SCOTUS upholds Obama legal tactic in fair housing cases

The Supreme Court handed the Obama administration a major advantage Thursday in its effort to stop housing discrimination in neighborhoods that continue to struggle with racial segregation and a lack of investment, setting the stage for an even greater expansion of fair-housing enforcement.

In a surprise move, Justice Anthony Kennedy held with the liberal wing of the high court that cases can proceed even without proof of intentional bias, upholding the legal theory that it’s enough to show that minorities are negatively affected. That approach has been centerpiece of the Justice Department’s aggressive pursuit of lenders who charge minorities more for mortgages than they charge to white borrowers with similar credit histories.


“Bolstered by this important ruling, the Department of Justice will continue to vigorously enforce the Fair Housing Act with every tool at its disposal — including challenges based on unfair and unacceptable discriminatory effects,” Attorney General Loretta Lynch said in a statement.

Activists pointed out that for possibly the first time, the Supreme Court addressed what Justice Anthony Kennedy called “unconscious prejudices and disguised animus” in the majority opinion he wrote. That kind of discrimination has proven hard for policy makers to solve but still leads to tensions in places like Baltimore and Ferguson, Mo.

Alan Jenkins, executive director of the civil rights group The Opportunity Agenda and a former Justice Department official, said the ruling Thursday allows the government to address this more subtle bias.

“That’s really a watershed moment,” Jenkins said. “DOJ has a lot of cases it could possibly bring.”

The ruling could also affect how and where subsidies are distributed to develop affordable places to live. Diane Yentel, vice president of public policy at the advocacy group Enterprise Community Partners, said the ruling will lead to affordable rental projects being maintained in older neighborhoods and distributed out to more affluent areas with sometimes better access to schools, transportation and health care.

“It has to be both so that low-income families can have a choice to make,” Yentel said.

Under President Barack Obama, the Justice Department has stepped up enforcement of fair-housing laws using the so-called disparate impact theory. The tactic has led to billions in settlements from lenders like Countrywide, Wells Fargo and SunTrust Mortgage.

In 2013, the Department of Housing and Urban Development issued a formal rule setting a standard for when it would bring such cases.

“The Supreme Court has made it clear that HUD can continue to use this critical tool to eliminate the unfair barriers that have deferred and derailed too many dreams,” HUD Secretary Julian Castro said in a statement.

The case decided Thursday involved a Dallas-based nonprofit group, the Inclusive Communities Project, which alleged that the Texas Department of Housing and Community Affairs used a federal tax break to build affordable housing only in poor neighborhoods as opposed to throughout a community as required by law.

The advocacy had relied on data to show the state agency kept 92 percent of the units receiving the tax credits in predominately minority areas — a concentration level in line with those observed during the segregation era of the last century. Texas argued that the nonprofit had to show intent to discriminate.

Lenders have been waiting for a decision on the issue since a similar case involving a development project in Mt. Holly, N.J. was settled in 2013 before the high court could rule.

Before that the City of St. Paul, Minn., dropped its defense in a similar case in 2012 after striking a controversial deal with the Justice Department — which wanted to avoid taking the case to the Supreme Court for fear that the central theory of the case could be invalidated. The deal became an issue in the confirmation fight over Labor Secretary Tom Perez, who previously ran the Justice Department’s civil-rights division and led the effort to crack down on discriminatory lending.

Had the practice been struck down, the implications could also have been far-reaching for education policy because the federal Education Department uses disparate impact in another way. The agency’s Office for Civil Rights has used disparate impact analysis to challenge school discipline policies, investigating whether black children are subject to discipline disproportionately more often than their peers, for example. And the agency has used disparate impact to investigate school financing to ensure that the nation’s poorest schools serving the most disadvantaged students get their fair share of funding and resources.

Kennedy did place limits on when disparate-impact claims can be brought out of concern they could be abused. He discouraged using the tactic to push racial quotas. And he ruled that prosecutors must be able to point to a specific business practice or policy that is resulting in the disparate effects on a community.

“It is likely that the decision will lead to numerous lawsuits seeking to better define the requirements for a disparate impact claim that the majority lays out in its opinion,” said Richard Andreano, a partner at the financial industry law firm Ballard Spahr.

An Obama administration official said Thursday that it’s hard to tell yet whether any ongoing fair-housing cases could be affected by the limitations in the ruling.

Caitlin Emma contributed to this report.