576 U.S. at 535–36. The
Court concluded that “Congress was aware of this unanimous precedent” when it amended the
FHA, meaning “it made a considered judgment to retain the relevant statutory text.” Id. at 536.
122. HUD also invoked this history in promulgating the 2013 Final Rule. 78 Fed. Reg.
at 11,467. There, HUD described the disparate impact standard it put forth as merely
“formaliz[ing] that well-settled interpretation of the Act.” 78 Fed. Reg. at 11,479. Yet HUD does
not acknowledge its deviation from that “well-settled interpretation” in promulgating the 2020
Final Rule.
123. Instead, HUD asserts two contradictory positions. HUD first argues that because
the 2020 Final Rule allows disparate impact claims to proceed, it does not need to address the
impact of its changes. But, as described above, HUD has crafted entirely new elements—without
support from precedent, or justification—and has made them requirements to bring a disparate
impact claim. HUD then reverses position and admits to the changes, but argues that the Rule is
needed—at least in part—to conform to ICP. Neither position withstands scrutiny.
124. First, as described above, see supra at paragraphs 4, 56–60, ICP does not in fact
require many of the changes that HUD advances through the Final Rule. Indeed, that was HUD’s
original position. Following the Court’s recognition of disparate impact liability under the FHA,
HUD explicitly took the position that “Inclusive Communities is fully consistent with the standard
that HUD promulgated relying on these preexisting sources of law,” referring to “existing law
under the FHA and Title VII.” Defs. Mem. at 33, Am. Ins. Ass’n v. U.S. Dep’t of Hous & Urb.
Dev., 74 F. Supp. 3d 30 (D.D.C. 2014), No. 13-cv-00966 (D.D.C. Aug. 30, 2016), ECF No. 65.
HUD cited the Court’s acknowledgment that “disparate-impact liability has always been properly
limited in key respects,” ICP, 576 U.S. at 540 (emphasis added), and its citation of the 2013 Final
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Rule as evidence that the Court “was not calling for a significant departure from preexisting FHA
and Title VII precedents.” Defs. Mem. at 33–34. HUD’s brief in that case goes into detail about
specific provisions of the 2013 Final Rule and the Court’s holding to illustrate that the 2013 Final
Rule was consistent with ICP. HUD does not provide a good reason for changing its position from
only four years ago.
125. Second, although HUD acknowledges changes from the 2013 Final Rule, it refuses
to address the impact of those changes. Instead, HUD repeatedly asserts that “the Final Rule still
recognizes disparate impact as a viable theory of discrimination,” 85 Fed. Reg. at 60,296, and then
claims without proof or justification that “the Final Rule will better serve the 2013 Rule’s
purposes.” 85 Fed. Reg. at 60,296. Yet even if the “Final Rule still allows disparate impact claims
to be brought,” 85 Fed. Reg. at 60,297, that does not mean that the same claims will be brought,
or that they will be as effective at combatting housing discrimination. It is not enough to claim
that, because “the Final Rule does not remove the availability of disparate impact claims to address
Fair Housing Act violations,” that it “does not change the societal benefits of HUD’s
implementation of the Fair Housing Act.” 85 Fed. Reg. at 60,296 (emphasis added). The new
standard completely undoes the standard established by the 2013 Final Rule. HUD cannot rest on
disparate impact liability remaining an option—it must address the effect of its changes to the
pleading and burden shifting standard. And HUD offers no evidence or reasoning as to why the
changes it makes will better serve the FHA’s goals.
126. Additionally, HUD “acknowledges,” but does not address, the numerous comments
offering detailed descriptions of the negative impact the Rule will have on plaintiffs’ ability to
successfully challenge housing discrimination. See, e.g., NFHA Comment at 2 (“The cumulative
effect of these proposed changes would be to require dismissal of what should be meritorious
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disparate impact claims” and “would eliminate the duty and incentive of regulated entities to seek
out less discriminatory alternatives”); OCA Comment at 2, 4 (same); ACLU Comment (same);
Lawyers’ Committee Comment (same); New Economy Project Comment (“The proposed rule is
deeply flawed. It would shift the burden of proof and impose inordinately high barriers that would
make it virtually impossible to bring housing discrimination cases.”); National Housing Law
Project Comment (“In proposing this Rule, HUD is effectively taking away yet another potential
tool that Housing Choice Voucher families can use to challenge discriminatory policies of housing
providers having blanket policies of rejecting Section 8 Vouchers, particularly in low-poverty
areas.”); National Low Income Housing Coalition Comment (“The proposed rule would make it
virtually impossible for people in protected classes to challenge a range of policies or practices
that can harm them, including [h]ousing provider policies that allow only one person per room,
which excludes families with children from housing that they can afford because they have to rent
more expensive units.”). At most, “HUD also agrees that [the Rule] will benefit banks and
landlords,” which means that HUD implicitly admits that the 2020 Final Rule hurts those plaintiffs
who are suing banks and landlords for discrimination. Yet again, HUD fails to account for the
impact of its changes, and specifically, for the impact of making it harder to bring disparate impact
claims.
127. For example, HUD fails to address the barriers that the 2020 Final Rule erects for
domestic violence survivors who face eviction because of leases and other policies that hold
tenants responsible for any alleged criminal activity occurring in their household, even when they
are the victim, despite the many comments filed raising this concern. See, e.g., ACLU Comment
at 10-12; Nat’l Women’s Law Ctr., Comment Letter on HUD’s Implementation of the Fair
Housing Act’s Disparate Impact Standard (HUD-2019-0067-3324) (hereinafter “Nat’l Women’s
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Law Ctr Comment”) (Oct. 18, 2019) (on file with ACLU) at 24-26. HUD completely avoids the
issue in its response to these comments, stating “this Final Rule leaves unchanged HUD’s
regulatory protections, which are separate from the Fair Housing Act” with a citation to the federal
Violence Against Women Act. 85 Fed. Reg. at 60,297. It therefore ignored the commenters’ point
that the 2020 Final Rule restricts the ability of domestic violence survivors to rely on FHA
disparate impact liability to challenge facially neutral policies that disproportionately harm women
survivors. This is crucial as the protections of the FHA and Violence Against Women Act are not
co-extensive, with VAWA reaching only a small subset of housing covered by the FHA.
128. Similarly, HUD fails to address the 2020 Final Rule’s burdens on vulnerable
families who are disproportionately locked out of housing options by policies that reject renters
with housing vouchers, create inflexible credit requirements, reduce the availability of multi-
family rental units, or restrict the maximum occupancy per unit. See, e.g., Nat’l Women’s Law
Ctr. Comment at 27; Pub. Interest Law Ctr. Comment Letter in Response to Proposed Rulemaking:
HUD’s Implementation of the Fair Housing Act’s Disparate Impact Standard (HUD-2019-0067-
2615) (Oct. 18, 2019) (on file with ACLU), at 2 n.6, 7 n.27, 11; Jared Huffman, Comment letter
on Reconsideration of HUD’s Implementation of the Fair Housing Act’s Disparate Impact
Standard (HUD-2019-0067-2355) (Oct. 16, 2019) (on file with the ACLU), at 20.
129. For example, in a current disparate impact lawsuit alleging that a redevelopment
plan to reduce multi-bedroom apartments discriminated based on familial status, under the new
rule, defendants could have the case dismissed by simply pleading that the policy was necessary
for a legitimate new occupancy standard. Pub. Interest Law Ctr. Comment at 10–11. Without
discovery, plaintiffs would not be able to obtain the information necessary to refute the alleged
objective. Id. Because disparate impact claims will be much less available under the Final Rule,
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commenters voiced concerns that the housing market will return to “pre-1988 conditions in which
one-quarter of rental housing was restricted against families with children.” 85 Fed. Reg. at 60,296.
130. Additionally, HUD shirked its responsibility to address concerns that the Rule
would aid landlords who use criminal backgrounds checks to deter and refuse applicants of color
in escaping disparate impact liability. 85 Fed. Reg. at 60,330. See also Columbia Legal Serv.
Comment Letter in Response to Proposed Rulemaking: Implementation of the Fair Housing Act’s
Disparate Impact Standard (herein after “Columbia Legal Serv. Comment”) (HUD-2019-0067-
3619) (Oct. 18, 2019) (on file with the ACLU), at 3–4. The disparate impact theory is a primary
tool used to hold such landlords accountable, particularly for implicit bias which is otherwise
factually challenging to prove. Columbia Legal Serv. Comment, at 1, 5. By making disparate
impact claims almost impossible to bring, HUD protects the use of discriminatory criminal
background checks, which often have devastating consequences for families. Id. at 6. For example,
a family with one parent with a criminal history may have to choose to split up in order to keep
their children housed. Id.
131. HUD’s only attempt to claim that the 2020 Final Rule will actually help combat
discrimination is asserting that “the Final Rule provides greater clarity on the use of disparate
impact to address alleged violations in a manner that increases the rule’s effectiveness so as to best
eliminate discriminatory practices.” 85 Fed. Reg. at 60,296. First, HUD’s self-serving statement
that the 2020 Final Rule “provides greater clarity” is not supported by the actual text of the 2020
Final Rule, complete with multiple complicated, yet undefined, new pleading requirements; brand-
new exemptions; and a confusing burden-shifting regime that is arguably internally inconsistent
and outlines multiple conflicting pathways for a case’s progression. Regardless, even if it were
true that the 2020 Final Rule “provides greater clarity,” HUD does not explain how this alleged
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“clarity” furthers the interest of the FHA in decreasing housing discrimination and segregation
helps to eliminate discriminatory practices. Greater clarity in applying a burdensome rule can just
as easily lead to the quick dismissal of plaintiffs’ meritorious claims.
132. Finally, HUD’s regulatory impact analysis, which is required under Executive
Order 12,866 because the Rule is a “significant regulatory action,” impermissibly disregards
evidence of significant indirect and direct costs imposed by the Rule. See Exec. Order No. 12,866,
58 Fed. Reg. 51,735 (Oct. 4, 1993). HUD ignores the increased costs to plaintiffs and fair housing
organizations of bringing disparate impact claims under the new standard, including the increased
burdens on complainants who pursue administrative remedies through HUD, or the increased costs
of seeking relief through the federal courts (where it may sometimes be possible to ignore the HUD
standard) and thereby missing out on the benefits of HUD’s administrative investigation and
complaint process. See, e.g., NYU Furman Center & U.C. Berkeley Terner Center for Housing
Innovation, Comment Letter on HUD’s Implementation of the Fair Housing Act’s Disparate
Impact Standard (HUD-2009-0067-2488) (Oct. 17, 2019) (on file with the ACLU) (observing that
“it is particularly important that HUD consider whether any proposed regulation will result in
increased or decreased access to fair housing, given that HUD’s ‘discretion must be exercised
within the framework of the national policy against discrimination in federally assisted housing
and in favor of fair housing”). HUD also does not address the costs of eliminating perpetuation of
segregation claims—both because of the increased difficulty of desegregating communities, and
because of the costs of continued segregation. Id. at 4 (noting that the failure to engage with
“abundant research” on the harms of residential segregation and exclusion from housing “is a
serious deficiency” in the proposed rule). Finally, HUD does not address the increased costs to
organizations that fight to eliminate housing discrimination, and will now need to divert resources
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to coping with the discrimination that will remain in place as it cannot be challenged under the
new standard. Id. at 5 (“there is no doubt that fewer disparate impact claims will be brought and
fewer will succeed . . . imposing significant costs on those who would otherwise be protected by
the Fair Housing Act.”).
V. The Rule Is Contrary to HUD’s Statutory Obligation to Affirmatively Further
Fair Housing.
133. When Congress enacted the FHA in the immediate aftermath of the assassination
of Dr. Martin Luther King, Jr. and in response to the recommendations of the Kerner Commission,
it sought to replace racially segregated neighborhoods with “truly integrated and balanced living
patterns.” Trafficante, 409 U.S. at 211 (citing 114 Cong. Rec. 3422, statement of FHA sponsor
Senator Walter Mondale). Consistent with this legislative purpose, in addition to barring
discrimination in housing, the FHA imposed on HUD the obligation to “administer the programs
and activities relating to housing and urban development in a manner affirmatively to further the
policies of this subchapter.” 42 U.S.C. § 3608(e)(5). Effective implementation of this provision is
central to the “Fair Housing Act’s continuing role in moving the Nation toward a more integrated
society.” ICP, 576 U.S. at 547.
134. As the FHA’s legislative history and subsequent case law make clear, this duty to
“affirmatively further fair housing” (“AFFH”) requires HUD to address segregation and other
barriers to fair housing in its own policies and practices. HUD’s duty under the FHA requires it to
“do more than simply refrain from discriminating,” N.A.A.C.P. v. Secretary of Housing and Urban
Development, 817 F.2d 149, 155 (1st Cir. 1987). Rather, HUD’s duty to affirmatively further fair
housing must also include taking steps “that overcome patterns of segregation and foster inclusive
communities free from barriers that restrict access to opportunity based on protected
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characteristics.” 80 Fed. Reg. 42,289. This duty extends to the administration of all of HUD’s
grants and activities, as Congress intended, including through its fair housing enforcement.
135. HUD honored this duty, supported by the aforementioned congressional intent and
long-standing jurisprudence, with the inclusion of perpetuation of segregation claims in the 2013
Final Rule. These claims are crucial for fair housing advocates and direct service providers to hold
HUD and other housing providers responsible for actions that perpetuate residential segregation
and erect other barriers to inclusive housing opportunities for members of protected classes. Yet,
through the 2020 Final Rule, HUD abdicated its statutory responsibilities by eliminating
perpetuation of segregation as a basis for liability and making it much more difficult—impossible
in some situations—to bring a successful disparate impact claim. In doing so, HUD now exempts
from disparate impact liability policies and practices that perpetuate segregation or have a
discriminatory impact on protected classes. It thus has authorized housing discrimination
otherwise condemned by the statute and the courts, violating its AFFH obligation and undermining
the very purpose and intent of the FHA.
VI. The Rule’s Reduction in Civil Monetary Penalties Is Arbitrary, Capricious, and
Contrary to Law.
136. Under the FHA, if the administrative law judge finds that a respondent has engaged
in a discriminatory housing practice, the judge may assess a civil penalty against the respondent,
among other remedies. 42 U.S.C. § 3612(g)(3). The amounts vary depending on the respondent’s
history of violations: the penalty cannot exceed $10,000 if the respondent has no prior history of
discriminatory housing practices, $25,000 if the respondent committed one other discriminatory
housing practice during the prior five-year period, and $50,000 if the respondent committed two
or more discriminatory housing practices during the prior seven-year period. Id. Further, if the
discriminatory practice was committed by the “same natural person” as the prior acts, the penalties
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may be imposed without regard to time limits. Id. The statute makes no distinction as to whether
the remedies are available based on disparate treatment or disparate effects liability.
137. The 2020 Final Rule, by contrast, completely cuts off HUD’s ability to request the
lower tier of civil monetary penalties if “liability is based solely on a discriminatory effect theory,”
and in some circumstances, cuts off the higher tier of civil monetary penalties as well. 24 C.F.R.
§ 100.500(f). Specifically, the 2020 Final Rule states that “HUD will seek only equitable remedies”
in disparate effects cases, and will pursue civil money penalties “only where the defendant has
previously been adjudged, within the last five years, to have committed unlawful housing
discrimination under the Fair Housing Act.” Id. A reasonable interpretation of this section conveys
that HUD will always decline to request penalties available under the statute if it is the defendant’s
first offense and liability is based on a disparate effects claim, or if the defendant has two or more
prior offenses, but they were more than five years prior to the complaint—even if they were
committed less than seven years ago or by the same person. While the statute states that the judge
“may” assess these penalties, the 2020 Final Rule completely cuts off HUD’s discretion to request
these penalties, simply because the claim is based on disparate effect liability and not disparate
treatment liability.
138. HUD states that it is “merely restating the Supreme Court’s direction in Inclusive
Communities” to focus on equitable remedies, 85 Fed. Reg. at 60,303. But the Court did not require
that civil penalties be so curtailed. At most, the Court recommended that remedies “should
concentrate on the elimination of the offending practice,” as opposed to “impos[ing] racial targets
or quotas.” ICP, 576 U.S. at 544. Civil monetary penalties are not mentioned. Further, even though
disparate effects claims do not require proof of discriminatory intent on the part of defendants, 85
Fed. Reg. at 60,304, the risk of monetary penalties can still encourage potential defendants to
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conscientiously develop policies and practices to ensure that they will not have a disparate effect
on particular populations. HUD does not explain how its decision to limit its own discretion as to
statutorily available remedies advances its interest in combatting housing discrimination, and is
not simply a gift to defendants who commit discriminatory housing practices.
VII. HUD Provided No Opportunity to Comment on the Severability Clause.
139. In the 2020 Final Rule, HUD introduced a severability clause not included in the
proposed rule. HUD’s inclusion of this clause without giving the public the notice and opportunity
to respond violates the procedural requirements of the APA.
140. The severability clause states that the “framework of the burdens and defenses
provisions are considered to be severable.” 85 Fed. Reg. at 60,333 (to be promulgated at 24 C.F.R.
§ 100.500(g)). However, HUD does not explain how the detailed burden-shifting standard, with
interrelated provisions that refer back to each other, could be “independently applicable” if one or
more provisions is found to be invalid.
141. This change was not requested by commenters. Rather, HUD snuck in this
severability provision without providing the public with proper notice to comment, thus violating
the APA.
THE 2020 FINAL RULE’S INJURY TO PLAINTIFFS
142. HUD’s revision to the disparate impact standard is causing, and will continue to
cause, substantial and irreparable injury to OCA, SouthCoast, and the Connecticut, Massachusetts,
and Rhode Island residents they serve who suffer the adverse impacts of residential segregation
and other forms of housing discrimination. The 2020 Final Rule forces OCA and SouthCoast to
divert considerable time and resources toward mitigating the harmful effects of the rule on the
individuals and communities they serve at the expense of their planned work. Additionally, OCA
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and SouthCoast are engaged in multiple projects that are core to their missions, but which are
frustrated by the restrictions of the 2020 Final Rule. The 2020 Final Rule has injured both of their
missions and significantly impeded their ability to carry out their current activities and
responsibilities.
I. Plaintiffs’ Mission and Activities
143. OCA and SouthCoast are non-profit fair housing organizations that seek to remedy
residential racial segregation, housing discrimination, and the resulting social, educational,
economic, and health disparities experienced by communities of color and other protected groups.
OCA serves Connecticut residents, and SouthCoast serves Massachusetts and Rhode Island
residents. Both organizations’ missions and activities are carried out by a lean staff of fewer than
ten employees, which includes an Executive Director, at least one attorney, and other personnel.
Accordingly, they carefully plan how they will utilize their resources strategically, and do so well
in advance. To fulfill their missions, both engage in research and data analysis, legal advocacy,
community outreach and education, and direct housing assistance.
144. OCA and SouthCoast work to address and combat residential segregation through
substantive research and data analysis. For example, OCA has published reports examining the
role that subsidized housing policies play in reinforcing the housing opportunity gap in
Connecticut. OCA also has developed educational data tools to map how housing opportunity
varies across the state by race and ethnicity and affects health outcomes of Connecticut residents.
SouthCoast has analyzed data about and reported on the rate of source of income discrimination
against tenants with Housing Choice Vouchers in Rhode Island.
145. OCA and SouthCoast engage in legal advocacy at state and local levels to promote
and enforce policies that advance housing opportunity and integration. OCA’s legal advocacy has
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included drafting and presenting public testimony on legislation and in administrative processes,
working for state and local fair housing policies, and engaging in impact litigation. Legal advocacy
relating to disparate impact and perpetuation of segregation has been a significant part of the work
OCA performs; however, it expects this to change due to the 2020 Final Rule, as discussed below.
OCA received funding from HUD through the Fair Housing Organizations Initiative to conduct
legal investigation and enforcement efforts to address systemic and discriminatory exclusionary
zoning, which disproportionately impacts several groups protected by the FHA. Similarly,
SouthCoast received funding from HUD through the Private Enforcement Initiative to take legal
enforcement actions that further the nondiscrimination provisions of the FHA. Both have filed
pending administrative complaints with HUD, described below, under the disparate impact theory
against entities alleged to have engaged in housing discrimination.
146. OCA and SouthCoast provide community outreach, education, and training for
residents, grassroots organizations, public housing authorities, municipalities, and developers
throughout Connecticut, Rhode Island, and parts of Massachusetts. For example, OCA convenes
a statewide coalition aimed at improving housing opportunity through grassroots advocacy and
addressing exclusive municipal policies that underpin residential segregation. OCA also works
with realtors, developers, and other stakeholders to identify best practices to promote integration.
SouthCoast presents on fair housing and lending at classes held for first-time homebuyers and
landlords. It also distributes multi-lingual brochures to public and private entities, educates them
about housing referral resources for the populations they serve, and offers to collaborate on
educational seminars for staff and/or the public.
147. OCA and SouthCoast provide individual counseling and other direct services to
people using government housing subsidies and other residents in their respective service areas.
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For example, OCA offers counseling on a variety of issues relating to access to mobility to five to
ten families with Housing Choice Vouchers annually to ensure they have access to information
about available housing options suited to their specific housing priorities in a range of
neighborhoods in higher opportunity areas, receive the full benefits of their vouchers, and have
legal support to address any outstanding issues (e.g., back rent, prior evictions). This activity has
been the smallest segment of OCA’s work in the past, representing only 5% of its budget, but is
expected to grow due to the 2020 Final Rule as discussed below. SouthCoast accepts housing
discrimination complaints and, in follow up, conducts client intakes, refers clients to resources,
and assists them in filing administrative housing discrimination complaints when appropriate.
II. Plaintiffs’ Pending Disparate Impact HUD Complaints
148. On August 3, 2020, OCA filed a HUD complaint challenging a Connecticut state
law imposing exclusionary geographic limitations on where a Public Housing Agency (“PHA”)
may operate. In its complaint, OCA alleges that the state law denies housing opportunities to PHA
clients, restricts the ability of PHAs to provide housing in a manner that is not racially segregated,
and perpetuates residential segregation in Connecticut on the basis of race and national origin in
violation of the FHA and HUD’s prior regulation on disparate-impact liability. On October 19,
2020, HUD accepted the complaint for intake.
149. On January 10, 2020, SouthCoast filed a HUD complaint against a realty
management company with discriminatory practices of marketing its units specifically to students,
renting single bedrooms rather than full units, and declining to show rooms to potential renters
with children. SouthCoast included both disparate treatment and disparate impact claims in its
complaint, as the company’s practices disproportionately impact families with children, a
protected group under the FHA. In follow up, HUD has conducted some fact investigation. But it
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is unclear if HUD will apply the 2020 Final Rule to the complaint, and, if so, whether the disparate
impact claim in the complaint will be dismissed pursuant to the 2020 Final Rule.
150. Both complaints were filed under the 2013 Final Rule. If HUD applies the 2020
Final Rule retroactively, both of these complaints are in jeopardy. Because the 2020 Final Rule
eliminates perpetuation of segregation as a basis for liability and severely increases the burden on
complainants to demonstrate disparate impact discrimination, OCA and SouthCoast now face the
imminent threat of HUD’s dismissal of, or unreasonable delay in investigating, their pending
claims.
III. Injuries to Plaintiffs’ Activities
151. Advancing access to housing opportunity and combatting residential segregation
are central to both OCA’s and SouthCoast’s missions. They address the urgent needs and concerns
of residents, relying in part on the option to utilize HUD’s administrative investigation and
complaint process to enforce FHA provisions—and specifically, HUD’s implementation of the
FHA’s disparate impact standard and perpetuation of segregation theory of liability. HUD’s 2020
Final Rule is already having and will increasingly have significant negative impacts on Plaintiffs’
missions by forcing them to divert resources (including money, staff time, and personnel) away
from existing and planned activities and toward mitigating the Rule’s adverse effects.
152. Even prior to implementation, the 2020 Final Rule has already required OCA and
SouthCoast to expend time, resources, and personnel in responding to the Rule and its adverse
effects. For example, following the publication of HUD’s proposed Disparate Impact Rule on
August 19, 2019, OCA expended 20 hours of staff time just to assess the impact of the proposed
rule on OCA’s work relating to exclusionary zoning and Housing Choice Voucher mobility, and
to submit a thorough comment detailing the numerous ways that the Rule, if enacted, would
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interfere with OCA’s ability to fulfill its mission and harm the individuals and communities that it
serves. In doing so, OCA diverted resources in order to address its partners’ and communities’
urgent need for information about the Rule’s impacts on housing vouchers, housing opportunities,
and related programs. SouthCoast has already begun planning to revise the educational resources
it provides about FHA rights, including brochures and presentation curricula, to reflect the
confusing changes to the rules in an accurate and comprehensible way. OCA will now need to
develop educational and training materials based on the 2020 Final Rule in order to counteract its
harmful effects on the organization’s ability to carry out its mission. OCA will also have to revise
and overhaul its Disparate Impact Policy Toolkit.
153. OCA and SouthCoast also must now plan how they will address the discrimination
reported in their respective pending HUD complaints, when they are negatively impacted by the
new standards set by the 2020 Final Rule. As previously discussed, the 2020 Final Rule poses a
significant and imminent threat of dismissal and/or extraordinary delay of the investigation of their
pending claims. Even if HUD does not outright dismiss them, OCA and SouthCoast will be forced
to expend greater resources on gathering data and information to supplement their complaints to
meet the increased burdens in HUD’s revised Rule. Such additional work would not be necessary
but for the 2020 Final Rule’s changes.
154. OCA and SouthCoast are currently preparing for the following imminent and
anticipated additional negative impacts of the 2020 Final Rule on activities that are core to their
missions: (1) diverting resources away from legal enforcement actions to individualized housing
counseling and support and policy advocacy; (2) chilling enforcement actions; (3) frustrating their
data collection projects to document segregation; (4) increasing the burden to complete their
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planned HUD-funded activities; and (5) reshaping their future funding strategies. These injuries
can only be remedied by rescission of the 2020 Final Rule in its entirety.
155. First, HUD’s 2020 Final Rule is forcing OCA and SouthCoast to begin restructuring
their existing programs, strategies, and budgets to shift resources toward an anticipated increase in
need for individual housing services, like mobility counseling, in the populations they serve. By
eliminating the perpetuation of segregation claim and drastically increasing the burden to bring a
disparate impact claim, the 2020 Final Rule reduces the pressure on public housing agencies to
adopt necessary program reforms and to provide guidance on the rights of Housing Choice
Voucher holders to mobility options—leaving non-profit organizations, like Plaintiffs, to fill the
gap. OCA and SouthCoast have determined they must expend significant time and financial
resources on sustained efforts to convince landlords, housing providers, developers,
municipalities, and other stakeholders to voluntarily adopt and implement policies and practices
that combat segregation because they will no longer be able to fall back on perpetuation of
segregation claims for enforcement, as it was eliminated as a theory of liability, or disparate impact
claims, as the burden makes bringing them practically infeasible.
156. Shifting resources typically used or intended to be used for legal enforcement
toward individualized services and policy advocacy has discernible costs. OCA estimates it will
lose tens of thousands of dollars in revenue from lost opportunities to litigate enforcement actions
at the same time that it will need to shift tens of thousands of dollars to policy advocacy efforts. It
also estimates the clients it would have represented will lose tens of thousands of dollars in value
from lost access to higher-opportunity areas. SouthCoast provides another example of how the
Rule is impacting a smaller, but growing, organization. As its resources have increased,
SouthCoast was positioning itself to begin filing more disparate impact complaints with HUD.
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While it did not previously receive many racial discrimination complaints, it recently received an
influx of such complaints. Because of the 2020 Final Rule, though, SouthCoast cannot seek relief
through discrimination claims because of the barriers presented by the regulation, and instead must
engage in more individualized counseling. For example, SouthCoast is working with a family
impacted by a history of eviction and criminal conviction. SouthCoast might have strongly
considered filing a HUD complaint on its behalf under the 2013 Final Rule, but the 2020 Final
Rule renders that course of action nearly impossible. Instead, SouthCoast will likely need to
provide housing counseling for the family.
157. Second, the 2020 Final Rule will have a chilling effect on the filing of housing
discrimination complaints because of the burden required to bring them and because of the
confusion, ambiguity, and potential for misinformation that now chills fair housing advocates from
even educating residents about their right to bring complaints. OCA also anticipates local
administrative complaints will become harder to bring as a result of HUD’s rule, because OCA
expects Connecticut state agencies and local municipalities to adopt new rules reflecting the 2020
Final Rule. Although OCA will advocate with policy makers to discourage such action, if other
agencies follow HUD’s leadership, local administrative complaints will be practically unavailable
as an enforcement remedy for the same reasons the HUD complaint process will be unavailable.
158. This chilling effect is already felt. For example, SouthCoast recently engaged a
client who is struggling to find housing due to an eviction and bankruptcy history. Before the 2020
Final Rule, SouthCoast would have investigated the landlords that rejected the client and possibly
filed a complaint. Instead, SouthCoast is reviewing options to provide individualized housing
counseling and advocate with specific landlords. Whereas a complaint would help prevent future
applicants from experiencing housing discrimination by the same landlords, an individualized
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solution for this client will not. Additionally, SouthCoast has cut information about filing HUD
disparate impact complaints from its FHA rights presentations for fear of providing incorrect
information given the uncertainties raised by the 2020 Final Rule. This harm is especially
concerning at a time when a worldwide public health pandemic crisis is creating financial and
subsequent housing instability for many families.
159. A third anticipated harm from the 2020 Final Rule is that OCA’s and SouthCoast’s
data collection projects to document segregation in the communities they serve will be frustrated.
The organizations use these efforts to provide empirical research when advocating with
policymakers. They also use the data to help identify trends and areas for potential legal
enforcement actions. Since the 2020 Final Rule has eliminated perpetuation of segregation as a
theory, this data will be less persuasive and useful because it is no longer directly tied to a legal
cause of action. Before the 2020 Final Rule, the data were particularly helpful in informing
challenges to exclusionary zoning policies and background checks, policies which often
perpetuated segregation.
160. Fourth, OCA and SouthCoast now face increased burdens in meeting the
deliverables for their HUD-funded work. When HUD provided each organization with funding
through its specific enforcement initiatives, the organizations had specific expectations for the
activities the funds would be used for and the amount of resources the activities would require.
OCA’s activities included implementing a project to address systemic and discriminatory zoning.
SouthCoast planned to pursue 40 enforcement actions and investigate one systemic housing
discrimination issue annually. But now, under the 2020 Final Rule, these organizations are
experiencing confusion about how these activities will result in successful enforcement actions
and whether they still have sufficient resources to carry out the same number of actions using the
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same strategies as originally planned. SouthCoast is interested in investigating discrimination
based on criminal records as a practice with disproportionate impacts on racial minorities, but no
longer knows if this would be fruitful under the 2020 Final Rule if enforcement actions are not
feasible.
161. Fifth, the Rule is forcing fair housing non-profit organizations to rethink their
funding strategies. OCA specifically is facing uncertainties about its future funding because it had
planned to rely on HUD funding to resource its enforcement actions. It is unclear if future HUD
funding will adequately increase in proportion to the higher burden and amount of resources now
needed to bring a single action because, under the 2020 Final Rule, far more initial fact
investigation is now required. OCA had also planned to rely on funds resulting from successful
enforcement actions, funds that will diminish substantially if it cannot bring as many enforcement
actions as previously planned. For example, if it cannot bring perpetuation of segregation claims,
it will lose approximately $25,000 annually. Additionally, the uncertainty and confusion created
by the Rule thwart these organizations’ ability to successfully communicate about their future
projects and strategies to funders. For example, OCA is concerned it will not be able to fundraise
for data collection and analysis to demonstrate perpetuation of segregation if such claim can no
longer serve as the basis for an enforcement action. At a minimum, the uncertainty and confusion
create obstacles to planning for new projects to propose to funders.
162. HUD’s 2020 Final Rule will deprive OCA and SouthCoast of the benefits of HUD’s
administrative investigation and complaint process for challenging exclusionary zoning and other
discriminatory housing policies, forcing them to expend greater resources on developing and
pursuing litigation through the judicial system or, alternatively, redistributing their resources to
individual counseling and policy advocacy if they no longer have sufficient resources to bring
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complaints due to the increased burden. The 2020 Final Rule’s consequences will result in
financial harms to OCA, and thwart SouthCoast’s goal of expanding its work on disparate impact
claims. The diversion of resources and frustration of current activities will impair the missions of
both fair housing non-profit organizations.
163. The above-referenced harms are ongoing and increasing in severity. These harms
will become even more pronounced if HUD’s Rule goes into effect.
CAUSES OF ACTION
COUNT I
The Rule Is Not in Accordance with Law
(Administrative Procedure Act, 5 U.S.C. § 706(2)(A))
164. The allegations of paragraphs 1 through 163 are incorporated as though fully set
forth herein.
165. The 2020 Final Rule is contrary to law, in violation of the Administrative Procedure
Act, 5 U.S.C. § 706(2)(A), for the following reasons, among others.
166. The 2020 Final Rule’s changes to the disparate impact standard are contrary to well-
established Fair Housing Act, 42 U.S.C. § 3604, precedent and conflict with HUD’s statutory duty
to affirmatively further fair housing.
167. The 2020 Final Rule unlawfully eliminates perpetuation of segregation as an
independent basis of liability.
168. The 2020 Final Rule impermissibly requires plaintiffs to allege that a challenged
policy or practice is “arbitrary, artificial, and unnecessary,” despite decades of precedent
establishing that it is the defendant’s burden to demonstrate a valid interest, and otherwise
unlawfully changes the burden-shifting framework.
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169. The 2020 Final Rule deprives plaintiffs of the opportunity to rebut defendants’
proof that a policy or practice serves a valid interest by demonstrating that a less discriminatory
policy or practice would serve that interest.
170. In the circumstances where plaintiffs are permitted to demonstrate a less
discriminatory policy or practice would serve defendants’ interest, the 2020 Final Rule obligates
them to meet an especially demanding standard. The less discriminatory policy or practice must
serve the interest in an “equally effective manner” without imposing materially greater costs on or
burdens for the defendants.
171. HUD creates two unprecedented exemptions that are not subject to the burden-
shifting standard and would allow defendants to escape liability.
172. The 2020 Final Rule cuts off civil monetary penalties available to HUD under the
FHA.
COUNT II
The Rule Is Arbitrary, Capricious, and an Abuse of Discretion
(Administrative Procedure Act, 5 U.S.C. § 706(2)(A))
173. The allegations of paragraphs 1 through 163 are incorporated as though fully set
forth herein.
174. The Final Rule is arbitrary, capricious, and an abuse of discretion in violation of
the Administrative Procedure Act, 5 U.S.C. § 706(2)(A) for the following reasons, among others.
175. HUD failed to adequately consider important aspects of the problem, including
whether requiring defendants to prove that a challenged policy serves a valid interest aids HUD’s
stated concerns; the difficulties plaintiffs will face in alleging that a challenged policy or practice
is arbitrary, artificial, and unnecessary; the impact of HUD’s new exemption that would allow
defendants to move forward with more discriminatory policies and practices than are necessary to
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comply with a third-party requirement; and the increased costs associated with bringing claims
under the new standard, as well as the harms that will result from the new standard.
176. HUD failed to adequately address and resolve the Rule’s conflicts and interactions
with the agency’s duty to affirmatively further fair housing, and the availability of civil monetary
penalties under the FHA.
177. HUD failed to provide a reasoned explanation for its reversal of longstanding policy
concerning the availability of “perpetuation of segregation” as an independent basis for liability
under the FHA. HUD also failed to explain its reversal in requiring plaintiffs to bear the burden of
alleging that the challenged policy or practice serves no purpose in achieving a valid interest,
depriving them of the opportunity to demonstrate that there is a less discriminatory policy or
practice would serve defendants’ stated interest, and requiring that any less discriminatory
alternative to be “equally effective” at serving defendants’ interest. Additionally, HUD failed to
acknowledge or explain that it has reversed its position on its ability to create exemptions from
disparate impact liability beyond the text of the statute.
178. HUD failed to respond to significant comments from leading housing rights
advocacy associations, legal services providers, and current and former government officials,
regarding, inter alia, the Rule’s elimination of the perpetuation of segregation theory to combat
discriminatory housing policies and the harms to those impacted by housing discrimination.
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COUNT III
The Rule Was Promulgated Without Observance of Required Procedure
(Administrative Procedure Act, 5 U.S.C. § 706(2)(D))
179. The allegations of paragraphs 1 through 163 are incorporated as though fully set
forth herein.
180. HUD promulgated the Rule without fidelity to procedures required by the
Administrative Procedure Act, 5 U.S.C. § 706(2)(D), because, among other reasons, the Final Rule
is not a “logical outgrowth” of the Proposed Rule as regards to the burden shifting standard HUD
outlined, the exemption for defendants where plaintiffs allege the discriminatory effect is caused
by use of a model, and the severability clause added to the final rule. See Nat’l Black Media Coal.
v. FCC, 791 F.2d 1016, 1022 (2d Cir. 1986).
181. Agencies must describe “with reasonable specificity” any proposed changes to a
regulation because a “[g]eneral notice that a new standard will be adopted” violates the notice-
and-comment requirements of the APA. Time Warner Cable Inc. v. FCC, 729 F.3d 137, 170 (2d
Cir. 2013). Because of this procedural defect, commenters, including Plaintiffs, were deprived of
the opportunity to weigh in on HUD’s new burden-shifting standard, exemption for using
predictive models, and severability clause.
COUNT IV
The Rule Exceeds Statutory Authority
(Administrative Procedure Act, 5 U.S.C. § 706(2)(C))
182. The allegations of paragraphs 1 through 163 are incorporated as though fully set
forth herein.
183. The Final Rule is “in excess of statutory jurisdiction, authority, or limitations, or
short of statutory right,” in violation of the APA, 5 U.S.C. § 706(2)(C), because, inter alia, the
FHA does not delegate authority to HUD to promulgate exemptions from liability under the Act.
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PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray that this Court:
(a) Enter a declaratory judgment that the 2020 Final Rule violates the Administrative
Procedure Act and the Fair Housing Act;
(b) Issue preliminary and permanent injunctions precluding the implementation or
enforcement of the 2020 Final Rule;
(c) Enter vacatur of the 2020 Final Rule;
(d) Direct HUD to take all affirmative steps necessary to remedy the effects of the unlawful
conduct described herein and to prevent similar occurrences in the future;
(e) Award Plaintiff's attorneys’ fees, costs, and expenses and any interest allowable by law
under 28 U.S.C. § 2412; and
(f) Grant such other and further relief that this Court deems just and appropriate.
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Dated: October 22, 2020
Respectfully submitted,
/s/ Elana Bildner _
Elana Bildner (ct30379)
Dan Barrett (ct29816)
ACLU Foundation of Connecticut
765 Asylum Avenue, 1st Floor
Hartford, CT 06105
Telephone: (860) 471-8475
Philip Tegeler (ct05515)
Poverty & Race Research Action Council
740 15th Street NW, Suite 300
Washington, DC 20005
Telephone: (202) 360-3906
Sandra S. Park*
Lindsey Kaley (admitted pro hac vice)
American Civil Liberties Union
125 Broad Street, 18
th
Floor
New York, NY 10004
Telephone: (212) 519-7871
Thomas S. Silverstein*
Sarah Carthen Watson*
Lawyers’ Committee for Civil Rights
Under Law
1500 K Street NW, Suite 900
Washington, D.C. 20005
Telephone: (202) 662-8600
tsilverstein@lawyerscommittee.org
swatson@lawyerscommittee.org
Brian Corman*
Joseph M. Sellers*
Cohen Milstein Sellers & Toll PLLC
1100 New York Avenue, N.W.
Suite 500, East Tower
Washington, DC 20005
Telephone: (202) 408-4600
jsellers@cohenmilstein.com
Attorneys for Plaintiffs
*Motions for pro hac vice forthcoming
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