October 26, 2016 Practice Points

U.S. Supreme Court to Decide Scope of Right to Sue under Federal Fair Housing Act

What is the proper test for standing under the FHA?

by Christopher M. Wildenhain

On June 28, 2016, the U.S. Supreme Court granted review in Bank of America v. City of Miami to resolve a split between federal courts over the standard that controls the right to sue under the federal Fair Housing Act (FHA). The FHA outlaws discrimination in lending based on race, color, national origin, religion, sex, disability, and familial status and permits persons injured by such conduct to sue their lender for appropriate relief. 42 U.S.C. § 3605 (outlawing discrimination); id. § 3613(a)(1)(A) (authorizing lawsuits). Courts, however, have disagreed over what types of claimants and alleged injuries are proper under the FHA.

This disagreement derives from the U.S. Supreme Court’s cases, which suggest conflicting standards for a proper FHA plaintiff: the “Article III” interpretation and the “zone of interests” interpretation. Based on Supreme Court cases from the 1970s, the Article III approach provides that standing to sue under the FHA is coextensive with Article III of the Constitution. Trafficante v. Metro. Life Ins., 409 U.S. 205, 209 (1972). To have Article III standing, plaintiffs (whether individuals or entities like a corporation or municipality) merely need to allege (1) that they have been injured, (2) that the defendant caused the injury, and (3) that a favorable judicial decision would likely redress the injury. Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016). This is a fairly low bar that most plaintiffs have little difficulty clearing. The “zone of interests” interpretation of the FHA is of a more recent vintage with its origins in Supreme Court decisions from the past five years. Cnty. of Cook v. Wells Fargo & Co., 115 F. Supp. 3d 909, 915–18 (N.D. Ill. 2015). As the name might imply, this second approach limits standing to sue under federal statutes to only those persons who Congress sought to protect by passing the law. Id. at 918. For this reason, the “zone of interests” test is more difficult to pass than its Article III counterpart.

In its lawsuit, the City of Miami alleged that discriminatory lending practices caused minority-owned properties to fall into foreclosure, which in turn decreased the value of the foreclosed properties and neighboring properties, thereby depriving the City of property tax revenue and creating a blight that required the City to spend additional funds on municipal services. City of Miami v. Bank of Am. Corp., 800 F.3d 1262, 1272 (11th Cir. 2015), cert. granted sub nom. Bank of Am. Corp. v. City of Miami, Fla., 136 S. Ct. 2544 (2016) The trial court applied the zone of interests test and dismissed the City’s FHA claims. Id. at 1269. The trial court concluded that the City’s claims were for injuries outside the purpose of the FHA (i.e., the prevention of housing discrimination). See id. at 1270. The U.S. Court of Appeals for the Eleventh Circuit reversed. Id. at 1277. The appellate court determined that the Article III view was the correct standard and that the City’s claims survived under this less rigorous test. Id. at 1277–1278. The Supreme Court granted certiorari.

The implications of Supreme Court review are significant. A decision against the Article III standard would cabin the scope of lending discrimination plaintiffs under the FHA to those harmed by the denial of a loan or the offering of unfavorable loan terms because of their race (or other protected trait). The consequences of a contrary decision are equally serious: not only would the City of Miami’s claims likely proceed, but so would those of a host of other people or entities who might claim harm from a foreclosure of a person denied a loan or given less favorable loan terms on account of alleged discrimination (e.g., neighbors who experience a decline in property value because of a foreclosure; businesses in struggling neighborhoods whose bottom lines are affected by alleged discriminatory lending patterns). Such an expansion of FHA exposure would likely require the lending industry to adjust its practices, including a possible tightening of credit. The Supreme Court’s resolution of the issue—either way—therefore, should have strong ramifications.

Keywords: commercial and business, discrimination, foreclosure, lending, litigation, Fair Housing Act, standing

Christopher M. Wildenhain is with Partridge Snow & Hahn LLP in Providence, Rhode Island.


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