Ojo v. Farmers Group Inc

• Decision Date: 09 April 2010
• Docket Number: No. 06-55522.,06-55522.
• Parties: Patrick O. OJO, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. FARMERS GROUP, INC.; Fire Underwriters Association; Fire Insurance Exchange; Farmers Underwriters Association; Farmers Insurance Exchange, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

600 F.3d 1201

Patrick O. OJO, on behalf of himselfand all others similarly situated, Plaintiff-Appellant,

v. FARMERS GROUP, INC.; Fire Underwriters Association;Fire Insurance Exchange; Farmers Underwriters Association;Farmers Insurance Exchange, Defendants-Appellees.

No. 06-55522.

United States Court of Appeals, Ninth Circuit.

Decided: April 9, 2010.

As Amended April 30, 2010.

Sanford Svetcov, Susan K. Alexander, Maria V. Morris, Coughlin Stoia Geller Rudman & Robbins LLP, San Francisco, CA; Andrew S. Friedman, Wendy J. Harrison, Gustave A. Hanson, Bonnett Fairb- ourn Friedman & Balint, P.C., Phoenix, AZ, for the plaintiffs-appellants.

Harriet S. Posner, Whitney Walters, Carl Alan Roth, Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, CA, for the defendants-appellees.

Linda F. Thome, Civil Rights Division, United States Department of Justice, Washington, D.C., for amicus curiae the United States.

D. Scott Chang, Stephen M. Dane, John P. Relman, Relman & Dane PLLC, Washington, D.C.; Joseph D. Rich, Lawyers' Committee for Civil Rights Under Law, Washington, D.C., for amici curiae National Fair Housing Alliance, Lawyers' Committee for Civil Rights Under Law, Greater Houston Fair Housing Center, Austin Tenants' Council, and Fair Housing Council of Greater San Antonio.

Appeal from the United States District Court for the Central District of California, John F. Walter, District Judge, Presiding. D.C. No. CV-05-05818-JFW.

Before ALEX KOZINSKI, Chief Judge, PAMELA ANN RYMER, MICHAEL DALY HAWKINS, SUSAN P. GRABER, M. MARGARET McKEOWN, WILLIAM A. FLETCHER, RONALD M. GOULD, RICHARD R. CLIFTON, MILAN D. SMITH, JR., SANDRA S. IKUTA and N. RANDY SMITH, Circuit Judges.

ORDER

The per curiam opinion filed on April 9, 2010, and the order certifying a question to the Supreme Court of Texas, filed on April 9, 2010, are AMENDED as follows.

The caption states:

Patrick O. OJO, Attorney, on behalf of himself and all others similarly situated, Plaintiff-Appellant,

The word "Attorney" and the following comma is deleted so that the revised caption states:

Patrick O. OJO, on behalf of himself and all others similarly situated, Plaintiff-Appellant,

It is so ORDERED.

ORDER

PER CURIAM:

We respectfully certify to the Supreme Court of Texas the question of law set forth in this order, pursuant to Texas Rule of Appellate Procedure 58. The question of law is determinative of the matter pending before this court, and there is no clearly controlling precedent in the decisions of the Supreme Court of Texas.

I

We summarize the material facts: Patrick O. Ojo is an African-American resident of Texas and the owner of a homeowner's property-and-casualty policy issued by Farmers Group, Inc. ("Farmers"), a Nevada Corporation that maintains its headquarters in Los Angeles, California. In January 2004, Farmers increased Ojo's homeowner's insurance premium by nine percent even though he had made no prior claims on the policy. Farmers allegedly told Ojo that the increase was due to unfavorable credit information obtained through the company's automated credit-scoring system.

Ojo sued Farmers and its affiliates, subsidiaries, and reinsurers (collectively "Defendants") in federal court on behalf of himself and other minorities who received less favorable pricing from Farmers due to their credit-scoring system. He claims that Defendants, acting in concert, use a number of "undisclosed factors" in their credit-scoring system that disparately impact minorities, in violation of the federal Fair Housing Act ("FHA"), 42 U.S.C. §§ 3601-3619. Ojo does not claim that Defendants intentionally discriminated against any members of the putative plaintiff class.

Defendants moved to dismiss all claims pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The district court did not reach the question whether Ojo's complaint sufficiently stated a claim of disparate-impact discrimination under the pleading standards of Rule 12(b)(6), because it concluded that the Texas Insurance Code preempted Ojo's FHA claims under the reverse-preemption standard set forth in the McCarran-Ferguson Act ("MFA"), 15 U.S.C. § 1012. Ojo appealed, and a divided three-judge panel of our court initially reversed the district court, holding that Texas law does not reverse-preempt Ojo's FHA claim. Ojo v. Farm-era Group, Inc., 565 F.3d 1175 (9th Cir. 2009). We ordered the case reheard en banc pursuant to Ninth Circuit Rule 35-3, and it is now pending before us.

II

We next identify the issue that is the basis for our certification order: Ojo claims that in using credit score factors that have a racially disparate impact to price homeowner's insurance, Farmers violated the FHA.¹

It is unlawful under the FHA "[t]o discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race." 42 U.S.C. § 3604(b). This provision has been interpreted to prohibit not just intentional discrimination but also actions that have a discriminatory effect based on race (disparate-impact discrimination). See Pfaff v. U.S. Dep't of Hons. & Urban Dev., 88 F.3d 739, 745-46 (9th Cir.1996). Where a plaintiff raises a prima facie case of disparate-impact discrimination under the FHA, the burden shifts to the defendant to either rebut the facts underpinning the prima facie case or to demonstrate a "legally sufficient, nondiscriminatory reason" for the practices causing the disparate impact. Affordable Hous. Dev. Corp. v. City of Fresno, 433 F.3d 1182, 1194-95 (9th Cir. 2006) (internal quotation marks omitted).²

Ojo's FHA claim, however, may be "reverse-preempted" by Texas law under the McCarran-Ferguson Act. The MFA states the following:

No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance....

15 U.S.C. § 1012(b). Under the MFA, state law preempts a federal statute if (1) the federal law does not specifically relate to insurance; (2) the state law is enacted for the purpose of regulating insurance; and (3) the application of federal law to the case might invalidate, impair, or supersede the state law. Humana Inc. v. Forsyth, 525 U.S. 299, 307, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999). Here, it is undisputed that the FHA does not specifically relate to insurance and that the relevant provisions of Texas law, including Texas Insurance Code sections 544 et seq. and 559 et seq., are enacted for the purpose of insurance regulation.³

The dispositive question therefore is whether application of the FHA to Ojo's case might invalidate, impair, or supersede the provisions of the Texas Insurance Code that authorize insurance companies to use credit scoring in setting insurance rates. If Texas law permits insurance companies to use credit scores even if the factors used to compute scores may have a racially disparate impact that could violate the FHA, then allowing Ojo to sue Defendants under the FHA for this practice would impair Texas law. On the other hand, if Texas law prohibits the use of credit-score factors that could violate the FHA on the basis of a disparate-impact theory, then the FHA would complement—rather than displace and impair— Texas law, and Ojo's FHA disparate-impact suit would not be reverse-preempted by the MFA. See id. at 310-14, 119 S.Ct. 710. The outcome of this appeal turns on the extent to which Texas law permits insurance companies to use credit-score factors that may have a racially disparate impact that would constitute an FHA violation.

Texas Insurance Code section 544.002(a)(1) provides that a person may not "charge an individual a rate that is different from the rate charged to other individuals for the same coverage because of the individual's.... race, color, religion, or national origin." However, section 544.003(c) specifies that an insurer does not violate section 544.002 if "the refusal, limitation, or charge is required or authorized by law or a regulatory mandate." And in 2003, Texas enacted an insurance law that states that "[a]n insurer may use credit scoring, except for factors that constitute unfair discrimination, to develop rates," while at the same time declaring that "[a]n insurer may not... use a credit score that is computed using factors that constitute unfair discrimination."...