February 6, 2015

Is HUD's interpretation of the Fair Housing Act "wishful thinking on steroids"?

By Is HUD's interpretation of the Fair Housing Act "wishful thinking on steroids"?

Last month the Supreme Court heard oral argument in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc.  In that case, the Court will decide whether disparate impact claims are cognizable under the Fair Housing Act (FHA).  Todd Gaziano, Executive Director of PLF’s D.C. Center and Senior Fellow in Constitutional Law, attended the oral argument and his excellent analysis can be found here. PLF’s brief, arguing against the expansion of disparate impact theory, is here.

This post will expound upon a particular argument advanced by those who believe the FHA encompasses claims for disparate theory, even if the text of the statute does not support such a view.  The argument is that subsequent amendments to the FHA make no sense unless the FHA is interpreted as prohibiting disparate impact.  As explained below, that argument should be rejected.

Since its enactment in 1968, the Fair Housing Act has prohibited discrimination in three different contexts: 1) “Discrimination in the Sale or Rental of Housing,” 2) “Discrimination in the Financing of Housing,” and 3) “Discrimination in the Provision of Brokerage Services.” Subsequent amendments have not substantially changed these protected areas.

For the above three fields, the FHA prohibits actions motivated by a racially discriminatory purpose.  The Act’s primary anti-discrimination provision makes it unlawful to “refuse to sell or rent after the making of a bona fide offer,” or “refuse to negotiate for the sale or rental,” or “otherwise make unavailable or deny” housing to a person on account of his or her “race” or another protected trait.  The Act’s other anti-discrimination provisions also are phrased in such a way as to prohibit actions that require discriminatory intent.  Specifically, the Act makes it unlawful to engage in the following actions on account of race or another protected trait: 1) “deny a loan,” “deny” a person access to a multiple-listing service or real estate brokers’ organization, “discriminate” in the terms or conditions of a sale or rental agreement, “indicat[e]” a racial preference in an advertisement for housing, “represent . . . because of race . . . that any dwelling is not available,” or “induce” a person to sell or rent a dwelling by making “representations regarding the entry or prospective entry into the neighborhood of a person or persons of a particular race.”  None of those provisions prohibit the consequences or effects of race-neutral or lawful conduct.

Even after it was amended in 1988, the FHA continued to prohibit only purposefully discriminatory actions.  Today, the FHA still contains no “adversely affects” or “tend to deprive” language that signal disparate-impact liability in Title VII and the Age Discrimination in Employment Act.  For more on that, see here.

Those in favor of disparate impact theory argue that when Congress amended the FHA in 1988, it carved out certain exemptions from disparate impact claims.  Congress would have had no reason to enact those exemptions unless it recognized that the FHA encompassed claims for disparate impact when it was originally enacted in 1968.  At oral argument, Justice Scalia asked the Texas Solicitor General to address that issue.   He responded well by citing to O’Gilvie v. United States, where the Supreme Court noted that “the view of a later Congress cannot control the interpretation of an earlier enacted statute.”

There are at least three other answers the Texas Solicitor General could have provided.  First, while it is true that the 1988 Amendments do list three new exemptions to liability, the amendments nowhere say that the exemptions apply to disparate impact claims.  The first exemption provides that “[n]othing in [the FHA] prohibits conduct against a person because such person has been convicted . . . of the illegal manufacturing or distribution” of drugs.  The second provides that nothing in the FHA preempts “reasonable” maximum-occupancy restrictions on residential dwellings.  The final exemption states that “[n]othing” in the FHA prevents a real estate appraiser from “tak[ing] into consideration factors other than race, color, religion, national origin, sex, handicap, or familial status.”  All three sections purport to eliminate liability for all claims under the FHA, and none of them single out, or even mention, “disparate impact.”  In other words, there is nothing in the 1988 Amendments that supports the narrow view that Congress intended these three exemptions to provide defenses to disparate-impact claims.

Second, it is incorrect to suggest that these provisions serve no other purpose other than being intended as exemptions, or defenses, to disparate-impact claims.  Each offers a valuable defense to disparate-treatment claims.  In a disparate-treatment case, the plaintiff must prove that the defendant’s discriminatory motive was the but-for cause of its injury, and the defendant may escape liability if it can prove that it would have taken the same action in the absence of all discriminatory animus.  By clarifying that a denial of housing based on a past drug offense or a maximum-occupancy requirement will not violate the FHA, Congress identified two non-discriminatory motives that provide a reasonable basis to deny housing.  The same is true of the clarification that real estate appraisers may consider factors other than race in their analysis.  When a defendant in a disparate-treatment case can establish that a drug-offense, a maximum-occupancy requirement, or (in the case of an appraiser) a factor other than race, was a basis for its decision, it can prove that racial animus was not the “but-for cause” of its action and thus, avoid liability.

Third, Congress had a valid reason for creating these exemptions that have nothing to do with disparate impact theory.  To the uninformed, they may make no sense.  For instance why should Congress explicitly allow landlords to deny housing to convicted drug traffickers rather than convicted child molesters, murderers, or serial rapists?  The answer is that the 1988 Amendments also added “handicapped” as a protected class.  The amendments define a person with a “handicap” as a person with (1) a physical or mental impairment which substantially limits one or more of such person’s major life activities, (2) a record of having such an impairment, or (3) being regarded as having such an impairment.  That is virtually the same definition of “disability” as used by the American with Disabilities Act (ADA).  These definitions allow persons recovering from alcohol and drug addiction to be considered as “disabled” or “handicapped,” even those who have prior convictions for illegal drug use.  But Congress wanted to make clear that convictions for illegal drug trafficking are not to be considered as evidence of recovering substance abuse addiction that may qualify a person as disabled.  Therefore, Congress added the specific exemption that the FHA’s discrimination protections do not extend to drug traffickers.

The second exemption, allowing property owners to place maximum-occupancy restrictions on residential dwellings, is also explained by viewing the FHA in whole.  The 1988 amendments expanded the Act to prohibit discrimination not just on the basis of race, color, religion, and sex, but also “familial status.”  That is, the amendments make it illegal to discriminate against families with children.  But what about a family with 6 children seeking to reside in a one room apartment?  What about a family with 10 children?  In making the maximum-occupancy exemption, Congress wanted to make certain that landlords and property owners could legally place a reasonable occupancy limit on apartments and other dwellings for health, safety, and legitimate business needs.

The final exemption in the 1988 Amendments provides a defense for real estate appraisals.  Anyone unfamiliar with mortgage transactions may not understand how appraisals may by used to discriminate.  A real estate appraisal is an objective inspection and valuation of property that will be the subject of a loan transaction.  A prejudiced lender seeking to avoid providing home loans to individuals of certain races may try to employ a crooked appraiser to value property that is too low to justify the loan amount.  But Congress wanted to ensure that an honest low appraisal based on property damage from overcrowding, for instance, is not to be construed as discrimination based on familial status.  Conversely, constructing or designing property so that it is accessible to disabled persons (the “handicapped” as used in the FHA), and especially safe for children, might result in a higher appraisal, and the need for a loan that seems oppressively high.  Yet such a valuation would be proper, and Congress wanted to make sure that appraisers could perform their jobs properly without fear of discrimination claims.

Indeed, one district court judge from the District of Columbia recently rejected the argument that the 1988 exemptions presuppose the FHA’s prohibition of disparate impact.  The court invalidated the U.S. Department of Housing’s disparate impact regulation in American. Ins. Ass’n v. United States Dep’t of Hous. & Urban Dev., noting that the 1988 exemptions describe conduct that Congress intended to protect with a “complete exemption from FHA scrutiny,” by providing “per se legitimate bases as defenses to claims of disparate treatment.”  To claim otherwise, the court observed, would be “wishful thinking on steroids.”  We’ll know if the Supreme Court agrees by summer.

For further reading, I recommend Roger Clegg’s “Three Short Trialogues on Disparate Impact and the Fair Housing Act.”

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