Bank Liability for Federal Housing Act Violations

The banks offered two responses. First, they contended that the harms identified by the City were outside the zone of interests protected by the Fair Housing Act. As a result, they argued, the City was not an aggrieved person entitled to sue under the Act. Second, they contended that even if the City proved the alleged statutory violations, the connection between those violations and the alleged harms was too attenuated to constitute proximate cause.

The district court agreed with the banks on both contentions and dismissed the complaint, but the U.S. Court of Appeals for the Eleventh Circuit reversed, concluding both that the harms were within the statute's zone of interests and that the complaints adequately alleged proximate cause. The Supreme Court granted certiorari, and, in a 5-3 majority opinion written by Justice Breyer, the Court vacated the Eleventh Circuit's judgments and remanded for further proceedings.

The Zone of Interests

In upholding the Eleventh Circuit's conclusion that the harms alleged by the City fell within the statute's zone of interests, the Court's majority relied on three earlier cases: Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 91, Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, and Havens Realty Corp. v. Coleman, 455 U.S. 363. In Trafficante, the Court had allowed white tenants to bring an FHA claim when they alleged a deprivation of interracial associations as a result of discriminatory rental practices. In Gladstone, the Court allowed a village to proceed on its claim that racial steering practices had deprived it of tax revenue and the racial balance of the community. In Havens, the Court upheld the right of a nonprofit to sue under the FHA when the nonprofit had spent money to combat racial discrimination. These cases, the Court held, established that Miami's financial injuries fell within the zone of interest protected by the FHA.

Justice Thomas, dissenting for himself and Justices Kennedy and Alito, pointed out that in each of the cases relied upon by the majority, at least one of the plaintiffs had clear standing to bring an FHA claim. In Trafficante, a black tenant and a white tenant had both challenged the rental practices; in Gladstone, the village residents had sued to challenge the realtors' steering practices, alleging that they were denied selection of housing without regard to race. In Havens, a white and black tester had sued the owner of an apartment complex based on alleged racial discrimination. By contrast, Miami's suit was not joined by any alleged victims of racial discrimination.

Although the Court's majority concluded that Miami's alleged injuries were sufficient to bring the city within the FHA's zone of interests, Justice Breyer's opinion did not indicate how far that zone of interests would extend, relying instead on stare decisis. Justice Thomas expressed the hope that the opinion would not be read to enable local businesses to bring claims based on a loss of business resulting from foreclosures allegedly caused by discriminatory lending practices.

Proximate Cause

In vacating the Eleventh Circuit's judgment, the Court was unanimous in holding that foreseeability alone is not sufficient to establish proximate cause under the FHA. Justice Breyer emphasized that “the housing market is interconnected with economic and social life,” and that a violation of the FHA could cause ripples “far beyond the defendant's misconduct.” He then wrote:

Nothing in the statute suggests that Congress intended to provide a remedy wherever those ripples travel. And entertaining suits to recover damages for any foreseeable result of an FHA violation would risk “massive and complex damages litigation.” (citation omitted).

He then turned to tort law principles and indicated that proximate cause would require a direct relation between the injurious conduct alleged and the injury asserted.

Rather than determining what would be necessary to establish proximate cause in general or in this case, the Court remanded to the Eleventh Circuit, concluding that “[t]he lower courts should define, in the first instance, the contours of proximate cause under the FHA and decide how that standard applies to the City's claims … ” The dissenters, by contrast, saw no reason to remand, concluding that, as a matter of law, the link between the alleged violation and the asserted injury was too attenuated to constitute proximate cause. In particular, Justice Thomas noted that the city's alleged injuries from declining revenues resulting from declining home prices were one step more removed than the injuries suffered by neighboring homeowners and, in Justice Thomas' words “ [n]o one suggests that those homeowners could sue under the FHA, and I think it is clear that they cannot.”

Implications

After the Court's decision, the City of Miami faces an uphill battle in its effort to collect damages from the banks. Nevertheless, the Court's conclusion that the City had statutory standing to raise damages claims may encourage similar litigation by other municipalities — at least until the Court clarifies the proximate cause standard applicable to these claims.

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Stewart E. Sterk, Mack Professor of Law at Benjamin Cardozo School of Law, is the Editor-in-Chief of New York Real Estate Law Reporter.

In Bank of America v. City of Miami, 2017 WL 1540509, the United States Supreme Court faced a claim by the City of Miami that two banks had violated the federal Fair Housing Act by issuing loans to black and Latino customers on terms less favorable than loans issued to similarly situated customers who were white and non-Latino. The Court's decision represented a partial victory for each side: It held that the City had standing to bring the claim, but imposed on the City a burden to prove that any violation constituted the proximate cause of the City's harm.

Case History

In an action brought in federal district court, the City alleged that the bank's discriminatory practices had adversely impacted the racial composition of the City, impaired the City's interest in assuring racial integration and fair housing, and disproportionately caused foreclosures and vacancies in minority neighborhoods. The City sought money damages, contending that the bank's actions in causing foreclosures and vacancies had reduced property tax revenues and forced the City to spend additional money on municipal services.

The banks offered two responses. First, they contended that the harms identified by the City were outside the zone of interests protected by the Fair Housing Act. As a result, they argued, the City was not an aggrieved person entitled to sue under the Act. Second, they contended that even if the City proved the alleged statutory violations, the connection between those violations and the alleged harms was too attenuated to constitute proximate cause.

The district court agreed with the banks on both contentions and dismissed the complaint, but the U.S. Court of Appeals for the Eleventh Circuit reversed, concluding both that the harms were within the statute's zone of interests and that the complaints adequately alleged proximate cause. The Supreme Court granted certiorari, and, in a 5-3 majority opinion written by Justice Breyer, the Court vacated the Eleventh Circuit's judgments and remanded for further proceedings.

The Zone of Interests

In upholding the Eleventh Circuit's conclusion that the harms alleged by the City fell within the statute's zone of interests, the Court's majority relied on three earlier cases: Trafficante v. Metropolitan Life Ins. Co. , 409 U.S. 91, Gladstone, Realtors v. Village of Bellwood , 441 U.S. 91, and Havens Realty Corp. v. Coleman , 455 U.S. 363. In Trafficante, the Court had allowed white tenants to bring an FHA claim when they alleged a deprivation of interracial associations as a result of discriminatory rental practices. In Gladstone, the Court allowed a village to proceed on its claim that racial steering practices had deprived it of tax revenue and the racial balance of the community. In Havens, the Court upheld the right of a nonprofit to sue under the FHA when the nonprofit had spent money to combat racial discrimination. These cases, the Court held, established that Miami's financial injuries fell within the zone of interest protected by the FHA.

Justice Thomas, dissenting for himself and Justices Kennedy and Alito, pointed out that in each of the cases relied upon by the majority, at least one of the plaintiffs had clear standing to bring an FHA claim. In Trafficante, a black tenant and a white tenant had both challenged the rental practices; in Gladstone, the village residents had sued to challenge the realtors' steering practices, alleging that they were denied selection of housing without regard to race. In Havens, a white and black tester had sued the owner of an apartment complex based on alleged racial discrimination. By contrast, Miami's suit was not joined by any alleged victims of racial discrimination.

Although the Court's majority concluded that Miami's alleged injuries were sufficient to bring the city within the FHA's zone of interests, Justice Breyer's opinion did not indicate how far that zone of interests would extend, relying instead on stare decisis. Justice Thomas expressed the hope that the opinion would not be read to enable local businesses to bring claims based on a loss of business resulting from foreclosures allegedly caused by discriminatory lending practices.

Proximate Cause

In vacating the Eleventh Circuit's judgment, the Court was unanimous in holding that foreseeability alone is not sufficient to establish proximate cause under the FHA. Justice Breyer emphasized that “the housing market is interconnected with economic and social life,” and that a violation of the FHA could cause ripples “far beyond the defendant's misconduct.” He then wrote:

Nothing in the statute suggests that Congress intended to provide a remedy wherever those ripples travel. And entertaining suits to recover damages for any foreseeable result of an FHA violation would risk “massive and complex damages litigation.” (citation omitted).

He then turned to tort law principles and indicated that proximate cause would require a direct relation between the injurious conduct alleged and the injury asserted.

Rather than determining what would be necessary to establish proximate cause in general or in this case, the Court remanded to the Eleventh Circuit, concluding that “[t]he lower courts should define, in the first instance, the contours of proximate cause under the FHA and decide how that standard applies to the City's claims … ” The dissenters, by contrast, saw no reason to remand, concluding that, as a matter of law, the link between the alleged violation and the asserted injury was too attenuated to constitute proximate cause. In particular, Justice Thomas noted that the city's alleged injuries from declining revenues resulting from declining home prices were one step more removed than the injuries suffered by neighboring homeowners and, in Justice Thomas' words “ [n]o one suggests that those homeowners could sue under the FHA, and I think it is clear that they cannot.”

Implications

After the Court's decision, the City of Miami faces an uphill battle in its effort to collect damages from the banks. Nevertheless, the Court's conclusion that the City had statutory standing to raise damages claims may encourage similar litigation by other municipalities — at least until the Court clarifies the proximate cause standard applicable to these claims.

*****
Stewart E. Sterk, Mack Professor of Law at Benjamin Cardozo School of Law, is the Editor-in-Chief of New York Real Estate Law Reporter.