The Inclusive Communities Project Inc v. Department of Treasury et al
Filing
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MEMORANDUM OPINION AND ORDER granting in part and denying in part 11 Motion to Dismiss, filed by Office Comptroller of the Currency, Department of Treasury, and granting plaintiff leave to replead. (Ordered by Judge Sidney A Fitzwater on 8/4/2015) (Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
THE INCLUSIVE COMMUNITIES
PROJECT, INC.,
Plaintiff,
VS.
THE UNITED STATES
DEPARTMENT OF TREASURY,
et al.,
Defendants.
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§ Civil Action No. 3:14-CV-3013-D
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MEMORANDUM OPINION
AND ORDER
Plaintiff The Inclusive Communities Project, Inc. (“ICP”) brings this action against
defendants U.S. Department of the Treasury (“Treasury”) and Office of the Comptroller of
the Currency (“OCC”), alleging claims under 42 U.S.C. § 3608(d), 42 U.S.C. § 3604(a), 42
U.S.C. § 1982, and the Fifth Amendment, essentially contending that defendants’
administration of the Low Income Housing Tax Credit (“LIHTC”) program created under
the Tax Reform Act of 1986 is perpetuating racial segregation in LIHTC units in the city of
Dallas and relegating minority families to unequal conditions of slum, blight, and distress.
Defendants move to dismiss, contending that ICP lacks Article III standing, that ICP’s
§ 3608 claim is barred by sovereign immunity and otherwise unreviewable, and that some
of ICP’s claims fail on the merits. For the reasons explained, the court grants the motion in
part and denies it in part and grants ICP leave to replead.
I
The court will briefly recount the background facts and procedural history given the
parties’ familiarity with the record and the limited scope of this memorandum opinion and
order.1
42 U.S.C. § 3608(d) provides:
All executive departments and agencies shall administer their
programs and activities relating to housing and urban
development (including any Federal agency having regulatory
or supervisory authority over financial institutions) in a manner
affirmatively to further the purposes of this subchapter and shall
cooperate with the Secretary to further such purposes.
1
Although this memorandum opinion and order addresses the merits of some of ICP’s
claims, it does not decide whether ICP can prevail on the overarching tenet of its case. For
example, defendants make this argument in their reply memorandum:
Plaintiff’s opposition brief demonstrates the fundamental fallacy
on which this lawsuit is premised, namely that the Fair Housing
Act’s (“FHA”) general mandate that federal agencies administer
relevant programs in a “manner affirmatively to further” fair
housing requires Defendants to take specific actions to consider
the racial characteristics of the location of housing developed
with [LIHTCs]. The law contains no such requirement.
Ds. Reply Mem. 1. At oral argument, defendants’ counsel maintained:
I think this lawsuit is premised on a fundamental fallacy
that the general mandate in the [FHA] requires these particular
defendants to take very specific actions to consider and regulate
the location of housing developed with LIHTC, and there is no
such requirement in the [FHA].
Tr. Oral Arg. 14. This memorandum opinion and order does not decide this question.
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42 U.S.C. § 3604(a) provides, in pertinent part, that
it shall be unlawful . . . [t]o 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.
Under the LIHTC program, developers who construct or rehabilitate qualified lowincome housing projects can obtain tax credits. According to ICP’s complaint, Treasury is
the federal agency charged with administering the LIHTC program. Treasury, through the
Internal Revenue Service (“IRS”), issues rules and other guidance governing taxpayers’
entitlement to LIHTCs, and the IRS denies, or requires recapture of, credits if taxpayers are
shown not to be entitled to them.
ICP alleges that OCC is an independent bureau of Treasury that serves as the primary
federal regulator of national banks and the public welfare investment (“PWI”) authority
established in 12 U.S.C. § 24 (Eleventh). National banks are authorized to make investments
in affordable housing because, under OCC regulations, projects that qualify for LIHTCs are
acceptable PWIs. OCC is required to approve all national bank investments in LIHTC units
by finding that the investment in question is designed primarily to promote the public
welfare.
ICP alleges that defendants are not administering their programs and activities
relating to housing in a manner affirmatively to further fair housing and are in fact
administering the LIHTC program in a manner that perpetuates racial segregation and
unequal conditions in affordable housing in the city of Dallas. In particular, they allege that
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national banks are a substantial source of funding for LIHTC units in the Dallas area; that
OCC has approved all of the national bank or related national banking entities’ investments
and related involvement in Dallas area LIHTC units as PWIs; that OCC has approved such
investments in racially segregated minority areas marked by slum, blight, and distress; that
defendants’ actions approving such investments in racially segregated minority locations
subject to slum, blight, and distress steer LIHTC units into those areas, making such units
unavailable in non-minority-concentrated areas without slum, blight, and distress; that there
would be more LIHTC units available outside such areas for ICP’s clients and other housing
voucher participants if defendants did not continue to approve national bank or related
national banking entities’ investments and related involvement in LIHTC units in racially
segregated minority locations subject to slum, blight, and distress; and that the continued
application of policies by Treasury and OCC for the regulation of the LIHTC program and
national bank or related national banking entities’ investments and related involvement
directly affects the disproportionate distribution of those units by approving the use of
LIHTCs for units and locations that perpetuate racial segregation in areas marked by slum,
blight, and distress, thereby injuring ICP and its clients.
Defendants move to dismiss this action, contending that it is barred by sovereign
immunity, that ICP lacks standing, and that ICP has failed in certain respects to state a claim
on which relief can be granted. ICP opposes the motion. The court has heard oral argument.
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II
Treasury and OCC raise standing as their final argument, but the court will address
it first.
A
Treasury and OCC maintain that ICP lacks Article III standing. To establish Article
III standing, ICP must show that it has “suffered ‘injury in fact,’ that the injury is ‘fairly
traceable’ to the actions of the defendant, and that the injury will likely be redressed by a
favorable decision.” Bennett v. Spear, 520 U.S. 154, 162 (1997) (quoting Lujan v. Defenders
of Wildlife, 504 U.S. 555, 560-61(1992)). Because defendants’ motion to dismiss is not
supported by evidence, the court must decide the jurisdictional question based on the
complaint alone, and it must presume that the allegations of the complaint are true. See, e.g.,
Sullo & Bobbitt, PLLC v. Abbott, 2012 WL 2796794, at *4 (N.D. Tex. July 10, 2012)
(Fitzwater, C.J.), aff’d, 536 Fed. Appx. 473 (5th Cir. 2013). The court cannot dismiss the
complaint if the allegations are sufficient. See Hunter v. Branch Banking & Trust Co., 2013
WL 607151, at *2 (N.D. Tex. Feb. 19, 2013) (Fitzwater, C.J.) (citing Paterson v.
Weinberger, 644 F.2d 521, 523 (5th Cir. May 1981)).
B
1
Although Treasury and OCC do not concede that ICP has suffered injury in fact, they
do not specifically challenge this element. See Ds. Mem. 21-22. The court holds that ICP’s
complaint adequately alleges the element of injury in fact. See Compl. ¶ 11 (alleging that
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when sufficient numbers of LIHTC units are not located in low poverty, non-minority
concentrated areas, ICP must rely on private market landlords to provide housing, which
increases the ICP resources needed to assist clients in obtaining affordable units in nonminority concentrated areas), and ¶ 102 (alleging that defendants’ actions have injured ICP).
2
ICP has also adequately pleaded that its injuries are fairly traceable to defendants’
actions. As ICP’s counsel explained at oral argument, ICP relies on the assertion that for a
national bank to own a LIHTC unit and take a tax credit, OCC and Treasury must approve
the specific investment. See Tr. Oral Arg. 28 (“Everybody makes all the decisions and it
comes down to OCC and Treasury, are they going to let the national bank own it and take
the tax credits. That is nobody else’s decision but theirs. If they say no, the tax credits don’t
get awarded for that project and the bank doesn’t get to own it.”). This theory is pleaded in
ICP’s complaint. See, e.g., Compl. ¶¶ 16, 59-60, 101, and 102. In particular, ICP alleges:
Defendant Treasury’s and Defendant OCC’s continued
application of policies for the regulation of the LIHTC program
and national bank or related national banking entities
investments and related involvement including ownership of
LIHTC units directly affects the disproportionate distribution of
those units by approving the use of LIHTC for units in locations
that perpetuate racial segregation in areas marked by slum,
blight, and distress. But for the defendants’ actions, there is at
least a reasonable probability that there would be a substantial
increase in LIHTC units outside of these areas. Defendants’
actions injure ICP and ICP’s clients.
Id. ¶ 102. See also id. ¶¶ 103-131 (pleading examples of projects that defendants approved
and that ICP alleges are “[i]nstances of the Defendants’ continued exercise of their
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supervisory and regulatory authority to approve continued investment in racially segregated
minority locations marked by slum, blight, and distress.” (bold font omitted)).
“[T]he fairly traceable element of standing doctrine imposes a causation standard that
is lower than the tort standard of proximate causation.” TF-Harbor, LLC v. City of Rockwall,
Tex., 18 F.Supp.3d 810, 820 (N.D. Tex. 2014) (Fitzwater, C.J.) (citing League of United
Latin Am. Citizens, Dist. 19 v. City of Boerne, 659 F.3d 421, 431 (5th Cir. 2011)), aff’d, 592
Fed. Appx. 323 (5th Cir. 2015); see also, e.g., Rothstein v. UBS AG, 708 F.3d 82, 91-92 (2d
Cir. 2013) (collecting cases and discussing difference between “fairly traceable” standard and
proximate causation). “[T]he fairly traceable element does not require that the defendant’s
challenged action be the last act in the chain of events leading to the plaintiff’s injury. TFHarbor, 18 F.Supp.3d at 820 (citing Bennett, 520 U.S. at 168-69). The court holds that ICP
has adequately pleaded this element of Article III standing.
3
Finally, ICP has adequately pleaded that its injuries will likely be redressed by a
favorable decision.
Defendants’ contention that ICP cannot satisfy this element appears to rest primarily
on the premise that the Administrative Procedure Act (“APA”) does not permit the court to
enjoin defendants to take any of the very specific measures that ICP requests in its complaint.
See Ds. Mem. 24 (“[T]he APA does not permit the Court to enjoin Defendants to take any
of these very specific measures.”). But even if the court assumes arguendo that ICP cannot
obtain injunctive relief of the specific type it seeks, defendants do not appear to assert that
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the court is completely powerless to impose some form of remedy. See id. (arguing that court
“could not order Defendants to take any specific actions”); Ds. Reply Mem. 9-10
(recognizing that the court can order the agency to take action, although the court cannot
direct how the agency must act, and asserting that the court “could not order Defendants to
take any specific actions”). The court therefore concludes that ICP has satisfied the
requirement of redressability.
Accordingly, the court holds that ICP has demonstrated that it has Article III standing.
III
Treasury and OCC move to dismiss ICP’s claim under 42 U.S.C. § 3608 based on
sovereign immunity. They contend that the APA’s waiver of sovereign immunity does not
apply because ICP has an adequate remedy at law—a private right of action directly against
the entities allegedly discriminating in the provision of housing. Defendants point out that
ICP has already availed itself of this remedy by suing the Texas Department of Housing and
Community Affairs in this court.
The court recognizes that courts have not been uniform in addressing whether the
inadequate remedy requirement of 5 U.S.C. § 704 should be read into claims brought, as
here, under the second sentence of 5 U.S.C. § 702. In the absence of binding Fifth Circuit
authority, the court concludes that “the conditions of § 704 affect the right of action
contained in the first sentence of § 702, but they do not limit the waiver of immunity in
§ 702’s second sentence.” Michigan v. U.S. Army Corps of Eng’rs, 667 F.3d 765, 775 (7th
Cir. 2011) (citing Veterans for Common Sense v. Shinseki, 644 F.3d 845, 866-68 (9th Cir.
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2011)); see also id. (addressing “final agency action” requirement of § 704 and stating that
“[a]lthough the United States has argued from time to time that the ‘final agency action’
requirement of § 704 limits the waiver of immunity in § 702, it has not prevailed on that
ground.”); Trudeau v. Fed. Trade Comm’n, 456 F.3d 178, 187 (D.C. Cir. 2006) (holding that
“final agency action” requirement of § 704 did not apply to actions brought under second
sentence of § 702); Ala.-Coushatta Tribe of Tex. v. United States, 757 F.3d 484, 489 (5th Cir.
2014) (citing, inter alia, Trudeau, and holding that when judicial review is sought pursuant
to statutory or non-statutory cause of action that arises completely apart from general
provisions of the APA, there is no requirement of finality because the finality requirement
comes from § 704, which “has been read into § 702 in cases where review is sought pursuant
only to the general provisions of the APA”). The court therefore concludes that ICP’s claim
brought under § 3608 via the second sentence of § 702 is not subject to the requirement of
§ 704 that “there is no other adequate remedy in a court.”
IV
Treasury and OCC contend that ICP’s claim that they have violated § 3608(d) is
unreviewable under the APA. Without suggesting any other view on this issue, the court
rejects this ground of defendants’ motion because it is based on the premise that ICP cannot
recover under 5 U.S.C. § 706(1), see Ds. Mem. 14-16, and ICP is proceeding under 5 U.S.C.
§ 706(2), see Ps. Br. 14. Although Treasury and OCC present arguments in their reply
memorandum to support the contention that § 706(2) is inapposite, Ds. Reply Mem. 5-6, this
court will not consider arguments raised for the first time in a reply brief. See, e.g., Jacobs
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v. Tapscott, 2006 WL 2728827, at *7 (N.D. Tex. Sept. 25, 2006) (Fitzwater, J.) (“[T]he court
will not consider an argument raised for the first time in a reply brief.” (citing Senior
Unsecured Creditors’ Comm. of First RepublicBank Corp. v. FDIC, 749 F. Supp. 758, 772
(N.D. Tex. 1990) (Fitzwater, J.))), aff’d, 277 Fed. Appx. 483 (5th Cir. 2008). Accordingly,
the court is not deciding at this time whether ICP can state a plausible claim under 42 U.S.C.
§ 3608(d) via 5 U.S.C. § 706(2).
V
Treasury and OCC posit that ICP has failed to state a claim under § 3604. They
maintain that their actions are too attenuated from the business of providing housing or
housing-related services to consumers. ICP maintains that it has adequately pleaded
discriminatory effect and discriminatory purpose claims under § 3604(a).
As with ICP’s claims under 42 U.S.C. § 1982 and the Fifth Amendment, see infra
§ VI, the court holds that the complaint is too conclusory to plead discriminatory intent. The
court therefore grants defendants’ motion to dismiss ICP’s § 3604-based discriminatory
purpose claim.
As for discriminatory effect, after defendants filed their briefs and the court heard oral
argument on defendants’ motion to dismiss, the Supreme Court decided Texas Department
of Housing and Community Affairs v. Inclusive Communities Project, Inc. ___ U.S. ___, 135
S.Ct. 2507 (2015). In Inclusive Communities Project the Court confirmed that a disparate
impact claim can be brought under § 3604(a). Id. at 2525 (“The Court holds that
disparate-impact claims are cognizable under the Fair Housing Act[.]”). ICP has attempted
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to plead a disparate impact claim under § 3604(a). See Compl. ¶¶ 133-35. Defendants’
motion—written without the benefit of Inclusive Communities Project —does not adequately
address this basis for relief. Moreover, Inclusive Communities Project contains admonitions
concerning limitations on FHA-based disparate impact claims. See Inclusive Cmtys. Project,
135 S.Ct. at 2522-25. It specifically mentions, for example, that “Courts must . . . examine
with care whether a plaintiff has made out a prima facie case of disparate impact[.]” Id. at
2523. Accordingly, the court declines at this time to dismiss ICP’s § 3604(a) disparate
impact claim, but suggests no view on whether ICP can prevail on such a claim.
VI
Finally, Treasury and OCC contend that ICP has failed to state a claim under either
42 U.S.C. § 1982 or the equal protection component2 of the Fifth Amendment because ICP
has failed to plead a prima facie case. The court agrees.
These claims require that ICP plausibly plead that defendants acted with a racially
discriminatory intent or purpose. At oral argument, ICP’s counsel explained why he
maintained that ICP had plausibly pleaded intentional discrimination. But ICP’s complaint
itself is conclusory in alleging that defendants acted with discriminatory intent or purpose,
2
Defendants refer to this as the “Equal Protection Clause.” Ds. Reply Mem. 7. “The
Fifth Amendment . . . does not contain an equal protection clause as does the Fourteenth
Amendment which applies only to the states.” Bolling v. Sharpe, 347 U.S. 497, 499 (1954).
It is more precise to refer to the equal protection “component” of the Due Process Clause of
the Fifth Amendment. See, e.g., Ashcroft v. Iqbal, 556 U.S. 662, 675 (2009) (referring to “a
violation of the equal protection component of the Due Process Clause of the Fifth
Amendment”).
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see, e.g., Compl. ¶¶ 138-139, and is inadequate to allege plausible claims for relief. The
court therefore grants defendants’ motion to dismiss ICP’s § 1982 and Fifth Amendment
claims.
VII
“Because the court’s usual practice when granting a motion to dismiss is to permit a
plaintiff at least one opportunity to replead, the court will give [ICP] an opportunity to amend
[its] complaint.” Shah v. Univ. of Tex. Sw. Med. Sch., 54 F.Supp.3d 681, 707 (N.D. Tex.
2014) (Fitzwater, C.J.) (citing In re Am. Airlines, Inc., Privacy Litig., 370 F.Supp.2d 552,
567-68 (N.D. Tex. 2005) (Fitzwater, J.)). “[D]istrict courts often afford plaintiffs at least one
opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the
defects are incurable or the plaintiffs advise the court that they are unwilling or unable to
amend in a manner that will avoid dismissal.” Am. Airlines, Inc., Privacy Litig., 370
F.Supp.2d at 567-68. It is not clear to the court that the shortcomings in the parts of ICP’s
complaint that are defective are incurable, and ICP has repeatedly referred in its response to
defendants’ motion to what it would plead in an amended complaint, thereby confirming its
willingness to attempt to cure pleading defects by way of amendment. Accordingly, the
court grants ICP leave to file an amended complaint within 28 days of the date this
memorandum opinion and order is filed.
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*
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*
For the reasons explained, the court grants in part and denies in part defendants’
motion to dismiss, and it grants ICP leave to replead.
SO ORDERED.
August 4, 2015.
_________________________________
SIDNEY A. FITZWATER
UNITED STATES DISTRICT JUDGE
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