Southwest Fair Housing Council v. Mdwid ( 2021 )


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  •                 FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    SOUTHWEST FAIR HOUSING                   No. 20-15506
    COUNCIL, INC., an Arizona nonprofit
    corporation; TAVITA PENA; JENNIFER          D.C. No.
    PETERS,                                  2:17-cv-01743-
    Plaintiffs-Appellants,         DWL
    v.
    ORDER AND
    MARICOPA DOMESTIC WATER                   OPINION
    IMPROVEMENT DISTRICT, an Arizona
    municipal corporation,
    Defendant-Appellee.
    Appeal from the United States District Court
    for the District of Arizona
    Dominic Lanza, District Judge, Presiding
    Argued and Submitted May 5, 2021
    Portland, Oregon
    Filed November 12, 2021
    Before: William A. Fletcher, Carlos T. Bea, and
    Michelle T. Friedland, Circuit Judges.
    Opinion by Judge Bea
    2   SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    SUMMARY *
    Fair Housing Act
    The panel withdrew an Opinion filed August 23, 2021;
    replaced it with a superseding Opinion affirming the district
    court’s summary judgment in favor of the Maricopa
    Domestic Water Improvement District; denied a petition for
    panel rehearing; and denied on behalf of the court a petition
    for rehearing en banc, in a case in which two Pinal County
    public housing residents and Southwest Fair Housing
    Council, Inc., an Arizona nonprofit corporation (together,
    “Appellants”), challenged as impermissibly discriminatory
    under the federal Fair Housing Act a District policy
    increasing to $180 the refundable security deposit required
    of new public housing customers before the District would
    agree to provide water services while non-public housing
    customers were subject only to a $55 deposit.
    Appellants’ primary argument alleged the policy caused
    a disparate impact under the Fair Housing Act because it
    applied only to the District’s public housing customers, who
    are disproportionately African American, Native American,
    and single mothers. The district court granted the District
    summary judgment on the basis that Appellants failed to
    provide evidence sufficient to establish a triable issue of fact
    that the policy caused the claimed disproportionate effect (an
    element of a prima facie disparate impact case). In light of
    Texas Department Housing & Community Affairs v. The
    Inclusive Communities Project, Inc., 
    576 U.S. 519
    , 540
    (2015), the panel clarified that, for a plaintiff to make out a
    *
    This summary constitutes no part of the opinion of the court. It
    has been prepared by court staff for the convenience of the reader.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER                 3
    prima facie case of disparate impact, the plaintiff must
    demonstrate: (1) the existence of a policy, not a one-time
    decision, that is outwardly neutral; (2) a significant, adverse,
    and disproportionate effect on a protected class; and
    (3) robust causality that shows, beyond mere evidence of a
    statistical disparity, that the challenged policy, and not some
    other factor or policy, caused the disproportionate effect.
    The district court held that Appellants failed to demonstrate
    robust causality. The panel held that the district court erred
    in that judgment, concluding that Appellants did establish
    robust causation and did meet their prima facie burden. The
    panel nonetheless affirmed the district court’s judgment
    because the District established by undisputed evidence that
    the policy served in a significant way the District’s
    legitimate business interests and because Appellants failed
    to establish a triable issue of fact that there existed an equally
    effective, but less discriminatory, alternative.
    Appellants also brought a disparate-treatment claim,
    alleging that discriminatory animus was a motivating factor
    behind the District’s decision to implement its policy. The
    panel affirmed the district court’s holding that Appellants
    did not adduce evidence sufficient to establish a triable issue
    of fact with respect to that claim.
    4   SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    COUNSEL
    Elizabeth Brancart (argued) and Christopher Brancart,
    Brancart & Brancart, Pescadero, California; Paul Gattone,
    Law Office of Paul Gattone, Tucson, Arizona; for Plaintiffs-
    Appellants.
    Jeffrey C. Matura (argued) and Melissa J. England, Barrett
    & Matura P.C., Scottsdale, Arizona, for Defendant-
    Appellee.
    Jeffrey L. Taren and Jesse Wing, MacDonald Hoague &
    Bayless, Seattle, Washington, for Amici Curiae National
    Fair Housing Alliance Inc., Fair Housing Council of Oregon,
    Fair Housing Advocates of Northern California, Fair
    Housing Center of Washington, Fair Housing Council of
    Riverside County Inc., Fair Housing Council of San Diego,
    Fair Housing Foundation, Housing Rights Center, Inland
    Fair Housing and Mediation Board, Intermountain Fair
    Housing Council, Montana Fair Housing, Northwest Fair
    Housing Alliance, Project Sentinel, Silver State Fair
    Housing Council, Fair Housing Napa Valley, and Legal Aid
    Society of Hawai’i.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER              5
    ORDER
    The Opinion filed on August 23, 2021, is
    WITHDRAWN and replaced with a superseding Opinion
    filed concurrently with this Order.
    The panel unanimously voted to deny the petition for
    panel rehearing. Judges Fletcher and Friedland voted to
    deny the petition for rehearing en banc and Judge Bea so
    recommends. The full court has been advised of the petition
    for rehearing on banc and no judge has requested a vote on
    whether to rehear the matter en banc. Accordingly,
    appellant’s petition for panel rehearing and for rehearing en
    banc filed September 27, 2021, is DENIED. Fed. R. App.
    P. 35.
    IT IS SO ORDERED.
    OPINION
    BEA, Circuit Judge:
    The federal Fair Housing Act (“FHA”) bars
    discriminatory housing policies and practices, including
    those that cause a disparate impact according to certain
    protected characteristics or traits—race, color, religion, sex,
    handicap, familial status, or national origin. But, absent
    evidence of intentional discrimination or equally effective
    and less discriminatory alternatives, the existence of a
    statistical disparity in a policy’s effect on persons with
    certain protected characteristics, as compared to the wider
    population, does not authorize courts to invalidate policies
    that a defendant is able to show serve legitimate
    governmental or business interests in a significant way. We
    6   SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    are empowered to invalidate only artificial, arbitrary, and
    unnecessary barriers to housing. Tex. Dep’t of Hous. &
    Cmty. Affs. v. Inclusive Communities Project, Inc., 
    576 U.S. 519
    , 540 (2015) (hereinafter, Inclusive Communities). The
    policy at issue here is no such barrier.
    The Maricopa Domestic Water Improvement District
    (the “District”) is a small municipal corporation in Arizona
    that supplies water to some three hundred households,
    including the public housing tenants of one residential
    complex in Pinal County, Arizona. Property owners like
    Pinal County are responsible to the District for paying any
    past tenant’s delinquent water accounts. Pinal County
    acknowledged its responsibility to pay its public housing
    tenants’ delinquent water bills but consistently refused to do
    so, contending it was immune to that policy based on Pinal
    County’s status as a public municipality. After years of
    failed tactics and fruitless negotiations with Pinal County,
    the District imposed a new policy that increased to $180 the
    refundable security deposit required of new public housing
    customers before the District would agree to provide water
    services. New non-public housing customers were subject
    only to a $55 deposit.
    Public housing residents Tavita Peña and Jennifer Peters,
    along with Southwest Fair Housing Council, Inc., an
    Arizona nonprofit corporation which describes itself as
    having a mission to achieve equal access to housing
    (together, “Appellants”), challenge this policy as
    impermissibly discriminatory under the FHA. Appellants’
    primary argument alleges the policy caused a disparate
    impact because it applied only to the District’s public
    housing customers, who are disproportionately African
    American, Native American, and single mothers. The
    district court granted the District summary judgment on the
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER                7
    basis that Appellants failed to provide evidence sufficient to
    establish a triable issue of fact that the policy caused the
    claimed disproportionate effect (an element of a prima facie
    disparate impact case). We hold the district court erred and
    we conclude that Appellants established a prima facie
    disparate impact claim. However, we nonetheless affirm the
    district court’s judgment because the District established by
    undisputed evidence that the policy served in a significant
    way the District’s legitimate business interests and because
    Appellants failed to establish a triable issue of fact that there
    existed an equally effective, but less discriminatory,
    alternative.
    Appellants also bring a disparate-treatment claim,
    alleging that discriminatory animus was a motivating factor
    behind the District’s decision to implement its policy. We
    affirm the district court’s holding that Appellants did not
    adduce evidence sufficient to establish a triable issue of fact
    with respect to that claim.
    BACKGROUND
    Appellee Maricopa Domestic Water Improvement
    District is a small nonprofit municipal corporation created
    by Pinal County, Arizona, in 1986. The District is a public
    utility, providing water services to private residents within
    the town of Maricopa, Arizona, as well as to some public
    property owned by Pinal County within the town limits. The
    District services approximately 300 households.
    Among those are the households at Edwards Circle. The
    Edwards Circle complex is a federally funded public housing
    complex owned and managed by Pinal County. Each of
    Edwards Circle’s twenty public housing units receives water
    service from the District.
    8   SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    The demographics of the District’s customers at
    Edwards Circle diverge from those of the District’s full
    customer base. The households that comprise the District’s
    full customer base are 45.0% White, 2.9% African
    American, 2.2% Native American, and 49.7% Hispanic,
    with 34.3% of households headed by women with children.
    In 2017, the households that comprised Edwards Circle were
    11.1% White, 38.9% African American, 16.7% Native
    American, and 33.3% Hispanic, with 89% of households
    headed by women with children.
    In addition to having dissimilar demographics, the
    customers at Edwards Circle are unique among District
    customers in another respect: they are tenants of Pinal
    County. Though they are both public entities, the District
    and Pinal County have had a rather disharmonious
    relationship. The source of that strife, and the subject of this
    case, is how to confront the issue of delinquent water bills
    left over the years by Edwards Circle tenants.
    For each of its customers, the District requires an
    upfront, refundable (when the customer terminates water
    service and is fully paid-up) deposit as a condition to
    providing water services. Of course, all property owners are
    responsible to the District for their own water service fees,
    but, since at least 2000, the District has maintained a policy,
    to which Pinal County initially assented, that requires
    property owners renting their property also to pay any
    delinquent water service bills left by their tenants in excess
    of the tenants’ forfeited deposits. If the property owner
    refuses to pay its tenant’s delinquency, District procedure is
    to place a lien on the property. Ultimately, execution of the
    lien can lead to foreclosure and loss of title to the property.
    In accordance with the District’s said property owner
    policy, Pinal County (as owner of the Edwards Circle
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER              9
    complex) avowed that it was indeed responsible for its
    tenants’ delinquent accounts. Unfortunately for the District,
    it would not be so easy to get Pinal County to comply with
    that admission.
    In 2001, to prevent excessive delinquent accounts and
    thereby limit its own potential liability, Pinal County
    authorized the District to shut off water service to Edwards
    Circle tenants who were late on their water payments. But
    Pinal County soon reversed that position and requested that
    the District reactivate water services to tenants with late
    accounts. Thereafter, in 2002, the district raised the security
    deposit for Edwards Circle residents to $100, a decision
    which appears to have gone unchallenged.
    The issue of delinquent water accounts at Edwards Circle
    soon again raised its head, but Pinal County responded by
    burying its own head in the sand. From 2011 through 2013,
    the District sent multiple notices of tenant delinquency to
    Pinal County, requesting that the County pay off the
    balances. One such outstanding delinquent bill amounted to
    $184.45.      Although Pinal County had previously
    acknowledged responsibility for paying its tenants’
    delinquent bills, it consistently refused to pay the District.
    Pursuant to the District’s delinquency policy, it
    threatened Pinal County with a lien on the Edwards Circle
    property. The County responded that, unlike all other
    District customers, the County’s property was immune to
    liens, stating that “[i]t is unlawful in Arizona to lien public
    property.” The District then changed tacks. The District
    decided it would withhold providing new water service
    accounts to any unit whose prior tenant vacated with a
    delinquent balance until the prior tenant’s unpaid bills were
    paid off. The County again refused to pay, again on the basis
    of its status as a public entity, but this time the County
    10 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    claimed that paying off debts of ex-tenants would “violate
    the anti-gift clause in the [Arizona] Constitution.” Soon
    thereafter, a new Edwards Circle tenant was unable to obtain
    water services because they could not pay off the prior
    tenant’s bill. Pinal County emailed the District and
    requested that the District turn on water service for that
    tenant and offered to “iron out the delinquency issue later.”
    When the District attempted to arrange a meeting so the
    parties could “iron out” the issue, Pinal County did not
    respond. Months later, the District sent Pinal County
    another message again requesting that Pinal County agree to
    “[a] resolution [that] will benefit our entities and [] the
    potential tenants at [Edwards Circle].” Pinal County and the
    District met seven months later in November 2014.
    Arising out of that meeting, the District announced a new
    policy effective January 1, 2015 (the “Service Deposit
    Policy”) that made changes applicable only to “Pinal County
    Housing tenants.” In its announcement, the District
    indicated that “both parties concluded the Service Deposit
    amount for [Edwards Circle] tenants should be increased.” 1
    New public housing customers at Edwards Circle were now
    required to pay a $180 refundable service deposit. The
    service deposit for new non-public housing customers
    remained at $55.
    Plaintiffs-Appellants Tavita Peña and Jennifer Peters
    both moved into units at Edwards Circle in 2016 and had
    difficulty paying the District’s heightened security deposit.
    Peña is Hispanic, Peters is White, and both are single
    mothers with children. Both Peña and Peters were
    eventually able to pay the increased security deposit with
    1
    Appellants dispute whether Pinal County agreed to the new policy.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 11
    financial assistance            from      relatives      or     nonprofit
    organizations.
    With the help of fellow plaintiff Southwest Fair Housing
    Council, Peña and Peters filed a lawsuit against the District. 2
    Appellants’ amended complaint alleged that the District’s
    Security Deposit Policy “injured plaintiffs by discriminating
    on the basis of race, color, national origin, sex, familial status
    and disability in the provision of municipal services and in
    the interference with the exercise of rights protected under
    the Fair Housing Act, 
    42 U.S.C. §§ 3604
     and 3617.” They
    seek declaratory and injunctive relief. 3
    2
    Appellants also named Pinal County as a defendant and alleged
    civil rights claims under 
    42 U.S.C. §§ 1983
     & 1986. However,
    Appellants and Pinal County reached a settlement.
    3
    In Appellants’ first amended complaint, they allege that the District
    also created two other policies applicable only to Edwards Circle
    residents: a Late Payment Policy and a No Outstanding Balance Policy.
    In addition to a 1.5% late payment fee applicable to all customers, the
    Late Payment Policy allegedly applied to make Pinal County tenants’
    security deposits refundable only at the discretion of the District if a
    tenant had provided late payments four times within one year. The No
    Outstanding Balance Policy allegedly required Pinal County tenants to
    pay off balances owed to the District by a prior tenant.
    There is record evidence that the District did devise the Late
    Payment Policy at least, but the District now states that neither policy
    currently exists and that neither policy will be enforced against Edwards
    Circle residents. At oral argument, the District’s counsel represented
    that the District would not have “any problem whatsoever” with
    informing Edwards Circle residents that these policies will not be
    enforced against them. Appellants’ counsel then agreed that, if the
    District would not enforce these policies in the future, their claims
    regarding these policies “could be resolved” and agreed with the
    possibility of settlement given that it seemed the parties no longer had a
    dispute about these policies. We rely on the District’s representations
    12 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    Without first moving to dismiss, the District answered
    the amended complaint and then moved for summary
    judgment on the FHA claim. The district court granted the
    District’s motion for summary judgment. The court
    concluded that Appellants had failed to make out a prima
    facie disparate-impact claim because they had failed to
    demonstrate robust causation between the Security Deposit
    Policy and the statistical disparity that Appellants had
    identified. The district court also determined that Appellants
    failed to plead a disparate-treatment claim and that, even if
    they had, Appellants did not adduce sufficient evidence to
    raise a genuine dispute of material fact. Appellants timely
    appealed the district court’s order granting summary
    judgment. We have jurisdiction pursuant to 
    28 U.S.C. § 1291
    .
    STANDARD OF REVIEW
    “We review a grant of summary judgment de novo.
    Viewing the evidence in the light most favorable to the
    nonmoving party, we must determine whether there are any
    genuine issues of material fact and whether the district court
    correctly applied the relevant substantive law.” Devereaux
    that these policies will not be enforced against any Edwards Circle
    resident in the future. The only remedy Appellants seek as to these
    policies is to enjoin their further enforcement against Edwards Circle
    residents. “Article III requires that a live controversy persist throughout
    all stages of the litigation.” Gator.com Corp. v. L.L. Bean, Inc., 
    398 F.3d 1125
    , 1128–29 (9th Cir. 2006) (en banc). Because it now appears that
    no controversy exists as to these two policies, we DISMISS the portion
    of Appellants’ appeal that challenges the Late Payment Policy and No
    Outstanding Balance Policy claims. The remainder of our analysis
    continues to rely on the District’s representation that the security
    deposits paid by Edwards Circle residents are non-discretionarily
    refundable as long as a customer does not leave behind a delinquent
    balance.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 13
    v. Abbey, 
    263 F.3d 1070
    , 1074 (9th Cir. 2001) (en banc)
    (citations omitted). “A dispute about a material fact is
    genuine if there is sufficient evidence favoring the
    nonmoving party for a jury to return a verdict for that party.”
    Gamble v. City of Escondido, 
    104 F.3d 300
    , 304 (9th Cir.
    1997) (quotation marks and citation omitted). “If the
    plaintiff is unable to sufficiently adduce evidence that could
    lead a reasonable jury to conclude that the plaintiff has
    satisfied his burden of proof, his claim is subject to an
    unfavorable summary disposition.” Eisenberg v. Ins. Co. of
    N. Am., 
    815 F.2d 1285
    , 1288–89 (9th Cir. 1987); see also
    Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 
    475 U.S. 574
    , 587 (1986) (“Where the record taken as a whole could
    not lead a rational trier of fact to find for the non-moving
    party, there is no genuine issue for trial.” (quotation marks
    and citation omitted)).
    ANALYSIS
    The FHA makes it unlawful to discriminate against a
    person on the basis of “race, color, religion, sex, handicap,
    familial status, or national origin” and applies broadly to
    many housing practices. 
    42 U.S.C. § 3604
    . Specifically,
    § 3604(b) prohibits “discriminat[ion] against any person in
    the terms, conditions, or privileges of sale or rental of a
    dwelling, or in the provision of services or facilities in
    connection therewith” because of the person’s membership
    in one of those protected classes. Appellants argue the
    District’s provision of water services pursuant to the
    Security Deposit Policy discriminated against Edwards
    Circle residents on the basis of their membership in one or
    more of these protected classes.
    The FHA prohibits intentional discrimination under the
    rubric of a disparate-treatment claim.      In Inclusive
    Communities, the Supreme Court construed FHA § 804(a)
    14 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    (codified at 
    42 U.S.C. § 3604
    (a)) also to encompass
    unintentional discrimination by way of what has been termed
    a disparate-impact claim. 4 576 U.S. at 533. Appellants
    claim the District is liable on both disparate-impact and
    disparate-treatment theories.
    I. Disparate-Impact Claim
    Under a disparate-impact theory, the FHA “forbids
    actions by private or governmental bodies that create a
    discriminatory effect upon a protected class or perpetuate
    housing segregation without any concomitant legitimate
    reason.” Ave. 6E Invs., LLC v. City of Yuma, 
    818 F.3d 493
    ,
    503 (9th Cir. 2016). Disparate-impact theory serves two
    4
    Notably, Appellants appeared in the district court to ground their
    claims in FHA § 804(b), not FHA § 804(a). The district court sua sponte
    observed that, of these two provisions, the Supreme Court in Inclusive
    Communities examined only FHA § 804(a), which makes it unlawful
    “[t]o refuse to sell or rent after the making of a bona fide offer, or to
    refuse to negotiate for the sale or rental of, or otherwise make unavailable
    or deny, a dwelling to any person” because of their membership in a
    protected class. The Court held that § 804(a) does permit disparate-
    impact claims. The Court did not address whether disparate-impact
    claims were also permitted under § 804(b). The district court noted the
    language of § 804(b) differs significantly from § 804(a)—indeed
    § 804(b) does not contain the phrase “otherwise make unavailable,”
    which was “of central importance” to the Supreme Court’s analysis.
    Inclusive Communities, 576 U.S. at 534. The district court suggested
    that the Supreme Court’s reasoning may not extend to permit disparate-
    impact claims brought pursuant to § 804(b). The district court raises an
    important issue. However, our circuit has already held that disparate-
    impact claims are permitted under § 804(b). See Ojo v. Farmers Grp.,
    Inc., 
    600 F.3d 1201
    , 1203 (9th Cir. 2010). Inclusive Communities did
    not expressly upset this holding and neither party has argued, either in
    the district court or on appeal, that we should revisit that holding in light
    of Inclusive Communities. As such, we assume without deciding that
    Ojo survives Inclusive Communities and that FHA § 804(b) permits
    disparate-impact claims.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 15
    goals: it allows “plaintiffs to counteract unconscious
    prejudices and disguised animus that escape easy
    classification   as    disparate    treatment,”    Inclusive
    Communities, 576 U.S. at 540, and it targets “‘artificial,
    arbitrary, and unnecessary barriers’ to minority housing . . .
    that can occur through unthinking, even if not malignant,
    policies,” Ave. 6E, 818 F.3d at 503 (quoting Inclusive
    Communities, 576 U.S. at 540).
    Disparate-impact theories of liability are available
    pursuant to a number of federal antidiscrimination statutes,
    including the Civil Rights Act of 1964 (both Titles VI and
    VII) and the Age Discrimination in Employment Act
    (“ADEA”). See Inclusive Communities, 576 U.S. at 530–33.
    In Wards Cove Packing Co. v. Atonio, the Supreme Court
    developed a three-step burden-shifting framework to address
    these types of claims. 
    490 U.S. 642
     (1989), superseded by
    statute on other grounds, 42 U.S.C. § 2000e–2(k). 5
    Although Wards Cove dealt specifically with Title VII, the
    Supreme Court has applied the framework across federal
    antidiscrimination statutes. Hardie v. Nat’l Collegiate
    Athletic Ass’n, 
    876 F.3d 312
    , 319 n.8 (9th Cir. 2017). We
    review Appellants’ FHA disparate-impact claims under this
    burden-shifting framework but note that the framework may
    differ in application in certain respects. See Inclusive
    Communities, 576 U.S. at 533–35, 541 (“[T]he Title VII
    framework may not transfer exactly to the fair-housing
    5
    “The Civil Rights Act of 1991 abrogated Wards Cove with respect
    to claims under Title VII, but the Supreme Court has continued to apply
    Wards Cove burden shifting to other antidiscrimination statutes.”
    Hardie v. Nat’l Collegiate Athletic Ass’n, 
    876 F.3d 312
    , 319 n.8 (9th Cir.
    2017) (citation omitted).
    16 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    context, but the comparison suffices for present purposes.”);
    Ave. 6E, 818 F.3d at 512–13.
    In general terms, under the burden-shifting framework,
    the plaintiff first has the burden to establish a prima facie
    case of disparate-impact discrimination under the FHA. Ojo
    v. Farmers Grp., Inc., 
    600 F.3d 1201
    , 1203 (9th Cir. 2010).
    If the plaintiff is able to establish a prima facie case, “the
    burden shifts to the defendant to either rebut the facts
    underpinning the prima facie case or to demonstrate a legally
    sufficient, nondiscriminatory reason for the practices
    causing the disparate impact.” 
    Id.
     (quotation marks and
    citation omitted). Third and finally, the burden shifts back
    to the plaintiff to show the availability of an alternative
    practice that has less discriminatory impact yet is still
    equally effective in serving the defendant’s legitimate goals.
    Inclusive Communities, 576 U.S. at 533; Hardie, 876 F.3d
    at 320.
    On summary judgment, the district court held that
    Appellants had failed on the first step. The court determined
    that Appellants failed to establish a prima facie case because
    they did not establish “robust causation” between the
    District’s “race-neutral policy” and the policy’s
    repercussions, which “affect[ed] a disproportionate share of
    protected-group members.”
    A. Prima Facie Case
    The initial burden is on the plaintiff to establish a prima
    facie disparate-impact claim.            Prior to Inclusive
    Communities, we had already interpreted the FHA to permit
    disparate-impact claims and held that a prima facie case
    “require[d] proof of (1) the occurrence of certain outwardly
    neutral practices, and (2) a significantly adverse or
    disproportionate impact on persons of a particular type
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 17
    produced by the defendant’s facially neutral acts or
    practices.” Comm. Concerning Cmty. Improvement v. City
    of Modesto, 
    583 F.3d 690
    , 711 (9th Cir. 2009) (cleaned up).
    However, in recognizing that the FHA permits disparate-
    impact claims, the Supreme Court in Inclusive Communities
    described in detail a set of “safeguards” that provide
    additional guidance in assessing the availability of these
    claims. 6 Inclusive Communities, 576 U.S. at 542. These
    safeguards are necessary to “protect[] defendants from being
    held liable for racial disparities they did not create” and to
    prevent disparate-impact liability from “caus[ing] race to be
    used and considered in a pervasive way”—specifically,
    through the adoption of numerical quotas, which could lead
    to “serious constitutional questions.” Id.
    Among these safeguards is “a robust causality
    requirement,” which necessitates that the plaintiff “produce
    statistical evidence demonstrating a causal connection”
    6
    In 2013, the U.S. Department of Housing and Urban Development
    (“HUD”) issued a regulation describing the framework for disparate-
    impact claims brought under the FHA. 
    24 C.F.R. § 100.500
     (2014).
    Although the Supreme Court mentioned this regulation in Inclusive
    Communities, see 576 U.S. at 527, there is disagreement as to whether
    the Court adopted this framework. See Inclusive Communities Project,
    Inc. v. Lincoln Prop. Co., 
    920 F.3d 890
    , 903 n.6 (5th Cir. 2019).
    Complicating matters further, in 2020, HUD saw fit to revise its rule in
    light of the Supreme Court’s decision in Inclusive Communities,
    although that rule is currently enjoined. Mass. Fair Hous. Ctr. v. United
    States Dep’t of Hous. & Urb. Dev., 
    496 F. Supp. 3d 600
     (D. Mass. 2020).
    Given these considerations, we will follow the guidance of the Supreme
    Court in Inclusive Communities rather than look to HUD’s regulations.
    See Reyes v. Waples Mobile Home Park Ltd. P’ship, 
    903 F.3d 415
    , 424
    (4th Cir. 2018) (acknowledging that the courts of appeals are bound by
    the standard announced by the Supreme Court, not the prior HUD
    regulation); Lincoln Prop., 920 F.3d at 903 (following Reyes).
    18 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    between an identified neutral policy and any alleged
    disparities that adversely affect members of a protected
    class. Id. at 542–43. The function of this requirement is to
    limit disparate-impact claims only to instances where it is the
    defendant’s policy or practice that causes an adverse,
    disproportionate effect. Id. at 527 (“If a statistical
    discrepancy is caused by factors other than the defendant’s
    policy, a plaintiff cannot establish a prima facie case, and
    there is no liability.”). In other words, robust causality
    requires that plaintiffs prove with a preponderance of the
    evidence 7 that the policy itself, and not some other factor
    (such as unrelated or uncontrollable societal determinants,
    government mandates that limit a defendant’s discretion, or
    even other unchallenged policies of the defendant), created
    or exacerbated a disproportionate effect. Id. at 542 (The
    “robust causality requirement ensures that ‘[r]acial
    imbalance . . . does not, without more, establish a prima facie
    case of disparate impact’ and thus protects defendants from
    being held liable for racial disparities they did not create.”
    (alterations in original) (quoting Wards Cove, 
    490 U.S. at 653
    )).     Otherwise, the Supreme Court observed,
    defendants may attempt to protect themselves from liability
    by “resort[ing] to the use of racial quotas” to engineer
    policies that do not result in any statistical disparities, even
    if the policy was never the cause of the disparity in the first
    place. Id. at 521 (“Courts should avoid interpreting
    disparate-impact liability to be so expansive as to inject
    racial considerations into every housing decision.”).
    Therefore, in light of Inclusive Communities, we must
    clarify our standard. For a plaintiff to make out a prima facie
    case of disparate impact, he must demonstrate: (1) the
    7
    Of course, at the summary judgment stage the plaintiff need adduce
    only evidence that would allow this ultimate finding.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 19
    existence of a policy, not a one-time decision, that is
    outwardly neutral; (2) a significant, adverse, and
    disproportionate effect on a protected class 8; and (3) robust
    causality that shows, beyond mere evidence of a statistical
    disparity, that the challenged policy, and not some other
    factor or policy, caused the disproportionate effect. 9
    The district court held that Appellants failed to
    demonstrate robust causality. We hold that the district court
    erred in that judgment. We conclude that Appellants did
    establish robust causation and did meet their prima facie
    burden.
    8
    Appellants here allege that they are members of the class of
    persons against which the District discriminated; Appellants’ alleged
    injury here was a direct result of that discrimination. But the FHA does
    permit suits by plaintiffs outside the class of persons discriminated
    against, see, e.g., Trafficante v. Metro. Life Ins. Co., 
    409 U.S. 205
    , 210,
    211–12 (1972) (holding that plaintiffs not themselves the “direct objects
    of discrimination” have standing under the FHA), so long as those
    plaintiffs can allege and prove that their injury was proximately caused
    by the discrimination against the class of persons, see Lexmark Int’l, Inc.
    v. Static Control Components, Inc., 
    572 U.S. 118
    , 132 (2014) (“[A]
    statutory cause of action is limited to plaintiffs whose injuries are
    proximately caused by violations of the statute.”).
    9
    Some courts have also required plaintiffs to plead facts
    demonstrating that the targeted policy is “arbitrary, artificial, and
    unnecessary.” See, e.g., Ellis v. City of Minneapolis, 
    860 F.3d 1106
    ,
    1112 (8th Cir. 2017); Khan v. City of Minneapolis, 
    922 F.3d 872
    , 874
    (8th Cir. 2019). Because this appeal is brought pursuant to the district
    court’s grant of summary judgment and because the District did not
    move to dismiss or for judgment on the pleadings below, we need not
    address whether such a requirement exists.
    20 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    1. Identification of an Outwardly Neutral Policy
    Appellants have identified an outwardly neutral policy.
    The District’s Security Deposit Policy requires public
    housing residents (tenants of Pinal County) to pay an $180
    refundable security deposit. Non-public housing residents
    are not subject to that increase and pay only $55. Persons
    who are residents of public housing are not a protected class.
    See 
    42 U.S.C. § 3604
    (b). The policy does not explicitly treat
    customers differently based on their membership in any
    recognized protected class. The policy is not a one-time
    decision.
    2. Significant, Adverse, and Disproportionate
    Effect on Members of a Protected Class
    Before any statistical disparate-impact analysis can
    proceed, the correct comparative populations must be
    identified. There are multiple valid methods of analysis
    involving different comparative populations. See Robert G.
    Schwemm & Calvin Bradford, Proving Disparate Impact in
    Fair Housing Cases After Inclusive Communities, 19 N.Y.U.
    J. Legis. & Pub. Pol’y 685, 698–99, 703–06 (2016). One
    method that we have identified as a valid “basis for a
    successful disparate impact claim involves a comparison
    between two groups—those affected and those unaffected by
    the facially neutral policy.” Darensburg v. Metro. Transp.
    Comm’n, 
    636 F.3d 511
    , 519–20 (9th Cir. 2011) (quoting
    Tsombanidis v. W. Haven Fire Dep’t, 
    352 F.3d 565
    , 575 (2d
    Cir. 2003)).
    When a defendant makes a deliberate choice to subject
    only a subset of its customers or constituents to a certain
    policy, it is proper to compare the demographics of that
    subset to the larger population of clients to which the policy
    does not apply to discern whether the decision to limit a
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 21
    policy to that subset produced any disproportionate effect.
    Appellants used this type of statistical analysis, comparing
    affected and unaffected populations. Appellants’ expert
    compared (1) those District customers to whom the Security
    Deposit Policy applied (public housing residents of Pinal
    County); and (2) those remaining District customers to
    whom the policy did not apply (non-public housing
    residents) to determine whether the affected population was
    overrepresented by certain members of protected classes.
    This is a proper comparison. 10
    However, the district court here incorrectly limited its
    analysis to those adversely affected by the policy, i.e., public
    housing residents only. The district court held that
    Appellants failed to demonstrate that the protected-group-
    member        residents   of     Edwards      Circle       were
    disproportionately affected by the policy by undertaking an
    analysis in which the court compared them not to unaffected
    (non-public housing) District customers, but only to the non-
    protected-group members of Edwards Circle. The court
    concluded that, of those affected by the policy, “[e]verybody
    is treated the same, and experiences the same outcome,
    regardless of membership in a protected group.” That
    comparison ignores a critical element of the District’s
    Security Deposit Policy: that, to begin with, it applied only
    10
    We note, however, that a policy that is generally applicable and
    that does not explicitly apply only to a subset based on a particular
    characteristic may require a different analysis or consideration of
    idiosyncratic factors to isolate the “affected” population.          See
    Darensburg, 
    636 F.3d at 520
     (holding that the plaintiffs’ statistical
    demonstration concerning the disproportionate effect on minorities of an
    infrastructure expansion plan that devoted more resources to rail lines
    than to bus lines identified the wrong “affected” population—the
    affected population was potential new riders on the expanded rail and
    bus lines, not riders of existing lines).
    22 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    to a subset of the District’s overall customer base. To
    resolve whether the District’s decision to apply the Security
    Deposit Policy only to public housing residents resulted in a
    disparate impact, the proper comparative population is the
    District’s public housing and non-public housing residents.
    Appellants’ statistical analysis shows that, as compared
    to the District’s overall customer base, a disproportionate
    percentage of the District’s Edwards Circle customers (i.e.,
    heads of households) are: African Americans (38.9% to
    2.9%), Native Americans (16.7% to 2.2%), and, as relevant
    to both Peters and Peña, unmarried women with children
    (89.0% to 34.3%). By comparison, 11.1% of Edwards Circle
    customers are White, while 45.0% of the District’s customer
    base is White. Using the proper comparison populations, we
    see that the Security Deposit Policy disproportionately
    impacted African Americans, Native Americans, and
    households headed by unmarried women with children.
    That the policy has a disproportionate effect is not
    enough, though; the disparity must also be significant.
    Wards Cove, 
    490 U.S. at 656
    . Analyses with small sample
    sizes (Edwards Circle contains only twenty residences) raise
    a red flag when assessing whether a plaintiff has identified a
    significant disparity. Stout v. Potter, 
    276 F.3d 1118
    , 1123
    (9th Cir. 2002) (“We observe initially that the probative
    value of any statistical comparison is limited by the small
    available sample. . . . A sample involving 6 female
    applicants in a pool of 38 applicants is likely too small to
    produce statistically significant results.”). Nevertheless,
    Appellants’ unchallenged expert report concluded that the
    statistical disparities here are statistically significant—
    meaning there is a “high probability” that they “did not occur
    by chance.”
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 23
    The expert report also demonstrates the disparities have
    a practical significance. 11 See Brnovich v. Democratic Nat’l
    Comm., 
    141 S. Ct. 2321
    , 2343 n.17 (2021). The gaps in
    representation by African Americans, Native Americans,
    and single mothers in the public housing population as
    compared to the non-public housing population are large:
    African Americans are nearly four times as likely and Native
    Americans are nearly twice as likely to be public housing
    customers than Whites.
    The District did not offer its own statistical evidence or
    otherwise identify errors or omissions in the Appellants’
    expert evidence. Given the District’s lack of contrary
    evidence, we must conclude that the Appellants’ statistical
    evidence adequately suggests a material and significant
    disproportionate effect on members of these protected
    11
    “Significance” in the context of disparate-impact claims is not
    limited to statistical significance; “practical significance,” which
    examines whether minor statistical disparities have any discriminatory
    effect in practice, also plays a role. See Brnovich, 141 S. Ct. at 2343 n.17
    (“Statistical significance may provide evidence that something besides
    random error is at work, but it does not necessarily determine causes, and
    as the dissent acknowledges, it is not the be-all and end-all of disparate-
    impact analysis.” (cleaned up)); id. (“[S]ignificant differences . . . are not
    evidence that [what is at work] is legally or practically important.
    Statisticians distinguish between statistical and practical significance to
    make the point. When practical significance is lacking—when the size
    of a disparity is negligible—there is no reason to worry about statistical
    significance.” (quoting Federal Judicial Center, Reference Manual on
    Scientific Evidence 252 (3d ed. 2011)); id. at 2358 n.4 (Kagan, J.,
    dissenting) (“I agree with the majority that ‘very small differences’
    among racial groups do not matter. . . . In addition, there may be some
    threshold of what is sometimes called ‘practical significance’—a level
    of inequality that, even if statistically meaningful, is just too trivial for
    the legal system to care about.”).
    24 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    groups. 12 Therefore, we hold Appellants succeeded in
    establishing a prima facie case that the Security Deposit
    Policy had a significant, adverse, and disproportionate effect
    on members of a protected class.
    3. Robust Causation
    Finally, Appellants must demonstrate “robust causality,”
    which requires a plaintiff who has identified both a
    defendant’s neutral policy and a statistical disparity to
    demonstrate a “robust” causal link between the two.
    Inclusive Communities, 576 U.S. at 543. The function of
    robust causation is to resolve whether the adverse and
    disproportionate outcomes that arose after a challenged
    policy was implemented can be traced to the policy rather
    than to other potential causes or factors. This is not a
    difficult inquiry here.
    The robust causation requirement derives most notably
    from Wards Cove. 
    490 U.S. at 656
    ; see also Inclusive
    Communities, 576 U.S. at 542 (citing Wards Cove in
    discussing the “robust causality requirement”). In Wards
    Cove, plaintiff cannery workers complained that several
    policies (including nepotism, rehiring preferences, and
    subjective decision making) caused lower-paying cannery
    positions to be disproportionately occupied by minorities
    while higher-paying non-cannery positions (managerial
    positions) were disproportionately occupied by White
    people. 
    490 U.S. at
    656–57. The Supreme Court explained
    that, to show causality, plaintiffs were first “responsible for
    isolating and identifying the specific employment practices
    that are allegedly responsible for any observed statistical
    12
    Neither does the District contest that the increase of a required,
    up-front security deposit to $180 operates as a significant adversity.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 25
    disparities.” 
    Id. at 656
     (quoting Watson v. Fort Worth Bank
    & Tr., 
    487 U.S. 977
    , 994 (1988)). Then, plaintiffs had to
    “demonstrate that the disparity they complain of is the result
    of one or more of the [defendant’s] practices that they are
    attacking . . . , specifically showing that each challenged
    practice has a significantly disparate impact . . . . To hold
    otherwise would result in employers being potentially liable
    for ‘the myriad of innocent causes that may lead to statistical
    imbalances in the composition of their work forces.’” Id.
    at 657 (quoting Watson, 
    487 U.S. at 992
    ).
    Drawing from Wards Cove, the Supreme Court in
    Inclusive Communities further elaborated on the robust
    causality requirement: “[A] disparate-impact claim that
    relies on a statistical disparity must fail if the plaintiff cannot
    point to a defendant’s policy or policies causing that
    disparity.” 576 U.S. at 542. This “ensures that ‘[r]acial
    imbalance . . . does not, without more, establish a prima facie
    case of disparate impact’ and thus protects defendants from
    being held liable for racial disparities they did not create.”
    Id. (quoting Wards Cove, 
    490 U.S. at 653
    ). “If a statistical
    discrepancy is caused by factors other than the defendant’s
    policy, a plaintiff cannot establish a prima facie case, and
    there is no liability.” Id. at 527.
    Here, because the District explicitly applied the adverse
    effects of the policy—increasing the security deposit to
    $180—only to a subset of its customer base, the causation
    analysis is not all that complicated. The adverse impact
    complained about by Appellants derives wholly from the
    innerworkings of the policy. For no reason other than the
    District’s decision to create two different security deposit
    amounts for its public housing customers and for its private
    housing customers did the disparate impact arise. After the
    implementation of the policy and as a direct result of it, a
    26 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    disproportionate percentage of protected-group members
    were subject to an increased security deposit.
    Importantly, the adverse effect here is not some broad
    social condition. Cf. Inclusive Communities, 576 U.S.
    at 526–27, 543 (signaling that plaintiffs on remand may find
    it “difficult to establish causation because of the multiple
    factors that go into investment decisions about where to
    construct or renovate housing units”). Appellants are not
    complaining that the Security Deposit Policy contributed to
    an overrepresentation of protected-group members in public
    housing. Rather, Appellants complain that the District’s
    tying security deposit prices to public housing status directly
    caused the discrete adverse effect of an increased security
    deposit to apply disproportionately to members of protected
    groups. As such, it is not the case that we are left wondering
    whether members of a protected class are subject to the
    increased fee because of this policy or because of some other
    factor. Cf. Wards Cove, 
    490 U.S. at
    653–54 (holding
    causation was not demonstrated because plaintiffs had not
    disproved the possibility that the overrepresentation of
    minority workers in lower-paying cannery positions was
    caused by the company’s contract with a predominantly non-
    White labor union). The sole cause of the disproportionate
    impact of the increased security deposit was the District’s
    decision to apply the policy only to a subset of its
    customers. 13 In holding that Appellants established robust
    causation sufficient to carry their burden of establishing a
    prima facie case, we reject the district court’s analysis.
    Again, the district court ignored the fact that the policy
    13
    We also note that, based on its conversations with Pinal County
    employees, the District likely knew that Edwards Circle was
    overrepresented by certain members of FHA-protected groups, but
    adopted the policy change anyway.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 27
    bifurcated the District’s customer base into two groups
    consisting of public versus private housing customers.
    Finally, as the district court noted, some debate has
    developed about the contours of the robust causality
    requirement. See Inclusive Communities Project, Inc. v.
    Lincoln Prop. Co., 
    920 F.3d 890
    , 903–05 (5th Cir. 2019)
    (describing four different views among the Fourth, Eighth,
    and Eleventh Circuits). We need not enter that debate. This
    is a simple case where the policy explicitly bifurcated a
    population based on a non-protected characteristic: public
    housing. That bifurcation generated a disproportionate
    effect that would not have existed in its absence and ensured
    the adverse effects of the policy applied only to the
    population subset that was overrepresented (in comparison
    to the overall District customer population) by certain
    members of a protected group. The clarity of that causal
    relationship sets it apart from other cases.
    The district court erred in holding that Appellants failed
    to establish a prima facie case of disparate-impact
    discrimination under the FHA. We move on to the second
    step of the disparate-impact analysis.
    B. Legitimate Business Interest
    After the plaintiff successfully demonstrates a prima
    facie case, the burden shifts, and the defendant is given an
    opportunity to avoid liability by providing evidence that the
    challenged policy significantly serves a legitimate business
    interest. The district court, which held in error that
    Appellants did not establish a prima facie case, stopped short
    of addressing the remainder of the analysis. “We may affirm
    the district court’s grant of summary judgment on any
    ground supported by the record, regardless of whether the
    district court relied upon, rejected, or even considered that
    28 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    ground.” Am. Fed’n of Musicians of U.S. & Canada v.
    Paramount Pictures Corp., 
    903 F.3d 968
    , 981 (9th Cir.
    2018) (cleaned up). 14 We conclude there is no genuine issue
    of material fact that the District demonstrated a legitimate
    business justification for implementing the Security Deposit
    Policy and that the policy served that interest in a significant
    way.
    “Governmental or private policies are not contrary to the
    disparate-impact requirement unless they are ‘artificial,
    arbitrary, and unnecessary barriers.’”                 Inclusive
    Communities, 576 U.S. at 543 (quoting Griggs v. Duke
    Power Co., 
    401 U.S. 424
    , 436 (1971)). Accordingly, “[a]n
    important and appropriate means of ensuring that disparate-
    impact liability is properly limited is to give housing
    authorities and private developers leeway to state and
    explain the valid interest served by their policies.” 
    Id. at 541
    .
    “This step of the analysis is analogous to the business
    necessity standard under Title VII . . . [j]ust as an employer
    may maintain a workplace requirement that causes a
    disparate impact if that requirement is a ‘reasonable
    measure[ment] of job performance,’ so too must housing
    authorities and private developers be allowed to maintain a
    policy if they can prove it is necessary to achieve a valid
    interest.” 
    Id.
     (alteration in original) (citation omitted)
    (quoting Griggs, 
    401 U.S. at 431
    ). “While the defendant
    must produce evidence that the practice serves legitimate
    ends, ‘[t]he ultimate burden of proving that discrimination
    14
    Because we may affirm a grant of summary judgment on any basis
    supported by the record, there is no reason to remand to the district court.
    Am. Fed’n of Musicians, 903 F.3d at 981. Discovery has closed and the
    record is complete. Whether the District’s Security Deposit Policy
    serves a legitimate business interest was fully briefed in the district court
    and on appeal. As such, the district court judge would not be in a better
    position to resolve this issue in the first instance on remand.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 29
    against a protected group has been caused by a specific . . .
    practice remains with the plaintiff at all times.’” Hardie,
    876 F.3d at 320 (alteration in original) (quoting Wards Cove,
    
    490 U.S. at 659
    ).
    Although the Supreme Court in Inclusive Communities
    used the phrase “business necessity” to describe this step of
    the analysis, that term is somewhat of a misnomer. First, the
    defense is available not only to businesses but also to
    individuals and public entities. Inclusive Communities,
    576 U.S. at 541. Second, the standard is not “necessity”: the
    defendant need not demonstrate that the challenged policy is
    “‘essential’ or ‘indispensable’” to its business—only that the
    policy “serves, in a significant way,” its legitimate interests.
    Wards Cove, 
    490 U.S. at 659
    ; accord Hardie, 876 F.3d
    at 320 (“The defendant’s practice need not be ‘essential’ or
    ‘indispensable’ to achieving its stated goal, but the
    relationship between the practice and its purpose must be
    more than ‘insubstantial.’” (quoting Wards Cove, 
    490 U.S. at 659
    )). 15 To require that a business or government show
    that a challenged policy is “necessary” to its interests would
    be to render the defense a nullity. Cf. Wards Cove, 
    490 U.S. at 659
     (“[T]here is no requirement that the challenged
    practice be ‘essential’ or ‘indispensable’ to the employer’s
    15
    Although Hardie arose in the Title II (which bars discrimination
    in public accommodations) context, it was decided after Inclusive
    Communities and favorably cites to Inclusive Communities and Wards
    Cove. Because “[n]either the Supreme Court nor we have decided
    whether disparate-impact claims are cognizable under Title II,” Hardie
    drew directly from the Supreme Court’s Title VII precedent. Hardie,
    876 F.3d at 319 (assuming without deciding that Title II permitted
    disparate-impact theories). Given the Supreme Court’s example in
    analogizing to Title VII precedents, we think it proper to use Hardie to
    help guide the analysis here. See Inclusive Communities, 576 U.S.
    at 541.
    30 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    business for it to pass muster: this degree of scrutiny would
    be almost impossible for most employers to meet.”). At end,
    it is defendant’s burden at this stage to show (1) a legitimate
    business interest, and (2) that the practice or policy serves in
    a significant way that legitimate interest.
    Here, it is undisputed that the District articulated a
    legitimate business interest. The record demonstrates that
    residents at Edwards Circle had previously left delinquent
    accounts in excess of their security deposit, which the
    District could not recover from Pinal County. The District
    accordingly sought to create a policy that would prevent
    losses produced by such delinquencies in the future. It is
    self-evident that a business has a legitimate interest to be
    paid in full for services it has already provided pursuant to a
    valid contract. Considered in the aggregate, that right
    implicates the legitimate interest that a business has in
    maintaining fiscal solvency.
    The next question is whether the District’s Security
    Deposit Policy serves that interest in a significant way. It is
    the District’s burden to establish that the challenged portions
    of the policy, i.e., those “practices causing the disparate
    impact,” significantly serve its business interest. See Ojo,
    600 F.3d at 1203; Hardie, 876 F.3d at 320. Here, that
    includes the decision to apply the policy only to public
    housing customers and the decision to increase the deposit
    to $180, rather than some other dollar figure. We conclude
    there is no genuine issue of material fact as to whether the
    District established that both aspects of the Security Deposit
    Policy serve in a significant way its valid business interests.
    The District’s decision to apply the Security Deposit
    Policy only to public housing tenants of Pinal County was
    directly related to its interest in protecting itself against
    unrecovered delinquencies. It is uncontested that the
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 31
    District’s default recovery policies—namely, demanding
    payment from the landlord and placing a lien on the
    property—were not effective to recover money from those
    tenants’ landlord—Pinal County—purportedly due to the
    County’s status as a public entity. Unlike other District
    customers who leased out their property, Pinal County
    refused to reimburse the District for delinquencies left by its
    tenants. The County also resisted the District’s efforts to
    recover by way of liens and their executions. The County
    further refused to use its public funds to pay the defaulting
    tenants’ water bills on the basis that such payments would
    violate the Arizona state constitution.
    Thus, the only customers for whom the District required
    an alternative recovery policy were those whose landlord
    was Pinal County—i.e., its public housing customers. The
    unique relationship between the District and Pinal County
    was adequate justification for the District to issue the
    prophylactic Security Deposit Policy. Appellants question
    whether the policy truly served the District’s interest in fiscal
    solvency because Edwards Circle tenants represent only a
    small portion of the District’s full customer base. But
    protecting against any otherwise unrecoverable financial
    loss is a valid interest served by the policy. To that end,
    Appellants fail to explain why the District should simply
    lose the amounts of any delinquent public housing water
    bills. Appellants also argue that recovering delinquencies
    from Edwards Circle is not necessary for the District’s
    financial solvency because the delinquencies were de
    minimis. But a policy need not be essential or indispensable
    to significantly serve a legitimate interest; moreover,
    Appellants offer no meaningful limiting principle as to how
    32 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    minor a potential financial loss must be before a business
    may not protect itself against it. 16
    Neither is there a triable issue as to whether the District’s
    decision to increase the security deposit to $180, rather than
    a smaller amount, serves in a significant way the District’s
    legitimate interest in guaranteeing that it will receive full
    payment for services rendered. The record includes
    delinquent account balances left by Edwards Circle residents
    at various times between 2010 and 2015. At the time the
    policy was first announced (November 2014), the District
    had multiple delinquent Edwards Circle accounts still on the
    books, including one delinquent account from 2011 that
    amounted to $184.45. 17 The District’s designated Rule
    30(b)(6) representative witness expressly testified at
    deposition that the District chose a dollar figure that would
    cover the largest outstanding accounts to prevent loss to the
    company:
    I looked—my rationale was the fact that we
    need to be able to cover the delinquent
    accounts and protect the District from having
    to pay—provide water at no cost to those
    accounts. And I—if I remember correctly, it
    16
    As the District notes, Appellants incorrectly point to the District’s
    “net assets” in arguing the size of the delinquencies are inconsequential.
    But they do not explain how the value of a company’s assets (e.g.,
    underground water pipes, pumps, vehicles, office equipment, easements,
    etc.) is relevant to whether unpaid accounts receivable impact a
    business’s daily operation or financial commitments. Appellants did not
    offer evidence on the District’s cash flow. But even were the cash flow
    positive, that would not delegitimatize the District’s interest in seeking
    to have its water bills paid.
    17
    Appellants fail to cite to any record evidence that proves this 2011
    delinquency statement is inaccurate.
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 33
    was basically looking at a range of delinquent
    accounts and looking at one that would
    encompass to capture most of those so that
    we did not suffer a loss as far as the District
    goes.
    That stated rationale is supported by the evidence: The dollar
    figure of the increased security deposit in the policy ($180)
    is nearly equivalent to the District’s largest outstanding
    delinquency in the record ($184.45).
    Appellants cite no record evidence contradicting the
    District’s expressed intent to key the deposit amount to past
    delinquencies. Instead, Appellants argue that $180 is an
    arbitrary figure. As the record demonstrates, that clearly is
    not the case. It was not picked out of the blue, but because
    of a specific account in the red.
    Now, had the District set the security deposit at clearly
    excessive amounts relative to predictable monthly water
    bills for individual units (say, $500 or $1000), or had the
    District failed to proffer evidence that its security deposit
    amount was keyed to the size of the largest delinquency
    (with accompanying documentary support), or had the
    District decided not to make the security deposit refundable
    to public housing tenants who did not leave behind
    delinquent accounts, then Appellants might have raised a
    triable issue as to whether the policy served the legitimate
    goal of preventing financial loss to the District from
    delinquencies. But Appellants did not provide any such
    evidence.
    The District provided evidence that the amount of its
    security deposit significantly served its legitimate business
    interest. Appellants are not entitled to assert in response that,
    in their estimation, the District could have recouped most,
    34 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    though not all, of its costs related to delinquencies with a
    lower deposit amount and that the District should be content
    with that. A plaintiff may attempt to rebut the defendant’s
    proof that it has a substantial basis for setting the cost of the
    deposit at a certain dollar figure by showing the cost is either
    not substantially related to the loss to be prevented or
    pretextually high—but plaintiffs may not simply assert a
    business’s interest is illegitimate because the plaintiff does
    not believe the financial losses at issue are worth preventing.
    That is nothing more than subjective second-guessing the
    sound exercise of a business’s discretion. See Inclusive
    Communities, 576 U.S. at 540–41.
    We therefore conclude that there is no triable issue of
    material fact as to whether the District demonstrated a
    legitimate business justification for implementing the
    Security Deposit Policy.
    C. Equally     Effective,        Less      Discriminatory
    Alternative
    In the final step of the disparate-impact analysis, “if the
    defendant provides a legitimate justification for the
    challenged practice, the plaintiff must demonstrate that an
    alternative practice (1) would ‘serve the defendant’s
    legitimate interests,’ and (2) would not have a ‘similarly
    undesirable . . . effect [on members of protected groups].’”
    Hardie, 876 F.3d at 320 (quoting Wards Cove, 
    490 U.S. at 660
    ) (cleaned up). “[B]efore rejecting a business
    justification . . . a court must determine that a plaintiff has
    shown that there is ‘an available alternative . . . practice that
    has less disparate impact and serves the [entity’s] legitimate
    needs.’” Inclusive Communities, 576 U.S. at 533 (third and
    fourth alterations in original) (quoting Ricci v. DeStefano,
    
    557 U.S. 557
    , 578 (2009)). “The plaintiff’s proposed
    alternative(s) must be ‘equally effective’ as the defendant’s
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 35
    chosen policy at serving the defendant’s interest(s), taking
    into account ‘[f]actors such as the cost or other burdens’ that
    alternative policies would impose.” Hardie, 876 F.3d at 320
    (quoting Wards Cove, 
    490 U.S. at 661
    ); see also Watson,
    
    487 U.S. at 998
    . “‘Courts are generally less competent than
    employers to restructure business practices,’ consequently,
    the judiciary should proceed with care before mandating that
    an employer must adopt a plaintiff’s alternative . . . .” Wards
    Cove, 
    490 U.S. at 661
     (quoting Furnco Constr. Corp. v.
    Waters, 
    438 U.S. 567
    , 578 (1978)).
    In Inclusive Communities, the Supreme Court clarified
    the limited scope of the third step and implemented
    safeguards to ensure that housing authorities and private
    developers are given “leeway to state and explain the valid
    interest served by their policies.” 576 U.S. at 541–42. “The
    FHA is not an instrument to force [defendants] to reorder
    their priorities. Rather, the FHA aims to ensure that those
    priorities can be achieved without arbitrarily creating
    discriminatory effects or perpetuating segregation.” Id.
    at 540. “The limitations on disparate-impact liability
    discussed here are also necessary to protect potential
    defendants against abusive disparate-impact claims. . . .
    Were standards for proceeding with disparate-impact suits
    not to incorporate at least the safeguards discussed here, then
    disparate-impact liability might displace valid governmental
    and private priorities, rather than solely removing artificial,
    arbitrary, and unnecessary barriers. And that, in turn, would
    set our Nation back in its quest to reduce the salience of race
    in our social and economic system.” Id. at 544 (cleaned up).
    At summary judgment, the burden on the plaintiff at the
    third step is not only to present potential alternatives, but to
    provide evidence that equally effective and less
    discriminatory alternatives exist. Watson, 
    487 U.S. at
    997–
    36 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    98. Appellants here provide arguments but fail to present
    evidence sufficient to allow a jury to conclude that any
    equally effective, less discriminatory alternatives exist to the
    Security Deposit Policy. Moreover, these arguments are not
    persuasive.
    As a first alternative, Appellants contend that the District
    could have continued to attempt to force Pinal County to pay
    for any delinquencies, either by negotiating an
    intergovernmental agreement, by requesting a resolution
    from the County Board of Supervisors, or by filing a
    declaratory relief action in court. However, as already
    recounted, the District attempted numerous times over
    several years to convince Pinal County to pay its tenants’
    delinquencies, all without success. Appellants suggest Pinal
    County’s legal claims (that its public property was immune
    from liens and that the anti-gift clause of the Arizona
    Constitution prevented the County from paying its tenants’
    delinquencies) were infirm and the District should have filed
    a declaratory action in court rather than take the County at
    its word. But requiring the District to file a declaratory
    action against Pinal County would create costly and time-
    consuming burdens for the District and it is not clear that the
    District would prevail. Appellants have not presented
    evidence sufficient to create a material triable issue of fact
    that these alternatives would be equally effective.
    Appellants next argue that the District should instead
    seek to collect the delinquencies from the public housing
    customers responsible rather than institute a prophylactic
    security deposit policy. Setting aside the fact that letters sent
    to Pinal County show the District did unsuccessfully attempt
    to collect from these customers, Appellants do not supply
    any evidence that this alternative would be less burdensome
    or equally effective than a refundable security deposit. It
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 37
    likely would not be as it would require the District to recoup
    delinquent accounts through a collections agency from
    customers who have already shown an inability or disinterest
    in paying their utility bill and for whom the District no
    longer has valid current addresses. 18         Alternatively,
    Appellants argue that the District can cover for delinquent
    account losses by siphoning money from the District’s own
    operating revenue. But for us to require such measures
    would deny that businesses have a valid right to guarantee
    full payment from individual clients.
    Finally, Appellants propose the District apply the
    Security Deposit Policy to all its customers, rather than
    applying it solely to public housing residents. Requiring the
    District to increase all its customers’ costs and burdens by
    applying the Security Deposit Policy regardless whether
    their landlords comport with the District’s requirement that
    landlords pay tenant delinquencies may annul the disparate
    impact, but it is not a reasonable alternative given this
    record. We must also take into account the costs and burdens
    of proposed alternatives. Hardie, 876 F.3d at 320.
    Mandating the District to discard the rational tailoring of the
    Security Deposit Policy incorrectly signals that justified,
    deliberate, and legitimate policies, which impact protected
    groups, violate the FHA. This is improper. See Inclusive
    Communities, 576 U.S. at 521 (“Policies, whether
    governmental or private, are not contrary to the disparate-
    impact requirement unless they are artificial, arbitrary, and
    unnecessary barriers.” (quotation marks and citation
    omitted)). Neither would increasing the security deposit of
    18
    Appellants also suggest pegging the security deposit to a tenant’s
    payment history or credit rating or to reduce the size of the security
    deposit but provide no evidence that either solution is equally effective
    or would be less discriminatory. Counsel’s suggestions are not evidence.
    38 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    all customers to some amount lower than $180 be an equally
    effective method of protecting against a delinquent balance
    left by a tenant with an immune landlord. Because the
    District must refund the security deposit of each customer
    who does not leave behind an outstanding balance, it cannot
    take funds from one customer’s security deposit to cover a
    delinquent balance left by another customer—or, if it does
    do so as a temporary measure, it must eventually use its own
    funds to replenish that first tenant’s deposit. Thus,
    increasing every customer’s security deposit to some amount
    lower than $180 will likely still leave the District vulnerable
    to financial loss.
    Ultimately, the district court erred by choosing the
    wrong comparator population when it held that the
    Appellants failed to establish a prima facie case of disparate
    impact.         However, the District established a
    nondiscriminatory legitimate business interest in applying
    the Security Deposit Policy only to Pinal County tenants and
    for raising the deposit to $180, and that these interests were
    served in a significant way by that policy. Appellants have
    not identified any genuine issue of material fact that would
    disturb that conclusion and have failed to carry their burden
    in establishing any less discriminatory, equally effective
    alternative to the District’s policy.
    Although the district court’s analysis at the prima facie
    stage was in error, we affirm the district court’s grant of
    summary judgment to the District on the disparate-impact
    claim.
    II. Disparate-Treatment Claim
    Appellants attempted to defeat the District’s motion for
    summary judgment by arguing that their complaint also
    alleged a disparate-treatment cause of action. The district
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 39
    court rejected that argument, concluding that Appellants had
    failed to allege a disparate-treatment claim under the FHA
    and, even if they had, had supplied insufficient evidence to
    establish a genuine dispute of material fact. While we
    affirm, we conclude the district court erred in finding that
    Appellants did not make it known in discovery that they
    would pursue a disparate-treatment claim. See Coleman v.
    Quaker Oats Co., 
    232 F.3d 1271
    , 1294 (9th Cir. 2000). We
    nonetheless affirm the district court because Appellants
    failed to adduce evidence sufficient to allow a reasonable
    jury to conclude that the District was liable under a
    disparate-treatment theory.
    We have held in the analogous ADEA context that a
    plaintiff may not pursue an alternative discrimination theory
    unless plaintiffs “either (1) [pleaded] the additional disparate
    impact [or treatment] theory in their complaints, or
    (2) [made] known during discovery their intention to pursue
    recovery on the disparate impact [or treatment] theory
    omitted from their complaints. Only if the defendants have
    been put on notice may the plaintiffs proceed on a disparate
    impact [or treatment] theory at the summary judgment
    stage.” 
    Id.
    Unlike for disparate-impact claims, allegations that
    discrimination was a motivating factor behind a defendant’s
    actions are essential to plead a disparate-treatment claim.
    Ultimately, at the summary judgment stage, the plaintiff
    must “produce direct or circumstantial evidence
    demonstrating that a discriminatory reason more likely that
    not motivated the defendant and that the defendant’s actions
    adversely affected the plaintiff in some way.” Ave. 6E,
    818 F.3d at 504 (9th Cir. 2016) (quoting Pac. Shores Props.,
    LLC v. City of Newport Beach, 
    730 F.3d 1142
    , 1158 (9th Cir.
    2013)).
    40 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    Appellants’ amended complaint did not articulate any
    theory of disparate treatment. Essential terms such as
    “disparate     treatment,”    “motivating    factor,”    and
    “discriminatory purpose” do not appear anywhere. Nor are
    there allegations of improper animus or any discussion of the
    District’s purpose in instituting the policy. Instead, the
    complaint reads as a traditional disparate-impact complaint:
    it lists demographic statistical disparities among the
    Edwards Circle population and describes the
    disproportionate harm that the policy allegedly caused.
    However, we have held that a plaintiff may provide
    notice of their intent to pursue either a disparate-impact or
    disparate-treatment claim during discovery. Coleman,
    
    232 F.3d at 1294
    . Notice in the complaint is preferred. 
    Id. at 1292
    . Thus, to avoid prejudicing the defendant, notice
    provided during discovery should be made early and should
    clearly demonstrate the plaintiff is collecting evidence to
    establish the alternative theory.
    For example, in Coleman, plaintiffs pursued an ADEA
    disparate-treatment discrimination claim in their complaint
    and in discovery, but never raised a disparate-impact claim
    before summary judgment. 
    Id.
     at 1292–93. We held that
    because the defendant was given “no notice either in the
    complaint, in documents submitted with the complaint, or in
    any document prior to their motions for summary judgment
    that they intended to argue this theory,” the district court did
    not err when it barred plaintiffs from asserting the theory at
    summary judgment. 
    Id.
     at 1294 n.8.
    That is not the case here. Documents submitted to the
    district court prior to discovery demonstrate that the District
    was aware that Appellants were attempting to bring a
    disparate-treatment claim. The District signed on to a joint
    case management plan filed prior to discovery which recited
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 41
    as an issue in dispute “[w]hether race, color, [etc.] was a
    motivating factor in committing the challenged practices.”
    Indeed, even prior to that, the District indicated it was aware
    that Appellants intended to pursue a disparate-treatment
    theory when it listed in its amended answer the affirmative
    defense that “discrimination was not a motivating factor” (an
    element unique to a disparate-treatment claim). The District
    could have sought to dismiss a claim for disparate treatment
    under Federal Rule of Civil Procedure 12(b)(6) or sought a
    more definitive statement under Rule 12(e) but failed to do
    so. Instead, the District’s own statements to the court
    demonstrate that the District had notice of Appellants’
    potential disparate-treatment claim. Therefore, the District
    had notice and was not prejudiced by Appellants’ disparate-
    treatment claim.
    However, the district court did not err in holding that
    Appellants failed to present evidence sufficient to establish
    a genuine dispute of material fact regarding disparate
    treatment. To defeat a motion for summary judgment,
    Appellants were required to establish that there was a
    genuine issue of material fact as to whether “a
    discriminatory reason more likely than not motivated the
    defendant.” Ave. 6E, 818 F.3d at 504 (quotation marks and
    citations omitted). Proof may come in the form of either
    “direct or circumstantial evidence.” Pac. Shores Props.,
    730 F.3d at 1158. Typically, we apply the multi-factor
    inquiry from Arlington Heights v. Metropolitan Housing
    Corp., 
    429 U.S. 252
    , 266 (1977), to assess whether a plaintiff
    has established a triable issue of fact that the defendant’s
    actions were motivated by discriminatory intent. We
    examine “the events leading up to the challenged decision
    and the legislative history behind it, the defendant’s
    departure from normal procedures or substantive
    conclusions, and the historical background of the decision
    42 SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER
    and whether it creates a disparate impact.” Ave. 6E, 818 F.3d
    at 504 (citing Arlington Heights, 
    429 U.S. at
    266–68). But
    Appellants have not adduced sufficient evidence that the
    District had a discriminatory motive.
    Appellants presented insufficient direct evidence of
    discriminatory animus in the lead-up to the policy’s
    adoption. Appellants’ only argument is to point to a
    statement in deposition by a District board member that he
    did not “think [Pinal County was] as accountable as they
    should have been for their property, for managing the influx
    of people and tenants and that type of thing.” Appellants
    argue, without citation to any evidence, direct,
    circumstantial, or expert, that “influx of people and tenants”
    is code for African Americans, Native Americans, and single
    mothers.     The district court rejected that argument,
    concluding these were not “‘code word[s]’ that
    demonstrate[d] discriminatory intent.”            We agree.
    Appellants’ contention that the phrase “influx of people and
    tenants” demonstrates discriminatory intent or bias is
    baseless. No reasonable jury could conclude from this
    statement that the District intended to discriminate against
    Pinal County tenants on the basis of race or familial status.
    Neither did Appellants demonstrate circumstantial
    evidence from which a jury could find discriminatory intent.
    Appellants’ only argument here is that the District was told
    by Pinal County that increasing the security deposit only for
    residents of Edwards Circle would affect mostly members of
    “a protected class” and violate fair housing law, and that this
    is conclusive evidence to establish an inference of
    discriminatory motive. While a defendant’s knowledge of a
    policy’s potential discriminatory impact may be relevant
    circumstantial evidence in proving animus, it is not
    sufficient here. As explained above, the District’s decision
    SW. FAIR HOUSING V. MARICOPA DOMESTIC WATER 43
    to apply the Security Deposit Policy is readily explainable
    on grounds of common-sense business practices: businesses
    must be paid for their services to stay in business. These
    grounds are other than race or familial status. Nor is there
    any evidence that the District’s business-related grounds
    were pretextual. A demonstration that a business may have
    known that a challenged policy could result in a
    disproportionate impact on certain members of a protected
    class is simply not sufficient on its own to impose liability
    for a disparate-treatment claim. 19
    Because the Appellants did not establish a genuine issue
    of material fact as to whether the District had a
    discriminatory motive, we affirm the district court’s order
    granting the District summary judgment on the disparate-
    treatment claim.
    CONCLUSION
    For the reasons stated above, we AFFIRM.
    19
    Appellants also argue that the District acted with reckless
    disregard, which the Supreme Court has deemed equivalent to “willful”
    discrimination in the context of other federal discrimination statutes.
    Trans World Airlines, Inc. v. Thurston, 
    469 U.S. 111
    , 126 (1985). We
    need not decide whether this standard, which applied to a damages
    provision of the ADEA, is applicable to disparate treatment liability
    under the FHA because Appellants have not provided sufficient evidence
    that the District acted with reckless disregard.