Judge William Dimitrouleas
Judge William Dimitrouleas (J. Albert Diaz)

The U.S. Supreme Court decided Miami has the right to go after banks that restricted minorities to bad deals for housing loans.

Now comes the hard part.

The city must return to Fort Lauderdale federal court and prove a cause-and-effect link called proximate cause between loans from two big banks and widespread foreclosures that blighted minority neighborhoods. The city lost property tax revenue, had to pay more for emergency services and sued the banks in 2013.

Meanwhile, beginning in 2008-2009, the housing market and related industries cratered. Bank of America and Wells Fargo, the two defendants, claim the overall economy — not their policies — produced the flood of foreclosures.

Justice Stephen Breyer, writing for the 5-3 majority in the opinion published Monday, showed some sensitivity to the banks’ argument about the breadth of the Fair Housing Act of 1968.

“The housing market is interconnected with economic and social life. A violation of the FHA may, therefore, ‘be expected to cause ripples of harm to flow’ far beyond the defendant’s misconduct,” he wrote. “Nothing in the statute suggests that Congress intended to provide a remedy wherever those ripples travel.”

Proving proximate cause will be “trickier,” said Rigel Oliveri, a University of Missouri law professor who teaches housing law. “The lender will do everything to argue there were a lot of other intervening things that happened, other bad loans made by other lenders.”

A lot will depend on how lower courts interpret the justices’ guidelines. “The court shouldn’t be too strict at the threshold as long as the plaintiff can make a plausible argument,” Oliveri said.

Division Below

History suggests U.S. District Judge William Dimitrouleas may be a stickler about the purported connection between bad loans to minorities and economic harm to the city of Miami.

The Fort Lauderdale judge twice granted the banks’ motions to dismiss the city’s complaint. He concluded not only that Miami lacked standing and failed to connect the banks to the foreclosures, but that the law wasn’t intended to give cities windfalls.

“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.’ “

The U.S. Court of Appeals for the Eleventh Circuit saw the case differently. A unanimous three-judge panel called Dimitrouleas’ decision “legal error and therefore an abuse of discretion.”

Circuit Judge Stanley Marcus wrote for the panel: “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 federal circuits were split on the standing issue, which in retrospect seems the likely reason the Supreme Court took the case. Oliveri said the court broadened the right to sue from cases where minorities are steered to some areas and away from others, to include redlining, where minorities are singled out for loan deals with predatory terms.

Miami’s outside lead counsel, Robert Peck of the Center for Constitutional Litigation in Fairfax Station, Virginia, said he’s not concerned about Dimitrouleas’ previous rulings.

“The way the court has done this, looking to harmonize the law, is a pretty strong instruction that I think he will fully understand,” Peck said.

Floodgates Ajar?

Will a deluge of lawsuits follow the Supreme Court’s ruling?

At oral argument Nov. 8, the banks’ advocate, former U.S. Solicitor General Neal Katyal, asserted it will.

A ruling for Miami would launch what he called an “unlimited theory of liability,” according to a ScotusBlog report by Amy Howe. Not only could many other cities sue, but plaintiffs ranging from landlords to convenience store owners could claim damages from discriminatory mortgage practices, Katyal warned.

The decision to allow standing in this case while setting a high bar for proof of causation gave comfort and pause to both sides. Kristen Clarke, president of amicus Lawyers’ Committee for Civil Rights Under Law, applauded the standing rule but called the proximate-cause finding “a small step backward.”

Many fair housing suits have been resolved, generally through settlements that admit no wrongdoing but institute loan policies that favor minorities. Bank of America and Wells Fargo know all about this.

In 2011 Bank of America’s Countrywide Financial agreed to a record $335 million payment for victims of loan bias in a consent order from a California district court. The Justice Department represented the victims in that case and in a separate one against Wells Fargo that was resolved in 2012 by a $175 million payout.

There shouldn’t be a sharp uptick in housing suits, Peck said. The banks say they have ceased all predatory lending practices, and claims must be filed within two years of an FHA violation, he noted. “If the banks are accurate about that, they should not see any new cases,” he said.

Oliveri agreed. “This was kind of a perfect storm of a lot of bad loans in minority neighborhoods, the cumulative effect of all the bad loans going bad at the same time. A lot of things came together at once,” she said. “I don’t know this is something that’s happening all the time.”

BANK OF AMERICA, APPELLANT, V. CITY OF MIAMI, APPELLEE

Docket No.: 15-1111

Date: May 1, 2017

Case type: Fair Housing Act

Court: U.S. Supreme Court

Author of opinion: Justice Stephen Breyer

Lawyer for petitioner: Neal Katyal, Hogan Lovells, Washington

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

Panel: Breyer, Chief Justice John Roberts Jr. and Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan; Justice Clarence Thomas (dissent) with Justices Anthony Kennedy and Samuel Alito Jr.

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