The United States Supreme Court announced its decision in Tex. Dep’t of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 2015 WL 2473449, — U.S. — (2015), upholding disparate impact claims under the Fair Housing Act (FHA), 42 U.S.C. §3601 et seq. The case involved a challenge to criteria used by a state agency on where to give tax credits that subsidize construction of low-income housing. Plaintiff is a nonprofit organization that promotes housing for low-income families. It claimed that the agency’s formula steered housing to poorer areas and thus perpetuated or aggravated racial segregation in housing. The specific question taken by the Supreme Court was whether disparate impact claims are at all available under the Fair Housing Act. The Court decided that they are but limited them because of constitutional principles.

The Court noted that earlier cases had upheld disparate impact claims in employment discrimination when the statutes focused on consequences of actions rather than just motivation. Those statutes were Title VII of the 1964 Civil Rights Act and the Age Discrimination in Employment Act of 1967. The FHA makes it unlawful to “otherwise make unavailable” housing because of race or other characteristics. 42 U.S.C. §3604(a). That wording refers to consequences and thus supports a disparate impact approach. The mere fact that the statute makes actions illegal if they are undertaken “because of race” does not mean the statute requires a showing of intentional discrimination. Moreover, the 1988 amendments to the Fair Housing Act (which added “handicap” as a protected class among other things) showed that Congress approved of the uniform case law that had interpreted the FHA to include a disparate impact claim. Justice Kennedy’s opinion refers to Congress’s explicit consideration of disparate impact claims by reference to legislative history and its rejection of a proposed amendment that would have eliminated disparate impact claims. Moreover, the 1988 Act included 3 exemptions from disparate impact claims that would have been superfluous had they not been available. For example, the 1988 amendments provided that “[n]othing in [the FHA] limits the applicability of any reasonable . . . restrictions regarding the maximum number of occupants permitted to occupy a dwelling.” 42 U.S.C. §3607(b)(1).

At the same time, the Court held that the Constitution prohibits enforcing a disparate impact claim based solely on statistical evidence of a disparity; rather, plaintiffs must show that defendant’s policy causes the disparity and that “there is an alternative practice that has less disparate impact and serves the [defendant’s] legitimate needs.” Because actors must be able to achieve legitimate government or private policies, such policies are not contrary to the disparate-impact requirement unless they are “artificial, arbitrary, and unnecessary barriers” to equal access to housing. Mainly because of this limitation on the applicability of disparate impact claims, the Court remanded for consideration of whether the Texas policies met this standard.

Remedial orders must be limited to eliminating the offending practice and should be race-neutral where possible.

The Court’s recognition of disparate impact claims preserves their function in the context of zoning laws. In explaining the “discriminatory practices” the disparate impact claim was intended to eradicate, the Court explained: “These unlawful practices include zoning laws and other housing restrictions that function unfairly to exclude minorities from certain neighborhoods without any sufficient justification. Suits targeting such practices reside at the heartland of disparate-impact liability,” (citing the foundational case of Huntington Branch, NAACP v. Huntington, 844 F. 2d 926, 935–936 (2d Cir 1988), among other cases).

Importantly, the Court clarified that disparate impact claims are available against both private and governmental defendants, rejecting a theory that at least one Circuit had adopted in the past.

It appears that the recent regulations of the Department of Housing and Urban Development that define disparate impact claims are largely consistent with the Supreme Court’s analysis but whether that is actually so may need to await further litigation. Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 78 Fed. Reg. 11460 (2013), 24 C.F.R. §100.500.