LEGAL ALERT
November 10, 2011
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Supreme Court to Decide Fair Housing Act “Disparate Impact” Case with
Broader Fair Lending Implications
On Monday, the U.S. Supreme Court agreed to decide whether “disparate impact” discrimination claims
are cognizable under the federal Fair Housing Act (FHA) and, if so, how such claims should be analyzed.
The Court’s decision, expected by the end of the Court’s term this spring, could have broad implications
for fair lending litigation and enforcement affecting all types of consumer finance products.
The Court granted a petition to review the Eighth Circuit’s decision reversing summary judgment in the
defendants’ favor in Gallagher v. Magner, 619 F.3d 823 (8th Cir. 2010), which involved a challenge by
owners of rental properties, under various theories of liability, to the City of St. Paul’s alleged “practice” of
“aggressively enforcing” its Housing Code. (Click here for copy of the opinion.) The district court granted
the defendants’ motion for summary judgment but the Eighth Circuit reversed with respect to the plaintiffs’
“disparate impact” claim under the FHA, 42 U.S.C. § 3604(a)-(b). In so holding, the Eighth Circuit applied
a three-part “burden-shifting” approach requiring, first, a prima facie case of disparate impact on protected
classes; second, a showing by the defendant that the challenged policy or practice has a “manifest
relationship” to a legitimate, non-discriminatory policy objective; and finally a showing by the plaintiffs that
there exists “a viable alternative means” to meet the legitimate objective without discriminatory effects.
The Eighth Circuit described the “policy or practice” at issue as “the City’s aggressive Housing Code
Enforcement practices,” including allegations that “the City issued false Housing Code violations and
punished property owners without prior notification, invitations to cooperate with the [enforcement
authority], or adequate time to remedy Housing Code violations.” Idat 834. The plaintiffs presented a
prima facie case of disparate impact, the court held, by presenting evidence that the city had a shortage
of affordable housing; that racial minorities were disproportionately represented in the pool of those
requiring affordable housing; that the city’s “aggressive enforcement” of its code made ownership of rental
properties more expensive; and that these increased costs to owners resulted in less affordable housing
in the city. Id.at 834-35. (As pointed out in the city’s petition for certiorari, this reduces to a finding that
enforcement of a housing code – or any other “practice” that increases the costs borne by owners of low-
income rental property – will always have a prima facie disparate impact in cities in which there is not
enough low-income housing and minorities are disproportionately in need of it.)
After finding a prima facie case of disparate impact, the Eighth Circuit found that the city had
demonstrated that the challenged “aggressive enforcement” of its Housing Code promoted legitimate
objectives, but that the plaintiffs had produced evidence of a viable alternative without discriminatory
effect. The proffered alternative was an enforcement program previously used by the city called “Problem
Properties 2000.” Id.at 837. The program is not described in detail in the panel’s opinion, and the
defendants argued that use of the prior enforcement program would not reduce the alleged impact on
protected class tenants (presumably because any enforcement program would result in greater costs to
landlords). The Eighth Circuit panel, however, found that it could be inferred from the record, at the
summary judgment stage, that the alternative enforcement program “would significantly reduce the impact
on protected class members.” Id.at 838.
The city petitioned for rehearing en banc. That petition was denied, with five judges dissenting. The city
then filed a petition for certiorari presenting two questions: whether disparate impact claims are
cognizable under the FHA and, if so, whether the proper mode of analysis is the burden-shifting approach
