Developers Attack "NIMBYism" - Using the Fair Housing Act as a Sword
 
September 17, 2002
 
Christopher B. "Chris" Hanback- Washington

You have spent months planning a quality apartment community that will utilize the federal low income tax credit for part of the financing.  You have obtained control of the site. Utilities and roads are adequate and in place.  You have lined-up investors and financing.  You have completed a marketing plan that confirms the need and profitability of the project and have signed up a quality property management company.  The next step is to obtain the usual approvals from local government routinely available for any development.  But the approvals do not come. 

Unexpectedly, there are new concerns about the adequacy of local schools.  Novel zoning issues arise. The usual loans, financial assistance and accommodations to developers suddenly disappear for your project. A local official publicly opposes your “gated” housing community by stating that the fence “protects the residents inside the property but does not protect the neighbors outside from the residents in the community.”  The official apparently felt that there was nothing improper about expressing these attitudes in opposing a housing project for minorities and families with children.

What is going on?  Why are their concerns that apartment residents will include families with children?  Is the local government really trying to exclude working people because they are members of a particular minority group? Don’t the local government officials  realize that your low income tax credit community will be more attractive than most of the existing housing in the immediate area?  It appears that both ignorance of the quality of the apartment development and prejudice are at work.

“NIMBYism” (“Not in My Backyard”) has struck.  It threatens to cost you thousands of dollars in wasted staff time, lost business opportunities and expenses.  This is not a normal business reversal suffered at the hands of a competitor. This is local government acting improperly to your financial disadvantage. In the past, developers may have accepted this behavior and moved on to another, less hostile community, but no more.  Now you have a remedy, and because you will not be the first developer to use it, you need not be afraid to act.  That remedy is the federal Fair Housing Act (Act), which you have often felt was being used against you.  As an owner-developer, the Act also protects your rights not to be discriminated against in business transactions because your properties will house families with children and minorities. 

Discrimination Defined.  The Act provides that it is unlawful to “make unavailable or deny,” “to discriminate . . . in the terms, conditions, or privileges of sale or  rental” or in the making of loans to construct housing based on “race, color, religion, sex, handicap, familial status (meaning children under the age of 18 living with the family) or national origin.”  42 USC §§3604 (a) and (b) and 3605. The Act also makes it unlawful for any person, including local government, to “coerce, intimidate, threaten, or interfere” with persons exercising their rights.  This includes an owner or developer, who “aids” individuals in exercising their rights to housing by building affordable housing.  Such interference is both the obstruction of the developer’s right to build and the protected individual’s right to housing. 42 USC §3617.

Aggrieved Person.  Indeed, the Act specifically provides that an “aggrieved person” includes “any person who . . . claims to have been injured by a discriminatory housing practice,” including “corporations, partnerships and associations.” 42 USC §§3602(i)(1) and 3602 (d). The Act, therefore, not only protects the rights of minorities and families with children, but also protects the rights of real estate owners, developers and managers to build and operate affordable housing, even if the owners are primarily motivated by profit.

Injury.  An increasing number of court decisions in recent years have affirmed this view.  As early as 1972, the U.S. Supreme Court held that the only requirement to assert a claim under the Act is that the aggrieved party suffered a “distinct and palpable injury.” Trafficante v. Metropolitan Life Insurance Co. (S. Ct. 1972). Further in 1979, the Supreme Court held that plaintiffs under the Act may assert the rights of others, who may be more direct victims, as long as the plaintiff suffers actual injury as a result of the defendant’s conduct.  Gladstone, Realtors v. Village of Bellwood (S. Ct 1979).  In the  well-known decision of Village of Arlington Heights v. Metropolitan Housing Development Corporation (S. Ct. 1977), the Supreme Court upheld the developer’s standing to challenge a municipality’s adverse decision blocking the development of a subsidized housing project.

Local Governments Are Liable.  Indeed, a local government can be sued like any other defendant and is liable for monetary damages suffered by the developer. San Pedro Hotel Co. v. City of Los Angeles (9th Cir. 1998); Baytree of Inverray Realty Partners v. City of Lauderhill (11th Cir. 1989); Keith v. Volpe (9th Cir. 1988).  While it is unusual for local government officials to express directly their motive and intent to discriminate against minorities and families, such intent can be established by government actions and exclusionary land practices.  Of critical importance is the fact that “discrimination” against minorities and families with children need not be the exclusive or predominant reason for the locality’s action.  The Supreme Court held that the plaintiff need only establish that the discrimination was “a motivating factor” in the local government’s decision. Village of Arlington Heights.  One of the ways that such discriminatory intent can be proven is by examining the events leading to the city or county’s decision, thereby showing its departure from normal review and approval procedures for housing projects.  United States v. City of Birmingham, Michigan (S. Ct. 1984).

A developer also can prove its injury by establishing that that a local government’s actions disparately affected the protected class of minorities or families with children.  Accordingly, if the city or county has rejected a housing community and that rejection harms a protected group’s ability to obtain housing, regardless of the motive of the government, then the developer may be awarded damages to reimburse it for the monetary injury it has suffered because of the local government’s actions. Huntington Branch, NAACP v. Town of Huntington (2d Cir. 1988).

An additional weapon in the developers’ arsenal is the Act’s prohibition against interference, coercion and intimidation.  In the real world, efforts by local officials to block affordable housing are often indirect and hidden—a partner or land seller is threatened with the loss of future business, if he aids in the development of a project.  This obstruction has been held to constitute “interference” by a city, which is a violation of the coercion provisions of the Fair Housing Act. 42 USC §3617.  Smith v. Stechl (9th Cir, 1975); United States v. City of Hayward, California (9th Cir. 1994). An additional remedy for the developer is the availability to obtain an award of attorneys’ fees and costs for prevailing in the suit against the government.  42 USC §3613 (c) (2).

Lost Profits.  Two cases decided at the federal appellate level are instructive as to the availability of the protections of the Fair Housing Act for developers.  In the first case, Silver Sage Partners, Ltd. v. City of Desert Hot Springs (9th Cir. 2001), the court held that developers, syndicators and brokers were entitled to damages in the amount of $3.1 million from a municipality’s violation of the Act—even if the amount of the developer’s damages were incapable of exact measurement.  Allegedly, the city had intentionally failed to certify the project’s compliance with local law requirements because members of the city council did not want a project populated by minority children.  As a result of the city’s deliberate omission, the project failed to receive state bond financing.  The Court specifically held that lost profits could be recovered and that damages could be proved by the testimony of an expert witness.  Further, the court held that, unlike the requirements of other civil rights statutes, under the Fair Housing Act, the plaintiffs had no duty to mitigate the damages caused by the city by undertaking some other real estate opportunity.

Retaliation.  In the second case, the City of Los Angeles and an individual councilman allegedly violated the Act, and other state law, by failing to make the routine approval of the use of previously allocated federal funds for a loan to enable the sale of a property to a not-for-profit developer of housing for the mentally disabled.  San Pedro Hotel Co. v. City of Los Angeles (9th Cir. 1998). In addition, after denial of the customary loan approval, the city began a campaign of citing the owner for alleged housing code violations including criminal violations.  While the city eventually gave approval for the loan and the housing code violations were not pursued, the seller determined to continue with its Fair Housing Act claim against the city.  In sustaining the seller’s complaint, the Court held that all that the seller needed to establish under the Act was that the city interfered with the housing rights of a protected group and that, as a result, the seller suffered actual injury.  The Court pointed out that the violation was not the failure to approve the loan but that the city improperly interfered with the loan by breaching its duty to act in a nondiscriminatory manner.  Further, the Court held that the sellers could pursue their retaliation claim. The Court explained that it was irrelevant whether the plaintiffs’ were actually in violation of the housing code. Rather, the issue was whether the city commenced the investigations and charges in response to the proposed sale or the seller’s threatened lawsuit.

Department of Justice Sues on Behalf of Developers.   The Justice Department recently announced that the city of Fairview Heights, Illinois, had agreed to pay $275,000 to resolve a discrimination complaint filed in April of 2000. United States v. City of Fairview Heights, Illinois (S. D. Ill. 2001). The case is noteworthy because it was brought by the Department of Justice on behalf of real estate businesses and not individual residents or potential residents. The complaint alleged that the city violated the Fair Housing Act when it refused to permit an African-American developer and construction company to build a 154-unit apartment complex in Fairview Heights. The project had been rejected by the city planning commission and city council. 

The complaint alleged that the city refused to allow the construction of the complex because of the developer’s race and because the city government believed that a significant number of the residents would be African-American. The lawsuit also alleged that the city rejected the complex because it would attract too many families with school-age children. Under the consent agreement the city will pay a total of $275,000 to the developer, the owners of the property, and others who would have assisted in developing the complex to compensate them for damages incurred when Fairview Heights refused to permit the developer to build the apartment complex.

Conclusion.   Obviously, a suit against local government under the Act is not to be undertaken lightly.  This is far different from the typical contingent fee case by “victims’ rights” attorneys.  However, with the widespread use of the federal low income tax credit to develop quality and affordable housing across the country, established developers are increasingly unwilling to allow prejudiced local officials to undermine their business.  Since a number of these suits have now been brought by developers, the potential stigma of using the Act to aid real estate development is reduced.  It may well be that the threat of litigation, when coupled with the education of local officials and their municipal attorneys (with the assistance of competent counsel retained by owners) may be sufficient.  Such a result marries profit for the developer with the provision of needed affordable housing for minorities and families with children.

For more information, contact Christopher B. Hanback, toll-free at 888-688-8500, or via e-mail at chanback@hklaw.com.