Civil rights groups allege judge-shopping in CRA lawsuit

Bloomberg News

WASHINGTON — A coalition of civil rights groups condemned the practice of "judge-shopping" in a high-stakes case brought by banking and business groups against new anti-redlining rules by federal regulators. 

The referenced case, filed in the Northern District of Texas, targets recent updates to the implementing rules of the Community Reinvestment Act, a class of regulatory rules aimed to combat discrimination in housing and ensure financial institutions invest in low- and moderate-income neighborhoods.

"Judge-shopping adversely affects the public's interests by creating the appearance of unfairness in the eyes of interested parties," the brief asserts, warning that it "undermines public confidence in the impartiality of judicial proceedings."

The brief was submitted by the National Fair Housing Alliance, the National Urban League, the National Coalition on Black Civic Participation, UnidosUS and the Raza Development Fund.

A coalition of industry trade groups — including the ABA, Independent Community Bankers of America, U.S. Chamber of Commerce, Texas Bankers Association and Independent Bankers Association of Texas — filed a lawsuit in February in the Northern District of Texas attempting to stop recently finalized reforms to implementing regulations for the CRA. 

The amicus brief argues that the plaintiffs deliberately intended to have the case heard by a sympathetic judge when they filed their lawsuit in the Amarillo Division of the Northern District of Texas. In this case, the issue is being heard by Judge Matthew Kacsmaryk, whose jurisdiction has a history of issuing rulings favorable to industry groups and against federal regulations, including those designed to protect marginalized communities.

The brief calls for vacating a preliminary injunction granted by the District Court in March, arguing plaintiffs chose the venue for the purpose of intentionally delaying the rule's enforcement. They urge the Court of Appeals to reverse the injunction and either transfer the case to a more appropriate jurisdiction — such as Washington, D.C., where the nationwide trade groups leading the lawsuit are headquartered.

The Northern District of Texas, particularly in Amarillo, doesn't assign cases randomly. Instead, the district itself, under the authority of its chief judge, determines how cases are assigned, often directing them to a single judge rather than distributing them randomly.

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"Judge-shopping is only possible in a few judicial divisions where all cases are assigned to one judge; most judicial districts and divisions randomly assign judges to cases, for important reasons," the brief noted. "Random assignment of judges to cases is 'essential to maintaining public confidence in the impartiality of judicial proceedings.'"

The Northern District of Texas is a familiar venue for banking plaintiffs to challenge banking rules, and plaintiffs have been accused of judge shopping before. Earlier this year, the Consumer Financial Protection Bureau filed a motion to move a legal challenge to the agency's final credit card late-fee rule from Texas to Washington, D.C., arguing that plaintiffs in that case had only a thin tether to Texas while most of the plaintiffs and the defendants are headquartered in Washington. The judge assigned to the case agreed, ordering the case to be moved to Washington, only to have the 5th Circuit reverse the decision and move the case back to the Texas district court.

The CRA lawsuit argues that the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency arbitrarily exceeded their statutory authority when they finalized their amendments to the CRA rules in October. The rule is the first such reform to the implementation rules of the 1977 anti-redlining law since the 1990s. Since then, a federal judge in Texas issued a preliminary injunction against enforcing new rules pending the outcome of the case.

The plaintiffs argue that the final rules unnecessarily heighten the complexity and compliance burden of the CRA, ultimately undermining its very intent — to compel banks to serve the needs of the lower-income communities they serve. 

Banks have long complained about aspects of the existing CRA regime for years, and opposed aspects of the rule since it was unveiled last fall. But it was uncertain that their opposition would culminate in a lawsuit, in part because the new rule included some provisions that banks have long sought, including a pre-approved list of activities that banks can get CRA credit for. 

Federal banking regulators have not backed down from the rule, with agency heads saying in subsequent discussions that their agencies' staff made painstaking efforts to strengthen and modernize the CRA while ensuring various obligations under the rules are tailored to ensure banks — especially smaller firms less immediately capable of adapting to the complex regulations — are not unduly burdened. Under the rule, banks under $2 billion of assets have no additional data collection responsibilities.

Other consumer advocacy and financial industry entities have opposed the lawsuit as well.  In another amicus brief filed in the ABA case, Beneficial State Bank — joined by the National Fair Housing Alliance, National Urban League, National Coalition on Black Civic Participation, UnidosUS and the Raza Development Fund — said bank industry opposition to the rule does not represent the industry as a whole, much of which is interested in promoting community lending.