Corporate Practice JUNE 2014
New Disparate Impact Petition for Cert Pending in U.S. Supreme Court Students of fair lending jurisprudence know that the most significant issue in that area of the law is whether the government’s assertion of liability, not just for intentional discrimination on a prohibited basis, but also for otherwise innocent conduct that has a disparate impact on a prohibited basis, has a valid basis in law. The Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) both prohibit unlawful discrimination, but do not expressly address unintentional conduct that has discriminatory effect. However, the government has long taken the position that such unintentional conduct violates both statutes, a position that has considerable support throughout the federal courts of appeals, other than the D. C. Circuit. The proponents of disparate impact theory draw from case law in the employment area that bars disparate effects. However, those statutes all use the verb “effect,” whereas ECOA and the FHA do not. In the last two U. S. Supreme Court terms, petitions for writs of certiorari on this particular issue have been filed and granted, suggesting an interest on the part of the Court to address this issue. However, in both cases, the Civil Rights Division of the U. S. Department of Justice reportedly has persuaded one side to settle each case before decision, thereby depriving the Court of the ability to address the issue. During the pendency of one of these petitions, the U. S. Department of Housing and Urban Development (HUD) proposed and adopted a formal regulation codifying the disparate impact theory. Now, another petition for writ of certiorari has been filed in the U. S. Supreme Court in another disparate impact case under the FHA. On May 13, the Texas Department of Housing and Community Affairs filed
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such a petition in defense of a case brought by The Inclusive Communities Project, Inc. (ICP). ICP has until June 16 to file a response. ICP’s mission is to assist minority families in Dallas in finding housing in Dallas’ non-minority suburbs. It sued the Texas Department accusing the Department of disproportionately allocating low-income housing tax credits to properties in minority areas. Its claim was for disparate treatment under the equal-protection clause and disparate impact under the FHA. After trial, the district court found that ICP had failed to prove disparate treatment. However, as to disparate impact, the district court concluded that ICP had established a prima facie case because the Texas Department had approved tax credits for 49.7% of the units to be built in minority neighborhoods, but only 37.4% of the units in Caucasian neighborhoods. That transferred the burden of proof to the Texas Department to prove that its actions furthered a legitimate government interest and no less discriminatory alternative course of action was available to it. The Department satisfied the first burden by demonstrating that it awarded low-income housing tax credits following fixed statutory criteria, some of which are correlated with race, e.g. federal law requires that preference be given to projects in low-income areas. However, the district court held that the Department failed to prove the absence of a less discriminatory alternative and, therefore, ruled for ICP. The Texas Department appealed to the U. S. Court of Appeals for the Fifth Circuit, and, while that appeal was pending, HUD adopted the above-mentioned rule which provides specifically that, if the defendant meets its burden of proving a legitimate purpose, the burden of proof shifts back to the plaintiff. The Fifth
Corporate Practice Circuit, therefore, remanded the case for the district court to apply that standard and require ICP to prove that the Texas Department had less discriminatory courses of action. The Texas Department has now filed for cert as to the threshold question whether disparate-impact claims are even cognizable under the FHA and, if so, what are the standards and burdens of proof. The first reason that the petition gives as to why cert should be granted is that the Court has twice granted cert on the issue whether disparate-impact claims are cognizable under the FHA. The petition further argues that resolution of this issue can be very far-reaching, affecting a vast range of governmental and business decisions ranging from zoning decisions to occupancy limits to the closing of homeless shelters to garbage collection fees and even to disaster recovery efforts,
all of which have been the subject of disparate-impact suits considered by federal courts of appeal in the last sixteen months. It is conceivable that the Court will not grant cert on the basis that the matter may not yet be ripe for decision; it may let the case be remanded to the district court for that court to determine whether ICP can prove that the Texas Department has other less discriminatory means to follow statutory requirements. On the other hand, there is a distinct possibility that the Court will again grant cert on this important issue. If you have questions regarding the proposal or would like assistance in commenting on the proposal, please contact: Christine Edwards Jerry Loeser Sterling Sears or your usual Winston & Strawn attorney.
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