Adkins v. Morgan Stanley Update

Late last year, Haas Institute Director wrote about the landmark case of Adkins v. Morgan Stanley.This lawsuit alleges that Morgan Stanley violated the Fair Housing Act by targeting low-income black neighborhoods in Detroit with subprime loans for packaging into investment securities that were bound to fail and devastate these communities.

Last week, Federal District Court Judge Harold Baer Jr. denied Morgan Stanley’s motion to dismiss the claim under the Fair Housing Act, a critical victory that will open the door to similar suits across the country. Judge Baer Jr. noted the severity of “this alleged icon of the free enterprise system” on the “lives of its African-American borrowers.” Moreover, Judge Baer Jr. drew a connection between Morgan Stanley’s behavior and the recent bankruptcy of Detroit, as a “broader consequence[] of predatory lending and the foreclosures that inevitably result.”

Morgan Stanley will file a motion to stay pending the outcome of a very important Supreme Court case this coming term on whether disparate impact claims are cognizable under the Fair Housing Act. Since this case has been brought under that law and as a disparate impact claim, the Supreme Court’s ruling will determine whether this case can move forward. Regardless of its outcome, the order denying the motion for summary judgment is an important victory, acknowledging that federal law protects communities from the predatory practices that caused the economic meltdown of 2008.

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