Where do damages end from racial discrimination in housing? | McClatchy Washington Bureau

Supreme Court justices appeared receptive Tuesday to Miami’s argument that it’s entitled to sue banks under federal discrimination law for the impact from racially discriminatory loans.

The case hinges on whether the 1968 Fair Housing Act, the last of the landmark civil rights laws, covers only the direct effects of discrimination or also covers indirect consequences, such as property tax losses and increased policing costs.

With a vacancy still unfilled from the death of Antonin Scalia last winter and with Justice Clarence Thomas maintaining his customary silence, the seven other justices grilled lawyers in a lively Election Day session in which several also wondered whether the law’s protections might extend to anyone who suffers an indirect financial loss because of discriminatory mortgages.

Justices asked more questions of Neal Katyal, a former U.S. solicitor general who is representing the Bank of America and Wells Fargo in the case, than of Robert Peck, a Washington attorney for the city of Miami.

Chief Justice John Roberts Jr. appeared most skeptical of Miami’s claims, while Justice Elena Kagan targeted the banks’ arguments.

Katyal acknowledged that the high court had ruled in favor of a Chicago suburb alleging financial damages under the Fair Housing Act in its 1979 Gladstone Realtors v. Village of Bellwood case.

“Gladstone falls into the segregation category,” Katyal said. “A city can recover (damages) for the harms from making an integrated neighborhood become segregated.”

Justice Anthony Kennedy asked whether the harm would include the costs of added police.

“What could a city recover for based on a more segregated neighborhood?” he asked.

Katyal responded: “That may be very hard to identify.”

Miami has not yet put a dollar value on the financial harm it alleges was caused by the predatory loans, but the cities of Baltimore and Memphis previously settled lawsuits for bank payouts in the range of $10 million.

Miami, though, has ticked off a range of services that cost the city money or caused its employees to suffer financial losses, from demolishing abandoned buildings in blighted neighborhoods and lost property-tax revenues to firefighters taking pay cuts of up to 40 percent.

“It is a direct injury that flows from the (banks’) discriminatory conduct,” Peck told the high court.

Juries and judges often award higher damage amounts in cases that go to trial than might have been agreed on in pretrial settlements.

Miami Gardens is among a number of cities that have filed similar cases against banks and are waiting the Supreme Court ruling in the Miami suit.

Katyal told the justices that a ruling for Miami would open the floodgates to similar lawsuits.

“There are 19,300 cities in America,” he said. “If you adopt their theory, you’d be allowing all of them to bring suits just like this one.”

And it wouldn’t stop with cities, he said.

“This is an unlimited theory of liability that would allow landlords to sue, utilities to sue and gardeners to sue,” Katyal said.

Peck faced tough questions from Roberts, who asked whether local businesses should also be able to sue lenders over decreased profits as a result of neighborhood blight from bad loans.

“The city has a special interest in fair housing and an integrated community that the Fair Housing Act intended to vindicate,” Peck said. “A company does not.”

Roberts retorted: “But a business has an interest in running its operations in an integrated, vibrant neighborhood just as the city does.”

The difference, Peck responded, is that a city spends money on police, utilities and other services to maintain nice neighborhoods. Those investments, he said, are harmed by racially predatory loans that lower property values, increase foreclosures and cause other forms of blight.

Roberts also grilled Justice Department lawyer Curtis Gannon, who defended Miami’s suit in the oral arguments because the federal government believes it has a big stake in the outcome.

When Gannon said Congress intended local governments to enforce the Fair Housing Act on behalf of their residents, Roberts responded: “So a city can bring suit as a result of one subprime mortgage tied to discrimination?”

After the hearing, Peck expressed cautious optimism about the high court’s response to Miami’s case.

“I thought the court understood the issues,” he said. “I felt pretty good about the way the arguments went.”

He quickly added: “That’s as much as I feel comfortable saying.”

Brian Frazelle, a lawyer with the Constitutional Accountability Center, a liberal Washington group that tracks the Supreme Court, said it appeared to have responded well to the city’s stance.

“The justices recognized the special role that the Fair Housing Act plays in fighting housing discrimination,” he said. “They seemed to appreciate, as well, how broad the ability to sue should be to help enforce it, a position Congress expressly adopted when it last authorized the FHA” in 1988.

Miami Commissioner Francis Suarez said before the high court hearing that the city’s case was rooted in the mortgage meltdown crisis that began about a year before his election in November 2009.

“As we investigated, we discovered that many banks were lending money to minority members of our community under less favorable terms than non-minority members,” Suarez said.

“They were preying on our residents,” Suarez said. “That led to unusually high levels of foreclosures in our city, which caused all kinds of problems, from an enormous diminishment in the value of our tax base and more squatters in foreclosed properties to almost having to declare bankruptcy as a city.”