The U.S. Court of Appeals for the Ninth Circuit, sitting as a bench, ruled on Tuesday that the city of Oakland, Calif., Could not sue Wells Fargo for violation of the Fair Housing Act (FHA) because the city had not adequately demonstrated immediate causation. The court’s ruling overturns the earlier ruling of its three-judge panel.
Oakland had claimed that Wells Fargo steered black and Latino borrowers towards riskier mortgages in violation of the FHA. The city argued that this practice increased foreclosure rates and lowered property values, resulting in a loss of property tax revenue for the city while creating the need to increase municipal spending to address health issues and public security. Oakland also alleged uneconomic harm in that Wells Fargo’s discriminatory lending practice undermined its racial integration goals.
The court ruled that the decision of the United States Supreme Court in Bank of America Corp.c. Miami city foreclosed the Oakland lawsuit because predictability is not enough to establish immediate cause under the FHA. In contrast, the law requires “a direct relationship between the alleged harm and the alleged harmful behavior”.
Judge Margaret McKeown, writing for the court, said the “‘downstream’ ripples of prejudice” the city alleged were “too softened and traveled too ‘far beyond'” Wells Fargo’s alleged misconduct to establish immediate cause. The city argued that Wells Fargo’s discriminatory lending practices resulted in higher rates of defaults, which resulted in higher foreclosure rates which lowered the assessed value of properties, and ultimately resulted in loss of property tax revenue and an increase in municipal taxes expenses. However, the court concluded that this reasoning went beyond the first step in the causal chain, which was the harm to minority buyers. Justice McKeown also said that a rule allowing broader causal theories under the FHA would be unmanageable.
According to Reuters, a city spokesperson said the Oakland city attorney’s office “is examining the opinion and considering next steps to protect the rights of Oakland residents who have been harmed by the discriminatory conduct of Wells Fargo “.
Wells Fargo spokesman Tom Goyda said in a statement that the bank “will continue [its] focus on expanding homeownership opportunities in the City of Oakland and across the country.