Calling the government “at best a tertiary loser,” a federal appeals panel ruled Cook County went too far in trying to make Bank of America pay to cover economic damages the county claims it sustained as a result of what the county said were BoA's “reverse redlining” mortgage lending practices.
The litigation dates back nearly a decade to when the county began suing financial institutions like Bank of America and Wells Fargo, alleging that the lenders engaged in conduct known as "reverse redlining," in which lenders agree to provide home mortgage loans to minority borrowers, but under rates and terms more onerous than those provided to white borrowers with similar financial standing.
The county asserted this led to a rash of defaults and foreclosures. The county’s legal theory is that absent the banks’ alleged practices, the sheriff’s office and circuit courts wouldn’t have incurred additional expenses for services related to foreclosures.
U.S. District Judge Elaine Bucklo granted summary judgment to Bank of America in February 2022, in large part relying on a 2017 U.S. Supreme Court opinion, Bank of America v. Miami, and also a 2021 U.S. Ninth Circuit Court of Appeals opinion, Oakland v. Wells Fargo, a unanimous opinion which held the city of Miami was precluded from seeking the same type of relief Cook County sought in its lawsuit.
Cook County challenged Bucklo’s dismissal before the U.S. Seventh Circuit Court of Appeals. Judge Frank Easterbrook wrote the panel’s opinion, issued Aug. 16; Judges Kenneth Ripple and Diane Wood concurred. Ripple wrote a special concurrence.
In Miami, Easterbrook wrote, the Supreme Court determined the Fair Housing Act “provides relief only for injury proximately caused by a statutory violation” and said the borrowers are the directly injured parties, while the banks lost out by not collecting promised interest and sometimes failing to recover principal. But the county’s “injury derives from the injuries to the borrowers and banks," Easterbrook said.
On appeal, the county agued the remedy shouldn’t stop with the borrowers when financial institutions used an alleged “integrated equity-stripping scheme.” The county argued the U.S. 11th Circuit Court of Appeals indicated as such when remanding Miami to a district court. But Easterbrook said the Supreme Court opinion vacated the appellate “decision as moot, which strips it of any value as precedent.”
Furthermore, Easterbook wrote, Bucklo said the case record at summary judgment stage wouldn’t allow a jury to find such a scheme existed.
“The record shows instead that individual banks developed their own programs, at different times, for their own reasons,” Easterbrook wrote. “(Bucklo) observed that the county’s expert conceded that an ‘integrated equity-stripping scheme’ would not have made economic sense for the banks, which would have been among the major losers from inability to recoup their investments.”
Easterbrook concluded by saying the Oakland opinion is sufficient in explaining why “the right plaintiffs are those who suffer the first-tier injuries.”
In his concurrence, Ripple said he would affirm Bucklo’s judgment on different grounds. He said inconsistency in Ninth and 11th circuit rulings means it would be imprudent to reach the question of proximate cause, but added the record shows summary judgment was proper based on evidence.
Ripple said Bucklo was correct in excluding the testimony of two experts Cook County used to build its case, ruling the economists’ methodology was rare, untested, unsound and unreliable. Absent that testimony, Ripple wrote, the county “has no basis for its two disparate-impact claims” under the FHA, leaving only a “claim based on the alleged existence of an integrated scheme to strip equity from minority borrowers. As (Bucklo) explained, the record does not support the county’s suggestion that the defendants engaged in a coordinate scheme to target minority borrowers for loans that they could not afford in order to provoke defaults and foreclosures.”
Cook County has been represented by attorneys Kenneth A. Wexler, of Wexler Boley & Elgersma, of Chicago; James M. Evangelista, David J. Worley, Kristi Stahnke McGregor and Leslie G. Toran, of the firm of Evangelista Worley, of Atlanta; and Sanford P. Dumain, Jennifer S. Czeisler and Roy Shimon, of the firm of Milberg Phillips Grossman, of Garden City, New York.
They were hired by the Cook County State's Attorneys to serve as special assistant state's attorneys in the litigation against Bank of America.
Bank of America has been represented by attorneys Matthew S. Sheldon, Thomas M. Hefferon, Levi Swank, Yvonne Chan, Benjamin R. Cox and Courtney L. Hayden, of Goodwin Procter, of Washington, D.C., and Boston; and attorney Joseph L. Motto, of Winston & Strawn, of Chicago.