Texas Regulators Win Bias Case That Drew Supreme Court Ruling

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By Chris Bruce

Aug. 26 — A federal judge in Texas Aug. 26 dismissed claims that state housing authorities violated the Fair Housing Act (FHA) in their allocation of low-income housing credits ( Inclusive Cmtys. Project, Inc. v. Tex. Dep't of Hous., N.D. Tex., No. 08-cv-00546, 8/26/16 ).

The ruling by the U.S. District Court for the Northern District of Texas is the latest turn in a case that produced a major U.S. Supreme Court ruling last year.

In its Aug. 26 decision, the court rejected claims of discrimination by the Inclusive Communities Project (ICP), a consumer advocacy group, against the Texas Department of Housing and Community Affairs. ICP said the department perpetuated racial segregation in violation of the FHA by using discretion in allocating the credits.

The court dismissed those claims Aug. 26, saying they failed to meet the legal standards for such claims under a 2015 Supreme Court ruling in an earlier phase of the case. In that decision, the Supreme Court's majority said the FHA recognizes claims of disparate impact discrimination — claims based on the effect of challenged policies without a need for showing discriminatory intent.

However, the Supreme Court also set out a series of tests for such claims, saying courts must examine whether plaintiffs have made a facially valid case of disparate impact.

“A plaintiff who fails to allege facts at the pleading stage or produce statistical evidence demonstrating a causal connection cannot make out a prima facie case of disparate impact,” the Supreme Court's majority said.

ICP's claim fails under that test, Judge Sidney A. Fitzwater said. ICP said the department wrongly allowed some credits to be awarded on a forward basis instead of a current-year allocation.

But according to Fitzwater, ICP failed to show how the statistical disparity cited in this case would have lessened if the department had no discretion to award forward commitments.

However, Fitzwater held for the department by citing a disparate impact regulation issued by the Department of Housing and Urban Development (HUD) that is under challenge by two insurance trade groups (73 BBD, 4/15/16).

“For the reasons explained, the court finds and concludes that ICP has failed to prove a prima facie case of discrimination by showing that a challenged practice caused a discriminatory effect, as defined by 24 C.F.R. § 100.500(a),” he said, citing the HUD rule.

The HUD rule is important in several respects, including a burden-shifting framework that is at issue in the trade group challenge.

But according to Fitzwater, when the Supreme Court examined the FHA in the 2015 case, it left the HUD rule in place, at least as the rule was adopted and applied by the U.S. Court of Appeals for the Fifth Circuit during an earlier phase of the case.

“The Court did not disturb the Fifth Circuit’s adoption of the HUD burden-shifting regimen, but it prescribed several limitations on disparate impact liability, and it questioned whether ICP can prove liability in this case,” Fitzwater said.

ICP and a spokesman for the Texas Department of Housing and Community Affairs didn't immediately respond to requests for comment.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com

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