Green Light, Red Light

Municipalities may be experiencing whiplash from a recent U.S. Supreme Court ruling which both permits and prevents certain suits based on the Federal Housing Act (FHA). In Bank of America Corp., et. al. v. City of Miami, No. 15-1111 (May 1, 2017), the City of Miami alleged that certain lenders violated the Federal Housing Act by engaging in discriminatory practices. The city then stated these alleged discriminatory practices resulted in a slew of repercussions ranging from negatively impacting the city’s racial composition and interests in promoting fair housing, to causing foreclosures and vacancies, which in turn caused financial injury via decreased property values and tax revenues while simultaneously increasing municipal spending.

The high court first held that the city’s claims of financial injury from lost tax revenue and increased municipal expenses were permissible claims as they were within the zone of interests protected by the FHA. Id. at 6. Although not directly stated, the court implied that only the alleged economic injuries were sufficient claims under the FHA, as opposed to the more subjective arguments, such as the claimed negative impact to the City’s racial composition.

The main question before the court then became whether causation existed, or whether the harm alleged was close enough to the wrongdoing to justify damages. In other words, how far back in a chain of causation should liability be allowed to reach? The city was essentially arguing that “the Bank’s allegedly discriminatory mortgage-lending practices led to defaulted loans, which led to foreclosures, which led to vacant houses, which led to decreased property values, which led to reduced property taxes and urban blight.” Id., dissent, pgs. 1-2.

The lower appellate court had ruled that the city had adequately proven causation because, although there were “several links in the causal chain,” all were foreseeable. Id. at pg. 11, citing to 800 F.3d at 1282. The Supreme Court, however, disagreed, and held that foreseeability alone is not enough to establish liability. The court stated that FHA violations may cause ripples of harm, but that allowing recovery “for any foreseeable result of an FHA violation would risk massive and complex damages litigation.” Id., pg. 11. [Internal citations omitted.]  Although the court stopped shy of directly stating that liability didn’t exist here, choosing to remand the case back down to the Appellate Court instead, it certainly implied that result.

The dissent argued that Miami’s claimed injuries were not only outside the FHA’s scope of protection, but were far too remote from the bank’s alleged misconduct, stating that, “[t]he Court of Appeals will not need to look far to discern other, independent events that might well have caused the injuries Miami alleges…” Id., dissent at pg.10.

Therefore, although Municipality FHA suits are permitted for at least economic injuries, they will likely be unsuccessful unless a direct link can be shown.