District Court Dismisses Disparate Impact Claims in Texas

In 2015, in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., the U.S. Supreme Court upheld “disparate impact” liability under the Fair Housing Act. Under this theory, a housing provider violates the Fair Housing Act when the provider’s policy or practice has an unjustified discriminatory effect, even when the provider had no intent to discriminate.

The case originated when the Inclusive Communities Project (ICP), a Dallas nonprofit that tries to promote racial and socioeconomic integration, sued the Texas Department of Housing and Community Affairs (TDHCA) in 2008 over the way it allocated low-income housing tax credits. In Texas and other states, the state housing agency chooses which projects will receive the credits through a formula called the Qualified Allocation Plan (QAP), which gives some projects more points than others. States publish their QAPs every year, and some give priority to projects that are located in high-opportunity areas, others seek projects that invest in distressed neighborhoods, while others prioritize projects that target extremely low-income individuals. The projects with the most points receive the tax credits, and are thus able to move forward.

In the decision, the Supreme Court warned against “abusive” disparate impact cases that only served to second-guess otherwise legitimate housing decisions, and said that plaintiffs had to satisfy a “robust causality requirement” to make out a sufficient claim unless disproved. The Supreme Court sent the case back down to the district court that initially heard the claims to rule based on what the High Court had to say about bringing a successful disparate impact liability claim.

On Aug. 26, 2016, the U.S. District Court for the Northern District of Texas held that ICP failed to make a sufficient showing of disparate impact under the current standard because its claims did not identify any specific, facially neutral policy that caused the disparate impact and ICP failed to demonstrate that TDHCA’s policies actually caused the statistical disparities asserted by ICP.

The Texas court said that ICP “must ‘point to [the Department’s] policy or policies causing that [statistical] disparity.’” According to the decision, ICP alleged that TDHCA had exercised its discretion in allocating LIHTCs in a manner that had an adverse impact on minorities, but the Texas court said that to meet the causality test, ICP had to point to specific policies that had a disparate impact on minorities. In other words, a specific policy needed to be identified both to evaluate whether the policy caused the alleged harm, and to allow the court to formulate a remedy for any violation. The Texas court found that ICP had not pointed to a specific policy, and therefore could not meet this test.