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.

Supreme Court update

We’ve had a bit of action on the four land use related cases pending before the US Supreme Court, discussed here and here.  Oral arguments are being held today in the case of Marvin M. Brandt Revocable Trust v. United States.  The issue in the case:

Whether the United States retained an implied reversionary interest in rights-of-way created by the General Railroad Right of Way Act of 1875 after the underlying lands were patented into private ownership.

Tomorrow, oral arguments will be held in McCullen v. Coakley, the issues of the case being:

(1) Whether the First Circuit erred in upholding Massachusetts’s selective exclusion law – which makes it a crime for speakers other than clinic “employees or agents . . . acting within the scope of their employment” to “enter or remain on a public way or sidewalk” within thirty-five feet of an entrance, exit, or driveway of “a reproductive health care facility” – under the First and Fourteenth Amendments, on its face and as applied to petitioners; (2) whether, if Hill v. Colorado permits enforcement of this law, Hill should be limited or overruled.

The case of Mount Holly v. Mount Holly Gardens Citizens in Action was settled prior to oral arguments.  A copy of a press briefing about the terms of the settlement is here.  The issue of the case was whether disparate impact claims are cognizable under the Fair Housing Act.  An interesting audio article about the case is here (approximately 6 minutes).

Brief run-down of local government cases before the US Supreme Court this fall

Several cases involving local government law are being heard by the US Supreme Court this fall.  The three that are most significant to BLUZ readers are:

Town of Greece v. Galloway

Argument scheduled for November 6, 2013

The Town of Greece, New York, followed the fairly common policy of allowing a person of any or no denomination to conduct an opening prayer at its Town Board meetings.  The Town did not preview or approve the prayer in advance; however, the Federal 2nd Circuit Court of Appeals declared the Town’s practice a violation of the Establishment Clause of the United States Constitution.  The Court’s holding could affect the longstanding prayer practices of many local governments.

Mount Holly Gardens Citizens in Action v. Township of Mount Holly

Argument scheduled for December 4, 2013

The question presented by this case is whether a policy or action (here, a plan to redevelop a low-income minority neighborhood in New Jersey) that disproportionately impacts a protected class of citizens without intentionally discriminating on the basis of race or other factors can give rise to a Fair Housing Act (FHA) claim.  It has long been understood in at least nine federal circuit courts that such claims will stand.  A ruling to the contrary would significantly restrict the types of claims brought under the FHA.

McCullen v. Coakley

Not currently scheduled for oral arguments

The issue is the constitutionality of Massachusetts’s selective exclusion law, which makes it a crime for speakers other than clinic “employees or agents . . . acting within the scope of their employment” to “enter or remain on a public way or sidewalk” within thirty-five feet of an entrance, exit, or driveway of “a reproductive health care facility” – under the First and Fourteenth Amendments, on its face and as applied to petitioners. If the Court decides the issue on broad constitutional grounds, the constitutionality of similar buffers for clinics, funerals, political gatherings, and other events could be called into question or even overturned.

St. Paul’s aggressive housing code enforcement may result in Fair Housing Act violation

by Gary Taylor

Thomas J. Gallagher, et. al v. Steve Manger, et. al.
(Federal 8th Circuit Court of Appeals, September 2, 2010)

In 1993, St. Paul, Minnesota (city) enacted a Property Maintenance Code (Code), that established “minimum maintenance standards for all structures and premises for basic equipment and facilities for light, ventilation, heating and sanitation; for safety from fire; for crime prevention; for space, use and location; and for safe and sanitary maintenance of all structures and premises.” In 2002, the City established the Department of Neighborhood Housing and Property Improvement (DNHPI) to administer and enforce the Code.  DNHPI was empowered to inspect all one- and two-family dwellings and administer and enforce laws regulating maintenance of residential property. 

Andy Dawkins was the director of DNHPI from 2002 to 2005. The evidence presented at trial showed that Dawkins favored owner-occupied housing over rental housing “for the sake of the neighborhood.” Toward that end, he increased the level of Code enforcement targeted at rental properties. In addition to responding to citizen complaints about particular properties, DNHPI inspectors conducted proactive “sweeps” to detect Code violations. Furthermore, Dawkins raised inspection standards by directing DNHPI inspectors to “code to the max,” that is, writing up every violation—not just what was called in—and writing up all the nearby properties—not just the reported properties. DNHPI also increased its Code enforcement efforts on “problem properties.”  DNHPI employed a variety of strategies for renter-occupied dwellings, including orders to correct or abate conditions, condemnations, vacant building registration, fees for excessive consumption of municipal services, tenant evictions, seizures, revocations of rental registrations, and if necessary, court actions.  DNHPI coordinated its efforts with the city police and an assistant city attorney. In addition, the city used “Code Compliance Certification” to require rental properties to meet current housing and building standards. Through this certification the city required rental property owners to acquire Code Compliance Certification if a property was remodeled or deemed a dangerous structure, a nuisance building, or vacant. Code Compliance inspections were conducted by the City’s Office of License, Inspections, and Environmental Protection, which would evaluate the building’s structure, plumbing, electrical condition, and mechanical condition. Code Compliance Certification forced property owners to undertake often-expensive renovations, especially with regard to older properties that were exempt from current building codes under Minnesota law.

Gallagher and others (Appellants) own or formerly owned rental properties in the city. They rented primarily to low-income households, and a majority of their tenants received federal rent assistance. The parties agree that African-Americans generally made up a disproportionate percentage of low-income tenants in private housing in the city, and specifically, Appellants claim that they rented to a higher-than-usual percentage of African-Americans. Appellants’ properties were subject to the City’s Housing Code enforcement from 2002 to 2005. They received code enforcement orders that, in many cases, cited between ten and twenty-five violations per property for conditions including rodent infestation, missing dead-bolt locks, inadequate sanitation facilities, inadequate heat, inoperable smoke detectors, broken or missing doors and screens, and broken or missing guardrails or handrails. Several of Appellants’ properties were designated as problem properties, subject to Code Compliance Certification, or, in a few cases, both. As a result of the City’s Housing Code enforcement, Appellants suffered increased maintenance costs, fees, condemnations, and were forced to sell properties in some
instances. 

Appellants filed several suits against the city in 2004 and 2005 that were consolidated into the present case.  Included were three claims under the Fair Housing Act (FHA) for disparate treatment, disparate impact, and retaliation. 

Disparate treatment.  For a disparate treatment claim to survive summary judgment, Appellants are required to show that the city treated Appellants less favorably than others based on race, color, religion, sex or national origin.  This is done through proving (1) direct evidence of discriminatory intent or (2) indirect evidence creating an inference of discriminatory intent.  The record showed that Dawkins made statements that demonstrate his desire and intent to reduce the amount of low-income tenants in the city; however, all of Dawkins’ statements were facially race neutral.  “Facially race-neutral statements, without more, do not demonstrate racial animus on the part of the speaker.” Merely calling these statements evidence of racial animus is not enough to create a genuine dispute of fact.  Therefore, the Court affirmed summary judgment in favor of the city.

Disparate impact.  For a disparate impact claim to survive summary judgment, Appellants must establish “that the objected-to action[s] result[ed] in . . . a disparate impact upon protected classes compared to a relevant population. Stated differently, Appellants “must show a facially neutral policy ha[d] a significant adverse impact on members of a protected minority group. Appellants are not required to show that the policy or practice was formulated with discriminatory intent.  The Court found evidence that supported the following assertions: (1) the city experienced a shortage of affordable housing; (2) racial minorities, especially African-Americans, made up a disproportionate percentage of lower-income households in the city that rely on low-income housing; (3) the city’s aggressive Code enforcement practices increased costs for property owners that rent to low-income tenants; and (4) the increased burden on rental-property owners from aggressive code enforcement resulted in less affordable housing in the city.

According to caselaw, the city must counter the showing by demonstrating that its policy or practice had “‘manifest relationship’” to a legitimate, nondiscriminatory policy objective and was necessary to the attainment of that objective.  Appellants concede that enforcement of the Code has a manifest relationship to legitimate, non-discriminatory objectives, which is providing minimum property maintenance standards to , keep housing habitable; however, caselaw also allows Appellants to show that alternative policies are available that accomplish the same objectives, yet lessen the discriminatory impact.  The Court found that Appellants met this showing by highlighting the success of the city’s previous Code enforcement program, known as PP2000.  PP2000 was based on a set of strategies that included identification of properties with a history of unresolved or repeat Code violations, meeting with the owners individually, encouraging the owners to take a more business-like approach to managing their properties, keeping closer tabs on changes of ownership, and using consistent inspectors at each property. These strategies resulted in “owners working hard to be pro active in maintaining their properties.  The Court concluded that sufficient evidence existed to warrant remand of the disparate impact claim to the District Court.

Retaliation.  The FHA prohibits retaliation against any person on account of his having exercised or enjoyed a right granted or protected by the FHA. The Court found that Appellants “vaguely asserted” that the city’s code enforcement actions were retaliatory; however, the Court refused to allow the retaliation claim to go forward because the Appellants had not identified how they exercised or encouraged others to exercise rights under the FHA or how the city retaliated.

Appellants raised nine other claims unrelated to the FHA claims, that were all dismissed by the Court.  As a result, the only claim remanded to the District Court was the disparate impact claim.

Archives

Categories