ILNews

Justices split on rental restriction case

Michael W. Hoskins
January 1, 2008
Keywords
Back to TopCommentsE-mailPrintBookmark and Share
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."
ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. "So we broke with England for the right to "off" our preborn progeny at will, and allow the processing plant doing the dirty deeds (dirt cheap) to profit on the marketing of those "products of conception." I was completely maleducated on our nation's founding, it would seem. (But I know the ACLU is hard at work to remedy that, too.)" Well, you know, we're just following in the footsteps of our founders who raped women, raped slaves, raped children, maimed immigrants, sold children, stole property, broke promises, broke apart families, killed natives... You know, good God fearing down home Christian folk! :/

  2. Who gives a rats behind about all the fluffy ranking nonsense. What students having to pay off debt need to know is that all schools aren't created equal and students from many schools don't have a snowball's chance of getting a decent paying job straight out of law school. Their lowly ranked lawschool won't tell them that though. When schools start honestly (accurately) reporting *those numbers, things will get interesting real quick, and the looks on student's faces will be priceless!

  3. Whilst it may be true that Judges and Justices enjoy such freedom of time and effort, it certainly does not hold true for the average working person. To say that one must 1) take a day or a half day off work every 3 months, 2) gather a list of information including recent photographs, and 3) set up a time that is convenient for the local sheriff or other such office to complete the registry is more than a bit near-sighted. This may be procedural, and hence, in the near-sighted minds of the court, not 'punishment,' but it is in fact 'punishment.' The local sheriffs probably feel a little punished too by the overwork. Registries serve to punish the offender whilst simultaneously providing the public at large with a false sense of security. The false sense of security is dangerous to the public who may not exercise due diligence by thinking there are no offenders in their locale. In fact, the registry only informs them of those who have been convicted.

  4. Unfortunately, the court doesn't understand the difference between ebidta and adjusted ebidta as they clearly got the ruling wrong based on their misunderstanding

  5. A common refrain in the comments on this website comes from people who cannot locate attorneys willing put justice over retainers. At the same time the judiciary threatens to make pro bono work mandatory, seemingly noting the same concern. But what happens to attorneys who have the chumptzah to threatened the legal status quo in Indiana? Ask Gary Welch, ask Paul Ogden, ask me. Speak truth to power, suffer horrendously accordingly. No wonder Hoosier attorneys who want to keep in good graces merely chase the dollars ... the powers that be have no concerns as to those who are ever for sale to the highest bidder ... for those even willing to compromise for $$$ never allow either justice or constitutionality to cause them to stand up to injustice or unconstitutionality. And the bad apples in the Hoosier barrel, like this one, just keep rotting.

ADVERTISEMENT