High Court Greenlights Predatory Lending Cases

(CN) – The Supreme Court ruled Monday that Miami has standing to bring Fair Housing Act claims accusing banks of predatory mortgage loans, finding its allegations are covered by the anti-discrimination law.

The city of Miami brought separate fair-housing lawsuits against Wells Fargo, Bank of America and Citigroup, claiming the banks targeted minorities for predatory loans.

A federal judge dismissed the city’s Fair Housing Act claim against each bank, finding that the city lacked standing because its alleged injuries fell outside the law’s “zone of interests,” and that the claims were barred by the statute of limitations.

However, in 2015, the 11th Circuit reversed in part, finding that Miami can pursue its FHA claims.

“Because the district court imposed too stringent a zone of interests test and wrongly applied the proximate cause analysis, we conclude that it erred in dismissing the city’s federal claims with prejudice and in denying the city’s motion for leave to amend on the grounds of futility,” Judge Stanley Marcus wrote for the Atlanta-based appeals court.

The banks petitioned the U.S. Supreme Court for review last year, asking whether an FHA case must plead more than just “Article III injury-in-fact.”

They also asked the high court to decide whether proximate cause requires more than just the possibility that an FHA defendant could have foreseen that a plaintiff like Miami might ultimately lose money through a theoretical chain of contingencies.

“The city did not buy a house or take out a mortgage, and it did not experience any racial discrimination or even any actionable ‘disparate impact.’ Nor does it contend that its neighborhoods have become more or less segregated or that any ‘discriminatory housing practice’ was visited upon it,” the petition states.

Bank of America and Wells Fargo claimed Miami wants to use the FHA to make the banks replace property-tax revenue that was lost in the late-2000s financial crisis.

“This case, and the host of copycat cases like it… is a perfect example of how a civil-rights statute can be ill used by plaintiffs seeking a money recovery that Congress never meant to award them,” they argued.

On Monday, the Supreme Court ruled that Miami is an “aggrieved person” allowed to sue under the FHA.

“The City’s claims of financial injury are, at the least, ‘arguably within the zone of interests’ the FHA protects,” Justice Stephen Breyer wrote for the court. “The City’s claims are similar in kind to those of the Village of Bellwood, which the Court held in Gladstone, supra, could bring suit under the FHA.”

But the nation’s highest court vacated and remanded the 11th Circuit’s ruling, disagreeing with its conclusion that Miami’s lawsuits met the FHA’s proximate-cause requirements solely because the city’s alleged financial injuries were foreseeable based on the banks’ misconduct.

“The proximate-cause analysis asks ‘whether the harm alleged has a sufficiently close connection to the conduct the statute prohibits,’” Breyer wrote. “With respect to the FHA, foreseeability alone does not ensure the required close connection. Nothing in the statute suggests that Congress intended to provide a remedy for any foresee­able result of an FHA violation, which may ‘‘cause ripples of harm to flow’’ far beyond the defendant’s misconduct.”

The Supreme Court declined to specifically define boundaries of proximate cause under the FHA, choosing instead to let the lower courts decide.

Justice Clarence Thomas, joined by Justices Anthony Kennedy and Samuel Alito, filed a separate opinion concurring in part and dissenting in part, saying he would reverse the 11th Circuit’s opinion instead of vacating it.

“The Court today holds that Congress intended to remedy those kinds of injuries when it enacted the FHA, but leaves open the question whether Miami sufficiently al­leged that the discriminatory lending practices caused its injuries,” Thomas wrote. “I would hold that Miami’s injuries fall outside the FHA’s zone of inter­ests. I would also hold that, in any event, Miami’s alleged injuries are too remote to satisfy the FHA’s proximate-cause requirement.”

More specifically, Thomas said, “Miami’s complaints do not allege that any defendant discriminated against it within the meaning of the FHA. Neither is Miami attempting to bring a lawsuit on behalf of its residents against whom petitioners allegedly discriminated. Rather, Miami’s theory is that, between 2004 and 2012, petitioners’ alleg­edly discriminatory mortgage-lending practices led to defaulted loans, which led to foreclosures, which led to vacant houses, which led to decreased property values, which led to reduced property taxes and urban blight.”

The high court’s newest member, Justice Neil Gorsuch, took no part in the consideration or decision of the Miami cases.

In December, the National Fair Housing Alliance and 20 other groups sued the Federal National Mortgage Association, or Fannie Mae, claiming the 68-year-old government-sponsored financer of mortgage loans violates the Fair Housing Act by neglecting foreclosed properties in communities of color, a practice that “perpetuates racial segregation.”

The National Fair Housing Alliance said in a statement that it was pleased with Monday’s ruling in favor of Miami.

“Housing discrimination harms a city’s financial position and impedes on that city’s ability to provide a quality standard of life for its residents. Today, the U.S. Supreme Court has underscored the ability of local communities to bring actions to protect the right to fair housing,” the group said.

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