Header graphic for print
MoFo Reenforcement The Enforcement Blog

This Time’s the Charm? Supreme Court Takes Up Third Disparate Impact Case

Posted in Disparate Impact, Fair Lending

On October 2, 2014, the Supreme Court granted certiorari in Inclusive Communities Project, Inc. v. Texas Department of Housing and Community Affairs, No. 13-1371, to decide whether disparate impact claims are cognizable under the Fair Housing Act (FHA). Of interest, the Court declined to grant cert. on the question of the appropriate standard for evaluating disparate impact claims.

In summary, at a bench trial, Inclusive Communities argued that the Texas Department of Housing and Community Affairs disproportionately approved low-income-housing tax credits for developments in predominantly minority neighborhoods, and denied the credits in predominately white neighborhoods. This, Inclusive Communities claimed, “creat[ed] a concentration of the [low income] units in minority areas, a lack of units in other areas, and maintain[ed] and perpetuat[ed] segregated housing patterns” in violation of the FHA. The district court held for Inclusive Communities, and the Fifth Circuit affirmed.

As in the earlier Mount Holly and Magner disparate impact appeals—both of which were dismissed in connection with settlements engineered to avoid the Court’s review—the appellant here will likely argue that the disparate impact theory is (1) irreconcilable with the plain language of the FHA and (2) contrary to recent Supreme Court analysis of analogous statutes. As discussed in our Mount Holly article, the text of the FHA bars actions taken “because of” certain factors, like race and national origin. But it contains no language providing for liability based on the effects of nondiscriminatory actions. The Supreme Court has interpreted similar language in Title VI and the ADEA to hold that it addresses only intentional discrimination. In contrast, the Court has required “effects” language—language not found in the FHA—to hold that a statute permits disparate impact claims. Inclusive Communities may argue that HUD’s rulemaking on this issue is entitled to deference. As we’ve reported, HUD’s February 2013 rule reiterates the government’s current view that the FHA permits disparate impact claims, setting forth a plaintiff-friendly construction of such claims, but the Supreme Court has been increasingly willing to take a hard look at such agency interpretations.

If the Court is finally allowed to render a decision on this issue, it might well apply beyond the FHA, including to the Equal Credit Opportunity Act, which, despite its similar lack of any of the “effects” language, has been used aggressively by enforcement agencies to pursue disparate impact cases against lenders.