HUD Proposes New Burden-Shifting Framework for Disparate Impact

HUD has proposed a revised rule changing how disparate impact claims are assessed under the Fair Housing Act.  The rule is intended to better reflect the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which held that a disparate impact without discriminatory intent could violate the Fair Housing Act under certain circumstances, but that a mere statistical disparity, standing alone, was not such a violation.  Comments on the proposed rule are being accepted through October 18, 2019.

HUD’s proposal seeks to codify the burden shifting framework outlined in Inclusive Communities by providing that a plaintiff must first identify a specific, identifiable, policy or practice.  (A statistical disparity in outcome not tied to an identifiable policy or practice could not violate the Fair Housing Act.)  Then, in order to allege that such practice has a discriminatory effect, the plaintiff must plead facts plausibly alleging five elements:

• “the
  challenged policy or practice is arbitrary, artificial, and unnecessary to
  achieve a valid interest or legitimate objective;”
• “a
  robust causal link between the challenged policy or practice and a disparate
  impact on members of a protected class;”
• the
  challenged “policy or practice has an adverse effect on members of a protected
  class;”
• “the
  disparity caused by the policy or practice is significant;” and
• the
  complaining party’s alleged injury is directly caused by the challenge policy
  or practice.

A defendant then can establish that the plaintiff’s allegations do not support a prima facie case by using one of the following three methods:

• “[T]he
  defendant may show its discretion is materially limited by a third party—such
  as through” “a Federal law or a State or local law”—or “a binding or
  controlling court, arbitral, regulatory, administrative order, or
  administrative requirement.”
• Where
  a plaintiff identifies an offending policy or practice that relies on an
  algorithmic model, a defending party may defeat the claim by:
  • identifying
    the inputs used in the model and showing that these inputs are not substitutes or
    proxies for a protected characteristic and that the model is predictive of risk
    or other valid objective;
  • showing
    that a recognized third party, not the defendant, is responsible for creating
    or maintaining the model; or
  • showing
    that a neutral third party – such as a qualified expert – has analyzed the
    model in question and determined it was empirically derived, its inputs are not
    substitutes for a protected characteristic, the model is predictive of risk or
    other valid objective, and is a demonstrably and statistically sound algorithm.
• Demonstrating
  that the plaintiff has not alleged sufficient facts in support of elements (1)
  through (5) above.

If the plaintiff alleges facts sufficient to show a prima facie case, the plaintiff has the burden of proving by a preponderance of the evidence, through evidence that is not remote or speculative, each of elements (2) through (5) set forth above.  Additionally, the plaintiff must counter a valid defense to element (1) (i.e., the defendant showing that “the challenged policy or practice advances a valid interest (or interests)”) by “proving by a preponderance of the evidence that a less discriminatory policy or practice would serve the interest in an equally effective manner without imposing materially greater costs on, or creating other material burdens for, the defendant, consistent with existing disparate impact case law.”

Notwithstanding the foregoing, the defendant, as a complete defense, may:

• prove
  any element identified under method (a) or (b) as described above;
• demonstrate that the plaintiff has not
  proven, by a preponderance of the evidence, one or more of elements (2) through
  (5) as described above; or
• demonstrate that the alternative “less
  discriminatory policy or practice” meant to counter element (1) “would not
  serve the valid interest identified by the defendant in an equally effective
  manner without imposing materially greater costs on, or creating other material
  burdens for, the defendant.”