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WBK Industry News - Litigation Developments

Federal Appeals Court Rejects City of Cincinnati’s Public Nuisance Claim Against Bank for Foreclosure Practices

The Sixth Circuit Court of Appeals recently dismissed a lawsuit brought by the City of Cincinnati against a national bank (“Bank”), alleging the Bank’s foreclosure practices created a common law public nuisance that lowered property tax revenues, increased police and fire expenses, and added other administrative costs.  The Court found that Cincinnati’s nuisance claims were legally deficient and otherwise failed to adequately show that the harms alleged were a result of the Bank’s noncompliance with City laws.

The lower court had dismissed the common law public nuisance claim, concluding the economic-loss doctrine foreclosed recovery and that the damages alleged were too attenuated to show proximate cause.  The Appellate Court agreed, concluding that Cincinnati’s claim under the “qualified” public nuisance theory, which mirrors a negligence tort, is barred by the economic-loss doctrine, which states that a tort law cannot impose an independent duty to avoid consequential economic damages.

The Circuit Court further found that the City’s claim under the “absolute” public nuisance theory, which requires evidence of intent and is akin to an intentional tort, failed for that and other reasons.  Namely, despite originally pleading an absolute public nuisance claim, Cincinnati withdrew the claim from the operative version of the complaint.  Yet further, the pleadings did not allege that the Bank intentionally created the subject nuisance—the City merely alleged that the Bank knew or should have known that it created and maintained a public nuisance.  “Knowledge does not equate intention,” the Court found.

Assuming the pleadings did allege qualified and absolute nuisance claims, the Court concluded that Cincinnati’s pleadings were nonetheless defective, as they did not identify a single Bank property that endangered public health, safety, or well being.  The City merely sought damages for unidentified nuisance properties that would become known to the City through discovery.  “But that is not how civil litigation or for that matter nuisance law works,” the Court noted, further explaining that it would have no way of testing the plausibility of the City’s claims absent some factual details.  The City could not rely on the Bank’s “policies” alone, the Court found, because “bad intent alone does not a public nuisance make.”  Further yet, not every code violation interferes with health or safety.

Last, the Court concluded that Cincinnati had failed to plausibly plead proximate cause, which would require the City to tether the damages alleged to the nuisance-related problems.  However, the theories of damage, including decreased tax revenues and increased City expenditures, were simply too attenuated and could not be tethered to the general theory that the Bank had adopted a “policy” of non-conformance with local and city regulations.

Noting that Cincinnati has many tools to enforce compliance with its own laws, the Court explained that the City should not use nuisance law to single out particular non-compliant entities for heightened scrutiny.

The case is City of Cincinnati v. Wells Fargo Bank, N.A., No. 16-3752.