Update on the U.S. Supreme Court’s Inclusive Communities Decision

Supreme Court Housing DiscriminationIntroduction

As previously reported on this blog, the U.S. Supreme Court’s decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015) adopted a burden-shifting approach to assessing claims that housing policies cause disparate impact on minority populations in violation of the Fair Housing Act (“FHA”) (42 U.S.C. § 3601 et seq).[1]  By adopting that approach, the Court confirmed the availability of this form of lawsuit against government entities that implement housing policies.

In the months since Inclusive Communities, the U.S. Courts of Appeals have applied that landmark ruling in several cases.  Those cases confirm the far-reaching consequences of the Supreme Court’s decision.   This article presents a survey of those cases.

Survey of Decisions by the Courts of Appeals

D.C. Circuit:

In 2014, the U.S. District Court for the District of Columbia vacated a final rule promulgated by the U.S. Department of Housing and Urban Development (“HUD”) to impose disparate impact liability under the FHA.  American Insurance Association v. U.S. Department of Housing and Urban Development, 74 F. Supp.3d 30 (D.D.C. 2014).  Citing the legislative text of the FHA and statutory scheme, the district court held that Congress did not intend to provide for disparate impact liability.  Although the district court noted the fact that the U.S. Supreme Court was about to decide this issue in Inclusive Communities, the district court decided to vacate HUD’s final rule on the grounds that it was inconsistent with legislative authority.  On appeal, the D.C. Circuit summarily vacated and remanded the case, ordering the district court to reconsider its decision in light of the U.S. Supreme Court decision.  American Insurance Association, No. 14-5321, 2015 U.S. App. LEXIS 16894 (Sept. 23, 2015).

First Circuit:

In a case brought by former employees of the Federal Emergency Management Administration (“FEMA”) who worked at FEMA’s facilities in Puerto Rico, the employees alleged disparate impact discrimination by FEMA in violation of Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e).  Abril-Rivera v. Johnson, 806 F.3d 599 (1st Cir. 2015).  The employees alleged that FEMA’s decisions to reduce the employees’ work hours and the agency’s decision to close its Puerto Rico facilities were discriminatory on the basis of the employee’s Puerto Rican origin, and also retaliatory because they had complained about being paid less than FEMA employees on the mainland.  The district court granted summary judgment to FEMA, finding that the agency had legitimate, nondiscriminatory reasons for the decisions.

On appeal, the First Circuit affirmed the summary judgment in favor of FEMA.  The court focused on the Supreme Court’s admonition that “disparate-impact liability must be limited so employers and other regulated entities are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system,” and the Court’s warning against broad application of disparate impact theory to government agency decision-making.  The First Circuit held that once an employer presents a legitimate business rationale for the policies, Inclusive Communities requires the plaintiff to show that there is an alternative that has less disparate impact and which still satisfies the employer’s legitimate needs. The First Circuit further cited the fear that if “judgments are subject to challenge without adequate safeguards, then there is a danger that potential defendants may adopt racial quotas—a circumstance that … raises serious constitutional concerns.”

Noting that FEMA presented evidence of environmental hazards at the Puerto Rico facilities which required amelioration, and hence reduction of work hours, as well as anticipated costs which justified the outright closure of the facilities, the First Circuit found that the agency presented legitimate, nondiscriminatory rationale for its decisions.  At the same time, the court found that the employees failed to rebut the cost-saving rationale behind FEMA’s decisions. The court’s assessment was not unanimous, however, as Judge Torruella would have sent the case to trial, because FEMA’s rationales suddenly appeared after controversy arose regarding the pay gap between Puerto Rican employees and FEMA employees on the mainland.[2]

Second Circuit:

In Anderson Group, LLC v. City of Saratoga Springs, 805 F.3d 34 (2d Cir. 2015), the Second Circuit reversed a district court decision that granted a new trial in a case alleging that a zoning law had a disparate impact against minorities because it prevented the construction of low-income housing.  In rendering its decision, the court noted that Second Circuit precedents, which recognized the existence of disparate impact claims under the Fair Housing Act, were confirmed by the Supreme Court’s Inclusive Communities decision.

The Second Circuit recently upheld a decision by the U.S. Department of Housing and Urban Development (“HUD”) to deny federal funds to Westchester County, New York.  County of Westchester v. U.S. Department of Housing and Urban Development, 802 F.3d 413 (2d Cir. 2015).  Citing Inclusive Communities for the proposition that racially exclusive zoning laws and other housing restrictions “reside at the heartland of disparate-impact … liability,” the court held that HUD properly rejected the County’s request for funds on the basis that the County did not provide sufficient analysis of the effect of its municipal zoning laws on minorities.

Third Circuit:

The Third Circuit reversed a district court’s dismissal of a complaint that alleged discriminatory practices by a home mortgage lender in violation of the FHA, Real Estate Settlement Procedures Act, Truth In Lending Act (“TILA”), and the Equal Credit Opportunity Act (“ECOA”).  Shahin v. PNC Bank, 625 Fed. App’x 68 (3d Cir. 2015).  Although the court remanded the case for the district court to examine whether plaintiffs should have an opportunity to amend their complaint with respect to the TILA claim, the court determined that plaintiffs failed to allege any facts that would indicate the existence of a bank policy that had a disproportionate adverse impact on minorities under the FHA.

Fifth Circuit:

In a case challenging voter’s identification requirements in Texas, the Fifth Circuit affirmed, in part, a district court decision holding that the state law had a disparate impact on minority voters in Texas in violation of the Voting Rights Act.  Veasey v. Abbott, 796 F.3d 487 (5th Cir. 2015).  Noting that Inclusive Communities held that “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 that disparity,” the Fifth Circuit found that the district court properly considered how the identification requirement worked in concert with Texas’ history of state-sponsored discrimination led to a racial disparity between those who have identification and those who do not.

Eleventh Circuit:

The Eleventh Circuit recently reversed a district court decision that rejected a lawsuit brought by the City of Miami against Bank of America, alleging disparate impact in lending practices that violated the FHA.  City of Miami v. Bank of America Corp., 800 F.3d 1262 (11th Cir. 2015).  However, the court noted that the recently-decided Inclusive Communities case contained admonitions that defendants should be permitted to “explain the valid interest served by their [challenged] policies,” and “that courts should insist on a ‘robust causality requirement’” in establishing racial disparity.”  Thus the court ordered the trial court to consider these admonitions on remand.

Endnotes

[1] See B. Ylvisaker, The Burden-Shifting Framework in Disparate Impact Cases: The Inclusive Communities Decision and HUD’s Disparate Impact Regulation (July 16, 2015), available at http://consumerfinancialserviceslaw.us/the-burden-shifting-framework-in-disparate-impact-cases-the-inclusive-communities-decision-and-huds-disparate-impact-regulation/.

[2] Incidentally, Judge Torruella is of Puerto Rican origin.

David Scheffel

David Scheffel

David has extensive experience in consumer financial services litigation and co-chairs Dorsey’s Consumer Financial Services practice. He defends financial institutions against individual and class action claims alleging discrimination, predatory lending, violations of the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Fair Housing Act, the Equal Credit Opportunity Act, and disputes between lenders and securitization trusts.

T. Augustine Lo

T. Augustine Lo

Augustine is an associate in Dorsey’s Seattle office who assists clients with U.S. export control matters under the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR) and the various sanctions programs administered by the Office of Foreign Assets Control (OFAC). He has also worked extensively on government enforcement actions, U.S. customs compliance matters, and commercial litigation matters.

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