UNIT III. ACTIONABLE CONDUCT Agency Interpretation of Statutes A. Introduction to Agency Interpretation of Statutes W. F. F OX , J R ., U NDERSTANDING A DMINISTRATIVE L AW 5-18, 163-71, 217-20, 339-45 (4th ed. 2000) Introduction * * * §1.02 Nature of Administrative Agencies [A] Addressing Legal Disputes. There is hardly any function of modern government that does not involve, in some way, an administrative agency. The reason for this is really very simple: agencies are the only government entities equipped to deal with the day-to-day minutiae of governing. It is one thing for Congress to decide to regulate trucking companies, but the last thing that Congress wants to decide is how much Company X may charge to carry a package from New York to Chicago. Rigorous protection of the environment is now a matter of national consensus, but a court is unlikely to have the technical expertise necessary to decide precisely which specific air pollution control equipment is best suited for coal-fired power plants. Two themes which continually repeat in administrative law in regard to the purpose for the establishment of agencies are: (1) oversight of the detail of regulation and (2) development of expertise in a particular area of regulation. Understanding the nature of administrative agencies first requires an analysis of the way in which disputes are typically addressed by our legal system. Consider, for example, the case of a creative business executive who sees a need for privately-owned rocketships serving various industrial and commercial purposes. One option for the 126

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UNIT III. ACTIONABLE CONDUCT Agency Interpretation of Statutes

A. Introduction to Agency Interpretation of Statutes

W. F. FOX, JR., UNDERSTANDING ADMINISTRATIVE LAW 5-18, 163-71, 217-20, 339-45 (4th ed. 2000)


* * *

§1.02 Nature of Administrative Agencies

[A] Addressing Legal Disputes. There is hardly any function of modern government that does not involve, in some way, an administrative agency. The reason for this is really very simple: agencies are the only government entities equipped to deal with the day-to-day minutiae of governing. It is one thing for Congress to decide to regulate trucking companies, but the last thing that Congress wants to decide is how much Company X may charge to carry a package from New York to Chicago. Rigorous protection of the environment is now a matter of national consensus, but a court is unlikely to have the technical expertise necessary to decide precisely which specific air pollution control equipment is best suited for coal-fired power plants. Two themes which continually repeat in administrative law in regard to the purpose for the establishment of agencies are: (1) oversight of the detail of regulation and (2) development of expertise in a particular area of regulation.

Understanding the nature of administrative agencies first requires an analysis of the way in which disputes are typically addressed by our legal system. Consider, for example, the case of a creative business executive who sees a need for privately-owned rocketships serving various industrial and commercial purposes. One option for the business executive under our system of government is simply to start building and flying rockets without worrying about the consequences of accidents and without seeking anyone's permission to do so. It is possible, but hardly likely, that only good things will occur and nothing bad will ever happen. However, a wise entrepreneur always considers the potential liability of a business undertaking.

In a legal system such as ours and given no specific regulatory controls on this type of business, if some incident does occur, and if there is nothing specific in the law books governing rocket accidents, the common law can grapple with any disputes that arise through the application of general principles of tort or contract liability. For example, the nineteenth century British courts had no trouble dealing with a water storage tank that broke and flooded some nearby property, even though Parliament had never spoken on the issue, and even though no previous court had addressed the problem. Principles drawn from tort law, because injury to a property interest was involved, enabled the court to dispose of both the issue of liability and the issue of remedy, even though it was a case of


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first impression.10 Common law dispute resolution is triggered by any injured person who feels strongly enough about his or her injury to file a formal action in court and who has a strong enough case to convince the court that liability exists and that some type of monetary relief ought to be granted. Applying the common law solution to our hypothetical indicates that the cumulative effect of reported decisions will eventually establish a body of legal rules for the construction and operation of private rockets without any other government action. Of course, these rules may be overly-narrow or too sketchy to give comprehensive guidance on how an entrepreneur ought to proceed. Still, many problems in our society are handled precisely in this fashion, and it is not necessarily a bad way to handle disputes. The common law solution is flexible enough to react to changing circumstances and predictable enough to give people at least a little warning before they get into trouble.

Looking at the problem realistically, however, a business executive will likely want more predictability and stability than the common law system offers. It is highly doubtful, for example, whether a bank would lend our executive any money for a wholly-untried activity such as this without more in the nature of protection from liability. One option would be to go to a legislature for assistance. Armed with enough political clout, the executive might persuade the legislature simply to authorize the activity. In other words, the legislature could pass a statute saying: “Private corporations may build and operate rocketships.” If this did not satisfy the executive, she might persuade the legislature to expressly permit the activity and to set a cap on possible liability stemming from any accidents involving the private rockets.11 But a legislature's reaction is frequently unpredictable. Rather than approving private rocketry, the legislature could decide that the activity is so fraught with danger and with hidden social and economic costs that it flatly prohibits private rocket development. The legislature might even go so far as to impose criminal penalties on anyone who attempts to operate a private rocket. Legislative prohibitions of this type don't occur all that often, but readers may recall that cocaine was once sold to the American public on an over-the-counter basis and once was a primary ingredient in a still-popular soft drink.

[B] Legislative Choices. The legislature has even more alternatives in dealing with the rocketship builder. It might decide that the problem should be dealt with by setting up some kind of government agency. Here, the choices range over a broad spectrum. In making these choices, a legislature will typically analyze:

1. The task to be assigned to the agency (often referred to as the agency's “mission”). There are two factors that are usually considered in this analysis:

a. what is the nature of the specific business or industry to be regulated (e.g., firms manufacturing drugs, firearms or rockets); and

b. in what manner should the regulation be carried out (by licensing, monitoring, or performing the actual work at issue);

10 Rylands v. Fletcher, 3 Eng. Rep. (H.L.) 330 (1823). 11 For example, the Price-Anderson Act, 42 U.S.C. § 2210(c), sets a cap of $560 million on any accident occurring in a civilian nuclear powerplant.


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2. The way the agency should be structured (whether, for example, it is to be headed by a single administrator or by a multi-person commission and what its internal organization will be); and

3. The placement of the agency within the existing system of govern-ment (e.g., whether it is to be a separate cabinet-level agency, a component of an existing agency or an independent regulatory commission).

The choices are plentiful. The legislature could decide to prohibit any private sector activity whatsoever and to establish a government agency to perform the entire task. Although not a common reaction, Congress has taken this approach with the National Aeronautics and Space Administra-tion (for many years in the United States private rocketry was unlawful; the only governmental entity, outside of the Department of Defense, that had the authority to launch rockets was NASA) and to a certain extent with the Tennessee Valley Authority (TVA actually generates electricity). This constitutes one of the tightest forms of government control because the private sector is flatly forbidden to engage in the activity in question. In contrast, if the legislature decided that only mild control was necessary, it could impose an administrative control model on the other end of the spectrum, requiring only that those persons wishing to conduct private space flights identify themselves, register with some governmental entity and report periodically on their space flight activities. …

The legislature might decide that it wants more public control over the activity in question than is permitted by a registration-and-reporting statute, but not the sort of exclusive responsibility formerly given to NASA. As it investigates the phenomenon of private rocketry, it might conclude that the only aspect of private sector space flight that requires some control is the credentialing of rocket engineers. In other words, the legislature could decide that this was an activity suitable for the private sector, but was still complicated enough and dangerous enough that only a select group of professionals should be permitted to engage in the activity. Based upon this assumption, the legislature could establish a professional licensing process for rocket engineers. All other persons would be expressly forbidden from participating. A certified rocket engineer who committed an error, could be sued for professional malpractice. Everything else could be left to the mercies of the market. Law students should recognize this model instantly and should be particularly sensitive to regulation in the form of professional licensing.

[C] “Command-and-Control Regulation” Another alternative is the administrative model that is characteristic of a great deal of the current regulatory activity of both state and federal governments and whose analysis often constitutes the major portion of the traditional course in administrative law. This type of agency is given powers to regulate a particular industry under a broad statutory mandate (i.e., “in the public interest,” “consistent with public health and safety”) by authorizing individual private-sector firms to perform the activity in question and by policing the day-to-day operations of that industry. We frequently refer to this type of mechanism as command-and-control regulation. Some agencies, for example, the Environmental Protection Agency (EPA), are given regulatory powers that involve both policing various industries and setting standards for pollution control. However, the EPA generally has no overriding licensing powers. It cannot, for example, forbid the construction and operation


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of a steel mill even though it has the power, speaking very generally, to control that plant's air emissions. The EPA does have the power to issue certain discharge permits for individual firms, but this permitting process does not extend to deciding whether or not that particu-lar firm may exist and do business. The National Labor Relations Board and the Federal Trade Commission perform similar tasks in policing unfair labor and trade practices.

[D] Licensing Agencies Typical licensing agencies on the federal level are the Federal Communications Commission (broadcast licenses) and the Federal Energy Regulatory Commission (hydroelectric facility licenses, among other things). The granddaddy regulatory agency, the Interstate Commerce Commission, a body that had authority to issue freight transportation licenses has been abolished by Congress. Licensing agencies frequently also regulate many of the day-to-day activities of individual companies, such as rates that licensed companies may charge their customers. On the state level, licens-ing agencies such as state public utility commissions are sometimes given regulatory powers involving health and safety issues as well as economic issues.

[E] Structure of Agency But the legislature cannot stop with a delineation of agency powers. It must also decide on the agency's structure and its position within the government. For example, in setting up a new administrative agency, Congress will decide whether to make the agency one of the cabinet-level depart- ments or merely a component of one of the existing departments. The newest federal cabinet-level department is the Department of Veterans Affairs, an agency that had existed prior to 1988 as the sub-cabinet administrative agency known as the Veterans Administration. *

On the federal level, a Secretary presides over a cabinet. Cabinets typically have a large bureaucracy administering a large number of different programs. On occasion Congress will create a free-standing agency-the EPA is perhaps the best-known example-that is within the executive branch, but not part of any cabinet department.

The President as the chief executive has almost plenary control over executive branch agencies. He can normally appoint and fire the department's highest officials. He has almost total control over departmental policy, and considerable control over the department's budget. However, there are occasions when Congress may wish the new agency to have some independence from presidential control. In that case, it can create an independent regulatory commission such as the Federal Maritime Commis-sion or the Securities and Exchange Commission. On a few occasions, Congress will establish an agency as an independent regulatory commission but place it within an existing cabinet department. On the federal level, independent regulatory commissions are headed by a multiple-person commission and staffed by a bureaucracy that is usually much smaller than a cabinet agency.

An agency's status as independent regulatory commission restricts some of the President's prerogatives in controlling the agency. While the President may appoint commissioners, they typically serve for fixed terms and may not be removed other than on the specific grounds set out in the agency's enabling act. Many federal commissions, by statute, must have a mixture of Republicans and Democrats, so the

* [Instructor’s Note: The text predates the creation of the Department of Homeland Security].


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President may not be free to appoint commissioners solely from within his own political party. These constraints on the appointment and removal process in theory make the commissions “independent” of the President, but over time a President, simply by filling vacancies on the commission, can have a substantial effect on that agency's policymaking.

On occasion, Congress blends two different types of agency. For example, the Federal Energy Regulatory Commission (FERC) is an independent regulatory commission within the Department of Energy, a cabinet-level agency. FERC has exclusive responsibility for certain areas of regulation, such as wholesale electric ratemaking. In other matters, the enabling act permits FERC to issue orders that constitute final agency action for the Department of Energy. In other matters, different components of the Department of Energy function completely independently from FERC.

As mentioned earlier, Congress will occasionally set up agencies within the President's control, such as the Environmental Protection Agency, but for various reasons decide not to place that agency inside a cabinet-level department. Students will encounter many similar examples elsewhere in the federal government and in state and local government. There is no single type of structure or control that characterizes an administrative agency, be it on the federal, state or municipal level.

§1.03 Justifications for Regulation

[A] Economic Justifications Free markets are one of the fundamental premises of the American economy. Thus, a decision to create an administrative agency to regulate a particular business activity implies a failure on the part of the market-place to deal adequately with the problem. One way to develop a better understanding of any particular administrative agency is in terms of why the legislature created it. Typically, an agency's regulatory mission, its reason for being, will be explained in the early portions of its enabling act or in its legislative history. For example, when Congress initiated price regulation of the petroleum industry following the Arab oil embargo in 1973-1974, it explained as one of its goals (or justifications) the necessity of protecting U.S. consumers from unconscionable price gouging on the part of the oil companies. This justification was spelled out in the underlying statute, the Emergency Petroleum Allocation Act, but was only one of several goals stated in the first section of the statute. On occasion, a legislature will not state its justifications expressly, but on close examination of an agency's enabling act and the Act's legislative history, justifica-tions can almost always be discerned. This analysis is important to a practicing lawyer because an understanding of an agency's reason for being is often helpful in understanding how the agency functions.

In his now classic work on regulation, Justice Stephen Breyer created a list of possible justifications for regulation.15 These include, among others:

a. to control monopoly power;b. to control excess profits;

15 Stephen Breyer, REGULATION AND ITS REFORM (1982).


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c. to compensate for externalities;d. to compensate for inadequate information; e. to inhibit excessive competition; andf. to compensate for unequal bargaining power.

A statute need not be based solely on one of these justifications, but can be a blend of two or more. Many of Breyer's justifications are self-explanatory, but a few examples may make the others a little clearer. “Externalities,” occasionally referred to as “spillovers,” occur when the cost of producing something does not reflect the true cost to society for producing the good. One example is a manufacturing process that creates air pollution for which society pays the clean up costs. A single firm, however high-minded, cannot take it upon itself to install costly pollution control equipment, if no other firm invests in the equipment, because to do so will drive up that firm's costs to the point where it cannot compete successfully with lower cost goods manufactured by firms that continue to pollute. Some entity, usually the government, must require all firms to make these investments in order to spread the costs of pollution control over the entire industry. The attempt under the Clean Air Act to establish certain national standards for air and water pollution applicable to all firms within particu-lar industries is a recognition of the concept of spillover.

Compensating for inadequate information is a justification for a great deal of current consumer protection legislation. Laypersons do not have the wherewithal to analyze children's sleepwear for flammability. Purchasers of food cannot analyze the nutritional content or the health hazards of various food products. Buyers of major appliances cannot themselves calculate the energy efficiency of a particular model of refrigerator. The Food and Drug Administration's product approval requirements and the Consumer Product Safety Commission's and Department of Energy's labeling regulations reflect this justification. Similarly, compensating for unequal bargaining power is the justification for many of the “truth in lending” regulations issued by the federal banking regulation agencies.

[B] Political Justifications There are also political explanations for regulation that are conceptually distinct from economic justifications. One political justification for regulation is that certain matters within our society ought to be subject to the control of persons who are under some obligation of political accountability. It is doubtful, for example, that we would turn over the voting process to a private-sector company.* In theory, the most politically accountable branch of government is the legislature, but even the executive branch and the judiciary reflect various concepts of political accountability. Agencies derive their political accountability from the actions of the legislature (in establishing and monitoring the agency) and the executive (through the appointment power). Political accountability helps insure that the agencies function in the public interest, rather than in the interest of narrow single-issue groups. While there is a lot of debate as to whether agencies, in truth, represent the public interest, this concept, lies at the heart of the theory of the administrative process. An elaborate

* [Instructor’s Note: The text predates the current controversy about the lack of government oversight of privately manufactured computerized voting machines.]


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inquiry along these lines is usually outside the scope of the typical law school course…, but only the bitterest cynics will assert that the concept of the public interest is meaningless. Moreover, there are occasions when terms such as public interest become important as a matter of statutory interpretation. For that reason alone, law students should not disregard the more theoretical aspects of the administrative process.

[C] Evolution of Regulatory Philosophy In recent years, the American public seems to have developed a renewed faith in the market mechanism as a proper control device and simultaneously seems to have abandoned the idea that command-and-control economic regulation by government agencies is the best way to deal with many problems. This movement, often referred to as deregulation, began in the mid-1970s during the Ford and Carter administrations and reached full flower during the Reagan years. That same spirit continued into the Clinton administration as President Clinton declared that the era of big government is over. The push toward deregulation in the late 1970s and early 1980s has raised doubts about the wisdom and rationale of many of Justice Breyer's justifications for regulation. A number of prominent failures of the regulatory process (for example, in the area of regulation of the interstate transportation of natural gas—a program that for years actually created natural gas shortages) have weakened public interest in traditional regulatory mechanisms. In the late 1980s and early 1990s there has been much discussion of taking regulatory powers away from the federal government and giving those powers to the states through the process that has become known as “devolution.”

At the same time, it is clear that the American public has not given up its consensus on such matters as clean air and water and employee and consumer safety. The tensions between a perceived need for some control and monitoring and the tight, often irrational and economically-inhibiting forms of traditional economic regulation have provoked a search for different types of controls and new administrative mechanisms.

There are some discernible trends toward new methods of regulation on both the state and federal levels. Interest in economic regulation-such as railroad freight rates or the price natural gas pipelines charge to transport natural gas-has greatly diminished. One agency, the Interstate Commerce Commission (ICC), which regulates railroads and trucks, has been abolished. Another agency, the Federal Energy Regulatory Commission (FERC), (which regulates natural gas and electricity) spends most of its time these days developing regulatory programs that promote market entry and competition and enhance market mechanisms, rather than focusing on price controls and limitations on entry as its basic regulatory philosophy. …

There are many bills introduced in every session of Congress to do away with most federal economic regulation. On occasion, one or another of these bills will succeed. In 1980, Congress abolished an entire major regulatory agency charged with economic regulation of the airline industry. Originally established in the heyday of the New Deal, the Civil Aeronautics Board (CAB) went completely out of business in January, 1985 following an elaborate phase-out timetable mandated by Congress. The CAB


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does not seem to be a grievous loss. Many of the consumer protection programs established by the CAB simply were transferred to the Department of Transportation. Safety regulation of airlines is still enforced by the Federal Aviation Administration. While we remain in the midst of a continuing debate as to the impact of deregulation on aviation safety, there seems to be virtually no interest in reviving the CAB. The abolition of the ICC did not engender any large-scale public outcry. A small number of ICC functions were transferred to the Department of Transportation.

The debate continues. … President Reagan's attempts to abolish the Departments of Education and Energy, echoed more recently by a Republican-controlled Congress in 1994, have not yet borne fruit… In the past several years, we have seen more than a little public and legislative interest in what has been called reregulation.25 In a small number of instances, such as nuclear power, food and drug products, banking and savings and loan institutions, and hazardous waste sites, public interest in some type of continuing regulation has persisted. There seem, however, to be few cheerleaders for any renewal of economic controls. As we move toward the end of the century, many commentators have expressed interest not in abolishing, but merely in “fixing” government regulation, possibly by developing concepts of “regulatory flexibility.” There is much discussion on the issue of moving a substantial amount of regulatory effort from the federal level to the state and local government levels through a process that has become known as “devolution.” …

§1.04 The Administrative Process

[A] Generally. Much of the discussion in the first three sections of this chapter has focused on matters that involve the substance of administrative law. The substance of regulation is always the primary concern of clients and of the American public. Limits on the amount of social security benefits, changes in water quality standards for the lead smelting industry, and prohibitions on the use of flammable fabrics in children's sleepwear are the things that most directly interest companies and individuals. However, lawyers who practice before agencies are always equally concerned with the way an agency decides these matters. You will be surprised as you begin to practice administrative law how often the manner in which an agency decision is made affects the substance of that decision.

The administrative process is governed mainly by the language of an agency's enabling act, the relevant administrative procedure act (APA)* and the procedural rules adopted by the agency. Many agencies use specific procedures for individual matters, so it is dangerous to over-generalize on a particular agency's process of decisionmaking. In some instances, courts have required that agencies follow certain specified procedures.

There are essentially three components to agency decisionmaking: rule-making, adjudication and informal action (frequently referred to as informal adjudication). Agency procedures normally vary depending on the type of decisionmaking in which the agency is engaged.

* [The federal Administrative Procedure Act is 5 U.S.C. §§551 et seq.]


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[B] Rulemaking. When an agency exercises its legislative functions by making rules, the process normally used is a relatively simple system known as notice and comment or informal rulemaking. This process requires the agency (1) to give the general public notification that a rule is being contemplated and the language or a general description of the proposed rule, and (2) to invite any interested person to submit comments on the proposed rule. The agency considers the comments and then promulgates a final rule. There are some limited instances on the federal level when rules may be promulgated only after an agency follows the adjudication procedures described in the next paragraph (so-called formal rulemaking), as well as instances when an agency's enabling act requires procedures somewhere between informal and formal rulemaking. This in-between procedure is usually referred to as hybrid rulemaking.

[C] Adjudication. When the agency exercises its judicial function by engaging in what is sometimes called formal adjudication, it uses a process that is very much like a civil bench trial in court. These proceedings-while subject to some variation depending on whether the agency is at the federal or state level and on the precise identity of the agency and the matter being adjudicated-typically permit an oral hearing with direct-and cross-examination, testimony under oath, the development of a complete and exclusive record on which the decision is to be based, and the presence of a neutral presiding officer (known on the federal level as an administrative law judge). How-ever, court and agency procedures are not identical. Unlike civil courts, most agencies do not use formal rules of evidence or permit the comprehen-sive discovery allowed under, for example, the Federal Rules of Civil Procedure. Elaborate pre-trial and post-trial procedures are rare, and juries are unheard of. Nonetheless, the similarities between agency adjudication and civil litigation are still far greater than the differences.

[D] Informal Agency Action. Procedures used when an agency engages in informal action (sometimes referred to as informal adjudication because most of these decisions involve the deciding of individual cases rather than generic policymaking) vary considerably. Minimal procedures include merely giving reasons for a decision— as, for example, when a federal agency denies certain applications for benefits. Other actions can require the giving of notice and some oppor-tunity to comment in writing, or providing an oral hearing for aggrieved persons. Although procedures for rulemaking and formal adjudication are often tightly controlled by either an enabling act or the relevant APA, procedures governing informal agency action are often established by the procedural rules of the agency.

[E] Alternative Dispute Resolution. Much like the current ferment in the substantive law of administrative agencies, traditional agency procedures are under serious re-examination. For some time a number of agencies such as the Environmental Protection Agency and the Federal Aviation Administration have experimented with a new process known as regulatory negotiation to make rules. This procedure, in essence, brings representatives of all the major groups affected by a rulemaking around a table for face-to-face negotiation on the terms of the proposed rule, prior to its being published in the Federal Register. In 1990, Congress codified regulatory negotiation by adding the Negotiated Rulemaking Act to the Administrative Procedure Act (APA). In


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the next several years, agency practitioners will have even more procedural devices at their disposal. After a number of proposals to adapt alternative dispute resolution (ADR) techniques to agency decisionmaking surfaced during the 1980s, Congress acknowledged that ADR could become an important part of agency process by enacting, in 1990, and substantially amending in 1996, the Administrative Dispute Resolution Act. In appropriate circumstances, such techniques as arbitration, mediation and mini-trial may now be used as part of the agency dispute resolution process.

* * *


§7.01 Introduction. One of the preeminent administrative law scholars in the United States has called agency rulemaking “one of the greatest inventions of modern government.”1 Not everyone feels that way. A former professor of administrative law, now a Supreme Court justice, takes a less enthusiastic view, commenting that the bloom is now off the rose of rulemaking. 2 Many private citizens and most practicing lawyers tend to view agency rulemaking more in terms of whose ox is being gored by the agency. Environmental groups gloat when the EPA writes tight air pollution control standards. The regulated industries cringe. Domestic oil producers are happy when the executive branch places import restrictions on foreign petroleum. Motorists who may be faced with higher gasoline prices are far less enthusiastic.

One of the best examples of the gored ox phenomenon comes out of the Federal Trade Commission. In the 1970s when the consumer protection movement was at its peak and as the FTC became more and more aggressive in pursuing unfair and deceptive consumer marketing practices, many American businesses believed that existing rulemaking procedures made it too easy for the FTC to make rules. Companies lobbied hard in Congress and achieved enactment of a complicated and procedurally cumbersome statute known as the Magnuson-Moss Act, an act that made it much more difficult and time consuming for the FTC to make rules. But by late 1981, after President Reagan had changed a great deal of the FTC's regulatory philosophy by crucial appointments to the Commission, businesses decided that Magnuson-Moss made it too hard for the FTC to get rid of existing rules (the procedure for promulgating new rules and repealing old rules is the same) and asked Congress to repeal Magnuson-Moss, the statute that just a few years previously they had described in glowing terms.

1 Kenneth Culp Davis, CASES, TEXT AND PROBLEMS ON ADMINISTRATIVE LAW 241 (6th ed. 1977). Readers who would like a very sophisticated analysis of current agency rulemaking should consult the following three articles, that have become near-classics in the field: Colin S. Diver, Policymaking Paradigms in Administrative Law, 95 Harv. L. Rev. 393 (1981); James DeLong, Informal Rulemaking and the Integration of Law and Policy, 65 Va. L. Rev. 257 (1979); William Pedersen, Formal Records and Informal Rulemaking, 85 Yale L.J. 38 (1975). … One of the most striking developments ever seen in federal administrative law is the use of the Internet for rulemaking by federal agencies. See, e.g., a Department of Agriculture rulemaking to be found at www.ams.usda.gov/nop/. 2 Antonin Scalia, Making Law Without Making Rules, Regulation Magazine, 25 (July/Aug. 1981).


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This little war story says a lot about agency rulemaking. By and large, it is the substance of agency rules that make people happy or sad. Few people get terribly exercised about the procedure of making rules. But as we will see, it is very difficult to challenge the substance of an agency rule, because the Supreme Court has admonished federal courts to defer to an agency's technical judgments. Lawyers know that there are two ways to invalidate an agency rule-by attacking either its substantive provisions or the procedure by which it was promulgated. If a rule is defective on either ground, it will not be put into effect.

For many years, challenges to agency rulemaking were as likely to be brought on procedural grounds as on substantive grounds. The difficulty with procedural challenges, as we will see, is that the Supreme Court has also made it very difficult to attack an agency for its rulemaking procedure. There is a message in all of this. Remember one of the cardinal rules of agency practice: if you don't like what an agency is proposing to do, the place to win your fight is at the agency. You will likely not get any great satisfaction out of a reviewing court. …

§7.02 Basic Rulemaking Procedure Under the APA

[A] Triggering of Rulemaking Process. How does an agency begin? There are many ways the rulemaking process is triggered. The agency may be commanded by its enabling act to write rules in a certain area. Most of the recent health and safety legislation passed by Congress requires agencies to promulgate rules even though the agency has a great deal of discretion in determining what the final rules look like. In certain situations in which Congress thinks an emergency exists, Congress may write interim agency rules in the statute that will remain in place until the agency gets around to promulgating its own regulatory program.

Quite often an agency will determine that rules are needed when its own investigative processes show the need for additional regulatory activity in some area. Occasionally, even private citizens can get into the act. §553(e) of the APA gives any “interested person the right to petition for the issuance, amendment, or repeal of a rule.”

… [T]he federal Administrative Procedure Act emphasizes rulemaking as the basic process by which agencies should announce new policy, but that is not the only function of agency rules. The drafters of the APA contemplated many other roles for agency rules by writing a fairly broad definition. The APA defines a rule, in part, as “the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency. . . ” [§551(4)].

The APA's normal rulemaking procedures are found in §553. Many people refer to normal APA procedure simply as “553 rulemaking.” Other labels frequently used for this type of procedure are notice and comment or informal rulemaking. To understand this crucially important vehicle, it is important to begin with a quick walk-through of §553's important provisions.7

7 This is as good a place as any to confront a problem of terminology that sometimes troubles people new to administrative law concepts. The APA uses and defines only the term, rule. That definition is set out in § 551(4). Most practitioners and agency personnel use the term, regulation, interchangeably with rule, particularly after agency rules have been promulgated.


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[C] The Notice Requirement. The first principle of Due Process and the first requirement of § 553 is that the agency give notice to affected persons of its intent to publish a rule. Under normal circumstances this notice is placed in the Federal Register. If, however, an agency can give personal notice to all affected people (e.g., in a situation where only ten companies are affected by a rule), individual notice is sufficient. The Federal Register notice has a number of mandatory ingredients:

1. A statement of the time, place, and nature of any public rulemaking proceedings;

2. A statement of the legal authority under which the agency proposes the rule;

3. The language of the proposed rule or merely a description of the topics and issues involved in the proposal; and

4. An invitation to any interested persons to submit comments on the rule, usually accompanied by a cut-off date for submitting the comments.

Requirements 1 and 2 are essentially boilerplate. The crucial parts of the notice for persons affected by the rule are the specific language of the proposed rule and the deadline for submitting comments.

It is rare for an agency to describe only the subject matter of a proposed rule. Normally, the agency includes the text of the rule that it proposes to issue. This permits far more pointed and specific comments to be submitted by interested persons. When an agency realizes that a problem exists within its jurisdiction, but does not yet have sufficient information to write a full-blown proposed rule, it generally refrains from publishing a proposed rule and instead publishes either: (1) a Notice of Inquiry, which includes a broad description of the area and issues for which it may write some kind of rule, or (2) an Advanced Notice of Proposed Rulemaking. While neither of these two terms are specifically authorized by the APA, they have evolved from agency custom and practice over the last several years. Examples of each appear frequently in the Federal Register.

A close reading of § 553(b) indicates that there are some exceptions to the notice requirement:

(1) When the agency is promulgating interpretative rules, general statements of policy or rules of agency organization, procedure, or practice. (There is more discussion on these distinctions in § 7.06, be-low.); or

(2) When the agency makes what is known as a good cause finding that notice is impracticable, unnecessary, or contrary to the public interest. (More often than not, the courts simply defer to the agency's judgment on this point. But the finding must be published in order to be effective. Most agencies resort to this device very infrequently.)

[D] Consideration of Comments. One of the hallmarks of rulemaking under the APA is solicitation of comments from all interested persons. This means

The Government Printing Office, charged with the publication of the Federal Register and the Code of Federal Regulations normally uses the term, regulation, only for those agency statements that are codified in the C.F.R. Generally, the term, rule, encompasses many more agency pronouncements than the term, regulation.


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very simply that an agency must accept comments from anyone who makes the effort to write a letter. Most agency comments are submitted in writing, although certain agencies, either because of a statutory requirement in the enabling act or through their own discretion, will conduct oral hearings to permit the submission of comments. …

The more difficult question is what the agency must do with these comments. The APA does not define the term “consider,” and the few courts that have reviewed disputes in this area have simply imposed a good faith requirement on the agency to at least log in all comments and to review carefully comments from major entities affected by the rule. This is not a totally hollow requirement. There are some cases in which agency rulemaking has been overturned because the agency failed to address significant comments in the preamble to the final rule. At the same time, most courts recognize that comments are written with a particular point of view and are, more often than not, pieces of advocacy rather than models of objectivity. One court has stated bluntly that neither agencies nor courts “need . . . accept at face value the self-serving comments of interested members of the [affected] industry.”8

The view from outside the agency is a little different. Cynics who represent clients before federal agencies will probably tell you that “consider” for many agencies merely means placing a date-time stamp on the comments as they come in and tossing the comments into an appropriate filing cabinet.9 It is abundantly clear that an agency is not bound absolutely by the comments, nor is an agency totally restricted to the comments in formulating a final rule. It can invoke its own expertise in writing a rule, even if the comments all suggest a contrary result: However, if an agency takes this approach, it must clearly explain itself. A reviewing court will be exceptionally suspicious of an agency rule that disregards all the commentary.

[E] Promulgation of a Final Rule. This step completes the basic rulemaking process. The step contains two important ingredients. First, the agency must prepare, after consideration of the comments and other matter in the rulemaking record, “a concise general statement of [the] basis and purpose” of the final rule. The statement of basis and purpose is usually incorporated in the preamble to the final rule and published along with the final rule in the Federal Register. But even though it is published only as a preamble, or occasionally just made part of the rulemaking record and not actually published, the statement of basis and purpose can be a crucial part of the rulemaking process if the rule is taken to court by disgruntled individuals.

The basis and purpose statement was seen by the drafters of the APA as an important part of the final rule, but they did not specify its ingredients. Congress suggested in the APA's legislative history that the agency was to “not only relate to the data so presented [i.e., the comments and other matters in the record] but with reasonable fullness explain the actual basis and objectives of the rule.” Courts have taken this requirement seriously, because the statement is sometimes one of the few pieces of information by which a court can analyze a rule if the validity of a rule is

8 National Tire Dealers & Retreaders Assn v. Brinegar, 491 F.2d 31, 39-40 (D.C. Cir. 1974).9 A hint for readers who anticipate practicing before agencies: make your comments as eye-catching as possible so they don't get lost in the shuffle.


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challenged before the agency enforces the rule on a case-by-case basis. … Second, under normal circumstances, the rule goes into effect no earlier than thirty days after the rule's publication. …

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Trial-Type Proceedings

§8.01 Introduction. The first words out of my mouth in my first administrative hearing were: “Your honor, I respectfully move for a continuance.” The presiding officer responded: “Mr. Fox, please. I'm not a judge, so don't call me `your honor.' We don't have `motions' in this agency, and I don't know what a 'continuance' is. If you want some more time to prepare, just ask for it.” Pondering this exchange a few days later, I realized I had just been introduced to the administrative process. The hearing officer refused to give me any more time, by the way. I had to litigate the case that day, after only twenty-four hours notice and no discovery. That was another lesson in administrative action.

Many lawyers make fundamental mistakes in agency lawyering by regarding agency trial-type proceedings (also referred to as evidentiary hearings and occasionally as formal adjudications) as indistinguishable from the civil trial process. There are many similarities, but there are also a number of crucial differences. That is not to say that good trial skills are of no use in agency hearings. They are of tremendous importance, and, all other things being equal, the better trial lawyer will probably prevail in an agency hearing. Even so, a lawyer who does not fully grasp the differ-ences between a trial and an agency hearing may compromise his client's case.

This chapter covers a number of matters relevant to evidentiary hearings in federal agencies. Most state evidentiary hearings are handled similarly, although there appears to be a greater degree of informality in many state procedural systems. …

§8.02 An APA Roadmap

[A] Agency Impact on Trial-Type Proceedings. … [A]gency enabling acts and agency regulations have an important impact on trial-type proceedings. For example, to the extent that an agency provides formal rules of evidence or specific discovery tools, it will do so by rule. The APA has little to say about these two things except to mention that neither rules of evidence nor elaborate discovery is mandatory under the APA.

Agency enabling acts sometimes add to the provisions of the APA, particularly in the area of intra-agency review of initial decisions. A trial-type proceeding is an adversarial process intended to be similar to, but not identical with, a civil bench trial in federal court. Be alert for both the similarities and the differences. One thing you will not have to spend much time with in this area is constitutional due process. You will find, as you work through the APA provisions, that Congress has provided far more due process by statute than the Supreme Court has ever required as a matter of constitutional law.

[B] The Scope of APA Adjudications. … With certain exceptions, agencies subject to the APA are to conduct adjudications when the agency's decision making


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proceedings are “required by statute to be determined on the record after opportunity for an agency hearing” with certain exceptions.

Not all components of the federal government are covered by the APA. There is no easy way to get a sense of which agency proceedings are covered other than to read individual enabling acts. As a general matter, an evidentiary hearing is granted for major federal licenses such as for hydroelectric or nuclear power plants or water discharge permits and for agency actions that terminate important federal benefits such as civil service employment or social security disability payments. …

[C] Pre-Hearing Matters. §554(b) requires that affected persons be given specific notice of the hearing, including time, place, nature of the hearing, legal authority for convening the hearing, and in most circumstances, particularized information on the issues presented. The section also promotes settlement by requiring an agency to receive pre-hearing submissions which may lead to a disposition of the controversy by consent.

§554(d) provides for strict separation of functions. This is one of the more important aspects of this portion of the APA. There must be a distinct separation between agency employees who may be involved in gathering information and serving as the agency equivalent of prosecutor or investigator and the agency employee designated as the presiding officer. … [W]hen an administrative law judge is used as the presiding officer, he or she must be guaranteed even more independence and separation than that required by §554. To enhance this separation, §554 prohibits ex parte contacts between the parties and the presiding officer. …

§555(b) expressly provides a right to have counsel present; and to the extent that additional information is necessary, §555(d) permits parties to a hearing to invoke the agency's subpoena power. The APA permits, and most agency rules provide for, a pre-hearing conference, although you should not necessarily expect a pre-trial conference in every proceeding in every agency.

[D] The Hearing. §556 sets out the requirements for a hearing. Typically, an administrative law judge presides over an oral hearing by admitting documentary evidence and testimony under oath, permitting direct and cross-examination, ruling on evidentiary objections, and the like. It is this part of the hearing process that most closely resembles a civil bench trial in federal court. §556(d) imposes the burden of proof on “the proponent of a rule or order.” The hearing record is to be the sole basis for the ultimate decision.

[E] The Agency Decision. The outcome of an agency adjudication is referred to as an order.7 The process by which a hearing record is converted into an order is set out in §557. Under normal circumstances, the Administrative Law Judge (ALJ) writes an initial decision that is reviewed by higher-ups in the agency if parties object to the initial decision. The agency decision is accompanied by formal findings

7 “Order” is a kind of catch-all category that includes virtually any kind of agency decision-expressly including a licensing decision-and that is not rulemaking. To this extent, the concept of order is a residual definition. If an agency makes a decision, and if that decision does not result in a rule, the agency has made an order. [Footnote moved from earlier in text.]


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of fact and conclusions of law (normally prepared by the ALJ but occasionally subject to modification within the agency) and is subject to judicial review. …

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Judicial Review

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§ 12.06 Judicial Review of Agency Policymaking

[A] An Agency's Interpretation of Its Own Statutes. … The frequently cited decision of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.,34 is now commonly invoked for an important analytical framework that was set out in the opinion, sometimes referred to as the “Chevron two-step.” In Chevron, the Supreme Court reviewed a policy announced by the Environmental Protection Agency that interpreted a phrase in the Clean Air Act, “stationary source,” as meaning the entire plant that emits pollution rather than individual furnaces or boilers within that plant. The effect of this interpretation left the plant owners free to determine on their own how to cope with certain pollution control requirements under the Clean Air Act so long as the entire plant met the standards.

As so frequently happens with the EPA, various environmental groups challenged the policy in court, and the case eventually made its way to the Supreme Court. There, the Court announced the “two-step”: first, the Court determines “whether Congress has spoken to the precise question at issue.” If this is the case, neither the agency nor the courts can alter this pronouncement. In other words, both agency and courts must defer to the Congressional position irrespective of their own views on the subject. But as the Court acknowledged in Chevron, Congress has a history of writing relatively ambiguous statutes that permit the agencies to fill in many of the gaps through agency policy making and interpretation. This is step two: if Congress has not directly addressed the matter-if Congress is either silent or ambiguous-the reviewing court then examines the agency's construction of its statutory mandate. The court must defer to the agency's position if the court concludes that the agency's action is reasonable. In Chevron, the Supreme Court concluded that the EPA's so-called bubble policy was a reasonable interpretation of the Clean Air Act.

This seems on its face to be a rational way to deal with a constantly perplexing problem of review of agency policy' making. It is also consistent with the whole line of Supreme Court opinions … holding that courts should not lightly overturn agency action on any grounds. … The problem is that Chevron may not have been followed, even by the Supreme Court itself, as religiously as the Chevron Court and some commentators might prefer; and the opinion has become a favorite of law professors, generating more writing than virtually any administrative law decision of recent vintage.

34 467 U.S. 837 (1984)


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Just a few years after Chevron, the Court decided Immigration and Naturalization Service v. Cardoza-Fonseca,37 37 holding that the INS had interpreted an immigration statute wrongly and quoted its own language in Chevron: “The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.” Some readers of Cardoza-Fonseca believe that this opinion may be a slight stepping back from the strong message of deference set out in Chevron. On its face, the opinion does not seem to represent a retrenching. Rather, the Court seems to be saying that there was no doubt about congressional intent in the statute and that the INS' interpretation was contrary to that intent. That is the first of Chevron's two steps so, at least analytically if not substantively, the Cardoza-Fonseca Court appears consistent with Chevron.

In another case, the Court struck down a policy of the Federal Energy Regulatory Commission when it decided that the agency's policy was inconsistent with the clear language of the statute.38In that case, the Court held that there was no ambiguity whatsoever in the underlying statute. By contrast, in American Hospital Assn v. NLRB,39 in reviewing virtually the first substantive rule ever promulgated by the National Labor Relations Board, the Court deferred to the Board's policy, holding that its rule was consistent with the underlying statutory scheme.

… Chevron does not mean total capitulation or unprincipled deference to an agency. While deference is required for an agency's substantive rules and most if not all interpreta-tions of those rules, deference is not required for “agency litigating positions that are wholly unsupported by regulations, rulings, or administrative practice. To the contrary, we have declined to give deference to an agency counsel's interpretation of a statute where the agency itself has articulated no position on the question.”41

At the same time, it is clear that courts are affirming more agency determinations than seems to have been the situation prior to Chevron. Patricia Wald, a scholarly, now-retired judge on the District of Columbia Circuit has performed her own analysis of Chevron to conclude, among many other things: “A study I conducted of the D.C. Circuit's administrative law decisions over a seven-month period confirmed the conventional wisdom that the bulk of reversals of agency action under Chevron occur at the Chevron [“first step”] stage. Thus, it would appear that Congress, and not the judiciary, is the true source of many of the administrative law decisions . . . in which the courts refused to defer to the agency.”42a …


37 480 U.S. 421 (1987).38 Mobil Oil Exploration v. United Distribution Co., 498 U.S. 211 (1991).39 499 U.S. 606 (1991).41 Bowen v. Georgetown University Hospital, 488 U.S. 204 (1988).42a Patricia M. Wald, A Response to Tiller and Cross, 99 Colum. L. Rev. 235, 243 (1999).


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43. Look through Subpart B of the H.U.D. regulations interpreting the Fair Housing Act (24 CFR §§100.50-100.90). Of the justifications for regulation described by Fox (144-46), which seem to you to apply to these regulations?

B. Broker’s Offenses

1. Insurance Redlining

NATIONWIDE MUTUAL INS. CO. v. CISNEROS52 F.3d 1351 (6th Cir. 1995), cert. denied, 516 U.S. 1140 (1996)

MILBURN, Circuit Judge. Plaintiffs Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company [collectively “Nationwide”], appeal the district court’s grant of summary judgment ... in this action for declaratory judgment and injunctive relief in which plaintiffs challenged defendants’ authority to regulate the issuance and cancellation of homeowner’s insurance policies under the Fair Housing Act. On appeal, the issues [include] whether the district court erred in finding that the Fair Housing Act governs the business of property insurance.... For the reasons that follow, we affirm.

I. A. Plaintiffs ... seek declaratory and injunctive relief from attempts by the Department of Housing and Urban Development (“HUD”) to regulate plaintiffs’ property insurance underwriting practices under the Fair Housing Act. The insurance underwriting practices 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. ... Steed and ... Brown are the Executive Director and the Chairperson, respectively, of the Dayton Human Relations Council (“DHRC”). In addition to enforcing fair housing provisions of Dayton ordinances, DHRC also assists HUD in the local administration of housing discrimination complaints 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...

B. Plaintiffs[, responding to pending investigations by HUD and DHRC regarding alleged redlining,] commenced this action for declaratory and injunctive relief.... [P]laintiffs moved for summary judgment. The Dayton defendants and HUD filed crossmotions for summary judgment.... [T]he magistrate judge issued his Report and Recommendation in which he ... recommended that the district court grant defendants’


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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; [and] (2) that, in any event, it was a correct interpretation of the Fair Housing Act.... Plaintiffs filed timely objections to the magistrate judge’s report and recommendation. ... [T]he 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 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. ...

HUD has interpreted these provisions of the Fair Housing Act to prohibit “[r]efusing to provide ... property or hazard insurance for dwellings or providing such ... insurance differently because of race ...” 24 C.F.R. §100.70(d)(4). Plaintiffs argue that HUD, in promulgating this regulation, has exceeded the authority delegated to it by Congress under the Fair Housing Act, and therefore the Dayton defendants lack the authority to investigate claims of discriminatory insurance underwriting practices. ...

We are confronted with two questions when we review an agency’s construction of a statute. In Lansing Dairy v. Espy, 39 F.3d 1339, 1349-50 (6th Cir.1994), we stated:

First and foremost is the question whether Congress 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 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 construction 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 permissible construction of the statute.” Id.

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 construction, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding.” 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.” id. 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 NAACP v. American Family Mut. Ins. Co., 978 F.2d 287 (7th Cir.1992), cert. denied, 508 U.S. 907 (1993), the Seventh Circuit held that Congressional intent regarding 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


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not saying who the actor is, or how such actors bring about the forbidden consequence—Congress created ambiguity.

On the other hand, plaintiffs argue that the plain language and structure of §3604(a) preclude its application to insurance providers. Specifically, plaintiffs rely on the canons of statutory interpretation of “ejusdem generis” and “expressio unius est exclusio alterius” in support of their contention that insurance underwriting practices are not governed by the Fair Housing Act.

First, plaintiffs argue that HUD’s interpretation of §3604 conflicts 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. 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 availability of a dwelling.

We disagree. Plaintiffs’ argument 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 discrimination 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 rendering §§3604(b) and 3605 of the Act superfluous.

In Mackey, the Fourth Circuit concluded §3605 shows that §3604 must be read narrowly. “If [§3604] was designed to reach every discriminatory act that might conceivably affect the availability of housing, [§3605’s] specific prohibition of discrimination in the provision of financing would have been superfluous.” Mackey, 724 F.2d at 423. The Seventh Circuit rejected this argument in American Family, holding that §§3604 and 3605 overlap and that

[c]onveying 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.


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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 U.S. 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 housing 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 render §3604(a) ‘vague.’” This argument seems to contradict plaintiffs’ argument that by listing proscribed behavior in §§3604(b) and 3605, Congress intended for all other activity affecting the availability 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 underwriting practices. Relying on Mackey, plaintiffs argue that although Congress did not directly address the Act’s application to insurance practices, it is implausible that Congress intended the Fair Housing Act to reach insurance practices in light of the fact that (1) Congress enacted the Urban Property Protection and Reinsurance Act of 1968 (“UPPRA”) 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 legislative 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), 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.” We agree that the purposes of the two acts are different and that the enactment of UPPRA does not shed light on Congress’ intent regarding the application of the Fair Housing Act to insurance underwriting 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 phraseology of §3604 suggests the latter possibility.


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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 conclusion that unsuccessful attempts to amend the Fair Housing Act to explicitly address discriminatory insurance practices reflected Congress’ disapproval of this reading was unwarranted. 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 political 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 proposals to amend a law, in the years following its passage, carry no significance.

Thus, we conclude that subsequent failed attempts to amend the Fair Housing Act are not helpful in determining the intent of the Congress that enacted the Act. Furthermore, Congress gave HUD the authority to promulgate regulations knowing that HUD had consistently interpreted the Act as governing insurance underwriting practices. American Family. 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 underwriting practices.

We next turn to the second question under a Chevron analysis--whether the agency’s interpretation of the Fair Housing Act is reasonable.2 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.” 467 U.S. at 843. “However, this deference does have its limits. Courts may invalidate agency adjudication or rulemaking which is ‘inconsistent with the statutory mandate or that frustrate[s] the policy that Congress sought to implement.’” Lansing Dairy, 39 F.3d

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.


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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 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 Secretary’s construction [interpreting §3604 as prohibiting insurance redlining].” We agree. 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. 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 (“Congress intended §3604 to reach a broad range of activities that have the effect of denying housing opportunities 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.

Plaintiffs argue, however, that the “[d]enial of property insurance, even if discriminatory, is simply not akin to denying or making unavailable a dwelling.” Therefore, plaintiffs argue that the provision of insurance is too attenuated to the availability of housing 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 unlawful actions that are removed from the central event of 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. 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.” 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.”

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 housing. See American Family; Dunn. Accordingly, we conclude that HUD’s interpretation of the Fair Housing Act is consistent with goals of the Fair Housing Act and a reasonable interpretation of the statute. ...

III. 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, “[i]f [§3604] was designed to reach every discriminatory act that might conceivably affect the


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availability of housing, [§3605’s] specific prohibition of discrimination in the provision of financing would have been superfluous.” Under the majority’s reasoning, discrimination in financing 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 prohibit other discriminatory activities. Additionally, the legislative history is devoid of references to the insurance industry. Mackey. ... 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-Fonseca, 480 U.S. 421 (1987).


44. Try to elaborate in your own words the plaintiffs’ arguments in Cisneros from the language and construction of the statute and from the legislative history. How did the majority respond to each?

45. Does the majority or the dissent in Cisneros have the more convincing argument under Chevron?

46. Can you characterize the issues in Cisneros in terms of the positions taken in Speluncean Explorers? In terms of Professor Blatt’s distinctions between the political, policy and public communities?

47. Does failure to provide homeowners’ insurance on account of race violate §1982? How might you use the Wisconsin and Miami Beach Statutes to support an argument about whether the FHA governs insurance redlining?

2. Steering


CORNELIA G. KENNEDY, Circuit Judge. Defendants appeal the District Court’s declaratory judgment that they engaged in racial steering on eight occasions, in violation of ... 42 U.S.C. §3604(a), and on one occasion in violation of §3604(c) and blockbusting by mail solicitation on one occasion in violation of §3604(e). Plaintiffs are the City of Cleveland Heights ... and the Heights Community Congress (HCC), an umbrella organization of civic groups that monitors compliance with the fair housing laws. Defendants Hilltop Realty, Inc. (Hilltop) and Bruce Johanns, a Hilltop agent, appeal the court’s findings that they violated the Fair Housing Act.... We reverse the District Court’s finding that defendants violated §3604(e); in all other respects, we affirm.

I. Cleveland Heights, a municipal corporation organized under Ohio law, is a suburb of the City of Cleveland, bounded by Cleveland on the west, East Cleveland and Cleveland


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on the north, South Euclid and University Heights on the east, and Shaker Heights on the south. The City had a population of 57,767 in 1970 and 56,438 in 1980. Black residents comprised 2.5% of its population in 1970 and 24.9% in 1980, with greater concentrations of blacks in areas adjacent to East Cleveland, which had a black population of 58.6% in 1970 and 86.5% in 1980. Most of the overall increase of black residents in Cleveland Heights occurred from 1970-76.

In 1965 and again in 1972, the homes of black residents who had recently moved into the community were bombed, and around the same time several areas of the City were the subject of heavy real estate solicitation. Among the actions of the City in response was a proclamation in 1965 declaring Cleveland Heights to be a racially open community, a 1967 ordinance forbidding “for sale” signs on private residences, a 1972 anti-telephone solicitation ordinance, and adoption in 1976 of a comprehensive real estate program, including an ordinance forbidding discrimination in housing, blockbusting, steering, and solicitation of homeowners who have filed no solicitation notices.

HCC was founded in 1972. It is a not-for-profit corporation under Ohio law, which has as its primary objective the promotion and maintenance of Cleveland Heights as an open and integrated community. ... Two of its major programs have been periodic new homebuyer questionnaire surveys and audits of realty companies and agents, including a 1978 audit contracted for by the City. Auditing was carried out through the use of “checkers”–paired black and white volunteers who represented to real estate agents that they were seeking housing and presented the agents with similar needs and circumstances. The results of that audit led to filing of the instant lawsuit. ...

III. The District Court found that five Hilltop agents violated §3604(a) on eight occasions between 1976 and 1978 by engaging in “racial steering,” which the court determined “otherwise made unavailable” housing on account of race. These violations were imputed to Hilltop. Only one of the violations occurred within the 180-day limitations period prior to the date this suit was filed. The District Court held that the complaint was timely as to all violations alleged based upon its finding that they constituted a continuing pattern and practice of unlawful conduct.

In Havens, the Court adopted plaintiffs’ definition of “racial steering” as: a practice by which real estate brokers and agents preserve and encourage patterns of racial segregation in available housing by steering members of racial and ethnic groups to buildings occupied primarily by members of such racial and ethnic groups and away from buildings and neighborhoods inhabited primarily by members of other races or groups.

... the District Court held that in the absence of significant discriminatory effect, which it found was not present in this case, an incident of racial steering would violate §3604(a) upon a showing of intent. Defendants do not directly dispute this interpretation of the law. Rather, they argue that truthful informational statements with racial content, failure to show homes in a particular location absent a specific request, and lack of service, do not violate the Act. The District Court was correct in holding that to violate §3604(a), one looks to whether the statement or conduct would have an untoward effect on a reasonable person under the circumstances who is seeking housing, and behind the statement or conduct to the intent of the agent. If a statement or act would have a discriminatory effect and is made with the intent to steer, it violates §3604(a).


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The District Judge painstakingly reviewed the facts of each alleged §3604(a) violation and applied the above principles of law to his findings. In several instances he found that plaintiffs had failed to establish either an act that would constitute steering, or the requisite intent. The essence of defendants’ objections to the court’s findings is that they were unsupported by the record. Discriminatory intent is a question of fact subject to the clearly erroneous standard of review.

Of particular importance, since it constitutes the linchpin supporting the remaining violations found by the District Court, is the violation which occurred within the limitations period. In October 26, 1978, Hortense Johnson, a black checker, began an audit of Hilltop agent Elayne Liff. After Johnson had described her needs to Liff, Liff attempted to contact the owner of one home, who was black, that met Johnson’s description. After determining that the home had been taken off the market, Liff suggested no other homes to Johnson, either at that time or in the days following. Four days later, in a call in response to Johnson’s follow-up call, Liff stated that she was busy preparing for a vacation trip to Hawaii and would contact Johnson upon her return. She did not offer to arrange for another agent to assist Johnson.

The District Judge carefully reviewed the testimony of Johnson and Liff. He found that Liff’s normal practice would have been to suggest additional listings to Johnson during her initial visit besides the single black-owned home about which Liff inquired, and to refer Johnson to another agent if Liff was unavailable to help her. The court observed that although Liff claimed she was suspicious of Johnson, these suspicions were irrelevant to whether, in departing from her normal procedure, Liff denied Johnson the opportunity to see available homes on the basis of race, because Liff also testified that despite her suspicions, she “‘still went about [her] business in the usual manner.’” The court concluded that Liff’s failure to provide service to Johnson violated §3604(a).

A finding is clearly erroneous when the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. The question is not whether the finding is the best or only conclusion that can be drawn from the evidence, or whether it is the one which the reviewing court would draw. Rather, the test is whether there is evidence in the record to support the lower court’s finding, and whether its construction of that evidence is a reasonable one. Applying this test in the instant case, we cannot say that the District Court’s finding that Liff committed a violation of §3604(a) is clearly erroneous. ...

In Havens, the Court held “that where a plaintiff, pursuant to the Fair Housing Act, challenges not just one incident of conduct violative of the Act, but an unlawful practice that continues into the limitations period, the complaint is timely when it is filed within 180 days of the last asserted occurrence of that practice.” Defendants’ argument that the court erred in holding that the individual violations found satisfied the continuing violation requirement amounts to nothing more than a disagreement with the District Court’s view of the evidence in its entirety. The court’s finding on this point was not clearly erroneous.

Defendants also object that the District Court erred in finding that Hilltop had “the power to control the acts” of its agents, and hence was liable for the violations


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committed by those agents. It argues that its agents were independent contractors, over whom under common law it has no control. This argument has consistently been rejected in Fair Housing Act cases. Nor does Hilltop dispute the District Court’s findings respecting knowledge of Hilltop managerial personnel of fair housing violations by its agents and failure to take corrective action, despite its asserted policy of instructing its agents in fair housing law and urging that they act accordingly. The court did not err in holding Hilltop liable for the violations of its agents.

IV. The District Court also found that Hilltop and its agent Bruce Johanns had violated §3604(e), when Johanns mailed solicitation cards to 40 to 60 residents in a two block area of Census Tract 1401 in northeast Cleveland Heights. Johanns worked as a painting contractor in the area between 1974 and 1977, during which time he solicited painting jobs by mail. Upon becoming a Hilltop agent in 1977, he sent an announcement card to the residents of the area. In August 1978, he sent a card to residents announcing that a home in the neighborhood had been listed with him, which said: “If you have a friend or relative who would like to live near you, please have them give me a call, and I will be pleased to give them all the details and arrange for them to see it.” The listed home, which had a black owner, was sold to a white buyer. In September 1978, he sent out another post card, which stated that the listed home had been sold, and represented: “In selling this property, we came into contact with other families who wish to buy in your neighborhood. Are you interested in selling your property? We would welcome the opportunity of consulting with you without obligation.” Johanns admitted that there were no other families that had contacted him wishing to buy in the neighborhood. It is the September mailing that the District Court found violated §3604(e).

In Zuch [v. Hussey], Judge Keith held that: Section 3604(e) ... is aimed at both overt “blockbusting” and other uninvited solicitations in racially transitional neighborhoods where it can be established (1) that the solicitations are made for profit, (2) that the solicitations are intended to induce the sale of a dwelling, and (3) that the solicitations would convey to a reasonable man, under the circumstances, the idea that members of a particular race are, or may be, entering the neighborhood.

394 F.Supp. 1028, 1049 (E.D.Mich.1975), aff’d and remanded, 547 F.2d 1168 (6th Cir.1977).

There is no question that Johanns’ September mailing was made for profit and intended to induce the sale of a dwelling. However, an inducement to sell only violates §3604(e) if, as provided in the statute, it includes “representations regarding the entry or prospective entry into the neighborhood of a person or persons of a particular race.” Such representations may be obvious or subtle, Zuch, but a representation respecting race must be made. The third part of the test stated by Judge Keith in Zuch merely restates the representation requirement in a way that encompasses both direct and subtle references to race. Thus, the critical question in the instant case is whether the post card sent by Johanns contained a representation that would convey to reasonable persons in the solicited area that blacks were seeking to move into the neighborhood.

In resolving this question in any given case, “[t]he concept of a racially transitional neighborhood is critically important to this litigation, because it is within this context that the activities of the real estate industry, in general, and the defendants, in


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particular, must be scrutinized.” Zuch. The court found the solicited area to be a “racially transitional neighborhood.”4 It found that Johanns was warned by one resident, Mr. Hollis, after his first mailing that the resident had filed a no-solicitation card with the City and that Johanns had violated the City’s no-solicitation ordinance by mailing the card to him, and that another resident, Mr. Ciocia, had complained to Hilltop after the August and September mailings. The court credited the testimony of Mr. Ciocia that he was fearful of the effect of the post cards, and that of another witness, Mr. Russo, a person with experience in real estate who lived near the solicited area, who testified that if he lived in the solicited area and received one of the cards, he would have been concerned. The court concluded that Johanns was aware of the racial composition of the neighborhood, and that to have continued to solicit “in a neighborhood that he knew was racially transitional and, therefore, subject to the fears of panic selling, rendered his acts of solicitation at least reckless.” Thus, although the card sent by Johanns was completely neutral on its face,5 the court found that it contained a representation respecting race because he knew that any form of solicitation would be likely to excite the fears of neighborhood residents and trigger panic selling.

The statute does not prescribe that a §3604(e) violation may only occur when a prohibited representation is made in a transitional neighborhood. Whether a neighborhood is in transition is significant only to the extent that its residents become more susceptible to the exploitative tactics of blockbusting. It is a well known fact that racial tensions and anxieties are generated when blacks move into previously all-white neighborhoods. It is also well known that many real estate agencies attempt to exploit such a situation by making repeated, uninvited solicitations for the sale of homes.

In most instances, this activity (commonly referred to as “blockbusting”) has proven to be an effective means of stimulating the sale of homes in racially transitional neighborhoods. It does so by capitalizing upon the racial fears of whites, reminding them that blacks are moving into the area. The process was articulated quite clearly in United States v. Mitchell, 335 F.Supp. 1004, 1005-1006 (N.D.Ga.1971) ... :

The evidence at the trial disclosed many illuminating things about what happens in a residential neighborhood when it becomes racially transitional. For example, if these cases are typical–and the court believes they are–the following consequences can be

4 The record shows that the two block area solicited by Johanns was virtually an all-white enclave in an otherwise integrated neighborhood. Census Tract 1401 had an estimated nonwhite population of 22% in 1978, 29% in 1979 and 37% in 1980, although the census statistic for 1980 was 30.7% nonwhite. Neighboring census tracts contained census blocks with black populations substantially higher than the 24.9% overall figure for Cleveland Heights. On the basis of these figures, the District Court determined that the solicited area was transitional, quoting language from Zuch to the effect that a “racially transitional neighborhood” or “changing neighborhood” “[t]o the layman ... is used and understood to mean that blacks are moving into an area.”

5 There were no subtle representations by Johanns of the sort present in Zuch – salespersons showing houses to black persons at night with lights on and windows unobstructed, flyers picturing or in-person visits by black agents, or literature containing thinly veiled references to neighborhood safety and other concerns foremost in the minds of white residents in neighborhoods undergoing change. …


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predicted as inevitable, and beyond dispute: First, a sense of panic and urgency immediately grips the neighborhood and rumors circulate and recirculate about the extent of the intrusion (real or fancied), the effect on property values and the quality of education. Second, there are sales and rumors of sales, some true, some false. Third, the frenzied listing and sale of houses attracts real estate agents like flies to a leaking jug of honey. Fourth, even those owners who do not sell are sorely tempted as their neighbors move away, and hence those who remain are particularly vulnerable. Fifth, the names of successful agents are exchanged and recommended between homeowners and frequently the agents are called by the owners themselves, if not to make a listing then at least to get an up-to-date appraisal.

Constant solicitation of listings goes on by all agents either by house-to-house calls and/or by mail and/or by telephone, to the point where owners and residents are driven almost to distraction. In this maelstrom the atmosphere is necessarily charged with Race, whether mentioned or not, and as a result there is very little cause or necessity for an agent to make direct representations as to race or as to what is going on. On the contrary both sides already know, all too well, what is going on. In short, for an agent to get a listing or make a sale because of racial tensions in such an area is relatively easy, whereas the direct mention of race in making the sale is superfluous and wholly unnecessary.

A racially neutral form of solicitation may very well contain an obvious representation respecting race in a highly charged atmosphere such as that described above. Such an atmosphere was not, however, present in the instant case. Although the solicited neighborhood could fairly be described as transitional, in the sense that residents perceived that blacks were moving into it or adjacent areas, its residents were not in the grip of panic. The neighborhood was not the subject of frenzied real estate activity. Johanns was a white real estate agent who sent a racially neutral card to the residents of a small area, many of whom were former painting customers and knew Johanns, following up a sale of a black-owned home to a white buyer. While we do not suggest that real estate agents are “entitled to one bite” in transitional neighborhoods before panic has set in, the essence of the District Court’s reasoning is that any form of solicitation in any area into which blacks have moved or are moving is a per se violation of §3604(e). We have serious doubts that such a sweeping restriction on commercial speech would be constitutional, see Linmark Associates, Inc. v. Township of Willingboro, 431 U.S. 85 (1977), and do not believe that Congress intended the statute to be so applied. We do not agree with plaintiffs that the difference between the instant case and Zuch, Mitchell, and other cases finding §3604(e) violations is merely one of degree. In the absence of evidence of panic selling or other incidents of a racially charged atmosphere that would impute to any real estate solicitation a racial connotation, or evidence of an actual representation respecting race, whether suggestive or direct, there simply has not been a prohibited representation within the meaning of §3604(e). Since neither was proven in the instant case, we reverse the District Court’s finding that the mailing violated §3604(e). ...


24 F. Supp. 2d 1052 (E.D. Cal. 1998)


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Oliver W. Wanger, J. INTRODUCTION: Plaintiffs Cynthia Llanos and Sophia Nazaryan1 initiated this housing discrimination lawsuit against Defendants Joe Coehlo, Terri Alsup, Estate of Anthony Coehlo, Estate of Frank Coehlo, and Linda Vista Farms Partnership, individually and doing business as Del Monte Pines (collectively, the “Defendants”), alleging Defendants discriminated against Plaintiffs on the basis of “familial status” in violation of federal and state laws. Plaintiffs move for partial summary judgment … seeking a judgment that Defendants violated federal and state anti-discrimination laws by unlawfully steering tenants based on their familial status….

FACTUAL BACKGROUND: The following undisputed factual background is taken from [an earlier opinion in the case] and is supplemented with further undisputed facts provided by the parties.

1. Del Monte Pines (“Del Monte”) is an apartment complex with townhomes and one-, two-, and three-bedroom apartments. It is owned and operated by defendants Joe Coehlo, the estate of Frank Coehlo, estate of Anthony Coehlo, and Linda Vista Farms Partnership.

2. Terri Alsup has been the manager of Del Monte since November 1988.

3. … Charlene Grice [is a] rental agent[] employed by Del Monte. …

5. Del Monte contains over 366 dwelling units. … 100 of those units were in the “family” section and the balance were in the “adult” section.

6. Prior to this suit, Del Monte implemented and effectuated the policy that “families live in family sections and adults live in adult sections.”

7. At the time of Ms. Alsup’s deposition…, the rental clerks at Del Monte were instructed that “family section” apartments were to be rented to families with children under the age of 18.

8. During her training, Ms. Grice was instructed that available units in the family section were to be rented only to families with children.

9. During her tenure as a rental agent, Ms. Grice testified that families with children living in the adult section have been asked to move to the family section.

10. The Fair Housing Council established through testers that the Defendants “maintained apartment units that excluded families with children, while maintaining over one-third of the units in which children were allowed.” …

14. When the Plaintiffs filed their complaint, they lived in … the adult section of Del Monte.

15. During Alsup’s tenure as manager, rental applicants who stated they had children were not allowed to rent an apartment in the adult section of Del Monte.

16. While Alsup has been manager, there is a “possibility” that a family with children was not rented an apartment because there was no room in the Del Monte family section.

17. … [W]hen her deposition was taken, Alsup could only recall four families with children who currently reside in the adult section of the complex.

1 Sophia is Ms. Llanos’s three-year-old daughter. On March 15, 1996, Ms. Llanos was appointed as Sophia’s guardian ad litem.


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18. When it was determined that a family with children was in fact residing in the adult section of the complex, the procedure employed by Del Monte was to call the family and ask if they would like to transfer to the family section. Since November of 1988, about ten (10) families with children residing in the adult section were asked by the Defendants’ managers if they would like to move to the family section.

19. The families with children who do reside in the adult section moved there when the mothers were pregnant but not showing or obtained custody of children after moving into the adult section. …

23. … Grachik Nazaryan submitted an application for an apartment unit at Del Monte. On his application, Mr. Nazaryan did not indicate that anyone else would be living with him.

24. Del Monte agreed to rent Unit # 121 to Mr. Nazaryan …

26. Before renting the apartment, Mr. Nazaryan had agreed with Ms. Llanos that he would find an apartment for her and Sophia, rent it in his name, and allow her and Sophia to live there.

27. On September 23, 1995, Ms. Llanos submitted an application to be a co-tenant with Mr. Nazaryan. On her application, Ms. Llanos did not indicate whether children would be living with her. …

ANALYSIS AND DISCUSSION … Plaintiffs argue Defendants violated the FHA by unlawfully “steering,” or attempting to steer, Plaintiffs to the family section and away from the “adult” section merely because Ms. Llanos lived with her three-year old daughter. “Steering” is the type of violation that is encompassed within the “otherwise make unavailable” proscriptive language set forth within in section 3604(a). Steering is not an “outright refusal to rent to a person within a class of people protected by the statute; rather it consists of efforts to deprive a protected homeseeker of housing opportunities in certain locations.” HUD v. Edlestein, 1991 WL 442784 (H.U.D. 1991).

… The evidence proffered by the parties amply demonstrates that Defendants purposely and unlawfully divided Del Monte into two distinct sections, one for adults and one for families with children under the age of 18. This configuration, made discriminatory by the FHA and [24 CFR §]100.70(c), was implemented by Del Monte’s manager, Ms. Alsup, and its rental clerks. Defendants have testified that there is a “possibility” that a family with children was denied the opportunity to rent an apartment at the Del Monte because there was no room in the family section. Ms. Grice testified that … she was instructed that the available units in the family section were to be rented only to families with children. During Alsup’s tenure as manager, rental applicants who stated they had children were not allowed to rent an apartment in the adult section….

Defendants do not dispute that they violated the FHA “by assigning families with children to a particular section of the development.” They suggest, however, that Plaintiffs were not unlawfully steered to any particular section as Plaintiffs already resided in the adult section. Ms. Grice testified that upon discovering that a family with children was living in the adult section, Del Monte personnel would


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call sometimes and ask them if they’d be interested in moving to a two-bedroom family section and find out what [the family] thought. And if they liked the idea, we’d discuss the procedure; and if they didn’t, then we noted that in our file.

The evidence before the court has established that Defendants attempted to steer Ms. Llanos to a family section in accordance with the discriminatory configuration fostered by the Defendants.

Defendants contend that the “evidence most favorable to defendants here is that the policy of Del Monte Pines was to sometimes contact persons living in adult sections, inform them that there is available housing in the family units, and to determine whether or not they are interested.”

Standing alone, Del Monte’s policy of contacting families residing in the adult section and informing them of the availability of apartments in the family section does not run afoul of the FHA. A violation arises if the rental agent expresses or underscores a preference or limitation for the family and or against adult sections and directly or tacitly enforces that discriminatory policy. … In determining whether the policy of encouraging families with children to relocate to the adult section was discriminatory, Defendants’ conduct must be considered under the totality of the circumstances.

Ms. Grice testified that once she learned about Sophia, she probably talked to Grachik and asked them if they live there. And we said, well, we have a family section, and if you people would be interested in moving to the family section – we have a family section for people with children and we have an adult section for adults.5

Ms. Grice’s statement emphasized that Del Monte had two sections and it preferred adults and families to live in their respective sections. Reasonably interpreted, Ms. Grice was informing Ms. Llanos that she should relocate to the family section because she was living with her child. Ms. Grice’s statement, when considered with Del Monte’s rental policies of balkanizing the apartment complex into two domains, adult and non-adult, constitute a direct interference with Plaintiff’s living choices in violation of 24 C.F.R. §100.70(a) (it is unlawful, because of familial status “to restrict or attempt to restrict the choices of a person . . . or to discourage or obstruct choices in a community, neighborhood or development.”); Fair Housing Congress v. Weber, 993 F. Supp. 1286, 1293-94 (C.D. Cal. 1997) (defendants violated section 3604(a) and (c) by maintaining informal policy of not renting second-floor entry balcony apartments to families with small children). That is, Defendants presumptively contacted Plaintiff in the hopes that she would move to the adult section, where she belonged, and there by preserve or maintain the discriminatory configuration fostered by Defendants. Defendants’ conduct is no less discriminatory or objectionable because their prodding may not have always caused a family with children to move out of the adult section and into the family, as is the case here. The fact that they were attempting to discourage and steer families with children in connection with their discriminatory, segregated housing plan is a violation of the FHA.

5 Ms. Grice commented that her statement “was more likely” what she told “them,” but that she was unsure. However, in a note memorializing her conversation, Ms. Grice wrote: “I explained the rules to them about family and adult section, et cetera. C.G.”


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Defendants argue that their motivations were purely family-oriented. Defendants assert that they merely informed Ms. Llanos “that a section more conducive to family living existed and the availability of transfer was present if she wished Ms. Grice averred that once she “became aware that Ms. Llanos was living with her baby[,] [she contacted Ms. Llanos and] suggested that she could move into a 2-bedroom apartment in the ‘family’ section of the complex. . . . [because Ms. Llanos] . . . might like it more.”

Though Defendants’ arguments and justifications are subject to question, given their discriminatory housing policies, they have introduced sufficient evidence concerning their motives and intent to defeat Plaintiffs’ motion for summary judgment. …


48. How does steering fall within the language of §§3604(a) & (d)? Defendants in Heights argued that the FHA doesn’t prohibit “truthful informational statements with racial content” or “failure to show homes in a particular location absent a specific request.” After looking at §§3604 (a) & (d), do you agree? Should the law ever punish people for truthful informational statements? What should agents do if a client asks them only to show housing in neighborhoods that predominately are made up of people of a particular race?

49. What is the test that Heights relies on for proving that an act constitutes illegal steering? What might be the justifications for this test? Is it supported by the statutory language? What evidence was there in the case that the test was met?

50. The court in Llanos denies summary judgment to the plaintiffs so that the fact-finder can consider the defendants’ motivation. Should the purposes suggested by the defendants immunize them from liability for steering?

51. Assuming that the defendants in Llanos made housing available to everyone qualified who applied, why is it a problem if they segregate tenants with children within a complex? Is this type of segregation different than segregation by race or religion?

3. Blockbusting


52. Heights adopts the test developed in Zuch for showing illegal blockbusting. What intent must the plaintiff show defendant had? Is this consistent with the language of §3604(e)? What arguments do you see about whether the statements at issue in Heights violated the test? The court seems to hold that liability for the statements depends on the state of mind of the neighborhood. Is this a good rule? Is it consistent with the statutory language?

53. Suppose a neighborhood association opposes the placement of a group home for people with a mental disability in their area. Members of the association pass out flyers


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stating that the presence of the group home will make the neighborhood less safe and will drive property values down. Does this violate §3604(e)? Does it violate the corresponding Wisconsin or Miami Beach statutes?

54. Based on your reading of the materials, who is harmed by blockbusting? What is the nature of this harm? Does the harm justify the statutory limitations on the business of the real estate brokers?

C. Freedom of Speech as a Defense


Congress shall make no law … abridging the freedom of speech, or of the press ….

A number of statutes that prohibit particular discriminatory conduct in the context of the provision of housing seem by their terms to ban some speech protected by the First Amendment. For example, §3604(c) of the FHA bans discriminatory statements and advertising; §3604(e) bans certain statements about the character of a neighborhood designed to induce panic sales; and §3617 bans interfering with a person’s exercise of their rights under the FHA.

The language of the First Amendment appears absolute. However, the Supreme Court has repeatedly made clear that the amendment does not completely bar all legislation that regulates speech. Instead, the Court has derived a variety of tests for determining which government regulations are permissible. Below, you will find three kinds of analysis that might be relevant in an evaluation of the constitutionality of regulating speech under housing discrimination statutes. Although the details of First Amendment jurisprudence are obviously beyond the scope of this course, these brief introductions to the relevant doctrine will be useful in thinking about appropriate interpretations and limitations of housing discrimination statutes that regulate speech.

Commercial Speech: The Supreme Court has held that the state is entitled to regulate speech seeking commercial transactions more intrusively than non-commercial speech. To get any First Amendment protection at all, commercial speech must concern lawful activity and must not be misleading. Assuming those hurdles are overcome, the government must meet a three-part test:

(1) it must have a substantial interest that justifies the regulation; and

(2) the regulation must directly advance that interest; and

(3) the regulation must be no more extensive than necessary to meet the interest.

Subsequent cases interpret the third prong to require a “reasonable fit;” a fit less perfect than the “narrow tailoring” of strict scrutiny, but closer than the “rational basis” required for economic legislation that does not affect speech. In addition, in some recent cases, some Justices (though not a majority) have suggested that the government never has a reason to completely ban distribution of truthful non-misleading factual information.

Content-Based Restrictions: Outside the context of commercial speech and a few


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other exceptions like libel and obscenity, the Court is least likely to allow a regulation that is targeted at the content of the speech in question. Content-based restrictions include those that single out for separate treatment either certain subject matter (e.g., a statute that prohibits convicted criminals from receiving profits from a book about their crimes but does not affect profits from books on any other subject unconstitutional) or certain viewpoints (e.g., a regulation that prohibited state university funding from going to student publications with a religious viewpoint, but allowed funding to any other viewpoint). If a court determines that a regulation is content-based, it is unconstitutional unless it is narrowly tailored to achieve a compelling government interest.

Incidental Burdens: By contrast, the Court also has allowed the government some leeway in enacting regulations designed for content-neutral purposes that incidentally limit speech or make certain kinds of speech less possible or effective. For example, the Supreme Court upheld a New York City regulation targeted at reducing noise that required musicians performing in Central Park to use city sound equipment & sound technicians. Content-neutral regulations that create incidental burdens on speech are constitutional if

(1) they can be justified without reference to the content of the regulated speech; and

(2) they are narrowly tailored to serve a significant government interest; and

(3) they leave open ample alternative channels for communication.

Similarly to its treatment of the “no more extensive” requirement for commercial speech, the Court has indicated that the “narrow tailoring” prong of this test is not as restrictive as the same language used as part of strict scrutiny. Specifically, this prong does not require that the regulation be least speech-restrictive means possible to achieve its objective.


27 F.3d 834 (2d Cir. 1994)

MESKILL, Circuit Judge: This appeal requires us to decide primarily whether a regulation banning the solicitation of residential property owners by real estate brokers and salespersons in designated geographic areas, ostensibly as a means for combating the evil known as “blockbusting,” violates the free speech rights of realtors under the First Amendment to the Constitution. In concluding that it did not, the U.S. District Court for the Eastern District of New York, Spatt, J., declared, inter alia, the statute authorizing the creation of so- called nonsolicitation zones or areas, N.Y. Real Prop. Law §442-h (section 442-h), and two regulations, 19 N.Y.C.C.R.R. §178 (nonsolicitation regulation), establishing and enforcing the specific nonsolicitation zones at issue here, and 19 N.Y.C.C.R.R. §175.17(a) (antiblockbusting regulation), defining and prohibiting the practice of blockbusting, constitutionally valid both facially and as applied. Since we need not focus on the facial validity of section 442-h to decide this appeal, we confine our inquiry primarily to the narrower issue of whether the nonsolicitation regulation constitutes an impermissible restriction on commercial speech. To that end, we conclude that such a regulation violates the First Amendment rights of realtors in this case. Accordingly, we reverse and remand.


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Background. Blockbusting is a practice whereby real estate agents artificially stimulate sales of residential property by making representations to homeowners regarding the migration of a particular racial, ethnic, religious, or social group into the neighborhood. In its most systematic and crudest form, blockbusting entails the “churning” of a local real estate market, a practice in which real estate brokers engage in frenzied solicitation practices that prey upon the racial and ethnic fears of persons residing in transitional neighborhoods as a means for increasing the volume of residential real estate transactions. While realtors gain the benefit of the commissions generated by the increase in sales, homeowners and communities suffer the detriment of declining property values and neighborhood instability brought on by panic selling, the fanning of racial tensions and promoting of ethnic stereotypes.

Although often difficult to prove, the practice of blockbusting has not gone unnoticed by federal and local governments. Indeed, federal, state, and municipal governments have instituted a variety of legislative initiatives aimed at combating and eliminating it. At issue here is one such initiative arising out of New York State’s twenty-plus year campaign to combat blockbusting. Accordingly, a brief history of that particular effort is helpful in understanding the context in which we decide this appeal today.

A. Regulations Prior to 1989: In 1969, the New York Legislature outlawed the practice of blockbusting. The task of enforcing the prohibition fell to the Office of the Secretary of State of New York (Secretary), who, promulgated the antiblockbusting regulation defining the parameters of forbidden solicitation activity and an enforcement provision creating cease and desist orders whereby homeowners residing in blockbusting prone communities could notify the state in writing that they did not want to be solicited by brokers seeking to sell or lease their property. 19 N.Y.C.C.R.R. §175.17(b) (cease and desist regulation). To implement the cease and desist regulation, the Secretary published the list of those homeowners who requested that realtors refrain from soliciting them and the realtors were then prohibited from contacting those persons. The real estate industry, however, was free to solicit homeowners who did not request to be placed on the cease and desist regulation list.

Perceiving blockbusting to be serious in certain communities, the Secretary began in 1971 to promulgate administrative regulations restricting outright most forms of solicitation by realtors in specified geographic areas (nonsolicitation orders). In 1989, however, the New York Court of Appeals held that the promulgation of a nonsolicitation order that banned lawful as well as unlawful forms of real estate solicitation exceeded the authority given the Secretary by the New York Legislature to enforce the prohibition on blockbusting. Campagna v. Shaffer, 73 N.Y.2d 237, 243 (1989). Noting that the nonsolicitation order at issue “leaps well beyond” the statutory prohibition on blockbusting, the court reasoned that, by extending the reach of the nonsolicitation orders to nonblockbusting communications, the Secretary “has gone beyond administering the written law and has, under color of regulatory authority, actually rewritten and extended the law.” Id. It concluded that if the only way to prevent blockbusting was to ban all broker solicitations, the use of such a remedy was “a policy choice for the Legislature, not for the [Secretary]” and that, if the Legislature took such action, the measure, nonetheless, “would ... have to pass constitutional muster.” 73


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N.Y.2d at 244.B. Section 442 - h : In response to Campagna, the New York Legislature enacted

section 442-h. The provision authorized the Secretary to employ several different measures to combat blockbusting, including the promulgation of broad nonsolicitation orders through the establishment and enforcement of designated nonsolicitation areas or zones where appropriate. The statute also gave the Secretary a less restrictive enforcement option, the use of cease and desist orders.

More importantly, section 442-h did not on its face mandate the use of any particular measure or measures. Rather, it delegated that authority to the Secretary, who was free to decide what, if any, measures were required and to employ such measures pursuant to the general guidelines set forth in the statute. Those statutory guidelines, moreover, provided that the use of nonsolicitation orders was an option that the Secretary may resort to after she determines, following public hearings and investigations, that such a measure is necessary to combat the impact of blockbusting on residential housing markets in designated neighborhoods.

C. Promulgation of the Nonsolicitation Orders at Issue: In late 1989, pursuant to this new authority, the Secretary published a proposed regulation establishing nonsolicitation areas in [four counties in and adjacent to New York City]. Under the proposed regulation, realtors were prohibited from engaging “in any form of solicitation where the purpose of such solicitation is, directly or indirectly, to obtain a listing of residential property for sale and where such solicitation is directed at or toward a homeowner ... within a designated nonsolicitation area.” Exempted, however, was solicitation through the use of advertisements placed in certain commercial newspapers of general circulation.

In accordance with the statute, the Secretary then conducted a series of public hearings in each of the four counties covered by the regulation. Testimony and evidence were taken from residents, public officials, civic leaders, and the real estate industry. After analyzing the data, the Secretary’s staff recommended that the nonsolicitation areas be reduced in size to cover only certain areas in the four counties. The Secretary accepted the recommendations reducing the size of the nonsolicitation areas and in accordance therewith, promulgated the formal regulation at issue here: the nonsolicitation regulation establishing and enforcing nonsolicitation zones for the areas designated above.

D. District Court Proceedings: On May 28, 1991, plaintiffs-appellants, the New York State Association of Realtors, Inc., a trade association of licensed real estate brokers and local boards of realtors, and Clifford Hall, an individual, licensed real estate broker in New York (collectively “Realtors”), filed this action against the Secretary of State of the State of New York. Specifically, the Realtors sought a declaratory judgment invalidating section 442-h and the nonsolicitation regulation on their faces and invalidating the antiblockbusting regulation as applied to truthful, legal solicitations. In their complaint, the Realtors alleged that the statute and regulations violated the First Amendment right to free speech . [T]he district court found that the statute and regulations were valid governmental restrictions on commercial speech under the test set forth by the United States Supreme Court in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n, 447 U.S. 557, 566 (1980). This appeal followed. ...


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First Amendment. [W]e confine our First Amendment inquiry to the narrow issue of whether the challenged regulations promulgated by the Secretary pursuant to statutory authority, particularly the nonsolicitation regulation, are valid governmental restrictions on speech.

A. The Nonsolicitation Regulation: The Realtors seek primarily to invalidate on its face the nonsolicitation regulation promulgated by the Secretary that establishes and enforces a comprehensive ban on solicitation by realtors in designated areas. The nonsolicitation regulation defines a nonsolicitation order as a “directive” to all real estate brokers and salespersons to “refrain from soliciting listings for the sale of residential property within a designated geographic area.” Prohibited are “any and all types of solicitation directed at or toward homeowners in the designated geographic area,” including but not limited to “letters, postcards, telephone calls, door-to-door calls, handbills, and postings in public areas.” The regulation, however, does permit advertisements that are published in newspapers of general circulation with a readership “throughout a substantial portion of the metropolitan New York City area,” published not less than once a week, and not distributed free of charge. Finally, by its terms the nonsolicitation regulation makes the nonsolicitation order applicable in specifically defined geographic areas (collectively the “nonsolicitation zones” or “nonsolicitation areas”).

B. Level of First Amendment Protection: Because the Supreme Court instructs us that “the Constitution accords less protection to commercial speech than to other constitutionally safeguarded forms of expression,” we “must first determine the proper classification of the [speech] at issue here. Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 64-65 (1983). The “core notion” of commercial speech is that of “‘speech which does “no more than propose a commercial transaction.”’” Id. at 66. However, the mere fact that the speech at issue “has an economic motivation” or is “conceded to be advertisement[ ]” is not by itself sufficient to convert that speech into “commercial” speech. Id. at 66-67. On the other hand, “advertising which ‘links a product to a current public debate’ is not thereby entitled to the constitutional protection afforded noncommercial speech.” Id. at 68 (quoting Central Hudson, 447 U.S. at 563 n.5). Finally, in considering these different elements, we are mindful of the Supreme Court’s general edict that where the communications at issue “are made in the context of commercial transactions” the speech is not accorded a higher level of constitutional protection under the First Amendment. Id.

Applying these principles, we agree with the district court that, at its core, the speech restricted by the nonsolicitation regulation is properly classified as commercial, at least for the purpose of this litigation. Other courts that have considered similar restrictions have concluded that the solicitation of homeowners by realtors seeking the right to list and sell residential real estate “is primarily aimed at proposing a commercial transaction, and should thus be classified as ‘commercial speech.’” Curtis v. Thompson, 840 F.2d 1291, 1297 (7th Cir.1988). Accordingly, we are satisfied, as the parties appear to be, that the speech at issue here is primarily “commercial” and that the challenged regulations are best scrutinized under the four part test delineated by the Supreme Court in Central Hudson for determining the validity of governmental restrictions on commercial speech under the First Amendment. See 447 U.S. at 566.


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C. Commercial Speech Analysis: In determining whether the nonsolicitation regulation is a valid restriction on commercial speech under the Central Hudson test, we look first to “whether the expression is protected by the First Amendment[,]” i.e., we look to see if, at a minimum, the commercial speech at issue “concern[s] lawful activity and [is] not ... misleading.” Central Hudson, 447 U.S. at 566. Next, we inquire “whether the asserted governmental interest is substantial.” Id. If we are satisfied that the answers to both these inquiries are affirmative, we turn next to the third and fourth prongs: “whether the regulation directly advances the governmental interest asserted,” and whether the regulation “is not more extensive than is necessary to serve that interest.” Id.

Here, the district court found, and the parties agree, that the first two prongs of the test are satisfied. With respect to the first, the Secretary does not dispute that “the ability of real estate brokers to solicit homeowners constitutes lawful activity and that housing solicitations are not per se misleading.” As to the second, the Realtors concede, in their brief to this Court, that the government has a substantial interest in combating blockbusting, “if, as and when it occurs.” As the district court and other courts have noted, the governmental interest in the promotion of stable, racially integrated communities through the elimination of the pernicious practice of blockbusting is a “vital goal.” Not surprisingly, therefore, the parties focus their arguments on the application of the third and fourth prongs of Central Hudson.

D. Application: The crux of the Realtors’ complaint with the nonsolicitation regulation is its fundamental failure to distinguish between truthful, nonmisleading solicitation and blockbusting. The Realtors, moreover, insist that the sweeping scope of the regulation arbitrarily transforms legitimate solicitation activity into blockbusting tactics presumptively motivated by the industry’s lust for financial gain at the expense of neighborhood stability.

In bringing their claim within the rubric of Central Hudson, the Realtors raise two contentions. First, they argue that the Secretary has failed in her burden to produce any direct evidence of systematic blockbusting in the last ten years. The Realtors insist that, in the absence of such evidence, the Secretary cannot demonstrate how the establishment and enforcement of nonsolicitation zones directly advance New York’s interest in eliminating blockbusting. Second, the Realtors argue that even if the record contains some anecdotal evidence of isolated instances of blockbusting by individual realtors, the record is devoid of the type of systematic blockbusting that might justify the imposition of a comprehensive ban on real estate solicitation. The Realtors insist that, at best, the record justifies the use of cease and desist orders, a less restrictive measure that is an equally effective means for protecting the targeted communities from blockbusting. The Realtors conclude, therefore, that the nonsolicitation regulation violates the commercial free speech rights of realtors because it neither directly advances the state’s substantial interest in promoting stable communities through the elimination of blockbusting nor provides the Secretary with a reasonably tailored means for eliminating that evil. We agree, at least with respect to the Realtors’ latter contention, that the nonsolicitation regulation is not a reasonably tailored restriction for achieving the governmental interest asserted in this case.

In determining whether the nonsolicitation regulation satisfies the Central Hudson test, we are mindful that “laws restricting commercial speech, unlike laws burdening


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other forms of protected expression, need only be tailored in a reasonable manner to serve a substantial state interest in order to survive First Amendment scrutiny.” Edenfield, 113 S.Ct. at 1798. The fact that the Secretary’s asserted interests in eliminating blockbusting “are substantial in the abstract does not mean, however, that [her] blanket prohibition on solicitation serves them.” 113 S.Ct. at 1800. Rather, to justify a content based restriction on commercial speech, the First Amendment “requires that a regulation impinging upon commercial expression ‘directly advance the state interest involved.’” Id. (quoting Central Hudson, 447 U.S. at 564). A regulation will not pass muster, therefore, “‘if it provides only ineffective or remote support for the government’s purpose.’” Id. (quoting Central Hudson, 447 U.S. at 564).

To that end, “‘[t]he party seeking to uphold a restriction on commercial speech carries the burden of justifying it.’” Id. (quoting Bolger, 463 U.S. at 71 n.20). The party seeking to uphold the restriction, moreover, cannot satisfy its burden “by mere speculation or conjecture” but “must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree.” Id. Accordingly, the failure of the Secretary to provide direct and concrete evidence that the evil that the restriction purportedly aims to eliminate does, in fact, exist will doom the nonsolicitation regulation under Central Hudson.

The record... contains primarily three types of evidence offered by the Secretary to establish the existence of blockbusting. First, she provides anecdotal testimony given at public hearings, often from second hand sources about the conduct of individual realtors. In reviewing that testimony, we believe that some of it supports, at least implicitly, the view that certain, individual realtors have engaged in conduct that could reasonably be characterized as blockbusting. Other parts of the testimony, however, merely demonstrate the annoyance of certain homeowners with being solicited in general. While such annoyance is understandable, it does not, by itself, equate with blockbusting.

Second, the Secretary submitted examples of written solicitations. In its opinion, the district court parsed out five that it concluded “implicitly show blockbusting.” Of those five, however, only the first, which states in pertinent part, “[c]ommunities are always changing in Brooklyn [and] Mill Basin homeowners like yourself are aware that these changes may directly affect property values,” could be interpreted as blockbusting. By contrast, the remaining four solicitations make no mention on their face or by implication of the need to sell because of changing racial or social conditions in the neighborhood. For example, one states, “[w]e ... recently learned that you own property ... [i]n case you are willing to sell it, please contact us at your earliest convenience.” Another merely contends:

[t]o date, nothing has been so grossly over-emphasized as how weak our local real estate market is!!! It is time to stop and ask, is it as terrible as everyone says it is!?! Yes, we have seen a stabilization in appreciation! Yes, there may be too many homes available than are needed! But, when the conditions are right–houses will sell!!!.... If you’re thinking of selling, call.... That is my message for the new year, I hope its [sic] clear.

Still another informs the homeowner that the agent is “working with several buyers who are interested in buying property in this neighborhood ... [so] [i]f [you] or anyone you know is interested in selling, please be kind enough to contact me.” In short, these solicitations are straightforward inquiries into whether the homeowner might be


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interested in listing the property for sale.

Third, the Secretary compiled reports for each nonsolicitation area summarizing the number of reported complaints of “heavy improper solicitations” received and petitions filed by residents seeking protection from solicitation through cease and desist orders. The reports indicated that 135 complaints were received by the Secretary from residents in Community District 9 in Queens County, while the majority of community districts covered by the regulation registered less than fifty complaints per district. Additionally, 3,400 petitions for relief from solicitation were received in one district in Queens County, while anywhere from 200 to 3,000 requests were received in other districts. This data, however, gives us no indication of whether the complaints and petitions for relief were driven by the use of improper blockbusting tactics or by residents’ annoyance with otherwise proper solicitations by realtors.

In evaluating this record, moreover, we cannot ignore what it does not contain. For example, the Secretary produced no evidence that she has adjudicated a single case of blockbusting against a licensed real estate broker, as blockbusting is defined under New York law. She failed to initiate a single charge against a licensed real estate agent arising out of the testimony at the public hearings. Indeed, the Secretary concedes that no follow up investigations were made to determine the reasonableness of the allegations made by homeowners at those hearings.

The record indicates, moreover, that the Secretary’s office has adjudicated only four complaints of racial steering in the last ten years. She provides us with no statistical comparison of real estate activity in areas initially proposed and areas ultimately designated as nonsolicitation zones and offers no empirical evidence that real estate values have declined as a result of real estate practices in the nonsolicitation areas. Indeed, she appears to argue that, because empirical evidence of blockbusting is itself difficult, if not impossible, to obtain, the nonsolicitation regulation can be justified exclusively on the premise that persistent solicitation by realtors, regardless of its content, in “transitional neighborhoods” is sufficient to establish a fortiori the existence of widespread blockbusting.

Admittedly, blockbusting is a difficult practice to prove. The practice often occurs through the use of subtle and implied, rather than direct and express, representations by realtors to homeowners. Moreover, this is not a record in which the Secretary failed to provide any evidence of blockbusting. Rather, the public hearings produced some evidence of the existence of a tangible harm that the Secretary is justified in trying to eliminate. Were this simply a case of whether the Secretary had established the existence of any blockbusting in the nonsolicitation areas, therefore, we would be less convinced that the nonsolicitation regulation fails under Central Hudson.

Unfortunately for the Secretary, however, Central Hudson requires us to evaluate not merely the existence of a particular type of harm but the scope of the restriction in light of the degree of the harm. Put another way: What [the] decisions require is a “ ‘fit’ between the [government’s] ends and the means chosen to accomplish those ends”–a fit that is not necessarily perfect, but reasonable; that represents not necessarily the single best disposition but one whose scope is “in proportion to the interest served [;]” that employs not necessarily the least restrictive means, but ... a means narrowly tailored to


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achieve the desired objective. Board of Trustees of SUNY v. Fox, 492 U.S. 469, 480 (1989). The need that the fit be “reasonable” as opposed to “necessarily perfect,” however, does not render the standard “overly permissive.” Id. Indeed, what constitutes a reasonable fit “is far different ... from the ‘rational basis’ test used for Fourteenth Amendment equal protection analysis.” Id. Instead, the First Amendment “require[s] the government goal to be substantial, and the cost to be carefully calculated.” Id. To prevail, therefore, the Secretary “must affirmatively establish the reasonable fit” required under Central Hudson. Id.

A review of the record convinces us that the Secretary has not affirmatively established such a fit. Particularly troubling in this case is the Secretary’s failure to determine empiracally whether less restrictive measures, such as the implementation of cease and desist orders, would provide an alternative means for effectively combating the level of blockbusting evidenced by the record in this case. The Secretary, moreover, offers no evidence of any kind that this type of narrower, resident activated measure, a measure that was in effect prior to the issuance of the solicitation ban, is an ineffective means for combating the individual incidents of blockbusting alleged by residents at the public hearings. In the absence of such evidence, we find it difficult to accept the Secretary’s position that a community wide, comprehensive ban on all real estate solicitations, regardless of the otherwise proper content of those solicitations, as opposed to the issuance and enforcement of the cease and desist orders on an individualized basis, is a reasonably tailored means for eliminating the harm of blockbusting as portrayed by this record. Finally, the regulation’s exemption of real estate advertisements in newspapers of general circulation fails to offer realtors the type of cost effective alternative that might arguably bring this regulation within the requirements of Central Hudson. Accordingly, we conclude that the nonsolicitation regulation is an impermissible restriction on commercial speech.

We caution, however, that our decision today is a narrow one, limited solely to the record before us. As should be clear from the discussion above, we do not reach the question of whether under certain facts and circumstances and under a different record, the Secretary might be able to justify some type of nonsolicitation regulation pursuant to section 442-hAccordingly, we hold only that the nonsolicitation regulation violates the First Amendment rights of the Realtors in this case.

E. 19 N.Y.C.C.R.R. §175.17(a): In addition to attacking the nonsolicitation regulation, the Realtors challenge the antiblockbusting regulation, 19 N.Y.C.C.R.R. §175.17(a), also promulgated by the Secretary. Unlike the nonsolicitation regulation, however, the Realtors seek to invalidate the antiblockbusting regulation only as it applies to their truthful, legal solicitations.

Section 175.17(a) prohibits a licensed real estate broker from “making any representations regarding the entry or prospective entry into the neighborhood of a person or persons of a particular race, color, religion or national origin.” The Realtors, however, do not take issue with the regulation per se. Indeed, to the contrary, they endorse it. Nonetheless, they ask us to declare the regulation unconstitutional as applied to truthful and nonmisleading communications from realtors. We decline.

As the district court correctly found, the plain language of the antiblockbusting


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regulation in no way touches upon truthful or nonmisleading speech that the Realtors seek to protect. Since only those communications that seek to induce a sale by preying on the racial and ethnic fears of homeowners is prohibited, we fail to see how the antiblockbusting regulation restricts in any way the legitimate, nonmisleading communications of the residential real estate industry in New York. We agree, therefore, with the district court that any further inquiry into this issue is “redundant and unnecessary.”


55. Construct a time line of the events in Shaffer.

56. Why does the court in Shaffer believe the non-solicitation question fails the Central Hudson test? Is its analysis correct? Given the language of the case, what kind of evidence might you try to amass in a future case to support re-issuance of the regulation?

57. Discuss whether Miami Beach Ordinance §25A-7(A) (11) might be vulnerable to a first amendment attack.

D. Discriminatory Advertising

UNITED STATES v. HUNTER459 F.2d 205 (4th Cir. 1972)

SOBELOFF, Senior Circuit Judge: ... Appellant Bill R. Hunter is editor and publisher of The Courier, a weekly newspaper with a circulation of 29,000, chiefly in Prince George’s County, Maryland. The Courier carries classified advertisements prepared by persons offering dwellings for sale or rent. In January and again in June, 1970, The Courier published a classified advertisement tendering for rent a furnished apartment in what was denominated a “white home.”1

Contending that such advertisements violated 42 U.S.C. §3604(c), the Attorney General instituted the present action against Hunter to obtain an order enjoining The Courier’s further publication of advertisements violative of §3604(c). The Attorney General also prayed for “such additional relief as the interests of justice may require.” Defending against the suit, Hunter disputed the Attorney General’s interpretation of §3604(c). The publisher argued that the section was not intended to apply to a newspaper which published such advertisements; that it would be unconstitutional if so applied; and that, in any event, the statute was not violated by an advertisement specifying that the apartment was located in a “white home.”

After a trial, the District Judge denied the Government’s request for an injunction, but did grant it a favorable judgment declaring that §3604(c) was intended to apply to 1 The classified advertisement on January 8, 1970 read: “FOR RENT-Furnished basement apartment. In private white home. Call JO3-5493.” The ad on June 18, 1970 read: “FURNISHED APARTMENT, well located, clean quiet. In white home. Gentlemen only. $17.50 a week. Call JO3-5493.” Both ads were placed by an elderly, retired man who lived in southeast Washington, D.C.


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newspapers; was constitutional in its ban on discriminatory advertisements, including those published by newspapers; and was contravened by the advertisements published in The Courier. From these adverse rulings Hunter appeals. Appellant raises essentially the same arguments he unsuccessfully presented to the District Court. Perceiving no more merit in appellant’s contentions than did the judge below, we affirm the District Court’s declaratory judgment.

A. Section 3604(c) Prohibits the Publication of Discriminatory Housing Advertisements by Newspapers. Hunter first takes the position that §3604(c) was not intended to prevent newspapers from publishing classified advertisements indicating a racial or other statutorily proscribed preference in the sale or rental of a dwelling. We reject this assertion, for we find Congress clearly intended that very prohibition.

Legislative intent is first to be gathered from the plain meaning of the words of the statute. It is presumed that statutory language is used in its ordinary sense, with the meaning commonly attributed to it, unless the contrary clearly appears. The section here under examination provides on its face no exemptions in favor of newspapers. Rather, it uses precisely the language which would lead the ordinary reader to conclude that newspapers are to be brought within its purview. The section provides it shall be unlawful “to make, print, publish, or cause to be made, printed, or published” any advertisement prohibited by the Act. In the context of classified real estate advertising, landlords and brokers “cause” advertisements to be printed or published and generally newspapers “print” and “publish” them. Since each phrase in a statute must, if possible, be given effect, both landlords and newspapers are within the section’s reach.

Hunter attempts to draw an analogy to Brush v. San Francisco Newspaper Printing Co., 315 F.Supp. 577 (N.D.Cal. 1970), in which it was held that §704(b) of the Civil Rights Act of 1964, does not include newspapers in its proscription of discriminatory employment advertisements. Brush, however, is inapposite, because the section there involved is fundamentally different from our §3604(c) in that the 1964 Act specifically lists the persons regulated: “an employer, labor organization, or employment agency.” The Brush court held that a newspaper was none of these and that, under the maxim expressio unius est exclusio alterius, it did not fall within the Act’s restriction. Moreover, Brush relied on a clear statement in the legislative history of the 1964 Act that newspapers were not required to exercise any control or supervision over the advertisements they published. In contrast to the section construed in Brush, no restriction in scope appears on the face of §3604(c). Unlike other sections of the Fair Housing title, §3604(c) does not provide any specific exemptions or designate the persons covered, but rather, as the court below noted, applies on its face to “anyone” printing or publishing illegal advertisements. Brush is, therefore, not persuasive in interpreting the instant section.

Congressional intent disclosed by the meager legislative history concerning §3604(c) does not contradict our view of the unambiguous language chosen by the draftsmen of the section. Indeed there is some evidence that the publication of discriminatory classified advertisements in newspapers was precisely one of the evils the Act was designed to correct. See Hearings on S. 1358, S. 2114 and S. 2280 before the Subcommittee on Housing and Urban Affairs, Senate Committee on Banking and Currency, 90th Cong. 1st Sess. at 386, 388 (1967). (George Meany’s testimony,


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complaining of discriminatory housing advertisements in newspapers.) We therefore agree with the District Court that the congressional prohibition of discriminatory advertisements was intended to apply to newspapers as well as any other publishing medium.

B. The Constitution Does Not Prohibit the Application of §3604(c) to Newspapers. Hunter next asks us to overturn §3604(c) as violative of the First and Fifth Amendments of the U.S. Constitution.

1. Freedom of the Press. Noting that §3604(c) limits advertising an intent to discriminate in the sale or rental of a dwelling only in a commercial context and not in relation to the dissemination of ideas, the District Court held that the statute does not contravene the First Amendment, and hence that a court might constitutionally enjoin a newspaper’s printing of classified advertisements which violate the Act.

The court’s conclusion is supported by an unbroken line of authority from the Supreme Court down which distinguishes between the expression of ideas protected by the First Amendment and commercial advertising in a business context. It is now well settled that, while “freedom of communicating information and disseminating opinion” enjoys the fullest protection of the First Amendment, “the Constitution imposes no such restraint on government as respects purely commercial advertising.” Valentine v. Christensen, 316 U.S. 52, 54 (1942). Relying on this difference, district courts have uniformly held that §3604(e), banning blockbusting practices, does not contravene the First Amendment.

The publisher’s response to the cases distinguishing between commercial advertising and other forms of expression is that the distinction is “meaningless in the context of the newspaper publishing business” because the revenue newspapers derive from advertising makes possible the publication of the rest of the paper. But it has been held that a newspaper will not be insulated from the otherwise valid regulation of economic activity merely because it also engages in constitutionally protected dissemination of ideas. While it is true, as Hunter contends in his brief, that “a newspaper can be silenced as easily by cutting off its source of funds, as it can be by enjoining its publication,” no such threat is raised by the Act’s prohibition of racially discriminatory advertisements. Nondiscriminatory advertisements are still permitted. Since the Act also bars private publication of discriminatory advertisements, an advertiser has no incentive to abandon his regular use of newspapers to publicize his offer to sell or rent. We therefore doubt that the Act will deprive a newspaper of any revenue. Thus, the statute before us ... will not adversely affect the valid dissemination of opinion or information.9

9 Contrary to the contentions in Hunter’s brief, nothing in the statute or the relief requested by the Attorney General prohibits a newspaper from publishing news accounts concerning racial discrimination in housing, or criticizing the Government’s enforcement of the Fair Housing Title, or editorially advocating repeal of the Act.. Only publication of advertisements which indicate a discriminatory preference for certain customers in seeking a buyer or a renter of a dwelling-a commercial transaction-is proscribed.


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Congressional regulation of commercial advertising is not barred by Near v. Minnesota, 283 U.S. 697 (1931), which condemned unlawful prior restraints on free speech. The Supreme Court and lower courts have frequently rejected First Amendment attacks on injunctions when the enjoined conduct or expression was not fully protected by the First Amendment. Lorain Journal Co. v. U.S., 342 U.S. 143 (1951) (unanimous opinion upholding injunction prohibiting publisher from accepting or rejecting commercial advertisements of others in violation of the antitrust laws); Gompers v. Buck’s Stove & Range Co., 221 U.S. 418, 439 (1911) (upholding injunction against union newspaper promoting boycott). See also Head v. New Mexico Board of Examiners, 374 U.S. 424, 432 n. 12 (1963) (injunction restraining newspaper from publishing optometrist’s advertising affirmed against attack based on the due process clause). In concluding that an injunction under §3604(c) would not violate the First Amendment, we have also considered Hunter’s recital of possible economic damages to a publishing business operating under such a court order. We think his fears of economic consequences are overdrawn. Furthermore, as a matter of law, his argument is answered by the Supreme Court’s unanimous affirmance of injunctive relief against a newspaper in Lorain Journal Co. v. U.S..

Finally, a newspaper publisher can easily distinguish between permissible and impermissible advertisements in discharging his duty to reject those that violate §3604(c). In contrast to “printer’s ink” statutes which make false advertising a crime, and which either legislatively or judicially exempt newspapers, a publisher can readily determine from the face of an advertisement whether it is intended to express a discriminatory preference. However the language of the advertisement is couched, the purpose of an advertiser who wishes to publish an advertisement in violation of the Act is to communicate his intent to discriminate and a newspaper publisher can divine this intent as well as any of his readers.

Accordingly application of §3604(c) to newspapers does not contravene freedom of the press protected by the First Amendment.

2. Due Process. Hunter also argues that banning a newspaper’s publication of discriminatory housing advertisements violates a publisher’s rights under the due process clause. He contends syllogistically that, since a private, single- family homeowner, and a “Mrs. Murphy” landlord are permitted by §3603(b) to effectuate their discriminatory preferences by refusing to sell or rent certain dwellings to a particular racial, religious, or ethnic group,10 they must also, either as a constitutional right or as a matter of statutory construction, be entitled to communicate in commercial advertising their intent to so discriminate. Therefore, the argument goes, if those persons may communicate their

10 Section 3603(b)(1) lists a number of circumstances by which a “single-family house sold or rented by an owner” will be exempted from the Act’s prohibition of refusing to sell or rent a dwelling because of one’s color, race, religion or national origin. Section 3603(b)(2) exempts “Mrs. Murphy’s” now renowned roominghouse, i.e., “rooms or units in dwellings containing living quarters occupied or intended to be occupied by no more than four families living independently of each other, if the owner actually maintains and occupies one of such living quarters as his residence.” It appears that the rooms in the “private white home” offered for rent in the advertisements published by The Courier qualify the owner for the Mrs. Murphy exemption.


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discriminatory intent, it is a violation of equal protection of the laws, or alternatively a deprivation of liberty or property without due process of law for Congress to deprive newspapers of the right to publish the same lawful communications.

We reject Hunter’s conclusion because we cannot accept the premises upon which he rests his syllogism. While the owner or landlord of an exempted dwelling is free to indulge his discriminatory preferences in selling or renting that dwelling, neither the Act nor the Constitution gives him a right to publicize his intent to so discriminate.

Clearly, there is no such statutory right. Section 3603(b) establishes an exemption only from the prohibitions set forth in §3604(a)(b) and (d). The Act specifically states that subsection (c) of §3604 shall apply to sellers or lessors of dwellings even though they are otherwise exempted by §3603(b). The draftsmen of the Act could not have made more explicit their purpose to bar all discriminatory advertisements, even those printed or caused to be printed by persons who are permitted by §3603(b) to discriminate in selling or renting. During the House debate on the Fair Housing Title, Representative Celler, a supporter of the bill, said: “If one [otherwise exempted by §3603(b)] advertised in a mass media communication like a newspaper using discriminatory material, then one would come within the purview of the fair housing title.”

Nor is there any constitutional requirement that sellers or lessors of otherwise exempted dwellings be permitted to advertise their intent to discriminate. As established above, the First Amendment is not violated by a regulation appertaining only to commercial activity such as the publication of an advertisement offering to sell or rent a dwelling. If the prohibition of discriminatory advertisements is to be struck down, it must be because it is violative of the due process clause. Regulation of commercial advertising has withstood due process attack when the end is legitimate and reasonably related to the means employed. The Fair Housing Title was designed to provide fair housing throughout the nation and is a valid exercise of congressional power under the Thirteenth Amendment to eliminate badges and incidents of slavery. In combating racial discrimination in housing, Congress is not limited to prohibiting only discriminatory refusals to sell or rent. Widespread appearance of discriminatory advertisements in public or private media may reasonably be thought to have a harmful effect on the general aims of the Act: seeing large numbers of “white only” advertisements in one part of a city may deter nonwhites from venturing to seek homes there, even if other dwellings in the same area must be sold or rented on a nondiscriminatory basis.

Thus Congress has acted within the bounds of its constitutional power in prohibiting all discriminatory advertising of any dwelling, notwithstanding that some dwellings are otherwise exempted from the Act. If an individual advertiser has no constitutional or statutory right to circulate a discriminatory housing advertisement, a newspaper can stand in no better position in printing that unlawful advertisement at the individual’s request. Hunter’s finespun argument falls, then, because his syllogism is without a solid foundation.

Moreover, even if private homeowners and “Mrs. Murphy” landlords were constitutionally or statutorily excluded from §3604(c)’s coverage-and they are not-neither due process nor equal protection is abridged by a statute forbidding newspapers from carrying discriminatory housing advertisements. Newspapers have a far more widespread


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coverage than privately circulated advertisements, magnifying the already mentioned deleterious effect discriminatory advertisements might have on the congressional purpose in the Fair Housing Title. .... Even if the ban on discriminatory housing advertisements applied only to public media, we hold such a classification to be reasonable and within the discretion of Congress.

C. Advertisements Stating that Apartments are in a “White Home” Indicate a Racial Preference, And Therefore are Prohibited by §3604(c). To the ordinary reader the natural interpretation of the advertisements published in The Courier is that they indicate a racial preference in the acceptance of tenants. Indeed, the indication of a racial limitation is precisely what the writer of the advertisements published in The Courier intended when he used the words “white home.” He later explained his reason for including the phrase in his ad: “It’s really a kindness to colored people. There’s no use making them ... come here when I’m not going to rent to them.” Accordingly, the District Court correctly held that the two advertisements published by The Courier violated the Act.

Any other interpretation of the advertisements would severely undercut the objectives of the legislation. If an advertiser could use the phrase “white home” in substitution for the clearly proscribed “white only,” the statute would be nullified for all practical purposes. We cannot condone an interpretation which would circumnavigate congressional intent in this remedial statute designed to eliminate the humiliation and social cost of racial discrimination.

For the reasons above stated in sections A, B, and C of this part of the opinion, we affirm the District Court’s grant of a declaratory judgment. ...


923 F.2d 995 (2d Cir. 1991)

WINTER, Circuit Judge: The New York Times Company appeals ... from the denial of its motion under Fed.R.Civ.P. 12(b)(6) to dismiss the complaint in the instant matter. Briefly stated, the complaint alleges that, during the past twenty years, the Times has published real estate advertisements “featuring thousands of human models of whom virtually none were black,” and that the few blacks depicted rarely represented potential home buyers or renters. On those rare occasions when blacks were depicted as consumers of housing, moreover, the housing in question was in predominantly black areas. Plaintiffs contend that by publishing these advertisements the Times has violated the Fair Housing Act.... Because Section 3604(c) validly prohibits the publication of real estate ads that “indicate[] any preference ... based on race,” and the complaint can fairly be read to allege that the Times has published such ads, we affirm the denial of the motion to dismiss.

BACKGROUND. The Times is the publisher of The New York Times, a nationally known newspaper. The individual plaintiffs are black persons who have been looking for housing in the New York metropolitan area. Plaintiff Open Housing Center, Inc., is a not-for-profit New York corporation, one of the primary goals of which is to eliminate


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racially discriminatory housing practices. ... A pertinent excerpt from the complaint states:

During the twenty year period since the Act was passed ... advertisements appeared in the Sunday Times featuring thousands of human models of whom virtually none were black.... [W]hile many of the white human models depict representative or potential home owners or renters, the few blacks represented are usually depicted as building maintenance employees, doormen, entertainers, sports figures, small children or cartoon characters....

[T]he Times has continued to ... publish numerous advertisements that picture all-white models in advertisements for realty located in predominantly white buildings, developments, communities or neighborhoods. It has also ... published a few advertisements that picture all black models in advertisements for realty located in predominantly black buildings, developments, communities or neighborhoods. The use of human models in advertising personalizes the advertisements and encourages consumers to identify themselves in a positive way with the models and housing featured. In real estate advertisements, human models often represent actual or potential purchasers or renters, or the type of potential purchasers or renters that the real estate owner has targeted as desirable occupants. Therefore, the repeated and continued depiction of white human models and the virtual absence of any black human models ... indicates a preference on the basis of race.... The real estate display advertisements featured by the Times indicate a preference based on race through the use of human models reflecting the predominant race of the advertised building, development or community.

The Times moved ... to dismiss the complaint for failure to state a claim upon which relief may be granted. ... With respect to the claim under Section 3604(c), Judge Haight denied the motion to dismiss. Responding to the Times’s arguments, he first concluded that the pattern of ads alleged in the complaint, if proven at trial, would be sufficient to support a finding that the Times had published ads that indicated a racial preference. Second, Judge Haight concluded that the First Amendment provides no protection for such illegal commercial speech, and that requiring the Times to monitor the ads it receives would not impose an unconstitutional burden on the press. Finally, assuming for purposes of his decision that the constitutional vagueness doctrine was applicable to civil actions involving commercial speech, Judge Haight concluded that the statute gave the Times constitutionally adequate notice of the prohibited conduct. ...

DISCUSSION. Like any party moving to dismiss a complaint under Fed.R.Civ.P. 12(b)(6), the Times must carry the burden of showing that “it appears beyond doubt that the plaintiff[s] can prove no set of facts in support of [their] claim which would entitle [them] to relief.” Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Given the breadth of the facts alleged in the complaint, most of the Times’s statutory and constitutional arguments amount to an assertion of immunity from Section 3604(c). We reject those arguments.

A. Statutory Issues. Section 3604(c) states in pertinent part that it is unlawful: “To ... publish ... any ... advertisement, with respect to the sale or rental of a dwelling that indicates any preference ... based on race....” Beginning our analysis with the statutory language, the first critical word is the verb “indicates.” Giving that word its common meaning, we read the statute to be violated if an ad for housing suggests to an ordinary reader that a particular race is preferred or dispreferred for the housing in question. This standard has been adopted by the Fourth, see United States v. Hunter, 459


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F.2d 205, 215 (4th Cir.), cert. denied, 409 U.S. 934 (1972), and District of Columbia Circuits, see Spann v. Colonial Village, Inc., 899 F.2d 24 (D.C.Cir.1990), and we also adopt it.

The second critical word is the noun “preference.” The Times asks us to read that word to preclude liability for a publisher where the ad in question is not facially discriminatory and the publisher has no other evidence of a discriminatory intent. We share that general view but with important qualifications.

The Times’s conception of what kinds of ads might be deemed by a trier of fact as facially suggesting to an ordinary reader a racial preference is intolerably narrow. At oral argument, suggested as examples of such a facial message were real estate advertisements depicting burning crosses or swastikas. We do not limit the statute—not to say trivialize it—by construing it to outlaw only the most provocative and offensive expressions of racism or statements indicating an outright refusal to sell or rent to persons of a particular race. Congress used broad language in Section 3604(c), and there is no cogent reason to narrow the meaning of that language. Ordinary readers may reasonably infer a racial message from advertisements that are more subtle than the hypothetical swastika or burning cross, and we read the word “preference” to describe any ad that would discourage an ordinary reader of a particular race from answering it.

Moreover, the statute prohibits all ads that indicate a racial preference to an ordinary reader whatever the advertiser’s intent. To be sure, the intent of the creator of an ad may be relevant to a factual determination of the message conveyed, but the touchstone is nevertheless the message. If, for example, an advertiser seeking to reach a group of largely white consumers were to create advertisements that discouraged potential black consumers from responding, the statute would bar the ads, whether or not the creator of the ad had a subjective racial intent.

Keeping these general, and fairly obvious, propositions in mind, we turn to the allegations of the complaint. Those allegations focus upon the use of models of particular races in real estate advertisements. A threshold question is whether Section 3604(c) reaches the use of models as a medium for the expression of a racial preference. We hold that it does. Congress prohibited all expressions of racial preferences in

housing advertisements and did not limit the prohibition to racial messages conveyed through certain means. Neither the text of the statute nor its legislative history suggests that Congress intended to exempt from its proscriptions subtle methods of indicating racial preferences.1

1 We draw additional support in this regard from a regulation issued by the Department of Housing and Urban Development (“HUD”). This regulation, which was promulgated pursuant to HUD’s statutory authority to enforce the Fair Housing Act and based on Section 3604(c), states:

Use of human models. Human models in photographs, drawings, or other graphic techniques may not be used to indicate exclusiveness because of race, color, religion, sex, handicap, familial status, or national origin. If models are used in display advertising campaigns, the models should be clearly definable as reasonably representing majority and minority groups in the metropolitan area, both sexes, and, when appropriate, families with children. Models, if used, should portray persons in an equal social setting and indicate to the general public that the housing is open to all without regard to race, color, religion, sex, handicap, familial status, or national origin, and is not for the exclusive use of one such group. 24 C.F.R. §109.30(b).


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The next question is whether and in what circumstances the use of models may convey an illegal racial message. We begin with another proposition that seems to us fairly obvious: namely, that a trier of fact could find that in this age of mass communication and sophisticated modes of persuasion, advertisers target as potential consumers groups with certain racial as well as other characteristics. In some circumstances, such targeting conveys a racial preference, or so a trier might find. We live in a race-conscious society, and real estate advertisers seeking the attention of groups that are largely white may see greater profit in appealing to white consumers in a manner that consciously or unconsciously discourages non-whites. They may do so out of simple inertia or because of the fear that the use of black models will deter more white consumers than it attracts black consumers. In any event, a trier plausibly may conclude that in some circumstances ads with models of a particular race and not others will be read by the ordinary reader as indicating a racial preference.

The Times does not deny that advertisers target groups but rather vigorously presses the claim that if Section 3604(c) is applied to the Times, the specter of racially conscious decisions and of racial quotas in advertising will become a reality. We need not enter the public debate over the existence or merits of racial quotas in fields other than advertising, or look to the scope of Supreme Court decisions that permit race-conscious decisions. Nor do we by any means suggest that an order directing such quotas is the only appropriate or usual remedy should a publisher be found liable.

We do believe, however, that the Times’s concerns are overblown. The quota controversy principally concerns selection of persons for competitive opportunities, such as employment or admission to college. These are circumstances in which opinions differ whether individual skills or purely academic qualifications should govern and whether a race-conscious decision is itself an act of racial discrimination. The use of models in advertising, however, involves wholly different considerations. Advertising is a make-up- your-own world in which one builds an image from scratch, selecting those portrayals that will attract targeted consumers and discarding those that will put them off. Locale, setting, actions portrayed, weather, height, weight, gender, hair color, dress, race and numerous other factors are varied as needed to convey the message intended. A soft-drink manufacturer seeking to envelop its product in an aura of good will and harmony may portray a group of persons of widely varying nationalities and races singing a cheerful tune on a mountaintop. A chain of fast-food retailers may use models of the principal races found in urban areas where its stores are located. Similarly, a housing complex may decide that the use of models of one race alone will maximize the number of potential consumers who respond, even though it may also discourage consumers of other races.

In advertising, a conscious racial decision regarding models thus seems almost inevitable. All the statute requires is that in this make-up-your-own world the creator of an ad not make choices among models that create a suggestion of a racial preference.

Emphasizing the use of the word “should,” the Times urges that the HUD regulation is purely precatory and lacks the force of law. We need not pause to probe this issue, however. The agency is not attempting to enforce the regulation in the instant matter, and we rely on it solely as additional support for the view that racial messages conveyed by the use of human models are not exempted.


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The deliberate inclusion of a black model where necessary to avoid such a message seems to us a far cry from the alleged practices that are at the core of the debate over quotas. If race-conscious decisions are inevitable in the make-up-your-own world of advertising, a statutory interpretation that may lead to some race-conscious decisionmaking to avoid indicating a racial preference is hardly a danger to be averted at all costs.

Moreover, the Times’s argument would prevent a trier of fact from scrutinizing the selection of models and inferring from that selection and from the surrounding circumstances a race-conscious decision. The creator of an ad may testify, “Gosh, I didn’t notice until this trial that all the models for tenants were white and the model for a custodian was black.” However, a trier may justifiably disbelieve such an assertion in light of all the circumstances, much as triers of fact are allowed to draw inferences of racial intent in other contexts, or may consider such an assertion an inadvertent or unconscious expression of racism.

Given this scope for fact-finding, the present complaint cannot be dismissed for failure to state a claim for relief. It alleges a long-standing pattern of publishing real estate ads in which models of potential consumers are always white while black models largely portray service employees, except for the exclusive use of black models for housing in predominantly black neighborhoods. Finally, it alleges that this pattern reflects a targeting of racial groups. Given the ordinary reader test, it can hardly be said that these allegations are insufficient to enable plaintiffs to prove that the Times has published, and continues to publish, some discriminatory ads.

In the proceedings to follow, the standard for liability will no doubt be sharpened in the context of the parties’ evidentiary submissions. We believe it useful to make some preliminary observations on that standard, however. First, we agree with the Times that liability may not be based on an aggregation of advertisements by different advertisers. Although the twenty-year pattern alleged in the complaint may have been a powerful engine for housing segregation and, if proven, will almost certainly include violations of Section 3604(c), the statute provides a prohibition only with regard to individual advertisers.

Second, as stated, liability will follow only when an ordinary reader would understand the ad as suggesting a racial preference. The ordinary reader is neither the most suspicious nor the most insensitive of our citizenry. Such a reader does not apply a mechanical test to every use of a model of a particular race. An ad depicting a single model or couple of one race that is run only two or three times would seem, absent some other direct evidence of an intentional racial message, outside Section 3604(c)’s prohibitions as a matter of law. A housing complex that runs ads several times a week for a year depicting numerous white models as consumers and black models as doormen or custodial employees would have difficulty persuading a trier of fact that its ads did not facially indicate a racial preference. It thus seems inevitable that the close questions of liability will involve advertisers that either use a large number of models and/or advertise repetitively. In such cases, the advertiser’s opportunities to include all groups are greater, and the message conveyed by the exclusion of a racial group is stronger.

B. Constitutional Issues. The Times argues that Section 3604(c) is void for


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vagueness. Even if we indulge in the assumption that the vagueness doctrine applies to civil actions, we believe the ordinary reader standard provides constitutionally adequate notice of the prohibited conduct. As Judge Haight observed, “[t]he ‘ordinary reader’ is nothing more, but nothing less, than the common law’s ‘reasonable man’: that familiar creature by whose standards human conduct has been judged for centuries.” The Times’s argument seems based on an unstated premise either that the selection of models in advertising is entirely random or that publishers of major newspapers lack the sophistication to notice racial messages that are apparent to others. The premise regarding the random selection of models is baseless, and we have more confidence in the perspicacity of publishers than do the Times’s lawyers. Of course, close questions will arise, as they do in every area of the law, but we cannot say in the context of a facial challenge to the statute that the ordinary reader test—as Judge Haight noted, not a novel, untried concept—is a hopelessly vague legal standard.

The Times also claims that the district court’s interpretation of Section 3604(c) violates the First Amendment. We disagree. Judge Haight held that real estate advertisements that indicate a racial preference “further an illegal commercial activity: racial discrimination in the sale or rental of real estate.” From this premise he concluded that such advertisements are constitutionally unprotected. The Times contends that, because the activity being advertised is the rental or sale of realty, a legal activity, the advertisements are entitled to protection as lawful commercial speech. Moreover, the Times describes as “circular” the use of the statute that is subject to constitutional challenge as the ground for determining that the speech in question is illegal.

The Supreme Court has made clear that “[t]he Constitution ... accords a lesser protection to commercial speech than to other constitutionally guaranteed expression.” Central Hudson Gas & Elec. v. Public Serv. Comm’n, 447 U.S. 557, 562-63 (1980). It is the informational content of advertising that gives rise to its First Amendment protection. “[C]ommercial messages that do not accurately inform the public about lawful activity” are unprotected. See id. The government may, therefore, ban deceptive advertising or “commercial speech related to illegal activity.” Id. at 563-64.

In Pittsburgh Press Co. v. Human Relations Comm’n, 413 U.S. 376 (1973), the City of Pittsburgh passed an ordinance that outlawed sex discrimination in employment and prohibited any advertisement “indicat[ing]” sex discrimination. Pittsburgh Press was found to have aided the violation of the ordinance by publishing help wanted advertisements in separate, sex-designated columns. The Court held that the sex-designated columns were related to illegal activity and were therefore unprotected commercial speech. The Court concluded that:

[a]ny First Amendment interest which might be served by advertising an ordinary commercial proposal and which might arguably outweigh the governmental interest supporting the regulation is altogether absent when the commercial activity itself is illegal and the restriction on advertising is incidental to a valid limitation on economic activity.

As was the case with the Pittsburgh ordinance prohibiting employment discrimination and ads indicating such discrimination in Pittsburgh Press, the Fair Housing Act prohibits discrimination in the sale or rental of housing, as well as ads that indicate a racial preference. The complaint alleges that the ads in question discourage black people from pursuing housing opportunities by conveying a racial message in much


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the same way that the sex-designated columns in Pittsburgh Press furthered illegal employment discrimination. The Times’s publication of real estate advertisements that indicate a racial preference is, therefore, not protected commercial speech.

We do not agree that in the instant matter it is circular to determine that a particular kind of commercial speech is illegal by reference to the very statute that is the subject of the constitutional challenge. Such circularity would exist only if there were doubt about Congress’s power to prohibit speech that directly furthers discriminatory sales or rentals of housing. The Times understandably shrinks from such a bold and fruitless challenge to the Fair Housing Act. Given that Congress’s power to prohibit such speech is unquestioned, reliance upon the statute to determine the illegality of ads with a racial message is not circular but inexorable.

The Times also raises a number of arguments concerning purportedly unconstitutional burdens imposed by Section 3604(c). First, the Times argues that enforcement of the Fair Housing Act against newspapers will compromise the unique position of the free press. As the Supreme Court in Pittsburgh Press was unable to discern any significant interference with the traditional “protection afforded to editorial judgment and to the free expression of views ... however controversial,” 413 U.S. at 391, so we perceive no disruption of the press’s traditional role that will result from prohibiting the publication of real estate ads that, to the ordinary reader, indicate a racial preference.

Second, the Times contends that the press cannot be compelled to act as an enforcer of otherwise desirable laws and that such an obligation imposes unconstitutional special burdens on the press. The Times relies upon Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985). Zauderer, however, is wholly inapposite. In pertinent part, that decision addressed the constitutionality of a broad prohibition on the use of advertising by lawyers to give unsolicited legal advice and to recommend their own hiring. Although the ads in question were conceded to be truthful, the State attempted to justify the ban on the grounds that ads of that nature were prone to falsehoods and deception and that separation of the true from the false was so costly as to make a broad prohibition necessary. The Court rejected that argument, observing that “the free flow of commercial information is valuable enough to justify imposing on would-be regulators the costs of distinguishing the truthful from the false, the helpful from the misleading, and the harmless from the harmful.” Id. at 646. We do not have before us, however, a statutory prohibition on harmless as well as harmful advertising. The ban is on racial messages, and the “would-be regulators,” namely the plaintiffs, are entirely willing to bear the burden of proving at trial that the advertisements published by the Times indicated a racial preference. Zauderer, therefore, is of no aid to the Times.

Third, returning to the model of the obtuse publisher, the Times asserts that the press is ill-equipped to conduct the monitoring of advertisements that Section 3604(c) requires. There is, however, no support for the factual premise of this argument. Given the facial nature of the Times’s challenge to the statute—namely, that the Times need not monitor the use of models in real estate ads at all—we do not address every ambiguous situation that may arise. Indeed, we need only take notice of the monitoring of messages in advertising that the Times presently undertakes.


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The Times thus admits that it presently reviews advertising submissions to avoid publishing ads that do not meet its “Standards of Advertising Acceptability.” These Standards provide inter alia:

The Times will not accept: 1. Generally —Advertisements which contains [sic] fraudulent, deceptive, or misleading statements or illustrations. —Attacks of a personal character. —Advertisements that are overly competitive or that refer abusively to the goods or services of others. 2. Investments Advertisements which do not comply with applicable federal, state and local laws and regulations. 3. Occult Pursuits Advertisements for fortune telling, dream interpretations and individual horoscopes. 4. Foreign Languages ....

5. Discrimination —Advertisements which fail to comply with the express requirements of federal and state laws against discrimination, including Title VII and the Fair Housing Act, or which otherwise discriminate on grounds of race, religion, national origin, sex, age, marital status or disability. 6. Offensive to Good Taste Indecent, vulgar, suggestive or other advertising that, in the opinion of The Times, may be offensive to good taste. This list is not intended to include all the types of advertisements unacceptable to The Times. Generally speaking, any other advertising that may cause financial loss to the reader, or injury to his health, or loss of his confidence in reputable advertising and ethical business practices is unacceptable.

Given that this extensive monitoring—for purposes that are both numerous and often quite vague—is routinely performed, it strains credulity beyond the breaking point to assert that monitoring ads for racial messages imposes an unconstitutional burden.

Moreover, the Times’s argument is a policy argument that, if accepted, would undermine other civil rights laws. For example, the Times is prohibited by Title VII from discriminating on the basis of race in employment. It thus must monitor those of its employees with the power to hire and fire. Given the intangible and unquantifiable factors that legitimately may be taken into account in employment decisions, Section 3604(c) seems to us to impose a lesser burden of compliance than Title VII.

We do view one of the Times’s arguments with a degree of sympathy, although it does not affect the outcome. The individual plaintiffs seek compensatory and punitive damages for emotional injury resulting from the ads in question, and the Times is fearful that such claims from a multitude of plaintiffs might lead to a large number of staggering, perhaps crushing, damage awards that might over time impair the press’s role in society. The problem is that a claimant may establish a prima facie case for such damages simply by oral testimony that he or she is a newspaper reader of a race different from the models used and was substantially insulted and distressed by a certain ad. The potential for large numbers of truly baseless claims for emotional injury thus exists, and there appears to be no ready device, other than wholly speculative judgments as to credibility, to separate the genuine from the baseless. However, we do not regard this possibility as a reason to immunize publishers from any liability under Section 3604(c), including injunctive relief. Rather, it is reason to assert judicial control over the size of damage awards for emotional injury in individual cases. Where the claim of an illegal racial preference is based solely upon the use of models and not upon more directly offensive racial messages, we are confident that courts will be able to keep such awards within reason.

Accordingly, the judgment of the district court is affirmed.


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Newspaper Liability & the First Amendment

58. What is the argument made by the court in Hunter that the statute applies to newspapers. What policy arguments support extending liability to newspapers? What arguments do the newspapers make in Hunter and Ragin that the application of the statute is too burdensome to them? What are the courts’ responses? Are they convincing?

59. What limitations does Ragin place on the scope of newspaper liability for publication of ads that employ human models in a way that violates the statute? Are these limitations sufficient to protect the newspapers? Too great?

60. An online web service allows people to post classified ads on its website. The service does not edit the ads at all, but does provide an indexing system to facilitate online searches of the ads. If one of the posted ads violates §3604(c), should the service be liable?

61. Look at 24 CFR §100.75(c)(3). What does this regulation prohibit? Is the regulation a reasonable interpretation of §3604(c)? What kinds of situations covered by the regulation seem to fit best with the policies of the statute? What kinds fit least?

62. §3604(c) often will ban advertising of legal forms of discrimination (e.g., family status discrimination by the owner of one single-family home. Hunter’s conclusion that this would not violate the First Amendment is based on an outdated assumption that the First Amendment doesn’t protect commercial speech. Is Ragin correct that this restriction on the speech of the advertiser meets the current legal test from Central Hudson for regulation of commercial speech?.

Ordinary Reader Test

63. Hunter and Ragin find that an ad violates §3604(c) if it suggests to an “ordinary reader” a preference or dispreference for a particular protected category. What intent must the defendant have to violate this test? Is the test consistent with the statutory language? What type of evidence would you use to prove a violation of this test? Of what relevance is the evidence of the advertiser’s intent noted in Hunter?

64. Who is an “ordinary reader”? How might Ragin’s definition help a judge or jury to apply the test? Should the “ordinary reader” vary depending on the particular publication in which the ad appears? Some commentators have suggested that the test should focus on the views of an ordinary reader of the particular category that the ad is alleged to disfavor (e.g., “ordinary African-American reader”). What evidence might you present to jurors who are not members of the category to help them understand what this type of ordinary reader believes? What statutory and policy arguments could you make to a court considering adoption of this test?

65. What arguments can you make about whether any of the following statements would violate §3604(c) if made as part of housing ads:

a) “ Divorced white professional female seeks roommate”

b) “ Spanish speaker preferred”

c) “ Perfect for Singles or Couple”

d) “ Walking distance to shopping”

e) “ Convenient to Knights of Columbus”


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SAUNDERS v. GENERAL SERVICES CORP.659 F.Supp. 1042 (E.D. Vir. 1987)

MERHIGE, District Judge. Renee Saunders, a black female who resides in Richmond, Virginia, is an individual plaintiff in the instant action. Plaintiff Housing Opportunities Made Equal (“HOME”) is a non-profit corporation.... Its purposes are to further the goals of the Fair Housing Act and to promote equal housing opportunities in the Richmond area. Defendant General Services Corporation (“GSC”) ... operates and manages fourteen apartment complexes in the Richmond area. Defendant Jonathan Perel, a white male, is President of GSC.... [P]laintiffs claim that certain of defendants’ advertising practices violate the Fair Housing Act ... and the Civil Rights Act of 1866....

Facts. ... In 1981, HOME, along with several individual complainants, including two former GSC employees, filed administrative complaints with the Virginia Real Estate Commission (“VREC”) and the U.S. Department of Housing and Urban Development (“HUD”). They alleged that GSC, through its supervisory employees, had committed various acts of housing discrimination aimed at discouraging or preventing blacks from renting housing in GSC apartment complexes. Many of such allegations focused on the conduct of a GSC Property Manager, John Hunt.

[The two GSC employees in question,] Lynn Graybill and Jean Mann, testified [in this proceeding] that Hunt instructed them on various occasions to treat black tenants and prospective tenants less favorably than whites, including discouraging GSC-sponsored social activities that might attract black tenants and “turning off the charm” to prospective black tenants. Mann also testified that defendant Perel was present at meetings at which Hunt recommended such action and did not express any disagreement. Further, she informed Perel of her concerns about Hunt’s discriminatory actions after she was terminated by GSC, but he took no action once Hunt disclaimed her allegations.

After VREC conducted its investigation and issued reasonable cause determinations as to Graybill’s and Mann’s complaints, Dr. Barbara Wurtzel, HOME’s Executive Director ... and the Assistant Director, Linda Harms, made the decision to attempt conciliation of its complaints with GSC. The evidence establishes that HOME considered negotiation of affirmative advertising provisions, in conformity with HUD regulations, to constitute a crucial element of its conciliation agreement with GSC, as with all such cases. As such, a standard provision in all of its proposed agreements required that all advertising and other printed materials contain an equal housing opportunity slogan or logo within thirty days of the effective date of the conciliation agreement. Such provision was proposed by HOME to GSC as part of its proposed agreement submitted to GSC’s attorneys on August 30, 1982.

In reaction to HOME’s proposal, GSC’s attorney submitted a letter to HOME’s attorney dated October 12, 1982, which outlined its concerns with the proposed agreement in order to facilitate the parties’ next negotiating meeting. Concerning the affirmative advertising provisions, the letter represented that:

GSC will undertake some affirmative action in advertising so long as the agreement recognizes economic reality. Although classified newspaper advertising is relatively easy to change, advertising that involves layout by professional advertisers can only be changed at considerable expense. In addition, advertising other than through newspapers


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is printed in bulk and used over a period of time. Any changes in such advertising could not be adopted until the current store of materials has been distributed.

Both Linda Harms and Dr. Wurtzel testified that they were concerned by GSC’s reaction to the 30-day provision because the affirmative advertising provisions were a major component of the agreement and a 30-day limit was customary in such agreements. Based on this concern, both Harms and Wurtzel recalled asking defendants’ counsel in a negotiating session the extent of GSC’s “current store of materials” because they believed allowing depletion of the current supply would be acceptable only so long as such supply was not extensive and compliance would be achieved in a reasonably short time. Both witnesses remember counsel representing to them that the supply was not large and would be depleted in a matter of months, and less than a year. Wurtzel’s testimony, to which the Court gives credence, is somewhat more exact, with her recollection that such representation occurred in approximately March 1983 and was that GSC had approximately a two-month supply. While counsel’s representation may have been premised on an honest belief at the time, subsequent conduct of the defendants supports the Court’s conclusion that they acted in an unlawful manner. Ms. Harms further testified that Marianne Phillips, GSC Operations Manager …, confirmed that GSC’s supply was not extensive.

Both Harms and Wurtzel testified that such representation was crucial to their acceptance of GSC’s modification to the agreement, providing that a slogan or logo would be included in GSC’s advertising materials, other than newspapers, “when those materials are reprinted.”

The only rebuttal evidence offered by defendants concerning such representation was Marianne Phillips’ statement that she didn’t recall whether she had represented that GSC’s current supply was small.

While the agreement was finally executed between July 13 and 18, 1983, the testimony indicates that, as one would expect in contract negotiations, individual provisions within the agreement were agreed upon at various points in late 1982 to mid-1983. Both Harms and Wurtzel testified that agreement on the affirmative advertising provisions was reached early in the negotiating process. Dr. Wurtzel testified that such agreement was reached in approximately March 1983, and that after that date, the remaining negotiations focused on confidentiality and content of the news release. Her recollection is reinforced by her negotiating notes of March 2 and 9, 1983. While defendants argue generally that there was no legal agreement at all until the final agreement was signed in July 1983, they offer no evidence contradicting plaintiff’s evidence that the advertising provisions had been agreed upon by the parties by March 1983.

HOME’s attorney sent copies of the final conciliation agreement agreed to by HOME and GSC to VREC and HUD on June 20, 1983. This agreement was executed by VREC, HOME, the individual complainants, GSC, Perel, Hunt, and Betsy King, GSC’s marketing director, between July 13 and 18, 1983, and became effective on July 18, 1983. It included affirmative advertising provisions by which GSC agreed to include an EHO slogan or logo in all future newspaper advertising and “in other future printed advertising materials when those materials are reprinted.” Such affirmative advertising


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provisions were to remain in effect for two years. As part of the agreement, HOME released GSC and Perel from all claims which it had ever had against them up until the date of the agreement, including claims for violations of the Fair Housing Act and … §§1981-82.

HOME subsequently discovered … that GSC had ordered 134,000 copies of its Lifestyle brochure without any EHO logo or slogan on approximately June 15, 1983–just days before signing the conciliation agreement. Such order went to press beginning on June 19, 1983, and was completed by July 23, 1983. ... Marianne Phillips testified that on June 1983 she ordered 134,000 copies of Lifestyle, which she believed would last for approximately one year. In fact, such supply lasted far past the term of the conciliation agreement because … GSC decided not to proceed with a planned mass mailing in April 1984. According to Phillips’ testimony, the large order was placed due to the cheaper unit cost, although she had testified at her deposition that she had no recollection of why such a large order was placed. At no time during this process did anyone from GSC notify HOME of its planned order nor did it revise the brochure at that time to include an EHO logo, although other revisions were made. ... [R]evising the brochure to include an EHO logo would have cost approximately $200 to $500.

After execution of the 1983 Conciliation Agreement, GSC began to take steps to comply with its provisions. It developed a fair housing policy statement and distributed it to all employees. It implemented an employee training program in 1983, although unfortunately Betsy King, GSC’s Marketing Director with significant advertising responsibilities, had not yet participated in the program as of the date of trial.

Most significant to the instant suit, GSC began implementation of the agreement’s advertising provisions. According to Marianne Phillips’ testimony, which the Court credits on this issue, GSC attempted to comply with the basic advertising requirements, although errors were made. Concerning newspaper advertisements, the agreement required such ads to include an EHO slogan or logo by September 1, 1983, unless modifications required the services of a design or advertising agency. Yet it wasn’t until late September 1983 that Marianne Phillips discovered that such changes had not been made and advised her staff to make such changes “as soon as is possible.”

While, from the evidence presented, the Court finds that GSC generally complied with the agreement’s requirements concerning newspaper advertisements, it also finds that GSC exhibited a reluctance to comply, a desire to do only the bare minimum required, and an attempt to advertise its EHO policy as inconspicuously as possible. See, e.g., [various trial exhibits] (admonishing staff to “make sure” that EHO logo is “not the only thing on the line;” questioning whether to use EHO logo in new ad in March 1986 after expiration of ad provisions; ads sent to [28] college newspapers without logo during agreement’s term; memo requesting that logo be added to group of display ads requested on last date possible under agreement; note from GSC staff member to Doug Ziegler [at GSC’s advertising agency], asking him to “add in the [EHO] logo discreetly”).

On July 5, 1985, HOME’s Fair Housing Director wrote to GSC’s attorney concerning two areas of apparent non-compliance with the advertising provisions: (1) failure to include an EHO logo in GSC’s April 1985 flyer known as “GSC Happenings”; (2) failure of GSC’s 38-page Lifestyle brochure to include an adequate number of black


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models, thereby impermissibly indicating a preference based on race. In response, GSC’s attorney agreed to include an EHO logo or slogan on future “Happenings” fliers, but stated that GSC “should not have to undertake the considerable cost of redoing [Lifestyle].” In a later telephone conversation, Marianne Phillips did agree to include an EHO slogan or logo in an insert being planned for inclusion in Lifestyle, but stated that GSC would not agree to reprint the brochure itself until the current supply was depleted, which she estimated would take one year. Because HOME considered GSC’s response unsatisfactory, it filed a complaint with HUD and VREC on September 9, 1985, and filed the instant action on April 15, 1986.

Beginning sometime in October 1985, GSC did begin to discuss revisions to Lifestyle, including the use of more black models. (Betsy King’s notes concerning meetings on revisions). Notes from these meetings reflect considerable discussion concerning the addition of black models to the brochure; however, again GSC’s attitude appeared to be one of reluctance and interest in including blacks as little as possible. For example, Betsy King’s notes of the initial meeting held on October 3, 1985, discuss staging “a mock cocktail party that would include ‘Marianne’s cousins.’ “ In her deposition, King explained that such term was used as an acronym to refer to blacks. Notes of another conversation with Jon Perel advise that “every prop[erty] has to have 5 people plus 1 minority.” A questionnaire circulated by GSC asked the question “Best places for blacks?” and responses included “one or two blk. children” and “groups.”

Finally, in a memorandum from Doug Ziegler to Marianne Phillips, John Hunt, and Betsy King discussing specific areas in which revisions would be made, Ziegler wrote the following: “Swimming: Strong need for this throughout. Should we use blacks in this arena?”

In a meeting held on November 12, 1985, Marianne Phillips’ handwritten notes on this memorandum drew a line leading from the question “Should we use blacks in this arena?” to the answer “yes. (not in water per JH.).” While John Hunt, Marianne Phillips and Doug Ziegler all denied that this note referred to an instruction by John Hunt not to photograph blacks in the swimming pool, this Court gives no credence to the explanations tendered. Phillips suggests that her note is not a response to the question “Should we use blacks in this arena,” even though she drew a line from that question to the answer. Instead, she states that Hunt merely instructed Ziegler that no one should be photographed in the water because GSC complex logos recently had been printed on the pool bottoms, and he didn’t want models to block those logos in the photographs.

Such an explanation lacks reason and is dispelled by the evidence. In fact, there are more pictures containing models in the water in the revised brochure than in the original brochure. While early in the trial, the defendants were eager to point out that there is a picture of a black couple on page 8 of the revised brochure, on cross-examination of a defendant’s witness, it was revealed that such picture was only added to the brochure at the last minute–within three weeks prior to trial. While an advertising executive indicated that the picture of black models was added because of a last-minute need, and not to counter the effect of an October memo in the instant lawsuit, such explanation is contradicted by the whole evidence. A comparison of the “Blue Line” and final versions of revised Lifestyle demonstrates that the picture of blacks in the pool of page 8 was merely substituted for a picture of whites in the pool, which was then moved


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to page 30. The only pictures removed from the final version were a picture of a black couple sitting by the pool and a picture of two joggers, for which a stock photo of a white couple in the pool was substituted on page 13.

Plaintiffs allege ... that defendants violated the Fair Housing Act by indicating a racial preference in their advertising and that defendants violated 42 U.S.C. §§1981-82 by intentionally using discriminatory advertising, infringing upon plaintiffs’ right to contract for rental property. ...

[In Part I, the court held that both HOME and Saunders had standing to raise FHA discriminatory advertising claims. In Part II, the court found that the defendants had committed fraud by concealing the June 15, 1983 order of 134,000 copies of Lifestyle in order to induce HOME to enter into the conciliation agreement and granted rescission of the agreement and other remedies. In Part III, in light of that rescission, it declined to reach HOME’s claim that defendants breached the conciliation agreement.]

IV. Fair Housing Act Claim

A. Substance of Claim. ... Plaintiffs argue, in what appears to be a case of first impression, that defendants violated [§3604(c)] in the publication of the Lifestyle brochure. They contend that the virtual absence of black models from the sixty-eight photographs in that brochure containing human models indicates a preference or an intention to make a preference based on race.

In order to prove a violation of this subsection, plaintiffs need not establish that defendants intended to express a racial preference. Rather, one court has held that a violation is proven if “[t]o an ordinary reader the natural interpretation of the advertisements published in the [newspaper] is that they indicate a racial preference in the acceptance of tenants.” Hunter. ... In the instant case, then, the Court must determine from the conflicting evidence whether the Lifestyle brochure’s paucity of black models indicates a racial preference to the ordinary reader.

While the Court believes that the evidence is mixed on the instant issue, it finds that plaintiffs have proven their claim by a preponderance of the evidence. Both of plaintiffs’ experts, Dr. Barban and Mr. Franklin, have done considerable academic and market research on the effect of the racial composition of advertising models on the consumer. Both testified that, in their opinion, the Lifestyle brochure indicated a preference for white tenants and a subtle message that black tenants would be less welcome. While the Court is not unduly impressed by their research methodology and basis for their opinions, their findings do comport with the average layman’s knowledge of advertising. It requires no expert to recognize that human models in advertising attempt to create an identification between the model, the consumer, and the product. In other words, advertisers choose models with whom the targeted consumers will positively identify, hoping to convey the message that people like the depicted models consume and enjoy the advertised product. Therefore, if the consumer wants to emulate the model, he or she will use the product, too.

Thus, it is natural that readers of the Lifestyle brochure would look at the human models depicted as representing the kinds of individuals that live in and enjoy GSC apartment complexes. If a prospective tenant positively identified with these models, the


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message conveyed would be that “I belong in these apartments. ‘My kind of people’ live there.” Conversely, if the prospective tenant reading the brochure saw no models with whom he or she could identify, the reader would obtain a message that “these apartments are not for me or ‘my kind.’“ Thus, the Court finds that the natural interpretation of the Lifestyle brochure is to indicate that GSC apartment complexes are for white, and not black, tenants, thus discouraging blacks from seeking housing there.

GSC’s own documents demonstrate that it was aware that the models used would affect the types of tenants attracted and that it intended to indicate preferences for certain types of tenants. For example, in a memo from Jon Perel to Doug Ziegler, Perel suggested various ideas to be used in the advertising brochure for one of GSC’s properties to convey its “institutional/upper income/exclusivity approach.” Further, when GSC recently decided to revise its Lifestyle brochure, it circulated a questionnaire to management members, asking how the brochure should “treat children, seniors” and where were the “best places for blacks,” indicating again the importance GSC placed on the placement of human models.

Finally, the Court considers a memorandum asking “Should we use blacks in this arena [swimming]?” which contains Phillips’ handwritten note responding “Yes (not in water per J.H.).” The Court finds absolutely incredible Phillips’ and Hunt’s explanation that this note did not refer to the use of blacks in pool pictures, but merely to a general desire not to photograph human models in the pool. The totality of the evidence clearly indicates that Hunt was concerned about showing blacks in GSC pools, again demonstrating GSC’s own belief that the race of models used would indicate GSC’s racial preferences.

Plaintiffs also presented the testimony of Renee Saunders and Earl Danzler, both of whom testified that they immediately noticed the absence of blacks in GSC’s advertising and received the message that GSC did not wish to appeal to blacks. Finally, Mr. Franklin conducted a study which, despite many methodological weaknesses, provides some additional evidence that blacks interpreted Lifestyle to indicate a preference for white tenants.

While defendants’ expert, Dr. Loftus, did raise several valid concerns about the studies and conclusions offered by plaintiffs’ experts, she did not, in the Court’s view, adequately refute plaintiffs’ evidence that Lifestyle indicates a racial preference. ...

C. Remedies. Having determined that defendants have violated the Act, the Court now must determine the appropriate relief for such violation. Plaintiffs ... ask the Court to declare that defendants’ publication of Lifestyle violated the Act, enjoin defendants from any further racial discrimination under the Act, and order defendants to modify their advertising to comply with the law, including blacks in their advertising in numbers proportionate to their percentage in the population of the Richmond metropolitan area. In the Court’s view, the relief sought is unnecessary and overbroad.

While it is true that a Court may award affirmative injunctive relief in order to remedy past discriminatory advertising practices, such decision rests within the sound discretion of the trial court, based on whether it believes “the vestiges of prior discrimination linger and remain to be eliminated.” Hunter. As the Court held in Hunter in affirming the district court’s decision to grant declaratory, but not injunctive relief, “in


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considering whether to grant injunctive relief a court should impose upon a defendant no restriction greater than necessary to protect the plaintiff from the injury of which he complains.” Thus, the Court should not grant injunctive relief unless “there exists some cognizable danger of recurrent violation.”

In the instant case, while declaratory relief is appropriate, the Court is not convinced that a cognizable danger exists that defendants will continue to violate their advertising obligations under the Act. In fact, although perhaps induced by the instant litigation, defendants have subsequently revised Lifestyle to increase the use of black models. Plaintiffs’ own experts testified that the revised brochure did not indicate a racial preference. The Court finds that a declaratory judgment, combined with monetary damages, will adequately redress plaintiffs’ injuries and provide assurances that defendants will not engage in future violations.

In addition, the Court finds that plaintiffs are not entitled by law to force defendants to give proportional representation to blacks in their advertising, nor is there any evidence in the record that such representation would be necessarily required to avoid indicating a racial preference. ...

V. Section 1981 and 1982 Claims. Plaintiffs allege that defendants’ discriminatory advertising practices also violate 42 U.S.C. §§1981-82. The Court deals with these claims jointly because the Supreme Court has held that the reach of these statutes is coextensive.

Plaintiffs contend that because Lifestyle indicated a preference based on race, black persons were denied an equal right to make a contract for the rental of GSC property under Sections 1981 and 1982. Defendants argue that plaintiffs are not entitled to recover under either section both factually and as a matter of law. Initially, they assert that, even if defendants’ publication of Lifestyle constituted a form of intentional discrimination, such discrimination is not cognizable under Sections 1981 and 1982. They further contend that, even if plaintiffs’ allegations do state a cause of action under these statutes, plaintiffs have failed to prove that defendants had the requisite discriminatory intent.

A. Scope of Sections 1981 and 1982. In the first instance, the Court must determine whether the conduct alleged–defendants’ intentional discrimination in publishing advertising that indicates a preference based on race–constitutes a violation of Section 1981 and/or 1982. Such determination appears to present an issue of first impression, at least among published authority.

1. Section 1982. Plaintiffs allege that defendants’ discriminatory advertising practices violate 42 U.S.C. §1982.... They contend that because Lifestyle indicated a preference based on race, black persons were denied an equal right to make a contract for the rental of GSC property. Defendants assert that §1982 does not encompass such advertising claim, citing dictum in a 1968 Supreme Court decision as authority for their assertion. See Jones v. Alfred H. Mayer Co., 392 U.S. 409 (1968).

In Jones, the specific issue before the Court involved whether §1982 applied to private, and not only state, action in the sale or rental of property and, if so, whether such scope was constitutional. In beginning its examination of the scope of §1982, the Court


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compared §1982 to the Fair Housing Act. Unlike the Fair Housing Act, the Court explained, §1982 “is not a comprehensive open housing law.” The Court then noted several differences between the scope of the two statutes, noting as follows:

[Section 1982] does not deal specifically with discrimination in the provision of services or facilities in connection with the sale or rental of a dwelling. It does not prohibit advertising or other representations that indicate discriminatory preferences. It does not refer explicitly to discrimination in financing arrangements or in the provision of brokerage services.

In a footnote to the above-quoted language, the Court explained that, although §1982 does not specifically address discrimination in the provision of services or facilities, financing arrangements or brokerage services, the Court “intimates no view” upon whether such discrimination still might be covered under §§1982 and/or 1981. Notably, the Court did not apply such disclaimer to its statement that discriminatory advertising is not prohibited by §1982. ...

Plaintiffs argue, correctly in the Court’s view, that the Supreme Court’s statements in Jones concerning preferential advertising, an issue not before the Court, do not constitute binding authority on the instant issue. While we agree that such statements in dictum do not create binding precedent, however, they do provide insight into the Supreme Court’s interpretation of the intended scope of §1982.

As interpreted in Jones, §1982 “must encompass every racially motivated refusal to sell or rent.” A survey of housing discrimination cases supports the interpretation that §1982 prohibits refusals to sell or rent based on race, and not the mere expression of a preference to sell or rent based on race. Under the plain language of the statute itself, advertising that indicates a racial preference, while it may discourage blacks from exercising their right to rent certain property, does not deny them the opportunity to rent such property.

Thus, the Court finds no basis for interpreting §1982 to apply to advertising indicating a racial preference. Certainly, the effect of such advertising can be as discriminatory and devastating as a direct refusal to rent. Congress presumably recognized this fact, however, in enacting the broader, more detailed prohibitions of the Fair Housing Act. Having determined that §1982 affords no cause of action for the instant advertising claims, the Court finds no authority to grant a more expansive interpretation of §1981.1 ... .

1 The Court notes, in conclusion, that its decision not to recognize §§1981and 1982 as creating a cause of action for discriminatory advertising in the instant case is of limited practical effect here. The Court has already held that plaintiffs have proven a Fair Housing Act violation based on the same facts and awarded them compensatory, but not punitive, damages. Identical damages are sought for the alleged §1981 and §1982 violations. Because plaintiffs would not be entitled to recover double damages, the Court's ruling on the scope of Sections 1981 and 1982 has limited practical significance.


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Human Models

66. Ragin, Saunders, and the other courts that have addressed the issue have all held that use of human models can violate the statute. Does the statutory language support this interpretation? Does it make sense as a matter of policy? All the reported cases that have dealt with human models have addressed alleged preferences based on race or family status. Should the cases be extended to cover handicap? What might that entail?

67. What is the best evidence for the plaintiff that the statute was violated in Saunders? Of what relevance is the evidence of the advertiser’s intent? What arguments would you have made for the defendants that the statute was not violated? What arguments would you have made to the court as plaintiff’s attorney about whether an injunction should issue? About requiring proportional representation in future ads?

Scope of the Statutes

68. Saunders holds that discriminatory advertising does not violate §1982. Assuming plaintiffs appealed that decision, what arguments would you make for each side based on the statutory language and Congressional intent? In footnote 1, the court says that this statutory question is essentially irrelevant to the result in Saunders anyway. Can you think of a situation where it might matter?

69. Suppose a developer wishes to advertise a new set of houses (“Fungible Estates”) built on the outskirts of a major city. She runs ads on billboards across the city which say: “We At The New Fungible Estates Development (Located at 17000 175th Ave) Believe That The Fair Housing Act is a Violation of Your Constitutional Rights to Property and Association.” Does this violate the FHA?

70. How do the Wisconsin and Miami Beach provisions on advertising differ from those in §34604(c)? Can you identify situations where the differences in language would yield different results?