Friscia et al v. Flagstar Bank, FSB

Filing 34

ORDER GRANTING MOTION TO DISMISS by Judge William Alsup [granting 28 Motion to Dismiss]. (whasec, COURT STAFF) (Filed on 3/21/2013)

1
2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7
FOR THE NORTHERN DISTRICT OF CALIFORNIA
8
9

11
For the Northern District of California

United States District Court

10

STEVEN FRISCIA and DAVID BOBZIEN,
on behalf of themselves and all others
similarly situated,

12
13
14
15
16
17
18

No. C 12-05178 WHA

Plaintiffs,
v.

ORDER GRANTING
MOTION TO DISMISS

FLAGSTAR BANK, FSB and DOES 1–10,
Defendants.
/
INTRODUCTION
In this putative class action, defendant mortgage company allegedly evaluated plaintiffs’

19

home-loan application using discriminatory income-verification requirements. Defendant moves

20

to dismiss. After full consideration of the parties’ briefs and a hearing, the motion is GRANTED.

21

STATEMENT

22

The following facts are accepted as true for the purposes of this order. In June 2012,

23

plaintiffs Steven Friscia and David Bobzien jointly applied to defendant Flagstar Bank, FSB, for

24

a loan on a home they wished to purchase in Rancho Mirage. Plaintiffs were obligated to close

25

concurrently on a contract for the sale of their old home in San Francisco. Plaintiffs attempted

26

to use their disability income in support of their loan application, which required plaintiffs to

27

provide “written documentation of monthly [disability] income and verify continuance for

28

at least three years” (Compl. ¶ 18). Plaintiffs were “shocked and outraged” at this onerous,

1

disability-based requirement (id. ¶ 19). Presumably due to their inability or unwillingness to

2

satisfy the onerous documentation requirement, plaintiffs’ application was delayed and they were

3

forced to pay cash for their new home in order to close on both houses as contractually obligated

4

(id. ¶ 22).

5

The action commenced last October and we are now up to a second amended complaint,

6

which alleges Flagstar’s income-verification policy violated provisions of the federal Fair

7

Housing Act and California’s Unruh Civil Rights Act. Plaintiffs zero in on the following

8

language taken from Flagstar’s loan application, which required plaintiffs to “provide written

9

documentation of monthly income and verify continuance for at least three years” only for
disability income (Compl. ¶ 18). Plaintiffs allege thousands of handicapped individuals were

11
For the Northern District of California

United States District Court

10

subjected to Flagstar’s discriminatory income-verification policy, and will seek to certify a

12

nationwide cla§ for their FHA claims and a California subclass for their Unruh Act claims.

13

Flagstar Bank now moves to dismiss under Rule 12(b)(6). Flagstar asserts the above

14

loan-application language, seemingly requiring three years’ income documentation for disabled

15

applicants, was taken out of context from an automated printout of plaintiffs’ loan application.

16

This type of printout, Flagstar claims, resulted from the software that Flagstar uses to evaluate

17

conventional mortgages for Federal National Mortgage Association (“Fannie Mae”) compliance.

18

Because this statement resulted from Fannie Mae-licensed software, according to Flagstar, it

19

cannot reflect a Flagstar policy. Flagstar also asserts that the above sentence, which plaintiffs

20

claim establishes the existence of Flagstar’s discriminatory policy, was taken out of context.

21

Flagstar claims the sentence following it in the application printout reads: “When the lender

22

believes or knows that the Social Security or disability income falls in a category that does not

23

have a defined expiration date, the lender may conclude that the income is considered stable,

24

predictable, and likely to continue and therefore the lender is not expected to request additional

25

information from the borrower.” Beyond that, Flagstar argues that Fannie Mae’s underwriting

26

guidelines require it to verify the continuance of borrowers’ income three years into the potential

27

mortgage in order to evaluate borrowers’ creditworthiness. Flagstar says the full and fair context

28

of the statement shows that the three-year future income documentation was only required when
2

1

the lender knew or believed that the disability income was of a type that had a defined expiration

2

date. If the disability income was of a type that did not typically have a defined expiration date,

3

such as long-term Social Security or long-term private disability insurance, then three years’

4

future income was presumed, and a simple copy of the award letter would suffice to satisfy

5

Fannie Mae and Flagstar guidelines.

6

ANALYSIS

7

1.

8

On a motion to dismiss, a court evaluates a complaint for:

9

sufficient factual matter, accepted as true, to state a claim for relief
that is plausible on its face. A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct
alleged. . . . Although for the purposes of a motion to dismiss we
must take all of the factual allegations in the complaint as true, we
are not bound to accept as true a legal conclusion couched as a
factual allegation.

10
11
For the Northern District of California

United States District Court

STANDARD UNDER RULE 12(b)(6)

12
13

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations and quotations omitted).
14
2.

FHA DISCRIMINATION

15
Section 3605(a) makes it unlawful for anyone “whose business includes engaging in
16
residential real estate-related transactions to discriminate against any person in making available
17
such a transaction, or in the terms or conditions of such a transaction, because of race, color,
18
religion, sex, handicap, familial status, or national origin.” Section 3604(f)(2) makes it unlawful
19
to “discriminate against any person in the terms, conditions, or privileges of sale or rental of a
20
dwelling, or in the provision of services or facilities in connection with such dwelling, because
21
of a handicap . . . .” Plaintiff alleges that Flagstar violated these sections by “imposing
22
unnecessary and unduly burdensome disability income documentation requirements upon
23
borrowers with a handicap” (Compl. ¶¶ 41–42).
24
Section 3604(c) makes it unlawful to “make, print, or publish, or cause to be made,
25
printed, or published any notice, statement, or advertisement, with respect to the sale or rental
26
of a dwelling that indicates any preference, limitation, or discrimination based on race, color,
27
religion, sex, handicap, familial status, or national origin, or an intention to make any such
28
3

1

preference, limitation, or discrimination.” Plaintiff alleges that Flagstar’s income-verification

2

policy was such a notice or statement (Compl. ¶ 43).

3

Our court of appeals applies the Title VII discrimination analysis in examining FHA

4

discrimination claims; thus, plaintiffs can establish FHA discrimination claims under a theory

5

of disparate treatment or disparate impact. Gamble v. City of Escondido, 104 F.3d 300 (9th Cir.

6

1997). In order to survive a motion to dismiss, plaintiffs must allege that they qualify as an

7

“aggrieved person” subjected to “an alleged discriminatory housing practice” because of their

8

handicap. Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 250 (9th Cir. 1997). “[T]he vitality of

9

a fair housing complaint should be judged by the statutory elements of an FHA claim rather than

11
For the Northern District of California

United States District Court

10

the structure of the prima facie case.” Ibid.
While our court of appeals has not published a decision during the Iqbal/Twombly era

12

regarding the lenient Gilligan pleading standard, unpublished opinions support the view that the

13

standard still applies. For example, Haynes v. R.W. Selby & Co., Inc., 338 F.App'x 694, 696

14

(9th Cir. 2009), reversed dismissal for failure to state a claim when the spare allegations only

15

stated that “defendants discriminated against Haynes by increasing his rent after learning he was

16

African American and Muslim, and that he suffered injuries.” See also Johnson v. Winn Props.,

17

446 F.App'x 939, 940 (9th Cir. 2011) (citing Gilligan with approval); Anderson v. MCM Const.

18

Inc., 2012 WL 6571034 (E.D. Cal. Dec. 17, 2012) (Magistrate Judge Gregory Hollows)

19

(collecting cases on discrimination pleading standard). Moreover, in the employment

20

discrimination context, our court of appeals has recently suggested that in most cases, it will

21

not be any more difficult for a plaintiff today to state a discrimination claim than it was prior to

22

Iqbal and Twombly. Sheppard v. David Evans & Assoc., 694 F.3d 1045, 1050 (9th Cir. 2012).

23

Flagstar appears to argue that, despite Gilligan, plaintiffs must plead facts to support all

24

the elements of a prima facie housing discrimination case in order to survive a motion to dismiss.

25

Not so. As Gilligan only requires plaintiffs to plead the statutory elements of an FHA claim,

26

they must only allege the following.

27
28

First, plaintiffs must allege they are “aggrieved persons” as defined under the FHA.
An aggrieved person is any person who “(1) claims to have been injured by a discriminatory
4

1

housing practice; or (2) believes that such person will be injured by a discriminatory housing

2

practice that is about to occur.” 42 U.S.C. 3602(i). Plaintiffs allege they are aggrieved parties in

3

that they claim to have been injured by Flagstar’s burdensome, discriminatory policy of

4

requiring them to submit onerously obtained proof of income to the detriment of their home

5

purchase.

6

Second, plaintiffs must allege a discriminatory housing practice linked to the plaintiffs’

7

handicap. Plaintiffs here have alleged the existence of a discriminatory housing practice; they

8

allege that Flagstar has a policy of requiring “unnecessary and unduly burdensome disability

9

income verification requirements,” versus presumably less onerous requirements for other types
of income (Compl. ¶¶ 41–42). Plaintiffs sparingly allege facts indicating that Flagstar has a

11
For the Northern District of California

United States District Court

10

“policy” of discrimination whose existence is indicated by the sentence, vaguely attributed to

12

plaintiffs’ loan application, requiring only borrowers claiming disability income to “provide

13

written documentation of monthly income and verify continuance for at least three years.”

14

Plaintiffs are likewise stingy in stating how exactly this supposed policy delayed their loan

15

application, thereby harming them, or whether their loan application was otherwise acceptable.

16

The major problem with this complaint arises with the terms “disability” and “handicap,”

17

as used in the FHA and other contexts. The word “disability” has so many meanings in various

18

contexts that it is impossible to learn from the complaint what the nature of plaintiffs’ disabilities

19

are. It is resultantly impossible to know whether plaintiffs are “handicapped” within the

20

meaning of the FHA. This difference may become important at the Rule 23 stage of this putative

21

class action but for now, it is important to determine whether plaintiffs have even stated a claim.

22

Plaintiffs are too coy with the facts. For example, from the complaint it is impossible

23

to learn not only the nature of plaintiffs’ disabilities, but also the type of disability income they

24

attempted to use for income-verification purposes (i.e., long-term versus short-term) and what

25

entity provided this income (i.e., Social Security versus private insurance). Plaintiffs fail to

26

show why it was so onerous to provide their proof of disability income or how exactly the

27

supposed discriminatory policy delayed their application. They decline to share facts that would

28

show whether other factors may have delayed their loan application or whether other borrowers
5

1

who were similarly situated to them, but not receiving disability income, applied for loans

2

without documentation delays. This order finds it is impossible to tell whether plaintiffs have a

3

legitimate FHA claim. Flagstar’s motion to dismiss must be GRANTED.

4

3.

UNRUH ACT VIOLATION

5

“The Unruh Civil Rights Act, guarantees to all persons within the jurisdiction of

6

California, no matter what their sex, race, color, religion, ancestry, national origin, disability,

7

or medical condition, the full and equal accommodations, advantages, facilities, privileges, or

8

services in all business establishments of every kind whatsoever.” Koebke v. Bernardo Heights

9

Country Club, 116 Cal. App. 4th 791, 807 (2004). “Section 51 has always provided substantive
protection against invidious discrimination in public accommodations, without specifying

11
For the Northern District of California

United States District Court

10

remedies, and section 52 has always provided remedies, including a private action for damages,

12

for violations of section 51.” Munson v. Del Taco, Inc., 46 Cal.4th 661, 667 (2009).

13

Plaintiffs seeking damages under these sections of the Unruh Act must plead and prove

14

intentional discrimination, subject to exceptions not relevant here. Id. at 634. To state a claim

15

for intentional discrimination, a plaintiff must allege “willful, affirmative misconduct.”

16

Conduct which constitutes no more than a disparate impact of a facially neutral policy on a

17

particular group will not suffice. Koebke v. Bernardo Heights Country Club, 36 Cal.4th 824,

18

853–54 (2005).

19

Here, plaintiffs allege “Flagstar’s income verification policy discriminated or made a

20

distinction that denied full and equal privileges to [p]laintiffs,” and “[t]he motivating reason for

21

Flagstar’s conduct was its knowledge or perception of [p]laintiffs’ disability” (Compl. ¶¶ 44–45).

22

The same problems that arose under the FHA analysis — plaintiffs’ refusal to specify their types

23

of disabilities and disability income — apply here. It is simply impossible to tell whether

24

plaintiffs meet the Unruh Act definition of “disability.” In addition, plaintiffs’ sole attempt

25

to plead discriminatory intent reads: “The motivating reason for Flagstar’s conduct was its

26

knowledge or perception of [p]laintiffs’ disability.” That statement is no more than a conclusory

27

allegation of a required element. Overall, plaintiffs’ attempt to plead an Unruh Act violation is

28

entirely inadequate and consequently, Flagstar’s motion to dismiss must be GRANTED.
6

1
2

CONCLUSION
Plaintiffs’ glib pleadings fail to apprise the reader of the bases for their claims and as

3

a result, Flagstar’s motion to dismiss plaintiff’s second amended complaint is GRANTED.

4

Plaintiffs may file a motion seeking leave to file an amended complaint by MARCH 28, 2013

5

(see Dkt. No. 23). A proposed amended complaint and a redline of changes must be appended

6

to the motion, which should clearly explain how the proposed amendment addresses the

7

deficiencies identified herein. Counsel are on notice of the arguments already of record.

8

They must plead their best case.

9
IT IS SO ORDERED.

11
For the Northern District of California

United States District Court

10

12

Dated: March 21, 2013.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
7