On Thursday the Supreme Court ruled in a contentious and qualified opinion that the legal doctrine of “disparate impact” is cognizable under the Fair Housing Act, but a closer look at the ruling shows it may not be as perilous for the mortgage industry as initially thought.
The 5-4 decision holds that there is a disparate impact claim under the FHA as a matter of statutory interpretation.
But the key thing is, the majority opinion, which can be read here and which was written by Justice Anthony Kennedy, strongly cautions that remedial orders in disparate impact cases that impose racial targets or quotas could be unconstitutional.
The question came about because of the case of Texas Department of Housing and Community Affairs v. Inclusive Communities Projects, which asked whether the Fair Housing Act allows lawsuits based on disparate impact – that is, an allegation that a law or practice has a discriminatory effect, even if it wasn’t based on a discriminatory purpose.
In the ruling the court held that “disparate impact doesn't mandate that affordable housing be located in neighborhoods with any particular characteristic” meaning, apparently that it does not necessarily support Obama Administration efforts to place more affordable housing in suburban and upscale developments, nor does statistical imbalance itself support claims of discrimination.
Michael Skojec, who represented the Houston Housing Authority, which filed an amicus brief in the case, explained the distinction to HousingWire.
“While the Court in Inclusive Communities recognized that disparate-impact can provide a basis for a finding of liability under the FHA, at the same time, the Court emphasized that a number of barriers should exist to pleading and proving such claims,” Skojec said. “Specifically, the Court said that a party bringing a disparate-impact claim must establish ‘robust causation’ by providing statistical or other evidence that a policy directly caused a disparate impact. Justice Kennedy 's majority opinion held that such a ‘robust causality requirement’ ensures that racial imbalance, without more, does not alone serve to establish disparate impact, and protects defendants from being held liable for racial disparities they did not create.
“The Court suggested several factors that could be considered in response to a disparate-impact claim, including costs, traffic patterns, preservation of historic architecture, and quality of life, all of which, the Court said, could serve to show that the housing decision at issue did not erect "artificial, arbitrary, or unnecessary" barriers to fair housing,” Skojec said.
U.S. Chamber of Commerce Center for Capital Markets Competitiveness President and CEO David Hirschmann said the limits the court set in the ruling will cushion the burden on lenders and others in the industry.
“While we are disappointed in today’s decision upholding disparate impact liability under the Fair Housing Act, we are pleased in the limits the court placed on plaintiffs’ ability to bring disparate impact claims – and the constitutional restraints the Court recognized on remedies available for such claims,” Hirschmann said. “Today’s decision acknowledges the threat of unfettered disparate impact liability makes it harder rather than easier to develop and finance affordable housing. The Court’s assessment in placing severe limitations on the use of disparate impact is correct, and we hope that courts will implement today’s decision in a way that avoids adverse outcomes.”
Paul Hancock with the law firm of K&L Gates, which filed a total of five amicus briefs with the Supreme Court addressing the issue, said there are hard limits and hurdles that remain for discrimination claims under Fair Housing laws.
“The Court’s decision today resolves an important legal issue about which there has been principled disagreement among White House administrations, as well as among advocacy and industry groups, for decades,” Hancock tells HousingWire. “While the Court, by a razor thin margin, upheld the application of disparate impact under the Fair Housing Act, the Court also imposed important limitations on the application of the legal theory.
“For example, the Court held that a racial imbalance, without more, does not establish a case of discrimination, and directed lower courts to ‘examine with care’ the claims presented at the pleading stage,” Hancock said. “The Court further directed that remedial orders in disparate impact cases must ‘concentrate on the elimination of the offending practice’ and employ “race-neutral [remedial] means.”
He said that the limitations that were announced were believed necessary by the Court to “avoid serious constitutional questions that might arise” and “to protect potential defendants against abusive disparate-impact claims.”