Disparate Impact Case Settled Before Reaching Supreme Court

On Nov. 13, a settlement was reached in an important fair housing lawsuit. This case involved the southern New Jersey town of Mt. Holly. In 2003, Mount Holly declared a neighborhood called the “Gardens” blighted and sought to redevelop it, claiming that was the only way to end rising crime in the area and revive the township’s economy. But the redevelopment included new housing that would be too expensive for residents who wanted to stay. They sued under the Fair Housing Act (FHA), saying that the township’s redevelopment plan was a form of discrimination because it would have a disparate impact on the township’s minority residents. A decade of litigation and demolition cost the township nearly $20 million and left the Gardens sparse with just 60 families remaining in a place once home to 300.

Disparate impact is a legal concept that says a practice may be discriminatory if it has a disproportionate effect on minorities, even if discrimination is not intended. Under the terms of the settlement, the township will compensate the residents who want to leave and provide new homes for those who want to stay. Part of the land slated for redevelopment will be handled by a nonprofit real estate developer that raised money to buy a parcel of the property and built new housing units that low-income Gardens residents will be able to afford.

The settlement was reached just a few weeks before the U.S. Supreme Court was scheduled to hear oral arguments. A court ruling would have affected owners, managers, and developers nationwide by determining the validity of HUD’s February 2013 “discriminatory effects rule.” The rule calls into question some industry and business practices, such as resident screening.

HUD’s rule allows a finding of liability without proof of any actual intent to discriminate. And it scrutinizes rules and practices that, while neutral on their face, have a harsher impact on members of a class of people protected under the FHA. In response, a number of housing groups have argued that the FHA did not contemplate disparate impact. But now that the case has been settled out of court, the Supreme Court won’t be providing a conclusive answer on disparate impact rules with this case.

Until the Supreme Court ultimately resolves the issue, housing providers and other entities subject to the FHA must abide by HUD’s discriminatory effects regulation issued earlier this year. HUD says the new rule doesn’t create new law, noting that it has long interpreted the FHA to prohibit seemingly neutral housing practices with an unjustified discriminatory effect based on race, color, religion, sex, handicap, familial status, or national origin.