By Richard A. Roth, J.D.
The attorney arguing a Fair Housing Act suit in the Supreme Court on behalf of Bank of America and Wells Fargo conceded that cities sometimes can sue mortgage lenders for discrimination, but went on to say that Miami’s suit went too far. The two banks are attempting to convince the Court that Miami’s interests were not within the zone of interests to be protected by the FHA and that the city’s claimed injuries would not have been proximately caused by the banks’ lending practices. The Justices’ questions in the Nov. 8, 2016, argument appeared to suggest that they were receptive to the city’s suit but were concerned over how to set a limit on liability.
As described by the Eleventh Circuit’s two opinions—City of Miami v. Bank of America Corp. and City of Miami v. Wells Fargo & Co.—Miami asserts that the banks engaged both in redlining—refusing to make loans to minority borrowers on the same terms that were available to nonminority borrowers—and reverse redlining—making loans to minority borrowers on exploitative terms. The banks refused to make loans to minority borrowers on terms similar to those available to white borrowers with comparable credit qualifications, offered minority borrowers loans only on predatory terms, and refused to extend refinancing loans to minority borrowers on terms similar to those available to white borrowers, Miami claims.
Violations and injuries. The banks’ lending practices violated the FHA in two ways, the city said. First, they amounted to intentional discrimination against black and Hispanic borrowers. Second, they had a disparate impact on those borrowers, resulting in a disproportionate number of foreclosures on their properties and a disproportionate number of predatory loans in their neighborhoods.
Miami claimed several types of damages from the violations. Properties that the banks foreclosed on lost value, and the foreclosures also reduced the value of surrounding properties, the city said. This resulted in reduced property tax revenues. Also, the city had to pay higher police, fire protection, and garbage collection costs to deal with problems presented by properties that often remained vacant after foreclosures.
Zone of interests. The banks’ position, as laid out by Neal Katyal, is that Miami’s complaint failed in two ways. First, because the injuries the city described were unrelated to the FHA’s purpose, the city was not within the zone of interests to be protected by the act. Second, the injuries were six steps remote from the lending practices, which was too indirect to satisfy proximate cause requirements. Katyal conceded that Miami might be able to bring an FHA suit that cleared both hurdles, but he said this was not that suit.
According to Katyal, the city was attempting to borrow homeowners’ discrimination claims and "cut and paste" them into a suit intended to seek a remedy for the city’s economic injuries. The FHA was intended to redress discrimination injuries. Miami might be able to recover for injuries it suffered that directly resulted from segregation, but not for the various extra costs it was describing, he said.
Katyal agreed that "if the complaint were written to say that it was about segregation causing blight, we would have no problem with it." That could put Miami within the FHA’s zone of interests. Even damages caused indirectly from that injury could be recoverable.
However, Justice Kagan, at least, had difficulty with the argument that the city was not describing "a segregation harm." She also questioned Katyal on the import of 1988 FHA amendments that apparently accepted that a city’s interests would be within the zone of interests the act was to protect.
Proximate cause. Even if Miami could satisfy the zone of interests requirement, it could not show proximate cause, Katyal then told the Court. The city’s ultimate claimed injury was a reduction of its tax base. However, to go from discriminatory loans to a reduced tax base involved intermediate steps of loan defaults, leading to foreclosures, resulting in more vacancies. Proximate cause generally is restricted to only one step from a wrongful act to an injury, he asserted.
Congress could write a law that allowed damages for less direct injuries, but the FHA maintained the traditional requirement of a "direct, close, one-to-one relationship" between the act and the injury, according to Katyal.
Justice Kagan did not accept that argument fully, either. She reminded Katyal that proximate cause is about whether an injury is foreseeable, not whether it is direct.
The city replies. Miami makes significant efforts to encourage fair housing, to the extent of having a department responsible for it, according to Robert Peck, who argued for the city. That meant it satisfied the zone of interests requirements. The city’s injuries were discrimination injuries.
According to Peck, Miami’s injuries were a direct result of the banks’ discriminatory lending. This led Chief Justice Roberts to probe where Peck would draw the line. If reduced property taxes are a direct injury, what about reduced sales taxes because a business in a blighted area closes? What about reduced revenue from tourism?
Peck attempted to distinguish between property taxes and other city revenues by saying that property taxes were tied specifically to property values; sales taxes and tourism revenues were not. The city should be able to recover damages for injuries that affected property. Moreover, less direct injuries might not be foreseeable, meaning there would be no proximate cause.
Government’s argument. The U.S. government, arguing as a friend of the court, agreed with the city that reduced tax revenues due to reduced property values constituted an injury the FHA was intended to redress. Assistant to the Solicitor General Curtis Gannon told the Court that the FHA was intended to provide a remedy when someone was injured by housing discrimination. Refuting Katyal’s argument, the FHA did allow the city to cut and paste homeowners’ injuries into its own claim, he maintained. The city could seek a remedy for its injuries even if the injuries resulted from a violation of someone else’s rights.
Any limit on who could sue should be found in the proximate cause analysis, not the zone of interest analysis, Gannon said. The injuries that Miami described would have been proximately caused by the banks’ practices, he added.
Agreeing with Peck, Gannon said proximate cause would be showed by a link to property value. The city’s injury that resulted from falling property values would be proximately caused by—that is, reasonably foreseeable from—the bank’s lending discrimination.
Pushed by the Chief Justice, Gannon claimed that the city could sue a lender based on a single instance of lending discrimination, as long as there was a decline in property value.
The cases are No. 15-1111 and No. 15-1112.
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