Plaintiffs who sued the U.S. Department of Housing and Urban Development over Hurricane Katrina relief payouts in Mississippi have reached a $132 million settlement with HUD and the state.

The settlement, which was announced on Nov. 15, calls for Mississippi to allocate $132 million in federal disaster money to lower-income south Mississippi residents whose homes were damaged by wind, as opposed to flooding.

In December 2008, the Mississippi State Conference NAACP, the Gulf Coast Fair Housing Center and four individual plaintiffs sued HUD and its former secretary, Steven Preston, in federal court in the District of Columbia.

The plaintiffs asked the court to issue a preliminary and permanent injunction barring HUD from releasing $600 million in Community Development Block Grant funds to Mississippi for its port expansion project. The plaintiffs claimed HUD had a duty to evaluate whether the port proposal complied with the Fair Housing Act and the grant program’s low-to-moderate income benefit requirement.

The Lawyers’ Committee for Civil Rights Under Law and the Mississippi Center for Justice filed the case, Mississippi State Conference NAACP v. HUD, with pro bono help from Boston’s Mintz, Levin, Cohn, Ferris, Glovsky and Popeo.

Even though it was Mississippi that made the decision to allocate HUD funds to its port project instead of first focusing on housing issues, the plaintiffs’ team settled on a strategy of bringing HUD to the table because it had ultimate responsibility, said Larry Schoen, a Boston litigation partner at Mintz who worked on the case.

“Ultimately HUD played an important role to ensure that the funds got to the people who needed them,” Schoen said. “The focus of the lawsuit wasn’t on stopping the port expansion project; it was on making sure the critical unaddressed housing needs were taken care of first, and that’s what this settlement hopes to accomplish.”

The settlement’s focus on helping people whose homes sustained wind damage is also important because previous remedies have helped flood victims, and there’s a much higher percentage of minority residents in wind damaged areas, Schoen said.

“All of the previous programs that Mississippi made available were focused on storm surge damage,” Schoen said. “They didn’t do anything to address needs of wind damage victims.”

In January, Judge James Robertson granted the defendants’ motion to dismiss the case over Mississippi’s use of the $570 million in funds. Robertson ruled that the plaintiffs lacked standing to challenge Mississippi’s diversion of the money to the port project from its Homeowners Assistance Program for Katrina victims because they weren’t eligible for the assistance program, which was directed towards homeowners with flood damage. Thus, Robertson ruled, a victory in the case would not help them.

A hearing on the plaintiffs’ appeal to the U.S. Court of Appeals for the D.C. Circuit was originally scheduled for a Nov. 12 oral argument.

Schoen said the parties settled on Oct. 28 under the condition that HUD would approve a revised action plan, which it did on Nov. 8. “The settlement came on the heels of oral argument and HUD having to litigate,” Schoen said.

In a press release about the settlement, HUD Secretary Shaun Donovan stated that the agency is “fully committed to working with all parties involved to ensure that the affected families receive the relief and long-term recovery assistance that they are due.”

The agreement calls for a new Neighborhood Home program that will fund up to $75,000 worth of repairs, rehabilitation or reconstruction for each qualified home owned by lower-income residents.

The Mississippi Emergency Management Agency has a $281 million grant from the Federal Emergency Management Agency to develop more than 3,000 cottages, known as Mississippi Cottages, as an temporary or permanent alternative to housing natural disaster victims in FEMA trailers and mobile homes. The Neighborhood Home program will also help qualified participants find rental housing or to permanently live in these cottages. The Mississippi Development Authority’s Disaster Recovery Division will run the program.

Most of the funding will come from HUD supplemental disaster recovery Community Development Block Grant funds.

The settlement follows a September D.C. Circuit ruling that upheld a lower court order requiring the state of Louisiana to stop giving out funds from the $11 million federal program called The Road Home. HUD set up the program to help Gulf Coast residents whose homes were destroyed by hurricanes Katrina and Rita. The NAACP Legal Defense Fund launched a court battle against the program in 2008, on the ground that the payout formula discriminated against blacks.

The D.C. Circuit hasn’t ruled in that case on whether the program can give prior recipients additional money. Litigants have until mid-December to file final briefs.

Sheri Qualters can be contacted at squalters@alm.com.