The GOP Wants to Use This Bizarre Case to Scuttle Obama's Most Progressive Cabinet Nominee

Inside the case that made conservatives hate Thomas Perez.

| Fri Mar. 22, 2013 5:00 AM EDT
Assistant Attorney General for Civil Rights Thomas Perez

Republicans are expected to fiercely oppose President Barack Obama's nomination of Thomas Perez, the assistant attorney general for civil rights and one of the more prominent progressives in his administration, to head the Labor Department. Already, Perez's GOP foes have accused him of corruption concerning a deal he helped forge in the Justice Department. This agreement prevented an unusual Minnesota housing discrimination case from going to the Supreme Court, and the full backstory—which Perez's critics haven't acknowledged—is a bizarre tale of legal complexities in which landlords tried to use a major civil rights law to protect themselves from city regulations meant to improve living conditions for low-income residents. 

It all began in the early 2000s, when the city of St. Paul—after finding that many homes in low-income neighborhoods lacked heat or locks on the doors—kicked off an aggressive campaign of housing code enforcement. A group of landlords retaliated, brandishing an unexpected weapon: the 1968 Fair Housing Act. This law bars practices that adversely affect minorities, whether those practices were designed to discriminate or not—a legal standard known as disparate impact. The landlords alleged that the city's actions would force them out of business and harm their minority tenants whose access to affordable housing would be affected. The landlords were essentially arguing that by aggressively enforcing basic housing standards St. Paul was discriminating against low-income minorities, hoping to replace them with wealthier homeowners. 

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Much of the evidence in the case did not cast the landlords in the most sympathetic light. A police report described one landlord, Frank Steinhauser, threatening to evict one of his tenants, a mother of two children, for taking him to court because the residence he rented her had rotten floors, no heat, and so many rats she had unsuccessfully tried using duct tape to seal off the rat holes in the walls. (At one point, one tenant in the building found a rat in the bed where her two-year-old child slept.) According to this police report, Steinhauser told the woman (whose name was redacted), "Why are you doing this you black bitch? Why do you have the state on my ass? Bitch you're gonna to lose in fucking court. You're going to be out on the street." Several years later, in 2008, Steinhauser was one of the landlords suing St. Paul for enforcing the housing code and supposedly discriminating against their tenants on the basis of race. After St. Paul lost in federal court, the city appealed to the Supreme Court, which agreed to hear the case. (There was originally more than one lawsuit over the same issue; they were ultimately linked together.)

"Why are you doing this you black bitch? Why do you have the state on my ass? Bitch you're going to lose in fucking court. You're going to be out on the street."

For civil rights advocates, who supported using the Fair Housing Act to protect minorities from real discrimination, this case posed a dilemma. It looked to many of them as if a group of landlords was cynically embracing a landmark civil rights law in order to keep exploiting their minority tenants. Conversely, conservatives could argue that poor minorities in this case would be protected by weakening a civil rights law which conservatives have long opposed (the American Bankers Association also weighed in against the law as currently enforced). It was complicated.

Civil rights groups filed briefs in support of preserving the legal concept of disparate impact, without backing the landlords' claims that St. Paul's housing enforcement actions had been discriminatory. "There was a fair amount of nose-holding about this," says one longtime civil rights attorney, who adds that it looked as if the landlords were arguing for a "fundamental right under the Fair Housing Act to put minorities in crappy housing." Civil rights advocates were worried that if this case reached the Supreme Court, Chief Justice John Roberts, who as part of the Reagan Justice Department in the early 1980s had opposed using a disparate impact standard to enforcing the Voting Rights Act, would have another chance to unravel another hard-won civil rights law.

Enter Thomas Perez. According to the Justice Department, in December 2011, Perez, worried that the St. Paul's lawsuit could undermine the Fair Housing Act, reached out to attorneys for the city, who could win their case but end up undercutting this major civil rights law. Those lawyers were worried, too. "We were very concerned about the collateral damage we were going to cause if we won, " says one St. Paul city official familiar with the case. "This case was an anomaly where these landlords tried to use civil rights law to their benefit."

At this time, the city was facing another pending lawsuit. A St. Paul resident named Fredrick Newell had spent years doggedly compiling evidence that St. Paul had not complied with its obligation to use more than $180 million in federal money to help lower-income residents acquire jobs and city contracts. Newell sued in 2009 under the False Claims Act, alleging that St. Paul knew for years it hadn't been meet its federal obligations. Because of the particulars of Newell's case and the way the False Claims Act is written, without Justice Department intervention Newell's case would collapse.

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.

Shortly after a December 2011 meeting with St. Paul officials, according to a response sent by the Department of Justice to Republican legislators, Perez consulted with the ethics officer in the civil rights division to ensure that the deal, if made, wouldn't violate any conflict-of-interest rules. Next, Perez asked the Professional Responsibility Advisory Office whether the deal would be kosher. Perez was told that it was okay, as long as the person at the head of the department's civil division, which has authority over False Claims Act cases, blessed the arrangement.

According to the Department of Justice, the lead expert on the False Claims Act in the civil division, a career attorney named Michael Hertz, later recommended against joining the Newell case, even though federal attorneys in Minnesota had originally wanted to intervene. Tony West, then the head of the civil division, signed the memo declining to get involved in the Newell case, which noted the deal with St. Paul. As a result the city withdrew its appeal to the Supreme Court, and the Newell case was dismissed by a judge. The city didn't get off scot-free: Based on the allegations in Newell's case, St. Paul entered into an agreement with Housing and Urban Development in 2010 to monitor their compliance with the grant requirements. St. Paul officials say the city has met all its obligations under the agreement and HUD says they have no evidence to the contrary. Newell, however, was upset about being cut out of the deal after all his hard work documenting St. Paul's not complying with its grant obligations, and is currently appealing the decision.

The deal Perez helped cut likely prevented a landmark civil rights law from being struck down by the Roberts court. Perez's civil rights division later used this law to secure record financial settlements against banks that discriminated against minority borrowers during the financial crisis. And Republicans were very angry about it.

The St. Paul deal is now the focus of an investigation by congressional Republicans, who allege that Perez behaved improperly. In September 2012, congressional Republicans sent a letter to Attorney General Eric Holder alleging that the Justice Department had engaged in a "quid pro quo" and had "bargained away a valid case of fraud against American taxpayers in order to shield a questionable legal theory from Supreme Court scrutiny in order to keep on using it." The letter was signed by, among others, Sen. Chuck Grassley (R-Iowa), the ranking member on the judiciary committee. Rep. Darrell Issa (R-Calif.), chairman of the House government oversight committee, has accused Perez of having "paid a $180 million bribe" to the city of St. Paul in exchange for withdrawing their request to the Supreme Court.

Based on the information publicly available, the allegations that Perez behaved unethically or corruptly don't withstand scrutiny.

"They're making, in my view, rather outrageous, essentially defamatory allegations against Perez, and I don't see what their support is," says Kathleen Clark, a professor at Washington University School of Law and an expert in legal ethics. "They are attempting to recharacterize a policy disagreement about two cases into something unethical." Moreover, while conservatives are entitled to the opinion disparate impact is a "dubious legal theory," courts have upheld its use under the Fair Housing Act for decades.

Republicans have accused Perez of overruling the career attorneys in Minnesota who wanted to pursue the False Claims Act case. But according to the Justice Department, it was the civil division's top legal expert on the False Claims Act who believed the case wasn't worth following through on. Despite the heavy implication of corruption in the language used by GOP legislators, when Mother Jones asked whether Perez had violated any specific ethics rules, a GOP Senate aide said that Grassley "is not focusing specifically on a Justice Department ethics rule, but instead is focusing on whether the quid pro quo decision was in the best interest of the American taxpayers as a matter of policy."

Because both the civil rights division and the civil division represent the same client, the United States, Clark says it's entirely ethical for officials in these divisions to decide not to pursue a case due to competing priorities. For example, a homeowner can sue a neighbor for accidentally crashing a car into his home. But he might opt not to, because he wants to preserve his friendship with that neighbor. Just because the Justice Department can sue doesn't mean it has to sue. "When cases settle, there generally are quids pro quo. That's what happens with any negotiation—quids pro quo are not necessarily corrupt," Clark says. "It just looks to me like these members of Congress are alleging ethical misconduct based on their policy disagreement with the Justice Department."

If Republicans block Perez over his actions in the St. Paul case, it won't be because of corruption or ethics. It will be because he rescued a civil rights law they oppose from almost certain death at the hands of the Roberts court.