United States v. Starrett City Associates, Starrett City, Inc., Delmar Management Company

Citations: 840 F.2d 1096; 1988 U.S. App. LEXIS 2776Docket: 1483

Court: Court of Appeals for the Second Circuit; February 29, 1988; Federal Appellate Court

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The United States, represented by the Attorney General, initiated a lawsuit against Starrett City Associates, Starrett City, Inc., and Delmar Management Company under the Fair Housing Act, alleging discriminatory rental practices based on race and national origin. The government claimed that Starrett's methods of renting apartments favored white applicants while denying access to black and Hispanic applicants, violating 42 U.S.C. § 3604. The district court granted summary judgment in favor of the government, issuing a permanent injunction against racial discrimination in apartment rentals. 

Starrett City, located in Brooklyn and comprising 46 high-rise buildings with 5,881 apartments, was constructed with significant financial backing from both the New York State Housing Finance Agency and the U.S. Department of Housing and Urban Development. The project faced community opposition due to fears that it would become predominantly minority-occupied following the conversion from cooperative to rental housing. In response to these concerns, Starrett proposed to maintain a racial distribution of 64% white, 22% black, and 8% Hispanic tenants, asserting that these quotas were necessary to retain white tenants and prevent a demographic shift. Despite efforts to attract a diverse applicant pool, Starrett maintained its tenanting policies to achieve its demographic goals, resulting in stable racial percentages since the complex's opening in 1975.

The tenanting procedure at Starrett City requires applicants to fill out a preliminary information card detailing their race or national origin, family composition, income, and employment. Applications deemed preliminarily eligible are placed in an "active file," where records are maintained by race, apartment size, and income. Applicants receive an acknowledgment letter stating that no apartments are currently available but will be notified when one becomes available.

In December 1979, a group of Black applicants filed a lawsuit against Starrett in the U.S. District Court for the Eastern District of New York, alleging racial discrimination in tenanting procedures. The district court certified the plaintiff class in June 1983, leading to a consent decree in May 1984 that required Starrett to make an additional 35 units available annually for Black and minority applicants over five years.

In June 1984, the government initiated a separate action against Starrett to address unresolved issues from the Arthur consent decree regarding the legality of policies limiting apartment availability to maintain racial balance. The government claimed these practices violated the Fair Housing Act, alleging discrimination against Black applicants in terms of availability, wait times, and preferential treatment for white applicants. The defendants sought dismissal based on judicial estoppel, but their motion was denied on April 2, 1985.

After discovery, the government filed for summary judgment on January 30, 1986, with the defendants filing a cross-motion on May 5, 1986. Extensive documentary evidence was submitted, and hearings took place on August 26, 1986.

Starrett asserted that tenanting procedures were established at the state's request to promote integration, without racial bias. To substantiate this claim, they provided testimony from three housing experts who analyzed the "white flight" and "tipping" phenomena, noting that the tipping point for minority population integration could range from 1% to 60%, with a consensus around 10% to 20%. One expert estimated a specific tipping point at Starrett City to be about 40% black. The court, however, upheld the government's position that Starrett's practices—such as denying apartments to blacks while reserving them for whites and using a race-based "tipping formula"—constituted violations of the Fair Housing Act. The district court found significant disparities in apartment availability, with minority applicants experiencing much longer wait times than white applicants. In October 1985, while 21.9% of Starrett City's active file was white, whites occupied 64.7% of the apartments as of January 1984, in stark contrast to the much lower occupancy rates for blacks and Hispanics. The court dismissed the appellants' tipping argument as not credible and noted their ability to quickly adjust racial quotas when faced with litigation. It ruled that Starrett violated the Fair Housing Act by misrepresenting apartment availability to minority applicants and emphasized that the obligation to facilitate housing integration did not justify their discriminatory practices. Consequently, the court mandated that Starrett comply with the Fair Housing Act and implement objective, nondiscriminatory tenant selection standards, retaining jurisdiction for three years. The appeal affirmed the district court's ruling.

Title VIII of the Civil Rights Act of 1968, known as the Fair Housing Act, was enacted under Congress' thirteenth amendment powers to ensure fair housing across the United States. It prohibits housing discrimination based on race, color, or national origin in various practices, including the refusal to rent, offering discriminatory terms, making biased advertisements, and misrepresenting housing availability. The Act addresses both intentional discriminatory practices and those that disproportionately affect minorities.

The Act's provisions are designed to protect individuals from being denied housing based on discriminatory reasons. While not every denial of low-income public housing constitutes a violation, actions resulting in discriminatory effects on housing availability do violate the Act. Specifically, the use of racial quotas in public housing allocation, resulting in denied access based solely on race, exemplifies a clear discriminatory effect.

Appellants acknowledge that their practices are covered under section 3604, claiming they are mandated to promote integration. However, even if they were deemed state actors, their quota-based approach would still violate the Act's antidiscrimination provisions. Both parties reference the legislative history of the Fair Housing Act, which indicates that Congress intended strict adherence to anti-discrimination measures as a means to eliminate racial discrimination and achieve residential integration. Nevertheless, the use of quotas, while aimed at promoting integration, conflicts with the Act's anti-discrimination policy, and the legislative history does not provide a resolution for this conflict.

Analogous provisions of federal law aimed at prohibiting segregation and discrimination serve as a framework for determining the permissible use of racial criteria to maintain integration. The Thirteenth and Fourteenth Amendments empower Congress to combat racial discrimination, as established in Constructors Ass'n of W. Pa. v. Kreps, and both amendments, along with Title VIII, reflect a congressional intent to eradicate discrimination through antidiscrimination principles, as noted in Kennedy Park Homes Ass'n v. City of Lackawanna. These provisions explicitly prohibit discriminatory actions based on race or color. Furthermore, the similarities between the antidiscrimination goals of Title VIII and Title VII of the Civil Rights Act of 1964 have been acknowledged, as referenced in Smith v. Town of Clarkton. Consequently, the Supreme Court's interpretation of acceptable race-conscious affirmative action under federal laws similar to Title VIII informs the evaluation of racial quotas within the Fair Housing Act.

Racial classifications are typically viewed as discriminatory, but race-conscious affirmative action plans may not necessarily violate federal law. Such plans must be temporary and have specific, defined goals for their termination, as established in various Supreme Court cases. The use of racial distinctions in affirmative action should not be perpetual and should be based on evidence of historical discrimination or imbalances within the organization. Societal discrimination alone is deemed insufficient to justify practices with discriminatory effects. While measures to enhance minority participation, like access quotas, are generally upheld, programs that restrict minority participation, such as ceiling quotas, are considered problematic and potentially invalid. Judicial precedent underscores the necessity for affirmative action plans to be carefully structured and time-limited to avoid unjust impacts on those least represented in the political process.

Starrett City’s use of ceiling quotas to maintain racial integration is criticized for lacking essential characteristics of a legitimate affirmative action plan. The quotas, in effect for ten years, are intended to prevent "white flight" but have no definite termination date, suggesting a permanent rather than temporary solution. There is no evidence of past racial discrimination adversely affecting whites at Starrett City, which was initially established as an integrated community. Instead, the quotas limit minority access to housing, contradicting the purpose of Title VIII, which aims to enhance housing opportunities for minorities. Starrett's claim that quotas prevent "white flight" is deemed insufficient justification for maintaining rigid racial quotas that do not remedy prior discrimination.

Furthermore, reliance on the Otero case is deemed inappropriate. In Otero, the New York City Housing Authority prioritized former residents for new housing but ultimately altered its regulations to avoid creating a predominantly minority area, which was challenged in court. The district court ruled against the authority's actions aimed at achieving racially balanced communities if they deprived minority groups of public housing. The appellate court acknowledged the duty of public housing authorities to promote integrated housing but recognized that this might limit some minorities' access to specific locations.

Otero does not apply to the current case as it did not address long-term integration maintenance procedures but focused on the rental of 171 of 360 new apartments primarily to non-former site occupants, predominantly white, despite former minority residents' entitlement to priority under NYCHA regulations. The Otero court did not clarify statutory or constitutional limits on integration methods but ruled that NYCHA’s rental practices could not be invalidated as a matter of law. The court noted that race-conscious tenanting might lead to social engineering with potential unlawful racial discrimination implications. The Otero action was a one-time measure to prevent the creation of a "pocket ghetto" in the Lower East Side, which had seen a decline in white population and risked tipping the racial balance. The suspension of NYCHA's regulations was not a strict racial quota, as former site residents entitled to priority were about 40% white. The impact on non-whites was less burdensome than ongoing practices in Starrett City. The conclusion affirms that while Title VIII does not categorically prohibit considering race in promoting integrated housing, it does not permit rigid, indefinite racial quotas that restrict minority access to rental accommodations. Judge Newman dissents, arguing that Congress intended the Fair Housing Act to allow for maintaining racial integration in private housing, citing Starrett City's successful integration efforts since its inception. Starrett City, a privately owned complex in Brooklyn with nearly 17,000 residents, was designed to sustain racial diversity, initially planned as a cooperative but later converted to rental housing with assurances to maintain integration, leading to city approval amidst political opposition fearing minority-only occupancy.

DHCR policy established a goal for state-sponsored projects to maintain a tenant composition of 70% majority and 30% minority. Starrett City adopted this goal, implementing a rental policy that prioritized racial balance over a first-come, first-served approach due to the higher number of minority applicants compared to White applicants. The management set ceilings on the number of apartments rented to Black and other minority tenants based on apartment size, placing excess applicants from these groups on a waiting list until vacancies allowed for compliance with the ceilings.

Over time, Starrett City increased its minority rental percentage to approximately 35%, comprising 21% Black, 8% Hispanic, 4.5% Asian, and 2% other/mixed, with a minority population of about 45% since 1976. In 1984, Starrett City agreed to raise the minority rental percentage to 38% over five years as part of a lawsuit settlement with Black applicants. Consequently, Black applicants made up a disproportionate share of the waiting list (54%) compared to Whites (22%), with significantly longer average waiting times for apartments: 20 months for a two-bedroom unit for Blacks versus 2 months for Whites, and 11 months versus 4 months for a one-bedroom.

Starrett City’s approach to racial integration was supported by the Department of Housing and Urban Development (HUD), which provided substantial financial backing, covering nearly all the mortgage debt service through a contract. By March 1986, HUD had paid over $211 million on behalf of Starrett City. In return for interest subsidies, Starrett City agreed to limit rents for eligible tenants and accepted nearly $22 million annually in rental subsidies for low-income tenants since 1981.

The United States has initiated a lawsuit against Starrett City to compel the abandonment of its rental policies that promote racial integration, raising questions about the government's commitment to integrated housing. This legal action follows a 1979 lawsuit (Arthur v. Starrett City Associates) brought by Black housing applicants challenging the same tenant selection policies. After four years of negotiations, a settlement allowed Starrett City to maintain its integration policies while committing to increase minority tenant occupancy by three percent over five years. The state housing agency also agreed to prioritize minority applicants in related projects. No minority applicants opposed this settlement, indicating their needs were met satisfactorily. However, a month later, the federal government filed the current suit, seemingly in defense of the same minority applicants. 

The sole issue at hand is whether Starrett City's rental policies violate Title VIII of the Civil Rights Act of 1968, known as the Fair Housing Act. The United States has not claimed any constitutional violation. The defendants acknowledge their policies may technically fall under Title VIII's prohibitions but argue that, as state actors under the Fourteenth Amendment, their race-conscious policies should be evaluated under strict scrutiny, as established in Regents of the University of California v. Bakke. They assert that these policies serve the compelling state interest of promoting integrated housing and are appropriately tailored. Ultimately, the defendants argue they should prevail on statutory grounds, contending that while their actions fall within the statute's language, the law's intent was to prevent segregation, not to hinder integration.

Learned Hand's caution against literal interpretation of documents underscores the complexity of statutory analysis, particularly regarding the Fair Housing Act (Title VIII). While the text serves as a foundation, adherence to the literal meaning can misinterpret the law's intent. Title VIII aims to eliminate discriminatory housing practices and promote integrated living, which contradicts any application that would prevent integrated housing, such as that maintained by Starrett City. Legislative intent, as articulated by Senator Mondale, focused on dismantling segregation rather than preventing integration. The law was designed to foster racially balanced communities, and it is unlikely those who enacted it would oppose a private landlord's efforts to maintain such balance.

Furthermore, prior rulings, such as in Otero v. New York City Housing Authority, support the notion that Title VIII does not strictly prohibit racially based rental policies intended to promote integration. In Otero, a housing authority's decision to prioritize rental applications based on displacement concerns was challenged due to fears of creating a predominately non-White community. The case highlights the need to interpret the law in a manner that aligns with its foundational goals of integration and balanced living patterns rather than a rigid application that could undermine these objectives.

The Court determined that implementing a race-conscious rental policy does not violate the Act, as Congress intended to promote fair housing and prevent urban ghettos, even if it may restrict some racial minorities from specific publicly assisted housing. The key issue was whether the Act imposes an affirmative duty to promote integration that could justify violating existing regulations. The Court ruled in favor of the authority, allowing a trial to assess the validity of its concerns regarding a "tipping point" necessitating a change in its policy to promote integration.

Starrett City’s case differs from Otero, as it does not seek to retract a prior commitment to housing applicants but instead intends to maintain a long-term policy of integration. The ruling in Otero, which involved a temporary policy, does not imply that Title VIII forbids race-conscious policies aimed at integration, regardless of their duration. The Court argued that if Title VIII prohibits such policies, it would apply equally to both short-term and long-term approaches.

Starrett City must be allowed to prove that its race-conscious rental policy is essential for maintaining integration, countering the Government's summary judgment motion that relied on a vague HUD affidavit. In contrast, Starrett City provided substantial evidence indicating that abandoning its policy would lead to segregation, citing examples of nearby developments that became racially segregated without integration strategies. The Court established that Otero affirms that race-conscious policies aimed at promoting integration do not violate Title VIII and that Starrett City has the right to present its case at trial regarding the necessity of its policy to prevent segregation.

A party is entitled to a trial to present evidence regarding the application of race-conscious rental policies in private housing complexes. The debate centers on whether such policies, which may limit opportunities for minorities, should be maintained to prevent segregation, even if this results in longer wait times for minority applicants. The Department of Justice supports the former policy, while civil rights advocates like Dr. Kenneth Clark argue against any measures that could lead to the disintegration of integrated communities. The decision on these policies should rest with private property owners until Congress or state legislatures take definitive action against integration maintenance. The Fair Housing Act does not necessitate the dismantling of integrated communities, and the dissenting opinion emphasizes that the law does not require such a negative outcome. It is noted that while no applicants are barred based on race, minority applicants generally face longer wait times than white applicants. The historical context of Title VIII and its intended purpose is discussed, particularly in relation to Title VII, with the distinction that housing has unique challenges, including the concept of a "tipping point" that can lead to segregation. The court questions whether Starrett City has justified its future rental policy estimates adequately, suggesting that if further explanation is required, a trial should be held to gather evidence. Ultimately, the core issue is whether current practices violate Title VIII, regardless of future projections.