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More on the deal Thomas Perez cut with St. Paul

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Politics,Beltway Confidential,Sean Higgins

Earlier this week, I blogged about a Wall Street Journal story regarding how Thomas Perez, the assistant attorney general for civil rights at the Justice Department, cut a behind-the-scenes deal with the city of St. Paul, Minnesota. Perez has been nominated by the White House to head the Labor Department and that has brought renewed interest in the deal. Republican lawmakers have indicated that they’ll make an issue of it during Perez’ confirmation hearings.

The deal involved a quid pro quo in which the Justice Department agreed not to intervene in a pair of lawsuits that could have potentially been quite costly to the city. In exchange, the city agreed to drop a case bound for the Supreme Court that could have potentially limited the way the government could use the Fair Housing Act. Perez is particularly keen on the law and believes in using it as expansively as possible.

As the Journal noted:

Mr. Perez is a champion of disparate-impact theory, which purports to prove racial discrimination by examining statistics rather than intent or specific cases. Soon after Mr. Perez assumed his job in October 2009, Attorney General Eric Holder established a unit under Mr. Perez to examine loans to minorities. The unit proceeded to threaten a series of lawsuits against banks under the 1968 Fair Housing Act.

The lenders quickly settled these cases rather than run the reputational risk of being called racist in court. But on November 7, 2011 the Supreme Court agreed to hear the City of St. Paul’s appeal in Magner v. Gallagher, which concerned the legality of disparate-impact theory in housing. St. Paul believed it had an excellent chance to prevail because the text of the Fair Housing Act doesn’t explicitly allow for disparate impact.

That’s when the Obama Administration kicked into gear. On November 17, Mr. Perez emailed a former colleague, Thomas Fraser at the Fredrikson & Byron law firm in Minnesota, to probe if city officials might be convinced to withdraw Magner, according to documents that the Justice Department sent to Congressional investigators. Mr. Fraser referred Mr. Perez to his colleague, David Lillehaug, who was advising St. Paul on a pending False Claims Act case against the city filed by a private citizen.

Mr. Perez had stumbled onto a potential quid pro quo: The feds could decline to intervene in the false claims case (known as Newell) in exchange for the city withdrawing Magner from the Supreme Court. But that was no sure thing. The Department of Housing and Urban Development had already recommended that Justice join the Newell lawsuit against St. Paul. On November 22, Justice’s career staff in the Civil Division’s civil fraud section conveyed that recommendation in a memo to Civil Division chief Tony West for his approval.

Mother Jones has a post up called “The GOP Wants to Use “This Bizarre case to scuttle Obama’s Most Progressive Cabinet Nominee” which is obviously intended as a take-down of the issue.  In it, author Adam Serwer … confirms all of the particulars of the Journal’s story. He just doesn’t see why it is a big deal.

One of Serwer’s main points is that some of the landlords involved in the case St. Paul had been pursuing were dirtbags and were invoking the Fair Housing Act in bad faith. That maybe so but it is also tangential to the larger issue of Perez cutting a deal to head off a Supreme Court case. And a cut a deal he did.

As Serwer writes:

In talks with Perez, St. Paul’s attorneys proposed a trade. They would withdraw their request to the Supreme Court to hear the Fair Housing case, and in exchange the Justice Department would agree not to intervene in Newell’s case. Republicans have accused Perez of offering the deal, and they have likened this to bribery, but the St. Paul city official tells Mother Jones that the city does not dispute the Justice Department account that St. Paul tendered the offer first.

St. Paul may first proposed the swap but remember it was Perez who first approached the city about making a deal regarding the Fair Housing Act case.  Both the Journal and Mother Jones confirm this.  This was for the explicit reason of ensuring the powers the law gave Perez as assistant attorney general were not reviewed by the Supreme Court. (Incidentally, the Journal notes that DOJ also dropped out of a second case as part of the deal.)

This deal had real-world consequences. First, the city of St. Paul dropped a case that was about making landlords — the people Serwer casts in such a negative light — get their substandard housing up to code.

Second, it undermined a case the federal government was pursing to ensure that Minnesota used grant dollars to help low-income people. This Bloomberg report about the Newell case provides the background:

Newell says he discovered that St. Paul had failed to document its use of federal grants to create jobs for low-income workers. For example, the city told him it couldn’t provide a list of contractors who received money from the U.S. Housing and Urban Development Department, Newell said.

Newell’s complaints over the city’s management of the program led to a 2009 HUD review that found St. Paul had not submitted reports that are required by law.

That year, Newell filed a false-claims complaint, sometimes known as a whistle-blower lawsuit, in U.S. District Court (1058L). The Justice Department later said it would join the case, greatly enhancing its chances for success, according to Thomas DeVincke, Newell’s attorney.

“This case is what we call a deadpan winner,” said DeVincke, a partner with Malkerson Gunn Martin LLP in Minneapolis.

Under the False Claims Act, when the Justice Department intervenes in cases brought by private citizens it takes the lead role in litigating the case. The department recovered a record $3.3 billion through lawsuits filed by whistle-blowers in the 2012 fiscal year, the agency said in December.

Newell said he viewed the federal involvement in his case as a “game changer to ensure that we had a shot across the bow, some authority that would ensure that the opportunities would go through to the communities.”

Then the department reversed itself when St. Paul agreed to drop an unrelated Supreme Court (1000L) appeal involving discrimination in housing. Fair-lending advocates said, had the city prevailed in that case, it would have harmed a central enforcement tenet in housing discrimination law.

DeVincke said an assistant U.S. attorney notified him in a meeting on Feb. 8, 2012, that the department had changed its mind and would not be joining the case. Two days later, St. Paul asked the Supreme Court to drop the city’s appeal in the other case.

“The community has lost a lot by them trading off our false claims lawsuit,” Newell said.

Scuttling the case saved St. Paul as much as $180 million in reimbursement and penalties, Republicans argue.

Perez may have acted within his authority to cut this deal, but you cannot say it wasn’t an exceedingly cynical one. It screwed over both the tenants with bad housing and the people who could have benefited from jobs through the grants. And that’s an entirely appropriate thing to explore during a confirmation hearing.

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Author:

Sean Higgins

Senior Writer
The Washington Examiner