The U.S. Supreme Court Weighs In. On June 25, 2015, the United States Supreme Court, in Texas Dept. of Housing vs. Inclusive Communities, ruled that under certain circumstances, disparate impact theory can provide the basis for liability in matters pertaining to the sale and rental of housing.
The factual background of the case is as follows: In 2008, Inclusive Communities, a Dallas non-profit, sued the Texas Department of Housing, claiming that the state was awarding tax credits for the construction of affordable housing more frequently in minority neighborhoods than in Caucasian neighborhoods. They argued that this practice resulted in a higher concentration of low-income housing in minority neighborhoods, thus perpetuating de facto segregation in violation of the Fair Housing Act.
The lower federal district court had ruled in favor of Inclusive Communities and the Fifth Circuit agreed, requiring Texas to allocate the subsidies more evenly. The Texas Department of Housing appealed to the U.S. Supreme Court, arguing that it was on the horns of a dilemma: On the one hand it was required not to discriminate based on race, and on the other, it was required to issue housing credits that disproportionally [albeit unintentionally] benefitted neighborhoods with large minority populations.
Thus, so goes the argument, disparate impact theory has created a perverse incentive for businesses, lenders, and municipalities to subtly engage in a form of “reverse discrimination” i.e. benefiting certain protected classes, in order to avoid disparate impact claims. Ironically, in Inclusive Communities, that appears to be exactly what occurred, i.e. the state of Texas tilted in favor of the neighborhoods populated with minorities, rather than poor white communities, in order to avoid a claim of disparate impact against the minorities. But ironically, disparate impact theory can be a two-way street; in the Inclusive Communities case, Texas’s efforts to avoid disparate impacts resulted in exactly what it sought to avoid.
The Majority Opinion. Justice Anthony M. Kennedy wrote for the Majority.
Although the decision was based upon multiple grounds, I will address the most basic – i.e. those relying upon the text of the FHA, rather than delving into the Court’s discussion of prior case holdings.
In order to put the issue in sharp relief, it is important to remember the difference between conduct vs. consequences. One the one hand, the argument is that the FHA only outlaws conduct, i.e. discrimination based upon (or because of) race, color, religion, etc. On the other hand, there are those who believe that the FHA also proscribes consequences, i.e. outcomes that are discriminatory, even though not intentional.
- Justice Kennedy’s opinion relied upon Section 804(a) of the FHA, which provides that it is unlawful:
“To refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” 42 U. S. C. §3604(a). [Underscore mine. ~ PCQ]
He also pointed to Section 805(b) of the Act, which provides that:
“It shall be unlawful for any person or other entity whose business includes engaging in real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” §3605(a). [Underscore mine. ~ PCQ]
Based upon the text underscored above, he concluded that:
“Congress’ use of the phrase “otherwise make unavailable” refers to the consequences of an action rather than the actor’s intent. See United States v. Giles, 300 U. S. 41, 48 (1937) (explaining that the “word ‘make’ has many meanings, among them ‘[t]o cause to exist, appear or occur’” (quoting Webster’s New International Dictionary 1485 (2d ed. 1934)). This results-oriented language counsels in favor of recognizing disparate-impact liability. See Smith, supra, at 236. The Court has construed statutory language similar to §805(a) to include disparate-impact liability. See, e.g., Board of Ed. of City School Dist. of New York v. Harris, 444 U. S. 130, 140–141 (1979) (holding the term “discriminat[e]” encompassed disparate-impact liability in the context of a statute’s text, history, purpose, and structure).” [Underscore mine ~ PCQ]
- The Majority’s next major argument was based upon the fact that although disparate impact theory had been recognized in the lower federal courts, when Congress had the chance to clarify the matter in its 1988 amendments to the Act, it did not do so:
“In addition, it is of crucial importance that the existence of disparate-impact liability is supported by amendments to the FHA that Congress enacted in 1988. By that time, all nine Courts of Appeals to have addressed the question had concluded the Fair Housing Act encompassed disparate-impact claims.
When it amended the FHA, Congress was aware of this unanimous precedent. And with that understanding, it made a considered judgment to retain the relevant statutory text.
Against this background understanding in the legal and regulatory system, Congress’ decision in 1988 to amend the FHA while still adhering to the operative language in §§804(a) and 805(a) is convincing support for the conclusion that Congress accepted and ratified the unanimous holdings of the Courts of Appeals finding disparate-impact liability. “If a word or phrase has been . . . given a uniform interpretation by inferior courts . . . , a later version of that act perpetuating the wording is presumed to carry forward that interpretation.”
Then in a somewhat about-face, the Majority identified what it called three “exemptions” from liability in the 1988 amendments to the Act that it said “…assume the existence of disparate impact claims.” In other words, although Justice Kennedy acknowledged that the 1988 did not expressly identify disparate impact as a violation of the FHA, he focused on certain provisions of the 1988 Amendments he believed would not have been created, but for the existence of disparate impact claims. He opined:
“The most logical conclusion is that the three amendments were deemed necessary because Congress presupposed disparate impact under the FHA as it had been enacted in 1968. [Underscore mine. ~ PCQ]
In short, the 1988 amendments signal that Congress ratified disparate-impact liability.”
I focus on the above two arguments, since without them, the tertiary arguments – which I will not address – are insufficient to stand on their own.
However, in an effort to clarify that disparate impact claims relying solely upon mere statistical outcomes are insufficient, Justice Kennedy wrote:
“In a similar vein, 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. A robust causality requirement ensures that “[r]acial imbalance . . . does not, without more, establish a prima facie case of disparate impact” and thus protects defendants from being held liable for racial disparities they did not create.
Courts must therefore examine with care whether a plaintiff has made out a prima facie case of disparate impact and prompt resolution of these cases is important. A plaintiff who fails to allege facts at the pleading stage or produce statistical evidence demonstrating a causal connection cannot make out a prima facie case of disparate impact.
It must be noted further that, even when courts do find liability under a disparate-impact theory, their remedial orders must be consistent with the Constitution. Remedial orders in disparate-impact cases should concentrate on the elimination of the offending practice that “arbitrar[ily] . . . operate[s] invidiously to discriminate on the basis of rac[e].” Ibid. If additional measures are adopted, courts should strive to design them to eliminate racial disparities through race-neutral means.”
The Dissenting Opinion. Writing for the minority, Justice Samuel A. Alioto looked directly to the text of the Fair Housing Act, and correctly noted there was nothing in that law to support non-intentional discrimination.
He pointed to the 2010 case of Gallagher v. Magner, as a cautionary tale of how disparate impact theory can result in bizarre and unpredictable results. In Magner, the plaintiff
slumlords landlords, challenged the efforts of St. Paul, Minnesota to combat rats and other unsafe conditions in the city’s poorer rental housing neighborhoods, by aggressively enforcing the local housing codes.
Plaintiffs argued that these enhanced code enforcement efforts drove up housing rents, thus having a “disparate impact” on minorities, who were more likely to be lower income. The U.S. Supreme Court had agreed to hear the case, but before it was scheduled, the litigants jointly agreed to dismiss, thus paving the way for Inclusive Communities to become a footnote in Fair Housing history.
Quoting from the first paragraph of Justice Alito’s vigorous dissent:
“No one wants to live in a rat’s nest. Yet in Gallagher v. Magner, 619 F. 3d 823 (2010), a case that we agreed to review several Terms ago, the Eighth Circuit held that the Fair Housing Act (or FHA), 42 U. S. C. §3601 et seq., could be used to attack St. Paul, Minnesota’s efforts to combat “rodent infestation” and other violations of the city’s housing code. 619 F. 3d, at 830. The court agreed that there was no basis to “infer discriminatory intent” on the part of St. Paul. Id., at 833. Even so, it concluded that the city’s “aggressive enforcement of the Housing Code” was actionable because making landlords respond to “rodent infestation, missing dead-bolt locks, inadequate sanitation facilities, inadequate heat, inoperable smoke detectors, broken or missing doors,” and the like increased the price of rent. Id., at 830, 835. Since minorities were statistically more likely to fall into “the bottom bracket for household adjusted median family income,” they were disproportionately affected by those rent increases, i.e., there was a “disparate impact.” Id., at 834. The upshot was that even St. Paul’s good-faith attempt to ensure minimally acceptable housing for its poorest residents could not ward off a disparate-impact lawsuit.
Today, the Court embraces the same theory that drove the decision in Magner. (footnote omitted.) This is a serious mistake.”
Justice Alito rejected the Majority’s wordsmithing, and focused on the plain language of Section 804 of the FHA:
“I begin with the text. Section 804(a) of the FHA makes it unlawful “[t]o refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” 42 U. S. C. §3604(a) (emphasis added). Similarly, §805(a) prohibits any party “whose business includes engaging in residential real estate-related transactions” from “discriminat[ing] against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” §3605(a) (emphasis added).
In both sections, the key phrase is “because of.” These provisions list covered actions (“refus[ing] to sell or rent . . . a dwelling,” “refus[ing] to negotiate for the sale or rental of . . . a dwelling,” “discriminat[ing]” in a residential real estate transaction, etc.) and protected characteristics (“race,” “religion,” etc.). The link between the actions and the protected characteristics is “because of.”
What “because of ” means is no mystery. Two Terms ago, we held that “the ordinary meaning of ‘because of ’ is ‘by reason of ’ or ‘on account of.’”
Without torturing the English language, the meaning of these provisions of the FHA cannot be denied. They make it unlawful to engage in any of the covered actions “because of ”— meaning “by reason of ” or “on account of,” ….
Put another way, “the terms [after] the ‘because of ’ clauses in the FHA supply the prohibited motivations for the intentional acts . . . that the Act makes unlawful.” *** Congress accordingly outlawed the covered actions only when they are motivated by race or one of the other protected characteristics. [Underscore mine.]
The Dissent also rejects the Majority’s theory that just because Section 804(a) of the FHA used the phrase “or otherwise make available” signaled Congressional intent to include disparate impact theory in the law. Justice Alito wrote:
“It is anachronistic to think that Congress authorized disparate-impact claims in 1968 but packaged that striking innovation so imperceptibly in the FHA’s text.”
It is perhaps the coup de grâce of legal debate to remind an opponent that their current position conflicts with their prior position. Justice Alito did so when he reminded the U.S. Solicitor General, arguing on behalf of HUD, that the United States had previously claimed that the FHA did not recognize disparate impact:
“Shortly before the 1988 amendments were adopted, the United States formally argued in this Court that the FHA prohibits only intentional discrimination. See Brief for United States as Amicus Curiae in Huntington v. Huntington Branch, NAACP, O. T. 1988, No. 87–1961, p. 15.
(“An action taken because of some factor other than race, i.e., financial means, even if it causes a discriminatory effect, is not an example of the intentional discrimination outlawed by the statute”); id., at 14 (“The words ‘because of ’ plainly connote a causal connection between the housing- related action and the person’s race or color”).(footnote omitted) This was the same position that the United States had taken in lower courts for years.”
Although the dissent continued to address other, more arcane, issues in the disparate impact debate, the theme was the same:
“The FHA is not ambiguous. The FHA prohibits only disparate treatment, not disparate impact. It is a bedrock rule that an agency can never “rewrite clear statutory terms to suit its own sense of how the statute should operate.” [Underscore mine.]
If we acknowledge that judges in all courts, from the lowest to the highest, do not begin writing legal opinions without first knowing how their decision will end, then we must conclude that their published opinions represent little more than the written justification for a decision already reached. In other words, the opinion is written to justify the conclusion.
In the majority’s written opinion, it is apparent they dug deep and hard to find justification for a theory of liability never expressed, described, or proscribed, in either the Fair Housing Act of 1968, or the Fair Housing Amendments Act of 1988. In doing so, it was forced to rely upon intellectual “constructs” based not upon words, but inferences.
Thus, despite the clear use of express proscriptions against discrimination based upon conduct in the FHA, the court construed the words “to otherwise make unavailable,” (with no supporting legislative history) to mean that a statistical outcome, with no prior intent, is illegal under the Act. Justice Alito’s response was akin to calling the Majority’s theory puffery: “It is anachronistic to think that Congress authorized disparate-impact claims in 1968 but packaged that striking innovation so imperceptibly in the FHA’s text.”
And, doubling down on the same theory, the Majority concluded that since several lower courts had previously recognized disparate impact theory before the Act was amended in 1988, the failure to disavow it in the amendments (again with no supporting legislative history), must have meant Congress intended to adopt the theory – to which Justice Alito respond in his dissent: “…this Court does not interpret statutes by asking for ‘a show of hands’”.
Although Justice Kennedy sought to contain the inevitable flood of litigation invited by the Majority’s decision (“…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.”), there is little question that the country’s class action attorneys are already sharpening their knives.
Although the Inclusive Communities case will be followed by years of litigation and rulings over what additional evidence must accompany a disparate impact claim, the die is cast. Perhaps worst of all is the fact that the Majority chose to make its decision based not upon what the FHA says, but upon what it failed to say. This is a very poor rationale upon which to interpret Congressional intent. It is also very poor precedent for municipalities to follow when seeking to improve housing availability. Applying the Court’s rationale to the Mauger case, St. Paul would have been prohibited from enforcing its own rat abatement programs in poor neighborhoods, since “statistically” that is where the protected classes live.
What Does This Have To Do With Occupancy Limits? After the Supreme Court’s decision in the Inclusive Communities case, occupancy limits imposed in manufactured housing communities, must be very carefully enforced – if at all.
Under the federal and state fair housing laws, discrimination based upon “familial status” is prohibited. According to the Oregon Fair Housing Council, Familial status
“…means having a child under age 18 in the household, whether living with a parent, a legal custodian, or their designee. It also covers a woman who is pregnant, and people in the process of adopting or gaining custody of a child/children.”
Thus, under the Inclusive Communities holding, by placing occupancy limits for homes in manufactured housing parks, it has the unintended consequence of imposing a disparate impact on persons with children under the age of 18.
ORS 90.510(7) provides as follows:
(a) A landlord who rents a space for a manufactured dwelling or floating home may adopt a rule or regulation regarding occupancy guidelines. If adopted, an occupancy guideline in a facility must be based on reasonable factors and not be more restrictive than limiting occupancy to two people per bedroom.
(b)As used in this subsection:
(A)Reasonable factors may include but are not limited to:
(i)The size of the dwelling.
(ii)The size of the rented space. (Emphasis added).
Unfortunately, while federal law gives lip service to a 2-person per bedroom limitation, it is not etched in stone, as Oregon’s law suggests. Since federal law is more restrictive (i.e. it recognizes exceptions, e.g. use of the living room for sleeping), it supersedes state law. This means that park owners and managers are not safe by simply imposing a hard and fast 2-persons per bedroom rule. The factors set forth in ORS 90.510(7)(b) must be very carefully and prudently applied – if occupancy limits are to be imposed at all.
In its FAQs, the Oregon Fair Housing Council says:
Can a housing provider set limits on the number of occupants?
Overly restrictive occupancy standards can have a disproportionate effect on families with children and are, therefore, illegal. According to HUD, any occupancy standards in housing should not be more restrictive than two individuals per bedroom, assuming average sized bedrooms.
Conclusion. Park owners and managers may have had a “safe harbor” under ORS 90.510(7) in the past. After Inclusive Communities, in which the U.S. Supreme Court - for the first time – approved disparate impact theory under the Fair Housing Act, as amended, there is no question that for communities open to families (as opposed to 55+ communities), occupancy limits (except in rare cases, such as limitations on well water or sewage facilities), occupancy limits or charges for extra occupants, should be avoided, or very carefully applied on a case-by-case basis.
 Per the Oregon Fair Housing Council : "Familial status" means having a child under age 18 in the household, whether living with a parent, a legal custodian, or their designee. It also covers a woman who is pregnant, and people in the process of adopting or gaining custody of a child/children.
 42 U. S. C. §3604(a)
 And, in fact, as discussed below, the actions were taken with the best of intentions of helping members of those protected classes.
 Justices Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor and Elena Kagan, joined Kennedy for the Majority. Justice Samuel A. Alito Jr. penned the dissenting opinion, and was joined by Chief Justice John G. Roberts Jr. and Justices Antonin Scalia and Clarence Thomas (who wrote a separate dissent, agreeing with the minority, but addressing a separate issue raised by the Majority).
 Justice Alito, writing for the minority, summarily disposed of this argument by noting: “…this Court does not interpret statutes by asking for ‘a show of hands’”.
 “First, Congress added a clarifying provision: “Nothing in [the FHA] prohibits a person engaged in the business of furnishing appraisals of real property to take into consideration factors other than race, color, religion, national origin, sex, handicap, or familial status.” 42 U. S. C. §3605(c). Second, Congress provided: “Nothing in [the FHA] prohibits conduct against a person because such person has been convicted by any court of competent jurisdiction of the illegal manufacture or distribution of a controlled substance.” §3607(b)(4). And finally, Congress specified: “Nothing in [the FHA] limits the applicability of any reasonable . . . restrictions regarding the maximum number of occupants permitted to occupy a dwelling.” §3607(b)(1).”
 A likely reason that Congress ignored mentioning disparate impact was that the Republicans and Democrats could not agree upon the theory, and simply left it out of the legislation, agreeing to disagree. That is not an unusual approach, when the alternative would mean bickering and delay on all of the remaining points agreed upon. If there was no legislative history indicating acceptance of the theory, it is specious to assign as the reason that Congress intended to include it. Silence may signal consent in some matters of daily life, but not when it comes to legislative enactments of the magnitude and importance of fair housing law.