Justices split on rental restriction case

Michael W. Hoskins
January 1, 2008
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In a ruling that could be the first of its kind in the nation, a divided Indiana Supreme Court Thursday afternoon reversed a lower court's ruling that a Kokomo subdivision's covenant restricting rentals violated the federal Fair Housing Act because of potential racial implications.

The state's highest court has been quiet on the issue since hearing arguments in October 2006, but it simultaneously decided to grant transfer and issue an opinion in the case of Villas West II of Willowridge v. Edna McGlothin, No. 34S02-0805-CV-266. The case involved a covenant that the Indiana Court of Appeals described as being "subterfuge for excluding minorities from renting homes" and a case of first impression that could affect how neighborhoods across the state implement no-rent provisions.

More than two years ago, the lower appellate court had upheld the trial judge's determination about the rental restriction. But a majority of the justices disagreed that the owner challenging the restriction, Edna McGlothin, proved any racial disparate impact.

The bottom line: the subdivision's no-lease covenant can stay in place.

"This record does not support a claim under a disparate impact theory," Chief Justice Randall T. Shepard wrote, joined by Justices Brent Dickson and Theodore Boehm. Justices Robert D. Rucker and Frank Sullivan dissented, voting to affirm the trial court.

The suit arose when the homeowners association sued McGlothin in 2002 for renting her residence in violation of a covenant barring rentals in the community to anyone other than family members. Algy and Edna McGlothin had bought the home in 1996. The developer controlled the association until turning it over to a board of homeowners in May 2000, but through their daughter the McGlothins had started leasing the home in 1998. That person rented until 2002, when the homeowner-controlled association notified the owner that they had violated the covenant. McGlothin had moved into a nursing home after her husband's death and needed the rental income to qualify for Medicaid and finance her care. The association sued her - as well as her estate after she died - and argued that the rental ban was needed to protect property values within the community and was consistent with the association's obligation to do so.

McGlothin countersued, arguing that the covenant violated the Fair Housing Act because it had a disparate impact on blacks. Howard Superior Judge Stephen Jessup ruled against the association, and the Court of Appeals upheld that decision in January 2006, holding that the covenant violates the federal Fair Housing Act. The association appealed.

But in their ruling, justices noted the trial court ruling was "clearly erroneous" because it found no "legitimate non-discriminatory reason" for the covenant despite undisputed evidence and expert testimony in the record showing that owners maintain property better than renters.

The court reflected on multiple jurisdictions' handling of how to determine whether any disparate impact had been proven, delving into federal caselaw in five of the 15 pages of the opinion. The majority noted that there is wide agreement in the federal Circuit courts that the FHA allows disparate impact claims but that there's no consensus about the proper framework for analyzing such a claim, and the U.S. Supreme Court hasn't addressed that issue.

A main federal precedent questioned, and ultimately rejected by the majority, was Metropolitan Housing Development Corp. v. Village of Arlington Heights, 558 F.2d 1283 (7th Cir. 1977), which is known as "Arlington Heights II." The majority notes that it isn't bound by federal precedent and that it finds Arlington Heights II "doctrinally unsound" in how it outlines a procedure for establishing the burden each party must meet. Ultimately, it settled on its own framework.

"In sum, to establish a right to disparate impact recovery under the FHA, a plaintiff must establish a prima facie case by demonstrating that a policy or practice actually or predictably has a significantly adverse or disproportionate impact on a protected class," Chief Justice Shepard wrote. "To rebut this showing, the defendant must demonstrate that its policy or practice has a manifest relationship to a legitimate, nondiscriminatory interest. The plaintiff may then overcome the defendant's showing by demonstrating that a less discriminatory alternative would serve the defendant's legitimate interest equally well."

Applying that framework to the Villas West II case, justices determined that McGlothin's evidence left "something to be desired" in proving that the no-lease covenant would predictably and disproportionately affected blacks, but it proceeded on the basis that the prima facie case was established. Next, it looked at the HOA's demonstration that it had a legitimate, non-discriminatory reason for the rule by considering expert testimony that renters don't maintain homes as well as owners do and, therefore, excluding renters helps maintain property values. Lastly, the justices looked at McGlothin's rebuttal claim that other covenants helped maintain the community and property values.

Chief Justice Shepard wrote that other property-maintenance covenants - rules to maintain windows and fixtures, maintain lawns, clear trash, signs, and non-working vehicles - can be a less discriminatory alternative to no-lease covenants, and that owners typically do take more pride in their properties. He relied on expert testimony and evidence that was undisputed at trial and noted these other covenants are not an equally effective way to address the problem of divided interests in rental property.

In the dissent, Justices Rucker and Sullivan pushed to not abandon the 30-year-old precedent from the 7th Circuit Court of Appeals that much of the case's analysis of disparate impact relied upon.

"The majority works overtime and spends much ink to argue that Arlington Heights II is flawed and should not be followed," Justice Rucker wrote. "Other than to make it exceedingly more difficult for legitimate victims of housing discrimination to press their claims, I see no reason to abandon this precedent."

Now, the Kokomo case goes back to Judge Jessup to decide whether any intentional discrimination occurred and if any relief is needed.

"We find ourselves unable to discern whether relief is appropriate on McGlothin's intentional discrimination claim," the court wrote. "The need for fair adjudication suggests the desirability of remanding for further evidence and findings."

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  1. Especially I would like to see all the republican voting patriotic good ole boys to stop and understand that the wars they have been volunteering for all along (especially the past decade at least) have not been for God & Jesus etc no far from it unless you think George Washington's face on the US dollar is god (and we know many do). When I saw the movie about Chris Kyle, I thought wow how many Hoosiers are just like this guy, out there taking orders to do the nasty on the designated bad guys, sometimes bleeding and dying, sometimes just serving and coming home to defend a system that really just views them as reliable cannon fodder. Maybe if the Christians of the red states would stop volunteering for the imperial legions and begin collecting welfare instead of working their butts off, there would be a change in attitude from the haughty professorial overlords that tell us when democracy is allowed and when it isn't. To come home from guarding the borders of the sandbox just to hear if they want the government to protect this country's borders then they are racists and bigots. Well maybe the professorial overlords should gird their own loins for war and fight their own battles in the sandbox. We can see what kind of system this really is from lawsuits like this and we can understand who it really serves. NOT US.... I mean what are all you Hoosiers waving the flag for, the right of the president to start wars of aggression to benefit the Saudis, the right of gay marriage, the right for illegal immigrants to invade our country, and the right of the ACLU to sue over displays of Baby Jesus? The right of the 1 percenters to get richer, the right of zombie banks to use taxpayer money to stay out of bankruptcy? The right of Congress to start a pissing match that could end in WWIII in Ukraine? None of that crud benefits us. We should be like the Amish. You don't have to go far from this farcical lawsuit to find the wise ones, they're in the buggies in the streets not far away....

  2. Moreover, we all know that the well heeled ACLU has a litigation strategy of outspending their adversaries. And, with the help of the legal system well trained in secularism, on top of the genuinely and admittedly secular 1st amendment, they have the strategic high ground. Maybe Christians should begin like the Amish to withdraw their services from the state and the public and become themselves a "people who shall dwell alone" and foster their own kind and let the other individuals and money interests fight it out endlessly in court. I mean, if "the people" don't see how little the state serves their interests, putting Mammon first at nearly every turn, then maybe it is time they wake up and smell the coffee. Maybe all the displays of religiosity by American poohbahs on down the decades have been a mask of piety that concealed their own materialistic inclinations. I know a lot of patriotic Christians don't like that notion but I entertain it more and more all the time.

  3. If I were a judge (and I am not just a humble citizen) I would be inclined to make a finding that there was no real controversy and dismiss them. Do we allow a lawsuit every time someone's feelings are hurt now? It's preposterous. The 1st amendment has become a sword in the hands of those who actually want to suppress religious liberty according to their own backers' conception of how it will serve their own private interests. The state has a duty of impartiality to all citizens to spend its judicial resources wisely and flush these idiotic suits over Nativity Scenes down the toilet where they belong... however as Christians we should welcome them as they are the very sort of persecution that separates the sheep from the wolves.

  4. What about the single mothers trying to protect their children from mentally abusive grandparents who hide who they truly are behind mounds and years of medication and have mentally abused their own children to the point of one being in jail and the other was on drugs. What about trying to keep those children from being subjected to the same abuse they were as a child? I can understand in the instance about the parent losing their right and the grandparent having raised the child previously! But not all circumstances grant this being OKAY! some of us parents are trying to protect our children and yes it is our God given right to make those decisions for our children as adults!! This is not just black and white and I will fight every ounce of this to get denied

  5. Mr Smith the theory of Christian persecution in Indiana has been run by the Indiana Supreme Court and soundly rejected there is no such thing according to those who rule over us. it is a thought crime to think otherwise.