9th Circuit Holds Fair Housing Act Liability Requires a Direct Causal Relationship Between Injury and Injurious Conduct

The U.S. Court of Appeals for the Ninth Circuit recently held that there must be “some direct relation between the injury asserted and the injurious conduct alleged” to establish proximate cause under the Fair Housing Act; simply alleging that the injury was foreseeable is insufficient, and the statute does not warrant going beyond the first step of causation for injuries that take place “further downstream.”

The Ninth Circuit considered a claim by a city in California (City), which brought suit against a lender, claiming that it was 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) the lending practices triggered higher default rates; (3) the default rates caused higher foreclosure rates; (4) the foreclosure rates led to a decrease in property values; and (5) this harmed the City because it ultimately led to less property tax revenue and increased expenditures.

As WBK previously reported here, the U.S. District Court for the Northern District of California first held that the City’s complaint alleging intentional and disparate-impact discrimination could move forward, but dismissed the City’s claims alleging that the lender’s actions limited fair-housing program spending.  The lender appealed, and a three-member panel of the Ninth Circuit held that the Fair Housing Act’s proximate cause requirement is “sufficiently broad and inclusive to encompass aggregate, city-wide injuries.”  However, the Ninth Circuit subsequently vacated the panel opinion and voted to rehear the case en banc.

Sitting en banc, the Ninth Circuit again considered whether the City’s allegations demonstrated proximate cause under the Fair Housing Act.  The court took guidance from Bank of America Corp. v. City of Miami, 137 S. Ct. 1296 (2017) (Miami), which held that cities can be considered an “aggrieved person” and thus have standing to bring suit under the Fair Housing Act.  The Supreme Court further held that a plaintiff, including a municipality, must meet the Fair Housing Act’s proximate cause requirement, which necessitates a direct relationship between the injurious conduct and alleged harm.  The Supreme Court did not outline the exact parameters of the direct relation standard for the Fair Housing Act, but it stated that the proximate cause theory does not generally find liability “beyond the first step” of a causal chain.  The Supreme Court further noted that the two considerations for expanding the theory of proximate causation beyond that first step are “the nature of the statutory action” and the consideration of what is “administratively possible and convenient.” 

The Ninth Circuit first acknowledged that the social and economic relationships created by the housing market can lead to “ripples of harm” from misconduct.  However, the Ninth Circuit noted that, as was stated in Miami, “[n]othing in the statute suggests that Congress intended to provide a remedy wherever those ripples travel,” and the City’s theory went beyond the first step of the chain of causation.

The Ninth Circuit next found that the statutory nature of the Fair Housing Act does not provide support for liability “beyond the first step” of causation because the injurious conduct the Fair Housing Act guards against (discriminatory lending practices) was only presented in the first step of the proximate cause:  discriminatory loans resulting in harm to borrowers.  Therefore, the general tendency to halt proximate cause at the first step of causation was appropriate in the Fair Housing Act context.

The Ninth Circuit then considered what was “administratively possible and convenient,” according to the three relevant factors outlined in another Supreme Court case, Holmes v. Sec. Inv. Prot. Corp., 503 U.S. 258, 269-70 (1992):  (1) the ability to distinguish the damages attributable to the violation, as distinct from other, independent, factors; (2) the risk of multiple recoveries; and (3) whether more direct plaintiffs could be counted on to vindicate the law as private attorneys general.

Here, the Ninth Circuit found that the City had not shown that it could distinguish the damages attributable to the violation from other factors. The City did not indicate that its decreased property tax revenue was caused by alleged practices by the lender; there may have been independent causes for its damages.  There was no risk of multiple recoveries, because only the City can claim the property tax revenues, but this was not a sufficient reason to expand causation past the first step.  Finally, there were more direct plaintiffs:  the directly harmed borrowers.  Thus, the three Holmes factors weighed against the City, and the Ninth Circuit declined to interpret the Fair Housing Act as providing an exception to halting proximate cause at the first step of causation.

The Ninth Circuit therefore affirmed the district court’s dismissal of the City’s damages claim related to increased expenditures; reversed its denial of the lender’s motion to dismiss the damages related to lost property tax revenue and claims for injunctive and declaratory relief; and remanded to the district court for dismissal of the Fair Housing Act claims.