The United States Supreme Court Opinion in Texas Department of Housing v.
The Inclusive Communities Project Concerning the Theory of Disparate Impact
under the Fair Housing Act and Attendant Liability of Participants in the
Residential Real Estate and Residential and Commercial Lending Markets
Prepared by:
Carolyn Goldman
Managing Partner
Goldman & Zwillinger PLLC
Direct: 602-315-6526
Dated: March 28, 2016
I.The Claim for "Disparate Impact" under the Fair Housing Act and the Court's Decision
The Fair Housing Act [1] prohibits discrimination in connection with certain transactions involving residential real estate defined as a "dwelling" [2] including sales, rentals, brokering, appraising and financing. 42 U.S.C. § 3605, § 3604. Discrimination is prohibited based upon race, color, religion, sex, handicap, familial status [3] and national origin. 42 U.S.C. § 3605(a). The typical claim made under the Fair Housing Act is for "disparate treatment," that is, intentionally treating a person differently because that person belongs to one of the foregoing protected classes. A claim for "disparate impact" is based upon the consequences or effects of a party's actions even when that party has no intent to discriminate.
In Texas Department of Housing v. The Inclusive Communities Project, Inc. [4] decided on June 25, 2015, the United States Supreme Court held that a claim for "disparate impact" is cognizable under the Fair Housing Act, 42 U.S.C. § 3601 to 3619. It was a 5 to 4 decision in which Justice Kennedy authored the majority opinion,and in which Justices Ginsburg, Breyer, Sotomayor and Kagan joined. Justice Alito filed a dissenting opinion in which Chief Justice Roberts, Justice Scalia and Justice Thomas joined, and Justice Thomas also filed a separate dissenting opinion.
The Court discusses, by way of background, that the federal government provides low income housing tax credits that are distributed to developers by designated state agencies. In Texas, these tax credits are distributed by the defendant, the Texas Department of Housing and Community Affairs (the "Department"). The plaintiff, The Inclusive Communities Project, Inc. ("ICP"), is a non profit corporation which helps low income families obtain affordable housing. ICP filed a disparate impact case under the Fair Housing Acting in federal district court [5]alleging that the Department had caused continued segregated housing patterns by allocating too many tax credits to housing in predominantly black inner city areas and too few in predominantly white suburban neighborhoods. 135 S.Ct. 2507, 2514.
The Court noted that the federal statutes governing low income housing tax credits [6] require states to develop plans so that tax credits will be distributedwith consideration given by the states to public housing waiting lists, and affording a preference when low income housing units would "contribut[e] to a concerted community revitalization plan" and would "be built in census tracts populated predominantly be low-income residents." 135 S.Ct. 2507, 2513. The Court acknowledged that, therefore,federal law favors the distribution of tax credits for the development of housing units in low income areas. Id. The Court is recognizing the conflict between the purpose of the statute governing low income housing tax credits and the purpose of the Fair Housing Act.
By way of procedural background, the district court ruled that ICF made a prima facie showing of disparate impact based upon statistical evidence including that 92.9% of the low income housing tax credit units in the city of Dallas were located in census tracts with less than 50% Caucasian residents. 135 S.Ct. 2507, 2514. The district court found that the Department did not properly rebut ICF's showing and ruled in ICF's favor. Id.
While the Department's appeal was pending, HUD published a new rule stating that a disparate impact claim exists under the Fair Housing Act. Id.
The Fifth Circuit Court of Appeals ruled, in accordance with its precedent, that a disparate impact claim exists under the Fair Housing Act but reversed and remanded on the merits. 135 S.Ct. 2507, 2515. The Fifth Circuit relied upon the new HUD regulation and the manner in which the district court allocated the burden of proof. Id. The United States Supreme Court granted review noting that whether disparate impact claims are cognizable under the Fair Housing Act is a question of first impression. Id.
The Court considered two other civil rights statutes and prior decisions of the Court interpreting those statutes: (1) Title VII of the Civil Rights Act of 1964; and (2) the Age Discrimination in Employment Act of 1967 (ADEA). The Court previously held that both of these statutes contained a claim for disparate impact. The Court found that these statutes and the Fair Housing Act contained similar "results-oriented" language, which focused on the "effects" of a person's actions, and not just his motivation, to support a disparate impact claim. The Court also relied upon Congress' ratification of a disparate impact claim when it amended the Fair Housing Act in 1988 given that it did not address the fact that nine Court of Appeals had recognized the claim, as well as statutory purpose. 135 S.Ct. 2507, 2525.
A claim for disparate impact must, however, have limitations. 135 S.Ct. 2507, 2522. For example, the claim should not be based solely upon a showing of a statistical disparity and there must be a robust requirement of causality. Id. (dicta) In addition, as a general proposition, government authorities and private developers must be allowed to maintain a policy if they can prove "it is necessary to achieve a valid interest." 135 S.Ct. 2507, 2523 (dicta). Entrepreneurs must be given latitude to consider market factors. Id. (dicta) Zoning officials must often make decisions based upon a mix of objective and sometimes subjective factors. Id. (dicta) The exact parameters of a claim for disparate impact, its limitations and the parties against whom it can be successfully asserted are left to future decisions.
II.What Other Types of Disparate Impact Claims Can be Successfully Asserted against Real Estate Developers, Homebuilders, Mortgage Lenders and Title Companies? What Can Be Gleaned from Other Disparate Impact Cases?
A.United States v. Luther Burbank Savings, United States District Court, Central District of California, CV12-7809 (2012)
Minimum Loan Amount of $400,000
The Department of Justice (DOJ) filed this action alleging that Luther Burbank Savings violated the Fair Housing Act by causing disparate impact on the basis of race and national origin because it had a minimum loan amount of $400,000. The DOJ claimed this minimum loan amount constituted a pattern and practice of discrimination because it caused it to make less loans to Hispanic and African American borrowers than were made by other lenders similarly situated, and less loans than it would have funded if it had a lower minimum loan amount. The DOJ used statistical data against Luther Burbank Savings, which it and other lenders reported, and were required to report, pursuant to the Home Mortgage Disclosure Act ("HMDA"). [7]
After this action was filed against Luther Burbank Savings, it reduced its minimum loan amount to $20,000. Luther Burbank Savings entered into a settlement with the DOJ in which it agreed to pay $2,000,000, which included investing funds in local communities and providing continuing fair housing training to employees and mortgage brokers which submit loans to it for funding.
According to the DOJ's press release regarding this case, which is available on the DOJ website, the lawsuit against Luther Burbank Savings was related to "efforts underway by President Obama's Financial Fraud Enforcement Task Force (FFEFT) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes" and was "developed and filed by the Fair Lending Unit of the Housing and Civil Enforcement Section in the Justice Department's Civil Rights Division" which was established in 2010.
Query: How can this case and the theory it embodies be applied by the DOJ or plaintiffs in private litigation to other residential real estate market participants (or commercial lending market participants as discussed below)? Would it be important if the market participant were only conducting business with affluent consumers or in affluent neighborhoods?
B.Ramirez, et al. v. Greenpoint Mortgage Funding, Inc.
633 F.Supp.2d 922 (2008)
Discretionary Pricing Policies
This is an action filed by borrowers of Greenpoint Mortgage Funding, Inc. ("Greenpoint") alleging that Greenpoint created a disparate impact against minorities through its Discretionary Pricing Policies. These policies afforded Greenpoint employees the ability to charge different fees to different borrowers for the same loan product. The plaintiffs used HMDA data, as did the DOJ in the Luther Burbank Savings case. The plaintiffs alleged that minorities statistically paid more fees, both in frequency and amount, than did white borrowers. These allegations were sufficient to defeat Greenpoint's motion to dismiss the plaintiffs' first amended complaint.
Query: What other participants in the residential real estate market (or commercial lending market as discussed below) afford their employees or agents the authority to price products in a discretionary manner and are they inviting claims for disparate impact?
III.Undecided Issue - Is a Claim for Disparate Impact Cognizable under the Equal Credit Opportunity Act andthe Impact upon Lenders of Business Credit
The United States Supreme Court has not yet decided if a claim for disparate impact is cognizable under the Equal Credit Opportunity Act ("ECOA"), 16 U.S.C. § 1691 et seq. and Regulation B, 12 CFR §1002.1et seq. This is significant because ECOA applies to lenders of commercial and business credit, whereas the Fair Housing Act applies to parties whose business involves certain residential real estate related transactions such as the sale, leasing, financing, brokering or appraising of residential real estate. 42 U.S.C. § 3605. Therefore, if a disparate impact claim exists under the Equal Credit Opportunity Act, then another, fairly new federal agency created by the Dodd-Frank Act,[8]the Consumer Financial Protection Bureau ("CFPB") can properly commence enforcement actions against banks and other commercial lenders which originate business loans and those parties are subject to civil litigation by private plaintiffs for disparate impact claims.
1
[1] The Fair Housing Act of 1968, as amended, 42 U.S.C. § 3601 to 3619, Title VIII of the Civil Rights Act of 1968.
[2] "Dwelling" is defined as "any building, structure, or portion thereof which is occupied as, or designed or intended for occupancy as, a residence by one or more families, and any vacant land which is offered for sale or lease for the construction or location thereon or any such building, structure, or portion thereof." 42 U.S.C. § 3602(b).
[3] "Familial status" is defined to apply to one or more individuals who have not attained the age of 18 years and who are domiciled with a parent or other person having legal custody or that person's qualified designee and any person who is pregnant or who is in the process of securing legal custody of any person who has not attained the age of 18 years. 42 U.S.C. § 3602(k).
[4] 135 S.Ct. 2507 (2015)
[5] The case was filed in the United States District Court for the Northern District of Texas.
[6] 26 U.S.C. § 42.
[7] 12 U.S.C. § 2801, Home Mortgage Disclosure Act of 1975 (HMDA)(pronounced "Humda")
[8]The Dodd-Frank Wall Street Reform and Consumer Protection Act