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Home > Legal Research > HUD Resources

Housing and Urban Development

Washington, D.C. 20410-2000

December 17, 1993

MEMORANDUM FOR: All Regional Directors, Office of Fair Housing and Equal Opportunity
FROM: Roberta Achtenberg, Assistant Secretary for Fair Housing and Equal Opportunity, E
SUBJECT: Applicability of Disparate Impact Analysis to Fair Housing Cases

Cases which have been brought under the Fair Housing Act should now be analyzed using a disparate impact analysis, to the extent that this theory is applicable to a particular case.

Under a disparate impact analysis, a policy, standard, practice or procedure which, in operation, disproportionately adversely affects persons protected by the Fair Housing Act coverages may violate the Act.

According to a Secretarial decision in Secretary v. Mountain Side Mobile Estates, dated July 19, 1993, a prima facie case of disparate impact may be established by statistical evidence, including national statistics where there is no evidence of a large variation from local statistics, establishing that a facially neutral policy has a disparate impact on persons who are protected against discrimination. This theory only applies where there is a policy which is, on its face, neutral, but which operates to disproportionately disadvantage persons because of race, color, national origin, religion, handicap, sex or familial status. Other theories will be applicable where the policy is unequally applied or where it is discriminatory on its face.

For purposes of investigation, this suggests that a position that a prima facie case has been established should he buttressed by an analysis of the evidence supporting the belief that a particular policy, practice, standard or procedure disadvantages a group or a portion of a group protected against discrimination. In some instances, this will be by analysis of waiting lists, applicant flow or occupancy data. In other cases, this will be done by an analysis of the effect of a policy on potential applicants or the population at a community in a particular income bracket.

In a second Secretarial decision in the same case, dated October 20, 1993, the Secretary confirmed that a respondent may rebut a prima facie case by evidence that the policy is justified by a business necessity which is sufficiently compelling to overcome the discriminatory effect. The business necessity justification may not be hypothetical or speculative.

Per purposes of investigation, all of the respondeat justifications for its policy should be requested, with any supporting documentation. Each should be investigated to determine if there are genuine business reasons for the policy. The respondent should also be queried as to whether or not the respondent considered any alternatives to the particular policy, and what the reasons for rejecting the alternatives, if any, were. Even if the respondent did not consider discriminatory alternatives, the investigation should consider whether there are any less discriminatory ways in which the respondent's business justifications may be addressed. These steps are important because if there is a less discriminatory way by which genuine business necessities may be addressed, it may be argued that the respondent should have adopted the less discriminatory alternative.

The disparate impact analysis may be applicable in a variety of situations, ranging from cases in which a local residency preference disproportionately excludes minorities from housing residency, to policies refusing to count alimony as income for purposes of housing eligibility, to occupancy cases in which a facially neutral policy disproportionately excludes or disadvantages families with children. (Because the Frank Keating memorandum of March 21, 1991 addressing occupancy restrictions has not been withdrawn, occupancy cases involving a disparate impact aspect should also be analyzed using the memorandum as a guide.)

Copies of the two Secretarial decisions are attached for your consideration.

Further examples and additional guidance will follow this memo. If you have any questions, please contact Sara Pratt, Director, Office of Investigations at (202) 708-0836.

UNITED STATES OF AMERICA

DEPARTMENT OF HOUSING AND URBAN AND DEVELOPMENT

OFFICE OF THE SECRETARY

HUDALJ 08-92-0010-1

HUDALJ 08-92-0011-1

The Secretary, United States Department of Housing and Urban Development, on behalf of Jacqueline, Jaime, Michael, and Shea VanLoozenoord, Charging Party,

v.

Mountain Side Mobile Estates Partnership, and Mr. and Mrs. R. D. Dalke, Respondents.

AND

The Secretary, United States Department of Housing and Urban Development, on behalf of Michael Brace, Charging Party,

V.

Mountain Side Mobile Estates Partnership, and Mr. and Mrs. R. D. Dalke, Respondents.

Dorothy Crow-Willard, Esq. Jane S. O'Leary, Esq. Sara K. Pratt, Esq. Harry L. Carey, Esq. Carole W. Wilson, Esq. For the Charging Party

Stephen E. Kapnik, Esq.. For the Respondents

Before: Henry G. Cisneros, Secretary of Housing and Urban Development

DECISION AND ORDER

Statement of the Case

This matter arose as a result of complaints filed by Jacqueline VanLoozenoord, her three minor children, and Michael Brace ("Complainants"), alleging discrimination based on familial status in violation of the Fair Housing Act, as amended, 42 U.S.C. 3601, et seq. ("the Act"). On July 24, 1992, following an investigation and a determination that reasonable cause existed to believe that discrimination had occurred, the Department of Housing and Urban Development ("the Charging Party") issued a charge against Mountain Side Mobile Estates Partnership, Robert Dalke, and Marilyn Dalke ("Respondents"), alleging that they had engaged in discriminatory practices in violation of 42 U.S.C. 3604.

A hearing was held and, as discussed more fully below, Administrative Law Judge William C. Cregar issued an Initial Decision and Order on March 22, 1993, finding that the Charging Party failed to prove that Respondents had violated the Act and dismissing the charge of discrimination.

On April 21, 1993, the Secretary of Housing and Urban Development remanded the Initial Decision and Order in the above-captioned case to permit consideration of the Charging Party's April 13, 1993, Motion for Partial Reconsideration and any opposition thereto. See 24 C.F.R. S. 104.930(a) and (d). ALJ Cregar issued an Order for the submission of briefs in support of the Charging Party's Motion, and in opposition. Both parties timely filed briefs.

The Charging Party moved for reconsideration of that portion of ALJ Cregar's Initial Decision and Order that found no violation of 42 U.S.C. S.3604(a) and (b) and requested the assessment of damages against Respondents for those alleged violations. Respondents argued that the Initial Decision contained no clear error, and accordingly, the determination should not be modified. In his Initial Decision on Remand and Order, dated June 18, 1993, ALJ Cregar again found that Respondents did not violate the Fair Housing Act, as amended, 42 U.S.C. S. 3601, et seq. ("the Act ), and he again denied the Charging Party's request for relief.

On July 7, 1993, the Charging Party filed a Motion to Set Aside Initial Decisions and Enter a Final Decision Granting Relief, and also filed a Memorandum in Support of Motion to Set Aside Initial Decision on Remand and Order and Issue a Final Decision Granting Relief ("Memorandum"). On July 14, 1993, Respondents timely filed an Opposition to HUD's Motion to Set Aside Initial Decision.

Summary of Initial Decision and Order

Mountain Side Mobile Estates ( "the Park") is a trailer park located at 17190 Mt. Vernon Road, Golden, Colorado, in unincorporated Jefferson County. It was developed in the 1960's. It has 229 lots for mobile homes, with an average of 10 lots per acre. The Park has limited recreational facilities and narrow streets compared to trailer parks built in the 1970's and later, and small "single-wide" mobile homes, typically with two bedrooms. The Park has a population of approximately 320 persons, with approximately 30 families with children under 18 years of age. Because the Park is located in a flood plain, significant modifications of the Park's infrastructure would require compliance with regulations of, and approval by, the Federal Emergency Management Agency, and could involve expenditures in the hundreds of thousands of dollars.

Prior to the effective date of the Fair Housing Amendments Act of 1988, the Park was an "adults only" Park. Respondents determined that it would not be feasible to qualify for the "55 and older" statutory exemption. See 42 U.S.C. S.3607(b)(2). However, fearing an unlimited expansion of the Park's population, they considered instituting occupancy limits. Having undertaken a Park population study and expressing a concern that overcrowding would place a burden on the water and sewer capacity and result in a decline in the quality of life, Respondent imposed a three persons per unit occupancy limit. Following the conciliation of a housing discrimination complaint, Respondents retained QCI Development Services Group, Inc. ("QCI") to conduct an independent assessment of the Park's facilities and to assist in evaluating Respondents' occupancy standard. As a result of its assessment of the sewer system and the Park's physical limitations, in May 1991, QCI recommended a two persons per bedroom standard with a maximum limit of 916 Park residents. Respondents elected to maintain their existing limit of three persons per unit, thus restricting the total Park occupancy to 687 residents, well within the cap recommended by QCI.

Complainants are an unmarried couple, Jacqueline VanLoozenoord and Michael Brace, and Ms. VanLoozenoord's three minor children. After Complainants purchased a mobile home without informing the Park managers, Respondents brought eviction proceedings against them because the number of occupants in their dwelling exceeded three persons. The Jefferson County court granted judgment for Respondents, but HUD's conciliation efforts resulted in a stay of the eviction pending the outcome of this proceeding.

HUD presented statistical evidence concerning household composition through documents and the testimony of James Coil, a HUD economist. Mr. Coil testified that as of March 1991, at least 71.2% of all U.S. households with four or more persons contained one or more children under 18 years of age.

The Charging Party attempted to prove that Respondents' institution of the three-person occupancy limit was discriminatory against Complainants based on their familial status on both disparate treatment and disparate impact theories. The ALJ held that the Charging Party had failed to meet its burden under either theory. First, he found that the record did not establish direct evidence of disparate treatment. Regarding indirect evidence of disparate treatment, he determined that the Charging Party had made out a prima facie case. However, he determined that the QCI study established that the sewerage system and Park's physical limitations warranted some action to limit the population of the Park, and that the Charging Party had failed to demonstrate that Respondents' choice of a limit of three persons per unit was pretextual. The ALJ held that he did not need to decide whether the Act contemplates a disparate impact analysis, because the Charging Party's statistics failed to support a prima facie case of disparate impact. The ALJ also concluded that even were a prima facie case of disparate impact established, the Respondents had produced evidence of a business justification and the Charging Party had failed to demonstrate the existence of practical or affordable alternatives.

Initial Decision on Remand and Order

In his Initial Decision on Remand and Order, the ALJ rejected a contention by the Charging Party that the second prong of the shifting burdens analysis of McDonnell Douglas v. Green, 411 U.S. 792 (1973), was inapplicable to the case because Respondents were claiming an exemption under the Act, i.e., the provision in 42 V.S.C. 3607(b)(2) that "[n]othing in this title limits the applicability of any reasonable local, State, or Federal restrictions regarding the maximum number of occupants permitted to occupy a dwelling." The Charging Party asserted that the assertion of this affirmative defense superseded the McDonnell Douglas scheme and shifted the burden to Respondents to prove the reasonableness of the exemption. The ALJ rejected the Charging Party's contentions because, inter alia, the arguments had not been raised earlier, and the statutory provision applies only to local, State and Federal occupancy restrictions. (In its Memorandum in Support of Motion to Set Aside, the Charging Party has abandoned its argument that a statutory exemption is at issue.)

With regard to disparate impact analysis, the Initial Decision on Remand also rejected the Charging Party's assertion that, contrary to the March 22 Initial Decision, nationwide statistics regarding the composition of households, along with the testimony of HUD economist James Coil, were inadequate to demonstrate prima facie case of disparate impact on families with children. The ALJ also held on remand that even if he were to conclude that a disparate impact analysis should apply in this case and that a prima facie case was established thereunder, (The ALJ's March 22, 1993 Initial Decision held that he did not need to determine whether a discriminatory effect is, by itself, sufficient to establish a violation of the Act since he found that the Charging Party had failed to establish a prima facie case of disparate impact.) Respondents had demonstrated that their three persons per unit occupancy restriction served their legitimate business goals and was not a mere insubstantial justification. Citing Wards Cove Packing Co.. Inc. v. Antonio, 490 U.S. 642 (1989), the ALJ held that the practice at issue need not be essential or indispensable. Finally, he held that the Charging Party, rather than Respondents, had the burden of persuasion to demonstrate the existence of alternative methods that would satisfy Respondents legitimate business interests while lessening the impact on families with children, and that the Charging Party had yet to demonstrate the existence of any such alternatives.

The ALJ also rejected arguments by the Charging Party that it had shown the existence of pretext with regard to Respondents' three person per unit occupancy restriction.

Motion to Set Aside Initial Decision on Remand and Opposition Thereto

In its Memorandum in support of its Motion to Set Aside, the Charging Party for the most part reiterates the arguments that it raised in its previous memorandum in support of Motion for Partial Reconsideration. In its current Memorandum, the Charging Party abandoned the earlier claim that a statutory exemption for occupancy limits is at issue. However, the Charging Party reasserts that in lieu of the usual burden on Respondents of articulating a legitimate, nondiscriminatory reason for their action, once a prima facie case of disparate treatment has been established, under the shifting burdens analysis of McDonnell Douglas, supra, the assertion by Respondents of a nongovernmental occupancy restriction requires "heightened scrutiny", and that the ALJ had failed to carefully examine the occupancy restriction, as required by the Preamble to 24 CFR Part 104 (24 CFR Ch. I, subch. A, App. I, p. 879 (1982)). The Charging Party reasserted its other arguments, including those regarding the adequacy of its statistical showing as a prima facie case of disparate impact; its argument that, following establishment of a prima facie case, Respondents have a burden of demonstrating something akin to business necessity, rather than merely a legitimate nondiscriminatory reason, for the policy in question; and the assignment to Respondents rather than the Charging Party of the burden of showing less discriminatory alternatives.

In its memorandum in opposition to the Motion to Set Aside, Respondents assert, inter alia, that the Secretary can reverse findings by a HUD ALJ only for clear abuse of discretion, which has not been alleged; that Respondents are by corporate policy opposed to discrimination; that limitations on total occupancy in the Park were necessary because of the Park's limitations and functional obsolescence, and there are no reasonable alternatives; that the Park has limited ability to control utilization of space in an individual home; and that some of the complainants' bedrooms do not meet the applicable building code. Respondents also oppose the Charging Party's arguments that any occupancy policy that provides for two persons per bedroom should be presumptively unreasonable and that nongovernmental occupancy policies should be presumed to be unfair.

DISCUSSION

1. Preliminary matters

The Respondents assert in their opposition to the Motion to Set Aside that the Secretary can reverse findings by a HUD ALJ only for a "clear abuse of discretion", citing HUD v. Holiday Manor Estates Club. Inc., Fair Housing-Fair Lending (P-H) P.35,024 (1992). I find that the authority of the Secretary is not so limited. The Secretarial decision in Holiday Manor merely indicated that with respect to the particular issue of the appropriate amount of compensatory pain and suffering damages, the Secretary found that it would be " inappropriate" to substitute his judgment for that of the ALJ in the absence of a clear abuse of discretion, since, among other things, the ALJ had observed the witness's credibility. The decision does not suggest a lack of authority on the Secretary's part to referee in the absence of an abuse of discretion, but merely a judgment that in the circumstances of that case it would have been inappropriate to reverse on that particular issue. In any event, Title VIII and HUD's procedural Title VIII regulations do not limit the Secretary's authority to reverse. Section 104.930(a) of HUD's Title VIII regulations state in relevant part that: "the Secretary of HUD may review any finding of fact, conclusion of law, or order contained in the initial decision of the administrative law judge and issue a final decision in the proceedings. The Secretary may affirm, modify or set aside, in whole or in part, the initial decision or remand the initial decision for further proceedings. [24 CFR 104.930(a)]"

Neither Title VIII nor the cited regulation imposes the limitation urged by Respondents. Accordingly, I need not find a "clear abuse of discretion" in order to reverse an initial decision by an ALJ or to remand for further proceedings.

2. Disparate impact

As outlined above, the ALJ did not decide whether disparate impact (discriminatory impact) alone is sufficient to establish a violation of the Act, since he concluded that the Charging Party failed to establish a prima facie case of disparate impact. I find that the Charging Party did establish a prima facie case of disparate impact and that a disparate impact, if proven, would establish a violation of the Act.

First, in declining to consider discriminatory effect as sufficient to establish a violation of the Act, the ALJ found merely that this question is "not completely settled". The ALJ concluded not that such a rule would conflict with the law of the Tenth Circuit, but rather that the Tenth Circuit has not yet ruled whether facially neutral policies which have a disparate impact on a protected class violate the Act. Initial Decision (March 22) at 25. The ALJ conceded that most of the United States circuit courts of appeal have held that evidence of discriminatory effect is sufficient to establish a prima facie case. Id. The authority and responsibility for administering the Act is in the Secretary at Housing and Urban Development. 42 U.S.C. 3608(a). In view of the Judicial authority for applying the discriminatory effects test, I find that this test should have been applied in this case.

The ALJ concluded that on the facts of this case, nationwide statistics are inadequate to demonstrate a prima facie case of disparate impact on families with children. Initial Decision on Remand at 6; Initial Decision (March 22) at 26. The Charging Party relied upon statistics and the testimony of HUD economist James Coil which the ALJ found establish that at least 71.2% of all U.S. households with four or more persons contain at least one child under the age of 18; that at least 50.5% of U.S. families with minor children lave four or more individuals; and that at most, 11.7%.of households without minor children have four or more persons. The ALJ found no evidence that statistics which establish the percentage of families with minor children nationwide are the same in Jefferson County or the Denver metropolitan area. He stated that Mr. Coil tried to address this deficiency by pointing out that the percentage of households with four or more individuals that are families in Jefferson County (for which statistics are available) is almost identical to the nationwide percentage. However, the ALJ stated that he was unwilling to speculate that the same correlation exists as to the percentage of households with minor children. Initial Decision (March 22) at 25. On remand, the ALJ stated that:

"[r]ather than there being "no reason to suppose" that the area around Golden, Colorado, does not statistically differ in the proportion of families with children under 18 from the rest of the United States, I see no reason to suppose that it would be the same. For example, it may well be that, due to depressed economic circumstances, in some areas a higher percentage of adult children live with their parents than are reflected in the nationwide statistics ..... [while] in communities with large populations of university students or young working adults, there may be a higher incidence of congregate housing arrangements. Mr. Coil assumes that because the nationwide and local percentage of family households with four or more persons is similar, the same relationship exists between the nationwide and local percentage of households with minor children. Based on this record, such an assumption is unsupported and speculative. [Initial Decision on Remand at 6]"

The ALJ distinguished the Supreme Court's approval, in Dothard v. Rawlinson, 433 U.S. 321, 330 (1977), of reliance on nationwide statistics where there is "no reason to suppose'" that regional statistics do not differ markedly from the national statistics. That Title VII case concerned reliance on general population data regarding physical height and weight characteristics, where there was no reason to suppose that such data for the Alabama population differed markedly from such data for the national population.

It is possible that there may be greater variation among local populations with respect to percentage of households with children (even where the local and national percentage of households with four or more individuals that are families are virtually identical) than there is among local populations with respect to height and weight characteristics. However, in the absence of any showing of a large variation from the national statistics in the case of the locality in question, and where the economist discussing the statistics testified that the likelihood of finding a family household in the four-or-more-person household category in Jefferson County is apparently virtually identical to the national average, I believe that the possibility of such a significant variation is more speculative and unsupported than a supposition of its absence. As the Charging Party argues, if a party "discerns fallacies or deficiencies in the data offered by the plaintiff, [the party] is free to adduce countervailing evidence of his own. Dothard, supra, 433 U.S. at 331. In these circumstances, then, I conclude that the Charging Party established a prima facie case of disparate impact.

The ALJ went on to conclude that, even if a prima facie disparate impact case is made, as I now conclude, Respondents have carried their burden of rebuttal by demonstrating that their three persons per unit occupancy restriction serves their legitimate goals and is not a mere unsubstantial justification; in this regard, the ALJ held, the practice need not be essential or indispensable. The ALJ cited Wards Cove, supra, 490 U.S. 642 at 658-59 as authority for this formulation of the burden of rebuttal. The ALJ notes in his Initial Decision of March 22 that Wards Cove is an employment discrimination case under Title VII of the Civil Rights Act of 1964 and that Congress subsequently eliminated the Wards Cove analysis for purposes of Title VII in the Civil Rights Act of 1991, Pub. L. 102-166. The ALJ concluded, however, that since the Civil Rights Act of 1991 did not amend Title VIII, the Wards Cove analytical framework would continue to apply to cases arising under Title VIII. Initial Decision (March 22), p. 25, n. 24.

I reach the opposite conclusion, however. Regardless of what impact Wards Cove might eventually have had on Title VIII case law that had previously applied a higher test to Respondents' burden of rebuttal, I do not believe that Wards Cove, having been overruled by Congress to the extent that it did not require consistency with business necessity in its own sphere of Title VII cases, could nevertheless stand as authority for this lesser burden in Title VIII cases. While Title VII case law may often serve as the genesis of Title VIII case law on analogous issues, I find no basis for following a Title VII decision in an area in which it has been specifically overruled by Congress. I do not find Congress's failure to amend Title VIII to be persuasive, since Congress was not faced with a comparable authoritative Judicial decision by the nation's highest court establishing a less-than-business-necessity standard under Title VIII. To the contrary, there is authority for the application of a standard of business necessity in Title VIII cases. See, e.g., Betsey v. Turtle Creek Associates, 736 F.2d 983 (4th Cir. 1984). I conclude that the business necessity standard is the appropriate rebuttal standard for the respondents to meet in this case. Accordingly, I remand this case for a determination by the ALJ as to whether Respondents have met their burden under the business necessity standard, in justification of their three person per unit occupancy policy. Depending on whether the Respondents have met their burden, further review of the existence of alternatives to the three persons per unit policy may or may not be warranted.

ORDER

Upon consideration of the Motion to Set Aside Initial Decisions and Enter a Final Decision Granting Relief in the above captioned case and Respondents' Opposition thereto, and pursuant to 42 U.S.C. 3612(h)(1) and 24 CPR 104.930(a) and (d), the Secretary hereby remands the above captioned case for 60 days so that the Administrative Law Judge may take further action consistent with the above Decision.

BRUCE KATZ

Chief of Staff

Office of the Secretary

UNITED STATES OF AMERICA

DEPARTMENT OF HOUSING AND URBAN AND DEVELOPMENT

OFFICE OF THE SECRETARY

HUDALJ 08-92-0010-1

HUDALJ 08-92-0011-1

The Secretary, United States Department of Housing and Urban Development, on behalf of Jacqueline, Jaime, Michael, and Shea VanLoozenoord, Charging Party,

v.

Mountain Side Mobile Estates Partnership, and Mr. and Mrs. R. D. Dalke, Respondents.

AND

The Secretary, United States Department of Housing and Urban Development, on behalf of Michael Brace, Charging Party,

V.

Mountain Side Mobile Estates Partnership, and Mr. and Mrs. R. D. Dalke, Respondents.

Dorothy Crow-Willard, Esq. Jane S. O'Leary, Esq. Sara K. Pratt, Esq. Harry L. Carey, Esq. Carole W. Wilson, Esq. For the Charging Party

Stephen E. Kapnik, Esq.. For the Respondents

Before: Henry G. Cisneros, Secretary of Housing and Urban Development

DECISION AND ORDER

Statement of the Case

Mountain Side Mobile Estates ( the Park ) is a trailer park located at 17190 Mt. Vernon Road, Golden, Colorado, in unincorporated Jefferson County. It was developed in the 1960's. It has 229 lots for mobile homes, with an average of 10 lots per acre. The Park has limited recreational facilities and narrow streets compared to trailer parks built in the 1970's and later, and small "single-wide" mobile homes. The Park has a total of 458 bedrooms. Nevertheless, the Park has a population of approximately 320 persons, with approximately 30 families with children under 18 years of age. Approximately 76% of the homes in the Park are two bedroom, 13% are three bedroom, and 11% are one bedroom homes. The Park sits on a flood plain.

Prior to the effective date of the Fair Housing Amendments Act of 1988, the Park was an "adults only" Park. Respondents determined that it would not be feasible to qualify for the "55 and older" statutory exemption. See 42 U.S.C. S. 3607(b)(2). However, fearing an unlimited expansion of the Park's population, they instituted a three person per unit occupancy limit on March 8, 1989. The Fair Housing Amendments of 1988 became effective on March 12, 1989.

This case arose as a result of complaints filed by Jacqueline VanLoozenoord, her three minor children, and Michael Brace ("Complainants"), alleging discrimination based on familial status in violation of the Fair Housing Act, as amended, 42 U.S.C. 3601, et seq. ("the Act"). On July 24, 1992, following an investigation and a determination that reasonable cause existed to believe that discrimination had occurred, the Department of Housing and Urban Development ( the Charging Party") issued a charge against Mountain Side Mobile Estates Partnership, Robert Dalke, and Marilyn Dalke ("Respondents"), alleging that they had engaged in discriminatory practices in violation of 42 U.S.C. 3604 because they had imposed an occupancy limitation of three persons per mobile home (unit). Respondents had attempted to evict Complainants because they were in violation of the unit occupancy limitation.

A hearing was held and Administrative Law Judge William C. Cregar issued an Initial Decision and Order on March 22, 1993, finding that the Charging Party failed to prove that Respondents had violated the Act and dismissing the charge of discrimination.

On April 21, 1993, the Secretary of Housing and Urban Development remanded the Initial Decision and Order in the above-captioned case to permit consideration of the Charging Party's April 13, 1993, Motion for Partial Reconsideration and any opposition thereto. See 24 C.F.R. S. 104.930(a) and (d). ALJ Cregar issued an Order for the submission of briefs in support of the Charging Party's Motion, and in opposition. Both parties timely filed briefs.

The Charging Party moved for reconsideration of that portion of ALJ Cregar's Initial Decision and Order that found no violation of 42 U.S.C. S.3604(a) and (b) and requested the assessment of damages against Respondents for those alleged violations. Respondents argued that the Initial Decision contained no clear error, and accordingly, the determination should not he modified. In his Initial Decision on Remand and Order, dated June 18, 1993, ALJ Cregar again found that Respondents did not violate the Fair Housing Act, as amended, 42 U.S.C. S.S. 3601, et seq. ("the Act"), and he again denied the Charging Party's request for relief.

On July 7, 1993, the Charging Party filed a Motion to Set Aside Initial Decisions and Enter a Final Decision Granting Relief, and also filed a Memorandum in Support of Motion to Set Aside Initial Decision on Remand and Order and Issue a Final Decision Granting Relief ("Memorandum"). On July 14, 1993, Respondents timely filed an Opposition to HUD's Motion to Set Aside Initial Decision. On July 19, 1993, the Secretary again remanded the case to the ALJ. The ALJ had held that Charging Party had not proven a prima facie case and further held that, even if a prima facie disparate impact case had been shown, Respondents had carried their burden of rebuttal by demonstrating that their three person per unit occupancy restriction served their legitimate goals and was not a mere unsubstantial justification. The Secretary reversed the ALJ. He held that the Charging Party had established a prima facie case based upon the disparate impact theory. He further held that the ALJ had improperly relied upon the analysis of business necessity as set forth in Wards Cove Packing Co.. Inc. v. Antonio, 490 U.S. 642 (1989). The Secretary then directed a remand for the ALJ to consider the Respondents' business necessity defenses in light of the standard set forth in Betsey v. Turtle Creek Associates, 736 F.2d 983 (4th Cir. 1984).

On September 20, 1993, Judge Cregar issued a Second Initial Decision on Remand and Order in which he held that the Respondents had met the business necessity test under Betsey and that the Charging Party had failed to demonstrate that a less discriminatory alternative to the three person per unit occupancy policy existed. Charging Party filed a Motion to Set Aside the Second Initial Decision and Order on October 5, 1993. The NAACP Legal Defense and Educational Fund, Inc. filed an amicus curiae brief on October 5, 1993.

Summary of Second Initial Decision on Remand and Order

The ALJ determined that both economic viability and concern for the safety and health of tenants are legitimate business concerns. He held as follows:

"Drawing an analogy from the Title VII job relatedness tests, I conclude that the "business necessity" test as applied to Title VIII has two components. First, the challenged practice must bear a demonstrable relationship to a housing provider's legitimate business interests; and second, objective evidence must establish that the means selected to serve those interests must be reasonably likely to effectuate those interests and not otherwise be unlawful."

Second Initial Decision at 5. It was his view that economic viability was the sine qua non of a business, including a housing provider. He then cited 42 U.S.C. S.1437 for the proposition that "it is the policy of the United States to promote the general welfare of the Nation by employing its funds and credit ... to remedy the unsafe and unsanitary housing conditions and the acute shortage of decent, safe, and sanitary dwellings for families of lower income." Based on this provision, he held that the business necessity standard under Title VIII included consideration of health and safety concerns.

Using these twin business concerns he ruled that the three person per unit policy constituted business necessity for several reasons. Second Initial Decision at 5-7. First, the policy prevented overcrowding. Overcrowding, according to the ALJ, "could put the health of [Mountain Side Mobile Estates] Park population at risk by overwhelming the sewer system." In support of the health risk, he noted that the record demonstrated that overcrowding would result if the number of occupants of the Park exceeded 916. Second, overcrowding could affect the Park's economic viability because "it could result in an exodus of tenants seeking to avoid these conditions. The same unsanitary conditions causing the exodus could discourage or prevent new tenants from moving into the Park. The ALJ held that the three person per unit occupancy limit was not otherwise illegal and would stem the risk of overcrowding.

The ALJ also ruled that objective evidence established that the occupancy limit was "reasonably likely to maintain a healthy and economically viable park. He noted that although the occupancy limit would establish a Park population lower than the capacity of the Park's sewer system, the lower limit would allow for seasonal visitors and would allow the smaller population to live in greater comfort. He cited as objective evidence the QCI Report that establishes that more than four persons per unit could lead to unsanitary conditions and testimony that there were seasonal visitors.

The ALJ then discussed and dismissed each of a number of suggested alternatives presented by the Charging Party. The alternatives to the three person per unit occupancy limit were (1) adoption of an alternate occupancy limit, (2) physical alterations to the Park and (3) the imposition of restrictions on the terms and conditions of residence. The ALJ rejected all three as unacceptable because they would discriminate or be impractical or prohibitively expensive.

The ALJ rejected the Charging Party's suggestion that Respondents impose an overall maximum population ceiling on the Park regardless of the number of occupants. He held that this alternative was economically impractical because total Park population could be reached before Respondents are able to rent all of their lots. He noted that the Respondents might be compelled to prohibit the sale of units and rental spaces once the limit was reached. He also noted that once the limit was reached, Respondent's refusal to rent a unit could subject them to disparate treatment charges.

The ALJ rejected the Charging Party's suggestion that Respondents impose an occupancy limit based on the number of occupants per bedroom. He noted that because of the number of bedrooms, that a potential for overcrowding existed because of the sewer system limitations. (Charging Party also suggested the adoption of a minimum square footage requirement for each occupant's sleeping area. The ALJ ruled, however, that this suggestion would not necessarily prevent overcrowding. He also ruled that the record failed to demonstrate that adoption of a square footage requirement for sleeping areas or for whole units would not result in a less discriminatory impact on families with children. Charging Party further suggested that sewer overload could be prevented by limiting the number of toilets per unit or instituting water conservation and demand control. The ALJ, however, ruled that Park residents could then be faced with too few toilets and an intrusive police enforcement mechanism.)

Charging Party also suggested physical alterations to the Park, such as replacement of a section of sewer pipe that could prevent sewer blockages. The ALJ ruled that, although the solution would not be expensive, it involved major impediments, such as obtaining a permit from FEMA and possibly removing the Park from the flood plain on which it rests. He further ruled that there was credible testimony that replacing the section of pipe might not cure the sewerage problems.

Motion to Set Aside Second Initial Decision and Enter a Final Decision Granting Relief

In its Motion to Set Aside Second Initial Decision and Enter a Final Decision Granting Relief, Charging Party argues that the ALJ misinterpreted the standard required for a respondent to establish that a discriminatory housing practice is justified by business necessity, improperly required the Charging Party to bear the burden of proving that there were less discriminatory alternatives to the challenged three person per unit occupancy restriction and, regardless of which party bears the burden of production, incorrectly found that there were no less discriminatory alternatives which would meet the respondents' claimed business concerns.

The Charging Party argues that the ALJ improperly substituted the concept of "legitimacy" for the requirement that a policy be a "necessity." Charging Party argues that, under Betsey and other cases, a business necessity must be compelling, not just legitimate. Charging party further argues that the necessity must be manifest or apparent rather than speculative. In addition, Charging Party urges that even if Respondents' interests are substantial, they cannot automatically outweigh significant disparate effects and must be weighed against and shown to outweigh the showing of discriminatory effect.

Charging Party further argues that the record does not support a conclusion that the three person per unit occupancy policy was justified by business necessity. First, Charging Party notes that the Respondents presented no evidence that overcrowding would actually or predictably occur, citing that only 341 persons resided in the Park in the months preceding Complainants' purchase of their unit and that this number was barely more than one third of the alleged maximum number allowable because of the sewer capacity of the Park.

Second, Charging Party points to the lack of any meaningful study of the Park or its sewer system at the time the Respondents imposed the three person per unit limitation. For example, Charging Party points to the testimony of the manager of the Park who admitted that the Respondents had no objective evidence in March 1989 on which to base their restriction, notes that an alleged population study conducted in 1988 vas not raised as a defense during the investigation of the charge, and that the QCI engineering report never mentioned the population study.

Charging Party also faults the ALJ for relying on the QCI Report, which was not conducted until 1991. Charging Party strongly urges that the QCI Report only concluded that overall occupancy not routinely exceed the limit of 916 persons (two persons per bedroom) and provided no evidence that occupancy lower than 916 would create health or sanitation problems for the Park. Third, Charging party argues that the issue of seasonal visitors was a bald assertion, not supported by any evidence and unaccompanied by testimony as to the extent to which residents of the Park took vacations or had visitors. (Charging Party also argues that the ALJ failed to weigh the substance of the Respondents' justifications against the severity of the policy itself. The Charging Party states that since the Secretary has previously held that the three person per unit policy had a severe impact on a family with more than one child, such severe impact far outweighs the alleged potential overcrowding that was based on guesswork or speculation. In its Motion, Charging Party takes the position that the Respondents bear the burden of demonstrating that no less discriminatory alternative exist. Charging party suggests that ALJ Cregar's decision is in conflict with ALJ Streb's decision in HUD v. Carter, HUDALJ 03-90-0058-1 (1992), in which the burden to demonstrate a less discriminatory course of action was placed on respondent.)

In the remainder of its Motion, Charging Party argues that various alternative proposals would have accomplished the Respondents' goals with less adverse impact and asks for judgment and damages against the Respondents. Charging Party states that there was no necessity for any occupancy restriction based upon the current population of the Park, that the two persons per bedroom alternative was within the parameters of the QCI Report or that an overall Park maximum occupancy could have been instituted. Charging Party seeks $1250.05 in economic damages and $50,000 in emotional distress damages for Complainants Michael Brace and Jacqueline VanLoozenoord and $500 for Jaime VanLoozenoord.

On October 14, 1993, Respondents filed an Objection to Staff's Third Attempt to Negate ALJ Decision (hereafter "Objection") and filed a Motion to Strike NAACP's Second Amicus Curiae Letter. (The NAACP Legal Defense and Education Fund, Inc. (the "Fund") as amicus curiae filed a letter on October 5, 1993. The Fund's letter was not considered in this Secretarial review.) Respondents' Objection complains about the conduct of Departmental employees during the course of the investigation and hearing on the charge in this case, alleges that the Department should have engaged in rulemaking, rather than attempt to establish new case law on a case by case basis, and argues that the Secretary will subvert the administrative process if he reverses the ALJ again.

DISCUSSION

I. Business Necessity In General

In remanding this case to the ALJ on July 19, 1993, the Secretarial Decision and Order directed the application of a business necessity rebuttal standard after finding that the Charging Party had demonstrated a prima facie case of disparate impact discrimination regarding the three person per unit occupancy policy. It cited the Betsey decision as authority for the application of the business necessity standard. Id. at 9. Unfortunately, the business necessity standard was not correctly set forth by the ALJ in this case.

The business necessity standard in Title VIII cases is imported from employment discrimination case law under Title VII. Business necessity in the employment discrimination arena requires that the alleged discriminatory practice "have a manifest relationship to the employment in question." Griggs v. Duke Power Co., 401 U.S. 424, 432 (1971) (emphasis added). A discriminatory employment practice must be shown to be "necessary to safe and efficient job performance to survive a Title VII challenge." Dothard v. Rawlinson, 433 U.S. 321, 331, n.14 (1977) (emphasis added). The Eleventh Circuit has emphasized the word "necessity" and has properly dismissed the standard embodied in the phrase "legitimate employment goals:

"Prior to 1989, the "business necessity" showing was an affirmative defense for which the defendant bore the burden of proof and the risk of nonpersuasion. [Citations omitted.] In 1989, the Supreme Court in Wards Cove, changed the law, holding that the defendant bore only the burden of coming forward with an alleged business-related justification for the challenged practice, which the plaintiff would then have to disprove in order to prevail. Wards Cove at 659.... The court also broadened the scope of the necessity defense by holding that practices causing disparate impact were permissible even if they could not be shown to be absolutely necessary, so long as they served in a significant way the legitimate employment goals of the employer. Id. at 659....These changes were statutorily reversed by 1991 Civil Rights Act of 1991, Pub. L. No. 102-166, S.105(a)...."

Patrick v. City of Atlanta, LEXIS #24682 at 16 (11th Cir., Sept. 27, 1993). Accordingly, under Title VII law, the business necessity test means that the policy or practice at issue must serve a necessary relationship to the employer's needs, not merely serve the employer's legitimate goals.

As with current Title VII law, under Title VIII law, the need for a true necessity is also required. In Betsey, the court held that when confronted with a showing of discriminatory impact, "defendants must prove a business necessity sufficiently compelling to justify the challenged practice." Id. at 988 (emphasis added). In United States v. City of Black Jack, Mo., 508 F.2d 1179, 1186 (8th Cir. 1974), the court held that after the finding of a prima facie case, the defendant was required to "demonstrate a compelling . . .interest." (Emphasis added.) Clearly, the word "compelling" correlates to the word "necessary."

Further, under Title VII, only objective evidence, as opposed to the employer's mere speculation or subjective opinion, that a practice addresses an employer's job relatedness concerns can establish a legal rebuttal. See Dothard; Albemarle Paper Co. v. Moody , 422 U.S. 405,428, n.23 (1975) ("Job relatedness [Griggs and its progeny use the terms "business necessity" and "job relatedness" interchangeably. Also, the most recent amendment to Title VII, the Civil Rights Act of 1991, upon which the Secretary relied in rejecting the Wards Cove standard, considers "Job relatedness to be consistent with "business necessity." See 42 U.S.C. S.2000e-2(k)(1)(A)(I) and 137 Cong. Rec. S15276 (daily ed. October 25, 1991)(Interpretive Memorandum) reprinted in 1991 Code Cong. and Admin. News, 102d Cong., 1st Sess. at 767.] cannot be proved through vague and unsubstantiated hearsay.") The same rule applies under Title VIII law. See, e.g., Keith v. Volpe, 858 F.2d 467 (9th Cir. 1988). Additionally, post hoc rationalizations are accorded little weight by courts, Huntington Branch, NAACP v. Town of Huntington, NY, 844 F.2d 926 (2d Cir. 1988), and will be accorded little weight by this agency.

2. Business Necessity as Applied to This Case

The evidence in this case fails to demonstrate that the three person per unit occupancy policy meets the business necessity standard. The existing evidence consists of speculation, post hoc rationalizations and vague hearsay. Accordingly, this decision finds that the Respondents have not met the business necessity test. The ALJ erroneously set forth a test that would require significantly less than a "business necessity" when he ruled that the challenged practice must bear a demonstrable relationship to a housing provider's legitimate business interests. As was noted above, the standard for a business necessity can only he met by establishing compelling need or necessity. The evidence in this case does not support a compelling need or necessity for the three person per unit policy. At the time the policy was implemented, the Park only had a population of 320 people. Second Initial Decision at 3. (The Charging Party used the figure of 341 Park residents as of a few months prior to the purchase of the mobile home unit by Complainants, that is in August 1991. Memorandum in Support of Motion to Set Aside at 3, 12. Since the ALJ's figure was based on the date the three person per unit policy was implemented in 1988, only 21 additional people became residents in three years. At this rate, the Park would not reach a resident population of 687 (the three person per unit limit) until 2039.) The QCI Report concluded that the sewer system could support 916 residents. Thus, during the period in question, between 1988 and 1991, there existed no compelling need or necessity for an occupancy limit of three persons per unit. In fact, based on that report, the Park could have tripled in size without having caused sewer problems.

Furthermore, the figure of 916 was not absolute. Mr. Walker, who prepared the QCI Report, testified that assuming the Park reached 916 residents, and assuming that everyone were at home on a hot afternoon, and assuming that guests were visiting, there might potentially be a problem with the sewer system. Tr. III at 146-147. He did not state that 916 or even 925 was an absolute maximum. Rather, he testified that "We're into probability and we're into statistics. Ibid. Thus, the Report itself, assuming it is given full weight, does not establish business necessity. See HUD v. Carter, 2 Fair Housing- Fair Lending P.25,029 at 25,318 (HUDALJ May 1, 1992); HUD v. Denton, 2 Fair Housing-Fair Lending &25,014 at 25,204 (HUDALJ November 12, 1991).

In addition, the QCI Report was not completed until three years after the imposition of the occupancy limitation. This report constitutes a post hoc rationalization for the occupancy limitation. As such, it will be accorded little weight. Huntington, supra.

The ALJ also rested his decision on the fact that there would be visitors to the Park who, if the Park ever reached its maximum of 916 residents, would overly stress the sewer system and cause unsanitary conditions as well as result in a flight of residents to avoid such consequences. The question of visitors, however, was never an issue raised by Respondents until well into discovery and trial. Mr. Edward Brooks, a son of one of the owners and President of Prime Management, which manages the Park, mentioned seasonal visitors only one time. Tr. III at 236. The reference to seasonal visitors is vague and unsubstantiated; no specific numbers of visitors were cited and the testimony is speculative. Further, it is a post hoc rationalization. Additionally, the argument of overcrowding on the basis of seasonal visitors, at a period of time when the population of the Park was one-third the 916 suggested by the QCI Report, is sheer speculation by the ALJ. Speculation is not objective evidence, and theoretical problems do not a business necessity make.

In summary, the use of the three person per unit occupancy limit was not necessary or based upon a compelling need to control the population of the Park. Nor was the occupancy limit imposed based upon objective evidence known to Respondents at the time the occupancy limit was adopted. The QCI Report was conducted after the fact and provides a post hoc rationalization. Nor does the ALJ's reliance on seasonal visitors pass muster. The evidence is vague, speculative and a post hoc rationalization.

3. Respondents' Claims Are Misplaced

In their Objections, as noted above, Respondents raised three issues concerning the alleged abuse of the administrative process by the Department and its employees. First, the Respondents allege that Departmental employees engaged in questionable conduct during the course of the investigation and hearing of this case. These matters are best dealt with by the ALJ in the course of officiating over the case. In this case, however, the ALJ made no mention of any such alleged improprieties in the course of his 13 page decision dated October 1, 1993. Since there were no findings of fact relating to improprieties, there is no basis on the record as it now exists for any action by the Secretary in response to these vague allegations.

Second, the Respondents allege that the Department should have engaged in rulemaking, rather than attempt to establish new law on a case by case basis. Respondents cite no authority for their position. Nor is this argument persuasive. A criminal prosecutor enjoys the advantages of great latitude in enforcement, Bordenkircher v. Hayes, 434 U.S. 357, 364 (1978), and civil enforcers enjoy even greater latitude, since the principle that ambiguities in criminal statutes must be resolved in favor of lenity does not apply to the civil enforcement context. United States v, Batchelder, 442 V.S. 114, 121 (1979); see also United States v. Goodwin, 457 U.S. 368 (1982). The Department has no duty under the law to warn landlords by regulation that their conduct violates the Fair Housing Act. Further, the enforcement of a statutory scheme is best left to the responsible agency, since it alone is "empowered to develop that enforcement best calculated to achieve the ends contemplated by Congress and to allocate its available funds and personnel in such a way as to execute its policy efficiently and economically." Moog v. FTC, 355 U.S. 411, 413 (1958). Accordingly, Respondents' second argument in their Objections is unpersuasive.

Third, Respondents argue that a Secretarial reversal of the ALJ would negate a year of litigation, undermine Federal law and the integrity of the administrative law system, and politicize the administrative process. This review does not negate a year of litigation or subvert the administrative process. Under 42 U.S.C. S.3612(h), the Secretary may review any finding, conclusion or order. There is no limitation on this review authority. In this case, the ALJ did not properly set forth the standard for business necessity. Correcting that error falls within the purview of S.3612(h) and in no way undermines the integrity of the administrative law process. Assuring that this Nation's fair housing laws are enforced uniformly and in concert with precedent is not a politicization of the administrative process.

Accordingly, this decision and order finds that the Respondents have failed to establish the business necessity of their three person per unit occupancy policy. Based upon this finding and the earlier finding by this Office on July 19, 1993, that the Charging Party had demonstrated a prima facie case, judgment must be, and hereby is, entered against Respondents. The case is remanded to the ALJ to determine the amount of damages to be assessed in this case.

ORDER

Upon consideration of the Motion to Set Aside the Second Initial Decision and Enter a Final Decision Granting Relief in the above captioned case, and pursuant to 42 U.S.C. 3612(h)(1) and 24 CFR 104.930(a) and (d), the Secretary hereby enters judgment for the Charging Party in the above captioned case and remands it for 60 days so that the Administrative Law Judge may take further action consistent with the above Decision.

BRUCE KATZ

Chief of Staff

Office of the Secretary

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