United States: U.S. Supreme Court Holds Municipality Can Sue Banks For Financial Injuries Under The Fair Housing Act, But Whether There Is Proximate Cause Is For Another Day And Another Court

In a 5-3 decision in Bank of America Corp. et al. v. City of Miami, Florida (No. 15-1111 and No. 15-1112, May 1, 2017), the United States Supreme Court held that the City of Miami ("City") was an "aggrieved person" authorized to bring suit under the Fair Housing Act (the "FHA") for predatory lending by defendant banks to minorities, but remanded the case on the issue of proximate cause. The City had alleged that Bank of America and Wells Fargo (the "Banks") violated the FHA in connection with their lending to African-American and Latino residents and neighborhoods. The City alleged the Banks lent to minorities on worse terms than equally creditworthy non minorities, as well as induced minority borrowers into defaults by failing to extend refinancing and fair loan modifications. This conduct purportedly led to a concentration of foreclosures and vacancies in minority neighborhoods, which: (1) impaired the City's racial integration efforts; (2) diminished the City's property tax revenue; and (3) increased the demand for the City to provide municipal services.

The district court had dismissed the City's original complaint. After the United States Court of Appeals for the Eleventh Circuit reversed the lower court's decision, the Banks filed petitions for writ of certiorari, which were granted by the U.S. Supreme Court. In deciding the case, the Supreme Court explored two issues: 1) whether the City is authorized to sue the Banks under the FHA; and 2) whether the City established proximate cause.

As to the first issue, the Supreme Court explained that the FHA forbids racial discrimination in real estate transactions, and that it permits any aggrieved person to file a civil lawsuit for an FHA violation. The statute defines an aggrieved person as someone who claims to have been injured by a discriminatory housing practice, and prior Supreme Court decisions have interpreted this definition broadly. The Supreme Court further explained that a plaintiff must show that the statute applies to the cause of action that he or she asserts. A statute is presumed to provide a cause of action to a plaintiff whose interests fall within the zone of interests the law seeks to protect. Here, the Supreme Court likened the City's alleged financial injuries to those sustained by the Village of Bellwood in Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91 (1979). It explained that, in Gladstone, it allowed the Village of Bellwood to bring suit under the FHA for lost tax revenue and undermined racial balance. Thus, it had already ruled that the type of injuries the City sustained fell within the FHA's zone of interests. As such, citing the principles of stare decisis, the Supreme Court held that the City is an aggrieved person authorized to bring suit under the FHA.

However, regarding the second issue, the Supreme Court found that the Eleventh Circuit erred in holding that foreseeability alone was sufficient to establish proximate cause under the FHA. Rather than mere foreseeability, the Supreme Court held that the FHA requires a direct relation between the injury asserted and the injurious conduct alleged. It declined to set forth the "precise boundaries of proximate cause under the FHA," noting that no court of appeals has weighed in on the issue. It then instructed the lower courts to determine the "contours of proximate cause" and how it applies to the City's claim. Thus, the Supreme Court vacated and remanded the Eleventh Circuit's decision accordingly.

In a partial dissent, Justice Thomas, joined by Justices Kennedy and Alito, disagreed with the majority's decision concerning the zone of interests. Justice Thomas explained that the City's injuries were "marginally related to or inconsistent with the purposes" of the FHA, whose quintessential aggrieved person is a prospective homebuyer discriminated against during the home-buying process. According to Justice Thomas, nothing in the FHA suggests that, when Congress enacted the statute, it was concerned with decreased property values, foreclosures, urban blight, or strains on municipal budgets – the types of injuries the City allegedly sustained. For these reasons, he believed the injuries fell outside the zone of interests. As to the second issue, Justices Thomas, Kennedy, and Alito agreed with the majority that foreseeability alone was insufficient to establish proximate cause; however, they would have taken the additional step of finding that the City's injuries were too remote to satisfy proximate cause here. Justice Gorsuch, the newest member of the Supreme Court, did not participate in the decision.

By holding that the City of Miami can sue banks under the FHA for the financial injuries it allegedly sustained, the Supreme Court's ruling follows precedent and confirms the highest court's broad interpretation of who is an aggrieved person under the statute. Notwithstanding this broad interpretation, its application may be limited, at least according to Justice Thomas. In Justice Thomas's partial dissent, he opines that the majority decision "should not be read to authorize suits by local businesses alleging the same injuries," such as restaurants, plumbers, and utility companies. He further comments that the decision does not give rise to a cause of action to neighboring homeowners whose houses have declined in value. Even if the majority's conclusion is a narrow one as Justice Thomas suggests, it remains a significant one, especially for municipalities and banks.

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