Kushner’s Real Estate Company Faces Class Action Over Rent Payments

Jared Kushner, the son-in-law of and advisor to President Trump, is facing legal troubles for his own real estate work outside of the White House. Several tenants of Baltimore properties owned by Kushner’s real estate company Westminster Management have filed a class action suit against the company, among others, based on the manner in which the company allegedly charges late fees on rent payments and allocates future rent payments, arguing that the practices violate Maryland’s consumer protection, debt collection, and landlord/tenant law.

The Allegations Against Westminster Management

The lawsuit, which was filed in a Baltimore Circuit court, alleges that the defendants violated Maryland’s landlord/tenant law which limits late fees to 5% of the total rent for the month, by also adding in an “agent fee” as well as a “summons fee” or “writ fee” on top of the 5% late payment fee, which they say makes for an illegally high late fee. The plaintiffs take particular issue with the “summons fee” and “writ fee” charges, which they say wrongly suggest that the defendants incurred court fees when no action in court was taken.

Furthermore, the plaintiffs allege further violations of Maryland property law by later applying portions of rent payments made on time to cover the disputed late fees from previous rent cycles, causing the later payment to fall short of the total rent due. This would allegedly incur another 5% late fee based on a percentage of the entire month’s rent, even though most of the rent had been paid on time.

The suit also alleges that the defendants violated the state’s debt collection laws and consumer protection laws by using unauthorized tactics of trying to collect rent such as demanding attorney fees when no court had awarded such fees to be made. 

While it remains to be seen how the Maryland courts will rule on the plaintiff’s claims or their potential certification as a class, it does serve as a strong reminder of the multitude of state laws that can be implicated with day-to-day landlord/tenant matters such as late rent fees.

Contact the Real Estate Litigation Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact Wagenseller Law Firm today to schedule a consultation to discuss your real estate litigation matter.

Can Non-contract Statements Be Used to Win a CA Breach of Contract Case?

In any situation where either you are contemplating a breach of contract action, or someone is threatening a breach of contract action against you, your first frame of reference is to look at what was actually in the contract. Whether you personally scrutinized every word at the time you signed it, another person looked at it on your behalf, or you scanned over it assuming that nothing in there would cause you a problem one day, that contract is certainly going to be a court’s primary focus in determining whether either party breached its obligations. But what about statements that either you or the other party made concerning the agreement which either were not in the contract or contradict the contract? For example, you might have assured another party that you would deliver goods by a certain day but did not put it in the contract. Or the other party might have told you not to worry about the waiver section because it was just “boilerplate” and would not affect your rights. Such cases invoke the so-called parol evidence rule in California and may or may not have legal effect based on the circumstances under which they were made.

The Purpose of the Parol Evidence Rule in California

The whole point of having a written contract is for all parties to the contract to have a central, shared document which explains what both parties have mutually agreed upon. While oral contracts are enforceable as well, assuming they do not run afoul of California’s statute of frauds, written contracts make for a much more tidy process of keeping track of what was agreed upon which can then be submitted at trial for the court to enforce.

Thus, the purpose of the parol evidence rule is to exclude other statements which were not included in the contract so that parties can indeed rely upon those statements within the four corners of the documents. But a number of non-contract statements can indeed be admitted into court in a breach of contract case, as explained below via the following questions to be examined in addressing a non-contract statement’s admissibility.

Was the Contract a Complete and Exclusive Statement of the Agreement?

The parol evidence rule only prevents non-contractual statements from being admissible when the contract was at issue was a “complete and exclusive statement of the terms of the agreement.” As the phrase suggests, this means that, if the contract was intended to be the be-all, end-all of the parties’ agreement, then other statements should not be allowed in.

In determining whether the contract did fit this description – or in other words, was a completely integrated agreement – the court will look for such a statement (called an integration clause) in the contract itself or elsewhere.

When Was the Non-contract Statement Made?

A critical component of admissibility is when the non-contract statement was made. If it was made before the contract was signed or at the time it was signed, then it may be excluded via the parol evidence rule (assuming, again, it was a completely integrated agreement).

But when statements were made after the contract was signed, for example a renegotiation of terms or relief of an obligation (e.g. I’ll accept $75,000 rather $90,000 as per the contract), the court can admit such statements.

What Does the Non-contract Statement Have to Do With the Contract?

The parol evidence rule works to exclude statements which would supplement the contract with additional terms (e.g. a specific date of delivery) or contradict the terms in the contract (e.g. “you don’t have to worry about the waiver in here”). But statements which work to explain ambiguous terms in the contract (e.g. specifying a particular product among a large inventory that was intended) will be admissible.

Was the Statement Made Fraudulently?

Finally, statements made outside of the contract which to induce fraud can be admissible in California, even if they would have otherwise have been excluded by the parol evidence rule. Thus, statements that a person made which he knew to be false with the intention of getting the other party to sign the agreement can be admissible. This exception can get quite complicated, as it threatens to swallow the rule in its entirety, but California courts have provided guidance on when such statements can be admissible.

Contact the Commercial Contract Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact Wagenseller Law Firm today to schedule a consultation to discuss your commercial contract matter.

Winning Punitive Damages in a CA Business Dispute Action

“Punitive damages” is one of those legal concepts that you certainly do not need to have gone to law school to understand. The phrase inspires lavish dreams for plaintiffs hoping to hit defendants where it hurts and collect an enormous payout in the process, and terror in defendants who understand that the entire point of punitive damages is to hit their bottom line hard enough so as to be made an example of to other similarly situated market players. You may associate punitive damages with particularly egregious wrongful death and product liability lawsuits between injured individuals and deep-pocketed corporate defendants – and there is truth to that connection – but punitive damages can also be awarded in business litigation disputes in California.

Fraud, Malice, and Oppression: The Keys to Punitive Damages

Most business disputes are based off of causes of action rooted in an alleged breach of contract. In essence, one party is saying that there was a contract between the plaintiff and the defendant – whether it be a purchase and sale agreement, a real estate contract, an employment agreement, etc. – and that the defendant failed to live up to its obligations. In typical breach of contract actions, the plaintiff can sue for the financial losses suffered due to the defendant’s breach, but punitive damages (which, by definition, go above and beyond a plaintiff’s actual losses and are there to punish and deter the defendant from acting egregiously) will not be awarded in a typical breach of contract action.

But, under California law, a business plaintiff can pursue punitive damages from a defendant based on an agreement when the defendant acted with fraud, malice, or oppression. Of these three, fraud is the most common cause of action brought against business defendants in pursuit of punitive damages, and is defined as, “an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.”

While less commonly pled in the business context, malice is defined as “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others,” and oppression is defined as, “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.”

Business Dispute Situations in Which Punitive Damages Might Be Awarded

Based on those definitions of fraud, malice, and oppression – and keeping in mind that fraud is the one most applicable to a typical business-to-business dispute – it is thus the case that the difference between a regular breach of contract action in which punitive damages are not available and a situation where punitive damages might be awarded is generally going to focus on the defendant’s conduct rather than the plaintiff’s financial injury.

With the case of fraud or intentional misrepresentation, a California court will look at whether there are sufficient facts to show that the defendant did indeed act intentionally to deceive a plaintiff and thereby obtain property or a legal right via that deception. We see these cases arise in the real estate context when a defendant allegedly lies about the features of qualities of real estate, or fails to provide information about the property that should have been provided, and the plaintiff decides to buy the property based on this false representation or omission.

Fraud cases must meet high pleading requirements at the outset to make it to trial, and whether you are considering bringing a fraud action or defending against one, working with an experienced business dispute attorney can be critical to pursuing your interests in such cases.

Contact the Commercial Contract Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact Wagenseller Law Firm today to schedule a consultation to discuss your commercial contract matter.

Suing On a Partnership Agreement in CA Where There Was No Written Contract

One of the most common types of business litigation lawsuits in California is where one partner in a partnership sues another partner for failing to fulfill his obligations under the partnership agreement. Such a dispute might arise over rights to share in profits, who gets to exercise control over the partnership’s profits, the alleged failure of one partner to provide services or goods to the partnership, or any other right or obligation related to the partnership agreement. For some partners, the threat of such a lawsuit can come as an enormous surprise, especially where there was: 1) no written partnership agreement between the parties, and/or 2) one “partner” never believed that they had a legally valid partnership. Under California law, however, partnership agreements can indeed exist where no written agreement and/or formal arrangement of a partnership were ever established, meaning such a lawsuit can go forward.

California Can Find There is a Partnership Without an Express Agreement

California’s Corporations Code makes clear that partnerships can and will be validly established in the eyes of the state courts even without a written agreement or intention to form a partnership where there is, “the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.

In determining whether two or more persons have indeed formed a partnership by carrying on as co-owners of a business for profit, courts will not presume that jointly held property means a partnership exists, but they will presume that a person who “receives a share of the profits of the business” is a partner in the business, unless those payments are made for another particular purpose such as rent or interest payments on a loan.

Determining What Is In the Partnership Agreement

If the first step in a partnership dispute is determining whether a partnership actually existed, the next big step is to determine what the partners have agreed to when there is no formal partnership agreement. In such cases, the court is going to hear evidence on what oral assertions were made between the partners regarding their respective rights and obligations in the partnership. The court may also look at any other number of documents to assess the partnership structure, for example agreements with other parties, accounting records, banking records, and so on.  

Because determining what the rights and obligations between the parties can have a huge financial implication for both partners as they divide up who is responsible for partnership debts and who has the right to receive partnership profits, it is important to work with an experienced partnership dispute attorney in such cases to present your best case and defend your property interests.

Contact the Partnership Dispute Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact the Wagenseller Law Firm today to schedule a consultation to discuss your partnership dispute matter.

Dustin Hoffman Scores Victory Over Manafort’s Son-in-Law in LA Real Estate Scheme Gone South

In a legal proceeding that has it all – Hollywood royalty, the son-in-law of an embattled political consultant connected with the Trump administration, and a skyrocketing market for luxury homes in Los Angeles – legendary actor Dustin Hoffman and his son Jacob Hoffman have scored a legal victory in their quest to recover $3 million they invested in a real estate scheme with Jeffrey Yohai, the son-in-law of Paul Manafort, former campaign chairman for President Trump. Specifically, the Hoffmans persuaded a Santa Ana federal bankruptcy court to convert a bankruptcy proceeding by a Yohai-controlled entity that oversaw the investment scheme in a single property in the Hollywood Hills from a Chapter 11 reorganization to a Chapter 7 proceeding, meaning the Hoffmans may be able to recoup some of their investment through a court-ordered liquidation.

The Hoffmans’ Blue Jay Way Investment

The dispute between the Hoffmans and Yohai centers on a property in the Birds Street Neighborhood of the Hollywood Hills – an exclusive area home to Hollywood A-listers such as Leonardo Dicaprio and Jodie Foster – in which the Hoffmans had invested $3 million through an entity called DJ Blue Jay Way, apparently named for Blue Jay Way, the street on which the property is located. Yohai had purchased the Blue Jay Way property in 2015 for $7.5 million after receiving the Hoffman’s investment, and the plan had been to build a new luxury home on the property and resell it for approximately $30 million.

The Blue Jay Way property was one of four investments made by Yohai-controlled properties, which also included a Bel Air property in which Yohai’s father-in-law Paul Manafort had apparently invested $4.7 million. These investment schemes took a turn for the worse, however, in late 2016 when the Yohai-controlled companies that oversaw the real estate investments filed for Chapter 11 bankruptcy protection. The Blue Jay Way property had specifically gone into default after payments on the mortgage used to purchase the property were not made. In court filings, the Hoffmans accused Yohai of mismanaging their money.

A Challenging Road to Recoupment

The import of the Hoffmans’ success in converting the bankruptcy proceeding from a Chapter 11 to Chapter 7 proceeding is that, while a Chapter 11 proceeding allows a debtor pursuing bankruptcy protection to reorganize his debts by negotiating for smaller payments and an extended repayment schedule, a Chapter 7 proceeding forces the debtor to sell essentially everything and repay all parties based on the amount received in liquidation.

But what remains unclear is what, if any, assets would be available to equity investors such as the Hoffmans in such a liquidation. In a Chapter 7 proceeding, all creditors must be paid off in full before equity investors can recoup their investment. According to the LA Times, several lenders had extended millions of dollars in loans to Yohai to purchase his properties, and one of the lenders alone is seeking $21 million in damages from Yohai’s entity.

Making matters even more complicated, the New York Times has reported that both the FBI and New York State Attorney General’s office are currently investigating real estate deals involving Yohai – who has only been working in real estate since 2011 – and his father Manafort for potentially illegal behavior.

Contact the Real Estate Litigation Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact Wagenseller Law Firm today to schedule a consultation to discuss your real estate litigation matter.

What Items Should Be Included In Your CA Commercial Lease Agreement?

Whether you are the tenant or the landlord entering in a commercial lease agreement, you obviously want to take steps to ensure that your interests are adequately addressed and protected by the lease agreement. Your main focus in entering into the lease agreement will probably be the amount of rent paid and the duration of the lease, but here are several other items that should be included in your California commercial lease agreement, and which should be drafted and/or negotiated in concert with your attorney to make sure rights are protected.

Does the Tenant Have Rights to Common Services?

A commercial landlord may provide for a number of common services to commercial tenants throughout a building or other common area, such as security services, gardening, cleaning, trash removal, fire safety, and so on. The lease agreement should state what services are included, and whether the charges are to be passed on to the tenant or paid by the landlord.

Who Is Responsible for Maintenance and Repairs?

Similarly, a common issue that can arise in disputes between a commercial landlord and tenant is with regard to which party is responsible for paying for ongoing maintenance and repairs on the property. This provision may be tailored specifically to the types of activities that the tenant will be performing on the property, such as provisions specific to running a restaurant or foodservice business.

What Rights to the Parties Have to Terminate the Lease?

It is of course the case that a business’ ongoing property needs are often determined by the unknowable question of whether the business will succeed or struggle. A tenant may go out of business in six months, or it may need to triple its size to handle demand. The lease agreement should contain provisions addressing what each party’s rights are should either party want to terminate the lease.

Does the Tenant Have a Right to Constructive Eviction?

Constructive eviction can occur when a tenant argues that a landlord has not provided a property that meets a baseline suitability for the tenant’s purposes, e.g. infestation, noxious fumes, or disrepair not caused by the tenant. In such a case, a tenant sometimes has a right to vacate the property (after notice is provided) and stop paying rent via the act of constructive eviction. California allows landlords and tenants to opt out of this option via the lease agreement, however, and thus this should be considered when drafting the lease.

What Happens if the Rent is Delinquent?

As with residential lease agreements, it is common for commercial lease agreements to contain a provision regarding what should occur when the rent payment is delinquent. This should include grace periods for paying rent, any applicable fines for paying late, and procedures that might be taken if rent is still not paid, such as eviction procedures.

How Will Disputes Be Resolved?

Commercial lease agreements will also often contain provisions regarding how disputes between the landlord and tenant should be resolved, such as through going to an arbitrator.

Work With an Experienced Los Angeles Real Estate Litigation Attorney

The above are just a few of the provisions for tenants and landlords to keep in mind when drafting and negotiating a lease agreement that meets their needs, and both parties are highly encouraged to work with a real estate attorney who can assess the particular issues that need to be addressed, as well as the relevant state and local law that will affect the interpretation of a commercial lease agreement in their particular jurisdiction.
Attorney Laine T. Wagenseller of Wagenseller Law Firm has published numerous articles on real estate law and works with individuals and businesses across Southern California in resolving real estate matters, including disputes arising from commercial leases. Contact Wagenseller Law Firm today to schedule a consultation in order to evaluate your situation and begin working towards a positive resolution.

Should I Be Worried About a Lis Pendens on My California Property?

Like many a latin legal phrase, people hearing about a lis pendens on their property are often confused as to whether to be terrified by the unknown phrase or to ignore it as a legalese phrase that has little meaning for their interests. The answer is often somewhere in the middle. The fact that a lis pendens has been placed on your property may actually mean nothing in the long-term for your interests, but it can mean serious short-term annoyance and threats to your interests – regardless of whether the person who placed the lis pendens has some cognizable legal claim against you or not – especially if you are attempting to sell or mortgage your property in the near future.

A Lis Pendens Means Someone is Making a Claim Against Your Property

It can be easy to confuse a lis pendens with a lien, given that they are similar sounding phrases and are both placed “on your property,” but they are quite different. While a lien is a security interest on your property such as a mortgage or attachment of a court judgment, a lis pendens is instead a notice to you and to any other potentially interested parties that there is a legal claim against and/or concerning your property. These legal actions can include:

    • Eminent domain actions (a government body attempting to take your property)
    • Partition actions (a co-owner attempting to divide the property)
    • Quiet title actions (another party claiming ownership of the property)
    • Foreclosure actions

What You Should Do About a Lis Pendens

The fact that a lis pendens has been placed on your property says nothing about whether the party who has filed the action will be successful in the action, but only that an action has been filed. Which brings up two questions: 1) Will the action be successful?, and 2) Even if there is no chance it will be successful, can a lis pendens hurt my interests?

In answering the first question, you should speak to a real estate litigation attorney who can learn about your situation and advise you accordingly on the merits of the action and what you should do in response.

But, as to the second question, even where there is little to no chance of the other party’s success in its action, the presence of a lis pendens can go a long way in scaring off potential buyers and/or lenders who are interested in purchasing the property and/or taking a security interests in it. After all, if there is a question about whether you actually will own a full or partial interest in the property either now or in the future, a buyer or lender will be justifiably cautious about moving further in any transaction.

Fighting to Remove a Lis Pendens

An experienced real estate litigation attorney, however, can work with you to act quickly in removing the lis pendens from your property based on a number of arguments, such as:

  • The suit does not actually affect your interest in the property
  • There is no merit to the suit
  • You were not properly served with notice of the lis pendens
  • Other errors were made by the opposing party

Taking decisive, quick action is often key to success in protecting yourself from a lis pendens on your property, so it is in your interest to contact an attorney as soon as possible after notice of a lis pendens.

Work With an Experienced Los Angeles Lis Pendens Attorney

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact Wagenseller Law Firm today to schedule a consultation to discuss your lis pendens matter.

Who In a Partnership Is Liable in a California Lawsuit?

Many business disputes as well as personal injury lawsuits involve business partnerships. When a plaintiff – whether it be a spurned business partner claiming breach of contract, a customer who broke her leg while on partnership property, or anything in between – successfully brings suit against the partnership, the question will arise as to what parties are going to be financially liable to pay the plaintiff’s damages in a settlement or judgment following a verdict. This question largely will be answered based on what type of partnership was formed.

General Partnerships

A general partnership can be any ongoing business venture carried on by two or more people where profits are shared. There is no registration requirement for a general partnership, and so two people engaged in an ongoing business venture may be considered a general partnership in the eyes of the law even if they never considered or called themselves partners.

This can become hugely significant for the partners – and anyone with whom they deal – when a tort or contract liability comes up. In such situations, all partners can become personally liable for acts carried out by the other in furtherance of the partnership, even if one partner was not aware of the other partner’s acts (and, again, even if they did not think of themselves as a partnership at all). Because the partners in a general partnership are personally liable on partnership debts, this means that their personal assets (such as homes, vehicles, and savings) can be reached, not just assets in the partnership itself.

Limited Partnerships

In a limited partnership, there is at least one general partner and one limited partner.  A limited partner is one that does not take an active role in managing the partnership, but whose contributions are more investment-related. The benefit of being a limited partner is that a limited partner’s liability only extends to the assets invested in the partnership and will not include the limited partner’s personal assets.

Thus, if a limited partner invested $10,000 in the partnership, he or she might lose all that money if the partnership goes bankrupt due to a legal obligation, but that limited partners’ personal assets will be safe. General partners in a limited partnership remain personally liable for the partnership’s obligations, however. Certain registration formalities must be met in California to create a limited partnership.

Limited Liability Partnerships

Limited liability partnerships (LLPs) are often confused with limited partnerships, but they are quite distinct under California law. In a limited liability partnership, the partners are not personally liable for the obligations for the partnership, whether those liabilities might arise out of a contractual relationship (e.g. an employee or supplier) or are based on tort liability. Instead, only the LLP itself will be liable for the obligation in a lawsuit.

To obtain the liability benefits of an LLP in California, the partnership must meet the registration requirements for an LLP and it must also meet ongoing state requirements which are there to ensure that plaintiffs will have recourse against the partnership if injured. These requirements include: 1) obtaining insurance; 2) maintaining an escrow account or similar type of account as security for liabilities; 3) obtaining guarantees from partners; or 4) maintaining a specified net worth.

Talk to a business litigation attorney for further information about liability among partners in the context of an LLP or other partnership in California.

Contact the Partnership Dispute Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact the Wagenseller Law Firm today to schedule a consultation to discuss your partnership dispute matter.

What Should Be Listed in a Purchase and Sale Agreement?

When purchasing or selling real estate, parties will almost always execute a purchase and sale agreement prior to the actual transaction (referred to as “the closing”) taking place. This is in contrast to most other types of transactions in which the exchange of funds for property is concurrent with the execution of the contract for the sale, and where the contract is often oral or implied (e.g. a purchase of an appliance). The reasons for this in the context of a real estate transaction are not hard to comprehend: real estate often involves enormous amounts of money, complex financing and closing procedures not present in most transactions, and numerous contingencies and covenants relating to the nature of the property. All of these can and often should be addressed in the purchase and sale agreement. Buyers and sellers of both residential and commercial real estate are highly encouraged to work with counsel in drafting, negotiating, and executing a purchase and sale agreement as well as in considering what litigation strategies are available when a purchase and sale agreement is potentially breached by either party. Below are some of the basics regarding what should be listed in a purchase and sale agreement.

Physical Description of the Property to Be Sold

A key aspect of the purchase and sale agreement is, of course, a description of the property itself to be sold. While this will certainly include identifying descriptions such as the address, more complicated issues can arise with regard to giving specific property boundaries as well as descriptions of whether fixtures and/or equipment (e.g. a swimming pool or air conditioning unit) are included in the sale.

Covenants Relating to Land Use

The agreement should also include descriptions of other non-physical aspects, such as covenants relating to use of the property, for example whether there are covenants against commercial or residential use of the property. Easements should also be included and potential zoning issues of which a buyer may need to be made aware. The agreement may also include warranties regarding any other potential interests in the property.

Financial Terms of the Real Estate Transaction

The price of the property should be listed here, as well as the often numerous other financial terms of the transaction, such as amount of the down payment, use of financing, insurance, how funds will be transferred, and so on.

Representations Regarding Financing

Related to the financial terms of the transaction, purchasers are often required to make representations regarding their financing. Transactions often fall through between the purchase and sale agreement and the closing as a result of a purchaser’s financing not coming through, which can cause significant damage to a seller who may have turned down other offers. Thus, by including representations in the purchase and sale agreement, a seller may have legal recourse in such an event.

Contingency Matters

This is a catch-all area to describe the various procedures and recourse either party may have if the other party fails to follow through on the requirements of the agreement, e.g. a failure to obtain financing. This can dictate dispute resolution rights and obligations such as applicable law and procedures for going to court.

Contact the Real Estate Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact the Wagenseller Law Firm today to schedule a consultation to discuss your purchase and sale agreement matter.

Supreme Court Rules Cities Can Sue Banks for Predatory Lending

In a decision that could have an enormous impact on massive real estate litigation claims for years to come, the Supreme Court of the United States recently ruled that the city of Miami could move forward with bringing claims against Bank of America and Wells Fargo for allegedly violating the federal Fair Housing Act (FHA) through predatory lending practices aimed at minority communities. Although the court also ruled that the evidentiary standard that the city must show in linking its alleged damages to the banks’ conduct is higher than that stated by the 11th circuit, the fact that the court rejected the banks’ arguments that municipalities were not proper plaintiffs under the FHA clears the way for more cities to bring suit against large banks for lending practices. According to the Washington Post, Oakland and Los Angeles have already brought similar suits to recover damages from large Wall Street banks.

Miami’s Claims Against the Banks

In its lawsuit, the city of Miami argued that the banks violated the Fair Housing Act, which prohibits discrimination in real estate transactions, by using predatory lending practices to intentionally issue riskier mortgages to homeowners in Latino and African-american neighborhoods than their counterparts in majority-white neighborhoods. The city argued that, as a result of these predatory lending practices, more foreclosures occurred in these neighborhoods and that Miami was injured in the following ways:

  • An adverse impact on the racial composition of the city
  • An impairment of the city’s ability to assure racial integration and desegregation
  • A frustration of the city’s “longstanding and active interest in promoting fair housing and securing the benefits of an integrated community”
  • A drop in property taxes paid to the city
  • An increase in demand for services (fire, police, building and code, etc.) to remedy blight and related issues that foreclosures cause

Traditionally, individuals who have been discriminated in real estate transactions have brought claims under the FHA, thus having a city present a claim under the FHA presented a novel question to the Supreme Court regarding standing. Contrary to the banks’ arguments, the Supreme Court ruled that the city could indeed bring a claim because Miami’s “claimed injuries fall within the zone of interests that the FHA arguably protects.”

Direct Causation Under the FHA Must Be Shown

Although Miami and cities like it can proceed with claims under the FHA, the challenge left by the Supreme Court’s decision is in being able to show sufficient evidence at the outset that there is a direct causal link between the banks’ actions and the damages being argued, i.e. that the predatory lending caused a demonstrable drop in property taxes.

The 11th Circuit Court of Appeals had ruled that Miami need only show that the types of damages it is alleging be “foreseeable” results of the banks’ actions. The Supreme Court unanimously rejected that standard, holding that the proper legal causation standard under the FHA requires “some direct relation between the injury asserted and the injurious conduct alleged.”

While the court declined to further specify the parameters of this standard, it is clear that it does require some level of direct evidence of causation, not just foreseeability. We will learn more about how this evidentiary standard plays out at the trial level as the Miami case returns to the trial and similar cases around the country proceed.

Work With an Experienced Los Angeles Real Estate Attorney

At Wagenseller Law Firm in downtown Los Angeles, our attorneys have extensive experience in resolving all types of real estate litigation matters. Contact the Wagenseller Law Firm today to schedule a consultation to discuss your matter.