TWIQBAL, INC.: FINDING DISPARATE-IMPACT CLAIMS COGNIZABLE UNDER THE FAIR HOUSING ACT AND RAISING SERIOUS CONCERNS IN THE PROCESS.

Transcription

1 TWIQBAL, INC.: FINDING DISPARATE-IMPACT CLAIMS COGNIZABLE UNDER THE FAIR HOUSING ACT AND RAISING SERIOUS CONCERNS IN THE PROCESS Steven Cummings* I. INTRODUCTION The Supreme Court generally leaves controversial cases to the end of the year, leading to a number of highly contested decisions being released all at once. 1 The summer of 2015 was no exception, with several cases being deemed worthy of notice. 2 However, some cases are more controversial than others, with same-sex marriage, lethal injection, and the Affordable Care Act grabbing most of the attention. 3 But [t]he most significant race-related case of the term, 4 Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. ( ICP, Inc. ), 5 was merely listed as one of the [o]ther cases to watch. 6 ICP, Inc. involved the use of federal credits intended to facilitate the development of housing units in low-income areas. 7 In 2008, the Inclusive Communities Project, Inc. ( ICP ), a Texas-based nonprofit corporation that assist[ed] low-income families in obtaining * Executive Editor for Research and Writing, Albany Law Review; J.D. Candidate, Albany Law School, 2017; B.A. Political Science and Philosophy, University at Albany, I would like to thank the members of the Albany Law Review, Professor Raymond Brescia my faculty and Note advisor for his invaluable guidance and advice in writing this article, and my family for their unending support and encouragement. 1 See Ron Elving, Drama on the Docket: High Court s Term Set to End with Slate of Big Cases, NPR (June 15, 2015), /whats-left-for-the-supreme-court-same-sex-marriage-obamacare-and-more ( It is typical for the [C]ourt to issue its most important and controversial rulings in the final days of its annual session. ). 2 See id. 3 See id.; see also Thomas Silverstein, Building on Texas v. Inclusive Communities Project, LAW. COMMITTEE FOR CIV. RTS. UNDER L. (July 20, 2015), /07/texas-department-of-housing-community-affairs-v-inclusive-communities-project/ ( That day, we had to... try to get heard in the media despite the much greater attention being paid to the Court s decision in King v. Burwell. ). 4 Elving, supra note 1. 5 Tex. Dep t of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 135 S. Ct (2015). 6 Elving, supra note 1. 7 See Inclusive Cmtys. Project, Inc., 135 S. Ct. at

2 382 Albany Law Review [Vol affordable housing, 8 sued the Texas Department of Housing and Community Affairs ( Department ), the organization responsible for granting tax credits under 26 U.S.C. 42 to low-income housing developers to encourage investment in low-income, multifamily rental housing. 9 ICP brought a disparate-impact claim against the Department, alleging that the Department caused continued segregated housing patterns by its disproportionate allocation of the tax credits, granting too many credits for housing in predominately black inner-city areas and too few in predominantly white suburban neighborhoods. 10 On June 25, 2015, Justice Kennedy, writing for the majority, found disparate-impact claims cognizable under the Fair Housing Act ( FHA ). 11 While fair housing advocates celebrated the decision as a decisive victory, 12 others were not as thrilled. 13 These advocates, however, may have rejoiced prematurely, because while the Court found disparate-impact claims cognizable under the FHA, the Court also severely increased the difficulty in bringing these actions. Under ICP, Inc., a disparate-impact plaintiff must demonstrate a causal connection between the defendant s policy and the alleged disparity in order to make out a prima facie case. 14 However, in order to limit potential liability, the Court provided housing developers with some added protection and specified that market factors, as well as both objective and subjective factors that contributed to a 8 Id. at Inclusive Cmtys. Project, Inc. v. Tex. Dep t of Hous. & Cmty. Affairs, 749 F. Supp. 2d 486, 492 (N.D. Tex. 2010), rev d, 747 F.3d 275, 283 (5th Cir. 2014), aff d, 135 S. Ct (2015). 10 Inclusive Cmtys. Project, Inc., 135 S. Ct. at See id. at 2507, 2513, See, e.g., Emily Badger, Supreme Court Upholds a Key Tool Fighting Discrimination in the Housing Market, WASH. POST (June 25, 2015), wonk/wp/2015/06/25/supreme-court-upholds-a-key-tool-fighting-discrimination-in-the-housing -market/ ( This really is the most we possibly could have hoped for, said Betsy Julian, the president of the Inclusive Communities Project.... We re thrilled that disparate impact as a principle was upheld. ); Raphael Bostic, A Clear SCOTUS Statement on Disparate Impact and AFFH, ROOFLINES: SHELTERFORCE BLOG (July 15, 2015), clear_scotus_statement_on_disparate_impact_and_affh/ ( The ruling [on Inclusive Communities Project, Inc.] was a critical victory for fair housing.... ); Silverstein, supra note 3 ( [When ICP, Inc. was decided, f]air housing advocates experienced a whirlwind of emotions. First there was dread[,]... [n]ext came a brief interlude of disbelief... that the Court had upheld the Fair Housing Act s (FHA) disparate impact standard. Once the reality of [their] victory sunk in, there was pure elation. ). 13 See, e.g., Ariane de Vogue, Court Upholds Key Tool to Combat Housing Discrimination, CNN POL., (last updated June 25, 2015) ( Some companies, developers and housing authorities had argued that disparate impact claims cost time and money to investigate actions made with good intentions. And they said these claims force a state or private entity to engage in race-conscious decisionmaking to avoid legal liability. ). 14 See Inclusive Cmtys. Project, Inc., 135 S. Ct. at 2523.

3 2016/2017] Twiqbal, Inc.: Disparate-Impact Claims and the FHA 383 community s quality of life, were substantial, legitimate, nondiscriminatory interests. 15 While at first these factors seem to be applicable only as an affirmative defense, the Court also stated that these factors can make it difficult to establish causation, strongly implying that they can be used to attack a plaintiff s prima facie case. 16 ICP, Inc., however, does not exist in a vacuum. Rather, civil rights plaintiffs, like most plaintiffs, must produce a short and plain statement of the claim showing that the pleader is entitled to relief[.] 17 Under Twiqbal, 18 a plaintiff must satisfy a two-pronged test. 19 The first prong requires that the plaintiff assert factual allegations beyond mere conclusions of law in order to be entitled to the assumption that all the allegations in the complaint are true[,] and the second prong requires the plaintiff to state a plausible claim for relief. 20 A complaint fails to be plausible if the effect could be equally explained by[] lawful... [rather than unlawful] behavior. 21 Under Twiqbal, Inc., 22 the plaintiff must allege facts at the pleading stage demonstrating a causal connection between the defendant s policy and the disparity that is plausible on its face in order to make out a prima facie case for disparate-impact liability. 23 Yet ICP, Inc. s factors can be used by the defendant interchangeably as either an affirmative defense or as an attack on the plaintiff s prima facie case. 24 These factors serve as legitimate interests, and because a complaint fails to be plausible if the effect in question could be equally explained by lawful behavior, a plaintiff s disparateimpact claim will most likely fail Twiqbal s second prong if these factors offer a more likely legal explanation for the disparity. 25 As a 15 Id. at 2515 (quoting 24 C.F.R (c)(2) (2016)); see also Inclusive Cmtys. Project, Inc., 135 S. Ct. at 2523 (providing the Court s discussion of relevant market factors). 16 Inclusive Cmtys. Project, Inc., 135 S. Ct. at FED. R. CIV. P. 8(a)(2). 18 See RHJ Med. Ctr., Inc. v. City of DuBois, 754 F. Supp. 2d 723, 730 (W.D. Pa. 2010) ( [The Twombly and Iqbal decisions,] or Twiqbal as they are commonly known, have caused a sea change in federal pleading standards. ); David Freeman Engstrom, The Empirical Revolution in Law: The Twiqbal Puzzle and Empirical Study of Civil Procedure, 65 STAN. L. REV. 1203, 1204 (2013); William M. Janssen, The Odd State of Twiqbal Plausibility in Pleading Affirmative Defenses, 19 WASH. & LEE L. REV. 1573, 1575 n.6 (2013). 19 See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). 20 Bell Atl. Corp. v. Twombly, 550 U.S. 544, , 557 (2007) (citations omitted). 21 Iqbal, 556 U.S. at 680 (citing Twombly, 550 U.S. at 567); see Raymond H. Brescia & Edward J. Ohanian, The Politics of Procedure: An Empirical Analysis of Motion Practice in Civil Rights Litigation under the New Plausibility Standard, 47 AKRON L. REV. 329, 335 (2014). 22 Twiqbal, Inc. will be used to refer to the pleading standard required by both Twiqbal and ICP, Inc. 23 See infra Parts II(B), IV. 24 See infra Parts IV, V(A). 25 See infra Part IV.

4 384 Albany Law Review [Vol result, a plaintiff may be required to refute these factors at the prima facie stage to successfully plead his or her claim. 26 While these factors seem at first to be affirmative defenses, clever defendants could raise these factors in a motion to dismiss, and effectively require the plaintiff to plead around the defendant s affirmative defenses during the plaintiff s prima facie stage. 27 This raises the following concerns. First, requiring the plaintiff to plead around the defendant s affirmative defenses conflicts with longstanding Supreme Court precedent. 28 Second, Twiqbal, Inc. clashes with Swierkiewicz v. Sorema N. A. 29 by requiring the plaintiff to plead more facts than necessary to establish a claim for relief. 30 Last, Twiqbal, Inc. amounts to the Supreme Court making a new pleading requirement for a specific claim. 31 This raises legal issues by conflicting with copious amounts of precedent, and raises constitutional concerns by conflicting with the Rules Enabling Act. 32 The order of this article is as follows: Part II(A) and (B) will discuss the evolution of pleading requirements, with Part II(A) discussing pleading requirements pre-twiqbal, and Part II(B) discussing pleading requirements post-twiqbal. Part II(C) and (D) will discuss disparate-impact liability, with Part II(C) explaining disparateimpact liability in general, and Part II(D) discussing disparateimpact liability under the FHA, as well as ICP, Inc. s origins. Part III will discuss both ICP, Inc. and the plaintiff s pleading burden for establishing a disparate-impact claim under the FHA. Part IV discusses Twiqbal, Inc. s pleading burden, and how Twiqbal, Inc. can require disparate-impact plaintiffs to plead around a defendant s affirmative defenses. Part V(A) through (C) will focus on the resulting legal concerns: Part V(A) discusses how Twiqbal, Inc. requires the plaintiff to plead around the defendant s affirmative defenses, conflicting with prior Supreme Court precedent; Part V(B) discusses how Twiqbal, Inc. contradicts Swierkiewicz by requiring more than a short and plain statement of the claim showing that the pleader is entitled to relief; 33 and Part V(C) explores how Twiqbal, Inc. amounts to the Court making a new pleading requirement for a specific claim, which conflicts with copious amounts of precedent and 26 See infra Part IV. 27 See infra Part IV. 28 See, e.g., Jones v. Bock, 549 U.S. 199, 216 (2007). 29 Swierkiewicz v. Sorema N. A., 534 U.S. 506 (2002). 30 See infra Part V(B). 31 See infra Part V(C). 32 See infra Part V(C). 33 Swierkiewicz, 534 U.S. at 512 (quoting FED. R. CIV. P. 8(a)(2)).

5 2016/2017] Twiqbal, Inc.: Disparate-Impact Claims and the FHA 385 the Rules Enabling Act. Part VI will then conclude. II. DISPARATE-IMPACT/PLEADING REQUIREMENTS BEFORE ICP, INC. A. Pleading Standards under Conley 34 Before one can argue any claim before either a judge or a jury, one must first meet certain requirements, one of which being that the plaintiff must present [a] pleading that states a claim for relief[.] 35 While the Federal Rules of Civil Procedure control this process today, this was not always the case. Until 1938, many engaged in a practice known as fact pleading which dealt more with the lawyer s skill than with the substantive merits of the actual case. 36 Due to the various issues with this system, it was replaced in 1938 by the Federal Rules of Civil Procedure, which opted for a notice pleading approach, over the costly and burdensome fact pleading system then in place In doing so, the new standard became a short and plain statement of the claim showing that the pleader is entitled to relief[.] 38 When the Court was asked to shed light on this standard fifteen years later, 39 Justice Black, delivering the Court s decision, explained that the Federal Rules of Civil Procedure do not require a claimant to set out in detail the facts upon which he bases his claim. 40 Instead, a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. 41 The Court justified this approach by pointing to the benefits of discovery 42 and for fifty years this rule was the standard for pleadings. 43 However, in 2007, a new sheriff [came] in[to] 34 Conley v. Gibson, 355 U.S. 41 (1957). 35 FED. R. CIV. P. 8(a). 36 See Raymond H. Brescia, The Iqbal Effect: The Impact of New Pleading Standards in Employment and Housing Discrimination Litigation, 100 KY. L.J. 235, 242 (2011) (inferring that litigants would use the fact pleading system to improperly dictate the outcome); Arthur R. Miller, From Conley to Twombly to Iqbal: A Double Play on the Federal Rules of Civil Procedure, 60 DUKE L.J. 1, 22 (2010) (describing how procedural issues were historically a large barrier to plaintiffs cases). 37 Brescia, supra note 36, at FED. R. CIV. P. 8(a)(2). 39 See Brescia, supra note 36, at Conley v. Gibson, 355 U.S. 41, 42, 47 (1957). 41 Id. at See id. at ( [This] simplified notice pleading is made possible by the liberal opportunity for discovery and the other pretrial procedures established by the Rules to disclose more precisely the basis of both claim and defense and to define more narrowly the disputed facts and issues. ). 43 See, e.g., Brescia, supra note 36, at (providing commentary concerning the

6 386 Albany Law Review [Vol town... and his name [was] Twiqbal. 44 B. Pleading Standards under Twombly and Iqbal ( Twiqbal ) In 2007, Twombly officially retired the Conley standard in relation to anti-trust litigation, and then in 2009, Iqbal applied Twombly to all pleadings in general. 45 Although Twiqbal does not require a pleading to contain detailed factual allegations, it does require that the plaintiff present more than an unadorned, the-defendantunlawfully-harmed-me accusation. 46 In order to provide further guidance to the lower courts that would have to use this new standard, the Court articulated a two-pronged test for evaluating a pleading s sufficiency. 47 In order to satisfy the first prong, a pleading must contain more than mere formulaic recitation[s] of the elements of a cause of action However, this does not mean that legal conclusions in themselves are banned. 49 Instead, legal conclusions in a complaint must be supported by factual allegations in order to be entitled to the assumption of truth. 50 In order to satisfy the second prong, a pleading must plausibly give rise to an entitlement to relief. 51 Therefore, a complaint must be dismissed, unless the plaintiff can nudge[] their claim[] across the line from conceivable to plausible[.] 52 However, this latter prong is more nebulous than the former. 53 Nevertheless, there are some examples that shed light on this analysis. For example, a complaint that only states facts consistent with its claim will fail, because such a claim stops short of the line between possibility and plausibility[.] 54 Also, even if the plaintiff offers factual support consistent with the complaint, the complaint will still fail to be plausible if the alleged effect could be more likely explained by[] lawful... [rather than unlawful] evolution of pleading standards up until Twombly). 44 RHJ Med. Ctr., Inc. v. City of DuBois, 754 F. Supp. 2d 723, 730 (W.D. Pa. 2010) (citing Ashcroft v. Iqbal, 556 U.S. 662 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). 45 See Ashcroft v. Iqbal, 556 U.S. 662, 682, 684 (2009) (citing FED. R. CIV. P. 1); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554, (2007). 46 Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). 47 See Iqbal, 556 U.S. at Id. at 678 (quoting Twombly, 550 U.S. at 555). 49 See Iqbal, 556 U.S. at See id. 51 Id. 52 Twombly, 550 U.S. at See, e.g., Iqbal, 556 U.S. at 679 ( Determining whether a complaint states a plausible claim for relief will... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. ). 54 Id. at 678 (quoting Twombly, 550 U.S. at 557).

7 2016/2017] Twiqbal, Inc.: Disparate-Impact Claims and the FHA 387 behavior. 55 Since a complaint would fail this test if a court deemed that a lawful source more likely explained an alleged effect than an unlawful source, Iqbal s two-pronged approach, and in particular its second prong, is alternatively known as the More Plausible Test. 56 C. Disparate-Impact in General The Court first addressed the viability of disparate-impact claims in the landmark case of Griggs v. Duke Power. 57 In Griggs, a group of African-American plaintiffs brought an action against Duke Power under Title VII of the Civil Rights Act of These plaintiffs alleged that Duke Power, through the use of two facially neutral employment policies a high school diploma requirement and passing a general intelligence test discriminated in both hiring and assigning employees based on race. 59 The District Court, as well as the Court of Appeals, ruled against the plaintiffs for failing to assert evidence of intentional discrimination. 60 But the Supreme Court reversed and found that disparate-impact claims could be brought under Title VII. 61 Five years after Griggs, however, the Court already started to limit disparate-impact liability. In 1976, Washington v. Davis 62 held that disparate-impact claims could not be brought under the Equal Protection Clause. 63 For the next fourteen years, the Court continued on this path. 64 However, in 1990, Congress passed the Civil Rights Act of 1990, which codified disparate-impact theory, and explicitly allowed disparate impact claims under Title VII in the same manner as had been allowed before Wards Cove Iqbal, 556 U.S. at 680 (citing Twombly, 550 U.S. at ); see also Brescia & Ohanian, supra note 21, at 335 (explaining how the Court assesses lawful explanations of conduct when looking at a plaintiff s claims). 56 Brescia & Ohanian, supra note 21, at Griggs v. Duke Power Co., 401 U.S. 424 (1971); see Michael Aleo & Pablo Svirsky, Foreclosure Fallout: The Banking Industry s Attack on Disparate Impact Race Discrimination Claims under the Fair Housing Act and the Equal Credit Opportunity Act, 18 B.U. PUB. INT. L.J. 1, (2008). 58 See Griggs, 401 U.S. at See id. at ; Aleo & Svirsky, supra note 57, at See Griggs, 401 U.S. at See id. at Washington v. Davis, 426 U.S. 229 (1976). 63 See id. at 239, See Aleo & Svirsky, supra note 57, at 28 ( In 1988 the Court came within one vote of eliminating the disparate impact theory altogether. The addition of Justice Kennedy to the Bench in 1989 allowed the Court to virtually bar disparate impact claims in Wards Cove Packing Co. v. Atonio by adopting several rigorous standards for plaintiffs in terms of using statistical analysis. The Court also eased employers burden by lessening the difficulty of proving business necessity. ). 65 Id. at 28 29; see Wards Cove Packing Co. v. Atonio, 490 U.S. 642 (1989).

8 388 Albany Law Review [Vol D. Disparate-Impact under the FHA The FHA was first enacted in 1968, 66 and some courts were already allowing disparate-impact claims under the FHA merely six years after it was enacted. 67 Eventually, each circuit that directly address[ed] the issue... allowed disparate impact claims under the FHA. 68 However, despite the unanimity, the Supreme Court held off on deciding the issue one way or another. 69 That is, of course, until ICP, Inc. As mentioned above, ICP, Inc. focused on whether tax credits were being discriminatorily issued. ICP sued the Department, claiming that the Department had intentionally discriminated based on race, in violation of the Equal Protection Clause of the Fourteenth Amendment ICP also argued that the Department had violated 42 U.S.C or, in the alternative, that the Department s allocation decisions had a disparate racial impact, in violation of... the Fair Housing Act. 71 Judge Fitzwater, writing for the District Court for the Northern District of Texas, Dallas Division ( District Court ), found that ICP failed to prove that the Department had intentionally discriminated when allocating credits, and thus failed to prove its intentional discrimination claims under the Fourteenth Amendment However, the District Court found in favor of ICP s discriminatory impact claim under the FHA. 73 The District Court found that ICP had made out a prima facie case for disparateimpact based on a Department of Housing and Urban Development ( HUD ) study, as well as a report from the House Committee of 66 See 45 U.S.C (2012). 67 See, e.g., United Farmworkers of Fla. Hous. Project, Inc. v. Delray Beach, 493 F.2d 799, 801 (5th Cir. 1974). 68 Aleo & Svirsky, supra note 57, at 31. Aleo & Svirsky provide a comprehensive list in their article of circuit cases demonstrating this unanimity. Id. at 31 n.228 ( The lone holdout, the D.C. Circuit, has noted the other courts general consensus and has implied its agreement. ). 69 See id. at 31. The closest the Court came was in Village of Arlington Heights v. Metropolitan Housing Development Corp. See Vill. of Arlington Heights v. Metro. Hous. Dev. Corp., 429 U.S. 252 (1977); Aleo & Svirsky, supra note 57, at 31 ( [In Village of Arlington Heights, d]espite holding that the plaintiff could not prove that the defendant engaged in disparate treatment since the evidence did not support a finding of discriminatory intent, the Court nonetheless remanded the case to consider FHA claims that had not been decided, thus implying that the plaintiff might have been able to prove discrimination through the use of disparate impact theory. ). 70 Inclusive Cmtys. Project, Inc. v. Tex. Dep t of Hous. & Cmty. Affairs, 860 F. Supp. 2d 312, (N.D. Tex. 2012), rev d, 747 F.3d 275, 283 (5th Cir. 2014), aff d, 135 S. Ct (2015). 71 Id. 72 Id. at 312, See id. at 332.

9 2016/2017] Twiqbal, Inc.: Disparate-Impact Claims and the FHA 389 Urban Affairs. 74 Also, ICP s evidence was uncontested, and prima facie case[s] can be established as a matter of law where [a] plaintiff s facts are uncontested. 75 Since ICP established a prima facie case, the burden shifted to the defendants to show that the Department s action furthered a bona fide and legitimate [interest] and that there were no less discriminatory alternatives. 76 The District Court accepted the defendants interests in awarding tax credits in an objective, transparent, predictable, and race-neutral manner, in accordance with federal and state law[] as bona fide and legitimate. 77 However, the defendants failed to prove that less discriminatory alternatives did not exist, and therefore did not meet their burden. 78 As a result, the District Court found in favor of ICP on its discriminatory impact claim under the FHA. 79 After the District Court s decision, but before the Fifth Circuit s decision, the Secretary of Housing and Urban Development... issued a regulation interpreting the FHA to encompass disparateimpact liability. 80 HUD also placed limitations on that liability in the form of a burden-shifting framework for adjudicating disparateimpact claims. 81 This regulatory framework incorporated three stages 24 C.F.R (c)(1), (c)(2), and (c)(3) and also featured burden shifting. 82 Under (c)(1), in order to establish a prima facie showing of disparate impact, 83 the charging party... has the burden of proving that a challenged practice caused or predictably will cause a discriminatory effect. 84 If the charging party meets this burden, (c)(2) is triggered, and the burden shifts to the defendant to prov[e] that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests If the defendant satisfies (c)(2), then (c)(3) is initiated, and the burden shifts 74 See Inclusive Cmtys. Project, Inc. v. Tex. Dep t of Hous. & Cmty. Affairs, 749 F. Supp. 2d 486, 500 (N.D. Tex. 2010). 75 See id. (citing St. Mary s Honor Ctr. v. Hicks, 509 U.S. 502, 510 n.3 (1993)). 76 Inclusive Cmtys. Project, Inc., 749 F. Supp. 2d at 503 (citing Huntington Branch, NAACP v. Huntington, 844 F.2d 926, 939 (1988)). 77 Inclusive Cmtys. Project, Inc., 860 F. Supp. 2d at 323, See id. at Id. 80 Tex. Dep t of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 135 S. Ct. 2507, 2514 (2015). 81 Id C.F.R (c)(1) (3) (2016); Inclusive Cmtys. Project, Inc., 135 S. Ct. at Inclusive Cmtys. Project, Inc., 135 S. Ct. at See 24 C.F.R (c)(1). 85 Id (c)(2).

10 390 Albany Law Review [Vol back to the plaintiff. 86 According to (c)(3), the 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. 87 Judge Graves, writing for the Fifth Circuit, adopted HUD s burdenshifting framework and reversed the District Court s decision. 88 Judge Graves then remanded the case to the District Court so that the District Court could apply HUD s burden-shifting analysis to the facts in the first instance. 89 The Fifth Circuit s decision was then appealed, and ICP, Inc. was finally before the Supreme Court. III. ICP, INC., SUPREME COURT EDITION The Supreme Court affirmed the Fifth Circuit s decision and found that disparate-impact claims are cognizable under the Fair Housing Act Justice Kennedy buttressed the Court s decision with both precedent and statutory interpretation. 91 First, Justice Kennedy turned to the Court s relevant precedent, Griggs v. Duke Power and Smith v. City of Jackson, 92 which had both found disparate-impact claims cognizable under their respective statutes. 93 The Court found that Griggs and Smith instruct[] that antidiscrimination laws must be construed to encompass disparate-impact claims if the two following conditions are met. 94 First, the statute s text must refer[] to the consequences of actions and not just to the mindset of actors Second, that interpretation must be consistent with statutory purpose. 96 The Court, after looking at the precise language of the FHA, found that the FHA s text refers to the consequences of an action rather than the actor s intent. 97 In particular, the Court analyzed the 86 See id (c)(3). 87 Id. 88 See Inclusive Cmtys. Project, Inc. vs. Tex. Dep t of Hous. & Cmty. Affairs, 747 F.3d 275, , 283 (5th Cir. 2014), aff d, 135 S. Ct (2015). 89 Id. at Tex. Dep t of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 135 S. Ct. 2507, (2015). 91 See id. at 2513, Smith v. City of Jackson, 544 U.S. 228 (2005). 93 Inclusive Cmtys. Project, Inc., 135 S. Ct. at 2518; see also Smith, 544 U.S. at 240 (finding disparate-impact claims cognizable under the ADEA); Griggs v. Duke Power Co., 401 U.S. 424, (1971) (finding disparate-impact claims cognizable under Title VII). 94 Inclusive Cmtys. Project, Inc., 135 S. Ct. at Id. 96 Id. 97 Id.

11 2016/2017] Twiqbal, Inc.: Disparate-Impact Claims and the FHA 391 phrase otherwise make unavailable and found it equivalent in function and purpose to Title VII s and the ADEA s otherwise adversely affect language The location of the phrases in their respective statutes, as well as the similarities in sentence structure, further supported this reading. 99 The Court also ensured that its interpretation of the FHA was consistent with the FHA s statutory purpose. 100 To do this, Justice Kennedy first looked at the context surrounding the adoption of the 1988 amendments to the FHA. 101 When the FHA was amended in 1988, each of the nine circuit courts tasked with the question had determined that the FHA encompassed disparate-impact liability. 102 Aware of this, 103 Congress still adher[ed] to the operative language when amending the FHA. 104 Congress had therefore already found disparate-impact liability cognizable under the FHA, because when there is a consensus in the lower courts and Congress amends a law without changing the interpreted language or denouncing the consensus, that interpretation is implicitly adopted by Congress. 105 Justice Kennedy also pointed to three parts of the FHA that seem to offer exceptions to disparate-impact liability, demonstrating that Congress intended the FHA to contain disparate-impact claims Id. at Id. ( Located at the end of lengthy sentences that begin with prohibitions on disparate treatment, [the phrases] serve as catchall phrases looking to consequences, not intent. ). 100 See id. at See id. at See id. at 2519 (citing Huntington Branch, NAACP v. Huntington, 844 F.2d 926, (2d Cir. 1988); Hanson v. Veterans Admin., 800 F.2d 1381, 1386 (5th Cir. 1986); Arthur v. City of Toledo, 782 F.2d 565, (6th Cir. 1986); United States v. Marengo Cty. Comm n, 731 F.2d 1546, 1559 n.20 (11th Cir. 1984); Smith v. Town of Clarkton, 682 F.2d 1055, 1065 (4th Cir. 1982); Halet v. Wend Inv. Co., 672 F.2d 1305, 1311 (9th Cir. 1982); Resident Advisory Bd. v. Rizzo, 564 F.2d 126, 146 (3d Cir. 1977); Metro. Hous. Dev. Corp. v. Vill. of Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977); United States v. City of Black Jack, 508 F.2d 1179, (8th Cir. 1974)). 103 See Inclusive Cmtys. Project, Inc., 135 S. Ct. at (mentioning Senate subcommittee hearings in which the lower courts unanimous interpretation of the FHA was discussed). 104 Id. at See id. (quoting ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 322 (2012)) (citing Forest Grove Sch. Dist. v. T. A., 557 U.S. 230, 244 n.11 (2009); Manhattan Properties, Inc. v. Irving Tr. Co., 291 U.S. 320, 336 (1934)). 106 See Inclusive Cmtys. Project, Inc., 135 S. Ct. at 2520 ( The relevant 1988 amendments were as follows. First, Congress added a clarifying provision: Nothing in [the FHA] prohibits a person engaged in the business of furnishing appraisals of real property to take into consideration factors other than race, color, religion, national origin, sex, handicap, or familial status.... Second, Congress provided: Nothing in [the FHA] prohibits conduct against a person because such person has been convicted by any court of competent jurisdiction of the illegal manufacture or distribution of a controlled substance.... And finally, Congress specified: Nothing in [the FHA] limits the applicability of any reasonable... restrictions regarding the maximum number of occupants permitted to occupy a dwelling. (alterations in original)

12 392 Albany Law Review [Vol Otherwise, these exceptions would have been superfluous. 107 Next, Justice Kennedy demonstrated how disparate-impact claims helped fulfill the FHA s purpose. 108 The Court found that disparateimpact claims are both consistent with the FHA s central purpose of eradicat[ing] discriminatory practices within... our Nation s economy, and indispensable in prevent[ing] segregated housing patterns that might otherwise result Disparate-impact claims are especially useful because they combat zoning laws and housing restrictions that unfairly exclude minorities from certain neighborhoods without any sufficient justification[,] perpetuate the FHA s objectives, protect the property rights of private developers from arbitrary and discriminatory municipality ordinances, and counteract unconscious prejudices and disguised animus that escape easy classification as disparate treatment. 110 Therefore, disparateimpact claims could be brought under the FHA. The Court then discussed HUD s burden-shifting analysis, and attached limitations and exceptions. 111 While HUD s regulation required the plaintiff to prov[e] that a challenged practice caused or predictably will cause a discriminatory effect[,] 112 the Court adjusted this language and stated that a disparate-impact plaintiff must allege facts at the pleading stage or produce statistical evidence demonstrating [that] a causal connection exists between the defendant s policy or policies and the disparity. 113 A disparateimpact claim that relies on a statistical disparity must point at the defendant s policy that caused the disparity, and thus establish the causal connection, in order to survive. 114 Furthermore, in regard to statistical evidence, something more than bare [r]acial imbalance... [is necessary to] establish a prima facie case of disparate impact The Court found that a robust causality requirement was necessary to protect[] defendants from being held liable for racial disparities they did not create[,] even if it would make establishing causation difficult. 116 (internal citations omitted)). 107 Id. 108 See id. at Id. at ; see also 42 U.S.C (2012) (providing the central policy purpose of the FHA). 110 Inclusive Cmtys. Project, Inc., 135 S. Ct. at See id. at 2522, 2523, 2524, C.F.R (c)(1) (2016). 113 Inclusive Cmtys. Project, Inc., 135 S. Ct. at See id. 115 Id. (quoting Wards Cove Packing Co. v. Atonio, 490 U.S. 642, 653 (1989)). 116 Inclusive Cmtys. Project, Inc., 135 S. Ct. at ( [It may] be difficult to establish

13 2016/2017] Twiqbal, Inc.: Disparate-Impact Claims and the FHA 393 The Court, recognizing that disparate-impact liability must be limited, added several caveats to limit potential liability. 117 Justice Kennedy found these restrictions necessary to ensure that employers and other regulated entities... [could] make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system. 118 The Court found that disparate-impact liability could be appropriately limited by allowing housing authorities and private developers leeway to state and explain the valid interest served by their policies. 119 The Court argued that allowing this leeway was analogous to the business necessity standard under Title VII and provide[d] a defense against disparate-impact liability. 120 Therefore, housing authorities and private developers [must] be allowed to maintain a policy if they can prove it is necessary to achieve a valid interest. 121 While the Court did not explicitly state that the notion of prov[ing a policy] is necessary to achieve a valid interest was an affirmative defense, such an explicit statement would have been redundant. 122 To raise this affirmative defense, entrepreneurs were given latitude to consider market factors, and zoning officials were allowed to make decisions based on a mix of factors, both objective (such as cost and traffic patterns) and, at least to some extent, subjective (such as preserving historic architecture), because such factors contribute to a community s quality of life and are legitimate concerns for housing authorities. 123 causation because of the multiple factors that go into investment decisions about where to construct or renovate housing units. ). 117 Id. at Id. 119 Id. at Id. Although the Title VII framework may not transfer exactly to the fair-housing context, the majority nevertheless found the comparison sufficient for the case at hand. Id. at The second step of HUD s regulation, 24 C.F.R (c)(2), is also analogous to the business necessity standard. See id. at 2515 ( HUD has clarified that this [second] step of the analysis is analogous to the Title VII requirement that an employer s interest in an employment practice with a disparate impact be job related. (quoting Implementation of the Fair Housing Act s Discriminatory Effects Standard, 78 Fed. Reg. 11,459, 11,470 (Feb. 15, 2013) (codified at 24 C.F.R. pt. 100))). 121 Inclusive Cmtys. Project, Inc., 135 S. Ct. at Id. The Supreme Court and other federal courts repeatedly have recognized that... the employer s burden... in a disparate-impact case is proof of an affirmative defense of business necessity. Wards Cove Packing Co. v. Atonio, 490 U.S. 642, 668 (1989) (Stevens, J., dissenting). Furthermore, the Court explicitly stated that the notion of prov[ing a policy]... is necessary to achieve a valid interest is analogous to Title VII s business necessity standard. Inclusive Cmtys. Project, Inc., 135 S. Ct. at Therefore, this language would be an affirmative defense. 123 Inclusive Cmtys. Project, Inc., 135 S. Ct. at The Court refers to these factors as legitimate concerns, which matches 24 C.F.R (c)(2) s substantial, legitimate,

14 394 Albany Law Review [Vol IV. TWIQBAL S PLAUSIBILITY STANDARD AND ICP, INC. S PLEADING STANDARD COMBINED ( TWIQBAL, INC. ) According to ICP, Inc., in order to make out a prima facie case of disparate-impact liability under the FHA, the plaintiff must either allege facts at the pleading stage demonstrating a causal connection between the defendant s policy and the discriminatory effect, or the plaintiff must produce statistical evidence demonstrating a causal connection between the defendant s policy and the discriminatory effect. 124 However, in order to meet the Court s robust causality requirement, a plaintiff using evidence of a statistical disparity must also be able to point to the defendant s policy or policies and demonstrate a causal connection between the disparity and the policy. 125 As such, one cannot bring a claim based on statistical evidence alone because a plaintiff needs allegations based in fact in order to point to the defendant s policy that is allegedly to blame. 126 As a result, the only way for a disparate-impact plaintiff to bring a claim is to allege facts at the pleading stage, regardless of whether the plaintiff can produce statistical evidence. 127 Therefore, ICP, Inc. requires a plaintiff to allege facts at the pleading stage that demonstrate a causal connection between the defendant s policy and the discriminatory effect. 128 However, a disparate-impact claim must still conform to Twiqbal s plausibility requirement. 129 While there are several ways for a complaint to fail to be plausible on its face, 130 one in particular raises serious problems insofar as disparate-impact is concerned. Iqbal asserts that even though the plaintiff s allegations of parallel conduct in Twombly were consistent with an unlawful agreement, the Court nevertheless concluded that... [the parallel conduct] did not plausibly suggest an illicit accord because it was not only compatible with, but indeed was more likely explained by, lawful, nondiscriminatory interests language, as well as the Court s valid interest language. See 24 C.F.R (c)(2) (2016); Inclusive Cmtys. Project, Inc., 135 S. Ct. at Therefore, these factors seem to be aids when raising an affirmative defense. See infra Part V(A). Also, legitimate, nondiscriminatory interests are presumably valid interests as well, so substantial, legitimate, nondiscriminatory interests and valid interests can therefore be interchangeable terms. 124 See Inclusive Cmtys. Project, Inc., 135 S. Ct. at 2514, See id. at , 2523 (citing Wards Cove, 490 U.S. at 653). 126 See Inclusive Cmtys. Project, Inc., 135 S. Ct. at See id. at See discussion supra notes See supra Part II(B). 130 See, e.g., Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

15 2016/2017] Twiqbal, Inc.: Disparate-Impact Claims and the FHA 395 unchoreographed free-market behavior. 131 By itself, this language suggests that if lawful... free-market behavior, rather than unlawful behavior, provides a more likely explanation for a result, then the plaintiff s claim would fail to be plausible, and would be dismissed. 132 However, Iqbal further states that [w]here a complaint pleads facts that are merely consistent with a defendant s liability, it stops short of the line between possibility and plausibility of entitlement to relief. 133 When both of these sentences are combined, what once sounded like a suggestion now sounds like an order. Therefore, a plaintiff s claim will fail Twiqbal s plausibility test if lawful behavior either (1) more likely explains, or (2) equally explains, a result when compared with the alleged unlawful explanation. 134 In other words, a plaintiff s claim will fail if a lawful explanation for the alleged effect exists that is equally as likely as the assertion of unlawful conduct on which the complaint is based. As a result, in order to satisfy Twiqbal, Inc., a plaintiff must allege facts at the pleading stage establishing a causal connection between the defendant s policy and the disparity, and the unlawful explanation for the disparity (in this case the defendant s policy), must be more likely than an alternative lawful explanation for the disparity (such as the factors 135 mentioned in ICP, Inc.). 136 While these factors at first appeared to correlate with asserting an affirmative defense, after reflecting on the Court s language in both Twiqbal and ICP, Inc., these factors actually point at causation as well. The Court s language in Twiqbal strongly suggests that these factors can be used to attack and defeat causation. 137 By itself, the fact that [t]hese factors contribute to a community s quality of life and are legitimate concerns for housing authorities[,] 138 would not implicate causation. However, Twiqbal states that an alternative 131 Id. at 680 (emphasis added) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 567 (2007)). 132 Iqbal, 556 U.S. at 680 (citing Twombly, 550 U.S. at 567). 133 Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). 134 See generally Zachary H. Starnes, Note, The Business Judgment Rule after Twombly and Iqbal: Must Plaintiffs Now Plead around the Rule to Survive a 12(b)(6) Motion to Dismiss?, 35 AM. J. TRIAL ADVOC. 639, 639 (2012) (providing an analysis of a similar issue by showing how Twiqbal is requiring plaintiffs to plead around affirmative defenses in certain situations). 135 See generally Tex. Dep t of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 135 S. Ct. 2507, 2523 (2015) (describing and stating the importance of the factors in the overall analysis). 136 See 24 C.F.R (c)(2) (2016); Inclusive Cmtys. Project, Inc., 135 S. Ct. at 2523; Iqbal, 556 U.S. at See Iqbal, 556 U.S. at 678, 680 (quoting Twombly, 550 U.S. at 557). 138 Inclusive Cmtys. Project, Inc., 135 S. Ct. at 2523.

16 396 Albany Law Review [Vol lawful explanation for a disparity would defeat causation. 139 Factors that point to valid, legitimate, nondiscriminatory interests likely point to alternative explanations as well. 140 Moreover, legitimate, nondiscriminatory interests are also likely to be lawful interests. 141 Therefore, factors that point to legitimate, nondiscriminatory interests can also provide alternative lawful explanations, meaning that the same factors used to assert an affirmative defense can also be used to defeat causation. The Court s language in ICP, Inc. also supports this interpretation. For example, Justice Kennedy explicitly states: It may... be difficult to establish causation because of the multiple factors that go into investment decisions Furthermore, when discussing causation under the FHA, the Court s use of the word factor relates specifically to the market factors, objective factors, and subjective factors previously mentioned. 143 Also, after the Court mentioned the multiple factors that go into investment decisions, Justice Kennedy argued: If the ICP cannot show a causal connection between the Department s policy and a disparate impact[,]... that should result in dismissal of this case. 144 HUD s burden-shifting analysis also supports this interpretation, because the only stage of HUD regulation 24 C.F.R s burden-shifting analysis to mention 139 See discussion supra notes See, e.g., Inclusive Cmtys. Project, Inc., 135 S. Ct. at See, e.g., id. 142 Id. at See id. at 2520, 2521, The majority decision uses the word factor in only three ways: when discussing market factors and objective or subjective factors in relation to causation; when discussing the factors other than race language in 42 U.S.C. 3605(c) (2012); and when discussing the ADEA s reasonable-factor-other-than-age (RFOA) provision. See id. (internal citations omitted). When discussing causation, the Court uses the word factor to explicitly refer solely to market factors and objective or subjective factors with the following exception: 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 2514, However, no alternative factors are offered in that sentence, so it is fair to assume that its use of the word factor refers to market and objective or subjective factors as well. See id. at The Court also uses the word factor when referring to the factors other than race language in 42 U.S.C. 3605(c). Id. at Justice Kennedy used this language, however, in order to show one of three supposed exceptions to disparate-impact liability contained in 42 U.S.C. 3605(c), which Justice Kennedy then argued was evidence that disparate-impact claims must implicitly be allowable under the FHA. See supra notes and accompanying text. Therefore, Justice Kennedy s use of the word factor in that instance did not deal with causation, and can thus be dismissed as a concern. The only other use of the word factor involves the Court s discussion of the ADEA s reasonable-factor-other-than-age... provision. Inclusive Cmtys. Project, Inc., 135 S. Ct. at However, the ADEA s RFOA provision bears little relation to causation under the FHA. Therefore, when referring to causation under the FHA, the Court s use of the word factor relates solely to market factors and objective or subjective factors. 144 Inclusive Cmtys. Project, Inc., 135 S. Ct. at 2524.

17 2016/2017] Twiqbal, Inc.: Disparate-Impact Claims and the FHA 397 causation is (c)(1), which is the plaintiff s prima facie stage. 145 As a result, a savvy defendant can use these factors in two different ways. One option is for the defendant to use these factors at the 24 C.F.R (c)(2) stage, i.e., the affirmative defense stage. 146 If successful, the defendant then shifts the burden back to the plaintiff. 147 If the plaintiff satisfies (c)(3) s burden, then the plaintiff s case succeeds. 148 The defendant s second option is to raise these factors at the (c)(1) stage, and thus attack the plaintiff s prima facie case. 149 Not only does this deny the plaintiff an opportunity to allege alternative, less discriminatory practices that the defendant could have pursued instead, but it also forces the plaintiff to shoulder the defendant s burden. 150 Forcing a plaintiff to plead around the defendant s affirmative defenses 151 in order to establish a prima facie case raises serious concerns. 152 As Part V will demonstrate, requiring a plaintiff to plead around a defendant s affirmative defenses raises three concerns in particular. First, this pleading requirement conflicts with longstanding Supreme Court precedent stating that a plaintiff has no such obligation. 153 Second, this pleading requirement conflicts with Swierkiewicz by forcing the plaintiff to plead more facts than those necessary to establish a claim for relief. 154 Last, this pleading requirement amounts to the Supreme Court establishing a new pleading requirement for a specific claim, which conflicts with precedent and raises constitutional concerns by conflicting with the Rules Enabling Act See generally 24 C.F.R (c)(1) (c)(3) (2016) (displaying the various provisions). 146 See id (c)(2). 147 See id. 148 See id (c)(1) (c)(3). 149 See id (c)(1). 150 The Court stated that under 24 C.F.R (c), the plaintiff has the burden of proving that a challenged practice caused or predictably will cause a discriminatory effect. Tex. Dep t of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 135 S. Ct. 2507, 2514 (2015) (quoting 24 C.F.R (c)(1)). If successful, the burden shifts to the defendant to prov[e] that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests. Inclusive Cmtys. Project, Inc., 135 S. Ct. at (alteration in original) (quoting 24 C.F.R (c)(2)). 151 See infra Part V(A). 152 See infra Parts V(A), V(B), V(C). 153 See infra Part V(A). 154 See infra Part V(B); see generally Swierkiewicz v. Sorema N. A., 534 U.S. 506, 508 (2002) (quoting FED. R. CIV. P. 8(a)(2)) (stating that a plaintiff alleging a discrimination claim need only make out a short and plain statement of the facts showing an entitlement to relief). 155 See infra Part V(C).