(Adds comment from Wells Fargo, paragraph 11)
By Lawrence Hurley
WASHINGTON, May 1 (Reuters) - The U.S. Supreme Court on Monday ruled that cities may sue banks over predatory mortgage lending to minorities that harms municipal finances, but cast doubt on whether such cases can succeed by throwing out a lower court decision that had allowed litigation brought by Miami to move forward.
The court, ruling 8-0, tossed out a ruling by the Atlanta-based 11th U.S. Circuit Court of Appeals that had permitted Miami’s lawsuits against major banks but gave the city another chance to make its case before a lower court.
Bank of America Corp and Wells Fargo & Co had challenged the appeals court’s decision to permit the suits by the Florida city against the banks. The Supreme Court ruling also affects a related case brought by Miami against Citigroup Inc.
Miami said Wells Fargo, Bank of America and Citigroup steered non-white borrowers into higher-cost and riskier loans they often could not afford, even if they had good credit. As a result of this alleged discriminatory lending, Miami said, property values declined because of the high rate of loan defaults that led to foreclosures. The city said it lost property tax revenue and was forced to pay to repair and maintain properties that went into foreclosure.
Writing for the court, liberal Justice Stephen Breyer said Miami had the legal standing to sue the banks but needed to present more evidence that the injuries it claims to have suffered were tied to alleged violations of the federal Fair Housing Act.
The ruling was a partial victory for both sides.
In Miami’s favor, the justices, on a separate 5-3 vote with conservative Chief Justice John Roberts joining the court’s four liberal justices, did not throw out the lawsuit altogether and embraced the principle that cities can in some circumstances sue under the law.
“We are pleased that the Supreme Court validated the city’s standing to bring its claims under the Fair Housing Act. We look forward to litigating this case further in federal court,” said Victoria Mendez, Miami’s city attorney.
The banks can point to the fact that the lower court ruling permitting Miami’s lawsuits was thrown out unanimously. They now get a second chance to argue why Miami’s claims should not move forward.
“We believe these claims are without merit and we will continue to defend our interests in this matter,” Bank of America spokesman Lawrence Grayson said.
Tom Goyda, a spokesman for Wells Fargo, said that under the standard set by the 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.”
Miami accused the banks of a decade of lending discrimination in its residential housing market. Other U.S. cities, including Los Angeles and Oakland, have launched similar lawsuits.
Miami filed the cases in 2013, in the aftermath of the U.S. financial crisis. The city sued under the housing law, which prohibits discrimination in housing sale, rental and financing.
Three of the court’s conservative justices, Clarence Thomas, Samuel Alito and Anthony Kennedy, said they would have thrown out the lawsuit altogether.
In order to demonstrate the connection between the alleged violation and the harm suffered, “a plaintiff must do more than show that its injuries foreseeably flowed from the alleged statutory violation,” Breyer wrote.
The appeals court in September 2015 overturned a lower court’s decision to dismiss lawsuits by Miami against the banks. Citigroup Inc decided not to appeal to the Supreme Court.
Business interests have sought to narrow the scope of the Fair Housing Act in an effort to ward off expensive litigation.
In 2015, the Supreme Court ruled in a major Fair Housing Act case from Texas, upholding a broad interpretation of discrimination claims allowed under that law, in a setback to lenders and insurers. Then, Kennedy joined the liberal justices in the majority.
Newly appointed Justice Neil Gorsuch, who was not on the court when the case was argued in November, did not participate in Monday’s ruling. (Reporting by Lawrence Hurley; Editing by Will Dunham)