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Quick Primer on FHA Disparate Impact Claims

Following the ruling by the Supreme Court of the United States in Bank of America Corp. v. City of Miami, 137 S. Ct. 1296 (2017), one of the primary and developing issues in FHA disparate impact litigation is proximate cause.

The issue of whether an alleged violation of the Fair Housing Act proximately caused any cognizable injury is currently being contested in multiple jurisdictions, and may likely develop in a fractured manner perhaps leading ultimately to another eventual determination by the Supreme Court.


Briefly, the City of Miami ruling follows the groundwork set forth in Texas Dept. of Housing and Comty. Affairs v. Inclusive Comty Affairs Project, Inc., 135 S. Ct. 2507 (2015), where the Supreme Court held that the FHA allowed for disparate impact claims.

Importantly, the Court in Inclusive Communities cautioned that FHA claims for disparate impact discrimination must be supported by proof of “robust causality.”  As explained by the Court, this requirement “ensures that racial imbalance does not, without more, establish a prima facie case of disparate impact and thus protects defendants from being held liable for racial disparities they did not create.”

Inclusive Communities established four elements for a prima facie claim for a disparate impact violation of the FHA:

  1.  Show statistically-imbalanced lending patterns which adversely impact a minority group;
  2.  Identify a facially-neutral policy used by defendant;
  3.  Allege that such policy was “artificial, arbitrary, and unnecessary”; and
  4.  Provide factual allegations that meet the “robust causality requirement.”

City of Miami should not be discussed without an understanding of Walmart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).

In Dukes, the Supreme Court held that a class claim for discrimination could not satisfy the commonality requirements under Rule 23 where there was no uniform discriminatory policy alleged.  The Dukes ruling raised the bar for disparate impact class claims because on its face a disparate impact claim is premised not upon an overtly discriminatory policy or practice but instead upon the discriminatory effects of facially neutral policies.

The Court’s ruling in Dukes was followed by a number of complaints filed across the country by various municipal and county entities asserting disparate impact claims against lenders and banks for their alleged activities in mortgage origination and servicing.

The City of Miami action is one of those cases.  The main issues before the Court in City of Miami were whether or not the governmental entities had standing under Article III of the Constitution (e.g. a justiciable controversy, concrete injury) and whether the entities had prudential standing (e.g. “zone of interest”) under the FHA.  The Supreme Court held that the City of Miami was within the zone of interest of the FHA, and the city did sufficiently allege standing under Article III.  However, the Court reversed the Eleventh Circuit’s determination that the city had adequately demonstrated proximate cause.

In particular, the Supreme Court emphasized that “foreseeability alone is not sufficient to establish proximate cause under the FHA” and that it required “some direct relation” between the injury claimed by the municipality and the alleged wrongful conduct.

The Court held that harms alleged could not simply be the “ripples of harm” resulting through the interconnected housing market.  However, the Supreme Court declined to establish with more detail the boundaries required to establish proximate cause, and instead, opted to allow the district and circuit courts to flesh out this detail.

It is yet to be seen whether or not a municipality can meet the proximate cause burden.

Current Litigation Testing the Contours of Proximate Cause

FHA litigation is now proceeding in numerous jurisdictions, often centering on the issue of proximate cause.

One such case is County of Cook v. Wells Fargo & Co., Case No. 14-CV-9548 (N.D. Ill.).  Following the Court’s ruling in City of Miami, the trial court allowed Cook County to amend its pleading in an attempt to meet the new standards.  In its amended pleading, Cook County alleged multiple injuries, which were directly caused by the discriminatory mortgage lending and servicing practices by Wells Fargo, including equity stripping and loan modification denials.  Among other harms, Cook County alleged injury as a result of alleged increased administrative costs for foreclosure and eviction complaints, alleged decreased tax revenue, and alleged decreased racial stability.

Wells Fargo moved to dismiss, arguing that Cook County failed to meet the robust causality requirements under Inclusive Communities and that the harms were too remote to satisfy the direct relation requirements for proximate cause under City of Miami.

The trial court in County of Cook determined the plaintiff county had adequately met its pleading burden.  The robust causality requirement was properly alleged and substantiated through allegations demonstrating the supposed existing of related statistical racial disparities in its practices, and through allegations that Wells Fargo maintained a policy of equity stripping which directly caused these disparities.

Additionally, the trial court found that there was enough alleged to potentially establish a direct causal connection between this alleged conduct and the harm incurred by Cook County, in part.  Specifically, the court found that the alleged increased costs of foreclosure and eviction litigation imposed on Cook County as a result of the increased foreclosures resulting from Wells Fargo’s equity stripping conduct were inexorably connected.

However, the trial court also held that the claimed damages for decreased tax revenue and racial instability were too far removed and dependent upon multiple other factors to meet the direct cause requirement of City of Miami, and instead these were more akin to the “ripples of harm” warned of in that opinion.

The U.S. District Court for the Eastern District of Pennsylvania reached a similar conclusion on the motion to dismiss pending before it on the City of Philadelphia’s disparate impact complaint.  See City of Philadelphia v. Wells Fargo & Co., Case No. 17-cv-2203 (E.D. Pa.).  The City of Philadelphia alleged similar claims and injuries against Wells Fargo as those raised by Cook County.

Initially, the court in City of Philadelphia found that the complaint met the robust causality requirements from Inclusive Communities by identifying several different policies and connected those policies to injuries with specific allegations showing a statistical impact on minority communities.  On the proximate cause issue, the court determined that the city adequately alleged proximate cause for the non-economic injuries (e.g. decrease in racial stability and integrative communities).  Thus, the opinion in City of Philadelphia is more expansive than Cook County as it allows the claims for injuries towards the racial stability and integration of its communities.

The County of Cook case has a dispositive motion deadline set for June 2019, and the City of Philadelphia matter has a proposed dispositive motion deadline for March 2019.  The summary judgment phase has stalled out other disparate impact claims under the current framework.

Separately, the U.S. Court of the Appeals for the Ninth Circuit affirmed summary judgment in favor of the defendant banks where the lower court determined that the municipality failed to meets its burden in demonstrating a “robust causal” connection between the purported neutral policies and the racial disparity.  City of L.A. v. Wells Fargo & Co., 691 Fed. Appx. 453 (9th Cir. 2017).  In particular, the Ninth Circuit found that the alleged policies of incentivizing loan officers to extend high amount loans and marketing to low-income borrowers would “affect borrowers equally regardless of race.”   The City of L.A. opinion was published a few weeks after City of Miami but the Ninth Circuit did not reach any discussion on proximate cause.

Even more recently, the U.S. District Court for the Southern District of Florida granted summary judgment in favor of the defendant lender in City of Miami Gardens v. Wells Fargo & Co., Case No. 14-cv-22203 (S.D. Fla.).  Just as with the City of L.A. case, the court in Miami Gardens determined that the city failed to present evidence establishing a prima facie violation of the FHA.

As an initial matter, the court in City of Miami Gardens identified numerous evidentiary failings with the city’s claim including deficient corporate representative testimony from the city, and the striking of their material witnesses’ affidavit for lack of personal knowledge as to the existence of any offensive loans.  In short, the court found that there was a complete lack of evidence presented by the city to demonstrate the elements and robust causality required under Inclusive Communities.   Once again, the court did not reach an analysis of the proximate cause issue established in City of Miami.

As discovery progresses in the County of Cook and City of Philadelphia cases, it will be interesting to see if those governmental plaintiffs are able to put together sufficient evidence to prevail on summary judgment where the cities of Los Angeles and Miami Gardens failed.

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