Supreme Court Rules on Disparate Impact

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  • 27 Jun 2015
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by A.J. Johnson

On June 25, 2015, the United States Supreme Court issued a landmark ruling on Texas Department of Housing & Community Affairs v. The Inclusive Community Project, Inc. The ruling found that housing policies could be deemed discriminatory based on “disparate impact.” This means that plaintiffs can prove discrimination in the provision of housing by showing that the “effect” of a housing policy is discriminatory, even when there is no “intent” to discriminate.

The Court ruled that disparate-impact liability is permitted based on the Law’s text, the Law’s purpose, and decades of acceptance by every Federal district court and Congress.

While affirming the use of disparate impact as a fair housing cause of action, the Court also made it clear that such use is not unlimited. Reasonable housing policies and practices should not be found discriminatory if such policies or practices achieve a legitimate interest or business necessity. Plaintiffs bear the burden of demonstrating a “robust causality requirement” when accusing a housing provider of disparate impact discrimination. A statistical disparity alone is not enough to demonstrate discrimination unless there is evidence that the policies or practices of the defendant caused the disparity. Defendants also may not be held liable if federal law or local health and safety codes require their practices.

Issues

This case essentially turned on a single issue: Does Title VIII (the Fair Housing Act) of the Civil Rights Act of 1968 allow claims to be brought for “unintentional” acts of discrimination? The Fair Housing Act (FHA) clearly prohibits intentional discrimination (disparate intent). The Texas Department of Housing & Community Affairs (TDHCA) took the position that since the FHA does not specifically provide protection against unintentional discrimination, only intentional acts are subject to complaint and enforcement action.

The Holding

The Court held that disparate impact claims are cognizable under the FHA and that policies that have the “effect” of discrimination may be challenged under the FHA. However, the Court also placed limits regarding when a disparate-impact claim may be made.

Justice Kennedy delivered the opinion of the Court stating “ The underlying dispute in this case concerns where housing for lowincome persons should be constructed in Dallas, Texas – that is, whether the housing should be built in the inner city or in the suburbs.”

The Plaintiff’s (ICP) position was that the policies of TDHCA limit the ability of low-income minorities to live in non-minority areas, thus having a disparate-impact based on race. It is important to note that the Court did not rule on the specifics of this case – only if the state’s policies could be challenged under the disparate-impact principle.

In its holding, the Court relied not only on the language of the FHA itself, but also on two anti-discrimination laws that preceded the Fair Housing act. These are Title VII of the civil Rights Act of 1964 and The Age Discrimination in Employment Act of 1967 (ADEA). Both statutes authorize disparate-impact claims. Two Court decided cases involving these two laws found that “ antidiscrimination laws should be construed to encompass disparate-impact claims when their text refers to the consequences of actions and not just to the mindset of actors, and where that interpretation is consistent with statutory purpose.”

The FHA itself states that it is unlawful to “refuse to sell or rent…or otherwise make unavailable (emphasis added) or deny, a dwelling to a person because of race” or other protected characteristic. The Court gave great weight to the phrase “otherwise make unavailable,” stating that it refers to the “consequences” of an action rather than the actor’s intent. The Court also states that the introductory word “otherwise” signals a shift in emphasis from an actor’s intent to the consequences of an action.

The decision stresses the fact that the 1988 amendments to the FHA indicate that Congress was accepting of the Appeals Courts recognition of disparate impact as a permitted element of the law. Prior to 1988, all nine Courts of Appeals had concluded that the FHA encompassed disparate-impact claims. Had Congress not approved of the use of disparate-impact, the 1988 law would have included language eliminating such use.

Limitations on Disparate-Impact

The Court decision places limits on the use of disparate-impact, although no specific limits were enumerated in the decision. It is clear from the decision that agencies and developers are to be given leeway to explain the valid interest their policies serve. For example, credit requirements and criminal screening may affect one race more than others, but the use of such screening can be shown to be valid for the purpose of protecting property and investments. A disparate-impact claim cannot rely on statistical disparities only in showing a discriminatory effect.

A key statement in the decision is that “courts should avoid interpreting disparate-impact liability to be so expansive as to inject racial considerations into every housing decision.” To the extent possible, corrections to disparate-impact should be “race-neutral.” This part of the decision may cause HUD to reexamine its current effort at desegregation of every zip code through the threat of withholding federal funds for localities that do not comply.

The Court went to great lengths in the decision to express its concern that disparate-impact complaints not be used in an abusive way. As stated in the decision, “If the specter of disparate-impact litigation causes private developers to no longer construct or renovate housing units for low-income individuals, then the FHA would have undermined its own purpose as well as the free-market system.

In light of the wording in the FHA and overwhelming precedent, this decision was not as unexpected as some members of the housing industry anticipated. The opinion itself is very well crafted, and the duality of the opinion (i.e., both permitting disparateimpact claims and limiting their use to discriminatory effects that are clear and serve no valid interests), means there will be almost no discernible impact on the multi-family industry. The decision does not permit the use of a new theory in the law; disparate-impact claims have been made for decades. The clear direction provided by the Court that disparate-impact may not be used to override legitimate business and local interests is a plus for the real estate industry.

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