Supreme Court takes disparate impact case

June 17, 2013 | By RALPH KASARDA

Today the Supreme Court agreed to review a decision by the Third Circuit which held that plaintiffs could bring discrimination claims under the federal Fair Housing Act without having to prove that government defendants intended to discriminate.  The case is called Township of Mount Holly v. Mt. Holly Gardens.

In Mount Holly, homeowners in New Jersey sued the Township of Mount Holly for trying to implement a new housing development that would require the Township to use eminent domain to purchase their homes.  The homeowners argued that the Township’s decision to redevelop their neighborhood would have a disproportionate impact on minorities.   The Third Circuit found the Township had not intentionally discriminated against the homeowners, but agreed their discrimination claim could proceed on a disparate impact theory.  PLF attorneys filed an amicus brief in support of neither party, urging the Court to accept the case and hold that the Fair Housing Act does not encompass disparate impact claims for discrimination.

According to the legal theory of disparate impact, a law or even a decision by a business or the government may be illegal if it has a disproportionate adverse impact on members of a minority group.  Using a disparate impact theory of discrimination, plaintiffs may challenge action that is facially neutral and taken without discriminatory intent.  For instance, a reasonable business practice, such as denying loans to people with poor credit, could be considered unlawful discrimination under disparate impact theory if the practice disproportionately affects members of a particular group.

Though the Supreme Court has reviewed the Fair Housing Act several times, it has not yet had the opportunity to specifically address whether the Act allows disparate impact claims.  However, the Court’s decision in another case, Smith v. City of Jackson, provides a strong indication that the Court would interpret the Act as not allowing such claims.  In Smith, the Court examined the Age Discrimination in Employment Act of 1967 and clearly identified statutory text that permits disparate impact lawsuits, and text that does not.  The relevant language of the Fair Housing Act contains text that the Court identified as prohibiting disparate impact claims.

PLF attorneys have filed numerous legal briefs against the expansion of disparate impact theory, because the threat of such claims encourages government decision makers to intentionally discriminate against members of one race to avoid being sued by members of another.  In Ricci v. DeStefano, the City of New Haven, Connecticut threw out the results of a validated firefighters test because none of the minority firefighters who passed the exam scored high enough to be considered for promotion.  To avoid being sued for discrimination under a disparate impact claim, City officials refused to hire the non-minority firefighters who were eligible for promotion.  The Supreme Court held that New Haven’s decision to ignore the test violated the civil rights of the non-minority firefighters.

Allowing disparate impact claims of discrimination to proceed under the Fair Housing Act would lead to adverse results that Congress never intended and that are harmful to the economy.  For instance, because the Act applies to banks and mortgage companies, they would be pressured to provide risky loans to unqualified applicants in order to avoid disparate impact liability.  Similar actions may have played a key role in triggering the mortgage crisis of 2007-2008.