Special Alert: Settlement In Key Fair Housing Case Moves Forward, Supreme Court Unlikely To Hear Appeal

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Last night, the Mount Holly, New Jersey Township Council voted to approve a settlement agreement that will resolve the underlying claims at issue in a closely watched Fair Housing Act (FHA) appeal pending before the U.S. Supreme Court, Township of Mount  Holly v. Mt. Holly Gardens Citizens in Action, Inc., No. 11-1507. The agreement is subject to approval by the U.S. District Court for the District of New Jersey, after which we expect that the Supreme Court appeal will be withdrawn.

The Court had agreed to address one of two disparate impact-related questions presented in the appeal—specifically, the threshold question of whether disparate impact claims are cognizable under the FHA. Under current interpretation by several agencies and some Circuit Courts of Appeal, disparate impact theory allows government and private plaintiffs to establish “discrimination” based solely on the results of a neutral policy without having to show any intent to discriminate (or even in the demonstrated absence of intent to discriminate). Though not a lending case, the appeal could have offered the Supreme Court its first opportunity to rule on the issue of whether the FHA permits plain­tiffs to bring claims under a disparate impact theory.

Instead, for the second time in two years, it appears likely that opportunity has been eliminated by a settlement entered shortly before the Court could decide the matter. Last year, the parties in Gallagher v. Magner, 619 F.3d 823 (8th Cir. 2010) similarly settled and withdrew their Supreme Court appeal before the Court had an opportunity to decide the case. The Magner parties’ decision to settle and withdrawal the appeal was followed by numerous congressional inquiries into whether federal authorities intervened to assist the parties in reaching a settlement in order to avoid Supreme Court review of a prized legal theory. One member of Congress has already initiated a similar inquiry with regard to the resolution of Mt. Holly.

To date, eleven federal Circuits have upheld the cognizability of disparate impact claims under the FHA (Title VIII of the Civil Rights Act of 1968). They have done so based on their analysis of the Supreme Court’s then-current Title VII jurisprudence regarding employment discrimination – which the appellate courts interpreted as permitting disparate impact claims – and a conclusion that disparate impact claims are consistent with the purposes of the FHA. In the seminal employment disparate impact case Griggs v. Duke Power, 401 U.S. 424 (1971), the Court held that a power company’s neutral requirement that all employees have a high school education regardless of whether it was necessary for their job was discriminatory under Title VII because it had a disparate effect on African-Americans. However, the Court subsequently has issued a series of opinions, most significantly in Smith v. City of Jackson, 544 U.S. 228 (2005), that call prior appellate court precedent into question. In City of Jackson, the Court held that employment-related disparate impact claims are grounded in Title VII’s specific statutory text, not merely in the broader purpose of the legislation. Since City of Jackson, federal courts have offered almost no guidance as to whether the FHA’s statutory text permits disparate impact claims.

It is worth noting that in Mt. Holly, the Court could have bypassed certain, more nuanced issues relating to how such claims should be analyzed and the means by which statistical evidence should be evaluated in context of that analysis. These issues were raised in Mt. Holly in a multi-part second question on which cert. was not granted, which would have required argument on “burden shifting,” “balancing” and other tests that have been developed by various Circuits. Additionally, the question before the Court was whether disparate impact claims are cognizable under Section 804 of the FHA. Depending on the Court’s analysis, the question of whether Section 805 of the FHA—the section specifically applicable to mortgage financing—permits disparate impact claims may have remained an open issue. Still, the Supreme Court generally does seem willing to review at least some aspects of disparate impact analysis in the fair housing context.

With the settlement of the underlying Mt. Holly litigation, attention will likely shift to a matter that is pending in the U.S. District Court for the District of Columbia, but which is currently stayed pending the conclusion of the Supreme Court appeal in Mt. Holly. In that action, insurance trade associations challenge a rule issued by the Department of Housing and Urban Development on the use of disparate impact analysis under the FHA, which codified the three-step burden-shifting approach to determine liability related to a disparate impact claim.