An earlier post on this blog and my inaugural Fifth Circuit Review-Reviewed post over at Yale J. Reg.'s Notice & Comment blog both discussed the divided panel opinion in Inclusive Communities Project, Inc. v. Lincoln Property Co., 920 F.3d 890 (5th Cir. April 9, 2019). As I explained, the CA5's earlier decision in ICP v. Tex. Dept. of Hous. & Cmty. Affairs, 747 F.3d 275 (5th Cir. 2014) (ICP I) had held that the Fair Housing Act permits disparate-impact claims. The Department petitioned for certiorari, urging the Supreme Court to decide whether disparate-impact claims are cognizable under the FHA, and if they are, what standards and burdens of proof apply? The Supreme Court granted cert on the first question and held that the Act does, in fact, permit disparate-impact claims, and, for that reason, affirmed the underlying Fifth Circuit decision.
Despite the limited cert grant, the parties briefing debated the standards and burdens of proof that ought to apply to FHA disparate-impact claims (the second question presented) at length. HUD and ICP urged the Court to defer to the standard HUD had announced in its recent regulation under Chevron. The Department argued that Chevron deference was inappropriate because HUD’s regulation contradicted the plain text of the Act.
The Supreme Court never addressed the Chevron debate. Instead, without expressly adopting or rejecting HUD’s regulation, the Court announced several “safeguards” for lower courts to apply when addressing disparate-impact claims. Texas Dep’t of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507, 2523 (2015) (ICP II). Debate in the lower courts predictably ensued. Some courts held that the Supreme Court had adopted HUD’s standard; others insisted that the Court had modified or even rejected it altogether. Compare Mhany Mgmt., Inc. v. Cty. of Nassau, 819 F.3d 581, 618 (2d Cir. 2016), with Reyes v. Waples Mobile Home Park L.P., 903 F.3d 415, 424 n.4 (4th Cir. 2018).
In the meantime, ICP was already busy litigating another disparate-impact claim under the Fair Housing Act, this time against the owners and management company of several Dallas-area apartment complexes that had declined to participate in the federal “Section 8” Housing Voucher Program. That case eventually resulted in the divided panel opinion in ICP v. Lincoln Property Co., 919 F.3d 890 (5th Cir. Apr. 9, 2019) (ICP III), holding that “the Supreme Court’s opinion in ICP . . . . undoubtedly announce[d] a more demanding test than that set forth in the HUD regulation.” Indeed, the panel majority went further, declaring that “[a] careful review of the Supreme Court’s analysis in ICP . . . reveals its modification of HUD’s test to be both purposeful and significant.” The Court offered several arguments in support of that claim, but I found this one far and away the most interesting: “[t]he Supreme Court’s modification of the HUD standard is further evidenced by its omission of any discussion of deference, pursuant to Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), and its failure to explicitly adopt the HUD regulation.”
Applying the souped-up standard announced by the Supreme Court in ICP, the panel majority agreed with the district court that ICP had not made the “robust” showing of causation required to establish a prima facie case of discrimination under the Fair Housing Act. Judge Davis “strongly dissented.” ICP petitioned for rehearing en banc, and, as already mentioned, the Fifth Circuit denied the petition by a 9-7 vote over Judge Haynes's dissent.
Judge Haynes accuses the ICP III panel majority of rendering the Fifth Circuit and Supreme Court decisions recognizing FHA disparate-impact claims "almost meaningless by crafting an impossible pleading standard." Making matters worse, she adds, it did so in a case "involv[ing] an important statute in a large city within a circuit full of large cities that contain numerous locations housing large, minority populations."
Summarizing her concerns, Judge Haynes explains:
Regarding the viability of the HUD burden-shifting framework, Judge Haynes explains:
Judge Haynes emphasizes that "the only issue before the Supreme Court in Texas v. ICP II was whether disparate impact claims are cognizable under the Fair Housing Act," and that "the procedural posture was quite different from the current case [which was dismissed on the pleadings under Rule 12(b)(6)]:the district court had granted the plaintiff a partial summary judgment and the remainder of the case had been tried." (quotes and cites omitted). Given the procedural posture, Judge Haynes found it "unsurprising" that the Supreme Court in ICP II "did not spend much time on pleading requirements." Indeed, she adds, ICP II didn't even mention Twombly and Iqbal. In her view, all of this casts serious doubt on the ICP III majority's holding that the Supreme Court in intended its discussion of "robust causality" to impose a heightened pleadings standard on FHA disparate-impact claims: "Surely, if the Court intended to create a brand new pleading requirement in FHA cases, it would have at least said so, examining and contrasting those two important precedents."
Judge Haynes argues that the Supreme Court intended "robust causality" to play a very different role in FHA disparate-impact claims:
Turning to the pleadings at issue in Lincoln Property, Judge Haynes acknowledges that ICP "has not alleged all the data necessary to calculate the exact statistical disparity," but, she insists, "it has alleged enough factual information to make its disparate impact claim plausible and to permit an inference that ICP will ultimately be able to show the exact disparity resulting from Defendants' 'no-vouchers' policy." (citing Twombly). "How, then, did ICP lose this case at the early pleading stage?" According to Judge Haynes, only because of the panel majority's mistaken application of ICP II's "robust causality" requirement to impose a "more demanding test than that set forth in the HUD regulation" at the pleading stage:
Judge Haynes also briefly explains why, in her view, ICP also sufficiently alleges a plausible segregative-effect claim:
Judge Haynes reiterates that the fact that this case arose in the Fifth Circuit as opposed to, say, the D.C. Circuit, makes the importance of the issues it raises more important because it will "hamper enforcement of the FHA in three states that have numerous large cities, including three of the top ten most populous cities in the country." She concludes by urging ICP to "seek review from the Supreme Court."