May 18, 2017, Trial News
City of Miami has standing to sue under FHA, Supreme Court holds
Diane M. Zhang
In a 5-3 decision, the U.S. Supreme Court has held that the city of Miami has standing to sue for alleged injuries caused by two banks’ predatory lending schemes in violation of the Fair Housing Act. The plaintiff argued that discriminatory practices by Wells Fargo and Bank of America resulted in higher default and foreclosure rates in minority neighborhoods and imposed significant burdens on the city, including lower property values and greater costs for police and fire protection. The Court, however, remanded the issue of proximate cause to the Eleventh Circuit, reversing the appellate court’s ruling on that issue and holding that, in determining whether the city can recover damages, it should have applied a more rigorous test than foreseeability.
In a 5-3 decision, the U.S. Supreme Court has held that the city of Miami has standing to sue for alleged injuries caused by two banks’ predatory lending schemes in violation of the Fair Housing Act (FHA). (Bank of Am. Corp. v. City of Miami, 137 S. Ct. 1296 (May 1, 2017).) The plaintiff argued that discriminatory practices by Wells Fargo and Bank of America resulted in higher default and foreclosure rates in minority neighborhoods and imposed significant burdens on the city, including lower property values and greater costs for police and fire protection. The Court, however, remanded the issue of proximate cause to the Eleventh Circuit, reversing the appellate court’s ruling on that issue and holding that, in determining whether the city can recover damages, it should have applied a more rigorous test than foreseeability.
The city claimed that Bank of America and Wells Fargo had violated the FHA by intentionally issuing riskier mortgages to African-American and Latino customers than those issued to white, non-Latino customers. The city also alleged that the loans were issued with discriminatory impact—with minority borrowers significantly more likely to receive discriminatory loans than non-minorities with credit-risk characteristics. These predatory practices included excessively high interest rates, unjustified fees, large prepayment penalties, and unjustified refusals to refinance or modify the loans when consumers approached default. As a result, the city of Miami claimed, default and foreclosure rates were higher among minority borrowers than their white counterparts, leading to disproportionately higher foreclosure rates in minority neighborhoods.
The city sued the banks under the FHA, alleging that these discriminatory and illegal practices adversely impacted Miami’s racial composition, impaired its goals of racial integration and desegregation, and frustrated fair housing. As a result, the city claimed, it saw lower property values on foreclosed properties, as well as in their surrounding neighborhoods, and increased spending on municipal services to remedy unsafe and dangerous conditions. It argued that it was entitled to damages on these grounds.
The banks countered that the city had no standing because its alleged injuries did not fall within the “zone of interests” that the FHA sought to protect and because the city was not an “aggrieved person” entitled to sue under the statute. The defendants also argued that the plaintiff failed to demonstrate a proximate cause connection between the alleged FHA violations and the harm the city suffered.
The district court agreed with the banks and dismissed the city’s complaint with prejudice. The harms alleged, it ruled, fell outside the zone of interests that the FHA protects, and the city also failed to show proximate cause between the banks’ conduct and its alleged harms. The Eleventh Circuit reversed, finding that the city’s injuries did fall within the FHA’s zone of interests and that the complaint adequately alleged proximate cause because the effects of the banks’ conduct were foreseeable. The banks filed a petition for certiorari with the Supreme Court.
Justice Stephen Breyer, writing for the Court, examined the first question of whether the city of Miami could sue under the FHA by looking to the statute’s language, Court precedent, and congressional intent. Holding that the alleged injuries arguably did fall within the zone of interests protected by the FHA, the Court also discussed whether the city was an aggrieved person. The FHA defines the term as “‘any person who’ either ‘claims to have been injured by a discriminatory housing practice’ or believes that such an injury ‘is about to occur.’”
“The Court,” Breyer wrote, “has repeatedly written that the FHA’s definition of person ‘aggrieved’ reflects a congressional intent to confer standing broadly.” In the past, he noted, the Court allowed suits by white tenants claiming that they were deprived benefits of interracial associations through discriminatory rental practices, by a village alleging lost tax revenue from racial-steering practices, and by a nonprofit organization that had spent money to combat housing discrimination.
The Court was not convinced by the banks’ argument that the city was too far removed from the discrimination to have standing. Washington, D.C., attorney Robert Peck of the Center for Constitutional Litigation, who represented the city, said the case could not really be distinguished from past Supreme Court decisions about standing under the FHA. And the precedent that the banks relied on—Thompson v. North American Stainless (562 U.S. 170 (2010))—did not speak exactly to the same issue. Rather, Thompson involved an employment discrimination case in which the Court held that the term “aggrieved”—as used in Title VII of the Civil Rights Act of 1964, not Title VIII (the FHA)—could not be extended to any plaintiff who alleged injuries stemming from a defendant’s Title VII violations.
Peck explained: “Thompson said that it has to be the person who was suffering the discrimination—otherwise, a shareholder of a corporation could sue over the firing of a valuable employee on the basis of race discrimination. The Court said that just went too far. But Thompson was a Title VII case.” The banks, however, claimed that the ruling in Thompson applied to the FHA as well. The Court disagreed. “The ‘dictum’ we cast doubt on in Thompson addressed who may sue under Title VII, the employment discrimination statute,” Justice Breyer noted, “not under the FHA.”
Peck also emphasized the legislative history of the FHA—something that did not apply to Title VII. “In 1979,” he said, “the Court extended the right to sue [under the FHA] to municipalities. When Congress later added new amendments [to the FHA], the amendments were designed to make it even more enforceable because they thought the FHA was underenforced.” Congress, in fact, retained without change the definition of an aggrieved person under the FHA.
“When the Court interprets a statute, and Congress then amends a statute and endorses the Court’s interpretation, it’s kind of like a ‘super-precedent,’” Peck said. “It has very strong stare decisis effect. And that’s part of that legislative history of the FHA. Congress looked at those decisions and said they were right.”
The Court, however, sent the question of proximate cause back to the Eleventh Circuit, holding that the lower court erred in ruling that the proximate-cause test required only that the city’s financial injuries were “foreseeable” results of the banks’ conduct. “We conclude that foreseeability alone is not sufficient to establish proximate cause under the FHA,” Breyer wrote. Because the housing market is interconnected with a city’s economic and social life, the Court reasoned, discriminatory housing practices can cause a ripple effect of harm that extends beyond the banks’ initial misconduct. Instead, proximate cause under the FHA requires direct causation.
As Peck pointed out, the city of Miami has not yet been given an opportunity to demonstrate direct causation—the district court dismissed its complaint with prejudice, and then the Eleventh Circuit adopted a lower standard on appeal. “We offered an amended complaint, which of course the [district] court did not accept, showing that on the basis of modeling, our expert could account for other causes and—with real rigor and precision—demonstrate the effect of the discriminatory loans,” he said.
Peck added, “We had argued all along, including before the Supreme Court, that we could meet a stronger standard than foreseeability—but that was [the standard] the Eleventh Circuit used. We’re now headed back to the Eleventh Circuit to argue about what ‘direct causation’ means. Goodyear Tire & Rubber Co. v. Haeger (137 S. Ct. 30 (2017)) talks about direct cause in terms of a ‘but-for’ test, and we think that we can meet that test.”