Miami-Dade County

Miami can sue big banks for predatory lending, Supreme Court rules

By a 5-3 decision, the U.S. Supreme Court said the city of Miami has standing to sue Wells Fargo over charges that predatory lending in minority communities damaged the city and its homeowners. .
By a 5-3 decision, the U.S. Supreme Court said the city of Miami has standing to sue Wells Fargo over charges that predatory lending in minority communities damaged the city and its homeowners. . Palm Beach Post

The U.S. Supreme Court ruled Monday that the city of Miami can sue the nation’s largest financial institutions over allegations that predatory lending practices in minority communities violated the Fair Housing Act and contributed to a real estate meltdown that nearly bankrupted the city.

The high court, by a 5-3 decision, said the city has standing to pursue damages against banks that elected leaders blamed for a wave of foreclosures that undercut Miami’s tax base in the late 2000s. The city, which was forced to patch a budget shortfall of more than $100 million following the real estate bust of 2008, took the novel course of suing Wells Fargo, Bank of America, JPMorgan Chase and CitiGroup in 2013.

A trial judge tossed Miami’s lawsuits in 2014 in a decision later overturned by the U.S. Court of Appeals for the 11th Circuit. On Monday, six months after hearing oral arguments on cases brought by Wells Fargo and Bank of America, the high court handed the city a partial victory in a decision that could open the gates for communities around the country to follow Miami’s lead.

“You have an expansion of who can sue and that makes the banks more vulnerable in a way,” said Philip Stein, a partner with the law firm Bilzin Sumberg who represents loan originators in mortgage-backed securities. “Until this case someone like a borrower or somebody close to the loans was the only person able to take action.”

And yet, the justices also vacated the portion of the 11th Circuit’s ruling that found the city had sufficiently argued that the banks’ activities can be directly blamed for the city’s financial problems on the basis that the fallout should have been foreseeable. They directed the court to reassess that issue, with the three dissenting justices remaining highly skeptical that the city can prove its case.

“Under Miami’s own theory of causation, its injuries are one step further removed from the allegedly discriminatory lending practices than the injuries suffered by the neighboring homeowners whose houses declined in value,” Justice Clarence Thomas wrote. “No one suggests that those homeowners could sue under the [Fair Housing Act], and I think it is clear that they cannot.”

Thomas did say, though, that at least the ruling was narrow enough so that it “should not be read to authorize suits by local businesses alleging the same injuries that Miami alleges here.”

As Miami leaders celebrated Monday, Wells Fargo spokesman Tom Goyda issued a statement declaring that “the Supreme Court has brought us one step closer to ending the litigation brought by the city of Miami and other municipalities under the Fair Housing Act.”

“We believe that under the stringent standards articulated by the Supreme Court, it will be very difficult for Miami or any other municipality to show the required connection between the claimed damages and unsubstantiated allegations about our lending practices, which do not reflect how we operate in the communities we serve,” Goyda said.

Still, elected officials in both Miami and Miami Gardens, which has its own predatory cases pending against the same banks, lauded Monday’s decision. Both cities say the banks violated the 1968 Fair Housing Act, which prohibits discriminatory real estate transactions, by intentionally issuing high-risk loans to African Americans and Hispanics.

Miami Commissioner Francis Suarez, a real estate attorney who pushed the city to file suit against the banks back in 2013, said the city can either move to continue litigating the case or talk settlement now that it has greater leverage.

“Every citizen in the city should be proud that the city fought on its behalf and that we’ve tried to undo some of the injustice done by these banks,” he said.

Miami Gardens Mayor Oliver Gilbert said the court’s decision validated the city’s decision to sue in 2014. He plans to meet with City Attorney Sonja Knighton-Dickens and the city’s outside legal counsel Tuesday to discuss next steps. Miami Gardens has been in a holding pattern with its lawsuit based on the city of Miami’s case.

“We made the argument that the city of Miami Gardens and its 112,000 residents could make the case against banks that had bad practices that were sure to cause foreclosures and diminish property values,” Gilbert said. “We said that we could state that case and the court said we have that right.”