Ramirez et al v. Greenpoint Mortgage Funding, Inc.

Filing 210

ORDER by Judge Thelton E. Henderson Granting 161 Motion to Certify Class.(tehlc4, COURT STAFF) (Filed on 7/20/2010)

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Ramirez et al v. Greenpoint Mortgage Funding, Inc. Doc. 210 1 2 3 4 5 6 7 8 9 10 v. IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA ANA RAMIREZ, et al., Plaintiffs, NO. C08-0369 TEH ORDER GRANTING PLAINTIFFS' MOTION FOR CLASS CERTIFICATION GREENPOINT MORTGAGE FUNDING, INC., Defendant. United States District Court 11 For the Northern District of California 12 This matter came before the Court on June 28, 2010, on the motion for class 13 certification filed by Plaintiffs Ana and Ismael Ramirez and Jorge Salazar (collectively, 14 "Plaintiffs"). Plaintiffs allege that Defendant GreenPoint Mortgage Funding, Inc. 15 ("GreenPoint") violated federal fair lending and housing laws by giving its authorized 16 brokers discretion to mark up the price of wholesale mortgage loans, a policy that led 17 minority borrowers to be charged disproportionately high rates compared to similarly 18 situated whites. They now ask the Court to certify a class of African-American and Hispanic 19 borrowers who obtained wholesale mortgage loans through GreenPoint from 2004 through 20 2007. For the reasons set forth below, Plaintiffs' motion is GRANTED. 21 22 BACKGROUND 23 Plaintiffs Ana and Ismael Ramirez and Jorge Salazar each used brokers to obtain 24 wholesale mortgage loans from GreenPoint. In this lawsuit, they challenge GreenPoint's 25 policy for pricing such loans. In 2005, the Ramirezes refinanced their home in 26 Massachusetts, taking out a $469,000 loan with a 30-year term and a disclosed Annual 27 Percentage Rate, or "APR," of 6.191 percent. Salizar obtained a $475,000 loan, with a 28 30-year term and disclosed APR of 7.181 percent, by refinancing his home and rental Dockets.Justia.com 1 property in San Diego, California in 2006. The Ramirezes were assisted by First Call 2 Mortgage Company, and Salizar used the services of TLN Financial; both were mortgage 3 brokers authorized to originate loans with GreenPoint. 4 In the wholesale market, independent mortgage brokers act as intermediaries between 5 borrowers and wholesale mortgage lenders like GreenPoint. A broker identifies prospective 6 borrowers and facilitates the loan origination process, transmitting a borrower's application 7 to a lender for a determination of whether or not to fund the loan. Its reliance on brokers 8 enabled GreenPoint to fund mortgages in areas where it had not established any brick-and9 mortar retail presence of its own. GreenPoint worked with tens of thousands of authorized 10 brokers when it was in the wholesale mortgage business, which it exited in late 2007. United States District Court 11 GreenPoint typically sold the wholesale mortgages it funded into secondary markets, where For the Northern District of California 12 they were repackaged into mortgage-backed securities. The company originated as much as 13 93 percent of its loans through wholesale brokers from 2004 to 2007, and was at one time the 14 fifth largest originator of mortgage loans through the wholesale channel in the United States. 15 The pricing of GreenPoint's mortgage loans consisted of an objective and a subjective 16 component. GreenPoint relied on objective risk factors such as FICO score, property 17 value, and loan-to-value ratio to determine credit parameters and set prices for its loan 18 products. This information was communicated to brokers on a rate sheet listing GreenPoint's 19 "par" interest rate, which did not result in any broker compensation. That objective 20 component of loan pricing is not at issue here. 21 Plaintiffs' allegations relate to GreenPoint's discretionary pricing policy, which 22 governed brokers' compensation for their services. GreenPoint paid brokers a "yield spread 23 premium" or "rebate" when they set the interest rate higher than par; brokers were also 24 permitted to charge loan origination and processing fees. GreenPoint did not set any 25 objective criteria for the imposition of these higher rates and fees, which were set by the 26 brokers according to their discretion. Brokers were paid more for loans that cost more to the 27 borrower, but their compensation was capped at 5 percent of the loan amount. GreenPoint 28 monitored the fees charged by its brokers to ensure they complied with its policies. 2 1 Plaintiffs contend that the discretionary policy resulted in minority borrowers 2 defined here to include African Americans and Hispanics receiving less favorable loan 3 pricing than similarly situated whites. Citing such disparities, Plaintiffs allege that 4 GreenPoint engaged in discriminatory mortgage lending practices in violation of the Equal 5 Credit Opportunity Act ("ECOA"), 15 U.S.C. 1691, and the Fair Housing Act ("FHA"), 42 6 U.S.C. 3605.1 They bring these claims under a disparate impact theory, challenging 7 "practices that are facially neutral in their treatment of different groups but that in fact fall 8 more harshly on one group than another and cannot be justified by business necessity." Int'l 9 Bhd. of Teamsters v. United States, 431 U.S. 324, 335 n.15 (1977) (addressing disparate 10 impact claims in Title VII employment context).2 United States District Court 11 For the Northern District of California Plaintiffs now move to certify a class under Federal Rule of Civil Procedure 23(b)(3). 12 GreenPoint opposes the motion. 13 14 LEGAL STANDARD 15 Plaintiffs, as the parties requesting class certification, must demonstrate that they have 16 met all four requirements of Federal Rule of Civil Procedure 23(a) and the requirements of at 17 least one part of Rule 23(b). Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1186 (9th 18 Cir. 2001), amended by 273 F.3d 1266 (9th Cir. 2001). Rule 23(a) allows a class to be 19 certified 20 21 only if (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to 1 The ECOA makes it unlawful "for any creditor to discriminate against any applicant, 22 with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to 23 contract)." 15 U.S.C. 1691(a). The FHA makes it unlawful "for any person or other entity whose business includes engaging in residential real estate-related transactions to 24 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 25 status, or national origin." 42 U.S.C. 3605(a). 26 This Court previously concluded, in denying GreenPoint's motion to dismiss, that disparate impact claims are cognizable under both the FHA and ECOA. See Order Denying 27 Mot. to Dismiss (Doc. 48) at 4-6; see also Harris v. Itzhaki, 183 F.3d 1043, 1051 (9th Cir. 1999) (disparate impact claims allowable under FHA); Miller v. Am. Express Co., 688 F.2d 28 1235, 1239-40 (9th Cir. 1982) (disparate impact claims allowable under ECOA). 3 2 1 2 3 the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. 4 Fed. R. Civ. P. 23(a); see also Zinser, 253 F.3d at 1186. That is, the class must satisfy the 5 requirements of numerosity, commonality, typicality, and adequacy. 6 Rule 23(b) provides for the maintenance of several different types of class actions. 7 Plaintiffs seek to certify the class under Rule 23(b)(3), which requires a showing "that the 8 questions of law or fact common to class members predominate over any questions affecting 9 only individual members, and that a class action is superior to other available methods for 10 fairly and efficiently adjudicating the controversy." United States District Court 11 For the Northern District of California Before certifying a class, a district court must determine that the requirements of Rule 12 23 "are actually met, not simply presumed from the pleadings." Dukes v. Wal-Mart Stores, 13 Inc., 603 F.3d 571, 582 (9th Cir. 2010) (en banc). The Court must "perform a rigorous 14 analysis to ensure that the prerequisites of Rule 23(a) have been satisfied." Id. at 581 (citing 15 Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160-61 (1982)). Such analysis "will often, 16 though not always, require looking behind the pleadings to issues overlapping with the merits 17 of the underlying claims." Id. at 594. However, the court may not consider whether the 18 party seeking class certification has stated a cause of action or is likely to prevail on the 19 merits. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 178 (1974). If a district court concludes 20 that the moving party has met its burden of proof, then the court has broad discretion to 21 certify the class. Zinser, 253 F.3d at 1186. 22 23 DISCUSSION 24 Plaintiffs propose to represent a class defined as "[a]ll African-American or Hispanic 25 persons throughout the United States to whom GreenPoint originated a residential-secured 26 loan in GreenPoint's wholesale lending channel between January 1, 2004 and January 1, 27 2008." Pls.' Mot. at 11. As they request certification under Rule 23(b)(3), Plaintiffs present 28 evidence showing the predominance of common issues and the superiority of a class action, 4 1 in addition to evidence going to Rule 23(a)'s requirements of numerosity, commonality, 2 typicality, and adequacy. 3 GreenPoint's challenges to the certification of such a class fall in two broad 4 categories. First, GreenPoint argues that the named Plaintiffs cannot satisfy the requirements 5 of typicality and adequacy, because false statements in their loan applications cast doubt on 6 their integrity and subject them to unique defenses. Plaintiffs are also atypical because 7 according to GreenPoint they suffered no injury and therefore have no standing, as their 8 financing was superior to that obtained by similarly situated white borrowers. Second, 9 GreenPoint contends that Plaintiffs cannot show either the existence or predominance of 10 common questions. The disparity in loan terms is explained not by race, GreenPoint argues, United States District Court 11 but by other legitimate variables that Plaintiffs' expert was unable to account for, such as the For the Northern District of California 12 amount of work each broker performed for a borrower. Since the inquiry into those other 13 factors would require the Court to examine the loans of each prospective class member, 14 GreenPoint contends that proceeding as a class action would be inappropriate. 15 The Court begins by examining the four elements of Rule 23(a). If Plaintiffs meet 16 those requirements, the Court will move onto the predominance and superiority inquiries 17 under Rule 23(b)(3). 18 19 I. 20 A. 21 Rule 23(a) Numerosity To satisfy Rule 23(a)(1), Plaintiffs must show that "the class is so numerous that 22 joinder of all members is impracticable." From 2004 through 2007, GreenPoint made at least 23 94,000 loans to African-American and Hispanic borrowers across the United States. 24 GreenPoint does not dispute this figure or the impracticability of joinder, and the Court 25 agrees with Plaintiffs that joinder of all class members would be impracticable. The 26 numerosity requirement is therefore satisfied. 27 // 28 // 5 1 B. 2 Commonality To demonstrate commonality under Rule 23(a)(2), Plaintiffs must "establish common 3 questions of law and fact." Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 594 (9th Cir. 4 2010) (en banc) (emphasis in original). "[A]nswering those questions," on the other hand, 5 "is the purpose of the merits inquiry, which can be addressed at trial and at summary 6 judgment." Id. It is not necessary that members of the proposed class "share every fact in 7 common or completely identical legal issues." Rodriguez v. Hayes, 591 F.3d 1105, 1122 (9th 8 Cir. 2010). Rather, the "existence of shared legal issues with divergent factual predicates is 9 sufficient, as is a common core of salient facts coupled with disparate legal remedies within 10 the class." Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir. 1998). "The United States District Court 11 commonality test is `qualitative rather than quantitative' one significant issue common to For the Northern District of California 12 the class may be sufficient to warrant certification." Dukes, 603 F.3d at 599. For a civil 13 rights claim, commonality is satisfied "where the lawsuit challenges a system-wide practice 14 or policy that affects all of the putative class members." Armstrong v. Davis, 275 F.3d 849, 15 868 (9th Cir. 2001). "[I]ndividual factual differences among the individual litigants or 16 groups of litigants will not preclude a finding of commonality." Id. 17 To make out a prima facie case of discrimination under the disparate impact theory, 18 Plaintiffs would have to show "a significant disparate impact on a protected class caused by a 19 specific, identified . . . practice or selection criterion." Stout v. Potter, 276 F.3d 1118, 1121 20 (9th Cir. 2002).3 Plaintiffs contend that the discretionary policy had a disparate impact on 21 minority borrowers, causing them to receive less favorable loan pricing than similarly 22 situated whites. Although Plaintiffs need not prove their claim at the class certification stage, 23 they need to demonstrate that doing so will hinge on common questions of fact and law. 24 Plaintiffs make this showing through the expert report of Harvard Law School 25 professor Howell E. Jackson ("Professor Jackson"), whose analysis of GreenPoint's 26 mortgage data leads him to conclude that "minorities paid more for Greenpoint wholesale 27 The Court relies in part on disparate impact case law under Title VII of the 1964 Civil Rights Act, because "Title VII discrimination analysis" is applied "in examining Fair 28 Housing Act discrimination claims." Harris v. Itzhaki, 183 F.3d 1043, 1051 (9th Cir. 1999). 6 3 1 mortgage loans than whites with similar risk-characteristics." Jackson Report (Doc. 178) at 2 6. Relying on the annual percentage rate, or "APR," as a representation of loan costs, 3 Professor Jackson compares the amount paid by white and minority borrowers for 4 GreenPoint wholesale loans originated from 2004 to 2007. He finds that the mean APR for 5 whites was 69.5 basis points lower than that of African Americans, and 56.5 basis points 6 lower than that of Hispanics.4 However, those raw figures do not account for legitimate 7 factors that could explain such differences. To compare similarly situated whites and 8 minorities, Professor Jackson performs regression analysis, a statistical method that allows 9 him to control for legitimate underwriting characteristics that affect the cost of a loan.5 10 Professor Jackson concludes that the APRs of African Americans are 9.4 basis points, and United States District Court 11 those of Hispanics 7.6 basis points, higher than those of similarly situated whites, a For the Northern District of California 12 difference that cannot be explained by legitimate risk factors or valid business justifications. 13 Critically for purposes of class certification, Professor Jackson's analysis relies on evidence 14 common to the class and does not require any individualized inquiry. 15 Plaintiffs offer numerous questions of fact and law that are common to the class. The 16 discretionary pricing strategy that they challenge was carried out uniformly, Plaintiffs 17 contend, and its adverse effects were felt in the same way by Plaintiffs and all class members. 18 Whether GreenPoint's policy resulted in a pricing disparity between white and minority 19 borrowers, whether those disparities are justified by legitimate differences in 20 creditworthiness, and whether less discriminatory alternatives exist are all questions common 21 to the class, according to Plaintiffs. Furthermore, Professor Jackson's statistical analysis 22 demonstrates that the pricing disparities are class-wide and attributable to GreenPoint's 23 discretionary policy. 24 GreenPoint, however, disputes Plaintiffs' ability to establish their claims using 25 common proof. Although Professor Jackson's analysis was based on GreenPoint's own data, 26 27 4 A basis point is equal to 1/100th of a percentage point. 5 Regression analysis allows Professor Jackson to compare the relationship between a 28 "dependent variable" here, the APR and various "explanatory" variables. 7 1 GreenPoint contends that he would have to mine the data of the more than 27,000 brokers 2 who originated the loans at issue here to properly evaluate Plaintiffs' claims. This is because 3 Professor Jackson cannot account for two key factors that may legitimately explain the price 4 disparities between whites and minorities: the effort a broker exerted on a given borrower's 5 loan, and the broker's "pull-through" rate (i.e. how frequently a broker's submitted loan 6 applications result in funded loans). GreenPoint's expert, Dr. Marsha J. Courchane ("Dr. 7 Courchane"), asserts that the absence of such data makes it impossible to tell whether 8 legitimate broker fee differentials explain the minority loan disparity. Dr. Courchane, an 9 economist with a Ph.D. from Northwestern University, states that she cannot find evidence of 10 "any pattern of substantive or economically significant disparate impact" when using United States District Court 11 statistical techniques similar to those of Professor Jackson. Courchane Report (Doc. 182-1) For the Northern District of California 12 at 5. She argues that the evidence of disparate impact drops to levels that are not 13 "economically significant" when the regression analysis is conducted separately for 14 individual categories of loans; by aggregating the loan products together, Professor Jackson 15 overstates the effect of race and ethnicity. She also demonstrates that minorities were 16 disproportionately represented by brokers with lower pull-through rates, who therefore had to 17 charge more per loan to cover their work on unsuccessful loan applications. GreenPoint 18 argues that these alleged flaws in Professor Jackson's analysis eviscerate Plaintiffs' common 19 questions and necessitate inquiry into the individual factors that played into the pricing of 20 each loan. GreenPoint also relies on the expert report of Laura J. Borrelli, a mortgage 21 litigation consultant, who opines that disparate treatment can only be proven by "an 22 extensive, literal loan by loan review of each borrower's mortgage file," and not by Professor 23 Jackson's proposed regression analysis. Borrelli Report (Doc. 182-3) at 11. 24 Professor Jackson, in reply, stands by his conclusion that common methods and proof 25 can be used to demonstrate the disparate impact of GreenPoint's pricing policies on class 26 members. He points out that the disparities identified by Dr. Courchane's analysis, while 27 smaller than his own findings, are both statistically and economically significant: a disparity 28 of five basis points would cost a typical African-American borrower $579 more than a 8 1 typical white borrower, and a typical Hispanic borrower $705 more than a typical white 2 borrower, over the first five years of a loan. Three mortgage brokers deposed in this case 3 testified that there was no correlation between the race of a borrower and the amount of work 4 the broker had to perform, providing anecdotal evidence to refute GreenPoint's contention 5 that the identified disparity could be explained by disparities in broker effort. Having rerun 6 his regressions with new variables to account for GreenPoint's arguments, Professor Jackson 7 concludes that none of Dr. Courchane's arguments explain the disparity in mortgage prices 8 for minority borrowers; race and ethnicity remain statistically significant. Plaintiffs also 9 offer rebuttal from Professor Patricia A. McCoy of the University of Connecticut School of 10 Law, who argues that "policies and practices instituted by GreenPoint and a regulatory United States District Court 11 environment that together were common to the class allowed GreenPoint's mortgage brokers For the Northern District of California 12 to overcharge customers in general and to charge even more to black and Hispanic 13 borrowers." McCoy Report (Doc. 204) at 8. 14 Plaintiffs' reliance on statistical evidence to fulfill the commonality requirement is 15 well founded in Ninth Circuit precedent. In its recent en banc ruling in Dukes v. Wal-Mart 16 Stores, Inc., 603 F.3d 571 (9th Cir. 2010), the Ninth Circuit affirmed the certification of a 17 class of female Wal-Mart employees with respect to allegations that women received lower 18 pay and fewer promotions than their male colleagues in violation of Title VII of the 1964 19 Civil Rights Act. In finding commonality, the court relied on factual evidence of a company20 wide policy governing pay and promotion decisions and a strong corporate culture vulnerable 21 to gender bias, as well as statistical evidence showing significant disparities between men 22 and women in compensation and promotion that could "be explained only by gender 23 discrimination." Id. at 599-613. The court observed that it is "well established that 24 plaintiffs may demonstrate commonality by presenting statistical evidence, which survives a 25 `rigorous analysis,' sufficient to fairly raise a common question concerning whether there is 26 class-wide discrimination." Id. at 603-04. The Ninth Circuit also recognized that "subjective 27 decision making is a `ready mechanism[] for discrimination' and that courts should scrutinize 28 it carefully." Id. at 612 (quoting Sengupta v. Morrison-Knudsen Co., 804 F.2d 1072, 1075 9 1 (9th Cir. 1986)) (alteration in original). Subjective practices that operate to discriminate have 2 been found by courts across the country to "satisfy the commonality and typicality 3 requirements of Rule 23(a)." Id. (quoting Shipes v. Trinity Indus., 987 F.2d 311, 316 (5th 4 Cir. 1993)). 5 As in Dukes, Plaintiffs are challenging a subjective policy that applied to all of 6 GreenPoint's authorized brokers and, hence, every member of the proposed class all of 7 whom negotiated their mortgages through brokers subject to the GreenPoint policy. The 8 claims of all class members hinge on a common question: whether GreenPoint's 9 discretionary pricing policy had a disparate impact on minority borrowers. Plaintiffs propose 10 to answer that question using statistical evidence that, according to Professor Jackson, shows United States District Court 11 minorities paid more for their loans than similarly situated whites. Plaintiffs' theory of For the Northern District of California 12 liability therefore stands on common questions of fact and law. Although GreenPoint casts 13 doubt on the viability of that theory, the Court may not "decline to certify the class on the 14 basis of a mere potentiality" that plaintiffs' theory of liability will not prevail. United Steel 15 Workers v. ConocoPhillips Co., 593 F.3d 802, 810 (9th Cir. 2010). "[I]t is the plaintiff's 16 theory that matters at the class certification stage, not whether the theory will ultimately 17 succeed on the merits." Dukes, 603 F.3d at 587 (citing United Steel Workers, 593 F.3d at 18 809-10) (emphasis in original). 19 GreenPoint's arguments amount to an attack on the merits of Professor Jackson's 20 analysis, which is premature at this stage of litigation. "[D]isputes over whose statistics are 21 more persuasive are often not disputes about whether the plaintiffs raise common issues or 22 questions, but are really arguments going to proof of the merits." Dukes, 603 F.3d at 591. 23 Only an argument that one party's statistics are "unreliable or based on an unaccepted 24 method" would have to be resolved at the class certification stage, requiring the Court to 25 "determine whether the potentially problematic statistics [are] even capable of raising a 26 common question." Id. at 591-92. However, GreenPoint does not fault the reliability of 27 Professor Jackson's methodology; it simply purports to have a better way. Such "statistical 28 disputes . . . encompass the basic merits inquiry and need not be proved to raise common 10 1 questions and demonstrate the appropriateness of class resolution." Id. at 594. The 2 commonality requirement is therefore satisfied.6 3 4 C. 5 Typicality Under the "permissive standards" of Rule 23(a)(3), "representative claims are 6 `typical' if they are reasonably co-extensive with those of absent class members; they need 7 not be substantially identical." Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 8 1998). "The test of typicality is whether other members have the same or similar injury, 9 whether the action is based on conduct which is not unique to the named plaintiffs, and 10 whether other class members have been injured by the same course of conduct." Hanon v. United States District Court 11 Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (internal quotation marks and citation For the Northern District of California 12 omitted). However, "a named plaintiff's motion for class certification should not be granted 13 if `there is a danger that absent class members will suffer if their representative is 14 preoccupied with defenses unique to it.'" Id. (quoting Gary Plastic Packaging Corp. v. 15 Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 176, 180 (2d Cir. 1990)). Although 16 typicality "tend[s] to merge" with the commonality requirement, Gen. Tel. Co. of Sw. v. 17 Falcon, 457 U.S. 147, 157 n.13 (1982), "each factor serves a discrete purpose," Dukes, 603 18 F.3d at 613 n.37. "Commonality examines the relationship of facts and legal issues common 19 to class members, while typicality focuses on the relationship of facts and issues between the 20 class and its representatives." Dukes, 603 F.3d at 613 n.37. Plaintiffs represent that their 21 claims are typical because they like all prospective class members were subject to and 22 affected by GreenPoint's discretionary pricing policy. GreenPoint argues that the named 23 6 GreenPoint argues that Plaintiffs' approach exhibits the same flaws that the Fourth 24 Circuit identified when it decertified a class in Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331 (4th Cir. 1998). The court found that the calculation of lost profits 25 to the plaintiff Meineke franchisees, who were alleging the misallocation of advertising funds by Meineke, was too "dependent upon consideration of the unique circumstances pertinent to 26 each class member." Id. at 343 (quoting Boley v. Brown, 10 F.3d 218, 223 (4th Cir. 1993)). However, the district court there erred by allowing "the jury to calculate lost profits without 27 reference to any" of the many other factors affecting "the profitability of each Meineke franchise." Id. Here, by contrast, Professor Jackson has accounted for the other variables 28 affecting APR. 11 1 Plaintiffs are not typical for two reasons: they will be preoccupied by unique defenses based 2 on false information included in their loan applications, and they lack standing because they 3 were not harmed by GreenPoint's pricing policy. 4 5 1. 6 Unique Defenses Ana and Ismael Ramirez both signed or initialed each page of their loan application, 7 including a statement acknowledging the making of false statements to be a federal crime. 8 According to the Ramirezes' deposition testimony, however, much of the information 9 included in the application was false. The application overstated their monthly income by 10 thousands of dollars, represented Mr. Ramirez as being self-employed when he was United States District Court 11 unemployed, and listed a bank account balance approximately four times its actual level. For the Northern District of California 12 Salazar's application, likewise, overstated his bank account balance by nearly $40,000, and 13 gave an actual gross income one-and-a-half times what he actually earned. Salazar, like the 14 Ramirezes, signed each page of his application, which warns against making false 15 statements. 16 However, there is also ample evidence suggesting Plaintiffs were unaware that 17 misstatements were included in their applications. English is a second language for all three 18 Plaintiffs. Mr. Ramirez can neither read nor write in English; Salazar does not speak 19 English, but can read "a little." The Ramirezes worked with Kathy Objio, a broker with First 20 Call Mortgage Company, to whom they had given copies of their tax returns and bank 21 statements, and who filled out their loan application over the telephone. The Ramirezes did 22 not read the application before signing it. Salazar testified that he worked with a broker 23 named Jimmy affiliated with TLN Financial, to whom he provided paycheck stubs, bank 24 statements, and other documents. Salazar did not fill out the application himself, and did not 25 know who had. Both Salazar and Mr. Ramirez expressed surprise during their depositions 26 when shown the misinformation on their applications. Salazar responded to the listed 27 balance of his bank account by laughing and saying, "If I had that kind of money, I would be 28 living in Tijuana," where he is from. Salazar Depo. 11:16-23, 111:21-24. Mr. Ramirez 12 1 expressed outrage at the misrepresentations, repeating, "Oh, my God," and asking of 2 GreenPoint's counsel, "Why do these people do this type of thing when they're not supposed 3 to do it? . . . Why do they say I have my own company, that I'm self-employed? . . . Because 4 this places you in a bad situation, it makes you look like a liar." I. Ramirez Depo. 25:17-22, 5 28:4-11, 29:21-30:7. 6 GreenPoint argues that the false statements in Plaintiffs' loan applications subject 7 them to unique equitable defenses such as unclean hands, rendering them unable to satisfy 8 the typicality requirement. Unclean hands is an equitable doctrine that "closes the doors of a 9 court of equity to one tainted with inequitableness or bad faith relative to the matter in which 10 he seeks relief, however improper may have been the behavior" of the other party. Ellenburg United States District Court 11 v. Brockway, Inc., 763 F.2d 1091, 1097 (9th Cir. 1985). "`It is fundamental to [the] For the Northern District of California 12 operation of the doctrine that the alleged misconduct by the plaintiff relate directly to the 13 transaction concerning which the complaint is made.'" Dollar Systems, Inc. v. Avcar Leasing 14 Systems, Inc., 890 F.2d 165, 173 (9th Cir. 1989) (quoting Arthur v. Davis, 126 Cal. App. 3d 15 684, 693-94 (1981)) (alteration in original). 16 GreenPoint relies on two district court cases from outside the Ninth Circuit to 17 demonstrate the availability of an unclean hands defense for disparate impact claims under 18 the ECOA. In Riggs National Bank v. Linch, a court in the Eastern District of Virginia 19 addressed whether guarantors of a promissory note could raise the ECOA as an affirmative 20 defense in an action to collect on the defaulted note. 829 F. Supp. 163 (E.D. Va. 1993). 21 After concluding that the ECOA could not be a basis for invalidating the underlying 22 guarantee, the court in a footnote addressed the plaintiff bank's argument that the 23 "unclean hands" doctrine barred any recovery by a defendant guarantor who had submitted a 24 false financial statement. Id. at 169 n.7. The court concluded that, since the guarantor's 25 "conduct was knowing and willful, . . . the doctrine of unclean hands would bar [him] from 26 any recovery, even if [the bank] had violated the ECOA." Id. A court in the Middle District 27 of Florida relied on Riggs in reaching the same conclusion. Beaulialice v. Federal Home 28 Loan Mortgage Corp., No. 8:04-cv-2316-T-24-EAJ, 2007 U.S. Dist. LEXIS 15846, at *31 13 1 (M.D. Fla. Mar. 6, 2007) ("Defendant has shown that Plaintiff misrepresented facts on her 2 application in order to secure the loan, and this deception bars her claims."). 3 However, the Supreme Court ruled in 1995 that the equitable defense of employee 4 misconduct could not preclude employer liability for violating the Age Discrimination in 5 Employment Act ("ADEA"). In McKennon v. Nashville Banner Publishing Co., the Court 6 overturned the Sixth Circuit's conclusion that the question of discrimination was rendered 7 "irrelevant" by after-acquired evidence of employee wrongdoing that would have, by itself, 8 resulted in her discharge. 513 U.S. 352, 356-57 (1995). The Court observed that the unclean 9 hands defense "has not been applied where Congress authorizes broad equitable relief to 10 serve important national policies." Id. at 360. The ADEA reflects such a policy, the Court United States District Court 11 concluded, bearing as its purpose "the elimination of discrimination in the workplace," and For the Northern District of California 12 carrying remedies meant to deter discrimination and to compensate those harmed by it. Id. at 13 358. Misconduct could, however, affect the availability of remedies; the employee's 14 wrongdoing was relevant "to take due account of the lawful prerogatives of the employer in 15 the usual course of its business and the corresponding equities that it has arising from the 16 employee's wrongdoing." Id. at 361. 17 "The purpose of the ECOA," like that of the ADEA, "is to eradicate . . . 18 discrimination," only in the provision of credit rather than the workplace. United States v. 19 ITT Consumer Financial Corp., 816 F.2d 487, 489 (9th Cir. 1987). The ECOA also allows 20 the district court to "grant such equitable and declaratory relief as is necessary to enforce the 21 requirements imposed" under the statute. 15 U.S.C. 1691e(c). The declaration of purpose 22 for the FHA is to "provide, within constitutional limitations, for fair housing throughout the 23 United States." 42 U.S.C. 3601. As for remedies, in addition to actual and punitive 24 damages, the FHA allows a court to "grant as relief, as the court deems appropriate, any 25 permanent or temporary injunction, temporary restraining order, or other order (including an 26 order enjoining the defendant from engaging in such practice or ordering such affirmative 27 action as may be appropriate)." Id. 3613(c)(1). As the ECOA and FHA both represent 28 Congress's authorization of "broad equitable relief to serve important national policies," 14 1 McKennon, 513 U.S. at 360, the unclean hands defense should not be applicable here. 2 Indeed, the Fifth Circuit reached that very conclusion in Moore v. U.S. Department of 3 Agriculture, concluding that "after-acquired evidence of [plaintiffs'] poor credit history" 4 which would have supplied an independent basis for denying the plaintiffs' application to 5 purchase a property "cannot defeat [defendant's] liability" under the ECOA but "can aid 6 the court in assessing . . . damages." 55 F.3d 991, 995-96 (5th Cir. 1995) (citing McKennon 7 v. Nashville Banner Publ'g Co., 115 S. Ct. 879, 883-87 (1995)). 8 However, GreenPoint relies on this Court's ruling in Ganley v. County of San Mateo, 9 No. C06-3923 TEH, 2007 U.S. Dist. LEXIS 26467 (N.D. Cal. Mar. 22, 2007), to argue that 10 McKennon does not foreclose the unclean hands defense. In Ganley, the Court considered a United States District Court 11 plaintiff's motion to strike 22 affirmative defenses raised in the defendant's answer to a For the Northern District of California 12 complaint alleging that the plaintiff had been removed from permanent public employment 13 without due process in violation of 42 U.S.C. 1983. While acknowledging that the 14 Supreme Court had refused to apply the unclean hands doctrine in the ADEA context, the 15 Court observed that "no available case law exists to suggest that the defense is inapplicable 16 in the context of 1983 actions." Ganley, 2007 U.S. Dist. LEXIS 26467, at *14. In the 17 absence of "controlling or persuasive precedent to the contrary," the Court found it "prudent 18 to deny Plaintiff's motion to strike the defense of unclean hands." Id. at *14-15. 19 This Court's ruling in Ganley is distinguishable, however. A motion to strike is only 20 "proper when a defense is insufficient as a matter of law," which requires that the Court "be 21 convinced that there are no questions of fact, that any questions of law are clear and not in 22 dispute, and that under no set of circumstances could the defense succeed." Id. at *3 23 (internal citations omitted). Given that standard, the Court declined to strike a defense that 24 no court had explicitly held inapplicable to 1983 actions. The standard here is not nearly as 25 exacting: the Court is assessing whether Plaintiffs may be subject to unique defenses that 26 would diminish their ability to represent the interests of other class members. The Court 27 need not be satisfied that the defense could succeed "under no set of circumstances," but 28 15 1 rather has to weigh the likelihood of such a defense rendering the named Plaintiffs 2 inadequate class representatives. 3 The threat of an unclean hands defense will not defeat the adequacy of the named 4 Plaintiffs. Whereas this Court in Ganley could find no authority applying McKennon in the 5 1983 context, there is a strong basis for concluding that McKennon applies to ECOA. 6 Although the Ninth Circuit has not addressed that question, the Fifth Circuit has concluding 7 that the unclean hands defense is unavailable. Moore, 55 F.3d at 996. Furthermore, this 8 Court finds that the rationale of McKennon is clearly applicable to the ECOA and the FHA, 9 which like the ADEA reflect Congress's authorization of "broad equitable relief to serve 10 important national policies." McKennon, 513 U.S. at 360. The unclean hands defense is United States District Court 11 therefore inapplicable here, and the false statements in Plaintiffs' loan applications cannot For the Northern District of California 12 defeat typicality.7 13 14 2. 15 Standing GreenPoint further argues that Plaintiffs cannot satisfy the typicality requirement 16 because they lack standing to assert a disparate impact claim. Constitutional standing is 17 comprised of three elements: (1) "injury in fact," (2) "a causal connection between the injury 18 and the conduct complained of," and (3) a likelihood, rather than mere speculation, "that the 19 injury will be redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S. 20 555, 560-61 (1992) (internal citations and quotation marks omitted). GreenPoint contends 21 that Plaintiffs were not injured by its discretionary pricing policy because they received loans 22 that were priced more favorably than similarly situated white borrowers, in contrast to their 23 allegations that the policy resulted in less favorable terms for minorities. Since typicality 24 requires that the named plaintiffs "have the same or similar injury" as other class members, 25 Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992), GreenPoint insists that 26 Plaintiffs are not typical of the class they seek to represent. 27 Even if the defense were applicable, Plaintiffs' evidence suggests that they were unaware that false statements were included in their applications, in which case they would 28 not have "unclean hands" in the first place. 16 7 1 This question, like that of commonality, pits the parties' experts against one another. 2 Plaintiffs' expert, Professor Jackson, argues that their claims are typical of the class because 3 each "was subject to the same Discretionary Pricing Policy that disproportionately affected 4 minority borrowers." Jackson Report at 43. However, GreenPoint notes that Professor 5 Jackson only determines that minority borrowers on average paid higher APRs than white 6 borrowers, not that these Plaintiffs did so. Relying on Professor Jackson's own model, Dr. 7 Courchane found that the Ramirezes' actual APR of 6.19 percent was lower than that of 8 similarly situated white borrowers (6.48 percent); Salazar's APR of 7.18 percent was 9 likewise lower than that of comparable whites (7.82 percent). GreenPoint therefore argues 10 that Plaintiffs cannot show that the discretionary policy actually affected them; absent any United States District Court 11 injury, they lack standing to bring these claims. For the Northern District of California 12 In reply, Professor Jackson defends his approach, in which "each member of the 13 plaintiff class would be entitled to a measure of damages reflecting an estimate of the 14 average loss to class members." Jackson Reply at 27. Professor Jackson points out that 15 "there will always be some variation in actual APRs that result in some borrowers getting 16 better loan terms than our models predict." Id. at 29. Although the named Plaintiffs may 17 have obtained better rates than similarly situated whites, Professor Jackson contends that 18 "absent discriminatory practices, they would likely have had an even lower rate." Jackson 19 Depo. at 225:15-17. Since the named Plaintiffs were subject to the same policy as other class 20 members, proof of the policy's disparate impact on the class establishes that Plaintiffs as 21 members of that class were injured by that policy, according to Plaintiffs. 22 Determining what price a minority borrower would have paid in a "but for" world is 23 no simple proposition. Although Professor Jackson's regression model, estimated over 24 hundreds of thousands of observations, indicates that GreenPoint's policy had a disparate 25 impact on a group of 94,000 minorities, how to predict what any one of those borrowers' 26 rates would have been absent the discretionary policy is subject to debate. Professor Jackson 27 would apply the average effect felt by all minorities to the individual, a methodology that 28 shows injury to Plaintiffs. That approach is consistent with the theory that the individual's 17 1 APR, while lower than the predicted APR of a similarly situated white borrower, would have 2 been even lower but for GreenPoint's discretionary policy. Dr. Courchane would only 3 compare the individual to the model's representation of a similarly situated white borrower, 4 which reveals the named Plaintiffs to be better off than their white counterparts and suggests 5 that they did not suffer the injury of which they complain. Arguments about "whose 6 statistics are more persuasive . . . are really arguments going to proof of the merits," but an 7 argument that "the other party's statistics were unreliable or based on an unaccepted method . 8 . . may be an issue the district court would have to resolve" on class certification. Dukes v. 9 Wal-Mart Stores, Inc., 603 F.3d 571, 591-92 (9th Cir. 2010). As neither party argues that the 10 other's methodology is inherently flawed, the Court need not and cannot choose between United States District Court 11 them at this stage. Plaintiffs present a viable theory demonstrating that the named Plaintiffs For the Northern District of California 12 suffered the same injury felt by the other members of the proposed class. 13 The Ninth Circuit confronted a similar typicality issue in Dukes, where it observed 14 that "individual employees in different stores with different managers may have received 15 different levels of pay or may have been denied promotion or promoted at different rates." 16 Dukes, 603 F.3d at 613. The court concluded, however, that the district court's finding of 17 typicality was not an abuse of discretion, because "the discrimination they claim to have 18 suffered occurred through alleged common practices e.g., excessively subjective decision 19 making in a corporate culture of uniformity and gender stereotyping." Id. Here, similarly, 20 Plaintiffs attribute the alleged discrimination to the discretionary pricing policy, a common 21 practice that governed the pricing of all class members' mortgages. Since they were subject 22 to that policy, and have advanced a viable theory showing the harm produced by that policy, 23 Plaintiffs have satisfied the typicality requirement. 24 25 D. 26 Adequacy The legal adequacy of the class representatives is determined by the resolution of two 27 questions: "(1) do the named plaintiffs and their counsel have any conflicts of interest with 28 other class members and (2) will the named plaintiffs and their counsel prosecute the action 18 1 vigorously on behalf of the class?" Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 2 1998). GreenPoint contends that Plaintiffs are inadequate class representatives because the 3 false statements in their mortgage applications call into question their integrity. Relying on 4 Second Circuit authority, GreenPoint stresses that "courts may consider the honesty and 5 trustworthiness of the named plaintiff" on a motion for class certification. Savino v. 6 Computer Credit, Inc., 164 F.3d 81, 87 (2d Cir. 1998). 7 GreenPoint acknowledges that "the role of the brokers in perpetuating these 8 falsehoods is not yet clear," but still insists that "there is ample evidence from which to infer 9 that the Plaintiffs were willing participants in, if not the initiators of, this pattern of 10 deception." Opp'n at 11. However, the Court cannot conclude on the record before it that United States District Court 11 Plaintiffs lack the integrity necessary to be adequate class representatives. Plaintiffs' For the Northern District of California 12 evidence demonstrates that they did not fill out the loan applications that contained the false 13 information, and indeed did not even read the applications before signing them. Professor 14 Jackson has also offered authority showing the "proclivity of mortgage brokers to exploit the 15 ignorance and misunderstandings of individual borrowers." Jackson Reply at 6. 16 The concerns about Plaintiffs' integrity raised by GreenPoint are insufficient to bar 17 class certification. The Court is satisfied by Plaintiffs' counsel's experience in prosecuting 18 class actions, and has seen no evidence of any disqualifying conflicts of interest between 19 Plaintiffs and other class members. The Court therefore concludes that Plaintiffs are 20 adequate class representatives, which means that all four requirements of Rule 23(a) have 21 been met. 22 23 II. 24 Rule 23(b)(3) Since Plaintiffs have satisfied the four prongs of Rule 23(a), the Court now turns to 25 the two requirements of Rule 23(b)(3): whether common questions predominate, and whether 26 adjudicating the case as a class action is superior to other methods. Both requirements were 27 added to the Federal Rules "to cover cases `in which a class action would achieve economies 28 of time, effort, and expense, and promote . . . uniformity of decision as to persons similarly 19 1 situated, without sacrificing procedural fairness or bringing about other undesirable results.'" 2 Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 615 (1997) (quoting Fed. R. Civ. P. 23(b)(3) 3 Adv. Comm. Notes to 1966 Amendment). 4 5 A. 6 Predominance Predominance, which "tests whether proposed classes are sufficiently cohesive to 7 warrant adjudication by representation," is a "far more demanding" standard than Rule 8 23(a)'s commonality requirement. Amchem Prods., 521 U.S. at 623-24. Rule 23(b)(3) 9 requires the Court to find "that the questions of law or fact common to class members 10 predominate over any questions affecting only individual members." Whereas Rule 23(a)(2) United States District Court 11 is satisfied by the presence of common questions, "Rule 23(b)(3) requires a district court to For the Northern District of California 12 formulate some prediction as to how specific issues will play out in order to determine 13 whether common or individual issues predominate in a given case." Dukes v. Wal-Mart 14 Stores, Inc., 603 F.3d 571, 593 (9th Cir. 2010) (internal quotation marks and citation 15 omitted). 16 GreenPoint attacks predominance by resurrecting its arguments against commonality. 17 Here, however, Plaintiffs carry the higher burden of showing not only that common issues 18 exist, but that they predominate. Since legitimate factors can explain the disparities between 19 the APRs of minority and white borrowers, GreenPoint contends that "the only way to 20 proceed here would be to examine each broker and each transaction." Opp'n at 22. Even if 21 Plaintiffs established a prima facie case of discrimination, "GreenPoint would be entitled to 22 (and would in fact) present evidence on a transaction-by-transaction basis to show that there 23 was not discrimination." Id. 24 Since the standard for assessing predominance is higher than that of commonality, the 25 Court's finding of common issues of fact and law does not dictate the result here. Although 26 individualized issues cannot defeat commonality where common issues exist, they can 27 foreclose the conclusion that such issues predominate. Assessing predominance therefore 28 20 1 requires a closer examination of Plaintiffs' claims and how those claims are to be proven at 2 trial. 3 A plaintiff bringing a disparate impact claim under the FHA or the ECOA must 4 establish "`(1) the occurrence of certain outwardly neutral . . . practices, and (2) a 5 significantly adverse or disproportionate impact on persons of a particular [type] produced by 6 the [defendant's] facially neutral acts or practices.'" Budnick v. Town of Carefree, 518 F.3d 7 1109, 1118 (9th Cir. 2008) (quoting Pfaff v. United States HUD, 88 F.3d 739, 746 (9th Cir. 8 1996)). To make out a prima facie case, the plaintiff must "show at least that the defendant's 9 [policy] had a discriminatory effect.'" Pfaff, 88 F.3d at 745 (quoting Keith v. Volpe, 858 10 F.2d 467, 482 (9th Cir. 1988)); see also Budnick, 518 F.3d at 1118 ("A plaintiff need not United States District Court 11 establish discriminatory intent but the discriminatory impact must be proven; an inference of For the Northern District of California 12 discriminatory impact is not sufficient."). "Statistical analysis is admissible to establish 13 disparate impact." Budnick, 518 F.3d at 1118. To rebut the prima facie case, a defendant 14 must supply "a legally sufficient, nondiscriminatory reason" for the policy, i.e. a "compelling 15 business necessity." Pfaff, 88 F.3d at 746-47. A defendant charged with discrimination may 16 also "diffuse a prima facie case against him, and hence avoid the need to supply a legally 17 sufficient, nondiscriminatory reason in rebuttal, by successfully challenging the statistical 18 basis of this case." Id. at 746. 19 Plaintiffs' claim challenges GreenPoint's discretionary pricing policy, not the 20 individual actions of its 27,000 authorized brokers. The key question is whether that policy 21 had a disparate impact whether it fell "more harshly on one group than another and cannot 22 be justified by business necessity." Int'l Bhd. of Teamsters v. United States, 431 U.S. 324, 23 335 n.15 (1977). The relevant evidence, as with most disparate impact cases, will focus on 24 "statistical disparities, rather than specific incidents, and on competing explanations for those 25 disparities." Watson v. Ft. Worth Bank & Trust, 487 U.S. 977, 987 (1988). Professor 26 Jackson's analysis provides evidence of the disparate impact on a class-wide basis. 27 Competing explanations for those disparities are examined by way of regression analyses 28 that assess the effect of competing variables. GreenPoint can defend against Plaintiffs' case 21 1 in two ways: by demonstrating that its discretionary policy had a valid business justification, 2 and by challenging the statistical basis for Plaintiffs' claim. See Pfaff, 88 F.3d at 746-47. In 3 either case, the defense applies across the class. Common questions therefore appear to 4 predominate. 5 However, GreenPoint contends that it will be entitled to present evidence on a broker- 6 by-broker and transaction-by-transaction basis to demonstrate that disparities were based on 7 legitimate, non-discriminatory factors. The work performed by a broker can vary 8 considerably from customer to customer, ranging from filling out a loan application and 9 advising customers about the maximum mortgage they can afford to assisting borrowers in 10 repairing damaged credit. GreenPoint argues that the amount of work a broker expends on United States District Court 11 an application, and facts particular to each broker like overhead costs constitute For the Northern District of California 12 legitimate variation that may account for the racial and ethnic disparities alleged by 13 Plaintiffs. 14 GreenPoint appears to misapprehend the basis for Plaintiffs' claim. The brokers are 15 not being sued; GreenPoint is. Plaintiffs identify GreenPoint's policy as the basis for the 16 disparate impact. Such claims are proven not by sifting through every incident and weighing 17 anecdotal justifications for each, but by considering how a common policy collectively 18 affects a group. The inquiry will focus on "statistical disparities," not "specific incidents." 19 Watson, 487 U.S. at 987. Defending against this lawsuit will not require the kind of broker20 by-broker assessment GreenPoint envisions. Rather, it will require GreenPoint to 21 demonstrate that its discretionary pricing policy was justified by valid business reasons, or 22 that there was no disparate impact in the first place. 23 At hearing, GreenPoint directed the Court to cases outside the Ninth Circuit in which 24 class certification was denied for claims similar to Plaintiffs' alleging racial discrimination 25 in the pricing of car loans because they faltered at the predominance inquiry. In Rodriguez 26 v. Ford Motor Credit Co., Judge Conlon of the Northern District of Illinois denied class 27 certification with respect to allegations that "Ford Credit's finance charge policy allows the 28 individual dealerships to impose a higher finance charge markup on Hispanic customers than 22 1 other similarly situated non-Hispanic customers." No. 01 C 8526, 2002 U.S. Dist. LEXIS 2 7280, at *4 (N.D. Ill. Apr. 18, 2002). Although the Rodriguez plaintiffs intended to rely on 3 statistical evidence to establish discrimination, Judge Conlon concluded that they failed to 4 show that "legitimate consideration[s], such as creditworthiness, . . . did not play any role in 5 the interest rate charged to Hispanic customers." Id. at *15-16. She therefore concluded that 6 "a trial would require an individualized inquiry into the reasons for thousands of credit 7 decisions." Id. at *16. Here, to the contrary, Professor Jackson's regression analysis 8 controlled for legitimate factors and if credited by the finder of fact forecloses such 9 explanations for minority borrowers' loan rates. 10 In oral argument, GreenPoint also cited for the first time Coleman v. GMAC, in United States District Court 11 which Judge Trauger of the Middle District of Tennessee denied certification under Rule For the Northern District of California 12 23(b)(3) after concluding that common issues did not predominate.8 196 F.R.D. 315 (M.D. 13 Tenn. 2000). The plaintiff in Coleman alleged that she and other African-American 14 borrowers were charged a higher markup for car loans from GMAC than white borrowers. 15 The GMAC pricing system at issue in Coleman was comprised, as here, of two components: 16 an objective "risk-related rate" set by GMAC, as well as a "subjective non risk related 17 markup" determined by the dealers. Id. at 318. Judge Trauger concluded that the plaintiff 18 had failed to establish that individual factors such as "negotiation skills, buyer preferences, 19 and self-assessment of creditworthiness" "played no role in whether a finance charge 20 markup was charged and the amount of any such markup." Id. at 322. Common issues 21 therefore did not predominate, and certification under Rule 23(b)(3) was inappropriate. 22 Again, however, the court's decision hinged on the plaintiff's failure to show that legitimate 23 factors did not explain the disparity in loan rates; here, Plaintiffs have made such a showing. 24 8 GreenPoint's counsel did not specify which opinion he was citing: the original 25 district court decision certifying a class under Rule 23(b)(2) but denying Rule 23(b)(3) certification, Coleman v. GMAC, 196 F.R.D. 315 (M.D. Tenn. 2000); the Sixth Circuit's 26 decision vacating the 23(b)(2) certification, 296 F.3d 443 (6th Cir. 2002); or the district court's grant of class certification under Rule 23(b)(2) on remand following amendment of 27 the complaint, 220 F.R.D. 64 (M.D. Tenn. 2004). Since counsel cited the decision for its denial of 23(b)(3) certification, the Court assumes he was referencing the first of those 28 decisions. 23 1 Whether that showing will convince a trier of fact is a question that must await the merits 2 phase. 3 GreenPoint further contends, citing the Ninth Circuit's ruling in Schuetz v. Banc One 4 Mortgage Corp., 292 F.3d 1004 (2002), that it is impermissible in the Ninth Circuit "to 5 certify a class where analysis of mortgage brokers' compensation is required." Opp'n at 20. 6 However, Schuetz has no bearing on the Court's analysis here. The plaintiff in Schuetz 7 argued that "yield spread premiums"9 were unlawful kickbacks under the Real Estate 8 Settlement Procedures Act, and sought to certify "a class of borrowers whose loan 9 settlements included a yield spread premium payment." Schuetz, 292 F.3d at 1008. Once it 10 concluded that "[y]ield spread premiums are not illegal per se," the court found that "whether United States District Court 11 they amount to a prohibited referral in any particular case depends upon the services For the Northern District of California 12 provided by the broker and the total compensation paid for those services." Id. at 1014. For 13 that reason, individual issues predominated and class certification was inappropriate. Schuetz 14 does not support GreenPoint's sweeping conclusion that class certification is never 15 appropriate where broker compensation is at issue. 16 The issue here is not whether the compensation paid to individual brokers was 17 reasonable in individual cases. Rather, the question that Plaintiffs raise is whether 18 GreenPoint's discretionary pricing policy had a disparate impact on a class of 94,000 19 minority borrowers. Proof of disparate impact is based not on an examination of individual 20 claims, but on a statistical analysis of the class as a whole. Plaintiffs have demonstrated their 21 ability to show using classwide proof that GreenPoint's discretionary pricing policy 22 caused higher rates to be charged to minority borrowers, and that legitimate factors are 23 unable to explain this disparity. To rebut this prima facie case, GreenPoint will have to 24 attack Plaintiffs' statistical analysis or show a legitimate business justification for its 25 discretionary pricing policy, which will again call for classwide proof. Plaintiffs have carried 26 their burden of showing the predominance of common questions. 27 Yield spread premiums are "fees paid by mortgage lenders to mortgage brokers that are based on the difference between the interest rate at which the broker originates the loan 28 and the par, or market rate offered by the lender." Schuetz, 292 F.3d at 1005. 24 9 1 B. 2 Superiority The final requirement for certification is "that a class action is superior to other 3 available methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 4 23(b)(3). The superiority inquiry "requires determination of whether the objectives of the 5 particular class action procedure will be achieved in the particular case," which "necessarily 6 involves a comparative evaluation of alternative mechanisms of dispute resolution." Hanlon 7 v. Chrysler Corp., 150 F.3d 1011, 1023 (9th Cir. 1998). Among the pertinent factors in 8 assessing superiority are "the class members' interests in individually controlling the 9 prosecution or defense of separate actions" and "the likely difficulties in managing a class 10 action." Fed. R. Civ. P. 23(b)(3). The superiority inquiry focuses "on the efficiency and United States District Court 11 economy elements of the class action so that cases allowed under subdivision (b)(3) are those For the Northern District of California 12 that can be adjudicated most profitably on a representative basis." Zinser v. Accufix 13 Research Institute, Inc., 253 F.3d 1180, 1190 (9th Cir. 2001). 14 GreenPoint contends that the class action format would be unmanageable because the 15 Court will have to consider the individual circumstances of each broker and each loan. The 16 Court has already discredited that argument. Plaintiffs demonstrate that a class action is 17 superior for reasons of efficiency and manageability. Professor Jackson calculated an 18 average monetary recovery over five years per loan to be $1,093 for African-American 19 borrowers, and $1,076 for Hispanic borrowers; those numbers decline to $579 and $705, 20 respectively, when he alters his analysis to account for GreenPoint's critiques. Such amounts 21 are too low for class members to bring individual claims; recovery would only be feasible via 22 class action. The class action is manageable because liability will be determined based on 23 common statistical proof, and remedies can be calculated on a class-wide basis. A class 24 action is therefore superior to other methods for adjudicating these claims. 25 26 III. 27 Rule 23(g) Having determined that Plaintiffs have met Rule 23's requirements for class 28 certification, the Court must also appoint class counsel. See Fed. R. Civ. P. 23(g) ("[A] court 25 1 that certifies a class must appoint class counsel."). On May 19, 2008, the Court appointed 2 the law firms of Bonnett Fairbourn Friedman & Balint, P.C. ("Bonnett Fairbourn") and 3 Roddy Klein & Ryan ("Roddy Klein") to serve as Co-Lead Interim Class Counsel, and the 4 law firm of Chavez & Gertler to serve as Liaison Interim Class Counsel. See Fed. R. Civ. P. 5 23(g)(3); Pre-Trial Order No. 1 (Doc. 53) at 1-2. The Court, finding that these law firms 6 continue to satisfy the requirements of Rule 23(g)(1), appoints Bonnett Fairbourn and Roddy 7 Klein as Co-Lead Class Counsel, and Chavez & Gertler as Liaison Class Counsel. 8 9 CONCLUSION 10 For the reasons set forth above, Plaintiffs' motion for class certification is United States District Court 11 GRANTED. Plaintiffs have satisfied the four prongs of Rule 23(a), as well as the For the Northern District of California 12 predominance and superiority requirements of Rule 23(b)(3). A class of "[a]ll African13 American or Hispanic persons throughout the United States to whom GreenPoint originated a 14 residential-secured loan in GreenPoint's wholesale lending channel between January 1, 2004 15 and January 1, 2008" is hereby certified. Plaintiffs Ana Ramirez, Ismael Ramirez, and Jorge 16 Salazar are appointed class representatives. The law firms of Bonnett Fairbourn and Roddy 17 Klein are appointed as Co-Lead Class Counsel, and Chavez & Gertler as Liaison Class 18 Counsel. 19 IT IS FURTHER ORDERED THAT the parties shall appear for a case management 20 conference on Monday, August 30, 2010, at 1:30pm. The parties shall file a joint case 21 management statement no fewer than seven days prior to the conference. 22 23 IT IS SO ORDERED. 24 25 Dated: 7/20/10 26 27 28 26 THELTON E. HENDERSON, JUDGE UNITED STATES DISTRICT COURT

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