Oakland can sue Wells Fargo over lending practices

A 9th U.S. Circuit Court of Appeals panel has allowed Oakland to continue pursuing a lawsuit against Wells Fargo & Co. for lost property tax revenues because its discriminatory lending practices cost the city revenue.

In a Wednesday ruling, the panel upheld most of U.S. District Judge Edward M. Chen's denial of a defense dismissal motion and also left open the possibility of the city getting injunctive and declaratory relief from the bank.

Reversing Chen, the appellate panel sent those claims back to him with instructions to determine whether the city "plausibly alleged that its ongoing injuries are being proximately caused by Wells Fargo's alleged wrongdoing."

9th Circuit Judge Mary H. Murguia, an appointee of President Barack Obama, otherwise affirmed Chen's conclusion that the city could seek lost property tax revenues but not for increased municipal expenses it attributes to Wells Fargo's violation of the Fair Housing Act.

The judge also cautions the ruling only allows the lawsuit to proceed under a standard most favorable to the city, and that Oakland's attorneys still must prove its analysis holds up under scrutiny.

Under that standard, however, Murguia, citing court precedent, found the city's argument far more persuasive.

"That principle is satisfied in the instant case because Oakland plausibly alleges how Wells Fargo's predatory loans to Black and Latino borrowers necessarily resulted in widespread foreclosures, which in turn necessarily reduced property values, and thus necessarily reduced Oakland's property-tax revenues," Murguia wrote. City of Oakland v. Wells Fargo & Co., 2020 DJDAR 9367 (9th Cir., filed Jan. 30, 2019).

This is not the first time a city has sued Wells Fargo, and a recent case against the bank and several other financial institutions by Miami was dropped in February when a U.S. Supreme Court appeal was pending after an 11th U.S. Circuit Court of Appeals decision in favor of the city.

Wells Fargo spokesman Tom Goyda, citing these other cases by municipalities, expressed confidence the bank would prevail.

"Wells Fargo continues to strongly dispute the city's claims and will defend our record as a responsible lender," Goyda said in a prepared statement.

"The court's decision, while disappointing, concerns only what the plaintiff alleges in the complaint and we are prepared to prove that there is no factual support for any of the city's alleged injuries, just as we did in our successful defenses in similar suits filed by the cities of Los Angeles and Miami Gardens," he added.

Oakland City Attorney Barbara J. Parker said in a statement, "We look forward to continuing to prosecute our case to its conclusion."

During oral arguments, Robert S. Peck, president of the Center for Constitutional Litigation who argued for the city in February, told the panel -- which included 9th Circuit Judge Ronald M. Gould and 6th U.S. Circuit Court of Appeals Judge R. Guy Cole Jr. -- that Congress had damages to municipalities in mind when it passed the Fair Housing Act in 1968 and amended it two decades later.

"Injury from discrimination affects the community as a whole and affects the tax base," Peck argued.

Neal K. Katyal, a partner with Hogan Lovells US LLP who represented the bank, could not be reached for comment. During oral arguments, he said the city's alleged injuries "are several steps removed from the asserted violation. That fact dooms the city's injuries."

Murguia was skeptical of Katyal's assertion, telling him during oral arguments a decline in city tax revenues "seems much more attributable to a decline in property values."

Gould and Cole affirmed Murguia's decision.