Ballard Spahr LLP: Dismissal of Fair Housing Case Perpetuates Uncertainty on Disparate Impact Claims

By the Consumer Financial Services Group

On February 10, the parties to Magner v. Gallagher agreed to the dismissal of the case before the U.S. Supreme Court, after all briefing was complete and less than three weeks before the scheduled oral argument. The dismissal of the case means that an important opportunity for clarity with respect to disparate impact claims under the Fair Housing Act and (by analogy) ECOA has been lost.

While the federal Courts of Appeal [enhanced version available to lexis.com subscribers] and HUD had adopted disparate impact analysis under the Fair Housing Act, it was widely believed that the Supreme Court would reach the opposite conclusion, based on the absence of critical language in the Fair Housing Act authorizing disparate impact claims.

The immediate implication of the dismissal of Magner is that the status quo will continue-the circuits' adoption of disparate impact will remain the law for the time being, and HUD will presumably finalize the disparate impact rule it announced just after certiorari was granted in Magner.

But regardless of when the Supreme Court has its next opportunity to take up this issue, we believe that there is an opportunity for the circuits to re-evaluate their previous holdings regarding disparate impact claims through en bancrehearings. A compelling argument can be made that the Supreme Court's precedents with regard to disparate impact claims make it clear that such claims cannot be brought under the Fair Housing Act or ECOA, and a Court of Appeals sitting en banc could evaluate and recognize this precedent. This is because the Federal Rule of Appellate Procedure governing en banc rehearings indicates that a conflict between Supreme Court precedent and the Court of Appeals' decision is one of the proper occasions for an en banc rehearing. (Fed. R. App. P. 35(b)(1)(A)).

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

The firm's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

The Consumer Financial Services Group also produces the CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe, use the link provided to the right.

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com; Practice Leader Richard J. Andreano, Jr. at 202.661.2271 or andreanor@ballardspahr.com; or Christopher J. Willis at 678.420.9436 or willisc@ballardspahr.com.


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