JOHN W. SEDWICK, Senior District Judge.
At docket 242, the City of Yuma, Arizona ("the City") has filed another motion for summary judgment as to plaintiffs' Fair Housing Act disparate impact claim. The City argues that plaintiffs Avenue 6E Investments, LLC and Saguaro Desert Land, Inc. (jointly "Plaintiffs" or "the Hall Company")
This action arises from the City's denial of the Hall Company's rezoning application for a 42-acre parcel of undeveloped land in Yuma, Arizona ("the Property"). The Property is located in the southeast portion of Yuma. The south end of the Property abuts a low-density R-1-8 subdivision, Belleza Phase 1. The north end of the Property is bordered by a recreational vehicle village. The City owns the parcel of land to the east of the Property, which is designated for use as a wastewater facility and municipal park. To the west of the Property is the Terra Bella development. At the time of the events in this case, Terra Bella was zoned R-1-6 (minimum 6,000-square-foot lots) and had two phases of development. The first phase abutted the Property on the Property's southwest corner and had been platted for lots larger than the minimum lot size of 6,000 square-feet, ranging from 8,000 to 20,000 square feet. Only a couple of lots within the first phase of development had been sold and developed during the relevant time period. The second phase abutted the Property to the west and northwest. It was vacant land that had not been platted.
Prior to 2006 the Property was part of a larger 80-acre parcel of land owned by KDC of Yuma, LLC ("KDC"). KDC applied to rezone the 80-acre parcel from agricultural to R-1-8 (minimum 8,000-square-foot lots). The City Council conditionally granted the rezoning application, after which KDC obtained approval of a preliminary plat on the entire parcel that set out single family lots that were at least 9,000 square feet. KDC developed the southern 38 acres, Belleza Phase 1, and then sold the remaining 42 acres, the Property, to the Hall Company. The Hall Company purchased the Property from KDC for $5.8 million, or around $135,000 an acre. At the time of the sale, the Property was still conditionally zoned R-1-8 and still had KDC's preliminary plat providing for 129 lots of least 8,000 square feet.
In 2008, the Hall Company determined that development of the Property with R-1-8 zoning was not financially viable because there was no demand for large-lot, higher-priced homes in Yuma due to existing inventory and the housing market decline. Consequently, the Hall Company designed a development consisting of smaller lots: approximately 198 lots, each about 6,000 square feet. The Hall Company intended to construct affordable and moderately priced homes using a housing product it had built in another one of its subdivisions. Unlike more expensive large-lot homes, it believed that these affordable or moderately priced homes were still in demand. The Hall Company deemed "affordable" to mean entry-level houses priced between $120,000 and $150,000 and moderately priced to mean mid-level houses priced between $150,000 and $175,000. Specifically, the proposed price range for the houses to be constructed on the Property was between $125,200 and $159,800. They were not seeking to develop low-income housing as defined by the Department of Housing and Urban Development.
In order to implement the new plan, the Hall Company submitted an application to the City to rezone the Property from R-1-8 to R-1-6. Zoning designations R-1-8 and R-1-6 are both considered low-density zoning in Yuma, only one density gradient apart. The City's planning staff recommended that the City Council approve the rezoning request, finding it consistent with the City's General Plan for the area, which designated the area for low-density residential development.
Neighborhood opposition to the rezoning was subsequently communicated to City Council members through letters and at public meetings. People voicing opposition primarily based their objection to the rezoning on their belief that higher-density development and lower-priced homes would increase crime and reduce property values. Based on the substance of these comments, their expectation of increased crime and lower property values was based on the "demographics" that they associated with the Hall Company's other developments; the Hall Company was known for developing low and moderately priced homes, and its representative estimates that at least half of the purchasers of its homes were Hispanic. In September of 2008, the City Council denied the rezoning application. The rezoning denial was the first denial by the City Council since 2005 out of a total of 76 rezoning requests.
The Hall Company filed a complaint against the City, alleging violations of their equal protection and substantive due process rights under 42 U.S.C. § 1983; claims of discriminatory intent and disparate impact under the federal Fair Housing Act, 42 U.S.C. § 33601 et seq. ("FHA"); and violations of Arizona constitutional and statutory law. The City moved to dismiss all claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The court originally granted that motion as to all of the claims except for the disparate impact claim under the FHA.
The City later filed two motions for summary judgment on that claim. In the motion at docket 146, the City argued that Plaintiffs could not meet their prima facie burden of establishing disparate impact claim under the FHA because of the glut of housing opportunities in the southeast portion of Yuma that were similar to Plaintiffs' proposed development on the Property. The City presented an alternative basis for summary judgment at docket 148, arguing that Plaintiffs failed to present the appropriate statistics to meet the prima facie test for disparate impact and also that it had a legitimate and nondiscriminatory basis for denying the rezoning request. The court granted the motion at docket 146, finding that Plaintiffs could not meet their prima facie burden because of other housing opportunities in the area, relying on an Eleventh Circuit case Hallmark Developers, Inc. v. Fulton County.
On appeal, the Ninth Circuit reserved the court's initial dismissal of Plaintiffs' discriminatory intent claim under the FHA. It held that Plaintiffs' claim—that the City Council's denial of their rezoning request constituted disparate treatment under the FHA and Equal Protection—was plausible given allegations that 1) the public comments consisted of language that a reasonable jury could interpret to be racially charged code words; 2) the planning commission had unanimously voted in favor of the rezoning request; and 3) the City Council had not denied a rezoning request in three years.
After the remand, at docket 218, the City renewed its prior motion for summary judgment on Plaintiffs' disparate impact claim based on the inadequacy of Plaintiffs' prima facie case. The court subsequently denied the motion at docket 235, concluding that Plaintiffs had presented a prima facie case of disparate impact and that there were issues of fact as to the City's stated justifications for the denial. The City now argues that a close examination of Inclusive Communities requires the court to grant summary judgment on Plaintiffs' disparate impact theory of liability, not based on an insufficient prima facie showing or its adequate justification, but based on the fact that this case involves a "one-off" zoning decision and not a greater land use policy.
The City also asks for summary judgment as to Plaintiffs' claim for failure to further fair housing that is set forth in Count V of the proposed Second Amended Complaint, which the parties agree is now the operative complaint. Plaintiffs had originally sought to file the Second Amended Complaint in 2010 to add a claim for failure to further fair housing and to add an allegation in support of its intentional discrimination claim. The court did not allow the amendment, concluding the proposed new claim was invalid and the additional allegation would not change the court's conclusion regarding the dismissed intentional discrimination claim. After the Ninth Circuit's remand, the intentional discrimination claim was revived and therefore the additional allegation is no longer moot. Plaintiffs made clear at docket 247 that the Second Amendment Complaint is the operative complaint only for the purpose of including the additional allegation and not to add a new claim. They conceded that they do not seek to pursue any claims that they did not challenge on appeal, including the claim for failure to affirmatively further fair housing. Again, at docket 249, Plaintiffs clarify that the additional claim in the Second Amended Complaint is not a live claim. Therefore, the City's request for summary judgment on that claim is unnecessary.
Summary judgment is appropriate where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."
The moving party has the burden of showing that there is no genuine dispute as to any material fact.
Under the FHA it is unlawful to "make unavailable or deny" a "dwelling" to a person because of that person's race, color, religion, sex, familial status, or national origin.
As noted above, the issue in this motion is Plaintiffs' FHA disparate impact claim. Such a claim is evaluated under the familiar burden-shifting framework.
In Inclusive Communities, a non-profit organization brought a FHA disparate impact action against the Texas Department of Housing and Community Affairs. It alleged that the department had allocated too many low income tax credits to development projects in predominantly black inner-city areas and too few in predominantly white suburban neighborhoods, resulting in a disparate impact on African-American residents. The district court found in favor of the plaintiffs. On appeal, the Fifth Circuit held, consistent with its prior holdings, that disparate-impact claims under the FHA are in fact cognizable, but reversed and remanded the case on the merits based on the lower court's improper application of the burden-shifting framework. The department filed a petition for a writ of certiorari on the question of whether disparate impact claims are in fact cognizable under the FHA. The Supreme Court held in the affirmative.
In recognizing disparate impact claims, the Supreme Court emphasized the purpose of the FHA:
It stressed, however, that a plaintiff's mere demonstration of discriminatory effect does not resolve the issue of liability. FHA disparate impact claims are subject to "cautionary standards" and "safeguards":
As an example, the Court stressed that government entities "must not be prevented from achieving legitimate objectives, such as ensuring compliance with health and safety codes."
Defendants rely on this language to argue that FHA disparate impact claims must target a more-widely implemented policy or practice. It argues that a one-time zoning decision cannot constitute a policy or practice, and that Plaintiffs' complaint fails to plead that the zoning decision constitutes a widespread practice, but rather specifically alleges that the rezoning denial was the only one in three years.
The Supreme Court's discussion of the limitations on FHA disparate impact liability in Inclusive Communities must be considered in light of the facts of that particular case. There, the plaintiffs challenged a program designed to increase low-income housing opportunities. They argued that the defendant's allocation of tax credits for such housing caused continued segregated housing patterns. The Court was concerned with a disparate impact claim based on such a theory of liability: "From the standpoint of determining advantage or disadvantage to racial minorities, it seems difficult to say as a general matter that a decision to build low-income housing in a blighted inner-city neighborhood instead of a suburb is discriminatory, or vice versa."
An FHA challenge to a municipality's application of its zoning laws to a particular piece of property—while singular in nature—does not trigger the concerns outlined in Inclusive Communities. Such cases do not involve second-guessing a developer's investment decisions nor do they interfere with a government entity's attempts to improve or increase low-income housing. Instead, in such zoning cases, developers or land owners are alleging that a municipality's zoning laws and procedures have prevented them from creating diversified housing opportunities. Indeed, as argued by the Plaintiffs here, zoning decisions such as the one at issue appear to fall within what Justice Kennedy described as the "heartland of disparate-impact liability."
Moreover, the court agrees with Plaintiffs that the limitations of FHA disparate impact liability discussed in Inclusive Communities does not, as a matter of law, prohibit disparate impact claims that challenge a single decision by a municipality's governing body. That is, not all one-time decisions are equal. It is the type and effect of the single decision that dictates whether it can be subject to a disparate impact claim. A decision that involves applying zoning laws and procedures to a piece of property is a legislative action.
Indeed, the Second Circuit has also rejected a municipality's argument that an isolated zoning decision cannot constitute policy, stating that it would not "draw a line defining what constitutes a `one-off' zoning `decision.'"
The court's conclusion that zoning decisions inherently set policy is supported by municipal liability cases in the § 1983 context. In Monell v. Department of Social Services of New York,
Moreover, one of the Ninth Circuit's first cases recognizing disparate impact liability under the FHA, Keith v. Volpe,
The City argues that HUD's FHA disparate-impact regulations, put in place before the Inclusive Communities ruling, supports its contention that a disparate impact claim can only challenge a widespread practice or policy and not a singular zoning decision.
The plaintiff has the burden of proving that "a challenged practice caused or predictably will cause a discriminatory effect."
As argued in Plaintiffs' response brief, HUD's use of the word "practice" was not meant to distinguish government policies from government decisions. The guidance provided by HUD in connection to the publication of its final rule on disparate impact explains that a discriminatory housing practice is construed broadly to include "[a]ny facially neutral actions, e.g., laws, rules, decisions, standards, policies, practices, or procedures, including those that allow for discretion or the use of subjective criteria."
The City also argues that its interpretation of Inclusive Communities is correct based on subsequent lower court decisions. The cases cited by the City are those in which the courts have granted judgments in favor of defendants in FHA disparate impact cases based, at least in part, on the conclusion that a single, "one-off" decision cannot be considered an actionable policy or practice and cite Inclusive Communities in support for their conclusion. However, as noted by Plaintiffs in their response brief, "none of those cases involved exercise of zoning power imposing barriers to housing opportunities similar to the decision challenged in this case."
For the foregoing reasons, the City's motion at docket 242 for summary judgment as to Plaintiffs' disparate impact claim under the FHA is DENIED. The City's request for summary judgment as to Plaintiffs' Count V in the second amended complaint is DENIED AS MOOT; plaintiffs concede that claim is not being pursued.
