The Magazine

Thomas Perez Makes a Deal

How Obama’s Labor nominee made a Supreme Court case disappear

May 27, 2013, Vol. 18, No. 35 • By TERRY EASTLAND
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Disparate impact theory, however, is controversial, and the reasons are evident. Disparate impact can impose liability for policies or practices that are entirely race-neutral, were adopted without discriminatory intent, and are applied fairly. The results of a policy, delineated by race, are what matter most. And if the numbers are “wrong,” then it falls to the defendant to prove that the policy or practice is necessary and that no other policy or practice with less-disparate impact can serve the defendant’s needs. Of course, those seeking to avoid being sued in the first place have alternatives. They can preemptively weaken a race-neutral policy to the point where it ceases to produce disparate outcomes. Or they can maintain the policy or practice but adjust the results to get the numbers “right”​—​in effect, adopt a racial double standard. 

In November 2011​—​the same month the Court took Magner​—​Perez wanted “to start a conversation with the City of St. Paul about [his] concerns relating to the Magner case,” according to Perez’s written answers to questions from senators. One concern was that the case lacked facts that would cast disparate impact theory in a sympathetic light. Perez also thought that the absence of a federal housing rule explicitly targeting policies and practices with disparate impact​—​though such a rule was in the works and has since been promulgated​—​could lead the justices to be less deferential to the executive branch’s use of the approach. But whether “bad facts” or the lack of the rule would have made any difference in the Court’s handling of the question in Magner​—​the validity of disparate impact​—​seems doubtful, since the more formidable difficulties for Perez’s position lay inside the Court. 

Consider that for the administration’s position on disparate impact to have prevailed in a Court review of Magner, at least five justices would have had to be willing write the theory into the FHA. But there are five justices who as a general matter believe that the authority to make law belongs to Congress, not the courts. And one of those is Justice Scalia, who in a 2009 public employment case wrote a concurrence in which he said that the disparate impact provisions in federal employment law “place a racial thumb on the scales, often requiring employers to evaluate the racial outcomes of their policies and to make decisions based on (because of) those racial outcomes.” That type of racial decision-making being discriminatory, said Scalia, the Court someday will have to decide whether the disparate impact provisions in employment law are consistent with the Constitution’s guarantee of equal protection of the laws. Writing disparate impact into federal housing law would raise the same constitutional problem for Scalia and other justices of similar judicial philosophy.

Through Minnesota connections, Perez found David Lillehaug, a former U.S. attorney serving as an outside counsel for the city. The two talked on November 23, 2011. We learn from the joint staff report that Lillehaug told the committees’ investigators that the civil rights chief discussed with him “the importance of disparate impact.” Lillehaug also said he told Perez that the United States might be suing the city in a separate case brought under the False Claims Act. The two men discussed “a potential solution,” namely that St. Paul would withdraw its petition in Magner if the Justice Department declined to intervene in the false claims case. The conversation ended with Perez indicating he would look into the case, responsibility for which lay with the Justice Department’s Civil Division.

Under the False Claims Act, a private individual​—​a “whistleblower”​—​may sue federal contractors for defrauding the government. In May 2009, Frederick Newell of St. Paul filed such a complaint, charging that the city had falsely certified its compliance with Section 3 of the Housing and Urban Development Act, which requires recipients of HUD financial assistance to provide job training, employment, and contracting opportunities to low- or very-low-income residents. Newell specifically alleged that the city had asserted on applications for HUD funds totaling almost $200 million that it had complied with Section 3, when in fact it had not done so and knew that it hadn’t.

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