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Speaker 1: Philadelphia is suing Wells Fargo, alleging an unbroken policy and

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Speaker 1: practice since two thousand four of steering minority borrowers into

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Speaker 1: discriminatory mortgage loans. The federal lawsuit under the Fair Housing

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Speaker 1: Act of ninety eight accuses Wells Fargo of deliberately pitching expensive,

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Speaker 1: high risk loans to black and Latino borrowers, even though

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Speaker 1: their credit enabled them to apply for better loans. The

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Speaker 1: city has been investigating the case for more than a year,

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Speaker 1: but the Deputy Solicity General but the Deputy City Solicitor

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Speaker 1: says Philadelphia waited until after the Supreme Court ruled on

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Speaker 1: May one that cities can sue banks for predatory lending practices.

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Speaker 1: A Wells Fargo spokesman told Bloomberg b NA that the

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Speaker 1: city's unsubstantiated accusations do not reflect how we operate in

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Speaker 1: Philadelphia and all of the communities we serve. Our guest

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Speaker 1: is Richard Marcco. He's a professor at New York Lawsuit School. Richard,

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Speaker 1: the law suit gives examples of more than a dozen

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Speaker 1: loans and sites six confidential informants who used to work

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Speaker 1: for the bank. Will you explain the basic claims of

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Speaker 1: the city, including the unequal rates of foreclosure. Well the

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Speaker 1: city is alleging under the Fair Housing Act Act of

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Speaker 1: steering borrowers towards loans that had higher interest rates or

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Speaker 1: less favorable terms, resulting in higher foreclosures. And it is

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Speaker 1: further allegings at those higher foreclosures interfered with the city's

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Speaker 1: ability to promote integrated neighborhoods and ultimately cost the city

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Speaker 1: money by having to devote more municipal services to the

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Speaker 1: areas where the foreclosures were taking place. Do those allegations,

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Speaker 1: which of course are just allegations, make logical sense to you?

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Speaker 1: I mean, would there be if Wells Fargo did the

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Speaker 1: things that that the bank is accused of doing. Does

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Speaker 1: it make sense that Philadelphia, the city would suffer those

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Speaker 1: types of consequences. That's a That's really the key question here,

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Speaker 1: and the Supreme Court in the case that you referenced

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Speaker 1: regarding the City of Miami, addressed that question directly and

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Speaker 1: the answer who it is. One of the more complicated

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Speaker 1: legal issues that there aren't has to do with proof

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Speaker 1: that a plaintiffs has to offer regarding uh harm that

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Speaker 1: they're alleging a defendant caused and the plaintiff has to

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Speaker 1: prove both actual cause, that there is a logical chain,

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Speaker 1: as you say, between the act of the defendant and

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Speaker 1: the harm the plaintiff suffered, and then a doctrine called

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Speaker 1: proximate cause, which as well, we might be able to

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Speaker 1: establish this logical chain, but at some point we're not

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Speaker 1: going to hold the uh defendant responsible because the damage

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Speaker 1: was so remote from the act, and that will actually

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Speaker 1: be the question that the court will have to deal

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Speaker 1: with here. The Supreme Court left that one open, so

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Speaker 1: we'll see what happens here. Richard A. Will, Spargo spokesman,

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Speaker 1: told Bloomberg b NA that these types of cases have

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Speaker 1: been pending in other states and have been rejected by

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Speaker 1: all courts who have addressed the merits of the claim.

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Speaker 1: Do you agree with that statement, and if so, will

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Speaker 1: that change after the Supreme Court decision? Or might that

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Speaker 1: change after the Supreme Court decision? These these cases are

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Speaker 1: hard to prove. There were there were some cases years

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Speaker 1: ago involving firearms alleging very similar things, in the courts

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Speaker 1: pretty much would not accept those on the grounds that

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Speaker 1: the plaintiff just couldn't show that causal link or couldn't

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Speaker 1: prove that proximate cause claim. So, uh, it will. The

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Speaker 1: the Supreme Court in the in the Miami case definitely

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Speaker 1: said a high bar for plaintiffs to have to prove. Yeah, Richard,

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Speaker 1: I wanted to ask you about just how high high

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Speaker 1: that bar is. Justice Thomas writing a separate opinion, this

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Speaker 1: was not the court's majority opinion, but he described the

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Speaker 1: majority opinion as saying, it quote leaves little doubt that

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Speaker 1: neither Miami nor any similarly situated plaintiff can satisfy the

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Speaker 1: rigor standard for approximate cause that the Court adopts. Is

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Speaker 1: Justice Thomas Wright or did he overstate how high that

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Speaker 1: bar is? Well? The uh exact language that the Supreme

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Speaker 1: Court used. It was actually backing up a little bit.

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Speaker 1: It rejected the standard that the the Propeller Chord had

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Speaker 1: used and rejected the idea that the harm has to

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Speaker 1: be read and a belief foreseeable. Instead, it adopted a

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Speaker 1: direct relationship test. In other words, there has to be

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Speaker 1: a direct relationship between the acts and the harm alleged.

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Speaker 1: Justice Thomas pointed out he kind of in his dissenting opinion,

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Speaker 1: he went through the chain that the plaintiff would have

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Speaker 1: to prove, and it's quite an extensive chain. In other words, Uh,

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Speaker 1: the planet have to prove that borrowers, as he put

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Speaker 1: it a quote envirwers from phenominally minority neighborhoods were likely

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Speaker 1: to default. The foreclosures led to they can homes as

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Speaker 1: they can homes led to decreased property values. Decreased property

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Speaker 1: values resulted in homeowners paying lower property taxes. Um. And

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Speaker 1: that event for closed homes led to vagrancy, criminal activity,

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Speaker 1: threat to the public health and safety, which is that

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Speaker 1: he had to address to expenditures. Um. It's quite a

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Speaker 1: chain of proof and um. He also indicated there might

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Speaker 1: be other causes to the the situation that led to

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Speaker 1: the foreclosure. So yeah, I mean he's saying there's a

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Speaker 1: high bar, and I think there is a high bar,

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Speaker 1: you know. Richard. Philadelphia also said its claims in the

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Speaker 1: context of the scandal about Wells fargoes, opening of millions

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Speaker 1: of unauthorized consumer checking accounts and the city's complained site,

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Speaker 1: a total breakdown of appropriate internal controls that could have

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Speaker 1: prevented not only the discriminatory lending, but the improper account

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Speaker 1: creation practices. Does that help paint a picture of the Bank.

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Speaker 1: I don't know that that's proof in the court of law.

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Speaker 1: I mean, they're they're saying that in the in the

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Speaker 1: statement I saw, but I don't know that that will

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Speaker 1: help them prevail here. It's really a different, different question.

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Speaker 1: And and uh, just in about thirty seconds, the Supreme

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Speaker 1: Court sent the case the to the Federal Appeals Court

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Speaker 1: in Atlanta, the Miami case. Will that have any bearing

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Speaker 1: what happens there? Will that have any bearing on the

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Speaker 1: case in Philadelphia? Yes, And in fact that the Miami

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Speaker 1: case is a long way from being decided because they

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Speaker 1: really only they're not getting to the merriage yet, that

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Speaker 1: the apparent court has to decide what the level of

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Speaker 1: proximate causes that will likely go back to the Supreme Court,

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Speaker 1: and only then will there be a chance for it

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Speaker 1: to go back to the marriage. So yes, I think

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Speaker 1: the Miami case is a long way from being decided,

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Speaker 1: and that will certainly have bearing in the Philadelphia case.

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Speaker 1: Thank you for being with us on Bloomberg Law. That's

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Speaker 1: Professor Richard Marsco of New York Law School. That's it

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Speaker 1: for this edition of Bloomberg Law. Will be back tomorrow

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Speaker 1: at one pm Wall Street Time. Thanks to our technical

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Speaker 1: director Reginald Basil, and our producer David Suckerman. Bloomberg Markets

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Speaker 1: with Carol Master and Corey Johnson is coming up next.

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Speaker 1: Carol is in the studio to tell us what we

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Speaker 1: have to look forward to. Carol, we have a pack

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Speaker 1: few hours coming up right here on Bloomberg Radio, an

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Speaker 1: anniversary for Facebook. We're gonna talk about investing in Israel's

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Speaker 1: tech entrepreneurship, Ali Baba's disappointing earnings from that company, and

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Speaker 1: Walmart June saying thank you online. We'll have all the

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Speaker 1: details on that. I'm going to listen to the online segment,

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Speaker 1: especially thank You. That's Carol Master and Corey Johnson coming up.

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Speaker 1: This is Bloomberg