December 1, 2016, Trial News
Supreme Court tackles standing and predatory lending under the Fair Housing Act
On Nov. 8, the U.S. Supreme Court heard oral arguments in two related cases about whether a city has standing to bring an action under the Fair Housing Act. The city of Miami argued that both Wells Fargo and Bank of America engaged in discriminatory housing practices by targeting minorities with predatory loans in violation of the statute. At oral arguments, justices seemed divided, and with only eight members on the Court, a 4-4 split is possible.
On Nov. 8, the U.S. Supreme Court heard oral arguments in two related cases about whether a city has standing to bring an action under the Fair Housing Act (FHA). The city of Miami argued that both Wells Fargo and Bank of America engaged in discriminatory housing practices by targeting minorities with predatory loans in violation of the statute. At oral arguments, the justices seemed divided, and with only eight members on the Court, a 4-4 split is possible. (Bank of Am. Corp. v. City of Miami, No. 15-1111 (S. Ct. oral arg. Nov. 8, 2016); Wells Fargo & Co. v. City of Miami, No. 15-1112 (S. Ct. oral arg. Nov. 8, 2016).)
In December 2011, Miami sued Wells Fargo, Bank of America, and Citigroup for violating the FHA by engaging in a years-long practice of discriminatory lending—the banks allegedly targeted black and Hispanic customers for predatory loans that had higher risk, fees, and costs than those offered to white customers. The city argued that the higher-risk loans resulted in more foreclosures, depriving the city of tax revenue and forcing it to spend more on services to address the resulting urban blight.
The Southern District of Florida dismissed all three suits with prejudice, holding that the city lacked standing under the FHA because it was outside the statute’s “zone of interests”—the group of individuals or entities that Congress intended to protect when it passed the statute—that the city did not adequately argue that the banks’ conduct proximately caused its injuries, and that the city had missed the statute of limitations.
In September 2015, the Eleventh Circuit reversed and reinstated the city’s claims, holding that the FHA’s “zone of interests” extends as broadly as Article III standing allows, that the city adequately pleaded proximate cause, and that the city could use the “continuing violation doctrine” to toll its claims. The banks appealed, and the Supreme Court granted cert on two questions: whether the term “aggrieved” in the FHA imposes a “zone of interests” requirement more stringent than standing requirements under Article III, and whether the city is an “aggrieved person” under the statute.
Washington, D.C., attorney Neal Katyal, who represents the banks, argued that cities only fall within the FHA’s “zone of interests” in two scenarios: when the city incurred expenses for directly combatting housing discrimination or when the defendant was actually segregating minorities out of the city itself. In this case, he said Miami was using a tenuous economic injury—the loss of taxes—to support its claim of an antidiscrimination injury, and that it was transferring the discriminatory lending victims’ injury to give itself standing. Katyal cautioned the city’s interpretation would create an “unlimited theory of liability” under the FHA—landlords, utilities, and even gardeners could all argue that they lost revenue or business because of a bank’s racially discriminatory lending.
But some of the justices pushed back, most notably Justice Elena Kagan. “The FHA is a very peculiar and distinctive kind of antidiscrimination statute, which really is focusing on community harms,” Kagan said. “So it’s not just individuals who are harmed; it’s communities who are harmed. . . . Who better than the city to recognize that interest and assert it?”
Two of the justices also sparred with Katyal about whether the banks had proximately caused the city of Miami’s injury, which spoke to the second question. “Usually proximate cause is about foreseeability and only foreseeability,” said Kagan. Katyal responded that “the proximate cause generally falls to the basic requirement: There must be a direct relationship between the injury asserted and the injurious conduct.” Quoting an older case, Justice Sonia Sotomayor pointed out that “while members of minority groups were damaged the most from discrimination, the proponents of the legislation emphasize that those who were not the direct objects of discrimination had an interest in ensuring fair housing.”
Robert Peck, of Fairfax Station, Va., one of the attorneys for the city, argued that the city was within the FHA’s “zone of interests” because the banks’ discriminatory lending practices “frustrated and counteracted the city’s efforts on fair housing and tended to cause the city to lose the benefits of social, professional, and business opportunities that come with an integrated community free of housing discrimination.” He argued that the district court’s dismissal had prevented the city from clearly articulating the direct connections between its loss of revenue and the banks’ violations of the FHA.
As for proximate cause, Peck argued that “all proximate cause requires is a sufficient connection between the alleged misconduct and the result, and it includes any injury the statute seeks to protect against.”
Peck went on to say that the FHA was an appropriate vehicle to bring this suit because the city has a special interest in fair housing and an integrated community—an interest the FHA is designed to vindicate. Local businesses, although they may be harmed by housing discrimination, do not have that interest. And the FHA contemplates a broad class of interested parties.