Banks Appeal Fair Housing Act Case to Supreme Court

Inside Supreme CourtIn September 2015, the Eleventh Circuit ruled that the City of Miami had sufficient standing to sue Bank of America and Wells Fargo over lending practices that were alleged to be racially discriminatory.  On June 28, 2016, the U.S. Supreme Court granted certiorari in the case, Bank of America Corp. v. Miami, No. 15-1111 (consolidated with Wells Fargo & Co. v. Miami, 15-1112).  The Supreme Court’s decision on this case could have a significant impact on who is entitled to bring fair lending claims against mortgage lenders and what standards of standing such claimants must meet.

The case involves allegations that the bank’s lending practices were discriminatory and violated the Fair Housing Act (“FHA”).  Miami argued that such lending practices led to high rates of foreclosure, which led to falling property values and in turn to falling tax revenues, as well as Miami having to absorb the costs of dealing with foreclosed properties and resulting blight.  The lower district court had dismissed Miami’s case on the grounds of a lack of proximate cause.  The Eleventh Circuit overruled this decision, finding Miami had statutory standing (the decision also discussed Article III standing, though this article focuses on statutory standing).  The Eleventh Circuit’s decision is available here.

The district court applied a “zone of interests” standard and found that Miami failed to meet it.  At issue was the term “aggrieved person” under the FHA (which defines this term to include any person that “claims to have been injured by a discriminatory housing practice,” or “believes that such person will be injured by a discriminatory housing practice that is about to occur”).  The Eleventh Circuit found that that FHA statutory standing under the “aggrieved person” standard “is as broad as the Constitution permits under Article III” and that the district court imposed too stringent a zone of interests test.  The Eleventh Circuit noted a prior Supreme Court decision that with respect to Title VII, which contains nearly identical statutory language to the FHA and rejected the argument that this language expanded statutory standing to the limits of Article III.  The Eleventh Circuit noted that this interpretation of Title VII “may signal that the Supreme Court is prepared to narrow its interpretation of the FHA in the future,” but noted “that day has not yet arrived.“

The district court had found that Miami had not alleged facts “that isolate Defendants’ practices as the cause of any alleged lending disparity” compared to other background factors and had thus not adequately pleaded proximate cause.  The Eleventh Circuit overruled, rejecting the bank’s argument that proximate cause creates a “directness requirement” within the FHA.  The court instead found that the proper standard, “is based on foreseeability.”  Specifically, the defendant “must have been reasonably able to foresee the kind of harm that was actually suffered by the Plaintiff.”  The court ruled that under this standard, Miami made an adequate showing, noting the complaint alleged “that the Bank had access to analytical tools as well as published reports” which drew the link between predatory lending practices and their attendant harm.

The Supreme Court will review the Eleventh Circuit’s decision in its 2017 term.  Given the Supreme Court’s prior decision regarding statutory standing with respect to Title VII, there is a distinct possibility that the Supreme Court could, as the Eleventh Circuit noted, “narrow its interpretation of the FHA” and apply a stricter “zone of interests” standard rather than finding FHA statutory standing is “as broad as the Constitution permits under Article III.”    If the Supreme Court upholds the statutory standing rulings of the Eleventh Circuit, this decision could very well lead to an increased proliferation of Fair Housing Act cases brought by municipalities against financial institutions and other lenders.

David Scheffel

David has extensive experience in consumer financial services litigation and co-chairs Dorsey’s Consumer Financial Services practice. He defends financial institutions against individual and class action claims alleging discrimination, predatory lending, violations of the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Fair Housing Act, the Equal Credit Opportunity Act, and disputes between lenders and securitization trusts.

Brent Ylvisaker

As an associate in Dorsey’s Finance & Restructuring Group, the types of areas in which he works include: banking regulations (e.g., affiliate transaction rules), consumer financial protection laws, Bank Secrecy Act and anti-money laundering regulations, financial data privacy and protection, state financial laws (including lending license requirements and usury laws) and e-commerce (e.g., E-SIGN and virtual currency).

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