Pub. 6 2015 Issue 3

fall 2015 15 West Virginia Banker Nicholas P. Mooney II is a Member attorney in Spilman Thomas & Bat- tle’s Charleston, West Virginia office. He has devoted the past 16 years of his practice exclusively to consumer financial services litigation. He can be reached at 304.340.3860 or nmooney@ spilmanlaw.com. Courts addressing whether disparate impact claims may be brought under the FHA have been unable to agree. Some have ruled that such claims are permitted, while others have ruled that they are not. When this type of split occurs, all eyes look to the Supreme Court for guidance. bring a lawsuit under the FHA, a plaintiff must show that a defendant specifically intended to discriminate against him or her. They focus on the FHA’s language that the defendant’s actions must have been taken “ because of race, color, religion, sex, familial status, or national origin.” In other words, the defendant must have had a subjective intent to discriminate. They argue that any- thing short of this subjective intent cannot be a violation of the FHA. Conversely, others have argued that the phrase “or otherwise make unavailable or deny” in the FHA could be satisfied where a defendant’s actions had a discriminatory effect, even without subjective intent to discriminate. These discriminatory effect claims have been called “disparate impact” claims. Commentators argue that plaintiffs bringing disparate impact claims have an easier time prevailing because they are not required to prove that the defendant intend- ed to discriminate against them. Courts addressing whether disparate impact claims may be brought under the FHA have been unable to agree. Some have ruled that such claims are permitted, while others have ruled that they are not. When this type of split occurs, all eyes look to the Supreme Court for guidance. Unfortunately, the road to the Supreme Court has not been an easy one. It appeared that the Court would address this issue in 2010, when it was poised to decide the issue in the Gallagher v. Magner case arising out of housing code violations in St. Paul, Minne- sota. However, the parties reached a settle- ment and dismissed their appeal before the Court had the opportunity to rule. Three years later, in June 2013, the Supreme Court announced that it would address the case of Mt. Holly Gardens Citi- zens in Action, Inc. v. Twp. of Mt. Holly, which provided the Court another opportunity to decide whether the FHA allowed disparate impact claims. In that case, the township of Mount Holly, New Jersey declared a low-income neighborhood blighted and announced its intent to redevelop the neigh- borhood. The residents and several citizens’ action groups sued and argued a disparate impact theory, claiming that the redevelop- ment plan caused a discriminatory effect under the FHA (even though there was no proof that the township and redevelopers intended to discriminate). In November 2013, the parties announced that they had settled their case, and they withdrew their appeal. In October 2014, the Supreme Court once again sought to decide the issue when it announced that it would hear an appeal involving the distribution of the State of Texas’ federal low-income housing tax cred- its. The case, Texas Department of Housing and Community Affairs, et al. v. Inclusive Communities Project, Inc., et al., began in a Dallas federal court when the Inclusive Communities Project brought a lawsuit claiming that the way in which the State of Texas distributed low-income housing tax credits had a discriminatory effect (a disparate impact claim). Texas filed a motion to dismiss the case and argued that disparate impact claims are not permitted under the FHA. The Dallas federal court disagreed, holding that such claims are per- mitted and establishing factors that a plain- tiff must prove to prevail on that claim. The State of Texas appealed to the feder- al appeals court in New Orleans, which agreed with the Dallas court. The State of Texas then filed a petition with the Supreme Court, asking it to hear the case. In October 2014, the Supreme Court agreed to hear the case, and in late June it finally was able to issue a decision as to wheth- er disparate impact claims are permitted under the FHA. Relying on analogies from other federal statutes and the phrase in the FHA that prohibits conduct that “otherwise make[s] unavailable or den[ies]” housing, the Court held that disparate impact claims are permitted under the FHA. In other words, a plaintiff can file a lawsuit under the FHA and claim discrimination even when the defendant had no intent to dis- criminate and may have acted innocently. Commentators warn that this ruling may signal that courts will take a more expan- sive view of discrimination claims under other statutes, such as the Equal Credit Op- portunity Act, which could have a broad, negative effect on the banking industry. Looking to the Supreme Court’s decision under the FHA, courts may begin permit- ting plaintiffs to sue for a bank’s lending practices even when the bank had no intent to discriminate. n 1 Theterm“FHA”also issometimesusedtorefertotheUnited States Federal Housing Administration and its program of insuring home mortgage loans to lower-income individuals. That government body and its insurance program are unre- lated to the Fair Housing Act, which is the focus of this article and the Supreme Court decision discussed herein.