Texas Department of Housing v. Inclusive Communities Project: Two Steps Forward, One Step Back?

In what might end up being the below-the-radar surprise decision of the term, Justice Kennedyjoined the liberal wing of the Court in holding that the Fair Housing Act’s prohibition onunlawful discrimination reached not only intentional discrimination but also neutral housingpractices that had a discriminatory effect on minorities. In other words, the Fair Housing Act(FHA) prohibits disparate treatment and disparate impact claims. SCOTUS commentatorsanticipated that a majority of the Supreme Court would hold that the FHA only prohibitedintentional discrimination. These predictions were made despite the fact that prior to theSupreme Court hearing the case, all Courts of Appeals to have decided the issue concluded thatthe FHA covered disparate impact liability and the Department of Housing and UrbanDevelopment (HUD) had issued regulations concluding the same. The odds-makers had amplereason for this prediction, however, as the Court has twice taken this issue in Magner v.Gallagher, No. 10-1032 and Twp. of Mt. Holly v. Mt. Holly Citizen in Action, No. 11-1507, butthe cases resolved before oral arguments. “Nobody really believes that the Supreme Courtwould accept an identical issue three times in four years only to affirm what is a consensusamong the government and the courts of appeals.” Thompson & Kasarda, “Symposium: Justgive the Court a chance.”

Justice Kennedy was believed to be the decisive vote on this issue, and that turned out to be true. In a win for the liberal wing of the Court, Justice Kennedy, joined by Justices Ginsburg, Breyer,Sotomayor, and Kagan, wrote the majority opinion finding that the FHA’s prohibition ondiscrimination encompasses both intentional and unintentional discrimination in housing.

(Photo credit: AP/Eric Gay)

The case involves the not-so-captivating interplay between federal tax credits for low-incomefamilies and the federal housing discrimination law and its effect on residential discrimination. The pure legal issue, however, was whether disparate impact claims were cognizable under theFHA. The Inclusive Communities Project (“ICP”) is a Texas-based nonprofit corporation thathelps low-income families obtain affordable housing in and around Dallas, Texas. The ICP suedthe Texas Department of Housing and Community Affairs for distributing federal housing creditsin a manner that granted too many credits for housing in predominantly black inner-city areasand too few credits in predominantly white suburban neighborhoods. Through this practice, theICP alleged, the Texas Department of Housing perpetuated segregated housing patterns inviolation of §§ 804(a) and 805(a) of the FHA. Although the policy Texas used to distribute thehousing credits appeared neutral on its face, the effect of the policy had a disparate impact onminorities. The district court held that disparate impact claims were available under the FHA,and the 5th Circuit affirmed.

Two Steps Forward!

Justice Kennedy, writing for the majority, found that after“considering [the Fair Housing Act’s] results-oriented language, the Court’s interpretation ofsimilar language in Title VII and the ADEA, Congress’s ratification of disparate-impact claimsin 1988 against the backdrop of the unanimous view of nine Courts of Appeals, and the statutorypurpose[,]” “disparate-impact claims are cognizable under the Fair Housing Act[.]” In analyzingthe FHA’s text and history, Justice Kennedy relies upon Griggs v. Duke Power Co, 401 U.S. 424 (1971)(finding disparate impact in Title VII) andSmith v. City of Jackson, 544 U.S. 228 (2005)(finding disparate impact in the ADEA) to conclude that “Congress’ use of the phrase‘otherwise make unavailable’ [in the FHA] refers to the consequences of an action rather thanthe actor’s intent.” “[A]ntidiscrimination laws must be construed to encompass disparate-impactclaims when their text refers to the consequences of actions and not just to the mindset of actors,and where that interpretation is consistent with statutory purpose.” (emphasis added).

The opinion reflects Justice Kennedy’s developing sensitivity to this country’s need to addressdiscrimination as it continues to be an issue that we, as a Nation, repeatedly encounter. “TheFHA, like Title VII and the ADEA, was enacted to eradicate discriminatory practices within asector of our nation’s economy. . . . These unlawful practices include zoning laws and otherhousing restrictions that function unfairly to exclude minorities from certain neighborhoodswithout any sufficient justification. . . . Suits targeting such practices reside at the heartland ofdisparate-impact liability.” Recognizing disparate-impact liability under the FHA can alsoprevent intentionally discriminatory practices by “permit[ting] plaintiffs to counteractunconscious prejudices and disguised animus that escape easy classification as disparatetreatment.” (emphasis added). Justice Kennedy’s opinion acknowledges how disparate impactclaims further legislative intent and are a crucial tool in combatting discrimination andsegregation.

The issue of how a society provides equal opportunity is not a new struggle for Justice Kennedy.For example, his views on the issue have been articulated and indeed refined in the affirmativeaction context, which is a good comparison. Justice Kennedy has recognized that racediscrimination is persistent and the Government must attempt to remedy it; but there is a carefulbalance between attempting to secure this right and taking actions that would rely too heavily onrace. He expressed this view over 25 years ago in a concurring opinion in Richmond v. J.A.Croson Co.: although “a rule of automatic invalidity of racial preferences in almost every case”could be used by courts, one is not necessary or appropriate, and, instead, a strict scrutiny reviewof such measures on a case-by-case basis “will vindicate the principle of race neutrality found inthe Equal Protection Clause.” Richmond v. J.A. Croson Co., 488 U.S. 469, 519 (1989)(Kennedy, J., concurring in part and concurring in judgment). In Adarand Constructors v. Peña,Justice Kennedy joined Justice O’Connor’s opinion, which recognized this balancing act, notingthat “[t]he unhappy persistence of both the practice and the lingering effects of racialdiscrimination against minority groups in this country is an unfortunate reality, and governmentis not disqualified from acting in response to it.” Adarand Constructors v. Peña, 515 U.S. 200,237 (1995). He reiterated this concern again in his dissent to Grutter v. Bollinger, explainingthat “there is no constitutional objection to the goal of considering race as one modest factoramong many others to achieve diversity”, but an institution must ensure that each applicant“receives individual consideration and that race does not become a predominant factor.” Grutterv. Bollinger, 539 U.S. 306, 387 (2003)(Kennedy, J., dissenting).

His views on the role race plays in society and the Government’s need to act were perhaps bestcaptured in Parents Involved v. Seattle, when he challenged several of his fellow Justices withthe observation that “[t]he enduring hope is that race should not matter; the reality is that toooften it does.” Parents Involved in Cmty. Sch. v. Seattle Sch. Dist. No. 1, 551 U.S. 701, 781(2007) (Kennedy, J., concurring in part and concurring in the judgment).

Justice Kennedy’s opinion in the FHA case continues this reflection on how our Nation cantackle this evil. He acknowledges that this issue is one that society must address and that lawsintended to eliminate discrimination need to be vibrant enough to attack discrimination in itsvarious forms. The conclusion that disparate impact is part of the law’s fabric in addressingunlawful discrimination is a reasonable—indeed a natural—consequence of this analysis.

One Step Back?

Given Justice Kennedy’s thoughtful analysis of why disparate impact ispart of the FHA’s attempt to curtail unlawful housing practices, how can it be a step back aswell? While Justice Kennedy clearly articulates the foundation for disparate impact theory andwhy it is needed to achieve Congress’s intentions in enacting the FHA, the analysis also reflectsconcerns over how it can be applied, or misapplied, in practice. It is that continuing balancediscussed above that Justice Kennedy attempts to achieve here—an effort to provide a societyfree from unlawful discrimination while constraining the remedies employed to achieve thisgoal. Indeed, it raises concerns that Justice Kennedy has expressed before: a fear that it couldresult in the use of racial quotas. See Wards Cove Packing Co. v. Atonio, 490 U.S. 642, 652(1989) (“The only practicable option for many employers would be to adopt racial quotas . . .[which] is a result that Congress expressly rejected in drafting Title VII.”); Ricci v. DeStefano,557 U.S. 557, 581 (2009) (concluding that allowing employers to violate the prohibition ofdisparate-treatment based on the “slightest hint” of disparate impact could amount to a “de factoquota system” where employers are focused on statistics and may “‘adopt inappropriateprophylactic measures’” to prevent liability (citations omitted)). Justice Kennedy reiterated thispoint in his FHA opinion: “[D]isparate-impact liability might cause race to be used andconsidered in a pervasive way and ‘would almost inexorably lead’ governmental or privateentities to use ‘numerical quotas,’ and serious constitutional questions then could arise.” (quotingWards Cove Packing Co., 490 U.S. at 653).

Attempting to reach a balance, Justice Kennedy discusses the nature of the burden on plaintiffs. He explains that there is a “robust causality” requirement and that plaintiffs’ claims must fail “ifthe plaintiff cannot point to a defendant’s policy or policies causing the disparity.” He thenadvises that ‘[c]ourts must therefore examine with care whether a plaintiff has made out a primafacie case of disparate impact . . .”

Justice Kennedy also addresses the nature of a defendant’s defense in these cases. He explainsthat housing authorities and private developers must be provided the chance to articulate theequivalent of a Title VII “business necessity” defense: “Just as an employer may maintain aworkplace requirement that causes a disparate impact if that requirement is a ‘reasonablemeasure[ment] of job performance,’ Griggs, at 436, so too must housing authorities and privatedevelopers be allowed to maintain a policy if they can prove it is necessary to achieve a validinterest.” Justice Kennedy acknowledges that Title VII’s disparate impact theory is not preciselythe same as the FHA’s, but he recognizes it provides important guidance and, therefore, relies onGriggs as the foundation for the FHA analysis. However, Justice Kennedy’s description of theFHA standard in the majority opinion appears to be a watered-down version of Griggs, and,indeed, seems to be a weaker version of the standard Congress codified in Title VII. Byarticulating what appears to be a weaker “business necessity” defense for potential defendants infuture FHA cases, the Court provides defendants an argument to prolong litigation in these cases. This is a result at odds with Justice Kennedy’s opinion where he stressed that “prompt resolutionof these cases is important.” Future litigation will define how much practical difference there isin these two different articulations of a defendant’s burden.

Interestingly, the language Justice Kennedy uses is close to what was used in Wards Cove whenthe majority opinion defined the employer’s burden as the “burden of producing evidence of abusiness justification for his employment practice[,]” and the justification required is somewherebetween “mere[ly] insubstantial” and “‘essential’ or ‘indispensable’”. Wards Cove Packing Co.,490 U.S. at 659-60. The Wards Cove standard and the language used in Justice Kennedy’sopinion is substantially lower than the “predictive of or significantly correlated with importantelements of work behavior” standard articulated by the Supreme Court in Griggs andincorporated in the Civil Rights Act (CRA) of 1991 by Congress. It is not clear whether this isJustice Kennedy’s intent in the discussion, or rather his way of trying to frame the nature of thedefense in a housing context without parroting the language of Title VII. Regardless of hisintent, it is hard to fathom that the other four more liberal-leaning Justices would have joined thisopinion if it adopted a standard for a defense to disparate impact that was roundly and quicklyrejected by Congress in the CRA of 1991 as it applied to employment cases. What is clear,however, is that the nature of this defense will no doubt be fodder for the lower courts.

Additionally, Justice Kennedy returned to another concern he has raised in other cases, involvingsociety’s response to a history of discrimination—while we can be aware of race whenaddressing issues, we need to be very careful in using it in a manner that discourages thepurposes the laws were designed to promote. “When setting their larger goals, local housingauthorities may choose to foster diversity and combat racial isolation with race-neutral tools[,]” but he continued, “mere awareness of race in attempting to solve the problems facing inner citiesdoes not doom that endeavor at the outset.” Here Justice Kennedy reiterates that there are waysto try to achieve the goal of non-discrimination and some of these means will obviously be usedwith an awareness of their racial impact. However, he continues to voice his concern aboutattempting to solve the issue of race discrimination by employing race-based determinations.

Justice Alito dissented, joined by Chief Justice Roberts and Justices Scalia and Thomas, in whichhe characterizes the Court’s holding as a “serious mistake.” In 35 pages, Justice Alito criticizesthe majority for its misreading of the text of the statute, misinterpretation of Congress’ failure toprovide a disparate impact-specific amendment in 1988, and its misplaced application of Griggsand Smith in interpreting the meaning of the FHA. His dissent explains how disparate impact inhousing and employment have very different implications in practice, and drawing similaritiesbetween the two results in more confusion than clarity. Justice Alito also discusses how, even ifthe statute was ambiguous, “deference [to HUD’s regulations] may be unwarranted” becausethey were conveniently promulgated after the Court granted certiorari in the Magner and MountHolly cases. Justice Thomas’s dissent echoed the fact that no deference should be accorded theHUD regulations, alluding to an alleged “secret deal” entered into by HUD to resolve theMagner case and then issuing the regulations nine days after the Court granted certiorari inMagner. Justice Thomas also explained how, in his opinion, the Court incorrectly decidedGriggs when it read into Title VII a disparate impact cause of action, and how the Court shouldnot transplant the principles articulated in Griggs into the FHA.

Justice Kennedy recognizes that discrimination is an issue that our Nation must address and thatCongress authorized disparate impact liability in enacting the Fair Housing Act, but he cautionsthat such remedies do not come without limitations. This is a significant victory for those whoseek to prevent housing discrimination in all its forms. But it provides an avenue to try to escapeliability by allowing arguments for a very low burden to justify the use of discriminatorypolicies—one step back?