US Supreme Court validates disparate impact standard for FHA cases

by Gary Taylor

Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.
U.S. Supreme Court, June 25, 2015

The Texas Department of Housing and Community Affairs (Department) is the agency responsible for distributing federal low-income housing tax credits to developers in Texas. the Inclusive Communities Project (ICP) is a Texas-based nonprofit that assists low-income families in obtaining affordable housing.  ICP brought a claim under Sections 804(a) and 805(a) of the Fair Housing Act (FHA) alleging that the Department had caused continued segregated housing patterns by allocating too many tax credits to housing in predominantly black inner-city areas, and too few in predominantly white suburban neighborhoods.  These sections of the FHA provide that it shall be unlawful…

“..to refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin. (804(a)).

“…for any person or other entity whose business includes engaging in real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin. (805(a)).

The question before the U.S. Supreme Court was whether the above-cited language in the FHA requires that plaintiffs in such cases prove a discriminatory intent (improper motive) on the part of the defendant, or merely that a disparate impact (that the outcome had a disproportionately adverse effect on minorities) resulted from the action of the defendant.  This question has been simmering in the federal courts for many years, with federal circuit courts concluding that disparate impact (with minor variations) was sufficient.

In a 5-4 decision the Court determined that, with certain conditions proven, disparate impact claims are valid under the FHA. The Court looked to other federal statutes – and the Court’s interpretations of those statutes – for guidance.  Both Title VII of the Civil Rights Act of 1964 (Title VII) and the Age Discrimination in Employment Act of 1967 (ADEA) were interpreted by the Court to allow disparate impact claims because their texts refer to the consequences of actions and not just to the mindset of actors, where that interpretation is consistent with the overall statutory purpose. Carrying that logic to the FHA, the phrase “or otherwise make unavailable” in Section 804(a) is results-oriented, and refers to the consequences of an action rather than the actor’s intent.  It is functionally equivalent to “otherwise adversely affect” language found in both Title VII and AEDA.  In all three these phrases act as a catchall, located at the end of a lengthy sentence that begins with prohibitions on disparate treatment.  The word “otherwise” signals a shift in emphasis from an actor’s intent to the consequences of his actions.  The Court found it relevant that Congress passed the FHA within four years of both Title VII and AEDA, and that therefore Congress must have chosen words that bear the same basic meaning and serve the same basic purpose.

The Court also found it highly relevant that when Congress made significant amendments to the FHA in 1988 they left the language in 804(a) and 805(a) alone, at a time when all nine federal circuit courts had interpreted that language to allow disparate impact claims.  If Congress was dissatisfied with the courts’ interpretations of the language they could have changed it at that time.  Furthermore, three exemptions from FHA liability that were added in 1988 would have been meaningless had Congress assumed that disparate impact liability did not exist under the FHA.

The Court, however, also recognized that disparate impact liability “has always been properly limited in key respects to avoid serious constitutional questions” that might arise if, for example, liability were imposed based solely on a showing of “statistical disparity.”  A disparate impact claim relying on a statistical disparity must fail if the plaintiff cannot point to a policy or policies of the defendant that causes that disparity.  In other words, discriminatory intent need not be shown, but a “robust” showing of a cause-effect relationship is required.  Furthermore, defendants must be given leeway to explain the valid interest served by their policies or practices, and such policies should be allowed to stand – without liability therefore – if it they can be proven to be necessary to achieve a valid interest.  Policies and practices do not run afoul of the disparate impact standard unless they are “artificial, arbitrary, and unnecessary barriers.”

The Court also cautioned that disparate impact should not be interpreted so broadly as to inject racial considerations into every housing decision.  “The FHA does not decree a particular vision of urban development; and it does not put housing authorities and private developers in a double bind of liability, subject to suit whether they choose to rejuvenate a city core or to promote new low-income housing in suburban communities….Disparate impact liability does not mandate that affordable housing be located in neighborhoods with any particular characteristic.”

The Court affirmed the right of local housing authorities to design race-neutral efforts to encourage revitalization of communities that have long suffered the harsh consequences of segregated housing patters.  Such authorities may choose to foster diversity and combat racial isolation race-neutral tools.  The mere awareness of race in attempting to solve the problems facing inner cities does not doom such endeavors.

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