Court Opinion

ID: 5125558
Source: CourtListenerOpinion
Date Created: 2021-11-12 18:01:07.041233+00
Date Added: 2024-06-11T08:22:51.493330
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

SOUTHWEST FAIR HOUSING                   No. 20-15506
COUNCIL, INC., an Arizona nonprofit
corporation; TAVITA PENA; JENNIFER          D.C. No.
PETERS,                                  2:17-cv-01743-
               Plaintiffs-Appellants,         DWL

                 v.
                                         ORDER AND
MARICOPA DOMESTIC WATER                   OPINION
IMPROVEMENT DISTRICT, an Arizona
municipal corporation,
                Defendant-Appellee.

      Appeal from the United States District Court
               for the District of Arizona
       Dominic Lanza, District Judge, Presiding

          Argued and Submitted May 5, 2021
                  Portland, Oregon

               Filed November 12, 2021

    Before: William A. Fletcher, Carlos T. Bea, and
         Michelle T. Friedland, Circuit Judges.

                 Opinion by Judge Bea
2   SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

                          SUMMARY *

                        Fair Housing Act

    The panel withdrew an Opinion filed August 23, 2021;
replaced it with a superseding Opinion affirming the district
court’s summary judgment in favor of the Maricopa
Domestic Water Improvement District; denied a petition for
panel rehearing; and denied on behalf of the court a petition
for rehearing en banc, in a case in which two Pinal County
public housing residents and Southwest Fair Housing
Council, Inc., an Arizona nonprofit corporation (together,
“Appellants”), challenged as impermissibly discriminatory
under the federal Fair Housing Act a District policy
increasing to $180 the refundable security deposit required
of new public housing customers before the District would
agree to provide water services while non-public housing
customers were subject only to a $55 deposit.

    Appellants’ primary argument alleged the policy caused
a disparate impact under the Fair Housing Act because it
applied only to the District’s public housing customers, who
are disproportionately African American, Native American,
and single mothers. The district court granted the District
summary judgment on the basis that Appellants failed to
provide evidence sufficient to establish a triable issue of fact
that the policy caused the claimed disproportionate effect (an
element of a prima facie disparate impact case). In light of
Texas Department Housing & Community Affairs v. The
Inclusive Communities Project, Inc., 576 U.S. 519, 540
(2015), the panel clarified that, for a plaintiff to make out a
    *
      This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER                 3

prima facie case of disparate impact, the plaintiff must
demonstrate: (1) the existence of a policy, not a one-time
decision, that is outwardly neutral; (2) a significant, adverse,
and disproportionate effect on a protected class; and
(3) robust causality that shows, beyond mere evidence of a
statistical disparity, that the challenged policy, and not some
other factor or policy, caused the disproportionate effect.
The district court held that Appellants failed to demonstrate
robust causality. The panel held that the district court erred
in that judgment, concluding that Appellants did establish
robust causation and did meet their prima facie burden. The
panel nonetheless affirmed the district court’s judgment
because the District established by undisputed evidence that
the policy served in a significant way the District’s
legitimate business interests and because Appellants failed
to establish a triable issue of fact that there existed an equally
effective, but less discriminatory, alternative.

    Appellants also brought a disparate-treatment claim,
alleging that discriminatory animus was a motivating factor
behind the District’s decision to implement its policy. The
panel affirmed the district court’s holding that Appellants
did not adduce evidence sufficient to establish a triable issue
of fact with respect to that claim.
4   SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

                       COUNSEL

Elizabeth Brancart (argued) and Christopher Brancart,
Brancart & Brancart, Pescadero, California; Paul Gattone,
Law Office of Paul Gattone, Tucson, Arizona; for Plaintiffs-
Appellants.

Jeffrey C. Matura (argued) and Melissa J. England, Barrett
& Matura P.C., Scottsdale, Arizona, for Defendant-
Appellee.

Jeffrey L. Taren and Jesse Wing, MacDonald Hoague &
Bayless, Seattle, Washington, for Amici Curiae National
Fair Housing Alliance Inc., Fair Housing Council of Oregon,
Fair Housing Advocates of Northern California, Fair
Housing Center of Washington, Fair Housing Council of
Riverside County Inc., Fair Housing Council of San Diego,
Fair Housing Foundation, Housing Rights Center, Inland
Fair Housing and Mediation Board, Intermountain Fair
Housing Council, Montana Fair Housing, Northwest Fair
Housing Alliance, Project Sentinel, Silver State Fair
Housing Council, Fair Housing Napa Valley, and Legal Aid
Society of Hawai’i.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER              5

                          ORDER

    The Opinion filed on August 23, 2021, is
WITHDRAWN and replaced with a superseding Opinion
filed concurrently with this Order.

    The panel unanimously voted to deny the petition for
panel rehearing. Judges Fletcher and Friedland voted to
deny the petition for rehearing en banc and Judge Bea so
recommends. The full court has been advised of the petition
for rehearing on banc and no judge has requested a vote on
whether to rehear the matter en banc. Accordingly,
appellant’s petition for panel rehearing and for rehearing en
banc filed September 27, 2021, is DENIED. Fed. R. App.
P. 35.

   IT IS SO ORDERED.

                         OPINION

BEA, Circuit Judge:

    The federal Fair Housing Act (“FHA”) bars
discriminatory housing policies and practices, including
those that cause a disparate impact according to certain
protected characteristics or traits—race, color, religion, sex,
handicap, familial status, or national origin. But, absent
evidence of intentional discrimination or equally effective
and less discriminatory alternatives, the existence of a
statistical disparity in a policy’s effect on persons with
certain protected characteristics, as compared to the wider
population, does not authorize courts to invalidate policies
that a defendant is able to show serve legitimate
governmental or business interests in a significant way. We
6   SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

are empowered to invalidate only artificial, arbitrary, and
unnecessary barriers to housing. Tex. Dep’t of Hous. &
Cmty. Affs. v. Inclusive Communities Project, Inc., 576 U.S.
519, 540 (2015) (hereinafter, Inclusive Communities). The
policy at issue here is no such barrier.

    The Maricopa Domestic Water Improvement District
(the “District”) is a small municipal corporation in Arizona
that supplies water to some three hundred households,
including the public housing tenants of one residential
complex in Pinal County, Arizona. Property owners like
Pinal County are responsible to the District for paying any
past tenant’s delinquent water accounts. Pinal County
acknowledged its responsibility to pay its public housing
tenants’ delinquent water bills but consistently refused to do
so, contending it was immune to that policy based on Pinal
County’s status as a public municipality. After years of
failed tactics and fruitless negotiations with Pinal County,
the District imposed a new policy that increased to $180 the
refundable security deposit required of new public housing
customers before the District would agree to provide water
services. New non-public housing customers were subject
only to a $55 deposit.

    Public housing residents Tavita Peña and Jennifer Peters,
along with Southwest Fair Housing Council, Inc., an
Arizona nonprofit corporation which describes itself as
having a mission to achieve equal access to housing
(together, “Appellants”), challenge this policy as
impermissibly discriminatory under the FHA. Appellants’
primary argument alleges the policy caused a disparate
impact because it applied only to the District’s public
housing customers, who are disproportionately African
American, Native American, and single mothers. The
district court granted the District summary judgment on the
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER                7

basis that Appellants failed to provide evidence sufficient to
establish a triable issue of fact that the policy caused the
claimed disproportionate effect (an element of a prima facie
disparate impact case). We hold the district court erred and
we conclude that Appellants established a prima facie
disparate impact claim. However, we nonetheless affirm the
district court’s judgment because the District established by
undisputed evidence that the policy served in a significant
way the District’s legitimate business interests and because
Appellants failed to establish a triable issue of fact that there
existed an equally effective, but less discriminatory,
alternative.

    Appellants also bring a disparate-treatment claim,
alleging that discriminatory animus was a motivating factor
behind the District’s decision to implement its policy. We
affirm the district court’s holding that Appellants did not
adduce evidence sufficient to establish a triable issue of fact
with respect to that claim.

                      BACKGROUND

     Appellee Maricopa Domestic Water Improvement
District is a small nonprofit municipal corporation created
by Pinal County, Arizona, in 1986. The District is a public
utility, providing water services to private residents within
the town of Maricopa, Arizona, as well as to some public
property owned by Pinal County within the town limits. The
District services approximately 300 households.

    Among those are the households at Edwards Circle. The
Edwards Circle complex is a federally funded public housing
complex owned and managed by Pinal County. Each of
Edwards Circle’s twenty public housing units receives water
service from the District.
8   SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

    The demographics of the District’s customers at
Edwards Circle diverge from those of the District’s full
customer base. The households that comprise the District’s
full customer base are 45.0% White, 2.9% African
American, 2.2% Native American, and 49.7% Hispanic,
with 34.3% of households headed by women with children.
In 2017, the households that comprised Edwards Circle were
11.1% White, 38.9% African American, 16.7% Native
American, and 33.3% Hispanic, with 89% of households
headed by women with children.

     In addition to having dissimilar demographics, the
customers at Edwards Circle are unique among District
customers in another respect: they are tenants of Pinal
County. Though they are both public entities, the District
and Pinal County have had a rather disharmonious
relationship. The source of that strife, and the subject of this
case, is how to confront the issue of delinquent water bills
left over the years by Edwards Circle tenants.

    For each of its customers, the District requires an
upfront, refundable (when the customer terminates water
service and is fully paid-up) deposit as a condition to
providing water services. Of course, all property owners are
responsible to the District for their own water service fees,
but, since at least 2000, the District has maintained a policy,
to which Pinal County initially assented, that requires
property owners renting their property also to pay any
delinquent water service bills left by their tenants in excess
of the tenants’ forfeited deposits. If the property owner
refuses to pay its tenant’s delinquency, District procedure is
to place a lien on the property. Ultimately, execution of the
lien can lead to foreclosure and loss of title to the property.

    In accordance with the District’s said property owner
policy, Pinal County (as owner of the Edwards Circle
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER              9

complex) avowed that it was indeed responsible for its
tenants’ delinquent accounts. Unfortunately for the District,
it would not be so easy to get Pinal County to comply with
that admission.

    In 2001, to prevent excessive delinquent accounts and
thereby limit its own potential liability, Pinal County
authorized the District to shut off water service to Edwards
Circle tenants who were late on their water payments. But
Pinal County soon reversed that position and requested that
the District reactivate water services to tenants with late
accounts. Thereafter, in 2002, the district raised the security
deposit for Edwards Circle residents to $100, a decision
which appears to have gone unchallenged.

    The issue of delinquent water accounts at Edwards Circle
soon again raised its head, but Pinal County responded by
burying its own head in the sand. From 2011 through 2013,
the District sent multiple notices of tenant delinquency to
Pinal County, requesting that the County pay off the
balances. One such outstanding delinquent bill amounted to
$184.45.      Although Pinal County had previously
acknowledged responsibility for paying its tenants’
delinquent bills, it consistently refused to pay the District.

    Pursuant to the District’s delinquency policy, it
threatened Pinal County with a lien on the Edwards Circle
property. The County responded that, unlike all other
District customers, the County’s property was immune to
liens, stating that “[i]t is unlawful in Arizona to lien public
property.” The District then changed tacks. The District
decided it would withhold providing new water service
accounts to any unit whose prior tenant vacated with a
delinquent balance until the prior tenant’s unpaid bills were
paid off. The County again refused to pay, again on the basis
of its status as a public entity, but this time the County
10 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

claimed that paying off debts of ex-tenants would “violate
the anti-gift clause in the [Arizona] Constitution.” Soon
thereafter, a new Edwards Circle tenant was unable to obtain
water services because they could not pay off the prior
tenant’s bill. Pinal County emailed the District and
requested that the District turn on water service for that
tenant and offered to “iron out the delinquency issue later.”

    When the District attempted to arrange a meeting so the
parties could “iron out” the issue, Pinal County did not
respond. Months later, the District sent Pinal County
another message again requesting that Pinal County agree to
“[a] resolution [that] will benefit our entities and [] the
potential tenants at [Edwards Circle].” Pinal County and the
District met seven months later in November 2014.

    Arising out of that meeting, the District announced a new
policy effective January 1, 2015 (the “Service Deposit
Policy”) that made changes applicable only to “Pinal County
Housing tenants.” In its announcement, the District
indicated that “both parties concluded the Service Deposit
amount for [Edwards Circle] tenants should be increased.” 1
New public housing customers at Edwards Circle were now
required to pay a $180 refundable service deposit. The
service deposit for new non-public housing customers
remained at $55.

    Plaintiffs-Appellants Tavita Peña and Jennifer Peters
both moved into units at Edwards Circle in 2016 and had
difficulty paying the District’s heightened security deposit.
Peña is Hispanic, Peters is White, and both are single
mothers with children. Both Peña and Peters were
eventually able to pay the increased security deposit with

   1
       Appellants dispute whether Pinal County agreed to the new policy.
     SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 11

financial assistance            from      relatives      or     nonprofit
organizations.

    With the help of fellow plaintiff Southwest Fair Housing
Council, Peña and Peters filed a lawsuit against the District. 2
Appellants’ amended complaint alleged that the District’s
Security Deposit Policy “injured plaintiffs by discriminating
on the basis of race, color, national origin, sex, familial status
and disability in the provision of municipal services and in
the interference with the exercise of rights protected under
the Fair Housing Act, 42 U.S.C. §§ 3604 and 3617.” They
seek declaratory and injunctive relief. 3

    2
      Appellants also named Pinal County as a defendant and alleged
civil rights claims under 42 U.S.C. §§ 1983 & 1986. However,
Appellants and Pinal County reached a settlement.
     3
       In Appellants’ first amended complaint, they allege that the District
also created two other policies applicable only to Edwards Circle
residents: a Late Payment Policy and a No Outstanding Balance Policy.
In addition to a 1.5% late payment fee applicable to all customers, the
Late Payment Policy allegedly applied to make Pinal County tenants’
security deposits refundable only at the discretion of the District if a
tenant had provided late payments four times within one year. The No
Outstanding Balance Policy allegedly required Pinal County tenants to
pay off balances owed to the District by a prior tenant.

     There is record evidence that the District did devise the Late
Payment Policy at least, but the District now states that neither policy
currently exists and that neither policy will be enforced against Edwards
Circle residents. At oral argument, the District’s counsel represented
that the District would not have “any problem whatsoever” with
informing Edwards Circle residents that these policies will not be
enforced against them. Appellants’ counsel then agreed that, if the
District would not enforce these policies in the future, their claims
regarding these policies “could be resolved” and agreed with the
possibility of settlement given that it seemed the parties no longer had a
dispute about these policies. We rely on the District’s representations
12 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

    Without first moving to dismiss, the District answered
the amended complaint and then moved for summary
judgment on the FHA claim. The district court granted the
District’s motion for summary judgment. The court
concluded that Appellants had failed to make out a prima
facie disparate-impact claim because they had failed to
demonstrate robust causation between the Security Deposit
Policy and the statistical disparity that Appellants had
identified. The district court also determined that Appellants
failed to plead a disparate-treatment claim and that, even if
they had, Appellants did not adduce sufficient evidence to
raise a genuine dispute of material fact. Appellants timely
appealed the district court’s order granting summary
judgment. We have jurisdiction pursuant to 28 U.S.C.
§ 1291.

                   STANDARD OF REVIEW

    “We review a grant of summary judgment de novo.
Viewing the evidence in the light most favorable to the
nonmoving party, we must determine whether there are any
genuine issues of material fact and whether the district court
correctly applied the relevant substantive law.” Devereaux

that these policies will not be enforced against any Edwards Circle
resident in the future. The only remedy Appellants seek as to these
policies is to enjoin their further enforcement against Edwards Circle
residents. “Article III requires that a live controversy persist throughout
all stages of the litigation.” Gator.com Corp. v. L.L. Bean, Inc., 398 F.3d
1125, 1128–29 (9th Cir. 2006) (en banc). Because it now appears that
no controversy exists as to these two policies, we DISMISS the portion
of Appellants’ appeal that challenges the Late Payment Policy and No
Outstanding Balance Policy claims. The remainder of our analysis
continues to rely on the District’s representation that the security
deposits paid by Edwards Circle residents are non-discretionarily
refundable as long as a customer does not leave behind a delinquent
balance.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 13

v. Abbey, 263 F.3d 1070, 1074 (9th Cir. 2001) (en banc)
(citations omitted). “A dispute about a material fact is
genuine if there is sufficient evidence favoring the
nonmoving party for a jury to return a verdict for that party.”
Gamble v. City of Escondido, 104 F.3d 300, 304 (9th Cir.
1997) (quotation marks and citation omitted). “If the
plaintiff is unable to sufficiently adduce evidence that could
lead a reasonable jury to conclude that the plaintiff has
satisfied his burden of proof, his claim is subject to an
unfavorable summary disposition.” Eisenberg v. Ins. Co. of
N. Am., 815 F.2d 1285, 1288–89 (9th Cir. 1987); see also
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986) (“Where the record taken as a whole could
not lead a rational trier of fact to find for the non-moving
party, there is no genuine issue for trial.” (quotation marks
and citation omitted)).

                        ANALYSIS

    The FHA makes it unlawful to discriminate against a
person on the basis of “race, color, religion, sex, handicap,
familial status, or national origin” and applies broadly to
many housing practices. 42 U.S.C. § 3604. Specifically,
§ 3604(b) prohibits “discriminat[ion] against any person in
the terms, conditions, or privileges of sale or rental of a
dwelling, or in the provision of services or facilities in
connection therewith” because of the person’s membership
in one of those protected classes. Appellants argue the
District’s provision of water services pursuant to the
Security Deposit Policy discriminated against Edwards
Circle residents on the basis of their membership in one or
more of these protected classes.

   The FHA prohibits intentional discrimination under the
rubric of a disparate-treatment claim.      In Inclusive
Communities, the Supreme Court construed FHA § 804(a)
14 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

(codified at 42 U.S.C. § 3604(a)) also to encompass
unintentional discrimination by way of what has been termed
a disparate-impact claim. 4 576 U.S. at 533. Appellants
claim the District is liable on both disparate-impact and
disparate-treatment theories.

I. Disparate-Impact Claim

    Under a disparate-impact theory, the FHA “forbids
actions by private or governmental bodies that create a
discriminatory effect upon a protected class or perpetuate
housing segregation without any concomitant legitimate
reason.” Ave. 6E Invs., LLC v. City of Yuma, 818 F.3d 493,
503 (9th Cir. 2016). Disparate-impact theory serves two
    4
       Notably, Appellants appeared in the district court to ground their
claims in FHA § 804(b), not FHA § 804(a). The district court sua sponte
observed that, of these two provisions, the Supreme Court in Inclusive
Communities examined only FHA § 804(a), which makes it unlawful
“[t]o refuse to sell or rent after the making of a bona fide offer, or to
refuse to negotiate for the sale or rental of, or otherwise make unavailable
or deny, a dwelling to any person” because of their membership in a
protected class. The Court held that § 804(a) does permit disparate-
impact claims. The Court did not address whether disparate-impact
claims were also permitted under § 804(b). The district court noted the
language of § 804(b) differs significantly from § 804(a)—indeed
§ 804(b) does not contain the phrase “otherwise make unavailable,”
which was “of central importance” to the Supreme Court’s analysis.
Inclusive Communities, 576 U.S. at 534. The district court suggested
that the Supreme Court’s reasoning may not extend to permit disparate-
impact claims brought pursuant to § 804(b). The district court raises an
important issue. However, our circuit has already held that disparate-
impact claims are permitted under § 804(b). See Ojo v. Farmers Grp.,
Inc., 600 F.3d 1201, 1203 (9th Cir. 2010). Inclusive Communities did
not expressly upset this holding and neither party has argued, either in
the district court or on appeal, that we should revisit that holding in light
of Inclusive Communities. As such, we assume without deciding that
Ojo survives Inclusive Communities and that FHA § 804(b) permits
disparate-impact claims.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 15

goals: it allows “plaintiffs to counteract unconscious
prejudices and disguised animus that escape easy
classification   as    disparate    treatment,”    Inclusive
Communities, 576 U.S. at 540, and it targets “‘artificial,
arbitrary, and unnecessary barriers’ to minority housing . . .
that can occur through unthinking, even if not malignant,
policies,” Ave. 6E, 818 F.3d at 503 (quoting Inclusive
Communities, 576 U.S. at 540).

    Disparate-impact theories of liability are available
pursuant to a number of federal antidiscrimination statutes,
including the Civil Rights Act of 1964 (both Titles VI and
VII) and the Age Discrimination in Employment Act
(“ADEA”). See Inclusive Communities, 576 U.S. at 530–33.
In Wards Cove Packing Co. v. Atonio, the Supreme Court
developed a three-step burden-shifting framework to address
these types of claims. 490 U.S. 642 (1989), superseded by
statute on other grounds, 42 U.S.C. § 2000e–2(k). 5
Although Wards Cove dealt specifically with Title VII, the
Supreme Court has applied the framework across federal
antidiscrimination statutes. Hardie v. Nat’l Collegiate
Athletic Ass’n, 876 F.3d 312, 319 n.8 (9th Cir. 2017). We
review Appellants’ FHA disparate-impact claims under this
burden-shifting framework but note that the framework may
differ in application in certain respects. See Inclusive
Communities, 576 U.S. at 533–35, 541 (“[T]he Title VII
framework may not transfer exactly to the fair-housing

    5
       “The Civil Rights Act of 1991 abrogated Wards Cove with respect
to claims under Title VII, but the Supreme Court has continued to apply
Wards Cove burden shifting to other antidiscrimination statutes.”
Hardie v. Nat’l Collegiate Athletic Ass’n, 876 F.3d 312, 319 n.8 (9th Cir.
2017) (citation omitted).
16 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

context, but the comparison suffices for present purposes.”);
Ave. 6E, 818 F.3d at 512–13.

    In general terms, under the burden-shifting framework,
the plaintiff first has the burden to establish a prima facie
case of disparate-impact discrimination under the FHA. Ojo
v. Farmers Grp., Inc., 600 F.3d 1201, 1203 (9th Cir. 2010).
If the plaintiff is able to establish a prima facie case, “the
burden shifts to the defendant to either rebut the facts
underpinning the prima facie case or to demonstrate a legally
sufficient, nondiscriminatory reason for the practices
causing the disparate impact.” Id. (quotation marks and
citation omitted). Third and finally, the burden shifts back
to the plaintiff to show the availability of an alternative
practice that has less discriminatory impact yet is still
equally effective in serving the defendant’s legitimate goals.
Inclusive Communities, 576 U.S. at 533; Hardie, 876 F.3d
at 320.

    On summary judgment, the district court held that
Appellants had failed on the first step. The court determined
that Appellants failed to establish a prima facie case because
they did not establish “robust causation” between the
District’s “race-neutral policy” and the policy’s
repercussions, which “affect[ed] a disproportionate share of
protected-group members.”

   A. Prima Facie Case

    The initial burden is on the plaintiff to establish a prima
facie disparate-impact claim.            Prior to Inclusive
Communities, we had already interpreted the FHA to permit
disparate-impact claims and held that a prima facie case
“require[d] proof of (1) the occurrence of certain outwardly
neutral practices, and (2) a significantly adverse or
disproportionate impact on persons of a particular type
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 17

produced by the defendant’s facially neutral acts or
practices.” Comm. Concerning Cmty. Improvement v. City
of Modesto, 583 F.3d 690, 711 (9th Cir. 2009) (cleaned up).

    However, in recognizing that the FHA permits disparate-
impact claims, the Supreme Court in Inclusive Communities
described in detail a set of “safeguards” that provide
additional guidance in assessing the availability of these
claims. 6 Inclusive Communities, 576 U.S. at 542. These
safeguards are necessary to “protect[] defendants from being
held liable for racial disparities they did not create” and to
prevent disparate-impact liability from “caus[ing] race to be
used and considered in a pervasive way”—specifically,
through the adoption of numerical quotas, which could lead
to “serious constitutional questions.” Id.

    Among these safeguards is “a robust causality
requirement,” which necessitates that the plaintiff “produce
statistical evidence demonstrating a causal connection”

     6
       In 2013, the U.S. Department of Housing and Urban Development
(“HUD”) issued a regulation describing the framework for disparate-
impact claims brought under the FHA. 24 C.F.R. § 100.500 (2014).
Although the Supreme Court mentioned this regulation in Inclusive
Communities, see 576 U.S. at 527, there is disagreement as to whether
the Court adopted this framework. See Inclusive Communities Project,
Inc. v. Lincoln Prop. Co., 920 F.3d 890, 903 n.6 (5th Cir. 2019).
Complicating matters further, in 2020, HUD saw fit to revise its rule in
light of the Supreme Court’s decision in Inclusive Communities,
although that rule is currently enjoined. Mass. Fair Hous. Ctr. v. United
States Dep’t of Hous. & Urb. Dev., 496 F. Supp. 3d 600 (D. Mass. 2020).
Given these considerations, we will follow the guidance of the Supreme
Court in Inclusive Communities rather than look to HUD’s regulations.
See Reyes v. Waples Mobile Home Park Ltd. P’ship, 903 F.3d 415, 424
(4th Cir. 2018) (acknowledging that the courts of appeals are bound by
the standard announced by the Supreme Court, not the prior HUD
regulation); Lincoln Prop., 920 F.3d at 903 (following Reyes).
18 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

between an identified neutral policy and any alleged
disparities that adversely affect members of a protected
class. Id. at 542–43. The function of this requirement is to
limit disparate-impact claims only to instances where it is the
defendant’s policy or practice that causes an adverse,
disproportionate effect. Id. at 527 (“If a statistical
discrepancy is caused by factors other than the defendant’s
policy, a plaintiff cannot establish a prima facie case, and
there is no liability.”). In other words, robust causality
requires that plaintiffs prove with a preponderance of the
evidence 7 that the policy itself, and not some other factor
(such as unrelated or uncontrollable societal determinants,
government mandates that limit a defendant’s discretion, or
even other unchallenged policies of the defendant), created
or exacerbated a disproportionate effect. Id. at 542 (The
“robust causality requirement ensures that ‘[r]acial
imbalance . . . does not, without more, establish a prima facie
case of disparate impact’ and thus protects defendants from
being held liable for racial disparities they did not create.”
(alterations in original) (quoting Wards Cove, 490 U.S.
at 653)).     Otherwise, the Supreme Court observed,
defendants may attempt to protect themselves from liability
by “resort[ing] to the use of racial quotas” to engineer
policies that do not result in any statistical disparities, even
if the policy was never the cause of the disparity in the first
place. Id. at 521 (“Courts should avoid interpreting
disparate-impact liability to be so expansive as to inject
racial considerations into every housing decision.”).

    Therefore, in light of Inclusive Communities, we must
clarify our standard. For a plaintiff to make out a prima facie
case of disparate impact, he must demonstrate: (1) the

    7
      Of course, at the summary judgment stage the plaintiff need adduce
only evidence that would allow this ultimate finding.
     SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 19

existence of a policy, not a one-time decision, that is
outwardly neutral; (2) a significant, adverse, and
disproportionate effect on a protected class 8; and (3) robust
causality that shows, beyond mere evidence of a statistical
disparity, that the challenged policy, and not some other
factor or policy, caused the disproportionate effect. 9

    The district court held that Appellants failed to
demonstrate robust causality. We hold that the district court
erred in that judgment. We conclude that Appellants did
establish robust causation and did meet their prima facie
burden.

    8
       Appellants here allege that they are members of the class of
persons against which the District discriminated; Appellants’ alleged
injury here was a direct result of that discrimination. But the FHA does
permit suits by plaintiffs outside the class of persons discriminated
against, see, e.g., Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 210,
211–12 (1972) (holding that plaintiffs not themselves the “direct objects
of discrimination” have standing under the FHA), so long as those
plaintiffs can allege and prove that their injury was proximately caused
by the discrimination against the class of persons, see Lexmark Int’l, Inc.
v. Static Control Components, Inc., 572 U.S. 118, 132 (2014) (“[A]
statutory cause of action is limited to plaintiffs whose injuries are
proximately caused by violations of the statute.”).
    9
       Some courts have also required plaintiffs to plead facts
demonstrating that the targeted policy is “arbitrary, artificial, and
unnecessary.” See, e.g., Ellis v. City of Minneapolis, 860 F.3d 1106,
1112 (8th Cir. 2017); Khan v. City of Minneapolis, 922 F.3d 872, 874
(8th Cir. 2019). Because this appeal is brought pursuant to the district
court’s grant of summary judgment and because the District did not
move to dismiss or for judgment on the pleadings below, we need not
address whether such a requirement exists.
20 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

       1. Identification of an Outwardly Neutral Policy

    Appellants have identified an outwardly neutral policy.
The District’s Security Deposit Policy requires public
housing residents (tenants of Pinal County) to pay an $180
refundable security deposit. Non-public housing residents
are not subject to that increase and pay only $55. Persons
who are residents of public housing are not a protected class.
See 42 U.S.C. § 3604(b). The policy does not explicitly treat
customers differently based on their membership in any
recognized protected class. The policy is not a one-time
decision.

       2. Significant, Adverse, and Disproportionate
          Effect on Members of a Protected Class

    Before any statistical disparate-impact analysis can
proceed, the correct comparative populations must be
identified. There are multiple valid methods of analysis
involving different comparative populations. See Robert G.
Schwemm & Calvin Bradford, Proving Disparate Impact in
Fair Housing Cases After Inclusive Communities, 19 N.Y.U.
J. Legis. & Pub. Pol’y 685, 698–99, 703–06 (2016). One
method that we have identified as a valid “basis for a
successful disparate impact claim involves a comparison
between two groups—those affected and those unaffected by
the facially neutral policy.” Darensburg v. Metro. Transp.
Comm’n, 636 F.3d 511, 519–20 (9th Cir. 2011) (quoting
Tsombanidis v. W. Haven Fire Dep’t, 352 F.3d 565, 575 (2d
Cir. 2003)).

    When a defendant makes a deliberate choice to subject
only a subset of its customers or constituents to a certain
policy, it is proper to compare the demographics of that
subset to the larger population of clients to which the policy
does not apply to discern whether the decision to limit a
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 21

policy to that subset produced any disproportionate effect.
Appellants used this type of statistical analysis, comparing
affected and unaffected populations. Appellants’ expert
compared (1) those District customers to whom the Security
Deposit Policy applied (public housing residents of Pinal
County); and (2) those remaining District customers to
whom the policy did not apply (non-public housing
residents) to determine whether the affected population was
overrepresented by certain members of protected classes.
This is a proper comparison. 10

    However, the district court here incorrectly limited its
analysis to those adversely affected by the policy, i.e., public
housing residents only. The district court held that
Appellants failed to demonstrate that the protected-group-
member        residents   of     Edwards      Circle       were
disproportionately affected by the policy by undertaking an
analysis in which the court compared them not to unaffected
(non-public housing) District customers, but only to the non-
protected-group members of Edwards Circle. The court
concluded that, of those affected by the policy, “[e]verybody
is treated the same, and experiences the same outcome,
regardless of membership in a protected group.” That
comparison ignores a critical element of the District’s
Security Deposit Policy: that, to begin with, it applied only

     10
        We note, however, that a policy that is generally applicable and
that does not explicitly apply only to a subset based on a particular
characteristic may require a different analysis or consideration of
idiosyncratic factors to isolate the “affected” population.          See
Darensburg, 636 F.3d at 520 (holding that the plaintiffs’ statistical
demonstration concerning the disproportionate effect on minorities of an
infrastructure expansion plan that devoted more resources to rail lines
than to bus lines identified the wrong “affected” population—the
affected population was potential new riders on the expanded rail and
bus lines, not riders of existing lines).
22 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

to a subset of the District’s overall customer base. To
resolve whether the District’s decision to apply the Security
Deposit Policy only to public housing residents resulted in a
disparate impact, the proper comparative population is the
District’s public housing and non-public housing residents.

    Appellants’ statistical analysis shows that, as compared
to the District’s overall customer base, a disproportionate
percentage of the District’s Edwards Circle customers (i.e.,
heads of households) are: African Americans (38.9% to
2.9%), Native Americans (16.7% to 2.2%), and, as relevant
to both Peters and Peña, unmarried women with children
(89.0% to 34.3%). By comparison, 11.1% of Edwards Circle
customers are White, while 45.0% of the District’s customer
base is White. Using the proper comparison populations, we
see that the Security Deposit Policy disproportionately
impacted African Americans, Native Americans, and
households headed by unmarried women with children.

    That the policy has a disproportionate effect is not
enough, though; the disparity must also be significant.
Wards Cove, 490 U.S. at 656. Analyses with small sample
sizes (Edwards Circle contains only twenty residences) raise
a red flag when assessing whether a plaintiff has identified a
significant disparity. Stout v. Potter, 276 F.3d 1118, 1123
(9th Cir. 2002) (“We observe initially that the probative
value of any statistical comparison is limited by the small
available sample. . . . A sample involving 6 female
applicants in a pool of 38 applicants is likely too small to
produce statistically significant results.”). Nevertheless,
Appellants’ unchallenged expert report concluded that the
statistical disparities here are statistically significant—
meaning there is a “high probability” that they “did not occur
by chance.”
     SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 23

    The expert report also demonstrates the disparities have
a practical significance. 11 See Brnovich v. Democratic Nat’l
Comm., 141 S. Ct. 2321, 2343 n.17 (2021). The gaps in
representation by African Americans, Native Americans,
and single mothers in the public housing population as
compared to the non-public housing population are large:
African Americans are nearly four times as likely and Native
Americans are nearly twice as likely to be public housing
customers than Whites.

    The District did not offer its own statistical evidence or
otherwise identify errors or omissions in the Appellants’
expert evidence. Given the District’s lack of contrary
evidence, we must conclude that the Appellants’ statistical
evidence adequately suggests a material and significant
disproportionate effect on members of these protected

    11
        “Significance” in the context of disparate-impact claims is not
limited to statistical significance; “practical significance,” which
examines whether minor statistical disparities have any discriminatory
effect in practice, also plays a role. See Brnovich, 141 S. Ct. at 2343 n.17
(“Statistical significance may provide evidence that something besides
random error is at work, but it does not necessarily determine causes, and
as the dissent acknowledges, it is not the be-all and end-all of disparate-
impact analysis.” (cleaned up)); id. (“[S]ignificant differences . . . are not
evidence that [what is at work] is legally or practically important.
Statisticians distinguish between statistical and practical significance to
make the point. When practical significance is lacking—when the size
of a disparity is negligible—there is no reason to worry about statistical
significance.” (quoting Federal Judicial Center, Reference Manual on
Scientific Evidence 252 (3d ed. 2011)); id. at 2358 n.4 (Kagan, J.,
dissenting) (“I agree with the majority that ‘very small differences’
among racial groups do not matter. . . . In addition, there may be some
threshold of what is sometimes called ‘practical significance’—a level
of inequality that, even if statistically meaningful, is just too trivial for
the legal system to care about.”).
24 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

groups. 12 Therefore, we hold Appellants succeeded in
establishing a prima facie case that the Security Deposit
Policy had a significant, adverse, and disproportionate effect
on members of a protected class.

         3. Robust Causation

    Finally, Appellants must demonstrate “robust causality,”
which requires a plaintiff who has identified both a
defendant’s neutral policy and a statistical disparity to
demonstrate a “robust” causal link between the two.
Inclusive Communities, 576 U.S. at 543. The function of
robust causation is to resolve whether the adverse and
disproportionate outcomes that arose after a challenged
policy was implemented can be traced to the policy rather
than to other potential causes or factors. This is not a
difficult inquiry here.

    The robust causation requirement derives most notably
from Wards Cove. 490 U.S. at 656; see also Inclusive
Communities, 576 U.S. at 542 (citing Wards Cove in
discussing the “robust causality requirement”). In Wards
Cove, plaintiff cannery workers complained that several
policies (including nepotism, rehiring preferences, and
subjective decision making) caused lower-paying cannery
positions to be disproportionately occupied by minorities
while higher-paying non-cannery positions (managerial
positions) were disproportionately occupied by White
people. 490 U.S. at 656–57. The Supreme Court explained
that, to show causality, plaintiffs were first “responsible for
isolating and identifying the specific employment practices
that are allegedly responsible for any observed statistical

    12
       Neither does the District contest that the increase of a required,
up-front security deposit to $180 operates as a significant adversity.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 25

disparities.” Id. at 656 (quoting Watson v. Fort Worth Bank
& Tr., 487 U.S. 977, 994 (1988)). Then, plaintiffs had to
“demonstrate that the disparity they complain of is the result
of one or more of the [defendant’s] practices that they are
attacking . . . , specifically showing that each challenged
practice has a significantly disparate impact . . . . To hold
otherwise would result in employers being potentially liable
for ‘the myriad of innocent causes that may lead to statistical
imbalances in the composition of their work forces.’” Id.
at 657 (quoting Watson, 487 U.S. at 992).

    Drawing from Wards Cove, the Supreme Court in
Inclusive Communities further elaborated on the robust
causality requirement: “[A] disparate-impact claim that
relies on a statistical disparity must fail if the plaintiff cannot
point to a defendant’s policy or policies causing that
disparity.” 576 U.S. at 542. This “ensures that ‘[r]acial
imbalance . . . does not, without more, establish a prima facie
case of disparate impact’ and thus protects defendants from
being held liable for racial disparities they did not create.”
Id. (quoting Wards Cove, 490 U.S. at 653). “If a statistical
discrepancy is caused by factors other than the defendant’s
policy, a plaintiff cannot establish a prima facie case, and
there is no liability.” Id. at 527.

    Here, because the District explicitly applied the adverse
effects of the policy—increasing the security deposit to
$180—only to a subset of its customer base, the causation
analysis is not all that complicated. The adverse impact
complained about by Appellants derives wholly from the
innerworkings of the policy. For no reason other than the
District’s decision to create two different security deposit
amounts for its public housing customers and for its private
housing customers did the disparate impact arise. After the
implementation of the policy and as a direct result of it, a
26 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

disproportionate percentage of protected-group members
were subject to an increased security deposit.

    Importantly, the adverse effect here is not some broad
social condition. Cf. Inclusive Communities, 576 U.S.
at 526–27, 543 (signaling that plaintiffs on remand may find
it “difficult to establish causation because of the multiple
factors that go into investment decisions about where to
construct or renovate housing units”). Appellants are not
complaining that the Security Deposit Policy contributed to
an overrepresentation of protected-group members in public
housing. Rather, Appellants complain that the District’s
tying security deposit prices to public housing status directly
caused the discrete adverse effect of an increased security
deposit to apply disproportionately to members of protected
groups. As such, it is not the case that we are left wondering
whether members of a protected class are subject to the
increased fee because of this policy or because of some other
factor. Cf. Wards Cove, 490 U.S. at 653–54 (holding
causation was not demonstrated because plaintiffs had not
disproved the possibility that the overrepresentation of
minority workers in lower-paying cannery positions was
caused by the company’s contract with a predominantly non-
White labor union). The sole cause of the disproportionate
impact of the increased security deposit was the District’s
decision to apply the policy only to a subset of its
customers. 13 In holding that Appellants established robust
causation sufficient to carry their burden of establishing a
prima facie case, we reject the district court’s analysis.
Again, the district court ignored the fact that the policy

    13
      We also note that, based on its conversations with Pinal County
employees, the District likely knew that Edwards Circle was
overrepresented by certain members of FHA-protected groups, but
adopted the policy change anyway.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 27

bifurcated the District’s customer base into two groups
consisting of public versus private housing customers.

    Finally, as the district court noted, some debate has
developed about the contours of the robust causality
requirement. See Inclusive Communities Project, Inc. v.
Lincoln Prop. Co., 920 F.3d 890, 903–05 (5th Cir. 2019)
(describing four different views among the Fourth, Eighth,
and Eleventh Circuits). We need not enter that debate. This
is a simple case where the policy explicitly bifurcated a
population based on a non-protected characteristic: public
housing. That bifurcation generated a disproportionate
effect that would not have existed in its absence and ensured
the adverse effects of the policy applied only to the
population subset that was overrepresented (in comparison
to the overall District customer population) by certain
members of a protected group. The clarity of that causal
relationship sets it apart from other cases.

    The district court erred in holding that Appellants failed
to establish a prima facie case of disparate-impact
discrimination under the FHA. We move on to the second
step of the disparate-impact analysis.

   B. Legitimate Business Interest

    After the plaintiff successfully demonstrates a prima
facie case, the burden shifts, and the defendant is given an
opportunity to avoid liability by providing evidence that the
challenged policy significantly serves a legitimate business
interest. The district court, which held in error that
Appellants did not establish a prima facie case, stopped short
of addressing the remainder of the analysis. “We may affirm
the district court’s grant of summary judgment on any
ground supported by the record, regardless of whether the
district court relied upon, rejected, or even considered that
28 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

ground.” Am. Fed’n of Musicians of U.S. & Canada v.
Paramount Pictures Corp., 903 F.3d 968, 981 (9th Cir.
2018) (cleaned up). 14 We conclude there is no genuine issue
of material fact that the District demonstrated a legitimate
business justification for implementing the Security Deposit
Policy and that the policy served that interest in a significant
way.

    “Governmental or private policies are not contrary to the
disparate-impact requirement unless they are ‘artificial,
arbitrary, and unnecessary barriers.’”                 Inclusive
Communities, 576 U.S. at 543 (quoting Griggs v. Duke
Power Co., 401 U.S. 424, 436 (1971)). Accordingly, “[a]n
important and appropriate means of ensuring that disparate-
impact liability is properly limited is to give housing
authorities and private developers leeway to state and
explain the valid interest served by their policies.” Id. at 541.
“This step of the analysis is analogous to the business
necessity standard under Title VII . . . [j]ust as an employer
may maintain a workplace requirement that causes a
disparate impact if that requirement is a ‘reasonable
measure[ment] of job performance,’ so too must housing
authorities and private developers be allowed to maintain a
policy if they can prove it is necessary to achieve a valid
interest.” Id. (alteration in original) (citation omitted)
(quoting Griggs, 401 U.S. at 431). “While the defendant
must produce evidence that the practice serves legitimate
ends, ‘[t]he ultimate burden of proving that discrimination

    14
       Because we may affirm a grant of summary judgment on any basis
supported by the record, there is no reason to remand to the district court.
Am. Fed’n of Musicians, 903 F.3d at 981. Discovery has closed and the
record is complete. Whether the District’s Security Deposit Policy
serves a legitimate business interest was fully briefed in the district court
and on appeal. As such, the district court judge would not be in a better
position to resolve this issue in the first instance on remand.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 29

against a protected group has been caused by a specific . . .
practice remains with the plaintiff at all times.’” Hardie,
876 F.3d at 320 (alteration in original) (quoting Wards Cove,
490 U.S. at 659).

    Although the Supreme Court in Inclusive Communities
used the phrase “business necessity” to describe this step of
the analysis, that term is somewhat of a misnomer. First, the
defense is available not only to businesses but also to
individuals and public entities. Inclusive Communities,
576 U.S. at 541. Second, the standard is not “necessity”: the
defendant need not demonstrate that the challenged policy is
“‘essential’ or ‘indispensable’” to its business—only that the
policy “serves, in a significant way,” its legitimate interests.
Wards Cove, 490 U.S. at 659; accord Hardie, 876 F.3d
at 320 (“The defendant’s practice need not be ‘essential’ or
‘indispensable’ to achieving its stated goal, but the
relationship between the practice and its purpose must be
more than ‘insubstantial.’” (quoting Wards Cove, 490 U.S.
at 659)). 15 To require that a business or government show
that a challenged policy is “necessary” to its interests would
be to render the defense a nullity. Cf. Wards Cove, 490 U.S.
at 659 (“[T]here is no requirement that the challenged
practice be ‘essential’ or ‘indispensable’ to the employer’s

    15
        Although Hardie arose in the Title II (which bars discrimination
in public accommodations) context, it was decided after Inclusive
Communities and favorably cites to Inclusive Communities and Wards
Cove. Because “[n]either the Supreme Court nor we have decided
whether disparate-impact claims are cognizable under Title II,” Hardie
drew directly from the Supreme Court’s Title VII precedent. Hardie,
876 F.3d at 319 (assuming without deciding that Title II permitted
disparate-impact theories). Given the Supreme Court’s example in
analogizing to Title VII precedents, we think it proper to use Hardie to
help guide the analysis here. See Inclusive Communities, 576 U.S.
at 541.
30 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

business for it to pass muster: this degree of scrutiny would
be almost impossible for most employers to meet.”). At end,
it is defendant’s burden at this stage to show (1) a legitimate
business interest, and (2) that the practice or policy serves in
a significant way that legitimate interest.

    Here, it is undisputed that the District articulated a
legitimate business interest. The record demonstrates that
residents at Edwards Circle had previously left delinquent
accounts in excess of their security deposit, which the
District could not recover from Pinal County. The District
accordingly sought to create a policy that would prevent
losses produced by such delinquencies in the future. It is
self-evident that a business has a legitimate interest to be
paid in full for services it has already provided pursuant to a
valid contract. Considered in the aggregate, that right
implicates the legitimate interest that a business has in
maintaining fiscal solvency.

    The next question is whether the District’s Security
Deposit Policy serves that interest in a significant way. It is
the District’s burden to establish that the challenged portions
of the policy, i.e., those “practices causing the disparate
impact,” significantly serve its business interest. See Ojo,
600 F.3d at 1203; Hardie, 876 F.3d at 320. Here, that
includes the decision to apply the policy only to public
housing customers and the decision to increase the deposit
to $180, rather than some other dollar figure. We conclude
there is no genuine issue of material fact as to whether the
District established that both aspects of the Security Deposit
Policy serve in a significant way its valid business interests.

    The District’s decision to apply the Security Deposit
Policy only to public housing tenants of Pinal County was
directly related to its interest in protecting itself against
unrecovered delinquencies. It is uncontested that the
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 31

District’s default recovery policies—namely, demanding
payment from the landlord and placing a lien on the
property—were not effective to recover money from those
tenants’ landlord—Pinal County—purportedly due to the
County’s status as a public entity. Unlike other District
customers who leased out their property, Pinal County
refused to reimburse the District for delinquencies left by its
tenants. The County also resisted the District’s efforts to
recover by way of liens and their executions. The County
further refused to use its public funds to pay the defaulting
tenants’ water bills on the basis that such payments would
violate the Arizona state constitution.

    Thus, the only customers for whom the District required
an alternative recovery policy were those whose landlord
was Pinal County—i.e., its public housing customers. The
unique relationship between the District and Pinal County
was adequate justification for the District to issue the
prophylactic Security Deposit Policy. Appellants question
whether the policy truly served the District’s interest in fiscal
solvency because Edwards Circle tenants represent only a
small portion of the District’s full customer base. But
protecting against any otherwise unrecoverable financial
loss is a valid interest served by the policy. To that end,
Appellants fail to explain why the District should simply
lose the amounts of any delinquent public housing water
bills. Appellants also argue that recovering delinquencies
from Edwards Circle is not necessary for the District’s
financial solvency because the delinquencies were de
minimis. But a policy need not be essential or indispensable
to significantly serve a legitimate interest; moreover,
Appellants offer no meaningful limiting principle as to how
32 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

minor a potential financial loss must be before a business
may not protect itself against it. 16

    Neither is there a triable issue as to whether the District’s
decision to increase the security deposit to $180, rather than
a smaller amount, serves in a significant way the District’s
legitimate interest in guaranteeing that it will receive full
payment for services rendered. The record includes
delinquent account balances left by Edwards Circle residents
at various times between 2010 and 2015. At the time the
policy was first announced (November 2014), the District
had multiple delinquent Edwards Circle accounts still on the
books, including one delinquent account from 2011 that
amounted to $184.45. 17 The District’s designated Rule
30(b)(6) representative witness expressly testified at
deposition that the District chose a dollar figure that would
cover the largest outstanding accounts to prevent loss to the
company:

         I looked—my rationale was the fact that we
         need to be able to cover the delinquent
         accounts and protect the District from having
         to pay—provide water at no cost to those
         accounts. And I—if I remember correctly, it
    16
       As the District notes, Appellants incorrectly point to the District’s
“net assets” in arguing the size of the delinquencies are inconsequential.
But they do not explain how the value of a company’s assets (e.g.,
underground water pipes, pumps, vehicles, office equipment, easements,
etc.) is relevant to whether unpaid accounts receivable impact a
business’s daily operation or financial commitments. Appellants did not
offer evidence on the District’s cash flow. But even were the cash flow
positive, that would not delegitimatize the District’s interest in seeking
to have its water bills paid.
     17
        Appellants fail to cite to any record evidence that proves this 2011
delinquency statement is inaccurate.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 33

        was basically looking at a range of delinquent
        accounts and looking at one that would
        encompass to capture most of those so that
        we did not suffer a loss as far as the District
        goes.

That stated rationale is supported by the evidence: The dollar
figure of the increased security deposit in the policy ($180)
is nearly equivalent to the District’s largest outstanding
delinquency in the record ($184.45).

    Appellants cite no record evidence contradicting the
District’s expressed intent to key the deposit amount to past
delinquencies. Instead, Appellants argue that $180 is an
arbitrary figure. As the record demonstrates, that clearly is
not the case. It was not picked out of the blue, but because
of a specific account in the red.

    Now, had the District set the security deposit at clearly
excessive amounts relative to predictable monthly water
bills for individual units (say, $500 or $1000), or had the
District failed to proffer evidence that its security deposit
amount was keyed to the size of the largest delinquency
(with accompanying documentary support), or had the
District decided not to make the security deposit refundable
to public housing tenants who did not leave behind
delinquent accounts, then Appellants might have raised a
triable issue as to whether the policy served the legitimate
goal of preventing financial loss to the District from
delinquencies. But Appellants did not provide any such
evidence.

    The District provided evidence that the amount of its
security deposit significantly served its legitimate business
interest. Appellants are not entitled to assert in response that,
in their estimation, the District could have recouped most,
34 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

though not all, of its costs related to delinquencies with a
lower deposit amount and that the District should be content
with that. A plaintiff may attempt to rebut the defendant’s
proof that it has a substantial basis for setting the cost of the
deposit at a certain dollar figure by showing the cost is either
not substantially related to the loss to be prevented or
pretextually high—but plaintiffs may not simply assert a
business’s interest is illegitimate because the plaintiff does
not believe the financial losses at issue are worth preventing.
That is nothing more than subjective second-guessing the
sound exercise of a business’s discretion. See Inclusive
Communities, 576 U.S. at 540–41.

    We therefore conclude that there is no triable issue of
material fact as to whether the District demonstrated a
legitimate business justification for implementing the
Security Deposit Policy.

    C. Equally     Effective,        Less      Discriminatory
       Alternative

    In the final step of the disparate-impact analysis, “if the
defendant provides a legitimate justification for the
challenged practice, the plaintiff must demonstrate that an
alternative practice (1) would ‘serve the defendant’s
legitimate interests,’ and (2) would not have a ‘similarly
undesirable . . . effect [on members of protected groups].’”
Hardie, 876 F.3d at 320 (quoting Wards Cove, 490 U.S.
at 660) (cleaned up). “[B]efore rejecting a business
justification . . . a court must determine that a plaintiff has
shown that there is ‘an available alternative . . . practice that
has less disparate impact and serves the [entity’s] legitimate
needs.’” Inclusive Communities, 576 U.S. at 533 (third and
fourth alterations in original) (quoting Ricci v. DeStefano,
557 U.S. 557, 578 (2009)). “The plaintiff’s proposed
alternative(s) must be ‘equally effective’ as the defendant’s
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 35

chosen policy at serving the defendant’s interest(s), taking
into account ‘[f]actors such as the cost or other burdens’ that
alternative policies would impose.” Hardie, 876 F.3d at 320
(quoting Wards Cove, 490 U.S. at 661); see also Watson,
487 U.S. at 998. “‘Courts are generally less competent than
employers to restructure business practices,’ consequently,
the judiciary should proceed with care before mandating that
an employer must adopt a plaintiff’s alternative . . . .” Wards
Cove, 490 U.S. at 661 (quoting Furnco Constr. Corp. v.
Waters, 438 U.S. 567, 578 (1978)).

    In Inclusive Communities, the Supreme Court clarified
the limited scope of the third step and implemented
safeguards to ensure that housing authorities and private
developers are given “leeway to state and explain the valid
interest served by their policies.” 576 U.S. at 541–42. “The
FHA is not an instrument to force [defendants] to reorder
their priorities. Rather, the FHA aims to ensure that those
priorities can be achieved without arbitrarily creating
discriminatory effects or perpetuating segregation.” Id.
at 540. “The limitations on disparate-impact liability
discussed here are also necessary to protect potential
defendants against abusive disparate-impact claims. . . .
Were standards for proceeding with disparate-impact suits
not to incorporate at least the safeguards discussed here, then
disparate-impact liability might displace valid governmental
and private priorities, rather than solely removing artificial,
arbitrary, and unnecessary barriers. And that, in turn, would
set our Nation back in its quest to reduce the salience of race
in our social and economic system.” Id. at 544 (cleaned up).

    At summary judgment, the burden on the plaintiff at the
third step is not only to present potential alternatives, but to
provide evidence that equally effective and less
discriminatory alternatives exist. Watson, 487 U.S. at 997–
36 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

98. Appellants here provide arguments but fail to present
evidence sufficient to allow a jury to conclude that any
equally effective, less discriminatory alternatives exist to the
Security Deposit Policy. Moreover, these arguments are not
persuasive.

    As a first alternative, Appellants contend that the District
could have continued to attempt to force Pinal County to pay
for any delinquencies, either by negotiating an
intergovernmental agreement, by requesting a resolution
from the County Board of Supervisors, or by filing a
declaratory relief action in court. However, as already
recounted, the District attempted numerous times over
several years to convince Pinal County to pay its tenants’
delinquencies, all without success. Appellants suggest Pinal
County’s legal claims (that its public property was immune
from liens and that the anti-gift clause of the Arizona
Constitution prevented the County from paying its tenants’
delinquencies) were infirm and the District should have filed
a declaratory action in court rather than take the County at
its word. But requiring the District to file a declaratory
action against Pinal County would create costly and time-
consuming burdens for the District and it is not clear that the
District would prevail. Appellants have not presented
evidence sufficient to create a material triable issue of fact
that these alternatives would be equally effective.

    Appellants next argue that the District should instead
seek to collect the delinquencies from the public housing
customers responsible rather than institute a prophylactic
security deposit policy. Setting aside the fact that letters sent
to Pinal County show the District did unsuccessfully attempt
to collect from these customers, Appellants do not supply
any evidence that this alternative would be less burdensome
or equally effective than a refundable security deposit. It
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 37

likely would not be as it would require the District to recoup
delinquent accounts through a collections agency from
customers who have already shown an inability or disinterest
in paying their utility bill and for whom the District no
longer has valid current addresses. 18         Alternatively,
Appellants argue that the District can cover for delinquent
account losses by siphoning money from the District’s own
operating revenue. But for us to require such measures
would deny that businesses have a valid right to guarantee
full payment from individual clients.

    Finally, Appellants propose the District apply the
Security Deposit Policy to all its customers, rather than
applying it solely to public housing residents. Requiring the
District to increase all its customers’ costs and burdens by
applying the Security Deposit Policy regardless whether
their landlords comport with the District’s requirement that
landlords pay tenant delinquencies may annul the disparate
impact, but it is not a reasonable alternative given this
record. We must also take into account the costs and burdens
of proposed alternatives. Hardie, 876 F.3d at 320.
Mandating the District to discard the rational tailoring of the
Security Deposit Policy incorrectly signals that justified,
deliberate, and legitimate policies, which impact protected
groups, violate the FHA. This is improper. See Inclusive
Communities, 576 U.S. at 521 (“Policies, whether
governmental or private, are not contrary to the disparate-
impact requirement unless they are artificial, arbitrary, and
unnecessary barriers.” (quotation marks and citation
omitted)). Neither would increasing the security deposit of

    18
      Appellants also suggest pegging the security deposit to a tenant’s
payment history or credit rating or to reduce the size of the security
deposit but provide no evidence that either solution is equally effective
or would be less discriminatory. Counsel’s suggestions are not evidence.
38 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

all customers to some amount lower than $180 be an equally
effective method of protecting against a delinquent balance
left by a tenant with an immune landlord. Because the
District must refund the security deposit of each customer
who does not leave behind an outstanding balance, it cannot
take funds from one customer’s security deposit to cover a
delinquent balance left by another customer—or, if it does
do so as a temporary measure, it must eventually use its own
funds to replenish that first tenant’s deposit. Thus,
increasing every customer’s security deposit to some amount
lower than $180 will likely still leave the District vulnerable
to financial loss.

    Ultimately, the district court erred by choosing the
wrong comparator population when it held that the
Appellants failed to establish a prima facie case of disparate
impact.         However, the District established a
nondiscriminatory legitimate business interest in applying
the Security Deposit Policy only to Pinal County tenants and
for raising the deposit to $180, and that these interests were
served in a significant way by that policy. Appellants have
not identified any genuine issue of material fact that would
disturb that conclusion and have failed to carry their burden
in establishing any less discriminatory, equally effective
alternative to the District’s policy.

    Although the district court’s analysis at the prima facie
stage was in error, we affirm the district court’s grant of
summary judgment to the District on the disparate-impact
claim.

II. Disparate-Treatment Claim

    Appellants attempted to defeat the District’s motion for
summary judgment by arguing that their complaint also
alleged a disparate-treatment cause of action. The district
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 39

court rejected that argument, concluding that Appellants had
failed to allege a disparate-treatment claim under the FHA
and, even if they had, had supplied insufficient evidence to
establish a genuine dispute of material fact. While we
affirm, we conclude the district court erred in finding that
Appellants did not make it known in discovery that they
would pursue a disparate-treatment claim. See Coleman v.
Quaker Oats Co., 232 F.3d 1271, 1294 (9th Cir. 2000). We
nonetheless affirm the district court because Appellants
failed to adduce evidence sufficient to allow a reasonable
jury to conclude that the District was liable under a
disparate-treatment theory.

    We have held in the analogous ADEA context that a
plaintiff may not pursue an alternative discrimination theory
unless plaintiffs “either (1) [pleaded] the additional disparate
impact [or treatment] theory in their complaints, or
(2) [made] known during discovery their intention to pursue
recovery on the disparate impact [or treatment] theory
omitted from their complaints. Only if the defendants have
been put on notice may the plaintiffs proceed on a disparate
impact [or treatment] theory at the summary judgment
stage.” Id.

    Unlike for disparate-impact claims, allegations that
discrimination was a motivating factor behind a defendant’s
actions are essential to plead a disparate-treatment claim.
Ultimately, at the summary judgment stage, the plaintiff
must “produce direct or circumstantial evidence
demonstrating that a discriminatory reason more likely that
not motivated the defendant and that the defendant’s actions
adversely affected the plaintiff in some way.” Ave. 6E,
818 F.3d at 504 (9th Cir. 2016) (quoting Pac. Shores Props.,
LLC v. City of Newport Beach, 730 F.3d 1142, 1158 (9th Cir.
2013)).
40 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

    Appellants’ amended complaint did not articulate any
theory of disparate treatment. Essential terms such as
“disparate     treatment,”    “motivating    factor,”    and
“discriminatory purpose” do not appear anywhere. Nor are
there allegations of improper animus or any discussion of the
District’s purpose in instituting the policy. Instead, the
complaint reads as a traditional disparate-impact complaint:
it lists demographic statistical disparities among the
Edwards Circle population and describes the
disproportionate harm that the policy allegedly caused.

    However, we have held that a plaintiff may provide
notice of their intent to pursue either a disparate-impact or
disparate-treatment claim during discovery. Coleman,
232 F.3d at 1294. Notice in the complaint is preferred. Id.
at 1292. Thus, to avoid prejudicing the defendant, notice
provided during discovery should be made early and should
clearly demonstrate the plaintiff is collecting evidence to
establish the alternative theory.

    For example, in Coleman, plaintiffs pursued an ADEA
disparate-treatment discrimination claim in their complaint
and in discovery, but never raised a disparate-impact claim
before summary judgment. Id. at 1292–93. We held that
because the defendant was given “no notice either in the
complaint, in documents submitted with the complaint, or in
any document prior to their motions for summary judgment
that they intended to argue this theory,” the district court did
not err when it barred plaintiffs from asserting the theory at
summary judgment. Id. at 1294 n.8.

    That is not the case here. Documents submitted to the
district court prior to discovery demonstrate that the District
was aware that Appellants were attempting to bring a
disparate-treatment claim. The District signed on to a joint
case management plan filed prior to discovery which recited
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 41

as an issue in dispute “[w]hether race, color, [etc.] was a
motivating factor in committing the challenged practices.”
Indeed, even prior to that, the District indicated it was aware
that Appellants intended to pursue a disparate-treatment
theory when it listed in its amended answer the affirmative
defense that “discrimination was not a motivating factor” (an
element unique to a disparate-treatment claim). The District
could have sought to dismiss a claim for disparate treatment
under Federal Rule of Civil Procedure 12(b)(6) or sought a
more definitive statement under Rule 12(e) but failed to do
so. Instead, the District’s own statements to the court
demonstrate that the District had notice of Appellants’
potential disparate-treatment claim. Therefore, the District
had notice and was not prejudiced by Appellants’ disparate-
treatment claim.

    However, the district court did not err in holding that
Appellants failed to present evidence sufficient to establish
a genuine dispute of material fact regarding disparate
treatment. To defeat a motion for summary judgment,
Appellants were required to establish that there was a
genuine issue of material fact as to whether “a
discriminatory reason more likely than not motivated the
defendant.” Ave. 6E, 818 F.3d at 504 (quotation marks and
citations omitted). Proof may come in the form of either
“direct or circumstantial evidence.” Pac. Shores Props.,
730 F.3d at 1158. Typically, we apply the multi-factor
inquiry from Arlington Heights v. Metropolitan Housing
Corp., 429 U.S. 252, 266 (1977), to assess whether a plaintiff
has established a triable issue of fact that the defendant’s
actions were motivated by discriminatory intent. We
examine “the events leading up to the challenged decision
and the legislative history behind it, the defendant’s
departure from normal procedures or substantive
conclusions, and the historical background of the decision
42 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER

and whether it creates a disparate impact.” Ave. 6E, 818 F.3d
at 504 (citing Arlington Heights, 429 U.S. at 266–68). But
Appellants have not adduced sufficient evidence that the
District had a discriminatory motive.

    Appellants presented insufficient direct evidence of
discriminatory animus in the lead-up to the policy’s
adoption. Appellants’ only argument is to point to a
statement in deposition by a District board member that he
did not “think [Pinal County was] as accountable as they
should have been for their property, for managing the influx
of people and tenants and that type of thing.” Appellants
argue, without citation to any evidence, direct,
circumstantial, or expert, that “influx of people and tenants”
is code for African Americans, Native Americans, and single
mothers.     The district court rejected that argument,
concluding these were not “‘code word[s]’ that
demonstrate[d] discriminatory intent.”            We agree.
Appellants’ contention that the phrase “influx of people and
tenants” demonstrates discriminatory intent or bias is
baseless. No reasonable jury could conclude from this
statement that the District intended to discriminate against
Pinal County tenants on the basis of race or familial status.

    Neither did Appellants demonstrate circumstantial
evidence from which a jury could find discriminatory intent.
Appellants’ only argument here is that the District was told
by Pinal County that increasing the security deposit only for
residents of Edwards Circle would affect mostly members of
“a protected class” and violate fair housing law, and that this
is conclusive evidence to establish an inference of
discriminatory motive. While a defendant’s knowledge of a
policy’s potential discriminatory impact may be relevant
circumstantial evidence in proving animus, it is not
sufficient here. As explained above, the District’s decision
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 43

to apply the Security Deposit Policy is readily explainable
on grounds of common-sense business practices: businesses
must be paid for their services to stay in business. These
grounds are other than race or familial status. Nor is there
any evidence that the District’s business-related grounds
were pretextual. A demonstration that a business may have
known that a challenged policy could result in a
disproportionate impact on certain members of a protected
class is simply not sufficient on its own to impose liability
for a disparate-treatment claim. 19

    Because the Appellants did not establish a genuine issue
of material fact as to whether the District had a
discriminatory motive, we affirm the district court’s order
granting the District summary judgment on the disparate-
treatment claim.

                         CONCLUSION

    For the reasons stated above, we AFFIRM.

    19
        Appellants also argue that the District acted with reckless
disregard, which the Supreme Court has deemed equivalent to “willful”
discrimination in the context of other federal discrimination statutes.
Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 126 (1985). We
need not decide whether this standard, which applied to a damages
provision of the ADEA, is applicable to disparate treatment liability
under the FHA because Appellants have not provided sufficient evidence
that the District acted with reckless disregard.