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SCOTUS hearing disparate impact case could rock housing industry

Ballard Spahr: The likely outcome and long-term effect

This week the Supreme Court of the United States is hearing the case of Texas Dept. of Housing vs. Inclusive Communities Project.

In this case, the Texas Department of Housing argues that the text and history of the law confirm that it does not allow disparate impact claims, but instead authorizes only claims based on intentionally discriminatory conduct.

In October, the high court agreed to hear the case that could overturn the Obama administration’s heavy-handed use of the theory of disparate impact.

The news is pushing housing advocates to publish opinion pieces that take pause at the news.

"Texas’ appeal to the Supreme Court ignores decades of actions by the state that produced segregated apartment projects in high-poverty neighborhoods," wrote John Hennenberger on Rooflines, as an example.

But how would someone with intimate familiarity with this process feel about the development?

HousingWire asked Mike Skojec, partner at the law firm of Ballard Spahr, his take on the case, and what it could mean for the housing industry.

HW: If SCOTUS rules for the Inclusive Communities Project, what does that mean for housing authorities? Will this mean a whole rash of lawsuits in other states and markets, or will the impact be limited?

Skojec: If ICP prevails, it will mean that advocacy groups will bring cases similar to what ICP brought against Texas against other states' agencies, and all states will have to change their Qualified Allocation Plans and tax credit allocation processes.  Housing authorities will  find it substantially harder to develop and renovate affordable housing, just as the housing authorities in Texas have since ICP prevailed and Texas changed its plan.

HW: How soon would we see an impact from this, if it goes in favor of ICP?

Skojec: The decision's impact would be relatively immediate.  The ICP case in Texas is currently stayed, but the trial judge would have to immediately make new findings and reach a decision using the HUD Rule as the standard.  There are many other cases based on disparate impact pending against developers, agencies, lenders, and insurance companies that would all begin to move forward more rapidly. A number of new cases would probably be brought once the doubt has been removed about the viability of using this as a basis for a claim.

HW: What would the impact be if it goes in favor of the Texas Department of Housing?

Skojec: If Texas prevails, the many pending cases based on this theory of liability would be dismissed.  With much less fear of costly litigation and claims,  housing development, including for affordable housing, would expand significantly as developers, state agencies, housing authorities, and lenders focus more on growth wherever projects can be built.   

HW: What are the impacts on the larger housing industry if this is decided for the ICP?

Skojec: If ICP prevails, the housing industry would see significant changes in lending and insurance practices to consider possible disparate impact in all decisions that would make developing projects more difficult.  The industry would have to make the same kinds of changes in development and in everyday management, such as in screening and other resident and buyer decisions.  The housing industry would find compliance with fair housing laws to be much more complicated, time-consuming, and expensive.  It could begin to see a new wave of lawsuits brought for using race and ethnicity in its decision-making processes as the industry tries to avoid decisions that have a disparate impact.

HW: What is your read on how the Court will rule?

Skojec: The Court has wanted to examine this issue, as evidenced by accepting cert three times.  It has repeatedly said that it only wanted to look at whether disparate impact applies under the Fair Housing Act and not what standard would apply if it does exist, even though there are many circuit court decisions using disparate impact, and they have used conflicting standards.  Typically, the Court would want to decide an issue that is in conflict between the circuits, especially here, where HUD has already tried to resolve the conflicts with a rule.  The Court's refusal to consider a standard suggests that the majority of the justices already know disparate impact will no longer apply under the Fair Housing Act.  

HW: If it goes in favor of the TDH, would it be a nail in the coffin for disparate impact theory as applied to housing?

Skojec: Yes, if Texas prevails, there will be no disparate impact theory of liability under the Fair Housing Act, and only intentional housing discrimination claims will be allowed going forward.  Congress could change the law to allow it again, but that does not seem likely to happen with the current Congress.

HW: What have I not been smart enough to ask you, that you think is an important takeaway or takeaways from this case, as it gets under way?

Skojec: In some disparate impact cases, the theory has worked effectively to lessen racial discrimination and the perpetuation of illegal segregation.  However, the substantial increase in the use of the theory by advocacy groups and HUD for many kinds of claims for which it should not be used, such as how risk is evaluated in selling property insurance or how management companies screen the risk of criminal conduct and other bad acts by possible tenants, has caused the theory to be attacked and probably struck down.  The takeaway is one of the pendulum having swung too far one way and now swinging back to the middle, which is usually what happens when a law is abused by using it to an extreme.

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