Does the Fair Housing Act include a right of action for disparate-impact claims?
In this case, the Supreme Court will determine whether the U.S. Department of Housing and Urban Development (“HUD”)’s interpretation of the Fair Housing Act (“FHA”) to include disparate-impact claims is subject to Chevron deference, which would result in disparate-impact liability under the FHA. The Texas Department of Housing and Community Affairs argues that the Court should not defer to the HUD’s interpretation, which it claims is unreasonable because the language of the FHA differs from other statutes that explicitly allow disparate-impact liability. Inclusive Communities, on the other hand, argues that the HUD’s interpretation is entitled to deference because it is reasonable, and is in fact the most favorable interpretation, given that the FHA’s goal of “remedy[ing] existing effects of prior intentional segregation.” This case will ultimately determine the breadth of the rights of action under the FHA for discrimination in affordable housing.
Questions as Framed for the Court by the Parties
1. Are disparate-impact claims cognizable under the Fair Housing Act?
2. If disparate-impact claims are cognizable under the Fair Housing Act, what are the standards and burdens of proof that should apply?
NOTE: The Supreme Court has limited its inquiry to Question 1.
The Petitioner, Texas Department of Housing and Community Affairs (“TDHCA”), is a state agency that allocates Low Income Housing Tax Credits (“LIHTCs”) to housing developers. The TDHCA allocates tax credits based on its Qualified Allocation Plan, prioritizing, in descending order, the development’s financial feasibility, community support, tenant income levels, along with other criteria. The Respondent, Inclusive Communities Project, Inc., (“Inclusive Communities”) is a non-profit organization in Dallas that works to integrate low-income, racially diverse families into Dallas’s predominantly Caucasian, suburban neighborhoods. Specifically, Inclusive Communities locates families eligible for the Dallas Housing Authority’s “Section 8” Housing Choice Vouchers. Under the LIHTC program, developments receiving tax credits are not permitted to refuse housing to Section 8 voucher holders on that basis alone. Because of this restriction, where LIHTC-funded developments are located in the Dallas area is important to the individuals that are aided by Inclusive Communities.
This case arose when Inclusive Communities brought a federal civil suit against TDHCA in United States District Court for the Northern District of Texas (“district court”), alleging that TDHCA abused its discretion by allocating tax credits in a way that deprived individuals of housing assistance because of race. Specifically, Inclusive Communities argued that TDHCA gave tax credits to developments built in primarily minority-dominated areas, thus fostering racially segregated communities in violation of the Fair Housing Act (“FHA”).
The district court found that TDHCA’s allocation practices created a disparate-impact and ordered an opportunity for the TDHCA to create a remedial plan. The TDHCA created a remedial plan, which the district court adopted in part. On appeal, the United States Court of Appeals for the Fifth Circuit (“Fifth Circuit”) reversed, holding that the U.S. Department of Housing and Urban Development’s (“HUD”) then-newly promulgated regulations allowing for disparate-impact housing discrimination cases controlled. Specifically, the Fifth Circuit ruled that district court applied the wrong legal test for assessing disparate-impact claims and remanded for further proceedings, but still acknowledged that the FHA allows for disparate-impact liability. The Fifth Circuit’s reversal also eliminated the TDHCA’s remedial plan. The TDHCA then filed a petition for a writ of certiorari, which was granted by the Supreme Court on October 2, 2014.
The parties in this case disagree about the interpretation of the text of the Fair Housing Act (“FHA”)’s discrimination rules. The TDHCA argues that the FHA’s text cannot reasonably be interpreted the way that HUD has interpreted it—to allow for disparate-impact liability—and that the Court must therefore reject that interpretation. The TDHCA further contends that the Supreme Court precedent and the FHA’s legislative history support disparate-impact liability under the FHA. In opposition, Inclusive Communities argues that the U.S. Department of Housing and Urban Development (“HUD”)’s interpretation of the text is a reasonable interpretation, and the Court should defer to that interpretation. Additionally, Inclusive Communities maintains that Supreme Court precedent and the FHA’s legislative history actually counsels against allowing for disparate-impact liability under the FHA.
GIVING DEFERENCE TO HUD’S INTERPRETATION OF THE FHA’S TEXT
The TDHCA argues that the text of the FHA unambiguously establishes that a plaintiff may only bring a claim if there has been intentional discrimination, and therefore, HUD’s interpretation is not entitled to Chevron deference because the text is not ambiguous. The TDHCA points to the phrase “because of race” in the FHA, and argues that in a case where there is no discriminatory intent, but only a disparate-impact, the alleged infringer has not discriminated “because of race.” To impose liability under the FHA in that situation, the TDHCA therefore concludes, would be inconsistent with the plain language of the statute.
The TDHCA also argues that HUD’s interpretation is inconsistent with the plain language of the FHA in a second way. According to the TDHCA, there is no textual basis in the statute to allow for the “legally sufficient justification” defense that HUD has established. Under HUD regulations, a defendant has a “legally sufficient justification” for allegedly discriminatory policies if the policy “(i) [i]s necessary to achieve one or more substantial, legitimate, nondiscriminatory interests . . . ; and (ii) [t]hose interests could not be served by another practice that has a less discriminatory effect.”
The TDHCA argues that if the Court accepts that a disparate-impact claim is, in fact, consistent with the language “because of race,” then the HUD does not have the authority to create situations where a lender has discriminated “because of race,” but is not subject to liability based on a the “legally sufficient justification” defense created by HUD.
On the other hand, Inclusive Communities argues that HUD’s interpretation of the text of the FHA is entitled to Chevron deference, meaning that the Court should defer to HUD’s interpretation unless it is unreasonable. Inclusive Communities claims that HUD’s interpretation is entitled to Chevron deference because rather than stating exactly how a plaintiff may prove a claim under the FHA, Congress gave HUD the power to interpret the FHA, to implement it, and to adopt rules necessary for doing so.
Inclusive Communities further asserts that the text of the FHA does not require proof of intent to establish a discriminatory housing practice and therefore allows for an interpretation of the statute permitting disparate-impact claims. According to Inclusive Communities, there are several instances in which Congress has explicitly used the word “intent” to establish an intent requirement, but did not choose to do so in this instance. Therefore, Inclusive Communities concludes that Congress did not intend for a requirement of proof of intent and the Court should not read such a requirement into the statute.
THE EFFECT OF PRECEDENT ON INTERPRETING THE TEXT OF THE FHA
Inclusive Communities argues that judicial authority and precedent establish that the HUD’s interpretation is reasonable. Specifically, Inclusive Communities argues that the Court’s opinion in a Title VII case, Griggs, supports allowing disparate-impact liability under the FHA. The statute at issue in Griggs contained the language “because of race.” In Griggs, the Court determined that the plaintiff did not need to show intent in order for the court to find discrimination. Inclusive Communities asserts that this indicates that this phrase should not be used as proof of an intent requirement in the FHA. Further, Inclusive Communities argues that the text of the FHA parallels the text of Title VII, which supports the conclusion that like Title VII, the FHA allows for disparate-impact claims. In Griggs, the Court held that Title VII allows for disparate-impact claims because it prohibits actions that would “otherwise adversely affect” employees on the basis of race. Inclusive Communities argues that the phrase “otherwise make unavailable” in the FHA is similar to the phrase in Title VII, which indicates that the FHA permits disparate-impact claims.
In opposition, the TDHCA argues that previous judicial decisions do not indicate that the Court should accept HUD’s interpretation of the FHA. The TDHCA asserts that the Court in Griggs did not hold that any statute that uses the phrase “because of race” permits a disparate-impact construction, and points out that the Court has also construed statutes with this phrase to require a showing of intent. The TDHCA further points to a case, Smith, which interpreted a section of Title VII. The provision at issue in Smith contained both the phrases “because of race” and “otherwise adversely affect,” but the Court established disparate-impact liability based only on the phrase “otherwise adversely affect,” a phrase that does not appear in the FHA. The TDHCA argues that this phrase is the “crucial language that triggered disparate-impact liability,” and that without it, there is no argument that these cases indicate that the Court should accept disparate-impact liability in the FHA. The TDHCA rejects Inclusive Communities argument that the phrase “otherwise make unavailable” in the FHA is similar to this language because, according to the TDHCA, this phrase in the FHA focuses on the reasons behind a challenged action, not the effects of that action. Therefore, the TDHCA argues, this language still requires an intent to discriminate.
The TDHCA argues that the 1988 amendments to the FHA indicate that Congress did not intend for plaintiff to bring disparate-impact claims under the FHA. According to the TDHCA, the amendment to the FHA adopted in 1988, which established specific types of conduct that the FHA does not prohibit, presumes court decisions that accept disparate-impact liability exist, but “do not signify approval” of those decisions. Rather, the TDHCA argues, Congress was creating “safe harbors for defendants who were forced to litigate in courts that had adopted [a] misguided construction” of the FHA. Further, the TDHCA points out that upon signing the FHA, President Reagan was on record opposing disparate-impact liability, yet he signed the legislation. The TDHCA argues that the fact that President Regan signed it, rather than vetoing it, indicates that as it was written, it did not permit disparate-impact liability.
Inclusive Communities, conversely, argues that the Congressional intent behind the FHA indicates that Congress intended to create disparate-impact liability. According to Inclusive Communities, in the Congressional record of a hearing on the FHA, an objection was made by the American Bankers Association on the grounds that, as the FHA was written, it may leave a lender open to liability simply for good business practices, even without intent. However, Congress went on to approve the FHA. Inclusive Communities asserts that this is proof that Congress contemplated, and approved, disparate-impact liability under the FHA. Further, Inclusive Communities argues that the 1988 amendments to the FHA indicate that Congress assumed disparate-impact claims could be brought, and that business necessity would be an exception to this type of liability.
This case presents the Court with an opportunity to resolve whether Congress intended for disparate-impact liability claims to be brought under the Fair Housing Act (“FHA”) in relation to federally subsidized affordable housing. The Texas Department of Housing and Community Affairs (“TDHCA”) and amici contend that the FHA unambiguously speaks only to intentional racial discrimination. Inclusive Communities and amici, on the other hand, argue that disparate-impact discrimination has consistently been a contemplated mode of liability under the FHA. Each side of this policy debate centers upon two different considerations. The first consideration is how the FHA was intended to operate within our society. The second centers on the costs on the insurance market that may arise from construing liability for disparate-impact claims under the FHA.
CONSEQUENCES OF DISPARATE-IMPACT LIABILITY ON SOCIETY
The American Civil Rights Union (“ACRU”), as amicus supporting TDHCA, cautions that disparate-impact liability under the FHA would prohibit necessary practices in our society. For example, the ACRU explains, that there are many housing qualifications that are correlative to race, including credit scores, crime records, and financial accumulations. In fact, amicus the Consumer Data Industry Association, a service that screens prospective tenants’ financial information, argues that imposing disparate-impact liability would undermine responsible landlord screening that ensures a safe living environment.
On the other hand, the NAACP Legal Defense and Educational Fund (“NAACP LDEF”), writing as an amicus supporting Inclusive Communities, counters that disparate-impact liability is necessary to further the FHA’s aims to root out and eliminate housing discrimination. Specifically, the NAACP LDEF focuses on socioeconomic data highlighting the effects of segregated neighborhoods on social mobility and community health. Because intentionally discriminatory laws are unlikely to exist, the NAACP continues, disparate-impact liability targets the social conditions that promote racial segregation. Indeed, the NAACP concludes, disparate-impact liability is a fair and workable standard because the burden-shifting legal framework protects fair policies while eliminating unjust ones.
EFFECTS OF DISPARATE-IMPACT LIABILITY ON THE INSURANCE MARKET
In support of the TDHCA, several insurance groups suggest that inferring a disparate-impact liability framework in the FHA would impose additional costs that would create uncertainty in the insurance market, which requires predictive risk assessment. In particular, the insurance groups maintain that risk classification is race neutral, but calculating risk necessarily contemplates statistical information that would be undermined by disparate-impact liability under the FHA.
However, the NAACP and Milwaukee Branch of the NAACP, in support of Inclusive Communities, argue that the disparate-impact claims will not necessarily be taxing on the insurance industry. The NAACP argues that the FHA’s disparate-impact test permits justified business practices, which incorporates the insurance industry’s risk assessment models. But, the NAACP continues, the FHA does target past and present business practices that are not based on objective, actuarial risk models. To the extent that unjustifiable business practices continue, the NAACP notes, then there may be a “cost” to the insurance companies in modifying their practices.
In this case, the Supreme Court has the opportunity to clarify whether the FHA requires an intent to discriminate, or whether a claim can be established based merely on the disparate-impact of an action. The case will determine whether the HUD’s interpretation of the FHA is a reasonable one, and is thus entitled to deference. The outcome of this case will impact the breadth of the type of discrimination the FHA will prevent, and may impact the business practices of the insurance industry.
• Nicole Flatow: The Supreme Court is Poised to Cripple the Federal Ban On Housing Discrimination, Thinkprogress.org (Oct. 2, 2014).
• Sam Hananel: Supreme Court to Hear Another Case On Housing Bias, Huffington Post (Oct. 2, 2014).