Disparate impact theory to get U.S. Supreme Court scrutiny

A major change in the way the nation's landmark law against housing discrimination is enforced could be on the horizon, depending on what action the U.S. Supreme Court takes in regards to a case from Dallas, Texas. As part of its already ambitious 2014-2015 term, the Court will decide whether Title VIII of the Civil Rights Act of 1968 - the Fair Housing Act - allows plaintiffs to prove discrimination by showing that a policy had a "disparate impact" on a protected group, even without proof of intentional discrimination. Fair housing advocates in the Carolinas believe that the court may forbid the use of the disparate impact theory, which the attorneys say would make it much more difficult for plaintiffs to prove cases of housing discrimination. The court seems particularly interested in taking up the issue. It twice previously agreed to hear cases considering the same issue, but the cases settled before the court could hear arguments. In this case, the government entity accused of discrimination is the Texas Department of Housing and Community Affairs, which the plaintiffs claim was disproportionately awarding federal low-income housing tax credits to a neighborhood that had high populations of racial minorities. The expectation is that this time the court will finally get a chance to rule on the question. Notably, no federal appeals court has found the disparate impact theory to be impermissible, so the court is not stepping in to resolve any disagreement between the lower courts. "The fact that the court granted certiorari three times in four terms makes it seem like they're pretty eager to take on this issue, and the fact that every Court of Appeals that has looked at this has ruled that there is a disparate impact, a right to bring a case under that theory, and so we don't have any sort of conflict or split among the circuits, makes us concerned that they may be planning on overturning that theory," said Jeffrey Dillman, co-director of the Fair Housing Project of Legal Aid of North Carolina. Disparate views on disparate impact Statistics on the prevalence of housing discrimination are, by their nature, extrapolations. The U.S. Department of Housing and Urban Development has cited a study by National Fair Housing Alliance, estimating that more than 3.7 million people every year are victims of discrimination. Fair housing advocates argue that without the disparate impact theory, such discrimination would be much harder to prove. They say that establishing a case even based on disparate impact isn't a cakewalk. Without the disparate impact theory, plaintiffs would need to show evidence of intentional discrimination, which is a much higher bar to clear. "It definitely would make it more of a challenge if there is a not any direct evidence of a fair housing violation," said Melissa Maddox Evans, general counsel for the Housing Authority of the City of Charleston. "The requirements, of course, of the act will still be there, but it would make it more of a challenge for those who are claiming any violations without any concrete prima facie evidence of discriminatory acts." Evans said that while documented evidence of overt discrimination still occasionally materializes, it's much less common today as housing providers have become savvier about the law. But lenders see the disparate impact theory differently. Paul Hancock, an attorney with K & L Gates, authored a brief on behalf of the American Bankers Association in support of Texas' position. He argues that the disparate impact theory pushes businesses to consider race and ensure that racial outcomes are the same in order to avoid litigation. Hancock said that even if the disparate impact theory is struck down, plaintiffs would still be able to prove discrimination by showing evidence that they were treated differently because of their race or other protected status. "It merely requires you to prove discrimination, that people are treated differently," Hancock said. "It's not the slippery slope that the other side is arguing for, which leads to racial quotas. Normal, prudent risk based-lending practices do not result in equal racial outcomes. That does not mean that anyone is treated unequally or discriminated against, just that people are judged based on prudent, risk-based lending criteria, which produce outcomes that are not the same for every racial or ethnic group." An intents argument The significance of the case may extend beyond housing law because the disparate impact theory is applied in a number of other anti-discrimination contexts. The theory is explicitly mentioned in Title VII of the Civil Rights Act, which forbids discrimination in employment. It is not, however, mentioned in the FHA, which Texas argues shows that Congress did not intend to allow for such a theory of liability. Haddix, and other fair housing advocates, say this reading is inconsistent with the intent of Congress in passing the FHA, which was to create integrated communities and avoid creating ghettos. Jack Holtzman, also a co-director of the Fair Housing Project of Legal Aid of North Carolina, emphasized that proving a disparate impact is actually just the first element of a claim for housing discrimination under the theory. Holtzman said that even if a policy is shown to have disparate impacts, a defendant can still defeat a discrimination claim by showing that the policy has a legitimate business or governmental purpose. "Giving it a baseball analogy, I think really all this does really is get you to first base, and by no means is it definitive. You don't win merely because you can show disparate impact based upon the statistical analysis or discriminatory impact," Holtzman said. "The burden is still on plaintiffs. They still have to slog it through and make out their case. It doesn't resolve the issue definitively; it just allows them to continue to make the case." The disparate impact theory is also used to enforce another federal law of importance to lenders, the Equal Credit Opportunity Act. Don Lampe, a North Carolina attorney with Morrison Foerster, represents banks and mortgage companies. He said that a ruling striking down disparate impact might not have as big of an impact on lending as fair housing advocates predict because lenders are still subject to the ECOA, which is now enforced by the Consumer Financial Protection Bureau. Lampe said that although the FHA and ECOA use similar language, the CFPB has taken the position that even if the Supreme Court rules in Texas' favor, disparate treatment will still be a valid theory under the ECOA. Such a decision might later serve as precedent for a similar ruling about the ECOA, but that theory would have to be litigated in court first. Lampe said, however, that because of the disparate impact theory, banks have a strong incentive to settle discrimination cases because of the damage that would be inflicted by the negative publicity from an unfavorable verdict. "There's a lot of hyperbole surrounding the consequences of disparate impact theory being struck down, but there are still very powerful tools in the law to eradicate discrimination," Lampe said. "The idea that disparate impact being struck down would somehow liberate some burdens on the lending industry, my view is that it really won't. As a practical matter, it may not effectuate a sea change." Follow David Donovan on Twitter @SCLWDonovan Published: Wed, Dec 31, 2014