The City of Cleveland sued a number of Wall Street banks and mortgage lenders under a public nuisance tort for creating risky mortgage securities to be sold by investors that invariably destroyed their–ahem–lovely town. The 6th Circuit affirmed the District Court’s dismissal of the case, and argued, among other things, that the parties did not prove proximate clause.
In its complaint, Cleveland acknowledges that, for the most part, the Defendantsdid not originate the subprime mortgages at issue in this appeal. Nevertheless, it allegesthat the Defendants’ financing, purchasing, and pooling of vast amounts of these loans,to create mortgage-backed securities to sell to their customers, constituted a publicnuisance.…The alleged damages that subsequently occurred—eyesores, fires, drug deals, andlooting—were also not directly caused by the Defendants. Homeowners, whether theinitial buyers or mortgagees that later took possession of a home, were responsible formaintaining their properties. Fires were likely started by negligent or maliciousindividuals or occurred because a home was poorly built. Drug dealers and looters madeindependent decisions to engage in that criminal conduct. Additionally, other companiesnot listed in the complaint financed subprime loans and properties not subject to asubprime loan nevertheless entered into foreclosure. Similar to Holmes and Anza,Cleveland has not stated a viable claim when these actions could have occurred for “anynumber of reasons unconnected to the asserted pattern of [misconduct].” Id. at 458.…Another similar reason that the complaint does not satisfy the directnessrequirement, which also touches on the concerns implicated by the first Holmes factor,is that the remote connection between the alleged misconduct and the alleged injurymakes it impossible “to ascertain the amount of [Cleveland’s] damages attributable tothe violation.” See Holmes, 503 U.S. at 269.…In sum, even when viewing the assertions in the complaint in a light mostfavorable to Cleveland, the connection between the alleged harm and the allegedmisconduct is too indirect to warrant recovery. Although the facts are different thanthose before the Supreme Court in Holmes and Anza, the same directness concerns areimplicated.
- The City of Cleveland is suing big bad bankers under a nuisance theory for causing “eyesores, fires, drug deals, and looting” because its residents accepted risky subprime loans.
- Gulf Residents are suing big bad oil companies under a nuisance theory for causing damage that resulted from a Category 3 Hurricane making direct landfall with their property.