Researching Public Law and Public Policy in the Public Interest

When Cities Fight Banks: Understanding Bank of America v. Miami

Cities may sue banks for injuries to their tax base caused by unlawful conduct against homeowners, according to the Supreme Court in a May 1st decision that was closely watched by fair housing advocates.  An unusual split among the justices produced the 5-4 opinion in Bank of America v. City of Miami.  The federal Fair Housing Act (FHA) ruling demonstrates that the aggregation of direct harms can produce broader consequences that may be actionable by indirect victims.

The conflict began with banks’ aggressive subprime lending practices in the early 2000s that soon fueled the Great Recession and the foreclosure crisis that still afflicts some communities (such as Newark).  A case that decided standing and causation issues may offer new paths to collective relief for cities whose citizens’ civil rights were violated by banks’ predatory lending.

Like many cities across the United States, Miami’s black and Latino homeowner populations are mostly segregated in isolated neighborhoods where zip codes offer a proxy designation for both racial composition and relative economic power.  Wells Fargo and Bank of America preyed upon this fact when they concentrated subprime lending in these neighborhoods during the early 2000s.  These loans were practically designed to fail.  When they did, the banks foreclosed upon hundreds of black and brown borrowers.  Studies clearly demonstrate that when foreclosures occur with enough frequency in a concentrated area, property values go down while the costs of increased municipal services go up.  The foreclosure crisis in Miami not only led predictably to the loss of individual wealth for many Latino and black households.  It also led to the loss of important tax base revenues for the city they lived in as well as losses associated with having to increase sanitation, law enforcement and other municipal services to areas experiencing the blight of abandonment.  These losses, plaintiffs argued, were predictable consequences of neighborhood-wide discrimination.

In particular, these tax base consequences to all the city’s taxpayers should be actionable against the banks under the federal Fair Housing Act, according to the City of Miami.  The banks challenged this legal theory on the ground that the city itself had not been sufficiently injured under the terms of the civil rights statute, and that even if it had, its injuries were too remote from the original violation—predatory lending.  After all, the city had not been discriminated against in the purchase of a mortgage.  The defendants argued that the tort doctrine of proximate cause was not satisfied in cases like these where plaintiffs sought legal damages, not simply injunctive relief.


The Supreme Court, per Justice Breyer writing for a majority of liberal justices joined by Justice Roberts, mostly disagreed with the banks.  The FHA’s standing requirements were deliberately designed to be generous, an interpretation based on early case law as well as on Congress’s reauthorization of the Act in 1988.  The city could plausibly claim injury for violations of the Act where other cities had claimed injuries for housing market manipulation, barriers to integrated living environments and resulting loss in property values. Standing to sure, therefore, was not in question for city plaintiffs like Miami.

But the Court left unresolved how causation of injuries would be measured in damages cases brought under the Fair Housing Act.  The majority rejected the plantiff’s “foreseeability” test, the prevailing measure of proximate cause in a majority of jurisdictions across the nation.  Instead, it sought an unarticulated “directness” test to be worked out on an ad hoc basis by lower courts in subsequent cases.  Presumably, a directness test requires a closer causal connection than foreseeability.  The Court majority gave no indication whether Miami’s claims of tax-base injuries resulting from mortgage discrimination would satisfy such a test.

The lasting import of Bank of America v. Miami will take time to sort out, but its meanings provide some encouragement for advocates of fair housing and regional equity.  First, the very threat of litigation brought by the segregated cities where housing discrimination has been widespread is now real, a costly risk for fair housing defendants.  Damages awards in successful cases could easily run into the hundreds of millions of dollars.

Second, the Court’s cognizance of the collective harms deriving from the cumulative acts of individual discrimination goes to the heart of structural inequality.  If a city can sue as an “aggrieved person” under the FHA, so might other spatial units of government authority, such as counties, special districts, even states.  At the heart of the banks’ practices here—from the city’s perspective—was the exploitation, and simultaneous reproduction, of costly racial segregation.  They preyed upon economically weaker neighborhoods and made them weaker.  Therefore, the case further demonstrates the substantial financial consequences of segregation upon interests one step removed from the immediate victim.  That those interests may now sue to recover those costs is an important recognition of how structural inequality reflects “ripples of harm” or consequence.

Third, those “ripples of harm” are now part of a causation analysis for which courts will demand more proof.  They will have to wrestle on the record with a balancing of interests as they decide causation.  So while the proximate cause part of the opinion appears to narrow the fair housing victory of the case, in the end it may not.  Proximate cause is a famously fact-intensive policy analysis.  It is a doctrinal opening for the introduction of equitable principles—the answer to why society might or might not impose liability on a wrongful actor.  Foreseeability has always been the touchstone of the analysis, but the Court now demands more—though it does not say what.  The untangling will occur through litigation where plaintiffs’ counsel will be challenged to present proof of causal consequence that social scientists have been trying to make relevant for at least two decades.  The Supreme Court just welcomed that evidence.

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