By Chris Bruce

Nov. 4 — Bank of America and Wells Fargo are hoping an Election-Day U.S. Supreme Court argument will help them sidestep allegations of biased lending practices and the massive liability that could follow (Bank of Am. Corp. v. Miami, U.S., No. 15-cv-01111, argument scheduled11/8/16).

At issue is a 2015 federal appeals court ruling that reinstated a Fair Housing Act lawsuit by the city of Miami. The suit said Bank of America and Wells Fargo made discriminatory home loans that spurred widespread foreclosures while driving tax revenues down and city expenditures skyward.

The U.S. Supreme Court is set to hear arguments Nov. 8, with a focus on two questions - whether Miami has the right to assert such claims, and whether it can establish the critical “causal link” by tracing its problems to actions by the banks.

The case is high on the “must-watch” list of banks and consumer advocates. The court's decision will affect a series of separate lawsuits against Bank of America and Wells Fargo by other cities that are now on hold and awaiting a decision in this case, as well as lawsuits against JPMorgan, Citigroup, and HSBC.

“There are suits all over the country raising these issues,” said Karen McDonald Henning, associate professor at the University of Detroit Mercy School of Law. “The potential exposure to banks could be enormous.”

The case also could clarify how the law is applied to address societal wrongs, Henning added in an assessment echoed by Mehrsa Baradaran, associate professor of law at the University of Georgia School of Law in Athens, Ga.

“This could really give the Fair Housing Act some teeth to do away with problems it was meant to remedy,” she said.

Fair Housing Act

According to Miami, Bank of America and Wells Fargo violated the Fair Housing Act in two ways. The city said the banks intentionally discriminated against minority borrowers by targeting them for loans with burdensome terms.

Miami also said the banks’ practices had a disparate impact on minority borrowers that resulted in a disproportionate number of foreclosures and exploitive loans in minority neighborhoods.

Bank of America did not immediately respond to a request for comment ahead of the argument. Wells Fargo spokesman Tom Goyda declined to comment.

Both banks have consistently defended their lending practices, citing efforts to boost community development and trying in some cases to take what Wells Fargo has called “a collaborative approach” when it comes to disputes.

But both banks say the lawsuits are off-base as a matter of law. In its petition to the U.S. Supreme Court in June, Bank of America said the plaintiffs are making demands “based on a multi-step theory of causation that would have made Rube Goldberg proud.”

Risk Goes Local

Even so, if Miami's suit is allowed to go forward, it could expose global financial institutions to liability from local governments across the nation, said Professor David Reiss of Brooklyn Law School in New York.

That's new, he said. Although the federal government and state attorneys general have reached multi-billion settlements with banks in the wake of the financial crisis, local governments haven't had much of a role in those battles, Reiss told Bloomberg BNA.

But if Miami's suit goes ahead, mortgage lenders could face significant litigation costs and monetary judgments under new theories of liability. “These new theories are independent of the theories relied upon by the federal government and the states and could therefore expand the overall liability of financial institutions from the same underlying set of facts,” Reiss said.

Alan White, professor at the City University of New York School of Law in Queens, N.Y., said the city suits, if allowed, could mean more enforcement, especially in the wake of the U.S. Supreme Court's 2015 ruling that said the Fair Housing Act allows disparate impact claims.

“Before the city suits, there were just a handful of cases being brought by the Justice Department and a few private plaintiffs with the resources to pay for the required expert analysis,” he said.

Very, Very Complicated

Miami and other cities confront a series of hurdles even if the justices allow such suits.

For example, the U.S. government's brief, which supports Miami, said Miami might not prevail on a separate question that could bar its action – whether the city brought its case within the Fair Housing Act's statute of limitations.

And, the government said, the city will have to present evidence to support its allegations – “a task made harder by the number of links in the causal chain.”

According to the University of Detroit Mercy's Karen Henning, banks will argue that property values decline for a multitude of factors, making for complex assessments of proximate cause, blame, and even damages, if the case gets that far.

“If this suit goes forward, it's going to get very, very complicated,” she said.

What's the Cost?

It's impossible to know how much cities might be able to recover in such cases, or what the price tag might be for individual institutions.

But the scale of what some city-plaintiffs might demand may be suggested by just one lawsuit – Miami's underlying action against Bank of America in the U.S. District Court for the Southern District of Florida.

In its most recent complaint, Miami said it seeks damages based on reduced property tax revenues and increased municipal costs. Among other points, it cited in support of its arguments a study of the Los Angeles housing market that estimated a $53 billion decline in property values there. Miami also seeks punitive damages, the costs of legal fees, and interest.

That's just one case. Among others, in addition to the underlying district court actions in the Supreme Court case, Bank of America faces a Fair Housing Act appeal by Los Angeles in the U.S. Court of Appeals for the Ninth Circuit, a district court action by Cobb County, Ga., in that state, and another lawsuit brought by the city of Miami Gardens in Florida.

Wells Fargo also faces an appeal by Los Angeles in the Ninth Circuit, as well as district court lawsuits in Florida (brought by Miami Gardens), California (the city of Oakland is the plaintiff), and Illinois, where the city of Chicago has sued the bank.

Other banks face litigation too. In addition to their complaints against Bank of America and Wells Fargo, the cities of Miami and Miami Gardens have each sued Citigroup and JPMorgan. Meanwhile, the city of Atlanta has sued HSBC.

More Cases?

A decision in favor of Miami likely would mean even more cases. The National Association of Counties, the National League of Cities, and the U.S. Conference of Mayors filed U.S. Supreme Court briefs in support of Miami.

So did the cities of San Francisco, Los Angeles, and 24 other jurisdictions, saying in a joint brief that Congress, in enacting the Fair Housing Act, recognized the impact that discriminatory actions have on cities.

“Cities’ interests lie at the very heart of the Act's mission,” the brief said.

No one knows how many more such lawsuits might be in the offing if Miami gets the green light. But it raises a question – if Fair Housing Act claims can be based in part on a decline in property tax revenues, how many U.S. cities saw their tax revenue fall in the years after 2008?

Bank of America is represented by William M. Jay of Goodwin Procter in Washington.

Wells Fargo is represented by Neal Kumar Katyal of Hogan Lovells in Washington.

Miami is represented by Robert S. Peck of the Center for Constitutional Litigation in Washington.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com