supreme court iStock_000005215190_LargeIn a 5-4 decision, the Supreme Court ruled that disparate impact claims can be brought under the Fair Housing Act (“FHA”).

Disparate impact claims attack policies or practices that are facially neutral but have a disproportionate impact on a particular minority group. In the case at hand, the Court decided that the language of the FHA prohibits such policies or practices.

In 2008, the Inclusive Communities Project (“ICP”), a Texas nonprofit organization, sued the Texas Department of Housing and Community Affairs over the way it distributed low-income housing tax credits. ICP claimed that the Department caused continued segregation by granting too many tax credits for developments in mainly African American inner-city neighborhoods and not enough in predominantly Caucasian suburban neighborhoods. ICP argued that the Department’s policy kept low-income housing out of wealthier, non-minority neighborhoods.

The Texas Department of Housing and Community Affairs argued that ICP’s lawsuit was invalid, and that the real issue was whether the FHA allowed this type of a claim. The Texas Department emphasized that specific FHA language excludes disparate impact liability and requires a plaintiff to prove discrimination occurred because of his or her race.

The divided Court ultimately held that disparate impact claims are cognizable under the FHA.

The majority opinion, written by Justice Anthony Kennedy, relied on previous interpretations of two other anti-discrimination statutes, Title VII of the Civil Rights Act of 1964 (“Title VII”) and the Age Discrimination in Employment Act of 1967 (“ADEA”), to support its finding that the FHA authorizes disparate impact claims. The Court found similarities between the “results-oriented” outlooks of all three Acts. The Court analogized the FHA phrase “otherwise make available” to the phrase “otherwise adversely affect,” found in sections of both Title VII and the ADEA. The Court held that this language refers to the “consequences of an action, rather than the actor’s intent,” and thus supports disparate impact.

After the Court recognized that disparate impact claims are consistent with the FHA’s central purpose, it outlined the stringent procedures a plaintiff must follow in order to establish a violation. The Court also placed limitations on the types of disparate impact claims that may be brought and the liability that may follow. The limitations aim to protect defendants and allow employers and other entities the ability to make practical business and profit-related decisions. In describing the limitations, the Court noted that while a showing of statistical disparity is required, it is not enough. A plaintiff must identify a specific policy and show a causal connection between the policy and the disparity.

Looking forward, disparate impact claims will most likely affect the housing and mortgage finance industry, among other lenders and financial institutions, whose lending policies are facially neutral but may have a disproportionate effect on minorities.