A new home sits at the end of the road in the Andalucia neighborhood of The Dominion gated community in San Antonio, Texas.Matthew Busch/Bloomberg
For those of you that aren't avid followers of the legal "argle-bargle" and "jiggery-pokery" of the U.S. Supreme Court, you could be forgiven for thinking that Obergefell v. Hodges, which dealt with same-sex marriages, was the only major civil-rights decision the court handed down last week. And rightfully so: Obergefell is both a social and legal landmark.
But the day before Obergefell, in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, the Supreme Court did something else remarkable, this time in the realm of race-based discrimination: It found that disparate impact claims are (jargon alert) cognizable under the Fair Housing Act, or FHA.
That doesn't sound like a big deal, but in plain English it reads clearer: In plain English, that means the court ruled that claims brought under the FHA need only show that a law or practice has a discriminatory effect, not a discriminatory intent.
The FHA prohibits housing discrimination "because of" race. The FHA was passed into law in 1968 as a means of outlawing the practice of "red-lining," singling out certain urban areas as high risk. Prior to that point, both private enterprise and the Home Owners' Loan Corporation (a U.S. federal entity) would grant loans on the basis of race and, at least until such covenants were declared illegal by the Supreme Court in Shelley v. Kraemer, insist that properties covered by the loan contain covenants restricting the sale of the property to anyone other than whites.
The big questions being asked of the Supreme Court in the Texas Department of Housing case was whether this discrimination had to be intentional or whether the discrimination could be statistical – if a law or practice had a disproportionate effect on African Americans, but didn't explicitly discriminate, could it be challenged under the FHA?
The challenge itself involved loans distributed to housing developers in Dallas to make it economical for developers to build affordable housing. These loans were granted at a far higher rate to projects planned for neighbourhoods that were majority black and were granted at a far lower rate to projects in neighbourhoods that were majority white. From Dallas's perspective, these loans were justified on the basis that the majority black neighbourhoods were in desperate need of capital investment; from the Inclusive Communities Project's (an organization aimed at promoting racial inclusiveness) perspective, this policy served to exacerbate the problem of racially segregated neighbourhoods.
So, the Inclusive Communities Project launched a challenge based on a disparate impact theory of discrimination – whatever the policy's intent, its effect was to perpetuate the race-based neighbourhood segregation that the FHA was designed to remedy.
In a majority, 5-4 decision, Justice Anthony Kennedy found that laws and practices that have a disparate impact are prohibited under the FHA. Legally, Justice Kennedy's decision was based on two principles. The first was textual. All nine of America's appellate courts had previously found that statutory prohibitions on discrimination "because of" race encompassed disparate impact claims as well as intentional discrimination. Justice Kennedy argued that this should be convincing. In a deliciously ironic twist, Justice Kennedy cited dissenting Justice Scalia's treatise on textual interpretation, which argued that a unanimous interpretation by the lower courts should be strongly persuasive for the Supreme Court.
The second theory was that legislative history supported the argument that the FHA included disparate impact claims. In 1988, Congress specifically amended the FHA to clarify that certain activities that would disproportionately affect African-Americans were acceptable under the FHA. These included, among other things, refusing to rent to persons convicted of manufacturing and distributing controlled substances. If Congress did not believe that the FHA supported disparate impact claims, then there would have been no reason to specify that these activities were acceptable.
However, Justice Kennedy also recognized that disparate impact theory is, in itself, problematic. A theory based solely on statistical discrimination would lead to a constitutional absurdity – it could force the defendants to rely on a racial quota system, and racial quotas are themselves prohibited by the Constitution. Disparate impact must therefore be justified by more than statistics: The challengers must show that a policy actually caused the disparity. Moreover, developers and housing authorities can justify disparate impact by showing the practice in question is supported by a valid policy concern. The ultimate decision was therefore a remand to the lower court to ask whether Dallas's justification – increased development in blighted areas – is enough to justify the disparate impact of the policy.
These restrictions preserve legitimate business practices that nonetheless will invariably have a disparate impact. Because majority black neighbourhoods in the U.S. are, on average, poorer and more dangerous than majority white neighbourhoods, higher housing insurance premiums will, for example, have a disparate impact. This is a market failure – the legacy of red-lining has economic effects that are neither morally justifiable nor economically efficient, but it wouldn't be entirely fair to hold an insurance company's risk models to account. At the same time, governmental practices that serve to increase racial segregation should be susceptible to a challenge under the very piece of legislation designed to stop segregation. The failure to recognize disparate impact would have neutered the FHA.
Like Obergefell, Texas Department of Housing stands for a simple principle that is becoming a major theme of Justice Kennedy's jurisprudence – discriminatory policies must be justified, and the more discriminatory the policy, the better the reason for the discrimination must be.
In Obergefell, the reasons for discrimination were found to be bereft. In Texas Department of Housing, the question of justification is now with the lower courts.
In both cases, the U.S. Supreme Court did exactly what it is supposed to do – make sure that laws designed to hold arbitrary behaviour to account, actually do.
Adrian Myers is a lawyer at Torkin Manes LLP.