With the settlement of Mt. Holly v. Mt. Holly Gardens Citizens in Action, Inc., the Supreme Court is once again prevented from deciding whether the disparate impact standard will survive as a method of proof under the Fair Housing Act (FHA). After four decades in which all the circuits to decide the issue had held that the FHA can be violated on a showing of discriminatory effects without evidence of intent, the Court granted certiorari in two recent cases for the apparent purpose of settling this well-settled question. The first case, Magner v. Gallagher, settled shortly before oral argument in 2012. The second case, Mount Holly, settled last week, just three weeks prior to its scheduled oral argument.
The Supreme Court denied certiorari decades ago in the earliest cases recognizing disparate impact theory under the FHA. Why the sudden need for intervention? On first blush, both Magner and Mount Holly appeared to test the limits of the FHA disparate impact theory and suggest its potential to yield perverse outcomes. If the Court was looking for an opportunity to kill disparate impact theory, these cases came wrapped in a bow.
Magner provoked massive heartburn in the fair housing community because it involved a challenge by owners of substandard housing to a city’s code enforcement efforts. The owner-plaintiffs argued that the City of St. Paul’s aggressive program of housing code enforcement raised their costs, which in turn reduced the number of affordable housing units available to protected classes, thereby creating a racially discriminatory impact. This tenuous claim did not survive summary judgment at the district court level, but the Eighth Circuit reversed, allowing plaintiffs to go to trial on the question of whether there was an alternative to the aggressive code enforcement scheme that would achieve the city’s legitimate objectives with less impact on the housing opportunities of minority renters. The plaintiffs argued they were being unfairly targeted for enforcement, but the city cited these government-subsidized landlords for rodents, inadequate smoke detectors, and insufficient handrails. The landlords’ claiming an equal opportunity for their tenants to live in substandard housing was a perverse use of disparate impact theory under just about any measure.
Shortly after Magner settled, the Court seized another opportunity to review FHA disparate impact theory. The Mount Holly petition presented more sympathetic facts and plaintiffs, but still raised important questions about the potential reach of the theory. Many of the facts of Mount Holly are in dispute, but suffice it to say that plaintiffs challenged the township’s revitalization plan because they claimed it would make the revitalized housing units unaffordable to a disproportionate number of minority residents displaced by the effort. This is classic neighborhood redevelopment: Does the FHA require that local governments consider the impact of their revitalization plans on persons of color and ensure that they are not disproportionately displaced? If the town can achieve its legitimate revitalization objectives while wreaking less havoc on the lives of its minority residents, does the FHA compel that result? Like Magner, the district court was not impressed with the disparate impact evidence presented and granted summary judgment, but the Third Circuit reversed and allowed the plaintiffs’ disparate impact claim to go forward. The perverse feature of this case for the Court was likely the perceived notion that local governments would be stymied in their efforts to revitalize blighted neighborhoods because of the potential impact on persons of color (who, because of woefully inadequate housing choices, frequently inhabit blighted neighborhoods).
Importantly, HUD issued its final disparate impact rule between the filing and granting of the Mount Holly cert. petition. The FHA disparate impact rule clarified that HUD was not making new law, but was simply acknowledging its own practice and the decisions of the circuit courts to recognize disparate impact theory as an available method of proof. HUD made clear that a prima facie showing of disparate impact does not end the inquiry. The defendant is allowed to justify any discriminatory impact as necessary to achieve one or more substantial, legitimate, nondiscriminatory interests. At that point, the plaintiff may prevail upon showing that the interests may be served by a practice that has a less discriminatory effect.
Was the Court’s intervention necessary then? Whatever one thinks of the facts and outcomes of Magner and Mount Holly, they are most assuredly not representative of 40 years of FHA disparate impact jurisprudence. Summary judgment reversals in plaintiffs’ favor are exceedingly rare in FHA disparate impact cases. In 40 years the appellate courts had reversed summary judgment and partially reinstated plaintiffs’ FHA disparate impact claims only twice prior to Magner and Mount Holly. Also, plaintiffs’ have obtained positive outcomes in less than 20 percent of their FHA disparate impact claims decided on appeal. On appeal, defendants’ positive outcomes have been affirmed 83.8 percent of the time, whereas plaintiff’s positive outcomes have been affirmed only 33.3 percent of the time, compared to the general affirmance rate of 80 percent in federal civil cases. This means that on appeal, plaintiffs’ positive FHA disparate impact outcomes have been reversed 66.7 percent of the time, with defendants’ positive outcomes reversed only 16.2 percent of the time. If the Court is concerned with perverse outcomes, the historical record should give it comfort.
Moreover, the Magner and Mount Holly cases are not representative on the facts. The earliest cases in which FHA disparate impact claims were permitted involved challenges to housing barriers that helped maintain the status quo of racial segregation. The relief sought in these prototypical FHA disparate impact cases was to remove restrictions in all-white neighborhoods against housing likely to be used by minority groups, remove restrictions confining the development of housing for minority groups to narrowly defined neighborhoods where minority groups predominated, and allow for freedom of movement in a wider housing marketplace. Housing barrier cases further the broad purposes of the FHA, which include both nondiscrimination and integration. Magner and Mount Holly, by contrast, involved challenges to regulations and plans designed to improve housing. The relief sought in housing improvement cases is to prevent the displacement of minorities from neighborhoods where they already live. Whether housing improvement cases further the FHA or whether they help reinforce patterns of segregation will depend on the facts of each case, thus making summary judgment potentially inappropriate.
Only one housing improvement case prior to Magner and Mount Holly had resulted in a win for plaintiffs in 40 years of FHA disparate impact appeals. Housing barrier claims represent the predominant case type among those FHA disparate impact claims decided on appeal and the predominant type of successful claim for plaintiffs on appeal. Despite the 40-year history of disparate impact theory, all-white neighborhoods still exist, along with the zoning restrictions that help keep them that way. Killing disparate impact theory will eliminate an important tool in fighting the segregation that the FHA was enacted to combat.
Stacy Seicshnaydre is the William K. Christovich Associate Professor of Law and Director, Civil Litigation Clinic at Tulane University Law School. Professor Seicshnaydre writes in the areas of civil rights and housing.
 For a detailed explanation of this analysis see Is Disparate Impact Having Any Impact? An Appellate Analysis of Forty Years of Disparate Impact Claims under the Fair Housing Act (October 4, 2013). American University Law Review, Vol. 63, No. 2, 2013; Tulane Public Law Research Paper No. 13-17. Available at SSRN: http://ssrn.com/abstract=2336266.