Disparate Impact Case Settled Before Getting to Supreme Court

A case that might have limited or at least clarified a portion of the 1968 Fair Housing Act (FHA) has apparently been settled before the Supreme Court could hear oral arguments.  Parties to Township of Mount Holly v. Mount Holly Gardens Citizens in Action were reported to be close to agreement although no actual settlement has been confirmed. 

The Court would be asked to determine if claims of disparate impact could be brought under FHA. Such claims are brought when actions that on their face appear non-discriminatory nonetheless may have a discriminatory effect either as an intended or unintended consequence.   

Alan Kaplinsky writing in the Ballard Spahr legal blog, Wall Street Journal reporters Robbie Whelan and Jess Bravin, and others note that a settlement would, for the second time in two years take away from conservatives a chance to challenge longstanding civil-rights doctrine before the court.   The Supreme Court was scheduled to hear arguments on December 4.

The residents of the Mount Holly Gardens neighborhood in Mount Holly, New Jersey, a 30 acre development containing 330 homes, sued to stop the Mount Holly Township's redevelopment of their neighborhood on the basis it violated the FHA.  The township had designated the area as "blighted and in need of redevelopment" and began purchasing homes in the area as early as 2002.  By 2008 it had purchased, vacated, and boarded up more than 200 homes, demolishing over 70.

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

To support their claim of disparate impact, plaintiffs presented expert evidence that the redevelopment would greatly impact the minority population of Mount Holly. The township is 66 percent white, 21 percent African-American, and 9 percent Hispanic and the surrounding county is 76 percent white.  The Gardens have a very different populations; one that is 20 percent white, 46 percent African-American, and 29 percent Hispanic.  Furthermore the neighborhood houses 32 percent of Mount Holly's entire Hispanic population and 21 percent of its African-American population, but only 3% of the township's white residents live there. 

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

There were several years of litigation in state courts which upheld the designation of the neighborhood as blighted and in need of development but those courts did not address Fair Housing Act claims.  The U.S. District Court for New Jersey ruled that the plaintiffs failed to state a prima facie case of disparate impact discrimination because they did not show that the redevelopment would be unaffordable for all or most of the township's minority households and because there were enough middle income minority residents in the area to theoretically occupy all of the proposed housing. 

The court disagreed as well that other arguments brought by the plaintiffs proved their case.  The court said that under the plaintiffs' logic any action by the township to do anything with the Gardens would result in a disparate impact simply because of the high minority composition of the Garden.  

Nonetheless the court found that defendants had shown a legitimate government interest and that the court had not rebutted this with any argument showing that less discriminatory actions were available.  However, the court concluded that the plaintiffs had not shown intentional discrimination and granted summary judgment to the defendants.

In an amicus brief to the Supreme Court the Department of Justice said, "The Fair Housing Act makes it unlawful to 'refuse to sell or rent or otherwise make unavailable or deny, a dwelling to any period because of race, color, religion, sex, familial status, or national origin.  This (the Supreme) Court - and indeed every circuit to consider the issue - has concluded that the Act encompasses disparate impact claims."

The settlement could have ramifications beyond FHA and could be important for the lending industry as well.  Kaplinsky said that, had the case reached the court, a finding "that disparate impact claims are not available under the FHA because of a lack of textual support would have carried serious implications for disparate impact claims under the Equal Credit Opportunity Act (ECOA)" which also does not explicitly permit such claims but where there is a long-standing administrative interpretation of its Regulation B that disparate claims are allowable.

The Consumer Financial Protection Bureau (CFPB) brings enforcement actions under both FHA and ECOA and in April 2012 reaffirmed "that the legal doctrine of disparate impact remains applicable as the Bureau exercises its supervision and enforcement authority to enforce compliance with ECOA and Regulation B."

The next disparate impact suit wending through the courts deals with homeowners insurance and Kaplinsky said the courts could rule on the narrow questions relating only to that industry without touching the broader discrimination aspects.  He suggests that a trade association allied with mortgage lenders might intervene in the suit to increase the likelihood of the district court reaching the broader issue.