9th Circuit Holds Liability Under Fair Housing Act Demands Direct Causal Relationship Between Injury And Prejudicial Conduct | Weiner Brodsky Kider PC


The United States Court of Appeals for the Ninth Circuit recently ruled that there must be “a direct relationship between the alleged harm and the alleged harmful conduct” to establish immediate cause under the Fair Housing Act; simply claiming that the harm was foreseeable is insufficient, and the law does not justify going beyond the first stage of causation for harms that occur “further downstream”.

The Ninth Circuit considered a claim by a city in California, which brought an action against a lender, claiming that it had been harmed by the lender’s alleged discriminatory lending practices. The City asserted that it was harmed by the following chain of causation: (1) the lender engaged in discriminatory lending practices; (2) lending practices triggered higher default rates; (3) default rates have resulted in higher foreclosure rates; (4) foreclosure rates have led to a decline in property values; and (5) it hurt the City because it ultimately resulted in decreased property tax revenues and increased spending.

As WBK previously reported here, the United States District Court for the Northern District of California initially ruled that the city’s complaint alleging intentional discrimination and disparate impact could go ahead, but rejected the city’s claims that the lender’s actions were limiting spending on the fair housing program. The lender appealed, and a three-member Ninth Circuit panel found the Fair Housing Act’s immediate cause requirement to be “broad and inclusive enough to encompass comprehensive city-wide injuries.” . However, the Ninth Circuit subsequently rescinded the panel’s opinion and voted to rehear the case in bench.

Sitting on a bench, the Ninth Circuit again examined whether the city’s allegations demonstrated immediate cause under the Fair Housing Act. The tribunal was inspired by Bank of America Corp. vs. Miami city, 137 S. Ct. 1296 (2017) (Miami), who held that cities can be considered an “aggrieved person” and therefore have standing to bring an action under the Fair Housing Act. The Supreme Court further ruled that a claimant, including a municipality, must meet the Fair Housing Act’s immediate cause requirement, which requires a direct relationship between the harmful conduct and the alleged harm. The Supreme Court did not define the exact parameters of the direct relationship standard for the Fair Housing Act, but did say that the immediate cause theory does not generally find liability “beyond the first stage” d ‘a causal chain. The Supreme Court further noted that the two considerations for extending the theory of immediate causation beyond this first step are “the nature of the action provided for by law” and the consideration of what is “administratively possible and practice “.

The Ninth Circuit first recognized that the social and economic relationships created by the housing market can lead to “ripples of prejudice” in the event of misconduct. However, the Ninth Circuit noted that, as stated in Yum, “[n]nothing in the law suggests that Congress intended to provide a remedy wherever these ripples spread, ”and the City’s theory went beyond the first step in the chain of causation.

The Ninth Circuit then found that the statutory nature of the Fair Housing Act does not allow for the assumption of responsibility “beyond the first stage” of causation, as the harmful conduct against which the Housing Act fair protects (discriminatory lending practices) was only presented in the first step. immediate cause: discriminatory loans causing harm to borrowers. Therefore, the general tendency to stop immediate cause at the first stage of causation was appropriate in the context of the Fair Housing Act.

The Ninth Circuit then considered what was “administratively possible and practical”, based on the three relevant factors described in another Supreme Court case, Holmes v. Dry. Inv. Prot. Corp., 503 US 258, 269-70 (1992): (1) the ability to distinguish damages attributable to the violation, as opposed to other independent factors; (2) the risk of multiple recoveries; and (3) whether more direct complainants could be relied on to assert the law as private attorneys general.

In this case, the Ninth Circuit concluded that the City had failed to demonstrate that it could distinguish the damages attributable to the violation from other factors. The City did not indicate that the decrease in its property tax revenues was caused by alleged practices of the lender; there may have been independent causes for its damage. There was no risk of multiple collections, as only the City can claim the property tax revenues, but this was not a sufficient reason to extend causation beyond the first stage. Finally, there were more direct complainants: the borrowers directly injured. So the three Holmes the factors weighed against the city, and the Ninth Circuit refused to interpret the Fair Housing Act as providing an exception to immediate cause stopping at the first causal stage.

The Ninth Circuit therefore confirmed the district court’s rejection of the city’s claim for damages related to the increased spending; quashed its dismissal of the lender’s motion to dismiss damages related to loss of property tax revenue and requests for injunction and declaratory judgment; and referred to district court for dismissal of Fair Housing Act claims.


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