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Scotus Takes Up ‘Disparate Impact’ Again

As Eric Holder prepares to depart his post as attorney general, one of the doctrines his Justice Department has tried to defend may finally come under the scrutiny of the Supreme Court.

The principle of “disparate impact” didn’t originate with Holder’s Justice Department; it has cropped up in one form or another for about 40 years. The theory goes that, under the Fair Housing Act and other federal laws, plaintiffs need not prove intentional bias to make successful discrimination claims. Instead, they need only show that the parties accused acted in ways that disproportionately affected minority groups.

Twice previously, the High Court has agreed to decide cases that challenged this interpretation of the law. Each time, the cases were settled before the Court could hear oral arguments. If the Court, which begins its new term today, actually gets to hear the appeal brought by Texas officials who claim disparate impact is too loose a standard, it may finally have the chance to rule on the issue. Bloomberg Businessweek reported that a lawyer for the group emphasized in the strongest terms that the group bringing the original suit has no intention of abandoning it. Maybe the third time will prove to be the charm.

Bloomberg reported that advocates on both side of the issue expect the Court to wipe out the disparate impact standard. This prediction is based on both the Court’s recent pronouncements on civil rights law and on the fact that the Court seldom involves itself in cases where lower courts are in broad agreement. That it would make an exception for disparate impact, which has been consistently upheld in the lower courts, gives a hint about where the Court’s conservative justices are leaning.

Supporters of disparate impact fundamentally believe that one can infer discrimination, deliberate or not, from unequal results. Lower courts have, thus far, widely agreed that one can. But those who disagree have steadily gained momentum, which is propelling the Texas case toward the Supreme Court. As I have written before, we continue to use legal tools today that were crafted to combat the problems of decades ago, and the disconnect between those tools and today’s realities gets larger the longer it is not addressed.

The Texas case concerns the allocation of low-income tax credits. The Inclusive Communities Project, a not-for-profit organization based in North Texas, says that the Texas Department of Housing and Community Affairs assigned disproportionate numbers of these credits into poor Dallas neighborhoods composed primarily of minorities rather than to similarly affordable housing developments in wealthier, typically whiter neighborhoods elsewhere in the city. The state’s argument that the program was not intended to be biased has so far been pushed aside by disparate impact arguments.

Whether discrimination laws should protect equal opportunities or ensure equal outcomes is a philosophical and political question over which many Americans disagree. The Supreme Court, however, must decide not what they law should mean, but what it actually means as Congress wrote it - and, of course, whether that law is constitutional.

The problem with disparate impact extends past the question of the proper role of civil rights legislation. As critics of disparate impact have frequently pointed out, nearly every business decision could be subject to such a lawsuit, even when the decision-maker’s intent is innocuous. Todd Gaziano, a fellow at the Pacific Legal Foundation, told Businessweek, “It’s very difficult for financial institutions to come up with lending criteria that make sense and prevent a future mortgage crisis - and that don’t have some unintended impacts.”

It is worth noting, too, that the principle has not only been applied to housing and mortgage lending cases. If disparate impact is struck down, the ramifications will reach employment law, education law and a variety of other discrimination challenges that currently rest on the principle.

Should the High Court not hear the Texas case, due to settlement or something else, this issue will not simply vanish. The justices will, eventually, need to weigh in as to whether statistical evidence alone, in the absence of discriminatory intent, can be punished under our current laws. If Congress wishes to fashion new tools, either as a result of or in anticipation of this decision, it can do so.

But for now, the sooner the Court can examine, and likely discard, the outdated standard, the sooner we can have a real discussion about what moving forward should look like in the 21st century.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s most recent book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book, Looking Ahead: Life, Family, Wealth and Business After 55.

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