FHA Disparate-Impact Liability Upheld

By Design Login posted 07-06-2015 12:00:00 AM


Read the full decision: Texas Dep’t of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., No. 13-1371, 2015 WL 2473449 (U.S. June 25, 2015)

In a much anticipated housing discrimination case, Texas Department of Housing and Community Affairs ET AL. v. Inclusive Communities Project, Inc. ET AL, the Supreme Court of the United States addressed the issue of whether the federal Fair Housing Act (“FHA”) prohibits housing decisions that have a disparate impact. The Court, in a 5-4 ruling, held that disparate-impact claims are cognizable under the FHA.

The plaintiff in the case, Inclusive Communities Project, Inc. (“ICP”), alleged that the defendants, the Texas Department of Housing and Community Affairs (“Department”), violated the FHA by allocating a disproportionate number of federal low-income housing tax credits in predominately black inner-city areas, rather than in predominately white suburban neighborhoods. ICP alleged that the Department’s selection criteria for allocating the tax credits perpetuated segregated housing patterns, resulting in a disparate impact on minorities in violation of the FHA. Disparate-impact claims challenge practices of housing providers that have a disproportionately adverse effect on minorities.

Relying on statistical evidence presented by ICP, the District Court concluded that ICP successfully established a prima facie case of disparate impact. While the District Court accepted the Department’s interests in allocating the tax credits as legitimate, the District Court required the Department to show that there was no other less discriminatory alternative to advancing the Department’s legitimate interests.

After defendants failed to meet this burden, the District Court entered a remedial order requiring the Department to add new selection criteria for distribution of the tax credits. On appeal, the Fifth Circuit Court of Appeals held that disparate- impact claims are cognizable under the FHA, but reversed and remanded based on its finding that the District Court improperly placed the burden to demonstrate no less discriminatory alternative on the Department.

In reaching its holding that the FHA recognizes disparate-impact claims, the Court found support from two other antidiscrimination statutes, Title VII of the Civil Rights Act of 1964 (“Title VII”) and the Age and Discrimination in Employment Act of 1967 (“ADEA”). Both Section 703(a)(2) of Title VII and Section 4(a)(2) of the ADEA contain language, similar to language in the FHA, which speaks to the consequence of an actor’s actions, rather than the actor’s intent. The Court determined that prior decisions of the Court “instruct[] that antidiscrimination laws must be construed to encompass disparate-impact claims when their text refers to the consequences of actions and not just to the mindset of actors and where that interpretation is consistent with statutory purpose.” Section 804(a) of the FHA includes the phrase “otherwise make unavailable”, which is similar to phrasing in Title VII and the ADEA and previously found by the Court to refer to the consequences of the actor’s actions rather than the intent. Also persuasive to the Court was the fact that Title VII, the ADEA, and the FHA were passed close in time to each other.

The Court also found support from the 1988 amendments to the FHA (“1988 Amendments”). At the time of the 1988 Amendments, Congress was aware that all nine Courts of Appeal had addressed the issue and unanimously held that the FHA recognized disparate-impact liability. Therefore, the Court determined that Congress’ 1988 Amendments to the FHA served as a ratification of these holdings. In addition, the Court found that the 1988 Amendments presupposed the existence of disparate-impact liability, and that the “exemptions embodied in these amendments would be superfluous if Congress had assumed disparate-impact liability did not exist under the FHA.”

While the Court recognized disparate-impact liability, the Court limited its scope in order to ensure that housing authorities and housing developers could still maintain a policy that serves a legitimate business interest. After a plaintiff establishes a prima facie case showing of disparate impact, the burden shifts to the defendant to prove the challenged practice is necessary to achieve one or more substantial, legitimate, non-discriminatory interests. The Court instructed that the burden then shifts back to the plaintiff to show the existence of another practice with a less discriminatory effect that would still serve the defendant’s legitimate business interest. In addition, central to this burden-shifting framework is the requirement that a plaintiff be able to show a causal connection between a specific policy or policies of a defendant and the disparate impact.

The Court recognized that disparate-impact claims play an important role in uncovering discriminatory intent and unconscious biases that may serve to thwart the FHA’s goals, and the Court found disparate-impact liability under the FHA to be consistent with the FHA’s purpose of ending segregated housing patterns and moving our nation towards a more integrated society. For these reasons, the Supreme Court of the United States affirmed the judgment of the Court of Appeals for the Fifth Circuit.

Three judges dissented from the Court’s opinion, arguing that the key phrase in the text of Section 804(a) of the FHA is the use of the phrase “because of”, which the dissent pointed out was previously held by the Court to mean “by reason of” or “on account of”, requiring a showing of discriminatory intent. The dissent was unpersuaded by the majority’s reading of the plain language of the statute or the majority’s conclusion that Congress authorized disparate-impact liability under the FHA.

Texas Dep’t of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., No. 13-1371, 2015 WL 2473449 (U.S. June 25, 2015) [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].

Editor’s Note: How Does Disparate Impact Theory Impact Real Estate Professionals?

The effect of the Supreme Court’s decision will largely be felt by housing developers, multi-unit property managers, lenders and government agencies. To the extent that a real estate professional serves in one of these capacities, particular attention should be paid. While the result of this decision will unlikely affect real estate professionals to any great extent, there is potential for a real estate professional to be subject to disparate-impact liability where a real estate professional adopts a policy that causes a disparate impact on a protected class. For example, if a real estate professional were to adopt a policy that the real estate professional would only show properties to individuals with advanced degrees, and a plaintiff were able to establish that this policy caused a disparate impact on minorities, a real estate professional could potentially be held liable for violating the federal Fair Housing Act. In addition, for real estate professionals that also operate as property managers or housing developers, consideration should be given to the effect of any adopted policy related to these activities to ensure that the policy does not have any unintended disparate impact on a protected class under the Fair Housing Act.

Source: National Association of REALTORS,