The Fair Housing Act (FHA) was enacted "to provide, within constitutional limitations, for fair housing throughout the United States." It prohibits discrimination on the basis of race, color, religion, national origin, sex, physical and mental handicap, and familial status. Subject to certain exemptions, the FHA applies to all sorts of housing, public and private, including single family homes, apartments, condominiums, and mobile homes. It also applies to "residential real estate-related transactions," which include both the "making [and] purchasing of loans ... secured by residential real estate [and] the selling, brokering, or appraising of residential real property." In June 2015, the Supreme Court, in Texas Department of Housing Community Affairs v. Inclusive Communities Project , confirmed the long-held interpretation that, in addition to outlawing intentional discrimination, the FHA also prohibits certain housing-related decisions that have a discriminatory effect on a protected class. Historically, courts have generally recognized two types of disparate impacts resulting from "facially neutral decision[s]" that can result in liability under the FHA. The first occurs when that decision has a greater adverse impact on one [protected] group than on another. The second is the effect which the decision has on the community involved; if it perpetuates segregation and thereby prevents interracial association it will be considered invidious under the Fair Housing Act independently of the extent to which it produces a disparate effect on different racial groups. The Supreme Court's holding in Inclusive Communities that "disparate-impact claims are cognizable under the [FHA]" mirrors previous interpretations of the Department of Housing and Urban Development (HUD) and all 11 federal courts of appeals that had ruled on the issue. However, as discussed further below, HUD and the 11 courts of appeals have not all applied the same criteria for determining when a neutral policy that causes a disparate impact violates the FHA. In a stated attempt to harmonize disparate impact analysis across the country, HUD finalized regulations in 2013 that established uniform standards for determining when such practices violate the act. The Inclusive Communities Court did not expressly adopt the standards established in HUD's disparate impact regulations. Rather, the Court adopted a three-step burden-shifting test that has some similarities with these standards. In addition, the Court outlined a number of limiting factors that lower courts and HUD should apply when assessing disparate impact claims. It likely will take years to gain a strong understanding of how the Inclusive Communities decision will affect future disparate impact litigation under the FHA (and other laws such as Title VII of the Civil Rights Act of 1964). While plaintiffs historically have faced fairly steep odds of getting their disparate impact claims past the preliminary stages of litigation, much less succeeding on the merits of those claims, it is possible that the "cautionary standards" stressed by the Inclusive Communities majority might result in even fewer successful disparate impact claims and swifter disposal of claims that are raised. This report provides an overview of how the lower courts and HUD evaluated allegations of discriminatory effects before the Supreme Court's Inclusive Communities decision. This discussion is followed by an assessment of Inclusive Communities and an analysis of the potential implications of the Court's ruling. As noted, all of the circuit courts of appeals that had previously addressed the issue held that disparate impact claims are cognizable under the FHA. The U.S. Court of Appeals for the Seventh Circuit, for example, reasoned that "a requirement that the plaintiff prove discriminatory intent before relief can be granted under the statute is often a burden that is impossible to satisfy.... A strict focus on intent permits racial discrimination to go unpunished in the absence of evidence of overt bigotry ... [which] has become harder to find." The Seventh Circuit went on to explain that interpreting the FHA so narrowly as to allow systematic discrimination in housing simply because it is done "discreetly" would be counter to congressional intent, and "[w]e therefore hold that at least under some circumstances a violation of section 3604(a) can be established by a showing of discriminatory effect without a showing of discriminatory intent." Beyond agreement that disparate impact claims are cognizable, a number of other commonalities existed among the circuits before the Inclusive Communities ruling. For example, courts typically looked to Title VII disparate impact cases in the employment context for guidance in FHA-based claims (and vice versa ). Additionally, there was general agreement among the circuits that plaintiffs must rely on more than a mere statistical anomaly to make a prima facie showing of a discriminatory effect. The Seventh Circuit, for instance, explained that "we refuse to conclude that every action which produces discriminatory effects is illegal. Such a per se rule would go beyond the intent of Congress and would lead courts into untenable results in specific cases." The circuits generally agreed that plaintiffs must provide causal evidence--that is, evidence showing that a particular practice caused the disparity on a protected class. Another important common feature prior to Inclusive Communities is that plaintiffs were rarely successful with disparate impact claims, at least at the appellate level. Rather, it appears that most of the plaintiffs' disparate impact claims that were reviewed by federal courts of appeals were dismissed in preliminary stages of litigation before trials. One scholar, who conducted a qualitative analysis of the 92 cases in which a federal court of appeals made a substantive ruling on an FHA disparate impact claim from 1971 (when the Supreme Court, in Griggs v. Duke Power , first held that disparate impact claims were cognizable under Title VII) through June 2013, found that plaintiffs obtained "positive outcomes" in only 18 cases (i.e., 19.5% of the cases); most of the cases (64 of 92 or 69.6%) were decided by the appellate courts before trials at the preliminary stages (i.e., pleading, summary judgment, or preliminary injunction) of litigation; district court rulings in favor of plaintiffs were reversed by the appellate courts two-thirds of the time (12 of 18 decisions), in spite of the fact that it is estimated that lower courts are generally affirmed approximately 80% of the time; and lower court rulings in favor of defendants were only reversed by the appellate courts 12 times out of 74 cases (i.e., 16.2% of the cases). As a result, the scholar concluded that, [w]hatever has prompted the Court's sudden interest in examining the question of disparate impact liability under the FHA [ i.e. , by granting certiorari in disparate impact cases in two successive terms], this interest cannot be attributable to plaintiffs' high rate of success or the appellate courts' general unwillingness to impose a rigorous and exacting review of the claims at every stage of the proceedings. While commonalities did exist, the courts did not agree on every aspect of disparate impact analysis. Importantly, the courts were not in agreement as to how to determine if a discriminatory effect violates the act. The First, Second, Third, Fifth, Eighth, and Ninth Circuit Courts of Appeals generally applied burden-shifting tests to assess the validity of a disparate impact claim pursuant to the FHA. Yet there were some differences in the tests applied, even among the courts that applied burden-shifting schemes. For example, all courts that used burden-shifting tests agreed that the burden is initially on the plaintiff to make a prima facie showing, generally with the use of statistics, that a specific policy results in a disparate impact upon a protected class, and that, upon such a showing, the burden shifts to the defendant to show that the policy was initiated for some nondiscriminatory, legitimate purpose. From there, most of these courts shifted the burden to the plaintiff to submit proof of a viable, less discriminatory alternative. The Second Circuit, on the other hand, upon a defendant's showing of a nondiscriminatory, legitimate purpose, kept the onus on the defendant to show there is not a less discriminatory alternative that would allow the defendant to meet the same legitimate purpose. Rather than the three-step burden-shifting test, the Seventh Circuit historically applied a four-factor balancing test originally set out in the Village of Arlington Heights decision. These factors are (1) [the] strength of the plaintiff's statistical showing; (2) the legitimacy of the defendant's interest in taking the action complained of; (3) some indication--which might be suggestive rather than conclusive--of discriminatory intent; and (4) the extent to which relief could be obtained by limiting interference by, rather than requiring positive remedial measures of, the defendant. The Sixth and Tenth Circuit Courts of Appeals applied hybrid approaches using elements from both the Seventh Circuit's balancing test and a burden-shifting framework. The Fourth Circuit applied a burden-shifting test when the defendant was a private party, but applied the four-factor balancing test with public defendants. Finally, the Eleventh Circuit has explained that "[a] showing of a significant discriminatory effect suffices to demonstrate a prima facie violation of the Fair Housing Act" but the plaintiff must also establish evidence of causality--"A plaintiff can demonstrate a discriminatory effect in two ways: it can demonstrate that the decision has a segregative effect or that it makes housing options significantly more restrictive for members of a protected group than for persons outside that group." For approximately two decades, through internal adjudicatory proceedings, appeals of those proceedings to federal courts, policy guidance, and other means, HUD has interpreted the FHA as supporting disparate impact claims. The agency did not formally adopt the policy through regulations until February 2013. HUD explained in the preamble of the Implementation of the Fair Housing Act's Discriminatory Effects Standard Final Rule (the Rule or the Disparate Impact Rule) that "[t]his regulation is needed to formalize HUD's long-held interpretation of the availability of 'discriminatory effects' liability under the Fair Housing Act and to provide nationwide consistency in the application of that form of liability." The Rule defines "discriminatory effect" as a practice that actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin. HUD adopted the "three-part burden-shifting test currently used by HUD and most federal courts," as described in the previous section, to assess whether a discriminatory effect violates the FHA. Specifically, under the Rule, the plaintiff "has the burden of proving that a challenged practice caused or predictably will cause a discriminatory effect." If a plaintiff is able to successfully prove a prima facie discriminatory effect, then the burden shifts to the defendant to "prov[e] that the challenged practice is necessary to achieve one or more [of its] substantial, legitimate, nondiscriminatory interests.... " Such an interest "must be supported by evidence and may not be not hypothetical or speculative." If this burden is met, then the burden is shifted back to the plaintiff to "prov[e] that the substantial, legitimate, nondiscriminatory interest[] ... could be served by another practice that has a less discriminatory effect." On June 25, 2015, in a 5-4 decision, the Supreme Court held that "disparate-impact claims are cognizable under the Fair Housing Act (or FHA).... " However, the Court cautioned that disparate impact claims must rely on more than just "a statistical disparity" and remedies for disparate impact violations "that impose racial targets or quotas might raise [] difficult constitutional questions." The holding was surprising to some given that the Court chose to grant certiorari in the case in spite of the fact that there was no circuit split, leading to speculation that the Court was poised to overturn the lower court consensus that disparate impact claims generally are permissible. The Inclusive Communities Project, Inc. (ICP), "a Texas-based nonprofit corporation that assists low-income families in obtaining housing," sued the Texas Department of Housing and Community Affairs (DHCA) alleging that, by disproportionately distributing federal low-income housing tax credits in black-concentrated metropolitan areas as compared to white-concentrated suburban communities, DHCA perpetuated racial segregation in violation of the FHA. The federal district court held that the plaintiffs had met their initial burden of establishing that DHCA's policy had a discriminatory effect on African-Americans, but concluded that the defendants had failed to prove that there was no viable, less discriminatory alternative. Consistent with precedent in the circuit, the Fifth Circuit agreed with the district court that the FHA authorizes disparate impact claims. However, the Fifth Circuit reversed the district court's ruling because it had placed the burden of proving there were no less discriminating alternative policies on the defendant, in contravention of HUD's disparate impact regulations. A concurring opinion, which was cited favorably by the Supreme Court's majority opinion, also questioned whether the plaintiff sufficiently established a causal connection between the challenged policy and the relevant statistical disparity. The Supreme Court affirmed the Fifth Circuit's judgment that discriminatory effect claims are viable under the FHA, and remanded the case "for further proceedings consistent with this opinion," including, notably, its limiting principles regarding causality and remedies. To support its interpretation of the FHA, the Court began its analysis with two prior cases: Griggs v. Duke Power Co . and Smith v. City of Jackson , which the Court described as "provid[ing] essential background and instruction in the case now before the Court." In Griggs and Smith , the Court interpreted Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967 (ADEA), respectively, as supporting disparate impact claims because both statutes contain language that focuses, not just on the intent or motivation of employers, but also on the discriminatory consequences or effects of their actions. Similarly, FHA Section 804(a) makes it unlawful "[t]o refuse to sell or rent ... or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin." The Court stated that "the logic of Griggs and Smith provides strong support for the conclusion that the FHA encompasses disparate impact claims ... [because] Congress' use of the phrase 'otherwise make unavailable' refers to the consequences of an action rather than the actor's intent." The Court added that this conclusion is bolstered by the fact that Congress amended the FHA in 1988 to establish three exemptions to disparate impact liability without making any changes to the statutory language that previous courts had relied upon to conclude that disparate impact claims were cognizable under the act. "In short, the 1988 amendments signal that Congress ratified disparate-impact liability." After concluding that the FHA supports disparate impact claims, the Court provided guidance as to how disparate impact claims should be assessed. The Court made clear that, before a plaintiff can establish a prima facie case of discriminatory effect based on a statistical disparity, courts should apply a "robust causality requirement" that requires the plaintiff to prove that a policy or decision led to the disparity. The Court stressed that a careful examination of the plaintiff's causality evidence should be made at preliminary stages of litigation to avoid "the inject[ion of] racial considerations into every housing decision"; the erection of "numerical quotas" and similar constitutionally dubious outcomes; the imposition of liability on defendants for disparities that they did not cause; and unnecessarily protracted litigation that might dissuade the development of housing for the poor, which would "undermine [the FHA's] purpose as well as the free-market system." The Court emphasized that disparate impact claims should be further limited by ensuring that defendants, whether private developers or governmental actors, have the ability to counter a prima facie case with evidence that the policy or decision in question is "necessary to achieve a valid interest." Further, the Court seemed to indicate that such business decisions--or in cases where the defendant is a governmental entity, decisions made in the public interest--should stand unless the "plaintiff has shown that there is an available alternative practice that has less disparate impact and serves the entity's legitimate needs." The Court also cautioned that court-ordered remedies for discriminatory effects generally should be race-neutral and focused on eradicating the policy that caused the disparate impact, rather than erecting constitutionally dubious "racial targets or quotas." The opinion concludes: Much progress remains to be made in our Nation's continuing struggle against racial isolation. In striving to achieve our "historic commitment to creating an integrated society," we must remain wary of policies that reduce homeowners to nothing more than their race. But since the passage of the Fair Housing Act in 1968 and against the backdrop of disparate-impact liability in nearly every jurisdiction, many cities have become more diverse. The FHA must play an important part in avoiding the Kerner Commission's grim prophecy that "[o]ur Nation is moving toward two societies, one black, one white--separate and unequal." Kerner Commission Report 1. The Court acknowledges the Fair Housing Act's continuing role in moving the Nation toward a more integrated society. The primary dissenting opinion, written by Justice Alito and joined by Chief Justice Roberts and Justices Thomas and Scalia, argued that the statutory text and the circumstances surrounding the original enactment of the FHA indicated that the act was only intended to bar overt discrimination--not disparate impact discrimination. The dissent also disputed the majority's "conten[tion] that the 1988 amendments provide convincing confirmation of Congress' understanding that disparate-impact liability exists under the FHA.... " Instead, the dissenting Justices viewed the 1988 amendments as a compromise between Members of Congress--some of whom agreed that disparate impact claims were cognizable under the FHA and some who did not. To support this argument, the dissent cited several opinions in which the Court rejected similar "implicit ratification" arguments. Additionally, the dissent took issue with the majority's reliance on Griggs . Justice Thomas wrote a separate dissent, to which no other Justice joined. It argued that Griggs was wrongly decided, but even if it should be afforded some precedential value, that value should be limited to Title VII cases, rather than expanded to other contexts like the FHA and ADEA. It is unclear exactly how the Inclusive Communities decision will change the way in which the lower courts and HUD will evaluate disparate impact claims going forward, and any effect likely will vary from circuit to circuit. However, a review of several of the decision's most notable holdings elucidates some potential implications. First, the Court appears to have adopted a three-step burden-shifting test for assessing disparate impact liability under the FHA. At step one, the plaintiff has the burden of establishing evidence that a housing decision or policy caused a disparate impact on a protected class. At step two, defendants can counter the plaintiff's prima facie showing by establishing that the challenged policy or decision is "necessary to achieve a valid interest." The defendant will not be liable for the disparate impact resulting from a "valid interest" unless, at step three, the plaintiff proves "that there is an available alternative practice that has less disparate impact and serves the entity's legitimate needs." As a result, circuits, such as the Fourth (in cases with public defendants) and Seventh, that historically have used a balancing test likely will begin using a burden-shifting test. Additionally, although the opinion offers scant guidance regarding step three, it seems to conclude that the burden should be on the plaintiff to establish a less discriminatory alternative. Thus, the Second Circuit likely will place the burden on the plaintiff rather than the defendant to establish a less discriminatory alternative in future decisions in light of Inclusive Communities. These changes might have taken place even in the absence of the Supreme Court ruling as a result of HUD's disparate impact rule. In addition, the specific standards that the Inclusive Communities Court detailed for each step of the burden-shifting test, though considerably similar, may not be identical to those historically applied by the lower courts and HUD. For example, the standards for steps one and two that are detailed in Inclusive Communities seem to be largely consistent with those in HUD's disparate impact rule. However, the Court used somewhat different language that could be interpreted as being more exacting on plaintiffs at step one and more deferential to defendants at step two, as compared to the Rule. Both the Court and HUD's Rule require plaintiffs to establish a prima facie case, which must include causal evidence. The Rule states that the plaintiff must "prov[e] that a challenged practice caused or predictably will cause a discriminatory effect." The Inclusive Communities Court neither expressly endorses nor disapproves of the "predictably will cause" language. The Court and the Rule agree that the burden at the second step is on the defendant. The Court states that defendants can counter a prima facie case by proving that the challenged practice is "necessary to achieve a valid interest." The Rule, in contrast, states that the defendant must "prov[e] that the challenged practice is necessary to achieve one or more substantial , legitimate, nondiscriminatory interests.... " Two other major takeaways involve how disparate impact claims should be evaluated. The Supreme Court stressed that lower courts and HUD should rigorously evaluate plaintiffs' claims to ensure that evidence has been provided to support not only a statistical disparity, but also causality. Additionally, the Court emphasized that claims should be disposed of swiftly in the preliminary stages of litigation if plaintiffs have failed to establish a prima facie case of disparate impact. As previously mentioned, over the last several decades, plaintiffs have faced fairly steep odds of getting their disparate impact claims past the preliminary stages of litigation, much less succeeding on the merits of those claims. Additionally, all of the federal courts of appeals and HUD, when assessing disparate impact claims, have stated that they were applying tests that required plaintiffs to show that a challenged policy actually caused the disparate impact in order to support a prima facie case. Nevertheless, the Inclusive Communities decision might result in some lower courts applying the causality standards more stringently than they had previously, thus making it more difficult for plaintiffs to establish prima facie cases of discriminatory effects. The Inclusive Communities majority opinion explicitly criticized one specific case--the Eighth Circuit's decision in Magner v. Gallagher , a case which the Court had previously granted certiorari , but ultimately dismissed because the parties settled out of court. The Court stated that Magner "was decided without the cautionary standards announced in this opinion." The primary point of contention likely was not with the three-step burden-shifting test that the Eighth Circuit applied, but rather with how the court applied the test. It is possible that, by its criticism, the Inclusive Communities Court might have been signaling its disapproval of the Eighth Circuit's failure to require the plaintiffs to provide evidence that directly tied the city's housing code enforcement to a reduction in the affordable housing of African-Americans. Instead, the Eighth Circuit relied on indirect evidence and "reasonable ... infer[ences]." In other words, it is possible that the Inclusive Communities Court expects lower courts to ensure that plaintiffs have provided evidence at the preliminary stages of litigation that fully "connects the dots" between the neutral policy and the disparate impact, before concluding that plaintiffs have established a prima facie case. In sum, it is possible that the "cautionary standards" stressed by the Inclusive Communities majority might result in even fewer successful disparate impact claims being raised, and swifter disposal of claims that are raised. This could, in turn, discourage claims from being raised at all.

Summary:
The Fair Housing Act (FHA) was enacted "to provide, within constitutional limitations, for fair housing throughout the United States." It prohibits discrimination on the basis of race, color, religion, national origin, sex, physical and mental handicap, and familial status. Subject to certain exemptions, the FHA applies to all sorts of housing, public and private, including single family homes, apartments, condominiums, and mobile homes. It also applies to "residential real estate-related transactions," which include both the "making [and] purchasing of loans ... secured by residential real estate [and] the selling, brokering, or appraising of residential real property." There has been controversy over whether, in addition to outlawing intentional discrimination, the FHA also prohibits certain housing-related decisions that have a discriminatory effect on a protected class. That controversy was settled when, in June 2015, a divided U.S. Supreme Court ruled that disparate impact claims are cognizable under the FHA. Key Takeaways of This Report In February 2013, Department of Housing and Urban Development (HUD) for the first time issued regulations "formaliz[ing] HUD's long-held interpretation of the availability of 'discriminatory effects' liability under the Fair Housing Act and to provide nationwide consistency in the application of that form of liability." In June 2015, the Supreme Court held in Texas Department of Housing and Community Affairs v. Inclusive Communities Project that disparate impact claims are cognizable under the FHA--a view previously espoused by HUD and the 11 U.S. Courts of Appeals to render opinions on the issue. The Court also outlined certain limiting factors that should apply when assessing disparate impact claims. The Supreme Court appears to have adopted a three-step burden-shifting test for assessing disparate impact liability under the FHA. The test outlined by the Court, which is similar though not identical to the one adopted by HUD, places the initial burden on the plaintiffs to establish evidence that a housing decision or policy caused a disparate impact on a protected class. Defendants can counter the plaintiff's prima facie showing by establishing that the challenged policy or decision is "necessary to achieve a valid interest." The defendant's "valid interest" will stand unless the "plaintiff has shown that there is an available alternative practice that has less disparate impact and serves the entity's legitimate needs." Going forward, the minority of federal circuits that historically have used a different type of test likely will begin using a burden-shifting scheme consistent with the test outlined in Inclusive Communities. The Supreme Court stressed that lower courts and HUD should rigorously evaluate plaintiffs' disparate impact claims to ensure that evidence has been provided to support, not only a statistical disparity, but also causality (i.e., that a particular policy implemented by the defendant caused the disparate impact). The Court also emphasized that claims should be disposed of swiftly in the preliminary stages of litigation when plaintiffs have failed to provide sufficient evidence of causality. Although plaintiffs historically have faced fairly steep odds of getting their disparate impact claims past the preliminary stages of litigation, much less succeeding on the merits, the "cautionary standards" stressed by the Supreme Court might result in even fewer successful disparate impact claims being raised in the courts and/or swifter disposal of claims that are raised.