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The Inclusive Communities Project, Inc. v. Lincoln Property Co.

United States Court of Appeals, Fifth Circuit

April 9, 2019

THE INCLUSIVE COMMUNITIES PROJECT, INCORPORATED, Plaintiff - Appellant
v.
LINCOLN PROPERTY COMPANY; LEGACY MULTIFAMILY NORTH III, L.L.C.; CPF PC RIVERWALK, L.L.C.; HLI WHITE ROCK, L.L.C.; BRICK ROW APARTMENTS, L.L.C., Defendants - Appellees

          Appeal from the United States District Court for the Northern District of Texas

          Before DAVIS, JONES, and ENGELHARDT, Circuit Judges.

          KURT D. ENGELHARDT, CIRCUIT JUDGE.

         With this appeal, we review the district court's dismissal with prejudice, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, of Fair Housing Act claims - including claims of "disparate treatment" and "disparate impact" - asserted against the owners and management company of apartment complexes in the greater Dallas, Texas area that decline to participate in the federal "Section 8" Housing Choice Voucher Program. For the reasons stated herein, we affirm.

         I.

         The plaintiff, The Inclusive Communities Project ("ICP"), "is a fair housing focused nonprofit organization working with households seeking access to housing in predominately non-minority locations in the Dallas area."[1]In furtherance of its mission, ICP provides "counseling, financial assistance, and other services to Black or African American households participating in the [federal] Section 8 Housing Choice Voucher (HCV or voucher) Program administered by the Dallas Housing Authority (DHA)." According to ICP, its voucher clients seek assistance in finding and obtaining "dwelling units in safe and secure communities with higher median incomes, good schools, low poverty rates, and adequate public and private serve and facilities (high opportunity areas)."

         The financial assistance offered by ICP may include the payment of landlord incentives or bonus payments (to encourage leasing to voucher participant households), application fees, and security deposits. ICP also offers landlords in higher opportunity areas the option of a contract with ICP as a guarantor for voucher households or with ICP as the sub-lessor for voucher households. ICP alleges that it proposed these alternative contractual arrangements in response to reasons stated by landlords and landlord associations for refusing to negotiate with or rent to voucher households.

         ICP identifies Defendants-Appellees Legacy Multifamily North III, LLC ("Legacy"), CPF PC Riverwalk, L.L.C. ("Riverwalk"); HLI White Rock, L.L.C. ("White Rock"); and Brick Row Apartments, L.L.C. ("Brick Row") (collectively, Owners") as owners of apartment complexes in the "higher opportunity" or "high opportunity" areas identified by ICP. Defendant-Appellee Lincoln Property Company (Lincoln) manages these complexes in addition to managing or owning and operating numerous other properties in "the Dallas metropolitan area."[2]

         ICP contends "its ability to assist its voucher clients in obtaining dwellings in high opportunity areas is obstructed by Defendants' discriminatory housing practices." ICP alleges that Lincoln has a general policy that it will not negotiate with, rent to, or otherwise make units available in "White non-Hispanic areas" to voucher households; moreover, Lincoln's written advertisements state that housing vouchers, Section 8 vouchers, and any government-subsidized rent programs are not accepted. According to ICP, the only apartment complexes for which Lincoln will negotiate with and rent to voucher households are those in predominately minority locations. These apartment complexes include complexes required by law or contract to not discriminate against voucher households based on their status as voucher program participants.

         Lincoln's general "no vouchers" policy is applied at approximately 43 apartment complexes, located in majority white census tracts, that have at least some units available at rents payable under the voucher program. These complexes include the units owned by the Owners. ICP further contends that it has black voucher clients who are otherwise eligible under Lincoln's application criteria, and with whom ICP would have entered into subleases, but for Lincoln's policy against voucher tenants.

         ICP alleges that it has attempted, on several occasions, to negotiate with Lincoln on behalf of voucher clients seeking rental units in properties that Lincoln manages and/or owns in majority white areas. The most recent requests, ICP reports, were letters that ICP sent to Lincoln, in 2015 and 2016, asking that it "reconsider" its policy of not accepting voucher families as tenants at the aforementioned apartment complexes.[3] According to ICP, neither Lincoln nor the Owners responded to ICP's request to negotiate and rent under the sublease/guarantor proposal. At least one Defendant-Appellee notes, however, that ICP alleges its transmittal of the letters but not their receipt. Nor is it clear when the Owners, as opposed to Lincoln, the manager, became aware of the letters and/or ICP's requests to discuss the "no vouchers" policy.

         ICP asserts that the "no vouchers" policy forces voucher households in the Dallas metro area to seek housing in areas where vouchers are accepted, which are "racially concentrated [predominately minority] areas of high poverty that are marked by substantially unequal conditions." Further, ICP contends, Lincoln's refusal to negotiate with or rent to voucher holders disparately impacts black households in the Dallas area. In short, ICP maintains that landlords who accept vouchers are disproportionately located in minority areas of Dallas, and property management companies located in non-minority areas disproportionately refuse vouchers. The waiting lists for the area voucher programs also are disproportionately black.

         To support its disparate impact contentions, ICP references the most recent United States Department of Housing and Urban Development (HUD) "Picture of Subsidized Housing" reporting a total of 30, 745 voucher households in the Dallas-Irving-Plano Metropolitan Division. According to ICP, 90% of those households are minorities, with the total breakdown being 81% black, 6% Hispanic, and 10% white non-Hispanic (white). Approximately 17, 000 of the 30, 745 voucher households in the Dallas-Irving-Plano Metropolitan Division participate in the program through the DHA, which has a voucher population that is 86% black and 6% white. The voucher households in the City of Dallas are 87% Black and 94% minority.

         ICP likewise characterizes the voucher program in the Dallas metro area as racially segregated into predominantly minority census tracts. On average, voucher households in the Dallas metro area are located in 74% minority census tracts; voucher households in the City of Dallas are located in 88% minority and 33% poverty census tracts.

         ICP also alleges the following facts regarding individual apartment complexes that the Defendants-Appellees own or manage:

• Park Central at Flower Mound Complex
o No Black renters in the "small census tract block group" containing this complex;
o 307 units in the complex; and
o Zero voucher households in the census tract containing this complex.
• McKinney Uptown Complex
o No Black renters in the "small census tract block group" containing this complex;
o 144 units in the complex; and
o No voucher households in the census tract containing this complex.
• Parkside at Legacy Complex
o Black renters are 14% of the 630 renter-occupied units in the "small census tract block group" containing this complex;
o 293 units in the complex; and
o No voucher households in the census tract containing this complex.
• White Rock Lake Apartment Villas
o Black renters are 11% of the 1, 022 renter-occupied units in the "small census tract block group" containing this complex;
o 296 units in the complex; and
o No voucher household in the census tract containing this complex.
• Brick Row Apartments, LLC
o Black renters are 11% of the 532 renter-occupied units in the
"small census tract block group" containing this complex;
o 500 units in the complex;
o 45 voucher households in the census tract containing this complex; and
o Majority of the voucher households in the census tract live in single family or semi-detached structures.

         Finally, ICP attaches city maps to its complaint showing that voucher households are concentrated in parts of Dallas where minorities live, with few voucher households in the parts of Dallas where non-minorities live.

         Alleging it received no responses from Lincoln or the Owners to its latest letters, ICP filed a complaint on January 23, 2017, seeking declaratory and injunctive relief from the district court. Specifically, ICP seeks a declaration that Lincoln and the Owners have violated 42 U.S.C. § 3604(a) and 42 U.S.C. § 1982 by declining to participate in the federal "Section 8" Housing Choice Voucher Program. ICP also seeks a permanent injunction compelling Lincoln and the Owners to accept Section 8 vouchers and requiring them to negotiate and contract with ICP under ICP's sublease/guarantor program.

         In its complaint, ICP alleges a total of four claims. Two claims - disparate impact and disparate treatment - are asserted against all Defendants-Appellees (Lincoln and the Owners). Relative to disparate impact, ICP alleges that Defendants-Appellees' policy of declining to negotiate with or rent to voucher holders disparately impacts black households as evidenced by statistics establishing that more than 80% of the voucher holders in the Dallas area are black.[4] Relative to disparate treatment, ICP alleges that Defendants-Appellees' refusal to negotiate with or rent to ICP, pursuant to ICP's guarantor or sublease proposals, constitutes disparate treatment based on race and color, because ICP's voucher clients are predominantly black.

         ICP also alleges two claims solely against Lincoln. The first concerns Lincoln's publication of its policy of refusing to "negotiate with or rent to voucher households" by including the following statements in advertisements placed with apartment locator services:

Our community is not authorized to accept housing vouchers.
Our community is not authorized to accept Section 8 housing.
Our community is not authorized to accept ANY government subsidized rent programs.

         ICP maintain these advertisements "appeal to the stereotype that because voucher holders are Black, voucher tenants are undesirable as tenants . . ." and, thus, perpetuate racial stereotypes in violation of 42 U.S.C. § 3604(c).

         The second claim against only Lincoln is for disparate treatment liability based on Lincoln's alleged refusal to negotiate with or rent to otherwise qualified voucher households in predominately white areas while, at the same time, negotiating with and renting to voucher holders in predominately minority areas. ICP argues Lincoln's conduct violates the disparate treatment standard of liability because the differing policies regarding vouchers are based on the race and color of the voucher holders.

         In response to ICP's claims, Lincoln and the Owners filed motions to dismiss, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, for failure to state claims upon which relief can be granted. The district court granted the motions in two orders dated July 13, 2017 (Brick Row's motion) and August 16, 2017 (the remaining motions). The district court entered final judgment on August 16, 2017. This appeal followed.

         II.

         Appellate courts conduct a de novo review of a district court's dismissal of a complaint under Federal Rule of Civil Procedure 12(b)(6). See Clyce v. Butler, 876 F.3d 145, 148 (5th Cir. 2017). We may affirm the district court's dismissal on any basis supported by the record. See, e.g., Torch Liquidating Tr. ex rel. Bridge Assocs., L.L.C. v. Stockstill, 561 F.3d 377, 384 (5th Cir. 2009).

         Rule 12(b)(6) authorizes the filing of motions to dismiss asserting, as a defense, a plaintiff's "failure to state a claim upon which relief can be granted." See Fed. R. Civ. P. 12(b)(6). Thus, claims may be dismissed under Rule 12(b)(6) "on the basis of a dispositive issue of law." Neitzke v. Williams, 490 U.S. 319, 326 (1989). Dismissal under Rule 12(b)(6) also is warranted if the complaint does not contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Where the well-pleaded facts of a complaint do not permit a court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not 'show[n]' - "that the pleader is entitled to relief." Iqbal, 556 U.S. at 678 (quoting Fed. Rule Civ. P. 8(a)(2)). Thus, a complaint's allegations "must make relief plausible, not merely conceivable, when taken as true." United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 186 (5th Cir. 2009); see also Twombly, 550 U.S. at 555 ("Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact).").

         "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. Factual allegations that are "merely consistent with a defendant's liability, stop short of the line between possibility and plausibility of entitlement to relief," and thus are inadequate. Id. (internal quotations omitted). Accordingly, the requisite facial plausibility exists "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (emphasis added). "Determining whether a complaint states a plausible claim for relief" is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679 (internal citations omitted). See also Robbins v. Oklahoma, 519 F.3d 1242, 1248 (10th Cir. 2008) (degree of required specificity depends on context, i.e., the type of claim at issue).

         In evaluating motions to dismiss filed under Rule 12(b)(6), the court "must accept all well-pleaded facts as true, and . . . view them in the light most favorable to the plaintiff." Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440, 442 (5th. Cir.), cert. denied, 476 U.S. 1159 (1986). Further, "[a]ll questions of fact and any ambiguities in the controlling substantive law must be resolved in the plaintiff's favor." Lewis v. Fresne, 252 F.3d 352, 357 (5th Cir. 2001). On the other hand, courts "are not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286 (1986); see also Iqbal, 556 U.S. at 678 ("tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions"). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557); see also Christopher v. Harbury, 536 U.S. 403, 416 (2002) (elements of a plaintiff's claim(s) "must be addressed by allegations in the complaint sufficient to give fair notice to a defendant").

         In determining whether a plaintiff's claims survive a Rule 12(b)(6) motion to dismiss, the factual information to which the court addresses its inquiry is limited to (1) the facts set forth in the complaint, (2) documents attached to the complaint, and (3) matters of which judicial notice may be taken under Federal Rule of Evidence 201. See Norris v. Hurst Trust, 500 F.3d 454, 461 n. 9 (5th Cir. 2007); R2 Invs. LDC v. Phillips, 401 F.3d 638, 640 n. 2 (5th Cir. 2005). When a defendant attaches documents to its motion that are referenced in the complaint and are central to the plaintiff's claims, however, the court can also properly consider those documents. Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004); In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007). "In so attaching, the defendant merely assists the plaintiff in establishing the basis of the suit, and the court in making the elementary determination of whether a claim has been stated." Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 499 (5th Cir. 2000).

         III.

         The federal Housing Choice Voucher Program pays rental subsidies to "aid[ ] low-income families in obtaining a decent place to live" and to "promot[e] economically mixed housing." 42 U.S.C. § 1437f(a). The voucher program is funded by HUD and administered by state and local public housing authorities (PHA's) in accordance with regulations promulgated by HUD. When a rent payment exceeds a specified percentage of a family's monthly income, the federal program pays the balance.

         Landlord participation in the voucher program is voluntary under both federal and Texas state law. See 42 U.S.C. §1437f; 24 C.F.R. §§ 982.301(b)(11), 982.302(a), 982.307; Tex. Local Gov't Code § 250.007(a); Tex. Gov't Code. § 2306.269; Knapp v. Eagle Prop. Mgmt. Corp., 54 F.3d 1272, 1280 (7th Cir. 1995) ("Owner participation in the section 8 program is voluntary and non-participating owners routinely reject section 8 voucher holders."); Salute v. Stratford Greens Garden Apartments, 136 F.3d 293, 300 (2d Cir. 1998) ("We think that the voluntariness provision of Section 8 reflects a congressional intent that the burdens of Section 8 participation are substantial enough that participation should not be forced on landlords, either as an accommodation to handicap or otherwise.").

         Once admitted to the voucher program, program participants are responsible for finding a landlord in the private rental market willing to rent to them. 24 C.F.R. § 982.302(a). Landlords who participate in the program are responsible for screening prospective tenants and reject them if screening reveals red flags in terms of paying rent and utility bills, caring for rental housing, respecting neighbors, criminal activity, and the like. Id. at § 982.307(a).

         The Fair Housing Act (FHA), Title III of the Civil Rights Act of 1968, 42 U.S.C. § 3601, et seq., prohibits discrimination in the rental or sale of a dwelling based on certain protected characteristics, including race. See 42 U.S.C. § 3604(a). That statute reflects "the policy of the United States to provide within constitutional limitations, for fair housing throughout the United States." 42 U.S.C. § 3604. Thus, the voluntary nature of landlord participation in the voucher program does not render it immune from liability if actionable discrimination under the FHA is established.

         Pertinent here, § 3604(a) provides:

[I]t shall be unlawful to refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.

42 U.S.C. § 3604(a). ICP's advertisement liability claim against Lincoln is governed by 42 U.S.C. § 3604(c), which provides:

[I]t shall be unlawful to make, print, or publish, or cause to be made, printed, or published any notice, statement or advertisements, with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, sex, handicap, familial status, or national origin, or an intention to make any such preference, limitation, or discrimination.

         A. Disparate Impact Liability

         In Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc.,135 S.Ct. 2507 (2015) ("ICP"), the Supreme Court, construing 42 U.S.C. §§ 3604(a) and 3605(a), determined that both disparate treatment claims (claims asserting "discriminatory intent or motive") and disparate impact claims ("claims asserting an unjustified, disproportionally adverse effect on minorities") are cognizable under the FHA. ICP,135 S.Ct. 2507, 2513, 2518.[5] In recognizing the viability of disparate impact FHA claims, the Supreme Court emphasized, inter alia, the inclusion of the "results-oriented" phrase - "or otherwise make unavailable or deny" - in §3604(a), reasoning that it "refers to the consequences of action rather than the actor's intent." Id. at 2518, 2525. The Court also found "[r]ecognition of disparate-impact claims [to be] ...


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