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Supreme Court to hear fair-housing arguments

Texas challenges use of ‘disparate impact’ theory in demonstrating discrimination

A decision about where to build low-income housing in Dallas could be the impetus for a major change in the way the nation’s landmark law against housing discrimination is enforced in North Carolina and across the country.

As part of its already ambitious 2014-2015 term, the U.S. Supreme Court will decide whether Title VIII of the Civil Rights Act of 1968, commonly known as the Fair Housing Act, allows plaintiffs to prove discrimination by showing that a policy had a “disparate impact” on a protected group, even without proof of intentional discrimination.

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Local fair-housing advocates believe that the court may forbid the use of the disparate impact theory, which the attorneys say would make it much more difficult for plaintiffs to prove cases of housing discrimination.

The court seems particularly interested in taking up the issue. It twice previously agreed to hear cases considering the same issue, but the cases settled before the court could hear arguments.

In this case, the government entity accused of discrimination is the Texas Department of Housing and Community Affairs – which the plaintiffs claim was disproportionately awarding federal low-income housing tax credits to neighborhoods that had high populations of racial minorities – and the expectation is that this time the court will finally get a chance to rule on the question.

Notably, no federal appeals court has found the disparate impact theory to be impermissible, so the court is not stepping in to resolve any disagreement among the lower courts.

“The fact that the court granted certiorari three times in four terms makes it seem like they’re pretty eager to take on this issue, and the fact that every court of appeals that has looked at this has ruled that there is a disparate impact – a right to bring a case under that theory – and so we don’t have any sort of conflict or split among the circuits, makes us concerned that they may be planning on overturning that theory,” said Jeffrey Dillman, co-director of the Fair Housing Project of Legal Aid of North Carolina.

Disparate views

Statistics on the prevalence of housing discrimination are, by nature, extrapolations. The U.S. Department of Housing and Urban Development has cited a study by National Fair Housing Alliance, estimating that more than 3.7 million people every year are victims of discrimination.

Fair housing advocates argue that without the disparate impact theory, such discrimination would be much harder to prove—and they say that even establishing a case based on disparate impact isn’t a cakewalk, either. Without the disparate impact theory, plaintiffs would need to show evidence of intentional discrimination, which is a much higher bar to clear.

“The difficulty with proving discrimination under the intent model is that, of course, there’s hardly ever evidence of … ‘the smoking gun’: evidence of discriminatory intent,” said Elizabeth Haddix, senior staff attorney at the UNC Center for Civil Rights. “It’s very rare that you have, today, a landlord or a real estate agent or whomever make a facially discriminatory comment or include something in some written document that shows intent.”

But lenders see the disparate impact theory much differently. Paul Hancock, an attorney with K&L Gates who authored a brief on behalf of the American Bankers Association in support of Texas’ position, argues that the disparate impact theory pushes businesses to consider race and to ensure that racial outcomes are the same in order to avoid litigation. Hancock said that even if the disparate impact theory is struck down, plaintiffs would still be able to prove discrimination by showing evidence that they were treated differently because of their race or another protected status.

“It merely requires you to prove discrimination, that people are treated differently,” Hancock said. “It’s not the slippery slope that the other side is arguing for, which leads to racial quotas. Normal, prudent risk-based lending practices do not result in equal racial outcomes. That does not mean that anyone is treated unequally or discriminated against, just that people are judged based on prudent, risk-based lending criteria, which produce outcomes that are not the same for every racial or ethnic group.”

An intents argument

The significance of the case may extend beyond housing law because the disparate impact theory is applied in a number of other anti-discrimination contexts.

The theory is explicitly mentioned in Title VII of the Civil Rights Act, which forbids discrimination in employment. It is not, however, mentioned in the Fair Housing Act, which Texas argues shows that Congress did not intend to allow for such a theory of liability. Haddix and other fair housing advocates say this reading is inconsistent with the intent of Congress in passing the Fair Housing Act, which was to create integrated communities and avoid ghettos.

Jack Holtzman, also a co-director of the Legal Aid’s Fair Housing Project, emphasized that proving a disparate impact is actually just the first element of a claim for housing discrimination under the theory. Holtzman said that even if a policy is shown to have disparate impacts, a defendant can still defeat a discrimination claim by showing that the policy has a legitimate business or governmental purpose.

“Giving it a baseball analogy, I think really all this does … is get you to first base, and by no means is it definitive. You don’t win merely because you can show disparate impact based upon the statistical analysis or discriminatory impact,” Holtzman said. “The burden is still on plaintiffs. They still have to slog it through and make out their case. It doesn’t resolve the issue definitively, it just allows them to continue to make the case.”

The disparate impact theory is also used to enforce another federal law of importance to lenders, the Equal Credit Opportunity Act. Don Lampe, a North Carolina attorney with Morrison Foerster who represents banks and mortgage companies, said that a ruling striking down disparate impact might not have as big an impact on lending as fair housing advocates predict because lenders are still subject to the ECOA, which is now enforced by the Consumer Financial Protection Bureau.

Lampe said that although both laws use similar language, the CFPB has taken the position that even if the Supreme Court rules in Texas’ favor, disparate treatment will still be a valid theory under the ECOA. Such a decision might later serve as precedent for a similar ruling about the ECOA, but that theory would have to be litigated in court first. Lampe said, however, that because of the disparate impact theory, banks have a strong incentive to settle discrimination cases because of the damage that would be inflicted by the negative publicity from an unfavorable verdict.

“There’s a lot of hyperbole surrounding the consequences of disparate impact theory being struck down, but there are still very powerful tools in the law to eradicate discrimination,” Lampe said. “The idea that disparate impact being struck down would somehow liberate some burdens on the lending industry – my view is that it really won’t. As a practical matter, it may not effectuate a sea change.”

The case is Texas Department of Housing and Community Affairs v. Inclusive Communities Project. The Supreme Court will hear oral arguments in the case early next year, and a decision is expected by June.

DAVID DONOVAN can be reached at david.donovan@nclawyersweekly.com or (704) 817-1355. Follow David Donovan on Twitter @NCLWDonovan.

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