PLF attorneys oppose disparate impact lawsuits under the FHA

September 05, 2013 | By RALPH KASARDA

PLF attorneys filed an amicus brief in the Supreme Court this week arguing that the Fair Housing Act does not allow discrimination cases under a disparate impact theory.  The case is Township of Mount Holly v. Mount Holly Gardens Citizens in Action, U.S. Supreme Court, No.11-1507.  The Center for Equal Opportunity, Competitive Enterprise Institute, Cato Institute, Individual Rights Foundation, and Reason Foundation have all joined PLF in its brief.

Mount Holly concerns a lawsuit by homeowners in New Jersey claiming a redevelopment plan by the Township of Mount Holly is racially discriminatory.  They argue that the Township’s use of eminent domain to purchase their homes and replace them with more expensive homes has a disparate impact on minorities.  The Township argues that its actions are not discriminatory.  A lower court agreed, finding that “the dilapidated, overcrowded, poorly designed community, in addition to the high level of crime in the area, is clearly detrimental to the safety, health, morals and welfare of the community.”  The Third Circuit Court of Appeals found that the Township’s actions were not intentionally discriminatory, but held the lawsuit could go forward under a disparate impact theory.

PLF takes no sides in the dispute over whether the Township should proceed with the planned redevelopment.  What we find objectionable is the claim that the Fair Housing Act’s ban on racial discrimination can be violated by someone who does not engage in racial discrimination.  Such is the nature of disparate impact lawsuits, where plaintiffs may merely show that a neutral practice has a disproportionate effect – that is, a disparate impact – on some racial group.  Proof of discriminatory motive is unnecessary.

As we point out in our brief, both the text and legislative history of the Fair Housing Act establish that the Act was intended to apply solely to purposefully discriminatory conduct, not to acts having a disparate impact on protected classes.  For one thing, subjecting government defendants to disparate impact claims leads them to engage in unconstitutional race-conscious decision-making.  Justice O’Connor pointed this out in Watson v. Fort Worth Bank & Trust, as did Justice Scalia in Ricci v. DeStefano.  The application of disparate impact theory means that a city could enforce its ordinances only so long as it did so with an eye on the racial and ethnic neighborhoods that were being affected.  For instance, if a city issued numerous housing code violations in one neighborhood, even if the infractions were legitimate, the city might not be able to issue more violations if too many residents of a particular race were being adversely impacted.  That was the situation in a case that settled prior to oral argument before the Supreme Court, Magner v Gallagher.  For more about the questionable circumstances leading to that settlement, see here.

The Fair Housing Act also applies to financial institutions, banks, and mortgage companies.  Interpreting the Act to encompass disparate impact claims would pressure these firms to provide loans to unqualified applicants to avoid liability, causing a disruption in our economy similar to the mortgage crisis of 2007-2008.  See this post about other problems caused by disparate impact lawsuits.

For more discussion about the Mount Holly case and our brief, please see this excellent post on Cato’s website written by Ilya Shapiro.