Summary
In City of Oakland v. Wells Fargo & Co., 972 F.3d 1112 (9th Cir. Cal. 2020), the Ninth Circuit Court of Appeals held that cities can seek injunctive relief and recovery of lost property-tax revenue from banks that violate the Fair Housing Act by using predatory lending practices against minorities. The Ninth Circuit held that the City of Oakland’s statistical evidence on Wells Fargo’s lending practices was sufficient to survive a motion to dismiss, but the City’s unsupported claims for recovery of increased municipal expenses in response to widespread foreclosures could not proceed.

Discussion
The Fair Housing Act1 (“FHA”) prohibits banks from engaging in residential real estate transactions that discriminate based on race. The City of Oakland (“City”) alleged that Wells Fargo engaged in discrimination by engaging in predatory lending practices to Black and Latino residents. According to the City’s pleadings, these practices caused widespread foreclosures that reduced the City’s property-tax revenue and increased the City’s municipal expenses. Wells Fargo filed a motion to dismiss, arguing that the City failed to demonstrate the alleged violations of the FHA proximately caused the City’s reduced revenues and increased expenses. The District Court ruled that the City’s claim for lost property-tax revenue could proceed, but that its claims for increased municipal expenses and injunctive relief should be dismissed. On appeal, the Ninth Circuit held that the City’s claim for lost property-tax revenue and injunctive relief could proceed, but that the City’s claim for increased municipal expenses was properly dismissed.

As a preliminary matter, the Ninth Circuit held that cities can sue under the FHA to recover for city-wide injuries. While the concept of “proximate cause” is designed to limit liability, it is a flexible concept that takes into account whether the alleged harm has a sufficiently close connection to the prohibited conduct. While proximate cause generally prohibits recovery beyond the first step in the causal chain, the City’s injuries could be considered alongside Wells Fargo’s borrower-victims’ injuries as the first step in the causal chain. The United States Supreme Court2 recently instructed lower courts to evaluate proximate cause by considering its contours under the applicable statute and then decide how the standard applies to the claims in the given case. Accordingly, the Ninth Circuit held that the FHA’s proximate cause requirement is sufficiently broad to encompass city-wide injuries.

In making this determination, the Ninth Circuit held that the purpose of the FHA was to “reform entire neighborhoods” and to “help cities fight the economic and social problems that result from segregation.” The Ninth Circuit also held that it is administratively feasible for courts to fairly apportion damages for city-wide injuries based on the City’s statistical analysis of Wells Fargo’s lending practices. The City “has plausibly alleged a harm that is measured using sophisticated, reliable, and scientifically rigorous methodologies” and has “plausibly alleged that it can calculate exactly which lost property-tax revenues are attributable to Wells Fargo’s wrongdoing.”

With respect to the City’s claims for lost property-tax revenue, the Ninth Circuit held that the City’s “sophisticated and well-explained statistical regression analysis” was sufficient to survive a motion to dismiss. Wells Fargo can still scrutinize these allegations through the discovery process and expert rebuttal. However, because the City offered no similar statistical analysis regarding its alleged increased expenses, its claim for these damages cannot proceed. The Ninth Circuit held that the City did not account for other independent variables that could have caused a spike in municipal expenses beyond those allegedly caused by Wells Fargo’s violation of the FHA.

Finally, the court held that because the FHA makes no distinction between monetary damages and injunctive relief, the City’s claim for an injunction against further discrimination by Wells Fargo can proceed under the same proximate cause analysis.

Conclusion
The Ninth Circuit noted that cities are uniquely well-suited to bring aggregate lawsuits under the FHA to deter banks from engaging in widespread discriminatory lending practices. Cities that are impacted by massive foreclosures can potentially recover lost property tax revenue and obtain injunctive relief under the FHA using statistical analysis. The Court did not eliminate the possibility that a city could recover its increased expenses in addressing the effects of massive foreclosure, so it is conceivable that the proximate cause requirement could be met for these injuries with sufficient statistical backing.

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142. U.S.C. § 3604.
2Bank of Am. Corp. v. City of Miami, 137 S. Ct. 1296 (2017)