It sounds like a scene from “The Wire,” but with palm trees and swimming pools: Gangs run prostitution rings and criminals hide dead bodies in vacant houses. The illegal activities spill over into the rest of the neighborhood, leading to an overall increase in violent crime and stretching police officers and firefighters thin. Property values plummet, creating a vicious circle: Cities have fewer resources to combat these crimes, at the exact time when they need more.
City of Miami Files — Foreclosed Homes
The city of Miami was unwilling just to chalk up these problems to the global economic crisis. Instead, it believed that the root cause of the problems was both closer to home and more pernicious. Banks like Wells Fargo and Bank of America, it believed, were discriminating against African Americans and Latinos when issuing them mortgages, by making predatory loans that were more likely to lead to foreclosures. In 2013, the city went to federal court. It alleged that the banks had violated the Fair Housing Act, a 1968 civil rights law that bars discrimination in the sale, rental and financing of housing. And in doing so, Miami contended, the banks caused the city to lose money.
A federal trial court dismissed the city’s lawsuit, but the U.S. Court of Appeals for the 11th Circuit reversed and reinstated the case. Next week the Supreme Court will hear oral argument on a question that all sides agree is important: whether the Fair Housing Act allows lawsuits like the city’s, or whether – as the banks contend – Miami’s lawsuit instead goes far beyond what Congress intended when it enacted the FHA.
There are two closely related questions at the heart of the case. The first is whether the city falls within the group of individuals or entities – known as the “zone of interests” – that Congress intended to protect when it passed the FHA.
Bank of America and Wells Fargo insist that Miami does not fall within that zone. To bring a civil suit under the FHA, they argue, a plaintiff must be “aggrieved” by a violation of the law – that is, the plaintiff must argue either that he has been injured by a discriminatory housing practice or that he will be injured by such a practice. Five years ago, in Thompson v. North American Stainless, the Supreme Court interpreted the term “aggrieved” – as used in Title VII of the Civil Rights Act – to require more than just some injury to the plaintiff. Instead, the banks assert, the court ruled that Congress’ use of the term “aggrieved” allows lawsuits “by a plaintiff with an interest arguably sought to be protected by the statute,” but bars suits by plaintiffs “whose interests are unrelated to the statutory prohibitions in Title VII.”
The court’s reasoning in Thompson, the banks maintain, applies fully to the FHA. When it enacted the FHA, they emphasize, Congress intended to wipe out discriminatory housing practices that created segregation. Therefore, they assert, the FHA protects both people who were actually “denied access to housing as a result of discrimination” and those who were “injured by the resulting increase or persistence of segregation.”
But here, the banks continue, the only injury that Miami is asserting is a financial one, which stems from purported discrimination against someone else. Many plaintiffs could make a similar claim, the banks observe, from homeowners whose property values are reduced by the vacant houses next door to store owners who lose sales because there are fewer residents to buy their wares. “Recognizing such a theory of trickle-down injury,” the banks suggest, “would leave nothing outside the zone of interests.”
Miami takes a very different view of the FHA and the kind of lawsuits it permits. It emphasizes that Congress envisioned the FHA as having “unique and enormous breadth,” as evidenced by the fact that its stated purpose was to provide for “fair housing throughout the United States.” Moreover, the city continues, the Supreme Court has repeatedly ruled that the right to sue under the FHA is similarly expansive. When it amended the FHA in 1988, Congress indicated that its use of the term “aggrieved person” was intended to reaffirm the “broad holdings” of those cases. Indeed, the city points out, Congress specifically declined to adopt a much narrower definition of “aggrieved person” that would have resembled the rule advocated by the banks. Given this background, the city asserts, the Supreme Court’s decision in the Thompson case has little bearing on whether Miami can bring this lawsuit. Among other things, it suggests, the FHA has a different focus from, and a broader purpose than, Title VII of the Civil Rights Act, which was at issue in Thompson.
The city dismisses the banks’ arguments that it does not fall within the FHA’s “zone of interests,” countering that a court’s “zone of interests” inquiry is not intended “to be especially demanding.” Rather, the city reasons, the determination hinges on the text of each statute and whether the law includes the plaintiff’s specific claim. Here, the city argues, there is no doubt that it does: Cities are key players in the effort to fight housing discrimination under the FHA, because cities are where the impact of that discrimination “is most acutely felt.” In cases like this one, Miami argues, the FHA “would be robbed of its force if the unit of government most closely and directly affected is denied standing to bring a” lawsuit. At the same time, however, allowing cities to sue will not lead to lawsuits by private entities like dry cleaners or butchers, the city maintains. Instead, the city explains, “only parties with an interest in fair housing” – like cities – can sue under the FHA.
The other question before the court next week relates to “proximate cause” – whether the harms that Miami suffered are sufficiently related to a violation of the Fair Housing Act to hold the banks liable. In the banks’ view, the connection is “simply too attenuated”: It extends from the allegedly predatory loans to the homeowners’ defaults, “to foreclosure, to vacancy, to blight, to lower property values, to strained municipal budgets.” At each of the several steps along the way, the banks contend, there are “many other potential causes besides loan terms—causes ranging from a global recession to a divorce.” If the court does not require a more direct connection between the violations that the city alleges and the harms to the city itself, the banks caution, “liability would extend to all remote-if-unremarkable consequences, stretching as far as the imagination,” as in the popular children’s book “If You Give a Mouse a Cookie.”
Miami responds that it is only required to show “proximate cause substantial enough and close enough to the harm to effectuate the law’s purposes.” That is exactly what it has done, it asserts: It has provided statistical analysis to isolate other possible causes of the housing crisis, so that it is only asking for relief for the banks’ discriminatory lending and the resulting harm. But if it does need to show a more direct connection, the city continues, it can easily do that as well. When they made predatory loans to minority homeowners, the city tells the court, the banks undoubtedly could have anticipated the undesirable outcomes that followed.
Supporting the banks, the U.S. Chamber of Commerce warns of potentially deleterious consequences if the city’s lawsuit is allowed to go forward. Permitting cities to bring lawsuits under the FHA for alleged “remote economic harms,” it maintains, will subject “lending institutions and potentially many other business entities, to virtually boundless liability.” And that, in turn, may prompt lenders to be much more wary in deciding whether to lend to lower-income borrowers at all. Such a result would be particularly undesirable, the Chamber of Commerce adds, when it is essentially unnecessary: The federal government and private individuals who have been discriminated against already can and do bring lawsuits to enforce the FHA and deter discriminatory conduct.
In its brief supporting the city, however, the federal government maintains that efforts to achieve the purposes of the FHA depend “heavily on enforcement by persons who are not direct victims of discrimination.” The city also has the backing of Anita Trafficante, whose father was the lead plaintiff in one of the FHA cases on which the city relies. She tells the justices that the FHA must allow a wide range of plaintiffs to sue because “direct” victims of discrimination often face “formidable obstacles” in bringing their lawsuits. In particular, she observes, those “direct” victims “frequently do not know that they have been subjected to discrimination, let alone have the means to change it.”
Two terms ago, the justices heard oral argument in another challenge brought under the Fair Housing Act. In that case, the question before the court was whether the FHA authorized lawsuits based on “disparate impact” – that is, allegations that a policy or practice had a discriminatory effect, even if it may not have been intended to discriminate. Civil rights groups were so nervous about the prospect that the Roberts court might eliminate disparate-impact suits that two earlier cases were settled before the justices could rule on the merits, but in the end Justice Anthony Kennedy joined the court’s four more liberal justices to uphold disparate-impact suits, at least in some circumstances. Will the eight-justice court reach some sort of middle ground in this case as well? We may know more after next week’s oral argument.
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