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Symposium: Just give the Court a chance

Joshua Thompson and Ralph Kasarda are staff attorneys with the Pacific Legal Foundation in Sacramento. PLF filed an amicus brief in support of the petitioners in Texas Department of Housing and Community Affairs v. The Inclusive Community Project, Inc.

A decision from the Supreme Court in Texas Department of Housing and Community Affairs v. The Inclusive Community Project, Inc. will mark the end of disparate impact under the Fair Housing Act.   Nobody really believes that the Supreme Court would accept an identical issue three times in four years only to affirm what is a consensus among the government and the courts of appeals. The only real question is whether the Supreme Court will get to hear the case.

The issue before the Court is straightforward: does the Fair Housing Act recognize disparate impact claims – a legal theory of liability in which proof of discriminatory intent is irrelevant? The Court has previously granted certiorari on that issue twice. In 2011, the Court granted the petition for certiorari in Magner v. Gallagher. Yet, after briefing and days before oral argument, the case suspiciously settled. Less than two years later, the Court granted certiorari in Township of Mount Holly v. Mount Holly Gardens Citizens in Action. Once again the case settled after the briefing had been completed. Now, little more than a year after the settlement in Mount Holly, the briefing is complete in a third case, and oral argument is set for January 21. Will this case also settle? The answer to this question will determine the future of disparate impact under the Fair Housing Act.

At first blush, precedent appears to side with finding disparate impact under the Fair Housing Act. Every court of appeals that has decided the issue – which is most of them – has ruled in favor of disparate impact. Moreover, the Department of Housing and Urban Development (HUD) recently adopted a regulation that recognizes disparate impact claims; it cites the Fair Housing Act as its statutory authority for the regulation. Yet the grant of three consecutive petitions for certiorari shows that the Court is determined to decide the issue itself.

The Court is right to accept the case. Despite the near unanimity of the lower courts and HUD’s agreement, the plain language of the Fair Housing Act does not recognize disparate impact claims. As Pacific Legal Foundation explains in the amicus brief it filed this year, the text of the Fair Housing Act is unambiguous. The Act’s prohibition on discrimination focuses solely on an individual’s motivation. The Act makes it unlawful to “refuse” to sell, rent, or negotiate with an individual on the basis of race. To “refuse” something necessitates intentional action.

The plain language argument is buttressed by the absence of any contrary language indicating Congress intended to include disparate impact in the Fair Housing Act. With Title VII for example, Congress made it illegal for an employer to “adversely affect” an employee on the basis of race. Similarly, the Age Discrimination in Employment Act (ADEA) prohibits an employer from “adversely affect[ing]” an employee on account of her age. This “affects” language was designed to prohibit disparate impacts, but it is conspicuously absent in the Fair Housing Act. If Congress wanted to prohibit disparate impact under the Fair Housing Act, it could have easily done so when it enacted the Act in 1968, or when it amended the Act in 1988.

If there was any doubt as to the meaning of “refuse” and “affect,” the Court erased it when it decided Smith v. City of Jackson, Mississippi in 2005. An issue in Smith was the availability of disparate impact under the ADEA. The Court held that Section 4(a)(1) of the ADEA – which makes it unlawful to “refuse” to hire on the basis of age – encompasses intentional discrimination claims, not disparate impact claims. On the other hand, the Court explained that Section 4(a)(2) of the ADEA – which makes it unlawful to “adversely affect” an employee on the basis of age – does prohibit age-based disparate impacts. Smith is a roadmap for how the Court will decide the Fair Housing Act issue if it gets the chance.

The lower court consensus on the availability of disparate impact under the Fair Housing Act was largely reached before the Supreme Court’s decision in Smith. While a few circuits have found disparate impact under the Fair Housing Act since Smith, three of those decisions were the subjects of successful petitions for Supreme Court review. Moreover, the HUD regulation that made disparate impact available under the Fair Housing Act was recently struck down by the U.S. District Court for the District of Columbia in American Insurance Association v. United States Department of Housing and Urban Development.

The American Insurance decision is particularly informative. The D.C. Circuit is one of the few that has yet to rule on the availability of disparate impact under the Fair Housing Act. In American Insurance, the district court held that HUD’s interpretation was “yet another example of an Administrative Agency trying desperately to write into law that which Congress never intended to sanction.” The court called the regulations “an artful misinterpretation of Congress’s intent that is, frankly, too clever by half.” The statute, according to the court, “unambiguously prohibits only intentional discrimination.”

The plain language argument is the clearest path to victory for the petitioners now before the Court, but there are additional reasons for holding that disparate impact claims are not available under the Fair Housing Act. First, it is often completely unworkable. For example, the Act prohibits discrimination in all aspects of residential real estate-related transactions, including making loans to buy, build, repair, or improve a dwelling. But scholar James Scanlan has demonstrated that using disparate impact in lending rates will inevitably lead to liability – regardless of where the criteria are set. If a particular race-neutral cutoff point results in 80% acceptance for the advantaged group and 63% for the disadvantaged group, then changing the criteria to a point where the disparity in passing rates is 95% and 87% would seem to be preferable under a disparate impact lens. But in such a scenario, the disadvantaged group’s non-passing rate actually increased from 1.85 times (37%/20%) to 2.6 times the advantaged group’s rate (13%/5%). Relaxing a requirement may reduce the disparity in passing rates, but it will inevitably increase the disparity in non-passing rates.

There are also constitutional problems with finding disparate impact under the Fair Housing Act. In Watson v.Fort Worth Bank & Trust, the Supreme Court recognized that overreliance on statistics puts undue pressure on employers to take prophylactic measures to ensure racial balance. Because disparate impact lawsuits are so expensive to defend and so difficult to win, employers are pressured into using race to ensure a statistical balance. In other words, the threat of disparate impact lawsuits leads to racial balancing in violation of the Equal Protection Clause. As Justice Scalia said in Ricci v. DeStefano, “disparate-impact provisions place a racial thumb on the scales, often requiring employers to evaluate the racial outcomes of their policies, and to make decisions based on (because of) those racial outcomes.”

While Fort Worth and Ricci arose out of Title VII, the same is true of disparate impact under the Fair Housing Act. Indeed, the Obama administration has used the fiction that the Fair Housing Act encompasses disparate impact to extract record settlements from banks and financial institutions across the country. Rather than fight a protracted legal battle – one that will likely prove unsuccessful – businesses and financial institutions choose to abandon legitimate business practices. This sue-and-settle pattern is precisely what the Supreme Court warned would be the result of disparate impact litigation.

In order to preserve its disparate impact tool, the Obama administration is sure to try to settle this case. The Wall Street Journal has reported on some suspect dealings in both Magner and Mount Holly. In Magner, according to the Journal, the administration engaged in a quid-pro-quo deal with the City of St. Paul. In return for the city’s agreement to drop its Fair Housing Act lawsuit, the Obama administration promised to forgo legitimate claims that the city violated the Fair Claims Act in an unrelated matter. And in Mount Holly, although the Obama administration has not been implicated directly, the Journal reported that some of its biggest allies – including the Ford Foundation and George Soros’s Open Society Foundations – contributed money to a developer that helped settle the case.

The administration is making such effort to ensure these cases are not heard because it knows how the Court will rule. If the Supreme Court reviews the current iteration on the merits, disparate impact will be stricken from the Fair Housing Act under a plain language analysis. And that’s why the only important question is whether the case will be heard at all. Is the third time a charm, or is it three strikes and you’re out? In a few weeks we should know the answer. For the sake of equality under the law, let the Court hear the case.


Recommended Citation: Joshua Thompson and Ralph Kasarda, Symposium: Just give the Court a chance, SCOTUSblog (Jan. 6, 2015, 2:52 PM),