On June 25, 2015, the Supreme Court issued its decision in Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc., which holds that disparate-impact claims are cognizable under the Fair Housing Act of 1968 (FHA). Four members of the Court dissented, concluding that the language of the FHA does not support disparate-impact liability. Although this case affirms the legal theory of disparate-impact liability, it may reshape how litigants approach causation and burden of proof.

The Texas Department of Housing Decision

The FHA prohibits the refusal to "sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin." The FHA also prohibits any party "whose business includes engaging in residential real estate-related transactions" from "discriminat[ing] against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin."

The case began in 2008, when the Inclusive Communities Project, Inc. sued the Texas Department of Housing and Community Affairs (TDHCA), claiming that the TDHCA disproportionately allocated tax credits in minority-concentrated neighborhoods, while disproportionately withholding tax credits from predominantly Caucasian neighborhoods. The Inclusive Communities Project alleged that the TDHCA's allocation of tax credits created segregated housing patterns. While TDHCA's appeal to the Fifth Circuit was pending, the Department of Housing and Urban Development (HUD) issued a rule interpreting the FHA to encompass disparate-impact liability and establishing a burden-shifting framework for adjudicating such claims. HUD's regulation requires plaintiffs to establish a prima facie showing of disparate impact, which, if shown, shifts the burden to the defendant to "prov[e] that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests."

The majority opinion, authored by Justice Kennedy, considered the FHA and preceding antidiscrimination statutes in its interpretation of disparate impact under the FHA. The Court reviewed Section 703(a) of Title VII of the Civil Rights Act of 1964 (Title VII) and the Age Discrimination in Employment Act of 1967 (ADEA), as well as interpretive case law. The majority relies heavily on Griggs v. Duke Power Co. and Smith v. City of Jackson (interpreting Title VII and the ADEA, respectively). The majority stated that "[t]he cases interpreting Title VII and the ADEA provide essential background and instruction" for the FHA issue before the Court. The majority stated that this guidance indicates that "antidiscrimination laws must be construed to encompass disparate-impact claims when their text refers to the consequences of actions and not just to the mindset of actors, and where that interpretation is consistent with statutory purpose." The Court also opined, however, that disparate-impact liability must be limited to allow for "practical business choices and profit related decisions." The Court's decision remands the case to the United States Court of Appeals for the Fifth Circuit to determine whether the facts of the case support more than a prima facie showing of disparate-impact liability.

The Court examined two sections of the FHA, 804(a) and 805(a). The majority focused on the phrase "otherwise make unavailable," which it interpreted as a catch-all phrase expanding the scope of the FHA—similar to the "otherwise adversely affect" language found in Title VII and the ADEA. The majority found that both sections of the FHA have "results-oriented language" referring to the consequences of an action, not an actor's intent. Thus, the similarities among the FHA, Title VII, and ADEA suggested to the majority that the Court's previous decisions under Title VII and the ADEA should control.

In upholding disparate-impact liability under the FHA, the Court also noted that "all nine Courts of Appeals to have addressed the question concluded that the [FHA] encompassed disparate-impact claims." The majority opinion cites both "longstanding judicial interpretation of the FHA to encompass disparate-impact claims and congressional reaffirmation of that result" as upholding disparate-impact liability's role as a "crucial tool" for addressing discrimination.

Key Questions

"Practical business choices": The majority opinion, while upholding disparate-impact liability, sets up potential limits to that liability. The majority cautions that disparate-impact liability poses "special dangers" that must be limited to avoid serious constitutional questions under the FHA. The stated need to allow for "practical business choices" may serve a function similar to Title VII's business necessity defense and presents opportunities for defense counsel to structure similar arguments.

"Artificial, arbitrary, and unnecessary" framework: The majority emphasized that policies do not pose disparate-impact liability unless such policies pose "artificial, arbitrary, and unnecessary barriers." Thus, policies based on a "valid interest" would be protected against disparate-impact liability. This question will likely prove to require a fact-intensive analysis of a particular policy, which may create a new line of argument for litigants. As the majority notes, the specific dispute in this case "involves a novel theory of liability that may, on remand, be seen simply as an attempt to second guess which of two reasonable approaches a housing authority should follow."

Causation and statistics: The majority confirms that a disparate-impact claim cannot rely solely on a statistical disparity, in the absence of evidence showing that a defendant's policy caused the complained-of disparity. The majority notes that "[i]t may . . . be difficult to establish causation" when decisions or policies involve "multiple factors." It remains unclear how high a hurdle proving this causal connection may be to plaintiffs seeking to show that a certain policy has a disparate impact.

HUD's authority to issue disparate impact rule: The Court's ruling implicates a pending case in the United States District Court for the D.C. Circuit, American Insurance Ass'n. v. Department of Housing & Urban Development. In American Insurance Ass'n, HUD is appealing a ruling from the United States District Court for the District of D.C. that it exceeded its authority in issuing its FHA disparate-impact regulation. The case has been stayed since March 9, 2015, pending the Supreme Court's ruling.