On May 1, 2017, the Supreme Court of the United States issued its opinion in Bank of America Corp. Et Al. v. City of Miami Florida, No. 15-1111 (U.S. May 1, 2017).  This case involved the City of Miami bringing action against Bank of America and Wells Fargo for the banks’ violations of the Federal Fair Housing Act (FHA).  Specifically, Miami’s suit alleged that the banks violated the FHA when they used unfair and discriminatory mortgage lending practices on minorities living in certain Miami communities.  The city alleged that the banks’ violations of the FHA lead to higher foreclosure and mortgage default rates in these areas when compared to non-minority areas,  which in turn caused lower home values and a dramatic drop in property tax revenue.   In addition to the drop in property tax revenue the city also contends that the plight brought about from the foreclosures and mortgage defaults lead to an increase demand in municipal services such as police and fire protection.  The city sought monetary damages from the banks.

In its ruling the Supreme Court sought to determine two issues:

  • Is a city authorized to bring suit under the FHA as an aggrieved party? and,
  • If a city can indeed bring suit under the FHA as an aggrieved party, what standard should be used to determine if damages suffered by a city are sufficiently related enough to a bank’s FHA violation for that city to make out a claim under the FHA?

On the first issue, the Court confirmed that under the right circumstances a city would in fact be considered an aggrieved party, thus entitling them to bring suit under the FHA.  This is victory for Miami and possibly other municipalities across the country.  In reaching this conclusion the court relied on its prior rulings regarding aggrieved parties and the fact that legislative amendments to the FHA which occurred subsequent to these rulings failed to substantively alter the aggrieved parties language of the FHA.  The Court reasoned that by leaving the aggrieved parties portion of the FHA intact even after Congress had ample opportunities to change it only reaffirmed the Court’s expansive interpretation of the term.

In regards to the second issue, the Court was to clarify, under an FHA claim what standard should be used to determine the relationship between the bank’s actions and the city’s damages.  As the Court explained in its opinion, an FHA claim is akin to a tort claim and in order to make out a successful tort claim the aggrieved party must show causation.  That is to say that the plaintiff must show that the actions of the defendant is what caused the damages suffered by the plaintiff.   The courts will use a variety of different standards when evaluating causation, depending on the circumstances and claim.

One standard, which was followed by the lower court, is the foreseeability standard.  Following this standard would mean that the city could recover for damages so long as the banks could have or should have reasonably foreseen that their violation of the FHA would have caused the damages suffered by the city.  As far as causation standards are concerned, the foreseeability standard is relatively easy to meet.

A second standard is known as direct cause.   Compared to the Foreseeability standard, the direct cause standard is much more difficult to prove.  In order to prove causation between the banks’ actions and the city’s damages  using the direct cause standard, the city must prove that it suffered damages as a direct result from the bank’s violation of the FHA.  Unlike the Foreseeability standard the city must go beyond proving that the bank should have or could have known that their actions would cause the damages that it did.

Ultimately, the Court ruled that the far more difficult to prove, direct cause standard must be used by the courts when ruling on FHA claims from cities.  This portion of the ruling can be seen as a victory for the banks and could mean defeat for Miami and other similarly situated municipalities looking to recover under the FHA.   While the Court ruled that the standard for causation would be direct cause, it would not expand further on what this entails.  Instead, the Court punted the issue back to the lower courts to have them flesh out the details of direct causation under the FHA.  We now must wait for the lower court to hear the case and rule on the issue, which will provide further guidance on what details a city would need to provide in order to prove direct causation under the FHA.  Until then, similarly situated municipalities nationwide will likely eagerly await the results of lower courts before pursuing a claim against any bank under the FHA.

Contact:  Frank Marshall, Esq., League Staff Attorney, fmarshall@njslom.org, (609) 695-3481 x. 137.