New York Law School

Pressure to Settle: The Mount Holly Settlement, Disparate Impact and the Fair Housing Act of 1968

 Parties rarely settle their dispute after the Supreme Court has agreed to hear their appeal and the case is scheduled for oral argument.  Yet the parties in Mount Holly v. Mount Holly Gardens Citizens in Action Inc. did.  Just weeks before their oral arguments would begin on December 4, 2013, Mount Holly Township settled its housing discrimination dispute with Mount Holly Gardens.  Both sides settled late November 13, 2013.  Why, after advocating at each level of appeal and finally receiving a highly sought after slot for oral argument in front of the Nation’s highest court, would these parties settle?

The Facts of Mount Holly v. Mount Holly Gardens Citizens in Action Inc.

Mt. Holly Gardens is a cluster of 329 brick rowhouses in Mount Holly Township, New Jersey. Most of the residents of the Mt. Holly were poor A census from 2000 revealed that 46.1% of Mt. Holly Gardens residents were African American and 28.8% were Hispanic. In 2003, Mount Holly Township declared the Gardens neighborhood blighted and sought to redevelop it, claiming that was the only way to end rising crime in the area and revive the township’s economy.

In 2003, a coalition of the Gardens’ residents sued the Township in New Jersey Superior Court. The Mt. Holly Gardens citizens brought the suit after the redevelopment program displaced the majority of Gardens residents and included new housing that would be too expensive for residents who wanted to stay.  The new Garden units would have cost residents an additional $525 per month. The New Jersey Superior Court dismissed some counts and granted summary judgment in favor of the Township on the remaining counts.

In 2008, the residents filed a new suit in the United States District Court for the District of New Jersey, seeking relief under the Fair Housing Act (“FHA”) and the Equal Protection Clause of the Fourteenth Amendment. The District Court denied the residents’ request for injunctive relief and concluded that (1) they failed to establish a prima facie case of discrimination under the FHA and that (2) even if they had, they failed to show that there was an available alternative that would have had a lesser impact.

The residents appealed to the U.S. Court of Appeal for the Third Circuit, which reversed the District Court’s decision.  The Third Circuit held that the residents presented sufficient evidence to establish a prima facie case of discrimination. The Third Circuit further held that the District Court erred in applying a discriminatory intent standard to the FHA claim. Rather, the District Court should have applied a disparate impact standard. The Third Circuit remanded the case, vacating the District Court’s grant of summary judgment to the Township.

The Township petitioned for a writ of certiorari on June 11, 2012, which the Supreme Court granted on June 17, 2013. On November 13, 2013, the parties settled.

“Everyone had a desire to heal the community and to work this out,” said George Saponaro, the township’s attorney. He described the agreement as “not necessarily just a settlement to the case, but a resolution to all of the issues facing Mount Holly.”

Under the terms of the settlement, the township will compensate the residents who want to leave and provide new homes for those who want to stay. Civil rights groups and fair housing groups such as the Open Society Institute, the Ford Foundation, and the National Fair Housing Alliance helped fund the purchase of part of the land where new housing units will be built that low-income Gardens residents will be able to afford.

The Mount Holly settlement also may have come about largely because of a change in political leadership. Last year deputy mayor Rich DiFolco, along with council members Lew Brown and Jason Jones, were elected on a platform of settling with the Gardens residents. All five members of the Township Council, who had campaigned on pledges to resolve the legal battle, unanimously adopted a set of resolutions to conclude the case at the 11th hour.

Republicans accused the Justice Department of intervening, but the township council said that the Justice Department had nothing to do with the settlement. “Nobody ever heard a word from them,” said council for the township.

The Issue:  Disparate Impact and the Fair Housing Act of 1968

The primary issue in the case was whether the Fair Housing Act of 1968 outlaws official housing policies that are not the result of intentional racial or other bias, but, rather, policies that have a disparate impact on minorities or others protected by the law. “Disparate impact” is a legal concept used especially in cases of employment discrimination under Title VII of the Civil Rights Act of 1964.  Black’s Law Dictionary defines disparate impact as “the adverse effect of a facially neutral practice that nonetheless discriminates against persons because of their race, sex, national origin, age, or disability and that is not justified by business necessity.”  In the context of housing discrimination, disparate impact relies on statistical analyses to determine whether a minority group suffers disproportionately from a redevelopment plan.

The Fair Housing Act of 1968 makes it illegal for anyone to refuse to sell or rent housing after the making of a genuine offer, or to fail to make available or deny a home to any person “because of race, color, religion, familial status or national origin.” The Supreme Court had never ruled on the “disparate impact” question in the context of housing discrimination.

If housing discrimination may be proven by disparate impact, plaintiffs would have an easier burden of proof.  Plaintiffs could establish that they were victims of illegal bias, even if there were no discriminatory intent, by showing that a housing policy statistically resulted in protected groups being treated differently. If the Supreme Court had voted to sustain “disparate impact” claims regardless of discriminatory intent, minorities would have gained increased protection against housing discrimination.

A Similar Case: Magner v. Gallagher

In Magner v. Gallagher, the Supreme Court Justices, in 2012, agreed for the first time to review the issue of disparate impact under the Fair Housing Act. In Magner, the officials in St. Paul, Minnesota chose to vigorously enforce their housing code, even though the enforcement made rental housing more costly and disproportionately hurt African American tenants.  The Eighth Circuit Court of Appeals ruled that the owners had established a case of “disparate impact”. The Court scheduled the case for arguments, but shortly before the argument date, the case settled.

In Magner, Respondents Thomas J. Gallagher, and other owners and former owners of rental properties in St. Paul sued Petitioners Steve Magner and other city officials of St. Paul by alleging that the City violated the Fair Housing Act.  Gallagher alleged that the City aggressively enforced the City’s housing codes, which effectively reduced the supply of low-income housing and caused a disparate impact on African-Americans, who make up a disproportionate percentage of low-income tenants. Most of Gallagher’s tenants qualify as low-income households or receive federal assistance. Gallagher’s properties had received many code violation orders including rodent infestation, inadequate sanitary facilities, inadequate heat, and broken or missing doors. These City measures caused Gallagher and the other landlords to incur additional expenses, and some owners sold their properties as a result.

Some advocates saw the case as a group of slumlords opportunistically using civil rights laws to protect their ability to provide poor people of color with substandard housing. For example, in their amicus curiae brief, The International Municipal Lawyers Association (“IMLA”) argued that a decision in favor of Gallagher would defeat a key purpose of the FHA: to promote safe and healthy housing for all individuals, regardless of race or other background.  IMLA argued that affirming disparate impact in Magner would have the ironic effect of preventing “the enforcement of decent and suitable housing conditions for protected classes.”

The parties reached a settlement and the Supreme Court never got to decide on the issue of disparate impact under the Fair Housing Act.

The Arguments

Under the Fair Housing Act of 1968, Section 3604(a), it is unlawful “to refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.”  The threshold issue is whether the statutory language “otherwise make unavailable or deny” can be interpreted to include the concept of disparate impact.

To establish a prima facie case, plaintiffs must show evidentiary proof that a challenged practice caused or predictably will cause a discriminatory effect. Plaintiffs must demonstrate causal relationship between the disputed practice and the discriminatory effect.  After a prima facie case is established, liability attaches only if the defendant fails to show that its policy is necessary to achieve a substantial, legitimate, nondiscriminatory interest, and that it cannot be achieved by a lesser discriminatory means.

In his brief for the United States, the Solicitor General urged the Court not to hear the case because the U.S. Department of Housing and Urban Development (“HUD”) recently adopted regulations interpreting the Act to permit “disparate impact” claims.  No other court had yet addressed the constitutionality of the guidance.

The rule amends Part 100 of Title 24 of the Code of Federal Regulations to provide that: “Liability may be established under the Fair Housing Act based on a practice’s discriminatory effect…even if the practice was not motivated by a discriminatory intent.” Defining discriminatory effect, the regulation provides: “A practice has discriminatory effect where it actually or predictably results in a disparate impact on a group of persons…because of race, color, religion, sex, handicap, familial status, or national origin.”

HUD’s new rule provides a uniform analytical framework that presumably would be used nationwide for pending and future cases.  Therefore, the Solicitor General advised the Supreme Court not to rule against “disparate impact” in Mount Holly.

Conservatives were eager to see the Supreme Court rule that the Fair Housing Act does not allow for claims of discrimination based on “disparate impact”. Their legal foundation is based on statutory interpretation and legislative intent.  They claim that, according to principles of plain language interpretation and “ejusdem generis”, Section 3604(a) and the phrase “otherwise make unavailable or deny” only contemplates liabilities for direct denials of housing on a discriminatory basis, and does not contemplate use of disparate impact. Conservatives argue that Congress never intended to impose liability for actions that were taken for non-discriminatory reasons, even when the actions affect the availability of housing for minorities and other protected classes.

Financial industry groups, such as the American Financial Services Association, argued that the Supreme Court should deny disparate impact under Fair Housing Act.  Primarily they reason that, in lending, standards for generally-accepted credit assessment may produce differential results that can then be correlated with factors of a protected class.  In an amicus curiae brief, the American Financial Services Association and other financial groups argue that “down-payment requirements, debt-to-income requirements, loan-to-value requirements, and other underwriting requirements all can impact various racial and ethnic groups differently” even though such practices are seen as legitimate and generally-accepted.  If those differences cannot be attributed to mere chance and thus are deemed statistically significant, the lender faces the prospect of a disparate impact lawsuit.  Such lawsuits could bring immediate reputational injury and business disruption.

The American Bank Association and the U.S. Chamber of Commerce also argued against using disparate impact under the Fair Housing Act.  They argue that the respondents do not have a private right of action to bring a disparate impact claim.

Civil rights advocates consider “disparate impact” a key tool for addressing discrimination in an age where people tend to be clever enough not to advertise their prejudice.  In its amicus curiae brief, the NAACP reasons that the use of disparate impact “provides a common sense approach to eliminate those housing practices that are as disastrous and unfair to private rights and the public interest as the perversity of a willful scheme.”  The NAACP listed three key points. First, the disparate-impact standard is “critical where government officials seek to demolish and redevelop a neighborhood with high concentrations of minority residents.”  Second, there is no evidence that the application of the disparate-impact standard to housing policies is “either infeasible or unduly burdensome.” Finally, the NAACP argued that the canon of constitutional avoidance did not preclude Fair Housing Act disparate-impact enforcement because remedies to allocate relief do not have to be based on individual race classifications and are thus facially neutral.

 After The Settlement

The settlement of Mount Holly does not bar the Court from granting review of the same issue in another case. Another showdown over the Fair Housing Act seems inevitable.

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