By Brent Kendall and Jess Bravin
WASHINGTON -- The Supreme Court handed a partial victory to the
city of Miami Monday, ruling it was authorized to bring lawsuits
alleging Bank of America Corp. and Wells Fargo & Co. engaged in
financial-crisis-era discriminatory lending that led to urban
blight and falling property values.
The court said in its 5-3 ruling, however, that Miami in future
proceedings will have to establish that the banks caused direct
harm to the city -- not attenuated, downstream effects -- a high
standard that could prove challenging to meet.
The court's opinion, written by Justice Stephen Breyer,
concluded that Miami had legal standing to bring the lawsuits under
the Fair Housing Act, which bars discrimination in housing sales
and rentals, as well as in related real-estate transactions.
The court rejected the banks' argument that the city wasn't an
appropriate party to bring a claim under the law. Miami's alleged
economic injuries "fall within the zone of interests that the FHA
protects," Justice Breyer wrote.
Miami is one of several major cities that have brought similar
claims against mortgage lenders.
The municipalities are suggesting a novel theory -- that
discriminatory housing policies by banks can harm not only
homeowners and potential buyers, but also cities themselves, given
the high foreclosure rates, blight and urban decay that can follow.
The court's ruling Monday found that this theory is legally
plausible.
The Supreme Court ruling sends the case back to the 11th U.S.
Circuit Court of Appeals in Atlanta to review whether the banks'
alleged misconduct has a "direct relation" to the injuries the city
alleges.
Miami City Attorney Victoria Méndez said she was "extremely
pleased" with the ruling and looked forward to additional court
proceedings. A Bank of America spokesman said the company "is
committed to the goals and intent of the Fair Housing Act" but
added, "We believe these claims are without merit and we will
continue to defend our interests in this matter."
Wells Fargo said the Supreme Court announced stringent
standards, and it "will be very difficult for Miami or any other
municipality to show the required connection between the claimed
damages and unsubstantiated allegations about our lending
practices, which do not reflect how we operate in the communities
we serve."
The ruling produced a rarely seen coalition at the court, with
conservative Chief Justice John Roberts joining the court's four
liberals to form a five-justice majority. That lineup has occurred
only a handful of times in the chief's 12-year tenure, most notably
in the court's 2012 ruling that saved President Barack Obama's
health-care law.
Justice Clarence Thomas, joined by Justices Anthony Kennedy and
Samuel Alito, dissented, concluding that the cities had no right to
bring suit under the Fair Housing Act.
The case was argued before President Donald Trump appointee
Justice Neil Gorsuch joined the court, so he didn't take part in
the decision.
The lawsuits alleged that the banks' lending practices
discriminated against minority borrowers, steering them toward
loans with less-favorable terms and higher fees that were more
likely to fail. When those loans led to foreclosures in large
numbers, city neighborhoods suffered, causing diminishing tax
revenues and others harms to Miami, the city alleged.
The banks denied the allegations and said the lawsuits were
attempts by the city, working with private plaintiffs' lawyers, to
boost its coffers.
Several local governments, including Cook County, Ill.; DeKalb
County, Ga.; and Oakland, Calif., are pursuing similar claims
against mortgage lenders. Other banks that have faced similar suits
include Citigroup Inc. and J.P. Morgan Chase & Co.
Joel Liberson, a lawyer representing Miami and other
municipalities in several cases, said Monday's decision "reaffirmed
the important role of cities in combating housing discrimination
within our communities."
The cases have produced mixed results so far. Later this month,
the Ninth Circuit Court of Appeals is set to hear an appeal from
Los Angeles, whose claims against the banks were dismissed in the
district court.
In 2012, Wells Fargo paid more than $175 million to settle
similar discrimination allegations brought by the Justice
Department. As a part of that deal, in which the bank didn't admit
wrongdoing, Wells Fargo settled parallel lawsuits filed by the
state of Illinois and city of Baltimore. That followed a $335
million settlement over housing-discrimination claims against
Countrywide Financial Corp. that the government reached with parent
Bank of America in 2011.
In announcing the Wells Fargo settlement, the Justice Department
said that beyond tens of thousands of individuals who allegedly
received predatory loans because they were black or Hispanic, the
alleged discrimination also damaged local communities.
As a result, officials said then, the settlement included funds
directed to eight metropolitan areas "heavily impacted by Wells
Fargo's discriminatory practices," including Baltimore; Chicago;
Cleveland; New York; Philadelphia; Riverside, Calif.; the San
Francisco Bay Area; and Washington, D.C.
The Supreme Court didn't consider whether Bank of America and
Wells Fargo actually violated the fair housing law. Instead it only
examined whether Miami should be allowed to proceed with its
claims.
Write to Brent Kendall at brent.kendall@wsj.com and Jess Bravin
at jess.bravin@wsj.com
(END) Dow Jones Newswires
May 01, 2017 16:20 ET (20:20 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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