Municipal Fair Housing Act Suit vs. Banks Is Again Green-Lighted

Capping off a busy week, the Eleventh Circuit took a second crack at whether a municipality can bring an action under the Fair Housing Act against banks to recover damages allegedly attributable to racially discriminatory lending practices.

In the prior round, the court held that the City of Miami had alleged standing and causation sufficiently to survive a motion to dismiss. But the Supreme Court granted review and scaled back that decision, holding that although standing was adequately alleged, causation was not, because more than foreseeability was required to demonstrate proximate cause. Instead, proximate cause under the FHA also requires “some direct relation between the injury asserted and the injurious conduct alleged.” Bank of America Corp. v. City of Miami, 137 S. Ct. 1296, 1306 (2017). But the Supreme Court declined “to draw the precise boundaries of proximate cause under the FHA and to determine on which side of the line the City’s financial injuries fall.”

On remand, two years later, the Eleventh Circuit tried its hand last week at drawing the boundaries, in a 76-page opinion for the court by Judge Stanley Marcus. City of Miami v. Wells Fargo & Co., 2019 WL 1966943 (11th Cir. May 3, 2019).

The court’s opinion draws a distinction between two categories of the City’s alleged financial injuries: harm to its tax base and the cost of additional municipal services.

The complaints generally alleged that the banks (Bank of America and Wells Fargo) intentionally discriminated against minority borrowers by targeting them for burdensome loans. This was alleged to have a disparate impact on minority borrowers, leading to a disproportionate number of allegedly exploitative loans in minority neighborhoods and to a disproportionate number of foreclosures on minority-owned properties.

The court opened its analysis with a discussion of proximate cause, positing that proximate cause requires a direct, logical, and identifiable connection between the injury sustained and its alleged cause. “If there is no discontinuity to call into question whether the alleged misconduct led to the injury, proximate cause will have been adequately pled.” The court concluded that the City’s pleadings met this standard, because the City alleged a substantial injury to its tax base that was not just reasonably foreseeable, but also “necessarily and directly connected to the Banks’ conduct in redlining and reverse-redlining throughout much of the City.” In reaching this conclusion, the court stated that it was applying the four guiding principles the Supreme Court outlined: (a) what falls within the first step of the causal chain, cognizant that “[t]he general tendency in these cases . . . is not to go beyond [that] first step”; (b) the nature of the statutory cause of action; (c) an assessment of what is administratively possible and convenient; and (d) the FHA’s common-law antecedents to the extent possible.

The court determined that these four principles permitted a claim of proximate cause to be asserted with respect to the loss of tax revenue. In particular, the court found that the City’s proposed “Hedonic regression methodology” could be used to precisely calculate the damage to its tax base caused by the alleged discriminatory lending practices and resulting foreclosures in minority neighborhoods. The court also noted that the City’s tax-related damages could not be shared with any other possible plaintiff.

However, the court concluded that the City’s pleadings fell short of sufficiently alleging some direct relation between the banks’ conduct and a claimed increase in expenditures on municipal services. “When it comes to this injury, the City’s complaints fail to explain how we can ascertain with any level of detail or precision which expenditures will be attributable to the Banks.”

The court emphasized throughout that it was evaluating the plausibility of pleadings, not the probability of success on the merits.

Posted by Tom Byrne.

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