From members of Ballard Spahr’s Housing Group:
A ruling last week by Massachusetts’ highest state court demonstrates courts’ vigorous examination of disparate impact housing claims in light of recent judicial guidance, as well as the type of proactive measures property owners can take to prevent disparate impact liability.
The Massachusetts Supreme Judicial Court based its ruling in Burbank Apartments Tenants Association v. Kargman on an analysis of the June 2015 U.S. Supreme Court decision in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc. (ICP). Burbank ranks as one of the key early decisions to analyze Fair Housing Act disparate impact theory under the SCOTUS ICP guidance, which officially recognized FHA claims based on disparate impact theory. Disparate impact theory, unlike claims of intentional and/or overt discrimination, allows claims where seemingly race neutral policies or actions have a disproportionately adverse effect on certain protected classes of people—even if unintentional.
In the ICP opinion, the Supreme Court held that a prima facie case of disparate impact liability under the FHA requires plaintiffs to demonstrate, using statistics, that the defendant’s policy or practice actually causes a discriminatory disparity. The Court asserted this “robust causality requirement” to protect “defendants from being held liable for racial disparities they did not create.” Under this standard, a policy or practice must constitute “artificial, arbitrary, and unnecessary barriers” to give rise to a disparate impact liability.
Like many of the courts to analyze disparate impact claims under the FHA since ICP, the Massachusetts Supreme Judicial Court ruled that the plaintiffs failed to meet their burden of showing a prima facie case for liability. In Burbank, current and prospective tenants sued the Kargmans—owners of the Burbank Apartments—for not renewing a Section 8 housing assistance payment contract with HUD. The plaintiffs argued this would result in less affordable housing, which, because of the relationship between race and poverty, would have a negative and disproportionate impact on people of color and other protected classes. The Kargmans countered that both state and federal law permitted them to not renew the expiring contract, as did the contract, thus precluding liability. A Massachusetts housing court judge granted the Kargmans’ motion to dismiss, and the Supreme Judicial Court affirmed last week.
The Burbank Court concluded that the plaintiffs did not demonstrate how the Kargmans’ decision not to renew the HUD contract would cause a discriminatory effect. The Court began its opinion by declining to adopt a per se rule that would preclude a housing provider from disparate impact liability simply because it followed the terms of the contract and applicable federal and state laws. Instead, the Court analyzed whether the Kargmans’ decision would, in fact, cause a discriminatory effect.
The Massachusetts Court carefully considered the SCOTUS guidance that disparate impact liability should only be imposed if a defendant’s policy causes discriminatory effects or perpetuates segregation as shown though a statistical discrepancy. The plaintiffs failed to make that showing because they did not demonstrate any harm to indicate discriminatory treatment, the Court ruled. After ending the contract with HUD, the Burbank Apartments allowed all tenants that had been receiving Section 8 assistance to remain in their units using alternative “enhanced vouchers,” which also allowed tenants to use the voucher at a different property.
The Court further criticized the plaintiffs over claims regarding prospective tenants, stating that there was no guarantee, even absent the Kargmans’ decision, that prospective tenants would have received and moved into a Burbank apartment using a Section 8 project-based voucher. Therefore, the “robust causality requirement” was not met in showing that the Kargmans’ policy resulted in a statistical disparity for protected classes. The Court distinguished the facts of this case from “heartland” disparate impact cases where a project-based housing provider paid off its mortgage early to entirely demolish the building, causing a disparate impact on protected classes. Nor did the Kargmans take action to raise the rent for the units so high that the public housing authority refused to pay them as unreasonable. Unlike those situations, the Kargmans’ decision did not, on its own, create a discriminatory statistical disparity.
In a footnote, the Burbank Court aptly noted that the Supreme Court’s recent decision on disparate impact liability “leaves a number of questions unanswered.” The Court did, however, attempt to answer one of those remaining questions, concluding with an interesting observation that it read the Supreme Court’s call for “adequate safeguards” and a “robust causality requirement” as indicating “a higher burden for disparate impact plaintiffs under the FHA than under Title VII” employment discrimination. The Court found support for this statement in both the “rigorous” pleading requirements imposed by other courts to analyze the ICP opinion as well as the Supreme Court’s stressing the importance of “prompt resolution” for disparate impact cases.
The Burbank opinion shows that courts generally take the Supreme Court’s ICP guidance seriously and will scrutinize disparate impact claims to determine if the defendant’s practice or policy is actually the cause of the discriminatory effect, as proven through “robust causality” and statistical evidence. The Court found that the Burbank plaintiffs suffered no harm at all since the Kargmans allowed them to stay using enhanced vouchers, demonstrating how preemptive mitigation efforts can prevent a successful disparate impact claim.
Ballard Spahr’s Housing Group regularly represents and advises clients, including rental property owners, on a range of issues related to the Fair Housing Act, and defends a variety claims brought under its provisions.
