Locke Lord QuickStudy: U.S. Supreme Court Declines to Hear Case Threatening the ‎Voluntariness of Private Property Owners’ Participation in Federal Housing Choice ‎Voucher Program

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).‎}