District Court Dismisses Disparate Impact Case

In a court case that has implications for banks and credit unions, a United States District Court in Dallas, TX reversed its earlier decision and dismissed Inclusive Communities Project, Inc. (ICP) disparate impact claim against the Texas Department of Housing and Community Affairs' (TDHCA) for the agency's allocation of low-incoming housing credits.

Initially, the court ruled for ICP, holding that disparate impact claims are cognizable under the Fair Housing Act (FHA). The court ordered the TDHCA to include new selection criteria for distributing the housing credits. The Fifth Circuit affirmed that disparate impact claims are cognizable under the FHA, but on the merits, the Fifth Circuit reversed and remanded in light of the U.S. Department of Housing and Urban Development’s (HUD) burden-shifting approach for disparate impact claims. The Supreme Court then granted certiorari to decide whether disparate impact claims are cognizable under the FHA.

Last year, the Supreme Court affirmed that disparate impact liability is cognizable under the FHA. In reaching its decision, the Court emphasized limitations on disparate impact liability. According to the Court, allegations of racial disparities are not enough at the pleading stage without allegations connecting that data with a “policy or policies causing that disparity."

After the Supreme Court remanded the case, the district court reversed its earlier decision and dismissed the complaint. The court held that ICP did not identify a specific practice governing the allocation low-income housing credits that creates a disparate impact and therefore failed to prove a prima facie case.

The district court rejected ICP’s argument that the TDHCA exercised discretion in allocating the housing credits in a way that adversely impacted minorities. The court found that ICP failed to identify a specific, facially neutral policy or practice that purportedly caused a racially disparate impact. According to the court, “ICP must affirmatively identify a specific policy that produced a disparate impact, rather than point to a lack of policy that caused it.” The court concluded that ICP did not adequately establish a “robust causality” between the TDHCA’s discretion and the alleged disparate impact on African-American families eligible for the Dallas Housing Authority Section 8 Housing Choice Voucher program. The court held that ICP failed to prove that the TDHCA’s exercise of discretion in scoring the tax credit applications caused the statistically-significant disparity (disparate impact).

The court also dismissed the complaint on the basis that ICP alleged a disparate treatment claim instead of a disparate impact claim. The court observed that a “fair reading of ICP’s arguments reveals that it is complaining about the results of TDHCA’s discretion, not the existence of the discretion."

Read the opinion.