Recent SCOTUS Ruling Adds New Discrimination Claim under Fair Housing Act
On June 25, 2015, the Supreme Court of the United States added a new device for plaintiffs to claim discrimination in residential real estate-related practices. In Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., the Court affirmed the decision made by Fifth Circuit Court of Appeals, which encompasses Louisiana, and ruled that plaintiffs can file claims for disparate-impact discrimination under the Fair Housing Act (FHA). The FHA prohibits the refusal to sell or rent housing or engage in real estate-related transactions because of race, color, religion, sex, handicap, familial status, or national origin.
Prior to this decision, the high court recognized only disparate-treatment discrimination under federal housing laws. “In contrast to a disparate-treatment case, where a ‘plaintiff must establish that the defendant had a discriminatory intent or motive,’ a plaintiff bringing a disparate-impact claim challenges practices that have a ‘disproportionately adverse effect on minorities’ and are otherwise unjustified by a legitimate rationale.” Thus, challenges to housing practices such as tenant application procedures, lending and underwriting rules, and zoning laws may be actionable under the FHA if the result of the questioned policy or practice negatively impacts minority groups even though there is no evidence of any intent to discriminate.
In the Court’s opinion, Justice Kennedy zeroed in on § 3604 of the FHA, which states that it shall be unlawful “[t]o refuse to sell or rent…, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” 42 U.S.C.A. § 3604 (West). The Court determined that Congress’ use of “…or otherwise make unavailable…” signaled a shift in emphasis from an actor’s intent, which is fundamental to disparate-treatment liability, to the consequences of his actions, the cornerstone of disparate-impact liability. Justice Kennedy reasoned that the FHA’s textual marker is substantially similar to two other federal statutes that recognize disparate-impact claims, namely Title VII and the ADEA. Furthermore, he noted that in 1988, the FHA was amended to permit three exemptions from liability. At that time, all nine Circuit Courts of Appeal had held that disparate-impact liability was actionable under the FHA. Justice Kennedy opined that Congress was aware of the unanimous precedent and determined that Congress made a considered judgment to retain the relevant statutory text.On these particular grounds, as well as the general notion that disparate-impact claims are consistent with the FHA’s central purpose to eradicate discriminatory practices, the Court held disparate-impact discrimination actionable under the FHA.
In short, the effect of the Court’s holding is to add an additional device for plaintiffs to challenge residential real estate-related practices. Practices that could become the subject of scrutiny are those that are seemingly neutral but may result in a disproportionate impact on a protected class. Such practices may include policies used to assess the financial stability or creditworthiness of an individual seeking housing; questions on a rent application relating to prior residences, referrals, job history and income level; background checks into criminal charges or convictions; rules regulating common or shared areas among tenants; and zoning laws or ordinances that restrict the construction of multifamily dwellings. In Inclusive Communities Project, Inc., the plaintiff argued that the Texas Department of Housing and Community Affairs distributed too many federal tax credits to developers for construction in black inner-city areas and two few in predominantly white suburban neighborhoods such that low-income developments were disproportionately situated in black neighborhoods.
While the grounds for disparate-impact challenges seem fertile, the Court placed two restrictions on a plaintiff’s potential for success. To prove a disparate-impact claim, the plaintiff must establish a causal connection between any statistical disparity that evidences a negative impact on one group and the defendant’s policies or practices. The Court explained:
[A] plaintiff challenging the decision of a private developer to construct a new building in one location rather than another will not easily be able to show this is a policy causing a disparate impact because such a one-time decision may not be a policy at all. It may also be difficult to establish causation because of the multiple factors that go into investment decisions about where to construct or renovate housing units.
Additionally, the Court decided that a defense available to the defendant is that the at-issue policy or practice is necessary to achieve a valid interest. Before rejecting the defendant’s business justification, the plaintiff must show that there is an available alternative practice that has less disparate impact and serves the defendant’s legitimate needs. The effectiveness of these safeguards in FHA disparate-impact discrimination claims remains to be seen. What is more certain is that the Court’s recent decision broadened the bases for plaintiffs to claim discrimination in residential real estate-related practices and gives cause to examine such practices.
While the effect of the Supreme Court’s ruling is not yet known, should you have any question related to your real estate practices, please contact us.
 Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 13-1371, 2015 WL 2473449 (U.S. June 25, 2015).
 42 U.S.C. § 3601 et seq.
 42 U.S.C.A. § 3604 (West).
 According to the FHA, “residential real estate-related transaction” means any of the following:(1) the making or purchasing of loans or providing other financial assistance -- (A) for purchasing, constructing, improving, repairing, or maintaining a dwelling; or (B) secured by residential real estate and (2) the selling, brokering, or appraising of residential real property. 42 U.S.C.A. § 3605 (West).
 The exemptions are as follows: (1) “[n]othing in [the FHA] prohibits a person engaged in the business of furnishing appraisals of real property to take into consideration factors other than race, color, religion, national origin, sex, handicap, or familial status” 42 U.S.C.A. § 3605 (West); (2) “[n]othing in [the FHA] prohibits conduct against a person because such person has been convicted by any court of competent jurisdiction of the illegal manufacture or distribution of a controlled substance …” 42 U.S.C.A. § 3607 (West); (3) “[n]othing in [the FHA] limits the applicability of any reasonable local, State, or Federal restrictions regarding the maximum number of occupants permitted to occupy a dwelling.” 42 U.S.C.A. § 3607 (West) [explanation added].
 Id. at *15.