Justice, Racism, SCOTUS

Supreme Court Invents New Way To Go After Banks And Predatory Lenders

Supreme Court interprets the Fair Housing Act... fairly.

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(photo courtesy of Getty)

(photo courtesy of Getty)

This case wasn’t supposed to come out this way. You’re not supposed to win a case against “the banks” when you come up to the most “pro-business” Supreme Court in the history of the country. You’re especially not supposed to win a case that’s based on a novel theory of liability.

But the city of Miami has won a partial and stunning 5-3 victory in Bank of America Corp. v. City of Miami. Chief Justice John Roberts joined the four “liberals” in a case about predatory lending.

Miami sued Bank of America and Wells Fargo under the Fair Housing Act over their predatory lending practices. The city argued that the banks’ history of giving riskier and more expensive mortgage rates to minority borrowers unfairly hurt the city of Miami.

It’s one thing for the individuals harmed to sue the banks, but Miami argued it was an “aggrieved party” under the FHA. Miami argued that more foreclosures in its minority communities led to a drop in property values, which lead to lower tax rates and more demands on city services.

I thought that argument would get punted by this Supreme Court. But here’s Justice Stephen Breyer writing for the surprising majority. From SCOTUSblog:

Writing for a majority that also included Chief Justice John Roberts and Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, Justice Stephen Breyer explained that the FHA allows anyone who “claims to have been injured by a discriminatory housing practice” to bring a lawsuit. The Supreme Court, Breyer emphasized, has consistently ruled that this definition should be interpreted broadly; relying on that language, he added, the court has allowed similar lawsuits – including one by a “village alleging that it lost tax revenue and had the racial balance of its community undermined by racial-steering practices” – to go forward. Moreover, he noted, in the wake of those cases, Congress made changes to the FHA but left its definition of who can sue largely intact – effectively reaffirming the justices’ expansive reading of that definition.

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This is how the law should work, but I didn’t think John Roberts would see it that way. I’m surprised that John Roberts doesn’t have corporate sponsorships on his judicial robes like he’s a soccer player.

The banks, represented at the Supreme Court by Neal Katyal, argued that finding for the city would create an “unlimited theory of liability.” He argued that not only could nearly every city sue banks accused of predatory practices, so could “landlords or gardeners” or anybody claiming economic harm from a drop in property values.

My response to that would have been, “Sure. And let this be a lesson to others who might engage in predatory lending practices.” But the Supreme Court had a different way of solving the issue.

The Eleventh Circuit ruled that the case could go forward because the injuries to Miami were foreseeable from the discriminatory lending practices. Breyer and the majority say the law requires more. From the opinion:

With respect to the FHA, foreseeability alone does not ensure the required close connection. Nothing in the statute suggests that Congress intended to provide a remedy for any foreseeable result of an FHA violation[.]

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The Court was silent as to the proximate connection between the banks’ violations and the injury to the cities. Likely, that is because Breyer and Roberts do not agree on that point. So the Court kicked that issue in the case back down for the lower courts to decide.

But the fact that this lawsuit still exists this morning is a huge win for cities and a major sign that predatory lending practices will not be tolerated.

It’s a big case. It’s not everyday that banks even partially lose a case in front of this Supreme Court.

Opinion analysis: Five justices keep city’s discriminatory lending lawsuit alive [SCOTUSblog]
Bank of America Corp. v. City of Miami [Supreme Court]

Elie Mystal is an editor of Above the Law and the Legal Editor for More Perfect. He can be reached @ElieNYC on Twitter, or at elie@abovethelaw.com. He will resist.

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