(CN) --- Allowing Oakland, California, to sue Wells Fargo for lost tax income purportedly linked to racist lending practices would mean anyone tangentially affected by home foreclosures could sue banks under the Fair Housing Act, an attorney told an en banc Ninth Cicuit panel Wednesday.
“If the city can sue here, it means electric companies can sue because someone lost a home and stopped paying an electric bill,” Wells Fargo attorney Neal Katyal argued.
Katyal urged the 11-judge en banc panel to overturn a unanimous three-judge panel’s August 2020 decision to advance Oakland’s lawsuit. The city claims Wells Fargo steered Black and Latino borrowers into predatory loans, causing widespread foreclosures and millions of dollars in lost property tax proceeds.
U.S. District Judge Edward Chen denied Wells Fargo’s motion to dismiss the case in June 2018, finding Oakland adequately explained how its proposed statistical analysis would demonstrate a “clear quantifiable link” between Wells Fargo’s actions and harm to the city.
On Wednesday, Katyal attacked the city’s foreclosure analysis. He called it three “mashed together” studies that “can’t tell you anything whatsoever about the proximity between an act of discrimination and its consequence.”
He said Oakland's study did not account for other factors that might contribute to foreclosures, such as job loss, medical hardships or divorce.
Oakland attorney Robert Peck replied that because those variables are evenly distributed among ethnic and racial groups, factoring them in would not explain the wide chasm in foreclosure rates between white and non-white borrowers.
“All those things do not make a difference, and the only possible explanation for the massively different statistical variations between minority and nonminority borrowers is race,” Peck said.
Katyal also argued that because of California’s unique property tax law, foreclosures may have boosted rather than reduced Oakland's tax revenue in some cases. That’s because California caps property tax hikes at 2% per year under a 1978 voter-backed measure called Proposition 13. The tax rate can’t increase by more than 2% unless a home changes ownership. At that point, the tax rate is reassessed based on market value.
“They haven’t shown they actually lost tax revenue due to these loans,” Katyal said. “Indeed there is every reason to think the reverse.”
Peck responded that if tax rate hikes fell below the 2% prior to foreclosures, a transfer of ownership would not lead to a higher valuation and higher taxes.
The city claims foreclosures caused home values to plummet. In its original complaint, Oakland estimated that foreclosures linked to the bank’s lending practices caused property values to drop by as much as $50 billion.
Katyal further complained that Oakland did not perform its final of three analyses showing that foreclosures caused a decline in property taxes.
Peck said that study was not done yet because Oakland needs data it plans to obtain from Wells Fargo through discovery once the lawsuit moves to the next stage.
"Our experts felt that without compulsory discovery we would not have the information about creditworthiness to be able to make the links necessary to property tax," Peck said.
Wells Fargo insists the data is irrelevant because no analysis can show how directly the bank’s actions are tied to the city’s decline in revenues.
“A regression can just show that two things are related to each other,” Katyal said. “It will never establish the proximity.”
Peck told the panel that Congress intended to let cities sue banks for discriminatory lending practices when it amended the Fair Housing Act in 1988. He said Congress endorsed the Supreme Court’s holding in the 1978 decision Gladstone, Realtors v. Village of Bellwood that cities can sue for violations of the antidiscrimination law.
He also argued the Supreme Court’s 2017 ruling in Wells Fargo v. City of Miami made clear that the Fair Housing Act’s “proximate cause” standard does not limit a city’s ability to sue in the same way it does for other federal laws.
“When a statute explicitly and by precedent does allow those derivative injuries, then you have to have a different standard that allows for proximate cause to be treated in a way that shows no discontinuity from the violation,” Peck said. “We submit that we did that in this case and that there’s no reason for it to be dismissed.”
A lower court previously dismissed Oakland's other claims against Wells Fargo related to increased city spending to tackle blight and unsafe conditions at abandoned properties. Judge Chen found those costs and the bank's conduct were too far removed to establish proximate cause. A three-judge Ninth Circuit panel agreed last year.
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