Court, Sitting En Banc, Requires Dismissal of Claim That Wells Fargo, in Making Loans to Minorities At Discriminatory Rates, Caused Foreclosures Resulting in Drop of Property Tax Revenues
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals, sitting en banc, yesterday ordered dismissal of the City of Oakland’s action under the Fair Housing Act against Wells Fargo, saying that the theory that the issuance of predatory loans to Black and Latino residents led to financial harm to the city was too tenuous to support a claim.
Judge M. Margaret McKeown authored the opinion, joined in by 10 other active members of the court. Judges Ronald M. Gould and Mary H. Murguia—who joined in a Aug. 26, 2020 opinion by a visiting judge from the Sixth Circuit which reached a different result—did not participate.
The opinion, while affirming the order by District Court Judge Edward M. Chen of the Northern District of California dismissing a claim based on a supposed hike in municipal expenses resulting from the practices, reverses the order to the extent that it denied dismissal of a claim related to lost property tax revenue stemming from an increase in foreclosures. It also reverses the denial of dismissal of claims for injunctive and declaratory relief.
“The City of Oakland…claims that Wells Fargo’s discriminatory lending practices caused higher default rates, which in turn triggered higher foreclosure rates that drove down the assessed value of properties, and which ultimately resulted in lost property tax revenue and increased municipal expenditures. These downstream ‘ripples of harm’ are too attenuated and travel too ‘far beyond’ Wells Fargo’s alleged misconduct to establish proximate cause.”
She noted that in 2017, the U.S. Supreme Court held in Bank of America Corp. v. City of Miami that “[i]n the context of the FHA, foreseeability alone does not ensure the close connection that proximate cause requires” and that there must be “some direct relation between the injury asserted and the injurious conduct alleged.”
The circuit judge said that “the Supreme Court’s binding directives in Miami and its earlier proximate-cause jurisprudence drive our analysis.”
Harm to City
Oakland may be able to show harm to minorities saddled with discriminatory rates in violation of the FHA, she wrote, but fails to establish harm proximately caused the city, explaining:
“Oakland’s long and winding causal chain begins with the claim that Wells Fargo initiated predatory loans to minority borrowers. Then, those borrowers were more likely to default on the loans. To trigger default, the borrower must quit making loan payments or violate some other term of the loan, such as maintaining mandatory insurance. The reason for default could be attributable to many independent factors, such as job loss, a medical hardship, a death in the family, a divorce, a fire or other catastrophe, Covid-19, broader economic trends, or any number of other unpredictable causes not present when the loan was made.”
By the time of the default, McKeown noted, Wells Fargo might well have sold the note, so that foreclosure decisions could not be ascribed to it. She continued:
“The chain becomes even more attenuated when variables of property value (which could turn not only on foreclosure but neglect, criminal activity, changing demographics, and macroeconomic trends) and reduced tax revenues are piled on top of a cascading number of independent variables.”
Three-Judge Panel’s Opinion
In reaching a contrary conclusion last year, Sixth Circuit Chief Judge R. Guy Cole Jr., sitting on the Ninth Circuit by designation, wrote for a three-judge panel (with emphasis added by him):
“As to the particular cause of action at issue in the instant case, the FHA prohibits ‘any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction.’ including in loans ‘for purchasing, constructing, improving, repairing, or maintaining a dwelling.’…Based on this far-reaching language. Congress clearly intended the FHA to tackle discrimination throughout the real estate market.”
He went on to observe:
“The FHA’s legislative history underscores that Congress intended the statute to reach beyond those individuals who are the immediate victims of direct discrimination, such as tenants, homebuyers, and home-loan borrowers. There is no doubt that Congress intended the statute to cover aggregate, city-wide injuries.”
“[W]e have no difficulty concluding that Oakland’s city-wide financial injury claims fall squarely within the FHA’s intended purposes, which include helping cities fight the insidious and large-scale effects of housing discrimination on a neighborhood-wide and city-wide basis.”
In an April 20 order, the Ninth Circuit judges vacates Cole’s opinion, opting to rehear the matter en banc. Not participating in the discussion or the vote were Judges Mark J. Bennett, Morgan Christen, Daniel P. Collins, Michelle T. Friedland, John B. Owens, and Paul J. Watford.
Joining in McKeown’s opinion were Chief Judge Sidney R. Thomas and Judges Bridget S. Bade, Consuelo M. Callahan, Andrew D. Hurwitz, Sandra S. Ikuta, Ryan D. Nelson, Jacqueline H. Nguyen, Richard A. Paez, Lawrence VanDyke, and Kim McLane Wardlaw.
The case is City of Oakland v. Wells Fargo & Co., 19-15169.
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