Yesterday the Supreme Court decided Bank of America v. Miami, allowing the City’s claim for massive damages supposedly caused by predatory lending before the housing crash, to go forward under the Fair Housing Act but with a condition that cannot be met. The law, like RICO, has a civil damages provision allowing “persons” to recover damages for violations of the statute but is unclear as to who is a proper plaintiff and how stringent the showing of causation must be. RICO’s civil damages provision allows plaintiffs “damaged” (undefined) in their “business or property” (undefined) to recover damages. In 1992 the Supreme Court held the common law concept of “proximate causation” was to be read into that provision because it had been read into the Clayton Antitrust Act’s treble damages provision, which was the model for RICO’s.
That may have been a persuasive argument for reading in basic tort law restrictions on recovery which generally require a tort victim’s injury to be “direct.” But the 1992 Holmes opinion never defined the meaning of the word “direct,” probably intentionally, thereby creating as much uncertainty as it resolved. Holmes used the phrases “proximate causation” and “direct injury” interchangeably. The court never supplied a definition of either term, probably because there is none in American tort law. Twenty years later in its Lexmark decison it acknowledged the omission and said proximate meant close enough to the injury to be the cause. That is nothing more than a tantalizing clue. Other RICO causation cases have drawn the line at the first person to suffer an injury. So in Anza v. Ideal Steel, the first identified injury was to New York State, which was cheated out of tax revenues. It, not the Plaintiff, had the right to bring a RICO suit.
In 2010 the Court decided Hemi Group v. City of New York, which once again held there was no proximate causation or direct relationship between the RICO violations and the Plaintiff, New York City, which lost tax revenues. The Court rejected the City’s argument that its injury was “foreseeable” to the defendant and that foreseeability was a key to directness. The City argued If Hemi, an online cigarette seller, had paid New York State its sales tax, the State would have remitted the City its share per an established agreement between the government entities. So when Hemi told the State it had zero sales to New York residents it was foreseeable that fraud would have harmed the City and the State. Thus, in its view the State and City were both direct victims. The Court rejected the argument. Justice Breyer dissented on the basis that the intent to cause an injury plus the foreseeability that the violation would harm both polities amounted to “proximate causation.” He added that under antitrust law, the City would have been allowed to recover, and the same rules should apply to RICO.
Breyer wrote yesterday’s Bank of America opinion, reversing his view and holding foreseeability is irrelevant to proximate causation. Miami must prove a “direct injury” from the violations of the Fair Housing Act to recover. So he brought the Court’s RICO causation reasoning, which he rejected in 2010, to the Fair Housing Act. Supreme Court Justices are allowed to change their minds. But they should explain why. He didn’t and didn’t even own up to the about face.
The direct relation requirement will likely kill Miami’s Fair Housing Act case. It certainly seems there were more directly injured persons from the Bank’s alleged predatory lending scheme before the City was harmed, such as the minority borrowers which were foreclosed after they could not pay their high-rate mortgages.
Why did Justice Breyer change his view of “proximate causation?” Because the Court wanted to draw a line to stop this case from proceeding and it could not do so under the text of the Fair Housing Act. Justice Breyer should have dealt with his Hemi dissent in his opinion. By omitting any mention of it he just adds to the confusion over what “proximate causation” really is. Realists cannot define it with any detail. It varies from case to case depending on the facts. Cynics see it as a backstop used by judges who want to get rid of big, annoying cases. By assigning this opinion to Justice Breyer, who reversed himself without acknowledging his reversal, the cynics appear to have won the day. But looking at this case realistically, the outcome was correct.