Paul W. Grimm, United States District Judge.
On November 20, 2018, Plaintiffs Montgomery County, Maryland and Prince George's County, Maryland (the "Counties") filed two lawsuits in this Court pursuant to the Fair Housing Act ("FHA"), 42 U.S.C. § 3601 et seq.: one before Judge Messitte, Prince George's County v. Wells Fargo & Co., No. PJM-18-3576 (the "Wells Fargo case"), and the one that is pending before me, Compl., ECF No. 1. In the Wells Fargo case, the Counties brought claims for disparate impact and disparate treatment against Wells Fargo & Co. and related entities ("Wells Fargo"), alleging that the defendants "engaged in predatory lending practices relative to FHA-protected minority communities"; they claimed that the defendants' practices amounted to an "`equity-stripping' scheme"
Here, the defendants are different, but the claims are the same. Defendants are Bank of America Corp.; Bank of America, N.A.; and BAC Home Loans Servicing, LP (collectively, "Bank of America"); Countrywide Financial Corp.; Countrywide Home Loans, Inc.; Countrywide Bank, FSB; and Countrywide Warehouse Lending, LLC (collectively, "Countrywide"); and Merrill Lynch & Co.; Merrill Lynch Mortgage Capital, Inc.; and Merrill Lynch Mortgage Lending Inc. (collectively, "Merrill" and, along with Bank of America and Countrywide, the "Banks"). Compl. "The Complaint alleges that Defendants are engaging in a nationwide equity stripping scheme involving a pattern and practice of discrimination that begins with steering minorities into non-prime loans, continues through servicing, and ends with foreclosure or vacancy." Pls.' Opp'n 2; see id. at 3 (citing Compl. ¶¶ 4, 6-8, 92-93, 140-41, 187-96, 329-34, 345-48, 361-64); Defs.' Mem. 1. As in the Wells Fargo case, the Counties
Wells Fargo and the Defendants in the case before me both filed motions to dismiss. Defs.' Mot., ECF No. 48; ECF No. 24 in Wells Fargo. Wells Fargo argued, inter alia, that the Counties' claims were untimely, failed to state a claim, and the Counties could not "meet the rigorous requirement of pleading direct proximate cause recognized by the United States Supreme Court on a review of FHA allegations parallel to those made by the Counties in Bank of America Corp. v. City of Miami, ___ U.S. ___, 137 S.Ct. 1296, 197 L.Ed.2d 678 (2017)," because the alleged injures "are too remote to satisfy the `close connection that proximate cause requires.'" Wells Fargo Mot. 1-2. The Banks raise the same arguments. Defs.' Mot. 2.
Recently, Judge Messitte issued a well-reasoned Memorandum Opinion in which he rejected both the statute of limitations argument and also Wells Fargo's argument that the Counties failed to allege disparate impact or disparate treatment sufficiently. Wells Fargo, 397 F. Supp. 3d at 764-65, 765-67. He concluded that "the `some direct relation' standard" from City of Miami, 137 S. Ct. at 1306, was "well pled in regard to [a subset of the] claimed injuries": the expenses the Counties incurred "processing foreclosures occasioned by Defendants' purported violations, including costs for foreclosure notices, court proceedings, Sheriffs' auctions, Sheriffs' evictions, and registration, monitoring, and maintenance of empty properties." Wells Fargo, 397 F. Supp. 3d at 759-60. As for "damages based on the cost of having to provide municipal services on foreclosed properties, such as fire and police, as well as social services that were needed to assist evicted or foreclosed borrowers"; "tax base injuries"; and "lost revenue from certain utility operations and lost recording fees," Judge Messitte found that they were "further removed from Defendants' alleged equity-stripping practices than are the costs associated with processing foreclosures" and "allow[ed] the Counties time to amend their complaint to include more detail in respect of the claims, if indeed they are able to do so"; he also noted that limited discovery on these issues prior to amendment may be warranted. Id. at 760-62, 762-64. The claims for non-economic damages, however, Judge Messitte concluded were "a bridge too far," and he dismissed them, while allowing the Counties' claims for "injunctive and declaratory relief against Defendants' alleged equity-stripping practices" to proceed. Id. at 764-65.
The Banks' Motion to Dismiss is fully briefed and pending. See ECF Nos. 48-1, 50, 51; see also Pls.' Notice of Supp. Auth., ECF No. 53 (attaching copy of City of Miami v. Wells Fargo & Co., 923 F.3d 1260 (11th Cir. 2019), ECF No. 53-1); Defs.' Resp., ECF No. 54. A hearing is not necessary. See Loc. R. 105.6. Informed by this Court's opinion in Wells Fargo, 397 F.Supp.3d 752, the Supreme Court's and Eleventh Circuit's opinions in City of Miami, 127 S.Ct. 1296, and City of Miami, 923 F.3d 1260, and opinions from other courts in similar FHA litigation against banks that allegedly engaged in the same type of equity-stripping schemes that injured the municipal plaintiffs, and considering the allegations in the 170-page, 560-paragraph
The FHA, which has a "broad remedial purpose" is a "`far-reaching' statute that `takes aim at discrimination that might be found throughout the real estate market and throughout the process of buying, maintaining, or selling a home.'" Wells Fargo, 397 F. Supp. 3d at 757-58 (quoting City of Miami, 923 F.3d at 1278, 1279). Pursuant to the Fair Housing Act, it is unlawful for "any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin." 42 U.S.C. § 3605(a). Any "`aggrieved person,'" that is, "`any person who ... claims to have been injured by a discriminatory housing practice,'" may "file a civil action seeking damages for a violation of the statute." City of Miami, 137 S. Ct. at 1300 (quoting 42 U.S.C. §§ 3602(i), 3613(a)(1)(A), (c)(1)).
The Counties claim that the Banks engaged in "residential mortgage lending and servicing activities" that amounted to "intentional, predatory," and discriminatory "equity-stripping schemes." Compl. ¶¶ 3-4. The equity-stripping scheme included "targeted marketing practices, discretionary pricing policies, credit score override practices, underwriting policies, wholesale mortgage funding and mortgage securitization operations, compensation policies and mortgage servicing operations" that "each individually, or in combination with each other, authorized, approved, or otherwise encouraged the origination and funding of first and second lien residential mortgage loans with different terms and conditions to similarly financially situated borrowers on the improper basis of race, color, ethnicity, sex and age." Id. ¶ 6. Specifically,
Id. ¶ 7.
The schemes caused "— and will continue to cause — unprecedented numbers of mortgage loan delinquencies, defaults, foreclosures and/or home vacancies in Plaintiffs' communities and neighborhoods, particularly those communities with high percentages of FHA protected minority residents."
According to the Counties, "Defendants' entire subprime and higher cost mortgage lending, securitization and servicing operations were geared to exploit borrowers, particularly FHA protected homeowner-borrowers, in order to maximize their corporate profits and their management's compensation." Id. ¶ 5. They claim that the Banks "identif[ied] and target[ed] FHA protected minority borrowers using advanced data mining techniques and predictive analysis methodologies." Id. ¶ 7. The effect was that "Plaintiffs' communities and neighborhoods with relatively higher concentrations of FHA protected African American and Latino/Hispanic minority homeowners have disproportionately and disparately received more of such higher cost mortgage loans and have been disproportionately and disparately impacted by the increased delinquencies, defaults, foreclosures and home vacancies resulting from such loans." Id. ¶ 8.
As noted, the Counties are not however, suing in parens patriae; they bring their claims as aggrieved persons, alleging that the Counties themselves were injured (and will continue to be injured) by the Banks' equity-stripping scheme. See Compl. ¶ 9; 42 U.S.C. § 3602(i). They claim:
Compl. ¶ 9.
Pursuant to Rule 12(b)(6), a plaintiff's claims are subject to dismissal if they "fail[] to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), and must state "a plausible claim for relief," Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable
Generally, a Rule 12(b)(6) motion to dismiss does not "permit an analysis of potential defenses a defendant may have to the asserted claims." J&J Sports Prods., Inc. v. Pro Street Shop, LLC, t/a Pro St. Cafe, No. DKC 18-1000, 2019 WL 3290161, at *2 (D. Md. July 22, 2019). Nonetheless,
Id.
A court's evaluation of a Rule 12(b)(6) motion is "generally limited to a review of the allegations in the complaint itself," though a court also may consider "documents that are explicitly incorporated into the complaint by reference," those "attached to the complaint as exhibits," and documents that are considered "integral to the complaint," provided there is no dispute about the document's authenticity. Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 165-66 (4th Cir. 2016). The Banks attached a Memorandum from the Montgomery County Attorney to the President of Montgomery County Council, ECF No. 48-3; a Fall 2004 "District 5 Report from Tom Perez," ECF No. 48-4; and a June 2012 "Analysis of Impediments to Fair Housing Choice, ECF No. 48-5, to their Motion to Dismiss. ECF Nos. 48-3-48-5. These documents are not integral to the Complaint. Accordingly, I will not consider them in deciding this motion. See Goines, 822 F.3d at 165-66.
A two-year statute of limitations applies to FHA claims. 42 U.S.C. § 3613(a)(1)(A). Specifically,
Id. (emphasis added).
The Banks argue that, "[o]n its face, the Complaint plainly runs afoul of this deadline" because "[i]t does not identify a single specific loan that was made or foreclosure that occurred within the two-year limitations period" and it does not "assert any type of statistical analysis of conduct within the window that reflects discriminatory loans, servicing, or foreclosures." Defs.' Mem. 27. Noting that "a `"continuing violation" of the Fair Housing
"[W]here a plaintiff, pursuant to the Fair Housing Act, challenges not just one incident of conduct violative of the Act, but an unlawful practice that continues into the limitations period, the complaint is timely when it is filed within [two years] of the last asserted occurrence of that practice." Havens Realty Corp. v. Coleman, 455 U.S. 363, 380-81, 102 S.Ct. 1114, 71 L.Ed.2d 214 (1982); see County of Cook v. HSBC N. Am. Holdings Inc. ("Cook (HSBC) II"), 314 F.Supp.3d 950, 969 (N.D. Ill. 2018) (quoting Havens); Nat'l Fair Hous. Alliance v. HHHunt Corp., 919 F.Supp.2d 712, 715 n.1 (W.D. Va. 2013) ("The words `or the termination' were added [to 42 U.S.C. § 3613(a)(1)(A)] by Congress in 19[8]8, and several courts have noted that the amendment was intended to clarify Congress's intent to allow parties to recover for earlier acts under the FHA that constitute part of an ongoing pattern or practice."); County of Cook v. Bank of Am. Corp. ("Cook (Bank of Am.) I"), 181 F.Supp.3d 513, 520 (2015) (noting that Congress added the words "or the termination" to "codify the continuing violation doctrine recognized in Havens). "[T]here must be some type of relationship or connection between the acts that occurred within the limitations period and those that occurred before that time." HHHunt Corp., 919 F. Supp. 2d at 716. In Cook (HSBC) II, the court held that "adjudication of HSBC's statute of limitations defense must await summary judgment" because "each of the County's counts include[d] plausible allegations that HSBC continue[d] to service and foreclose on loans in a discriminatory manner." 314 F. Supp. 3d at 969 (citing, e.g., City of Los Angeles v. Citigroup Inc., 24 F.Supp.3d 940, 951-52 (2014) (concluding on a motion to dismiss that allegations similar to the Cook (HSBC) II plaintiffs' claims were timely under the continuing violations doctrine)).
In County of Cook, Illinois v. Wells Fargo & Co. ("Cook (Wells Fargo)"), "the complaint clearly allege[d] that Wells Fargo continue[d] to the present day to implement its equity-stripping practice," such as by "still making decisions `whether or not to modify a defaulted or high cost loan at the borrower's request and whether to foreclose on a particular defaulted borrower's home," decisions that were "part and parcel of Wells Fargo's equity-stripping practice." 314 F.Supp.3d 975, 995-96 (2018). The court observed that "equity stripping by its `very nature involves repeated conduct." Id. at 996 (quoting Nat'l R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 115, 122 S.Ct. 2061, 153 L.Ed.2d 106 (2002)). On these bases, the court concluded that "the complaint plausibly pleads that the practice has not yet terminated, see 42 U.S.C. § 3613(a)(1)(A), thus rendering timely the County's claims." Id.
Here, the Counties claim that all of the allegedly discriminatory acts are part of a comprehensive equity-stripping scheme that spans the life of the loans, continuing until the inevitable foreclosure. Compl. ¶¶ 3-9, 59, 334, 434, 452. Thus, they have alleged "an unlawful practice" rather than discrete incidents. See Havens, 455 U.S. at 380-81, 102 S.Ct. 1114. And, they allege that the Banks continue to service some of these predatory loans, and that some loans have not yet, but will, result in foreclosure. Compl. ¶¶ 9, 59, 434, 459, 559. Therefore, the ongoing acts relate to the acts that occurred outside the limitations period, as
The Banks insist that, even if the Counties alleged a continuing violation, they had "notice of [their] claims prior to the limitations period," and that notice "prevents application of the continuing violation doctrine." Defs.' Mem. 27-28 (citing Ocean Acres Ltd. P'ship v. Dare Cty. Bd. of Health, 707 F.2d 103, 107 (4th Cir. 1983)). In this regard, they rely on documents, such as a memorandum from the Montgomery County Attorney to the President of the Montgomery County Council, to establish notice. But, as noted, these exhibits are not properly before me on a motion to dismiss. See Goines, 822 F.3d at 165-66. Moreover, as also noted, the defense of statute of limitations must be "clear from the face of the complaint," not shown through exhibits, to be considered on a motion to dismiss. See Brooks v. City of Winston-Salem, 85 F.3d 178, 181 (4th Cir. 1996); J&J Sports Prods., 2019 WL 3290161, at *2; see also Wells Fargo, 397 F. Supp. 3d at 764-65 ("When a court is ruling on a Motion to Dismiss pursuant to Rule 12(b)(6), it generally may not consider extrinsic evidence, Chesapeake Bay Found., Inc. v. Severstal Sparrows Point, LLC, 794 F.Supp.2d 602, 611 (D. Md. 2011), although it may take judicial notice of matters of public record. Philips v. Pitt Cty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009).").
In any event, this Court has rejected this argument previously, as has the Northern District of Illinois. See Wells Fargo, 397 F. Supp. 3d at 764-65 (noting Wells Fargo's argument in favor of dismissal that, "based on certain communications sent, for instance, by the Montgomery County Attorney to the Montgomery County Council, the Counties had actual knowledge of their purportedly actionable injuries more than three years before the present suit was filed, which is to say, out of time" and concluding that the Court could not "resolve this issue at this early stage of the proceedings"); Cook (Bank of Am.) I, 181 F. Supp. 3d at 521 ("I cannot determine on the basis of the complaint whether the County knew or should have known between 2004 and 2008 that 95,000 home loans signed by minority borrowers contained discriminatory terms and conditions. In support of their statute of limitations argument, Defendants ask me to consider documents that are beyond the scope of a motion to dismiss."); see also Cook (Wells Fargo), 314 F. Supp. 3d at 996 ("At minimum, because it is not apparent from the pleadings when Cook County `knew or should have known' that the equity-stripping practice constituted an actionable cumulative violation under the FHA, the motion to dismiss on the ground that the FHA's two-year statute of limitations has run is premature.").
397 F. Supp. 3d at 765-67. I agree. Accordingly, the Counties sufficiently alleged a timely continuing violation to survive Defendants' motion to dismiss based on the statute of limitations. See id.; Cook (HSBC) II, 314 F. Supp. 3d at 969. Whether the violations are indeed ongoing and whether the Counties had notice that would serve as an impediment to their claims may be raised on summary judgment.
The FHA prohibits "any person or other entity whose business includes engaging in residential real estate transactions" from "discriminat[ing] against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin." 42 U.S.C. § 3605(a). "A plaintiff `may establish discrimination in violation of the FHA[] under a theory of disparate treatment or disparate impact.'" In re Council of Unit Owners of 100 Harborview Drive Condo., 580 B.R. 135, 150 (Bankr. D. Md. 2018) (quoting Budnick v. Town of Carefree, 518 F.3d 1109, 1114 (9th Cir. 2008)).
To state a claim for disparate impact in violation of the FHA, "a plaintiff must allege not only a statistical disparity, but also that the defendant maintained a specific policy that caused the disparity." Cook (Wells Fargo), 314 F. Supp. 3d at 990 (citing Texas Dep't of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., ___ U.S. ___, 135 S.Ct. 2507, 2523-24, 192 L.Ed.2d 514 (2015)). Additionally, "the challenged policy must be `artificial, arbitrary, and unnecessary." Id. at 991. And, the plaintiff must allege "a robust causal connection between the challenged policy (or policies) and the disparate impact." See Wells Fargo, 397 F. Supp. 3d at 765-67 (citing Inclusive Communities, 135 S. Ct. at 2523-24; Reyes v. Waples Mobile Home Park Ltd. P'ship, 903 F.3d 415 (4th Cir. 2018)).
To state a claim for disparate treatment under the FHA, the Counties must allege that "similarly situated persons or groups are subject to differential treatment," Potomac Grp. Home Corp. v. Montgomery Cty., Md., 823 F.Supp. 1285, 1295 (D. Md. 1993) (quoting Stewart B. McKinney Found. v. Town Plan & Zoning Comm'n of Town of Fairfield, 790 F.Supp. 1197, 1211 (D. Conn. 1992)), and that "the defendant had a discriminatory intent or motive." OT, LLC v. Harford Cty., Maryland, No. GLR-17-2812, 2019 WL 4598009, at *12 (D. Md. Sept. 23, 2019)
Notably, a plaintiff may proceed on both the disparate impact and disparate treatment claims as alternative theories of recovery. See Fed. R. Civ. P. 8(d)(2); Wells Fargo, 397 F. Supp. 3d at 765-67; see also Reyes, 903 F.3d at 421; Cook (Wells Fargo), 314 F. Supp. 3d at 994 ("It is true that Cook County also alleges that Wells Fargo intentionally targeted minority borrowers. But Civil Rule 8(e) allows plaintiffs to plead alternative theories, provided that they `use a formulation from which it can be reasonably inferred that this is what they were doing.'") (quoting Holman v. Indiana, 211 F.3d 399, 407 (7th Cir. 2000)). Also, "although a plaintiff is not required to explicitly allege, or, ultimately, to prove intent as part of a disparate-impact theory, a plaintiff is not precluded from doing so," and "evidence of discriminatory intent" that is not enough to plead disparate treatment may support a disparate impact claim. Cook (HSBC) II, 314 F. Supp. 3d at 968.
In County of Cook v. Bank of America Corp. ("Cook (Bank of Am.) II"), where the plaintiff "undeniably articulate[d] a multifaceted `equity-stripping scheme,'" the court noted that there was no authority before it "to suggest that the `specific' practice challenged in a disparate-impact claim must be limited to a single component." No. 14-C-2280, 2018 WL 1561725, at *9 (11th Cir. Mar. 30, 2018). It accepted the equity-stripping scheme as the "policy" element of the plaintiff's disparate impact claim, observing that "[o]ver the course of more than five hundred painstakingly detailed paragraphs, the County describe[d] the various components of the challenged equity stripping scheme and explaine[d] how those components, and the scheme as a whole, ... had a disproportionately negative impact on minority borrowers and... injured the County as a result." Id.
In Wells Fargo, the defendants argued "(a) that the Counties do not point to a specific policy to challenge, but rather lump together broad categories of Defendants' mortgage operations and challenge them all, and (b) that the Counties' statistics do not demonstrate disparate impact."
Id.; see also Cook (Bank of Am.) I, 181 F. Supp. 3d at 522-23 ("The County has, in fact, alleged a variety of practices that allegedly had a disparate impact on minority borrowers. See Compl. at ¶ 7-8 (alleging that Defendants' discretionary pricing policies, credit approval decisions, and appraisal practices resulted in minority borrowers receiving a disproportionate share of high cost home loans).").
Likewise, in Cook (Wells Fargo), the court concluded that "Cook County's FHA disparate impact claim surmount[ed] the plausibility hurdle." 314 F. Supp. 3d at 992. It reasoned that "the County identifie[d] a set of related statistical disparities, alleging that Wells Fargo issued a disproportionate number of high-cost, subprime, or other nonprime loans to minority borrowers in Cook County" and also "identifie[d] a policy — Wells Fargo's equity-stripping practice — to which it attribute[d] the alleged statistical disparity." Id. ("Specifically, the County allege[d] that equity stripping was a considered, long-term effort to `maximize[] lender profits ... in disregard for a borrower's ability to repay' through `interrelated predatory and discriminatory loan making, loan servicing and foreclosure activities that occur over the entire life of each mortgage loan."). Moreover, "Wells Fargo's equity-stripping practice ha[d] the requisite causal connection to the statistical disparity," as "Cook County allege[d] that key aspects of the practice, including Wells Fargo's refusal to grant loan modification requests made by distressed borrowers, pushed borrowers into foreclosure in a manner resulting in statistical disparities." Id. at 994. Thus, according to the pleading, "minority borrowers were disproportionately more likely, given their baseline rates of homeownership, to be subject to equity stripping than nonminority borrowers." Id.; see also Cook (HSBC) II, 314 F. Supp. 3d at 967 (concluding that plaintiff stated a disparate impact claim where the complaint was "replete with examples of HSBC policies that, according to the County, resulted in a disparate impact on minority borrower," such as "HSBC's mortgage lending and services policies; pricing and marketing policies; various underwriting policies; loan servicing and loss mitigation policies; and foreclosure-related policies").
Here, the Counties allege a "pattern and practice of predatory and discriminatory mortgage origination (pricing,
The Counties also allege that the Banks' "predatory loan origination (pricing, underwriting and compensation) and servicing (payment acceptance, loan modification, and foreclosure) policies and practices were artificial, arbitrary, and unnecessary." Compl. ¶ 421. According to Plaintiffs, the policies of increasing costs and fees "were not necessary to compensate for additional risk" and they "permitted pricing on mortgage loans originated to FHA protected minority borrowers on a subjective basis without regard to objective factors." Id. Further, "Defendants' incentive policies provided financial incentive for Defendants' employees and independent brokers to exercise the discretionary pricing policy in a subjective manner, without regard to objective factors." Id. These allegations sufficiently allege a policy for purposes of a disparate impact claim. See Cook (Wells Fargo), 314 F. Supp. 3d at 991
And, as in Cook (Wells Fargo), the Counties "identifie[d] a set of related statistical disparities" to show that the Banks "issued a disproportionate number of high-cost, subprime, or other nonprime loans to minority borrowers in [the Counties]." 314 F. Supp. 3d at 992; Compl. ¶¶ 326-33. Thus, the Counties sufficiently alleged both a statistical disparity and a specific policy that is "artificial, arbitrary, and unnecessary" to state a disparate impact claim. See Inclusive Communities, 135 S. Ct. at 2523-24; Cook (Wells Fargo), 314 F. Supp. 3d at 990-91. And, through these allegations, they have claimed that "similarly situated persons or groups are subject to differential treatment," to state a disparate treatment claim. See Potomac Grp. Home Corp., 823 F. Supp. at 1295. Further, they allege that the Banks engaged in "discriminatory targeting and discriminatory treatment of FHA protected minority borrowers relating to Defendants' predatory mortgage lending activities, including the discriminatory housing practice of `reverse redlining,'" which is "the intentional targeting of FHA protected minorities for the extension of credit on unfavorable terms," such that they acted with discriminatory intent, as required for a disparate treatment claim. Compl. ¶ 320; see Inclusive Communities, 135 S. Ct. at 2513; OT, LLC, 2019 WL 4598009, at *12; Wells Fargo, 397 F. Supp. 3d at 765-67.
The final element of the Counties' FHA claims is causation, and much
The Supreme Court observed:
City of Miami, 137 S. Ct. at 1306. The Court left it to the "lower courts [to] define... the contours of proximate cause under the FHA." Id. But, it did note that, in analogous tort actions, "the general tendency... in regard to damages at least, is not to go beyond the first step [of causal links between the triggering event and the resulting harm for which the plaintiff seeks to recover]." Id. (quoting Hemi Grp., LLC v. City of New York, 559 U.S. 1, 10, 130 S.Ct. 983, 175 L.Ed.2d 943 (2010)). The Court stated that "[w]hat falls within that `first step' depends in part on the `nature of the statutory cause of action,' Lexmark, [572 U.S. at 133, 134 S.Ct. 1377], and an assessment `of what is administratively possible and convenient,' Holmes, [503 U.S.] at 268, 112 S.Ct. 1311." Id.
Applying this standard on remand, the Eleventh Circuit noted that "[t]here is give in the joints between `some direct relation' and `some direct causation,'" as "some direct relation" does not require causation but rather a "logical bond." City of Miami, 923 F.3d at 1272. Additionally, the court observed that "some direct relation" is an "easier [standard] to meet" than "a direct relation," as all that is needed is "`an unspecified but appreciable or not inconsiderable quantity, amount, extent or degree.'" Id. (quoting City of Miami, 137 S. Ct. at 2171). And, it stated that "proximate cause does not always cut off at the first step after a violative act," given that the Supreme Court used the word "generally" and "Supreme Court precedent shows that an intervening step will not vitiate proximate cause in all instances." Id. The Eleventh Circuit focused on "the certainty with
Here, the Counties claim that they have incurred the following economic damages "on vacant and/or foreclosed minority properties":
Compl. ¶ 386; see Defs.' Mem. 5 (summarizing the Counties' alleged injuries). They also claim non-economic damages consisting of "injuries resulting from the deterioration and blight to the hardest hit neighborhoods and communities" ("Non-Economic Damages"). Compl. ¶ 387.
The Counties alleged the same injuries in Wells Fargo, and I have adopted Judge Messitte's umbrella category names. See Wells Fargo, 397 F. Supp. 3d at 759-64 & nn.9, 765-67 ("Foreclosure Processing Costs" include "out-of-pocket expenses associated with processing foreclosures occasioned by Defendants' purported violations, including costs for foreclosure notices, court proceedings, Sheriffs' auctions, Sheriffs' evictions, and registration, monitoring, and maintenance of empty properties"; "Increased Municipal Services Costs" include "damages based on the cost of having to provide municipal services on foreclosed properties, such as fire and police, as well as social services that were needed to assist evicted or foreclosed borrowers"; "Tax Base Injuries" include "reduced property values, loss of property and concession tax revenue, and loss of property tax revenue not recovered via tax lien sales"; "Lost Municipal Income" includes "lost revenue from certain utility operations and lost recording fees due to Defendants' use of the Mortgage Electronic Registration Systems (MERS), a private system for tracking, assigning, and trading mortgage loan interests"; and "Non-Economic Damages" include "neighborhood deterioration, blight and urban decay, the segregative effects of Defendants' equity-stripping, and the encroachment on the Counties' missions of supporting diverse and inclusive communities"). Given the similarities, the analysis of proximate cause by damages category in Wells Fargo provides very helpful guidance.
In Wells Fargo, the Court found that "[f]oreclosure would be the final process in the discriminatory equity-stripping cycle that the Counties allege Defendants have perpetrated against FHA-protected minority residents," and "[t]he Counties' costs in processing those foreclosures would be a direct first-step consequence of that cycle." 397 F. Supp. 3d at 759-60. Thus, "[i]ncreased foreclosures due to discriminatory subprime lending equate with increased expenses that come directly out of the Counties' budgets to process the foreclosures." Id. It observed that "all three courts to consider the claims of Cook County, Illinois were satisfied that similar claims for injuries should go forward." Id. (citing Cook (Wells Fargo), 314 F. Supp. 3d at 984 (noting that there could "be no question that proximate cause is satisfied" because foreclosure processing costs were an "integral ... aspect of the violation alleged"; Cook (Bank of Am.) II, 2018 WL 1561725 at *7 (noting that costs associated with foreclosures plausibly fall within the first step), Cook (HSBC) II, 314 F. Supp. 3d at 963 (same). Accordingly, this Court concluded that the Counties sufficiently pleaded "some direct relation" between the Foreclosure Processing Costs and the Banks' alleged FHA violations and "therefore plausibly alleged proximate cause as to these injuries." Id.
The same is true here, where the Counties allege, similarly to their allegations in Wells Fargo, that "the inevitable, if not intended, vacancy and/or foreclosure on the predatory and discriminatory mortgage loan products Defendants sold to homeowners in Plaintiffs' neighborhoods and communities and/or refused to modify or refinance" is "the last wrongful act in the Defendants' scheme." Compl. ¶ 385; see Wells Fargo Compl. ¶ 398, ECF No. 1 in Wells Fargo (alleging that "the last wrongful act in the Defendants' scheme" was "the inevitable, if not intended, vacancy and/or foreclosure on the predatory and discriminatory mortgage loan products Defendants sold to homeowners in Plaintiffs' neighborhoods and communities and continued to service when such loans defaulted and through Defendants' foreclosure processes"). Plaintiffs claim that the "Counties' Sheriff's Departments incur significant costs in serving eviction and foreclosure notices and in evicting homeowners, which are directly tied to the foreclosed property itself." Compl. ¶ 394; see Wells Fargo Compl. ¶ 405 ("Plaintiffs' Sheriff's Departments incur significant costs in serving eviction and foreclosures notices and in evicting homeowners, which are directly tied to the foreclosed properties."). And, the Counties "have had to provide supplemental funding" for their "judicial systems and clerk's offices," which "have been overloaded with foreclosure filings and proceedings." Compl. ¶ 395; see Wells Fargo Compl. ¶ 406 (same). As in Wells Fargo, the Counties sufficiently pleaded "some direct relation" between the Foreclosure Processing Costs and the Banks' alleged FHA violations and "therefore plausibly alleged proximate cause as to these injuries." See Wells Fargo, 397 F. Supp. 3d at 759-60. The Banks' Motion to Dismiss is denied with regard to the FHA claims for damages based on the Foreclosure Processing Costs.
In City of Miami, the plaintiffs alleged, "in almost conclusory fashion, that `the City is required to provide increased municipal services' at foreclosed properties and that `these services would not have been necessary if the properties had not been foreclosed upon," and they "proceed[ed] to list types of expenditures: police, fire, building code enforcement, and the like." 923 F.3d at 1285-86. The Eleventh Circuit concluded that the plaintiffs'
In Wells Fargo, "the Counties allege, albeit somewhat summarily, that they `have been required to provide a multitude of services relating to those abandoned, vacant and/or foreclosed properties that would not have been necessary if such properties were occupied.'" 397 F. Supp. 3d at 760-62. The Counties make the same allegation in the Complaint before me. Compl. ¶ 391. They further allege, as they did in Wells Fargo:
Compl. ¶ 392; see Wells Fargo Compl. ¶ 403.
In Wells Fargo, this Court observed that the Counties did not, however, "plead specifics about what their injuries are or how they might be identified and isolated." 397 F. Supp. 3d at 760-62. What the Counties did allege there, as here, was that
Compl. ¶ 396; see Wells Fargo Compl. ¶ 407. There, as here, they asserted that, following "discovery of Defendants' loan origination, pricing, servicing and foreclosure data," they could establish their "precise and actual damages." Compl. ¶ 405; see Wells Fargo Compl. ¶ 417.
The Wells Fargo Court found that the alleged injuries were "certainly further removed from Defendants' alleged equity-stripping practices than are the costs associated with processing foreclosures." 397 F. Supp. 3d at 760-62. It reasoned:
Id. The Court noted that "[o]ther courts considering damage claims for comparable municipal services have in fact found them insufficient to establish probable cause," although the plaintiffs in those cases have sought reconsideration. 397 F. Supp. 3d at 760-62 (citing Cook (HSBC) II, 314 F. Supp. 3d at 962-63 ("[T]o the extent that the County incurred additional costs for social services, such injuries are derivative of the injury that HSBC caused to the minority borrowers themselves and, therefore, insufficient to satisfy the directness requirement."); Cook (Wells Fargo), 314 F. Supp. 3d at 988 (concluding that "increased demand for county services" was one of "the `ripples' that City of Miami cautions `flow far beyond the defendant's misconduct'"); Cook (Bank of Am.) II, 2018 WL 1561725, at *5 (concluding that these damages "do not flow directly from the discrimination ... allege[d]")).
Wells Fargo, 397 F. Supp. 3d at 762-63; see City of Miami, 923 F.3d at 1264 ("The City's pleadings meet this standard because Miami has alleged a substantial injury to its tax base that is not just reasonably foreseeable, but also is necessarily and directly connected to the Banks' conduct in redlining and reverse-redlining throughout much of the City.").
Notably, the Eleventh Circuit, while stating that "step-counting is of limited value" and cannot be a stand-alone approach, did not overlook an intervening step to conclude that the plaintiff sufficiently pleaded "some direct relation"; rather, it stated that the connection should be assessed between the injury and the "distinct FHA violation[] [that] occurred when homeowners already having financial difficulties were attempting to refinance or otherwise modify their loans," instead of between "the point of loan" and the injury. City of Miami, 923 F.3d at 1277-78. Because the FHA violation that caused the tax base injury (foreclosure) occurred at a later point than loan origination, "the variety of factors that ... might independently explain a homeowner's foreclosure (like the loss of a job or spiking health care costs)" — that is, factors that otherwise would break the connection and negate probable cause — were not "intervening roadblocks" because they occurred prior to foreclosure. Id. at 1277.
Additionally, the Eleventh Circuit did not rely on this causation alone, as this Court noted. See Wells Fargo, 397 F. Supp. 3d at 762-63. Rather, "[i]n no small part, [it] conclude[d] that the City ha[d] adequately — that is to say, plausibly — pled proximate cause because [the court] f[ou]nd it entirely practicable and not unduly inconvenient for the courts to handle damages like the City's tax revenue injury." City of Miami, 923 F.3d at 1281 ("As pled, the City's injury is ascertainable with a sufficient degree of precision for some of its economic injuries, specifically the harm to its tax base."); see Wells Fargo, 397 F. Supp. 3d at 762-63 (quoted above; discussing ease of assessing injury in City of Miami).
This Court determined that the Counties' pleadings in Wells Fargo were "not as specific as those in Miami," as "[t]hey merely allege[d]" in allegations that were "simply too vague" that
397 F. Supp. 3d at 762-63. The Counties make the same vague allegations in this case. See Compl. ¶¶ 400, 401, 406. In Wells Fargo, noting that an analysis other than Hedonic regression analysis could suffice, this Court nonetheless concluded that the Counties' allegations of Tax Base Injuries did not "attain the level of specificity necessary to alleviate concerns such as those expressed by the court in Cook County (HSBC) and leave open the question of whether the alleged calculations are actually plausible." 397 F. Supp. 3d at 762-64. The Court allowed the Counties to amend their pleadings and to seek limited pre-amendment discovery if necessary, stating that "the Counties must do more to show—not just declare—how they propose to isolate the damages to their tax bases attributable to Defendants, such that a `direct relation' between the two is clear." Id. at 763-64. Given that the pleadings are equivalent in this case and I agree with the analysis in Wells Fargo, I will grant the Banks' Motion to Dismiss the Counties' FHA claims for tax base injuries, but I will allow the Counties to take limited and targeted discovery and then file an amended complaint to address the deficiencies identified in this Memorandum Opinion.
Plaintiffs claim they "lost revenue from certain operations and fees" and "lost recording fees as a result of the use of MERS." Compl. ¶ 386. In Cook (HSBC) II, the court concluded (without analysis) that the plaintiff sufficiently pleaded "a squarely direct relationship between [the defendant's] use of the MERS database and the County's resulting loss of recording income." 314 F. Supp. 3d at 965. There, the plaintiff claimed that "HSBC used MERS to allegedly obscure its transactions from public recording systems in an effort to hide its race-based activities." Id. at 955.
This Court, like the Illinois district court, also recognized that there could be a direct connection between the Counties' alleged lost municipal income and Wells Fargo's FHA violations and its use of MERS, but it found the pleadings to be lackluster. Wells Fargo, 397 F. Supp. 3d at 763-64 ("As to lost revenue from utility operations, the Counties aver little more than to note that they have suffered losses, and that the use of MERS makes it difficult to recover things like utility fees from the correct party. As to specifics referencing the loss of recording fees, the Counties allege only that `MERS has saved industry participants — and denied public recording systems operated by County governments such as Plaintiffs here — a total of over $2 billion in public recording fees.' ... As to lost utility fees, the Counties mention these only in passing and do not in any way flesh out the connection between Defendants' alleged equity-stripping practices and the loss of the fees, nor do the Counties articulate how that link will be calculated with any specificity."). The Court noted that the Counties failed to allege "how much, even by rough estimate, the Counties themselves may have suffered as a result of Defendants' use of MERS" or "how they propose to determine and isolate
In Wells Fargo, as here, "[t]he Counties [sought] to recover for injuries stemming from non-economic as well as economic damages." 397 F. Supp. 3d at 763-64. There, the Counties claimed injury from "the segregative effects of increased foreclosures on minority homeowners, neighborhood blight, and urban decay," id. (quoting Wells Fargo Compl ¶ 391-93); here, they do not mention "the segregative effects" but they do claim "injuries resulting from the deterioration and blight to the hardest hit neighborhoods and communities," Compl. ¶ 387. In both cases, they claim injury from "the `frustration of the various purposes and missions of [their] departments and authorities that foster equality and opportunity for affordable housing, revitalize neighborhoods, foster economic development and prosperity in the community, and provide support services for their residents at large.'" Id. (quoting Wells Fargo Compl. ¶ 415); see Compl. ¶ 403. They also claim in both cases that "county-based entities have had `to reallocate their human and financial resources away from their missions and purposes in order to address the foreclosure and home vacancy crisis caused in party by Defendants' discriminatory and predatory mortgage lending, servicing and foreclosure practices.'" Wells Fargo, 397 F. Supp. 3d at 763-64 (quoting Wells Fargo Compl. ¶ 415); see Compl. ¶ 403).
This Court concluded in Wells Fargo that the causal link to these alleged injuries was "a bridge too far." Wells Fargo, 397 F. Supp. 3d at 763-64. Noting that one court declined to dismiss FHA claims for similar non-economic damages, id. at 764-65 (citing City of Philadelphia v. Wells Fargo & Co., No. 17-2203, 2018 WL 424451, at *5 (E.D. Pa. Jan. 16, 2018)), this Court instead "join[e]d the courts that have rejected these non-economic claims as too far removed from the alleged discriminatory conduct to be plausibly proximately caused by such actions," id. (citing Cook (Bank of Am.) II, 2018 WL 1561725 at *5-7; Cook (Wells Fargo), 314 F. Supp. 3d at 989-90; Cook (HSBC), 314 F. Supp. 3d at 970). It permitted the Counties' claims for injunctive and declaratory relief to proceed because "the proximate cause requirements [are] less strict." Id. I agree that deterioration and urban blight lack a sufficiently direct relationship to the alleged equity-stripping scheme to satisfy the FHA's proximate cause requirement, and Defendants' Motion to Dismiss the claims for those damages is granted. See City of Miami, 137 S. Ct. at 1306; Wells Fargo, 397 F. Supp. 3d at 764-65. The claims for injunctive and declaratory relief, however, may proceed.
For the reasons stated in this Memorandum Opinion and Order, it is, this
