REFinBlog

Editor: David Reiss
Cornell Law School

May 27, 2015

Seeking Justice Through Litigation

By David Reiss

AbandonedHouseDelray

Judge Caproni (SDNY) issued an Opinion and Order in Adkins v. Morgan Stanley, No. 12-CV-7667 (May 14, 2015). It opens,

This is one of many cases arising out of the collapse of the housing market. This one comes with a twist: homeowners in Detroit who received subprime loans seek to hold a single investment bank responsible under the Fair Housing Act (“FHA”) for discriminating against African-American borrowers, based on their claim that African-Americans were more likely than similarly-situated white borrowers to receive so-called “Combined-Risk loans.” Plaintiffs allege that Morgan Stanley so infected the market for residential mortgages — and for mortgages written by New Century Mortgage Company, a now defunct loan originator, in particular — that it bears responsibility for the disparate impact of New Century’s lending practices. Although Plaintiffs advance creative theories, their class action lawsuit founders on the requirements of Federal Rule of Civil Procedure 23. (1-2, footnote omitted)

Judge Caproni notes that she is “not unsympathetic to Plaintiff’s claims,” she concludes that this class action lawsuit is an inappropriate vehicle to rectify the wrong that Plaintiffs allege Morgan Stanley perpetrated.” (2) I am not an expert on the law of class actions, but the opinion does seem to identify a number of ways in which the proposed class is “unworkable.” (2)

We are now nearly ten years in from the start of the financial crisis and it seems like we can get a broad sense of whether justice has been served.  My instinct is that many people would say “No,” a resounding “No!”

At first glance that might seem odd, particularly to the shareholders and management of financial institutions who have paid tens of billions of dollars in fines and judgments. But there is a strong sense that those who have been harmed have not been able to get their day in court with those who did the harming. A case like this reveals the limitations of litigation as a means for seeking justice. Not every injustice is capable of being remedied in a court of law.

What does this tell us about preparing for the aftermath of the next crisis? How can laws be changed now to ensure that the right people and institutions are held accountable when it hits? While there are no easy answers to these questions, lawmakers should consider whether the scope of organizational liability is properly defined, whether agents of organizations are properly held accountable and whether organizations working in tandem with each other can be properly held accountable for the harms that they cause collectively. Easier said than done, I know, but still worth the effort.

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