County Of Cook v. Bank of America Corporation et al
Filing
204
MEMORANDUM Opinion and Order signed by the Honorable Elaine E. Bucklo on 3/30/2018.Mailed notice(sxw, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
COUNTY OF COOK,
)
)
)
)
)
)
)
)
)
)
Plaintiff,
v.
BANK OF AMERICA
CORPORATION, et al.
Defendants.
No. 14 C 2280
MEMORANDUM OPINION AND ORDER
In
this
action,
Cook
County
alleges
that
it
suffered
economic and non-economic injuries as a result of defendants’
multitudinous violations of the Fair Housing Act of 1968 (“FHA”)
beginning in or around 2003. The County’s 180-page complaint
paints
a
analysis,
detailed
evidence,
picture,
and
illustrated
commentary
with
drawn
statistical
from
academic,
industry, governmental, and eyewitness sources, of defendants’
discriminatory
housing
practices.
I
summarized
the
County’s
factual allegations in my decision of May 19, 2015, which denied
defendants’ motion to dismiss the County’s complaint for lack of
standing, untimeliness, and failure to state a cognizable FHA
claim. See Cty. of Cook v. Bank of Am. Corp., 181 F. Supp. 3d
513
(N.D.
embarked
Ill.
upon
2015).
discovery
Following
but
that
later
1
decision,
agreed
to
the
stay
parties
the
case
pending the Supreme Court’s decision in Bank of America Corp. v.
City of Miami, Fla. --- U.S. ---, 137 S. Ct. 1296 (2017). That
decision prompted plaintiff to file a Second Amended complaint
(“SAC”),
which
defendants
have
moved
to
dismiss
under
Rule
12(b)(6). 1
Defendants’
previously
present
rejected,
motion
insisting
reasserts
that
“the
certain
arguments
judicial
tide
I
has
turned” in the wake of City of Miami and Texas Department of
Housing & Community Affairs v. Inclusive Communities Project,
Inc., 135 S. Ct. 2507 (2015), another Supreme Court case that
was decided after I denied their previous motion. Specifically,
defendants
claim
that
the
injuries
plaintiff
alleges
do
not
satisfy the proximate causation standard established in City of
Miami,
and
that
Inclusive
Communities
created
“heightened
pleading standards” for disparate impact claims under the FHA
that the SAC also does not meet. Additionally, defendants argue
that the County has pled no recoverable damages. For the reasons
that follow, I grant their motion to dismiss in part.
I.
Assuming familiarity with my previous decision, I summarize
the County’s copious factual allegations—which I take as true
1
Defendants explain that although they contemplated moving for
judgment on the pleadings under Rule 12(c), they later
determined
that
a
motion
under
Rule
12(b)(6)
was
more
appropriate since they had not yet answered the complaint. As
defendants note, the standard is the same under both Rules.
2
for present purposes, Swanson v. Citibank, N.A., 614 F.3d 400,
402 (7th Cir. 2010)—at a high level of generality. The County
alleges
that
defendants
home
have
buyers
involves,
for
for
among
the
past
targeted
a
African-American
predatory,
other
approximately
“equity
elements:
fifteen
and
years,
Hispanic/Latino
stripping
scheme”
disproportionately
that
steering
minority borrowers towards “subprime,” higher cost loans, even
when they qualified for prime loans; relaxing or departing from
underwriting guidelines to approve loans to high-risk borrowers
likely
to
default;
including
in
the
loan
terms
pre-payment
penalties that inhibited the borrowers’ ability to refinance;
servicing
predatory
loans
in
a
manner
designed
to
maximize
defendants’ profit while increasing the likelihood of default,
such
as
requests
by
for
securitizing
loan
high-risk
modification
loans,
under
denying
the
Home
borrower
Affordable
Modification Program (“HAMP”) even when the borrowers qualified
for
HAMP
modifications,
and
forcing
them
instead
into
more
expensive, proprietary loan modifications or declining to modify
the loans in a timely manner or at all; and foreclosing on loans
to minority borrowers at a significantly higher rate than they
foreclose on loans to non-minorities.
The
compelling
County
backs
evidence
these
drawn
allegations
from
a
variety
up
of
with
facially
sources.
For
example, the County cites SEC reports that reflect defendants’
3
ballooning profits attributable to their mortgage lending and
servicing
their
operations
highest
(accompanied
executives’
by
spectacular
compensation),
even
increases
as
in
significant
numbers of the predatory loans they originated, securities, and
serviced entered delinquency. See, e.g., SAC at ¶¶ 156-157, 162163,
181-182,
364.
The
County
also
cites
allegations
of
the
relator in a qui tam action against defendants who claims to
have
observed
processing
of
fraud
and
requests
other
for
HAMP
misconduct
in
modifications,
defendants’
e.g.,
id.
at
¶ 365, as well as statements of confidential witnesses involved
in defendants’ lending process, which suggest, for example, that
defendants
predatory
officers
intentionally
loans,
to
e.g.
approve
targeted
id.
loans
at
minority
461-463,
even
when
466;
borrowers
for
encouraged
loan
borrowers
did
not
meet
underwriting criteria, e.g., id. at ¶ 249-250; and failed to
take adequate steps to ensure compliance with fair housing and
lending policies and practices, e.g., id. at 211-212.
The County claims that defendants’ treatment of AfricanAmerican
and
Hispanic/Latino
borrowers
amounts
to
intentional
discrimination and also claims that certain of its policies and
practices, while facially neutral, had a disparate impact on
these minorities. To illustrate the impact on the County, the
SAC offers statistical evidence showing a drastic increase in
foreclosure rates beginning in 2004 as compared with historical
4
averages as well as comparatively higher foreclosure rates in
predominantly minority neighborhoods. SAC at ¶ 325. The County
also alleges, and offers statistics to suggest, that minorities
received a disproportionate percentage of the loans defendants
originated within areas the U.S. Department of Housing and Urban
Development had designated as “high foreclosure risk” areas. See
id.
at
319-331.
Unsurprisingly,
these
areas
have
seen
“tremendously higher foreclosure rates.” Id. at 419.
The County alleges that it has been, and will continue to
be, directly injured by defendants’ practices in several ways.
First, it claims to have incurred several categories of out-ofpocket
costs,
including
costs
associated
with
eviction
and
foreclosure proceedings, as well as costs arising out of the
registration,
inspection,
maintenance,
and/or
demolition
of
vacant or abandoned properties. In addition, the County points
to
the
cost
of
providing
social
services
to
evicted
or
foreclosed homeowners, as well as police patrol services. The
County
also
abandoned
or
claims
to
have
foreclosed
lost
“various
properties,”
as
income
well
relating
as
to
“certain
intangible property recording and transfer fee income.” SAC at
¶ 9. In addition to these economic injuries, the County claims
“injuries
to
the
fabric
of
[its]
communities
and
residents
arising from the resulting urban blight.” Ibid. In short, the
County seeks to recover damages for tax losses and for the cost
5
of county services it has provided in the course, and in the
wake, of the discriminatory foreclosures. The County also claims
non-economic
injunction
injuries
prohibiting
to
its
neighborhoods
further
and
discriminatory
seeks
conduct
an
and
mandating affirmative steps to remedy the effects of its past
discrimination.
Defendants argue that the County’s claimed injuries are too
remote
from
the
alleged
discrimination
to
satisfy
the
requirements of proximate cause under the framework the Court
announced in City of Miami. They underscore that City of Miami
requires “some direct relation between the injury asserted and
the injurious conduct alleged” and limits recovery under the FHA
to damages flowing from the “first step” of causation. 137 S.
Ct.
at
1306.
In
defendants’
view,
the
injuries
the
County
asserts do not fit this bill because they are “many years and
many steps removed” from the alleged discrimination. Defendants
argue that the County’s claims rely on a chain of causation that
is too lengthy, and whose individual links are too contingent
upon external conditions and events, to satisfy City of Miami’s
directness
requirement.
Defendants
characterize
the
County’s
claims as derivative of the minority borrowers’ claims and argue
that as “secondary victims” of the alleged FHA violations, the
County cannot show that its injuries were proximately caused by
defendants’ discrimination.
6
The County, for its part, insists that City of Miami does
not disturb my previous conclusion that the County has alleged a
plausible causal connection between its injuries and defendants’
conduct.
The
County
underscores
that
the
Court
expressly
reserved ruling on whether the City of Miami’s allegations of
economic
injury—which
are,
on
the
whole,
materially
indistinguishable from the County’s claimed economic injury 2—are
sufficient
to
plead
proximate
cause.
The
County
rejects
defendants’ view that City of Miami reduces the proximate cause
analysis to a “single causal link,” although it goes on to argue
that even if that analysis were correct, its allegations would
satisfy it. The County characterizes its complaint as asserting
a “direct, single-link causal chain,” described as follows: “1)
Defendants’ foreclosures were discriminatory in violation of the
FHA…and 2) those foreclosures directly cost the County money in
the
form
foreclosed
of
foreclosure-related
properties,
and
proceedings,
services
to
maintenance
of
foreclosed-upon
homeowners, inter alia[.]” Resp. at 5-6.
The
argument
County’s
thus
response
shifts
the
to
focus
2
defendants’
away
from
proximate
its
cause
allegations
The County asserts that its claim for “out-of-pocket costs
related to foreclosure administration and oversight of
foreclosed-upon properties” articulates injuries for which the
City of Miami did not seek recovery. As explained below, I agree
that the County is entitled to try and establish that a portion
of its foreclosure administration expenses were directly caused
by defendants’ discrimination.
7
concerning
defendants’
servicing
predatory
practices—though
these
lending
make
up
and
the
inequitable
bulk
of
its
complaint—and towards its discriminatory foreclosures, which the
County
characterizes
alternatively
as
“stand-alone”
causal
events triggering the County’s injuries, or as the culmination
of
an
integrated,
discriminatory
equity-stripping
scheme
that
began with predatory lending and ended in the foreclosures that
directly caused its injuries. The County objects to defendants’
analysis as “breaking down and disjoining the various components
of the single equity stripping scheme, improperly treating each
component
as
a
distinct
step
in
the
causal
chain
of
a
foreclosure…and ignoring the core scheme allegation that loan
defaults
and
foreclosures
were
the
intended
result”
of
the
discriminatory scheme. Resp. at 7.
Viewed in this light, the County insists, there are “no
intervening forces creating an untenable ‘discontinuity’ between
the
injury
County’s
and
view,
[defendants’]
defendants’
conduct.”
argument
Id.
wrongly
at
15.
In
the
conflates
two
questions: who is the direct target of the discrimination, and
who suffers direct injuries as a result. The County insists that
I
need
only
allegations
consider
sufficiently
the
latter
plead
its
from defendants’ discrimination.
8
question
direct
and
injuries
that
its
resulting
II.
I begin with the relevant principles from City of Miami.
Like the County, the City of Miami alleged that Bank of America
(and Wells Fargo) “imposed more onerous, and indeed ‘predatory,’
conditions on loans made to minority borrowers than to similarly
situated borrowers” and serviced those loans in a discriminatory
manner, leading to “default and foreclosure rates among minority
borrowers [that] were higher than among otherwise similar white
borrowers and were concentrated in minority neighborhoods.” City
of Miami, 137 S. Ct. at 1301. These practices allegedly visited
a
constellation
“diminished
of
economic
property-tax
municipal
services…needed
dangerous
conditions’
harms
revenue,”
‘to
that
on
and
remedy
the
the
City,
“increased
blight
foreclosures
and
and
including
demand
for
unsafe
and
vacancies
generate.” Id. at 1302. The district court dismissed the case,
concluding that the city’s injuries were outside the FHA’s zone
of interests and that it had not alleged a sufficient causal
connection between those injuries and the banks’ discrimination.
Ibid. The Eleventh Circuit reversed, holding that the “zone of
interests”
test
was
satisfied,
and
that
the
city’s
claimed
injuries were foreseeable results of the defendant’s alleged FHA
violations.
The Supreme Court granted certiorari to examine both of
these holdings. It began by affirming the Eleventh Circuit’s
9
conclusion that the city’s alleged economic injuries fell within
the FHA’s zone of interests. The Court reiterated its previous
observation that the text of the FHA “reflects a congressional
intent
which
to
confer
it
had
standing
held
themselves
the
“aggrieved
that
persons”
broadly,”
that
targets
of
citing
several
individuals
and
discrimination
entitled
to
assert
cases
entities
were
in
not
nevertheless
violations
of
the
statute. Id. at 1303-04 (citing Havens Realty Corp. v. Coleman,
455
U.S.
363
discrimination
(1982)
can
(non-profit
assert
FHA
working
claims);
to
oppose
Gladstone
housing
Realtors
v.
Village of Bellwood, 441 U.S. 91 (1979) (village can assert FHA
claim
for
lost
tax
revenue
caused
by
racial
steering);
Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205, 211
(1972)
(white
tenants
associations
can
assert
minorities).
Noting
deprived
FHA
that
claim
Congress’s
benefits
for
of
interracial
discrimination
intervening
against
amendments
to
the FHA “retained without significant change the definition of
‘person
stare
aggrieved,’”
decisis
and
the
Court
statutory
concluded
that
interpretation
principles
compelled
it
of
to
adhere to these decisions. Id. at 1305. It thus held that the
City of Miami’s alleged injuries fell within the FHA’s “zone of
interests.” Id. at 1301.
The
Court
went
on,
however,
to
reject
the
Eleventh
Circuit’s conclusion that because the city’s claimed injuries
10
were foreseeable results of the alleged discrimination, the City
had adequately pled proximate causation. Id. at 1306. It held:
In the context of the FHA, foreseeability alone does
not ensure the close connection that proximate cause
requires. The housing market is interconnected with
economic and social life. A violation of the FHA may,
therefore, ‘be expected to cause ripples of harm to
flow’
far
beyond
the
defendant’s
misconduct.
Associated
Gen.
Contractors
of
Cal.,
Inc.
v.
Carpenters, 459 U.S. 519, 524, 103 S. Ct. 897, 74 L.
Ed. 2d 723 (1983). Nothing in the statute suggests
that Congress intended to provide a remedy wherever
those ripples travel. And entertaining suits to
recover damages for any foreseeable result of an FHA
violation would risk ‘massive and complex damages
litigation.’” Id. at 545, 103 S. Ct. 897.
Ibid. The Court held that proximate cause instead requires “some
direct relation” between the injury claimed and the wrongful
conduct alleged, and that a claim for damages under the FHA—
which it likened to a tort claim—is generally limited to the
“first step” of the directness inquiry. Id. at 1305-06 (citing
Holmes v. Securities Investor Protection Corporation, 503 U.S.
258 (1992); Curtis v. Loether, 415 U.S. 189 (1974); Anza v.
Ideal Steel Supply Corp., 547 U.S. 451 (2006); and Hemi Group,
LLC v. City of New York, 559 U.S. 1 (2010)).
I
conclude
that
the
bulk
of
the
injuries
the
County
asserts—tax losses and increased costs for county services such
as police patrol and support services to evicted borrowers—do
not
flow
directly
from
the
discrimination
it
alleges.
In
an
effort to rebut defendants’ argument that its injuries are the
11
result of a “convoluted, years-long chain of causation” that
began
with
County
defendants’
homes
in
discriminatory
on
its
lending
allegations
practices,
of
the
discriminatory
foreclosures, arguing that these foreclosures directly triggered
the damages it claims. But even the foreclosures remain several
steps removed—both temporally and causally—from the tax losses
and most of the increased county service costs the County claims
as
monetary
injuries,
and
they
are
equally
remote
from
the
property vacancies and neighborhood blight it asserts as nonmonetary injuries. The County’s allegations confirm as much. For
example,
the
County
quotes
a
Woodstock
Institute
Study
that
allegedly states:
[F]oreclosures,
particularly
in
lower-income
neighborhoods, can lead to vacant, boarded-up, or
abandoned properties. These properties, in turn,
contribute to the stock of ‘physical disorder’ in a
community that can create a haven for criminal
activity, discourage social capital formation, and
lead to further disinvestment…and lower property
values for existing residential homeowners.
SAC at ¶ 372. (emphasis added). The emphasized portions of this
excerpt
reveal
both
the
contingent
nature
of
the
County’s
injuries (with “can lead,” “contribute to,” and “can create” all
suggesting that other conditions also bear upon the asserted
causal chain) as well as their temporal and causal remoteness
(with “in turn” indicative of both). Similarly, where the County
enumerates
its
injuries
in
a
non-exhaustive
12
list
of
out-of-
pocket costs and lost revenues, it concludes with a catch-all
claim
for
“various
other
injuries
resulting
from
the
deterioration and blight to the hardest hit neighborhoods and
communities.” Id. at 376. The County insists that at least some
of
its
injuries
process itself.”
arise
Id.
“from
at
377
the
effect
(emphasis
of
the
added).
foreclosure
But
even
this
allegation implies at least one intermediary step between the
foreclosure and the County’s losses, which as stated arise not
out of the foreclosure process, but out some unspecified effects
of that process.
Moreover,
the
County
acknowledges
that
multiple
factors,
including falling home prices, rising unemployment, and a freeze
in the U.S. and global credit markets, contributed to the global
financial crisis of 2008 and subsequent recession, all of which
impacted
the
County’s
losses.
The
County
insists
that
defendants’ lending and securitization practices were “the fuel
that ignited the financial crisis.” SAC at ¶ 114. That may be
true.
But
to
hold
defendants
liable
on
the
theory
that
its
discriminatory conduct was the prime mover, or the root cause,
of the County’s injuries would rely on a causation theory of
precisely the sort City of Miami cautioned against in the FHA
context. 137 S. Ct. at 1306. Indeed, it is difficult to perceive
any
limiting
principle—and
the
County
suggests
none—to
distinguish the County’s economic losses from those that could
13
be asserted by any number of similarly remote parties: local
merchants
whose
revenue
has
decreased
as
a
result
of
neighborhood foreclosures and vacancies, home service providers
whose customer base has been depleted by foreclosures, and the
like. There can be no question that allowing damages suits by
such
parties
under
the
FHA
“would
risk
‘massive
and
complex
damages litigation.’” Ibid. (quoting Associated Gen. Contractors
459 U.S. at 545).
The County dedicates much of its response to defendants’
proximate cause argument to distinguishing defendants’ cases on
the ground that they arose in the context of statutes other than
the FHA. In the County’s view, the Court’s consistently broad
interpretation of the FHA counsels in favor of a “more liberal”
or “relaxed” proximate cause standard. Resp. at 9, n. 10. But
that argument has an obvious problem: the Court’s discussion of
proximate cause in City of Miami explicitly relied on the very
cases
defendants
principles
they
cite,
without
articulate
any
should
be
suggestion
“relaxed”
that
in
the
the
FHA
context. 137 S. Ct. at 1306 (citing, inter alia, Associated Gen.
Contractors, 459 U.S. at 534 (injuries claimed by labor unions
as a result of the defendants’ coercion of third parties not
proximately caused by alleged antitrust violation); Holmes, 503
U.S.
at
268
(RICO
injuries
claimed
by
nonprofit
corporation
legally required to reimburse customers of securities broker14
dealers
unable
proximately
to
caused
meet
by
their
customer
obligations
stock-manipulation
scheme
were
that
not
caused
broker-dealers to fail); and Hemi Group, 559 U.S. at 10 (City of
New York’s tax losses resulting from cigarette manufacturer’s
failure to file report identifying its online purchasers located
in
New
York
did
not
satisfy
RICO’s
“direct
relationship”
requirement)). Meanwhile, none of the FHA authorities the County
offers in support of its liberal construction—Havens, Gladstone,
and Trafficante—addressed the issue of proximate causation. Each
of
these
cases
instead
examined
the
FHA’s
zone
of
interest,
which all agree encompasses the County’s claimed injury.
Moreover,
the
Court’s
discussion
in
Havens
supports
the
inference that most of the County’s injuries, while cognizable
under
the
FHA,
are
indirect
vis-à-vis
the
alleged
discrimination. In Havens, the Court determined that residents
of a neighborhood affected by racial steering, but who had not
themselves
been
individually
targeted
by
the
practice,
had
standing to assert FHA claims based on the “adverse impact” of
the practice on the neighborhood. The Court observed that “the
injury asserted” in these “neighborhood” claims (akin to the
County’s claim for injury to the fabric of its neighborhoods)
“is an indirect one.” 455 U.S. at 375. The Court then contrasted
the indirect, “neighborhood” injuries with the direct injuries
some of the plaintiffs suffered in their capacity as “testers,”
15
characterizing the latter as “the denial of the tester’s own
statutory
right
to
truthful
housing
information
caused
by
misrepresentations to the tester.” Ibid. Plainly, none of the
County’s alleged injuries is comparable to the direct injuries
in Havens.
Nor does Trafficante support the County’s directness theory
as to the totality of its alleged injuries. In Trafficante, two
tenants of an apartment complex—one white and the other AfricanAmerican—complained that the owner of the complex discriminated
against non-whites in the rental of apartments, thus depriving
both plaintiffs of the social and economic benefits of living in
an integrated community and causing them reputational harm. 409
U.S. at 206-208. The Court held that these injuries brought the
plaintiffs within the scope of the FHA’s broad definition of
“aggrieved persons.” Id. at 208. The Court did not address the
directness of the plaintiffs’ injuries, presumably because it
was obvious, or at a minimum undisputed: the moment the complex
owner refused to rent to a non-white person, tenants of all
races were denied, as a direct result of the owner’s conduct,
the
associational
proximity.
Again,
and
reputational
none
of
the
benefits
County’s
of
alleged
that
person’s
injuries
is
comparable.
Where
the
County’s
proximate
causation
theory
does
find
some traction is in Gladstone. There, the Village of Bellwood
16
alleged that a real estate firm’s racial steering violated the
FHA
by
manner,
“manipulat[ing]
“rob[bing]
stability.”
441
the
the
U.S.
at
housing
village
109-10,
market”
of
its
111.
The
in
a
racial
Court
segregative
balance
and
allowed
the
Village’s claim to proceed, reasoning:
The adverse consequences attendant upon a “changing”
neighborhood can be profound. If petitioners’ steering
practices significantly reduce the total number of
buyers in the Bellwood housing market, prices may be
deflected
downward.
This
phenomenon
would
be
exacerbated if perceptible increases in the minority
population directly attributable to racial steering
precipitate
an
exodus
of
white
residents….
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.
441 U.S. at 110-11 (citations omitted). Thus, while Gladstone
did not address the question of proximate causation, it clearly
contemplated recovery under the FHA for downstream tax injuries
such as the ones the County asserts here.
Were Gladstone the Supreme Court’s last word on the claims
a municipality may pursue under the FHA, I would be inclined to
hold, as I did in my previous decision, that the County is
entitled to develop evidence to try and show that the totality
of its alleged injuries were proximately caused by defendants’
discrimination. 3
But
City
of
Miami’s
3
discussion
of
proximate
Like the diminution in the municipal tax base considered in
Gladstone, the County claims a reduction in its “tax digest −
representing the value of all real property subject to tax.” SAC
17
causation effectively curtails the ability of municipalities to
recover
for
many
of
the
downstream
losses
they
undoubtedly
suffer as a result of far-reaching FHA violations of the kind
alleged here. See City of Miami, 137 S. Ct. at 1311 (Thomas, J.
concurring in part) (“the majority opinion leaves little doubt
that
neither
Miami
nor
any
similarly
situated
plaintiff
can
satisfy the rigorous standard for proximate cause that the Court
adopts and leaves to the Court of Appeals to apply.”) For the
reasons explained above, I conclude that the County’s claimed
tax losses, as well as their increased costs arising out of the
provision of downstream social services such as policing and
home-loss counseling, are too remote in time, and too contingent
on
later
events,
to
satisfy
the
“first
step”
directness
requirement that the Court now applies in this context.
Lexmark Int’l, Inc. v. Static Control Components, Inc., 134
S. Ct. 1377 (2014), a Lanham Act case, does not persuade me
otherwise. The Lexmark plaintiff—a commercial entity—claimed it
was injured as a result of the defendants’ false advertisements
to consumers. The Supreme Court held that the harm the plaintiff
alleged had a “sufficiently close connection to the conduct the
at ¶ 387. Defendants argue that documents produced in discovery
prove that any reduction in the tax digest had no adverse effect
on the County’s coffers, since the County assesses and collects
taxes in a manner independent of the tax digest. Because I
conclude that the County’s alleged tax injuries do not satisfy
the proximate cause standard established in City of Miami in any
event, I need not reach this argument.
18
statute prohibits” to suggest proximate causation. Id. at 139091. Citing Holmes and Hemi Group, the Court explained that the
proximate
cause
requirement
ordinarily
bars
claims
that
are
“purely derivative of ‘misfortunes visited upon a third parson
by the defendants’ acts.’” Id. at 1390. The Court acknowledged
that
“[i]n
a
sense…all
commercial
injuries
from
false
advertising are derivative of those suffered by consumers who
are
deceived
Lanham
Act
by
the
does
advertising,”
not
authorize
but
held
consumer
that
suits
because
for
the
false
advertising, “the intervening step of consumer deception” was
not fatal to the commercial plaintiff’s claim. Ibid. The same
reasoning
does
not
support
proximate
causation
in
the
FHA
context, where individual targets of housing discrimination are
not only authorized to bring claims, but are indeed the core
class of persons the statute protects. See Trafficante, 409 U.S.
at 210 (noting that “members of minority groups were damaged the
most
from
discrimination
in
housing
practices”).
So
while
I
agree with the County that its injuries are not “derivative” of
the targeted individuals’ injuries, it cannot overcome City of
Miami’s directness requirement on the authority of Lexmark.
Nevertheless,
a
narrow
category
of
the
County’s
alleged
injuries do have a sufficient temporal and practical connection
to the challenged foreclosures to bring them plausibly within
the “first step” of causation: the out-of-pocket costs it claims
19
to have incurred in processing the discriminatory foreclosures,
such as additional funding for the Cook County Sheriff to serve
foreclosure notices and for the Circuit Court of Cook County to
process the deluge of foreclosures. See SAC at ¶¶ 9, 376, 378.
Although
the
SAC
does
not
quantify
this
discrete
subset
of
losses, they presumably represent only a small portion of the
damages
the
County
narrow
category
of
seeks.
Indeed,
foreclosure
I
am
skeptical
processing
costs
that
is
this
worth
fighting over in a suit of this magnitude. Still, these costs
bear
a
sufficiently
close
connection
to
the
alleged
discrimination that the County is entitled to offer evidence to
establish defendants’ liability for its losses.
There is no merit to defendants’ argument that Illinois
common law bars the County from recovering for these losses.
Defendants
anchor
their
argument
in
principles
of
state
sovereignty, insisting that a federal statute such as the FHA
cannot empower a state-created political entity to exceed the
scope of its state-granted authority. But this argument has it
backwards.
Where
state
law
“stands
as
an
obstacle
to
the
accomplishment and execution of the full purposes and objectives
of Congress,” it is state law that cedes. Freightliner Corp. v.
Myrick,
514
U.S.
280,
287
(1995)
(explaining
conflict
preemption) (internal quotation marks and citation omitted).
20
Defendants’
central
authorities
acknowledge
as
much.
In
City of Flagstaff v. Atchison, Topeka & Santa Fe Ry. Co., 719
F.2d 322, 324 (9th Cir. 1983), the Ninth Circuit applied the
municipal cost recovery rule to bar the city from recovering the
cost of public services it incurred as a result of an accident
caused
by
however,
the
that
defendant’s
the
negligence.
general
rule
The
bears
court
explained,
exception,
and
that
“[r]ecovery is permitted where it is authorized by statute or
regulation…or
required
to
effect
the
intent
of
federal
legislation,” among other circumstances. Id; see also City of
Chicago
v.
Beretta
U.S.A.
Corp.,
821
N.E.
2d
1099,
1143-44
(acknowledging exceptions). Indeed, the upshot of City of Miami
is that is that the FHA authorizes a municipality to pursue
claims
for
“municipal
provided
economic
services”
they
can
injuries,
occasioned
plausibly
including
by
allege
for
additional
the
alleged
violations,
that
their
damages
were
proximately caused by the defendant’s discrimination. None of
defendants’ cited authorities compels a contrary result based on
common law municipal cost recovery restrictions. 4
4
For example, cites Alden v. Maine, 527 U.S. 706 (1999). That
case is entirely inapposite, as it concerns the constitutional
basis for and scope of states’ sovereign immunity from suits by
private citizens in their own courts. It does not address the
authority of state-created political entities to initiate suits
against private entities in federal courts pursuant to a federal
statute. Champaign County v. Anthony, 337 N.E. 2d 87 (Ill. App.
Ct. 1975), another case defendants cite, concerned a county’s
21
Having
determined
that
the
County
pleads
at
least
some
recoverable injuries that were plausibly proximately caused by
the
discrimination, 5
alleged
argument
that
the
I
County’s
turn
briefly
disparate
to
impact
defendants’
claim—which
I
previously held adequate on the pleadings—does not survive Texas
Department
of
Housing
&
Community
Affairs
v.
Inclusive
Communities Project, Inc., 135 S. Ct. 2507 (2015). The argument
does not require extensive analysis.
The
straightforward
certiorari
in
question
Inclusive
on
Communities
which
was
the
Court
“whether
granted
disparate-
impact claims are cognizable under the Fair Housing Act.” Id. at
2513. It answered the question affirmatively, concluding that
“[r]ecognition of disparate-impact claim is consistent with the
FHA’s central purpose,” as well as with its text and with the
Court’s
interpretation
anti-discrimination
strain
to
insisting
turn
that
of
similar
statutes.
the
Court’s
although
it
Id.
language
at
2521,
decision
affirmed
to
that
in
other
federal
2518.
Defendants
their
advantage,
such
claims
are
assertion of common law tort claims, not statutory claim
authorized by Congress. Defendants’ remaining authorities are no
more persuasive.
5 This conclusion alone dispenses with defendants’ argument that
the County lacks Article III standing for want of an injury-infact, see Mot. at 20 (citing Lujan v. Defenders of Wildlife, 504
U.S. 555, 560 (1992)); Reply at 12-14, though the argument is
meritless in any event.
22
cognizable,
it
established
“rigorous,
pleading-stage
requirements” that the County has not met. Mot. at 15. But the
SAC easily clears the relevant pleading hurdles.
As the Court observed in Inclusive Communities, disparateimpact
liability
“has
always
been
properly
limited
in
key
respects that avoid the serious constitutional questions that
might arise under the FHA…if such liability were imposed based
solely on a showing of a statistical disparity.” 135 S. Ct. at
2522. The Court went on to explain that because disparate-impact
claims are not meant to displace “valid government policies,”
but
rather
barriers”
to
to
remove
equality,
“artificial,
arbitrary,
plaintiffs
must
and
plead
and
unnecessary
ultimately
prove not only a statistical imbalance, but also an “artificial,
arbitrary,
and
unnecessary”
and
a
“robust”
causal
connection
between the two. Id. at 2523.
No one disputes that the SAC is replete with statistics
reflecting
racial
foreclosure
rates
disparities
within
in
Cook
mortgage
County,
or
default
that
the
and
County
attributes these disparities to defendants’ lending, servicing,
and
foreclosure
objection
is
alleged
racial
policies
twofold:
and
first,
practices.
that
disparities
the
to
Defendants’
County
primary
attributes
defendants’
the
intentional
discrimination against African-American and Hispanic borrowers,
rather
than
to
facially-neutral
23
policies
or
practices;
and
second,
that
the
County’s
allegations
of
a
broad,
“equity
stripping scheme” fail to identify any single, facially-neutral
policy
with
a
robust
causal
connection
to
the
alleged
disparities. Not only are these arguments premised on a mistaken
view
of
the
law,
they
ignore
vast
swaths
of
the
County’s
factually detailed complaint.
First, while it is true that a disparate-impact claim does
not require proof of intentional discrimination, allegations of
intentional
discrimination
do
not
defeat
a
disparate-impact
claim. Adams v. City of Indianapolis, 742 F.3d 720, 732 (7th
Cir.
2014)
impact
(reversing
claim
on
discrimination
premise
ample
defendants
court’s
the
to
that
claim,
ruling
allegations
alleged
court’s
ground
defeated
of the
contains
the
lower
have
was
of
dismissal
allegations
stating
of
of
that
wrong.”).
disparate
intentional
“[t]he
Anyway,
facially-neutral
a
disparate-
legal
the
practices
impact
on
SAC
by
minority
borrowers. For example, the County’s description of defendants’
fraudulent,
dilatory,
or
otherwise
wrongful
processing
of
distressed borrowers’ requests for loan modifications under HAMP
do
not
suggest
that
defendants
used
race-based
criteria
in
handling these requests. See SAC at ¶¶ 365, 367.
Second,
multifaceted
although
the
County
“equity-stripping
undeniably
scheme,”
articulates
defendants
offer
a
no
authority to suggest that the “specific” practice challenged in
24
a disparate-impact claim must be limited to a single component.
Certainly that is not the thrust of the plurality view in Watson
v. Fort Worth Bank & Trust, 487 U.S. 977, 944 (1988). There,
after observing that statistical disparities are insufficient to
establish
a
prima
facie
disparate
impact
claim,
the
Watson
plurality merely explained that the plaintiff is “responsible
for isolating and identifying the specific…practices that are
allegedly responsible for any observed statistical disparities.”
Ibid. Nothing about this statement limits the complexity of the
challenged practice.
Moreover,
defendants’
characterization
of
the
County’s
allegations as “challenging everything Defendants have ever done
in
originating
or
servicing
loans,
without
identifying
any
single policy” is inaccurate. Over the course of more than five
hundred painstakingly detailed paragraphs, the County describes
the various components of the challenged equity stripping scheme
and explains how those components, and the scheme as a whole,
has
had
a
disproportionately
negative
impact
on
minority
borrowers and has injured the County as a result.
Defendants lean heavily on the Ninth Circuit’s unpublished
decisions in City of Los Angeles v. Bank of Am. Corp., 2017 WL
2323441 (9th Cir. May 26, 2017), and City of Los Angeles v.
Wells
Fargo
affirmed
&
Co.,
summary
2017
WL
judgment
in
2304375
the
25
(May
26,
defendants’
2017),
favor
on
which
FHA
disparate-impact claims. These decisions focused on three of the
putative policies that Los Angeles claimed caused the alleged
racial
disparity
and
concluded
that
the
evidence
failed
to
suggest a “robust” causal link to two of them while the third
was not a policy at all. As one of my colleagues recently noted
in a well-reasoned decision denying dismissal of the County’s
disparate-impact claims in a closely analogous case, however,
“[a]t the pleading stage of a lawsuit, ‘[i]t is enough to plead
a plausible claim, after which a plaintiff receives the benefit
of imagination, so long as the hypotheses are consistent with
the complaint.’” County of Cook v. Wells Fargo & Co., No. 14-C9548,
2018
WL
1469003,
at
*11
(N.D.
Ill.
Mar.
26,
2018)
(Feinerman, J.) (quoting Chapman v. Yellow Cab Coop., 875 F.3d
846, 848 (7th Cir. 2017)). Having closely reviewed the operative
complaint,
I
am
articulate
both
satisfied
a
that
statistical
the
County’s
race-based
allegations
disparity
and
a
specific, multifaceted policy with a robust causal connection to
that
disparity.
Defendants
have
not
shown
that
Inclusive
Communities requires more.
III.
For the foregoing reasons, defendants’ motion is granted in
part. The County is entitled to proceed on both its disparate
treatment and its disparate impact claims under the FHA. The
26
County’s potential recovery is limited, however, to its claims
for foreclosure-processing related expenses.
ENTER ORDER:
_____________________________
Elaine E. Bucklo
United States District Judge
Dated: March 30, 2018
27
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