Twiqbal, INC.: finding disparate-impact claims cognizable under the Fair Housing Act and raising serious concerns in the process.

• Author: Cummings, Steven

1. 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 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. [section] 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 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 plaintiffs disparate-impact claim will most likely fail Twiqbal's second prong if these factors offer a more likely legal explanation for the disparity. (25) As a 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 long-standing 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 11(A) and (B) will discuss the evolution of pleading requirements, with Part 11(A) discussing pleading requirements pre-Twiqbal, and Part 11(B) discussing pleading requirements post-Twiqbal. Part 11(C) and (D) will discuss disparate-impact liability, with Part 11(C) explaining disparate-impact liability in general, and Part 11(D) discussing disparate-impact 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 the Rules Enabling Act. Part VI will then conclude.

2. DISPARATE-IMPACT/PLEADING REQUIREMENTS BEFORE ICP, INC.

   1. 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...." (37) 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] town'...and his name [was] 'Twiqbal.'" (44)

   2. 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-defendant-unlawfully-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...." (48) 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...