June 29, 2015 Practice Points

SCOTUS Upholds Disparate-Impact Theory; Big Blow to Developers and Lenders

A recent ruling allows plaintiffs to assert racial-discrimination claims against developers and lenders, without establishing any element of intent.

By Robin E. Perkins

On June 25, 2015, in Texas Department of Housing and Community Affairs v. The Inclusive Community Project, Inc., the U.S. Supreme Court sanctioned, for the first time, the use of statistical evidence to support unintentional-discrimination claims brought under the Fair Housing Act. This ruling allows plaintiffs to assert racial-discrimination claims against developers and lenders, without establishing any element of intent. Plaintiffs can assert that while the complained-of housing practice was not intended to discriminate, it had a disproportionately adverse effect, or “disparate impact,” on a protected minority group.

This 5–4 decision surprised many and, generally, is a significant blow to developers and lenders, and other entities typically subject to these types of claims. However, the ruling did implement one significant hurdle: requiring plaintiffs to prove, early on, that a specific policy or practice caused the disparate impact. The Court noted that disparate-impact liability must be sufficiently narrow to allow defendants the ability to make practical business decisions, profit-related determinations, and other business choices necessary to maintain a vibrant and free-market economy. The Court stated that private policies are not contrary to disparate-impact requirements unless they are “artificial, arbitrary and unnecessary barriers.”

Additionally, while this decision is limited to claims brought under the Fair Housing Act, litigants and interested parties anticipate that the holding will embolden plaintiffs to assert similar disparate-impact claims brought under the Equal Credit Opportunity Act.

Going forward, developers, lenders and other interested entities must carefully scrutinize their policies and practices to ensure that, even if unintentional, they do not have any disparate impact upon a protected class of citizens and must otherwise serve a reasonable nondiscriminatory interest.

Robin E. Perkins, Snell & Wilmer, LLP, Las Vegas, NV


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