Five Surprising Facts About the Inclusive Communities Case

shutterstock_114333121In the Supreme Court’s recent, landmark decision in Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc., 576 U.S. ___, 2015 WL 2473449 (Jun. 25, 2015), the Court held that, while disparate impact claims are legally cognizable under the Fair Housing Act (the “FHA”), lower courts must carefully guard against abusive disparate impact claims. However, because the scope of the appeal was limited to a question of law, namely whether the FHA contemplates disparate impact liability, the opinion does not fully elaborate on the facts of the case. The record of the underlying District Court proceedings, which culminated in a bench trial, paints an even more complete picture of how disparate impact litigation can lead to arguably absurd results. Gleaned from that record, the following are five seldom-reported facts about the case. Now that the case has been returned to the District Court on remand, it will be important to follow how the District Court deals with these aspects of the case in accordance with the Supreme Court’s guidance.

1) The Defendant’s Intent Was to Avoid a Disparate Impact

Following the bench trial, the District Court not only dismissed the plaintiff’s claims of intentional discrimination, finding that such claims lacked any factual basis, but the Court also determined that the defendant had voluntarily taken numerous steps for the purpose of preventing a disparate impact. As the Court held:

• “Multiple witnesses credibly testified that, in making decisions, [defendant] TDHCA does not act with intent to discriminate.” See Memorandum Opinion & Order dated Mar. 20, 2012 (Dkt. No. 178) (“Opinion”) at 12.

• ICP had no “direct evidence of discriminatory intent.” Id. at 12.

• “The court finds that TDHCA offered credible evidence of nondiscriminatory reasons for approving or denying every application that ICP alleges was improperly approved or denied.” Id.

• Prior to the commencement of the case, TDHCA, on its own initiative, had “attempted to address the concentration issue” that was the subject of ICP’s disparate impact claim – specifically, the plaintiff’s allegation that the defendant’s approval of low-income housing developments in minority-majority neighborhoods was perpetuating patterns of racial segregation. Id. at 15. For example, “there are several instances when the TDHCA Board attempted to use its limited discretion to deconcentrate LIHTC developments in high minority areas and encourage development in ‘high opportunity areas’ preferred by ICP and other organizations.” Id. at 13-14.

However, the Court held that the defendant’s good intentions were legally irrelevant to the plaintiff’s disparate impact claim, noting that “a disparate impact claim does not require proof of discriminatory intent.” See Opinion at 21 n. 19. The Court went on to decide the disparate impact claim in plaintiff’s favor, concluding that, while the defendant’s intentions and efforts were laudable, the defendant had not succeeded in minimizing the alleged disparate impact to the furthest possible extent. Id. at 25-26.

2) After the Plaintiff Sued, Another NGO Intervened and Argued That the Relief Sought by Plaintiff Was Undesirable and Unlawful

The mission of the plaintiff, ICP, is to assist low-income, African-American families in locating affordable housing in suburban, majority-Caucasian areas. From this perspective, ICP argued to the District Court that, to the extent the defendant was incentivizing the construction of low-income housing projects in minority-majority neighborhoods, such policies were harmful and were causing a disparate impact.

During the course of the District Court proceedings, another non-governmental organization, Frazier Revitalization, Inc. (“Frazier”), filed an amicus brief and intervened in the case on behalf of the defendant and in opposition to ICP. Unlike ICP, Frazier’s mission concerns the revitalization of low-income neighborhoods. Accordingly, Frazier took the position that the relief sought by ICP – the allocation of greater resources toward the funding of affordable housing in the suburbs – would be improper because it would reduce the availability of affordable housing in low-income areas, thus harming the minority residents of such communities. As Frazier wrote in its amicus brief:

• The “goal of a revitalized south Dallas, unified economically and culturally with the greater Dallas area, would be compromised were the Court to accept the proposal before it that tax incentives for investment must be distributed throughout the city rather than concentrated in the areas that need them most.” See Amicus Brief dated Deb. 17, 2012 (Dkt. No. 173-1) at 7.

• The relief sought by ICP “would be impermissible as a matter of law and undesirable as a matter of social policy.” Id. at 4.

• The defendant’s policies and practices had a “perfectly legitimate, compelling non-racial explanation,” specifically that federal and state law required the defendant to incentivize the allocation of tax credits for the construction of affordable housing in low-income communities. Id. at 8.

Clearly, the defendant was in a no-win situation, with any policy choice potentially triggering a disparate impact claim from certain stakeholders. However, the District Court did not find that this quandary was legally relevant.

More surprisingly, the District Court’s opinion also does not identify any specific legal or factual reason for accepting the plaintiff’s philosophical viewpoint and set of priorities over those of the defendant or Frazier. The Court took note of the fact that existing low-income developments in suburban communities had vacancy rates of 9.5%-14.28%. See Opinion at 24. However, the Court did not conduct a critical analysis of the fundamental premise of ICPs disparate impact case: that the construction of additional low-income developments in these communities, and the diversion of resources away from the construction of such developments in low-income communities, would benefit minority tenants.

3) The Plaintiff’s Key Evidence, the “Talton Report,” Concluded That the Solution Was Legislative Action, Not Litigation

The plaintiff’s disparate impact case relied heavily on a prior study by the Texas House of Representatives, the “Talton Report,” which contained data regarding the allocation of low-income housing credits by TDHCA in Texas. In its disparate impact analysis, the District Court cited data contained in Talton Report as evidence that the defendant was allocating more credits to the construction of affordable housing in low-income neighborhoods than to the construction of such housing in suburban areas.

However, a review of the entirety of the Talton Report, which was filed with the District Court during the course of the litigation, shows that the House of Representatives also reached the following conclusions regarding the TDHCA and the issue of the concentration of low-income housing developments in urban communities:

• “When developers decide to build affordable housing in a [low-income area], they get an increase in credit from the federal level and there is not anything that the state can do to discourage this advance to level the playing field.” See House Committee on Urban Affairs, Texas House of Representatives, Interim Report 2006 (Dkt. No. 71) at 13.

• The TDHCA nonetheless had “responded effectively to this issue” by seeking, to the extent possible within the bounds of its limited discretion, “to level the playing field at the state level.” Id. at 14.

• The TDHCA’s policies “are dictated by state legislation,” and the TDHCA has “little authority to change statutory specifications.” Id. at 49.

• To the extent that any stakeholders were concerned about the racial or ethnic dimensions of the allocation of low-income housing credits, the appropriate solution was to “work with the legislature to establish and implement an institutionalized method for considering social and demographic data.” Id.

4) The District Court Acknowledged the “Known Association Between Race and Income and Poverty Levels in Texas”

The defendant’s policies regarding the allocation of tax credits for low-income housing were race-neutral – which was a key reason that the District Court found ICP’s intentional discrimination claim to be without merit. The effects of such policies took on a racial dimension only because of the “known association between race and income and poverty levels in Texas,” according to expert testimony cited in the District Court’s opinion. See Opinion at 30 n. 26. The plaintiff did not allege, and could not have plausibly alleged, that these demographic realities were within the defendant’s control.

But despite the lack of any causal relationship between the defendant’s policies and these underlying demographics, the Court found that the plaintiff could state a valid disparate impact claim. It was sufficient, the Court held, for the plaintiff to show that the effects of the defendant’s policies, i.e., to incentive the construction of affordable housing in low-income areas, were associated with a racial disparity.

5) The Court Awarded Plaintiff Close to $2 Million in Attorney’s Fees

Upon finding in ICP’s favor with respect to ICP’s disparate impact claim, the Court awarded the plaintiff close to $2 million in attorney’s fees, citing the plaintiff’s success in connection with that claim. The Court awarded such fees notwithstanding that, as discussed above, the defendant’s intent was to avoid a disparate impact, and the disparate impact claim amounted to a good-faith disagreement regarding the optimal means of achieving that objective.

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