Bias Suits Against Banks Face Test on Causal Links

By Chris Bruce

A federal appeals court in Atlanta may soon rule on a key element in lawsuits by cities alleging harm from bank lending bias: whether discriminatory lending actually caused a drop in property-tax revenue and an increase in municipal expenditures.

The U.S. Court of Appeals for the Eleventh Circuit is expected soon to address that question, which was left open by a May 1 U.S. Supreme Court ruling involving Miami’s Fair Housing Act lawsuits against Bank of America and Wells Fargo.

“That’s an important question for this case and other cases,” National Fair Housing Alliance (NFHA) General Counsel Morgan Williams told Bloomberg BNA. “It does leave open this question of what constitutes proximate cause, which is a question that will be addressed squarely by the Eleventh Circuit.”

Cities Face Hurdle

The Eleventh Circuit’s verdict — which will be critical to the Miami case — also likely will affect cases elsewhere brought by Chicago, Atlanta, Oakland, Philadelphia, and other cities.

In specific cases, the task of supplying that critical causal link will make it harder for cities to press their claims, and could skew settlement negotiations in favor of banks, said Joann Needleman, a member of Clark Hill in Philadelphia who leads the firm’s consumer financial services practice.

“While the court recognized a cause of action for the city of Miami, they also set forth a tremendously high burden of proof for similarly situated cities in order to be successful with their claims,” Needleman said, referring to the U.S. Supreme Court.

Although the existing crop of cases are being driven in large part by recent events, those cases stem from a long history of lending discrimination rooted in an association between race and risk in the provision and pricing of loans and loan products, according to NFHA Executive Vice President Lisa Rice. That association between race and risk has been built into the apparatus and infrastructure of the U.S. credit system, she said.

“That legacy is infused into our current system,” Rice told Bloomberg BNA. “These cases are the latest links in this chain.”

Although the Supreme Court’s ruling is its latest in such suits, cities have been filing various kinds of fair lending suits against banks for roughly 10 years. Banks consistently deny allegations of bias in such cases, even when they sometimes settle those disputes.

Watch REO Maintenance

Stephen M. Dane, a partner with Relman, Dane & Colfax, a Washington-based civil rights law firm, said the May 1 Miami ruling doesn’t change the legal landscape, saying the Supreme Court “reaffirmed pre-existing law demonstrating the broad depth, breadth, and scope of the Fair Housing Act.”

One change that may be ahead is more lawsuits in connection with bank-owned properties that couldn’t be sold after foreclosure — so-called real estate owned, or REO. According to Dane, lenders and servicers may see more allegations that they’re maintaining properties in white neighborhoods while neglecting properties in minority areas. “If there is any uptick in activity in this space, it is likely to be in the area of REO maintenance,” Dane said.

Proximate Cause Question

In its May 1 ruling, a five-justice majority held Miami’s claims fall within the “zone of interests” protected by the Fair Housing Act. Although three justices dissented on that point, all eight justices agreed that Miami’s lawsuit failed to meet the statute’s proximate cause standard. Justice Neil M. Gorsuch took no part in the case.

According to Clark Hill’s Needleman, the proximate cause test won’t just make litigation more difficult for city-plaintiffs. It also might give banks an edge at the negotiating table, she said. “I think the banks will take the position that the cities will have a difficult time meeting their burden, and since the reputational risk is so great, they might not be inclined to pay out even a small settlement,” Needleman told Bloomberg BNA.

Simon H. Bloom, a partner in the Atlanta offices of Bloom Sugarman, said cities will face a separate hurdle even if cases go forward. He said the Fair Housing Act’s two-year statute of limitations will be a “major problem” in some cases, including Miami’s.

Cases in Waiting

What that proximate cause standard looks like in practice will now have to be sorted out. The Supreme Court decision puts the case back into the hands of the Eleventh Circuit, which could either decide that question for itself, or direct the district court to do so.

The Eleventh Circuit hasn’t yet said what it will do, but the underlying Miami case will hinge on what it does, and others could as well. Most of those cases, which also claim that discriminatory lending brought about widespread economic injury, were stayed until the Supreme Court decided the Miami case.

For example, the city of Miami Gardens has filed Fair Housing Act suits against Bank of America, Wells Fargo, Citigroup, and JPMorgan Chase, all in the U.S. District Court for the Southern District of Florida. Miami wants to get those cases going again, but in recent filings, Bank of America, Citigroup, and JPMorgan Chase said they should stay on hold until the Eleventh Circuit decides what it will do. They said there’s no sense in allowing the Miami Gardens claims to go forward until the appeals court clarifies how it will handle the proximate cause question.

The other case by Miami Gardens — its suit against Wells Fargo — was reopened May 3. Miami Gardens has asked Judge Federico A. Moreno to strike the bank’s motion to renew a previous motion for summary judgment. Wells Fargo has until June 27 to respond.

Cases Outside Florida

There’s also action outside Florida. Chicago and surrounding counties that have sued Wells Fargo have until June 21 to file an amended complaint. The city of Oakland, Calif., also has sued Wells Fargo. The Northern District of California has set a Sept. 28 deadline for a case management statement in that dispute.

Meanwhile, the city of Atlanta has reached a stay agreement in separate cases against Bank of America and HSBC in the Northern District of Georgia. All parties have agreed to wait until the Eleventh Circuit takes action in the Miami case before going any further.

Separately, the Ninth Circuit in late May upheld lower court rulings against Los Angeles in its lawsuits against Bank of America and Wells Fargo. The court held the city failed to meet pleading standards under a 2015 U.S. Supreme Court decision. It also said there was no need to reach matters raised in the Supreme Court’s May 1 decision.

It’s not clear how many other cities will file such claims against banks. The most recent is a May 15 lawsuit by Philadelphia against Wells Fargo in the Eastern District of Pennsylvania. Wells Fargo is scheduled to file an answer by July 21.

More Like This?

Dane said the better bet is for more litigation in connection with REO maintenance, or the lack of it. He pointed to a December 2016 Fair Housing Act suit by the National Fair Housing Alliance against Fannie Mae in the Northern District of California. Dane, who is lead counsel for the NFHA in that case, called it “a likely precursor to increased activity here.”

The lawsuit, which cited an investigation of more than 2,300 properties in 38 metropolitan areas, said Fannie Mae failed to maintain and market REO properties in communities of color “thereby leaving those REOs in a state of neglect.” The case has been stayed until August to allow the parties to transfer and review files related to the action.

Rice said lenders with large inventories of loans in cities should be reaching out to those cities to address ongoing problems, including REO properties that may sit vacant and decay, damaging surrounding communities. “If I were in a leadership position at a lending institution, I would be looking at this more proactively,” Rice said.

To contact the reporter on this story: Chris Bruce in Washington at

To contact the editor responsible for this story: Michael Ferullo at

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.