Background
During the COVID-19 pandemic, Congress provided emergency rental assistance (CERA) funding through two enactments: the Consolidated Appropriations Act of 2020 (CAA) and the American Rescue Plan Act of 2021 (ARPA). The State of Michigan received CAA funds and distributed them through the Michigan State Housing Development Authority (MSHDA), which used local Housing Assessment and Resource Agencies (HARAs) to disburse assistance. The City of Detroit separately received ARPA funds and created its own Emergency Rental Assistance Program (ERAP).
The City implemented a policy requiring landlords to obtain a “Certificate of Compliance” demonstrating habitability. Landlords without a Certificate of Compliance (and no applicable exception) received only 80% of rental assistance immediately, with 20% held in escrow pending compliance or completion of repairs. After the City adopted this policy, MSHDA agreed to apply the City’s 80/20 requirement to State-controlled CERA funds as well, distributing funds consistently across both programs through the same HARAs.
Laurence Wolf, a Detroit landlord, applied for CERA relief exclusively through MSHDA’s program. He failed to obtain a Certificate of Compliance and did not qualify for an exception, resulting in 20% of his eligible CERA funds being withheld. Wolf sued the City under 42 U.S.C. § 1983, alleging the 80/20 policy violated his Fifth and Fourteenth Amendment rights.
The Court’s Holding
The Sixth Circuit affirmed the district court’s dismissal for lack of Article III standing. The court held that Wolf failed to satisfy the causation requirement—the second prong of the three-part standing test. Wolf’s injury was not “fairly traceable” to the City because Wolf applied for and received funds that were controlled by MSHDA, not the City. The City never directly applied its 80/20 policy to Wolf; rather, the State of Michigan independently and voluntarily chose to adopt the City’s policy after the City requested it.
Wolf argued for an “indirect theory of traceability,” contending that his injury was caused by the 80/20 policy itself, regardless of which entity administered it. The court rejected this approach, holding that to establish causation through indirect means, Wolf must demonstrate that the City’s actions had a “determinative or coercive effect” on the State. Wolf presented no evidence that the State was compelled to adopt the City’s policies. Emails and documents showed only that the City wanted the State to cooperate and that the entities coordinated relief efforts—insufficient to demonstrate coercion of a sovereign state.
The court emphasized that the State’s “legitimate discretion breaks the chain of constitutional causation.” As a sovereign entity distinct from the City, Michigan retained independent authority to reject the City’s policy, and its voluntary acceptance of the policy severed any causal nexus between Wolf’s injury and the City’s conduct. The court declined to address whether Wolf might have standing against the State, noting that question was irrelevant to the City’s liability.
Key Takeaways
- A plaintiff cannot establish Article III standing against a municipal defendant when the plaintiff’s injury results from a state’s independent and voluntary decision, even if the state acted in response to a city’s request.
- A city cannot be held responsible for harm caused by a sovereign state’s discretionary choices, absent evidence that the city’s actions had a determinative or coercive effect on the state.
- In COVID-relief funding disputes, plaintiffs must carefully identify which entity—state or city—controlled the specific funds they received or applied for, as this determines whether causation can be established.
- The voluntary adoption of a policy is distinct from compulsion; coordination and agreement between government entities do not eliminate an actor’s independent discretion.
Why It Matters
This decision clarifies the limits of municipal liability in federally-funded assistance programs administered through cooperative state-local arrangements. It establishes that cities cannot be held responsible for injuries caused by state administrative decisions, even when those decisions align with the city’s preferred policies. For landlords and tenants challenging rental assistance conditions, the decision underscores the importance of identifying the proper defendant—claims must target the entity that actually controlled the disputed funds and made the challenged decisions.
The ruling also reinforces principles of state sovereignty in the context of federal grant administration. Although Congress allocated funds to both states and municipalities, the Court’s reasoning suggests that when states voluntarily apply local policies to state-controlled funds, courts will not second-guess the state’s independent judgment or infer coercion absent compelling evidence. This may have implications for future federal relief programs that rely on state-local coordination, as it limits private parties’ ability to forum-shop by suing cities for policies the state independently adopted.