Federal Court Allows City’s Discrimination Suit Against Large National Bank

Recently, the U.S. District Court for the Northern District of California allowed a complaint filed by the city of Oakland against a large national bank, alleging both intentional and disparate-impact racial discrimination in the bank’s mortgage loan practice.  While the court allowed the suit to go forward, it did dismiss claims based on an allegation that the loan practice neutralized spending in the city’s fair-housing programs.

In The City of Oakland v. Wells Fargo Bank, N.A., et al., the city of Oakland, California brought suit against a large bank, alleging that they used race as a factor in determining what loans to offer borrowers, specifically that the bank would steer minorities into riskier mortgages with a higher rate of foreclosure.  As a result of the bank’s alleged practices, the city claims to have suffered three kinds of injuries: 1) decreases in property-tax revenues, 2) increases in municipal expenditures, and 3) neutralization of the city’s spending on fair-housing programs.

The principal question to be answered by the court was whether the city’s injuries were proximately caused by the bank’s actions under the FHA and its state-law analogue, the California Fair Employment and Housing Act, in light of the Supreme Court’s recent decision addressing the FHA’s standard for proximate cause in Bank of America v. Miami. Using the standard set forth in Bank of America, the district court found that, while the alleged actions the bank took did not directly lead to the alleged harm, there was enough of a causal link to allow the claims based on the first injury to survive the bank’s motion to dismiss.  The claims based on the harm of increased municipal expenditures were also allowed to go forward to the extent they sought injunctive or declaratory relief, but claims seeking damages under this harm were dismissed.

The city’s final claimed harm, that the discriminatory lending practices “wasted or neutralized” the city’s spending to promote non-discriminatory housing, was challenged by the bank on the grounds that the city did not have standing to assert non-economic injuries. The court granted the bank’s motion to dismiss because the city did not specifically allege that it was required to divert resources to combat the particular housing discrimination in question, nor did it allege that the city’s racial balance in stability was lost.

Finally, the court found that the city had successfully brought a claim for disparate-impact discrimination in addition to intentional discrimination.  The city alleged that the bank’s loan officers, encouraged by the bank’s compensation plan to sell higher-risk, more expensive products, used their discretion to sell those products to minority borrowers.

The case is City of Oakland v. Wells Fargo & Co, N.D. Cal., No. 15-cv-04321, and the motion to dismiss was denied in part, granted in part on 6/15/2018.