U.S. Supreme Court Upholds Disparate Impact in Fair Housing Case, Expresses Support for Preservation and Community Revitalization

Published by Mark Shelburne on Tuesday, June 30, 2015 - 12:00am

On June 25, the U.S. Supreme Court released its long-awaited decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc. (TDHCA and ICP, respectively). By a 5-4 vote the court held that the Fair Housing Act (FHA) allows for disparate impact claims, meaning proof of intent is not required to find discrimination in violation of this federal law.

While the overall bottom line of the ruling is clear, how the specifics will apply in different fact patterns is not. The majority opinion involves what one commentator described as “intricate and multilayered reasoning,” making its interpretation a challenge.

For background, the federal judicial system has three main levels:

  • District Courts hold hearings/trials,
  • Circuit Courts (in this case the Fifth) consider appeals, and
  • when the Justices decide to hear a case, the Supreme Court is the last stop.

ICP filed its lawsuit against TDHCA in 2008, alleging the agency had awarded too much of its low-income housing tax credit (LIHTC) allocation in areas with high concentrations of racial minorities. The Northern District of Texas (based in Dallas) found in favor of ICP in March 2012, and TDHCA appealed to the Fifth Circuit.

In February 2013 the Department of Housing and Urban Development (HUD) issued a final rule entitled “Implementation of the Fair Housing Act’s Discriminatory Effects Standard,” found at 24 C.F.R. pt. 100. The appeal was still pending, and the Fifth Circuit adopted the rule as the applicable legal standard and remanded the case (i.e., sent it back to be reconsidered) in March 2014. The judges directed the District Court to use HUD’s approach in evaluating the merits.

Technically what happened is the Supreme Court affirmed the Fifth Circuit. In so doing, it effectively adopted the rule, making it the law of the land. HUD implements the disparate impact standard using what’s known as a three step burden shifting approach.

  1. In the first step, a plaintiff must prove the practice in question “actually or predictably results in a disparate impact,” meaning it has a discriminatory effect. Doing so is known as making a prima facie case.
  2. If the plaintiff meets this test, the defendant must demonstrate a legally sufficient justification by showing the practice is “necessary to achieve one or more substantial, legitimate, nondiscriminatory interests.”
  3. Finally, the plaintiff still has an opportunity to prevail by showing there is an alternative with “a less discriminatory effect.”

However, the majority did more than endorse the rule. Its opinion contains important, specific limitations on disparate impact claims. This particular section of the “intricate and multilayered reasoning” is four times as long as the rule itself.

The court emphasizes that a claim must be supported by more than statistical disparities. A plaintiff must prove a “causal connection” between its evidence and the challenged practice in order to make out a prima facie case. In the context of subsidy resource allocation, such as LIHTCs, it may be “difficult to establish causation because of the multiple factors that go into investment decisions about where to construct or renovate housing units.”

Even when there is a connection, the Court said governments “must not be prevented from achieving legitimate objectives.” The opinion states that policies are “not contrary to the disparate-impact requirement unless they [create] ‘artificial, arbitrary and unnecessary barriers.’” The court specifically mentions “revitalization of communities that have long suffered the harsh consequences of segregated housing patterns” as one such legitimate objective.

Some agencies and developers have been concerned about what the decision means for use of housing subsidies in low-income, racially concentrated neighborhoods, including for preservation. While still subject to the rule, this language provides clear support for such work.

Are these limitations different from or in addition to those contained in the rule? The answer may be debatable, but regardless all of it will be relevant in any future lawsuits or administrative actions. HUD may consider issuing further guidance clarifying the causal connection or other requirements.

There are other noteworthy aspects of the opinion in addition to the result and reasoning. The Justices cite a law review article to make the point that cases against program administrators are “novel;” the vast majority of actions are brought against practices preventing affordable housing (e.g., land use regulations). The article also analyzes the outcome of disparate impact claims and finds the defendant almost always has prevailed, particularly in the last decade.

Another interesting aspect could be questions stemming from the opinion, such as how disparate impact may be applied in different contexts. One area is supportive housing for persons with disabilities, who also are a FHA protected class.

Last, but definitely not least, is what ultimately will happen in Texas. The Court cites one of the Circuit judge’s observations that ICP’s claim should be dismissed if it “cannot show a causal connection between [TDHCA’s] policy and a disparate impact.” The majority added:

This case, on remand, may be seen simply as an attempt to second-guess which of two reasonable approaches [an agency] should follow in the sound exercise of its discretion in allocating [LIHTCs].

Later this year attention will turn to a related but separate topic, HUD’s proposed Affirmatively Furthering Fair Housing regulation, which will provide guidance to state and local governments on the use of federal housing subsidies to promote integration.