U.S. Supreme Court Addresses Disparate Impact Liability Under the Fair Housing Act

On January 21, 2015, the U.S. Supreme Court heard oral argument in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Docket No. 13-1371, a case that focuses on whether claims based on policies and decisions that are not facially discriminatory, but have a disparate impact on a particular race, can be brought under the Fair Housing Act (“FHA” or the “Act”).

The case began in 2008 when the Inclusive Communities Project (ICP) sued the Texas Department of Housing and Community Affairs (TDHCA) alleging that the TDHCA allocates a disproportionate number of federal tax credits to developers who build low-income housing in minority populated areas in the Dallas metropolitan area. As alleged by the ICP, this practice has a disparate impact on African-American residents in violation of the FHA, a federal law that prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, because of race, color, national origin, religion, sex, or familial status. In response, the TDCHA alleges that its tax credit program is based on race-neutral criteria and that it is in full compliance with the FHA.

Notably, while the Supreme Court has expressly recognized disparate impact discrimination under other civil rights statutes, such as Title VII of the Civil Rights Act (Title VII) and the Age Discrimination in Employment Act (ADEA), the Court has yet to announce whether disparate-impact claims are cognizable under the FHA. Nevertheless, there are several reasons why the Supreme Court can and should rule in favor of TDCHA and only recognize intentional discrimination in Fair Housing cases.

First, a “plain text” reading of the FHA supports the argument that the FHA does not authorize disparate impact claims. As noted by Texas’ Solicitor General, Scott Keller during oral argument last Wednesday, the language of the FHA that prohibits discrimination “because of” race is narrower than other civil-rights statutes that expressly prohibit practices that “adversely affect” members of a protected group. “The Fair Housing Act does not recognize disparate-impact claims, as its plain text doesn’t use effects or results-based language. When a statute prohibits actions taken because of race and it lacks effects­-based language, the statute is limited to intentional discrimination,” argued Keller. “The Court needs to focus on the plain text.”

In response, the ICP notes that to date, eleven of the federal circuit courts, as well as the U.S. Department of Housing and Urban Development, the federal agency charged with administering the FHA, have read the Act to authorize disparate impact claims. However, this trend may soon be changing. Just a few weeks ago the U.S. District Court for the District of Columbia concluded that disparate impact liability is not a cognizable cause of action under the FHA. See American Insurance Association v. U.S. Department of Housing and Urban Development, Civil Case No. 13-00966 (RJL). “When Congress intends to expand liability to claims of discrimination based on disparate impact, it uses language focused on the result or effect of particular conduct, rather than the conduct itself” held the District Court. Unlike both Title VII and the ADEA, which contain explicit effects based language, “there is no such ‘effects-based language’ present in the FHA.” The FHA “unambiguously prohibits only intentional discrimination.”

The U.S. Chamber of Commerce and the American Bankers Association have also filed amicus briefs in this case, noting that the ICP has failed to demonstrate “affirmative evidence of congressional intent” to permit a cause of action for disparate impact. However, in a somewhat surprising turn of events Justice Scalia closely challenged this argument last Wednesday, noting that in 1988, Congress amended the FHA and “seemingly acknowledged” the existence of disparate impact claims.

Nonetheless, if the Court finds that the FHA authorizes disparate impact claims, this will place an undue, if not impossible, a burden on landlords, lenders, and local governments in largely white areas because many facially neutral actions could be challenged as having a disparate impact on minorities. As alleged by the Texas Attorney General, the text of the law “unambiguously requires intentional discrimination,” and a disparate impact standard “sweeps in defendants who are entirely blameless.” As set forth in the amicus brief filed by the Texas Apartment Association, “construing the Fair Housing Act to permit such disparate-impact claims subjects housing providers to costly, stigmatizing litigation based on conduct lacking any discriminatory motive or intent.” Furthermore, recognizing disparate-impact claims under the FHA would have a severe impact on routine decisions that are made by developers and landlords to ensure the safety of their residents and the financial health of their properties.

The Supreme Court is not expected to render a decision until late June 2015. Landlords, developers, credit reporting companies, businesses, financial institutions, and housing officials must keep a close eye on the course of this case, as it has the ability to have practical as well as legal implications.

If you or your institution has any questions or concerns regarding employment-related issues, please email James G. Ryan at jryan@cullenanddykman.com or call him at 516-357-3750.