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Knowledge

Supreme Court Takes on Housing Discrimination

8/17/2015

The U.S. Supreme Court recently ruled that certain actions that adversely affect minorities in poor neighborhoods violate the Fair Housing Act (FHA), even if there is no proof that discrimination was intentional. In a 5-4 decision, the Court formally recognized the availability of “disparate impact” claims, and this ruling could usher in a wave of potentially costly litigation that could involve municipal zoning rules, homeowner association bylaws, urban renewal efforts, and business decisions of private developers.1

Background

The Fair Housing Act was signed into law in 1968 by President Lyndon B. Johnson. It was designed to protect individuals from discrimination when they are renting, buying, or securing financing for housing. It specifically prohibits discrimination based on race, color, national origin, religion, sex, disability and the presence of children.

In 2008, the Inclusive Communities Project (ICP), a non-profit organization that promotes fair housing in Dallas and throughout Texas, sued the Texas Department of Housing and Community Affairs over how the Department was allocating tax credits for housing development. ICP stated that within a 14 year period, the Department allocated nearly all of its HUD tax credits toward the building of low-income housing projects in the run-down areas of Dallas, and it allocated no credits for development of low-income housing in the city’s predominantly white suburbs. ICP argued that the State’s allocation of credits was discriminatory and would result in continued segregation, even if the discrimination was not intended.

What is a Disparate Impact Claim?

The underlying issue that the Supreme Court had to address was whether the Department’s allocations had disproportionally and adversely affected a minority group, even if the Department had no intentions of causing such an effect. The disproportionate effect of a policy on a minority group represents a “disparate impact.” In its ruling on June 25, 2015, the Court ruled in favor of ICP and formally recognized the availability of disparate impact claims under the Fair Housing Act.

The Supreme Court clarified that it would follow the familiar burden shifting framework of other antidiscrimination laws in addressing FHA claims. Under this burden shifting system, after a plaintiff shows a disparate impact, the defendant must prove that the challenged practice is necessary to achieve a substantial, legitimate, non-discriminatory interest. At that point, the burden shifts back to the plaintiff to show that that the same interests could be served by another practice that has a less discriminatory effect.

Going Forward

Businesses, governmental entities and individuals can be the target of a disparate impact claim even if they did not intend to discriminate, and this can result in expensive litigation and reputational harm. Many of the routine activities of municipalities, zoning boards, homeowners associations, and developers could result in a disparate impact, creating exposure to an FHA claim. Avoiding such liability and creating FHA-compliant business plans and zoning regimes involves a difficult balancing act because of the extensive reach of disparate impact liability.

The most prudent course of action for anyone who may potentially face an FHA claim —which includes individuals, businesses, nonprofit organizations, and public entities—is to engage in a thorough, multidisciplinary legal review of its practices, incorporating statistical analysis where appropriate, in order to avoid actions that could result in a disparate impact that may reinforce patterns of discrimination and potentially lead to an FHA claim.

We will continue to monitor this ruling and any potential litigation that may result from it.


 

1 See Texas Department of Housing and Community Affairs et al. v. Inclusive Communities Project, Inc., et al., 135 S.Ct. 2507 (June 25, 2015)