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Ninth Circuit Greenlights City’s Suit Accusing Wells Fargo of Racist Lending Practices

Wells Fargo cannot dodge claims that its allegedly racist lending practices caused Oakland to lose millions of dollars in property taxes resulting from widespread foreclosures and a steep decline in home values, the Ninth Circuit ruled Wednesday.

SAN FRANCISCO (CN) — Wells Fargo cannot dodge claims that its allegedly racist lending practices caused Oakland to lose millions of dollars in property taxes resulting from widespread foreclosures and a steep decline in home values, the Ninth Circuit ruled Wednesday.

A three-judge Ninth Circuit panel upheld a lower court’s June 2018 ruling refusing to dismiss Oakland’s claims for lost property tax revenue under the Fair Housing Act. However, the panel also upheld the dismissal of claims over increased city spending to tackle blight and unsafe conditions at abandoned homes.

Additionally, the panel ordered the lower court to reevaluate if Wells Fargo is inflicting an ongoing injury on Oakland that would justify the city’s request for an injunction to change the bank’s lending practices in the city going forward.

Oakland sued Wells Fargo in September 2015 claiming the bank steered minority homebuyers into predatory loans that caused hundreds of foreclosures, lost tax revenue, and increased costs of addressing problems with abandoned properties.

In June 2018, U.S. District Judge Edward Chen advanced Oakland’s claims for injunctive relief and lost tax revenue, finding Oakland’s proposed statistical analysis offered a “clear quantifiable link between [Wells Fargo’s] challenged practice and foreclosure rates and consequent harm to the city.”

During a Ninth Circuit hearing in February, a Wells Fargo lawyer argued that Oakland cannot sue the bank for lost tax revenue because those injuries are “several steps removed” from Wells Fargo’s alleged Fair Housing Act violations.

On Wednesday, a three-judge Ninth Circuit panel rejected that argument, finding Congress intended to remedy the impacts of discriminatory lending practices on cities and neighborhoods when it passed the Fair Housing Act in 1968 and updated it with stronger enforcement provisions in 1988.

“We have no doubt that Congress was keenly focused on the impact that discriminatory housing practices, including discriminatory lending, were having on cities and their tax base,”U.S. Circuit Judge Mary Murguria, a Barack Obama appointee, wrote for the panel in a 47-page opinion.

Oakland has proposed using a sophisticated statistical analysis to calculate the precise loss in property values attributable to Wells Fargo’s lending practices and isolated from non-Wells Fargo foreclosures and other causes.

Wells Fargo argued the proposed analysis is flawed and fails consider other factors that might cause borrowers to default on loans, such as job loss, medical hardships or divorce. The Ninth Circuit panel dismissed that argument, finding it would not explain the discrepancy between foreclosures among white and minority borrowers.

“Wells Fargo implies that minority borrowers are somehow more likely than white borrowers to get divorced, suffer from medical hardships, or lose their jobs,” Murguria wrote. “Because this argument has no basis in law or common sense, we conclude that accounting for these life events would not increase the plausibility of the city’s foreclosure regression analysis.”

The panel also agreed with Judge Chen’s dismissal of claims over increased municipal expenses related to issues such as violent crime, fire hazards, vagrancy and threats to public health and safety associated with foreclosed and abandoned properties. The panel found the city failed to specify how those increased costs could be precisely traced to the bank’s allegedly discriminatory lending practices.

“Obviously, the entire increase in Oakland’s municipal expenses over the relevant time period cannot be attributed to Wells Fargo’s alleged predatory lending practices,” Murguria wrote. “Oakland has not accounted for other independent variables that might have contributed to or even caused the spike in expenses.”

The panel also rejected Chen’s finding that the city could pursue injunctive relief against Wells Fargo without first establishing if the bank’s ongoing conduct is causing problems for the city. It sent the case back to Chen for him to reconsider that issue.

“On remand, the district court should determine whether Oakland plausibly alleged that its ongoing injuries are being proximately caused by Wells Fargo’s alleged wrongdoing,” Murguria wrote.

U.S. Circuit Judge Ronald Gould and Chief U.S. Sixth Circuit Judge R. Guy Cole Jr., sitting on the panel by designation, joined Murguria on the panel. Both are Bill Clinton appointees.

In an email, Wells Fargo spokesperson Tom Goyda said the bank continues to dispute Oakland’s claims and will answer them in court.

“The court’s decision, while disappointing, concerns only what the plaintiff alleges in the complaint and we are prepared to prove that there is no factual support for any of the city’s alleged injuries, just as we did in our successful defenses in similar suits filed by the cities of Los Angeles and Miami Gardens,” Goyda said. “Wells Fargo has been a part the Oakland community for more than 140 years and will continue our longstanding efforts to work with customers, credit counselors, nonprofit organizations and government agencies to expand homeownership and revitalize distressed neighborhoods in the Bay Area.”

The Oakland City Attorney’s Office did not immediately return emails and phone calls seeking comment Wednesday.

Oakland’s lawsuit was put on hold in 2016 while the Supreme Court reviewed a similar case in which the city of Miami sued Wells Fargo, Bank of America and Citigroup for predatory mortgage loans. In 2017, the high court ruled that Miami had standing to sue the banks. Two years later, the 11th Circuit held that Miami satisfied the Fair Housing Act’s “proximate cause” standard to potentially hold the banks liable for the city’s injury.

Wells Fargo then petitioned the Supreme Court to decide conclusively whether the act requires more than a “logical bond” between a violation of the law and the city’s lost tax revenue. But before the Supreme Court could decide whether to hear the petition, Miami suddenly and mysteriously dropped the case.

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Categories / Appeals, Financial

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