Disparate Impact is Here to Stay: What the Supreme Court's Decision Means for the Multi-Family Industry

Cohen Seglias Pallas Greenhall & Furman PC
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On June 25, 2015, Justice Kennedy delivered the Supreme Court’s decision in Texas v. Inclusive Communities Project.  In the case, the Court determined that the Fair Housing Act of 1968 includes disparate impact claims.  Prior to Texas v. Inclusive Communities Project, nine of the twelve federal Courts of Appeals had ruled that the Act encompassed disparate impact claims. Nevertheless, there remained much dispute over the Act’s inclusion of such claims.

There are two forms of discrimination:  disparate treatment and disparate impact.  Disparate treatment is the intentional discrimination based on a person’s inclusion in a protected class (such as race, color, national origin, sex, religion, familial status, or disability).  Disparate impact, on the other hand, has little to do with intent.  Rather, disparate impact occurs when a policy that appears to be neutral on its face is discriminatory against a protected class when it is applied.  It has never been questioned that the Act prohibits disparate treatment.  Until June 25, however, there had been much debate over whether the Act prohibits disparate impact.  The debate is now settled!

The Court recognized, though, the potential dangers of disparate impact claims.  In his opinion, Justice Kennedy wrote:  “An important and appropriate means of ensuring that disparate-impact liability is properly limited is to give housing authorities and private developers leeway to state and explain the valid interest served by their policies.”  The Court concluded that policies adopted by government or private developers are not “contrary to the disparate impact requirement” unless they are “artificial, arbitrary, and unnecessary barriers.”

To address this problem, the Court decided to heighten the burden necessary to establish an initial case of disparate impact liability before considering evidence to rebut the claim.  In short, plaintiffs in discrimination cases will need to show that the implementation of the policy of which they complain creates the discriminatory impact.  By raising the bar of what is needed to assert a valid disparate impact claim, the Court has created some protection for housing providers to ensure that disparate impact claims will not cripple the industry.   The Court also recognized that housing providers  must be allowed to consider market factors when making housing decisions and take into consideration many factors in defending their policies.  If the challenged policy “is necessary to achieve a valid interest,” it will likely survive scrutiny under the disparate impact analysis.

While Texas v. Inclusive Communities Project involved the specific issue of tax credit distribution for housing projects, the Court’s decision makes clear that its holding applies to all housing matters covered by the Act. Thus, all housing providers should carefully review their policies with counsel to limit the risks of having to defend disparate impact claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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