New Model for Discrimination Analysis in Homeowners Associations?—Recent Supreme Court Decision May Affect the Way Homeowners Associations Make Decisions

David Wilson

The Fair Housing Act (“FHA”) prohibits discrimination based on race, color, religion, sex, national origin, disability, or familial status. For years, homeowners association boards of directors have been mindful of the FHA’s requirements and taken care that board decisions do not discriminate against any of these protected classes.

The Supreme Court of the United States recently heard and decided a case from the Fifth Circuit Court of Appeals, Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc. At issue in this particular case was whether a legal theory that has been applied in other discrimination contexts, such as 14th Amendment “equal protection” questions, should be applied in Fair Housing cases as well.

The legal theory is known as “disparate impact,” and would allow a plaintiff to prove the basic case for discrimination by showing that a rule, decision, or action has a “disparate impact” on some protected class. In other words, the rule disproportionately affects a protected class of individuals. Disparate impact analysis is a dramatic departure from other types of discrimination frameworks because it does not require the plaintiff to prove intent to discriminate. All other legal theories require some showing that it was the defendant’s intent to discriminate. For a homeowners association, this distinction may require an adjustment in the decision-making process.

The Supreme Court was careful to limit the impact that its decision may have on potential defendants. For example, the Court held that a plaintiff cannot maintain a disparate impact claim by pleading a mere statistical disparity. Rules, procedures, and policies are not discriminatory under disparate impact analysis unless they are “artificial, arbitrary, and unnecessary barriers.” Defendants in these types of cases have historically been able to offer a legitimate business justification for its practice, rule, or procedure. Where a defendant shows a legitimate business justification the plaintiff would be required to show that there is an “available alternative . . . practice that has less disparate impact and serves the [defendant’s] legitimate needs.” Even when courts do find liability under a disparate-impact theory, the Supreme Court cautioned lower courts that remedial orders must “concentrate on the elimination of the offending practice” rather than penalties or punitive sanctions.

It remains to be seen exactly what the ramifications of this decision will be, but homeowners associations will certainly have to put more thought into future decision-making and perhaps even adjust rules that appear to have a disparate impact on any of the protected classes the FHA is designed to protect.

HOA & Condo Associations