Disparate Impact Claims Under the Fair Housing Act

Congressional research reportSep 24, 2015

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Disparate Impact Claims Under the Fair

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Disparate Impact Claims Under the Fair Housing Act

Summary

The Fair Housing Act (FHA) was enacted “to provide, within constitutional limitations, for fair

housing throughout the United States.” It prohibits discrimination on the basis of race, color,

religion, national origin, sex, physical and mental handicap, and familial status. Subject to certain

exemptions, the FHA applies to all sorts of housing, public and private, including single family

homes, apartments, condominiums, and mobile homes. It also applies to “residential real estaterelated transactions,” which include both the “making [and] purchasing of loans ... secured by

residential real estate [and] the selling, brokering, or appraising of residential real property.”

There has been controversy over whether, in addition to outlawing intentional discrimination, the

FHA also prohibits certain housing-related decisions that have a discriminatory effect on a

protected class. That controversy was settled when, in June 2015, a divided U.S. Supreme Court

ruled that disparate impact claims are cognizable under the FHA.

Key Takeaways of This Report



In February 2013, Department of Housing and Urban Development (HUD) for

the first time issued regulations “formaliz[ing] HUD’s long-held interpretation of

the availability of ‘discriminatory effects’ liability under the Fair Housing Act

and to provide nationwide consistency in the application of that form of liability.”

In June 2015, the Supreme Court held in Texas Department of Housing and

Community Affairs v. Inclusive Communities Project that disparate impact claims

are cognizable under the FHA—a view previously espoused by HUD and the 11

U.S. Courts of Appeals to render opinions on the issue. The Court also outlined

certain limiting factors that should apply when assessing disparate impact claims.

The Supreme Court appears to have adopted a three-step burden-shifting test for

assessing disparate impact liability under the FHA. The test outlined by the

Court, which is similar though not identical to the one adopted by HUD, places

the initial burden on the plaintiffs to establish evidence that a housing decision or

policy caused a disparate impact on a protected class. Defendants can counter the

plaintiff’s prima facie showing by establishing that the challenged policy or

decision is “necessary to achieve a valid interest.” The defendant’s “valid

interest” will stand unless the “plaintiff has shown that there is an available

alternative practice that has less disparate impact and serves the entity’s

legitimate needs.” Going forward, the minority of federal circuits that historically

have used a different type of test likely will begin using a burden-shifting scheme

consistent with the test outlined in Inclusive Communities.

The Supreme Court stressed that lower courts and HUD should rigorously

evaluate plaintiffs’ disparate impact claims to ensure that evidence has been

provided to support, not only a statistical disparity, but also causality (i.e., that a

particular policy implemented by the defendant caused the disparate impact).

The Court also emphasized that claims should be disposed of swiftly in the

preliminary stages of litigation when plaintiffs have failed to provide sufficient

evidence of causality.

Although plaintiffs historically have faced fairly steep odds of getting their

disparate impact claims past the preliminary stages of litigation, much less

succeeding on the merits, the “cautionary standards” stressed by the Supreme

Court might result in even fewer successful disparate impact claims being raised

in the courts and/or swifter disposal of claims that are raised.

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Disparate Impact Claims Under the Fair Housing Act

Contents

Introduction ..................................................................................................................................... 1

Disparate Impact Analysis Before Inclusive Communities.............................................................. 2

HUD’s Disparate Impact Rule ......................................................................................................... 6

The Supreme Court in Inclusive Communities ................................................................................ 7

Significance of the Inclusive Communities Decision .................................................................... 10

Contacts

Author Contact Information .......................................................................................................... 12

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Disparate Impact Claims Under the Fair Housing Act

Introduction

The Fair Housing Act (FHA) was enacted “to provide, within constitutional limitations, for fair

housing throughout the United States.”1 It prohibits discrimination on the basis of race, color,

religion, national origin, sex, physical and mental handicap, and familial status. Subject to certain

exemptions, the FHA applies to all sorts of housing, public and private, including single family

homes, apartments, condominiums, and mobile homes. It also applies to “residential real estaterelated transactions,” which include both the “making [and] purchasing of loans ... secured by

residential real estate [and] the selling, brokering, or appraising of residential real property.”2

In June 2015, the Supreme Court, in Texas Department of Housing Community Affairs v. Inclusive

Communities Project,3 confirmed the long-held interpretation that, in addition to outlawing

intentional discrimination, the FHA also prohibits certain housing-related decisions that have a

discriminatory effect4 on a protected class.5

Historically, courts have generally recognized two types of disparate impacts resulting from

“facially neutral decision[s]” that can result in liability under the FHA.6

The first occurs when that decision has a greater adverse impact on one [protected] group

than on another. The second is the effect which the decision has on the community

involved; if it perpetuates segregation and thereby prevents interracial association it will

be considered invidious under the Fair Housing Act independently of the extent to which

it produces a disparate effect on different racial groups. 7

The Supreme Court’s holding in Inclusive Communities that “disparate-impact claims are

cognizable under the [FHA]” mirrors previous interpretations of the Department of Housing and

Urban Development8 (HUD) and all 11 federal courts of appeals9 that had ruled on the issue.

42 U.S.C. §3601. The FHA, 42 U.S.C. §§3601 et seq., was originally enacted as Title VIII of the Civil Rights Act of

1968. For an overview of the FHA, see CRS Report 95-710, The Fair Housing Act (FHA): A Legal Overview, by (name

redacted)

42 U.S.C. §3605.

135 S. Ct. 2504 (2015). The Supreme Court had granted certiorari in two similar disparate impact cases in each of the

previous two terms; however, in both those cases, the parties reached settlement agreements before the Court had the

opportunity to issue an opinion on whether disparate impact claims are cognizable under the FHA. See Magner v.

Gallagher, 132 S. Ct. 1306 (2012) and Twp. of Mt. Holly v. Mt Holly Garden Citizens in Action, Inc., 134 S. Ct. 636

(2013). See also CRS Legal Sidebar WSLG1151, Supreme Court Set to Review Fair Housing Case: Third Time’s the

Charm?, by (name redacted)

The term “discriminatory effect” is used interchangeably with the term “disparate impact.”

Texas Dept. of Hous. & Cmnty Affairs v. Inclusive Communities Project, 135 S. Ct. 2525 (2015).

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

Id. The FHA’s protections are not limited to race. See also Inclusive Communities, 135 S. Ct. at 2522 (“Rather, the

FHA aims to ensure that those [valid governmental] priorities can be achieved without arbitrarily creating

discriminatory effects or perpetuating segregation.”).

Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 78 Fed. Reg. 11460 (February 15, 2013).

Vill. of Arlington Heights, 558 F.2d at 1290 (7th Cir. 1977); Resident Advisory Bd. v. Rizzo, 564 F.2d 126, 149-50 (3d

3rd Cir. 1977); Betsey v. Turtle Creek Assocs., 736 F.2d 983, 988-89 (4th Cir. 1984); Keith v. Volpe, 858 F.2d 467, 484

(9th Cir. 1988); Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926, 938 (2d Cir. 1988), judgment aff'd,

488 U.S. 15 (1988); Jackson v. Okaloosa County, Fla., 21 F.3d 1531, 1543 (11 th Cir. 1994); Simms v. First Gibraltar

Bank, 83 F.3d 1546, 1555 (5th Cir. 1996); Langlois v. Abington Hous. Auth., 207 F.3d 43, 49-50 (1st Cir. 2000);

Charleston Hous. Auth. v. U.S. Dep't of Agric., 419 F.3d 729, 740-41 (8th Cir. 2005); Graoch Assocs. #33, L.P. v.

Louisville/Jefferson Cnty Metro Human Relations Comm'n, 508 F.3d 366, 374 (6th Cir. 2007); Reinhart v. Lincoln

Conty, 482 F.3d 1225, 1229 (10th Cir. 2007). The U.S. Court of Appeals for the District of Columbia (D.C. Circuit) has

(continued...)

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However, as discussed further below, HUD and the 11 courts of appeals have not all applied the

same criteria for determining when a neutral policy that causes a disparate impact violates the

FHA. In a stated attempt to harmonize disparate impact analysis across the country, HUD

finalized regulations in 2013 that established uniform standards for determining when such

practices violate the act.10

The Inclusive Communities Court did not expressly adopt the standards established in HUD’s

disparate impact regulations. Rather, the Court adopted a three-step burden-shifting test that has

some similarities with these standards. In addition, the Court outlined a number of limiting factors

that lower courts and HUD should apply when assessing disparate impact claims. It likely will

take years to gain a strong understanding of how the Inclusive Communities decision will affect

future disparate impact litigation under the FHA (and other laws such as Title VII of the Civil

Rights Act of 1964).11 While plaintiffs historically have faced fairly steep odds of getting their

disparate impact claims past the preliminary stages of litigation, much less succeeding on the

merits of those claims, it is possible that the “cautionary standards” stressed by the Inclusive

Communities majority might result in even fewer successful disparate impact claims and swifter

disposal of claims that are raised.

This report provides an overview of how the lower courts and HUD evaluated allegations of

discriminatory effects before the Supreme Court’s Inclusive Communities decision. This

discussion is followed by an assessment of Inclusive Communities and an analysis of the potential

implications of the Court’s ruling.

Disparate Impact Analysis Before Inclusive

Communities

As noted, all of the circuit courts of appeals that had previously addressed the issue held that

disparate impact claims are cognizable under the FHA. The U.S. Court of Appeals for the Seventh

Circuit, for example, reasoned that “a requirement that the plaintiff prove discriminatory intent

before relief can be granted under the statute is often a burden that is impossible to satisfy.... A

strict focus on intent permits racial discrimination to go unpunished in the absence of evidence of

overt bigotry ... [which] has become harder to find.”12 The Seventh Circuit went on to explain that

interpreting the FHA so narrowly as to allow systematic discrimination in housing simply because

(...continued)

never ruled on the issue. See Id. at 46; 2922 Sherman Ave. Tenants’ Assoc. v. District of Columbia, 444 F.3d 673, 679

(D.C. Cir. 2006) (“Given that only one side of the issue has been briefed, however, instead of simply adopting the

approach of our respected sister circuits, we think it more appropriate to assume without deciding that the tenants may

bring a disparate impact claim under the FHA.”).

78 Fed. Reg. at 11460. HUD’s regulations were subsequently vacated by the U.S. District Court for the District of

Columbia, in a ruling that was issued prior to, and that is at odds with, the Supreme Court’s Inclusive Communities

decision. Am. Ins. Assoc. v. Dept. of Hous. and Urban Dev., 74 F. Supp. 3d 30 (D.D.C. 2014) (interpreting the FHA as

only prohibiting intentional discrimination, not discriminatory effects, and vacating HUD’s Disparate Impact Rule).

The district court’s decision was subsequently vacated and remanded for reconsideration in accordance with the

Supreme Court’s Inclusive Communities ruling. Am. Ins. Assoc. v. Dept. of Hous. and Urban Dev. No. 14-5321, Sept.

23, 2015 (D.C. Cir.) (per curiam). As of the publication date of this report, the district court has not issued a subsequent

ruling.

See, e.g., Abril-Rivera v. Dept. of Homeland Sec., 795 F.3d 245, 255-46 (1st Cir. 2015) (applying aspects of Inclusive

Communities to “affirm the district court’s dismissal of plaintiffs’ [Title VII] disparate impact claims.... ”).

Vill. of Arlington Heights, 558 F.2d at 1290 (7th Cir. 1977). Such a holding is not limited to disparate impacts on the

basis of race.

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it is done “discreetly” would be counter to congressional intent, and “[w]e therefore hold that at

least under some circumstances a violation of section 3604(a) can be established by a showing of

discriminatory effect without a showing of discriminatory intent.”13

Beyond agreement that disparate impact claims are cognizable, a number of other commonalities

existed among the circuits before the Inclusive Communities ruling. For example, courts typically

looked to Title VII disparate impact cases in the employment context for guidance in FHA-based

claims (and vice versa).14

Additionally, there was general agreement among the circuits that plaintiffs must rely on more

than a mere statistical anomaly to make a prima facie showing of a discriminatory effect.15 The

Seventh Circuit, for instance, explained that “we refuse to conclude that every action which

produces discriminatory effects is illegal. Such a per se rule would go beyond the intent of

Congress and would lead courts into untenable results in specific cases.”16 The circuits generally

agreed that plaintiffs must provide causal evidence—that is, evidence showing that a particular

practice caused the disparity on a protected class.17

Another important common feature prior to Inclusive Communities is that plaintiffs were rarely

successful with disparate impact claims, at least at the appellate level. Rather, it appears that most

of the plaintiffs’ disparate impact claims that were reviewed by federal courts of appeals were

dismissed in preliminary stages of litigation before trials. One scholar, who conducted a

Vill. of Arlington Heights, 558 F.2d at 1290 (7th Cir. 1977).

See, e.g., Vill. of Arlington Heights, 558 F.2d at 1289-90 (7th Cir. 1977); Betsey, 736 F.2d at 989 (4th Cir. 1984);

Mountain Side¸ 56 F.3d at 1251 (10th Cir. 1995); Simms, 83 F.3d at 155-56 (5th Cir. 1996); Langlois, 207 F.3d at 49-51

(1st Cir. 2000); Lapid-Laurel, 284 F.3d at 446-67 (3rd Cir. 2002); Oti Kaga, Inc. v. South Dakota Hous. Dev. Auth., 342

F.3d 871, 883 (8th Cir. 2003); Tsombandidis, 352 F.3d at 575-76 (2nd Cir. 2005); Affordable Hous. Dev. Corp. v. City

of Fresno, 433 F.3d 1182. 1194-95 (9th Cir. 2006); Groach, 508 F.3d at 374 (6th Cir. 2007). See also Abril-Rivera, 795

F.3d at 255-56 (1st Cir. 2015) (applying aspects of Inclusive Communities to “affirm the district court’s dismissal of

plaintiffs’ [Title VII] disparate impact claims.... ”).

The Eleventh Circuit, as discussed below, has held that “A showing of a significant discriminatory effect suffices to

demonstrate a prima facie violation of the Fair Housing Act. A plaintiff can demonstrate a discriminatory effect in two

ways: it can demonstrate that the decision has a segregative effect or that it makes housing options significantly more

restrictive for members of a protected group than for persons outside that group.” Hallmark Developers, Inc. v.

Garrison, 466 F.3d 1276, 1286 (11th Cir. 2006) (internal quotations omitted). See also Bonasera v. City of Norcross,

342 Fed. Appx. 581, 585 (11th Cir. 2009).

Vill. of Arlington Heights, 558 F.2d at 1290 (7th Cir. 1977).

See, e.g., Simms, 83 F.3d at 1555-56 (5th Cir. 1996) (“The relevant question in a discriminatory effects claim against

a private defendant, however, is not whether a single act or decision by that defendant has a significantly greater impact

on members of a protected class, but instead the question is whether a policy, procedure, or practice specifically

identified by the plaintiff has a significantly greater discriminatory impact on members of a protected class. In this case,

Simms does not identify an alleged discriminatory policy, procedure, or practice of First Gibraltar, much less provide

evidence, statistical or otherwise, that such policy, procedure, or practice had a significantly greater impact on members

of a protected class. We therefore conclude that Simms did not present sufficient evidence to establish a violation of the

FHA under a discriminatory effects theory of liability.” (internal citations and quotations omitted)); Fair Hous. in

Huntington Comm. Inc. v. Town of Huntington, 316 F.3d 357, 366 (2 nd Cir. 2003) (“In order to make out a prima facie

case under the FHA on a theory of disparate impact, a plaintiff must demonstrate that an outwardly neutral practice

actually or predictably has a discriminatory effect; that is, has a significantly adverse or disproportionate impact on

minorities, or perpetuates segregation.”); Groach, 508 F.3d at 374 (6th Cir. 2007) (“First, a plaintiff must make a prima

facie case of discrimination by identifying and challenging a specific housing practice, and then showing an adverse

effect by offering statistical evidence of a kind or degree sufficient to show that the practice in question has caused the

adverse effect in question ... ” (internal citations and quotations omitted)); Bonasera, 342 Fed. Appx. at 585 (11th Cir.

2009) (“A plaintiff can demonstrate a discriminatory effect in two ways: it can demonstrate that the decision has a

segregative effect or that it makes housing options significantly more restrictive for members of a protected group than

for persons outside that group.” (internal citations omitted)).

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qualitative analysis18 of the 92 cases in which a federal court of appeals made a substantive ruling

on an FHA disparate impact claim from 1971 (when the Supreme Court, in Griggs v. Duke

Power,19 first held that disparate impact claims were cognizable under Title VII) through June

2013, found that



plaintiffs obtained “positive outcomes” in only 18 cases20 (i.e., 19.5% of the

cases);21

most of the cases (64 of 92 or 69.6%) were decided by the appellate courts before

trials at the preliminary stages (i.e., pleading, summary judgment, or preliminary

injunction) of litigation;22

district court rulings in favor of plaintiffs were reversed by the appellate courts

two-thirds of the time (12 of 18 decisions), in spite of the fact that it is estimated

that lower courts are generally affirmed approximately 80% of the time;23 and

lower court rulings in favor of defendants were only reversed by the appellate

courts 12 times out of 74 cases (i.e., 16.2% of the cases).24

As a result, the scholar concluded that,

[w]hatever has prompted the Court’s sudden interest in examining the question of

disparate impact liability under the FHA [i.e., by granting certiorari in disparate impact

cases in two successive terms], this interest cannot be attributable to plaintiffs’ high rate

of success or the appellate courts’ general unwillingness to impose a rigorous and

exacting review of the claims at every stage of the proceedings. 25

While commonalities did exist, the courts did not agree on every aspect of disparate impact

analysis. Importantly, the courts were not in agreement as to how to determine if a discriminatory

effect violates the act. The First,26 Second,27 Third,28 Fifth,29 Eighth,30 and Ninth31 Circuit Courts

Stacy E. Seichnaydre, Is Disparate Impact Having an Impact? An Appellate Analysis of Forty Years of Disparate

Impact Claims Under the Fair Housing Act, 63 Am. U. L. Rev. 357 (2013).

401 U.S. 424 (1971).

The “positive outcomes” by circuit are: First Circuit: 0; Second Circuit: 2; Third Circuit: 3; Fourth Circuit: 2; Fifth

Circuit: 0; Sixth Circuit: 1; Seventh Circuit: 1; Eighth Circuit: 4; Ninth Circuit: 4; Tenth Circuit: 0; Eleventh Circuit: 1.

Stacy E. Seichnaydre, 63 Am. U. L. Rev. at Appx. A (2013).

Id. at 393-94. There has been a steady increase of appellate decisions in each decade since Griggs. Three appellate

decisions were issued in the 1970s, 15 in the 1980s, 23 in the 1990s; 36 in the 2000s; and 15 from 2010 through the

first half of 2013. Id. 393-94. However, the number of plaintiffs’ “positive outcomes” has not increased at the same

pace as the total number of appellate decisions—three in the 1970s; seven in the 1980s; three in the 1990s; three in the

2000s; and two in the first three and one-half years of the 2010s. Id.

Id. Half of the plaintiffs’ “positive outcomes” were in the 28 post-trial appeals. Id.

Id. at 398-99.

Id.

Id. at 399.

See, e.g., Langlois, 207 F.3d at 43 (1st Cir. 2000).

See, e.g., Tsombandidis, 352 F.3d at 565 (2nd Cir. 2005).

See, e.g., Lapid-Laurel, 284 F.3d at 442 (3rd Cir. 2002). But see Hartman v. Greenwich Walk Homeowner’s Assoc.,

Inc., 71 Fed. Appx. 135 (3rd Cir. 2003) (applying a four-factor test).

See, e.g., Inclusive Cmtys. Project, Inc. v. Texas Dept. of Hous. & Cmty. Affairs, 747 F.3d 275, 281-83 (5th Cir.

2014) (applying the burden-shifting test established in regulations issued by HUD; prior to this case, the Fifth Circuit

Court of Appeals “ ... has not previously addressed the question of what legal standards apply to a disparate impact

housing discrimination claim.”).

See, e.g., Gallagher v. Magner, 619 F.3d 823 (8th Cir. 2010).

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of Appeals generally applied burden-shifting tests to assess the validity of a disparate impact

claim pursuant to the FHA. Yet there were some differences in the tests applied, even among the

courts that applied burden-shifting schemes. For example, all courts that used burden-shifting

tests agreed that the burden is initially on the plaintiff to make a prima facie showing, generally

with the use of statistics, that a specific policy results in a disparate impact upon a protected class,

and that, upon such a showing, the burden shifts to the defendant to show that the policy was

initiated for some nondiscriminatory, legitimate purpose.32 From there, most of these courts

shifted the burden to the plaintiff to submit proof of a viable, less discriminatory alternative.33

The Second Circuit, on the other hand, upon a defendant’s showing of a nondiscriminatory,

legitimate purpose, kept the onus on the defendant to show there is not a less discriminatory

alternative that would allow the defendant to meet the same legitimate purpose.34

Rather than the three-step burden-shifting test, the Seventh35 Circuit historically applied a fourfactor balancing test originally set out in the Village of Arlington Heights decision. These factors

are

(1) [the] strength of the plaintiff’s statistical showing; (2) the legitimacy of the

defendant’s interest in taking the action complained of; (3) some indication—which

might be suggestive rather than conclusive—of discriminatory intent; and (4) the extent

to which relief could be obtained by limiting interference by, rather than requiring

positive remedial measures of, the defendant.36

The Sixth37 and Tenth38 Circuit Courts of Appeals applied hybrid approaches using elements from

both the Seventh Circuit’s balancing test and a burden-shifting framework. The Fourth Circuit

(...continued)

See, e.g., Affordable Hous. Dev. Corp., 433 F.3d at 1182 (9th Cir. 2006).

See, e.g., Huntington Branch, 844 F.2d at 935-36 (2nd Cir. 1988); Langlois, 207 F.3d at 51 (1st Cir. 2000); LapidLaurel, 284 F.3d at 466-67 (3rd Cir. 2002); Darst-Webbe, 417 F.3d at 901-02 (8th Cir. 2005); Graoch, 508 F.3d at 374

(6th Cir. 2007); Affordable Hous. Dev. Corp., 433 F.3d at 1195-96 (9th Cir. 2006).

See, e.g., Mt. Holly Gardens Citizens in Action v. Twp. of Mt. Holly, 658 F.3d 375, 382 (3 rd Cir. 2011) (but see

Rizzo, 564 F.2d at 149 (3rd Cir. 1977) (in an FHA disparate impact case of first impression, holding that the burden of

establishing a less discriminatory alternative is on the defendant) (“The discretion of the district court in determining

whether the defendant has carried its burden of establishing justification for acts resulting in discriminatory effects may

be guided at the least by the following rough measures: a justification must serve, in theory and practice, a legitimate,

bona fide interest of the Title VIII defendant, and the defendant must show that no alternative course of action could be

adopted that would enable that interest to be served with less discriminatory impact.” (internal citations omitted));

Groach, 508 F.3d at 373 (6th Cir. 2007); Darst-Webbe, 417 F.3d at 901-02 (8th Cir. 2005); Mountain Side, 56 F.3d at

1258 (10th Cir. 1995).

See, e.g., Tsombanidis, 352 F.3d at 575 (2nd Cir. 2005).

See, e.g., Phillips v. Hunter Trails Cmty. Assoc., 685 F.2d 184, 189-190 (7th Cir. 1982) (quoting Vill. of Arlington

Heights, 558 F.2d at 1290).

See also, Hartman v. Greenwich Walk Homeowners’ Assoc., Inc., 71 Fed. Appx. 135, 137 (3 rd Cir. 2003).

See, e.g., Graoch, 508 F.3d at 374 (6th Cir. 2007) (“Borrowing from our Title VII cases, then, we hold that disparate

impact claims against private defendants under the FHA should be analyzed using a form of the McDonnell Douglas

burden-shifting framework: First, a plaintiff must make a prima facie case of discrimination by identifying and

challenging a specific housing practice, and then showing an adverse effect by offering statistical evidence of a kind or

degree sufficient to show that the practice in question has caused the adverse effect in question. Second, if the plaintiff

makes a prima facie case, the defendant must offer a legitimate business reason for the challenged practice. Third, if the

defendant offers such a reason, the plaintiff must demonstrate that the defendant’s reason is a pretext for

discrimination, or that there exists an alternative housing practice that would achieve the same business ends with a less

discriminatory impact. In order to evaluate the plaintiff’s showing, we consider the strength of the plaintiff’s showing

of discriminatory effect against the strength of the defendant’s interest in taking the challenged action.” (internal

citations and quotations omitted)).

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applied a burden-shifting test when the defendant was a private party, but applied the four-factor

balancing test with public defendants.39 Finally, the Eleventh Circuit has explained that “[a]

showing of a significant discriminatory effect suffices to demonstrate a prima facie violation of

the Fair Housing Act” but the plaintiff must also establish evidence of causality—“A plaintiff can

demonstrate a discriminatory effect in two ways: it can demonstrate that the decision has a

segregative effect or that it makes housing options significantly more restrictive for members of a

protected group than for persons outside that group.”40

HUD’s Disparate Impact Rule

For approximately two decades, through internal adjudicatory proceedings, appeals of those

proceedings to federal courts, policy guidance, and other means, HUD has interpreted the FHA as

supporting disparate impact claims.41 The agency did not formally adopt the policy through

regulations until February 2013. HUD explained in the preamble of the Implementation of the

Fair Housing Act’s Discriminatory Effects Standard Final Rule (the Rule or the Disparate Impact

Rule) that “[t]his regulation is needed to formalize HUD’s long-held interpretation of the

availability of ‘discriminatory effects’ liability under the Fair Housing Act and to provide

nationwide consistency in the application of that form of liability.”42

The Rule defines “discriminatory effect” as a practice that

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. 43

HUD adopted the “three-part burden-shifting test currently used by HUD and most federal

courts,” as described in the previous section, to assess whether a discriminatory effect violates the

FHA.44 Specifically, under the Rule, the plaintiff “has the burden of proving that a challenged

practice caused or predictably will cause a discriminatory effect.”45 If a plaintiff is able to

successfully prove a prima facie discriminatory effect, then the burden shifts to the defendant to

“prov[e] that the challenged practice is necessary to achieve one or more [of its] substantial,

(...continued)

Mountain Side, 56 F.3d at 1251-52 (10th Cir. 1995) (“To establish a prima facie case of disparate impact

discrimination, plaintiffs must show that a specific policy caused a significant disparate effect on a protected group. ...

[A] prima facie case, once established, as here, could alone suffice to prove a Title VIII violation unless the defendants

justify the discriminatory effect which has resulted from their challenged actions. ... The three factors we will consider

in determining whether a plaintiff’s prima facie case of disparate impact makes out a violation of Title VIII are: (1) the

strength of the plaintiff’s showing of discriminatory effect; (2) the defendant’s interest in taking the action complained

of; and (3) whether the plaintiff seeks to compel the defendant affirmatively to provide housing for members of a

protected class or merely to restrain the defendant from interfering with individual property owners who wish to

provide such housing.”).

Betsey, 736 F.2d at 989 (4th Cir. 1984).

Hallmark Developers, Inc., 466 F.3d at 1286 (11th Cir. 2006) (internal quotations omitted). See also Bonasera, 342

Fed. Appx. at 585 (11th Cir. 2009).

Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 78 Fed. Reg. 11460, 11461 (February 15,

2013).

Id. at 11460 (internal citations omitted).

24 C.F.R. 100.500(a).

Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 78 Fed. Reg. 11460 (February 15, 2013).

24 C.F.R. 100.500(c)(1).

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legitimate, nondiscriminatory interests.... ”46 Such an interest “must be supported by evidence and

may not be not hypothetical or speculative.”47 If this burden is met, then the burden is shifted

back to the plaintiff to “prov[e] that the substantial, legitimate, nondiscriminatory interest[] ...

could be served by another practice that has a less discriminatory effect.”48

The Supreme Court in Inclusive Communities

On June 25, 2015, in a 5-4 decision, the Supreme Court held that “disparate-impact claims are

cognizable under the Fair Housing Act (or FHA).... ”49 However, the Court cautioned that

disparate impact claims must rely on more than just “a statistical disparity”50 and remedies for

disparate impact violations “that impose racial targets or quotas might raise [] difficult

constitutional questions.”51 The holding was surprising to some given that the Court chose to

grant certiorari in the case in spite of the fact that there was no circuit split, leading to speculation

that the Court was poised to overturn the lower court consensus that disparate impact claims

generally are permissible.52

The Inclusive Communities Project, Inc. (ICP), “a Texas-based nonprofit corporation that assists

low-income families in obtaining housing,” sued the Texas Department of Housing and

Community Affairs (DHCA) alleging that, by disproportionately distributing federal low-income

housing tax credits in black-concentrated metropolitan areas as compared to white-concentrated

suburban communities, DHCA perpetuated racial segregation in violation of the FHA.53 The

federal district court held that the plaintiffs had met their initial burden of establishing that

DHCA’s policy had a discriminatory effect on African-Americans, but concluded that the

defendants had failed to prove that there was no viable, less discriminatory alternative. Consistent

with precedent in the circuit, the Fifth Circuit agreed with the district court that the FHA

authorizes disparate impact claims.54 However, the Fifth Circuit reversed the district court’s ruling

because it had placed the burden of proving there were no less discriminating alternative policies

on the defendant, in contravention of HUD’s disparate impact regulations.55 A concurring opinion,

which was cited favorably by the Supreme Court’s majority opinion,56 also questioned whether

the plaintiff sufficiently established a causal connection between the challenged policy and the

relevant statistical disparity.57 The Supreme Court affirmed the Fifth Circuit’s judgment that

24 C.F.R. 100.500(c)(2).

24 C.F.R. 100.500(b)(2).

24 C.F.R. 100.500(c)(3). See supra n. 10.

Inclusive Communities, 135 S. Ct. at 2525.

Id. at 2512.

Id. at 2524.

See, e.g., Emily Badger, Supreme Court upholds a key tool fighting discrimination in the housing market, Wash.

Post, Jun. 25, 2015, available at http://www.washingtonpost.com/news/wonkblog/wp/2015/06/25/supreme-courtupholds-a-key-tool-fighting-discrimination-in-the-housing-market/.

Inclusive Communities, 135 S. Ct. at 2514.

Id.

Id. at 2515.

Id. at 2524 (“And as Judge Jones observed below, if the ICP cannot show a causal connection between the

Department’s policy and a disparate impact—for instance, because federal law substantially limits the Department’s

discretion—that should result in dismissal of this case.” Inclusive Communities, 747 F. 3d at 283-284 (specially

concurring opinion) [(5th Cir. 2014)].”).

Id. at 2515.

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discriminatory effect claims are viable under the FHA, and remanded the case “for further

proceedings consistent with this opinion,” including, notably, its limiting principles regarding

causality and remedies.58

To support its interpretation of the FHA, the Court began its analysis with two prior cases: Griggs

v. Duke Power Co.59 and Smith v. City of Jackson,60 which the Court described as “provid[ing]

essential background and instruction in the case now before the Court.” In Griggs and Smith, the

Court interpreted Title VII of the Civil Rights Act of 1964 and the Age Discrimination in

Employment Act of 1967 (ADEA), respectively, as supporting disparate impact claims because

both statutes contain language that focuses, not just on the intent or motivation of employers, but

also on the discriminatory consequences or effects of their actions.61 Similarly, FHA Section

804(a) makes it unlawful “[t]o refuse to sell or rent ... or to refuse to negotiate for the sale or

rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color,

religion, sex, familial status, or national origin.”62 The Court stated that “the logic of Griggs and

Smith provides strong support for the conclusion that the FHA encompasses disparate impact

claims ... [because] Congress’ use of the phrase ‘otherwise make unavailable’ refers to the

consequences of an action rather than the actor’s intent.”63

The Court added that this conclusion is bolstered by the fact that Congress amended the FHA in

1988 to establish three exemptions to disparate impact liability without making any changes to

the statutory language that previous courts had relied upon to conclude that disparate impact

claims were cognizable under the act. “In short, the 1988 amendments signal that Congress

ratified disparate-impact liability.”64

After concluding that the FHA supports disparate impact claims, the Court provided guidance as

to how disparate impact claims should be assessed. The Court made clear that, before a plaintiff

can establish a prima facie case of discriminatory effect based on a statistical disparity, courts

should apply a “robust causality requirement” that requires the plaintiff to prove that a policy or

decision led to the disparity.65 The Court stressed that a careful examination of the plaintiff’s

causality evidence should be made at preliminary stages of litigation to avoid “the inject[ion of]

racial considerations into every housing decision”; the erection of “numerical quotas” and similar

constitutionally dubious outcomes; the imposition of liability on defendants for disparities that

they did not cause; and unnecessarily protracted litigation that might dissuade the development of

housing for the poor, which would “undermine [the FHA’s] purpose as well as the free-market

system.”66

The Court emphasized that disparate impact claims should be further limited by ensuring that

defendants, whether private developers or governmental actors, have the ability to counter a

prima facie case with evidence that the policy or decision in question is “necessary to achieve a

valid interest.”67 Further, the Court seemed to indicate that such business decisions—or in cases

Id. at 2524.

401 U.S. 424 (1971).

554 U.S. 228 (2005) (plurality).

Inclusive Communities, 135 S. Ct. at 2517-18.

Id. at 2518 (emphasis added) (quoting 42 U.S.C. §3604(a)).

Id.

Id. at 2521.

Id. at 2523.

Id. at 2522-23.

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where the defendant is a governmental entity, decisions made in the public interest—should stand

unless the “plaintiff has shown that there is an available alternative practice that has less disparate

impact and serves the entity’s legitimate needs.”68

The Court also cautioned that court-ordered remedies for discriminatory effects generally should

be race-neutral and focused on eradicating the policy that caused the disparate impact, rather than

erecting constitutionally dubious “racial targets or quotas.”69

The opinion concludes:

Much progress remains to be made in our Nation’s continuing struggle against racial

isolation. In striving to achieve our “historic commitment to creating an integrated

society,” we must remain wary of policies that reduce homeowners to nothing more than

their race. But since the passage of the Fair Housing Act in 1968 and against the

backdrop of disparate-impact liability in nearly every jurisdiction, many cities have

become more diverse. The FHA must play an important part in avoiding the Kerner

Commission’s grim prophecy that “[o]ur Nation is moving toward two societies, one

black, one white—separate and unequal.” Kerner Commission Report 1. The Court

acknowledges the Fair Housing Act’s continuing role in moving the Nation toward a

more integrated society.70

The primary dissenting opinion, written by Justice Alito and joined by Chief Justice Roberts and

Justices Thomas and Scalia, argued that the statutory text and the circumstances surrounding the

original enactment of the FHA indicated that the act was only intended to bar overt

discrimination—not disparate impact discrimination.71 The dissent also disputed the majority’s

“conten[tion] that the 1988 amendments provide convincing confirmation of Congress’

understanding that disparate-impact liability exists under the FHA.... ”72 Instead, the dissenting

Justices viewed the 1988 amendments as a compromise between Members of Congress—some of

whom agreed that disparate impact claims were cognizable under the FHA and some who did not.

To support this argument, the dissent cited several opinions in which the Court rejected similar

“implicit ratification” arguments.73 Additionally, the dissent took issue with the majority’s

reliance on Griggs.74

Justice Thomas wrote a separate dissent, to which no other Justice joined. It argued that Griggs

was wrongly decided, but even if it should be afforded some precedential value, that value should

be limited to Title VII cases, rather than expanded to other contexts like the FHA and ADEA.75

Id. at 2517-18 (citing and quoting Title VII and ADEA cases). The Court did not expressly state that the burden

should be on the plaintiff to prove the existence of a less discriminatory alternative in the FHA context. Instead, it

stated that the plaintiff carries the burden of the third step in the burden-shifting tests applied in Title VII and ADEA

cases, and that “[t]he cases interpreting Title VII and the ADEA provide essential background and instruction in the

case now before the Court.” Id.

Id. at 2524.

Id. at 2525-26. The “Kerner Commission Report” refers to the Report of The National Advisory Commission on Civil

Disorders (1968). The report was written by a bipartisan commission established by Executive Order 11365, which was

issued by President Lyndon Johnson in July 1967 in response to a series of riots and other civil unrest in the country.

The commission was chaired by Governor Otto Kerner of Illinois.

Inclusive Communities, 135 S. Ct. at 2532-37 (J. Alito, dissenting op.).

Id. at 2540 (J. Alito, dissenting op.).

Id. at 2537-43 (J. Alito, dissenting op.).

Id. at 2543-48 (J. Alito, dissenting op.).

Id. at 2526-32 (J. Thomas, dissenting op.).

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Significance of the Inclusive Communities Decision

It is unclear exactly how the Inclusive Communities decision will change the way in which the

lower courts and HUD will evaluate disparate impact claims going forward, and any effect likely

will vary from circuit to circuit. However, a review of several of the decision’s most notable

holdings elucidates some potential implications.

First, the Court appears to have adopted a three-step burden-shifting test for assessing disparate

impact liability under the FHA. At step one, the plaintiff has the burden of establishing evidence

that a housing decision or policy caused a disparate impact on a protected class. At step two,

defendants can counter the plaintiff’s prima facie showing by establishing that the challenged

policy or decision is “necessary to achieve a valid interest.” The defendant will not be liable for

the disparate impact resulting from a “valid interest” unless, at step three, the plaintiff proves

“that there is an available alternative practice that has less disparate impact and serves the entity’s

legitimate needs.”

As a result, circuits, such as the Fourth (in cases with public defendants) and Seventh, that

historically have used a balancing test likely will begin using a burden-shifting test. Additionally,

although the opinion offers scant guidance regarding step three, it seems to conclude that the

burden should be on the plaintiff to establish a less discriminatory alternative.76 Thus, the Second

Circuit likely will place the burden on the plaintiff rather than the defendant to establish a less

discriminatory alternative in future decisions in light of Inclusive Communities. These changes

might have taken place even in the absence of the Supreme Court ruling as a result of HUD’s

disparate impact rule.77

In addition, the specific standards that the Inclusive Communities Court detailed for each step of

the burden-shifting test, though considerably similar, may not be identical to those historically

applied by the lower courts and HUD. For example, the standards for steps one and two that are

detailed in Inclusive Communities seem to be largely consistent with those in HUD’s disparate

impact rule. However, the Court used somewhat different language that could be interpreted as

being more exacting on plaintiffs at step one and more deferential to defendants at step two, as

compared to the Rule. Both the Court and HUD’s Rule require plaintiffs to establish a prima facie

case, which must include causal evidence. The Rule states that the plaintiff must “prov[e] that a

challenged practice caused or predictably will cause a discriminatory effect.”78 The Inclusive

Communities Court neither expressly endorses nor disapproves of the “predictably will cause”

language. The Court and the Rule agree that the burden at the second step is on the defendant.

The Court states that defendants can counter a prima facie case by proving that the challenged

practice is “necessary to achieve a valid interest.”79 The Rule, in contrast, states that the defendant

The Court did not expressly state that the burden should be on the plaintiff to prove the existence of a less

discriminatory alternative in the FHA context. See supra, n. 70.

See, e.g., Inclusive Communities, 747 F.3d at 276 (5th Cir. 2014) (“We adopt the standard announced in recently

enacted Department of Housing and Urban Development (HUD) regulations regarding burdens of proof in disparate

impact housing discrimination cases.... ”); Property Cas. Ins. Assoc., 66 F. Supp.3d at 1053 (N.D. Ill. 2014) (“Under

these circumstances, HUD’s adoption of the three-step burden-shifting approach outlined in the Disparate Impact Rule

was reasonable and the Court defers to it.”).

24 C.F.R. §100.500(c)(1) (emphasis added).

Inclusive Communities, 135 S. Ct. at 2522-23.

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must “prov[e] that the challenged practice is necessary to achieve one or more substantial,80

legitimate, nondiscriminatory interests.... ”81

Two other major takeaways involve how disparate impact claims should be evaluated. The

Supreme Court stressed that lower courts and HUD should rigorously evaluate plaintiffs’ claims

to ensure that evidence has been provided to support not only a statistical disparity, but also

causality. Additionally, the Court emphasized that claims should be disposed of swiftly in the

preliminary stages of litigation if plaintiffs have failed to establish a prima facie case of disparate

impact.

As previously mentioned, over the last several decades, plaintiffs have faced fairly steep odds of

getting their disparate impact claims past the preliminary stages of litigation, much less

succeeding on the merits of those claims. Additionally, all of the federal courts of appeals and

HUD, when assessing disparate impact claims, have stated that they were applying tests that

required plaintiffs to show that a challenged policy actually caused the disparate impact in order

to support a prima facie case. Nevertheless, the Inclusive Communities decision might result in

some lower courts applying the causality standards more stringently than they had previously,

thus making it more difficult for plaintiffs to establish prima facie cases of discriminatory effects.

The Inclusive Communities majority opinion82 explicitly criticized one specific case—the Eighth

Circuit’s decision in Magner v. Gallagher, a case which the Court had previously granted

certiorari, but ultimately dismissed because the parties settled out of court. The Court stated that

Magner “was decided without the cautionary standards announced in this opinion.”83 The primary

point of contention likely was not with the three-step burden-shifting test that the Eighth Circuit

applied,84 but rather with how the court applied the test.

It is possible that, by its criticism, the Inclusive Communities Court might have been signaling its

disapproval of the Eighth Circuit’s failure to require the plaintiffs to provide evidence that directly

tied the city’s housing code enforcement to a reduction in the affordable housing of AfricanAmericans. Instead, the Eighth Circuit relied on indirect evidence and “reasonable ...

infer[ences].”85 In other words, it is possible that the Inclusive Communities Court expects lower

courts to ensure that plaintiffs have provided evidence at the preliminary stages of litigation that

fully “connects the dots” between the neutral policy and the disparate impact, before concluding

that plaintiffs have established a prima facie case.86

In the preamble to the Rule, HUD defines the term “substantial” to mean “a core interest of the organization that has

a direct relationship to the function of that organization.” 78 Fed. Reg. at 11,470.

24 C.F.R. §100.500(c)(2) (emphasis added).

The primary dissenting opinion also criticized Magner. Inclusive Communities, 135 S. Ct. at 2532, 2548 (J. Alito,

dissenting op.).

Inclusive Communities, 576 U.S. at 21-22.

The test applied by the Magner court was similar, but not identical to the test outlined by the Supreme Court in

Inclusive Communities. For example, the Magner court stated that, at step two, the defendant had the burden of proving

that “its policy or practice had a manifest relationship to a legitimate, nondiscriminatory policy objective and was

necessary to the attainment of that objective.” Magner, 619 F.3d at 834 (8th Cir. 2010). In contrast, the Supreme Court

stated that the defendant’s burden at step two is to prove that the challenged policy is “necessary to achieve a valid

interest.” Inclusive Communities, 135 S. Ct. at 2524.

Magner, 619 F.3d at 835 (“... the evidence shows that the City’s Housing Code enforcement temporarily, if not

permanently, burdened Appellants’ rental businesses, which indirectly burdened their tenants. Given the existing

shortage of affordable housing in the City, it is reasonable to infer that the overall amount of affordable housing

decreased as a result.”) (emphasis added).

Id. (“Though there is not a single document that connects the dots of Appellants’ disparate impact claim, it is enough

(continued...)

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In sum, it is possible that the “cautionary standards”87 stressed by the Inclusive Communities

majority might result in even fewer successful disparate impact claims being raised, and swifter

disposal of claims that are raised. This could, in turn, discourage claims from being raised at all.

Author Contact Information

(name redacted)

Legislative Attorney

[redacted]@crs.loc.gov , 7-....

(...continued)

that each analytic step is reasonable and supported by evidence.”).

Inclusive Communities, 135 S. Ct. at 2524.

Congressional Research Service

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