The City of Miami can continue its legal action against two major banks accused of engaging in predatory lending practices that ultimately led to an increase in the municipality's tax base, an appeals court has ruled.
In a suit first filed in 2013, one dismissed initially by a Florida federal judge and which was heard by the U.S. Supreme Court, it was claimed that Bank of America and Wells Fargo targeted minority communities with predatory lending practices that led to a rash of foreclosures.
The suit centers on whether the alleged actions of the two financial institutions violated the Fair Housing Act (FHA) because their lending practices cut tax revenue and increased spending on services. The FHA specifically includes a provision that states a community can sue for general damage, and the Supreme Court found that Miami had standing to sue, but remanded over whether there was a link between the actions and the alleged effects.
Miami argued on two grounds: that there was a link, or proximate cause, between the predatory lending practices and the loss of tax, and that it increased spending on services such as police, fire and sanitation affected by the lending practices and alleged redlining.
While the 11th Circuit Court of Appeals in Atlanta said the city has standing to continue its actions on the loss of tax revenue, the link between the increased number of foreclosures and services was not clear.
The banks' key argument is that there was so many steps between the lending practices and the tax base that proximate cause cannot be present.
In a judgment authored by Circuit Judge Stanley Marcus, with panel colleague Judge Stanley Wilson and District Judge Harvey Schlesinger concurring, the appeals court remanded the case back to the Southern District of Florida for further proceedings.
"Proximate cause asks whether there is a direct, logical, and identifiable connection between the injury sustained and its alleged cause," Marcus wrote. "The City’s pleadings meet this standard because Miami has alleged a substantial injury to its tax base that is not just reasonably foreseeable, but also is necessarily and directly connected to the Banks’ conduct ... throughout much of the City."
However, Marcus concluded the city did not craft a good enough argument alleging “some direct relation” between the banks’ conduct and a "claimed increase in expenditures on municipal services."
This appears to resolve an issue that was pondered by the U.S. Supreme Court, which ruled that the city had standing to sue but remanded the issue of proximate cause.