Remember several years ago when Baltimore sued Wells Fargo on the basis that Wells Fargo wrecked Baltimore by loaning money to people with less-than-prime credit ratings who wanted to buy houses? We didn’t think much of that suit, especially when the judge dismissed it, not once, but twice; however, we also agreed with Howard Cayne, who opined at the time of the first dismissal that blood can be squeezed from stones, if only because the cost of litigating anything in this country often incentivizes a defendant to pay off the plaintiff in order to stop the bleeding.
The Justice Department jumped into the fray and beat out of the bank a global settlement of $175 million this past summer, a whopping $7.5 million of which went to Baltimore. Baltimore’s hometown newspaper crowed that the city’s “effort to recover millions of dollars in lost revenue stemming from the wave of home foreclosures that followed the collapse of the housing market in 2007 was vindicated” by the settlement. Three years of expensive litigation in order to garner a paltry $7.5 million by means of a settlement in which the bank admits no wrongdoing is “vindication”? Is “vindication” a synonym for “extortion” in Baltimore?
It was easy for those of us in the peanut gallery to urge Wells Fargo to "never settle" (as we did repeatedly). It’s not our time being wasted, our human and financial resources being diverted, and our defense counsel being enriched at our expense. It was a business decision, and you can’t fault Wells Fago for making it.
Unfortunately, rolling over only encourages like-minded municipalities to hitch a ride on the gravy train. Thus, it comes as no surprise to learn that three Georgia counties recently filed a similar lawsuit against HSBC.
Three Atlanta-area counties have filed a lawsuit claiming that British bank HSBC cost them hundreds of millions of dollars in extra expenses and damage to their tax bases by aggressively signing minorities to housing loans that were likely to fail.
Fulton, DeKalb and Cobb counties say in their lawsuit, which was filed in October, that the housing foreclosure crisis was the "foreseeable and inevitable result" of big banks, such as HSBC and its American subsidiaries, aggressively pushing irresponsible loans or loans that were destined to fail. The counties say that crisis has caused them tremendous damage.
"It's not only the personal damage that was done to people in our communities," said DeKalb County Commissioner Jeff Rader. "That has a ripple effect on our tax digest and the demand for public services in these areas."
The lawsuit says the banks violated the Fair Housing Act, which provides protections against housing or renting policies or practices, including lending, that discriminate on the basis race, color, national origin, religion, sex, family status or handicap.
The cities claim that the bank’s wrongful actions caused their tax base to decline, which reduced tax revenue. And that’s not all.
Their housing code and legal departments have to investigate and respond to code violations, including having to board up, tear down or repair unsafe homes. They have to deal with public health concerns, such as pest infestations, ruptured water pipes, accumulated garbage and unkempt yards. And fire and police departments have to respond to health and safety threats.
I suspect that the complaint will be amended at some future date to include claims that the predations of HSBC also caused global warming and Hillary Clinton’s blood clot.
The closing paragraph of the linked article states the crux of the problem in settling these lawsuits.
But Jaime Dodge, an assistant law professor at the University of Georgia, says she thinks more cases are likely, at least in the short term as municipal governments continue to feel the squeeze of a tight economy and seek ways to refill their coffers. They may try to test federal courts in different parts of the country, she said. Successes in multiple jurisdictions could lead to more attempts, but if courts start knocking the suits down that would likely discourage them, she said.
Courts may knock down individual lawsuits, but that won’t stop them from being refiled. Moreover, it won’t stop a US Justice Department staffed with ideologues from pushing “disparate impact” to the edge of the envelope and counting on big banks to buckle under to intimidation. Given the results to date, there’s no reason for the plaintiffs to back off.