Justices Sotomayor and Scalia Lead the Way as the Supreme Court Hears Argument on the Fair Housing Act Disparate-Impact Question

By: Paul F. Hancock, Andrew C. Glass, Roger L. Smerage, and Olivia Kelman

On January 21, 2015, the United States Supreme Court heard oral argument in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc. (the “Texas DHCA case”). The case presents the question whether the Fair Housing Act recognizes a disparate-impact theory of liability. See Tex. Dep’t of Hous. & Cmty. Affairs v. The Inclusive Cmtys. Project, Inc., — S. Ct. —, 2014 WL 4916193 (Oct. 2, 2014) (No. 13-1371) (granting petition for writ of certiorari). Under that theory, a plaintiff may challenge a defendant’s policies or practices that are neutral on their face (that is, do not reflect any intent to discriminate) but that purportedly have a disproportionate effect on groups sharing certain statutorily-defined characteristics such as race or national origin. The Supreme Court has expressed strong interest in the issue, granting certiorari three times in the last four terms to decide the question, only to have the parties settle just before oral argument in the previous two matters. See Magner v. Gallagher, S. Ct. No. 10-1032, and Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., S. Ct. No. 11-1507. At argument in the Texas DHCA case, the public was finally able to hear the nature of the Court’s interest in the issue.

Scott Keller, Solicitor General for the State of Texas, argued on behalf of Petitioners. Michael Daniel argued on behalf of Respondents and divided Respondents’ time with Donald Verrilli, Solicitor General of the United States, who argued on behalf of the United States as amicus curiae in support of Respondents. (Two weeks before oral argument, the Court granted the United States Solicitor General’s motion for leave to participate in oral argument as amicus curiae. See Orders in Pending Cases, Tex. Dep’t of Hous. & Cmty. Affairs, (Jan 9, 2014) (No. 13-1371), available here.)

Justice Sotomayor led the way for the Court, questioning Petitioners as to whether the phrase “otherwise make [housing] unavailable” in Section 3604(a) of the Fair Housing Act could mean anything other than congressional intent to permit disparate-impact claims. Justice Scalia repeated the question and suggested that it might be “hard to read [the original 1968 act in conjunction with its 1988 amendments] in any other way than there is such a thing as disparate impact.” Yet, Justice Scalia put questions on the same issue to Respondents, questioning, for example, how the “unavailable” language could be used to challenge a facially-neutral policy when the “statute requires that [housing] be made unavailable for racial reasons.” Chief Justice Roberts questioned Respondents as to whether application of a disparate-impact theory leads to consideration of race (itself improper under the Fair Housing Act) in the attempt to avoid such liability. Justice Sotomayor asked Respondents’ counsel to guide the Court through the typical disparate-impact analysis, and Justices Kagan and Ginsburg came to Respondents’ aid, suggesting responses to some of the questions Respondents faced.

Other justices proffered more limited questions. Justice Breyer inquired of Petitioners why the Court should disregard decades of undisturbed federal appellate decisions that he believes have not led to any significant negative consequences. Picking up on Justices Sotomayor and Scalia’s extensive questioning of Petitioners about three exemptions from Fair Housing Act liability, Justice Alito asked Respondents how Congress’s inclusion of those exemptions in the Act’s 1988 amendments supports an argument that the statute’s original language provides for disparate-impact liability. Justice Kennedy reserved his lone question for the Solicitor General of the United States, asking him to explain how disparate-impact evidence can be effective at determining Fair Housing Act liability when, in the context of the case at hand, a significant effect would result no matter where developments were built with the housing-tax credits that formed the basis for the allegation of disparate impact.

The Supreme Court’s answer to the question presented in the Texas DHCA case will be of significance to all businesses subject to the Fair Housing Act, including the residential mortgage and consumer lending industries. While the Justices’ outlook at the argument warrants scrutiny, it is, of course, difficult to predict the outcome of a Supreme Court case based on the questioning. A decision is expected prior to the end of the Court’s term in June 2015. Look for an additional K&L Gates LLP alert as soon as a decision is rendered.

A copy of the transcript of the argument is available here. For more information on the case, see the prior K&L Gates alert.