Ojo v. Farmers Group, Inc. et al. (9th Cir. en banc)

U.S. Department of Justice

Civil Rights Division

Appellate Section

Ben Franklin Station

P.O. Box 14403

Washington, DC 20044-4403

January 29, 2010

Ms. Molly C. Dwyer

Clerk, United States Court of Appeals

for the Ninth Circuit

James R. Browning Courthouse

P.O. Box 193939

San Francisco, CA 94119-3939

Re: Ojo v. Farmers Group, Inc., et al., No. 06-55522 (en banc)

Dear Ms. Dwyer:

This letter brief is submitted by the United States as amicus curiae in

response to the Court’s Orders of November 16, 2009, and November 18, 2009,

and pursuant to Rule 29(a), Federal Rules of Appellate Procedure.

INTEREST OF THE UNITED STATES

The United States has substantial responsibility for the enforcement of the

Fair Housing Act, 42 U.S.C. 3601 et seq. The Attorney General is responsible for

all federal court enforcement of the Act by the United States. 42 U.S.C. 3614.

The Secretary of the Department of Housing and Urban Development (HUD) is

charged with administration and enforcement of the Act in administrative

proceedings, as well as the promulgation of regulations to implement the Act. See

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42 U.S.C. 3608-3612, 3614a. The Secretary’s implementing regulations state that

the Fair Housing Act prohibits discrimination in the provision of property or

hazard insurance for dwellings. The resolution of this case will affect the

enforcement programs of both the Secretary and the Attorney General.

QUESTIONS PRESENTED

This Court has ordered the parties to address the following questions:

1. Whether the ban on racial discrimination in the Fair Housing Act, 42

U.S.C. 3604, applies to homeowner’s insurance.

2. Whether the McCarran-Ferguson Act, 15 U.S.C. 1012(b), deprives

federal courts of subject-matter jurisdiction to hear claims brought under federal

statutes, or merely instructs courts how to construe federal statutes.

STATEMENT

1. Plaintiff filed a class action complaint on August 10, 2005, asserting

claims under the Fair Housing Act, 42 U.S.C. 3601 et seq., and California state

law. E.R. 1-14.

Plaintiff alleged that in January 2004, defendants increased the

premiums for his homeowner’s and casualty insurance policy, based upon

unfavorable credit information, and that defendants’ use of an automated credit

Citations to “E.R. __” refer to pages in the Appellant’s Excerpts of

Record. Citations to “Slip Op. __” refer to pages in the panel opinion in this

appeal.

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scoring system in underwriting and pricing of homeowner’s insurance policies has

a disparate impact on minorities, in violation of the Fair Housing Act. E.R. 2-5, 8-

9, 11-12.

Defendants moved to dismiss the plaintiff’s complaint under Rules 12(b)(1)

and 12(b)(6) of the Federal Rules of Civil Procedure. E.R. 15-17. The district

court ruled that plaintiff’s Fair Housing Act claim was barred by the McCarran-

Ferguson Act, 15 U.S.C. 1012(b), and granted defendants’ motion.

E.R. 93-138.

The court did not specify whether it was granting the motion under Rule 12(b)(1),

for lack of jurisdiction, or under Rule 12(b)(6), for failure to state a claim, but it

appeared to rule that the complaint should be dismissed for lack of jurisdiction.

See E.R. 106 (summarizing defendants’ “three arguments as to why the court lacks

subject matter jurisdiction to hear this case”); E.R. 135-138 (ruling that the court

lacked jurisdiction over plaintiff’s state law claims).

The McCarran-Ferguson Act provides, in pertinent part:

No Act of Congress shall be construed to invalidate,

impair, or supersede any law enacted by any State for the

purpose of regulating the business of insurance, or which

imposes a fee or tax upon such business, unless such Act

specifically relates to the business of insurance.

15 U.S.C. 1012(b).

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A divided panel of this Court reversed. The panel majority ruled that the

district court erred, first, by interpreting plaintiff’s complaint to challenge the

practice of credit scoring per se, and second, by ruling that the Texas Insurance

code “permit[s] disparate impact race discrimination that results from credit

scoring, thereby triggering McCarran-Ferguson reverse-preemption.” Slip Op.

5702. The majority concluded that a Texas statute permitting insurers to use credit

scores prohibits disparate impact as well as disparate treatment discrimination, and

thus is in harmony with the Fair Housing Act. Slip Op. 5712-5722.

The dissent disagreed, stating that the Texas Insurance Code permits the use

of credit scoring even where it results in a “disparate impact on racial minorities,

so long as race is not used as a criteria in computing the credit scores.” Slip Op.

5723. Because plaintiff had not alleged that race was a factor in defendant’s credit

scoring, according to the dissent, he had not asserted a disparate treatment claim,

and could not establish a violation of Texas law. Slip Op. 5723. Thus, the dissent

concluded, the application of the Fair Housing Act to plaintiff’s claims “would

invalidate, impair, or supersede Texas law,” and the district court correctly ruled

“that Texas law reverse preempts the claims Ojo makes under federal law, and was

correct in dismissing the case for lack of federal jurisdiction.” Slip Op. 5723.

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Both the panel majority and the dissent understood the district court to have

dismissed the complaint for lack of subject matter jurisdiction. See Slip Op. 5702

n.3, 5723.

2. Sections 3604(a) and (b) of the Fair Housing Act declare it unlawful:

(a) To refuse to sell or rent after the making of a bona

fide offer, or to refuse to negotiate for the sale or rental of, or

otherwise make unavailable or deny, a dwelling to any person

because of race, color, religion, sex, familial status, or national

origin.

(b) To discriminate against any person in the terms,

conditions, or privileges of sale or rental of a dwelling, or in

the provision of services or facilities in connection therewith,

because of race, color, religion, sex, familial status, or national

origin.

42 U.S.C.A. 3604(a) & (b) (emphasis added).

Since at least 1978, the Department of Housing and Urban Development

(HUD) has interpreted Section 3604 to prohibit discriminatory practices in

connection with homeowner’s insurance. In a memorandum to the Assistant

Secretary for Equal Opportunity, HUD’s General Counsel advised that insurance

redlining violates Section 3604(a) by making housing unavailable:

Adequate insurance coverage is often a prerequisite to

obtaining financing. Insurance redlining, by denying or

impeding coverage makes mortgage money unavailable,

rendering dwellings “unavailable” as effectively as the denial

of financial assistance on other grounds.

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Aug. 25, 1978, Memorandum from Ruth T. Prokop to Chester C. McGuire at 2

(copy attached).

In 1988, the Fair Housing Act was amended to give HUD significant new

authority to enforce the Act administratively. Under the Fair Housing Act as

enacted in 1968, the Secretary’s enforcement authority was limited to receiving,

investigating, and seeking to conciliate complaints of discrimination from

aggrieved persons. 42 U.S.C. 3610, 3611 (1976). Under the 1988 Amendments,

if HUD determines that reasonable cause exists to believe that a discriminatory

housing practice has occurred or is about to occur, the agency is required to issue a

charge on behalf of the aggrieved person. 42 U.S.C. 3610(g). The matter is then

referred to an administrative law judge for a hearing and resolution (42 U.S.C.

3612(b)-(g)), or, if either the complainant or the respondent elects, to the

Department of Justice for litigation in federal district court (42 U.S.C. 3612(o)).

Decisions by administrative law judges are subject to review by the Secretary

before becoming final. 42 U.S.C. 3612(h). Review and enforcement of final

orders may be obtained in the courts of appeals. 42 U.S.C. 3612(i)-(n).

In accordance with HUD’s new adjudicative responsibilities, the 1988

Amendments authorized HUD to issue implementing regulations. 42 U.S.C.

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3614a.

HUD promulgated its implementing regulations in January 1989, after

publication and opportunity for comment. 53 Fed. Reg. 44,992 (Nov. 7, 1988)

(Proposed Rule); 54 Fed. Reg. 3232 (Jan. 23, 1989) (Final Rule). Subpart B of the

regulations, promulgated in 1989, sets forth “the Department’s interpretation of

conduct that is unlawful housing discrimination under section [3604] and section

[3606] of the Fair Housing Act.” 24 C.F.R. 100.50(a). Section 100.70(d)(4) of

the regulations defines “other prohibited sale and rental conduct” to include:

Refusing to provide municipal services or property or hazard

insurance for dwellings or providing such services or insurance

differently because of race, color, religion, sex, handicap,

familial status, or national origin.

See also 53 Fed. Reg. 44,997 (Nov. 7, 1988) (preamble to proposed regulations

stating that “discriminatory refusals to provide municipal services or adequate

property or hazard insurance as well as discriminatory appraisal and financing

practices, has been interpreted by the Department and by courts to render

dwellings unavailable”).

Section 815 of the Fair Housing Act, 42 U.S.C. 3614a, provides:

The Secretary may make rules * * * to carry out this title. The

Secretary shall give public notice and opportunity for comment

with respect to all rules made under this section.

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The Fair Housing Act also directs the Secretary to certify state and local

agencies authorized to enforce state or local fair housing laws that are

“substantially equivalent” to the Fair Housing Act as to the substantive rights

protected, procedures followed, remedies provided, and judicial review available.

42 U.S.C. 3610(f)(3)(A); 24 C.F.R. Pt. 115. Once a state or local agency is

certified as substantially equivalent, HUD refers complaints within the jurisdiction

to the agency for investigation and processing, including litigation, on HUD’s

behalf, and HUD pays the agency for these services. 42 U.S.C. 3610(f)(1); 24

C.F.R. 115.300.

The Texas Fair Housing Act was enacted to “provide rights and remedies

substantially equivalent to those granted under federal law.” Tex. Prop. Code

301.002(3). HUD has certified the Texas Workforce Commission Civil Rights

Division, which enforces the Texas Fair Housing Act, as a “substantially

equivalent” agency. 57 Fed. Reg. 48,803-02 (Oct. 28, 1992) and 58 Fed. Reg.

39,561-01 (July 23, 1993); see Tex. Prop. Code 301.0015. Like HUD’s

regulations, the regulations implementing the Texas Fair Housing Act expressly

define discrimination to include “refusing to provide * * * property or hazard

insurance for dwellings or providing such services or insurance differently based

on” a prohibited basis. 40 Tex. Admin. Code 819.124(b)(4). If the Texas

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legislature amends or otherwise changes the fair housing law, or a state court

interprets the law, the Commission is obligated to notify HUD of such change

within 60 days. 24 C.F.R. 115.211(a)(1). This obligation extends to any

“amendment, adoption, or interpretation of any related law that bears on any

aspect of the effectiveness of the agency’s fair housing law.” 24 C.F.R.

115.211(a)(2). These notifications help inform HUD as to whether or not an

agency’s continued certification is warranted. The Texas Workforce Commission

has not informed HUD of any limitation on the enforcement of the Texas Fair

Housing Act in light of the credit scoring provision contained in the Texas

insurance code.

ARGUMENT

THE FAIR HOUSING ACT PROHIBITS DISCRIMINATION IN THE

PROVISION OF PROPERTY OR HAZARD INSURANCE FOR

DWELLINGS

1. As set forth above, the Fair Housing Act declares it unlawful to “make

unavailable or deny, a dwelling to any person because of race, color, religion, sex,

familial status, or national origin,” and “[t]o discriminate against any person * * *

Information provided by Kenneth J. Carroll, Director of HUD’s Fair

Housing Assistance Program Division.

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in the provision of services or facilities in connection” with the sale or rental of a

dwelling. 42 U.S.C. 3604(a), (b). HUD’s regulations declare that the conduct

prohibited by these provisions includes discrimination in the provision of property

or hazard insurance for dwellings. 24 C.F.R. 100.70(d)(4).

Relying in part on HUD’s regulation, both the Sixth and the Seventh

Circuits have ruled that the Fair Housing Act prohibits discriminatory practices

relating to the provision of property or hazard insurance for dwellings. NAACP v.

American Family Mutual Ins. Co., 978 F.2d 287, 297-301, cert. denied, 508 U.S.

907 (1993); Nationwide Mutual Ins. Co. v. Cisneros, 52 F.3d 1351, 1355-1360

(6th Cir. 1995), cert. denied, 516 U.S. 1140 (1996). In Mackey v. Nationwide Ins.

Cos, 724 F.2d 419, 423-425 (4th Cir. 1984), however, the Fourth Circuit ruled that

the Fair Housing Act does not cover insurance.

Notably, Mackey was decided before the Fair Housing Act was amended

and HUD’s implementing regulations were promulgated. Indeed, at least one

district court has held that, in light of the regulations’ explicit coverage of

insurance, Mackey is no longer binding precedent, even within the Fourth Circuit.

Fuller v. Teachers Insur Co., No. 5:06-CV-00438-F, 2007 WL 2746861, at *3-7

(E.D.N.C. Sept. 19, 2007).

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2. The Supreme Court set forth the steps to be taken by a court in

evaluating “an agency’s construction of the statute which it administers” in

Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837,

842-843 (1984) (footnotes omitted). When “Congress has not directly addressed

the precise question at issue, the court does not simply impose its own

construction on the statute, as would be necessary in the absence of an

administrative interpretation. Rather, if the statute is silent or ambiguous with

respect to the specific issue, the question for the court is whether the agency’s

answer is based on a permissible construction of the statute.” Id. at 842-843

(footnotes omitted). In these circumstances, “Congress entrusts to the [agency],

rather than to the courts, the primary responsibility for interpreting the statutory

term. In exercising that responsibility, the [agency] adopts regulations with

legislative effect. A reviewing court is not free to set aside those regulations

simply because it would have interpreted the statute in a different manner.”

Batterton v. Francis, 432 U.S. 416, 425 (1977); see also Rust v. Sullivan, 500 U.S.

173, 184 (1991) (regulation should be upheld “if it reflects a plausible

construction of the plain language of the statute and does not otherwise conflict

with Congress’ expressed intent”); Pauley v. BethEnergy Mines, Inc., 501 U.S.

680, 696 (1991) (citation omitted) (“When Congress, through express delegation

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or the introduction of an interpretive gap in the statutory structure, has delegated

policy-making authority to an administrative agency, the extent of judicial review

of the agency’s policy determinations is limited.”); American Family, 978 F.2d at

300 (“Courts should respect a plausible construction by an agency to which

Congress has delegated the power to make substantive rules.”); see Cisneros, 52

F.3d at 1359-1360.

Chevron analysis is fully applicable even where a court has reached a

different conclusion about the interpretation of a statute prior to the agency’s

pronouncement. “Only a judicial precedent holding that the statute

unambiguously forecloses the agency’s interpretation, and therefore contains no

gap for the agency to fill, displaces a conflicting agency construction.” National

Cable & Telecomm. Ass’n v. Brand X Internet Serv., 545 U.S. 967, 982-983

(2005). Of course, Mackey is not binding on this Court. But even its persuasive

authority is limited in light of Congress’s delegation to HUD of the authority to

issue implementing regulations and the agency’s promulgation of regulations

expressly applying the Act to discriminatory insurance practices. While Mackey

concluded that the Fair Housing Act does not apply to insurance discrimination, it

did not hold that the language of the statute “unambiguously forecloses” a contrary

conclusion. Brand X, 545 U.S. at 983; see Fuller, 2007 WL 2746861, at *6.

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Rather, as Fuller explained, Mackey “used the tools available to the court in 1984

to interpret the silence in the [Fair Housing Act] on the issue of insurance

practices [and] could not anticipate that in 1988 Congress would allocate to HUD

the authority to fill the gaps created by its legislative silence” in the Act. Fuller,

2007 WL 2746861, at *6. As the Seventh Circuit correctly concluded, “[e]vents

have bypassed Mackey.” American Family, 978 F.2d at 301; see Fuller, 2007 WL

2746861, at *4-7.

“Congress has not directly addressed the precise question” (Chevron, 467

U.S. at 843) whether the Fair Housing Act prohibits discriminatory insurance

practices. See American Family, 978 F.2d at 298; Cisneros, 52 F.3d at 1356-1357.

When it directed HUD to issue regulations to implement the Fair Housing Act,

Congress authorized the agency to define the types of conduct prohibited by the

Act, including the broad “otherwise make unavailable or deny” language of

Section 3604(a), and the term “services * * * in connection” with the sale or rental

of a dwelling in Section 3604(b). Therefore, the proper inquiry is whether HUD’s

regulation is “based on a permissible construction” of the Fair Housing Act.

Chevron, 467 U.S. at 843; American Family, 978 F.2d at 301 (“[T]he question

today is whether the Secretary’s regulations are tenable.”).

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3. HUD’s interpretation of the Act is both “permissible” (Chevron, 467

U.S. at 843), and “reasonable” (id. at 844-845; see American Family, 978 F.2d at

298, 300-301; Cisneros, 52 F.3d at 1359-1360). As HUD’s General Counsel

concluded in 1978, obtaining homeowner’s insurance is an integral part of the

process of buying and owning a home. Denial of such insurance “make[s]

[housing] unavailable” in a quite direct way. Mortgage lenders require

prospective borrowers to obtain insurance on their property, and to maintain it

through the life of the loan. Thus, obtaining and maintaining such insurance is an

essential prerequisite to obtaining a mortgage to purchase a dwelling and to

complying with the terms of the mortgage throughout its life. Where an insurance

company cancels or refuses to sell insurance policies to minority homebuyers, or

cancels or refuses to sell policies in predominantly minority areas, it makes

housing unavailable on the basis of race and/or national origin, in violation of

Section 3604(a). See Dunn v. Midwestern Indem., Mid-American Fire & Cas. Co.,

472 F. Supp. 1106, 1109 (S.D. Ohio 1979). Similarly, charging minority

homeowners higher rates may make owning a home so expensive as to make

housing unavailable.

This Court and others have interpreted the term “otherwise make

unavailable or deny” in Section 3604(a) to cover a variety of discriminatory

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practices that are not expressly mentioned in the statute. As the Seventh Circuit

explained, “Courts have applied this subsection to actions having a direct impact

on the ability of potential homebuyers or renters to locate in a particular area, and

to indirectly related actions arising from efforts to secure housing.” Southend

Neighborhood Improvement Ass’n v. County of St. Clair, 743 F.2d 1207, 1210

(7th Cir. 1984); see, e.g., Keith v. Volpe, 858 F.2d 467, 482-484 (9th Cir. 1988)

(municipal refusal to permit construction of low income housing), cert. denied,

493 U.S. 813 (1989); Metropolitan Hous. Dev. Corp. v. Village of Arlington

Heights, 558 F.2d 1283 (7th Cir. 1977) (municipal refusal to rezone land to permit

construction of low-income housing), cert. denied, 434 U.S. 1025 (1978); United

States v. City of Parma, 661 F.2d 562 (6th Cir. 1981) (imposition of building

height limitations to exclude housing project for racial reasons), cert. denied, 456

U.S. 926 (1982); Kennedy Park Homes Ass’n, Inc. v. City of Lackawanna, 436

F.2d 108 (2d Cir. 1970) (refusal to permit sewer hookup), cert. denied, 401 U.S.

1010 (1971); United States v. American Inst. of Real Estate Appraisers, 442 F.

Supp. 1072, 1079 (N.D. Ill. 1977) (discrimination by real estate appraisers), appeal

dismissed, 590 F.2d 242 (7th Cir. 1978); Heights Cmty. Congress v. Hilltop

Realty, Inc., 774 F.2d 135, 140 (6th Cir. 1985) (real estate steering), cert. denied,

475 U.S. 1019 (1986).

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What these apparently diverse actions have in common is that all interfere

with the process of providing or acquiring residential property. The term

“otherwise make unavailable or deny” is broad enough to encompass all such

actions, including discriminatory insurance practices. As the Sixth Circuit wrote,

“[t]he purpose of the Fair Housing Act as a whole is ‘to eliminate the

discriminatory business practices which might prevent a person economically able

to do so from purchasing a house regardless of his race.’” Cisneros, 52 F.3d at

1359 (quoting Dunn, 472 F. Supp. at 1109). Thus, “HUD’s interpretation of the

Fair Housing Act is reasonable in light of the direct connection of availability of

property insurance and ability to purchase a home.” Ibid.

Similarly, because the acquisition and maintenance of insurance coverage is

so closely connected to home ownership, discrimination in the terms and

conditions of property insurance constitutes discrimination “in the provision of

services * * * in connection” with the sale of a dwelling, in violation of Section

3604(b). American Family, 978 F.2d at 297, 300-301. This is so whether the

discrimination occurs at the time of purchase or during the course of ownership of

the dwelling. Cf. Committee Concerning Cmty. Improvement v. City of Modesto,

583 F.3d 690, 711-715 (9th Cir. 2009) (Fair Housing Act applies to post-

acquisition conduct) (petition for rehearing pending); Bloch v. Frischholz, 587

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F.3d 771, 779-781 (7th Cir. 2009) (en banc) (Section 3604(b) applies to certain

post-acquisition conduct relating to the initial terms of sale).

Mackey’s reasons for its conclusion that the Fair Housing Act does not

reach discriminatory insurance practices are unpersuasive, particularly in light of

HUD’s regulation. First, according to Mackey, construing Section 3604 to

encompass actions such as discriminatory insurance practices would render

superfluous Section 3605 of the Act, which explicitly addresses discrimination in

actions relating to the financing of housing, but does not expressly prohibit

discriminatory insurance practices.

The language and construction of the Act

At the time of the decision in Mackey, Section 3605 prohibited

“[d]iscrimination in the financing of housing,” and declared it unlawful:

for any bank, building and loan association, insurance

company or other corporation, association, firm or

enterprise whose business consists in whole or in part in

the making of commercial real estate loans, to deny a

loan or other financial assistance to a person applying

therefore for the purpose of purchasing, constructing,

improving, repairing, or maintaining a dwelling, or to

discriminate against him in the fixing of the amount,

interest rate, duration, or other terms or conditions of

such loan or other financial assistance, because of [race].

42 U.S.C. 3605 (1982). As amended in 1988, Section 3605 declares it “unlawful

for any person or other entity whose business includes engaging in residential real

estate-related transactions to discriminate against any person in making available

such a transaction, or in the terms or conditions of such a transaction.” 42 U.S.C.

(continued...)

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disproves this contention; Sections 3604(a) and 3605 are overlapping in their

coverage. See American Family, 978 F.2d at 298.

Section 3605 is both more specific and broader in its application than the

“otherwise make unavailable or deny” language of Section 3604(a). As it existed

at the time of the decision in Mackey, Section 3605 applied only to certain types of

transactions, and only to commercial entities. At the same time, it prohibited

discrimination, not only in making loans, but also in the terms and conditions of

such transactions. The “otherwise make unavailable” clause of Section 3604(a),

on the other hand, applies to any person not otherwise exempt from the Act, and

governs a broad range of activities. It prohibits only such discrimination,

(...continued)

3605(a). Section 3605(b) defines the term “residential real estate transaction” to

mean:

(1) The making or purchasing of loans, or providing

other financial assistance –

(A) for purchasing, constructing, improving,

repairing, or maintaining a dwelling; or

(B) secured by residential real estate.

(2) The selling, brokering, or appraising of residential

real property.

42 U.S.C. 3605(b).

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however, that makes housing unavailable. The overlap in coverage by Section

3604(a) and Section 3605 is even clearer under the current version of Section

3605, which applies to those engaged in “in residential real estate-related

transactions” and prohibits activities that also are expressly prohibited by Section

3604(a), such as discrimination in the sale of a dwelling. See note 5, supra.

Mackey also found it significant that Congress had rejected efforts to amend

the Fair Housing Act to explicitly cover insurance. 724 F.2d at 424. But, as the

Seventh Circuit recognized, these failed efforts did not mean that Congress

disagreed with the merits of the legislation. American Family, 978 F.2d at 299.

“Proposed legislation can fail for many reasons.” Ibid. Thus, “the Supreme Court

repeatedly reminds us that unsuccessful proposals to amend a law, in the years

following its passage, carry no significance.” Ibid. It is more telling that

Congress did amend the Act in 1988 to give HUD the authority to issue

Indeed, many provisions of the Act are overlapping in their coverage. In a

real estate steering case, for example, the same conduct may violate Sections

3604(a), (b), and (d), and 3605. When a real estate agent informs white, but not

African-American homeseekers about houses for sale in certain areas, he makes

those dwellings unavailable to the African Americans in violation of Section

3604(a), discriminates in the provision of his services in violation of Section

3604(b), and misrepresents the availability of housing in violation of Section

3604(d). See Village of Bellwood v. Dwivedi, 895 F.2d 1521, 1529 (7th Cir.

1990). His actions would also constitute discrimination in the “selling [or]

brokering * * * of residential real property” in violation of Section 3605.

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implementing regulations, knowing that, since 1978, HUD had interpreted the Act

to apply to homeowner’s insurance. Id. at 300.

Next, Mackey suggested that Congress might have omitted insurance from

coverage under the Fair Housing Act because “[t]he insurance industry has

traditionally classified risks. If insurance premiums are to remain at reasonable

levels for most householders, some insurers must be permitted to reject risks

which are perceived to be excessively high, while charging higher premiums on

some risks than upon others.” 724 F.2d at 423. The element of risk, however,

cannot justify disparate treatment on the basis of race where Congress has

prohibited it. American Family, 978 F.3d at 298 (“Nothing in the nature of

insurance implies that hazard insurers need to engage in disparate treatment, to

draw lines on the basis of race rather than risk.”); cf. City of Los Angeles v.

Manhart, 435 U.S. 702, 709 (1978) (“Congress has decided that classifications

based on sex, like those based on national origin or race, are unlawful. Actuarial

studies could unquestionably identify differences in life expectancy based on race

or national origin, as well as sex. But a statute that was designed to make race

irrelevant in the employment market could not reasonably be construed to permit a

take-home-pay differential based on a racial classification.”) (citation and footnote

omitted). Nor does Mackey’s reasoning preclude the application of disparate

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impact analysis to claims of insurance discrimination. For even in a disparate

impact case such as this one, where plaintiff challenges defendants’ use of credit

scores, the insurer will have a full opportunity to defend the business justifications

for its policies. See Affordable Hous. Dev. Corp. v. City of Fresno, 433 F.3d

1182, 1194 (9th Cir. 2006) (“[A] defendant may rebut a plaintiff's showing of

disparate impact by supplying a legally sufficient, nondiscriminatory reason”)

(internal citation and quotation marks omitted); cf. Dehoyos v. Allstate Corp., 345

F.3d 290, 298 n.5 (5th Cir. 2003) (“In engaging in the unremarkable task of

determining whether specific conduct falls within the ambit of federal civil rights

law, a court would no more become a ‘super actuary’ than the court becomes a

‘super entrepreneur’ each time the court must determine whether a discriminatory

practice constitutes a business necessity.”), cert. denied, 541 U.S. 1010 (2004); but

see American Family, 978 F.3d at 291, 298-299 (questioning whether disparate

impact analysis would apply to claim of insurance discrimination under the Fair

Housing Act).

This Court, therefore, should hold that the Fair Housing Act prohibits

discriminatory practices in the provision of property or hazard insurance for

dwellings. See 24 C.F.R. 100.70(d)(4).

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McCARRAN-FERGUSON REVERSE PREEMPTION DOES NOT

DEPRIVE COURTS OF JURISDICTION OVER THE FEDERAL CLAIM

The district court erred when it assumed that the McCarran-Ferguson Act

deprived it of jurisdiction to hear this case. In making this assumption, the district

court improperly conflated the question whether a complaint states a claim with

whether the court had subject matter jurisdiction to adjudicate the claim.

The general federal question jurisdiction statute, 28 U.S.C. 1331, provides

that “[t]he district courts shall have original jurisdiction of all civil actions arising

under the Constitution, laws, or treaties of the United States.”

“A plaintiff

properly invokes § 1331 jurisdiction when she pleads a colorable claim ‘arising

under’ the Constitution or laws of the United States.” Arbaugh v. Y & H Corp.

546 U.S. 500, 513 (2006) (citing Bell v. Hood, 327 U.S. 678, 681-685 (1946)).

Plaintiff here has pled a colorable claim arising under the Fair Housing Act.

Therefore, the district court had and this Court has subject matter jurisdiction over

that claim, whether or not the claim is barred by McCarran-Ferguson.

This Court previously has recognized that McCarran-Ferguson reverse

preemption does not deprive federal courts of subject matter jurisdiction. United

Plaintiff in this case asserted jurisdiction under 28 U.S.C. 1331, 28 U.S.C.

1343(a)(4), or 42 U.S.C. 3613(a). See E.R. 2.

-23-

States v. Robertson, 158 F.3d 1370, 1371 (9th Cir. 1998). The Second, Fifth, and

Eighth Circuits have agreed. Dexter v. Equitable Life Assur. Soc. of United States,

527 F.2d 233, 236-237 (2d Cir. 1975); United States v. Cavin, 39 F.3d 1299, 1305

(5th Cir. 1994); United States v. Blumeyer, 114 F.3d 758, 768 (8th Cir. 1997).

In Gilchrist v. State Farm Mutual Automobile Insurance Co., 390 F.3d

1327, 1329 -1330 (11th Cir. 2004), the Eleventh Circuit treated McCarran-

Ferguson preemption as jurisdictional. Much like the district court in this case,

however, it did so without any analysis. Gilchrist, then, is the sort of “unrefined

disposition[]” that the Supreme Court has characterized as a “‘drive-by

jurisdictional ruling[]’ that should be accorded ‘no precedential effect’ on the

question whether the federal court had authority to adjudicate the claim in suit.”

Arbaugh, 546 U.S. at 511 (quoting Steel Co. v. Citizens for Better Env’t, 523 U.S.

83, 91 (1998)).

There is no doubt that plaintiff’s claim in this case “aris[es] under” the Fair

Housing Act. Section 3613(a) expressly authorizes civil actions by individuals

alleging violations of the Act. 42 U.S.C. 3613(a). And plaintiff’s claim, however

the McCarran-Ferguson issue is resolved, asserts a colorable claim under the Act.

His claim therefore meets the plain jurisdictional requirements of Section 1331.

-24-

Moreover, nothing in the McCarran-Ferguson Act indicates any intention to

deprive district courts of jurisdiction even where it operates to preempt the

application of another federal statute. To the contrary, McCarran-Ferguson

provides that “[n]o Act of Congress shall be construed to invalidate, impair, or

supersede any law enacted by any State for the purpose of regulating the business

of insurance.” 15 U.S.C. 1012(b) (emphasis added). By its terms, the McCarran-

Ferguson Act governs the construction of other federal statutes, not the

jurisdiction of federal courts to adjudicate colorable claims arising under those

statutes.

-25-

CONCLUSION

This Court should rule that the ban on discrimination in the Fair Housing

Act, 42 U.S.C. 3604, applies to homeowner’s insurance; and that the McCarran-

Ferguson Act does not deprive federal courts of subject-matter jurisdiction to hear

claims brought under federal statutes, but rather merely instructs courts how to

construe federal statutes.

Respectfully submitted,

THOMAS E. PEREZ

Assistant Attorney General

/s/ Linda F. Thome

JESSICA DUNSAY SILVER

LINDA F. THOME

Department of Justice

Civil Rights Division

Appellate Section

P.O. Box 14403

Ben Franklin Station

Washington, D.C. 20044-4403

Telephone: (202) 514-4706

Fascimile: (202) 514-8490

linda.thome@usdoj.gov

Attorneys for the United States

Addendum

~::~.

Of;NCE

CODE

Name

o.~

,1.Ej!()~ANDUl1

TO:

Chester

ilcGuire

Asaistant

0ecretary

for

Squal

Opportunity,

SUBJECT:

Title

VIII

tI,e

civil

Rights

Act

1;)68

(]££-m~o

-f.

~40

connection

,"ith

(}epartillental

contlideration

the

i<llBuance

substantive

regul8tions

interpreting

litle

VIII

yeu

have

requested

our

views

the

applicability

the

Federal

Fair

Housing

Act

pl!operty

insurance

activities.

Svecifically,

you

ilsked

for

advice

on,lhether

failure

refu!;al

provide

property

insurance

dwellings

based

upon

race,

color,

sex,

raligion

national

origin

violates

Title

Viri.

:,ection

804(.1)

Title

VIII

the

civil

Ji.~flt3

Act

196B

U.S.C.

;:;cction

JtJiJ4(a),

l'l.akes

unlal'lful

refutie

nee;otiate

for

the

aBle

rental

of,

otherwise

lna\.s,e

unavailable

deny,

dwelling

any

rerson

because

race,

color,

religi'Jn.

sex

national

origin.

l~e

question

whether

insurance

redlining

coverod

Spction

804(8)

lias

llot

been

.addres!lpd

the

courts.

rh~

provisions

the

tair

ifoH8ing

!\ct

1968

hl1ve,

however,

been

construed

broadly

the

courts.

Thp-

Act

bas

been

descrir)ed

"detailed

housing

law,

applicable

broad

range

discrirllinatory

iJractices,"

~.,?_~es

t[~!.!~~E-

.•

392

:J.:',

4:W.

417

(1968),

and

accorded

".;enerous"

construction

that

c.'m

accomplish

the

"enormous"

task

,·mich

Congress

conta,ur1ated

[or

it.

Trafficlinte

v.!1etrop.oliE~:~~~,i~.~.l~~-=---C.9

.. ,

409

U.S.

205,

21l-:ll2

0')72).

Further,

coverage

under

the

rair

[lOusing

Act

not

liillitaci

those

·"ho

sell,

rent,

finance

real

estate.

"The

Act

has

been

n.p\?lied

not

only

p-e

'lona

i g

I!ent:i.n~

Jwellin

gs ,

but

s o

new

carryi

ac.i

ertise;O

lt:lllts ,

re~i

t r

are

,jeed

conta

ning

r c

l 1y r

est

r i c t

ive

covenants,

and

t o

!llu.nicip

engagin~

Eoning

Jiscruuina

t or y

l'nJ

U8@

pr3c

l'n

i t

Utates

[lu"

hes

·t

emor

ial

Ol1l~,

396

:iupp

(\-

•. J .

(

tatio~

-;:;;i

ed)

ORIGINATOR

CONCURRENCE

...

....

IOU.

lIdition

u.s.

OEPARTMUH

01'

HOUSI

"IG

AND URBAN OEVL_.

OFFI~"'l

RECORO COPY

HU0-713

(7·75)

- 2 -

Section

304(a)

hns

also

been

construed

expanaLvely:

"Section

S04(a)

lIot

only

mBI<~s

unl~wful

'refuse

sell

rent

...

I a

Jwelling

for

racial

reasons,

but

a180

makes

unlawful

'otherwtse

make

unavailable

deny

dwelling

any

person

because

race,

color,

relIgion,

[Jex]

national

origin.

(Emphasis

decision.)

This

catch-all

phraseology

may

not

easily

discounted

de-

e.m

e d . I n

dee

it'

apr

ear

9 t 0

a 8 b r 0 a

daB

()

ng r e 9 S

could

have

made

it,

and

all

practice.

which

have

the

~ffect

d~nyin&

dwel1in~s

prohibited

ground.

are

therefore

unlawful.

United

States

Youritan

Constr.

Co.,

370

SUPPA

(,43.

(ynitcd

States

City

Parma,

P.H.E.O.H.

t,:

e p t

par

a 1J , 6

16,

a t

14 0 15 (

()

h i 0 1 9 7 3 ) )

Indeed,

Section

804(8)

has

been

construed

pr~libit

conduct

much

~roader

than

that

con9tituting

refusal

sell

rent.

The

statutory

language

proscribing

conduct

that

"othenJise

rrl8ke[fJ

[d~

...

elling8]

unavail-

able

has

been

appl

ied

variety

gcr

iOlinatory

conduct

dist

ingu

ial

able

from

refusals

sell

rent

including

refusal

nake

mortgage

loan

because

the

race

persons

living

the

area

where

the

home

val

located,

~aufrnan

Ciak

ley

Bldg

•.

and

Loan

Co·~

supra,

!larr

i90!!

lleinzeroth,

414

Supp

U;.D.

Ohio

1976),

racial

steering

real

e.9ta~e

agents,

~uch

~lu9~,

366

Sup

553

(£.U.

1-!ich

1976);

adoption

exclusionary

ordinances

municipality,

United

States

Parma.

~~-.ipra~

and

discriminatory

rejection

orph<l~age

tllinority-

orph.:lnB,

United

States

Hughes

;'~emorial

!{ome,

39h

SUppa 54L.

(;J.D.

Va.

1975).

Tbe

rationale

these

(lecisions

indicates

that

JOy

discriminatory

.1ction

which,

practical

matter,

makes

dwelling

"unavailiible,1f

violati\

Section

3604(3).

This

rationale

was

best

articulated

the

~~uf~~

court

the

context

lender

redtining:

The

cost

housing

being

'-",hat

today,

denial

financial

asgistance

connection

with

sale~

a home

tJould

effectively

"make

unavailable

denyH

...

elling.

~~hen

such

denial

occurs

result

racial

consider-

~tion8,

Section

3604(a)

transgressed.

Laufman

Oakley

Building

Loan

Co.,

408

Supp.

489""l'S~n.

Ollio

1976).

J\dequllte

insurance

coverage

often

prerequi.']

obta

ining

inane

Insurance

redlining,

Jenying

impeding

coverage

makes

nort~Bge

money

unavailable,

rendering

d..,.ellings

"unBvailabl-e"

effectively

lUll

the

deni

financial

assistance

I)n

other

grounds:

- J -

"Insurance

essential

revitalize

our

cities.

ill

corneratone

credit.

~ithout

insurance,

banks

snd

other

financial

institution.

will

not

and

cannot

- make

loan

•.

(l~eport

the

President's

:lation.l

Advisory

Panel

Insurance,

i1eeting

the

Insurance

crisis

Our

Citiu

(1968).)

instances

where

maintenance

approprists

bazard

property

in!urance

the

premises

required

condition

financing

for

the

purchase

the

dwelling

refusal

issue

insurance

policies

imposition

pro-

vision.

which

make

Illore

difficult

obtain

such

Ltuurance.

when

based

the

raciaL

religiO\1l1,

sex

ethnic

origin

the

applicant

imi.lar

concerns

about

cOIOt.1unity,

which

•

....

ould

result

the

denial

the

mortgage

make.

the

dwelling

"unavailable"

....

ithin

the

meaning

Section

8C4(a).

since

this

type

insurance

redlining

within

the

parameters

Title

VIII

are

also

the

opinion

that

issuance

Title

VIII

L-egulations

;Jppropriate.

the

:'lcCarran-Fergusoo

.\ct,

15 U.

Section

1.011-1012.

the

Congress

declar!!d:

"that

the

continued

regulation

dnd

taxation

the

several

States

the

bUdiness

insurance

the

public

interest

and

thilt

silence

the

part

the

Congress

shall

not

conatrued

impose

any

barrier

the

regulation

taxation

such

business

the

several

Stiltes.'·

Further,

the

Act

provides

that

act

Congress

~sh311

construed

invalidate,

impair

supersede

any

....

enacted

any

state

regulating

thE!

businesa

inaurance."

(15

U.S.C.

l012(b».

I-[hile

the

t!cCarran

Act

has

been

held

exempt

the

business

insurance

from

Federal

antitrust

Acts

such

regulated

the

State

..,here

the

allegeu

actions

occurred.

~OII1I34nder

Luasinlij

Co.

Jransamerica

Titl_!

Ina.

Co.,

447

77,

83 ClOth

Cir.

1973).

t'llC

Supreme

Court

bas

indi-

~ated

that

"[i]asurance

companies

I:lUY

many

thirl~8

which

I.Ire

8ubj~ct

paramount

federal

regulation

•...

SEC

Na.tional

Securities,

Inc

.•

J 9 J

I .. 53 89

....

J 1 L.

Ed.

d 66

19 6 9

may

argued

that

this

Congrel:lsional

mandate

exempts

insurance

activities

from Fe

deral

legiallttion

the

rea

Civil

ht.

including

til

f'a

i ng Ac

alt

t h r o

no 1 i

tiv

ist

und r

I I

thi

area

and t

h va b en no

jud

i c i

i ona

"Ie

ire

i n i on

statutes

tle

VIII

IoIh

i ch r e d

.ign

pr o t

con

t i

iona

1 r

igh

t a e r e

lim

i t

tlt

:kC

n- Fe

u8on

ct.

- 4 -

the

only

case

which

h38

addressed

this

igsue.

the

McCarran-Ferguson

Act

was

held

not

bar

suit

against

insurance

companies

for

alleged

violations

the

Civil

Rights

Act

1866

(42

u.s.c~

Section

1982~

Ben

General

~1otore

Acceptance

Corp.,

374

SUppa

1199

(D.

Colo.

1974-)-.-

The Ben

court

stated

that:

"There

indication

the

background

and

history

the

~cCarran

Act

its

application

that

the

McCarran

Act

was

intended

deprive

citizen

access

the

Federal

Courts

obt~in

redress

for

violations

hi.

civil

rigbts

and

requtre

him

report

the

state

court.

the

Bole

forum

for

redress.

such

~-Jere

the

intent

Congres8,

highly

questionable

that

Congrella

had

the

power

under

the

Constitution

80.

Based

upon

the

ahove

are

the

opinion

thAt

the

McCsrran-Fergu6on

Act

does

not

exempt

insurance

companies

from

the

coverage

the

Federal

Housing

Act.

J.?~j~

Ruth

Prokop

. I /lL;

cc:

GEE,

Chron

10240

Carey

Farbstein

Gel

Kennedy

10278

Sauerbrunn

Prokop

10214

Norton

GEE:BClarkedss:8/15/78

OR1QJNATOR

CONCURRENCE

CONCU~REN

CONCURRENC~

CERTIFICATE OF COMPLIANCE

I hereby certify that this brief complies with the type-volume limitation

imposed by Fed. R. App. P. 32(a)(7)(B). The brief was prepared using

WordPerfect X4 and contains 5,219 words of proportionally spaced text. The type

face is Times New Roman, 14-point font.

/s/ Linda F. Thome

LINDA F. THOME

Attorney

Date: January 29, 2010

CERTIFICATE OF SERVICE

I hereby certify that on January 29, 2010, I electronically filed the foregoing

with the Clerk of the Court for the United States Court of Appeals for the Ninth

Circuit by using the appellate CM/ECF system.

Participants in the case who are registered CM/ECF users will be served by

the appellate CM/ECF system.

I further certify that some of the participants in the case are not registered

CM/ECF users. I have mailed the foregoing document by regular, first class mail,

to the following non-CM/ECF participant:

James A. Francis

FRANCIS & MAILMAN

Land Title Bldg.

100 S. Broad St., 19th Floor

Philadelphia, PA 19110

/s/ Linda F. Thome

LINDA F. THOME

Attorney