Stanley Marcus is a federal judge on the United States Court of Appeals for the Eleventh Circuit.
Stanley Marcus is a federal judge on the United States Court of Appeals for the Eleventh Circuit. (handout)

While America votes on Nov. 8, the U.S. Supreme Court will be hearing arguments about how far the Fair Housing Act of 1968 still reaches.

The U.S. Court of Appeals for the Eleventh Circuit said the law allows Miami to sue financial giants Wells Fargo and Bank of America for discriminating against minorities in mortgage lending. Allegedly the banks either refused credit to minority borrowers on terms equal to nonminorities, a practice called redlining, or they committed reverse redlining by extending credit on predatory terms.

The city claims it was harmed by these practices because it lost property tax revenue when the home loans were foreclosed. And it had to spend money on municipal services like police and building inspectors to combat the resulting blight.

U.S. District Judge William Dimitrouleas in Fort Lauderdale twice granted the banks’ motions to dismiss. He ruled Miami has no standing under the Fair Housing Act, it waited too long to sue, and the city failed to directly link the banks to the foreclosure problem, given the 2008 recession. Also, awarding economic damages to a city is beyond the law’s mission.

“The plain statutory language of the FHA provides that a plaintiff has no FHA cause of action unless the person is ‘aggrieved’ by the alleged discrimination,” Dimitrouleas wrote. “Even those cases that entertain an FHA suit on the basis of a future injury require that the injury must be ‘imminent’ and ‘certainly impending.’ “

Last year, the Eleventh Circuit took the trial judge to task, calling his decision “legal error and therefore an abuse of discretion.”

‘Still A Thing’

Judge Stanley Marcus wrote, “In the face of longstanding case law drawn from the Supreme Court and this court permitting FHA claims by so-called third party plaintiffs who are injured by a defendant’s discrimination against another person, it is clear that the harm the city claims to have suffered has ‘a sufficiently close connection to the conduct the statute prohibits.’ “

The circuits are split on the FHA standing issue, which may explain why the U.S. Supreme Court took the case. Or the justices may be inclined to side with the banks’ argument that the high court should bring the Eleventh Circuit to heel and stem the tide of similar suits. A plethora of the banks’ friends including the Chamber of Commerce, DRI—The Voice of the Defense Bar and the Cato Institute have filed supportive amicus briefs.

“This case and the host of copycat cases like it … is a perfect example of how a civil rights statute can be ill used by plaintiffs seeking a money recovery that Congress never meant to award them,” Bank of America’s brief states. “This court should intervene now—to resolve the tension in its own decisions, to resolve the conflict over proximate cause and above all to make clear that the FHA is not meant to prop up the municipal tax base.”

The legal debate obscures a basic question: Does redlining remain a problem in America?

It does according to the Washington Post. The newspaper reported last year in an article headlined “Redlining: Still a thing” that the U.S. Department of Housing and Urban Development had just settled a redlining complaint against Associated Bank, Wisconsin’s largest state-based financial institution.

The bank denied discriminating against black and Hispanic borrowers in Wisconsin, Illinois and Minnesota. Yet it agreed to back nearly $200 million in home loans in minority areas, pay almost $10 million for down payment assistance, open four offices in minority neighborhoods of Chicago and Milwaukee, and invest $1.4 million to market loans in underserved communities.

In June, Mississippi-based BancorpSouth agreed to pay $10.6 million to settle redlining charges brought by the Justice Department and the Consumer Financial Protection Bureau. The bureau’s investigation into the bank’s lending practices featured the old-fashioned technique of dispatching black and white testers to inquire about mortgage loans. Branch officers welcomed the white potential customers—not the black ones—with favorable terms.

Comparable Borrowers

Bank of America and Wells Fargo, appellants in the Miami U.S. Supreme Court case, probably haven’t forgotten how much they paid in 2011 and 2012 to end redlining claims.

In 2011, Bank of America’s Countrywide Financial agreed to a record $335 million payment for victims of loan bias in a consent order in a California district court.

The Justice Department said Countrywide discriminated against more than 10,000 Hispanic and African-American borrowers by giving them subprime loans while comparable white borrowers received prime loans. The company charged more than 200,000 minority borrowers higher discretionary fees and markups than it charged whites.

The next year Wells Fargo said it would pay $175 million to resolve similar Justice Department allegations.

In lawsuits much like Miami’s, Baltimore and Memphis claimed Wells Fargo targeted minority neighborhoods for exploitative mortgage loans that produced foreclosures.

Both cases ended in 2012. As part of the $175 million Justice settlement, Wells Fargo agreed to contribute $50 million to home buyer assistance programs in eight metropolitan areas.

Baltimore agreed to drop its suit in exchange for $4.5 million of the $50 million, plus $3 million for housing and foreclosure initiatives. Memphis got $7.5 million in housing and economic assistance.

Miami-Dade County has no pending redlining litigation, but a county official said the broader issue is on her radar.

“I continue to have concerns about investment in low-income neighborhoods,” Miami-Dade County Commissioner Daniella Cava said. “I am part of a team looking at how we can increase access to capital for those communities.”

WELLS FARGO, APPELLANT, V. CITY OF MIAMI, APPELLEE

Case Nos.: 15-1111, 15-1112

Oral argument: Nov. 8, 2016

Case type: Fair Housing Act

Court: U.S. Supreme Court

Lawyers for petitioner: Neal Kumar Katyal, Hogan Lovells, Washington, and William M. Jay, Goodwin Procter, Washington

Lawyer for respondent: Robert S. Peck, Center for Constitutional Litigation, Fairfax Station, Virginia

Author of opinion below: Judge Stanley Marcus

Panel: Marcus, Judge Charles R. Wilson and U.S. District Judge Harvey Schlesinger, Middle District of Florida

Originating court: U.S. Court of Appeals for the Eleventh Circuit

While America votes on Nov. 8, the U.S. Supreme Court will be hearing arguments about how far the Fair Housing Act of 1968 still reaches.

The U.S. Court of Appeals for the Eleventh Circuit said the law allows Miami to sue financial giants Wells Fargo and Bank of America for discriminating against minorities in mortgage lending. Allegedly the banks either refused credit to minority borrowers on terms equal to nonminorities, a practice called redlining, or they committed reverse redlining by extending credit on predatory terms.

The city claims it was harmed by these practices because it lost property tax revenue when the home loans were foreclosed. And it had to spend money on municipal services like police and building inspectors to combat the resulting blight.

U.S. District Judge William Dimitrouleas in Fort Lauderdale twice granted the banks’ motions to dismiss. He ruled Miami has no standing under the Fair Housing Act, it waited too long to sue, and the city failed to directly link the banks to the foreclosure problem, given the 2008 recession. Also, awarding economic damages to a city is beyond the law’s mission.

“The plain statutory language of the FHA provides that a plaintiff has no FHA cause of action unless the person is ‘aggrieved’ by the alleged discrimination,” Dimitrouleas wrote. “Even those cases that entertain an FHA suit on the basis of a future injury require that the injury must be ‘imminent’ and ‘certainly impending.’ “

Last year, the Eleventh Circuit took the trial judge to task, calling his decision “legal error and therefore an abuse of discretion.”

‘Still A Thing’

Judge Stanley Marcus wrote, “In the face of longstanding case law drawn from the Supreme Court and this court permitting FHA claims by so-called third party plaintiffs who are injured by a defendant’s discrimination against another person, it is clear that the harm the city claims to have suffered has ‘a sufficiently close connection to the conduct the statute prohibits.’ “

The circuits are split on the FHA standing issue, which may explain why the U.S. Supreme Court took the case. Or the justices may be inclined to side with the banks’ argument that the high court should bring the Eleventh Circuit to heel and stem the tide of similar suits. A plethora of the banks’ friends including the Chamber of Commerce, DRI—The Voice of the Defense Bar and the Cato Institute have filed supportive amicus briefs.

“This case and the host of copycat cases like it … is a perfect example of how a civil rights statute can be ill used by plaintiffs seeking a money recovery that Congress never meant to award them,” Bank of America ‘s brief states. “This court should intervene now—to resolve the tension in its own decisions, to resolve the conflict over proximate cause and above all to make clear that the FHA is not meant to prop up the municipal tax base.”

The legal debate obscures a basic question: Does redlining remain a problem in America?

It does according to the Washington Post . The newspaper reported last year in an article headlined “Redlining: Still a thing” that the U.S. Department of Housing and Urban Development had just settled a redlining complaint against Associated Bank, Wisconsin’s largest state-based financial institution.

The bank denied discriminating against black and Hispanic borrowers in Wisconsin, Illinois and Minnesota. Yet it agreed to back nearly $200 million in home loans in minority areas, pay almost $10 million for down payment assistance, open four offices in minority neighborhoods of Chicago and Milwaukee, and invest $1.4 million to market loans in underserved communities.

In June, Mississippi-based BancorpSouth agreed to pay $10.6 million to settle redlining charges brought by the Justice Department and the Consumer Financial Protection Bureau. The bureau’s investigation into the bank’s lending practices featured the old-fashioned technique of dispatching black and white testers to inquire about mortgage loans. Branch officers welcomed the white potential customers—not the black ones—with favorable terms.

Comparable Borrowers

Bank of America and Wells Fargo , appellants in the Miami U.S. Supreme Court case, probably haven’t forgotten how much they paid in 2011 and 2012 to end redlining claims.

In 2011, Bank of America ‘s Countrywide Financial agreed to a record $335 million payment for victims of loan bias in a consent order in a California district court.

The Justice Department said Countrywide discriminated against more than 10,000 Hispanic and African-American borrowers by giving them subprime loans while comparable white borrowers received prime loans. The company charged more than 200,000 minority borrowers higher discretionary fees and markups than it charged whites.

The next year Wells Fargo said it would pay $175 million to resolve similar Justice Department allegations.

In lawsuits much like Miami’s, Baltimore and Memphis claimed Wells Fargo targeted minority neighborhoods for exploitative mortgage loans that produced foreclosures.

Both cases ended in 2012. As part of the $175 million Justice settlement, Wells Fargo agreed to contribute $50 million to home buyer assistance programs in eight metropolitan areas.

Baltimore agreed to drop its suit in exchange for $4.5 million of the $50 million, plus $3 million for housing and foreclosure initiatives. Memphis got $7.5 million in housing and economic assistance.

Miami-Dade County has no pending redlining litigation, but a county official said the broader issue is on her radar.

“I continue to have concerns about investment in low-income neighborhoods,” Miami-Dade County Commissioner Daniella Cava said. “I am part of a team looking at how we can increase access to capital for those communities.”

WELLS FARGO , APPELLANT, V. CITY OF MIAMI, APPELLEE

Case Nos.: 15-1111, 15-1112

Oral argument: Nov. 8, 2016

Case type: Fair Housing Act

Court: U.S. Supreme Court

Lawyers for petitioner: Neal Kumar Katyal, Hogan Lovells , Washington, and William M. Jay, Goodwin Procter , Washington

Lawyer for respondent: Robert S. Peck, Center for Constitutional Litigation, Fairfax Station, Virginia

Author of opinion below: Judge Stanley Marcus

Panel: Marcus, Judge Charles R. Wilson and U.S. District Judge Harvey Schlesinger, Middle District of Florida

Originating court: U.S. Court of Appeals for the Eleventh Circuit