Inclusive Communities Project, Inc. v. Texas Department of Housing & Community Affairs , 747 F.3d 275 ( 2014 )

Case: 12-11211 Document: 00512570522 Page: 1 Date Filed: 03/24/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 12-11211 March 24, 2014
cons. w/13-10306
Lyle W. Cayce
Clerk
THE INCLUSIVE COMMUNITIES PROJECT, INCORPORATED,
Plaintiff - Appellee
v.
TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS;
MICHAEL GERBER; LESLIE BINGHAM-ESCARENO; TOMAS
CARDENAS; C KENT CONINE; DIONICIO VIDAL FLORES, Sonny; JUAN
SANCHEZ MUNOZ; GLORIA L. RAY, In Their Official Capacities,
Defendants - Appellants
FRAZIER REVITALIZATION, INCORPORATED
Intervenor-Appellant
Cons. w/13-10306
THE INCLUSIVE COMMUNITIES PROJECT, INCORPORATED,
Plaintiff - Appellee
v.
TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS;
MICHAEL GERBER; LESLIE BINGHAM-ESCARENO; TOMAS
CARDENAS; C KENT CONINE; DIONICIO VIDAL FLORES, Sonny; JUAN
SANCHEZ MUNOZ; GLORIA L. RAY, In Their Official Capacities,
Defendants - Appellants
Case: 12-11211 Document: 00512570522 Page: 2 Date Filed: 03/24/2014
No. 12-11211 cons. w/13-10306Appeals from the United States District Court
for the Northern District of Texas
Appeals from the United States District Court
for the Northern District of Texas
Before JONES, WIENER, and GRAVES, Circuit Judges.
JAMES E. GRAVES, JR., Circuit Judge:
In this housing discrimination case, the district court held that plaintiff
The Inclusive Communities Project (“ICP”) had proven that Defendants’
allocation of Low Income Housing Tax Credits (“LIHTC”) in Dallas resulted in
a disparate impact on African-American residents under the Fair Housing Act
(“FHA”). The primary issue on appeal is the correct legal standard to be
applied in disparate impact claims under the FHA. We adopt the standard
announced in recently enacted Department of Housing and Urban
Development (“HUD”) regulations regarding the burdens of proof in disparate
impact housing discrimination cases, see 24 C.F.R. § 100.500, and remand to
the district court for application of this standard in the first instance.
I. Factual and Procedural Background
ICP filed this action against Defendants the Texas Department of
Housing and Community Affairs (“TDHCA”) and its Executive Director and
board members in their official capacities under the FHA, the Fourteenth
Amendment, and 42 U.S.C. §§ 1982 and 1983. “ICP is a non-profit organization
that seeks racial and socioeconomic integration in the Dallas metropolitan
area. In particular, ICP assists low-income, predominately African-American
families who are eligible for the Dallas Housing Authority’s Section 8 Housing
Choice Voucher program (‘Section 8’) in finding affordable housing in
predominately Caucasian, suburban neighborhoods.” Inclusive Communities
Project, Inc. v. Texas Dep’t of Hous. & Cmty. Affairs (ICP II), 860 F. Supp. 2d
312, 314 (N.D. Tex. 2012) (order after bench trial) (footnote omitted). A
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development that receives tax credits under the LIHTC program cannot refuse
tenants because of their use of Section 8 vouchers; thus “it is important to ICP
where the developments are located in the Dallas metropolitan area.” Id.
Under § 42 of the Internal Revenue Code, the federal government
provides LIHTC that are distributed to developers of low-income housing
through a designated state agency. See generally 26 U.S.C. § 42. TDHCA
administers the federal LIHTC program in Texas. See Tex. Gov’t Code
§ 2306.6701 et seq. Developers apply to TDHCA for tax credits for particular
housing projects. Such credits may be sold to finance construction of the
project. ICP II, 860 F. Supp. 2d at 314. The number of credits TDHCA may
award for a low-income housing project is determined by calculating the
project’s “qualified basis,” which is a fraction representing the percentage of
the project occupied by low-income residents multiplied by eligible costs. See
26 U.S.C. § 42(c).
There are two types of credits: 9% credits and 4% credits. The 9% credits
are distributed on an annual cycle and are oversubscribed, and developers
must compete with each other to earn the available credits. As the district
court explained:
Certain federal and state laws dictate, at least in part, the manner
in which TDHCA can select the applications that will receive 9%
tax credits. First, I.R.C. § 42 requires that the designated state
agency adopt a “Qualified Allocation Plan” (“QAP”) that prescribes
the “selection criteria.” See id. at § 42(m)(1)(A)-(B). The QAP must
include, inter alia, certain selection criteria, see id. at §
42(m)(1)(C), and preferences, see id. at § 42(m)(1)(B); otherwise,
“zero” housing credit dollars will be provided, see id. at §
42(m)(1)(A). Second, the Texas Government Code regulates how
TDHCA administers the LIHTC program. The Code requires
TDHCA to adopt annually a QAP and corresponding manual. Id.
at § 2306.67022. It also sets out how TDHCA is to evaluate
applications. TDHCA must first “determine whether the
application satisfies the threshold criteria” in the QAP. Id. at §
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2306.6710(a). Applications that meet the threshold criteria are
then “score[d] and rank[ed]” by “a point system” that “prioritizes
in descending order” ten listed statutory criteria (also called
“above-the-line criteria”), which directly affects TDHCA’s
discretion in creating the “selection criteria” in each QAP. Id. at §
2306.6710(b). The Texas Attorney General has interpreted this
provision to obligate TDHCA to “use a point system that prioritizes
the [statutory] criteria in that specific order.” Tex. Att’y Gen. Op.
No. GA-0208, 2004 WL 1434796, at *4 (2004). Although the Texas
Government Code does not mandate the points to be accorded each
statutory criterion, “the statute must be construed to require
[TDHCA] to assign more points to the first criterion than to the
second, and so on, in order to effectuate the mandate that the
scoring system ‘prioritiz[e the criteria] in descending order.’” Id.
(quoting Tex. Gov’t Code Ann. § 2306.6710(b)(1) (West 2004)). And
while TDHCA can consider other criteria and preferences (also
called “below-the-line” criteria), it “lacks discretionary authority to
intersperse other factors into the ranking system that will have
greater points than” the statutory criteria. Id. at *6 (citation and
internal quotation omitted). Once TDHCA adopts a QAP, it
submits the plan to the Governor, who can “approve, reject, or
modify and approve” it. Tex. Gov’t Code Ann. § 2306.6724(b)-(c)
(West 2001). Once approved, TDHCA staff review the applications
in accordance with the QAP, underwrite applications in order “to
determine the financial feasibility of the development and an
appropriate level of housing tax credits,” id. at § 2306.6710(b)(1)(A)
& (d), and submit their recommendations to TDHCA. See id. at §
2306.6724(e). TDHCA then reviews the staff recommendations
and issues final commitments in accordance with the QAP. See id.
at § 2306.6724(e)-(f).
ICP II, 860 F. Supp. 2d at 314-16 (footnotes omitted). The parties heavily
dispute the amount of discretion TDHCA has to award 9% credits to projects
other than those receiving the highest scores. By contrast, all agree that the
4% credits are allocated on a non-competitive basis year-round to
developments that use private activity bonds as a component of their project
financing, some of which are issued by TDHCA. Applicants need to meet only
certain threshold eligibility and underwriting requirements in order to receive
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4% tax credits. Applications for the 4% tax credits are not subject to scoring
under the QAP selection criteria. See id. at 316.
In March 2008, ICP filed suit against Defendants, claiming that the
distribution of LIHTC in Dallas violated 42 U.S.C. §§ 1982 and 1983, the
Fourteenth Amendment, and the FHA, 42 U.S.C. §§ 3604 and 3605. The FHA
makes it unlawful, inter alia, to “make unavailable or deny, a dwelling to any
person because of race. . . .” 42 U.S.C. § 3604(a). Section 3605(a) provides that
it is unlawful, inter alia, “for any person or other entity whose business
includes engaging in residential real estate-related transactions to
discriminate against any person in making available such a transaction, or in
the terms or conditions of such a transaction, because of race. . . .” Id. § 3605(a).
A “residential real estate-related transaction” includes providing financial
assistance for the construction of a dwelling. Id. § 3605(b). ICP alleged that
Defendants were disproportionately approving tax credit units in minority-
concentrated neighborhoods and disproportionately disapproving tax credit
units in predominantly Caucasian neighborhoods, thereby creating a
concentration of the units in minority areas, a lack of units in other areas, and
maintaining and perpetuating segregated housing patterns.
ICP filed a motion for partial summary judgment to establish standing
and a prima facie case of discrimination. Defendants filed motions for
judgment on the pleadings and summary judgment. Defendants argued that,
assuming that ICP had established a prima facie case, Defendants won as a
matter of law, under both disparate treatment and disparate impact theories
of discrimination. 1 The district court denied Defendants’ motions and granted
1 On appeal, Defendants now attempt to raise multiple challenges to the prima facie
case of disparate impact, including various challenges to ICP’s statistics and an argument
that ICP failed to isolate a specific policy or practice that caused the disparate impact. Our
own review of the record does not clearly resolve which of these challenges to the prima facie
case of disparate impact were waived in the district court. Because we reverse and remand
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ICP partial summary judgment, concluding that ICP had made a prima facie
showing of both intentional discrimination and disparate impact. Inclusive
Communities Project, Inc. v. Texas Dep’t of Hous. & Cmty. Affairs (ICP I), 749
F. Supp. 2d 486, 499-500, 501-02 (N.D. Tex. 2010) (order granting partial
summary judgment). With regard to the disparate impact case, the court
concluded that “ICP has established that its clients are African-Americans,
members of a protected class, who rely on government assistance with housing,
and that TDHCA has disproportionately approved tax credits for non-elderly
developments in minority neighborhoods and, conversely, has
disproportionately denied tax credits for non-elderly housing in predominately
Caucasian neighborhoods.” Id. at 499. In particular, the court relied on
evidence that, “from 1999-2008, TDHCA approved tax credits for 49.7% of
proposed non-elderly units in 0% to 9.9% Caucasian areas, but only approved
37.4% of proposed nonelderly units in 90% to 100% Caucasian areas.” Id. The
court also pointed to data showing “92.29% of LIHTC units in the city of Dallas
were located in census tracts with less than 50% Caucasian residents.” Id.
The court found that the statistical evidence was supported by other evidence,
including the “Talton Report,” a report of the House Committee on Urban
Affairs and prepared for the Texas House of Representatives, which concluded
that TDHCA disproportionately allocates LIHTC funds to developments
located in areas with above-average minority concentrations. Id. at 500. The
court also relied on a HUD study reaching “a similar conclusion.” Id. The
district court held that “[t]his evidence establishes that TDHCA
disproportionately approves applications for non-elderly LIHTC units in
minority neighborhoods, leading to a concentration of such units in these areas.
for other reasons, we do not address the issue of whether the district court erred by holding
that ICP had established a prima facie case.
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This concentration increases the burden on ICP as it seeks to place African-
American Section 8 clients in LIHTC housing in predominately Caucasian
neighborhoods.” Id.
The case then proceeded to trial on the remaining elements of ICP’s
intentional discrimination and disparate impact claims. After a bench trial on
the merits, the district court found that ICP did not meet its burden of
establishing intentional discrimination and therefore found for the Defendants
on ICP’s § 1982, § 1983, and Fourteenth Amendment claims. ICP II, 860 F.
Supp. 2d at 318-21. On the disparate impact claim under the FHA, 42 U.S.C.
§§ 3604(a) and 3605(a), the district court applied the burdens of proof found in
the Second Circuit’s decision in Huntington Branch, which required
Defendants to (1) justify their actions with a compelling governmental interest
and (2) prove that there were no less discriminatory alternatives. See id. at
322-23 (citing Huntington Branch, NAACP v. Town of Huntington, 844 F.2d
926, 939 (2d Cir. 1988), aff’d, 488 U.S. 15 (1988) (per curiam)). 2 The district
court assumed that Defendants’ interests were legitimate and bona fide, but
concluded that Defendants had not produced any evidence supporting their
contention that there were no less discriminatory alternatives to the
challenged allocations. Id. at 326. The court concluded that Defendants had
not shown “that TDHCA cannot allocate LIHTC in a manner that is objective,
predictable, and transparent, follows federal and state law, and furthers the
public interest, without disproportionately approving LIHTC in predominantly
minority neighborhoods and disproportionately denying LIHTC in
predominantly Caucasian neighborhoods.” Id. For example, the court noted
that Defendants did not prove that “TDHCA cannot add other below-the-line
2 The Supreme Court affirmed the Second Circuit in Huntington Branch, but expressly
did not rule on the proper test for disparate impact housing discrimination claims in its
opinion. Town of Huntington, N.Y. v. Huntington Branch, N.A.A.C.P., 488 U.S. 15, 18 (1988).
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criteria [to the QAP] that will effectively reduce the discriminatory impact
while still furthering its interests.” Id. at 327. “Moreover,” the court found,
“although defendants maintain that TDHCA’s discretion in creating the
selection criteria is limited to adopting below-the-line criteria, it appears that
this discretion is actually broader. It appears to extend to the authority to
choose the number of points to be accorded each above- and below-the-line
criterion, so long as the priority of statutory above-the-line criteria is
maintained and the Governor approves.” Id. at 328. Because it held that
Defendants had not met their burden of proof, the district court found in favor
of ICP on its discriminatory impact claim under the FHA. Id. at 331.
After trial, while the district court was considering the injunctive remedy
that should be implemented, Frazier Revitalization, Inc. (“FRI”) was granted
permission to intervene to represent the interests of developers or
organizations who seek to revitalize low-income neighborhoods. After
considering submissions from the parties, the district court adopted a remedial
plan including alterations to the QAP, stated that it would review the plan
annually for at least five years, and entered judgment. See Inclusive
Communities Project, Inc. v. Texas Dep’t of Hous. & Cmty. Affairs, No 3:08-CV-
0546-D, 2012 WL 3201401 (N.D. Tex. Aug. 7, 2012), amended in part, 2012 WL
5458208 (N.D. Tex. Nov. 8, 2012). The court also ordered Defendants to pay
attorneys’ fees to ICP. 3
II. Discussion
Defendants, along with Intervenor FRI, appeal various issues. However,
we find it necessary to reach only one issue: whether the district court correctly
3 The consolidated appeal, No. 13-10306, challenges the attorneys’ fees the district
court awarded to ICP. In light of our remand, we likewise vacate and remand the award of
attorneys’ fees in that appeal.
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found that ICP proved a claim of violation of the Fair Housing Act based on
disparate impact.
As the district court correctly noted, violation of the FHA can be shown
either by proof of intentional discrimination or by proof of disparate impact.
See Artisan/Am. Corp. v. City of Alvin, Tex., 588 F.3d 291, 295 (5th Cir. 2009)
(“We have recognized that a claim brought under the Act ‘may be established
not only by proof of discriminatory intent, but also by proof of a significant
discriminatory effect.’”); Simms v. First Gibraltar Bank, 83 F.3d 1546, 1555
(5th Cir. 1996) (“We agree that a violation of the FHA may be established not
only by proof of discriminatory intent, but also by a showing of significant
discriminatory effect.”). 4 However, we have not previously determined the
legal standards that should be applied in disparate impact housing
discrimination cases.
4 Defendants and FRI point to two recent cases in which the Supreme Court granted
certiorari to determine whether disparate impacts claims are cognizable under the FHA. See
Twp. of Mount Holly, N.J. v. Mt. Holly Gardens Citizens in Action, Inc., 133 S. Ct. 2824 (2013);
Magner v. Gallagher, 132 S. Ct. 548 (2011). Both cases were dismissed before the Court
heard any argument. Twp. of Mount Holly, N.J. v. Mt. Holly Gardens Citizens in Action, Inc.,
134 S. Ct. 636 (2013); Magner v. Gallagher, 132 S. Ct. 1306 (2012). “Absent an intervening
Supreme Court case overruling prior precedent, we remain bound to follow our precedent
even when the Supreme Court grants certiorari on an issue.” United States v. Lopez-
Velasquez, 526 F.3d 804, 808 n.1 (5th Cir. 2008). Our circuit precedent provides that
disparate impact claims are cognizable under the FHA. See Artisan/Am. Corp., 588 F.3d at
295; Simms, 83 F.3d at 1555. All other circuits that have considered the issue have agreed.
See Mt. Holly Gardens Citizens in Action, Inc v. Twp. of Mount Holly, 658 F.3d 375, 381 (3d
Cir. 2011); Gallagher v. Magner, 619 F.3d 823, 833-34 (8th Cir. 2010); Graoch Assocs. #33,
L.P. v. Louisville/Jefferson Cnty. Metro Human Relations Comm’n, 508 F.3d 366, 371 (6th
Cir. 2007); Langlois v. Abington Hous. Auth., 207 F.3d 43, 49 & n.3 (1st Cir. 2000); Mountain
Side Mobile Estates P’ship v. HUD, 56 F.3d 1243, 1250 (10th Cir. 1995); Huntington Branch,
844 F.2d at 934; Smith v. Town of Clarkton, 682 F.2d 1055, 1065 (4th Cir. 1982); Metro. Hous.
Dev. Corp. v. Vill. of Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977); see also
Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 78 Fed. Reg.
11,460 (February 15, 2013) (codified at 24 C.F.R. § 100.500) (“HUD and every federal
appellate court to have ruled on the issue have determined that liability under the Act may
be established through proof of discriminatory effects”).
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As we stated above, on the disparate impact claim under the FHA, 42
U.S.C. §§ 3604(a) and 3605(a), the district court applied the burdens of proof
found in Huntington Branch. ICP II, 860 F. Supp. 2d at 322 (citing Huntington
Branch, 844 F.2d at 939). The district court noted the absence of controlling
law, as this court has not previously addressed the question of what legal
standards apply to a disparate impact housing discrimination claim. Our
sister circuits have applied multiple different legal standards to similar claims
under the FHA. See Robert G. Schwemm, Housing Discrimination Law and
Litigation § 10:6 (2013) (discussing the various standards applied across the
circuits). Most circuits agree that once a plaintiff establishes a prima facie
case, the burden shifts to the defendants to show that the challenged practice
serves a legitimate interest. See Mt. Holly Gardens, 658 F.3d at 382; Gallagher,
619 F.3d at 833-34; Graoch Assocs., 508 F.3d at 374; Mountain Side Mobile
Estates, 56 F.3d at 1254; Huntington Branch, 844 F.2d at 936. At that point,
the circuits diverge in some respects. The Second and Third Circuits require a
defendant to bear the burden of proving that there are no less discriminatory
alternatives to a practice that results in a disparate impact. See Huntington
Branch, 844 F.2d at 936; Mt. Holly Gardens, 658 F.3d at 382 (requiring
defendant to prove there is no less discriminatory alternative and plaintiff to
prove there is a less discriminatory alternative). The Eighth and Tenth
Circuits place the burden on the plaintiff to prove that there are less
discriminatory alternatives. See Gallagher, 619 F.3d at 834; Mountain Side
Mobile Estates, 56 F.3d at 1254. The Seventh Circuit has applied a four-factor
balancing test rather than burden-shifting. See Metro. Hous. Dev. Corp., 558
F.2d at 1290. The Fourth and Sixth Circuits have applied a four-factor
balancing test to public defendants and a burden-shifting approach to private
defendants. See Betsey v. Turtle Creek Assocs., 736 F.2d 983, 988 n.5 (4th Cir.
1984); Graoch Assocs., 508 F.3d at 371, 372-74.
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However, after the district court’s decision in this case, HUD issued
regulations regarding disparate impact claims under the FHA. See 24 C.F.R.
§ 100.500; Implementation of the Fair Housing Act’s Discriminatory Effects
Standard, 78 Fed. Reg. 11,460 (Feb. 15, 2013). Congress has given HUD
authority to administer the FHA, including authority to issue regulations
interpreting the Act. 42 U.S.C. §§ 3608(a), 3614a. Specifically, 42 U.S.C. §
3608(a) gives the Secretary of HUD the “authority and responsibility for
administering this Act,” and § 3614a provides expressly that “The Secretary
may make rules. . . to carry out this subchapter.” The new regulations issued
by HUD took effect in March 2013. 24 C.F.R. § 100.500. The regulations
recognize, as we have, that “Liability may be established under the Fair
Housing Act based on a practice’s discriminatory effect, as defined in
paragraph (a) of this section, even if the practice was not motivated by a
discriminatory intent.” 24 C.F.R. § 100.500. The regulations further provide
that “A practice has a discriminatory effect where it actually or predictably
results in a disparate impact on a group of persons or creates, increases,
reinforces, or perpetuates segregated housing patterns because of race, color,
religion, sex, handicap, familial status, or national origin.” Id. § 100.500(a).
Finally, with regard to the burdens of proof in disparate impact housing
discrimination cases, the regulations provide:
(1) The charging party . . . has the burden of proving that a
challenged practice caused or predictably will cause a
discriminatory effect.
(2) Once the charging party or plaintiff satisfies the burden of
proof set forth in paragraph (c)(1) of this section, the
respondent or defendant has the burden of proving that the
challenged practice is necessary to achieve one or more
substantial, legitimate, nondiscriminatory interests of the
respondent or defendant.
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(3) If the respondent or defendant satisfies the burden of proof
set forth in paragraph (c)(2) of this section, the charging
party or plaintiff may still prevail upon proving that the
substantial, legitimate, nondiscriminatory interests
supporting the challenged practice could be served by
another practice that has a less discriminatory effect.
24 C.F.R. § 100.500(c).
We now adopt the burden-shifting approach found in 24 C.F.R. § 100.500
for claims of disparate impact under the FHA. See 24 C.F.R. § 100.500. First,
a plaintiff must prove a prima facie case of discrimination by showing that a
challenged practice causes a discriminatory effect, as defined by 24 C.F.R.
§ 100.500(a). 24 C.F.R. § 100.500(c)(1). If the plaintiff makes a prima facie
case, the defendant must then prove “that the challenged practice is necessary
to achieve one or more substantial, legitimate, nondiscriminatory interests . .
. .” Id. § 100.500(c)(2). If the defendant meets its burden, the plaintiff must
then show that the defendant’s interests “could be served by another practice
that has a less discriminatory effect.” Id. § 100.500(c)(3).
These standards are in accordance with disparate impact principles and
precedent. While the approaches of our sister circuits have varied, the most
recent decisions have applied a similar three-step burden-shifting approach.
Mt. Holly Gardens, 658 F.3d at 382; Gallagher, 619 F.3d at 834; Graoch
Assocs., 508 F.3d at 374. Further, the three-step burden-shifting test
contained in the HUD regulations is similar to settled precedent concerning
Title VII disparate impact claims in employment discrimination cases. See 42
U.S.C. § 2000e-2(k); Ricci v. DeStefano, 557 U.S. 557, 624 (2009) (describing
the disparate impact burdens of proof in Title VII employment discrimination
cases). Many courts interpreting the FHA recognize the similar purpose and
language of the statutes and borrow from Title VII precedent to interpret the
FHA. See, e.g., Graoch Assocs., 508 F.3d at 371-73; Kyles v. J.K. Guardian Sec.
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Servs., Inc., 222 F.3d 289, 295 (7th Cir. 2000) (“Courts have recognized that
Title VIII is the functional equivalent of Title VII and so the provisions of these
two statutes are given like construction and application.”) (internal citations
omitted)); Huntington Branch, 844 F.2d at 934-35.
Given the complex record and fact-intensive nature of this case, and the
district court’s demonstrated expertise with those facts, we remand for the
district court to apply this legal standard to the facts in the first instance. To
be clear, we do not hold that the district court must retry the case; we leave it
to the sound discretion of that court to decide whether any additional
proceedings are necessary or appropriate. Finally, given our decision to
remand, we do not find it necessary to reach the additional arguments raised
by Defendants in support of reversal.
III. Conclusion
For the reasons we have stated, we REVERSE and REMAND for further
proceedings consistent with this opinion.
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JONES, Circuit Judge, specially concurring.
As a second-best result, I concur in the court’s judgment to reverse and
remand this case for reconsideration under the recently promulgated HUD
guidelines. This is second-best, however, because on remand, the district court
should reconsider the State’s forceful argument that the appellees did not
prove a facially neutral practice that caused the observed disparity in
TDHCA’s allocation of LIHTC units to predominately “non-Caucasian” areas.
Perhaps the standard for proving a prima facie case of disparate impact in the
fair housing context was uncertain before the HUD guidelines resolved circuit
splits. In any event, because FHA cases will now be modeled closely upon the
Title VII formula, it is clear that the appellees could not rely on statistical
evidence of disparity alone for their prima facie case. See Smith v. City of
Jackson, 544 U.S. 228, 241, 125 S. Ct. 1536, 1545 (2005) (“[I]t is not enough to
simply allege that there is a disparate impact on workers.”); Pacheco v. Mineta,
448 F.3d 783, 787 n.5 (5th Cir. 2003) (finding “Pacheco’s disparate impact
allegations . . . wholly conclusional” because “[t]here is no suggestion of in what
manner the process operated so as to disadvantage Hispanics”); Simms v. First
Gibraltar Bank, 83 F.3d 1546, 1555 (5th Cir. 1996) (Fair Housing Act issue is
“whether a policy, procedure, or practice specifically identified by the plaintiff
has a significantly greater discriminatory impact on members of a protected
class.”) A plaintiff must specifically identify the facially neutral policy that
caused the disparity.
The appellees’ entire argument for disparate impact here assumed the
conclusion: there is a statistical “imbalance” in the location of LIHTC units
approved by TDHCA, therefore there must be a disparate approval “practice”
that causes the statistical imbalance. The district court accepted this
oversimplified formulation. But under disparate impact law, the State’s
burden is NOT to justify the statistics, but only the facially neutral policy or
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policies that caused the statistics. The State’s burden ensues only when a
plaintiff isolates the policy that caused the disparity. Without proof of an
offending policy, alleged racial imbalance in and of itself is both the cause and
effect of a violation. This has not been the law for many years. The Supreme
Court held in Wards Cove that:
“[e]ven if on remand respondents can show that nonwhites are
underrepresented . . . in a [statistically correct] manner . . ., this
alone will not suffice to make out a prima facie case of disparate
impact. Respondents will also have to demonstrate that the
disparity they complain of is the result of one or more of the
employment practices that they are attacking here, specifically
showing that each challenged practice has a significantly
disparate impact on employment opportunities for whites and
nonwhites. 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 their work forces.’ ”
Wards Cove Packing Co. v. Atonio, 490 U.S. 642, 657, 109 S. Ct. 2115, 2125
(1989) (quoting Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 992,
108 S. Ct. 2777, 2787 (1988)). Put more bluntly, if the appellees’ framing of
disparate impact analysis is correct, then the NBA is prima facie liable for
disparate impact in the hiring of basketball players.
As the district court’s opinions demonstrate, TDHCA's policies and
practices for awarding LIHTC grants are anything but simple. They are
governed by federal and state statutes, which require satisfaction of numerous
criteria to ensure the integrity, financial viability, and effectiveness of the
projects. One specific object of the federal tax credit provision is to advantage
projects located in low income census tracts or subject to a community
revitalization plan. 26 U.S.C. § 42(m)(1)(B). In essence, the appellees are
seeking a larger share of a fixed pool of tax credits at the expense of other low-
income people who might prefer community revitalization. To balance these
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Case: 12-11211 Document: 00512570522 Page: 16 Date Filed: 03/24/2014
No. 12-11211 cons. w/13-10306
conflicting goals while meeting the program’s other specifications, a complex
point system has been used and annually updated. On remand, the district
court must “require, as part of [appellees’] prima facie case, a demonstration
that specific elements of the [State’s award practices] have a significantly
disparate impact on nonwhites.” Wards Cove, 490 U.S. at 658,
109 S. Ct. at 2125.
I concur in the judgment.
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