Supreme Court Agrees Again To Decide Critical Disparate Impact Questions under the Fair Housing Act

by Ballard Spahr LLP
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The question of whether plaintiffs suing under the Fair Housing Act may bring disparate impact claims is back on the U.S. Supreme Court's docket as a result of the Court's decision today to grant certiorari in Mount Holly v. Mount Holly Gardens Citizens in Action, Inc.

The justices were poised to decide the question last year in Magner v. Gallagher, but the case disappeared from the Court’s docket just a few weeks before its scheduled oral argument on February 29, 2012, when the City of Saint Paul dismissed its appeal.

Mount Holly concerns a New Jersey township’s plan to redevelop a blighted residential area occupied predominantly by low- and moderate-income minority households. Certain residents sought to prevent the redevelopment. After litigating unsuccessfully for several years in state court, the residents filed suit in federal court, alleging that the redevelopment plan had a disparate impact on minorities and therefore violated the Fair Housing Act.

The suit alleged that a disproportionate number of minorities would be affected by the relocation required by the plan and would be unable to afford the new housing proposed under the plan. The district court dismissed the case on summary judgment after concluding the plaintiffs had failed to establish a disparate impact claim. The U.S. Court of Appeals for the Third Circuit reversed, however, and found that plaintiffs had established a prima facie case of disparate impact under the Fair Housing Act.

Ballard Spahr is representing one of the defendants in the case. The Act makes it unlawful to “refuse to sell or rent after the making of a bona fide offer… or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” Despite the lack of textual support for disparate impact claims in the Fair Housing Act, the Third Circuit and other federal appeals courts have permitted such claims to proceed.

The Supreme Court has agreed to decide whether disparate impact claims are permissible under the Fair Housing Act.

The viability of disparate impact claims under the Fair Housing Act is an issue that could have both direct and indirect effects on consumer finance litigation. It is not uncommon for fair lending litigation brought against mortgage lenders to involve claims under the Fair Housing Act. If the Supreme Court holds that disparate impact claims cannot be pursued, that legal avenue will no longer be available to private and governmental litigants.

A Supreme Court ruling that disparate impact claims are not available under the Fair Housing Act because of a lack of plain-language support would carry serious implications for disparate impact claims under the Equal Credit Opportunity Act (ECOA). Like the Fair Housing Act, ECOA does not explicitly permit disparate impact claims, but there is a long-standing administrative interpretation in Regulation B (which implements ECOA) that asserts that disparate impact claims can be brought under ECOA.

The Supreme Court's decision could also affect regulatory compliance and examinations. The Consumer Financial Protection Bureau has expressly incorporated both disparate treatment and disparate impact testing into its examination procedures, and the Supreme Court’s decision in Mount Holly may either remove disparate impact analysis from the picture altogether, or may change how both the CFPB and examined institutions look at testing for disparate impact.

To help consumer credit providers prepare for examinations and to prevent, manage, and defend against the increasing number of fair lending challenges, Ballard Spahr has created a Fair Lending Task Force. The task force brings together regulatory attorneys who deal with fair lending law compliance (including the preparation of fair lending assessments in advance of Consumer Financial Protection Bureau examinations), litigators who defend against claims of fair lending violations, and attorneys who likewise understand the statistical analyses that underlie fair lending assessments and discrimination claims.

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