Oral argument: Feb. 29, 2012
Appealed from: United States Court of Appeals for the Eighth Circuit (Sept. 1, 2010)
CIVIL RIGHTS, FAIR HOUSING ACT, RACIAL DISCRIMINATION, DISPARATE IMPACT
Thomas J. Gallagher, together with other owners and former owners of rental properties, sued the City of St. Paul, Minnesota for violating the Fair Housing Act, which prohibits discriminatory housing practices. Gallagher claimed that the City’s aggressive and targeted enforcement of city housing codes against rental units reduced the availability of low-income rentals, with a disparate impact upon African-Americans. The Eighth Circuit held that Gallagher stated a valid FHA claim under the disparate impact theory. St. Paul appeals, arguing that, because the FHA requires evidence of discriminatory intent, Gallagher’s disparate impact claim is insufficient to establish a violation under the Act. Gallagher contends that, given the Court’s prior findings regarding disparate impact claims under the similarly-worded Age Discrimination in Employment Act and Title VII, disparate impact claims are cognizable under the FHA. The Supreme Court’s decision may affect the extent to which city officials can use ordinances, code enforcement actions, and other land-use regulations to regulate low-income neighborhoods.
The Fair Housing Act makes it unlawful "[t]o refuse to sell or rent after the making of a bona fide offer ... or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin." 42 U.S.C. § 3604(a). Respondents are owners of rental properties who argue that Petitioners violated the Fair Housing Act by "aggressively" enforcing the City of Saint Paul's housing code. According to Respondents, because a disproportionate number of renters are African-American, and Respondents rent to many African-Americans, requiring them to meet the housing code will increase their costs and decrease the number of units they make available to rent to African-American tenants. Reversing the district court's grant of summary judgment for Petitioners, the Eighth Circuit held that Respondents should be allowed to proceed to trial because they presented sufficient evidence of a "disparate impact" on African-Americans.
The following are the questions presented:
Are disparate impact claims cognizable under the Fair Housing Act?
If such claims are cognizable, should they be analyzed under the burden shifting approach used by three circuits, under the balancing test used by four circuits, under a hybrid approach used by two circuits, or by some other test?
Whether owners of rental properties may claim St. Paul city officials violated the Fair Housing Act by aggressively enforcing the City’s housing codes, which increased rental costs and reduced the supply of low-income housing whose renters are disproportionately African-American.
If such a claim is allowed, whether the appropriate test is the burden-shifting test used by the Eighth Circuit.
This case concerns the proper interpretation of Section 804(a) of the Fair Housing Act (“FHA” or “Act”). Respondents Thomas J. Gallagher, and other owners and former owners of rental properties in St. Paul, Minnesota (collectively, “Gallagher”), sued Petitioners Steve Magner and other city officials of St. Paul (collectively, “City”) under the FHA. See Gallagher v. Magner, 619 F.3d 823, 830–31 (8th Cir. 2010). Gallagher alleged the City violated the Act by aggressively enforcing the City’s housing codes, which effectively reduced the supply of low-income housing and caused a disparate impact on African-Americans, who make up a disproportionate percentage of low-income tenants. See id.
From 2002 to 2005, Andy Dawkins served as the director of the City’s Department of Neighborhood Housing and Property Improvement (“DNHPI”). See Gallagher, 619 F.3d at 829. Under Dawkin’s direction, DNHPI increased its enforcement of the City’s housing code for rental properties. See id. Department inspectors were instructed to “code up to the max,” writing up any and all property violations that were found during inspections, not just reported complaints. See id. Residents were encouraged to report “problem properties” to the department. See id. The City used a variety of measures in response to code violations, including orders to correct conditions, condemnations, tenant evictions, and court actions. See id. The City also employed a “Code Compliance Certification” procedure for rental properties, forcing rental property owners to take on costly renovations to correct certain features of their properties. See id. at 829–30.
Gallagher owns rental properties in St. Paul; most tenants qualify as low-income households or receive federal assistance. See Gallagher, 619 F.3d at 830. Gallagher’s properties received many code violation orders; some properties were designated as problem properties, and others were subject to the Code Compliance Certification process. See id. Common violations included rodent infestation, inadequate sanitary facilities, inadequate heat, and broken or missing doors. See id. These measures caused Gallagher to incur additional expense, and some owners sold their properties as a result. See id.
Gallagher filed three separate actions against the City in 2004 and 2005 claiming the City had violated the FHA under various theories. See Gallagher, 619 F.3d at 830. After consolidating the actions, the district court ruled that Gallagher had failed to assert any valid claims, and entered summary judgment for the City. See id. The United States Court of Appeals for the Eighth Circuit reversed in part, stating that Gallagher’s disparate impact theory presented a valid FHA claim. See id. at 829. The Eighth Circuit applied a three-step burden-shifting test to the disparate impact claim, and found on the first step that Gallagher had satisfied its burden: Gallagher provided sufficient evidence to establish that the City’s housing code, while facially neutral, had reduced low-cost housing, resulting in a disparate impact on African Americans. See id. at 833–35. On the second step, where the burden shifts to the City, the curt found that the City had satisfied its burden by proving that the housing code enforcement actions promoted legitimate public objectives, namely healthy and safe housing conditions. See id. at 837. On the final step, the court found that Gallagher had raised genuine issue of facts as to whether the City could have adopted a less restrictive alternative to achieve the same public health and safety objectives. See id. at 838.
The City appealed the Eighth Circuit’s decision. The Supreme Court granted certiorari on November 7, 2011 to decide whether the FHA recognizes claims under a disparate impact theory, and, if so, whether the Eighth Circuit applied the correct test to analyze the validity of such a claim.
In this case, the Supreme Court will decide whether a disparate impact claim is recognized under the Fair Housing Act (“FHA” or “Act”), and, if so, what test should apply to evaluate the claim. See 42 U.S.C. § 3604(a). Petitioners Steve Magner, and other city officials of St. Paul, Minnesota (collectively, “City”), argue that the use of “because of” in Section 804(a) of the FHA indicates that a defendant’s actions must be motivated by a discriminatory intent. See Brief for Petitioners, Steve Magner et. al. at 20. The City argues that, because disparate impact claims generally do not require a showing of discriminatory intent, such claims should not be recognized under the FHA. See id. Respondents Thomas J. Gallagher, and other owners and former owners of rental properties in St. Paul, Minnesota (collectively, “Gallagher”), argue that, given the Court’s prior findings regarding disparate impact claims under the similarly worded Age Discrimination in Employment Act (“ADEA”) and Title VII, the Court should hold disparate impact claims valid under the FHA. See Brief for Respondents, Thomas J. Gallagher et al. at 46.
Impact on Housing Code Enforcement
A decision in favor of Gallagher, the International Municipal Lawyers Association (“IMLA”) argues, would defeat one of the main purposes of the FHA: to promote safe and healthy housing for all individuals, regardless of race or other background. See Brief of Amicus Curiae the International Municipal Lawyers Association et. al. in Support of Petitioners at 16. IMLA contends that allowing a disparate impact claim against St. Paul would force city officials to choose between consistent enforcement of safe housing standards or relaxed enforcement, which would lower housing standards to the public’s detriment. See id. at 16–17. IMLA suggests that a potential result could be that city planners are free to enforce housing codes in neighborhoods with few minorities, but, stifled by the threat of disparate impact claims, city planners will under-enforce regulations in minority-populated neighborhoods. See id. at 17.
Although the United States argues that disparate impact claims are recognized under the FHA, the United States also suggests that aggressive enforcement of housing codes may increase the quality and availability of affordable housing—aggressive enforcement does not always lead to a disparate impact. See Brief of Amicus Curiae the United States in Support of Neither Party, at 31–32. Therefore, the United States argues, disparate impact claims must be supported by clear evidence that the City’s aggressive enforcement actions led to a decrease in affordable housing for minorities. See id. at 32.
Impact on Lending Policies and Practices
Pacific Legal Foundation and other amicus curiae (collectively, “PFL”) argue that allowing disparate impact claims under the FHA may create other practical problems. For instance, the threat of disparate impact claims may pressure rental property owners and lending institutions to accept under-qualified applicants, for fear that general employment or credit requirements will lead to a disparate impact on particular minorities. See Brief of Amicus Curiae the Pacific Legal Foundation et. al. in Support of Petitioners, at 31–32. In fact, the Independent Community Bankers of America (“ICBA”) points out that banks have already been sued under disparate impact theories, in which plaintiffs claim that the bank’s facially neutral lending policies have led to a disparate impact on minorities’ mortgages rates. See Brief of Amicus Curiae the Independent Community Bankers of America et. al. in Support of Petitioners, at 27–28. In order to avoid more disparate impact litigation, ICBA asserts, lenders may adopt measures that are financially imprudent and amount to illegal racial quotas. See id. at 26.
However, sharing the same concern as PFL and ICBA, the American Bankers Association argues that mortgage and real-estate lending practices are governed under a different section of the FHA (other than Section 804(a)), and that the ruling in this case should not be deemed to apply to such lending practices. See Brief of Amicus Curiae the American Bankers Association et. al. in Support of Petitioners at 10–12. Specifically, the American Bankers Association notes that such practices are governed by Section 805 of the FHA, and argues that Section 805 should be considered less susceptible to disparate impact claims than Section 804. See id.
At issue is Section 804(a) of the Fair Housing Act (“FHA” or “Act”). See 42 U.S.C. § 3604(a). The section makes it illegal for anyone to deny selling or renting properties, or to “otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” See id. The Eighth Circuit held that disparate impact claims are cognizable under the FHA, and analyzed those claims under a three-step burden-shifting approach. See Gallagher v. Magner, 619 F.3d 823, 834 (8th Cir. 2010). The Supreme Court must now determine whether the FHA actually allows disparate impact claims, and, if so, the proper procedure for analyzing such claims.
Does FHA Support Disparate Impact Claims?
The parties disagree over the plain meaning and legislative history of FHA Section 804(a). According to Petitioners, Steve Magner and officials of the City of St. Paul, Minnesota (collectively, “City”), the plain language of the FHA requires plaintiffs to prove defendants’ discriminatory motives against a protected class. See Brief for Petitioners, Steve Magner et al. at 20, 29. Respondents Thomas J. Gallagher, and other owners and former owners of rental properties in St. Paul, Minnesota (collectively, “Gallagher), assert that the text and structure of the statute demonstrate that a disparate impact on a protected group is sufficient to bring a claim under the FHA, regardless of intent. See Brief for Respondent, Thomas J. Gallagher et al. at 44–46, 50.
Textual and Structural Interpretation of Section 804(a)
The City focuses on the statute’s use of “because of” to support its argument that the FHA requires Gallagher to prove that the City’s “aggressive enforcement” of housing codes are motivated by considerations of race. See Brief for Petitioners at 20. Since disparate impact claims do not require proof of discriminatory intent, the City argues that the text of the FHA cannot support disparate impact claims. See id. Furthermore, the City points to similar language in other anti-discrimination provisions, such as the Age Discrimination in Employment Act (“ADEA”) and Title VII, which the Court has interpreted as not supporting disparate impact claims. See 42 U.S.C. § 2000e-2(a)(1); 29 U.S.C. § 623(a)(1). For example, the City observes that, in Smith v. City of Jackson, the Court rejected disparate impact claims under Section 4(a)(1) of the ADEA, which makes it unlawful for an employer to discriminate against an individual with respect to terms of his employment “because of” his age. See Brief for Petitioners at 21; Smith v. City of Jackson, Miss., 544 U.S. 228, 233–36 (2005). The City argues that the phrase “because of” in anti-discriminatory provisions indicates a requirement to prove discriminatory intent; for defendants to take an action against an individual “because of” his age is to do so motivated by considerations of age. See Brief for Petitioners at 22.
Gallagher, on the other hand, focuses on the statutory phrasing “or otherwise make unavailable or deny, a dwelling to any person” to support his argument that Section 804(a) permits disparate impact claims. See Brief for Respondent at 43, 46. Gallagher also points to analogous language in Title VII and the ADEA, which has been interpreted by the Court to support disparate impact claims. See 42 U.S.C. § 2000e-2(a)(2); 29 U.S.C. § 623(a)(2). In fact, Gallagher relies on Smith, where the Court accepted disparate impact claims under Section 4(a)(2) of the ADEA, which makes it unlawful to “deprive any individual of employment opportunities or otherwise adversely affect his status as an employee because of” an individual’s age. See Brief for Respondent at 43; Smith v. City of Jackson, Miss., 544 U.S. at 236. Gallagher argues that the “otherwise make unavailable or deny, a dwelling” language of FHA Section 804(a) should be interpreted similarly to the “adversely affect” language in Section 4(a)(2) of the ADEA, because both emphasize the effect of a defendant's action, rather than motivations. See Brief for Respondent at 43, 46. In addition, Gallagher contends that the phrase “because of” in Section 804(a) is intended to clarify the specific group of people protected under the FHA, instead of referring to defendants’ motivation. See id. at 43–44.
However, the City counters that Gallagher’s analogy between Section 804(a)’s catch-all provision (“otherwise make unavailable or deny housing”) and Section 4(a)(2) of the ADEA’s “otherwise adversely affect” language is inappropriate. See Brief for Petitioners at 27–28. The City argues that, because Section 804(a) does not contain the key language of “adversely affect,” it is more akin to the catch-all provision in Section 4(a)(1) of the ADEA, where the Court has rejected disparate impact claims. See id. at 28–29. Section 4(a)(1) of the ADEA makes it unlawful for an employer “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual . . . because of such individual’s age.” See 29 U.S.C. § 623(a)(1). The City concludes that, where the catch-all in Section 4(a)(2) of the ADEA focuses on outcomes and therefore allows disparate impact claims, the Section 804(a) catch-all language, like Section 4(a)(1) of the ADEA, does not emphasize the effect on the availability of housing, but focuses on prohibiting certain forms of discrimination. See id.
In response, Gallagher argues that, if the FHA is interpreted to exclude disparate impact claims, certain exemptions under the FHA are superfluous—a result that runs counter to traditional statutory interpretation principles. See Brief for Respondent at 50. For example, Gallagher points out that the FHA allows defendants to deny housing to plaintiffs who have drug convictions, even if this denial has a disparate impact on a minority group. See id. Gallagher argues that the enumeration of exemptions is due to the concern that, without the exemption, defendants would be found liable under disparate impact claims. See id.
Legislative History of Section 3604(a)
The City argues that the legislative history of Section 804(a) offers little evidence to prove Congress intended to impose disparate impact liability; however, the City notes that there are records indicating that some members of Congress intended the FHA to require proof of discriminatory motive. See Brief for Petitioners at 30. The City points out that Senator Mondale, the FHA’s principal sponsor, stated that the burden is on a plaintiff to prove discriminatory intent. See id. Additionally, the City notes that,when signing the amended FHA, President Reagan explicitly denied that the FHA supports disparate impact claims. See id. at 34.
However, Gallagher contends that the history of the FHA does suggest the potential for disparate-impact liability. See Brief for Respondent at 50. Gallagher notes that, when Congress amended the FHA in 1988, it was fully aware of the federal appellate findings in favor of disparate impact liability under the FHA. See id. In fact, Gallagher points out that Senator Hatch’s proposal to require proof of discriminatory intent under the FHA was rejected by Congress. See id. at 51. Furthermore, Gallagher notes that the U.S. Department of Housing and Urban Development (“HUD”), which has the authority to administer and enforce the FHA, has consistently imposed disparate impact liability in formal adjudications, and has recently issued a proposed rule for notice and comment in which it further endorses the recognition of disparate impact claims under the FHA. See id. at 52–53.
The City contends that HUD’s views, as expressed in formal adjudications, do not deserve Chevron deference because HUD’s interpretation of the FHA is contradictory to Congress’s “unambiguously expressed intent” in the text of the statute. See Brief for Petitioners at 36. Moreover, the City argues that HUD’s proposed regulations also have no bearing on this case because they have not yet been adopted, and the Court cannot retroactively apply proposed regulations to this case. See id. at 37.
How to Analyze Disparate Impact Claims under FHA?
If disparate impact claims are cognizable under FHA, the City advocates a three-step burden-shifting analysis, similar to the one employed by the Eighth Circuit, with the exception that the plaintiff carries the burden of proof throughout. See id. at 38. The City argues that, not only should the plaintiff have the burden of proof in establishing a prima facie case (step one), and in articulating an equally effective alternative that avoids the disparate impact (step 3), but she should also bear the burden in showing that the justification offered by the defendant is not legitimate. See id. at 39.
Gallagher also supports the three-step burden-shifting analysis, but reserves opinion as to who carries the burden of proof at step two; this is because Gallagher has already conceded that the City was justified in enforcing its housing code. See Brief for Respondent at 59. The United States argues, as amicus curiae, that it is more appropriate to allocate the burden of step two to defendants, who are better equipped to prove the legitimacy of their own practices. See Brief of Amicus Curiae the United States in Support of Neither Party, at 27.
The Supreme Court’s decision in this case will determine whether the Fair Housing Act supports disparate impact claims. It will also clarify the analytical framework for disparate impact claims under the FHA. The City argues that the plain language and the legislative history of the FHA require plaintiffs to prove defendants’ discriminatory intent. On the other hand, Gallagher contends that the FHA's statutory text and structure all support disparate impact claims.
Edited by: Colin O’Regan
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