The Supreme Court Rules Cities Can Be Victims of Housing Discrimination

Miami’s lawsuit against Bank of America and Wells Fargo now returns to a federal appeals court in Atlanta.

A foreclosure sale sign sits in front of a house in Miami Beach.
A foreclosure sale sign sits in front of a house in Miami Beach. (Carlos Barria / Reuters)

The U.S. Supreme Court ruled Monday that Miami can sue Bank of America and Wells Fargo under the Fair Housing Act of 1968, a judgement that allows other cities to sue banks that may have preyed upon people of color by targeting them for high-risk loans.

The ruling was not a total win for Miami, because the Court agreed with a lower court finding that says the city must prove the damage done by banks was more than a foreseeable outcome. The Court ruled 5 to 3, with Chief Justice John Roberts joining the four liberal justices, and Justice Stephen Breyer writing the majority decision. The case now returns to the federal appeals court in Atlanta, which will determine how far cities must go to prove the banks knowingly wronged them.

The case arose from the financial crisis in 2008, and in 2013 Miami filed a lawsuit against Bank of America and Wells Fargo, after widespread investigations alleged the banks unfairly targeted people of color with bad mortgages. The case has now become a bellwether for other cities looking to recoup losses under the FHA. Miami accused both banks of discriminatory lending practices that led to neighborhood-wide foreclosures in mostly black and Latino communities. The banks did this, Miami argued, by lending to these customers on worse terms than other borrowers with similar credit. The banks then failed to extend refinancing and loan modifications to these borrowers. Miami said this caused undue financial harm on the city because it increased segregation, it lost out on property taxes, lowered property values, and forced the city to provide more municipal services. Financial institutions have been sued in the past by individual people claiming discrimination, but this is the first time a city representing entire communities have attempted a lawsuit. It was on these grounds a trial court originally dismissed the suit; the Eleventh Circuit Court of Appeals in Atlanta reversed the lower court’s decision in 2015.

The major win for cities like Miami Monday was that they can be considered persons under the FHA. In the decision, the justices referenced a 1979 Supreme Court case, Gladstone, Realtors v. Village of Bellwood, in which a group of people sued real estate agents for steering black resident to a specific neighborhood. This case, Breyer wrote, supported the ruling that the FHA could be used to cover communities.

When the case was argued in November, some of the justices had worried that by allowing cities to sue under the FHA, it would open up similar suits to groups of people or even businesses. That fear is likely why the judges raised the bar of proof Miami needed to establish, but left that to the lower court.

When the case returns to the Eleventh Circuit, Miami will have to prove more strongly the connection to the banks prejudicial lending practices and the city’s financial injuries. This could be difficult. Breyer wrote that the “housing market is interconnected with economic and social life” and that “nothing in the statute suggests that Congress intended to provide a remedy wherever those ripples travel.”

In his dissent, Justice Clarence Thomas wrote that “nothing in the text of the FHA suggests that Congress was concerned about decreased property values, foreclosures, and urban blight, much less about strains on municipal budgets that might follow.” He went on to say that the cases cited as precedent dealt with groups forced to live in segregated areas and were denied their right to select their own housing because of their race. Miami, however, “does not assert that it was injured based on efforts by the lenders to steer certain residents into one neighborhood rather than another.”

The justices who ruled in favor of the ruling were Chief Justice John Roberts and Justices Breyer, Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan. Justice Neil Gorsuch, who joined the Court after it heard oral arguments in the case, abstained. Along with Thomas, those dissenting were Justices Anthony Kennedy and Samuel Alito.