June 25, 2015

Supreme Court Decides Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc.

On June 25, 2015, the U.S. Supreme Court decided Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc., No. 13-1371, holding that a disparate-impact claim is cognizable under the Fair Housing Act.

A federal statute, 26 U.S.C. § 42, provides low-income tax credits that are distributed to property developers through designated state agencies. In Texas, these credits are distributed by the Texas Department of Housing and Community Affairs (the Department). A developer’s application for the tax credits is scored by giving priority to federal criteria such as the financial feasibility of the project and the income level of tenants, as well as additional criteria like whether the housing units will be built in a neighborhood with good schools.

The Inclusive Communities Project, Inc. (ICP) is a Texas nonprofit that assists low-income families with obtaining affordable housing. ICP filed suit against the Department, making a claim for disparate impact under §§ 804(a) and 805(a) of the Fair Housing Act (FHA). ICP alleged that the Department was causing segregated housing patterns to continue by disproportionately allocating tax credits in predominantly black inner-city areas.

The district court found in favor of ICP and entered a remedial order requiring the addition of new selection criteria for the tax credits. The Fifth Circuit Court of Appeals agreed that disparate-impact claims are cognizable under the FHA, but reversed on the merits of the decision, relying on a recently-issued regulation from the Secretary of Housing and Urban Development. The Department sought certiorari review of the question of whether disparate-impact claims are cognizable under the FHA.

The Supreme Court affirmed, holding that a disparate-impact claim is cognizable under the Fair Housing Act. The Court phrased the issue as “whether, under a proper interpretation of the FHA, housing decisions with a disparate impact are prohibited.” The Court first looked at Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967, noting that the Court has recognized disparate impact liability under those two statutes and finding that the logic of those decisions provides “strong support” for recognizing disparate-impact claims under the FHA. The Court viewed as “of crucial importance” the fact that in 1988, at a time when all nine Courts of Appeals that had addressed the question had concluded that the FHA encompassed disparate-impact claims, Congress amended the FHA but rejected a proposed amendment that would have eliminated disparate-impact liability for certain zoning decisions. Finally, the Court noted that “[r]ecognition of disparate-impact claims is consistent with the FHA’s central purpose.” For these reasons, the Court held, disparate-impact claims are cognizable under the FHA.

The Court also offered guidance to lower courts considering disparate-impact claims under the FHA. First, courts must examine with care whether a plaintiff has made out a prima facie case of disparate impact. “A plaintiff who fails to allege facts at the pleading stage or produce statistical evidence demonstrating a causal connection cannot make out a prima facie case of disparate impact.” Even when courts find liability under a disparate-impact theory, the Court admonished that their “remedial orders must be consistent with the Constitution,” and should focus on elimination of the offending practice that operates to discriminate on the basis of race.

Justice Kennedy delivered the opinion of the Court, in which Justices Ginsburg, Breyer, Sotomayor, and Kagan joined. Justice Thomas filed a dissenting opinion. Justice Alito filed a dissenting opinion, in which Chief Justice Roberts and Justices Scalia and Thomas joined.

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