R Mora et al v US Bank et al

Filing 30

ORDER GRANTING MOTION TO DISMISS AND LEAVE TO AMEND 14 by Judge Dean D. Pregerson. The Court GRANTS the motion to dismiss. However, the claim under § 2923.7 is dismissed WITHOUT PREJUDICE. Additionally, Plaintiffs are granted leave to amend the complaint solely as to the disparate impact claim under ECOA and any related claim under Cal. Bus. & Prof. Code § 17200. Any amended complaint shall be filed not later than 21 days after the date of this order. (lom)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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R. MORA; L. MORA,

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Plaintiffs,

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v.
US BANK also known as US
BANK, N.A. also known as US
BANK HOME MORTGAGE also
known as US BANK. N.A.,
INC.,
Defendants.
___________________________

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Case No. CV 15-02436 DDP (AJWx)
ORDER GRANTING MOTION TO DISMISS
AND LEAVE TO AMEND
[Dkt. No. 14]

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Presently before the Court is Defendant’s motion to dismiss

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Plaintiffs’ complaint.

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parties’ submissions, the Court adopts the following order.

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I.

(Dkt. No. 14.)

Having considered the

BACKGROUND

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Plaintiffs are mortgagors for a loan on, and long-time

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residents of, a certain piece of residential property in Baldwin

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Park, CA.

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public assistance, and Mrs. Mora is a woman.

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Plaintiffs suffered significant economic setbacks between 2010 and

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2014 and were unable to make their usual mortgage payments.

(Compl., ¶ 2.)

Plaintiffs are Latinos and receive
(Id. at ¶ 42.)

(Id.)

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Plaintiffs allege that they made numerous attempts to modify the

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terms of the loan, but that Defendant repeatedly delayed

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modification or made excuses to “nullify Plaintiffs’ loan

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modification application.”

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(Id.)

Specifically, Plaintiffs allege that in March 2010,

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Defendant’s employees represented to Plaintiffs that they could

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modify the loan by sending in certain papers.

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Plaintiffs allege that they submitted to the requested papers.

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(Id. at ¶ 28.)

(Id. at ¶ 27.)

Plaintiffs at this point were unable to keep making

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their regular mortgage payments.

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Defendant declared Plaintiffs to be in default on the loan.

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at ¶ 29.)

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Plaintiffs a letter stating that “we are in a position to consider

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your [loan] modification request” and promising not to foreclose

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while the modification application was being considered.

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30.)

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process; in response, Plaintiffs declared bankruptcy.

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31.)

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(Id.)

In September 2010,
(Id.

Also in September 2010, Defendant allegedly sent

(Id. at ¶

Nonetheless, in October 2010, Defendant began the foreclosure
(Id. at ¶

In March 2011, Defendant requested additional documentation,

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which Plaintiffs allege they provided.

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Defendant did not modify the loan, however, and Plaintiffs allege

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that Defendant was “ready to foreclose” or “attempted” to foreclose

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on the home in January 2015.

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allege that they were referred “back and forth between different

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managers and departments” during this period.

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(Id. at ¶¶ 32-33.)

(Id. at ¶¶ 15, 34.)

Plaintiffs also

(Id. at ¶ 69.)

Plaintiffs further allege that “Defendants have a ‘will not

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negotiate’ policy with low income, minority homeowners, as to

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mortgage loan modifications.”

(Id.)
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Plaintiffs also allege that

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Defendant has a policy of “pretending to engage in loan

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modification discussions” with low income borrowers (who are

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disproportionately “minority and/or receiving public assistance”),

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while actually “seeking foreclosure.”

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allege that Defendant has a specific, blanket policy of denying

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loan modifications to all borrowers earning less than $50,000 per

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year.

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is not intended, Defendant’s policies have a disparate impact on

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the protected classes, and that any legitimate business purpose

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(Id. at ¶ 6.)

(Id. at ¶ 44.)

Plaintiffs allege that even if discrimination

could be achieved through other policies.

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And they

(Id. at ¶¶ 45-46.)

Plaintiffs allege damages arising from these transactions,

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including “damage to credit, reputation, creditworthiness” and

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“damage to health, strength, and activity.”

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therefore seek damages, punitive damages, and injunctive relief

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under various theories.

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II.

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(Id. at ¶ 38.)

They

(Id. at 28-29 (“Prayer for Relief”).)

LEGAL STANDARD
In order to survive a motion to dismiss for failure to state a

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claim, a complaint need only include “a short and plain statement

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of the claim showing that the pleader is entitled to relief.”

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Atl. Corp. v. Twombly, 550 U.S. 544, 55 (2007) (quoting Conley v.

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Gibson, 355 U.S. 41, 47 (1957)).

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“sufficient factual matter, accepted as true, to state a claim to

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relief that is plausible on its face.”

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662, 678 (2009) (quoting Twombly, 550 U.S. at 570).

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be sufficiently plausible that “it is not unfair to require the

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opposing party to be subjected to the expense of discovery and

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continued litigation.”

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Cir. 2011).

Bell

However, a complaint must include

Ashcroft v. Iqbal, 556 U.S.
The claim must

Starr v. Baca, 652 F.3d 1202, 1216 (9th

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When considering a Rule 12(b)(6) motion, a court must “accept

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as true all allegations of material fact and must construe those

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facts in the light most favorable to the plaintiff.”

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Hayes, 213 F.3d 443, 447 (9th Cir. 2000).

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to the presumption of truth, allegations in a complaint or

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counterclaim may not simply recite the elements of a cause of

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action, but must contain sufficient allegations of underlying facts

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to give fair notice and to enable the opposing party to defend

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itself effectively.”

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A.

However, “to be entitled

Starr, 652 F.3d at 1216.

III. DISCUSSION

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Resnick v.

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Intentional Misrepresentation
Plaintiffs allege that Defendant made intentional

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misrepresentations in promising to modify the terms of the loan.

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(Compl., ¶¶ 28-32.)

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limitations and insufficient pleading grounds.

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Defendant attacks this claim on statute of

The elements of intentional misrepresentation are: “(1)

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misrepresentation (false representation, concealment, or

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nondisclosure); (2) knowledge of falsity (scienter); (3) intent to

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defraud (i.e., to induce reliance); (4) justifiable reliance; and

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(5) resulting damage.”

Anderson v. Deloitte & Touche, 56 Cal. App.

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4th 1468, 1474 (1997).

The elements of an action sounding in fraud

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must be pled with particularity; however, knowledge and intent may

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be pled generally.

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action is for fraud, it is subject to a three-year statute of

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limitations, accruing when the aggrieved party discovers the fraud.

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Cal. Code Civ. P. § 338(d).

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action when he at least suspects a factual basis . . . for its

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elements, even if he lacks knowledge thereof . . . .

Fed. R. Civ. P. 9(b).

Because the cause of

A plaintiff “discovers the cause of

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He has reason

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to suspect when he has notice or information of circumstances to

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put a reasonable person on inquiry.”

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Cal. 4th 383, 397-98 (1999) (internal quotation marks omitted).

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Norgart v. Upjohn Co., 21

Plaintiffs allege that Defendant’s employee Ricky Molchan

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stated in a February 2010 letter that the bank would modify the

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loan on receipt of certain paperwork.

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September 2010, Molchan sent another letter stating that the bank

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was “in a position to consider” loan modification and that the bank

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would not foreclose while it was considering modification.

(Compl., ¶ 27.)

In

(Id. at

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¶ 30.)

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notified that they were in default, and that in October 2010

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Defendant attempted to foreclose on the home – an effort that was

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only averted because Plaintiffs declared bankruptcy.

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29, 31.)

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2011, Molchan and another employee, Ashley Moran, notified

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Plaintiffs that the bank required additional documentation to

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“complete [its] review.”

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of 2011, and throughout 2012, no loan modification was forthcoming.

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(Id. at ¶ 33.)

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Plaintiffs also allege that in September 2010 they were

(Id. at ¶¶

Finally, Plaintiffs allege that in late 2010 and early

(Id. at ¶ 32.)

Then for the latter half

Plaintiffs thus had notice that Defendant intended to

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foreclose on the house in October 2010, just one month after

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Defendant’s employees promised there would be no foreclosure while

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the bank reviewed the loan modification application.

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Plaintiffs were forced to take drastic steps to save their home by

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declaring bankruptcy.

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at that point that Defendant’s alleged representations were likely

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to be fraudulent.

Indeed,

A reasonable person might have taken notice

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Even if Plaintiffs were not on notice of Defendant’s alleged

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intentional misrepresentations at that point, a reasonable person

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would have become suspicious between October 2010 and early 2012,

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when repeated submissions of paperwork did not yield results.

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Plaintiff argues that the action is nonetheless not time-

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barred because the allegations in the Complaint show “a pattern of

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conduct that includes an attempted foreclosure in January 2015.”

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(Opp’n at 20.)

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is connected to the representations made back in 2010-2012, that

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does not change the fact that a reasonable person would, at some

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point early in the process, have become suspicious that Defendant’s

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alleged representations in this matter were untrustworthy.

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But even if the January 2015 attempt at foreclosure

Even if the claim were not time-barred, Plaintiffs have not

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pled any particular reliance on Defendant’s promises to their

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detriment.

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they took particular actions in response to Defendant’s statements,

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or refrained from taking action, that led to them being worse off.

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That makes this case different from Aceves v. U.S. Bank, on which

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Plaintiffs rely.

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Bank's promise by declining to convert her chapter 7 bankruptcy

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proceeding to a chapter 13 proceeding, by not relying on her

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husband's financial assistance in developing a chapter 13 plan, and

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by not opposing U.S. Bank's motion to lift the bankruptcy stay.”

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192 Cal. App. 4th 218, 227 (2011).

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successfully filed bankruptcy to protect themselves from

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foreclosure, and, indeed, are apparently still in the house.

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(Compl., ¶ 31; Mot. Dismiss at 8.)

That is, Plaintiffs have not pled facts showing that

In that case, the plaintiff “relied on U.S.

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Here, by contrast, Plaintiffs

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There are allegations of “physical” damages – i.e., damage to

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Plaintiffs’ health and well-being.

But some of these are generic

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and do not meet the specificity requirements of Rule 9(b), and

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others are purely speculative.

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prospect of 1) becoming homeless as a result of a foreclosure . . .

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would be emotionally wrenching, but would also [be] physically

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damaging to Plaintiffs . . . .”); id. at ¶ 58 (“Plaintiffs has been

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[sic] actually damaged including in his strength and activity, in

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an amount subject to proof. She has suffered physical injuries and

(E.g., Compl., ¶ 4 (“Obviously, the

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emotional distress.”).)

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to any act or forbearance in reliance on Defendant’s statements or

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promises.

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In any event, these injuries are not tied

Lying in a way that gives false hope is reprehensible, and on

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Plaintiffs’ alleged facts Defendant’s employees appear to have done

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exactly that.

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plausible inference of damages based on an act (or omission) in

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reliance on the misrepresentation, there is no claim for

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intentional misrepresentation.

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Nonetheless, absent an allegation that creates a

Plaintiffs have therefore not stated a claim as to this cause

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of action.

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B.

Breach of Covenant of Good Faith and Fair Dealing

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Plaintiffs allege that Defendant breached of the covenant of

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good faith and fair dealing because it “prevented PLAINTIFFS from

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enjoying the benefit of the contract, by engaging in disparate

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treatment and disparate impact discrimination.”

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(Compl., ¶ 65.)

“In California, the factual elements necessary to establish a

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breach of the covenant of good faith and fair dealing are: (1) the

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parties entered into a contract; (2) the plaintiff fulfilled his
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obligations under the contract; (3) any conditions precedent to the

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defendant's performance occurred; (4) the defendant unfairly

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interfered with the plaintiff's rights to receive the benefits of

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the contract; and (5) the plaintiff was harmed by the defendant's

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conduct.”

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952, 968 (N.D. Cal. 2010).

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Rosenfeld v. JPMorgan Chase Bank, N.A., 732 F. Supp. 2d

Here, Plaintiffs have not alleged that they fulfilled their

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obligations under the mortgage loan contract – to the contrary,

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they allege that “[t]hey could not make the payments as scheduled

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in March 2010,” that they declared bankruptcy to avoid foreclosure,

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and that they stopped performing when “it was clear that they were

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excused from further performance by acts of discrimination against

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them.”

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for the novel idea that unnamed “acts of discrimination” could

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excuse performance under a mortgage contract, and, indeed, they

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allege no discrimination in Defendant’s performance of the contract

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itself – at best they allege that Defendant has an intentionally or

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effectively discriminatory policy when it comes to offering loan

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modifications – i.e., new contractual arrangements that are by

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definition outside the original contract.

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(Compl., ¶¶ 28, 31, 65.)

Plaintiffs provide no authority

Similarly, Plaintiffs have not explained how Defendant has

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“interfered with [their] rights to receive the benefits of the

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contract.”

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the right to a loan modification, unless there is a provision in

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the contract that specifically requires modification if the

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borrower is unable to make payments.

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here.

The benefits of the original contract do not include

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No such provision is alleged

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In their opposition, Plaintiffs argue that “because

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[Defendant] has a duty to avoid disparate impact discrimination, it

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has a duty to offer loan modification.”

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discusses Plaintiffs’ disparate impact theory below, but even if

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Defendant had a duty to offer loan modifications in order to avoid

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a racially disparate impact, it would not be a contractual duty.

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The covenant of good faith and fair dealing “cannot impose

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substantive duties or limits on the contracting parties beyond

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those incorporated in the specific terms of their agreement.”

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(Opp’n at 17.)

The Court

Agosta v. Astor, 120 Cal. App. 4th 596, 607 (2004).

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Plaintiffs have therefore not stated a claim for breach of the

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covenant of good faith and fair dealing.

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C.

Homeowner’s Bill of Rights (“HBOR”) Claims

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Plaintiffs allege that Defendant “failed to approve loan

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modifications, on the purported rationale that Plaintiffs ‘had not

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shown an interest in retaining their home,’” and that “[t]his

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specious, disingenuous reasoning shows a lack of transparency and

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failure to explain BANK’s true reasons, which dishonest [sic] and

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lack of transparency violate California Civil Code Sec 2923.6(f)

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and 2410(a).”

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repealed statute dealing with attorneys’ duties that was superseded

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by Prob. Code § 4014.

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servicers to provide written notice of “the reasons for denial,”

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but does not require any particular reason to be stated.

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a servicer is presumably under a duty to state the reason

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truthfully, Plaintiffs have pled no facts supporting an inference

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that Defendant’s stated reason, however vague, was not the true

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reason.

(Id. at ¶ 68.)

But Civil Code § 2410(a) is a

Civil Code § 2923.6(f) requires mortgage

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Although

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However, Plaintiffs also allege that Defendant “dual-tracked”

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their mortgage – i.e., engaged in putative review of a loan

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modification application while simultaneously pursuing foreclosure

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– and that Defendant failed to provide a “single point of contact”

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with whom Plaintiffs could discuss their loans.

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the right circumstances, would be violations of HBOR.

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Code §§ 2923.6(c), 2923.7; see also 2924.18.

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Such acts, under
Cal. Civ.

The Court notes, first, that HBOR took effect on January 1,
2013, and that it does not apply retroactively.

Rockridge Trust v.

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Wells Fargo, N.A., 985 F. Supp. 2d 1110, 1152 (N.D. Cal. 2013).

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the extent that Plaintiffs’ claims rely on actions taken before

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2013, HBOR does not apply.

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actions on Defendant’s part well after January 1, 2013, including

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lack of a single point of contact in 2014 and dual-tracking as to

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the January 2015 attempt at foreclosure.

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To

But Plaintiffs also allege unlawful

(Compl., ¶¶ 34, 70.)

Defendant argues that the anti-dual tracking provisions do not

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apply to the later (2014-2015) notice of default and attempted

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foreclosure, because Defendant had already rejected one loan

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modification application, (Compl., ¶ 33), and the statute does not

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require the servicer to consider serial applications unless there

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has been a “material change in the borrower’s financial

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circumstances.”

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alleged a “material change” in their circumstances between 2012 and

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2014, although it does appear that their financial situation was

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precarious throughout.

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loan modification application was rejected, it was not obligated to

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consider another one.

Cal. Civ. Code § 2923.6(g).

Plaintiffs have not

Thus, Defendant argues, after the first

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Of course, the fact that Defendant was not obligated to

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consider Plaintiffs’ loan modification application does not render

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§ 2923.6(c) inapplicable if it did, in fact, consider the

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application.

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subsection (c) is limited to applications that a bank is required

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to evaluate.

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they submitted another complete loan modification application in

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2014, or that Defendant was in the process of evaluating it when it

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initiated foreclosure.

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It is not clear from the face of the statute that

But in this case, Plaintiffs have not alleged that

Thus, the dual-tracking provision does not

apply.
As to the single point of contact claim, Defendant argues that

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§ 2923.7 requires a borrower to explicitly request a single point

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of contact.

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and the Court finds it unconvincing.

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request from a borrower who requests a foreclosure prevention

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alternative, the mortgage servicer shall promptly establish a

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single point of contact . . . .”

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Although this language could be read to mean that a borrower must

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explicitly request a single point of contact, a better reading is

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that the statute simply requires the servicer to establish a single

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point of action whenever a borrower “requests a foreclosure

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prevention alternative.”

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47 F. Supp. 3d 982, 1000 (N.D. Cal. 2014) (“A plain reading of the

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statute requires Wells Fargo to assign a SPOC when a borrower

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requests a foreclosure prevention alternative. It does not require

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a borrower to specifically request a SPOC.”).1

Defendant provides no authority for this contention,
The statute reads, “Upon

Cal. Civ. Code § 2923.7(a).

See Penermon v. Wells Fargo Bank, N.A.,

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Although the Court agrees with the plain reading holding in
(continued...)
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Defendant also notes that a “single point of contact”

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(somewhat confusingly) need not be a single person, but may be a

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“team” instead.

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help Defendant when the allegation is that Defendant did not

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appoint a specific team to assist Plaintiffs, but rather “shunted”

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Plaintiffs around among “personnel . . . who had no interest in”

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helping Plaintiffs with a loan modification, in order to wear them

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down.

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Cal. Civ. Code § 2923.7(e).

But this does not

(Compl., ¶ 69.)
Finally, defendant argues that Plaintiff has not alleged

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damages, because “no foreclosure sale has occurred to date.”

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Dismiss at 17.)

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(“After a trustee's deed upon sale has been recorded, a mortgage

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servicer, mortgagee, trustee, beneficiary, or authorized agent

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shall be liable to a borrower for actual economic damages . . .

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resulting from a material violation of Section . . . 2923.7 . . .

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.”) (emphasis added).

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relief to enforce § 2923.7.

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available.

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modification and been rejected, as pointed out above, Defendant is

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under no obligation to consider another loan modification

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application, and there is no indication before the Court that it

This is true.

(Mot.

See Cal. Civ. Code § 2924.12(b)

However, Plaintiffs also seek injunctive
Ordinarily, such relief would be

But because Plaintiffs have already sought a loan

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(...continued)
Penermon, to the degree that the statute is ambiguous, Defendant’s
reading also runs against the general canon that a statute should
not be read to defeat itself. To read the statute as requiring an
explicit request would at best place an unnecessary technical
burden on borrowers and at worst defeat the intent of the statute
altogether: most borrowers are unlikely to be aware of the language
of § 2923.7 and are therefore unlikely to demand their right to a
single point of contact.
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would do so.

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modifications, of course: it protects, broadly, applicants for any

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“foreclosure prevention alternative.”

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record that Plaintiffs are currently seeking, or indeed could seek,

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some other form of foreclosure alternative.

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from the pleadings what injunctive relief could be afforded.

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Section 2923.7 applies to more than just loan

But it is not clear on this

Thus, it is not clear

Therefore, the Court finds that Plaintiffs do not state a

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claim for relief under HBOR.

Nonetheless, because it is possible

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that the pleadings could be amended to state a claim for damages

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(if Defendant forecloses) or for injunctive relief (if Plaintiffs

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pursue some sort of foreclosure alternative with Defendant), the

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claim under § 2923.7 is dismissed without prejudice.

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D.

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Discrimination-Based Claims
Plaintiffs also argue that Defendant’s policies are unlawfully

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discriminatory – either intentionally or, at a minimum, in the

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sense of having a disparate impact.

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Plaintiff’s argument is straightforward: Defendant has a duty

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as a creditor, under the Equal Credit Opportunity Act (“ECOA”), not

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to discriminate in lending on the basis of, inter alia, race or the

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use of public assistance.

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allows for a cause of action for either overtly discriminatory

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policies or facially neutral polices that have a discriminatory

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effect.

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315, 325 (M.D. Tenn. 2000) (collecting authorities) vacated on

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other grounds, 296 F.3d 443 (6th Cir. 2002).

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15 U.S.C. § 1691(a)(1)-(2).

The ECOA

See Coleman v. Gen. Motors Acceptance Corp., 196 F.R.D.

As to overt discrimination, Plaintiffs allege only that

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Defendant has a “will not negotiate” policy toward “low income,

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minority homeowners.”

(Compl., ¶ 42.)
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However, the complaint does

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not elaborate on the details of this alleged policy or allege facts

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that would allow an inference that there is such a policy.2

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pleading threshold is not high; a plaintiff need only plead some

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facts allowing a plausible inference that such an overtly

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discriminatory policy exists.

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facts do not allow such an inference, and a single conclusory

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sentence is not enough to plead an overtly discriminatory policy.

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The

In this case, however, Plaintiff’s

Plaintiffs also allege disparate impact.

“Latino business

owners have lower incomes and savings than Whites, and are

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statistically significantly more subject to unemployment than

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Whites,” Plaintiffs write, and therefore a policy that

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automatically excludes people from certain lending advantages based

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on lower income, less savings, or unemployment will necessarily

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have a disparate impact on Latinos.

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“Defendants had a policy of refusing loan modification to

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homeowners who earned less than $50,000” and that “78% of Latinos

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earn less than $50,000.”

(Id.)

(Id. at ¶ 6.)

Plaintiffs allege that

Consequently, Plaintiffs

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2

Courts have routinely required, in a variety of antidiscrimination contexts, more than a simple assertion that a policy
of discrimination exists for a pleading to satisfy Rule 8. See,
e.g., Onyango v. Nick & Howard, LLC, No. 14-2979, 2015 WL 1569641,
at *3 (7th Cir. Apr. 9, 2015) (“We also agree with the district
court that Nick & Howard is not liable for race discrimination
based on its own admission ‘policies’ because Onyango's allegations
about those policies are too conclusory to support an inference of
discrimination.”); Grimes v. Fremont Gen. Corp., 785 F. Supp. 2d
269, 292 (S.D.N.Y. 2011) (“Plaintiffs have failed to allege facts
(as opposed to conclusory legal claims) establishing that any
Defendant had a specific discriminatory policy that violates the
FHA . . . .”); Cummings v. Palm Beach Cnty., 642 F. Supp. 248, 250
(S.D. Fla. 1986) (“[N]o facts have been alleged to support the
conclusory allegations of an existing Palm Beach County policy of
discrimination against its employees on the basis of age and
race.”).
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argue, Defendant’s policy must have an unlawful disparate impact on

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Latinos.

(Id.)

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“To state a claim for disparate impact discrimination under .

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. . the ECOA a plaintiff must plead (1) the existence of outwardly

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neutral practices; (2) a significantly adverse or disproportionate

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impact on persons of a particular type produced by the defendant's

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facially neutral acts or practices; and (3) facts demonstrating a

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causal connection between the specific challenged practice or

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policy and the alleged disparate impact.”

Hernandez v. Sutter W.

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Capital, No. C 09-03658 CRB, 2010 WL 3385046, at *3 (N.D. Cal. Aug.

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26, 2010).3

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– the practice of denying loan modifications to persons earning

Here, Plaintiffs have pled a facially neutral practice

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3

The pleading standard as to statutory disparate impact claims
appears to be in transition. The leading Ninth Circuit case before
the Twombly and Iqbal decisions held that the district court erred
in requiring the plaintiff to allege facts supporting a prima facie
case of disparate impact in the complaint. Gilligan v. Jamco Dev.
Corp., 108 F.3d 246, 249 (9th Cir.1997). The court there noted
that “[i]t would be impractical to identify an ‘inflexible
formulation’ for every discrimination claim” and that a plaintiff
might not have all the facts necessary to plead every element of a
prima facie case prior to discovery. Id. at 250. However, some
post-Iqbal district courts have treated Gilligan as implicitly
overruled. Sparks v. S. Kitsap Sch. Dist., No. 3:13-CV-05682-RBL,
2014 WL 1047217, at *3 (W.D. Wash. Mar. 18, 2014) (Gilligan was
“decided years before Iqbal and Twombly” and is “entirely
inapplicable now”); Jeffrey v. Foster Wheeler LLC, No.
14-CV-05585-WHO, 2015 WL 1004687, at *1 (N.D. Cal. Mar. 2, 2015)
(same). At least one post-Twombly case interprets Gilligan as
meaning that the plaintiff need not prove a prima facie case, but
must still plead the general elements. Taylor v. Accredited Home
Lenders, Inc., 580 F. Supp. 2d 1062, 1068 (S.D. Cal. 2008) The
standard set forth in Hernandez borrows the elements of a prima
facie case from Pfaff v. U.S. Dept. of Housing and Urban Dev., 88
F.3d 739, 745 (9th Cir.1990), which was before the court on a
review of a final administrative decision, not a motion to dismiss.
The Court nonetheless finds the Hernandez standard appropriate and
workable as a post-Iqbal motion to dismiss framework, but notes the
practical warnings in Gilligan, including the danger of inflexibly
requiring a plaintiff to plead elements that may not be factually
relevant to the complaint.
15

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less than $50,000.

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facts sufficient, if taken as true, to establish the last two

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prongs.

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incomes are significantly lower than the incomes of whites,

5

(Compl., ¶ 42), and the exhibits attached to the complaint do

6

provide comparative data.

7

reports that the median personal income in 2011 was $29,000, but

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was only $20,000 for Hispanics, compared to $32,000 for non-

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Hispanic whites; the median household income was $50,000, but only

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39,000 for Hispanics, compared to $54,400 for non-Hispanic whites;

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and 78.1% of Hispanics make less than $50,000/year in personal

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income, compared to 54.1% of whites and 59.5% of the population as

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a whole.

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be perfectly correlated with ethnicity or race as opposed to other

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factors, such as recent arrival from another country – native-born

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Hispanics are much closer to the national average than foreign-born

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Hispanics.

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certainly suggestive of a racial divide in incomes, not to mention

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wealth and employment.

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However, Plaintiffs’ complaint does not plead

Plaintiff’s complaint alleges generally that Hispanic

For instance, the Pew Research Center

(Compl., Ex. 1, Tables 32-36.)

(Id.)

These disparities may not

Nonetheless, Plaintiff’s statistics are

But Plaintiff does not clearly allege, in a non-conclusory

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way, that Hispanic/Latino borrowers actually have worse outcomes

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under Defendant’s policies than other racial or ethnic groups do.

23

This is key in alleging disparate impact – a plaintiff must allege

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actual impact on the relevant group.

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hypothetical Plaintiff cites to in the Comptroller of the

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Currency’s Handbook, disparate impact is shown not just because

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“[a] bank’s policy is not to extend loans for single family

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residences for less than $60,000.00,” but also because “[t]his
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For example, in the

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minimum loan amount policy is shown to disproportionately exclude

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potential applicants based on race from consideration because of

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their income levels or the value of the houses in the areas in

4

which they live.”

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Comptroller’s Handbook example provides all three elements of the

6

claim: a facially neutral policy; disproportionate exclusion of

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people in certain racial groups; and a causal connection.

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9

(Id., Ex 7 at 8 (emphases added).)

Thus, the

Here, however, Plaintiff has not alleged a disproportionate
impact except in the most conclusory terms.4

It is entirely

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possible for other factors to mitigate or entirely erase any

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presumed disproportionate impact: the demographics of the bank’s

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customer base might not match the demographics of the nation as a

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whole; bank managers might have an informal practice of being

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flexible on the income requirement, formal policy notwithstanding;

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or there might be lower rates of default among low-income

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Hispanics.

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actually has a disproportionately negative impact on Hispanics,

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Plaintiffs cannot make out a case under a disparate impact theory.

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Without alleged facts showing that the bank’s policy

An additional flaw in Plaintiffs’ case is that they allege

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that “Defendants had a policy of refusing loan modification to

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homeowners who earned less than $50,000,” (id. at ¶ 6), but they

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themselves do not necessarily fall into that group.

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(“Plaintiffs earned less than $75,000 per year . . . .”).)

(Id. at ¶ 42

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4

E.g., Compl., ¶ 7 (“Defendants’ ‘will not negotiate’ policy
towards the Plaintiffs, had a disproportionately adverse impact
(disparate impact discrimination) upon Hispanics, including
Plaintiffs, because of their lower income . . . .”); id. at ¶¶ 4445 (“Defendants knowingly engaged in disparate treatment
discrimination . . . . [T]hese acts, separately and collectively,
had a DISPROPORTIONATELY NEGATIVE IMPACT [on] Plaintiffs . . . .”).
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Plaintiffs thus may not even have standing to bring a case based on

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Defendant’s alleged policies regarding low-income borrowers.

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Plaintiffs also appear to allege discrimination on the basis

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of sex and receipt of public assistance.

(E.g., id. at ¶ 16.)

5

However, these allegations have no factual support at all and are

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entirely conclusory.

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something bad happens to a member of a particular racial group does

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not, without more, establish that it happened because the person is

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a member of that racial group.”

“[I]t is hornbook law that the mere fact that

Williams v. Calderoni, No. 11 CIV.

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3020 CM, 2012 WL 691832, at *7 (S.D.N.Y. Mar. 1, 2012) aff'd sub

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nom. Williams v. Schwartz, 529 F. App'x 89 (2d Cir. 2013).

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same applies, mutatis mutandis, to members of a particular sex and

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users of public assistance.

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16

The

The Court therefore concludes that Plaintiffs have not
sufficiently pled discrimination under ECOA.
For similar reasons, Plaintiffs do not adequately state a

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claim for discrimination in contracts under 42 U.S.C. § 1981.

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Disparate impact alone cannot support a claim under § 1981.

19

Bldg. Contractors Ass'n, Inc. v. Pennsylvania, 458 U.S. 375, 391

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(1982).

21

allowing an inference that Defendant had policy of purposeful

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racial (or sex, or public assistance status) discrimination.

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therefore cannot state a claim under § 1981.

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Gen.

But, as noted above, Plaintiffs have not alleged facts

They

Because Plaintiffs have not successfully pled the elements of

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a claim under ECOA or § 1981, they cannot rely on those claims as

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the basis of a claim for “unlawful” business practices under Cal.

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Bus. & Prof. Code § 17200.

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under the “unfair” prong – discriminatory lending would seem to be

Plaintiffs could still pursue a claim

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the epitome of a practice “whose harm to the victim outweighs its

2

benefits.”

3

1035, 1044 (9th Cir. 2010).

4

facts sufficient to describe a discriminatory policy and show harm

5

resulting from it, and for the reasons given above, Plaintiffs have

6

not done that here.

Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d
But they would still need to allege

7

However, it is not unreasonable to think that a blanket policy

8

of never negotiating loan modifications for persons below a certain

9

income threshold could have a racially disparate impact.

It is

10

possible that with additional factual allegations Plaintiffs could

11

properly state a claim for disparate impact discrimination.

12

Court therefore finds it appropriate to grant leave to amend the

13

complaint to cure the pleading defects solely as to the disparate

14

impact theory of discrimination.

15

a disparate impact claim only if they can allege facts (1) allowing

16

an inference that the income threshold actually has a disparate

17

impact, and (2) showing that Plaintiffs themselves were subject to

18

the policy and harmed by it.

To be clear: Plaintiffs can state

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//

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///

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The

///
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IV.

CONCLUSION
The Court GRANTS the motion to dismiss.

However, the claim

3

under § 2923.7 is dismissed WITHOUT PREJUDICE.

Additionally,

4

Plaintiffs are granted leave to amend the complaint solely as to

5

the disparate impact claim under ECOA and any related claim under

6

Cal. Bus. & Prof. Code § 17200.

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filed not later than 21 days after the date of this order.

Any amended complaint shall be

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IT IS SO ORDERED.

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Dated: July 27, 2015
DEAN D. PREGERSON
United States District Judge

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