Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc.

Does the Fair Housing Act allow for disparate impact claims?  On January 21, 2015, the Supreme Court hear a housing discrimination case in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. (No. 13-1371).

The case originated in Federal District Court for the Northern District of Texas. The district court found that the plaintiff, The Inclusive Communities Project (“ICP”), had proven that Defendants’ allocation of Low Income Housing Tax Credits (“LIHTC”) in Dallas resulted in a disparate impact on African-American residents under the Fair Housing Act (“FHA”).  The ICP had initially brought claims under 42 U.S.C. §§ 1982 (property rights of citizens) and 1983 (Civil Action for Deprivation of Rights), the Fourteenth Amendment, and the FHA, 42 U.S.C. §§ 3604 and 3605.  ICP alleged that the Texas state agencies responsible for administering the FHA and LIHTC were disproportionately approving tax credit units in minority-concentrated neighborhoods and disproportionately disapproving tax credit units in predominantly caucasian neighborhoods, thus creating a concentration of units in minority areas.  This would then maintain and perpetuate segregated housing patterns.

The FHA makes it unlawful to “make unavailable or deny, a dwelling to any person because of race . . .” and “for any person or other entity whose business includes engaging in residential 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. . . .”

On appeal to the Fifth Circuit Court of Appeals, the circuit court addressed only the disparate impact component of IPC’s claims.  The Fifth Circuit noted that most other circuits have held that once a plaintiff establishes a prima facie case, the burden shifts to the defendant to show that the challenged practice serves a legitimate interest.  Other circuits diverged on what was required once the burden shifted.  The Second and Third Circuits require a defendant to prove that no less discriminatory alternatives to a practice that results in a disparate impact.  The Eighth and Tenth Circuits require the plaintiff to prove that there are less discriminatory alternatives.  Other circuits have a four-factor balancing test.

However, after the verdict in the district court, the Department of Housing and Urban Development issued regulation 24 C.F.R. § 100.500 which defines as “discriminatory effect” as: “A practice has a discriminatory effect where it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.”  The regulation sets forth the burdens of proof as well:

(1) The charging party, with respect to a claim brought under 42 U.S.C. 3612, or the plaintiff, with respect to a claim brought under 42 U.S.C. 3613 or 3614, has the burden of proving that a challenged practice caused or predictably will cause a discriminatory effect.
(2) Once the charging party or plaintiff satisfies the burden of proof set forth in paragraph (c)(1) of this section, the respondent or defendant has the burden of proving that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the respondent or defendant.
(3) If the respondent or defendant satisfies the burden of proof set forth in paragraph (c)(2) of this section, the charging party or plaintiff may still prevail upon proving that the substantial, legitimate, nondiscriminatory interests supporting the challenged practice could be served by another practice that has a less discriminatory effect.

The Fifth Circuit adopted the burden shifting approach set forth in 24 C.F.R. § 100.500 which it found to encompass the disparate impact concept and precedent and was in accord with the most recent decisions from other circuits.  The Fifth Circuit reversed the district court and remanded the case to make factual findings pursuant to the standards set forth in the new regulation.

The petitioners argue that the FHA text does not allow for disparate impact claims and have asked the Supreme Court to determine whether disparate impact claims are cognizable under the FHA.