Will the Supreme Court finally get to rule on disparate impact?

September 24, 2014 | By RALPH KASARDA

Will the third time be the charm for having the U.S. Supreme Court decide whether disparate impact discrimination claims are allowed under the Fair Housing Act?  Later this month, on September 29th, the Court will decide whether to accept review in a case presenting that issue.  The case is called Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc.  Attorneys for PLF filed a brief in support of review.  The Center for Equal Opportunity, Competitive Enterprise Institute, Cato Institute, Individual Rights FoundationReason Foundation, and Project 21 joined PLF in its brief.

The Supreme Court has never held that the Fair Housing Act prohibits disparate impact discrimination.  In fact, it has twice granted certiorari to address this very issue, but both previous cases settled before the Court could hear oral argument.  Those cases were Magner v. Gallagher, and Township of Mount Holly v. Mt. Holly Gardens CItizens in Action.

When the government and financial institutions can be held liable for discrimination claims based merely on a disparate impact theory, they are pressured into unconstitutional race-conscious decision making to avoid such claims.  As this article suggests, allowing disparate impact claims would open nearly every housing decision, from zoning rules to use of credit scores, to potential litigation.

The case now before the Supreme Court arises from efforts by Texas to administer the Federal Low Income Housing Tax Credit (LIHTC) program.  LIHTC was created under the Tax Reform Act of 1986, and allows developers who build “qualified” low income housing projects to receive federal tax credits.  The States administer this program by following specific criteria to select the developers and projects that will receive those credits.

In 2008, the Inclusive Communities Project (ICP) accused the Texas Department of Housing and Community Affairs of disproportionately allocating tax credits to properties in minority-populated areas.  ICP sued the Department alleging claims for (1) intentional discrimination in violation of the Equal Protection Clause, and (2) disparate impact discrimination in violation of the Fair Housing Act.

After a four-day trial, the district court dismissed the intentional discrimination claims.  But on statistical evidence, the court ruled against the Department on the Fair Housing Act disparate impact claim even though the Department established that it followed state and federal law.  The court issued an injunction essentially requiring the Department to engage in race-conscious decision-making when it selects the projects that will receive the federal tax credits.

While the case was on appeal, the U.S. Department of Housing and Urban Development (HUD) promulgated a regulation purporting to establish standards for proving disparate impact claims under the Fair Housing Act.  The regulation sets forth a slightly different burden shifting approach than that used by the district court.  The Fifth Circuit adopted HUD’s regulation as the proper standard, and remanded the case for the district court to apply that standard.  Texas petitioned the Supreme Court to review the Fifth Circuit’s ruling and determine whether a disparate impact claims are even allowed under the Fair Housing Act.