The Supreme Court ruled Monday that federal anti-discrimination law allows cities to sue a bank over lending practices they allege led to urban blight but said they face a high standard in proving those practices directly harmed the local governments.
The ruling was a mixed one for Miami, which was at the forefront of a move by cities nationwide to sue big lending institutions under the federal Fair Housing Act.
Banks have previously been sued by individuals and taken to task by the federal government for lending practices. But these new cases are the first in which cities are the plaintiffs and are demanding that banks be held accountable for harming their communities.
A majority of the justices agreed that cities, not just individuals, can sue under the Fair Housing Act.
“This court has repeatedly written that the FHA’s definition of person ‘aggrieved’ reflects a congressional intent to confer standing broadly,” Justice Stephen G. Breyer wrote for himself and four other justices.
But the justices unanimously decided that a lower court had incorrectly allowed Miami’s lawsuit against Wells Fargo and Bank of America to go forward without more proof that the bank practices had directly harmed the city by, for instance, reducing the amount of property taxes it received.
Instead, cities must show “some direct relationship between the injury asserted and the injurious conduct alleged,” Breyer wrote.
The half-full, half-empty opinion seemed to reflect an effort at compromise among the eight justices who heard the case. Chief Justice John G. Roberts Jr. joined the four liberals in the majority opinion that cities could sue under the Fair Housing Act, but the justices did not describe what would constitute the direct relationship that must be shown. That hard work was left for the lower court on remand.
Miami and other cities have pursued a novel approach under the Fair Housing Act to recover what they lost as a result of lower tax revenue and greater demand for services after the housing collapse.
The banks countered that Congress never intended for the law to be used for such purposes.
“Municipal suits like this one were unheard of until recently, when enterprising contingency-fee counsel began pushing them,” Bank of America told the court in its brief. Baltimore settled a suit it had filed against banks, and there is litigation underway by Cook County, Ill., Oakland, Calif., Los Angeles and other cities.
The law allows an “aggrieved person” to file a civil action seeking damages, and the first question for the court was whether cities qualified.
Breyer said the court’s precedents show that it has interpreted the law in a broad fashion, because that is what Congress intended.
Civil rights groups pointed to the finding that cities could sue as the most important takeaway from Monday’s court decision.
“Today’s Supreme Court decision reinforces the critical role that states and cities must play in holding banks and other actors accountable for actions that continue to harm communities, particularly minority communities that have borne the brunt of the crisis,” said Kristen Clarke, president and executive director of the Lawyers’ Committee for Civil Rights Under Law.
Breyer recounted the city’s argument: Predatory lending practices in minority neighborhoods led to a concentration of foreclosures. That caused stagnation and decline. “They hindered the city’s efforts to create integrated, stable neighborhoods. And, highly relevant here, they reduced property values, diminishing the city’s property tax revenue and increasing demand for municipal services,” he wrote.
But Breyer, joined by Roberts and liberal justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, said that only got the city into the courthouse.
To prevail, the city must prove the direct causal link, and they hinted it might be difficult to do that.
“The housing market is interconnected with economic and social life. A violation of the FHA may, therefore, be expected to cause ripples of harm to flow far beyond the defendant’s misconduct,” Breyer wrote. “Nothing in the statute suggests that Congress intended to provide a remedy wherever those ripples travel.”
Previously, the U.S. Court of Appeals for the 11th Circuit said Miami only had to show that its damages were “foreseeable” by the banks to proceed to trial. The Supreme Court unanimously said that was the wrong standard.
Robert S. Peck of the Center for Constitutional Litigation, which represented Miami, said the city is ready to prove the banks’ action directly led to the city’s problems. “We’re capable of doing it,” he said.
But Wells Fargo and Bank of America said the new standards will be hard to meet. The city’s charges “are without merit,” said Bank of America’s spokesman Lawrence Grayson.
The three dissenting justices also said Miami could not prove its case.
Justices Anthony M. Kennedy and Samuel A. Alito Jr. signed on to Justice Clarence Thomas’s dissenting opinion that Miami should not be able to bring suit under the Fair Housing Act. Even if it could, he wrote, the city’s injuries are “exceedingly attenuated.”
Thomas noted that the “chain of causation” in Miami occurred between 2004 and 2012. “The court of appeals will not need to look far to discern other, independent events that might well have caused the injuries Miami alleges,” Thomas wrote.
The case was argued before Justice Neil M. Gorsuch joined the court, and he took no part in the decision.
The case is Bank of America v. Miami.