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Consumer Financial Services Alert
Supreme Court Grants Certiorari on Disparate Impact Theory

The United States Supreme Court indicated that it will review an opinion from the United States Court of Appeals for the Third Circuit involving a challenge to a neighborhood redevelopment project in New Jersey based on the disparate impact doctrine. Initially brought in district court, the district court granted summary judgment for defendant on the grounds that plaintiffs, citizens of the neighborhood subject to the redevelopment project, could not show that the redevelopment plan to replace low-income units with middle income units was discriminatory. On appeal, the Third Circuit vacated the district court’s decision on grounds that it had misapplied the standard for determining whether plaintiffs could establish a prima facie case. Applying the disparate impact doctrine to the facts of the case, the Third Circuit first concluded that plaintiffs could show that the project would result in a disparate impact based on statistics provided by an expert, which was sufficient for establishing a prima facie case. Second, after a prima facie case was established, defendants had the burden to provide a legitimate reason for their actions, to which the Third Circuit agreed that alleviating blight was a legitimate interest. Third, once a legitimate interest was shown, defendants also had the burden of showing that a less discriminatory alternative was unavailable. Based on the brevity of the factual record, the Third Circuit was unable to conclude that a less discriminatory alternative was not available and remanded the case back to the district court.

The Supreme Court granted certiorari to decide whether disparate impact claims are cognizable under the Fair Housing Act. The case has important implications given the use of the disparate impact doctrine by many federal agencies in addressing alleged discrimination in mortgage lending. Recently, HUD adopted a rule on the disparate impact doctrine (see February 19, 2013 Alert) and the CFPB reaffirmed that the disparate impact doctrine was applicable when the CFPB exercises its supervisory and enforcement authority (see May 1, 2012 Alert).

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