District Court Stays Implementation of HUD’s 2020 Disparate Impact Rule

A Massachusetts Federal District Court recently stayed the implementation of HUD’s 2020 Disparate Impact Rule (2020 Rule), finding its changes to the 2013 version to be arbitrary and capricious.  The court also preliminarily enjoined HUD from implementing and enforcing the rule.

HUD published the 2020 Rule on September 24, 2020, and its effective date was October 26, 2020.  The plaintiffs filed their action four days after the rule was published seeking to vacate it.  On October 6, 2020, the plaintiffs also filed their motion for preliminary injunction to bar the implementation of the rule and to stay its effective date under the Administrative Procedure Act (APA).  HUD filed its opposition on October 14, 2020. 

The district court granted the plaintiffs’ motion on the grounds that HUD had not engaged in reasoned decision-making in connection with its changes to the 2013 Rule.  The court found that HUD’s attempt to implement the standard set forth by the Supreme Court in Inclusive Communities, which recognized the theory of disparate impact liability, was arbitrary and capricious.  See Texas Dep’t of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519, 524 (2015).  The changes made it more difficult for plaintiffs to bring an action, but easier for defendants to defend against one.  The court also found HUD’s claims that the changes provided greater clarity to be arbitrary and capricious, siding with the plaintiffs who argued that the new and undefined terminology, altered burden-shifting framework, and new defenses did the opposite.

The court declined to address the plaintiff’s other arguments in support of their motion – the 2020 Rule was contrary to the law, and it violated the APA’s notice and comment requirements.