Supreme Court Update: Bank of America v. City of Miami (15-111) and Venezuela v. Helmerich & Pan Int'l Drilling (15-423)

May 16, 2017 Supreme Court Update

Greetings, Court Fans!

The Nine (well, eight of them, with Gorsuch still taking no part in decisions argued before his appointment) were back in action yesterday, issuing three new opinions touching on the Federal Arbitration Act (Kindred Nursing Centers v. Clark (No. 16-32)), the Fair Debt Collection Practices Act (Midland Funding v. Johnson (No. 16-348)), and the Uniformed Services Former Spouses' Protection Act (Howell v. Howell (No. 15-1031)). We'll have summaries of those cases for you in short order, but for now let's get caught up to speed with summaries of a few stragglers: Bank of America v. City of Miami (No. 15-1111), holding that municipalities may have standing as "aggrieved persons" to bring suits under the Fair Housing Act FHA, and Venezuela v. Helmerich & Pane Int'l Drilling (No. 15-423), on the requirements for pleading foreign expropriation of property under federal law.

In Bank of America v. City of Miami (No. 15-1111) (consolidated with Wells Fargo v. City of Miami (No. 15-1112)), the Court handed a significant, if narrow, win to municipalities seeking to hold big banks accountable for risky lending practices targeting minority communities. Municipalities may have standing to bring suits under the Fair Housing Act (FHA), the Court held, but they must show that discriminatory housing practices directly affected them.

The FHA prohibits racial discrimination in connection with real-estate transactions, and permits any "aggrieved person" to file a damages action for violation of the Act. Miami brought suit against Bank of America and Wells Fargo in 2013, alleging that the Banks violated the FHA by intentionally targeting predatory lending practices at African-American and Latino neighborhoods within the city, lending to minority borrowers on worse terms than similarly situated white borrowers and inducing defaults by failing to offer favorable refinancing or loan modifications to minority borrowers. The District Court dismissed the City's complaints, holding that the City was not an aggrieved person under the Act because the harms they alleged fell outside the zone of interests the FHA protects. The Eleventh Circuit reversed, holding that the City did qualify as an aggrieved person and that it had plausibly alleged that the Banks' discriminatory conduct caused the City foreseeable financial harm.

The Court affirmed in part and reversed in part, in a 5-3 decision authored by Justice Breyer and joined by the Chief, Ginsburg, Sotomayor, and Kagan. The Eleventh Circuit was correct to find that the City had standing as an "aggrieved person" to sue under the FHA. As in other statutory-standing contexts, a plaintiff has standing to sue under the FHA if his alleged injuries "fall within the zone of interests protected by the law involved." The Court has interpreted the FHA's definition of "aggrieved person" broadly to include anyone whose alleged injuries are at least "arguably within the zone of interests" the FHA protects. Of particular note, in Gladstone Realtors v. Village of Bellwood (1979), the Court recognized the standing of a village that alleged, among other injuries, that it had lost tax revenue due to a realtor's racial-steering practices. Following this precedent, the majority had little difficulty concluding that the City's alleged financial injuries fall within the zone of interests that the FHA protects. The City alleged that the Banks' predatory practices led to a concentration of foreclosures and vacancies in minority neighborhoods, causing stagnation and decline and ultimately leading to reduced property values and lower property-tax revenue for the City, along with an increased demand for municipal services. Inasmuch as the Court had previously recognized similar injuries to fall within the FHA's zone of interests, "[p]rinciples of stare decisis compel our adherence to those precedents in this context." This was particularly so given that Congress had effectively ratified Gladstone and other expansive precedents when it reenacted the relevant statutory text in 1988.

However, the Court (now unanimous) found that the Eleventh Circuit erred in concluding that the City had adequately alleged proximate causation merely because its injuries were a foreseeable result of the Banks' alleged discriminatory lending practices. "In the context of the FHA, foreseeability alone does not ensure the close connection [between wrongdoing and injury] that proximate cause requires." Because the housing market is interconnected with economic and social life, it stands to reason that a violation of the FHA may "be expected to cause ripples of harm to follow," but "[n]othing in the statute suggests that Congress intended to provide a remedy wherever those ripples travel. And entertaining suits to recover damages for any foreseeable result of an FHA violation would risk massive and complex damages litigation." Instead, proximate cause under the FHA "requires some direct relation between the injury asserted and the injurious conduct alleged." The Court declined, however, to explain how and when such a "direct relation" might be found, reasoning that the lower courts should first weigh in on the issue. Accordingly, the case was remanded to the Eleventh Circuit for further proceedings, during which the City will have to somehow show a more "direct" connection between the Banks' alleged misconduct and its injuries.

Justice Thomas, joined by Alito and Kennedy, agreed with the causation portion of the majority decision. But he would have concluded, as an initial matter, that the City's alleged injuries fall outside the FHA's zone of protection. Thomas characterized the Courts' expansive language in earlier FHA cases as "ill-considered dictum leading to absurd consequences." In any event, those case at least involved plaintiffs who claimed injuries based on racial steering and segregation, the types of injuries the FHA was intended to guard against. In contrast, the City's asserted economic injuries are so marginally related to the purposes of the FHA that they fall outside its zone of protection. Unlike the village in Gladstone, the City here did not allege injuries to its interests in "racial balance and stability" and "nothing in the text of the FHA suggests that Congress was concerned about decreased property values, foreclosures, and urban blight, much less about strains on municipal budgets that might follow." Justice Thomas concluded by emphasizing the narrowness of the majority's holding. The Court did not conclude that FHA standing is coextensive with Article III standing or that other participants in local economies may sue to recover business lost when potential customers give up their homes and abandon blighted neighborhoods. As the majority itself insisted, its narrow holding was based primarily on Gladstone, and, Justice Thomas insisted, it should not be read to endorse a more expansive view of FHA standing.

Standing was also at issue in Venezuela v. Helmerich & Payne International Drilling (No. 15-423), where the Court considered just what a plaintiff must allege in order to sue a foreign state in U.S. court for foreign expropriations of property.

Helmerich is an American company, with a wholly owned Venezuelan subsidiary that supplied oil rigs to oil companies owned by the Venezuelan government. In 2010, the Venezuelan government issued a "Decree of Expropriation" and seized the oil rigs, allegedly in part because the Venezuelan subsidiary had "foreign gentlemen investors." The American parent and its Venezuelan subsidiary then sued various Venezuelan government entities in U.S. federal court.

Normally, foreign states and their instrumentalities are immune from suit in U.S. courts under the Foreign Sovereign Immunities Act ("FSIA"). But the FSIA creates various exceptions to immunity, among them the so-called expropriation exception, which abrogates sovereign immunity and gives U.S. courts subject-matter jurisdiction when "rights in property taken in violation of international law are in issue" and the taken property has some commercial connection with the United States. 28 U.S.C. § 1605(a)(3). Venezuela argued that the expropriation was not "in violation of international law," because of the well-recognized rule that a sovereign state's expropriation of the property of its own nationals is not the concern of international law. The district court agreed that Venezuela's taking of the property of the Venezuelan subsidiary was not a violation of international law, but allowed the American parent's claim to go forward, reasoning that the Venezuelan government's expropriation of the oil rigs was essentially an expropriation of the American company's ownership interest in its subsidiary.

On appeal, the D.C. Circuit allowed both companies' claims to go forward. It agreed with the district court's reasoning as to the American parent. But it reinstated the Venezuelan subsidiary's claim because its property had arguably been expropriated because of its American ownership, which might violate international law. Importantly, the Court of Appeals did not decide whether these allegations, if true, would constitute a taking in violation of international law. Rather, the Court held that a claim under the expropriation exception could go forward so long as the plaintiff made a "not wholly insubstantial or frivolous" argument that the alleged facts were a taking in violation of international law. The Supreme Court granted cert only on the narrow question of the pleading standard: Does a plaintiff need only to make a non-frivolous argument of a taking in violation of international law to get past sovereign immunity? Or must courts decide whether the plaintiff's allegations (taken as true) actually amount to a taking in violation of international law?

Writing for a unanimous Court (with Gorsuch abstaining), Justice Breyer agreed with Venezuela that courts must decide whether the facts alleged by the plaintiff actually amount to a taking in violation of international law; a non-frivolous (and hence possibly incorrect) argument is not enough to abrogate immunity. The text of the expropriation exception grants jurisdiction only where rights in property "taken in violation of international law are in issue." This suggests that courts must make a legal determination whether the rights alleged by the plaintiff are of a certain type—namely rights to property taken in violation of international law—and because sovereign immunity is jurisdictional, the court must make this determination at the outset of the case (or close to it). This approach is consistent with the basic objective of the FSIA, which grants foreign states general immunity from suit except where international law would deny such immunity. Were courts to permit claims to go forward where the plaintiff makes a non-frivolous—but ultimately incorrect—argument that an expropriation of property was a violation of international law, US courts would be subjecting foreign sovereigns to suit in cases where international law would not permit it. In all these points, the Court gave significant deference to the Solicitor General and the Department of State, which filed an amicus brief in support of Venezuela, noting that the D.C. Circuit's overly restrictive approach to sovereign immunity would anger foreign states, which may respond by limiting the United States' own immunity to suit in foreign countries. Thus, a court faced with a claim brought under the expropriation exception must determine whether the facts alleged by the plaintiff actually amount to a violation of international law. And where this jurisdictional question depends on a dispute of facts, the court should resolve that dispute as near the outset of the case as reasonably possible. The Court then remanded to the D.C. Circuit to determine whether Venezuela was immune under the correct legal standard.

There were no cert grants on Monday, but the Court did make news by denying cert in North Carolina v. NC State Conference of the NAACP (No. 16-833), thereby allowing a Fourth Circuit ruling striking down North Carolina's controversial 2013 Voter ID law to stand. The Chief Justice issued a statement regarding the denial, drawing attention to the fact that the new Democratic Governor and Attorney General of North Carolina had attempted to dismiss the State's petition, while the Speaker and President pro tempore of the State General Assembly had filed conditional motions to intervene. "Given the blizzard of filings over who is and who is not authorized to seek review in this Court under North Carolina law," the Chief observed, "it is important to recall our frequent admonition that the denial of a writ of certiorari imports no expression of opinion upon the merits of the case."

That's enough for this installment. We'll be back later in the week with summaries of Monday's decisions. Until then!