This past Friday, a federal court in Texas issued a ruling for Texas Department of Housing and Community Affairs v. Inclusive Communities Project. The court ruled in favor of the defendant, finding the plaintiff (The Inclusive Communities Project, Inc.) unable to prove a prima facie case in its disparate impact claim under the Fair Housing Act. The bottom line: the majority of LIHTC properties constructed in and around Dallas from 1999-2008 were located in minority tracts, but this fact alone was not enough to find the Texas Department of Housing and Community Affairs liable for discrimination under fair housing law.

As this decision came from a district court (a federal trial court) it does not produce a binding decision (that is, other courts are not mandated to follow this decision). Furthermore, every case is different, and at the trial level everything truly depends on the specific facts of the individual case. The trial court here considered the fact that no particular policy put forth by TDHCA was the cause for LIHTC properties to locate more so in minority census tracts. The court recognized factors such as “Congress, the Texas Legislature, developers, and local communities – that impact the location of LIHTC units.” That said, this trial is now one of several to interpret the Supreme Court’s holding from last year (which is binding on all courts throughout the nation). For a quick review of that decision and its impact, read on.

It was over a year ago that the U.S. Supreme Court issued an opinion in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, the fair housing case that made national headlines and put the Fair Housing Act in the limelight for the affordable housing world. It is important to remember that the Court only decided that disparate impact, as a legal theory, can continue to be used in discrimination cases under the Fair Housing Act in attempting to prove discrimination. Furthermore, it’s important to note that the Court did not make a decision regarding the 5th Circuit’s use of HUD’s burden-shifting test – so the burden-shifting test (as explained below) is the current law for the 5th Circuit and any other circuits that chose to adopt it. The Court further mentioned in dicta (language that is persuasive but not binding) a “robust causality requirement”. When the case was sent back to the trial court, it was this “robust causality requirement” that resulted in the ruling made this past Friday. HUD’s and the 5th Circuit’s burden-shifting test is a good way to frame the events of this case:

  1. The plaintiff (in this case, the ICP) first had to prove a prima facie case of disparate impact – that is, ICP had to prove that a protected class under the Fair Housing Act had been disparately impacted by a policy or decision put forward by TDHCA. Over a year ago, the trial court found that ICP had proven a prima facie case of disparate impact. The case was appealed to the 5th Circuit, and eventually wound up at the Supreme Court. The Supreme Court issued its opinion and remanded the case to the trial court in Texas. Most recently, and with the Supreme Court’s holding in mind, the same trial court reversed its initial finding, and found that ICP did not prove a prima facie case of disparate impact. Thus, in this case, the burden-shifting test ends. If, however, ICP had proved this first step of the test, the case would have continued as follows:
  1. Once the prima facie case has been established, the burden of proof shifts to the defendant (TDHCA in this hypothetical) to show a legally sufficient justification for the policy. That is, if the defendant can provide an adequate reason as to why the circumstances warrant an otherwise unlawful practice, they can potentially win the case. If they cannot show a legally sufficient justification, they have lost the case at this point.
  1. If the defendant has a legally sufficient justification, the burden of proof shifts back to the plaintiff to prove that the policy in question could be replaced by another policy with the same desired outcome but less discriminatory effects. If the plaintiff can show such an example, they have won the case. If not, the defendant will escape liability through the justification defense.

Legal / Practical Impact

While the Supreme Court case from last year motivated some changes in state QAPs, it was more due to the idea that a state agency could be sued. The outcome from the Supreme Court case allowed for disparate impact to continue on in fair housing law as it already has, and the resulting trial outcome more recently resulted in no liability on the part of the Texas state agency. This trial outcome will likely not result in motivating state’s to make further policy changes to their QAPs regarding fair housing law.

As the Texas trial court writes, proving a disparate impact claim now has a “more onerous” burden of proof with the Supreme Court’s opinion in mind. Remember, however, that the Supreme Court really only held that disparate impact, as a legal theory, can continue to be used in fair housing cases. The more onerous burden of proof requirement is more interpretation on the part of the trial court – although it is likely other courts will follow this line of thought as well.

This more onerous burden of proof could potentially limit the scope of initial suits challenging policies and practices by housing providers, housing funding agencies, lenders, insurers, and credit reporting agencies.

Another idea to consider is the expansion of “pseudo-protected classes” claiming protections. Examples of “pseudo-protected classes” are cohorts such as high-risk borrowers, felons, and impoverished people. While the statute may not protect any of these classes, it may be true that there are higher concentrations of minorities (a protected class) amongst these unprotected classes so creative legal arguments may come about trying to expose this idea – but again, this case does nothing to encourage those legal arguments.