The nation’s highest court has made a decision on disparate impact claims, and it’s not all bad for home lenders.
The case involves a Texas nonprofit corporation that brought a disparate impact claim under the Fair Housing Act against the Texas Department of Housing and Community Affairs.
The department and its officers were accused of causing segregated housing patterns by allocating too many tax credits in predominantly black neighborhoods and too few in mostly white neighborhoods.
While the alleged discrimination might have been unintended, the disparate impact theory applied because a policy — that is neutral on its face — allegedly
caused discrimination.
A district court concluded that the
nonprofit claimant established a prima facie showing of disparate impact and that the department failed to show that there wasn’t any less-discriminatory alternatives for allocating tax credits.
This placed the burden on the party facing the disparate impact claim to show there were no less-discriminatory alternatives.
An appeal was filed, but before a decision was issued — the secretary of the U.S. Department of Housing and Urban Development “issued a regulation interpreting the [Federal Housing Act] to encompass disparate-impact liability and establishing a burden-shifting framework for adjudicating such claims,” today’s Supreme Court decision states.
In light of HUD’s regulation, the Court of Appeals for the Fifth Circuit “held that disparate-impact claims are cognizable under the FHA, but reversed and remanded on the merits, concluding that, in light of the new regulation, the district court had improperly required the department to prove less discriminatory alternatives.”
Basically, the appeals court found that disparate impact claims can be brought under the act, but it’s up to the party filing the claim — and not the party that the claims are filed against — to
prove that there were less discriminatory alternatives, Seyfarth Shaw Partner Jeffrey Ross explained in a telephone interview.
The attorney noted that he both defends Fair Housing Act cases and brings them.
Ross, who specializes in
employment litigation in Seyfarth Shaw’s Chicago office, also noted that the appellate court decision requires parties bringing claims to follow a set of procedures and show very specific things.
“In order to bring a disparate impact case, you’ve got to jump through a number of very specific hoops,” Ross said.
A series of challenges, however, to the disparate impact theory during the past five-or-so years cast a shadow over its continued use.
But the decision issued Thursday by the Supreme Court affirmed the Fifth Circuit ruling that disparate impact claims are viable under the Fair Housing Act.
Ross explained that
prior decisions from appeals courts were uniform in upholding that disparate impact claims could be brought under the Fair Housing Act. He went on to say that regardless of the Supreme Court decision, lenders were still subject to disparate impact claims from local and state laws.
“No one in the housing industry should think that disparate impact is going to go away,” Ross stated, adding that the decision will motivate lenders to review their policies.
He noted that “smart or wise” lenders had already been reviewing their practices and polices to identify those that do have an adverse impact.
“I think this decision will reinforce the need to do that type of review to ensure lenders are not going to be vulnerable to disparate impact claims,” Ross explained.
While potentially peaking the interest of those wanting to bring disparate claims in housing, Ross noted that the decision will also place prospective defendants in a better position.
“By reaffirming the importance of each of these steps, Justice Kennedy has certainly made it easier for people in the housing industry to defend them,” he added.
Justices Alito, Scalia and Thomas all dissented.
