Property Law Developments—Joseph William Singer

On June 26, 2015, the Supreme Court held in Obergefell v. Hodges, — U.S. — (2015), that the Constitution’s due process clause protects liberty interests that include personal choices central to individual dignity and autonomy and that those include the right to marry, including someone of the same sex. The Court also held that it violates equal protection of the laws to allow male-female couples to marry but to deny that right to same-sex couples. For the same reasons, states must recognize same-sex marriages validly celebrated in other states.

The United States Supreme Court announced its decision in Tex. Dep’t of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 2015 WL 2473449, — U.S. — (2015), upholding disparate impact claims under the Fair Housing Act (FHA), 42 U.S.C. §3601 et seq. The case involved a challenge to criteria used by a state agency on where to give tax credits that subsidize construction of  low-income housing. Plaintiff is a nonprofit organization that promotes housing for low-income families. It claimed that the agency’s formula steered housing to poorer areas and thus perpetuated or aggravated racial segregation in housing. The specific question taken by the Supreme Court was whether disparate impact claims are at all available under the Fair Housing Act. The Court decided that they are but limited them because of constitutional principles.

The Court noted that earlier cases had upheld disparate impact claims in employment discrimination when the statutes focused on consequences of actions rather than just motivation. Those statutes were Title VII of the 1964 Civil Rights Act and the Age Discrimination in Employment Act of 1967. The FHA makes it unlawful to “otherwise make unavailable” housing because of race or other characteristics. 42 U.S.C. §3604(a). That wording refers to consequences and thus supports a disparate impact approach. The mere fact that the statute makes actions illegal if they are undertaken “because of race” does not mean the statute requires a showing of intentional discrimination. Moreover, the 1988 amendments to the Fair Housing Act (which added “handicap” as a protected class among other things) showed that Congress approved of the uniform case law that had interpreted the FHA to include a disparate impact claim. Justice Kennedy’s opinion refers to Congress’s explicit consideration of disparate impact claims by reference to  legislative history and its rejection of a proposed amendment that would have eliminated disparate impact claims. Moreover, the 1988 Act included 3 exemptions from disparate impact claims that would have been superfluous had they not been available. For example, the 1988 amendments provided that “[n]othing in [the FHA] limits the applicability of any reasonable . . . restrictions regarding the maximum number of occupants permitted to occupy a dwelling.” 42 U.S.C. §3607(b)(1).

At the same time, the Court held that the Constitution prohibits enforcing a disparate impact claim based solely on statistical evidence of a disparity; rather, plaintiffs must show that defendant’s policy causes the disparity and that “there is an alternative practice that has less disparate impact and serves the [defendant’s] legitimate needs.” Because actors must be able to achieve legitimate government or private policies, such policies are not contrary to the disparate-impact requirement unless they are “artificial, arbitrary, and unnecessary barriers” to equal access to housing. Mainly because of this limitation on the applicability of disparate impact claims, the Court remanded for consideration of whether the Texas policies met this standard.

Remedial orders must be limited to eliminating the offending practice and should be race-neutral where possible.

The Court’s recognition of disparate impact claims preserves their function in the context of zoning laws. In explaining the “discriminatory practices” the disparate impact claim was intended to eradicate, the Court explained: “These unlawful practices include zoning laws and other housing restrictions that function unfairly to exclude minorities from certain neighborhoods without any sufficient justification. Suits targeting such practices reside at the heartland of disparate-impact liability,” (citing the foundational case of Huntington Branch, NAACP v. Huntington, 844 F. 2d 926, 935–936 (2d Cir 1988), among other cases).

Importantly, the Court clarified that disparate impact claims are available against both private and governmental defendants, rejecting a theory that at least one Circuit had adopted in the past.

It appears that the recent regulations of the Department of Housing and Urban Development that define disparate impact claims are largely consistent with the Supreme Court’s analysis but whether that is actually so may need to await further litigation. Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 78 Fed. Reg. 11460 (2013), 24 C.F.R. §100.500.

The Ninth Circuit has held that the Kawaiisu (a tribe that is not recognized by the federal government) cannot assert title to its ancestral lands because it failed to file a claim under the California Land Claims by the 1851 deadline. Failure to do so, the court held, extinguished tribal title, apparently without compensation. Nor could it base its claim on a later treaty because that treaty (like other treaties with California tribes) was never ratified by Congress. Robinson v. Jewell, 2015 U.S. App. LEXIS 10446 (9th Cir. 2015).

The Supreme Court held in Horne v. Dep’t of Agric., 133 S.Ct. 2053, — U.S. — (2015), that the takings clause applies to physical takings of personal property (like cars) as well as to real property. Thus a government program designed to shore up the price of raisins by requiring farmers to hand over a certain percentage of the raisin crop to the government effected a categorical physical taking of personal property.

The limit on supply of raisins for sale was intended to increase the price farmers receive for the raisins they sell, thus promoting the profitability of their businesses. The expropriated raisins are given away or sold by the government and if any profits remain they are returned to the farmers. The Court held any economic benefits farmers received from increased raisin prices or moneys from sales of the raisins turned over to the government do not affect the question of whether a taking has occurred. When physical property is seized by the government, a taking has occurred even if it is is personal property and just compensation is due.

The Court also held that the government cannot condition participation in a price-support program on the condition that the farmer turn over a portion of the crop to the government.

At the same time, the Court made a sharp distinction between physical taking of personal property and regulation of its use. The takings clause does not prohibit regulation of personal property; nor does it prevent the state from prohibiting creation or possession of certain dangerous forms of property such as drugs like heroin. Thus it would not be a per se or categorical taking to limit the production of raisins (although it might be a regulatory taking). But it is a per se or categorical taking for the government to force the owner to hand the raisins over to the government. Justice Sotomayor dissented on the ground that this is a distinction without a difference.

Justice Thomas concurred on the ground that the taking was not for “public use.”

Justice Breyer concurred along with Justices Ginsburg and Kagan on the ground that a remand should have been ordered to determine if any compensation would have been due had the owner complied with the regulation. Breyer noted that the takings clause does not prohibit takings; it just requires just compensation when property is taken for public use. There was therefore a question of whether compliance with the government’s mandate would have resulted in just compensation being paid and if so it is not clear why a constitutional violation occurred since the obligation is to compensate not to refrain from taking. Part of the complication is that the requirement of handing over some raisins to the government effectively raises the price of those that are kept by the farmer. If that amount is sufficient to compensate for the value of the raisins handed over to the government then no more compensation should be due.

The California Supreme Court has upheld the inclusionary zoning ordinance of the City of San Jose against a challenge that it constitutes an illegal exaction and violates the state constitution’s takings clause or the federal constitution’s takings clause. Cal. Bldg. Indus. Ass’n v. City of San Jose, 2015 Cal. LEXIS 3905 (Cal. 2015). The ordinance required all new development projects containing 20 housing units or more to reserve 15 percent for sale at affordable prices to low- or moderate-income families. San Jose Mun. Code, §§ 5.08.010 to 5.08.730. The Court held that the municipal government had the power to enact reasonable land use regulations designed to increase the amount and dispersion of affordable housing and that this ordinance served those ends. Because it regulated land use, it did not constitute an “exaction” or forced donation of land to public use. The Court held that so long as a land use regulation does not deprive the owner of all economically viable use of the property or mandate a forced physical taking, there is no violation of the takings clause when restrictions govern an owner’s use of property. The Court also interpreted the Supreme Court’s requirements in the cases of Dolan v. City of Tigard, 512 U.S. 374 (1994) & Nollan v. Cal. Coastal Comm’n, 483 U.S> 825 (1987), that mitigation fees must bear a reasonable relationship to externalities caused by the development of land did not apply when the law simply regulates the uses to which land can be put.

The Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., regulates the processes by which debts are collected. The Third Circuit has agreed with other courts in holding that the filing of a foreclosure complaint can subject both the plaintiff bank and the lawyers filing the complaint to liability under the FDCPA. In the case of Kaymark v. Bank of America, N.A., 783 F.3d 168 (3d Cir. 2015), the allegation was that the complaint sought payments that were not yet due — a demand that violated the FDCPA. The Court applied the holding of the Supreme Court case of Heinz v. Jenkins, 514 U.S. 291 (1995) that had established that lawyers are “engage[d] in consumer-debt-collection activity” when they file lawsuits.

The Sixth Circuit has ruled that nonjudicial foreclosure satisfies constitutional due process requirements because the homeowner/borrower was given notice of the foreclosure and notice of who to cure the default or seek a loan modification and how to redeem the property (get it back) after the foreclosure sale during a six-month redemption period. Garcia v. Fed. Nat’l Mortg. Ass’n,  782 F.3d 736 (6th Cir. 2015). These statutory procedures satisfied the constitutional right to notice and an opportunity to be heard before being deprived of a property right.