An en banc ruling by the Ninth Circuit, in City of Oakland v. Wells Fargo & Co., has held that cities claiming loss of property taxes due to financial lender practices doesn’t meet the proximate cause threshold.
The major precedent inside this case is the Ninth Circuit’s application of Bank of America v. City of Miami, in which the U.S. Supreme Court required a direct relationship between injury and conduct, David Levine, Raymond Sullivan Professor of Law at UC Hastings, told the Northern California Record. The high court’s 2017 decision was issued after Oakland filed its Fair Housing Act lawsuit in 2015.
“The Supreme Court made a choice, which is to say you need to have this tie, you’ve got to show the tie between injury and the conduct,” Levine said. “The mere foreseeability is not enough, and that’s a familiar concept that is tied to proximate cause, because the idea is that just about anything could be foreseeable, especially with hindsight.”
Oakland’s lawsuit argued the bank’s lending model had led to loan defaults and foreclosures, and had deprived the city of property tax revenue to fund services. The district court and initial Ninth Circuit decision concurred, but the 11-member en banc court ruled Oakland’s case was too attenuated to show proximate cause.
The en banc decision, authored by Justice M. Margaret McKeown, noted the SCOTUS Miami ruling emphasized, “that ‘foreseeability alone’ is not sufficient to establish proximate cause, the Court required ‘some direct relation between the injury asserted and the injurious conduct alleged.’”
The en banc court also found defaulting on loans could be due to things other than lending terms.
“The reason for default could be attributable to many independent factors,” the ruling states. “[S]uch as job loss, a medical hardship, a death in the family, a divorce, a fire or other catastrophe, Covid-19, broader economic trends, or any number of other unpredictable causes not present when the loan was made.”
With the Supreme Court’s Miami case as a baseline, the appellate en banc decision was that Oakland had overreached.
“They got the signal from the Supreme Court loud and clear,” Levine said.
And the Oakland case isn’t likely to impact California’s affordable housing shortage because that is more closely tied to land use, Levine added.
Meanwhile, a judge has issued a stay in a similar case filed by the city of Sacramento.
“It is unlikely that other circuits would not follow the Miami application in the Oakland case,” Levine said. “The takeaway is it seems like this is not going to be a fruitful route for municipalities to recoup their losses. For cities, counties, or municipalities indirectly trying to help borrowers, saying we are being hurt by this practice, that kind of lawsuit is unlikely to go anywhere.”