Petition for Writ of Certiorari — Nationwide Mutual Insurance v. Cisneros
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SUpreme Court, U.S.
FILED
OB e711 4 Nov 2- 1995
NO: __QEFICE-OF THE CLERK
In The
Supreme Court of the United States
October Term, 1995
#
NATIONWIDE MUTUAL INSURANCE COMPANY and
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY,
Petitioners,
HENRY CISNEROS, Secretary of the United States
Department of Housing & Urban Development;
JERALD L. STEED, Executive Director, Dayton Human
Relations Council; CHARLES W. BROWN, Chairperson,
Dayton Human Relations Council;
and CITY OF DAYTON,
Respondents.
.
Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Sixth Circuit
$
PETITION FOR A WRIT OF CERTIORARI
¢
JEFFREY S. GOLDMAN
LAWRENCE M. COHEN
Counsel of Record
Joe. W. Rice
Fox AND GROVE, CHARTERED
311 S. Wacker Dr., Suite 6200
Chicago, Illinois 60606
312/876-0500
Counsel for Petitioners
COCKLE LAW BRIEF PRINTING CO., (800) 225-6964
OR CALL COLLECT (402) 342-2831
QUESTIONS PRESENTED
1. Whether the Fair Housing Act (“the Act”), 42 U.S.C.
§ 3601, et seq., regulates the provision of property insurance
despite the abseiice of any reference to insurance in either
the Act’s language or legislative history, the repeated refusal
by Congress to amend the Act to expressly include insur-
ance, the inverse state preemption backdrop of the McCar-
ran-Ferguson Act, 15 U.S.C. § 1011, et seq., and Congress’
enactment, in the same year as the Act, of another statute —
the Urban Property Protection and Reinsurance Act
(“UPPRA”), 12 U.S.C. § 1749bbb, et seg. - to specifically
address the problem of property insurance availability.
2. Whether the interpretive regulations of the United
States Department of Housing & Urban Development
(“HUD”), which construe the Fair Housing Act to cover the
business of insurance, are entitled to substantial deference
under Chevron, U.S.A., Inc. v. Natural Resources Defense Coun-
cil, Inc., 467 U.S. 837 (1984), notwithstanding that a contrary
Congressional intent can be ascertained “through traditional
tools of statutory construction” (Judge Kennedy dissenting
below, 52 F.3d at 1364; App. 29).
3. Whether the ripeness doctrine precludes pre-
enforcement judicial review of a question that has an imme-
diate and direct effect on the day-to-day business of property
insurance: the legitimacy of HUD’s definitive pronounce-
ment that it will engage in the disparate impact regulation of
property insurance under the Fair Housing Act.
4. Whether the Court of Appeals correctly concluded
“that the presence of additional remedies in the Fair Housing
Act does not cause the Act to invalidate, impair or supersede
[state] insurance law” (52 F.3d at 1363; App. 27) in contra-
vention of the McCarran-Ferguson Act.
li
PARTIES TO THE PROCEEDING
AND RULE 29.6 LIST
All parties to the proceeding below are reflected in
the case caption. Petitioners have no parent companies or
nonwholly owned subsidiaries to list pursuant to
Supreme Court Rule 29.6.
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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ..........---eeeeeeeeeee: iv
OCPTITIOING BELOW. 0. cccccsvcccvcccccccceserceres 1
SEEM EMUIEY 5 besa ceveescccccrceccevesesesecenses 1
STATUTORY AND REGULATORY PROVISIONS
CE cece ede eh evesd hr cesesteeesnsecccesens 2
STATEMENT OF THE CASE.........-.--seeeeeeeee 2
REASONS FOR GRANTING THE WRIT ........... 6
A. This Court Should Resolve The Conflict
Among The Courts Of Appeal Over Whether
The Fair Housing Act Applies To The Business
a5 ok adhe vis 4h ¥ v0 062 Bev ere ses 6
B. This Court Should Resolve The Confusion In
The Lower Courts Over The Proper Applica-
CE SPE ET Pe Terre eer ee 13
C. The Court Of Appeals’ Refusal To Address
Nationwide’s Argument That Disparate Impact
Enforcement Of The Fair Housing Act Is Pre-
empted By The McCarran-Ferguson Act Con-
flicts With This Court’s Decision In Abbott
Laboratories And Other Circuit Court Precedent
DRUURCUCS cae SOR Nad see ev erisoweviveseeverde 16
D. The Court Of Appeals’ Rejection Of McCarran-
Ferguson Act Preemption Is Contrary To The
Plain Language Of The Statute And Prior Pre-
cedent Of This Court..... eed ee rea ear te 20
CNG edad niu eb ee eee sti ¥evewscceuves 22
eg ee eV ewe bes ebis oveven App. 1
iv
TABLE OF AUTHORITIES
Page
CASES
A.R.F.A.P.S. v. Regulations and Permits Admin., 740
F. Supp. 95 (D. Puerto Rico 1990).................. 9
Abbott Laboratories v. Gardner, 387 U.S. 136 (1967)
OE OL rt Pr Pa hy ee ge 3, 5, 6, 16, 18
Adams Fruit Co. v. Barrett, 494 U.S. 638 (1990)....... 15
Ambrose v. Blue Cross & Blue Shield of Virginia, 891
P. See. TESS GGA. Ws BOWe cece vcnsevencsevesens 21
Arthur v. City of Toledo, 782 F.2d 565 (6th Cir. 1986) ..... 9
Barnett Bank of Marion County v. Gallagher, 43 F.3d
631 (11th Cir.), cert. granted, __ U.S. __, 132
L.Ed.2d 920 (Sept. 27, 1995) (No. 94-1837)....... 8, 22
Chamber of Commerce v. Reich, 57 F.3d 1099 (D.C.
| re eee ee PP Prey ey ee Tee 17, 19
Chevron, U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984).......... » @, 33, 35
Ciba-Geigy Corp. v. U.S. EPA, 801 F.2d 430 (D.C.
COR: TH 6 SUS ison eee iets ce ee amen ease anes 17, 19
Clifton Terrace Associates, Ltd. v. United Technologies
Covp., Sie Va Fi6: CO. GA TR) occ cepcnvssccss 14
Federal Maritime Comm'n v. Seatrain Lines, Inc., 411
ee 8): Pee eras re ere ero ee ee 15
FMC Corp. v. Holliday, 498 U.S. 52 (1990)............ 20
Franklin Federal Savings Bank v. Director, Office of
Thrift Supervision, 927 F.2d 1332 (6th Cir.), cert.
Mend Sie UD. Fae Ga oo cc kee enweecucesiuns 17, 19
i EAA Rh 8 TED oe
TABLE OF AUTHORITIES - Continued
Page
Halet v. Wend Inv. Co., 672 F.2d 1305 (9th Cir. 1982) ..... )
Huntington Branch, NAACP v. Town of Huntington,
844 F.2d 926 (2d Cir.), aff'd, 488 U.S. 15 (1988)..... 9
INS v. Cardoza-Fonseca, 480 U.S. 421 (1987) ....6, 14, 15
International Union, U.A.W. v. Brock, 816 F.2d 761
CRE, Ce, SHG e co cenenenscesnecsccvadoesedenreess 14
Johnson City Medical Center v. U.S., 999 F.2d 973
(Gt Cie. 1993). oc ccccccccccvscesccccceserrecseces 15
Mackey v. Nationwide Insurance Companies, 724 F.2d
419 (4th Cir. 1984)......---cccccccccsccseee 2, 4, 9, 14
Mountain Side Mobile Estates v. Secretary, HUD, 56
F.3d 1243 (10th Cir. 1995).......-ccceeeccreccveeee 18
NAACP v. American Family Mut. Ins. Co., 978 F.2d
287 (7th Cir. 1992), cert. denied, _. U.S. __U 113
Cie ZI (IGS. 2 ccc cscvccvcecceunneduaderoneatgs: 4
Nationwide Mutual Ins. Co. v. Cisneros, 52 F.3d 1351
(6th Cir. 1995)....-.-ccccccccccscrccccceseces 4, 7, 21
NLRB v. United Food and Commercial Workers
Union, 484 U.S. 112 (1987) .........- eee eee rere eees 14
Potomac Group Home Corp. v. Montgomery County,
823 F. Supp. 1285 (D. Md. 1993).....-.--------++: 10
Resident Advisory Board v. Rizzo, 564 F.2d 126 (3d
Cir. 1977), cert. denied, 435 U.S. 908 (1978) ......-.. 9
Silver v. Garcia, 760 F.2d 33 (1st Cir. 1985)........... 13
U.S. v. City of Parma, 661 F.2d 562 (6th Cir. 1981),
cert. denied, 456 U.S. 926 (1982) .....------ seer cere 9
vi
TABLE OF AUTHORITIES - Continued
Page
United States v. Badgett, 976 F.2d 1176 (8th Cir.
DOE oa.c cc Saduccccocsodevove ceunauanesacdagaseees 10
United States v. Schuylkill Township, 1991 U.S. Dist.
LEME 2 C.D. Pa. TORE ccc vase ccrcescasctaecsnses 10
Wexco, Inc. v. IMC, Inc., 820 F. Supp. 194 (M.D. Pa.
SFTOD . cc cccccscccestonscenusécdewsstestresareyeunes 21
STATUTES AND REGULATIONS
Declaratory Judgment Act, 28 U.S.C. §§ 2201-02...... 2
Administrative Procedure Act, 5 U.S.C. §§ 701-06..... 3
Fair Housing Act, 42 U.S.C. § 3601, et seq............ 2
Section 3604(a), 42 U.S.C. § 3604(a) ........... 3, 13, 14
Section 3604(b), 42 U.S.C. § 3604(b)...............4.. 14
Oe DOC. © OOD. vs veksceccseeunesess eee 3
Fed. Reg., Vol. 59, No. 157, pp. 41995-41996......... 11
McCarran-Ferguson Act, 15 U.S.C. § 1011, et seq...2, 20
Ohio Insurance Code, O.R.C. § 3901.01, et seq........ 2
Urban Property Protection and Reinsurance Act,
12 USL. | Treeeee. 6 OF... cnwvncusseccnsesvesse. 2
oe LE. © POR FWe) wh ctcvccocevgevusveusess 2, 3, 14
ae WBA. B TROUIE) onc ouscccivcncenys obs ue eeseeeea et 1
yp Bik ae Be rer errr re mre 3
vil
TABLE OF AUTHORITIES - Continued
Page
MIscELLANEOUS
A.M. Best’s Annual Aggregates & Averages,
Property-Casualty, p. 100 (1995 ed.).............005. 7
ACORN, 1993, A Policy of Discrimination?: Home-
owners Insurance Redlining in 14 Cities............. 10
American Insurance Association, 1993, Availability
and Use of Homeowners Insurance in the Urban
Core of Major American Cities...........+++20eee08: 10
Comment, Chevron Deference To Agency Interpreta-
tions That Delimit The Scope of the Agency’s Juris-
diction, 61 U. Cnr. L. Rev. 957 (1994).............. 16
Cong. Rec. S. 2272-2284 (daily ed. Feb. 6, 1968)...... 2
H.R. 2099, 104th Cong., Ist Sess. (1995)............. 12
Illinois Department of Insurance, 1994, Status of
Homeowners Insurance in Illinois ...............00. 11
Insurance Information Institute, The Fact Book
SE Sa nig toe esac be CCCE ERE SOUS CoE Capweteneene ches 7
Klein, Urban Homeowners Insurance Markets: Prob-
lems and Possible Solutions, Aug. 11, 1995........... Y
Minnesota Department of Commerce, 1994, Home-
owners Insurance: An Investigation Into Possible
Pe IN ss vn vteuundavesteusesevneeecess 11
Missouri Department of Insurance, 1993, Home-
re 11
Moseley-Braun Gets GOP to Spare Fair Housing Rule,
Chicago Sun-Times, Sept. 28, 1995, at 22.......... 12
Vili
TABLE OF AUTHORITIES — Continued
Page
Press Release of the National Fair Housing Alli-
a, SONG B14 BORE 6660 6k 0 bone hee vtonss ves 11
S. 1917, 103rd Cong., 2nd Sess. (1994), the Anti-
Redlining in Insurance Disclosure Act of 1994 .... 12
Sunstein, Law and Administration After Chevron, 90
Co, 2, Se Cs ic cccns bedeceeeevecess 15
Vol. XI, No. 10 Fair Housing-Fair Lending Bulletin,
Aspen Law & Business, p. 4 (Oct. 1, 1995)........... 6
PETITION FOR A WRIT OF CERTIORARI
Petitioners Nationwide Mutual Insurance Company
and Nationwide Mutual Fire Insurance Company (collec-
tively “Nationwide”) respectfully pray that a writ of cer-
tiorari issue to review the judgment of the United States
Court of Appeals for the Sixth Circuit entered in this case
on May 1, 1995.
OPINIONS BELOW
The divided opinion of the Court of Appeals is
reported at 52 F.3d 1351. App. 1-29.! The District Court's
memorandum and order adopting the Magistrate Judge’s
Report and Recommendations is not reported. App.
85-92. The Magistrate Judge’s Report and Recommenda-
tions is also unreported. App. 30-79.
aa
JURISDICTION
The judgment of the Court of Appeals was entered
on May 1, 1995. App. 29a. A timely petition for rehearing
was denied, Judge Kennedy dissenting, on August 4,
1995. App. 94-95. This petition is filed within ninety (90)
days of that date. The jurisdiction of this Court is invoked
under 28 U.S.C. § 1254(1).
1 References to the Appendix filed with this Petition will be
abbreviated as “App.” followed by the page numbers. Refer-
ences to the Joint Appendix filed with the Court of Appeals will
be abbreviated as “JA” followed by the page number.
STATUTORY AND REGULATORY
PROVISIONS INVOLVED
The relevant provisions of the Fair Housing Act, 42
U.S.C. § 3601, et seq., the McCarran-Ferguson Act, 15
U.S.C. § 1011, et seq., the Urban Property Protection and
Reinsurance Act, 12 U.S.C. § 1749 bbb, et seq., the Declara-
tory Judgment Act, 28 U.S.C. §§ 2201-02, the Ohio Insur-
ance Code, O.R.C. § 3901.01, et seq., and the regulations
issued by HUD, 24 C.FR. § 100.70(d)(4), are set forth in
the Appendix. App. 96-107.
¢
STATEMENT OF THE CASE
Nationwide provides property insurance to many
thousands of customers throughout the United States. JA
82-83. Respondent HUD? administers the Fair Housing
Act, enacted in 1968, which prohibits “discriminatory
practices of property owners, real estate brokers, builders
and home financers.” Mackey v. Nationwide Insurance Com-
panies, 724 F.2d 419, 423 (4th Cir. 1984), citing Senator
Mondale, the Act’s sponsor, at Cong. Rec. S. 2272-2284
(daily ed. Feb. 6, 1968). There is no reference in either the
text of the Act or in its legislative history to insurance. Id.
at 424. Since 1968, as dissenting Judge Kennedy noted
below, “repeated attempts to amend the Fair Housing Act
to expressly include insurance practices have failed,
* Respondents Jerald Steed and Charles Brown are the
Executive Director and Chairperson, respectively, of the Day-
ton, Ohio Human Relations Council (the “DHRC”), an agency of
the Respondent City of Dayton which assists HUD in the local
administration of Fair Housing Act complaints. App. 3.
a
ter cn lier:
ee Lon a
Se ah A Sine A
although the Act has been amended to prohibit other
discriminatory activities.” 52 F.3d at 1364; App. 29, citing
42 U.S.C. § 3605 (e.g., adding discrimination by
appraisers). Nevertheless, in 1989, HUD issued regula-
tions that interpreted the “otherwise make unavailable or
deny” prohibition of Section 3604(a, of the Act to encom-
pass the discriminatory provision of property insurance.
24 C.F.R. § 100.70(d)(4). When administrative complaints
of alleged discriminatory insurance practices were subse-
quently filed against Nationwide, pursuant to that regu-
lation, HUD and the DHRC asserted jurisdiction and
commenced extensive discovery. App. 4-5. Nationwide
then filed this action seeking declaratory and injunctive
relief on the ground that Respondents lacked authority
under the Act to regulate insurance. Jurisdiction in the
District Court was predicated upon 28 U.S.C. § 1331, the
Declaratory Judgment Act and the Administrative Pro-
cedure Act, 5 U.S.C. §§ 701-06. App. 31; JA 82.
The Magistrate Judge who initially heard the matter
concluded, contrary to HUD’s motion to dismiss, that,
based on Abbott Laboratories v. Gardner, 387 U.S. 136
(1967), this case was ripe for review. His Report and
Recommendations found that “the issues presen-
ted .. . are purely legal and fit for judicial resolution”;
that HUD’s regulation constituted “a final agency
action”; and that because that regulation directly affected
Nationwide’s primary business - its “daily decisions
whether to insure and at what rate to insure” — there was
“sufficient hardship [to Nationwide] to make the issues
ripe for pre-enforcement review.” App. 37, 41. Having
surmounted the ripeness procedural barrier, the Magis-
trate Judge then recommended that Respondents’
summary judgment motion be granted and that Nation-
wide’s summary judgment motion be denied. App. 79.
Nationwide objected to the Magistrate Judge’s recom-
mendations on the merits. HUD did not object to his
recommended denial of its motion to dismiss. The District
Court adopted the Magistrate Judge’s recommendations
in their entirety. App. 92.
Nationwide appealed. HUD did not cross-appeal. A
divided Court of Appeals affirmed. Nationwide Mutual
Ins. Co. v. Cisneros, 52 F.3d 1351 (6th Cir. 1995); App. 1-29.
The majority initially concluded, over the dissent of
Judge Kennedy, that Mackey, which had concluded that
the Fair Housing Act did not regulate insurance, was
wrong in its three major premises: (1) HUD’s construction
of the Act did not, as the Fourth Circuit had held (724
F.2d at 423), render other statutory language “super-
fluous”; (2) silence in the Act and its legislative history,
even when considered in light of the “insistent position
of Congress that regulation of the insurance industry be
left to the states,” and the concurrent enactment in 1968
of UPPRA which adopted a “very different” approach to
the problem of unavailable property insurance, did not
“strongly indicate,” as Mackey opined (id. at 423-24), that
Congress intended to exclude any regulation by the Act
of insurance practices; and (3) subsequent unsuccessful
attempts to extend the Act to encompass insurance, did
not, as Mackey had concluded (id. at 424), demonstrate an
intent to preclude application of the Act to the business
of insurance. 52 F.3d at 1356-59; App. 10-15. Instead,
relying on NAACP v. American Family Mut. Ins. Co., 978
F.2d 287 (7th Cir. 1992), cert. denied, __ U.S. ___, 113 S.Ct.
2335 (1993), the Court of Appeals concluded that “HUD’s
interpretation of the Fair Housing Act is reasonable” and
entitled to substantial deference under Chevron. 52 F.3d at
1359-60; App. 17.
The court next turned to Nationwide’s argument that
the McCarran-Ferguson Act preempts the regulation of
insurance under the Fair Housing Act. The court con-
ceded that, as a result of the McCarran Act, “the Fair
Housing Act. . . cannot be construed in such a way as to
invalidate, impair or supersede any state law enacted to
regulate the business of insurance.” Id. at 1361; App. 20.
Nonetheless, the court never reached Nationwide’s argu-
ment that disparate impact enforcement of the Fair Hous-
ing Act — the finding of a violation based upon its effect
on a protected group regardless of intent - would have
precisely that result. The court held, sua sponte, that this
issue was not ripe for review because it failed to meet the
ripeness criteria set forth in Abbott Laboratories. Id. at
1361-63; App. 22-26. The Court of Appeals did address
and reject Nationwide’s disparate treatment (intentional
discrimination) McCarran Act argument. Relying again
primarily upon American Family, the court concluded that
“the presence of additional remedies in the Fair Housing
Act does not cause the Act to invalidate, impair or super-
sede Ohio insurance law.” Id. at 1363; App. 27.
Nationwide filed a petition for rehearing and sugges-
tion of rehearing en banc with respect to the Court of
Appeals’ determination that Nationwide’s disparate
impact McCarran-Ferguson Act preemption argument
was not ripe for review. After requesting and receiving a
brief from HUD, the Court of Appeals denied Nation-
wide’s petition, Judge Kennedy again dissenting, in an
order entered on August 4, 1995. App. 94-95.
S
REASONS FOR GRANTING THE WRIT
This case presents an appropriate vehicle for the
Court to resolve one or more important unsettled, recur-
rent questions: first, whether, as the court below and the
Seventh Circuit have held, contrary to the Fourth Circuit
and the dissenting opinion of Judge Kennedy, the Fair
Housing Act applies to the business of insurance; second,
whether Chevron requires heightened deference to inter-
pretive agency regulations that admittedly do not involve
“technical determinations requiring agency expertise” (52
F.3d at 1360; App. 18) but which, instead, concern only
“pure questions of statutory construction” (INS v. Car-
doza-Fonseca, 480 U.S. 421, 446 (1987)); third, whether dis-
parate impact enforcement of the Fair Housing Act, with
its day-to-day impact on the underwriting decisions of
property insurers throughout the United States, is a ques-
tion ripe for review under Abbott Laboratories; and, finally,
whether Fair Housing Act insurance regulation would
“invalidate, impair or supersede” state insurance law in
contravention of the McCarran-Ferguson Act.
A. This Court Should Resolve The Conflict
Among The Courts Of Appeal Over Whether
The Fair Housing Act Applies To The Business
Of Insurance
Continuing uncertainty as to whether HUD and its
approximately 85 “substantially equivalent” local agen-
cies,? such as the DHRC, may regulate insurance practices
3 Vol. XI, No. 10 Fair Housing-Fair Lending Bulletin, Aspen
Law & Business, p. 4 (Oct. 1, 1995).
is a matter of substantial national importance to the prop-
erty insurance industry, homeowners and prospective
homeowners, state insurance commissions, and
numerous civil rights organizations. As an independent
federal agency, the Federal Mediation and Conciliation
Service (“FMCS”), recently concluded, “[s]Jeveral courts
have dealt with the issue, but there has been no definitive
ruling to date. The most recent case, Nationwide Mutual
Insurance Co. v. Cisneros (6th Cir., 1995) may be appealed
and may give greater guidance on the jurisdiction ques-
tion.”4 FMCS is right. Guidance from this Court is
needed.
1. There are in excess of one thousand insurance
companies in the United States which offer property
insurance. More than 96% of homeowners purchase some
form of property or fire insurance.° Homeowners pay
nearly thirty billion dollars annually in premiums for
homeowners and/or fire insurance policies. Each day
thousands of underwriting decisions involving those pol-
icies have to be made. Those determinations, such as
4 Convening Report for Regulatory Negotiations on Possi-
ble Regulatory Negotiations for Insurance and Fair Housing Act
(“the Report”), July 21, 1995, p. 5. App. 120-134. The Report was
prepared by the FMCS, at HUD’s request, to evaluate the fea-
sibility of utilizing negotiated rulemaking to develop a pro-
posed rule applying the Fair Housing Act to property insurance.
The Report concluded, after study and interview of more than
twenty-five organizational representatives, that negotiated
rulemaking would not be appropriate.
5 Insurance Information Institute, The Fact Book, p. 14
(1993).
6 A.M. Best’s Annual Aggregates & Averages, Property-
Casualty, p. 100 (1995 ed.).
what risks to insure and what rate to apply, constitute the
core component of the business of insurance. See, e.g.,
Barnett Bank of Marion County v. Gallagher, 43 F.3d 631,
634-36 (11th Cir.), cert. granted, __ U.S. __, 132 L.Ed.2d
920 (Sept. 27, 1995) (No. 94-1837). As the uncontroverted
record in this case demonstrates, application of the Fair
Housing Act would significantly affect these underwrit-
ing practices. Risks will then be insured that otherwise
would be declined — for instance, properties that involve
neutral environmental hazards (e.g., exposure to adjacent
properties with a high risk of burning, lack of proximity
to fire protection facilities or historical loss experience
for similar properties) w’). be insured where declining
the risk could have a disper%te impact upon a protected
group. This increased assumption of risks by insurers will
concomitantly increase the rates of all of their insureds.
Better risks will then drop out of the insurance pool as
they are forced to subsidize higher risk properties. The
result will be increased underwriting losses and eventual
insurance company insolvency.” This significant
federal intrusion into the traditional state-regulated clas-
sification of insurance risks cannot be justified
7 This scenario is not simply unfounded speculation. The
likelihood of its occurrence was demonstrated in uncon-
troverted affidavits submitted by Nationwide to the District
Court from Professor Spencer Kimball, a nationally recognized
authority in the field of insurance regulation, Richard Stewart, a
former Superintendent of Insurance for the State of New York,
Ellen Leslie, Vice President/Operations for the Ohio FAIR Plan
Underwriting Association, and Robert White, Nationwide’s
Vice President Personal Lines Insurance Services. JA 300-312,
340-349, 384-390 and 394-397.
absent a clear Congressional intent - an intent which
Mackey, in conflict with the decision below, found absent.
>. As the Court of Appeals noted, since at least
1978, “HUD has interpreted the Fair Housing Act as
prohibiting discriminatory practices relating to property
and hazard insurance.” 52 F.3d at 1354; App. 3. Its legal
authority to assert that jurisdiction remains, however, as
the Director of Research, National Association of Insur-
ance Commissioners, recently stated, “disputed by
insurers, many insurance regulators, and many members
of Congress.”® This “continuous debate”? intensified after
American Family upheld the applicability of the Fair
Housing Act to a claim alleging intentional discrimina-
tion in the provision of property insurance. It was exacer-
bated further when more and more courts applied a
disparate impact approach to other Fair Housing Act
provisions.'? Even the existence of insurance “redlining,”
8 Klein, Urban Homeowners Insurance Markets: Problems and
Possible Solutions, Aug. 11, 1995, p. 5, 0. 2, which also noted that
the National Association of Insurance Commissioners “has not
yet taken a formal position on this question.”
9 Report, supra, n. 4, at p. 5. App. 127.
10 See Arthur v. City of Toledo, 782 F.2d 565, 575 (6th Cir
1986) (upholding disparate impact analysis of Fair Housing Act
claims); U.S. v. City of Parma, 661 F.2d 562, 575-76 (6th Cir. 1981),
cert. denied, 456 U.S. 926 (1982); Huntington Branch, NAACP v
Town of Huntington, 844 F.2d 926, 934 (2d Cir.), aff'd, 485 U.S. 15
(1988); Halet v. Wend Inv. Co., 672 F.2d 1305, 1311 (9th Cir. 1982)
Resident Advisory Board v. Rizzo, 564 F.2d 126, 146-48 (3d Cir
1977), cert denied, 435 U.S. 908 (1978). Fair Housing Act dispa-
rate impact analysis has been applied in recent years to a \ ariety
of protected groups, not just racial minorities See, €.2
A.R.F.A.PS. v. Regulations and Permits Admin., 740 F. Supp 95 (D
10
the basis for Fair Housing Act insurance discrimination
complaints, is controversial. The Association of Commu-
nity Organizations for Reform Now (“ACORN”) and the
National Fair Housing Alliance, supported by a variety of
civil rights organizations,'! contend that insurance “red-
lining” practices are widespread.'? Insurance industry
studies fail to support that conclusion.’ Insurance
departments in Illinois, Missouri, Minnesota and other
states have joined the debate with recent studies of their
Puerto Rico 1990) (denial of special use permit disparately
impacted “handicapped” AIDS patients); United States v. Schuyl-
kill Township, 1991 U.S. Dist. LEXIS 2 (E.D. Pa. 1991) (zoning
ordinance restricting “community living arrangements” had
disparate impact on mentally handicapped); Potomac Group
Home Corp. v. Montgomery County, 823 F. Supp. 1285 (D. Md.
1993) (zoning requirement disparately impacted group home
for disabled elderly persons); United States v. Badgett, 976 F.2d |
1176 (8th Cir. 1992) (facially neutral landlord’s policy has a |
disparate impact on families). |
1! According to a September 11, 1995 press release by the
Alliance, p. 3, its lobbying efforts before Congress to address
insurance discrimination under the Fair Housing Act were
joined by the Leadership Conference on Civil Rights, the
NAACP, NAACP-Legal Defense and Educational Fund, the
National Puerto Rican Coalition, the National Council of La
Raza, People for the American Way, Center for Community
Change, the ACLU and other “supporting organizations.” App
112.
‘2 ACORN, 1993, A Policy of Discrimination?: Homeowners
Insurance Redlining in 14 Cities.
3 American Insurance Association, 1993, Availability and
Use of Homeowners Insurance in the Urban Core of Major American
Cities.
ES
11
own.'4 At least twenty-eight administrative complaints
alleging insurance discrimination have been filed with
HUD,'5 including complaints brought by the National
Fair Housing Alliance challenging the underwriting prac-
tices of three major property insurers — Allstate, State
Farm and Nationwide.!* HUD recently awarded grants of
over two million dollars to private groups to encourage
them to initiate similar enforcement actions. !”
3. Application of the Fair Housing Act to insurance
also has been the subject of controversy within the execu-
tive and legislative branches. In response to an Executive
Order signed on January 17, 1994, HUD last year
announced its intention to issue new regulations on the
subject of property insurance. See Fed. Reg., Vol. 59, No.
157, pp. 41995-41996. HUD then held a series of public
meetings across the United States attended by numerous
14 See, e.g., Illinois Department of Insurance, 1994, Status of
Homeowners Insurance in Illinois; Missouri Department of Insur-
ance, 1993, Homeowners Insurance in Missouri; Minnesota
Department of Commerce, 1994, Homeowners Insurance: An
Investigation Into Possible Illegal Discrimination
iS Press Release of the National Fair Housing Alliance,
supra n. 11, at p. 3. App. 112.
16 E.g., Case No. 03-94-0529-8, filed May 11, 1994, at HUD’s
Regional Office in Philadelphia, PA.
17 Press Release of the National Association of Independent
Insurers, an organization representing approximately 570 prop-
erty and casualty insurers, Sept. 11, 1995, p. 1 (App. 114), rely-
ing on an April 28, 1995 letter to Hon. Rick Lazro, Chairman of
the House Subcommittee on Housing and Community Oppor-
tunity, from Respondent Cisneros
12
community organizations, insurance industry representa-
tives, state regulators and other interested parties. More
than $435,000 was spent by HUD in contract services to
assist the agency in the proposed rulemaking.'* Upon the
conclusion of the public meetings, however, HUD
decided against additional rulemaking in this area.'9
Congress also has been unable to take action on this
divisive issue. In 1994, a bill was introduced in the Senate
to require property insurers to report underwriting activ-
ities by zip code. S. 1917, 103rd Cong., 2nd Sess. (1994),
the Anti-Redlining in Insurance Disclosure Act of 1994.
The Senate held hearings in May 1994, but the bill never
made it to a vote. By contrast, more recently, an appro-
priations bill which passed the House contained a provi-
sion withdrawing all HUD funding for the regulation of
property insurance. H.R. 2099, 104th Cong., Ist Sess.
(1995). That provision, however, was deleted last month
from the Senate’s version of the House bill. Jd. Congress’
failure to act reflects the deep political divisions over the
insurance “redlining” issue which has taken on racially
charged overtones. Moseley-Braun Gets GOP to Spare Fair
Housing Rule, Chicago Sun-Times, Sept. 28, 1995, at 22
(Senator Moseley-Braun, according to an aide, stated that,
18 Jd
19 Letter from HUD Acting Deputy Assistant Secretary
Elizabeth K. Julian to John Lobert, Senior Vice President of the
National Association of Independent Insurers, August 17, 1995
Julian concluded that HUD’s “Office of Fair Housing and Equal
Opportunity intends... to await further development of the law
applying the Fair Housing Act to property insurance and to use
future court decisions to evaluate the need for rulemaking.”
App. 117
13
if the House funding prohibition was not withdrawn,
“Iwle’ll be riding on the back of the bus again.”).
The disagreement over whether the Fair Housing Act
regulates insurance has caused a critical dislocation in the
administration of an important area of federal policy. If
HUD is correct in its construction of the Act to cover
insurance, its enforcement efforts should not be thwarted
by threshold litigation over its jurisdiction. If HUD is
incorrect, it should cease expending its limited funds in
defiance of Congressional intent and leave property
insurance regulation to the states “(T]he field of insur
ance,” after all, “has long been recognized as a proper
subject for extensive state regulation because of its critical
role in the protection of local personal and property
interests.” Silver v. Garcia, 760 F.2d 33, 36 (1st Cir. 1985)
The ongoing partisan debate over whether dual federal-
state or exclusive state regulation is appropriate needs to
be terminated. It has become far too costly both emo
tionally and economically for too many parties Review
by this Court to resolve the conflict among the circuits ts
therefore, warranted
B This Court Should Resolve The Confusion In
The Lower Courts Over The Proper Application
Of Chevron
This case also is illustrative of the confusion that
exists in the lower courts as to the correct interpretatior
of Chevron. The Court of Appeais majority held that Che
ron deference was required even though the issu¢
addressed by HUD be regulation whether the otherw sé
make unavailable or deny language of Section 3604(a) ot
14
the Fair Housing Act encompasses the discriminatory
refusal “to provide . . . property or hazard insurance” (24
C.F.R. § 100.70(d)(4))?° - does not involve an agency’s
application of legal standards “to a particular set of facts”
but, instead, raises a “pure question of statutory con-
struction” that is “well within the province of the judici-
ary.” Cardoza-Fonseca, 480 U.S. at 446, 448.2) Dissenting
Judge Kennedy reached an opposite conclusion. In her
opinion, because the court could “ascertain Congres-
sional intent through traditional tools of statutory con-
struction, deference to . . . [HUD’s] interpretation is
20 Although HUD’s regulation also purports to be based
upon Section 3604(b) of the Act (see the opinion below, 52 F.3d
at 1356; App. 7-8), HUD and the lower courts have relied pri-
marily upon Section 3604(a). The reason is evident. Section
3604(b) does not apply to the provision of property insurance.
See Mackey, 724 F.2d at 424 (the provision of services under
Section 3604(b) “encompasses such things as garbage collection
and other services of the kind usually provided by munici-
palities .. . what the [hazard insurance] industry does cannot
reasonably be described as the provision of services in connec-
tion with dwellings”) and Clifton Terrace Associates, Ltd. v. United
Technologies Corp., 929 F.2d 714, 720 (D.C. Cir. 1991) (§ 3604(b) is
“directed at those who provide housing and then discriminate
in the provision of attendant services or facilities, or those who
otherwise control the provision of housing services and facili-
ties”).
21 See, to the same effect, NLRB v. United Food and Commer-
cial Workers Union, 484 U.S. 112, 123 (1987) (“On a pure question
of statutory construction, our first job is to try to determine
congressional intent, using ‘traditional tools of statutory con-
struction.’ ”) and International Union, U.A.W. v. Brock, 816 F.2d
761, 765 (D.C. Cir. 1987) (court refused to defer to the agency's
interpretation of the term “employment” found in the Trade Act
which the court characterized as a “pure question of statutory
construction”).
15
unnecessary.” 52 F.3d at 1356; App. 29. There is, as this
divided decision reflects, an undesirable tension between
Chevron and Cardoza-Fonseca. This “Court itself has
engaged in a serious debate as to whether Chevron defer-
ence applies at all to a ‘pure question of statutory con-
struction.’ ” Johnson City Medical Center v. U.S., 999 F.2d
973, 981 (6th Cir. 1993) (Batchelder, J., dissenting). See aiso
Sunstein, Law and Administration After Chevron, 90 CoLuM.
L. Rev. 2071, 2084 (1990) (“since Chevron itself, the general
principle of deference has been invoked on numerous
occasions and produced considerable controversy the
Supreme Court has rejected a number of agency inter-
pretations of law even in the aftermath of Chevron’)
Resolution of the proper application of Chevron is
particularly apropos where, as here, an agency seeks to
expand its own jurisdiction. As this Court has observed
“lajithough agency determinations within the scope of
delegated authority are entitled to deference, it is funda
mental ‘that an agency may not bootstrap itself into an
area in which it has no jurisdiction. “ Adams Fruit Co
Barrett, 494 U.S. 638, 650 (1990) citing Federal Maritime
Comm'n v. Seatrain Lines, Inc., 411 U.S. 726, 745 (1973). See
also Sunstein, supra, 90 Covum. L. Rev. at 2099 (“Congress
would be unlikely to want agencies to have the authority
to decide the extent of their own powers. To accord such
powers to agencies would be to allow them to be judges
of their own cause, in which they are of course suscept-
ible to bias.”). The question of Chevron's application to
agency jurisdictional interpretations, however, has been
subject to varying approaches in the appellate courts
“Some circuit court decisions have granted deference to
an agency’s jurisdictional interpretation while others
ne ne a
16
have stated that deference is not appropriate. Some cir-
cuits have vacillated on the question while others have
acknowledged the issue as unresolved by the Court and
have explicitly reserved the question.” Comment, Chev-
ron Deference To Agency Interpretations That Delimit The
Scope of the Agency’s Jurisdiction, 61 U. Cu. L. Rev. 957, 965
(1994) (footnotes omitted). This case presents the Court
with a desirable opportunity to delineate the proper
interpretation of Chevron.
C. The Court Of Appeals’ Refusal To Address
Nationwide’s Argument That Disparate Impact
Enforcement Of The Fair Housing Act Is Pre-
empted By The McCarran-Ferguson Act Con-
flicts With This Court’s Decision In Abbott
Laboratories And Other Circuit Court Prece-
dent
The Court of Appeals concluded that the question of
whether a “disparate impact approach to insurers” (52
F.3d at 1361; App. 21) contravenes the McCarran-Fer-
guson Act was not ripe for review. That decision mis-
construes Abbott Laboratories and disregards the opinion
of other Circuits.
In Abbott Laboratories, this Court reversed a lower
court opinion that there was no jurisdiction to review a
challenge to agency regulations that imposed new drug
labeling requirements. That issue was fit for judicial
review, the Court reasoned, because the regulations con-
stituted “final agency action,” i.e., they were neither
“informal [nJjor tentative,” and the regulations had “a
direct effect on [the plaintiffs’] day-to-day business,” /.e.,
soviet. gs ltl taser % “exc he a ttl ihe las aati alanis Mei ta tas
Wiinihiteiieied icin...
they confronted the plaintiffs with the dilemma of incur-
ring the costs of changing their current labeling practices
or “follow their present course and risk prosecution ” 387
U.S. at 151-52. That decision was followed by the District
of Columbia Circuit’s opinions in Chamber of Commerce ¢
Reich, 57 F.3d 1099, 1101 (D.C. Cir. 1995) (“[TJhe [Execu-
tive] Order confronts employers with the difficult choice
between surrendering their right to hire permanent
replacements and risking the loss of current and future
government contracts.” ) and Ciba-Geigy Corp. v. U.S. EPA
801 F.2d 430, 438-39 (D.C. Cir. 1986) (“The Company's
only alternative to costly compliance with [the agency’ s|
regulatory directive would be to run the risk of serious
civil and criminal penalties [for its violation].”). See also
Franklin Federal Savings Bank v. Director, Office of Thrift
Supervision, 927 F.2d 1332, 1336 (6th Cir.), cert. denied, 502
U.S. 937 (1991).
Here, as the Magistrate Judge recognized (App
37-41), the situation is no different. Nationwide is sim-
ilarly challenging agency action that is neither “informal”
nor “tentative.” HUD has stated definitively its intent to
enforce the Fair Housing Act under a disparate impact
approach and to apply that approach to complaints
against property insurers.22 These pronouncements have
22 HUD’s Assistant Secretary, in a December 17, 1993 mem-
orandum to all HUD Regional Directors which is still in effect,
advised that Fair Housing Act cases should be analyzed “using
a disparate impact analysis.” App. 135. HUD has subsequently
repeated that unequivocal view. At Congressional hearings on
the subject of insurance discrimination, HUD’s Assistant Secre-
tary testified that “(t]he standards to determine discrimination
in [insurance] — as in all other covered areas — will be based on
18
been reiterated by HUD in other cases and, when it did
not seek review of the Magistrate Judge’s denial of its
motion to dismiss, even implicitly in this case. The HUD
regulation at issue is not limited, nor has it ever been
interpreted as being limited, to only disparate treatment
cases. As in Abbott Laboratories and the other decisions
cited above, there has been final agency action. And, no
less than in Abbott Laboratories and the other cases cited
above, Nationwide cannot, as the Court of Appeals sug-
gested (52 F.3d at 1363; App. 26), simply wait until the
administrative process eventually concludes. Nationwide
faces the “very real” dilemma (Abbott Laboratories, 387
U.S. at 153) of either complying with HU)D’s regulation at
the principles of overt discrimination, disparate treatment, and
disparate impact.” Statement Before the Senate Banking Commit-
tee, Hearing on Insurance Discrimination, May 11, 1994; App.
139 (emphasis added). HUD reiterated that position in a notice
of proposed rulemaking for property insurance discrimination.
Fed. Reg., Vol. 59, No. 157, 41996 (“The standards for determin-
ing discrimination in this area are those utilized in all other
areas covered by the Act.”) And, at a public meeting on discrim-
ination in property insurance, HUD’s Assistant Secretary stated
that it was not debatable whether “disparate impact .. . [is]
cognizable under the federal Fair Housing Act... [I]t is not a
question. That question has been answered definitively by vir-
tually every court of competent jurisdiction that has entertained
the question.” App. 141.
23 See, e.g., HUD’s brief to the Tenth Circuit in Mountain Side
Mobile Estates v. Secretary, HUD, 56 F.3d 1243 (10th Cir. 1995), pp.
16-25 (contending that a disparate impact analysis applies gen-
erally to complaints under the Act and “is a reasonable con-
struction of the Act that is supported by the statutory language,
the overwhelming weight of the caselaw, the legislative history
and the public policy interests underlying the Act”). App. 144.
19
substantial cost (and at the risk of violating state insur-
ance laws requiring “fair discrimination”) or running the
risk of future prosecution by HUD and the imposition of
substantial penalties. See Chamber of Commerce, 57 F.3d at
1101 (the “choice between taking immediate action to
[plaintiff's] detriment and risking substantial penalties
for non-compliance presents a paradigm case of ‘hard-
ship’ ”) and Ciba-Geigy, 801 F.2d at 439 n. 11 (plaintiff
need not await a specific enforcement proceeding where
the agency has put plaintiff to the “ ‘hard choice between
compliance certain to be disadvantageous and a high
probability of strong sanctions’ ”) (citation omitted)
The refusal to review Nationwide’s disparate impact
challenge has pernicious, far-reaching consequences
Judicial review, providing an “authoritative interpreta-
tion of statutory language,” would “enhance rather than
undermine the statutory scheme.” Franklin Federal, 927
F.2d at 1338. Additionally, as the Magistrate Judge below
observed, “[{i]f HUD is correct, not only Nationwide, but
all insurers who provide homeowner's coverage must
alter any standards inconsistent with HUD’s policies.”
App. 41. A decision by this Court is necessary to clarify
the application of ripeness jurisprudence and obviate the
enormous expense that insurers will otherwise face in
altering their underwriting standards to address the liti-
gation concerns created by the specter of disparate
impact suits.
20
D. The Court Of Appeals’ Rejection Of McCarran-
Ferguson Act Preemption Is Contrary To The
Plain Language Of The Statute And Prior Pre-
cedent Of This Court
The Court of Appeals held that, while Nationwide’s
challenge to HUD’s regulation under a disparate treat-
ment approach was ripe for review, “the McCarran-Fer-
guson Act does not preclude HUD’s interpretation of the
Fair Housing Act.” 52 F.3d at 1363; App. 27. The court
rejected Nationwide’s arguments that ” ‘the availability
of private civil actions under the Fair Housing Act, with
access to jury trials and unlimited punitive damages, will
impair or supersede Ohio insurance law which does not
afford such remedies’ ” and that “the availability of pri-
vate civil remedies under the Fair Housing Act would
allow a claimant to bypass the administrative procedures
outlined in the Ohio Insurance Code.” Id. The Court of
Appeals’ opinion is at odds with the language of Section
2(b) of the McCarran-Ferguson Act as well as the under-
lying Congressional “desire to reserve to the States the
regulation of the ‘business of insurance.’ ” FMC Corp. v.
Holliday, 498 U.S. 52, 63 (1990). The crux of the lower
court’s reasoning, following American Family, is that the
existence of additional tederal remedies does not “invali-
date, impair or supersede” state law where there is no
direct conflict between the substantive provisions of the
state and federal law. 52 F.3d at 1363; App. 27. The
“inverse preemption” (American Family, 978 F.2d at 293)
required by the McCarran-Ferguson Act, however, occurs
even if the federal statute “duplicates” the state proscrip-
tions where that “duplication” causes the state regulation
of insurance to be “impaired” or “superseded.” It was for
21
this reason that the court in Ambrose v. Blue Cross & Blue
Shield of Virginia, 891 F. Supp. 1153, 1164-68 (E.D. Va
1995), recently declined to follow Nationwide and Ameri
can Family when it concluded that the additional federal
remedies permitted under RICO results in the impair-
ment of state insurance law under the McCarran-Fer-
guson Act. See also, Wexco, Inc. v. IMC, Inc., 820 F. Supp
194, 204 (M.D. Pa. 1993) (availability of federal RICO
remedies “cannot help but upset the balance of relation-
ships between insurance entities and insureds which are
established and regulated by [state law]”)
The question of whether additional duplicative fed-
eral remedies contravene the McCarran Act, and its corol-
lary inquiry into the appropriate role of federal and state
authority in regulating insurance, presents a recurrent
matter of substantial importance. For over 50 years, since
the enactment of the McCarran Act, insurers have
assumed that Congress intended the states to play the
primary role in the regulation of insurance. State insur-
ance departments are typically staffed by professionals
who are experts in the insurance field and knowledgeable
about the workings of the insurance market. JA 387. The
federal remedies permitted by the court below, including
jury trials, punitive damages and disparate impact suits,
will inevitably displace those state regulators — regulators
who are closer to the issues in their respective states and
in the best position to reconcile competing state interests
in both insurer solvency and fair access to insurance
products. JA 388-389. The McCarran Act preemption
issue, accordingly, also compels review by this Court. The
Court, it should be noted, has recently granted review In
on
22
another McCarran Act case. Barnett Bank of Marion County
v. Gallagher, supra.
CONCLUSION
For the foregoing reasons, this petition for writ of
certiorari should be granted.
Dated: November 1, 1995
Respectfully submitted,
JEFFREY S. GOLDMAN
LAWRENCE M. COHEN
Counsel of Record
Joe. W. Rice
Fox AND GROvE, CHARTERED
311 South Wacker Drive
Suite 6200 )
Chicago, Illinois 60606 |
(312) 876-0500
Counsel for Petitioners
APPENDIX
App
APPENDIX
Table of Contents
Opinion of the | nited States Court of Appeals for
the Sixth Circuit App
Judgment Entry of the United States Court of
Appeals for the Sixth Circuit App
Magistrate Judge Michael Merz’s Report and Rec-
ommendations Concerning Motions to Dismiss
and for Summary Judgment and Decision and
Order as to Remaining Pending Motions App
Errata to Report and Recommendations App
Corrections to Report and Recommendations ...App
Memorandum and Order of the United States Dis-
trict Court for the Southern District of Ohio App
Judgment in a Civil Case entered by the United
States District Court for the Southern District of
Ohio... App
Order denying Petition for Rehearing App
Statutory and Regulatory Provisions Involved
12 U.S.C. §1749bbb-3 App
15 U.S.C. §1012 App
42 U.S.C. §3604(a) and (b) App.
42 U.S.C. §3605(a) and (b) App.
42 U.S.C. §36148....... , errr,
28 U.S.C. §§2201-2202...... Perr eT App.
.
Ya
~
App. i
Table of Contents -— Continued
Ohio Rev. Code, §3901.21(M). ... App. 103
Ohio Rev. Code, §3929.43 (A)-(E). rrccce ep. 1G
24 C.F.R. §100.70(d)(4) .. 00.0.0. 00cc0000....-App. 107
Other Miscellaneous Material:
Press Release, National Fair Housing Alliance,
September 11, 1996... cccvcccesesvesscnetns App. 108
Press Release, National Association of Indepen-
dent Insurers, September 11, 1995........... App. 114
Letter, HUD Acting Assistant Secretary Eliz-
abeth Julian, August 17, 1995............... App. 116
Letter to HUD from Federal Mediation and
Conciliation Service, August 3, 1995........ App. 118
Convening Report for Regulatory Negotiations
on Possible Regulatory Negotiations for Insur-
ance and Fair Housing Act, June 21, 1995...App. 120
Memorandum, United States Department of
Housing and Urban Development, December
EF, BOOP en tenceccveveunssueeeeee Tae ene App. 135
Excerpts from Statement of Assistant Secretary
Roberta Achtenberg before the Senate Banking
Cognition, Bimy Th, BOG. cccccccceessecara App. 138
Excerpted Statements from HUD Public Meet-
ing, San Francisco, California, September 22,
BOOS vc ccc ccevecercsesevcetadpasdediaeanan App. 140
Excerpts from HUD Brief before United States
Court of Appeals for the Tenth Circuit...... App. 143
ee et, STE. Siw he
688 CAA RE AEDES ae PM BD PR re alow - ee
App. |
Nig 94 3296
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
NATIONWIDE Mutua. INSURANCI
COMPANY and NatTrionwipe M
Fire INSURANCE COMPANY
Plaintiffs-Appellants
Henry Cisneros, Secretary of the
United States Department of
Housing & Urban Development;
JeraALD L. Streep, Executive Director,’
Dayton Human Relations Council; ’
CrHarites W. Brown, Chairperson,
Dayton Human Relations Council
and Criry or Dayton,
Defendants-Appellees
}
Decided and Filed May
On Appeat from
the United States
District Court for
the Southern
District of Ohio
1995
Before: KENNEDY and MILBURN, Circuit Judge
WISEMAN,” District Judge
* The Honorable Thomas A. Wiseman, |r, United State
District Judge for the Middle District of Tennessee, sitting by
designation
App. 2
MILBURN, J., delivered the opinion of the court, in
which WISEMAN, D.J., joined. KENNEDY, J. (p. 25),
delivered a separate dissenting opinion.
MILBURN, Circuit Judge. Plaintiffs Nationwide
Mutual Insurance Company and Nationwide Mutual Fire
Insurance Company appeal the district court’s grant of
summary judgment to defendants Henry Cisneros, Secre-
tary of the United States Department of Housing and
Urban Development; Jerald L. Steed and Charles W.
Brown, Executive Director and Chairperson, respectively,
of the Dayton, Ohio Human Relations Council; and the
City of Dayton, Ohio, in this action for declaratory judg-
ment and injunctive relief in which plaintiffs challenged
defendants’ authority to regulate the issuance and can-
cellation of homeowner’s insurance policies under the
Fair Housing Act. On appeal, the issues are (1) whether
the district court erred in finding that the Fair Housing
Act governs the business of property insurance, (2)
whether the district court erred in finding that the
McCarran-Ferguson Act does not preempt the regulation
of the business of insurance under the Fair Housing Act,
and (3) whether the district court erred in dismissing
plaintiffs’ state law claims. For the reasons that follow, we
affirm.
I.
A.
Plaintiffs Nationwide Mutual Insurance Company
and Nationwide Mutual Fire Insurance Company (collec-
tively “Nationwide”), Ohio corporations, seek declara-
tory and injunctive relief from attempts by the
App. 3
Department of Housing and Urban Development
(“HUD”) to regulate plaintiffs’ property insurance under-
writing practices under the Fair Housing Act (“the Act”),
42 U.S.C. § 3601, et seq. The insurance underwriting prac-
tices in question involve “redlining,” in which the insurer
charges higher rates or declines to write insurance for
people who live in particular areas Defendant HUD is
responsible for the administration of the Fair Housing
Act. Plaintiffs also seek declaratory and injunctive relief
from attempts by defendants Jerald L. Steed, Charles
Brown, and the City of Dayton (“the Dayton defendants”)
to regulate plaintiffs’ property insurance underwriting
practices under Ohio state law and Dayton municipal
law. As earlier stated, Jerald L. Steed and Charles Brown
are the Executive Director and the Chairperson, respec-
tively, of the Dayton Human Relations Council
(“DHRC”). In addition to enforcing fair housing provi-
sions of Dayton ordinances, DHRC also assists HUD in
the local administration of housing discrimination com-
plaints under the Fair Housing Act.
Under the Fair Housing Act, HUD is responsible for
receiving and investigating charges of discrimination in
housing. Because mortgage lenders require borrowers to
obtain and maintain property and hazard insurance on
mortgaged property as a condition of obtaining a loan,
HUD has interpreted the Fair Housing Act as prohibiting
discriminatory practices relating to property and hazard
insurance. HUD has adhered to this interpretation of the
Act since at least 1978, when HUD’s General Counsel
App. 4
wrote in a memorandum to the Assistant Secretary for
Equal Opportunity:
Adequate insurance coverage is often a prereq-
uisite to obtaining financing. Insurance redlin-
ing, by denying or impeding coverage makes
mortgage money unavailable, rendering dwell-
ings “unavailable” as effectively as the denial of
financial assistance on other grounds{.]
Memorandum to the Assistant Secretary for Equal Oppor-
tunity, dated August 25, 1978 (quoted in defendant
HUD’s brief at 10). Furthermore, in 1988, the Fair Hous-
ing Act was amended to authorize HUD to issue rules to
implement the Act. 42 U.S.C. § 3614a. At that time, HUD
issued a regulation reflecting its interpretation of the Act
and its application to insurance companies. This regula-
tion defined “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.
24 C.F.R. § 100.70(d)(4).
In May 1990, HUD received a complaint from Steven
and Jennifer Beavers alleging that Nationwide had can-
celled their homeowner’s insurance because of their race
and/or place of residence. HUD referred this complaint
to the DHRC, which determined that it was “probable”
that Nationwide had violated the City of Dayton’s fair
housing ordinances. In addition, on September 28, 1990,
Sarah Wilson filed a housing discrimination complaint
with HUD, alleging that Nationwide had refused,
App. 5
because of her sex, race, and the racial make-up of the
area, to reinstate her insurance policy on a residential
building that was located in a predominantly black area
of Toledo, Ohio. HUD and the DHRC were in the process
of investigating these complaints when Nationwide filed
this action. Both investigations have been held in abey-
ance pending the conclusion of this case.
B.
Plaintiffs commenced this action for declaratory and
injunctive relief on May 6, 1991, in the United States
District Court for the District of Columbia. Plaintiffs
named as defendants Jack Kemp, then Secretary of HUD;
Jerald L. Steed and the Reverend Charles Brown, the
Executive Director and Chairperson, respectively, of the
Dayton Human Relations Committee; and the City of
Dayton, Ohio. The Dayton defendants moved for a
change of venue, and on December 13, 1991, pursuant to
28 U.S.C. 1404(a), the action was transferred to the United
States District Court for the Southern District of Ohio.
In May 1992, defendants moved to dismiss plaintiffs’
complaint on jurisdictional grounds. Thereafter, on
December 1, 1992, plaintiffs moved for summary judg-
ment. The Dayton defendants and HUD filed cross-
motions for summary judgment on January 14 and 15,
1993, respectively. On September 27, 1993, the magistrate
judge issued his Report and Recommendation in which
he concluded that the issues presented in the case were
ripe for review and thus recommended that the district
court deny HUD’s motion to dismiss. In addition, the
magistrate judge recommended that the district court
App. 6
grant defendants’ cross-motions for summary judgment
and deny plaintiffs’ motion for summary judgment upon
concluding (1) that HUD’s interpretation of the Fair
Housing Act was entitled to judicial deference; (2) that, in
any event, it was a correct interpretation of the Fair
Housing Act; and (3) that the regulation was not barred
by the McCarran-Ferguson Act. Finally, the magistrate
judge granted HUD’s motion for a protective order bar-
ring certain discovery and recommended that the district
court decline to exercise jurisdiction over plaintiffs’ state
law claims.
Plaintiffs filed timely objections to the magistrate
judge’s report and recommendation. On February 24,
1994, the district court adopted the magistrate judge’s
report and recommendation and dismissed this action.
This timely appeal followed.
II.
A.
Plaintiffs argue that the district court erred in grant-
ing defendants’ cross-motions for summary judgment
and denying their motion for summary judgment.’ We
review a district court’s grant of a motion for summary
judgment de novo. Michigan Protection & Advocacy Serv.,
1 Plaintiffs also argue in a footnote in their brief that the
magistrate judge abused his discretion in granting HUD’s
motion for a protective order. However, plaintiffs failed to
object to this ruling before the district court and thus have not
preserved this issue for appeal. United States v. Walters, 638 F.2d
947, 949-50 (6th Cir. 1981).
App. 7
Inc. v. Babin, 18 F.3d 337, 341 (6th Cir. 1994). “This court
will affirm the district court’s order only if we determine
that the pleadings, affidavits, and other submissions
show ‘that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment
as a matter of law.’ ” Babin, 18 F.3d at 341 (quoting Fed-
eral Rule of Civil Procedure (“Fed. R. Civ. P.”) 56(c)). All
evidence must be viewed in the light most favorable to
the non-moving party. Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986). However, “(t]he
moving party need not support its motion with evidence
disproving the non-moving party’s claim, but need only
show that ‘there is an absence of evidence to support the
non-moving party’s case.’ ” Babin, 18 F.3d at 341 (quoting
Celotex Corp v. Catrett, 477 U.S. 317, 325 (1986)).
Plaintiffs argue that the district court erred in finding
that defendants have delegated authority, under the Fair
Housing Act, or under “substantially equivalent” local
ordinances, to regulate plaintiffs’ property insurance
underwriting practices. Specifically, plaintiffs assert that
the plain language, structure, and legislative history of
§ 3604(a) and (b) of the Fair Housing Act preclude this
finding. Section 3604(a) and (b) of the Fair Housing Act
state that it shall be 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
App. 8
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. § 3604(a) and (b) (emphasis added). HUD has
interpreted these provisions of the Fair Housing Act to
prohibit “[rjefusing to provide . . . property or hazard
insurance for dwellings or providing such . . . insurance
differently because of race...” 24 C.FR. § 100.70(d)(4).
Plaintiffs argue that HUD, in promulgating this regula-
tion, has exceeded the authority delegated to it by Con-
gress under the Fair Housing Act, and therefore the
Dayton defendants lack the authority to investigate
claims of discriminatory insurance underwriting prac-
tices. The district court rejected plaintiffs’ argument and
adopted the reasoning of the magistrate judge in his
report and recommendation, which concluded that HUD
had “not exceeded its statutory authority in enacting its
regulations because the interpretation of the Fair Housing
Act embodied in that regulation is one to which judicial
deference is to be accorded under [Chevron, U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837
(1984)]. Furthermore, even in the absence of Chevron def-
erence, HUD’s interpretation of the Fair Housing Act is
correct.” J.A. 178.
We are confronted with two questions when we
review an agency’s construction of a statute. In Lansing
Dairy, Inc. v. Espy, 39 F.3d 1339 (6th Cir. 1994), we stated:
First and foremost is the question whether Con-
gress has directly spoken to the matter at hand.
Chevron, U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 842 (1984). “If the
App. 9
intent of Congress is clear, that is the end of the
matter; for the court, as well as the agency, must
give effect to the unambiguously expressed
intent of Congress.” Id. at 842-43. If, however,
the court decides that Congress has not directly
addressed the precise question at issue, the
court may not simply impose its own construc-
tion of the statute. Id. at 843. “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 per-
missible construction of the statute.” Id.
Lansing Dairy, 39 F.3d at 1349-50 (parallei citations omit-
ted). In Chevron, the Court also stated that in determining
whether an agency’s answer is based on a permissible
construction of a statute, a reviewing “court need not
conclude that the agency construction was the only one it
permissibly could have adopted to uphold the construc-
tion, or even the reading the court would have reached if
the question initially had arisen in a judicial proceeding.”
Chevron, 467 U.S. at 843 n. 11. However, the Court also
noted that “[t]he judiciary is the final authority on issues
of statutory construction and must reject administrative
constructions which are contrary to clear congressional
intent.” Chevron, 467 U.S. at 843 n. 9. Thus, we must first
determine whether the text of the Fair Housing Act
addresses the precise issue in this case, i.e., whether
§ 3604(a) and/or (b) govern the issuance and cancellation
of property insurance policies.
In N.A.A.C.P. v. American Family Mut. Ins. Co., 978
F.2d 287 (7th Cir. 1992), cert. denied, 113 S.Ct. 2335 (1993),
App. 10
the Seventh Circuit held that Congressional intent regard-
ing the application of § 3604 of the Fair Housing Act to
insurance practices is unclear:
The Fair Housing Act does not define key terms
such as “service” and “make unavailable”. [sic]
By writing its statute in the passive voice -
banning an outcome while not saying who the
actor is, or how such actors bring about the
forbidden consequence —- Congress created
ambiguity.
American Family, 978 F.2d at 298 (emphasis in original).
On the other hand, plaintiffs argue that the plain
language and structure of § 3604(a) preclude its applica-
tion to insurance providers. Specifically, plaintiffs rely on
the canons of statutory interpretation of “ejusdem gen-
eris” and “expressio unius est exclusio alterius” in sup-
port of their contention that insurance underwriting
practices are not governed by the Fair Housing Act. First,
plaintiffs argue that HUD’s interpretation of § 3604 con-
flicts with the principle of “ejusdem generis,” which
states that where general words follow specific words in
a statutory enumeration, the general words are construed
to embrace only objects similar in nature to those objects
enumerated by the preceding specific words. See Otis
Elevator Co. v. Secretary of Labor, 921 F.2d 1285, 1289 (D.C.
Cir. 1990). Thus, plaintiffs argue that in § 3604(a), because
the general phrase “otherwise make unavailable or deny”
follows the specific examples of failure “to sell or rent” or
refusal “to negotiate for the sale or rental” of a dwelling,
the phrase “otherwise make unavailable or deny” does
not include any activities that do not directly affect the
App. 11
availability of a dwelling. We disagree. Plaintiffs’ argu-
ment that the phrase “otherwise make unavailable or
deny” must only include activities that directly affect the
availability of a dwelling does not clarify Congressional
intent as to whether the availability of property insurance
falls within this category. Therefore, we conclude that the
canon of “ejusdem generis” does not preclude HUD’s
interpretation of § 3604(a).
Second, plaintiffs argue that the maxim “expressio
unius est exclusio alterius,” which states that the mention
of one thing implies exclusion of another, also precludes
HUD’s interpretation of § 3604. Specifically, plaintiffs
note that § 3604(b) proscribes discrimination in the
“terms, conditions, or privileges of sale or rental of a
dwelling, or in the provision of services or facilities in
connection therewith,” and that § 3605 bars discrimina-
tion in mortgage financing. Therefore, plaintiffs assert
that the fact that the statute proscribes some conduct that
indirectly affects housing, i.e., services and mortgage
financing, suggests that property insurance is not covered
by the Act. Relying on the Fourth Circuit’s decision in
Mackey v. Nationwide Ins. Cos., 724 F.2d 419 (4th Cir. 1984),
plaintiffs argue that this result is necessary to avoid ren-
dering §§ 3604(b) and 3605 of the Act superfluous. In
Mackey, the Fourth Circuit concluded § 3605 shows that
§ 3604 must be read narrowly. “If § 804 [§ 3604] was
designed to reach every discriminatory act that might
conceivably affect the availability of housing, § 805’s
[§ 3605] specific prohibition of discrimination in the pro-
vision of financing would have been superfluous.”
Mackey, 724 F.2d at 423. The Seventh Circuit rejected this
App. 12
argument in American Family, holding that §§ 3604 and
3605 overlap and that
[clonveying meaning to diverse interpreters for
an uncertain future is a difficult business. A
wise drafter may state a principle in one section
and list some applications of that principle in
another, to make pellucid what ought to be
apparent but which some judges (and many lay
persons) will miss unless spelled out. Using the
instance to restrict the principle would gum up
the process of communication, inverting every
effort to clarify.
American Family, 978 F.2d at 298.
We agree with the conclusion in American Family that
§§ 3604 and 3605 overlap and are not mutually exclusive.
We note that many courts have applied § 3604 to a
number of parties and practices not mentioned in
§§ 3604(b) and 3605. See United States v. City of Parma, 661
F.2d 562 (6th Cir. 1981) (imposition of building height
limitations), cert. denied, 456 U.S. 926 (1982); Metropolitan
Hous. Dev. Corp. v. Village of Arlington Heights, 558 F.2d
1283 (7th Cir. 1977) (issuance of zoning permits), cert.
denied, 434 U.S. 1025 (1978); Kennedy Park Homes Ass‘n,
Inc. v. City of Lackawanna, 436 F.2d 108 (2d Cir. 1970)
(rezoning property plaintiff picked for low-income hous-
ing project and denying sewer hook-ups), cert. denied, 401
U.S. 1010 (1971). Furthermore, plaintiffs’ argument seems
confused. Plaintiffs assert that the phrase “otherwise
makes unavailable or denies” is “a catch-all for other
activities which, like selling or renting, directly affect the
availability of a dwelling. The fact that Congress did not
expressly identify each of those other activities does not
App. 13
render § 3604(a) ‘vague.’” Plaintiffs’ Brief at 15. This
argument seems to contradict plaintiffs’ argument that by
listing proscribed behavior in § 3604(b) and 3605, Con-
gress intended for all other activity affecting the avail-
ability of housing to be outside the gambit of the Fair
Housing Act. Therefore, we conclude that the principle of
“expressio unius est exclusio alterius” does not preclude
HUD’s interpretation of the Act.
Plaintiffs further argue that the legislative history of
the Fair Housing Act reflects the Congressional intent
that the Fair Housing Act not govern insurance under-
writing practices. Relying on Mackey, plaintiffs argue that
although Congress did not directly address the Act's
application to insurance practic€s, it is implausible that
Congress intended the Fair Housing Act to reach insur-
ance practices in light of the fact that (1) Congress
enacted the Urban Property Protection and Reinsurance
Act of 1968 (“UPPRA”), see 12 U.S.C. § 1749bbb, et seq., in
the same year it enacted the Fair Housing Act, and (2)
subsequent attempts to amend the Fair Housing Act to
expressly prohibit discrimination in insurance have
failed.
Plaintiffs assert that “[t]he fact that hazard insurance
was not mentioned in the [Fair Housing Act] or its legis-
lative history strongly indicates that [Congress did not
intend to proscribe discrimination in hazard insurance].”
Mackey, 724 F.2d at 423. Plaintiffs note that Congress
enacted UPPRA in 1968, the same year the Fair Housing
Act was enacted, to handle the problem of the
unavailability of hazard insurance in some urban areas.
However, in Dunn v. Midwestern Indem. Mid-American Fire
& Casualty Co., 472 F. Supp. 1106, 1111 (S.D.Ohio 1979),
App. 14
the court found that the purposes of the Fair Housing Act
and UPPRA were different. The court noted that UPPRA
“was enacted to protect private insurance companies
from the risk of catastrophic losses which resulted from
riots or civil disorders[,]” but did not “expressly address
the issue of discriminatory insurance redlining based on
race.” Dunn, 472 F. Supp. at 1111. We agree that the
purposes of the two acts are different and that the enact-
ment of UPPRA does not shed light on Congress’ intent
regarding the application of the Fair Housing Act to
insurance undetwriting practices. In American Family, the
Seventh Circuit noted:
Silence in the legislative history could imply
that Members of Congress did not anticipate
that the law would apply to insurers. Silence
equally could imply that the debate was about
the principle of nondiscrimination, leaving
details to the future. The backwards phraseol-
ogy of § 3604 suggests the latter possibility.
American Family, 978 F.2d at 299. Therefore, we conclude
that the legislative history of the Fair Housing Act does
not preclude HUD’s interpretation of the Act.
Next, plaintiffs argue that the failure of subsequent
attempts by Congress to amend the Fair Housing Act to
expressly prohibit discrimination in insurance supports
their contention that Congress did not intend for the Act
to govern insurance underwriting practices. Plaintiffs
stress that attempts to amend the Act failed after the
Fourth Circuit’s decision in Mackey, which squarely
rejected the proposition that §§ 3604(a) or (b) implicitly
encompassed the regulation of insurance. However, in
American Family, the Seventh Circuit held that Mackey’s
App. 15
conclusion that unsuccessful attempts to amend the Fair
Housing Act to explicitly address discriminatory insur-
ance practices reflected Congress’ disapproval of this
reading was unwarranted. American Family, 978 F.2d at
299. The Seventh Circuit explained:
Proposed legislation can fail for many reasons.
Some Members of Congress may oppose the
proposal on the merits; others may think it
unnecessary and therefore not worth the politi-
cal capital needed to write the “clarification”
into the statute over opposition; still others may
be indifferent, or seek to use the bill as a vehicle
for some unrelated change. Congress may run
out of time, as a noncontroversial bill sits in a
queue while a contentious proposal is debated.
No surprise, therefore, that the Supreme Court
repeatedly reminds us that unsuccessful pro-
posals to amend a law, in the years following its
passage, carry no significance.
Id. See also McDiarmid v. Economy Fire & Casualty Co., 604
F. Supp. 105, 107-08 (S.D.Ohio 1984); Pension Benefit Guar.
Corp. v. LTV Corp., 496 U.S. 633, 650 (1990).
Thus, we conclude that subsequent failed attempts to
amend the Fair Housing Act are not helpful in determin-
ing the intent of the Congress that enacted the Act. Fur-
thermore, Congress gave HUD the authority to
promulgate regulations knowing that HUD had consis-
tently interpreted the Act as governing insurance under-
writing practices. American Family, 978 F.2d at 300.
Therefore, we conclude that plaintiffs have failed to show
any evidence of Congressional intent to preclude the
application of the Fair Housing Act to insurance under-
writing practices.
App. 16
We next turn to the second question under a Chevron
analysis - whether the agency’s interpretation of the Fair
Housing Act is reasonable.? Under Chevron, “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.”
Chevron, 467 U.S. at 843. “However, this deference does
have its limits. Courts may invalidate agency adjudica-
tion or rulemaking which is ‘inconsistent with the statu-
tory mandate or that frustrate[s] the policy that Congress
sought to implement.’ ” Lansing Dairy, 39 F.3d at 1350
(quoting Federal Election Comm‘n v. Democratic Senatorial
Campaign Comm., 454 U.S. 27, 32 (1981)). “Similarly,
where the court determines that, given the intention of
Congress to achieve some goal, ‘ “there are compelling
reasons that [the agency interpretation] is wrong,” ’ “the
court may invalidate the agency’s action.” Id. (quoting
2 Plaintiffs argue that Chevron is irrelevant to a dispute
involving a pure question of statutory construction. Plaintiffs rely
on INS v. Cardoza-Fonseca, 480 U.S. 421 (1987) and NLRB v. United
Food and Commercial Workers Union, Local 23, 484 U.S. 112 (1987).
However, plaintiffs’ reliance on these cases is misplaced. These
cases explain that “on a pure question of statutory construction”
a court should not defer to an agency’s interpretation of a statute
if “ ‘using traditional tools of statutory construction’ ” a court can
determine congressional intent. NLRB, 484 U.S. at 123 (quoting
Cardoza-Fonseca, 480 U.S. at 446-48). However, if the statute is
ambiguous, then “ ‘the question for the court is whether the
agency’s answer is based on a permissible construction of the
statute.’” NLRB, 484 U.S. at 123 (quoting Chevron, 467 U.S. at
843). Therefore, because we conclude that the Fair Housing Act is
ambiguous regarding its application to insurance underwriting
practices, we only determine whether HUD’s interpretation of
the Act is permissible.
App. 17
Boettger v. Bowen, 923 F.2d 1183, 1186 (6th Cir. 1991)
(quoting Red Lion Broadcasting Co. v. FCC, 395 U.S. 367,
381 (1969)).
In American Family, the court found that “Section
3604 is sufficiently pliable that its text can bear the Secre-
tary’s construction [interpreting § 3604 as prohibiting
insurance redlining].” American Family, 978 F.2d at 300.
We agree. The purpose of the Fair Housing Act as a
whole is “to eliminate the discriminatory business prac-
tices which might prevent a person economically able to
do so from purchasing a house regardless of his race.”
Dunn, 472 F. Supp. at 1109. Moreover, “[t]he language of
the Act is broad and inclusive.” Trafficante v. Metropolitan
Life Ins. Co., 409 U.S. 205, 209 (1972); See Babin, 18 F.3d at
344 (“Congress intended § 3604 to reach a broad range of
activities that have the effect of denying housing oppor-
tunities to a member of a protected class.”). Thus, we
conclude that 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 house. See Dunn, 472 F. Supp. at 1109; American Family,
978 F.2d at 298, 300-01.
Plaintiffs argue, however, that the “[dJenial of prop-
erty insurance, even if discriminatory, is simply not akin
to denying or making unavailable a dwelling.” Plaintiffs’
Brief at 13. Therefore, plaintiffs argue that the provision
of insurance is too attenuated to the availability of hous-
ing for insurance providers to be governed by the Fair
Housing Act. Plaintiffs rely on Babin, in which we
addressed the question of the extent to which “the phrase
‘otherwise make unavailable’ reaches out to make unlaw-
ful actions that are removed from the central event of
App. 18
purchasing or leasing a dwelling but nonetheless have
some effect on a person’s ability to acquire housing” in
interpreting a similar provision of the Fair Housing Act
that prohibits discrimination on the basis of a person's
handicap. Babin, 18 F.3d at 344. In Babin, the plaintiffs
alleged that neighbors who bought a house to prevent its
use as a group home for mentally handicapped adults
violated the Fair Housing Act by making housing
“unavailable” to a protected class of people. In holding
that the Fair Housing Act could not be read so broadly so
as to encompass “normal economic competition,” we
refused to interpret the Act to prohibit “any action that
results in the unavailability of housing for protected
classes.” Babin, 18 F.3d at 344-45. However, in Babin, we
also acknowledged that the phrase “otherwise make
unavailable” might extend to “other actors who, though
not owners or agents, are in a position directly to deny a
member of a protected group housing rights.” Id. at 344.
Babin is distinguishable from the present case. Unlike
Babin, the availability of property insurance has a direct
and immediate affect on a person’s ability to obtain hous-
ing. See American Family, 978 F.2d at 298, 300-01; Dunn,
472 F. Supp. at 1109. Accordingly, we conclude that
HUD’s interpretation of the Fair Housing Act is consis-
tent with goals of the Fair Housing Act and a reasonable
interpretation of the statute.
Plaintiffs argue that the district court erred in apply-
ing Chevron to this case. Specifically, plaintiffs assert that
Chevron is limited to agency regulations that address
technical determinations requiring agency expertise. In
support of this contention, plaintiffs rely on Bowen v.
American Hospital Ass'n, 476 U.S. 610 (1986). However, the
App. 19
regulation at issue in Bowen was promulgated under the
authority of a general delegation of power to any agency
head, “regardless of his agency’s mission or expertise” to
issue regulations to implement the Rehabilitation Act.
Bowen, 476 U.S. at 642. Under these circumstances, the
Court found that there was “not the same basis for defer-
ence predicated on expertise as we found [in Chev-
ron]...” Id. at 642 n. 30. In this case, however, we are
faced with the reasonableness of HUD’s interpretation of
the Fair Housing Act, which it administers. We agree with
the district court’s holding that Chevron provides no indi-
cation that its holding is to be limited to its facts. See
Chevron, 467 U.S. at 865-66 (holding that it is “entirely
appropriate” for an agency to “resolv[e] the competing
interests which Congress itself either inadvertently did
not resolve or intentionally left to be resolved by the
agency charged with the administration of the statute in
light of everyday realities”). Thus, we conclude that Chev-
ron analysis was appropriate in this case and that the
district court did not err in finding that insurance under-
writing practices are governed by the Fair Housing Act.
B.
Plaintiffs argue that district court erred in finding
that the McCarran-Ferguson Act does not preempt the
regulation of insurance underwriting practices under the
Fair Housing Act. The McCarran-Ferguson Act, 15 U.S.C.
§ 1012(b), provides in relevant part:
No Act of Congress shall be construed to invali-
date, impair, or supersede any law enacted by
App. 20
any State for the purpose of regulating the busi-
ness of insurance . . . unless such Act speci-
fically relates to the business of insurancef[.]
The primary purpose of the McCarran-Ferguson Act was
to ensure to the states the continued ability to regulate
and to tax the business of insurance. McDiarmid, 604 F.
Supp. at 108. In American Family, the Seventh Circuit
explained that “[t]he McCarran-Ferguson Act establishes
a form of inverse preemption, letting state law prevail
over general federal rules — those that do not ‘specifically
relate[ ] to the business of insurance.” American Family,
978 F.2d at 295. Thus, because the Fair Housing Act does
not mention insurance, it is covered by the McCarran-
Ferguson Act and cannot be construed in such a way as to
invalidate, impair, or supersede any state law enacted to
regulate the business of insurance.
Plaintiffs argue that HUD’s interpretation of the Fair
Housing Act conflicts with Ohio insurance law. Speci-
fically, plaintiffs assert that Ohio law prohibits insurers
from “[mJaking or permitting any unfair discrimination
between individuals of the same class” involving “essen-
tially the same hazard in the amount of premium, policy
fees, or rates charged.” Ohio Rev.Code, § 3901.21(M).
Thus, plaintiffs argue that “insurers may not charge dif-
ferent rates for risks of the same hazard or charge the
same rate for risks of different hazards.” Plaintiffs’ Brief
at 30. Plaintiffs assert that “the threat of disparate impact
suits under the Act, which require no proof of discriminatory
intent, [together with the availability of federal jury trials]
impairs neutral risk discernment in violation of the ‘fair
discrimination’ principle.” Plaintiffs’ Brief at 31
(emphasis in original).
App. 21
Plaintiffs also argue that HUD’s interpretation of the
Fair Housing Act impairs the Ohio FAIR Plan, which was
enacted, pursuant to UPPRA, to make property insurance
available to individuals unable to obtain insurance in the
private market because of the location of their property.
Plaintiffs argue that if HUD applies a disparate impact
approach to the Fair Housing Act, then this application
would impair or supersede the Plan’s allocation of the
risk of loss due to environmental hazards and would
interfere with the private insurance market which the
Plan intentionally left alone. In their reply brief, plaintiffs
concede that they do not argue that the FAIR Plan autho-
rizes discrimination on the basis of race or any other
impermissible factor. Plaintiffs’ Reply Brief at 14. Thus,
plaintiffs’ argument hinges on HUD’s hypothetical appli-
cation of a disparate impact approach to insurers.
Defendant HUD responds that plaintiffs may not
challenge the validity of the HUD’s regulation interpret-
ing the Fair Housing Act on the ground that HUD might
apply some form of disparate impact analysis to them in
the future. In other words, HUD argues that because it
has never applied a disparate impact approach to insur-
ance providers, this issue is not ripe for review. We note
that in his report and recommendation, the magistrate
judge concluded that plaintiffs’ action was ripe and that
HUD did not object to the magistrate judge’s report and
recommendation. Generally, the failure to object to a
magistrate’s report and recommendation precludes
appellate review of an issue. United States v. Walters, 638
F.2d 947, 949-50 (6th Cir. 1981). However, we have held
that “this general rule is subject to the familiar exception
that parties can neither waive objections nor consent to
App. 22
subject matter jurisdiction.” United Liberty Life Ins. Co. v.
Ryan, 985 F.2d 1320, 1325 (6th Cir. 1993). We review a
district court’s finding of subject matter jurisdiction de
novo. Greater Detroit Resource Recovery Authority v. United
States EPA, 916 F.2d 317, 319 (6th Cir. 1990). Furthermore,
we have held that “ ‘every federal appellate court has a
special obligation to “satisfy itself not only of its own
jurisdiction, but also that of the lower courts in a cause
under review”.’ ” Id. (quoting Bender v. Williamsport Area
School Dist., 475 U.S. 534, 541 (1986) (quoting Mitchell v.
Maurer, 293 U.S. 237, 244 (1934)); see Bigelow v. Michigan
Dep’t of Natural Resources, 970 F.2d 154, 157 (6th Cir. 1992)
(“ ‘Ripeness is more than a mere procedural question; it is
determinative of jurisdiction. If a claim is unripe, federal
courts lack subject matter jurisdiction and the complaint
must be dismissed. This deficiency may be raised sua
sponte if not raised by the parties.’ ”) (quoting Southern
Pac. Transp. Co. v. City of Los Angeles, 922 F.2d 498, 502
(9th Cir. 1990), cert. denied, 502 U.S. 943 (1991) (citation
omitted)). Therefore, we will sua sponte consider for
jurisdictional purposes HUD’s claim that the application
of its regulation under a disparate impact approach was
not ripe for review.
The Supreme Court has outlined the ripeness doc-
trine in Abbott Laboratories v. Gardner, 387 U.S. 136 (1967),
and two companion cases, Toilet Goods Association, Inc. v.
Gardner, 387 U.S. 158 (1967) and Gardner v. Toilet Goods
Association, Inc., 387 U.S. 167 (1967). In those cases, the
Court explained as follows:
The injunctive and declarative judgment
remedies are discretionary, and courts tradi-
tionally have been reluctant to apply them to
App. 23
administrative determinations unless these arise
in the context of a controversy “ripe” for judicial
resolution. Without undertaking to survey the
intricacies of the ripeness doctrine it is fair to
say that its basic rationale is to prevent the
courts, through avoidance of premature adjudi-
cation, from entangling themselves in abstract
disagreements over administrative policies, and
also to protect agencies from judicial interfer-
ence until an administrative decision has been
formalized and its effects felt in a concrete way
by the challenging parties.
Abbott Laboratories, 387 U.S. at 148-49. The Court also
explained that the ripeness requirement involves a two-
part test: “The problem is best seen in a twofold aspect,
requiring us to evaluate both the fitness of the issues for
judicial decision and the hardship to the parties of with-
holding court consideration.” Id. at 148. “In order to be
ripe for review, a dispute must satisfy both prongs of the
ripeness test.” Franklin Federal Savings Bank v. Director,
Office of Thrift Supervision, 927 F.2d 1332, 1336 (6th Cir.
1991).
Thus, we must first determine whether HUD’s appli-
cation of its regulation under a disparate impact analysis
is fit for judicial decision. The Supreme Court set forth
several factors to consider when analyzing whether
issues are appropriate for judicial resolution in Abbott
Laboratories. In this regard, the Court considered whether
the regulations at issue constituted “final agency action.”
Abbott Laboratories, 387 U.S. at 149. The Court explained
that the “cases dealing with judicial review of administrative
App. 24
actions have interpreted the ‘finality’ requirement in a
pragmatic way.” Id. Furthermore, we have explained:
As a general rule, final agency action includes
“interpretive decisions that crystalize or modify
private legal rights.” Federal Trade Commission v.
Standard Oil of California, 449 U.S. 232, 247 (1980)
(Stevens, J., concurring). The D.C. Circuit has
explained the purpose of the finality require-
ment as being to determine “if the agency’s
position is merely tentative or, on the other
hand, whether the agency views its deliberative
process as sufficiently final to demand compli-
ance with its announced position.” Ciba-Geigy
Corp. v. U.S. Environmental Protection Agency, 801
F.2d 430, 436 (D.C. Cir. 1986). While an agency
may generally express tentative views without
judicial review, “[o]nce the agency publicly
articulates an unequivocal position, however,
and expects regulated entities to alter their pri-
mary conduct to conform to that position, the
agency has voluntarily relinquished the benefit
of proposed judicial review.” Ibid.
Franklin Federal, 927 F.2d at 1337.
In this case, the district court concluded that plain-
tiffs’ action for declaratory and injunctive relief was ripe
because HUD’s regulation was a final agency action.
However, the district court did not distinguish between
plaintiffs’ challenge to HUD’s regulation under a dispa-
rate treatment approach, which requires a showing of
intentional discrimination, and plaintiffs’ challenge under
a disparate impact approach, which requires no showing
of discriminatory intent. In this case, plaintiffs seek to
challenge HUD’s regulation by arguing that if HUD were
to apply a disparate impact analysis under the Act, then
App. 25
insurers could not rely only on neutral environmental
risk considerations in their underwriting practices. HUD
has never applied a disparate impact analysis to insurers.
Plaintiffs rely on the possibility that HUD might so apply
its regulation in the future. We note that “[mJjere contem-
plation of a course of action does not constitute a final
agency action.” First Federal Sav. Bank and Trust v. Ryan,
927 F.2d 1345, 1354 (6th Cir.), cert. denied, 502 U.S. 864
(1991). Moreover, we note that plaintiffs argue that in the
event that HUD applies a disparate impact analysis to
insurers, the Act will forbid consideration of neutral
underwriting criteria where those criteria have a discrim-
inatory effect. On the other hand, HUD argues that any
application of the disparate impact analysis would
depend on the practices alleged to violate the Act and the
business necessity put forth to justify them. Thus, we
conclude that the issue of HUD’s application of a dispa-
rate impact analysis to insurers to show a violation of the
Fair Housing Act is not sufficiently final.
Furthermore, we do not find that withholding judi-
cial review would constitute an undue hardship upon the
parties. In Toilet Goods, the Supreme Court addressed a
regulation that provided that the Commissioner of Food
and Drugs could suspend certification of any manufac-
turer upon finding that the manufacturer had refused to
permit inspectors adequate access to manufacturing facil-
ities. Toilet Goods, 387 U.S. at 161. The Court concluded
that the regulation was not ripe for review, noting:
The regulation serves notice only that the Com-
missioner may under certain circumstances
order inspection of certain facilities and data,
and that further certification of additives may be
App. 26
refused to those who decline to permit a duly
authorized inspection until they have complied
in that regard. At this juncture we have no idea
whether or when such an inspection will be
ordered and what reasons the Commissioner
will give to justify his order.
Toilet Goods, 387 U.S. at 163 (emphasis in original). Sim-
ilarly, in this case, it is not clear that HUD will apply a
disparate impact analysis to its regulation governing
insurance providers in the future, and it is not clear what
considerations would violate this analysis. Thus, even
though plaintiffs might feel uneasy about potential appli-
cations of the regulation, they are not under any present
legal obligation to base their insurance underwriting
practices on factors other than neutral risk consider-
ations. See First Federal, 927 F.2d at 1354-55. Accordingly,
we conclude that plaintiffs’ challenge to HUD’s regula-
tion as applied under a disparate impact approach is not
ripe for review. Thus, plaintiffs may only challenge
HUD’s regulation under a disparate treatment approach.
Next, plaintiffs argue that “the availability of private
civil actions under the Fair Housing Act, with access to
jury trials and unlimited punitive damages, will ‘impair
or supersede’ Ohio insurance law which does not afford
such remedies.” Plaintiffs’ Brief at 33. Plaintiffs assert
that the availability of private civil remedies under the
Fair Housing Act would allow a claimant to bypass the
administrative procedures outlined in the Ohio Insurance
Code. In American Family, the Seventh Circuit held that
the existence of additional remedies does not cause
App. 27
HUD’s interpretation of the Fair Housing Act to violate
the McCarran-Ferguson Act.
In the main, federal regulation of a subject -
even thoroughgoing federal regulation — does
not prevent states from adding remedies to the
arsenal established by federal law. The McCar-
ran-Ferguson Act is a form of inverse preemp-
tion, so principles defining when state remedies
conflict (and so are preempted by) federal law
are pertinent in deciding when federal rules
“invalidate, impair, or supersede” state rules.
American Family, 978 F.2d at 296; see Merchants Home
Delivery Suc., Inc. v. Reliance Group Holding, Inc., 1995 WL
129169, *5-*6 (9th Cir. March 28, 1995) (following Ameri-
can Family and holding that federal regulation that pro-
vides additional remedies than those provided under
state insurance plan does not violate McCarran-Ferguson
Act). Moreover, in Mackey, the Fourth Circuit held that
“t]he presence of a general regulatory scheme does not
show that any particular state law would be invalidated,
impaired or superseded by the application of the Fair
Housing Act...” Mackey, 724 F.2d at 421. Therefore, we
conclude that the presence of additional remedies in the
Fair Housing Act does not cause the Act to invalidate,
impair or supersede Ohio insurance law. Accordingly, we
hold that the McCarran-Ferguson Act does not preclude
HUD’s interpretation of the Fair Housing Act.
c.
Finally, plaintiffs argue that the district court erred in
dismissing plaintiffs’ state law claims against the Dayton
defendants. We have held that ” ‘generally, “if the federal
App. 28
claims are dismissed before trial . . . the state claims
should be dismissed as well.” ’” Landefeld v. Marion Gen-
eral Hospital, Inc., 994 F.2d 1178, 1182 (6th Cir. 1993)
(quoting Taylor v. First of America Bank-Wayne, 973 F.2d
1284, 1287 (6th Cir. 1992) (citing United Mine Workers v.
Gibbs, 383 U.S. 715, 726 (1966)). “A district court should
consider the interests of judicial economy and the avoid-
ance of multiplicity of litigation and balance those inter-
ests against needlessly deciding state law issues. . . . This
court will review only for an abuse of discretion by the
district court.” Landefeld, 994 F.2d at 1182.
In this case, the magistrate judge recommended that
the district court should not exercise pendent jurisdiction
over the remaining state law claims because plaintiffs’
claim involves a novel issue of state law. Plaintiffs assert
that the Dayton Revised Code of General Ordinances
conflicts with Ohio insurance and civil rights law. In
addition, plaintiffs challenge the validity of a Dayton
ordinance forbidding insurance redlining. We agree with
the magistrate judge that “a state court is better able to
determine whether state law conflicts with and super-
sedes an allegedly conflicting ordinance passed by and
being enforced by one of the municipalities within its
jurisdiction.” J.A. 175. Accordingly, we hold that the dis-
trict court did not abuse its discretion in dismissing plain-
tiffs’ state law claims.
App. 29
For the reasons stated, the judgment of the district
court is AFFIRMED.
KENNEDY, Circuit Judge, dissenting.
I respectfully dissent from the majority’s opinion
because I believe that Congress did not intend for the Fair
Housing Act to reach the activities of the insurance
industry. As the Fourth Circuit wrote in Mackey v. Nation-
wide Insurance Companies, 724 F.2d 419, 423 (4th Cir. 1984),
“liJf [§ 3604] was designed to reach every discriminatory
act that might conceivably affect the availability of hous-
ing, [§ 3605's] specific prohibition of discrimination in the
provision of financing would have been superfluous.”
Under the majority’s reasoning, discrimination in financ-
ing clearly would violate section 3604.
Furthermore, repeated attempts to amend the Fair
Housing Act to expressly include insurance practices
have failed, although the Act has been amended to pro-
hibit other discriminatory activities. See id. at 424; 42
U.S.C. § 3605. (e.g., adding discrimination by appraisers.)
Additionally, the legislative history is devoid of refer-
ences to the insurance industry. Mackey, 724 F.2d at 424. |
do not believe that Congress would have intended to
include insurance practices without at least considering
the limitations imposed by the McCarran-Ferguson Act.
Finally, I disagree with the majority that Chevron applies
to this case. Where this Court can ascertain Congressional
intent through traditional tools of statutory construction,
deference to the agency’s interpretation is unnecessary.
See INS v. Cardoza-Fonesca |sic], 480 U.S. 421, 445-48
(1987).
App. 29a
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
No: 94-3296
NATIONWIDE MUTUAL INSURANCE COMPANY and
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY,
Plaintiffs-Appellants,
v.
HENRY CISNEROS, Secretary of the United States
Department of Housing & Urban Development; JERALD
L. STEED, Executive Director, Dayton Human Relations
Council; CHARLES W. BROWN, Chairperson, Dayton
Human Relations Council; and CITY OF DAYTON,
Defendants-Appellees.
Before: Kennedy and Milburn, Circuit Judges;
Wiseman, District Judge
JUDGMENT
(Filed May 1, 1995)
ON APPEAL from the United States District Court
for the Southern District of Ohio at Dayton.
THIS CAUSE was heard on the record from the dis-
trict court and was argued by counsel.
ON CONSIDERATION WHEREOF, it is ordered that
the judgment of the district court is AFFIRMED.
COSTS may be recovered by the defendants-appel-
lees as provided by Rule 39, Federal Rules of Appellate
Procedure.
App. 29b
Issued as Mandate:
August 15, 1995
COSTS:
None
PR DOR ces cssaveverers
FUGUE ceec¥sidcuceteaes
ENTERED BY ORDER OF
THE COURT
/s/ Leonard Green
Leonard Green, Clerk
A True Copy
Attest:
/s/ Velina Fields
Deputy Clerk
App. 30
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
NATIONWIDE MUTUAL :
INSURANCE COMPANY, :
et al., Case No. C-3-92-52
Plaintiff(s), District Judge
tin ’ Sandra S. Beckwith
' Magistrate Judge
HENRY CISNEROS, ‘ Michael R. Merz
SECRETARY OF
DEPARTMENT OF
HOUSING AND URBAN ‘°
DEVELOPMENT, et al.,
Defendant(s).
REPORT AND RECOMMENDATIONS CONCERNING
MOTIONS TO DISMISS AND FOR SUMMARY
JUDGMENT AND DECISION AND ORDER AS TO
REMAINING PENDING MOTIONS
(Filed Sept. 27, 1993)
This case is before the Court on, inter alia, Defendant
Henry Cisneros’ (hereinafter “HUD”) Motion to Dismiss
and Renewed Motion to Dismiss, joined by Defendants
Jerald L. Steed, Charles Brown, and the City of Dayton
(“Dayton Defendants”), (Doc. 20, 19; 57, 58, 56), Defen-
dants’ Motion to Reconsider leave for Plaintiffs Nation-
wide Mutual Insurance Company and Nationwide
Mutual Fire Insurance Company (“Nationwide”) to file a
App. 31
Fourth Amended Complaint, (Doc. 108), and cross-
motions for summary judgment. (Doc. 84, 92, 93). The
issues have been fully briefed by the parties, (Doc. 20, 24,
27; 19, 25, 28; 56, 60; 57, 58, 60, 63, 77, 79; 108, 113, 115; 84,
94, 95, 100; 92, 95, 99, 102; 93, 94, 99, 101, 103, 116), and
the matters are ripe for decision.
Nationwide originally filed this action in the District
Court for the District of Columbia, seeking declaratory
and injunctive relief from attempts by HUD to enforce
certain sections of the Fair Housing Act, 42 U.S.C. Sec.
3601, et seq., and from attempts by the Dayton Defendants
to prohibit certain of Nationwide’s practices under Ohio
state and Dayton municipal law. The Dayton Defendants
sought and were granted a change in venue and the
action was transferred to this Court.
Nationwide alleges jurisdiction pursuant to 28 U.S.C.
Sec. 1331. The controversy arises under the laws of the
United States, specifically the Fair Housing Act and the
Administrative Procedure Act, 5 U.S.C. Secs. 701-706.
Nationwide also alleges jurisdiction under the Due Pro-
cess Clauses of the United States Constitution.
In essence, this action involves “redlining” in the
insurance business. “Redlining” is charging higher rates
or declining to write insurance for people who live in
particular areas.
The Nationwide corporations are insurers incorpo-
rated under the laws of Ohio, doing business throughout
the nation, including Ohio. Defendant HUD is respons-
ible for the administration of the Fair Housing Act.
Defendant Steed, as Executive Director of the Dayton
Human Relations Council (“DHRC”), and Defendant
App. 32
Brown, as Chairperson of the DHRC Board, assist HUD in
the local administration of housing discrimination com-
plaints.
Generally, Nationwide is seeking a declaratory judg-
ment that HUD and DHRC lack the authority to regulate
the provision and cancellation of homeowners’ insurance.
Nationwide also seeks corresponding injunctive relief
preventing Defendants’ attempts to enforce insurance
regulations.
Nationwide’s specific allegations are as follows: (1)
HUD has exceeded the statutory authority granted to it
by Congress in the Fair Housing Act; (2) HUD’s deter-
mination that the Fair Housing Act authorizes it to
enforce its homeowner’s insurance regulations in Ohio
violates the McCarran-Ferguson Act, 15 U.S.C. Sec. 1001,
et seq. on the grounds that the federal anti-discriminatory
regulation of homeowner’s insurance is ineffective under
McCarran because Ohio has in place the Ohio Insurance
Code, O.R.C. Sec. 3901.01, et seq., which includes both a
prohibition of “unfair and deceptive acts” connected to
underwriting standards and practices or insurance can-
cellation, as well as a FAIR plan authorized by the federal
Urban Protection Insurance and Property Reinsurance
Act, O.R.C. Sec. 3929.41, et seq. which provides for fire
insurance coverage for what would otherwise be uninsur-
able risks; (3) HUD’s attempts to exercise authority
beyond that granted by the Fair Housing Act constitutes
an unlawful delegation of authority; (4) HUD’s and
DHRC’s attempts to regulate homeowner’s insurance
protections violate the United States Constitution, speci-
fically the Due Process Clause; (5) the actions of the
App. 33
Dayton Defendants in attempting to eliminate discrimina-
tory practices exceed the authority granted by Chapter 32
of the Dayton Revised Code of General Ordinances
(“Dayton Code”); (6) even if the Dayton Code does regu-
late insurance, it is in conflict with O.R.C. Secs. 3901.01
and 3901.0111, which calls for insurers to discriminate
fairly in establishing underwriting standards, and there-
fore the Dayton Code subjects Nationwide to conflicting
regulations; (7) the Dayton Code violates the Ohio Civil
Rights Law, O.R.C. Sec. 4112.02(H)(4), which prohibits
discrimination in the provision of housing, in that the
anti-redlining provision in the Dayton Code calls for
dissimilar risks to be treated similarly and it, in effect,
calls for reverse discrimination; (8) the Dayton Code’s
anti-redlining provision is in conflict with the FAIR plan
enacted by Ohio in that the FAIR plan arranges for
insurers doing business in Ohio to pool funds payable in
insuring risks otherwise uninsurable because of environ-
mental hazards such as, according to Nationwide, those
found in racially mixed neighborhood and therefore the
Dayton Code requires Nationwide to bear a greater bur-
den of those risks than those borne by Ohio insurers who
have little or no presence in the City of Dayton; (9) the
DHRC may not regulate racially discriminatory cancella-
tion of homeowner’s policies in the absence of a specific
provision in the Dayton Code.
I. Defendants’ Motion for Reconsideration
The first matter which this Court will consider is the
Dayton Defendants’ Motion for Reconsideration of the
Court’s granting leave to Nationwide to file its Fourth
Amended Complaint.
App. 34
The general standard for considering a motion of
[sic] amend under Fed.R.Civ.P. 15(a) was enunciated by
the United States Supreme Court in Foman v. Davis, 371
U.S. 178, 182 (1962):
If the underlying facts or circumstances relied
upon by a plaintiff may be a proper subject of
relief, he ought to be afforded an opportunity to
test his claim on the merits. In the absence of
any apparent or declared reason — such as
undue delay, bad faith or dilatory motive on the
part of the movant, repeated failure to cure defi-
ciencies by amendments previously allowed,
undue prejudice to the opposing party by virtue
of any allowance of the amendment, futility of
amendment, etc. — the leave sought should, as
the rules require, be “freely given”.
The Dayton Defendants’ primary objection to allow-
ing Nationwide to file a Fourth Amended Complaint is
that this case has been pending for over two (2) years, has
involved extensive briefing with respect to motions to
dismiss and motions for summary judgment, and that a
Fourth Amended Complaint will result in the need to
again file and brief motions to dismiss and motions for
summary judgment.
As noted by Nationwide in its response to the Day-
ton Defendants’ Motion for Reconsideration, Nation-
wide’s Fourth Amended Complaint seeks no additional
relief and adds no new cause of action, but merely con-
tains additional allegations which reflect arguments
developed at greater length in its response to Defendants’
motions for summary judgment. This Court agrees with
Nationwide’s analysis that, “the Fourth Amended Com-
plaint will neither precipitate a new round of briefing nor
App. 35
disturb the parties’ pending dispositive motions which
have been fully briefed and remain applicable.” See, Doc.
113 at 2.
This Court finds that the Defendants are not and will
not be prejudiced by the allowance of Nationwide filing
its Fourth Amended Complaint. Therefore, the Dayton
Defendants’ motion for reconsideration is DENIED.
II. Defendant HUD’s Motions to Dismiss
HUD’s several motions to dismiss essentially raise
the same issues and are all based on essentially the same
arguments as discussed infra.
The test for dismissing a complaint under the Federal
Rules is a stringent one:
[A] complaint should not be dismissed for fail-
ure to state a claim unless it appears beyond
doubt that the plaintiff can prove no set of facts
in support of his claim which would entitle him
to relief.
Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed.
2d 80 (1957); Neitzke v. Williams, 490 U.S. 319, 109 S. Ct.
1827, 104 L. Ed. 2d 338 (1989); Hishon v. King & Spalding,
467 U.S. 69 (1984); Nishiyama v. Dickson Cty., 814 F. 2d 277
(6th Cir. 1987) (en banc); Collins v. Nagle, 892 F. 2d 489
(6th Cir. 1989). For purposes of the motion to dismiss, the
complaint must be construed in the light most favorable
to the plaintiff and its allegations taken as true. Scheuer v.
Rhodes, 416 U.S. 232 (1974); Westlake v. Lucas, 537 F. 2d 857
(6th Cir. 1976); Craighead v. E.F. Hutton & Co., 899 F. 2d 485
(6th Cir. 1990).
App. 36
The Declaratory Judgment act [sic] reads in relevant
part:
In a case of actual controversy within its juris-
diction .. . any court of the United States, upon
the filing of an appropriate pleading, may
declare the rights and other legal obligations of
any interested party seeking such declaration,
whether or not further relief is or could be
sought. Any such declaration shall have the
force and effect of a final judgment or decree
and shall be reviewable as such.
28 U.S.C. Sec. 2201(a)
“The procedure for obtaining a declaratory judgment
pursuant to Title 28 U.S.C. Sec. 2201 shall be in accor-
dance with [the Federal Rules of Civil Procedure]... . ”
Fed.R.Civ.P. 57. “The existence of another adequate rem-
edy does not preclude a judgment for declaratory relief in
cases where it is appropriate.” Id. The injunctive and
declaratory judgment remedies are discretionary, and
courts traditionally have been reluctant to apply them to
administrative determinations unless these arise in the
context of a controversy “ripe” for judicial resolution.
Abbott Laboratories v. Gardner, 387 U.S. 136, 148 (1967). The
ripeness doctrine serves “to prevent the courts, through
avoidance of premature adjudication, from entangling
themselves in abstract disagreements over administrative
policies, and also to protect the agencies from judicial
interference until an administrative decision has been
finalized and its effects felt in a concrete way by the
challenging parties.” Id. at 148-49. A court therefore will
not interfere in the resolution of issues unfit for judicial
resolution; nor will a court grant declaratory relief when
App. 37
the potential hardship to the parties does not merit court
consideration. Id. at 149.
A court properly interferes in a pre-enforcement con-
troversy between a private litigant and an administrative
agency only if the issues are fit for judicial decision. An
issue is fit for judicial decision when (1) the controversy
presents a “purely legal issue” but only (2) if the subject
matter of the controversy is a “final agency action.” Id.;
see also, 5 U.S.C. Sec. 149.
The Court notes that, as in Abbott, both sides in this
litigation have moved for summary judgment, thereby
evincing their respective beliefs that the issues are non-
factual and subject to disposition as a matter of law. The
primary issue is whether HUD had exceeded its authority
in promulgating its regulations under the Fair Housing
Act. The scope of the authority granted an agency by
statute is a purely legal issue. Athlone Industries v. Con-
sumer Product Safety Commission, 707 F.2d 1485, 1489 (D.C.
Cir. 1983). Likewise, the question of whether an adminis-
trative agency exceeds its statutory authority in pro-
mulgating a given regulation is a purely legal question.
Toilet Goods Association v. Gardner, 387 U.S. 158, 163 (1967).
Therefore, the issues presented by Nationwide’s com-
plaint are purely legal and fit for judicial resolution.
In addition, the subject matter of the controversy in
this case, as it relates to HUD, is a final agency action.
Agency actions in the form of a regulation are final
when such regulations have the force of law before their
sanctions are invoked as well as after. Columbia Broadcast-
ing System v. United States, 316 U.S. 407, 418 (1942). A
regulation “promulgated in a formal manner after notice
App. 38
and evaluation of written comments . . . is a ‘final agency
action.’ ” Toilet Goods, 387 U.S. at 162. In other words, a
reviewable agency action has “determinate consequences
for the party to the proceeding.” ITT v. Electrical Workers,
419 U.S. 428, 443 (1975). Judicial review, then, is not
prevented solely on the ground that the regulation
merely explains how the agency would interpret the stat-
ute if it should bring an action against one subject to the
statute. United States v. Storer Broadcasting Co., 351 US.
192, 198 (1956).
The Sixth Circuit has drawn a very fine line between
agency actions that are final and those that are not. Com-
pare, Franklin Federal Savings Bank v. Director, Office of
Thrift Supervision, 927 F.2d 1332, 1336-38 (6th Cir. 1991),
with, First Federai Savings Bank and Trust Co. v. Ryan, 927
F.2d 1345, 1352-55 (6th Cir. 1991).
In First Federal, the plaintiff sought to prevent the
Office of Thrift Supervision from exercising its authority
to appoint a receiver for a financial institution when the
unstable condition of that institution so warrants. First
Federal, 927 F.2d 1345. OTS had yet to appoint a receiver
at the time the action was filed; First Federal merely
feared that such an appointment was imminent. Id. The
Sixth Circuit held that “[mJere contemplation of a course
of action does not constitute a final agency action,” rea-
soning that “the focus of the Abbott test is on the conse-
quence of agency action even absent enforcement action,
not on the deleterious effect of possible future enforce-
ment action itself. Id. The First Federal Court found the
prospective nature of the challenged agency action a bar
to judicial review.
——Saaaaaaaaaeeaeae
App. 39
In Franklin Federal, on the other hand, the plaintiff
bank questioned OTS’ claim that any agreement as to the
accounting procedures to be applied to Franklin Federal’s
operation constituted a nonbinding statement. Franklin
Federal, 927 F.2d at 1334. The bank also questioned the
OTS interpretation of the Financial Institutions Reform
Recovery and Enforcement Act of 1989. The Franklin Fed-
eral court noted that the purpose of the finality require-
ment was “to determine ‘if the agency’s position is
merely tentative or, on the other hand, whether the
agency views its deliberative process as sufficiently final
to demand compliance with its announced position.’ ” Id.
at 1337, quoting, Ciba-Geigy Corporation v. United States
Environmental Protection Agency, 801 F.2d 430, 436
(D.C.Cir. 1986). The Sixth Circuit then concluded that an
agency action sufficiently final to be defended on the
basis of Chevron U.S.A., Inc. v. Natural Resources Defense
Council, 467 U.S. 837 (1984), should be treated as a final
agency action for the purposes of applying the Abbott
test. Franklin Federal, 927 F.2d at 1337.
The crucial factual difference between First Federal
and Franklin Federal is that First Federal questioned only
the applicability of the OTS position to itself; Franklin
Federal, on the other hand, questioned the validity of the
OTS position as it incidentally applied to Franklin Fed-
eral. See, Franklin Federal, 927 F.2d at 1336 (“Here, the
plaintiff institution has asked for . . . an injunction against
the application of certain rules.”) (emphasis supplied). In
First Federal, by contrast, the plaintiff asked for an injunc-
tion preventing the OTS from taking a particular action.”
Franklin Federal, 927 F.2d at 1338 (emphasis supplied).
App. 40
The issues raised by Nationwide’s complaint are
more similar to the issues raised in Franklin Federal than
to those raised in First Federal. Here Nationwide is asking
for a statement clarifying the legal applicability to HUD’s
regulation to the insurance industry as a whole. Nation-
wide is not asking for a determination as to the factual
application of the regulation to its particular underwrit-
ing standards. Nationwide’s complaint seeks a declara-
tory judgment on a purely legal issue as to a final agency
action.
In addition, the potential hardship to the parties is
sufficient to merit a court’s consideration. A regulation
that “purport[s] to give an authoritative interpretation
that has a direct effect on the day-to-day business” of
members of the regulated industry has an
“impact . . . sufficiently direct and immediate as to render
the issue appropriate for judicial review” at the pre-
enforcement stage. Abbott, 387 U.S. at 152. “Where a
regulation requires an immediate and significant change
in the plaintiffs’ conduct of their affairs with serious
penalties attached to noncompliance, access to the courts
under the Administrative Procedure Act and the Declara-
tory Judgment Act must be permitted, absent a statutory
bar or some other unusual circumstance.” Id. at 153. But
when primary conduct is not affected and no advance
action is required of members of the regulated industry,
judicial review is unnecessary until a member has speci-
fically refused to comply and enforcement is sought
against that member. Toilet Goods, 387 U.S. at 165.
Although “some uncertainty” is not enough, review may
be had when “the mere promulgation of administrative
regulations would impose “debilitating uncertainties” on
App. 41
the parties. Id. The requisite hardship is a dilemma
between disadvantageous compliance with final agency
action and the risk of prosecution and penalties. Seattle
Pacific University v. Haas, 626 F.Supp. 539, 541 (W.D.Wash.
1985).
HUD’s regulation affects the underwriting and can-
cellation standards of homeowner’s insurance providers.
HUD’s position is that it may regulate such insurers;
Nationwide’s position is that it may not. If HUD is cor-
rect, not only Nationwide, but all insurers who provide
homeowner's coverage must alter any standards incon-
sistent with HUD’s policies and shall have to continue to
do so in the future. An insurer’s underwriting standards
provide the foundation for daily decisions whether to
insure and at what rate to insure. Clearly, then, HUD’s
regulation affects the primary business of insurers. On
the other hand, compliance with the HUD regulation, if it
is invalid, could cause insurers unnecessarily to bind
themselves to cover risks they would otherwise have
refused to accept.
Nationwide has alleged that uncertainty as to the
validity of HUD’s regulation makes insurers unsure
about what appropriate underwriting standards are, but
goes on to assume that alterations in their standards will
be necessary. Nationwide alleges that HUD’s regulation
will force insurers to incur significant costs in the revi-
sion of their standards and in the retraining of underwri-
ters to apply the new standards once they are developed.
These expenses, combined with the uncertainty inherent
in developing appropriate standards, constitutes suffi-
cient hardship to make the issues ripe for pre-enforce-
ment review. Nationwide need not be left in a position in
App. 42
which it must decide between insuring otherwise accept-
able risks and possibly violating the Fair Housing Act.
With respect to the issue of exhaustion, this Court
concludes that Nationwide has not failed to exhaust any
available administrative remedies.
As a general matter . . . the exhaustion doctrine
provides that challenges to agency action should not be
heard until relevant administrative proceedings have
been concluded. McKart v. United States, 395 U.S. 185,
194-95 (1969). Ordinarily, no one is entitled to judicial
relief for a supposed or threatened injury until the pre-
scribed administrative remedy has been exhausted. Myers
v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51 (1938).
Nonetheless, application of the [exhaustion] doctrine to
specific cases requires an understanding of its purposes
and of the particular administrative scheme involved.
McKart, 395 U.S. at 193. The exhaustion doctrine pro-
motes efficiency in both the courts and in the agency by
preventing “premature interruption of the administrative
process.” Id. The exhaustion doctrine permits the admin-
istrative agency to engage in fact finding; to exercise its
special competence and correct its errors; and to reach a
dispositive solution so as to make judicial intervention
unnecessary. City of Mt. Clemens v. United States Environ-
mental Protection Agency, 917 F.2d 908, 914 (6th Cir. 1990);
see also, Robinson v. Dow, 522 F.2d 855 (6th Cir. 1975).
Where pursuit of administrative remedies does not serve
the purposes behind the exhaustion doctrine, the courts
have allowed a number of exceptions. Shawnee Coal Co. v.
Andrus, 661 F.2d 1083, 1093 (6th Cir. 1981).
App. 43
One of these exceptions is the futility exception.
Since the [exhaustion] doctrine is not linked to the power
of the court to entertain actions, but instead implicates
prudential considerations, the exhaustion doctrine may
be . . . disregarded by the court when application of the
doctrine would be futile.” City of Mt. Clemens, 917 F.2d at
914. Certainly, exhaustion is not required where it is
highly unlikely that the agency would change its position
if the case were remanded to it. Atlantic Richfield Co. v.
Department of Energy, 769 F.2d 711, 782 (D.C.Cir. 1983).
When an agency has never given an inkling that it would
consider a matter afresh, and when the regulations in
question have received careful attention within and out-
side the agency, exhaustion is not required. City of Mt.
Clemens, 917 F.2d at 914. The question whether an agency
has exceeded its statutory authority in establishing regu-
lations is the type of question that courts have, in the
past, been willing to entertain without imposing the
requirement that the plaintiff have [sic] exhausted its
administrative remedy. Toilet Goods, 387 U.S. at 158.
The futility exception, however, is an exception from
that set forth in Leedom v. Kyne, 358 U.S. [sic] (1958),
where an agency action contrary to an agency’s authoriz-
ing statute is subject to immediate judicial review. The
Leedom exception is a narrow anomaly reserved for
extreme situations, Shawnee Coal, 661 F.2d at 1093, and
does not apply here. Merely raising the question of
whether the agency exceeded its authority will not ordi-
narily confer immediate reviewability; the agency must
first have the opportunity to examine the scope of its
authority and withdraw the questioned action. Id.
App. 44
In City of Mt. Clemens, the Sixth Circuit found that the
Environmental Protection Agency had committed itself so
firmly to an adverse course of action that nothing stood
to be gained by requiring that the City deal further with
the agency. 917 F.2d at 914. HUD’s position here is similar
to that of the EPA in Mt. Clemens, HUD has consistently
stated that it would view insurance red-lining as a viola-
tion of 42 U.S.C. Sec. 3604. After being authorized to
make regulations, the Secretary went through the notice
procedures and put forth a regulation to that effect. HUD
has not reconsidered its interpretation subsequent to
Nationwide’s complaint; in fact, it argues vehemently in
favor of its interpretation. Therefore, the futility excep-
tion applies to Nationwide’s complaint, and there are no
administrative remedies available that Nationwide need
exhaust before presenting its claims to a federal court.
For all of the foregoing reasons, this Court concludes
that at the motion to dismiss stage of this litigation, it
does not appear beyond all doubt that Nationwide can
prove no set of facts in support of its claim which would
entitle it to relief as to its claims against HUD, and
therefore HUD’s various motions to dismiss, (Doc. 20, 57,
109), should be denied.
III. Dayton Defendants’ Motions to Dismiss
Under 28 U.S.C. § 1367, the codification of the pen-
dent jurisdiction doctrine, federal district courts have
original subject matter jurisdiction over all non-federal
claims that are so related to the claims over which we
have original jurisdiction as to form part of the same case
or controversy under Article III of the Constitution.
App. 45
Nationwide’s state law claims meet that constitutional
test.
However, I conclude and recommend that the Court
should decline to exercise its supplemental jurisdiction
over Nationwide’s state law claims. Nationwide’s claims
against the Dayton Defendants involve allegations that
the Dayton Revised Code of General Ordinances
(“RCGO”) conflicts with Ohio state insurance and civil
rights law. Nationwide also challenges the validity of the
RCGO’s definition of insurance redlining. These claims
raise novel issues of state law and thus this Court may
decline to exercise supplemental jurisdiction under 28
U.S.C. §1367(c)(1). Certainly, a state court is better able to
determine whether state law conflicts with and super-
sedes an allegedly conflicting ordinance passed by and
being enforced by one of the municipalities within its
jurisdiction. The parties to this litigation are entitled to a
“surer-footed” reading of the applicable state and munici-
pal laws. This is especially true in light of the fact that
this Court concludes that Nationwide’s federal claims are
without merit, See, infra. Indeed, the claim that Dayton’s
ordinances conflict with Ohio state law makes an implicit
Ohio constitutional claim which this Court may be
required to abstain from deciding. Railroad Com. of Texas v.
Pullman Co., 312 U.S. 496, 61 S. Ct. 643, 85 L. Ed. 971
(1941).
In addition to the foregoing reasons, in reaching this
conclusion, this Court is mindful that Nationwide’s
claims arose out of an investigation by the DHRC into the
cancellation by Nationwide of a homeowner’s insurance
policy. Section 32.20(K) of the RCGO provides that, in
App. 46
accordance with Ohio Revised Code Chapter 2506, a judi-
cial remedy is available to any party aggrieved by a final
order of the DHRC. Chapter 2506 of the Ohio Revised
Code, which sets forth the procedure for judicial review
of the final orders of administrative agencies, provides
for review of DHRC’s final decision by a court of com-
mon pleas. See, O.R.C. Sec. 2506.01. In view of the fact
that the proceedings before the DHRC have not yet been
completed, in the interest of comity, this Court concludes
that Nationwide’s state law claims are best left to Ohio
courts.
For all of the foregoing reasons, this Court concludes
that the Dayton Defendants’ various motions to dismiss,
(Doc. 19, 56, 57), should be granted and Nationwide’s
state law claims should be dismissed without prejudice.
Having reached these results, this Court concludes
that Nationwide’s motion for a hearing on Defendants’
motions to dismiss, (Doc. 26), should be denied as moot.
IV. Cross-Motions for Summary Judgment
Summary judgment is proper “if the pleadings, depo-
sitions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and the moving
party is entitled to judgment as a matter of law.”
Fed.R.Civ.P. 56. On a motion for summary judgment, the
movant has the burden of showing that there exists no
genuine issue of material fact, and the evidence, together
with all inferences that can reasonably be drawn there-
from, must be read in the light most favorable to the
party opposing the motion. Adickes v. S.H. Kress & Co.,
App. 47
398 U.S. 144, 157-59 (1970). Nevertheless, the mere exis-
tence of some alleged factual dispute between the parties
will not defeat an otherwise properly supported motion
for summary judgment; the requirement is that there be
no genuine issue of material fact. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original).
Summary judgment procedure is properly regarded not
as a disfavored procedural shortcut, but rather as an
integral part of the Federal Rules as a whole, which are
designed to “secure the just, speedy and inexpensive
determination of every action.” Celotex Corp. v. Catrett,
477 U.S. 317, 327 (1986).
Read together, Liberty Lobby and Celotex stand for the
proposition that a party may move for summary judg-
ment asserting that the opposing party will not be able to
produce sufficient evidence at trial to withstand a Rule 50
motion for judgment as a matter of law. See, Street v. J.C.
Bradford & Co., 886 F.2d 1472, 1478 (6th Cir. 1989). If, after
sufficient time for discovery, the opposing party is unable
to demonstrate that he or she can do so under the Liberty
Lobby criteria, summary judgment is appropriate. Id. The
opposing party must “do more than simply show that
there is some metaphysical doubt as to the material
facts.” Matsushita Electric Industrial Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 586 (1986).
As noted supra, the issues involved in this case are
purely legal, and therefore, the matter may properly be
determined by summary judgment procedure.
Simply stated, this litigation poses the question of
whether HUD has delegated authority under the Fair
App. 48
Housing Act to regulate Nationwide’s insurance under-
writing practices. Nationwide’s position, of course, is that
HUD has exceeded its authority, whiie HUD argues that
it has not. ~
Under the Fair Housing Act, it is unlawful:
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 available or
deny, a dwelling to any person because of
ae
42 U.S.C. Sec. 3604(a).
It is also unlawful:
To discriminate against any person in the terms,
conditions, or privileges of sale or rental of a
dwelling, or in the provision of services . . . in
connection therewith, because of race... .
42 U.S.C. Sec. 3604(b).
Under these provisions of the Fair Housing Act,
HUD has listed as prohibited conduct “[rjefusing to pro-
vide . . . property or hazard insurance for dwellings or
providing such .. . insurance differently because of race.
24 C.E.R. Sec. 100.70(a)(4).
Nationwide argues that HUD, in promulgating the
above cited regulation, has exceeded the authority dele-
gated to it by Congress under the Fair Housing Act, and
therefore the Dayton Defendants have no authority to
investigate claims of discriminatory insurance underwrit-
ing practices.
I conclude and recommend the Court decide that
HUD has not exceeded its statutory authority in enacting
App. 49
its regulations because the interpretation of the Fair
Housing Act embodied in that regulation is one to which
judicial deference is to be accorded under Chevron, supra.
Furthermore, even in the absence of Chevron deference,
HUD’s interpretation of the Fair Housing Act is correct.
In proper circumstances, “substantial deference is
accorded to the interpretation of the authorizing statute
by the agency authorized with administering it.” Rust v.
Sullivan, __ U.S. __, 111 S.Ct. 1759, 1767 (1991). The
circumstances in which this deference to agency statutory
interpretation is applicable were outlined in Chevron, 467
U.S. at 843. The first step in deciding whether to accord
deference is to look for congressional intent, as evidenced
in the statute. If the statutory language is clear, then the
agency has no choice but to give it effect. Id. On the other
hand, if ambiguity exists, or if the statute is silent on the
niatter, then deference is to be accorded by the court. Id.
The question then becomes, not whether the court's inter-
pretation coincides with that of the agency, but rather
whether the agency action founds itself on “a permissible
construction of the statute.” Id. A court may not substi-
tute its own construction of a statutory provision for a
reasonable interpretation made by an administrative
agency. Id. at 844. Therefore, the determination whether
HUD has authority to promulgate and enforce the regula-
tion at issue depends on whether the regulation repre-
sents an interpretation that is both permissible and
reasonable.
This Court has already determined that this issue is
appropriate for application of Chevron deference to the
interpretation of the administrative agency. See, McDiar-
mid v. Economy Fire & Casualty Co., 604 F.Supp. 105, 107
App. 50
(S.D.Ohio 1984); Dunn v. Midwestern Indemnity Mid-Ameri-
can Fire and Casualty Co., 472 F.Supp. 1006 (S.D.Ohio
1979); Pierce v. Metropolitan Property and Liability Insurance
Co., Case No. C-3-82-044 (S.D.Ohio, Nov. 20, 1983)
(unpublished). Because, as previously decided by this
Court, and as further discussed below, the agency inter-
pretation is both permissible and reasonable, this Court
will defer to that interpretation.
The power of an administrative agency to administer
a congressionally created and funded program neces-
sarily requires the formulation of policy and the making
of rules to fill any gaps left, implicitly or explicitly by
Congress. Morton v. Ruiz, 415 U.S. 199, 231 (1974). Defer-
ence does not mean acquiescence, and courts therefore
need not defer to an implausible agency interpretation.
Presley v. Etoweh City Commission, 502 U.S. 820, 831 (1992).
However, only if Congress has “directly spoken to the
precise question at issue will a court refuse to defer to a
reasonable agency interpretation. Chevron, 467 U.S. at 842.
Here, Congress has made a vague statement that
could be read to say that the Fair Housing Act applies to
insurance redlining:
The Fair Housing Act does not define key terms
such as “service” and “make unavailable”. By
writing its statute in the passive voice — banning
an outcome while not saying who the actor is, or
how such actors bring about the forbidden con-
sequence — Congress created ambiguity.
N.A.A.C.P. v. American Family Mutual Insurance Co., 978
F.2d 287, 298 (7th Cir. 1992), cert. denied, __ U.S. ___, 113
S.Ct. 2335 (1993) (emphasis in original). Section 3604 [of
App. 51
the Fair Housing Act] is sufficiently pliable that its text
can bear the Secretary’s construction. Id. at 300.
Whether or not it intended to do so, Congress
enacted a statute that is quite vague, and therefore sub-
ject to varying interpretations. HUD has attempted to
clarify the issue by promulgating its regulation. The
ambiguity requisite to Chevron deference exists in the Fair
Housing Act.
Additionally, for Chevron analysis purposes, “con-
gressional failure to reverse or repeal the agency’s inter-
pretation is persuasive evidence that the interpretation is
the one intended by Congress.” N.L.R.B. v. Bell Aerospace
Co., Division of Textron, Inc., 416 U.S. 267, 274-75 (1974).
That Congress has permitted a regulation to stand may be
considered in determining whether the court should
defer to the agency. Commodity Futures Trading Commis-
sion v. Schor, 478 U.S. 833, 845 (1986). On the other hand,
Nationwide argues that it is also valuable to consider the
fact that Congress has acted to amend the agency’s
authorizing statute subsequent to promulgation of a dis-
puted regulation without having taken action to
strengthen the agency’s position.
Courts which have addressed the issue of congres-
sional failure to incorporate the agency’s interpretation
into subsequent amendments generally have pointed out
that “several equally tenable inferences may be drawn
from such inaction, including the inference that the exist-
ing legislation already incorporated the offered change.”
Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633,
650 (1990). Courts are therefore “generally reluctant to
App. 52
draw inferences from Congress’ failure to act.” Schneide-
wind v. ANR Pipeline Co., 485 U.S. 293, 306 (1988).
In the specific context of the Fair Housing Act, the
same reluctance has appeared. See, i.e., American Family,
978 F.2d at 299. Even more specifically, in this Court,
McDiarmid, supra, disposes of the notion that subsequent
amendment, without attention to the regulation at issue
here, negates reading the Fair Housing Act to apply to
insurance redlining:
[T]he Mackey court relied, in part, on repeated
efforts in Congress to amend Title VIII to
expressly extend to coverage of discrimination
in the provision of insurance on dwellings. This
Court is unwilling to rely on the subsequent,
after the fact actions of Congress as a mean to
divine the legislative intent in Title VIII as of the
time of its enactment. Relying on this type of
after the fact legislative history is speculative at
best, because the Court has no way of knowing
why the proposed amendments were rejected.
The amendments may have been rejected
because Congress did not think the insurance
industry should be regulated by Title VIII. How-
ever, it is equally likely that Congress perceived
the amendments to be unnecessary because
insurance or insurance redlining was already
within the coverage of Title VIII.
McDiarmid, 604 F.Supp. at 107.
Subsequent inaction, then, is not a sufficiently clear
indicator of Congressional intent to overcome the Chevron
deference principle.
I also conclude that HUD is authorized to promul-
gate the regulation at issue.
App. 53
Under the Fair Housing Act, “[t]he Secretary may
make such rules . . . to carry out this subchapter... . ”
This is not an instance of “express delegation of authority
to the agency to elucidate a specific provision of the
statute by regulation”, and HUD’s interpretation is there-
fore not subject to the “arbitrary, capricious, or manifestly
contrary to statute” standard described in Chevron.
Rather, this is an express delegation to explain the statute
as a whole, which only implicitly authorizes HUD to
define such vague terms as “otherwise make available or
deny”. Where the empowering provision of a statute
states simply that the agency may make such rules and
regulations as may be necessary to carry out the provi-
sions of the Act, the validity of a regulation promulgated
thereunder will be sustained so long as it is “reasonably
related to the purposes of the enabling legislation.”
Mourning v. Family Publications Services, Inc., 411 U.S. 356,
369 (1973), citing, Thorpe v. Housing Authority of the City of
Durham, 393 U.S. 268, 280-81 (1969).
The 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. Dunn, 472
F.Supp. at 1009 (citation omitted). The Fair Housing Act,
then, reveals a broad legislative plan to eliminate all
traces of discrimination within the housing field. Marr v.
Rife, 503 F.2d 735, 740 (6th Cir: 1974). For this reason, it
has long been held that the remedial provisions of the
Fair Housing Act are to be given “a generous construc-
tion”. Trafficante v. Metropolitan Life Insurance Co., 409 U.S.
205, 212 (1972). HUD considered previous judicial inter-
pretation of the Fair Housing Act before promulgating its
App. 54
regulation, see 53 Fed. Reg. 44997, and justified its pro-
mulgation as follows:
[A]s discussed in the preamble to the proposed
rule, discrimination in the provision of those
services and facilities which are prerequisites to
obtaining dwellings, including refusals to pro-
vide . . . adequate property or hazard insurance
because of race . . . render housing unavailable
in violation of the Fair Housing Act. In order to
indicate that the refusal to provide . . . property
or hazard insurance for dwellings because of
race .. . can constitute a violation of ‘otherwise
make available or deny’ provisions in the Act,
the language in [Sec.j 100.70(d) has been revised
and a new illustration has been added. 24 C.F.R.
Ch. 1, Subch. A, App. 1, pp. 550-551.
Clearly, then, HUD’s regulation is “reasonably
related” to the purpose of the Fair Housing Act, and the
interpretation embodied therein is to be accorded judicial
deference as long as that interpretation is reasonable.
HUD’s interpretation of the Fair Housing Act is rea-
sonable. Under Chevron “considerable weight should be
accorded to an executive department's construction of a statu-
tory scheme it is entrusted to administer.” Chevron, 467 U.S.
at 844. Unless the complaining party can show by refer-
ence to either the statutory text or the legislative history
that the agency interpretation is violative of Congres-
sional intent, courts will defer to the agency interpreta-
tion. Id. at 845; LTV Corp., 496 U.S. at 650; United States v.
Shimer, 376 U.S. 374, 382-83 (1961). In the absence of
contrary statutory language or legislative history, the
question becomes, not whether the court would deter-
mine de novo that the agency interpretation is the correct
App. 55
interpretation of the statute, but rather whether the
already existing interpretation provided by the agency is
reasonable. Chevron, 467 U.S. at 846.
With respect to the Fair Housing Act, there is no clear
indication of contrary legislative intent in the text of the
statute. As discussed above, the text of 42 U.S.C. Sec. 3604
is vague and subject to differing interpretations. Recalling
that the Chevron standard is “reasonableness” not “cor-
rectness”, it is not necessary that the interpretation
adopted by the agency be the only permissible interpreta-
tion, or whether the interpretation be the most reasonable
interpretation presented. The question is merely whether
the particular interpretation applied by the agency is
reasonable.
The Fair Housing Act states that “it shall be unlaw-
ful” to participate in certain listed activities. The statute
does not specify to whose activities the section is
addressed. Absence of reference to insurers or insurance
practices does not negate application of section 3604 to
insurers because, although “[s]elective omission might be
telling . . . the universal omission that accompanies pas-
sive construction does not distinguish insurers from
others.” American Family, 978 F.2d at 299. There is there-
fore “[njothing in the text of the statute [that] permits us
to reject HUD’s interpretation, in accordance with the
Chevron clear indication standard. Id. at 298.
Nationwide contends that the interpretation embod-
ied in HUD’s regulation is unreasonable because insur-
ance redlining is not mentioned in section 3604. In
support of its position, Nationwide relies on the principle
of expressio unius est exclusio alterius. However, under
App. 56
Chevron, a party challenging an agency interpretation
must make as [sic] affirmative showing that Congress
intended that the interpretation not apply. Chevron, 407
U.S. at 845. The question, for Chevron analysis purposes,
then, is not whether Congress intended to include insur-
ance redlining in the list of prohibited activities, but
rather whether Congress indicated it [sic] intent to
exclude insurance redlining from that list.
Whatever its usefulness in other circum-
stances, . . . [an expressio argument] has little
force in the administrative setting. . . . [T]he
expressio canon is simply too thin a reed to sup-
port the conclusion that Congress has clearly
resolved this issue. . . . Having decided that, we
must defer to refusal to read the Act in the
manner suggested by the expressio cannon if its
interpretation is otherwise reasonable.
Texas Rural Legal Aid, Inc. v. Legal Services Corp., 940 F.2d
685, 694 (D.C.Cir. 1991). Clearly, then, the expressio canon
and its unstated assumption that statutes never lapse is
inapplicable to the Chevron analysis. See, American Family,
supra.
Nationwide also argues that under HUD’s interpreta-
tion, section 3604 makes section 3605 superfluous. The
ejusdem generis argument is also one which goes to the
correctness of the agency’s interpretation, and not to its
reasonableness. HUD’s interpretation, being reasonably
connected to the purposes of the Fair Housing Act, will
stand against an ejusdem generis argument. See, infra.
The Mackey court recognized that Congress had
failed to address the issue of redlining in its discussion of
the bill which became the Fair Housing Act:
App. 57
While the statute in [section] 805 specifically
prohibits discrimination in providing financial
assistance, there is not mention in the Fair
Housing Act of insurance. The legislative his-
tory contains no discussion of a barrier to fair
housing created by the insurance industry.
Mackey, 724 F.2d at 423.
Silence in the legisiative history could imply that
Members of Congress did not anticipate that the law
would apply to insurer, or could equally imply that the
debate was about the principle of nondiscrimination,
leaving detail to the future. In any case, silence is insuffi-
cient to overcome Chevron deference. LTV Corp., 496 U.S.
at 649.
Relying primarily on Bowen v. American Hospital Asso-
ciation, 476 U.S. 610 (1986), Nationwide argues that Chev-
ron deference should not apply to this case because the
subject matter of HUD’s regulation is not a technical
issue, but rather an issue of policy. As noted by the
Seventh Circuit:
[Wjhere a statute strikes a political balance but
administration of the statute is entrusted to an
agency that may not embody that balance, it is
dangerous to defer automatically to the agency’s
view. An agency that may be dominated by one
faction in the legislative struggle that led to
enactment of the compromise is not authorized
to hand that faction a victory that was denied it
in the legislative arena through the efforts of
another faction. The court must enforce the com-
promise, not the maximum position of one of
the interest groups among which the compro-
mise was struck.
App. 58
Bethlehem Steel Corp. v. United States Environmental Protec-
tion Agency, 723 F.2d 1303, 1309 (7th Cir. 1983).
There is no indication in Chevron that its holding is to
be limited to its facts. In fact, it is “entirely appropriate”
under Chevron for an agency to “resolv[e] the competing
interests which Congress itself either inadvertently did
not resolve or intentionally left to be resolved by the
agency charged with the administration of the statute in
light of everyday realities.” Chevron, 467 U.S. at 865-66.
Additionally, the regulation in Bowen was promul-
gated under the authority of a delegation of power to any
agency head, “regardless of his agency’s mission or
expertise” to issue regulations to implement the Reha-
bilitation Act. Bowen, 476 U.S. at 642. The Fair Housing
Act, on the other hand, gives authority only to HUD to
regulate activities thereunder.
The Fair Housing Act, as discussed above, is quite
vague. Section 3604 is so vague that it is difficult to
believe that the vagueness could be accidental. The lack
of clarity in the statute, coupled with the grant of exclu-
sive authority to administer the Fair Housing Act, leads
to the conclusion that the non-technical aspect of the
issue does not preclude Chevron deference.
Entirely apart from Chevron deference, this Court
should conclude that HUD’s interpretation of the Fair
Housing Act is correct.
Courts in the Sixth Circuit have followed the lead of
the Supreme Court in Trafficante, supra, by “paint[ing]
with a broad brush when sketching the parameters of
Title VII.” McDiarmid, 604 F.Supp. at 107. Accordingly, the
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App. 59
phrase “otherwise make available or deny” is applied
broadly in the Sixth Circuit, and in other courts as well.
Dunn, 472 F.Supp. at 1108, citing, United States v. Youritan
Construction Co., 370 F.Supp. 643, 648 (N.D.Cal. 1973);
Zuch v. Hussey, 366 F.Supp. 553, 557 (E.D.Mich. 1973);
Laufman v. Oakley Building and Loan Co., 408 F.Supp. 489
(S.D.Ohio 1976); United States v. American Institute of Real
Estate Appraisers, 442 F. Supp. 1072 (N.D.IIl. 1977), cited in,
McDiarmid, 604 F.Supp at 107. The question whether the
Congress has authorized HUD to regulate insurance red-
lining practices, then, must be addressed in the context of
these broad remedial purposes of the Fair Housing Act.
HUD’s regulation is closely connected to the purpose of
the Fair Housing Act. Because, as discussed below, it is
also consonant with the text and history of the Act,
HUD’s interpretation is not only reasonable, it is also
correct.
HUD’s regulation embodies a correct interpretation
of the Fair Housing Act if insurance redlining would
“otherwise make available or deny .. . a dwelling
. because of race. 42 U.S.C. Sec. 3604(a).
Adequate insurance coverage is often a prereq-
uisite to obtaining financing. Insurance redlin-
ing, by denying or impeding coverage makes
mortgage money unavailable, rendering dwell-
ings “unavailable” as effectively as the denial of
financial assistance on other grounds.
Dunn, 472 F.Supp. at 1109; see also, McDiarmid, 604
F.Supp. at 107.
Discriminatory insurance practices therefore come
within the scope of the Fair Housing Act, which serves
“to prohibit not only direct discrimination, but also all
App. 60
practices which have a racially discriminatory effect.”
Zuch, supra. The promulgation of insurance standards
which cause appraisers and lenders to treat race and
national origin as a negative factor in determining the
value of dwellings, and in evaluating the soundness of
home loans may effectively “make unavailable or deny” a
“dwelling” and may “interfere” with persons in the exer-
cise and enjoyment of rights guaranteed by the Act.
Nationwide admits that property insurance is generally
required by potential mortgagors as a condition for own-
ing and maintaining a home. When such denial or inter-
ference occurs as a result of considerations relating to
race or national origin, there has been a violation of the
Fair Housing Act. See, i.e., Dunn, supra; McDiarmid, supra;
Zuch, supra. In general, “the [Fair Housing] Act prohibits
discriminatory housing practices.” Dunn, 472 F.Supp. at
1108.
Thus, insurance redlining can make one’s chosen
housing unavailable because of race. Therefore, HUD’s
regulation, in the absence of indications to the contrary,
embodies a correct interpretation of the Fair Housing Act.
Nationwide argues, however, that HUD’s regulation
is not to be given effect because the underlying statutory
interpretation is inconsistent with several time-honored
canons of construction: that expressio unius est exclusio
alterius is violated by the administrative inclusion of
insurance redlining in a congressionally generated list of
prohibited activities; that ejusdem generis is violated by
the inclusion of insurance redlining in a lost [sic] of
insufficiently related items; that the Whole Act Rule is
violated because HUD’s interpretation of section 3604
makes section 3605 superfluous.
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App. 61
It is in addressing the question of whether HUD’s
interpretation is correct that Nationwide’s expressio argu-
ment becomes relevant. Nationwide criticizes the Ameri-
can Family decision for its failure to attach any
significance to the fact that, although several potential
evils were addressed by the statute, insurance redlining is
not included in that list. However, American Family did
address this issue by pointing out that:
Conveying meaning to diverse interpreters for
an uncertain future is a difficult business. A
wise drafter may state a principle in one section
and list some applications of that principle in
another, to make pellucid what ought to be
apparent but which some judges (and many lay
persons) will miss unless spelled out. Using the
instance to restrict the principle would gum up
to [sic] process of communication, inverting
every effort to clarify.
American Family, 978 F.2d at 299.
It is noteworthy that Congress did not attempt to
clarify all of the potential actors to whom section 3604
should apply. Instead, it contented itself with a passive
construction subject to broadly inclusive reading. See,
American Family, supra. Nor did it attempt to enumerate
each act that is prohibited to these potential actors. A
plain meaning analysis simply is not very helpful in
interpreting a statute that appears to have been designed
to have no plain meaning.
Because of the clear connection between insurability
and the ability to own a home, an expressio argument is
App. 62
insufficient to overcome the close relationship of the reg-
ulation to accomplishment of the Fair Housing Act ends,
even in the absence of Chevron deference.
Similarly, an ejusdem generis argument does not
negate inclusion of insurance redlining within the list of
activities prohibited under section 3604.
Nationwide argues that insurance redlining is not
sufficiently closely related to the specific wrongs listed in
section 3604 to permit its inclusion in the “otherwise
make available or deny” language that follows the speci-
fic language. Section 3604 specifically prohibits refusal
“to sell or rent” or “to negotiate for the sale or rental” for
discriminatory reasons.
Where general words follow specific words in a stat-
utory enumeration, the general words are construed to
embrace only objects similar in nature to those objects
enumerated by the preceding specific words. Otis Elevator
Co. v. Secretary of Labor, 921 F.2d 1285, 1289 (D.C.Cir.
1990). However, ejusdem generis applies where a statute
uses a conjunctive connector between the specific items
and the general words. I¢ Section 3604 connects the
specific list with the general phrase using the disjunctive
“or”. The ejusdem generis principle is too weak in the
disjunctive context to overcome the important policies of
the Fair Housing Act.
Nationwide also argues that the Whole Act Rule
negates the inclusion of insurance redlining within the
list of activities prohibited under section 3604 on the
basis that HUD’s interpretation of section 3604 renders
section 3605 superfluous. Section 3605 makes it unlawful,
first of all, “to deny a loan or other financial assistance to
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App. 63
a person applying therefore for the purpose of purchas-
ing, constructing, improving, repairing or maintaining a
dwelling .. . because of race.” 42 U.S.C. Sec. 3605. It is
also unlawful
[T]o 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 the race, color, sex, or
national origin of such person or of any person
associated with him in connection with such
loan or other financial assistance, or of the pre-
sent or prospective owners, lessees, tenants, or
occupants of the dwelling or dwellings in rela-
tion to which such loan or other financial assis-
tance is to be made or given... .
Id.
Although insurers are mentioned in the preface to
this enumeration, what are typically thought of as insur-
ance practices are not.
Although courts avoid statutory constructions that
render portions of statutes superfluous, Lynch v. Lyng, 872
F.2d 718, 723 (6th Cir. 1989), the purported conflict
between section 3604 as HUD interprets it and section
3605 has not prevented this Court and others from apply-
ing section 3604 to a number of parties and practices not
mentioned in section 3605. See, United States v. City of
Parma, 661 F.2d 562 (6th Cir. 1981) (imposition of building
height limitations); Metropolitan Housing Development
Corp. v. Village of Arlington Heights, 558 F.2d 1283 (7th Cir.
1977) (issuance of zoning permits); Kennedy Park Homes
Association Inc. v. City of Lackawanna, 436 F.2d 108 (2d Cir.
1970) (sewer hook-ups); United States v. American Institute
App. 64
of Real Estate Appraisers, 442 F.Supp. 1072 (N.D.IIl. 1977)
(real estate appraisals); Laufman v. Oakley Building and
Loan Co., 408 F.Supp. 489 (S.D.Ohio 1976) (mortgage
lenders); United States v. Youritan Construction Co., 370
F.Supp. 643 (N.D.Cal. 1973) (delaying rental applications);
Zuch v. Hussey, 355 F.Supp. 553 (E.D.Mich. 1973) (encour-
aging “white flight”).
The vague language of section 3604 leads inevitably
to the conclusion that section 3605 is intended to provide
examples of forbidden practices and was not intended to
provide an exclusive list that would render the “other-
wise make available or deny” language of the statute
superfluous.
This Court also concludes that the legislative history
of the Fair Housing Act does not negate an interpretation
of section 3604 to prohibit insurance redlining.
The purposes and remedial nature of the Fair Hous-
ing Act have been discussed above. However, “no legisla-
tion pursues its purposes at all costs. . . . Deciding what
competing values will or will not be sacrificed to the
achievement of a particular objective is the very essence
of legislative choice.” Rodriquez v. United States, 480 U.S.
522, 525-26 (1987). The Fair Housing Act was introduced
for the purpose of eliminating discriminatory practices of
property owners, real estate brokers, builders, and home
financiers. See, H.R. 2416. Insurers are not mentioned.
Mackey, 724 F.2d at 423. It remains, however, that discrim-
inatory insurance practices necessarily result in disparate
availability of home financing. Because elimination of
discriminatory insurance practices is necessary to the
accomplishment of the legislative purpose, silence in the
App. 65
legislative history is not enough to overcome the close
nexus between insurance practices and lending practices.
Further, subsequent legislative action, to the limited
extent of its usefulness, points toward congressional
approval of HUD’s interpretation.
Although the view of a later Congress does not
definitively establish the meaning of an earlier enact-
ment, it does have some persuasive value. Bennett v.
Kentucky Department of Education, 470 U.S. 656, 665 n.3
(1985) (citation omitted). After the original Fair Housing
Act was passed in 1978, there were numerous efforts to
amend it which culminated with the passage of the Fair
Housing Act of 1988, with its explicit mandate to HUD to
issue implementing regulations. The 1979 amendment
failed to refer specifically to insurers. See, 126 Cong. Rec.
3665 (1979). In 1980, the House passed H.R. 5200, which
would have, inter alia, added a new subsection (f) to
section 804, prohibiting discrimination in the provision of
hazard insurance. See, 126 Cong. Rec. 14477 (June 12,
1980); see also, 126 Cong. Rec. 13985 (June 11, 1980). Citing
this Court’s decision in Dunn, the House Judiciary Com-
mittee Report on H.R. 5200 states that this subsection
“codifies existing law” and was intended to clarify and
provide “greater specificity in substantive coverage.”
H.R. Rep. No. 96-865, 96th Cong., 2d Sess. 7-8 (1980).
After passage in the House, H.R. 5200 went to the Senate,
where it died after supporters failed to win a cloture vote.
See, 126 Cong. Rec. 23989 (December 9, 1980). Only after
the failed cloture vote did Senators Heflin and Hatch
make statements on the floor on the issue of home-
owner’s insurance. See, 126 Cong. Rec. 32991032996
(December 9, 1980).
App. 66
In 1988, four years after Mackey, and nine years after
Dunn, Congress passed H.R. 1158. As originally intro-
duced, H.R. 1158 would also have expressly amended the
Act to prohibit discrimination in providing insurance, but
this amendment was deleted by the House Judiciary
Committee before any action on the bill was taken by
Congress as a whole. See, H.R. Rep. 100-711, 100th Cong.,
2d Sess. 12 (1988). There is little legislative history
regarding this provision. When a companion Senate bill
(S. 558) was introduced on the same day as H.R. 1158, one
of its sponsors explained that the provision would “reaf-
firm” case law which already construed the Act to pro-
hibit such discrimination. See, 133 Cong. Rec. 2261
(February 19, 1987). The House Report listed the removal
of “reference to hazard, mortgage and title insurance”
among the changes made to the bill. The bi
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