Why The Leading Attack Against Labor Secretary Nominee Tom Perez Falls Flat

On Thursday, the Senate Health, Education, Labor and Pensions Committee is scheduled to hold a confirmation hearing for Tom Perez, the current Assistant Attorney General for Civil Rights and President Obama’s nominee to be the next Secretary of Labor. As if on cue, four of the Obama Administration’s perpetual gadflies — Reps. Darrell Issa (R-CA), Patrick McHenry (R-NC) & Bob Goodlatte (R-VA) and Sen. Chuck Grassley (R-IA) — released a report yesterday with the breathless title “DOJ’s Quid Pro Quo with St. Paul: How Assistant Attorney General Thomas Perez Manipulated Justice and Ignored the Rule of Law.” The report accuses Perez of brokering a “quid pro quo” deal where DOJ agreed to keep out of a potential fraud lawsuit against the city of St. Paul if St. Paul agreed to withdraw a civil rights case that was pending before the Supreme Court. Here’s what actually happened:

1. Perez’s Actions Likely Saved A Key Prong Of Federal Fair Housing Law

The federal Fair Housing Act forbids most landlords, realtors, mortgage lenders and other people involved in selling or renting housing from engaging in racial, gender, religious or several other forms of discrimination. Like all discrimination cases, however, these lawsuits are notoriously difficult to prove because they turn upon the secret reasons why banks and property owners decide to deal with certain people and not others. There’s nothing illegal about renting to a white couple when a black couple also wanted the same unit, or about denying a home loan to a woman or a minority — unless, of course, the decision not to rent to the black couple or to deny the loan was made because of their gender or minority status.

For this reason, civil rights law provides several mechanisms that allow victims of discrimination to pursue cases without first having to develop a talent for mind-reading. One of the most important of these mechanisms is “disparate impact” lawsuits, which allow a court to infer discrimination if an renter or lender’s policies consistently lead to women or minorities winding up with the short end of the stick. Thus, for example, Perez’s Civil Rights Division won a $335 million settlement from the mortgage lender Countrywide, after it discovered that Countrywide “charged higher fees and rates to more than 200,000 minority borrowers across the country than to white borrowers who posed the same credit risk.” In one year, for example, “Countrywide employees charged Hispanic applicants in Los Angeles an average of $545 more in fees for a $200,000 loan than they charged non-Hispanic white applicants with similar credit histories.” DOJ was able to use this pattern of discrimination to win this settlement, thanks to the concept of disparate impact, even though they never uncovered a smoking gun document where Countrywide’s senior management openly confessed to racial discrimination.

While the Supreme Court has never considered whether disparate impact suits are permitted under the Fair Housing Act, all nine of the federal appeals courts to consider the question held that they are. Chief Justice Roberts, however, crusaded against these kinds of lawsuits for more than 30 years, and when an unusually weak Fair Housing claim reached the Supreme Court in 2011, many court observers feared that the conservative justices would use it an opportunity to gut the Fair Housing Act and forbid disparate impact housing suits. Perez helped convince the city of St. Paul, which brought that very weak case to the Supreme Court’s attention, to withdraw its appeal — potentially saving much of federal fair housing law in the process.

2. DOJ’s Leading Expert On Cases Alleging Fraud Against The Federal Government Called For DOJ To Dismiss The Fraud Lawsuit. In His Words, “This Case Sucks.”

The anti-Perez’s report’s key claim is that Perez brokered this deal by agreeing to abandon “a strong case potentially worth as much as $200 million for taxpayers” in return for St. Paul agreeing to withdraw its fair housing appeal. This claim is false. The so-called “strong case” the report refers to is a whistleblower lawsuit alleging St. Paul had defrauded the federal government. Although some relatively junior attorneys initially supported getting DOJ involved in this lawsuit, the Justice Department’s top expert on these kinds of cases — a senior career attorney with more than 30 years of experience — was unequivocal in opposing DOJ’s intervention in the case. In the words of that senior attorney, “this case sucks.”

The decision to drop this fraud lawsuit also wasn’t Perez’s to make. That decision rested with Tony West, who then served as head of the Justice Department’s Civil Division. West testified that he relied on the advice of the Department’s senior-most expert on these lawsuits — the same expert who said that the case “sucks” — who told him, in West’s words, that “the more he learned about the case, and the deeper he got into the case, the more doubtful he became about its worthiness” for DOJ’s involvement. There is little doubt that West’s division would have abandoned the fraud lawsuit, regardless of whether or not Perez was also trying to save a key prong of federal civil rights law from the Roberts Court’s axe.

3. Perez’s Actions Did Not Cost The Taxpayers Money, They Likely Saved The Taxpayers Money

Because the fraud lawsuit discussed in the report was such a weak case, it quite a stretch to claim that this case was “potentially worth as much as $200 million for taxpayers,” even if Perez’s negotiations did play a role in DOJ’s decision not to take up the case. The value of a losing case to the American taxpayer is zero dollars. By contrast, just a few months after Perez acted to save federal fair housing law his division won a $175 million settlement against Wells Fargo in a similar case to the one previously won against Countryside. Wells Fargo agreed to pay $125 million to individual borrowers — nearly every one of whom is almost certainly a taxpayer — and $50 million to a program that assists people seeking to buy or improve a home.

4. Numerous Ethics Authorities Say Perez Acted Appropriately

The link between the fraud case and the fair housing case is that, when Perez approached St. Paul’s attorneys to discuss the fair housing case, St. Paul proposed withdrawing their appeal to the Supreme Court if DOJ agreed not to get involved in the fraud case. While this offer may reflect badly on St. Paul, Perez behaved appropriately once confronted with this proposal. Perez consulted with the Civil Rights Division’s ethics officer and with DOJ’s Professional Responsibility Advisory Office. DOJ’s ethics authorities told him he could continue these discussions with St. Paul so long as the ultimate decision to dismiss the fraud case rested with West, not with Perez. As discussed above, West decided to drop the fraud case based in large part upon a top expert’s conclusion that the case “sucked.”

5. Because Of Perez’s Actions, Big Banks Will Remain Accountable When They Engage in Unlawful Discrimination

The significance of $175 million settlement against Wells Fargo or the $335 million settlement against Countrywide cannot be overstated. The bottom line is that Tom Perez, as the head of the Civil Rights Division, is charged with protecting and enforcing America’s civil rights laws. Because of his actions, a key prong of American civil rights law was likely saved at the same time that Perez was leading DOJ to major victories against abusive banks under the same law he worked to save. Had Perez not acted as he did, it would have been a huge gift to big banks, but also a huge loss for the American people.