June 25, 2015

U.S. Supreme Court Holds That Disparate Impact Claims Are Cognizable under the FHA

Holland & Knight Regulatory Litigation Blog
Lynn E. Calkins | Jessica L. Farmer

Today, in a 5-4 decision, the U.S. Supreme Court upheld the ruling of the Fifth Circuit that disparate impact claims are cognizable under the Fair Housing Act (FHA). Under a disparate impact theory, individuals and groups can challenge a housing or lending policy or practice if it has a disproportionate adverse effect on protected classes, even if there was no discriminatory intent.

The case involved a lawsuit brought by the Inclusive Communities Project, an advocacy group, against the Texas Department of Housing and Community Affairs, alleging that the department and its officers had caused continued segregated housing patterns by allocating too many tax credits to housing in predominantly minority inner-city areas and too few in predominantly white suburban neighborhoods.

The Supreme Court focused on the language of the FHA, which provides that it is unlawful to "refuse to sell or rent ... or otherwise make unavailable or deny, a dwelling to a person because of race" or other protected characteristic, §804(a), or "to discriminate against any person in" making certain real-estate transactions "because of race" or other protected characteristic, §805(a). The court zeroed in on the phrase "otherwise make unavailable" and reasoned that the phrase refers to the consequences of an action rather than the actor's intent.

In reaching its decision, the court noted that recognition of disparate impact claims is consistent with the central purpose of the FHA -- to eradicate discriminatory practices. The court reasoned that recognition of disparate impact liability under the FHA plays an important role in uncovering unconscious prejudices and disguised animus.

The court expressly recognized that a disparate impact claim relying on a statistical disparity alone is not sufficient and that the plaintiff must be able to point to a specific policy of the housing provider that causes the disparity. Accordingly, the court ruled that disparate impact liability should continue to be properly limited and leaves open the ability for a housing provider to make an argument that any disparate impact was the result of practical business choices and profit-related decisions, and explain the valid interest their policies serve. In addition, before rejecting the housing provider's business justification—or a governmental entity's analogous public interest—a court must determine that a plaintiff has shown that there is "an available alternative ... practice that has less disparate impact and serves the entity's legitimate needs."

The case has been remanded to the District Court, however, the decision leaves many questions unsettled. Although disparate impact liability is to be limited so that businesses and local governments are able to make necessary and practical decisions, the burden is on those entities, including housing developers, apartment managers, financial institutions, and municipalities, to defend the necessity of their policies and practices to achieve valid interests. This will likely lead to more litigation against businesses and local governments, which will need to defend their legitimate and necessary policies and practices.

Texas Dep't of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., No. 13–1371 (June 25, 2015).

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