County of Cook v. HSBC North America Holdings, Inc. et al
Filing
76
MEMORANDUM Opinion and Order Signed by the Honorable John Z. Lee on 9/30/15Mailed notice(ca, ).
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
COUNTY OF COOK,
)
)
Plaintiff,
)
)
v.
)
)
HSBC NORTH AMERICA HOLDINGS
)
INC.; HSBC FINANCE CORPORATION; )
HSBC MORTGAGE CORPORATION
)
(USA); HSB MORTGAGE SERVICES
)
INC.; HSBC USA INC.; HSBC BANK
)
USA; NATIONAL ASSOCIATION;
)
BENEFICIAL COMPANY LLC;
)
DECISION ONE MORTGAGE
)
COMPANY, LLC; HFC COMPANY LLC )
)
Defendants.
)
14-cv-2031
Judge John Z. Lee
MEMORANDUM OPINION AND ORDER
Cook County has filed a claim under the Fair Housing Act (“FHA”) 42 U.S.C.
§§ 3601–19, against Defendants HSBC North America Holdings, Inc., and its
various subsidiaries and affiliates.
The County alleges that Defendants
discriminatorily targeted minority homeowners in Cook County for predatory
subprime mortgage loans, which resulted in thousands of housing foreclosures.
According to the County, these foreclosures in turn caused a decline in tax revenue,
an erosion of the County’s tax base, harm to the County’s ability to provide services
to its residents, and general urban blight. Defendants move to dismiss the County’s
Amended Complaint, arguing that it lacks constitutional and statutory standing to
maintain this claim. Defendants also contend that the FHA claim is barred by the
1
statute of limitations and, alternatively, fails to state a claim. For the following
reasons, Defendants’ motion to dismiss is denied.
I. Factual Background 1
Cook County brings claims of intentional discrimination, disparate impact,
and disparate treatment under the Fair Housing Act (“FHA”) against Defendants.
The gist of the County’s claim is that Defendants targeted minority borrowers for
their subprime mortgage products, designed those loans to fail, and, consequently,
caused thousands of foreclosures in Cook County resulting in widespread economic
and noneconomic harm. In so doing, at least according to the County, Defendants
engaged in discriminatory lending practices and implemented facially-neutral
practices that had a racial disparate impact. The County’s Amended Complaint
contains a slew of allegations describing the subprime mortgage lending crisis in
general and Defendants’ lending practices in particular. The Court will attempt to
summarize them below.
Predatory lending was rampant in the subprime mortgage industry between
2003 and 2007. See generally Am. Compl. ¶¶ 8–9, 47–58. During this time, AfricanAmerican and Latino borrowers were more likely to pay higher prices for mortgage
loans than Caucasian borrowers. See id. ¶ 50. Data collected pursuant to the Home
Mortgage Disclosure Act (“HMDA”) and analyzed by the Federal Reserve confirms
this disparity. See id. ¶ 51.
When reviewing Defendants’ motion to dismiss, the Court will assume the alleged
facts in the Amended Complaint are true and draws all possible inferences in the County’s
favor. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).
1
2
The Federal Reserve analysis shows that on average African-American
borrowers were 3.1 times more likely than nonminority borrowers to receive a
higher-rate home loan; Latino borrowers were 1.9 times more likely. See id. ¶ 52.
Other statistics show similar patterns: African-Americans were 37.5 percent more
likely to receive a higher-priced conventional home-purchase loan, and 28.3 percent
more likely to receive a higher-priced refinance loan. See id. ¶¶ 53–54. A U.S.
Department
of
Housing
and
Urban
Development
study
found
that,
in
neighborhoods where at least 80% of the population was African-American,
borrowers were 2.2 times more likely to refinance with a subprime lender. See id. ¶
55.
Cook County alleges that Defendants intentionally targeted and marketed to
borrowers in predominantly minority areas in the County in order to grow their
subprime mortgage lending business.
See id. ¶¶ 41–46.
Defendants used
sophisticated algorithmic modeling to target minority borrowers as well as software
programs to process credit bureau information in an effort to identify consumers
best suited to receive and respond to subprime mortgage marketing materials. See
id. ¶¶ 76, 78, 80–87.
The targeting marketing strategy undergirded a general
strategy of “upselling” to minority borrowers. See id. ¶ 79.
When selling these loan products to minority borrowers, Defendants engaged
in discretionary pricing practices that resulted in higher costs of borrowing for
minority borrowers. See id. ¶¶ 100-105. In fact, even after controlling for credit
risk, minority borrowers were substantially more likely to pay higher charges on the
3
loan products Defendants offered as compared to similarly situated nonminority
borrowers. See id. ¶¶ 109, 112–13. Furthermore, Defendants incentivized their
employees to override or circumvent underwriting criteria to steer otherwise
qualified minority borrowers to higher cost loans than those provided to similarly
situated nonmiority borrowers and to approve otherwise unqualified minority
borrowers for high cost loans. See id. ¶ 131.
In addition, the County alleges that, even after the financial crisis,
Defendants continued to engage in these practices by continuing to impose and
enforce the discriminatory pricing terms and servicing the predatory loans in a
discriminatory manner for financial gain. See generally id. ¶¶ 259–281. These
ongoing predatory and discriminatory mortgage lending and servicing practices
effectively diluted or, in some cases, eliminated the equity the borrowers had in
their homes, thereby placing them in greater risk of delinquency, default and
eventual foreclosure. See id. ¶¶ 282, 284–85.
The large volume of defaults in the affected communities lowered home
values, decreased county tax revenues, and resulted in vacant or abandoned
properties that forced the County to provide additional services in these
communities at increased costs.
See id. ¶ 285.
In fact, based upon academic
literature, the County estimates that each foreclosure resulted in up to $34,000 in
community wide damages. See id. ¶ 307.
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II. Legal Standards
A.
Rule 12(b)(1) and Subject Matter Jurisdiction
A motion to dismiss pursuant to Rule 12(b)(1) tests the jurisdictional
sufficiency of the complaint. “When ruling on a motion to dismiss for lack of subject
matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), the district court
must accept as true all well-pleaded factual allegations, and draw reasonable
inferences in favor of the plaintiff.” Ezekiel v. Michel, 66 F.3d 894, 897 (7th Cir.
1995).
But “[t]he district court may properly look beyond the jurisdictional
allegations of the complaint and view whatever evidence has been submitted on the
issue to determine whether in fact subject matter jurisdiction exists.”
Capitol
Leasing Co. v. F.D.I.C., 999 F.2d 188, 191 (7th Cir. 1993) (quoting Grafon Corp. v.
Hausermann, 602 F.2d 781, 783 (7th Cir. 1979)). “[I]f the complaint is formally
sufficient but the contention is that there is in fact no subject matter jurisdiction,
the movant may use affidavits and other material to support the motion.” United
Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2003), overruled
on other grounds by Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845 (7th Cir. 2012).
“The burden of proof on a 12(b)(1) issue is on the party asserting jurisdiction.” Id.
B.
Rule 12(b)(6) and Failure to State a Claim
To survive a motion to dismiss pursuant to Rule 12(b)(6), the complaint must
“state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The
factual allegations in the complaint must at least “raise a right to relief above the
5
speculative level.” Bell Atl. Corp., 550 U.S. at 555. The Court must accept as true
all well-pleaded allegations in the complaint and draw all possible inferences in the
plaintiff’s favor. See Tamayo, 526 F.3d at 1081. Mere legal conclusions, however,
“are not entitled to the assumption of truth.” Iqbal, 556 U.S. at 679.
III. Analysis
A.
Article III Standing
Defendants first argue, under Rule 12(b)(1), that the Court lacks subject
matter jurisdiction over the County’s FHA claim because the County does not
possess Article III standing to pursue it. Article III standing requires that the
County plead: “(i) an injury in fact, which is an invasion of a legally protected
interest that is concrete and particularized and, thus, actual or imminent, not
conjectural or hypothetical; (ii) a causal relation between the injury and the
challenged conduct, such that the injury can be fairly traced to the challenged
action of the defendant; and (iii) a likelihood that the injury will be redressed by a
favorable decision.” Wis. Right to Life, Inc. v. Schober, 366 F.3d 485, 489 (7th Cir.
2004) (quotations omitted); see also Lujan v. Defenders of Wildlife, 504 U.S. 555,
560–61 (1992). At the pleadings stage, “[a] plaintiff must allege personal injury
fairly traceable to the defendant’s allegedly unlawful conduct and likely to be
redressed by the requested relief.” Hein v. Freedom from Religion Found., Inc., 551
U.S. 587, 598 (2007); see also Warth v. Seldin, 422 U.S. 490, 508 (1975) (a plaintiff
“must allege specific, concrete facts demonstrating that the challenged practices
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harm him, and that he personally would benefit in a tangible way from the court’s
intervention.”).
“The party invoking federal jurisdiction bears the burden of establishing
these elements.”
Lujan, 504 U.S. at 561. But “[a] motion to dismiss for lack of
standing should not be granted unless there are no set of facts consistent with the
complaint’s allegations that could establish standing.” Lac Du Flambeau Band of
Lake Superior Chippewa Indians v. Norton, 422 F.3d 490, 498 (7th Cir. 2005). “At
the pleading stage, general factual allegations of injury resulting from the
defendant’s conduct may suffice, for on a motion to dismiss we ‘presum[e] that
general allegations embrace those specific facts that are necessary to support the
claim.’” Lujan, 504 U.S. at 561 (quoting Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871,
889 (1990)).
Here, Defendants contend that the County fails to plead the requisite injuryin-fact as well as the causal relationship necessary to satisfy Article III. 2
1.
Injury-in-Fact
Turning first to the injury-in-fact inquiry, “[t]o confer standing, an injury
must be ‘particularized,’ meaning that it ‘must affect the plaintiff in a personal and
individual way.’” Lac Du Flambeau Band, 422 F.3d at 496 (quoting Defenders of
Wildlife, 504 U.S. at 560 n.1). According to Defendants, the County only alleges a
“general decrease in tax revenue,” an “increase in cost of government services,” a
county-wide increase in the tax digest, and a generalized increase in “out-of-pocket
Defendants do not contest the third requirement for Article III standing–
redressability. See Pl.’s Mem. Opp’n 9 (noting the failure to address this element). In any
event, the Court is convinced that the County’s alleged injuries are sufficiently redressable.
2
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costs,” none of which, Defendants argue, meet Article III’s requirement of a
concrete, particularized injury. See Am. Compl. ¶¶ 285, 298, 310. The County
counters that it has alleged numerous concrete and particularized injuries,
including: (1) various economic harms; (2) noneconomic harms to the community,
including deterioration and blight; and (3) harms to the County’s ability to govern
due to financial strain on various agencies and departments. See Pl.’s Mem. Opp’n
7 n.14 (citing Am. Compl. ¶¶ 3, 5, 26, 282, 285, 290–98, 300).
The County adequately pleads an injury-in-fact. While the County’s asserted
economic harms may be “general” at this point, “the particularity requirement does
not mean . . . that a plaintiff lacks standing merely because it asserts an injury that
is shared by many people.” Lac Du Flambeau Band, 422 F.3d at 496. Nor are these
harms not “concrete” because they are general economic harms.
See Gladstone
Realtors v. Vill. of Bellwood, 441 U.S. 91, 110–11 (1979) (tax base harm to village
qualified as a concrete injury for standing purposes under the FHA). And as the
Seventh Circuit has noted, “a plaintiff suing pursuant to the FHA need not be a
member of the class that was the object of discrimination to satisfy the injury-infact requirement.” Gorski v. Troy, 929 F.2d 1183, 1189 (7th Cir. 1991). The precise
nature and extent of the economic harms can be ferreted out through discovery. See
Pl.’s Mem. Opp’n 7, n.14 (noting that the decline in property values can be
“precisely determined through regression analysis”).
In addition to economic harms, the County alleges noneconomic harms as
well, including urban blight, community deterioration, and organizational harm
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suffered by the County due to increased costs and decreased revenue. It is wellestablished that such noneconomic harms satisfy Article III’s injury-in-fact
requirement under the FHA. See Vill. of Arlington Heights v. Metro. Hous. Dev.
Corp., 429 U.S. 252, 262–63 (1977) (“It has long been clear that economic injury is
not the only kind of injury that can support a plaintiff’s standing” under the FHA);
see also Sierra Club v. Morton, 405 U.S. 727, 734–735 (1972) (noneconomic injuries
suffice for standing purposes). Here, the County has alleged harms sufficient to
satisfy Article III’s injury-in-fact requirement.
2.
Causation
To satisfy the causation prong of Article III standing, the injury complained
of “must be fairly traceable to the challenged action of the defendant — i.e., there
must be a causal connection between the injury and the conduct.” Sterk v. Redbox
Automated Retail, LLC, 770 F.3d 618, 623 (7th Cir. 2014). “If the plaintiff’s injury
is not fairly traceable to the defendant, the plaintiff lacks standing to bring suit
against the defendant, and the federal court lacks subject-matter jurisdiction to
adjudicate the matter.” Johnson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 719
F.3d 601, 602 (7th Cir. 2013).
Importantly, “a plaintiff does not lack standing
merely because the defendant is one of several persons who caused the harm.” Lac
Du Flambeau Band, 422 F.3d at 500. But “[i]f the ‘independent action of some third
party not before the court’ causes [Plaintiff’s harm], then the complaint fails the
traceability test.” Sierra Club v. Franklin Cnty. Power of Illinois, LLC, 546 F.3d
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918, 926 (7th Cir. 2008) (quoting Texas Indep. Producers & Royalty Owners Ass’n v.
EPA, 410 F.3d 964, 972 (7th Cir. 2005)).
In its allegations, the County traces a causal connection between Defendants’
discriminatory lending practices, on the one hand, and high rates of loan defaults
and the resulting home foreclosures, on the other.
•
Defendants intentionally employed discriminatory practices by making
loans that were designed to fail and targeting these loans to minority
borrowers; these practices included top-down corporate level policies
implementing the scheme and continued servicing of the predatory loans
until failure. See Am. Compl. ¶¶ 4, 7, 44, 61–65, 68–69, 73–75, 78–132, 139,
141–80, 233–35, 237–39, 259–81, 316, 318.
•
Defendants supported loan originations, wholesale loan purchases, and the
funding of loans made by brokers in minority communities and concealed
their scheme while their actions caused increased loan defaults, home
vacancies, and foreclosures in the County. See Am. Compl. ¶¶ 4–15, 19, 21–
22, 24–26, 221–46, 248–58.
•
Defendants’ lending and securitization practices, in concert with other
industry participant’s practices, caused the financial crisis of 2008. See Am.
Compl ¶¶ 4, 19, 25, 221–43.
•
Congressional and statistical findings support the County’s position that the
predatory loan terms and manner in which the loans were made,
underwritten, and serviced caused the historically unprecedented loan
defaults and foreclosures that disparately impacted Plaintiff’s communities..
See Am. Compl. ¶¶ ¶¶ 8, 9, 15, 19, 50–58, 109, 112–13, 229–258, 282–89,
298, 304
Defendants do not seriously dispute the link between home foreclosures and
the economic and noneconomic injuries alleged by the County here.
It is quite
plausible that a high number of foreclosures and their accompanying vacancies
would cause a reduction in property values, an erosion of the tax base, an increase
in the need for costly municipal services, as well as, at times, blight and aesthetic
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decline.
Rather, they argue that the foreclosures could have been caused by a
number of factors, other than the alleged discriminatory conduct, such as a loss of
employment, illness, or other personal tragedies. This may be true, but “a plaintiff
does not lack standing merely because the defendant is one of several persons who
caused the harm.” Lac Du Flambeau Band, 422 F.3d at 500. Where, as here, the
alleged conduct plausibly contributed to the harm, Article III standing exists. See
Smith v. United Residential Servs. & Real Estate, Inc., 837 F. Supp. 2d 818, 825
(N.D. Ill. 2011) (noting that allegations of loan discrimination sufficient for
causation at the pleading stage); see also Steele v. GE Money Bank, No. 08 C 1880,
2009 WL 393860, at *5 (N.D. Ill. Feb. 17, 2009).
Defendants also rely on the argument that the County has identified no
specific properties in its complaint. In support of this argument, Defendants cite to
Mayor & City Council of Baltimore v. Wells Fargo Bank, N.A., 677 F. Supp. 2d 847,
850 (D. Md. 2010), and City of Birmingham v. Citigroup Inc., No. CV-09-BE-467-S,
2009 WL 8652915, at *1 (N.D. Ala. Aug. 19, 2009). But Baltimore and Birmingham
are not controlling on this Court, and in any event, the Court declines to adopt their
reasoning.
As the County points out, Birmingham relied heavily on Tingley v. Beazer
Homes Corp., No. 3:07–CV–176, 2008 WL 1902108 (W.D.N.C. Apr. 25, 2008), a case
that did not examine Gladstone, the seminal case. See 2009 WL 8652915, at *3.
Moreover, Birmingham did not discuss any of the allegations in the complaint in its
analysis. City of Los Angeles, 24 F. Supp. 3d at 950. As for Baltimore, the court
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initially dismissed the city’s complaint for failure to allege the number of properties
subject to foreclosure due to the defendants’ loan practices. 677 F. Supp. 2d at 850.
But the court subsequently allowed the case to go forward once the city had alleged
that specific properties would have been vacant “but for” the challenged conduct.
See Mayor & City Council of Baltimore v. Wells Fargo Bank, N.A., No. CIV. JFM-0862, 2011 WL 1557759, at *3 (D. Md. Apr. 22, 2011). The County here has made the
same allegations.
Additionally, Defendants argue that the “chain of causation” between the
challenged lending practices and the alleged injury simply does not exist as a
matter of fact. But, such arguments are the kind of “factual” as opposed to “facial”
attack on jurisdiction that is more appropriate after discovery. See Apex Digital, Inc.
v. Sears, Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009) (“[A] factual challenge
lies where the complaint is formally sufficient but the contention is that there is in
fact no subject matter jurisdiction.”) (internal quotations omitted). Once causation
is sufficiently pleaded, further adjudication of causality is better left to summary
judgment. See Steele, 2009 WL 393860, at *5 (noting that factual disputes over
causation “cannot be resolved via a motion to dismiss”). Here, the County alleges
that Defendants made discriminatory loans on properties located within its
community. Measured against the background principle that “[a] motion to dismiss
for lack of standing should not be granted unless there are no set of facts consistent
with the complaint’s allegations that could establish standing,” the County has
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sufficiently alleged Article III causation to establish constitutional standing. See
Lac Du Flambeau Band, 422 F.3d at 498.
B.
“Statutory Standing” and Lexmark International
Defendants also argue that the County lacks statutory standing—also known
as “prudential standing”—and point to Lexmark International, Inc. v. Static Control
Components, Inc., 134 S.Ct. 1377 (2014). In Lexmark, the Supreme Court shifted
the landscape of prudential standing analysis.
Finding the label “prudential
standing” to be “misleading,” the Supreme Court instead adopted the “zone of
interests” test, noting that “[w]hether a plaintiff comes within ‘the zone of interests’
is an issue that requires us to determine, using traditional tools of statutory
interpretation, whether a legislatively conferred cause of action encompasses a
particular plaintiff’s claim.” Id. at 1387. “In sum, the question . . . is whether
[plaintiff] falls within the class of plaintiffs whom Congress has authorized to sue
under [the statute].” Id; see Empress Casino Joliet Corp. v. Johnston, 763 F.3d 723,
733–34 (7th Cir. 2014) (holding “whether a plaintiff may sue ‘is an issue that
requires us to determine, using traditional tools of statutory interpretation,
whether a legislatively conferred cause of action encompasses a particular plaintiff’s
claim’”) (quoting Lexmark, 134 S.Ct. at 1387). 3
The majority of other circuit courts are in accord. See, e.g., Kurapati v. U.S. Bureau
of Citizenship & Immigration Servs., 775 F.3d 1255, 1260 (11th Cir. 2014) (“The term
prudential standing implies that whether a particular plaintiff falls within the ‘zone of
interests’ protected by a statute or regulation is jurisdictional, but whether a plaintiff's
claim is within the zone of interests protected by a statute or regulation is not
jurisdictional.”); Niemi v. Lasshofer, 770 F.3d 1331, 1345 (10th Cir. 2014) (discussing
Lexmark and noting that “the Supreme Court has affirmed that questions of so-called
‘statutory standing’ like the one presented in this case, despite no longer falling under the
3
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Accordingly, under Lexmark, a plaintiff that brings a statutory cause of
action must, in addition to meeting Article III’s “case or controversy” requirement,
show that: (1) its injury is within the “zone of interests” protected by the statute and
(2) its injury was proximately caused by a violation of the statute. 134 S.Ct. at
1388-91. Defendants argue that the County fails to satisfy these two requirements
of statutory standing.
1.
“Zone of Interests” and the FHA
Starting with the statutory text, the FHA authorizes any “aggrieved person”
to file suit. 42 U.S.C. § 3613. “An aggrieved person” is anyone who “claims to have
been injured by a discriminatory housing practice,” or “believes that such person
will be injured by a discriminatory housing practice that is about to occur.” Id. §
technical label of prudential standing, are not jurisdictional”); Chabad Lubavitch of
Litchfield Cnty., Inc. v. Litchfield Historic Dist. Comm’n, 768 F.3d 183, 200–01 (2d Cir.
2014) (differentiating statutory standing and noting that “has at times been held to be
jurisdictional and at others nonjurisdictional”); Janvey v. Brown, 767 F.3d 430, 437 n.26
(5th Cir. 2014) (noting that “[a]lthough often clothed as an issue of subject-matter
jurisdiction,” statutory standing is not jurisdictional); El Dorado Estates v. City of Fillmore,
765 F.3d 1118, 1122 (9th Cir. 2014) (“[T]he Supreme Court indicated that the question of
whether a particular plaintiff has a right to sue under a given substantive statute, though
often previously discussed as ‘prudential standing,’ is more appropriately dealt with not in
terms of standing but instead as a matter of statutory interpretation, determining ‘whether
a legislatively conferred cause of action encompasses a particular plaintiff’s claim.’”);
Vander Luitgaren v. Sun Life Assur. Co. of Canada, 765 F.3d 59, 63, n.3 (1st Cir. 2014)
(citing Lexmark and applying its test while not deciding “whether, strictly speaking,
questions of statutory standing are jurisdictional questions”); Kentucky v. U.S. ex rel. Hagel,
759 F.3d 588, 596 n.3 (6th Cir. 2014) (noting that Lexmark “placed the continuing vitality of
the prudential aspects of standing” in doubt); Sierra Club v. E.P.A., 755 F.3d 968, 976 (D.C.
Cir. 2014) (noting that under Lexmark “prudential standing” and “zone of interests” are
“not a question of standing” but “whether characterized as prudential standing or legal
capacity to state a claim” plaintiff’s lawsuit failed); Nat’l Health Plan Corp. v. Teamsters
Local 469, 585 F. App’x 832, 835 (3d Cir. 2014) (“Lexmark adopted a straightforward causeof-action analysis.”).
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3602(i). Defendants argue that the County does not fall within this definition and,
as a result, has no statutory standing to sue under the FHA.
Any review of standing under the FHA must start with the Supreme Court’s
decision in Gladstone Realtors v. Village of Bellwood. There, a group of resident
“testers” and the local municipality filed claim under the FHA, alleging racially
discriminatory conduct on the part of real estate brokerage firms and their
employees. The Gladstone defendants argued, among other things, that the Village
lacked standing under the statute. The Supreme Court found otherwise, stating:
A significant reduction in property values directly injures a municipality by
diminishing its tax base, thus threatening its ability to bear the costs of local
government and to provide services. Other harms flowing from the realities of
a racially segregated community are not unlikely. As we have said before,
there can be no question about the importance to a community of “promoting
stable, racially integrated housing. If, as alleged, petitioners’ sales practices
actually have begun to rob Bellwood of its racial balance and stability, the
village has standing to challenge the legality of that conduct.
441 U.S. at 110–11. The Supreme Court then concluded, “Standing under § 812,
like that under § 810, is as broa[d] as is permitted by Article III of the
Constitution.” Id. at 109 (quoting Trafficante v. Metro. Life Ins. Co., 409 U.S. 205,
209 (1972)).
In Havens Realty Corp. v. Coleman, the Supreme Court reaffirmed its holding
in Gladstone: “Congress intended standing under § 812 [of the FHA] to extend to
the full limits of Art. III and that the courts accordingly lack the authority to create
prudential barriers to standing in suits brought under that section.” 455 U.S. 363,
372 (1982) (quoting Gladstone, 441 U.S. at 103, n.9). In so doing, the Supreme
Court discussed the distinction between “direct” harm and “indirect harm” under
15
the FHA: “the concept of ‘neighborhood’ standing differs from that of ‘tester’
standing in that the injury asserted is an indirect one: an adverse impact on the
neighborhood in which the plaintiff resides resulting from the steering of persons
other than the plaintiff . . . . By contrast, the injury underlying tester standing—the
denial of the tester’s own statutory right to truthful housing information caused by
misrepresentations to the tester—is a direct one.” Id. at 375. The Court, however,
determined that the distinction was of little significance because “the only
requirement for standing to sue under § 812 is the Art. III requirement of injury in
fact.” Id. at 375–76.
The Seventh Circuit, after examining Gladstone and Havens Realty, has
explicitly noted that “[t]he [Supreme] Court held that the only requirement for
standing to sue under the FHA is the Art. III minima of injury in fact: that the
plaintiff allege that as a result of the defendant’s actions he has suffered a distinct
and palpable injury.” Gorski, 929 F.2d at 1188 (examining Gladstone and Havens
Realty) (internal quotations omitted); see also New W., L.P. v. City of Joliet, 491
F.3d 717, 721 (7th Cir. 2007) (“[T]he Supreme Court has held that only the
Constitution’s own requirements, and not any prudential supplements, apply to
litigation under [the FHA].”); Alschuler v. Dep’t of Hous. & Urban Dev., 686 F.2d
472, 477 (7th Cir. 1982) (“[T]he [Supreme] Court in Trafficante . . . held that
Congress intended to define standing [under the FHA] as broadly as is permitted by
Article III.”).
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In short, “[b]oth Gladstone and Havens Realty exemplify the Court’s
recognition of the congressional intent to apply broad standing principles under the
Act.” Gorski, 929 F.2d at 1188. The County meets these broad standing principles
here.
It has alleged a rather straightforward FHA claim: Defendants targeting
minority borrowers for predatory home mortgage loans and imposed higher loan
costs and servicing fees on them as compared to similarly situated nonminority
borrowers. These discriminatory actions increased the minority borrowers’ risks of
default and foreclosure, resulting in a rash of foreclosures in the county, which in
turn caused economic and noneconomic injury to the County.
Taking these
allegations to be true, the County satisfies the requirements of Article III standing
as discussed above and, consequently, falls within the zone of interests of the FHA.
For their part, Defendants rely on Thompson v. North American Stainless,
LP, 562 U.S. 170 (2011), which they argue narrowed the “person aggrieved” inquiry
under the “zone of interests” test and abrogated Trafficante and Gladstone. But
Thompson was a case decided under Title VII, not Title VIII; and this Court is
obliged to follow the Seventh Circuit’s adoption of Gladstone, until the Supreme
Court or the Seventh Circuit expressly states otherwise.
The Court recognizes that a recent decision in this district has taken a
different view, holding that Thompson effectively overruled Gladstone in substance,
if not in word. See Cnty. of Cook v. Wells Fargo & Co., No. 14 C 9548, 2015 WL
4397842, at **5-6 (N.D. Ill. July 17, 2015). But this holding appears in tension with
Gorski and the other Seventh Circuit cases discussed above, and the Court declines
17
to adopt such a sweeping view of Thompson given existing Seventh Circuit
precedents. Instead, this Court agrees with another court in this district that found
statutory standing under similar circumstances. See Cnty. of Cook v. Bank of Am.
Corp., No. 14 C 2280, 2015 WL 1303313, at *4 (N.D. Ill. Mar. 19, 2015) (examining
Thompson but holding that, because of Gladstone, “the term ‘aggrieved’ in [the
FHA] reaches as far as Article III permits”).
Defendants also rely on Alschuler for its narrower application of the “zone-ofinterests” test under the FHA. But City of Milwaukee v. Block, 823 F.2d 1158,
explicitly abrogated this aspect of Alschuler. See Cornell Vill. Tower Condo. v. Dep’t
of Hous. & Urban Dev., 750 F. Supp. 909, 919 (N.D. Ill. 1990).
This leaves Defendants’ reliance on several cases from other districts,
principally City of Miami v. Bank of Am. Corp., No. 13-24506-CIV, 2014 WL
3362348 (S.D. Fla. July 9, 2014). There, the district court held that the City of
Miami lacked statutory standing to bring FHA claims against a bank based on
allegations similar to those here.
But the Eleventh Circuit recently reversed
stating, “Simply put, Trafficante, Gladstone, and Havens have never been overruled,
and the law of those cases is clear as a bell: ‘[statutory] standing under [the FHA]
extends as broadly as is permitted by Article III of the Constitution.’” City of Miami
v. Bank of Am. Corp., --- F.3d ----, No. 14-14543, 2015 WL 5102581, at *11 (11th Cir.
Sept. 1, 2015) (quoting Gladstone, 441 U.S. at 98). In arriving at this decision, the
Eleventh Circuit considered the contrary ruling in this district in Cnty. of Cook v.
Wells Fargo & Co., but concluded that “Thompson itself was a Title VII case, not a
18
Fair Housing Act case . . . . Thompson surveyed Trafficante and Gladstone, but did
not explicitly overrule them—nor could it, given the different statutory context in
which it arose.” Id. at *12.
For these reasons, the Court holds that the County meets the requirements of
the “zone of interest” test to establish statutory standing under the FHA.
2.
Proximate Causation
In addition to falling within the FHA’s “zone of interest,” the County must
also show that its injuries were proximately caused by a violation of the statute. See
Lexmark 134 S. Ct. at 1390. Here, the County has cited to numerous studies and
statistical data that link predatory lending practices, such as those alleged here, to
the large number of foreclosures in predominantly minority communities. See, e.g.,
Am. Compl. ¶¶ 244-56. And, based on these data, the County asserts that the large
number of foreclosures would not have taken place “but for” the Defendants’
discriminatory loan practices. See, e.g., id. ¶ 258 (“But for Defendants’ predatory
and discriminatory actions alleged herein, the foreclosure rate among, and the
number of foreclosures experiences by, FHA protected minority borrowers in
Plaintiff’s communities and neighborhoods would have been far lower.”).
These
allegations are sufficient to survive a motion to dismiss. See City of Miami, --- F.3d
----, 2015 WL 5102581 at ** 16–17 (finding plaintiff’s allegations sufficient to plead
proximate cause); Cnty. of Cook, 2015 WL 1303313 at *4 (finding that “the causal
connection between Defendants’ alleged conduct and the County’s injuries is at least
plausible.”).
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Nevertheless, Defendants argue that the County has not met the proximate
causation standard because it has not identified specific properties that were
subject to foreclosure due to the alleged conduct. But, again, this amounts to a
factual attack on causation that is best deferred to a motion for summary judgment.
See Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1152 (7th Cir. 2010) (“[T]he lack
of proximate cause should only be determined by the court where the facts alleged
do not sufficiently demonstrate both cause in fact and legal cause” and noting that
summary judgment presents another opportunity to raise the issue, “at which point
[the plaintiff] will have to do more than simply allege proximate cause.”).
C.
The Statute of Limitations
Defendants also argue that the County’s claims are barred by the statute of
limitations. The FHA provides that “[a]n aggrieved person may commence a civil
action . . . not later than 2 years after the occurrence or the termination of an
alleged discriminatory housing practice . . . whichever occurs last.” 42 U.S.C. §
3613(a)(1)(A). The County filed its lawsuit on March 21, 2014, and therefore the
relevant two-year period reaches back to March 21, 2012. According to Defendants,
the County offers no allegations of incidents after 2007; moreover, to cover all bases,
Defendants contend that the continuing violation doctrine does not apply.
Defendants’ arguments are unavailing.
Here, the County has alleged that Defendants are still engaged in their
discriminatory mortgage lending practices and continue to service the loans in a
discriminatory manner. See, generally Am. Compl. ¶¶ 259–81. “[W]here a plaintiff,
20
pursuant to the Fair Housing Act, challenges not just one incident of conduct
violative of the Act, but an unlawful practice that continues into the limitations
period, the complaint is timely when it is filed within 180 days of the last asserted
occurrence of that practice.” Havens Realty, 455 U.S. at 380–81. Under both the
plain language of 42 U.S.C. § 3613(a)(1)(A) and the reasoning of Havens Realty,
which § 3613(a)(1)(A) codified, the County’s claims do not run afoul of the statute of
limitations.
In any event, Defendants’ statute of limitations argument is premature. A
motion to dismiss on an affirmative defense like statute of limitations is typically
inappropriate. “[W]here a defendant raises the statute of limitations as an
affirmative defense at the motion to dismiss stage, a court can only dismiss a claim
‘when [the] complaint plainly reveals that an action is untimely under the
governing statute of limitations.” Reiser v. Residential Funding Corp., 380 F.3d
1027, 1030 (7th Cir. 2004). See Jovic v. L-3 Servs., Inc., --- F.Supp.3d ----, No. 10 C
5197, 2014 WL 4748614, at *11 (N.D. Ill. Sept. 24, 2014) (quoting Andonissamy v.
Hewlett–Packard Co., 547 F.3d 841, 847 (7th Cir. 2008)).
This rule, of course,
applies to FHA claims. See, e.g., Jafri v. Chandler LLC, 970 F. Supp. 2d 852, 865
(N.D. Ill. 2013) (“[L]imitations defense fails at the pleadings stage” where the
complaint does not admit the ingredients of a statute of limitations defense).
Here, the Court cannot say that the County has pleaded itself out of court on
statute of limitations grounds. Accordingly, Defendants’ motion to dismiss based
upon the statute of limitations is denied.
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D.
Failure to State a Claim
Lastly, Defendants argue that the County fails to state claims for intentional
discrimination-disparate treatment or disparate impact under the FHA. Under the
FHA it is “unlawful for any person or other entity whose business includes engaging
in residential real estate-related transactions to discriminate against any person in
making available such a transaction, or in the terms or conditions of such a
transaction, because of race . . . .” 42 U.S.C. § 3605(a). To state an intentional
discrimination or disparate treatment claim under the FHA requires allegations “of
intentional discrimination, provable via either direct or circumstantial evidence.”
Daveri Dev. Grp., LLC v. Vill. of Wheeling, 934 F. Supp. 2d 987, 997 (N.D. Ill. 2013)
(citing Nikolich v. Vill. of Arlington Heights, Ill., 870 F. Supp. 2d 556, 562 (N.D. Ill.
2012)). To state a disparate impact claim under the FHA requires allegations that
Defendants’ actions, despite being unintentional, had a “discriminatory effect” upon
a protected class. Metro. Hous. Dev. Corp. v. Vill. of Arlington Heights, 558 F.2d
1283, 1289–90 (7th Cir. 1977).
The County has sufficiently pleaded both theories. The County has stated a
claim for intentional discrimination and disparate treatment; they allege that the
Defendants intentionally targeted and marketed predatory subprime loans to
minority borrowers to their detriment and the detriment of the County. See, e.g.,
Am. Compl. ¶¶ 64, 68–70, 73,
75–99. The County has also stated a claim of
disparate impact; they allege, among other things, that the pricing policies
Defendants designed increased the costs for loans made to minority borrowers,
22
thereby reducing their home equity, and caused a “downward spiral” of mortgage
delinquencies and failures amongst minority borrowers. See, e.g., id. ¶¶ 109, 112–
13.
Defendants also take issue with the County’s reliance on Daveri Development
Group, 934 F. Supp. 2d 987, and City of Memphis v. Wells Fargo Bank, N.A., No. 092857-STA, 2011 WL 1706756 (W.D. Tenn. May 4, 2011), arguing that the County
has not alleged discriminatory intent.
But the County did allege intentional
discriminatory conduct. See, e.g., Am. Compl. ¶¶ 64, 68–70, 73, 75–99. Defendants
also cursorily argue that the County has not alleged policies or actions undertaken
“because of,” not merely “in spite of,” their adverse effects on an identifiable group.
See Defs.’ Mot. Dismiss 19 (citing Pers. Adm’r v. Feeney, 442 U.S. 256, 279 (1979),
EEOC v. Chi. Miniature Lamp Works, 947 F.2d 292, 299 (7th Cir. 1991);
McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 886 (7th Cir. 2012)). This
argument also is unpersuasive.
Again, the County has alleged that the
discriminatory pricing policies were undertaken because of the minority status of
the borrowers. See, e.g., Am. Compl. ¶¶ 42–61, 75–98, 133–39, 323.
Undeterred, Defendants also cite to Smith v. City of Jackson, which held that
disparate impact is not cognizable under the Age Discrimination in Employment
Act. 544 U.S. 228, 236–38 & n.6 (2005). But the Supreme Court has recently held
that disparate impact claims are cognizable under the FHA. See Texas Dep’t of
Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507, 2525
(2015); see also Metro. Hous. Dev. Corp., 558 F.2d at 1290 (“[A] violation of section
23
3604(a) can be established by a showing of discriminatory effect without a showing
of discriminatory intent.”).
Lastly, invoking Wal-Mart Stores, Inc. v. Dukes, Defendants argue that the
County has failed to plead a disparate impact claim because it has not identified a
discrete practice but only a discretionary “pricing policy” that does not pass muster.
See 131 S. Ct. 2541, 2555–56 (2011) (“[T]he bare existence of delegated discretion . .
. [that] produced an overall sex-based disparity does not suffice.”); see also Wards
Cove Packing Co. v. Antonio, 490 U.S. 642, 656 (1989) (similar). Dukes does not
save Defendants’ argument. First, Dukes did not foreclose the possibility that a
discretionary policy could be the basis for a claim of disparate impact; indeed, it
recognized as much, noting that “a common mode of exercising discretion that
pervades the entire company” and produces disparate impact effects might be
actionable. See 131 S. Ct. at 2554–55. Second, as the County points out, Dukes was
decided in the context of Rule 23(a)(2)’s commonality requirement, making its
discussion of limited import here.
See id. at 2555–557 (discussing regression
analysis and anecdotal evidence in the context of Rule 23(a)(2)).
For these reasons, Defendants’ motion to dismiss the County’s claims for
failure to state a claim is denied.
E.
Dismissal of Non-Originating Entities
Defendants also argue that HSBC USA Inc., HSBC Finance Corporation,
HSBC North America Holdings Inc., HFC Company LLC, and Beneficial LLC
should be dismissed because they did not originate mortgage loans. See Defs.’ Mot.
24
Dismiss 19–20; Defs.’ Reply 15. In essence, Defendants’ argument on this point is
an argument for summary judgment. The County has alleged a widespread scheme
of discriminatory lending which involved all the various Defendants.
See Am.
Compl. ¶¶ 31–39 (establishing corporate structure); id. ¶ 40 (“Defendants
collectively have operated as a common enterprise.”). This is sufficient to survive a
motion to dismiss. 4
IV. Conclusion
For the reasons provided herein, the Court denies Defendants’ motion to
dismiss [49].
SO ORDERED
ENTER: 9/30/15
______________________________________
JOHN Z. LEE
United States District Judge
Indeed, the Defendants invoke Rule 56 and request that the Court to convert the
motion into one for summary judgment. See Defs.’ Mot. 19 n.19. Given the procedural
posture of the case, and the scope of discovery that is likely to come, the Court declines to
do so.
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