On May 3, 2019, the U.S. Court of Appeals for the Eleventh Circuit held that a city’s Fair Housing Act claims against two large national banks for alleged “risky” lending behaviors concerning majority-minority communities—which were dismissed by the district court, partly for failure to show proximate cause—should not have been dismissed because the city adequately pled proximate cause as to some of its alleged injuries. The decision came on remand from the Supreme Court, which had reversed the Eleventh Circuit’s previous determination that foreseeability of damages alone demonstrated proximate cause.
This appeal arose from two lawsuits brought by a major U.S. city in federal court, which alleged that certain banks intentionally issued risky mortgages on less favorable terms to minority customers than they issued to Caucasian customers, in violation of the Fair Housing Act (the Act). The city argued that among other things, these practices disproportionately caused foreclosures in minority communities within the city, which consequently reduced property values of homes and property tax revenues to the city. The city sued for damages for those alleged injuries. The banks moved to dismiss, arguing that the complaints did not state a cause of action because: (i) the city’s alleged injuries did not fall within the “zone of interests” that the Act seeks to protect, and thus the city was not an “aggrieved person” under the Act; and (ii) the complaints failed to draw a “proximate-cause” connection between the violation claimed and the harm allegedly suffered. The district court dismissed the complaints, agreeing with the banks that the harms alleged fell outside of the zone of interests, the complaints failed to show a sufficient causal connection, and the complaints failed to allege unlawful activity within the appropriate statute of limitations. The city sought to amend its complaints and moved for reconsideration, but the district court declined to reconsider the dismissals. The Eleventh Circuit (in its prior decision) reversed, directing the district court to accept the city’s complaints as amended. The Eleventh Circuit at that time held that: (i) the city’s injuries fell within the zone of interests because the banks’ conduct led to foreclosures and vacancies in majority-minority neighborhoods, which diminished the city’s property-tax revenue and increased its expenditures on police, fire, and other municipal services; and (ii) the city’s complaint met the Act’s proximate-cause requirement because the city’s alleged financial injuries were foreseeable results of the banks’ misconduct. The banks filed petitions for certiorari, asking the Supreme Court to decide whether the amended complaints satisfied the Act’s zone-of-interests and proximate-cause requirements.
In 2017, the Supreme Court held that the city was an “aggrieved person” authorized to bring suit under the Act, but that the Eleventh Circuit had erred in concluding that the city’s complaints met the proximate-cause requirement merely by showing foreseeability. The Court explained that proximate cause under the Act requires “some direct relation between the injury asserted and the injurious conduct alleged,” but left it to the lower courts to determine the contours of proximate cause under the Act and how that standard applied to the city’s claims for increased expenses and lost property-tax revenue. Accordingly, the Court vacated the Eleventh Circuit’s judgment, and remanded the case for further proceedings. The instant decision resulted from that remand.
On remand from the Supreme Court, the Eleventh Circuit has now reversed the district court’s dismissal of the amended pleadings, stating that the city had adequately pled a plausible claim. While there were still “many difficult questions” to be worked out in the district court, the Eleventh Circuit held that the city adequately pled a plausible claim and proximate cause by alleging “a substantial injury to its tax base that is not just reasonably foreseeable, but also is necessarily and directly connected to the [b]anks’ conduct in redlining and reverse-redlining.” However, the court also held that the “municipal expenditures injury” argument did not satisfy the proximate cause standard of pleading, and was rightfully dismissed. The court found that the city had proven “some direct relation” between the banks’ conduct and an increase in the city’s expenditures on municipal services, but noted that the court’s duty at the motion to dismiss stage is limited to determining the plausibility of alleged violations of the Act—not whether the allegations were probable. The city had therefore pled “enough to get into the courthouse and be heard.”