Federal court strikes down HUD’s disparate impact regulations

On Monday, the United States District Court for the District of Columbia issued a scathing opinion that struck down HUD’s disparate impact rule. The disparate impact rule, also referred to as a “discriminatory effects” standard, established liability under the Fair Housing Act (FHA) for the discriminatory effect of a housing practice, even in the midst of no discriminatory intent. Although many other circuits had found that disparate impact liability did exist under the FHA, in American Insurance Association v. United States Department of Housing and Urban Development, the DC District Court found that such a standard was contrary to the plain language of the FHA.  In an opinion that was very critical of HUD’s strategy for interpreting the Fair Housing Act, the DC District Court noted that most of the other Circuit Courts assessed the question of whether there is disparate impact liability under the FHA only before the U.S. Supreme Court in Smith v. City of Jackson set forth guidance for determining whether such liability exists under the FHA.

In the past few years, the U.S. Supreme Court has agreed to hear three cases that ask the question of whether a disparate impact cause of action exists under the FHA. The first two cases were settled before the Supreme Court could review the question. Last month, however, the Supreme Court agreed to hear the third case, Inclusive Communities Project v. Texas Department of Housing and Community Affairs, which involves a claim that low-income housing tax credits are allocated for non-elderly sites in a manner that has a disparate impact on persons of color.

The DC District Court likely wanted to issue its opinion before the Supreme Court hears the Texas Department of Housing and Community Affairs case; in its opinion this week, the DC District Court stated:

“This is, yet another example of an Administrative Agency trying desperately to write into law that which Congress never intended to sanction…it is nothing less than an artful misinterpretation of Congress’s intent that is, frankly, too clever by half…Fortunately for us all, however, the Supreme Court is now perfectly positioned in Texas Department of Housing to finally address this issue in the not-too-distant future.”

A summary of the American Insurance Association case is available on Ballard Spahr’s website.