New York City Defends its Community Preference Policy

shutterstock_236074309Introduction

On October 2, 2015, the City of New York moved to dismiss a lawsuit accusing the City of unlawfully perpetuating racial segregation in the housing industry. See Janell Winfield, et al. v. City of New York, Index No. 15-cv-05236, Dkt. No. 16 (S.D.N.Y. Sept. 8, 2015).

The plaintiffs in the Winfield case are challenging New York City’s policy regarding the allocation of affordable housing units in new housing developments located in relatively safe, affluent neighborhoods. The plaintiffs allege that the policy improperly favors individuals who already reside in these neighborhoods. Specifically, current residents of the community district of the new housing development are afforded priority for half of new affordable units in such developments. The City calls this the “community preference policy.” However, the plaintiffs have dubbed it the “outsider-restriction policy.”

The plaintiffs argue that this policy perpetuates racial segregation to the extent that current residents of these neighborhoods are white. In response, the City argues that its policy is a “critical tool” for ensuring that low-income households are able to remain in their neighborhoods despite rising housing and rental prices. According to the City, this policy “is intended to ensure that local residents, many of whom have deep roots in the community and have persevered through years of unfavorable living conditions, are able to remain in their neighborhoods as those neighborhoods are revitalized.”(1)

As a threshold legal issue, the City argues that the plaintiffs lack standing because the buildings to which the plaintiffs applied for affordable housing units are not subject to the City’s community preference policy. Instead, these buildings are subject to a similar New York State community preference requirement over which the City does not have legal authority or discretion. In the alternative, the City argues that the plaintiffs have failed to state a claim under the Fair Housing Act (“FHA”). The plaintiffs have contended that their claim is viable under three separate legal theories: specifically, (1) disparate impact theory; (2) perpetuation of segregation theory; and (3) disparate treatment theory.

Disparate Impact Theory

The FHA prohibits discrimination against “any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, familial status, or national origin.”(2) Under the plaintiffs’ first theory, the “community preference policy” caused plaintiffs “to suffer a disparate impact based on race in the opportunity to compete for affordable housing opportunities.”(3)

Under the controlling Second Circuit decision on the disparate impact theory, Tsombanidis v. West Haven Fire Dep’t, 352 F.3d 565 (2d Cir. 2003), courts examine “facially neutral policies or practices that may have a discriminatory effect.” In order for a plaintiff to establish a prima facie case under this theory, the plaintiff must show: (1) “the occurrence of certain outwardly neutral practices;” and (2) “a significantly adverse or disproportionate impact on persons of a particular type produced by the defendant’s facially neutral acts or practices.” Under a disparate impact theory, the plaintiff does not need to show the defendant actually intended to discriminate. However, the plaintiff must show how the defendant’s neutral policy caused the alleged discriminatory effect.

In a recent 5-4 decision, Texas Dep’t of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S.Ct. 2507 (2015), the U.S. Supreme Court confirmed that the disparate impact theory of liability is legally cognizable under the FHA. Justice Kennedy, writing for the majority, held that “residents and policymakers have come to rely on the availability of disparate-impact claims.”

In support of their disparate-impact claim against the City of New York, the plaintiffs point to statistics that, according to plaintiffs, reflect residential segregation in the City. For example, the plaintiffs cite data from the 2010 census indicating that approximately 50 percent of African-Americans in New York City live in only 15 percent of the City’s community districts. The plaintiffs then attempt to link this phenomenon to the community preference policy. The plaintiffs allege that, because there are more affordable housing applicants from outside of the local community than inside, non-local applicants have a lower chance of being selected for an available affordable housing unit. Plaintiffs argue that eliminating the “community preference policy” would allow all applicants to compete for housing on equal terms and that racial segregation in New York City would be reduced.

In its motion to dismiss, the City argues that the plaintiffs’ lack “actual facts” regarding a disparate impact, and have provided no statistical analysis demonstrating a causal link between the policy and racial segregation in New York City. The City contends that the plaintiffs only cite “general statistics regarding patterns of housing segregation in New York City” and “limited statistics” regarding racial segregation in the City, racial segregation in the community districts, and disparities between the racial and economic demographics of the community districts versus the City as a whole. According to the City, plaintiffs have failed to substantiate a claim that “the challenged policy caused the alleged segregation or disparities, or that the alleged segregation or disparities caused the policy to have a disparate effect.”

Under Inclusive Communities, “a disparate-impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing the disparity.” Thus, for plaintiffs’ disparate impact theory to survive, they must persuade the court that, among other things, New York City’s policy caused the plaintiffs harm based on their race. According to the City, the plaintiffs cannot meet this burden.

Perpetuation of Segregation Theory

Under the plaintiffs’ second theory, they allege that the “community preference policy” perpetuates residential segregation in New York City. The Second Circuit has recognized the FHA prohibits “harm to the community generally by the perpetuation of segregation.”(4) However, to state a cause of action under this theory, a plaintiff must provide “an analysis of existing housing patterns” and an analysis of the impact that policy or project at issue would have on those patterns.(5)

Plaintiffs allege that “[r]esidential racial segregation in the City is widely present at the community district level.”(6) To support this allegation, plaintiffs point to data from the 2010 census indicating that, while approximately 22.8 percent of the City’s population is African-American, there are 17 community districts in New York City where the African-American population is less than 5 percent.(7) As explained above, the plaintiffs further allege that eliminating the “community preference policy” would allow all applicants, regardless of their current address within the City, to compete for affordable housing on equal terms and that racial segregation in New York City would be reduced.

The City argues, however, that “plaintiffs have failed to plead a sufficient City-wide challenge because the First Amended Complaint is devoid of statistics relating to the effect of the City Community Preference Policy on the racial makeup of the 59 community districts throughout the City from the time the community preference was first implemented to now.” In other words, the plaintiffs have not met their burden of providing the court with adequate statistical information on the housing patterns in New York City and the alleged impact of the “community preference policy” on what, the plaintiffs contend, is a racially segregated City.

Disparate Treatment Theory

Finally, plaintiffs allege that New York City’s “community preference policy” constituted “intentional discrimination on the basis of race.”(8) This is also known as a “disparate treatment” claim.

To establish a prima facie case of disparate treatment, a plaintiff must prove that “animus against the protected group was a significant factor in the position taken by the municipal decision-makers themselves or by those to whom the decision-makers were knowingly responsive.”(9)

Under Tsombanidis, a court will analyze five factors to determination whether intentional racial discrimination motivated the challenged policy: “(1) the discriminatory impact of the governmental decision; (2) the decision’s historical background; (3) the specific sequence of events leading up to the challenged decision; (4) departures from the normal procedural sequences; and (5) departures from normal substantive criteria.”(10)

According to the plaintiffs, the City’s policy constitutes intentional discrimination because the decisions to establish, maintain, and expand the policy “were made in the face of a history of discrimination and segregation encouraged by and participated in by the City.”(11) Plaintiffs also allege that the policy was made “knowingly, or being deliberately indifferent to, the policy’s clear disparate impact on opportunity to participate on equal terms and its tendency to perpetuate segregation.”(12)

In response, the City argues that, although plaintiffs identify themselves as African-Americans, “there is no allegation that the City defendant intentionally treated the plaintiffs differently based on animus toward their race, or that the City Community Preference Policy was created as a result of animus toward African-Americans.”(13) This is, of course, an issue the court will have to decide before ruling on the City’s motion to dismiss.

Conclusion

Under the briefing schedule, the plaintiffs must respond to the City’s motion to dismiss by October 30, 2015. The City must file its reply brief by November 13, 2015.

The arguments made by the City offer an important insight into how the City Law Department interprets the obligations associated with the FHA, and, more specifically, what the City Law Department considers an adequate statistical analysis in connection with a disparate impact case. In particular, according to the City Law Department, the plaintiffs’ allegations in the Winfield case constitute an inadequate disparate impact claim. Lenders who operate in the City can look to the City’s arguments as a useful reference point for fair-lending self-assessments. If the City brings a disparate impact case against a lender, the City’s allegations certainly will need to be more compelling than the allegations of the plaintiffs in the Winfield case.

Notes

(1) Declaration of Commissioner Vicki Been in Support of Defendant’s Motion to Dismiss (“Been Decl.”) at ¶ 8, Winfield v. City of New York, 15-cv-05236, Dkt. No. 18 (S.D.N.Y. Oct. 2, 2015).

(2) 42 U.S.C. § 3604(b).

(3) First Amended Complaint (“Complaint”) (Dkt. No. 16) ¶ 184.

(4) Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926, 937 (2d Cir. 1988).

(5) See In re Malone, 592 F. Supp. 1135, 1166 (E.D. Mo. 1984), aff’d sub nom. Malone v. City of Fenton, 794 F.2d 680 (8th Cir. 1986).

(6) Complaint ¶ 48.

(7) See id. ¶¶ 49–50.

(8) Complaint ¶ 188.

(9) Smith v. NYCHA, 410 F. App’x 404, 406 (2d Cir. 2011).

(10) Tsombanidis, 352 F.3d at 580.

(11) Complaint ¶ 8.

(12) Id.

(13) Def.’s Br. at 19.

Daniel W. Beebe

Dan is an associate in Dorsey’s New York office. He advises and represents clients regarding a wide range of commercial disputes, including banking, consumer finance, securities, and products liability.

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