City of Oakland v. Wells Fargo & Co.

• Citation: 14 F.4th 1030
• Decision Date: 28 September 2021
• Docket Number: No. 19-15169,19-15169
• Parties: CITY OF OAKLAND, A Municipal Corporation, Plaintiff-Appellee, v. WELLS FARGO & COMPANY; Wells Fargo Bank, N.A., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

14 F.4th 1030

CITY OF OAKLAND, A Municipal Corporation, Plaintiff-Appellee,

v.WELLS FARGO & COMPANY; Wells Fargo Bank, N.A., Defendants-Appellants.

No. 19-15169

United States Court of Appeals, Ninth Circuit.

Argued and Submitted En Banc June 23, 2021 Pasadena, California

Filed September 28, 2021

Neal Kumar Katyal (argued), Colleen Roh Sinzdak, Benjamin A. Field, and Sean Marotta, Hogan Lovells US LLP, Washington, D.C.; Paul F. Hancock and Olivia Kelman, K&L Gates LLP, Miami, Florida; Edward P. Sangster and Daniel W. Fox, K&L Gates LLP, San Francisco, California; Terry E. Sanchez, Munger Tolles & Olson LLP, Los Angeles, California; Bart H. Williams and Manuel F. Cachan, Proskauer Rose LLP, Los Angeles, California; for Defendants-Appellants.

Robert S. Peck (argued), Center for Constitutional Litigation P.C., Washington, D.C.; Barbara J. Parker, Oakland City Attorney; Maria Bee, Chief Assistant City Attorney; Office of the City Attorney, Oakland, California; Joel Liberson, Trial & Appellate Resources P.C., Torrance, California; Yosef Peretz and Ruth Israely, Peretz & Associates, San Francisco, California; for Plaintiff-Appellee.

D. Scott Change, Housing Rights Center, Los Angeles, California; Jamie Crook, American Civil Liberties Union Foundation of Northern California, San Francisco, California; David Loy, American Civil Liberties Union of San Diego & Imperial Counties, San Diego, California; Julia Devanthéry, American Civil Liberties Union of Southern California, Los Angeles, California; Sandra S. Park and Alejandro Ortiz, American Civil Liberties Union Foundation, New York, New York; Morgan Williams, National Fair Housing Alliance, Washington, D.C.; Ajmel Quereshi, NAACP Legal Defense & Education Fund Inc., Washington, D.C.; for Amici Curiae American Civil Liberties Union Foundation, American Civil Liberties Union Foundation of Northern California, American Civil Liberties Union Foundation of Southern California, American Civil Liberties Union of San Diego & Imperial Counties, AARP, NAACP Legal Defense & Educational Fund Inc., National Fair Housing Alliance Inc., Poverty & Race Research Action Council, and Twelve Local Fair Housing Centers in the Ninth Circuit.

Dennis J. Herrera, City Attorney; Aileen M. McGrath, Co-Chief of Appellate Litigation; City Attorney's Office, San Francisco, California; for Amicus Curiae City and County of San Francisco.

Michael L. Newman, Senior Assistant Attorney General; Christine Chuang, Supervising Deputy Attorney General; Shubhra Shivpuri and Srividya Panchalam; California Department of Justice, Oakland, California; for Amicus Curiae State of California.

Daniel P. Kearney Jr. and Matthew E. Vigeant, Wilmer Cutler Pickering Hale & Dorr LLP, Washington, D.C.; Steven P. Lehotsky and Emily J. Kennedy, U.S. Chamber Litigation Center, Washington, D.C.; for Amicus Curiae Chamber of Commerce of the United States of America.

Micha Star Liberty, Liberty Law, Oakland, California; Marcus J. Jackson and David M. Arbogast, Jackson Litigation, Carlsbad, California; for Amicus Curiae California Black Chamber of Commerce.

William Michael Cunningham, Washington, D.C., pro se Amicus Curiae.

Before: Sidney R. Thomas, Chief Judge, and M. Margaret McKeown, Kim McLane Wardlaw, Richard A. Paez, Consuelo M. Callahan, Sandra S. Ikuta, Jacqueline H. Nguyen, Andrew D. Hurwitz, Ryan D. Nelson, Bridget S. Bade, and Lawrence VanDyke, Circuit Judges.

McKEOWN, Circuit Judge:

Only a few years ago, the Supreme Court addressed the proximate-cause standard of the Fair Housing Act ("FHA"), 42 U.S.C. §§ 3601 – 3619, 3631, in Bank of America Corp. v. City of Miami ("Miami "), ––– U.S. ––––, 137 S. Ct. 1296, 197 L.Ed.2d 678 (2017). Emphasizing 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." Id. at 1305–06 (quoting Holmes v. Sec. Inv. Prot. Corp. , 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992) ). In acknowledging that "[t]he housing market is interconnected with economic and social life," the Court observed that "[a] violation of the FHA may, therefore, ‘be expected to cause ripples of harm to flow’ far beyond the defendant's misconduct." Id. at 1306 (quoting Associated Gen. Contractors of Cal., Inc. v. Carpenters , 459 U.S. 519, 534, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) ). Nonetheless, the Court limited the legal consequences of those ripples: "Nothing in the statute suggests that Congress intended to provide a remedy wherever those ripples travel." Id.

The City of Oakland ("Oakland") claims that Wells Fargo's discriminatory lending practices caused higher default rates, which in turn triggered higher foreclosure rates that drove down the assessed value of properties, and which ultimately resulted in lost property tax revenue and increased municipal expenditures. These downstream "ripples of harm" are too attenuated and travel too "far beyond" Wells Fargo's alleged misconduct to establish proximate cause. Id. In this interlocutory appeal under 28 U.S.C. § 1292(b), we therefore reverse the district court's partial denial of Wells Fargo's motion to dismiss and remand for dismissal of the FHA claims.

I. BACKGROUND

A. FACTUAL BACKGROUND

According to Oakland's First Amended Complaint (the "Complaint"), Wells Fargo violated the FHA by engaging in mortgage-lending practices that discriminated against African-American and Latino borrowers. Oakland alleges that Wells Fargo had a longstanding "policy and practice of steering minority borrowers" into mortgage loans with "terms that have higher costs and risk features than more favorable and less expensive loans for which the borrower was eligible and which are regularly issued to similarly situated white borrowers." Specifically, Oakland claims that Wells Fargo's practices resulted in giving a higher proportion of riskier "adjustable rate loans to minority borrowers than white borrowers" and giving "very few ... conventional 30-year fixed rate mortgages" to minority borrowers.

According to Oakland, the discriminatory loans to minority borrowers increased default and foreclosure rates and decreased property values, which resulted in two economic harms: a decrease in property tax revenue and the simultaneous need for increased municipal expenditures to address public health and safety issues. Oakland also alleges that the discriminatory lending caused it non-economic injury by undermining its racial-integration goals.

To support its allegations that the discriminatory lending caused these harms, Oakland conducted a series of regression analyses. As Oakland notes, a regression analysis is a statistical method that examines "the relationship that exists in a set of data between a variable to be explained—called the ‘dependent variable’—and one or more ‘explanatory variables.’ " Oakland "controll[ed] for borrower race and objective risk characteristics," to ensure that borrowers being compared were similarly situated—that is, that they "posses[ed] similar underwriting and borrower characteristics."

Based on Wells Fargo's own lending history data, Oakland found that, between 2004 and 2013, African-American and Latino borrowers were 2.583 and 3.312 times more likely, respectively, to receive loans with discriminatory terms than similarly situated white borrowers. Again controlling for "objective risk characteristics," Oakland found that the discriminatory loans were 1.753 times more likely to result in foreclosure than non-discriminatory loans. These differences, according to Oakland, were statistically significant, meaning that there was less than a one percent chance that the observed differences would have occurred by chance. The Complaint alleges that the risky, expensive loans led to foreclosure at higher rates because "(1) the borrowers are required to make higher loan payments; and (2) as foreclosures begin to occur in a neighborhood, refinancing out of high-cost and high-risk loans becomes increasingly difficult due to suppressed loan-to-value ratios."

The higher default and foreclosure rates then allegedly decreased property values. The Complaint asserts that "[h]omes in foreclosure tend to experience a substantial decline in value," which in turn reduces Oakland's tax revenue.

The foreclosures also allegedly required Oakland to spend and divert resources to, among others, the police and fire departments, the Oakland Building Services Division and Code Enforcement, and the Oakland City Attorney's Office, to "remediate blighted conditions."

B. PROCEDURAL BACKGROUND

Oakland sued Wells Fargo for damages as well as declaratory and injunctive relief. While the case was pending in the district court, the Supreme Court decided Miami and clarified the requirements for proximate cause under the FHA. 137 S. Ct. at 1305–06. The district court accordingly instructed Oakland to amend its complaint in light of Miami . Oakland did so, and Wells Fargo moved to dismiss.

The district court dismissed Oakland's claims as to increased municipal expenditures but allowed Oakland's claims as to decreased property tax revenue to proceed. With respect to non-economic injuries, namely that discriminatory lending practices undermined Oakland's racial-integration goals, the district court dismissed Oakland's claim on standing grounds. Finally, the court allowed all claims for declaratory and injunctive relief to proceed, reasoning that Miami ’s directness requirement "does not appear to extend" to these claims.

The district court certified two issues for interlocutory appeal under 28 U.S.C. § 1292(b) : (1) whether Oakland's claims for damages satisfy the FHA's proximate-cause requirement, and (2) whether that proximate-cause requirement applies to claims for injunctive and declaratory relief.

A panel of this court affirmed the district court's determination that Oakland sufficiently pleaded proximate cause for the decreased property tax revenue claim; affirmed the district court...