9th Cir. (En Banc) Dismisses All City’s FHA Claims Against Lender


The U.S. Court of Appeals for the Ninth Circuit, en banc, recently upheld in part and in part set aside the partial grant and partial denial by a trial court of a bank’s motion to dismiss the City of Oakland’s claims under the Federal Fair Housing Act.

In that decision, the Ninth Circuit en banc ruled that all of the city’s claims – including damages claims, as well as injunctive and declaratory measures – should be dismissed because, under Bank of America Corp. vs. Miami city, 137 S. Ct. 1296 (2017), foreseeability alone is not sufficient to establish immediate cause under the FHA, and there must be “a direct connection between the alleged harm and the alleged injurious behavior “.

The Court found that the “prejudice ripples” downstream of the bank’s alleged lending practices were too softened and went too far beyond the bank’s alleged misconduct to establish immediate cause.

A copy of the notice in City of Oakland v. Wells Fargo & Company is available on: Link to Opinion.

The City of Oakland sued a bank under the Fair Housing Act, 42 USC § 3601 et seq, claiming that the bank’s alleged discriminatory lending practices resulted in higher default rates, which triggered higher foreclosure rates. which lowered the estimated value of properties, ultimately resulting in loss of property tax revenues and increased municipal spending.

While the case was pending in the lower court, the United States Supreme Court ruled Bank of America Corp. vs. Miami city, 137 S. Ct. 1296 (2017) and clarified the immediate cause requirements under the FHA. Identifier. at 1305–06. Stressing that “predictability alone” is not sufficient to establish immediate cause, the Supreme Court demanded “a direct relationship between the alleged harm and the alleged harmful conduct”. Identifier. (citing Holmes v. Dry. Inv. Prot. Corp., 503 US 258, 268 (1992)).

The trial court dismissed Oakland’s claims about the increase in municipal spending, but allowed the claims about the decrease in property tax revenues to continue. The trial court also dismissed, on valid grounds, Oakland’s claim that discriminatory lending practices undermined its racial integration goals. Finally, the court of first instance allowed all the requests for declaratory judgment and injunction, finding that that of Miami the demand for righteousness “does not seem to extend” to these claims.

The trial court certified two questions of interlocutory appeal under 28 USC § 1292 (b): (1) whether Oakland’s damages claims met the FHA’s immediate cause requirement; and (2) whether this immediate cause requirement applies to injunction and declaratory relief applications.

A Ninth Circuit panel upheld the trial court ruling that Oakland had sufficiently pleaded the immediate cause of the decline in property tax revenues, upheld the trial court ruling that Oakland had not argued the case immediate increase in municipal spending and overturned the decision of the court of first instance. this that of Miami the immediate cause requirement did not apply to injunctions and declaratory judgments. The Ninth Circuit then voted to hear the case again in the bench.

To begin with, the Benched Ninth Circuit determined that Oakland’s Theory of Harm extended immediate causation “beyond the first stage,” Miami, 137 S. Ct. To 1306, because Oakland’s theory led to a decline in housing values, and ultimately to reduced tax revenues and increased municipal spending. Thus, the Court held that Oakland had not applied “a strict application of the ‘general tendency’ not to stretch immediate causation ‘beyond the first stage’. Lexmark International, Inc. v Static Control Components, Inc., 572 US 118, 139 (2014) (citing Holmes v. Dry. Inv. Prot. Corp., 503 US 258, 271 (1992)).

The Court then considered whether there was a reason not to “comply[] . . . to the general tendency ”not to go“ beyond the first step ”in this area. Holmes, 503 US at 272. The Supreme Court of Miami clarified that this analysis is based on two considerations: “the ‘nature of the legal cause of action’ and an assessment of ‘what is administratively possible and convenient.’ »137 S. Ct. To 1306 (first quotation Lexmark, US 572 at 133; then Holmes, 503 US at 268).

The Ninth Circuit held that the nature of a particular legal cause of action implies that the immediate cause may extend “beyond the first stage”, as some laws support the immediate cause of injuries further downstream. The Court concluded that the FHA is not such a law because the prejudice against which the law protects – the granting of discriminatory loans which results in default due to default on refinancing or modification of loans on terms equitable – is at the “first step”: the issuance of the discriminatory loan. The harm to the borrower has a clear direct relationship to conduct prohibited by the FHA.

In contrast, the Ninth Circuit noted that the situations in which the Supreme Court accepted a finding of immediate cause “beyond the first stage” arose out of laws which themselves encompass damages “beyond the first stage. “. See Bridge c. Phoenix Bond & Indemnity Co., 553 US 639 (2008); see also Lexmark, 572 United States 118.

After determining that the nature of FHA does not justify extending the immediate cause “beyond the first stage”, the Ninth Circuit turned to that of Miami second consideration: “what is administratively possible and practical”. 137 S. Ct. To 1306. By articulating this investigation, Miami cited at Holmes, where the Court set out three factors relevant to administrability: (1) the ability to distinguish “damage attributable to the breach, as opposed to other independent factors”; (2) “the risk of multiple recoveries”; and (3) whether more direct complainants could be relied on to defend the law as private attorneys general. Holmes, 503 US at 269–70 (citation omitted).

Quoting to Holmes in its description of the administrability component of the direct relation norm, the ninth circuit here estimated that Miami seemed to approve of the use of Holmes factors in the application of the direct relationship standard. Miami, 137 S. Ct. At 1306.

The Ninth Circuit concluded that the Holmes factors reinforced his view that Oakland had failed to meet the impartiality requirement of the immediate cause standard. The first factor is the ability to distinguish “damages attributable to the violation, as opposed to other independent factors”. Holmes, 503 US at 269 (citation omitted). In the court’s view, Oakland’s theory of harm failed this test because Oakland did not allege that an increase in foreclosures was “surely attributable” to the discriminatory loan. Lexmark, 572 US at 140.

The Ninth Circuit determined that the chain weakens when the property value variables (which might depend not only on foreclosure, but also on neglect, criminal activity, demographic change, and trends macroeconomic) and reduced tax revenue add up to a cascading number of independent variables. . Thus, the Court held that “Oakland’s theory of liability is not based only on separate actions, but on separate actions by separate parties”, in some cases third, fourth or fifth parties. Hemi Grp., LLC v. New York City, 559 US 1.11 (2010)).

The second Holmes The factor is whether allowing the immediate cause to extend “beyond the first stage” would require the court to “adopt complicated rules dividing the damages among the withdrawn plaintiffs at different levels of harm from the acts. of violation, in order to avoid the risk of multiple recoveries ”. Holmes, 503 US at 269 (citations omitted). The Ninth Circuit concluded that this risk was not present here because only Oakland (or a related administrative authority) could recover the lost property tax revenue. However, while the presence of this risk may indicate the need to adhere rigorously to the “first step” analysis, the Court noted that there is nothing to suggest that the absence of a risk of duplicate collections justifies the ‘extension’ beyond the first stage. “Anza v. Ideal Steel Supply Corp., 547 US 451, 459 (2006).

The third Holmes The factor is whether directly injured victims “can generally be called upon to defend the law as private attorneys general”. Holmes, 503 United States at 269–70. Here, the Ninth Circuit has ruled that the answer is clearly yes, as directly injured borrowers can sue individually and are incentivized to do so through the availability of punitive damages, attorney fees and fair redress. . See 42 USC § 3613 (c) (1) – (2). The court also stressed that aggrieved borrowers can sue as a group. See, for example, Havens Realty Corp. vs. Coleman, 455 US 363, 366–67 & n.3 (1982).

Having followed Miami to account for the nature of the FHA and what is administratively possible and practical, the Ninth Circuit concluded that Oakland’s alleged harm from the reduction in tax revenue was too far removed from the cause of action and that nothing was wrong. advised in favor of going “beyond the first step” of immediate causation.

Further, the Ninth Circuit ruled that Oakland’s claim arising from increased municipal spending also failed the immediate cause test, as that claim was even further removed from the alleged wrongdoing than the claim for reduction. tax revenue.

Finally, the Ninth Circuit noted that the Court in Miami ruled that immediate cause is required under the FHA and, in doing so, did not distinguish between claims for damages and claims for declaratory and injunctive relief. 137 S. Ct. At 1305–06. Therefore, the Court read here Miami to require proof of the immediate cause of all claims arising from the FHA, including declaratory and injunction claims.

As a result, the Ninth Circuit upheld the Court of First Instance’s rejection of the claim for damages related to the increase in municipal spending and overturned the District Court’s rejection of the bank’s request to dismiss the claim for damages related to the loss of property tax revenue and the requests for injunction and declaratory judgment.

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