In the days after the assassination of Martin Luther King Jr., Congress moved quickly to pass a civil rights law that prohibits housing discrimination, the Fair Housing Act of 1968. On Wednesday, days after the commemoration of King's birthday, the Supreme Court considers arguments about the scope of that law, in a case that has rallied mortgage lenders, insurers and real estate developers on one side, and civil rights advocates and dozens of cities and states on the other. 

The justices will weigh whether the Fair Housing Act bars only intentional discrimination, or whether discriminatory effects, regardless of intent, are illegal, too. The court’s ruling could upend four decades of precedent in the lower courts, and deal a major blow to fair housing advocates, who argue that policies that seem neutral continue to harm protected groups.  

“Housing lies at the fulcrum of civil rights,” said John Relman, an attorney for the National Fair Housing Alliance. “Where you live affects the opportunities that you have for jobs, for better schools, for connections that allow you to have opportunity in your life.”

The case, Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, marks the third since 2011 that the Supreme Court has agreed to examine the issue of discriminatory effects -- or, "disparate impact" -- in the context of the Fair Housing Act. Two other cases were settled before they reached the justices. The high court's continued interest in the issue has civil rights advocates worried, since 11 circuit courts have already upheld plaintiffs' right to sue over disparate impact.  

The National Fair Housing Alliance catalogued 27,352 housing discrimination complaints nationwide in its most recent annual report, though the organization estimates that 4 million violations occur each year.  

Intentional discrimination can be difficult to prove, housing attorneys say, because “smoking guns” are less prevalent today than 50 years ago. The disparate standard, however, has been used to challenge zoning ordinances that block multi-family housing units, as well as policies that might exclude domestic violence victims from apartment complexes. The Obama administration has employed the disparate impact theory to settle fair-lending cases with major banks, including a $335 million settlement with Countrywide in 2013.

That same year, the Department of Housing and Urban Development issued its first rule on how to analyze disparate impact claims.   

“Without question the court is poised to do damage to a key means of vindicating claims under the Fair Housing Act,” said Sherrilyn Ifill, president and director-counsel of the NAACP Legal Defense and Educational Fund.

The Texas Department of Housing and Community Affairs disagrees. In a brief to the court signed by the state’s attorney general, Texas argues that the text of the law “unambiguously requires intentional discrimination,” and that a disparate impact standard “sweeps in defendants who are entirely blameless.” 

The case arises out of Dallas, and centers on the state’s allocation of tax credits to build affordable housing units. The Inclusive Communities Project, which advocates for integrated neighborhoods, has criticized the state's approach as limiting low-income black families from being able to move to areas with better opportunities. The group sued the Texas Department of Housing and Community Affairs (TDHCA), arguing that the state disproportionately slated affordable housing units for minority neighborhoods, and disproportionately denied tax credits for units in predominantly white neighborhoods.

Between 1995 and 2009, TDHCA didn’t allocate tax credits for any affordable units in white census tracts in Dallas, and instead allocated them “to units in locations marked by the same ghetto conditions that the [Fair Housing Act] was passed to remedy,” the Inclusive Communities brief says.  

Inclusive Communities won its disparate impact argument in federal District Court, and TDHCA appealed. During that time, the federal Department of Housing and Urban Development issued its own rule on disparate impact. The Fifth Circuit Court of Appeals decided to send the case back down to the District Court to consider in light of the new federal regulation.

TDHCA asked the Supreme Court to review the case. Texas has drawn support from business groups that fear a “disparate impact” standard, in contrast to an intentional discrimination standard, will expose them to costly litigation and reputational damage, and will potentially force companies to make race-conscious business decisions.

“The whole analysis in making any decision, or putting any policy in place, becomes much more unwieldy,” said Michael Skojec, an attorney with Ballard Spahr, who co-wrote a brief for the Houston Housing Authority in support of the state’s position. Trade groups including the American Bankers Association, the American Financial Services Association, the American Insurance Association and the National Association of Home Builders have also filed briefs on behalf of Texas. 

The Supreme Court has upheld disparate impact theory in the employment context dating back to a 1971 case, Griggs v. Duke Power Co. But in subsequent cases, the court has also been “narrowing and expressing skepticism about this cause of action,” said Fordham law professor Sheila Foster, an expert in antidiscrimination law.  

“I think the country is split on how much race discrimination there is, and where it exists,” she said, adding: “The court itself is split. And whatever opinion we see, it is likely to be a split one.”