Fair Housing Act Permits Disparate Impact Liability

For nearly 50 years, the Fair Housing Act has been a weapon available to individuals, community groups and governmental entitles seeking to combat housing discrimination. Among the targets of Fair Housing Act litigation have been landlords, co-op and condominium boards, local governments, and publishers of allegedly discriminatory advertisements. Until this past term, however, the United States Supreme Court had not resolved a basic question about the statute's meaning: Does the statute require a showing of discriminatory intent or discriminatory treatment, or can a plaintiff prevail by establishing the discriminatory effect or disparate impact of the defendant's action, even without a showing of discriminatory treatment? In Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc, the Court, over the objection of four dissenting justices, held that proof of discriminatory intent or treatment was not essential to a Fair Housing Act claim.

The majority and dissenting opinions marshaled conflicting evidence to support their respective statutory construction arguments. There is not space in this article to rehash or evaluate those arguments. Instead, my focus is on the implications of the Inclusive Communities decision for future Fair Housing Act litigation.

The Facts

We start with the facts in Inclusive Communities. The Texas Department of Housing administers a federal program that provides low-income housing tax credits to developers. The federal statute creating the program requires state agencies to include preferences for units that contribute to community revitalization and units built in census tracts populated predominantly by low-income residents. State law superimposes other criteria on those mandated by the federal statute; in particular, the Texas statute encourages construction of units in neighborhoods with good schools. The Inclusive Communities Project challenged the Texas Department of Housing's allocation of credits, contending that the Department was allocating too many credits in predominantly black inner-city areas and too few in predominantly white suburban areas. Inclusive Communities contended that this allocation created a disparate impact in violation of the Fair Housing Act.

The district court concluded that Inclusive Communities had established a prima facie case of disparate impact, and imposed on the Department the obligation to prove that there were no less discriminatory alternatives available. Because the Department failed to meet that burden, the district court found a Fair Housing Act violation. The Fifth Circuit reversed, holding that disparate impact claims are cognizable under the statute, but also holding that it was improper for the district court to require the Department to prove that there were no less discriminatory alternatives for allocating the tax credits. In a concurring opinion, Judge Jones stated that on remand, the district court should re-examine whether Inclusive Communities had made out a prima facie case, suggesting that the District Court had improperly relied on statistical evidence without analysis of causation. She also observed that there could not be Fair Housing Act liability if federal law tied the Department's hands to such an extent that the Department had no meaningful choice. The Supreme Court granted certiorari to consider whether disparate impact claims are cognizable under the Fair Housing Act.

The Court's Opinion

Justice Kennedy's carefully drafted opinion imposes significant constraints on disparate impact claims. First, he indicated that a disparate impact claim is available only if a plaintiff can identify a policy that causes a disparate impact: “a one-time decisions may not be a policy at all,” and therefore may not trigger disparate impact liability. Second, even if the plaintiff identifies a policy, plaintiff cannot make out a prima facie case of disparate impact by relying on a statistical disparity alone; the claim “must fail if the plaintiff cannot point to a defendant's policy or policies causing that disparity.” On the facts of the case, Justice Kennedy noted that “as Judge Jones observed below, if the ICP cannot show a causal connection between the Department's policy and a disparate impact ' for instance, because federal law substantially limits the Department's discretion ' that should result in dismissal of this case.”

Moreover, consider the facts of a case on which the U.S. Court of Appeals for the Eighth Circuit had found disparate impact liability: Gallagher v. Magner, 619 F.3d 823 (2010) ' which served as the focus on Justice Alito's dissent in Inclusive Communities. In Gallagher, the City of St. Paul attempted to combat rodent infestation and other housing code violations by enforcing the code more aggressively. The Eighth Circuit held that aggressive enforcement was actionable because if landlords were to respond to violations, they would increase rent, which would have a disparate impact on minorities because they were statistically more likely to fall into “the bottom bracket for household adjusted median family income.” Gallagher involved a municipal policy (aggressive housing code enforcement) that was quite likely to have a disproportionate impact on members of minority groups. Although the Supreme Court did not expressly disapprove Gallagher, Justice Kennedy's opinion took considerable pains to distance itself from that case, noting that it “was decided without the cautionary standards announced in this opinion” and was settled before an ultimate determination of disparate impact liability.

If, as the Court seems to suggest, the facts of cases like Gallagher should be insufficient to make out a prima facie case of disparate impact liability, it is not immediately clear how much separates the majority from the dissent in Inclusive Communities. After all, in his dissent, Justice Alito readily concedes that proof of disparate impact constitutes evidence of disparate treatment, and that a defendant cannot rebut that inference “by conjuring up neutral excuses.” Justice Kennedy's majority opinion constrains disparate impact claims so significantly that there would appear to be little room for a disparate impact claim to succeed except in those cases where a plaintiff would also be able to succeed on a disparate treatment claim.

Implications

Nevertheless, the Inclusive Communities decision is important in at least two ways. First, recognizing disparate impact liability, however constrained, shifts responsibility and power from factfinders to lawfinders. If a Fair Housing Act plaintiff were limited to disparate treatment liability, once a plaintiff established disparate impact, a defendant who advanced a non-discriminatory reason for its policy would then have a jury decide whether in fact, defendant had engaged in impermissible discrimination. Under the disparate impact framework, courts, not juries, are likely to evaluate whether the defendant's reasons for the policy would suffice to overcome the disparate impact.

Second, the Court's decision expands the power of the Department of Housing and Urban Development (HUD) to promulgate regulations affecting the housing market. If, as the Court held, the Fair Housing Act contemplates disparate impact liability, then courts will likely be required to accord Chevron deference to determinations of the agency responsible for administering the statute. (Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)). By contrast, if the statute precluded disparate impact liability, HUD would lack power to enact regulations expanding the statute's reach.

Stewart L. Sterk, Mack Professor of Law at Benjamin Cardozo School of Law, is the Editor-in-Chief of this newsletter.

For nearly 50 years, the Fair Housing Act has been a weapon available to individuals, community groups and governmental entitles seeking to combat housing discrimination. Among the targets of Fair Housing Act litigation have been landlords, co-op and condominium boards, local governments, and publishers of allegedly discriminatory advertisements. Until this past term, however, the United States Supreme Court had not resolved a basic question about the statute's meaning: Does the statute require a showing of discriminatory intent or discriminatory treatment, or can a plaintiff prevail by establishing the discriminatory effect or disparate impact of the defendant's action, even without a showing of discriminatory treatment? In Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc, the Court, over the objection of four dissenting justices, held that proof of discriminatory intent or treatment was not essential to a Fair Housing Act claim.

The majority and dissenting opinions marshaled conflicting evidence to support their respective statutory construction arguments. There is not space in this article to rehash or evaluate those arguments. Instead, my focus is on the implications of the Inclusive Communities decision for future Fair Housing Act litigation.

The Facts

We start with the facts in Inclusive Communities. The Texas Department of Housing administers a federal program that provides low-income housing tax credits to developers. The federal statute creating the program requires state agencies to include preferences for units that contribute to community revitalization and units built in census tracts populated predominantly by low-income residents. State law superimposes other criteria on those mandated by the federal statute; in particular, the Texas statute encourages construction of units in neighborhoods with good schools. The Inclusive Communities Project challenged the Texas Department of Housing's allocation of credits, contending that the Department was allocating too many credits in predominantly black inner-city areas and too few in predominantly white suburban areas. Inclusive Communities contended that this allocation created a disparate impact in violation of the Fair Housing Act.

The district court concluded that Inclusive Communities had established a prima facie case of disparate impact, and imposed on the Department the obligation to prove that there were no less discriminatory alternatives available. Because the Department failed to meet that burden, the district court found a Fair Housing Act violation. The Fifth Circuit reversed, holding that disparate impact claims are cognizable under the statute, but also holding that it was improper for the district court to require the Department to prove that there were no less discriminatory alternatives for allocating the tax credits. In a concurring opinion, Judge Jones stated that on remand, the district court should re-examine whether Inclusive Communities had made out a prima facie case, suggesting that the District Court had improperly relied on statistical evidence without analysis of causation. She also observed that there could not be Fair Housing Act liability if federal law tied the Department's hands to such an extent that the Department had no meaningful choice. The Supreme Court granted certiorari to consider whether disparate impact claims are cognizable under the Fair Housing Act.

The Court's Opinion

Justice Kennedy's carefully drafted opinion imposes significant constraints on disparate impact claims. First, he indicated that a disparate impact claim is available only if a plaintiff can identify a policy that causes a disparate impact: “a one-time decisions may not be a policy at all,” and therefore may not trigger disparate impact liability. Second, even if the plaintiff identifies a policy, plaintiff cannot make out a prima facie case of disparate impact by relying on a statistical disparity alone; the claim “must fail if the plaintiff cannot point to a defendant's policy or policies causing that disparity.” On the facts of the case, Justice Kennedy noted that “as Judge Jones observed below, if the ICP cannot show a causal connection between the Department's policy and a disparate impact ' for instance, because federal law substantially limits the Department's discretion ' that should result in dismissal of this case.”

Moreover, consider the facts of a case on which the U.S. Court of Appeals for the Eighth Circuit had found disparate impact liability: Gallagher v. Magner , 619 F.3d 823 (2010) ' which served as the focus on Justice Alito's dissent in Inclusive Communities . In Gallagher, the City of St. Paul attempted to combat rodent infestation and other housing code violations by enforcing the code more aggressively. The Eighth Circuit held that aggressive enforcement was actionable because if landlords were to respond to violations, they would increase rent, which would have a disparate impact on minorities because they were statistically more likely to fall into “the bottom bracket for household adjusted median family income.” Gallagher involved a municipal policy (aggressive housing code enforcement) that was quite likely to have a disproportionate impact on members of minority groups. Although the Supreme Court did not expressly disapprove Gallagher, Justice Kennedy's opinion took considerable pains to distance itself from that case, noting that it “was decided without the cautionary standards announced in this opinion” and was settled before an ultimate determination of disparate impact liability.

If, as the Court seems to suggest, the facts of cases like Gallagher should be insufficient to make out a prima facie case of disparate impact liability, it is not immediately clear how much separates the majority from the dissent in Inclusive Communities. After all, in his dissent, Justice Alito readily concedes that proof of disparate impact constitutes evidence of disparate treatment, and that a defendant cannot rebut that inference “by conjuring up neutral excuses.” Justice Kennedy's majority opinion constrains disparate impact claims so significantly that there would appear to be little room for a disparate impact claim to succeed except in those cases where a plaintiff would also be able to succeed on a disparate treatment claim.

Implications

Nevertheless, the Inclusive Communities decision is important in at least two ways. First, recognizing disparate impact liability, however constrained, shifts responsibility and power from factfinders to lawfinders. If a Fair Housing Act plaintiff were limited to disparate treatment liability, once a plaintiff established disparate impact, a defendant who advanced a non-discriminatory reason for its policy would then have a jury decide whether in fact, defendant had engaged in impermissible discrimination. Under the disparate impact framework, courts, not juries, are likely to evaluate whether the defendant's reasons for the policy would suffice to overcome the disparate impact.

Second, the Court's decision expands the power of the Department of Housing and Urban Development (HUD) to promulgate regulations affecting the housing market. If, as the Court held, the Fair Housing Act contemplates disparate impact liability, then courts will likely be required to accord Chevron deference to determinations of the agency responsible for administering the statute. ( Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. , 467 U.S. 837 (1984)). By contrast, if the statute precluded disparate impact liability, HUD would lack power to enact regulations expanding the statute's reach.

Stewart L. Sterk, Mack Professor of Law at Benjamin Cardozo School of Law, is the Editor-in-Chief of this newsletter.