After narrowly avoiding a brush with the nation’s highest court, the issue of disparate impact will be considered by the U.S. Supreme Court.
Amid fierce opposition from the financial services sector, the Department of Housing and Urban Development issued a final rule earlier this year formally establishing a three-part burden-shifting test currently used by HUD and most federal courts.
Under the rule, borrowers bear the burden of presenting a prima facie case that a lender’s practices results in, or would predictably result in, a discriminatory effect based on a protected characteristic.
Once a borrower has made a case that discrimination might have occurred, “the burden of proof shifts to the respondent or defendant to prove that the challenged practice is necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests,” HUD said at the time.
Lawsuits in such cases are brought under the Fair Housing Act.
The Supreme Court was set to hear a case on disparate impact, Magner v. Gallagher, until the city of St. Paul, Minn., decided not argue its case before the high court — a move, some say, was made at the request of U.S. Attorney General Eric Holder.
But a writ of certiorari filed with the Supreme Court on June 11, 2012, in another lawsuit involving disparate impact caught the court’s attention.
On Monday, the Supreme Court granted a petition in the case, Township of Mount Holly, New Jersey, et al., v. Mt. Holly Gardens Citizens in Action Inc., et al.
A case summary from Ballard Spahr LLP, which is representing one of the defendants in the lawsuit, said that the case involves a New Jersey township’s plan to redevelop a blighted residential area occupied predominantly by low- and moderate-income minority households.
Some residents sought to prevent the redevelopment, and after litigating unsuccessfully for several years in state court, the residents filed suit in U.S. District Court alleging that the redevelopment plan had a disparate impact on minorities and therefore violated the Fair Housing Act, according to Ballard Spahr. The district court dismissed the case after concluding the plaintiffs had failed to establish a disparate impact claim, but that decision was reversed by the U.S. Court of Appeals for the Third Circuit — which found that plaintiffs had established a prima facie case of disparate impact under the Fair Housing Act.
Ballard Spahr said that if the Supreme Court doesn’t allow disparate impact claims, government entities and borrowers won’t be able to use that avenue in litigation against lenders.
