The US Court of Appeals for the Ninth Circuit, sitting en banc, ruled Tuesday that the city of Oakland, California, cannot sue Wells Fargo for violating the Fair Housing Act (FHA) because the city did not adequately show proximate causation. The court’s decision reverses the prior decision of its three-judge panel.
Oakland had claimed that Wells Fargo steered Black and Latino borrowers into riskier mortgages in violation of the FHA. The city argued that this practice increased foreclosure rates and decreased property values, which resulted in lost property tax revenue for the city while creating the need for increased municipal expenditures to address public health and safety issues. Oakland also claimed non-economic injury in that Wells Fargo’s discriminatory lending practice undermined its racial integration goals.
The court held that the US Supreme Court decision in Bank of America Corp.v. City of Miami foreclosed Oakland’s suit because foreseeability is not enough to establish proximate cause under the FHA. In contrast, the act requires “some direct relation between the injury asserted and the injurious conduct alleged.”
Judge Margaret McKeown, writing for the court, stated that the “downstream ‘ripples of harm'” the city alleged were “too attenuated and travel too ‘far beyond'” Wells Fargo’s alleged misconduct to establish proximate cause.” The city’s argued that Wells Fargo’s discriminatory lending practices caused higher rates of loan defaults, which triggered higher foreclosure rates that drove down the assessed value of properties, and which ultimately resulted in lost property tax revenue and increased municipal expenditures. However, the court concluded that this reasoning went beyond the first step in the causal chain, which was the harm to minority buyers. Judge McKeown also claimed that a rule allowing broader causal theories under the FHA would be impossible to administer.
According to Reuters, a spokesperson for the city said that the Oakland City Attorney’s office is “reviewing the opinion and contemplating next steps to protect the rights of Oaklanders who have been harmed by Wells Fargo’s discriminatory conduct.”
Wells Fargo spokesperson Tom Goyda said in a statement that the bank “will continue [its] focus on helping to expand home ownership opportunities in the City of Oakland and across the country.”