Friday, November 18, 2011

FYI: HUD Issues Proposed Rule on "Discriminatory Effects" Test Under FHA

The U.S. Department of Housing and Urban Development recently issued the
attached proposed rule to establish a uniform standard of liability for
facially neutral housing practices that have a discriminatory effect in
supposed violation of the Fair Housing Act.

Under the proposed rule, liability for "discriminatory effects" or
"disparate impact discrimination" under the FHA would be determined by a
burden-shifting approach. That is:

(1) the plaintiff or complainant first must bear the burden of proving its
prima facie case of either disparate impact or perpetuation of

(2) the burden then shifts to the defendant or respondent to prove that
the challenged practice or policy has a necessary and manifest
relationship to one or more of the defendant's or respondent's legitimate,
nondiscriminatory interests; and

(3) if the defendant or respondent satisfies its burden, the plaintiff or
complainant may still establish liability by demonstrating that these
legitimate nondiscriminatory interests could be served by a policy or
decision that produces a less discriminatory effect.

According to HUD, neither HUD nor any federal court has ever determined
that liability under the Fair Housing Act requires a finding of
discriminatory intent, and "[i]t is thus well established that liability
under the Fair Housing Act can arise where a housing practice is
intentionally discriminatory or where it has a discriminatory effect."

However, there has been some variation in the application of the
discriminatory effects standard. HUD uses the three-step burden-shifting
approach described above, as do many federal courts of appeals. On the
other hand, some courts apply a multi-factor balancing test, other courts
apply a hybrid between the two, and one court applies a different test for
public and private defendants. The proposed rule would standardize the
three-step burden-shifting approach.

Another source of variation is in the application of the burden-shifting
test. If the defendant or respondent satisfies its burden to justify its
challenged practice as having a necessary and manifest relationship with a
legitimate nondiscriminatory interest, courts and HUD administrative law
judges have differed as to which party bears the burden of proving whether
a less discriminatory alternative to the challenged practice exists.

The majority of federal courts of appeals that use a burden-shifting
approach place this burden on the plaintiff, analogizing to Title VII's
burden-shifting framework. However, other federal courts have kept the
burden with the defendant. HUD has, at times, placed this burden of
proving a less discriminatory alternative on the respondent and, at other
times, on the complainant. The proposed rule would place the burden of
rebuttal on the plaintiff or complainant.

The purpose of HUD's proposed rule is to establish uniform standards for
determining when a housing practice with a discriminatory effect violates
the Fair Housing Act.

Comments are due 60 days from the date of publication of the proposed rule
in the Federal Register, which is expected shortly.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

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