Earlier this month, the U.S. District Court for the Southern District of Florida dismissed with prejudice the Fair Housing Act (FHA) claims in three suits filed by the City of Miami against large mortgage lenders Bank of America, Wells Fargo, and Citigroup.  In a nutshell, the city alleged the lenders engaged in predatory lending in certain less advantaged communities, that the allegedly predatory loans were more likely to result in foreclosure than were loans originated elsewhere, and that higher than average rates of foreclosures allegedly caused by those banking/mortgage practices unlawfully reduced the city’s tax base and thus increased the costs of providing important city services.

The district court judge, following recent precedent from the U.S. Supreme Court, concluded that purely economic injury is outside what is referred to as “the zone of interest” of the FHA. The court further noted that the “policy behind the [FHA]’s emphasizes on the prevention of discrimination in the provision of housing” while the city’s alleged “economic injury from the reduction in tax revenue . . . [and] expenditures” in contrast is not impacted by membership in any protected class.  Accordingly, the judge wrote that the city’s claim fell outside the FHA’s zone of interest and the city lacked standing to sue.  The court went so far as to acknowledge a different conclusion by a district judge in California, but the court noted that it was required to apply the “zone of interest” test to the FHA claims.

The judge further noted that the city could not establish proximate cause because it did not allege facts that isolated the lenders’ practices as the cause of any alleged lending disparity, citing the independent actions of a multitude of non-parties during the recent financial crisis that “break the causal chain.” The court went on to reject the city’s statistical correlations as insufficient to support a causation claim. Finally, the court concluded that the FHA claims were time barred and that the continuing violation doctrine did not apply to extend the time limit.

Although not binding across the country, this opinion is useful to management as we interpret the FHA as requiring some sort of discrimination to be actionable as contrasted with simply allegations of economic harm.

Just A Thought.