In 2012, five African-American Detroit homeowners and a Michigan legal services group asserted a notably creative legal theory in a class action against Morgan Stanley. Their lawyers at Lieff Cabraser Heimann & Bernstein and the American Civil Liberties Union acknowledged that Morgan Stanley didn’t write the supposedly predatory mortgages that victimized African-American borrowers in Detroit. Those housing-bubble mortgages were originated by New Century, a notorious subprime lender that went under in 2007. But the suit argued that New Century was writing loans to feed Morgan Stanley’s securitization machine. Because Morgan Stanley wanted to bundle certain types of subprime loans into its mortgage-backed securities, the theory went, its policies guided New Century’s predatory practices. So according to the homeowners’ suit, Morgan Stanley was actually responsible for the disparate impact of New Century’s discriminatory lending.

Morgan Stanley seemed downright incredulous at the audacity of the suit. Its lawyers at Wilmer Cutler Pickering Hale and Dorr moved to dismiss the class action, stacking up argument after argument about flaws in the homeowners’ legal theory. They’re pretty good arguments, too. The overarching theme of the bank’s defense is that New Century, not Morgan Stanley, is responsible for the loans it wrote. Morgan Stanley didn’t even buy the mortgages of four of the five homeowners who are name plaintiffs in the suit, the motion says, so how can its securitization policies be to blame?

The bank goes on to assert all sorts of technical deficiencies in the plaintiffs’ claims. The homeowners don’t have standing, the Morgan Stanley brief says, because they can’t show they would have qualified for loans on better terms absent discrimination. The plaintiffs waited too long to assert claims, it said, because the statute of limitations under the Fair Housing Act is two years (and under the Equal Credit Opportunity Act, three years), yet the most recent mortgage in the case dates back to 2006. Anti-housing discrimination laws, the bank said, apply to mortgage lenders but not securitizers. And even putting aside all of those arguments, the brief said, the plaintiffs cannot show that Morgan Stanley policies produced a disparate impact on African-Americans in Detroit. Morgan Stanley’s securitization policies were nationwide, not targeted to any racial group in any geographic area, the bank contends, so plaintiffs lawyers improperly cherry-picked Detroit. They also erred in analyzing all New Century lending in Detroit because not all of New Century’s subprime loans were purchased by Morgan Stanley, according to the brief. And finally, any disparate impact from New Century lending, the bank said, is the result of New Century practices that cannot be tied to a specific Morgan Stanley policy.

Before another judge, or at another moment in time, those arguments might have prevailed. But not before U.S. District Judge Harold Baer – who’s known for issuing certification orders that direct class action firms to include minority lawyers on their teams – and not as the plight of Detroit’s residents grows ever more dire. On Thursday, Judge Baer agreed to toss the Equal Credit Opportunity and Michigan state-law claims against Morgan Stanley on timeliness grounds. But he rejected all of the bank’s arguments for dismissing the homeowners’ Fair Housing Act claims, giving a stamp of judicial approval to the plaintiffs’ theory that “by creating the conditions under which New Century originated toxic loans, Morgan Stanley caused African-American borrowers to fall prey to those loans at a disproportionate rate, or put another way, to make this homeowner nightmare come true.”

In fact, Baer tied Morgan Stanley – which he described as “this alleged icon of the free enterprise system” – to Detroit’s economic downfall. Citing the complaint’s argument that New Century mortgages to African-Americans that were subsequently purchased by Morgan Stanley suffered unusually high foreclosure rates, Baer said that the city’s bankruptcy filing “only emphasizes the broader consequences of predatory lending and the foreclosures that inevitably result.” He also mentioned the report of Detroit’s emergency manager and a Rolling Stone article on the city’s spate of foreclosures, which he quite obviously took to heart. “As residents flee the city,” Baer wrote, “Detroit’s shrinking ratepayer base renders its financial outlook even bleaker. Given these conditions, it is not difficult to conclude that Detroit’s current predicament, at least in part, is an outgrowth of the predatory lending at issue here.”