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Miami hopes Supreme Court will agree it was a victim of banks’ bad lending practices

El Nuevo Herald

In the last of its landmark civil rights laws, Congress passed the Fair Housing Act in 1968 to prevent African-Americans from being blocked from getting mortgages in white neighborhoods or from getting less favorable mortgage rates.

Almost a half century later, Miami is asking the Supreme Court to decide whether major banks should pay the city millions of dollars in damages for financial harm it claims to have suffered because of predatory loans to minority borrowers.

The high court will hear oral arguments Tuesday in Miami’s lawsuit against Bank of America and Wells Fargo, two of the biggest mortgage lenders in the city and across the country.

Miami Commissioner Francis Suarez said the city’s case was rooted in the mortgage meltdown crisis that began about a year before his election in November 2009.

“As we investigated, we discovered that many banks were lending money to minority members of our community under less favorable terms than non-minority members,” Suarez told the Miami Herald on Friday.

“They were preying on our residents,” Suarez said. “That led to unusually high levels of foreclosures in our city, which caused all kinds of problems from an enormous diminishment in the value of our tax base and more squatters in foreclosed properties to almost having to declare bankruptcy as a city.”

The Bank of America and Wells Fargo, the targets of the city’s lawsuit, say the Fair Housing Act protects direct victims of discrimination, not municipalities or other government jurisdictions that may suffer spinoff financial effects of discrimination.

“Bank of America is fully committed to the anti-discrimination principles underlying the Fair housing Act and supports the law’s role in protecting individuals from being unfairly deprived of housing,” said Lawrence Grayson, the bank’s senior vice president. “But we believe that a municipality seeking purely monetary recovery is not covered by the statute, and we welcome the Supreme Court’s scrutiny and clarity.”

Suarez, however, said the city was mandated by law to protect the interests of its residents.

“Our lawsuit is on behalf of them,” he said. “It seeks redress from those banks for the damages they suffered through the government that is tasked to represent them.”

Miami’s lawsuit is not the first by a large city against banks under the Fair Housing Act, but it is the first to reach the Supreme Court.

Most other suits have been settled before judges or juries reached a verdict.

The City of Miami Gardens has a similar case before a federal judge in Miami, but it’s on hold pending the high court’s ruling in the Miami case.

The civil rights division of the Justice Department has also challenged banks under the same law, winning substantial settlements for the cities of Baltimore and Memphis.

Each of those cities received about $10 million in damages. While Miami has not yet asked for a specific amount of money, its potential payout could be somewhat smaller because its population is less than those of Baltimore or Memphis.

Robert Peck, a Washington lawyer who will argue Miami’s case before the Supreme Court, said the city was relying in part on a 1979 case.

In that case, the high court ruled that the village of Bellwood, a Chicago suburb, could sue two real estate brokerages.

“The court found that municipalities do have standing to bring action under the Fair Housing Act because the cities suffer directly from the discriminatory actions of those who violate that law,” Peck said.

The court’s ruling said in part: “If, as alleged, petitioners’ sales practices actually have begun to rob Bellwood of its racial balance and stability, the village has standing to challenge the legality of that conduct.”

The banks, in turn, are leaning on a 2011 high court ruling in an employment-discrimination case.

While that case involved employment instead of housing, it also turned on the indirect effects of discrimination as opposed to direct effects.

In Thompson v. North American Stainless, the high court ruled five years ago in favor of a worker who claimed he’d been fired because his girlfriend had filed a grievance.

The justices said, however, that federal employment law set limits on the extent to which a worker could claim harm from spinoff discrimination as opposed to direct discrimination.

In Miami’s suit under the Fair Housing Act, U.S. District Judge Willaim Dimitrouleas ruled against the city in July 2014, but the 11th U.S. Circuit Court of Appeals in September last year overturned the decision.

The city also has sued Citigroup Inc. and JPMorgan Chase Co. in separate cases seeking financial redress under the Fair Housing Act.

In the arguments Tuesday, Bank of America will try to persuade the high court that Miami is overreaching under the Fair Housing Act.

“Congress intended the FHA to sweep broadly, but not infinitely,” the bank’s brief in the case says. “Those who were denied access to housing and those who suffered the effects of racial segregation are within the zone of interests. The municipal plaintiffs are not.”

Outside advocacy groups have filed amicus briefs on both sides. The U.S. Chamber of Commerce and the American Bankers Association are supporting the two big banks, while the NAACP and the National Fair Housing Alliance are backing the city of Miami.

Miami firefighters and police have also filed briefs on behalf of the city.

“The city’s claim is for discriminatory predatory lending, but the harm stems primarily from high-cost predatory lending,” Brent McCintosh, lead attorney for the Chamber of Commerce, told reporters. “It’s not specific to the discriminatory lending.”

Morgan Williams, general counsel for the housing alliance, countered: “The issue comes down to whether the direct recipients of the toxic loans that were targeted at communities of color are the only ones who should be able to redress the harm from these discriminatory practices.”

Michael Doyle contributed to this article.