Inclusive Communities Project, Inc. v. Texas Department of Housing & Community Affairs

Case: 12-11211 Document: 00512570522 Page: 1 Date Filed: 03/24/2014

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

United States Court of Appeals

Fifth Circuit

FILED

No. 12-11211 March 24, 2014

cons. w/13-10306

Lyle W. Cayce

Clerk

THE INCLUSIVE COMMUNITIES PROJECT, INCORPORATED,

Plaintiff - Appellee

v.

TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS;

MICHAEL GERBER; LESLIE BINGHAM-ESCARENO; TOMAS

CARDENAS; C KENT CONINE; DIONICIO VIDAL FLORES, Sonny; JUAN

SANCHEZ MUNOZ; GLORIA L. RAY, In Their Official Capacities,

Defendants - Appellants

FRAZIER REVITALIZATION, INCORPORATED

Intervenor-Appellant

Cons. w/13-10306

THE INCLUSIVE COMMUNITIES PROJECT, INCORPORATED,

Plaintiff - Appellee

v.

TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS;

MICHAEL GERBER; LESLIE BINGHAM-ESCARENO; TOMAS

CARDENAS; C KENT CONINE; DIONICIO VIDAL FLORES, Sonny; JUAN

SANCHEZ MUNOZ; GLORIA L. RAY, In Their Official Capacities,

Defendants - Appellants

Case: 12-11211 Document: 00512570522 Page: 2 Date Filed: 03/24/2014

No. 12-11211 cons. w/13-10306Appeals from the United States District Court

for the Northern District of Texas

Appeals from the United States District Court

for the Northern District of Texas

Before JONES, WIENER, and GRAVES, Circuit Judges.

JAMES E. GRAVES, JR., Circuit Judge:

In this housing discrimination case, the district court held that plaintiff

The Inclusive Communities Project (“ICP”) had proven that Defendants’

allocation of Low Income Housing Tax Credits (“LIHTC”) in Dallas resulted in

a disparate impact on African-American residents under the Fair Housing Act

(“FHA”). The primary issue on appeal is the correct legal standard to be

applied in disparate impact claims under the FHA. We adopt the standard

announced in recently enacted Department of Housing and Urban

Development (“HUD”) regulations regarding the burdens of proof in disparate

impact housing discrimination cases, see 24 C.F.R. § 100.500, and remand to

the district court for application of this standard in the first instance.

I. Factual and Procedural Background

ICP filed this action against Defendants the Texas Department of

Housing and Community Affairs (“TDHCA”) and its Executive Director and

board members in their official capacities under the FHA, the Fourteenth

Amendment, and 42 U.S.C. §§ 1982 and 1983. “ICP is a non-profit organization

that seeks racial and socioeconomic integration in the Dallas metropolitan

area. In particular, ICP assists low-income, predominately African-American

families who are eligible for the Dallas Housing Authority’s Section 8 Housing

Choice Voucher program (‘Section 8’) in finding affordable housing in

predominately Caucasian, suburban neighborhoods.” Inclusive Communities

Project, Inc. v. Texas Dep’t of Hous. & Cmty. Affairs (ICP II), 860 F. Supp. 2d

312, 314 (N.D. Tex. 2012) (order after bench trial) (footnote omitted). A

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development that receives tax credits under the LIHTC program cannot refuse

tenants because of their use of Section 8 vouchers; thus “it is important to ICP

where the developments are located in the Dallas metropolitan area.” Id.

Under § 42 of the Internal Revenue Code, the federal government

provides LIHTC that are distributed to developers of low-income housing

through a designated state agency. See generally 26 U.S.C. § 42. TDHCA

administers the federal LIHTC program in Texas. See Tex. Gov’t Code

§ 2306.6701 et seq. Developers apply to TDHCA for tax credits for particular

housing projects. Such credits may be sold to finance construction of the

project. ICP II, 860 F. Supp. 2d at 314. The number of credits TDHCA may

award for a low-income housing project is determined by calculating the

project’s “qualified basis,” which is a fraction representing the percentage of

the project occupied by low-income residents multiplied by eligible costs. See

26 U.S.C. § 42(c).

There are two types of credits: 9% credits and 4% credits. The 9% credits

are distributed on an annual cycle and are oversubscribed, and developers

must compete with each other to earn the available credits. As the district

court explained:

Certain federal and state laws dictate, at least in part, the manner

in which TDHCA can select the applications that will receive 9%

tax credits. First, I.R.C. § 42 requires that the designated state

agency adopt a “Qualified Allocation Plan” (“QAP”) that prescribes

the “selection criteria.” See id. at § 42(m)(1)(A)-(B). The QAP must

include, inter alia, certain selection criteria, see id. at §

42(m)(1)(C), and preferences, see id. at § 42(m)(1)(B); otherwise,

“zero” housing credit dollars will be provided, see id. at §

42(m)(1)(A). Second, the Texas Government Code regulates how

TDHCA administers the LIHTC program. The Code requires

TDHCA to adopt annually a QAP and corresponding manual. Id.

at § 2306.67022. It also sets out how TDHCA is to evaluate

applications. TDHCA must first “determine whether the

application satisfies the threshold criteria” in the QAP. Id. at §

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2306.6710(a). Applications that meet the threshold criteria are

then “score[d] and rank[ed]” by “a point system” that “prioritizes

in descending order” ten listed statutory criteria (also called

“above-the-line criteria”), which directly affects TDHCA’s

discretion in creating the “selection criteria” in each QAP. Id. at §

2306.6710(b). The Texas Attorney General has interpreted this

provision to obligate TDHCA to “use a point system that prioritizes

the [statutory] criteria in that specific order.” Tex. Att’y Gen. Op.

No. GA-0208, 2004 WL 1434796, at *4 (2004). Although the Texas

Government Code does not mandate the points to be accorded each

statutory criterion, “the statute must be construed to require

[TDHCA] to assign more points to the first criterion than to the

second, and so on, in order to effectuate the mandate that the

scoring system ‘prioritiz[e the criteria] in descending order.’” Id.

(quoting Tex. Gov’t Code Ann. § 2306.6710(b)(1) (West 2004)). And

while TDHCA can consider other criteria and preferences (also

called “below-the-line” criteria), it “lacks discretionary authority to

intersperse other factors into the ranking system that will have

greater points than” the statutory criteria. Id. at *6 (citation and

internal quotation omitted). Once TDHCA adopts a QAP, it

submits the plan to the Governor, who can “approve, reject, or

modify and approve” it. Tex. Gov’t Code Ann. § 2306.6724(b)-(c)

(West 2001). Once approved, TDHCA staff review the applications

in accordance with the QAP, underwrite applications in order “to

determine the financial feasibility of the development and an

appropriate level of housing tax credits,” id. at § 2306.6710(b)(1)(A)

& (d), and submit their recommendations to TDHCA. See id. at §

2306.6724(e). TDHCA then reviews the staff recommendations

and issues final commitments in accordance with the QAP. See id.

at § 2306.6724(e)-(f).

ICP II, 860 F. Supp. 2d at 314-16 (footnotes omitted). The parties heavily

dispute the amount of discretion TDHCA has to award 9% credits to projects

other than those receiving the highest scores. By contrast, all agree that the

4% credits are allocated on a non-competitive basis year-round to

developments that use private activity bonds as a component of their project

financing, some of which are issued by TDHCA. Applicants need to meet only

certain threshold eligibility and underwriting requirements in order to receive

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4% tax credits. Applications for the 4% tax credits are not subject to scoring

under the QAP selection criteria. See id. at 316.

In March 2008, ICP filed suit against Defendants, claiming that the

distribution of LIHTC in Dallas violated 42 U.S.C. §§ 1982 and 1983, the

Fourteenth Amendment, and the FHA, 42 U.S.C. §§ 3604 and 3605. The FHA

makes it unlawful, inter alia, to “make unavailable or deny, a dwelling to any

person because of race. . . .” 42 U.S.C. § 3604(a). Section 3605(a) provides that

it is unlawful, inter alia, “for any person or other entity whose business

includes engaging in residential 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. . . .” Id. § 3605(a).

A “residential real estate-related transaction” includes providing financial

assistance for the construction of a dwelling. Id. § 3605(b). ICP alleged that

Defendants were disproportionately approving tax credit units in minority-

concentrated neighborhoods and disproportionately disapproving tax credit

units in predominantly Caucasian neighborhoods, thereby creating a

concentration of the units in minority areas, a lack of units in other areas, and

maintaining and perpetuating segregated housing patterns.

ICP filed a motion for partial summary judgment to establish standing

and a prima facie case of discrimination. Defendants filed motions for

judgment on the pleadings and summary judgment. Defendants argued that,

assuming that ICP had established a prima facie case, Defendants won as a

matter of law, under both disparate treatment and disparate impact theories

of discrimination. 1 The district court denied Defendants’ motions and granted

1 On appeal, Defendants now attempt to raise multiple challenges to the prima facie

case of disparate impact, including various challenges to ICP’s statistics and an argument

that ICP failed to isolate a specific policy or practice that caused the disparate impact. Our

own review of the record does not clearly resolve which of these challenges to the prima facie

case of disparate impact were waived in the district court. Because we reverse and remand

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ICP partial summary judgment, concluding that ICP had made a prima facie

showing of both intentional discrimination and disparate impact. Inclusive

Communities Project, Inc. v. Texas Dep’t of Hous. & Cmty. Affairs (ICP I), 749

F. Supp. 2d 486, 499-500, 501-02 (N.D. Tex. 2010) (order granting partial

summary judgment). With regard to the disparate impact case, the court

concluded that “ICP has established that its clients are African-Americans,

members of a protected class, who rely on government assistance with housing,

and that TDHCA has disproportionately approved tax credits for non-elderly

developments in minority neighborhoods and, conversely, has

disproportionately denied tax credits for non-elderly housing in predominately

Caucasian neighborhoods.” Id. at 499. In particular, the court relied on

evidence that, “from 1999-2008, TDHCA approved tax credits for 49.7% of

proposed non-elderly units in 0% to 9.9% Caucasian areas, but only approved

37.4% of proposed nonelderly units in 90% to 100% Caucasian areas.” Id. The

court also pointed to data showing “92.29% of LIHTC units in the city of Dallas

were located in census tracts with less than 50% Caucasian residents.” Id.

The court found that the statistical evidence was supported by other evidence,

including the “Talton Report,” a report of the House Committee on Urban

Affairs and prepared for the Texas House of Representatives, which concluded

that TDHCA disproportionately allocates LIHTC funds to developments

located in areas with above-average minority concentrations. Id. at 500. The

court also relied on a HUD study reaching “a similar conclusion.” Id. The

district court held that “[t]his evidence establishes that TDHCA

disproportionately approves applications for non-elderly LIHTC units in

minority neighborhoods, leading to a concentration of such units in these areas.

for other reasons, we do not address the issue of whether the district court erred by holding

that ICP had established a prima facie case.

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This concentration increases the burden on ICP as it seeks to place African-

American Section 8 clients in LIHTC housing in predominately Caucasian

neighborhoods.” Id.

The case then proceeded to trial on the remaining elements of ICP’s

intentional discrimination and disparate impact claims. After a bench trial on

the merits, the district court found that ICP did not meet its burden of

establishing intentional discrimination and therefore found for the Defendants

on ICP’s § 1982, § 1983, and Fourteenth Amendment claims. ICP II, 860 F.

Supp. 2d at 318-21. On the disparate impact claim under the FHA, 42 U.S.C.

§§ 3604(a) and 3605(a), the district court applied the burdens of proof found in

the Second Circuit’s decision in Huntington Branch, which required

Defendants to (1) justify their actions with a compelling governmental interest

and (2) prove that there were no less discriminatory alternatives. See id. at

322-23 (citing Huntington Branch, NAACP v. Town of Huntington, 844 F.2d

926, 939 (2d Cir. 1988), aff’d, 488 U.S. 15 (1988) (per curiam)). 2 The district

court assumed that Defendants’ interests were legitimate and bona fide, but

concluded that Defendants had not produced any evidence supporting their

contention that there were no less discriminatory alternatives to the

challenged allocations. Id. at 326. The court concluded that Defendants had

not shown “that TDHCA cannot allocate LIHTC in a manner that is objective,

predictable, and transparent, follows federal and state law, and furthers the

public interest, without disproportionately approving LIHTC in predominantly

minority neighborhoods and disproportionately denying LIHTC in

predominantly Caucasian neighborhoods.” Id. For example, the court noted

that Defendants did not prove that “TDHCA cannot add other below-the-line

2 The Supreme Court affirmed the Second Circuit in Huntington Branch, but expressly

did not rule on the proper test for disparate impact housing discrimination claims in its

opinion. Town of Huntington, N.Y. v. Huntington Branch, N.A.A.C.P., 488 U.S. 15, 18 (1988).

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criteria [to the QAP] that will effectively reduce the discriminatory impact

while still furthering its interests.” Id. at 327. “Moreover,” the court found,

“although defendants maintain that TDHCA’s discretion in creating the

selection criteria is limited to adopting below-the-line criteria, it appears that

this discretion is actually broader. It appears to extend to the authority to

choose the number of points to be accorded each above- and below-the-line

criterion, so long as the priority of statutory above-the-line criteria is

maintained and the Governor approves.” Id. at 328. Because it held that

Defendants had not met their burden of proof, the district court found in favor

of ICP on its discriminatory impact claim under the FHA. Id. at 331.

After trial, while the district court was considering the injunctive remedy

that should be implemented, Frazier Revitalization, Inc. (“FRI”) was granted

permission to intervene to represent the interests of developers or

organizations who seek to revitalize low-income neighborhoods. After

considering submissions from the parties, the district court adopted a remedial

plan including alterations to the QAP, stated that it would review the plan

annually for at least five years, and entered judgment. See Inclusive

Communities Project, Inc. v. Texas Dep’t of Hous. & Cmty. Affairs, No 3:08-CV-

0546-D, 2012 WL 3201401 (N.D. Tex. Aug. 7, 2012), amended in part, 2012 WL

5458208 (N.D. Tex. Nov. 8, 2012). The court also ordered Defendants to pay

attorneys’ fees to ICP. 3

II. Discussion

Defendants, along with Intervenor FRI, appeal various issues. However,

we find it necessary to reach only one issue: whether the district court correctly

3 The consolidated appeal, No. 13-10306, challenges the attorneys’ fees the district

court awarded to ICP. In light of our remand, we likewise vacate and remand the award of

attorneys’ fees in that appeal.

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found that ICP proved a claim of violation of the Fair Housing Act based on

disparate impact.

As the district court correctly noted, violation of the FHA can be shown

either by proof of intentional discrimination or by proof of disparate impact.

See Artisan/Am. Corp. v. City of Alvin, Tex., 588 F.3d 291, 295 (5th Cir. 2009)

(“We have recognized that a claim brought under the Act ‘may be established

not only by proof of discriminatory intent, but also by proof of a significant

discriminatory effect.’”); Simms v. First Gibraltar Bank, 83 F.3d 1546, 1555

(5th Cir. 1996) (“We agree that a violation of the FHA may be established not

only by proof of discriminatory intent, but also by a showing of significant

discriminatory effect.”). 4 However, we have not previously determined the

legal standards that should be applied in disparate impact housing

discrimination cases.

4 Defendants and FRI point to two recent cases in which the Supreme Court granted

certiorari to determine whether disparate impacts claims are cognizable under the FHA. See

Twp. of Mount Holly, N.J. v. Mt. Holly Gardens Citizens in Action, Inc., 133 S. Ct. 2824 (2013);

Magner v. Gallagher, 132 S. Ct. 548 (2011). Both cases were dismissed before the Court

heard any argument. Twp. of Mount Holly, N.J. v. Mt. Holly Gardens Citizens in Action, Inc.,

134 S. Ct. 636 (2013); Magner v. Gallagher, 132 S. Ct. 1306 (2012). “Absent an intervening

Supreme Court case overruling prior precedent, we remain bound to follow our precedent

even when the Supreme Court grants certiorari on an issue.” United States v. Lopez-

Velasquez, 526 F.3d 804, 808 n.1 (5th Cir. 2008). Our circuit precedent provides that

disparate impact claims are cognizable under the FHA. See Artisan/Am. Corp., 588 F.3d at

295; Simms, 83 F.3d at 1555. All other circuits that have considered the issue have agreed.

See Mt. Holly Gardens Citizens in Action, Inc v. Twp. of Mount Holly, 658 F.3d 375, 381 (3d

Cir. 2011); Gallagher v. Magner, 619 F.3d 823, 833-34 (8th Cir. 2010); Graoch Assocs. #33,

L.P. v. Louisville/Jefferson Cnty. Metro Human Relations Comm’n, 508 F.3d 366, 371 (6th

Cir. 2007); Langlois v. Abington Hous. Auth., 207 F.3d 43, 49 & n.3 (1st Cir. 2000); Mountain

Side Mobile Estates P’ship v. HUD, 56 F.3d 1243, 1250 (10th Cir. 1995); Huntington Branch,

844 F.2d at 934; Smith v. Town of Clarkton, 682 F.2d 1055, 1065 (4th Cir. 1982); Metro. Hous.

Dev. Corp. v. Vill. of Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977); see also

Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 78 Fed. Reg.

11,460 (February 15, 2013) (codified at 24 C.F.R. § 100.500) (“HUD and every federal

appellate court to have ruled on the issue have determined that liability under the Act may

be established through proof of discriminatory effects”).

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As we stated above, on the disparate impact claim under the FHA, 42

U.S.C. §§ 3604(a) and 3605(a), the district court applied the burdens of proof

found in Huntington Branch. ICP II, 860 F. Supp. 2d at 322 (citing Huntington

Branch, 844 F.2d at 939). The district court noted the absence of controlling

law, as this court has not previously addressed the question of what legal

standards apply to a disparate impact housing discrimination claim. Our

sister circuits have applied multiple different legal standards to similar claims

under the FHA. See Robert G. Schwemm, Housing Discrimination Law and

Litigation § 10:6 (2013) (discussing the various standards applied across the

circuits). Most circuits agree that once a plaintiff establishes a prima facie

case, the burden shifts to the defendants to show that the challenged practice

serves a legitimate interest. See Mt. Holly Gardens, 658 F.3d at 382; Gallagher,

619 F.3d at 833-34; Graoch Assocs., 508 F.3d at 374; Mountain Side Mobile

Estates, 56 F.3d at 1254; Huntington Branch, 844 F.2d at 936. At that point,

the circuits diverge in some respects. The Second and Third Circuits require a

defendant to bear the burden of proving that there are no less discriminatory

alternatives to a practice that results in a disparate impact. See Huntington

Branch, 844 F.2d at 936; Mt. Holly Gardens, 658 F.3d at 382 (requiring

defendant to prove there is no less discriminatory alternative and plaintiff to

prove there is a less discriminatory alternative). The Eighth and Tenth

Circuits place the burden on the plaintiff to prove that there are less

discriminatory alternatives. See Gallagher, 619 F.3d at 834; Mountain Side

Mobile Estates, 56 F.3d at 1254. The Seventh Circuit has applied a four-factor

balancing test rather than burden-shifting. See Metro. Hous. Dev. Corp., 558

F.2d at 1290. The Fourth and Sixth Circuits have applied a four-factor

balancing test to public defendants and a burden-shifting approach to private

defendants. See Betsey v. Turtle Creek Assocs., 736 F.2d 983, 988 n.5 (4th Cir.

1984); Graoch Assocs., 508 F.3d at 371, 372-74.

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However, after the district court’s decision in this case, HUD issued

regulations regarding disparate impact claims under the FHA. See 24 C.F.R.

§ 100.500; Implementation of the Fair Housing Act’s Discriminatory Effects

Standard, 78 Fed. Reg. 11,460 (Feb. 15, 2013). Congress has given HUD

authority to administer the FHA, including authority to issue regulations

interpreting the Act. 42 U.S.C. §§ 3608(a), 3614a. Specifically, 42 U.S.C. §

3608(a) gives the Secretary of HUD the “authority and responsibility for

administering this Act,” and § 3614a provides expressly that “The Secretary

may make rules. . . to carry out this subchapter.” The new regulations issued

by HUD took effect in March 2013. 24 C.F.R. § 100.500. The regulations

recognize, as we have, that “Liability may be established under the Fair

Housing Act based on a practice’s discriminatory effect, as defined in

paragraph (a) of this section, even if the practice was not motivated by a

discriminatory intent.” 24 C.F.R. § 100.500. The regulations further provide

that “A practice has a discriminatory effect where it actually or predictably

results in a disparate impact on a group of persons or creates, increases,

reinforces, or perpetuates segregated housing patterns because of race, color,

religion, sex, handicap, familial status, or national origin.” Id. § 100.500(a).

Finally, with regard to the burdens of proof in disparate impact housing

discrimination cases, the regulations provide:

(1) The charging party . . . has the burden of proving that a

challenged practice caused or predictably will cause a

discriminatory effect.

(2) Once the charging party or plaintiff satisfies the burden of

proof set forth in paragraph (c)(1) of this section, the

respondent or defendant has the burden of proving that the

challenged practice is necessary to achieve one or more

substantial, legitimate, nondiscriminatory interests of the

respondent or defendant.

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(3) If the respondent or defendant satisfies the burden of proof

set forth in paragraph (c)(2) of this section, the charging

party or plaintiff may still prevail upon proving that the

substantial, legitimate, nondiscriminatory interests

supporting the challenged practice could be served by

another practice that has a less discriminatory effect.

24 C.F.R. § 100.500(c).

We now adopt the burden-shifting approach found in 24 C.F.R. § 100.500

for claims of disparate impact under the FHA. See 24 C.F.R. § 100.500. First,

a plaintiff must prove a prima facie case of discrimination by showing that a

challenged practice causes a discriminatory effect, as defined by 24 C.F.R.

§ 100.500(a). 24 C.F.R. § 100.500(c)(1). If the plaintiff makes a prima facie

case, the defendant must then prove “that the challenged practice is necessary

to achieve one or more substantial, legitimate, nondiscriminatory interests . .

. .” Id. § 100.500(c)(2). If the defendant meets its burden, the plaintiff must

then show that the defendant’s interests “could be served by another practice

that has a less discriminatory effect.” Id. § 100.500(c)(3).

These standards are in accordance with disparate impact principles and

precedent. While the approaches of our sister circuits have varied, the most

recent decisions have applied a similar three-step burden-shifting approach.

Mt. Holly Gardens, 658 F.3d at 382; Gallagher, 619 F.3d at 834; Graoch

Assocs., 508 F.3d at 374. Further, the three-step burden-shifting test

contained in the HUD regulations is similar to settled precedent concerning

Title VII disparate impact claims in employment discrimination cases. See 42

U.S.C. § 2000e-2(k); Ricci v. DeStefano, 557 U.S. 557, 624 (2009) (describing

the disparate impact burdens of proof in Title VII employment discrimination

cases). Many courts interpreting the FHA recognize the similar purpose and

language of the statutes and borrow from Title VII precedent to interpret the

FHA. See, e.g., Graoch Assocs., 508 F.3d at 371-73; Kyles v. J.K. Guardian Sec.

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Servs., Inc., 222 F.3d 289, 295 (7th Cir. 2000) (“Courts have recognized that

Title VIII is the functional equivalent of Title VII and so the provisions of these

two statutes are given like construction and application.”) (internal citations

omitted)); Huntington Branch, 844 F.2d at 934-35.

Given the complex record and fact-intensive nature of this case, and the

district court’s demonstrated expertise with those facts, we remand for the

district court to apply this legal standard to the facts in the first instance. To

be clear, we do not hold that the district court must retry the case; we leave it

to the sound discretion of that court to decide whether any additional

proceedings are necessary or appropriate. Finally, given our decision to

remand, we do not find it necessary to reach the additional arguments raised

by Defendants in support of reversal.

III. Conclusion

For the reasons we have stated, we REVERSE and REMAND for further

proceedings consistent with this opinion.

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JONES, Circuit Judge, specially concurring.

As a second-best result, I concur in the court’s judgment to reverse and

remand this case for reconsideration under the recently promulgated HUD

guidelines. This is second-best, however, because on remand, the district court

should reconsider the State’s forceful argument that the appellees did not

prove a facially neutral practice that caused the observed disparity in

TDHCA’s allocation of LIHTC units to predominately “non-Caucasian” areas.

Perhaps the standard for proving a prima facie case of disparate impact in the

fair housing context was uncertain before the HUD guidelines resolved circuit

splits. In any event, because FHA cases will now be modeled closely upon the

Title VII formula, it is clear that the appellees could not rely on statistical

evidence of disparity alone for their prima facie case. See Smith v. City of

Jackson, 544 U.S. 228, 241, 125 S. Ct. 1536, 1545 (2005) (“[I]t is not enough to

simply allege that there is a disparate impact on workers.”); Pacheco v. Mineta,

448 F.3d 783, 787 n.5 (5th Cir. 2003) (finding “Pacheco’s disparate impact

allegations . . . wholly conclusional” because “[t]here is no suggestion of in what

manner the process operated so as to disadvantage Hispanics”); Simms v. First

Gibraltar Bank, 83 F.3d 1546, 1555 (5th Cir. 1996) (Fair Housing Act issue is

“whether a policy, procedure, or practice specifically identified by the plaintiff

has a significantly greater discriminatory impact on members of a protected

class.”) A plaintiff must specifically identify the facially neutral policy that

caused the disparity.

The appellees’ entire argument for disparate impact here assumed the

conclusion: there is a statistical “imbalance” in the location of LIHTC units

approved by TDHCA, therefore there must be a disparate approval “practice”

that causes the statistical imbalance. The district court accepted this

oversimplified formulation. But under disparate impact law, the State’s

burden is NOT to justify the statistics, but only the facially neutral policy or

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policies that caused the statistics. The State’s burden ensues only when a

plaintiff isolates the policy that caused the disparity. Without proof of an

offending policy, alleged racial imbalance in and of itself is both the cause and

effect of a violation. This has not been the law for many years. The Supreme

Court held in Wards Cove that:

“[e]ven if on remand respondents can show that nonwhites are

underrepresented . . . in a [statistically correct] manner . . ., this

alone will not suffice to make out a prima facie case of disparate

impact. Respondents will also have to demonstrate that the

disparity they complain of is the result of one or more of the

employment practices that they are attacking here, specifically

showing that each challenged practice has a significantly

disparate impact on employment opportunities for whites and

nonwhites. To hold otherwise would result in employers being

potentially liable for ‘the myriad of innocent causes that may lead

to statistical imbalances in the composition their work forces.’ ”

Wards Cove Packing Co. v. Atonio, 490 U.S. 642, 657, 109 S. Ct. 2115, 2125

(1989) (quoting Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 992,

108 S. Ct. 2777, 2787 (1988)). Put more bluntly, if the appellees’ framing of

disparate impact analysis is correct, then the NBA is prima facie liable for

disparate impact in the hiring of basketball players.

As the district court’s opinions demonstrate, TDHCA's policies and

practices for awarding LIHTC grants are anything but simple. They are

governed by federal and state statutes, which require satisfaction of numerous

criteria to ensure the integrity, financial viability, and effectiveness of the

projects. One specific object of the federal tax credit provision is to advantage

projects located in low income census tracts or subject to a community

revitalization plan. 26 U.S.C. § 42(m)(1)(B). In essence, the appellees are

seeking a larger share of a fixed pool of tax credits at the expense of other low-

income people who might prefer community revitalization. To balance these

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Case: 12-11211 Document: 00512570522 Page: 16 Date Filed: 03/24/2014

No. 12-11211 cons. w/13-10306

conflicting goals while meeting the program’s other specifications, a complex

point system has been used and annually updated. On remand, the district

court must “require, as part of [appellees’] prima facie case, a demonstration

that specific elements of the [State’s award practices] have a significantly

disparate impact on nonwhites.” Wards Cove, 490 U.S. at 658,

109 S. Ct. at 2125.

I concur in the judgment.

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