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On March 23, 2020, the United States Supreme Court denied certiorari in The Inclusive Communities Project, Inc. v. The Lincoln Property Company, No. 19-947 (filed Oct. 14, 2019), a case that threatened to force landlords into accepting federal Housing Choice or “Section 8” vouchers.
The Supreme Court’s decision not to hear the case preserves the voluntary nature of the Section 8 program—at least where state or local law does not otherwise mandate participation. It also leaves in place a Fifth Circuit opinion that makes it very difficult for plaintiffs to bring disparate impact claims under the federal Fair Housing Act (“FHA”), including claims premised on the “segregative effect” of a challenged policy. This development has meaningful implications for property developers and owners with respect to fair housing compliance in the Fifth Circuit.
The Case
The case was brought by The Inclusive Communities Project, Inc. (“ICP”), a fair housing focused nonprofit that works with “households seeking access to housing in predominately non-minority locations in the Dallas area.” According to the complaint, ICP seeks to help African American voucher holders secure housing in “high opportunity areas”—defined by the U.S. Department of Housing and Urban Development (“HUD”) as areas with lower poverty, better schools, and closer proximity to jobs.
ICP sued four entities that own large apartment complexes in high opportunity areas in the Dallas Metroplex, as well as Lincoln Property Company (“Lincoln”), the management company that manages those complexes. According to the complaint, Lincoln would not negotiate with, rent to, or make units available to Section 8 tenants in white, non-Hispanic areas—including at the complexes owned by the defendants. ICP alleged that this refusal to accept Section 8 vouchers violated the FHA because it (1) disproportionately affected African Americans, who make up more than 80% of voucher holders in the Dallas area; and (2) forced African American voucher holders to seek housing in racially concentrated areas where vouchers are accepted.
A Quick Primer on Disparate Impact Liability Under the FHA
The primary issue on appeal was whether ICP’s allegations stated an actionable disparate impact claim under the FHA.
The FHA prohibits discrimination in the sale or rental of any dwelling based on race, color, national origin, religion, sex, familial status, and disability. The “typical” FHA claim involves allegations of overt intentional discrimination, also known as disparate treatment (e.g., the landlord would not rent to me/would not sell to me/charged me a higher monthly rent/required a higher security deposit because I am in a protected class). In 2015, however, in another case brought by ICP, the Supreme Court recognized that facially neutral policies that nonetheless have an unjustified disproportionate effect on a protected class can also violate the FHA. See The Inclusive Communities Project, Inc. v. Tex. Dep’t of Housing & Cmty. Affairs, 135 S. Ct. 2507 (2015) (“ICP I”). These claims are known as disparate impact claims.
ICP I was significant because, for the first time since passage of the FHA in 1968, the Supreme Court formally acknowledged disparate impact as a viable theory of recovery under that statute. ICP I, however, established a stringent test for pleading and proving disparate impact, requiring plaintiffs to allege and prove “robust causality” between the challenged policy and the alleged discriminatory effect.
The Decision
Whether ICP alleged “robust causality” between defendants’ “no vouchers” policy and the alleged impact on African Americans was center stage in the case.
After the district court determined that ICP’s complaint failed to allege facts showing such “robust causality,” the U.S. Court of Appeals for the Fifth Circuit affirmed. The Inclusive Communities Project, Inc. v. Lincoln Prop. Co., 920 F.3d 890 (5th Cir. 2019) (“ICP II”). It agreed with the district court that “robust causality” required ICP to allege facts showing that the challenged policy actually caused the statistical disparity about which it complained. Because ICP failed to allege any facts linking defendants’ “no vouchers” policy to the racial composition of Dallas’ voucher population, it failed to state a claim:
Neither the aforementioned “city-level data” nor the “census-level data” cited by ICP supports an inference that the implementation of Defendants-Appellees’ blanket “no vouchers” policy, or any change therein, caused black persons to be the dominant group of voucher holders in the Dallas metro area (or any of the other census areas discussed by ICP) . . . . Indeed, ICP pleads no facts showing Dallas’s racial composition before the Defendants-Appellees implemented their “no vouchers” policy or how that composition has changed, if at all, since the policy was implemented.
The dissent argued that the majority’s analysis took “robust causality” too far. In its view, the fact that defendants’ “no vouchers” policy disproportionately affected African Americans was sufficient to state a plausible claim that defendants’ policy had a discriminatory effect in violation of the FHA.
The dissent also accused the majority of failing to appreciate that there can be two types of disparate impact claims that may be asserted under the FHA: (1) a claim that a facially neutral policy has a disproportionate adverse effect on a particular minority group; and (2) a “segregative effect” claim, premised on allegations that the defendant’s policy perpetuates segregation in the community. According to the dissent, ICP asserted both, and, by alleging facts showing that a refusal to accept vouchers excluded African Americans from majority-white neighborhoods, defendants were furthering existing segregation in violation of the Act.
After losing its appeal, ICP petitioned for rehearing en banc. The Fifth Circuit denied rehearing by an unusually split 9 to 7 vote. The seven judges who voted for rehearing vigorously dissented, noting in a separate opinion that the panel majority rendered the Supreme Court’s decision in ICP I “almost meaningless” by crafting an “impossible” pleading standard for FHA disparate impact claims—and one that clashed with decisions from other circuit courts. The Inclusive Communities Project, Inc. v. Lincoln Prop. Co., 930 F.3d 660 (5th Cir. 2019) (Haynes, J., dissenting from denial of reh’g).
Implications for Property Owners
The Fifth Circuit’s decision and the Supreme Court’s refusal to take the case is a significant win for housing developers, property owners, and property managers on a number of fronts.
First, the decision reaffirms that property owners may continue to refuse Section 8 vouchers without exposing themselves to disparate impact liability. The statute establishing the Section 8 program has never required property owners to accept Section 8 vouchers. Neither has the FHA. Although federal lawmakers have attempted several times to amend the FHA to make “source of income” a protected class, all of those attempts have failed.1
Second, whether property owners in the Fifth Circuit could be subject to FHA liability for refusing to accept vouchers was, until this decision, unclear. As noted in the opinion dissenting from denial of rehearing, the voluntariness of the Section 8 program does not exempt property owners from complying with the FHA. Had the court allowed ICP to prevail at the pleadings stage, it may have well signaled a stark choice to property owners: either participate in a “voluntary” program or potentially face FHA liability. ICP II seems to limit the risk of the latter, at least in the Fifth Circuit.
Finally, the Fifth Circuit’s decision raises questions about the continued viability of “segregative effect” claims, which has a direct bearing on the legality of zoning policies that municipalities may adopt in response to the efforts of low-income tax property developers, for example. While additional litigation in the Fifth Circuit may be necessary to further elucidate these issues, the Supreme Court’s decision to refuse review here inarguably strengthens the hands of defendants faced with disparate claims in this circuit.
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1 Although federal law does not mandate the acceptance of vouchers, 15 states (California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Dakota, Oklahoma, Oregon, Utah, Vermont, Washington, and Virginia) and the District of Columbia have enacted state laws prohibiting discrimination based on the use of vouchers. In addition, approximately 70 municipalities across the country have done the same by ordinance. Texas law specifically prohibits cities from enacting ordinances that make participation mandatory. See Tex. Loc. Gov’t Code § 250.007(a).