Disparate Impact Case Settled Before Getting to Supreme Court

A case that might have limited or atrnleast clarified a portion of the 1968 Fair Housing Act (FHA) has apparentlyrnbeen settled before the Supreme Court could hear oral arguments.  Partiesrnto Township of Mount Holly v. Mount HollyrnGardens Citizens in Action were reported to be close to agreement althoughrnno actual settlement has been confirmed. rn</p

The Court would be asked to determine if claims of disparate impact could bernbrought under FHA. Such claims are brought when actions that on their facernappear non-discriminatory nonetheless may have a discriminatory effect eitherrnas an intended or unintended consequence. rn </p

Alan Kaplinsky writing in the Ballard Spahr legal blog, Wall Street Journal reporters Robbie Whelan and Jess Bravin, andrnothers note that a settlement would, for the second time in two years take awayrnfrom conservatives a chance to challenge longstanding civil-rights doctrinernbefore the court.   The Supreme Court was scheduled to hearrnarguments on December 4.</p

The residents of the MountrnHolly Gardens neighborhood in Mount Holly, New Jersey, a 30 acre developmentrncontaining 330 homes, sued to stop the Mount Holly Township’s redevelopment ofrntheir neighborhood on the basis it violated the FHA.  The township had designated the area asrn”blighted and in need of redevelopment” and began purchasing homes inrnthe area as early as 2002.  By 2008 itrnhad purchased, vacated, and boarded up more than 200 homes, demolishing over 70.</p

The township paid betweenrn$32,000 and $49,000 for the homes and plans to construct 464 homes that willrnsell for $200,000 to $275,000.  Arnone-bedroom rental in the development will cost $1,200.  There will also be 56 deed-restrictedrnaffordable units but these will not be priced for very low income residents andrnalmost all Mount Holly Garden residents have very low or extremely low incomes,rn(30 percent or 50 percent of the area median income respectively).  About half owned their homes in 2000.  </p

To support their claim ofrndisparate impact, plaintiffs presentedrnexpert evidence that the redevelopment would greatlyrnimpact the minorityrnpopulation of Mount Holly.rnThe township is 66 percent white, 21 percentrnAfrican-American, and 9 percent Hispanic and the surrounding county is 76rnpercent white.  The Gardens have a veryrndifferent populations; one that is 20 percent white, 46 percentrnAfrican-American, and 29 percent Hispanic. rnFurthermore the neighborhood houses 32 percent of Mount Holly’srnentire Hispanic population andrn21 percent of its African-American population, but only 3% of the township’srnwhite residents live there.  </p

The plaintiffs argued that they would be forced not onlyrnto leave the Gardens but would likely have to leave the township and perhapsrnthe county because of a shortage of low-income housing.  </p

There were several years ofrnlitigation in state courts which upheld the designation of the neighborhood asrnblighted and in need of development but those courts did not address FairrnHousing Act claims.  The U.S. DistrictrnCourt for New Jersey ruled that the plaintiffs failed to state a prima facierncase of disparate impact discrimination because they did not show that thernredevelopment would be unaffordable for all or most of the township’s minorityrnhouseholds and because there were enough middle income minority residents inrnthe area to theoretically occupy all of the proposed housing.  </p

The court disagreed as wellrnthat other arguments brought by the plaintiffs proved their case.  The court said that under the plaintiffs’rnlogic any action by the township to do anything with the Gardens would resultrnin a disparate impact simply because of the high minority composition of thernGarden.   </p

Nonethelessrnthe court found that defendants had shown a legitimate government interest and thatrnthe court had not rebutted this with any argument showing that lessrndiscriminatory actions were available. rnHowever, the court concluded that the plaintiffs had not shownrnintentional discrimination and granted summary judgment to the defendants.</p

In an amicus brief to the Supreme Court thernDepartment of Justice said, “The Fair Housing Act makes it unlawful torn’refuse to sell or rent or otherwise make unavailable or deny, a dwelling tornany period because of race, color, religion, sex, familial status, or nationalrnorigin.  This (the Supreme) Court – andrnindeed every circuit to consider the issue – has concluded that the Actrnencompasses disparate impact claims.”</p

The settlement could have ramifications beyond FHA and could be important for thernlending industry as well.  Kaplinsky saidrnthat, had the case reached the court, a finding “that disparate impact claimsrnare not available under the FHA because of a lack of textual support would haverncarried serious implications for disparate impact claims under the Equal CreditrnOpportunity Act (ECOA)” which also does not explicitly permit such claims butrnwhere there is a long-standing administrative interpretation of its RegulationrnB that disparate claims are allowable.</p

The Consumer Financial Protection Bureaurn(CFPB) brings enforcement actions under both FHA and ECOA and in April 2012rnreaffirmed “that the legal doctrine of disparate impact remains applicable asrnthe Bureau exercises its supervision and enforcement authority to enforce compliancernwith ECOA and Regulation B.”</p

The next disparate impact suit wending through the courts deals with homeownersrninsurance and Kaplinsky said the courts could rule on the narrow questionsrnrelating only to that industry without touching the broader discriminationrnaspects.  He suggests that a trade association allied with mortgagernlenders might intervene in the suit to increase the likelihood of the districtrncourt reaching the broader issue.

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