Southwest Fair Housing Council v. Mdwid

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

SOUTHWEST FAIR HOUSING No. 20-15506

COUNCIL, INC., an Arizona nonprofit

corporation; TAVITA PENA; JENNIFER D.C. No.

PETERS, 2:17-cv-01743-

Plaintiffs-Appellants, DWL

v.

ORDER AND

MARICOPA DOMESTIC WATER OPINION

IMPROVEMENT DISTRICT, an Arizona

municipal corporation,

Defendant-Appellee.

Appeal from the United States District Court

for the District of Arizona

Dominic Lanza, District Judge, Presiding

Argued and Submitted May 5, 2021

Portland, Oregon

Filed November 12, 2021

Before: William A. Fletcher, Carlos T. Bea, and

Michelle T. Friedland, Circuit Judges.

Opinion by Judge Bea

2 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

SUMMARY *

Fair Housing Act

The panel withdrew an Opinion filed August 23, 2021;

replaced it with a superseding Opinion affirming the district

court’s summary judgment in favor of the Maricopa

Domestic Water Improvement District; denied a petition for

panel rehearing; and denied on behalf of the court a petition

for rehearing en banc, in a case in which two Pinal County

public housing residents and Southwest Fair Housing

Council, Inc., an Arizona nonprofit corporation (together,

“Appellants”), challenged as impermissibly discriminatory

under the federal Fair Housing Act a District policy

increasing to $180 the refundable security deposit required

of new public housing customers before the District would

agree to provide water services while non-public housing

customers were subject only to a $55 deposit.

Appellants’ primary argument alleged the policy caused

a disparate impact under the Fair Housing Act because it

applied only to the District’s public housing customers, who

are disproportionately African American, Native American,

and single mothers. The district court granted the District

summary judgment on the basis that Appellants failed to

provide evidence sufficient to establish a triable issue of fact

that the policy caused the claimed disproportionate effect (an

element of a prima facie disparate impact case). In light of

Texas Department Housing & Community Affairs v. The

Inclusive Communities Project, Inc., 576 U.S. 519, 540

(2015), the panel clarified that, for a plaintiff to make out a

*

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 3

prima facie case of disparate impact, the plaintiff must

demonstrate: (1) the existence of a policy, not a one-time

decision, that is outwardly neutral; (2) a significant, adverse,

and disproportionate effect on a protected class; and

(3) robust causality that shows, beyond mere evidence of a

statistical disparity, that the challenged policy, and not some

other factor or policy, caused the disproportionate effect.

The district court held that Appellants failed to demonstrate

robust causality. The panel held that the district court erred

in that judgment, concluding that Appellants did establish

robust causation and did meet their prima facie burden. The

panel nonetheless affirmed the district court’s judgment

because the District established by undisputed evidence that

the policy served in a significant way the District’s

legitimate business interests and because Appellants failed

to establish a triable issue of fact that there existed an equally

effective, but less discriminatory, alternative.

Appellants also brought a disparate-treatment claim,

alleging that discriminatory animus was a motivating factor

behind the District’s decision to implement its policy. The

panel affirmed the district court’s holding that Appellants

did not adduce evidence sufficient to establish a triable issue

of fact with respect to that claim.

4 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

COUNSEL

Elizabeth Brancart (argued) and Christopher Brancart,

Brancart & Brancart, Pescadero, California; Paul Gattone,

Law Office of Paul Gattone, Tucson, Arizona; for Plaintiffs-

Appellants.

Jeffrey C. Matura (argued) and Melissa J. England, Barrett

& Matura P.C., Scottsdale, Arizona, for Defendant-

Appellee.

Jeffrey L. Taren and Jesse Wing, MacDonald Hoague &

Bayless, Seattle, Washington, for Amici Curiae National

Fair Housing Alliance Inc., Fair Housing Council of Oregon,

Fair Housing Advocates of Northern California, Fair

Housing Center of Washington, Fair Housing Council of

Riverside County Inc., Fair Housing Council of San Diego,

Fair Housing Foundation, Housing Rights Center, Inland

Fair Housing and Mediation Board, Intermountain Fair

Housing Council, Montana Fair Housing, Northwest Fair

Housing Alliance, Project Sentinel, Silver State Fair

Housing Council, Fair Housing Napa Valley, and Legal Aid

Society of Hawai’i.

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 5

ORDER

The Opinion filed on August 23, 2021, is

WITHDRAWN and replaced with a superseding Opinion

filed concurrently with this Order.

The panel unanimously voted to deny the petition for

panel rehearing. Judges Fletcher and Friedland voted to

deny the petition for rehearing en banc and Judge Bea so

recommends. The full court has been advised of the petition

for rehearing on banc and no judge has requested a vote on

whether to rehear the matter en banc. Accordingly,

appellant’s petition for panel rehearing and for rehearing en

banc filed September 27, 2021, is DENIED. Fed. R. App.

P. 35.

IT IS SO ORDERED.

OPINION

BEA, Circuit Judge:

The federal Fair Housing Act (“FHA”) bars

discriminatory housing policies and practices, including

those that cause a disparate impact according to certain

protected characteristics or traits—race, color, religion, sex,

handicap, familial status, or national origin. But, absent

evidence of intentional discrimination or equally effective

and less discriminatory alternatives, the existence of a

statistical disparity in a policy’s effect on persons with

certain protected characteristics, as compared to the wider

population, does not authorize courts to invalidate policies

that a defendant is able to show serve legitimate

governmental or business interests in a significant way. We

6 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

are empowered to invalidate only artificial, arbitrary, and

unnecessary barriers to housing. Tex. Dep’t of Hous. &

Cmty. Affs. v. Inclusive Communities Project, Inc., 576 U.S.

519, 540 (2015) (hereinafter, Inclusive Communities). The

policy at issue here is no such barrier.

The Maricopa Domestic Water Improvement District

(the “District”) is a small municipal corporation in Arizona

that supplies water to some three hundred households,

including the public housing tenants of one residential

complex in Pinal County, Arizona. Property owners like

Pinal County are responsible to the District for paying any

past tenant’s delinquent water accounts. Pinal County

acknowledged its responsibility to pay its public housing

tenants’ delinquent water bills but consistently refused to do

so, contending it was immune to that policy based on Pinal

County’s status as a public municipality. After years of

failed tactics and fruitless negotiations with Pinal County,

the District imposed a new policy that increased to $180 the

refundable security deposit required of new public housing

customers before the District would agree to provide water

services. New non-public housing customers were subject

only to a $55 deposit.

Public housing residents Tavita Peña and Jennifer Peters,

along with Southwest Fair Housing Council, Inc., an

Arizona nonprofit corporation which describes itself as

having a mission to achieve equal access to housing

(together, “Appellants”), challenge this policy as

impermissibly discriminatory under the FHA. Appellants’

primary argument alleges the policy caused a disparate

impact because it applied only to the District’s public

housing customers, who are disproportionately African

American, Native American, and single mothers. The

district court granted the District summary judgment on the

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 7

basis that Appellants failed to provide evidence sufficient to

establish a triable issue of fact that the policy caused the

claimed disproportionate effect (an element of a prima facie

disparate impact case). We hold the district court erred and

we conclude that Appellants established a prima facie

disparate impact claim. However, we nonetheless affirm the

district court’s judgment because the District established by

undisputed evidence that the policy served in a significant

way the District’s legitimate business interests and because

Appellants failed to establish a triable issue of fact that there

existed an equally effective, but less discriminatory,

alternative.

Appellants also bring a disparate-treatment claim,

alleging that discriminatory animus was a motivating factor

behind the District’s decision to implement its policy. We

affirm the district court’s holding that Appellants did not

adduce evidence sufficient to establish a triable issue of fact

with respect to that claim.

BACKGROUND

Appellee Maricopa Domestic Water Improvement

District is a small nonprofit municipal corporation created

by Pinal County, Arizona, in 1986. The District is a public

utility, providing water services to private residents within

the town of Maricopa, Arizona, as well as to some public

property owned by Pinal County within the town limits. The

District services approximately 300 households.

Among those are the households at Edwards Circle. The

Edwards Circle complex is a federally funded public housing

complex owned and managed by Pinal County. Each of

Edwards Circle’s twenty public housing units receives water

service from the District.

8 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

The demographics of the District’s customers at

Edwards Circle diverge from those of the District’s full

customer base. The households that comprise the District’s

full customer base are 45.0% White, 2.9% African

American, 2.2% Native American, and 49.7% Hispanic,

with 34.3% of households headed by women with children.

In 2017, the households that comprised Edwards Circle were

11.1% White, 38.9% African American, 16.7% Native

American, and 33.3% Hispanic, with 89% of households

headed by women with children.

In addition to having dissimilar demographics, the

customers at Edwards Circle are unique among District

customers in another respect: they are tenants of Pinal

County. Though they are both public entities, the District

and Pinal County have had a rather disharmonious

relationship. The source of that strife, and the subject of this

case, is how to confront the issue of delinquent water bills

left over the years by Edwards Circle tenants.

For each of its customers, the District requires an

upfront, refundable (when the customer terminates water

service and is fully paid-up) deposit as a condition to

providing water services. Of course, all property owners are

responsible to the District for their own water service fees,

but, since at least 2000, the District has maintained a policy,

to which Pinal County initially assented, that requires

property owners renting their property also to pay any

delinquent water service bills left by their tenants in excess

of the tenants’ forfeited deposits. If the property owner

refuses to pay its tenant’s delinquency, District procedure is

to place a lien on the property. Ultimately, execution of the

lien can lead to foreclosure and loss of title to the property.

In accordance with the District’s said property owner

policy, Pinal County (as owner of the Edwards Circle

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 9

complex) avowed that it was indeed responsible for its

tenants’ delinquent accounts. Unfortunately for the District,

it would not be so easy to get Pinal County to comply with

that admission.

In 2001, to prevent excessive delinquent accounts and

thereby limit its own potential liability, Pinal County

authorized the District to shut off water service to Edwards

Circle tenants who were late on their water payments. But

Pinal County soon reversed that position and requested that

the District reactivate water services to tenants with late

accounts. Thereafter, in 2002, the district raised the security

deposit for Edwards Circle residents to $100, a decision

which appears to have gone unchallenged.

The issue of delinquent water accounts at Edwards Circle

soon again raised its head, but Pinal County responded by

burying its own head in the sand. From 2011 through 2013,

the District sent multiple notices of tenant delinquency to

Pinal County, requesting that the County pay off the

balances. One such outstanding delinquent bill amounted to

$184.45. Although Pinal County had previously

acknowledged responsibility for paying its tenants’

delinquent bills, it consistently refused to pay the District.

Pursuant to the District’s delinquency policy, it

threatened Pinal County with a lien on the Edwards Circle

property. The County responded that, unlike all other

District customers, the County’s property was immune to

liens, stating that “[i]t is unlawful in Arizona to lien public

property.” The District then changed tacks. The District

decided it would withhold providing new water service

accounts to any unit whose prior tenant vacated with a

delinquent balance until the prior tenant’s unpaid bills were

paid off. The County again refused to pay, again on the basis

of its status as a public entity, but this time the County

10 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

claimed that paying off debts of ex-tenants would “violate

the anti-gift clause in the [Arizona] Constitution.” Soon

thereafter, a new Edwards Circle tenant was unable to obtain

water services because they could not pay off the prior

tenant’s bill. Pinal County emailed the District and

requested that the District turn on water service for that

tenant and offered to “iron out the delinquency issue later.”

When the District attempted to arrange a meeting so the

parties could “iron out” the issue, Pinal County did not

respond. Months later, the District sent Pinal County

another message again requesting that Pinal County agree to

“[a] resolution [that] will benefit our entities and [] the

potential tenants at [Edwards Circle].” Pinal County and the

District met seven months later in November 2014.

Arising out of that meeting, the District announced a new

policy effective January 1, 2015 (the “Service Deposit

Policy”) that made changes applicable only to “Pinal County

Housing tenants.” In its announcement, the District

indicated that “both parties concluded the Service Deposit

amount for [Edwards Circle] tenants should be increased.” 1

New public housing customers at Edwards Circle were now

required to pay a $180 refundable service deposit. The

service deposit for new non-public housing customers

remained at $55.

Plaintiffs-Appellants Tavita Peña and Jennifer Peters

both moved into units at Edwards Circle in 2016 and had

difficulty paying the District’s heightened security deposit.

Peña is Hispanic, Peters is White, and both are single

mothers with children. Both Peña and Peters were

eventually able to pay the increased security deposit with

1

Appellants dispute whether Pinal County agreed to the new policy.

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 11

financial assistance from relatives or nonprofit

organizations.

With the help of fellow plaintiff Southwest Fair Housing

Council, Peña and Peters filed a lawsuit against the District. 2

Appellants’ amended complaint alleged that the District’s

Security Deposit Policy “injured plaintiffs by discriminating

on the basis of race, color, national origin, sex, familial status

and disability in the provision of municipal services and in

the interference with the exercise of rights protected under

the Fair Housing Act, 42 U.S.C. §§ 3604 and 3617.” They

seek declaratory and injunctive relief. 3

2

Appellants also named Pinal County as a defendant and alleged

civil rights claims under 42 U.S.C. §§ 1983 & 1986. However,

Appellants and Pinal County reached a settlement.

3

In Appellants’ first amended complaint, they allege that the District

also created two other policies applicable only to Edwards Circle

residents: a Late Payment Policy and a No Outstanding Balance Policy.

In addition to a 1.5% late payment fee applicable to all customers, the

Late Payment Policy allegedly applied to make Pinal County tenants’

security deposits refundable only at the discretion of the District if a

tenant had provided late payments four times within one year. The No

Outstanding Balance Policy allegedly required Pinal County tenants to

pay off balances owed to the District by a prior tenant.

There is record evidence that the District did devise the Late

Payment Policy at least, but the District now states that neither policy

currently exists and that neither policy will be enforced against Edwards

Circle residents. At oral argument, the District’s counsel represented

that the District would not have “any problem whatsoever” with

informing Edwards Circle residents that these policies will not be

enforced against them. Appellants’ counsel then agreed that, if the

District would not enforce these policies in the future, their claims

regarding these policies “could be resolved” and agreed with the

possibility of settlement given that it seemed the parties no longer had a

dispute about these policies. We rely on the District’s representations

12 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

Without first moving to dismiss, the District answered

the amended complaint and then moved for summary

judgment on the FHA claim. The district court granted the

District’s motion for summary judgment. The court

concluded that Appellants had failed to make out a prima

facie disparate-impact claim because they had failed to

demonstrate robust causation between the Security Deposit

Policy and the statistical disparity that Appellants had

identified. The district court also determined that Appellants

failed to plead a disparate-treatment claim and that, even if

they had, Appellants did not adduce sufficient evidence to

raise a genuine dispute of material fact. Appellants timely

appealed the district court’s order granting summary

judgment. We have jurisdiction pursuant to 28 U.S.C.

§ 1291.

STANDARD OF REVIEW

“We review a grant of summary judgment de novo.

Viewing the evidence in the light most favorable to the

nonmoving party, we must determine whether there are any

genuine issues of material fact and whether the district court

correctly applied the relevant substantive law.” Devereaux

that these policies will not be enforced against any Edwards Circle

resident in the future. The only remedy Appellants seek as to these

policies is to enjoin their further enforcement against Edwards Circle

residents. “Article III requires that a live controversy persist throughout

all stages of the litigation.” Gator.com Corp. v. L.L. Bean, Inc., 398 F.3d

1125, 1128–29 (9th Cir. 2006) (en banc). Because it now appears that

no controversy exists as to these two policies, we DISMISS the portion

of Appellants’ appeal that challenges the Late Payment Policy and No

Outstanding Balance Policy claims. The remainder of our analysis

continues to rely on the District’s representation that the security

deposits paid by Edwards Circle residents are non-discretionarily

refundable as long as a customer does not leave behind a delinquent

balance.

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 13

v. Abbey, 263 F.3d 1070, 1074 (9th Cir. 2001) (en banc)

(citations omitted). “A dispute about a material fact is

genuine if there is sufficient evidence favoring the

nonmoving party for a jury to return a verdict for that party.”

Gamble v. City of Escondido, 104 F.3d 300, 304 (9th Cir.

1997) (quotation marks and citation omitted). “If the

plaintiff is unable to sufficiently adduce evidence that could

lead a reasonable jury to conclude that the plaintiff has

satisfied his burden of proof, his claim is subject to an

unfavorable summary disposition.” Eisenberg v. Ins. Co. of

N. Am., 815 F.2d 1285, 1288–89 (9th Cir. 1987); see also

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.

574, 587 (1986) (“Where the record taken as a whole could

not lead a rational trier of fact to find for the non-moving

party, there is no genuine issue for trial.” (quotation marks

and citation omitted)).

ANALYSIS

The FHA makes it unlawful to discriminate against a

person on the basis of “race, color, religion, sex, handicap,

familial status, or national origin” and applies broadly to

many housing practices. 42 U.S.C. § 3604. Specifically,

§ 3604(b) prohibits “discriminat[ion] against any person in

the terms, conditions, or privileges of sale or rental of a

dwelling, or in the provision of services or facilities in

connection therewith” because of the person’s membership

in one of those protected classes. Appellants argue the

District’s provision of water services pursuant to the

Security Deposit Policy discriminated against Edwards

Circle residents on the basis of their membership in one or

more of these protected classes.

The FHA prohibits intentional discrimination under the

rubric of a disparate-treatment claim. In Inclusive

Communities, the Supreme Court construed FHA § 804(a)

14 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

(codified at 42 U.S.C. § 3604(a)) also to encompass

unintentional discrimination by way of what has been termed

a disparate-impact claim. 4 576 U.S. at 533. Appellants

claim the District is liable on both disparate-impact and

disparate-treatment theories.

I. Disparate-Impact Claim

Under a disparate-impact theory, the FHA “forbids

actions by private or governmental bodies that create a

discriminatory effect upon a protected class or perpetuate

housing segregation without any concomitant legitimate

reason.” Ave. 6E Invs., LLC v. City of Yuma, 818 F.3d 493,

503 (9th Cir. 2016). Disparate-impact theory serves two

4

Notably, Appellants appeared in the district court to ground their

claims in FHA § 804(b), not FHA § 804(a). The district court sua sponte

observed that, of these two provisions, the Supreme Court in Inclusive

Communities examined only FHA § 804(a), which 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 their membership in a

protected class. The Court held that § 804(a) does permit disparate-

impact claims. The Court did not address whether disparate-impact

claims were also permitted under § 804(b). The district court noted the

language of § 804(b) differs significantly from § 804(a)—indeed

§ 804(b) does not contain the phrase “otherwise make unavailable,”

which was “of central importance” to the Supreme Court’s analysis.

Inclusive Communities, 576 U.S. at 534. The district court suggested

that the Supreme Court’s reasoning may not extend to permit disparate-

impact claims brought pursuant to § 804(b). The district court raises an

important issue. However, our circuit has already held that disparate-

impact claims are permitted under § 804(b). See Ojo v. Farmers Grp.,

Inc., 600 F.3d 1201, 1203 (9th Cir. 2010). Inclusive Communities did

not expressly upset this holding and neither party has argued, either in

the district court or on appeal, that we should revisit that holding in light

of Inclusive Communities. As such, we assume without deciding that

Ojo survives Inclusive Communities and that FHA § 804(b) permits

disparate-impact claims.

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 15

goals: it allows “plaintiffs to counteract unconscious

prejudices and disguised animus that escape easy

classification as disparate treatment,” Inclusive

Communities, 576 U.S. at 540, and it targets “‘artificial,

arbitrary, and unnecessary barriers’ to minority housing . . .

that can occur through unthinking, even if not malignant,

policies,” Ave. 6E, 818 F.3d at 503 (quoting Inclusive

Communities, 576 U.S. at 540).

Disparate-impact theories of liability are available

pursuant to a number of federal antidiscrimination statutes,

including the Civil Rights Act of 1964 (both Titles VI and

VII) and the Age Discrimination in Employment Act

(“ADEA”). See Inclusive Communities, 576 U.S. at 530–33.

In Wards Cove Packing Co. v. Atonio, the Supreme Court

developed a three-step burden-shifting framework to address

these types of claims. 490 U.S. 642 (1989), superseded by

statute on other grounds, 42 U.S.C. § 2000e–2(k). 5

Although Wards Cove dealt specifically with Title VII, the

Supreme Court has applied the framework across federal

antidiscrimination statutes. Hardie v. Nat’l Collegiate

Athletic Ass’n, 876 F.3d 312, 319 n.8 (9th Cir. 2017). We

review Appellants’ FHA disparate-impact claims under this

burden-shifting framework but note that the framework may

differ in application in certain respects. See Inclusive

Communities, 576 U.S. at 533–35, 541 (“[T]he Title VII

framework may not transfer exactly to the fair-housing

5

“The Civil Rights Act of 1991 abrogated Wards Cove with respect

to claims under Title VII, but the Supreme Court has continued to apply

Wards Cove burden shifting to other antidiscrimination statutes.”

Hardie v. Nat’l Collegiate Athletic Ass’n, 876 F.3d 312, 319 n.8 (9th Cir.

2017) (citation omitted).

16 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

context, but the comparison suffices for present purposes.”);

Ave. 6E, 818 F.3d at 512–13.

In general terms, under the burden-shifting framework,

the plaintiff first has the burden to establish a prima facie

case of disparate-impact discrimination under the FHA. Ojo

v. Farmers Grp., Inc., 600 F.3d 1201, 1203 (9th Cir. 2010).

If the plaintiff is able to establish a prima facie case, “the

burden shifts to the defendant to either rebut the facts

underpinning the prima facie case or to demonstrate a legally

sufficient, nondiscriminatory reason for the practices

causing the disparate impact.” Id. (quotation marks and

citation omitted). Third and finally, the burden shifts back

to the plaintiff to show the availability of an alternative

practice that has less discriminatory impact yet is still

equally effective in serving the defendant’s legitimate goals.

Inclusive Communities, 576 U.S. at 533; Hardie, 876 F.3d

at 320.

On summary judgment, the district court held that

Appellants had failed on the first step. The court determined

that Appellants failed to establish a prima facie case because

they did not establish “robust causation” between the

District’s “race-neutral policy” and the policy’s

repercussions, which “affect[ed] a disproportionate share of

protected-group members.”

A. Prima Facie Case

The initial burden is on the plaintiff to establish a prima

facie disparate-impact claim. Prior to Inclusive

Communities, we had already interpreted the FHA to permit

disparate-impact claims and held that a prima facie case

“require[d] proof of (1) the occurrence of certain outwardly

neutral practices, and (2) a significantly adverse or

disproportionate impact on persons of a particular type

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 17

produced by the defendant’s facially neutral acts or

practices.” Comm. Concerning Cmty. Improvement v. City

of Modesto, 583 F.3d 690, 711 (9th Cir. 2009) (cleaned up).

However, in recognizing that the FHA permits disparate-

impact claims, the Supreme Court in Inclusive Communities

described in detail a set of “safeguards” that provide

additional guidance in assessing the availability of these

claims. 6 Inclusive Communities, 576 U.S. at 542. These

safeguards are necessary to “protect[] defendants from being

held liable for racial disparities they did not create” and to

prevent disparate-impact liability from “caus[ing] race to be

used and considered in a pervasive way”—specifically,

through the adoption of numerical quotas, which could lead

to “serious constitutional questions.” Id.

Among these safeguards is “a robust causality

requirement,” which necessitates that the plaintiff “produce

statistical evidence demonstrating a causal connection”

6

In 2013, the U.S. Department of Housing and Urban Development

(“HUD”) issued a regulation describing the framework for disparate-

impact claims brought under the FHA. 24 C.F.R. § 100.500 (2014).

Although the Supreme Court mentioned this regulation in Inclusive

Communities, see 576 U.S. at 527, there is disagreement as to whether

the Court adopted this framework. See Inclusive Communities Project,

Inc. v. Lincoln Prop. Co., 920 F.3d 890, 903 n.6 (5th Cir. 2019).

Complicating matters further, in 2020, HUD saw fit to revise its rule in

light of the Supreme Court’s decision in Inclusive Communities,

although that rule is currently enjoined. Mass. Fair Hous. Ctr. v. United

States Dep’t of Hous. & Urb. Dev., 496 F. Supp. 3d 600 (D. Mass. 2020).

Given these considerations, we will follow the guidance of the Supreme

Court in Inclusive Communities rather than look to HUD’s regulations.

See Reyes v. Waples Mobile Home Park Ltd. P’ship, 903 F.3d 415, 424

(4th Cir. 2018) (acknowledging that the courts of appeals are bound by

the standard announced by the Supreme Court, not the prior HUD

regulation); Lincoln Prop., 920 F.3d at 903 (following Reyes).

18 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

between an identified neutral policy and any alleged

disparities that adversely affect members of a protected

class. Id. at 542–43. The function of this requirement is to

limit disparate-impact claims only to instances where it is the

defendant’s policy or practice that causes an adverse,

disproportionate effect. Id. at 527 (“If a statistical

discrepancy is caused by factors other than the defendant’s

policy, a plaintiff cannot establish a prima facie case, and

there is no liability.”). In other words, robust causality

requires that plaintiffs prove with a preponderance of the

evidence 7 that the policy itself, and not some other factor

(such as unrelated or uncontrollable societal determinants,

government mandates that limit a defendant’s discretion, or

even other unchallenged policies of the defendant), created

or exacerbated a disproportionate effect. Id. at 542 (The

“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.”

(alterations in original) (quoting Wards Cove, 490 U.S.

at 653)). Otherwise, the Supreme Court observed,

defendants may attempt to protect themselves from liability

by “resort[ing] to the use of racial quotas” to engineer

policies that do not result in any statistical disparities, even

if the policy was never the cause of the disparity in the first

place. Id. at 521 (“Courts should avoid interpreting

disparate-impact liability to be so expansive as to inject

racial considerations into every housing decision.”).

Therefore, in light of Inclusive Communities, we must

clarify our standard. For a plaintiff to make out a prima facie

case of disparate impact, he must demonstrate: (1) the

7

Of course, at the summary judgment stage the plaintiff need adduce

only evidence that would allow this ultimate finding.

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 19

existence of a policy, not a one-time decision, that is

outwardly neutral; (2) a significant, adverse, and

disproportionate effect on a protected class 8; and (3) robust

causality that shows, beyond mere evidence of a statistical

disparity, that the challenged policy, and not some other

factor or policy, caused the disproportionate effect. 9

The district court held that Appellants failed to

demonstrate robust causality. We hold that the district court

erred in that judgment. We conclude that Appellants did

establish robust causation and did meet their prima facie

burden.

8

Appellants here allege that they are members of the class of

persons against which the District discriminated; Appellants’ alleged

injury here was a direct result of that discrimination. But the FHA does

permit suits by plaintiffs outside the class of persons discriminated

against, see, e.g., Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 210,

211–12 (1972) (holding that plaintiffs not themselves the “direct objects

of discrimination” have standing under the FHA), so long as those

plaintiffs can allege and prove that their injury was proximately caused

by the discrimination against the class of persons, see Lexmark Int’l, Inc.

v. Static Control Components, Inc., 572 U.S. 118, 132 (2014) (“[A]

statutory cause of action is limited to plaintiffs whose injuries are

proximately caused by violations of the statute.”).

9

Some courts have also required plaintiffs to plead facts

demonstrating that the targeted policy is “arbitrary, artificial, and

unnecessary.” See, e.g., Ellis v. City of Minneapolis, 860 F.3d 1106,

1112 (8th Cir. 2017); Khan v. City of Minneapolis, 922 F.3d 872, 874

(8th Cir. 2019). Because this appeal is brought pursuant to the district

court’s grant of summary judgment and because the District did not

move to dismiss or for judgment on the pleadings below, we need not

address whether such a requirement exists.

20 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

1. Identification of an Outwardly Neutral Policy

Appellants have identified an outwardly neutral policy.

The District’s Security Deposit Policy requires public

housing residents (tenants of Pinal County) to pay an $180

refundable security deposit. Non-public housing residents

are not subject to that increase and pay only $55. Persons

who are residents of public housing are not a protected class.

See 42 U.S.C. § 3604(b). The policy does not explicitly treat

customers differently based on their membership in any

recognized protected class. The policy is not a one-time

decision.

2. Significant, Adverse, and Disproportionate

Effect on Members of a Protected Class

Before any statistical disparate-impact analysis can

proceed, the correct comparative populations must be

identified. There are multiple valid methods of analysis

involving different comparative populations. See Robert G.

Schwemm & Calvin Bradford, Proving Disparate Impact in

Fair Housing Cases After Inclusive Communities, 19 N.Y.U.

J. Legis. & Pub. Pol’y 685, 698–99, 703–06 (2016). One

method that we have identified as a valid “basis for a

successful disparate impact claim involves a comparison

between two groups—those affected and those unaffected by

the facially neutral policy.” Darensburg v. Metro. Transp.

Comm’n, 636 F.3d 511, 519–20 (9th Cir. 2011) (quoting

Tsombanidis v. W. Haven Fire Dep’t, 352 F.3d 565, 575 (2d

Cir. 2003)).

When a defendant makes a deliberate choice to subject

only a subset of its customers or constituents to a certain

policy, it is proper to compare the demographics of that

subset to the larger population of clients to which the policy

does not apply to discern whether the decision to limit a

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 21

policy to that subset produced any disproportionate effect.

Appellants used this type of statistical analysis, comparing

affected and unaffected populations. Appellants’ expert

compared (1) those District customers to whom the Security

Deposit Policy applied (public housing residents of Pinal

County); and (2) those remaining District customers to

whom the policy did not apply (non-public housing

residents) to determine whether the affected population was

overrepresented by certain members of protected classes.

This is a proper comparison. 10

However, the district court here incorrectly limited its

analysis to those adversely affected by the policy, i.e., public

housing residents only. The district court held that

Appellants failed to demonstrate that the protected-group-

member residents of Edwards Circle were

disproportionately affected by the policy by undertaking an

analysis in which the court compared them not to unaffected

(non-public housing) District customers, but only to the non-

protected-group members of Edwards Circle. The court

concluded that, of those affected by the policy, “[e]verybody

is treated the same, and experiences the same outcome,

regardless of membership in a protected group.” That

comparison ignores a critical element of the District’s

Security Deposit Policy: that, to begin with, it applied only

10

We note, however, that a policy that is generally applicable and

that does not explicitly apply only to a subset based on a particular

characteristic may require a different analysis or consideration of

idiosyncratic factors to isolate the “affected” population. See

Darensburg, 636 F.3d at 520 (holding that the plaintiffs’ statistical

demonstration concerning the disproportionate effect on minorities of an

infrastructure expansion plan that devoted more resources to rail lines

than to bus lines identified the wrong “affected” population—the

affected population was potential new riders on the expanded rail and

bus lines, not riders of existing lines).

22 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

to a subset of the District’s overall customer base. To

resolve whether the District’s decision to apply the Security

Deposit Policy only to public housing residents resulted in a

disparate impact, the proper comparative population is the

District’s public housing and non-public housing residents.

Appellants’ statistical analysis shows that, as compared

to the District’s overall customer base, a disproportionate

percentage of the District’s Edwards Circle customers (i.e.,

heads of households) are: African Americans (38.9% to

2.9%), Native Americans (16.7% to 2.2%), and, as relevant

to both Peters and Peña, unmarried women with children

(89.0% to 34.3%). By comparison, 11.1% of Edwards Circle

customers are White, while 45.0% of the District’s customer

base is White. Using the proper comparison populations, we

see that the Security Deposit Policy disproportionately

impacted African Americans, Native Americans, and

households headed by unmarried women with children.

That the policy has a disproportionate effect is not

enough, though; the disparity must also be significant.

Wards Cove, 490 U.S. at 656. Analyses with small sample

sizes (Edwards Circle contains only twenty residences) raise

a red flag when assessing whether a plaintiff has identified a

significant disparity. Stout v. Potter, 276 F.3d 1118, 1123

(9th Cir. 2002) (“We observe initially that the probative

value of any statistical comparison is limited by the small

available sample. . . . A sample involving 6 female

applicants in a pool of 38 applicants is likely too small to

produce statistically significant results.”). Nevertheless,

Appellants’ unchallenged expert report concluded that the

statistical disparities here are statistically significant—

meaning there is a “high probability” that they “did not occur

by chance.”

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 23

The expert report also demonstrates the disparities have

a practical significance. 11 See Brnovich v. Democratic Nat’l

Comm., 141 S. Ct. 2321, 2343 n.17 (2021). The gaps in

representation by African Americans, Native Americans,

and single mothers in the public housing population as

compared to the non-public housing population are large:

African Americans are nearly four times as likely and Native

Americans are nearly twice as likely to be public housing

customers than Whites.

The District did not offer its own statistical evidence or

otherwise identify errors or omissions in the Appellants’

expert evidence. Given the District’s lack of contrary

evidence, we must conclude that the Appellants’ statistical

evidence adequately suggests a material and significant

disproportionate effect on members of these protected

11

“Significance” in the context of disparate-impact claims is not

limited to statistical significance; “practical significance,” which

examines whether minor statistical disparities have any discriminatory

effect in practice, also plays a role. See Brnovich, 141 S. Ct. at 2343 n.17

(“Statistical significance may provide evidence that something besides

random error is at work, but it does not necessarily determine causes, and

as the dissent acknowledges, it is not the be-all and end-all of disparate-

impact analysis.” (cleaned up)); id. (“[S]ignificant differences . . . are not

evidence that [what is at work] is legally or practically important.

Statisticians distinguish between statistical and practical significance to

make the point. When practical significance is lacking—when the size

of a disparity is negligible—there is no reason to worry about statistical

significance.” (quoting Federal Judicial Center, Reference Manual on

Scientific Evidence 252 (3d ed. 2011)); id. at 2358 n.4 (Kagan, J.,

dissenting) (“I agree with the majority that ‘very small differences’

among racial groups do not matter. . . . In addition, there may be some

threshold of what is sometimes called ‘practical significance’—a level

of inequality that, even if statistically meaningful, is just too trivial for

the legal system to care about.”).

24 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

groups. 12 Therefore, we hold Appellants succeeded in

establishing a prima facie case that the Security Deposit

Policy had a significant, adverse, and disproportionate effect

on members of a protected class.

3. Robust Causation

Finally, Appellants must demonstrate “robust causality,”

which requires a plaintiff who has identified both a

defendant’s neutral policy and a statistical disparity to

demonstrate a “robust” causal link between the two.

Inclusive Communities, 576 U.S. at 543. The function of

robust causation is to resolve whether the adverse and

disproportionate outcomes that arose after a challenged

policy was implemented can be traced to the policy rather

than to other potential causes or factors. This is not a

difficult inquiry here.

The robust causation requirement derives most notably

from Wards Cove. 490 U.S. at 656; see also Inclusive

Communities, 576 U.S. at 542 (citing Wards Cove in

discussing the “robust causality requirement”). In Wards

Cove, plaintiff cannery workers complained that several

policies (including nepotism, rehiring preferences, and

subjective decision making) caused lower-paying cannery

positions to be disproportionately occupied by minorities

while higher-paying non-cannery positions (managerial

positions) were disproportionately occupied by White

people. 490 U.S. at 656–57. The Supreme Court explained

that, to show causality, plaintiffs were first “responsible for

isolating and identifying the specific employment practices

that are allegedly responsible for any observed statistical

12

Neither does the District contest that the increase of a required,

up-front security deposit to $180 operates as a significant adversity.

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 25

disparities.” Id. at 656 (quoting Watson v. Fort Worth Bank

& Tr., 487 U.S. 977, 994 (1988)). Then, plaintiffs had to

“demonstrate that the disparity they complain of is the result

of one or more of the [defendant’s] practices that they are

attacking . . . , specifically showing that each challenged

practice has a significantly disparate impact . . . . 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 of their work forces.’” Id.

at 657 (quoting Watson, 487 U.S. at 992).

Drawing from Wards Cove, the Supreme Court in

Inclusive Communities further elaborated on the robust

causality requirement: “[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.” 576 U.S. at 542. This “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.”

Id. (quoting Wards Cove, 490 U.S. at 653). “If a statistical

discrepancy is caused by factors other than the defendant’s

policy, a plaintiff cannot establish a prima facie case, and

there is no liability.” Id. at 527.

Here, because the District explicitly applied the adverse

effects of the policy—increasing the security deposit to

$180—only to a subset of its customer base, the causation

analysis is not all that complicated. The adverse impact

complained about by Appellants derives wholly from the

innerworkings of the policy. For no reason other than the

District’s decision to create two different security deposit

amounts for its public housing customers and for its private

housing customers did the disparate impact arise. After the

implementation of the policy and as a direct result of it, a

26 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

disproportionate percentage of protected-group members

were subject to an increased security deposit.

Importantly, the adverse effect here is not some broad

social condition. Cf. Inclusive Communities, 576 U.S.

at 526–27, 543 (signaling that plaintiffs on remand may find

it “difficult to establish causation because of the multiple

factors that go into investment decisions about where to

construct or renovate housing units”). Appellants are not

complaining that the Security Deposit Policy contributed to

an overrepresentation of protected-group members in public

housing. Rather, Appellants complain that the District’s

tying security deposit prices to public housing status directly

caused the discrete adverse effect of an increased security

deposit to apply disproportionately to members of protected

groups. As such, it is not the case that we are left wondering

whether members of a protected class are subject to the

increased fee because of this policy or because of some other

factor. Cf. Wards Cove, 490 U.S. at 653–54 (holding

causation was not demonstrated because plaintiffs had not

disproved the possibility that the overrepresentation of

minority workers in lower-paying cannery positions was

caused by the company’s contract with a predominantly non-

White labor union). The sole cause of the disproportionate

impact of the increased security deposit was the District’s

decision to apply the policy only to a subset of its

customers. 13 In holding that Appellants established robust

causation sufficient to carry their burden of establishing a

prima facie case, we reject the district court’s analysis.

Again, the district court ignored the fact that the policy

13

We also note that, based on its conversations with Pinal County

employees, the District likely knew that Edwards Circle was

overrepresented by certain members of FHA-protected groups, but

adopted the policy change anyway.

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 27

bifurcated the District’s customer base into two groups

consisting of public versus private housing customers.

Finally, as the district court noted, some debate has

developed about the contours of the robust causality

requirement. See Inclusive Communities Project, Inc. v.

Lincoln Prop. Co., 920 F.3d 890, 903–05 (5th Cir. 2019)

(describing four different views among the Fourth, Eighth,

and Eleventh Circuits). We need not enter that debate. This

is a simple case where the policy explicitly bifurcated a

population based on a non-protected characteristic: public

housing. That bifurcation generated a disproportionate

effect that would not have existed in its absence and ensured

the adverse effects of the policy applied only to the

population subset that was overrepresented (in comparison

to the overall District customer population) by certain

members of a protected group. The clarity of that causal

relationship sets it apart from other cases.

The district court erred in holding that Appellants failed

to establish a prima facie case of disparate-impact

discrimination under the FHA. We move on to the second

step of the disparate-impact analysis.

B. Legitimate Business Interest

After the plaintiff successfully demonstrates a prima

facie case, the burden shifts, and the defendant is given an

opportunity to avoid liability by providing evidence that the

challenged policy significantly serves a legitimate business

interest. The district court, which held in error that

Appellants did not establish a prima facie case, stopped short

of addressing the remainder of the analysis. “We may affirm

the district court’s grant of summary judgment on any

ground supported by the record, regardless of whether the

district court relied upon, rejected, or even considered that

28 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

ground.” Am. Fed’n of Musicians of U.S. & Canada v.

Paramount Pictures Corp., 903 F.3d 968, 981 (9th Cir.

2018) (cleaned up). 14 We conclude there is no genuine issue

of material fact that the District demonstrated a legitimate

business justification for implementing the Security Deposit

Policy and that the policy served that interest in a significant

way.

“Governmental or private policies are not contrary to the

disparate-impact requirement unless they are ‘artificial,

arbitrary, and unnecessary barriers.’” Inclusive

Communities, 576 U.S. at 543 (quoting Griggs v. Duke

Power Co., 401 U.S. 424, 436 (1971)). Accordingly, “[a]n

important and appropriate means of ensuring that disparate-

impact liability is properly limited is to give housing

authorities and private developers leeway to state and

explain the valid interest served by their policies.” Id. at 541.

“This step of the analysis is analogous to the business

necessity standard under Title VII . . . [j]ust as an employer

may maintain a workplace requirement that causes a

disparate impact if that requirement is a ‘reasonable

measure[ment] of job performance,’ so too must housing

authorities and private developers be allowed to maintain a

policy if they can prove it is necessary to achieve a valid

interest.” Id. (alteration in original) (citation omitted)

(quoting Griggs, 401 U.S. at 431). “While the defendant

must produce evidence that the practice serves legitimate

ends, ‘[t]he ultimate burden of proving that discrimination

14

Because we may affirm a grant of summary judgment on any basis

supported by the record, there is no reason to remand to the district court.

Am. Fed’n of Musicians, 903 F.3d at 981. Discovery has closed and the

record is complete. Whether the District’s Security Deposit Policy

serves a legitimate business interest was fully briefed in the district court

and on appeal. As such, the district court judge would not be in a better

position to resolve this issue in the first instance on remand.

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 29

against a protected group has been caused by a specific . . .

practice remains with the plaintiff at all times.’” Hardie,

876 F.3d at 320 (alteration in original) (quoting Wards Cove,

490 U.S. at 659).

Although the Supreme Court in Inclusive Communities

used the phrase “business necessity” to describe this step of

the analysis, that term is somewhat of a misnomer. First, the

defense is available not only to businesses but also to

individuals and public entities. Inclusive Communities,

576 U.S. at 541. Second, the standard is not “necessity”: the

defendant need not demonstrate that the challenged policy is

“‘essential’ or ‘indispensable’” to its business—only that the

policy “serves, in a significant way,” its legitimate interests.

Wards Cove, 490 U.S. at 659; accord Hardie, 876 F.3d

at 320 (“The defendant’s practice need not be ‘essential’ or

‘indispensable’ to achieving its stated goal, but the

relationship between the practice and its purpose must be

more than ‘insubstantial.’” (quoting Wards Cove, 490 U.S.

at 659)). 15 To require that a business or government show

that a challenged policy is “necessary” to its interests would

be to render the defense a nullity. Cf. Wards Cove, 490 U.S.

at 659 (“[T]here is no requirement that the challenged

practice be ‘essential’ or ‘indispensable’ to the employer’s

15

Although Hardie arose in the Title II (which bars discrimination

in public accommodations) context, it was decided after Inclusive

Communities and favorably cites to Inclusive Communities and Wards

Cove. Because “[n]either the Supreme Court nor we have decided

whether disparate-impact claims are cognizable under Title II,” Hardie

drew directly from the Supreme Court’s Title VII precedent. Hardie,

876 F.3d at 319 (assuming without deciding that Title II permitted

disparate-impact theories). Given the Supreme Court’s example in

analogizing to Title VII precedents, we think it proper to use Hardie to

help guide the analysis here. See Inclusive Communities, 576 U.S.

at 541.

30 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

business for it to pass muster: this degree of scrutiny would

be almost impossible for most employers to meet.”). At end,

it is defendant’s burden at this stage to show (1) a legitimate

business interest, and (2) that the practice or policy serves in

a significant way that legitimate interest.

Here, it is undisputed that the District articulated a

legitimate business interest. The record demonstrates that

residents at Edwards Circle had previously left delinquent

accounts in excess of their security deposit, which the

District could not recover from Pinal County. The District

accordingly sought to create a policy that would prevent

losses produced by such delinquencies in the future. It is

self-evident that a business has a legitimate interest to be

paid in full for services it has already provided pursuant to a

valid contract. Considered in the aggregate, that right

implicates the legitimate interest that a business has in

maintaining fiscal solvency.

The next question is whether the District’s Security

Deposit Policy serves that interest in a significant way. It is

the District’s burden to establish that the challenged portions

of the policy, i.e., those “practices causing the disparate

impact,” significantly serve its business interest. See Ojo,

600 F.3d at 1203; Hardie, 876 F.3d at 320. Here, that

includes the decision to apply the policy only to public

housing customers and the decision to increase the deposit

to $180, rather than some other dollar figure. We conclude

there is no genuine issue of material fact as to whether the

District established that both aspects of the Security Deposit

Policy serve in a significant way its valid business interests.

The District’s decision to apply the Security Deposit

Policy only to public housing tenants of Pinal County was

directly related to its interest in protecting itself against

unrecovered delinquencies. It is uncontested that the

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 31

District’s default recovery policies—namely, demanding

payment from the landlord and placing a lien on the

property—were not effective to recover money from those

tenants’ landlord—Pinal County—purportedly due to the

County’s status as a public entity. Unlike other District

customers who leased out their property, Pinal County

refused to reimburse the District for delinquencies left by its

tenants. The County also resisted the District’s efforts to

recover by way of liens and their executions. The County

further refused to use its public funds to pay the defaulting

tenants’ water bills on the basis that such payments would

violate the Arizona state constitution.

Thus, the only customers for whom the District required

an alternative recovery policy were those whose landlord

was Pinal County—i.e., its public housing customers. The

unique relationship between the District and Pinal County

was adequate justification for the District to issue the

prophylactic Security Deposit Policy. Appellants question

whether the policy truly served the District’s interest in fiscal

solvency because Edwards Circle tenants represent only a

small portion of the District’s full customer base. But

protecting against any otherwise unrecoverable financial

loss is a valid interest served by the policy. To that end,

Appellants fail to explain why the District should simply

lose the amounts of any delinquent public housing water

bills. Appellants also argue that recovering delinquencies

from Edwards Circle is not necessary for the District’s

financial solvency because the delinquencies were de

minimis. But a policy need not be essential or indispensable

to significantly serve a legitimate interest; moreover,

Appellants offer no meaningful limiting principle as to how

32 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

minor a potential financial loss must be before a business

may not protect itself against it. 16

Neither is there a triable issue as to whether the District’s

decision to increase the security deposit to $180, rather than

a smaller amount, serves in a significant way the District’s

legitimate interest in guaranteeing that it will receive full

payment for services rendered. The record includes

delinquent account balances left by Edwards Circle residents

at various times between 2010 and 2015. At the time the

policy was first announced (November 2014), the District

had multiple delinquent Edwards Circle accounts still on the

books, including one delinquent account from 2011 that

amounted to $184.45. 17 The District’s designated Rule

30(b)(6) representative witness expressly testified at

deposition that the District chose a dollar figure that would

cover the largest outstanding accounts to prevent loss to the

company:

I looked—my rationale was the fact that we

need to be able to cover the delinquent

accounts and protect the District from having

to pay—provide water at no cost to those

accounts. And I—if I remember correctly, it

16

As the District notes, Appellants incorrectly point to the District’s

“net assets” in arguing the size of the delinquencies are inconsequential.

But they do not explain how the value of a company’s assets (e.g.,

underground water pipes, pumps, vehicles, office equipment, easements,

etc.) is relevant to whether unpaid accounts receivable impact a

business’s daily operation or financial commitments. Appellants did not

offer evidence on the District’s cash flow. But even were the cash flow

positive, that would not delegitimatize the District’s interest in seeking

to have its water bills paid.

17

Appellants fail to cite to any record evidence that proves this 2011

delinquency statement is inaccurate.

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 33

was basically looking at a range of delinquent

accounts and looking at one that would

encompass to capture most of those so that

we did not suffer a loss as far as the District

goes.

That stated rationale is supported by the evidence: The dollar

figure of the increased security deposit in the policy ($180)

is nearly equivalent to the District’s largest outstanding

delinquency in the record ($184.45).

Appellants cite no record evidence contradicting the

District’s expressed intent to key the deposit amount to past

delinquencies. Instead, Appellants argue that $180 is an

arbitrary figure. As the record demonstrates, that clearly is

not the case. It was not picked out of the blue, but because

of a specific account in the red.

Now, had the District set the security deposit at clearly

excessive amounts relative to predictable monthly water

bills for individual units (say, $500 or $1000), or had the

District failed to proffer evidence that its security deposit

amount was keyed to the size of the largest delinquency

(with accompanying documentary support), or had the

District decided not to make the security deposit refundable

to public housing tenants who did not leave behind

delinquent accounts, then Appellants might have raised a

triable issue as to whether the policy served the legitimate

goal of preventing financial loss to the District from

delinquencies. But Appellants did not provide any such

evidence.

The District provided evidence that the amount of its

security deposit significantly served its legitimate business

interest. Appellants are not entitled to assert in response that,

in their estimation, the District could have recouped most,

34 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

though not all, of its costs related to delinquencies with a

lower deposit amount and that the District should be content

with that. A plaintiff may attempt to rebut the defendant’s

proof that it has a substantial basis for setting the cost of the

deposit at a certain dollar figure by showing the cost is either

not substantially related to the loss to be prevented or

pretextually high—but plaintiffs may not simply assert a

business’s interest is illegitimate because the plaintiff does

not believe the financial losses at issue are worth preventing.

That is nothing more than subjective second-guessing the

sound exercise of a business’s discretion. See Inclusive

Communities, 576 U.S. at 540–41.

We therefore conclude that there is no triable issue of

material fact as to whether the District demonstrated a

legitimate business justification for implementing the

Security Deposit Policy.

C. Equally Effective, Less Discriminatory

Alternative

In the final step of the disparate-impact analysis, “if the

defendant provides a legitimate justification for the

challenged practice, the plaintiff must demonstrate that an

alternative practice (1) would ‘serve the defendant’s

legitimate interests,’ and (2) would not have a ‘similarly

undesirable . . . effect [on members of protected groups].’”

Hardie, 876 F.3d at 320 (quoting Wards Cove, 490 U.S.

at 660) (cleaned up). “[B]efore rejecting a business

justification . . . a court must determine that a plaintiff has

shown that there is ‘an available alternative . . . practice that

has less disparate impact and serves the [entity’s] legitimate

needs.’” Inclusive Communities, 576 U.S. at 533 (third and

fourth alterations in original) (quoting Ricci v. DeStefano,

557 U.S. 557, 578 (2009)). “The plaintiff’s proposed

alternative(s) must be ‘equally effective’ as the defendant’s

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 35

chosen policy at serving the defendant’s interest(s), taking

into account ‘[f]actors such as the cost or other burdens’ that

alternative policies would impose.” Hardie, 876 F.3d at 320

(quoting Wards Cove, 490 U.S. at 661); see also Watson,

487 U.S. at 998. “‘Courts are generally less competent than

employers to restructure business practices,’ consequently,

the judiciary should proceed with care before mandating that

an employer must adopt a plaintiff’s alternative . . . .” Wards

Cove, 490 U.S. at 661 (quoting Furnco Constr. Corp. v.

Waters, 438 U.S. 567, 578 (1978)).

In Inclusive Communities, the Supreme Court clarified

the limited scope of the third step and implemented

safeguards to ensure that housing authorities and private

developers are given “leeway to state and explain the valid

interest served by their policies.” 576 U.S. at 541–42. “The

FHA is not an instrument to force [defendants] to reorder

their priorities. Rather, the FHA aims to ensure that those

priorities can be achieved without arbitrarily creating

discriminatory effects or perpetuating segregation.” Id.

at 540. “The limitations on disparate-impact liability

discussed here are also necessary to protect potential

defendants against abusive disparate-impact claims. . . .

Were standards for proceeding with disparate-impact suits

not to incorporate at least the safeguards discussed here, then

disparate-impact liability might displace valid governmental

and private priorities, rather than solely removing artificial,

arbitrary, and unnecessary barriers. And that, in turn, would

set our Nation back in its quest to reduce the salience of race

in our social and economic system.” Id. at 544 (cleaned up).

At summary judgment, the burden on the plaintiff at the

third step is not only to present potential alternatives, but to

provide evidence that equally effective and less

discriminatory alternatives exist. Watson, 487 U.S. at 997–

36 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

98. Appellants here provide arguments but fail to present

evidence sufficient to allow a jury to conclude that any

equally effective, less discriminatory alternatives exist to the

Security Deposit Policy. Moreover, these arguments are not

persuasive.

As a first alternative, Appellants contend that the District

could have continued to attempt to force Pinal County to pay

for any delinquencies, either by negotiating an

intergovernmental agreement, by requesting a resolution

from the County Board of Supervisors, or by filing a

declaratory relief action in court. However, as already

recounted, the District attempted numerous times over

several years to convince Pinal County to pay its tenants’

delinquencies, all without success. Appellants suggest Pinal

County’s legal claims (that its public property was immune

from liens and that the anti-gift clause of the Arizona

Constitution prevented the County from paying its tenants’

delinquencies) were infirm and the District should have filed

a declaratory action in court rather than take the County at

its word. But requiring the District to file a declaratory

action against Pinal County would create costly and time-

consuming burdens for the District and it is not clear that the

District would prevail. Appellants have not presented

evidence sufficient to create a material triable issue of fact

that these alternatives would be equally effective.

Appellants next argue that the District should instead

seek to collect the delinquencies from the public housing

customers responsible rather than institute a prophylactic

security deposit policy. Setting aside the fact that letters sent

to Pinal County show the District did unsuccessfully attempt

to collect from these customers, Appellants do not supply

any evidence that this alternative would be less burdensome

or equally effective than a refundable security deposit. It

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 37

likely would not be as it would require the District to recoup

delinquent accounts through a collections agency from

customers who have already shown an inability or disinterest

in paying their utility bill and for whom the District no

longer has valid current addresses. 18 Alternatively,

Appellants argue that the District can cover for delinquent

account losses by siphoning money from the District’s own

operating revenue. But for us to require such measures

would deny that businesses have a valid right to guarantee

full payment from individual clients.

Finally, Appellants propose the District apply the

Security Deposit Policy to all its customers, rather than

applying it solely to public housing residents. Requiring the

District to increase all its customers’ costs and burdens by

applying the Security Deposit Policy regardless whether

their landlords comport with the District’s requirement that

landlords pay tenant delinquencies may annul the disparate

impact, but it is not a reasonable alternative given this

record. We must also take into account the costs and burdens

of proposed alternatives. Hardie, 876 F.3d at 320.

Mandating the District to discard the rational tailoring of the

Security Deposit Policy incorrectly signals that justified,

deliberate, and legitimate policies, which impact protected

groups, violate the FHA. This is improper. See Inclusive

Communities, 576 U.S. at 521 (“Policies, whether

governmental or private, are not contrary to the disparate-

impact requirement unless they are artificial, arbitrary, and

unnecessary barriers.” (quotation marks and citation

omitted)). Neither would increasing the security deposit of

18

Appellants also suggest pegging the security deposit to a tenant’s

payment history or credit rating or to reduce the size of the security

deposit but provide no evidence that either solution is equally effective

or would be less discriminatory. Counsel’s suggestions are not evidence.

38 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

all customers to some amount lower than $180 be an equally

effective method of protecting against a delinquent balance

left by a tenant with an immune landlord. Because the

District must refund the security deposit of each customer

who does not leave behind an outstanding balance, it cannot

take funds from one customer’s security deposit to cover a

delinquent balance left by another customer—or, if it does

do so as a temporary measure, it must eventually use its own

funds to replenish that first tenant’s deposit. Thus,

increasing every customer’s security deposit to some amount

lower than $180 will likely still leave the District vulnerable

to financial loss.

Ultimately, the district court erred by choosing the

wrong comparator population when it held that the

Appellants failed to establish a prima facie case of disparate

impact. However, the District established a

nondiscriminatory legitimate business interest in applying

the Security Deposit Policy only to Pinal County tenants and

for raising the deposit to $180, and that these interests were

served in a significant way by that policy. Appellants have

not identified any genuine issue of material fact that would

disturb that conclusion and have failed to carry their burden

in establishing any less discriminatory, equally effective

alternative to the District’s policy.

Although the district court’s analysis at the prima facie

stage was in error, we affirm the district court’s grant of

summary judgment to the District on the disparate-impact

claim.

II. Disparate-Treatment Claim

Appellants attempted to defeat the District’s motion for

summary judgment by arguing that their complaint also

alleged a disparate-treatment cause of action. The district

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 39

court rejected that argument, concluding that Appellants had

failed to allege a disparate-treatment claim under the FHA

and, even if they had, had supplied insufficient evidence to

establish a genuine dispute of material fact. While we

affirm, we conclude the district court erred in finding that

Appellants did not make it known in discovery that they

would pursue a disparate-treatment claim. See Coleman v.

Quaker Oats Co., 232 F.3d 1271, 1294 (9th Cir. 2000). We

nonetheless affirm the district court because Appellants

failed to adduce evidence sufficient to allow a reasonable

jury to conclude that the District was liable under a

disparate-treatment theory.

We have held in the analogous ADEA context that a

plaintiff may not pursue an alternative discrimination theory

unless plaintiffs “either (1) [pleaded] the additional disparate

impact [or treatment] theory in their complaints, or

(2) [made] known during discovery their intention to pursue

recovery on the disparate impact [or treatment] theory

omitted from their complaints. Only if the defendants have

been put on notice may the plaintiffs proceed on a disparate

impact [or treatment] theory at the summary judgment

stage.” Id.

Unlike for disparate-impact claims, allegations that

discrimination was a motivating factor behind a defendant’s

actions are essential to plead a disparate-treatment claim.

Ultimately, at the summary judgment stage, the plaintiff

must “produce direct or circumstantial evidence

demonstrating that a discriminatory reason more likely that

not motivated the defendant and that the defendant’s actions

adversely affected the plaintiff in some way.” Ave. 6E,

818 F.3d at 504 (9th Cir. 2016) (quoting Pac. Shores Props.,

LLC v. City of Newport Beach, 730 F.3d 1142, 1158 (9th Cir.

2013)).

40 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

Appellants’ amended complaint did not articulate any

theory of disparate treatment. Essential terms such as

“disparate treatment,” “motivating factor,” and

“discriminatory purpose” do not appear anywhere. Nor are

there allegations of improper animus or any discussion of the

District’s purpose in instituting the policy. Instead, the

complaint reads as a traditional disparate-impact complaint:

it lists demographic statistical disparities among the

Edwards Circle population and describes the

disproportionate harm that the policy allegedly caused.

However, we have held that a plaintiff may provide

notice of their intent to pursue either a disparate-impact or

disparate-treatment claim during discovery. Coleman,

232 F.3d at 1294. Notice in the complaint is preferred. Id.

at 1292. Thus, to avoid prejudicing the defendant, notice

provided during discovery should be made early and should

clearly demonstrate the plaintiff is collecting evidence to

establish the alternative theory.

For example, in Coleman, plaintiffs pursued an ADEA

disparate-treatment discrimination claim in their complaint

and in discovery, but never raised a disparate-impact claim

before summary judgment. Id. at 1292–93. We held that

because the defendant was given “no notice either in the

complaint, in documents submitted with the complaint, or in

any document prior to their motions for summary judgment

that they intended to argue this theory,” the district court did

not err when it barred plaintiffs from asserting the theory at

summary judgment. Id. at 1294 n.8.

That is not the case here. Documents submitted to the

district court prior to discovery demonstrate that the District

was aware that Appellants were attempting to bring a

disparate-treatment claim. The District signed on to a joint

case management plan filed prior to discovery which recited

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 41

as an issue in dispute “[w]hether race, color, [etc.] was a

motivating factor in committing the challenged practices.”

Indeed, even prior to that, the District indicated it was aware

that Appellants intended to pursue a disparate-treatment

theory when it listed in its amended answer the affirmative

defense that “discrimination was not a motivating factor” (an

element unique to a disparate-treatment claim). The District

could have sought to dismiss a claim for disparate treatment

under Federal Rule of Civil Procedure 12(b)(6) or sought a

more definitive statement under Rule 12(e) but failed to do

so. Instead, the District’s own statements to the court

demonstrate that the District had notice of Appellants’

potential disparate-treatment claim. Therefore, the District

had notice and was not prejudiced by Appellants’ disparate-

treatment claim.

However, the district court did not err in holding that

Appellants failed to present evidence sufficient to establish

a genuine dispute of material fact regarding disparate

treatment. To defeat a motion for summary judgment,

Appellants were required to establish that there was a

genuine issue of material fact as to whether “a

discriminatory reason more likely than not motivated the

defendant.” Ave. 6E, 818 F.3d at 504 (quotation marks and

citations omitted). Proof may come in the form of either

“direct or circumstantial evidence.” Pac. Shores Props.,

730 F.3d at 1158. Typically, we apply the multi-factor

inquiry from Arlington Heights v. Metropolitan Housing

Corp., 429 U.S. 252, 266 (1977), to assess whether a plaintiff

has established a triable issue of fact that the defendant’s

actions were motivated by discriminatory intent. We

examine “the events leading up to the challenged decision

and the legislative history behind it, the defendant’s

departure from normal procedures or substantive

conclusions, and the historical background of the decision

42 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

and whether it creates a disparate impact.” Ave. 6E, 818 F.3d

at 504 (citing Arlington Heights, 429 U.S. at 266–68). But

Appellants have not adduced sufficient evidence that the

District had a discriminatory motive.

Appellants presented insufficient direct evidence of

discriminatory animus in the lead-up to the policy’s

adoption. Appellants’ only argument is to point to a

statement in deposition by a District board member that he

did not “think [Pinal County was] as accountable as they

should have been for their property, for managing the influx

of people and tenants and that type of thing.” Appellants

argue, without citation to any evidence, direct,

circumstantial, or expert, that “influx of people and tenants”

is code for African Americans, Native Americans, and single

mothers. The district court rejected that argument,

concluding these were not “‘code word[s]’ that

demonstrate[d] discriminatory intent.” We agree.

Appellants’ contention that the phrase “influx of people and

tenants” demonstrates discriminatory intent or bias is

baseless. No reasonable jury could conclude from this

statement that the District intended to discriminate against

Pinal County tenants on the basis of race or familial status.

Neither did Appellants demonstrate circumstantial

evidence from which a jury could find discriminatory intent.

Appellants’ only argument here is that the District was told

by Pinal County that increasing the security deposit only for

residents of Edwards Circle would affect mostly members of

“a protected class” and violate fair housing law, and that this

is conclusive evidence to establish an inference of

discriminatory motive. While a defendant’s knowledge of a

policy’s potential discriminatory impact may be relevant

circumstantial evidence in proving animus, it is not

sufficient here. As explained above, the District’s decision

SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 43

to apply the Security Deposit Policy is readily explainable

on grounds of common-sense business practices: businesses

must be paid for their services to stay in business. These

grounds are other than race or familial status. Nor is there

any evidence that the District’s business-related grounds

were pretextual. A demonstration that a business may have

known that a challenged policy could result in a

disproportionate impact on certain members of a protected

class is simply not sufficient on its own to impose liability

for a disparate-treatment claim. 19

Because the Appellants did not establish a genuine issue

of material fact as to whether the District had a

discriminatory motive, we affirm the district court’s order

granting the District summary judgment on the disparate-

treatment claim.

CONCLUSION

For the reasons stated above, we AFFIRM.

19

Appellants also argue that the District acted with reckless

disregard, which the Supreme Court has deemed equivalent to “willful”

discrimination in the context of other federal discrimination statutes.

Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 126 (1985). We

need not decide whether this standard, which applied to a damages

provision of the ADEA, is applicable to disparate treatment liability

under the FHA because Appellants have not provided sufficient evidence

that the District acted with reckless disregard.