(Bloomberg) -- The U.S. Supreme Court issued a mixed decision on the reach of the main federal housing-discrimination law, telling a lower court to reconsider whether Miami can sue banks for lending practices the city said contributed to urban blight.
The ruling is a partial victory for Bank of America Corp. and Wells Fargo & Co., which appealed a lower court ruling that said Miami could pursue the suits under the Fair Housing Act. The majority opinion by Justice Stephen Breyer said it wasn’t clear whether the city had shown the type of direct injury required for the suit to go forward.
But Breyer wouldn’t go as far as three conservative colleagues, who said the court should have thrown out the lawsuit, which grew out of the subprime-mortgage crisis.
Miami said the banks targeted minorities for riskier and more costly loans, leading to foreclosures that cost the city property-tax revenue and forced it to spend more on police and fire services.
Bank of America and Wells Fargo said Congress didn’t intend to allow private lawsuits by a plaintiff who wasn’t a victim of discrimination and whose interests are so far removed from the alleged wrongdoing. Miami is also suing Citigroup Inc., though that bank wasn’t part of the Supreme Court case.
Breyer said cities are eligible to file lawsuits under the Fair Housing Act, saying they fell within the "zone of interests" Congress was seeking to protect.
‘Ripples of Harm’
He said, however, that a federal appeals court made it too easy for Miami to meet the traditional requirement that a plaintiff show it was harmed by a defendant’s actions. He said a violation of the Fair Housing Act caused "ripples of harm" well beyond the particular misconduct.
"Nothing in the statute suggests that Congress intended to provide a remedy wherever those ripples travel," Breyer wrote. He said the statute requires "some direct relation between the injury asserted and the injurious conduct alleged."
In dissent, Justice Clarence Thomas said that was a stiff test that the city wouldn’t be able to meet.
"The majority opinion leaves little doubt that neither Miami nor any similarly situated plaintiff can satisfy the rigorous standard for proximate cause that the court adopts," Thomas wrote. Justices Anthony Kennedy and Samuel Alito joined Thomas’s opinion.
Chief Justice John Roberts joined the court’s four liberals in the majority. New Justice Neil Gorsuch didn’t participate in the case, which was argued in November.
Both sides claimed victory. Miami’s Supreme Court lawyer, Robert Peck, said the city would be able to meet the test laid out by the high court.
"We are very gratified that we will have our day in court and will be able to hold the banks accountable for the discriminatory practices we alleged," Peck said in an email. "As we told the Supreme Court, we can satisfy a direct causation standard, so that does not concern us."
Wells Fargo said in a statement it was "one step closer" to ending the litigation.
"We believe that under the stringent standards articulated by the Supreme Court, it will be very difficult for Miami or any other municipality to show the required connection between the claimed damages and unsubstantiated allegations about our lending practices, which do not reflect how we operate in the communities we serve," the bank said.
‘Goals and Intent’
Bank of America spokesman Lawrence Grayson said the company is "committed to the goals and intent" of the Fair Housing Act. "We believe these claims are without merit, and we will continue to defend our interests in this matter," Grayson said.
Civil rights groups claimed victory, focusing on the part of the decision letting cities sue.
“With this decision, the Supreme Court has acknowledged the crucial role of municipal governments in protecting residents’ rights," said Dennis Parker, director of the American Civil Liberties Union’s Racial Justice Program.
Similar suits have been filed around the country, including claims by Los Angeles and three Georgia counties.
The cases are Bank of America v. Miami, 15-1111, and Wells Fargo v. Miami, 15-1112.