Pub. 5 2015 Issue 3

and underwriting practices and their effect on borrowers. For example, virtually the same disparate impact theory applied in Fair Housing Act (FHA) cases also applies with respect to Equal Credit Opportunity Act (ECOA) cases, which directly applies to banks and other creditors. In addition to upholding the use of the disparate impact theory, the Court’s opinion provided for a burden-shifting ap- proach to proving disparate impact liability, which will likely serve as the model for government agencies pursuing dispa- rate impact claims moving forward. Under this approach, which the Court adopted from its decision in Griggs v. Duke Power Co., a 1971 case applying disparate impact to employ- ers’ hiring practices, the agency or plaintiff has the burden to demonstrate a prima facie case of disparate impact. If that burden is met, the respondent or defendant must then show that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests. If this burden is met, the agency or plaintiff must then show that these legitimate interests could be served by a practice that has a less discriminatory effect. The Court’s opinion contains language that seeks to temper and limit the application of the disparate impact theory. The Court held that that disparate impact liability cannot be “based solely on a showing of a statistical disparity,” and noted that such a claim “must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity.” The Court further noted the importance of a “robust causal- ity requirement” to “protect defendants from being liable for racial disparities they did not create,” seeking to avoid having the disparate impact theory applied in a way that will lead to use of numerical quotas regarding race, noting this application would cause serious Constitutional concerns. In his dissenting opinion, Justice Thomas stated that “we should not automatically presume that any institution with a neutral practice that happens to produce a racial disparity is guilty of discrimination until proved innocent.” He provides real world examples of the problems this would create, includ- ing pointing to the absurdity of the notion that the National Basketball Association is racist because seventy percent of its players are African American. Despite the language which appears to protect defendants/ respondents to some degree, it will likely remain a relatively low bar for a plaintiff or governmental agency to overcome when alleging disparate impact based on statistical disparities, as a plaintiff or agency can virtually always point to a policy or practice that is causally related to a statistical dispar- ity. For example, a relatively recent settlement involving a financial institution and the DOJ would likely still overcome the threshold. In September 2012, the DOJ filed a complaint alleging that Luther Burbank Savings (LSB) had engaged in a discriminatory practice by implementing and maintaining a $400,000 minimum loan amount for its wholesale single family residential lending programs in Los Angeles beginning in 2006 which had a disparate impact on African-Americans and Hispanics as compared to other prime lenders. Although LSB disagreed with the allegations and contended that its practices comported with the letter and spirit of the ECOA and the FHA and that any disparities were attributable to legitimate non-discriminatory factors, in October 2012 it entered into an agreement with the DOJ to resolve the claims, including a commitment not to include the $400,000 mini- mum amount as part of its program. The full effect of this decision in the lending industry will likely not be known until the boundaries set forth by the Court are tested in subsequent cases or administrative The experience of growing up in China and having little access to the basic items common to American life, like a washing machine and coffee; my early experience in the U.S. was an absolute culture shock. I became fascinated with creating wealth. n Supreme Court Decision — continued on page 20 19 SUMMER 2015