In housing case, Justice Kennedy’s eyes are wide shut

I wrote here about yesterday’s decision by the Supreme Court in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project. By a 5-4 vote, with Justice Kennedy writing for the majority, the Court held that the Fair Housing Act allows lawsuits based on disparate impact.

Usually in a case like this, it is the dissent that warns of the dire consequences that may well flow from the majority’s decision. In this case, however, both the dissent and the majority warn of them.

Let’s begin with Justice Alito’s superb dissent. It begins:

No one wants to live in a rat’s nest. Yet in Gallagher v. Magner, 619 F. 3d 823 (2010), a case that we agreed to review several Terms ago, the Eighth Circuit held that the Fair Housing Act (or FHA) could
be used to attack St. Paul, Minnesota’s efforts to combat “rodent infestation” and other violations of the city’s housing code. The court agreed that there was no basis to “infer discriminatory intent” on the part of St. Paul.

Even so, it concluded that the city’s “aggressive enforcement of the Housing Code” was actionable
because making landlords respond to “rodent infestation, missing dead-bolt locks, inadequate sanitation facilities, inadequate heat, inoperable smoke detectors, broken or missing doors,” and the like increased the price of rent. Since minorities were statistically more likely to fall into “the bottom bracket for household adjusted median family income,” they were disproportionately affected by those rent increases, i.e., there was a “disparate impact.” Id., at 834.

The upshot was that even St. Paul’s good-faith attempt to ensure minimally acceptable housing for its poorest residents could not ward off a disparate impact lawsuit.

Today, the Court embraces the same theory that drove the decision in Magner. This is a serious mistake. The Fair Housing Act does not create disparate-impact liability, nor do this Court’s precedents. And today’s decision will have unfortunate consequences for local government,
private enterprise, and those living in poverty. Something has gone badly awry when a city can’t even make slumlords kill rats without fear of a lawsuit.

It is not just the St. Paul case that demonstrates the absurd consequences that stem from applying disparate impact theory to housing cases. The absurdity is also lurking in the Texas case itself. As Justice Alito explained:

The Texas Department of Housing and Community Affairs (the Department) has only so many tax credits to distribute. If it gives credits for housing in lower income areas, many families—including many minority families—will obtain better housing. That is a good thing.

But if the Department gives credits for housing in higher income areas, some of those families will be able to afford to move into more desirable neighborhoods. That is also a good thing.

Either path, however, might trigger a disparate-impact suit.

This is not mere speculation. Here, one respondent has sued the Department for not allocating enough credits to higher income areas. But another respondent argues that giving credits to wealthy neighborhoods violates “the moral imperative to improve the substandard and inadequate affordable housing in many of our inner cities.”

This latter argument has special force because a city can build more housing where property is least expensive, thus benefiting more people. In fact, federal law often favors projects that revitalize low-income communities.

No matter what the Department decides, one of these respondents will be able to bring a disparate-impact case. And if the Department opts to compromise by dividing the credits, both respondents might be able to sue. Congress surely did not mean to put local governments in such a position.

Far from disputing that the Court’s ruling creates potential for mischief, Justice Kennedy and the four liberals who joined his opinion agree. Kennedy described this potential at some length. He even called Alito’s dissent “well-stated.”

Indeed, Kennedy homed in on the biggest danger his decision will create — quotas:

Without adequate safeguards at the prima facie stage, disparate-impact liability might cause race to be used and considered in a pervasive way and “would almost inexorably lead” governmental or
private entities to use “numerical quotas,” and serious constitutional questions then could arise.

The litigation at issue here provides an example. From the standpoint of determining advantage or disadvantage to racial minorities, it seems difficult to say as a general matter that a decision to build low-income housing in a blighted inner-city neighborhood instead of a suburb is discriminatory, or vice versa.

If those sorts of judgments are subject to challenge without adequate safeguards, then there is a danger that potential defendants may adopt racial quotas—a circumstance that itself raises serious constitutional concerns.

Kennedy also recognized the potential for abuse and coercion inherent in permitting disparate impact suits in the housing context:

The limitations on disparate-impact liability discussed here are also necessary to protect potential defendants against abusive disparate-impact claims. If the specter of disparate-impact litigation causes private developers to no longer construct or renovate housing units for low-income
individuals, then the FHA would have undermined its own purpose as well as the free-market system.

The potential for abuse and coercion goes well beyond discouraging developers from constructing and renovating units. The threat of disparate impact suits is a major tool in the left’s drive to impose its “regionalist” agenda (Affirmatively Furthering Fair Housing), whereby the federal government uses its powers to force the creation of communities of a certain kind, each having what the feds deem an appropriate mix of economic, racial, and ethnic diversity.

The big question, of course, is whether Justice Kennedy’s “limitations on disparate impact liability” will actually constrain liberal judges. In my view, the question answers itself; they will not.

The main “limitations” Kennedy relies on are those that apply in disparate impact challenges to employment practices. In these cases, the employer can prevail by showing that the challenged practice is justified by “business necessary” or “job relatedness.”

These limitations have not been a raging success. Many an employer has abandoned or modified perfectly good, non-discriminatory selection devices in order to avoid being sued.

Moreover, as Justice Alito explained:

The business-necessity defense is complicated enough in employment cases; what it means when plopped into the housing context is anybody’s guess. What is the FHA analogue of “job related”? Is it “housing related”? But a vast array of municipal decisions affect property values and thus relate (at least indirectly) to housing.

And what is the FHA analogue of “business necessity”? “Housing-policy necessity”? What does that mean?

Justice Kennedy also tried to ward off bad consequences by stating, plaintively, that “governmental entities . . . must not be prevented from achieving legitimate objectives, such as ensuring compliance with health and safety codes.” Justice Alito responded:

[W]hat does the Court mean by a “legitimate” objective? And does the Court mean to say that there can be no disparate impact lawsuit if the objective is “legitimate”?

That is certainly not the view of the Government, which takes the position that a disparate-impact claim may be brought to challenge actions taken with such worthy objectives as improving housing in poor neighborhoods and making financially sound lending decisions.

I doubt that it’s the view of the four liberals who joined with Justice Kennedy, either.

Whether he knows it or not, Justice Kennedy has set the stage for an enormous power grab by the Department of Housing and Urban Development, as it prepares to impose the left’s vision of how we should live. This is clear from HUDs regulations which provide a defense against disparate-impact liability if a defendant can show that its actions serve “substantial, legitimate, nondiscriminatory interests” that “necessar[ily]” cannot be met by “another practice that has a less discriminatory effect.”

Few things are “necessarily” true. A standard that uses epistemology to place a near impossible burden of proof on defendants is not a limiting principle.

As Justice Alito wrote:

The effect of these regulations, not surprisingly, is to confer enormous discretion on HUD—without actually solving the problem.

What is a “substantial” interest? Is there a difference between a “legitimate” interest and a “nondiscriminatory” interest? To what degree must an interest be met for a practice to be “necessary”?
How are parties and courts to measure “discriminatory effect”?

In the film “Petrified Forest,” Duke Mantee, played by Humphrey Bogart, says of the Leslie Howard character, “I guess we’re all a lot of saps, but I wouldn’t be surprised if he was the champion.”

I wouldn’t be surprised if Justice Kennedy were the champion sap of our generation of jurists.