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Down and out in Texas:  On remand, district court narrows inclusive communities disparate impact liability

Disparate impact liability – the theory that a government agency or private housing provider may violate the Fair Housing Act (“FHAct”) by adopting facially-neutral policies that have an unintended adverse impact on minorities and other protected persons – was affirmed by the U.S. Supreme Court in its 2015 decision in Texas Dept. of Hous. & Comm. Development v. The Inclusive Communities Project, Inc., 135 S.Ct. 2507 (2015). At the same time, the Supreme Court warned against “abusive” disparate impact cases that only served to second-guess otherwise legitimate housing decisions, and said that plaintiffs had to satisfy a “robust causality requirement” to make out a prima facie claim. Id. at 2524, 2523. Since that time, commentators have debated whether the Supreme Court’s decision merely ratified existing law or sought to focus disparate impact liability to attack a more limited set of goals. In particular, eyes were trained on how the district court that initially heard the claims of the Inclusive Communities Project (“ICP”) would treat those claims on remand, after the Supreme Court displayed strong skepticism about whether those claims satisfied its “robust causality requirement.”

The answer came last Friday, when the Texas district court reversed its earlier decision and dismissed ICP’s disparate impact claims. 2016 U.S. District LEXIS 114562 (Aug. 26, 2016) (the “Decision”). ICP, a nonprofit that sought to develop affordable housing in suburban, low minority areas, contended that low-income housing tax credit (“LIHTC”) allocation policies pursued by the Texas Department of Housing and Community Affairs (the “Department”) tended to concentrate LIHTCs in high-poverty, minority-concentrated neighborhoods. ICP claimed that this policy made it more difficult to develop affordable housing in non-minority neighborhoods, producing an disparate impact on minority renters. 

In its decision, the U.S. District Court for the Northern District of Texas ruled that ICP had failed to demonstrate the “robust causality requirement” demanded by the Supreme Court. Noting that the Supreme Court said that the “heartland” of disparate impact cases targets “removal of ‘artificial, arbitrary and unnecessary barriers’” to housing opportunities (Decision at *13, quoting 135 S.Ct. at 2522), the Texas court held that ICP “must ‘point to [the Department’s] policy or policies causing that [statistical] disparity.’” Decision at *14, quoting 135 S.Ct. at 2523. In this round, ICP alleged that the Department had exercised its discretion in allocating LIHTCs in a manner that had an adverse impact on minorities, but the Texas court said that to meet the causality test, ICP had to point to specific policies that had a disparate impact on minorities. “ICP must affirmatively identify a specific policy that produced a disparate impact, rather than point to a lack of policy that caused it.” Id. at *19. A specific policy needed to be identified both to evaluate whether the policy caused the alleged harm, and to allow the court to formulate a remedy for any violation. Id. at *18-21. The Texas court found that ICP had not pointed to a specific policy, and therefore could not meet this test. More fundamentally, the Texas court concluded that ICP had offered no evidence to show that the Department’s exercise of discretion in allocating LIHTCs had, in fact, resulted in a significant disparity in housing opportunities.  Id. at *25-31.

In the year since the Supreme Court’s Inclusive Communities decision, courts have wrestled with its implications. Although it is still too early to make definitive decisions, it appears that courts have upheld claims involving the so-called “heartland” of disparate impact liability that challenge “arbitrary barriers” such as unfair applications of zoning law. Courts appear to be reluctant to apply disparate impact liability to second guess otherwise legitimate action by governments and private parties, such as lenders’ mortgage approval policies, code-enforcement initiatives, and decisions not to renew Section 8 rental assistance contracts. The Decision’s dismissal of ICP’s claims reflects another example of courts’ skeptical response to applying disparate impact to second-guess otherwise legitimate decisions by government agencies. It will be interesting to see whether the case is appealed and how the appellate court responds, and whether the Decision accelerates a trend to applying disparate impact narrowly.


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