In a welcome development, a unanimous en banc panel of the Ninth Circuit has called what we may hope is a permanent halt to a reckless campaign under which city governments have sought to mulct bank shareholders by way of a strained theory of fair-housing liability.

Following the housing bust of the late 2000s, some American cities signed up with contingency-fee plaintiff’s counsel to sue bank lenders on a highly ambitious legal theory: by extending too many risky loans to minority borrowers on dangerous terms (e.g., low-money-down loans with adjustable interest rates), the banks had foreseeably caused a later wave of delinquencies and foreclosures.


The banks should be made to pay damages to the city administrations, so the theory went, because the foreclosure wave had impaired municipal finances by lowering property tax collections and requiring the spending of more money on services such as fire and police in blighted neighborhoods. (All of these was strictly aside from lawsuits filed by or on behalf of the borrowers themselves.)

The U.S. Supreme Court gave an indirect boost to ideas like these when by a narrow majority it approved the use of “disparate impact” theories in housing discrimination law, whether or not intended to discriminate, in the otherwise unrelated 2015 case of Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.


Then in the 2017 case of Bank of America v. City of Miami, the Court reached the municipal cases themselves. Once again Justice Anthony Kennedy joined the liberals, who prevailed 5–3 on the question whether Miami could pursue claims against the bank as an “aggrieved person.” At the same time, however, a unanimous Court led by Stephen Breyer declared that the Eleventh Circuit had been too liberal in its standard for allowing damages, which should be available only when a violation had directly caused a given injury, not along the infinitely rippling lines of possible later causation. (Cato filed amicus briefs with the high court at two separate stages of the Miami litigation, which eventually sputtered out as moot.)

There remained some doubt as to whether lower courts would take to heart Breyer’s language disallowing less-than-proximate damage theories, especially when the city of Oakland, California, managed to keep some of its claims going before a lower court. That is what makes the unanimous new en banc ruling, joined by judges spanning the ideological spectrum, so welcome.


The court ruled that both the claim for lost property taxes and the claim for increased expenditures depended on too remote a causal chain, one affected by the intermediate actions of many third parties. “These downstream ‘ripples of harm’ are too attenuated and travel too ‘far beyond’ Wells Fargo’s alleged misconduct to establish proximate cause.”

That’s the right result. As Cato argued in one of its Miami briefs, the “interpretive stretch” in the cities’ theories — seeking to bridge the “attenuated relationship between the alleged discriminatory actions and the harm” — was a cover for a disturbing power grab, one that

creates a deeply problematic relationship between the City and its citizens. In general, when a government wants more money to spend, it must go before its electorate and obtain the people’s consent through increases in taxes. If instead a city can simply pursue a claim against several big banks, it can dispense with the people’s consent and instead reach right for the cash.

Not in the Ninth Circuit it can’t.