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Supreme Court Ruling Permits City Lawsuits Against Banks Under FHA to Proceed

Philip R. Stein

The U.S. Supreme Court ruled today, in Bank of America Corp. v. City of Miami, Case No. 15-1111 that cities may qualify as “aggrieved persons” under the Fair Housing Act (“FHA”), thus placing them within the “zone of interests” covered by that federal statute.  As such, they are permitted to sue banks for the secondary effects of predatory lending practices or discrimination.  Miami argued that, because the lending practices of banks — including the petitioner, Bank of America — were skewed to place unfair or racially discriminatory burdens on minorities, and because those loans were far more likely to default, minority neighborhoods have suffered an overwhelming number of foreclosures and vacancies.  That outcome “impaired the City’s effort to assure racial integration, diminished the City’s property-tax revenue, and increased demand for police, fire, and other municipal services.”

Normally, actions brought under the FHA seek relief for individual borrowers or those directly harmed by predatory lending.  Now, for the first time, the Court concluded that a municipality’s financial injuries are protected by the FHA.  Congress defined an “aggrieved person” under the FHA as one who “claims to have been injured by a discriminatory housing practice” or believes that such an injury is “about to occur.”  According to the Court, that definition is broad enough to show a “congressional intention to define standing as broadly as is permitted by Article III of the Constitution.”  (Slip. Op. at 6.)  Because municipalities are empowered to sue under Article III, they may pursue remedies against the banks.

This was not, however, a complete victory for Miami.  First of all, the Court’s decision merely permits Miami’s case to proceed — it was by no means a ruling on the overall merits.   Second, although Miami has the right to sue under the FHA, the Court did not accept the Eleventh Circuit Court of Appeals’ conclusion that the banks’ conduct was a proximate cause of the City’s loss of property tax revenues and the increased drain on the treasury caused by demand for fire, police, and other municipal services.  In particular, the Court rejected the Eleventh Circuit’s reasoning that “the proper standard for proximate cause is based on foreseeability.”  (Id. at 11.)  Noting that “the housing market is interconnected with economic and social life,” the Court concluded that “a violation of the FHA may, therefore, be expected to cause ripples of harm to flow far beyond the defendant’s misconduct.”  (Id.)  As such, to state a claim, a municipality must show a “direct relation between the injury asserted and the injurious conduct alleged.”  (Id.)  The Court rejected the parties’ request that it “draw the precise boundaries of proximate cause under the FHA and determine on which side of the line the City’s financial injuries fall.”  Instead, it held that “the lower courts should define, in the first instance, the contours of proximate cause under the FHA and decide how that standard applies to the City’s claims.”

This is an extremely important decision.  It not only resurrects claims that cities threatened to bring during the height of the mortgage crisis, but it establishes a new theory of municipal standing.  By concluding that all cities have the right to sue when they “believe that a [discriminatory housing practice] is about to occur,” the Court has conceivably established a right for cities to prospectively sue lenders, builders, developers, and others in the industry.  That power is (at least potentially) enormous, and the ramifications of Bank of America v. City of Miami  therefore may also have “ripples” that flow far beyond the facts of the case.  Just how many cities may attempt this type of suit against lenders is of course unclear, and the two-year statute of limitations for this type of claim under the FHA statute means that a city would likely have to be able to show a “continuing violation” of the statute in order to escape statute of limitations problems. 

The Supreme Court’s delegation of authority to the district courts to define proximate causation, and to evaluate the scope of recoverable damages (if any) means that this type of claim may be adjudicated very differently in different courts around the country.  That means there is likely to be a Circuit split in case results within the next few years, which may well lead the Supreme Court once again to have to rule in this fight between municipalities and major financial institutions.


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