National Fair Housing Alliance et al v. Deutsche Bank et al
Filing
54
MEMORANDUM OPINION AND ORDER: For the reasons stated herein, Defendants' motion to dismiss 29 is granted and Plaintiffs' Complaint is dismissed without prejudice. Plaintiffs shall amend their Complaint by 1/4/19 and, as part of that ame ndment: (1) replace Defendant Ocwen with an appropriate Ocwen subsidiary; (2) drop Defendants Deutsche Bank and Deutsche Bank AG from the case; and (3) edit the caption to reflect suit against Defendants Deutsche Bank National Trust and Deutsche Bank Trust Company Americas in their trustee capacities only. Plaintiff's motion to supplement authority 52 is granted, but the decision cited thereinWetzel v. Glen St. Andrew Living Community, 901 F.3d 856 (7th Cir. 2018) does not materially change the Court's perspective on today's ruling. No appearances are necessary on 12/5/18. Status hearing set for 1/10/19 at 9:00 a.m. Signed by the Honorable Harry D. Leinenweber on 11/19/18: Mailed notice(maf)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
NATIONAL FAIR HOUSING ALLIANCE;
HOPE FAIR HOUSING CENTER, OPEN
COMMUNITIES; SOUTH SUBURBAN
HOUSING CENTER; HOUSING
OPPORTUNITIES MADE EQUAL OF
VIRGINIA; FAIR HOUSING
OPPORTUNITIES OF NORTHWEST OHIO,
INC.; FAIR HOUSING CONTINUUM;
GREATER NEW ORLEANS FAIR HOUSING
ACTION CENTER; DENVER METRO FAIR
HOUSING CENTER; METROPOLITAN
MILWAUKEE FAIR HOUSING COUNCIL;
FAIR HOUSING CENTER OF WEST
MICHIGAN; THE MIAMI VALLEY FAIR
HOUSING CENTER; HOUSING RESEARCH
& ADVOCACY CENTER; FAIR HOUSING
CENTER OF THE GREATER PALM
BEACHES; FAIR HOUSING CENTER OF
CENTRAL INDIANA; CENTRAL OHIO
FAIR HOUSING ASSOCIATION;
HOUSING OPPORTUNITIES PROJECT
FOR EXCELLENCE, INC.;
CONNECTICUT FAIR HOUSING CENTER;
NORTH TEXAS FAIR HOUSING CENTER;
and FAIR HOUSING ADVOCATES OF
NORTHERN CALIFORNIA,
Case No. 18 C 0839
Judge Harry D. Leinenweber
Plaintiffs,
v.
DEUTSCHE BANK; DEUTSCHE BANK AG;
DEUTSCHE BANK NATIONAL TRUST;
DEUTSCHE BANK TRUST COMPANY
AMERICAS; OCWEN FINANCIAL CORP.;
and ALTISOURCE PORTFOLIO
SOLUTIONS, INC.,
Defendants.
MEMORANDUM OPINION AND ORDER
Defendants Deutsche Bank, Deutsche Bank AG, Deutsche Bank National
Trust, Deutsche Bank Trust Company Americas, Ocwen Financial Corp., and
Altisource Portfolio Solutions, Inc. move to dismiss the Complaint in
its entirety for failure to state a claim.
Ocwen also moves separately
for its dismissal from the case for lack of personal jurisdiction.
For
the reasons stated herein, the Court grants both Motions and allows
Plaintiffs forty-five (45) days to amend their Complaint.
I.
Plaintiffs
collective
are
mission
a
is
BACKGROUND
group
to
of
end
integration across the country.
Defendants
maintain
policies
fair
housing
housing
organizations
discrimination
and
whose
promote
In this suit, Plaintiffs contend that
which
caused
certain
Defendant-owned
properties to be disparately maintained in violation of the Fair Housing
Act (“FHA”), 42 U.S.C. §§ 3604, 3605, 3617.
Specifically, Plaintiffs contend that Defendants Deutsche Bank,
Deutsche Bank AG, Deutsche Bank National Trust, and Deutsche Bank Trust
Company Americas are the trustees and thus owners of record of thousands
of “real-estate owned” (or “REO”) properties in thirty major metropolitan
areas,
including
Chicago.
Defendants
Ocwen
Financial
Corp.
and
Altisource Portfolio Solutions, Inc. are the servicers allegedly charged
with maintaining those REO properties.
Following the housing collapse in 2008, Plaintiffs undertook an
investigation of Defendants’ property maintenance activities across the
country.
Defendants
The ostensible goal of that investigation was to compare how
maintained
neighborhoods
against
those
those
properties
properties
predominantly
in
in
predominantly
communities
specifically,
in
African-American
and
neighborhoods.
The investigation lasted from 2011 to 2017.
of
white
color—
Hispanic
During that
time, Plaintiffs visited Defendant-owned REO properties and inspected
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thirty-nine “maintenance and marketing conditions” such as curb appeal,
signage and occupancy, paint and siding, yard and lawn conditions,
graffiti, and water damage.
(Compl. ¶¶ 5, 72, Dkt. No. 1.)
Plaintiffs
inspected the condition of each REO property only once, though they chose
not to include in their data those properties that “appeared to be
occupied or [where] work was actively occurring at the time of the site
visits.”
(Compl. ¶ 68.)
According to Plaintiffs, their data shows, in
aggregate, “highly significant disparities” between the routine exterior
maintenance and marketing of Defendant-owned properties in communities
of color and those in white communities.
Based
Complaint,
on
those
charging
disparities,
Defendants
with
(Compl. ¶¶ 78-87, 94-106.)
Plaintiffs
violating
bring
42
a
U.S.C.
five-count
§ 3604(a),
§ 3604(b), § 3605, § 3617, and with violating the FHA generally by
perpetuating segregation.
Though the Complaint does not clearly state
as much, Plaintiffs explain in response that they pursue these claims
under two theories of harm: disparate impact and disparate treatment.
Defendants move collectively to dismiss Plaintiffs’ Complaint for
failure to state a claim, and Defendant Ocwen moves separately to dismiss
the claims against it for lack of personal jurisdiction. For the reasons
stated herein, the Court grants both Motions but permits Plaintiffs leave
to amend.
II.
LEGAL STANDARD
In ruling on a motion to dismiss, the Court accepts all wellpleaded facts as true and draws all reasonable inferences in favor of
the plaintiff. United States ex rel. Berkowitz v. Automation Aids, Inc.,
896 F.3d 834, 839 (7th Cir. 2018) (citation omitted).
- 3 -
To survive a
motion
to
dismiss,
the
complaint
must
contain
sufficient
factual
information to “state a claim to relief that is plausible on its face.”
Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
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.”
Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009).
III.
DISCUSSION
The parties have generated over 100 pages of briefing in their
dispute over Plaintiffs’ 84-page Complaint.
For efficiency’s sake, the
Court has organized its ruling to address Defendants’ threshold arguments
first and so winnow the Complaint down to its substance.
Below, the
Court addresses: (1) ministerial cleanup required of the Complaint; (2)
a timeliness objection; (3) whether certain Defendants must be dismissed
from
the
case;
(4)
count-specific
objections;
and,
finally,
(5)
Defendants’ objections to Plaintiffs’ disparate impact and disparate
treatment theories.
A.
Ministerial Cleanup
The Court begins with three housekeeping matters. First, Defendant
Ocwen contends that the Court lacks personal jurisdiction over it because
Ocwen
never
actually
conducted
within this Court’s jurisdiction.
that
maintenance—whether
any
property-maintenance
activities
Rather, Owen’s subsidiaries conducted
disparately
administered
or
otherwise.
Defendants cite the rule that “[w]here two corporations are in fact
separate, permitting the activities of the subsidiary to be used as a
basis for personal jurisdiction over the parent violates . . . due
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process.” Cent. States, Se. & Sw. Areas Pension Fund v. Reimer Express
World Corp., 230 F.3d 934, 944 (7th Cir. 2000).
Plaintiffs do not
challenge the 12(b)(2) Motion and instead agree to remedy the problem
by replacing Ocwen with the “appropriate Ocwen operating subsidiary.”
(Pls.’ Resp. 32-33, Dkt. No. 41.)
The Court accordingly grants Ocwen’s
12(b)(2) Motion and permits Plaintiffs leave to enter the amendment they
propose.
Next, Defendants contend that neither Deutsche Bank nor Deutsche
Bank AG are proper defendants in this case.
The former is simply a
trade name and does not identify any particular legal entity. The latter
is simply a bank; Deutsche Bank AG does not serve as trustee of any of
the
REO
properties
(and
so,
Defendants
reason,
responsible for any of the conduct alleged).
the
bank
is
not
Again, Plaintiffs bow to
Defendants’ objections; Plaintiffs agree to dismiss Deutsche Bank and
Deutsche Bank AG from the case.
Finally, Plaintiffs wish to replace “Altisource Solutions, Inc.”
in the caption with that entity’s proper name, “Altisource Portfolio
Solutions, Inc.”
Defendants apparently have no problem with that
correction, though they note in passing that Altisource is a holding
company that conducts no business in Illinois and so should be ejected
from the case. That argument, however, appears in Defendants’ collective
35-page memoranda in support of dismissal only once—in a footnote.
Arguments appearing only in footnotes are waived, and the Court will not
delve further into this passing remark.
See Bakalis v. Golembeski, 35
F.3d 318, 326 n.8 (7th Cir. 1994) (deeming argument made only in footnote
in opening brief waived).
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B.
Timeliness of Allegations
Defendants begin their assault on the Complaint by arguing that
many of Plaintiffs’ allegations are untimely.
that
objection
requires
a
consideration
of
Judging the merits of
the
FHA’s
statute
of
limitations and the so-called “continuing violation” doctrine.
A civil enforcement action under the FHA must be filed “not later
than 2 years after the occurrence or the termination of an alleged
discriminatory housing practice . . . whichever occurs last[.]”
U.S.C. § 3613(a)(1)(A) (emphasis added).
42
The italicized language was
added to the FHA in 1988 to codify the continuing violation doctrine.
See Cty. of Cook v. Bank of Am. Corp., 181 F. Supp. 3d 513, 520 (N.D.
Ill. 2015) (describing legislative history).
is
tolled
so
long
as
administrative proceeding.
the
allegations
The typical 2-year period
in
question
pend
in
an
See 42 U.S.C. § 3613(a)(1)(B).
Here, Plaintiffs filed an administrative complaint with the U.S.
Department of Housing and Urban Development (“HUD”) against the Deutsche
Bank Defendants on February 26, 2014.
Plaintiffs then added Ocwen and
Altisource as respondents to the complaint on February 14, 2017.
Those
administrative proceedings were still pending as of Plaintiffs’ filing
of the Complaint in this case.
As such, Defendants contend that
Plaintiffs’ timely-allegation window extends back no further than two
years prior to the date the HUD action was filed, meaning Plaintiffs may
only complain of the Deutsche Bank Defendants’ actions dating back to
February 26, 2012, and of Ocwen and Altisource’s actions dating back to
February 14, 2015.
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Plaintiffs disagree, arguing that because their lawsuit challenges
Defendants’ alleged discriminatory policies (which are still allegedly
in
effect
today),
Plaintiffs’
continuing violation doctrine.
claims
within
the
above-mentioned
Plaintiffs are mistaken.
The Seventh
Circuit has explained that the doctrine has no application where the
time-barred incident put the plaintiff on notice that his rights were
being violated.
See EEOC v. N. Gibson Sch. Corp., 266 F.3d 607, 617
(7th Cir. 2001), overruled in part on unrelated grounds by EEOC v. Waffle
House, 534 U.S. 279 (2002); see Limestone Dev. Corp. v. Vill. of Lemont,
520 F.3d 797, 801 (7th Cir. 2008) (stating that the doctrine allows “suit
to be delayed until a series of wrongful acts blossoms into an injury
on which suit can be brought . . . .
It is thus a doctrine not about a
continuing, but about a cumulative, violation”).
In other words, a
plaintiff seeking the doctrine’s application must show that it was
reasonable of him not to perceive the impingement of his rights until
the discriminatory acts had, “through repetition or cumulation, reached
the requisite level of severity.” Shanoff v. Ill. Dep’t of Human Servs.,
258 F.3d 696, 703 (7th Cir. 2001) (internal quotation marks and citations
omitted).
Plaintiffs resist
this notice limitation, citing City of Los
Angeles v. Citigroup, Inc., 24 F. Supp. 3d 940, 951-52 (C.D. Cal. 2014),
County of Cook v. Wells Fargo & Co., No. 14 C9549, 2018 WL 1469003, at
*14 (N.D. Ill. Mar. 26, 2018), and County of Cook v. Bank of Am. Corp.,
181 F. Supp. 3d 513, 520 (N.D. Ill. 2015).
Relying on these cases,
Plaintiffs stress that “courts have acknowledged the appropriateness of
accepting continuing violation allegations and have rejected motions to
- 7 -
dismiss on statute of limitations grounds at the pleading stage.” (Pls.’
Resp. 25, Dkt. No. 41.)
That is true, but not in a way that helps
Plaintiffs’ argument.
First, City of Los Angeles is inapposite.
That opinion noted that
under Ninth Circuit precedent, a strict notice limitation “has never
been the ‘litmus test’ for application of the continuing violation
doctrine.”
24 F. Supp. 3d at 952 (quoting Douglas v. Cal. Dep’t of
Youth Auth., 271 F.3d 812, 824 n.13 (9th Cir. 2001)).
The Seventh
Circuit has strictly required the notice limitation, however, so City
of Los Angeles’ contrary proclamation can be put aside.
See, e.g.,
Shanoff, 258 F.3d at 703 (“[I]f the [discriminatory] conduct that
occurred before the limitations period was sufficient to notify the
plaintiff that he had a substantial claim . . . the continuing violation
doctrine does not apply and he can only base his claim on conduct that
occurred within the limitations period.”).
Second, though Plaintiffs’ two other cases are from this District,
those cases are distinguishable in a key way.
In both, the judges found
they could not discern from the complaint alone when each plaintiff knew
or should have known about the alleged FHA-violative misconduct.
Wells
Fargo, 314 F. Supp. 3d at 996 (“At minimum, because it is not apparent
from the pleadings when Cook County ‘knew or should have known’ that the
equity-stripping practice constituted an actionable cumulative violation
under the FHA, the motion to dismiss on the ground that the FHA’s twoyear statute of limitations has run is premature.”); Bank of Am. Corp.,
181 F. Supp. 3d at 521 (“I cannot determine on the basis of the complaint
whether the County knew or should have known [of the alleged violations].
- 8 -
In support of their statute of limitations argument, Defendants ask me
to
consider
dismiss.”).
documents
that
are
beyond
the
scope
of
a
motion
to
That is not the case here.
Plaintiffs state clearly in their Complaint that in 2011, during
the course of their investigative efforts, they held a national news
conference
“and
released
a
report
analyzing
and
describing
the
discriminatory maintenance and marketing of white and non-white REO
properties. The release of this comprehensive report placed Defendants
on notice of the fact that their discriminatory conduct and practices
violate the Fair Housing Act.”
(Compl. ¶ 88.)
Plaintiffs intend this
allegation to show that Defendants were on notice of their alleged
misconduct, but it ends up having the opposite effect as well. Accepting
these allegations are true, as the Court must, the Plaintiffs knew back
in
2011
that
Defendants’
conduct
transgressed
the
FHA.
Because
Plaintiffs’ own allegations demonstrate their clear knowledge of their
FHA claims back in 2011, the continuing violation doctrine is unavailable
to them.
As such, the ordinary two-year statute of limitations applies.
After tolling that period for the duration of the still-pending
HUD proceedings, Plaintiffs’ actionable allegations window dates to
February 26, 2012, for the Deutsche Bank Defendants, and to February 14,
2015, for Ocwen and Altisource.
See La Playita Cicero, Inc. v. Town of
Cicero, No. 11 CV 1702, 2014 WL 944859, at *8 (N.D. Ill. Mar. 11, 2014)
(explaining that because plaintiffs filed an on-point counterclaim in
2007, they could not contend that defendants’ actions prior to 2009 were
too trivial to constitute a claim); see also Ponticiello v. Aramark Unif.
& Career Apparel Servs., Inc., No. 05 C 1137, 2006 WL 2699416, at *7
- 9 -
(N.D.
Ill.
Sept.
19,
2006)
(finding
continuing
violation
doctrine
inapplicable because plaintiff was aware of the alleged discriminatory
acts before the limitations period).
This ruling shears off a significant part of the dataset from which
Plaintiffs
draw
their
statistics.
Further,
those
statistics
are
presented, at present, only in the form of conclusions predicated on the
aggregate data.
(Compl. ¶¶ 78-87 (putting forth “aggregate findings”).)
The Court has no way to discern whether Plaintiffs’ statistics-based
allegations are rendered less plausible by the subtraction this ruling
imposes.
Should Plaintiffs amend the Complaint to keep this case alive,
they must replead their statistical findings and base them upon the
usable dataset alone.
C.
The Deutsche Bank Defendants
Once Plaintiffs strike Deutsche Bank and Deutsche Bank AG from the
Complaint, as they have agreed to do, two Deutsche Bank Defendants
remain: Deutsche Bank National Trust and Deutsche Bank Trust Company
Americas.
Those Defendants take issue with their inclusion in this case
on two grounds.
First, Plaintiffs have failed to sue those Defendants
specifically in their trustee capacities, and it is only in that role
that said Defendants hold title to the at-issue REO properties.
objection has merit.
This
See Briscoe v. Deutsche Bank Nat. Tr. Co., No. 08
C 1279, 2008 WL 4852977, at *5 (N.D. Ill. Nov. 7, 2008) (dismissing
claims against Deutsche Bank entity sued in individual capacity when
said entity only held the plaintiff’s mortgage as trustee); see also
City of Cincinnati v. Deutsche Bank Nat. Tr. Co., 897 F. Supp. 2d 633,
638 (S.D. Ohio 2012) (substantially same).
- 10 -
Nothing in the Complaint
suggests Plaintiffs mean to sue the Deutsche Bank Defendants in any
capacity other than as trustees (see Compl. ¶¶ 3, 35, 55 (reciting
Deutsche Bank Defendants’ ownership of the REO properties as trustee)),
so the case caption should be cleaned up to reflect that.
Defendants’ second objection is trickier.
Defendants contend that
even if Plaintiffs clean up the caption and sue the remaining two
Deutsche Bank Defendants in their trustee capacities, those Defendants
still could not remain in this case because, as trustees, the Deutsche
Bank Defendants never performed any of the challenged conduct, i.e.,
maintaining the REO properties.
Defendants emphasize that as trustees,
their only responsibility is to hold REO property titles in trust, and
the responsibility for property maintenance lay with the servicers alone.
Here the Court pauses to expand on the relevant background before
considering Defendants’ responsibilities in greater depth.
The REO properties at issue here all have mortgages which have been
pooled together to form residential mortgage-backed securities (“RMBS”).
Such securities are created when an investment bank purchases thousands
of residential mortgages and then pools them together.
¶ 41.)
(See Compl.
Upon the creation of an RMBS, a document called a Pooling and
Servicing Agreement (“PSA”) is drafted to allocate responsibilities
related to the security among certain parties.
(See Compl. ¶ 53.)
The
PSA designates a trustee to hold title to the real estate securing the
RMBS, and the PSA also designates a servicer to preserve and manage the
property.
(See Compl. ¶¶ 53-56.)
In this case, the Deutsche Bank
Defendants are the PSA-designated trustees; Ocwen and Altisource are the
servicers.
Against this backdrop, the question is whether the Deutsche
- 11 -
Bank Defendants may escape FHA liability given that the relevant PSAs
allocate all responsibility for property maintenance to the servicers
alone.
Plaintiffs cry foul.
They emphasize the general rule that a
property owner may not delegate to another its duty to obey the laws
relating to racial discrimination.
Coates v. Bechtel, 811 F.2d 1045,
1051 (7th Cir. 1987) (citing Phiffer v. Proud Parrot Motor Hotel,
Inc., 648 F.2d 548, 552 (9th Cir. 1980)).
Under that rule, a property
owner cannot foist upon its agent the responsibility for FHA compliance
and then close its eyes to that agent’s shortcomings.
See, e.g., Walker
v. Crigler, 976 F.2d 900, 904 (4th Cir. 1992) (ruling that property owner
could not insulate himself from FHA liability merely by “relinquishing
the
responsibility
for
preventing
such
discrimination
to
another
party”); Metro. Fair Hous. Council of Okla., Inc. v. Pelfrey, 292 F.
Supp. 3d 1250, 1253 (W.D. Okla. 2017) (finding trustee vicariously liable
for agent’s FHA-violative actions in renting properties owned by the
trust); Saunders v. Gen. Servs. Corp., 659 F. Supp. 1042, 1059 (E.D. Va.
1987) (“Under the Fair Housing Act, a corporation and its officers are
responsible for the acts of a subordinate employee . . . even though
these acts were neither directed nor authorized[.]
Courts have followed
this rule even where ‘it seems harsh to punish innocent and wellintentioned employers’ because the statutory duty not to discriminate
is non-delegable.”)
According to Plaintiffs, that rule ends the debate.
They argue that because Defendants (as trustees) owned the REO properties
in this case, Defendants are stuck on the hook for FHA compliance no
matter what.
However, case law does not support that argument.
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In Hamilton v. Svatik, 779 F.2d 383, 387-88 (7th Cir. 1985), the
Seventh
Circuit
affirmed
a
property
owner’s
liability
for
the
discriminatory acts of her brother, who acted as her agent in handling
and approving would-be renters.
But in reaching that conclusion, the
Seventh Circuit drew a contrast with Hollins v. Kraas, 369 F. Supp. 1355,
1356 (N.D. Ill. 1973), in which the court found contract buyers liable
for FHA violations even though those buyers did not hold title to the
property at issue.
As the Hamilton court described it: “In Hollins the
contract buyers had sole and exclusive rights of possession, management,
use and control of the building. The contract buyers were not the agents
of the owners or of the bank holding title to the property in trust.”
779 F.2d at 389 n.3 (emphasis added).
Thus, property ownership is not
a trump card in FHA suits; rather, when the alleged FHA malfeasant is
not an agent of the owner, the owner may indeed escape liability.
True, Hollins was a clearer case than this one.
It is nowhere
alleged that Ocwen and Altisource had exclusive rights of possession,
use, and control of the REO properties.
But those servicers might have
had exclusive responsibilities to manage the properties, which could
provide an escape hatch, á la Hollins, for the Deutsche Bank Defendants.
In support of that theory, Defendant ask the Court to consider one of
the PSAs at the heart of this case.
As a threshold matter: The Court may consider the cited-to PSA
without converting the pending motion to dismiss into a motion for
summary judgment.
Under Federal Rule of Evidence 201, the Court may
take judicial notice of facts “not subject to reasonable dispute,”
meaning said facts “can be accurately and readily determined from sources
- 13 -
whose accuracy cannot reasonably be questioned.”
FED. R. EVID. 201.
Matters of public record can fall within the category of judiciallynoticeable facts.
Facebook, Inc. v. Teachbook.com LLC, 819 F. Supp. 2d
764, 771 (N.D. Ill. 2011) (citing Gen. Elec. Capital Corp. v. Lease
Resolution Corp., 128 F.3d 1074, 1082-83 (7th Cir. 1997)).
Defendants’
cited-to PSA is publicly available on a government website. See Deutsche
Bank National Trust Co. PSA, https://www.sec.gov/Archives/edgar/data/
The
1384691/000090514807000184/efc7-0019_6006707ex991.txt.
PSA’s
accuracy cannot reasonably be questioned, so the Court will take judicial
notice of it here.
True to the Complaint, the PSA vests in the Deutsche Bank Defendant
the responsibility to act as trustee in holding title to the contemplated
properties, id. § 2.01, and in the servicer the responsibility to
“protect and conserve” the properties, id. § 3.12.
The PSA adds that
“the Trustee . . . shall [not] have any responsibility or liability for
any action or failure to act by the Servicer nor shall the Trustee . .
. be obligated to supervise the performance of the Servicer under this
Agreement of otherwise.”
Id. § 3.03.
It adds also: “[T]he duties and
obligations of the trustee shall be determined solely by the express
provisions of this Agreement[.]”
Id. § 8.01.
The language of the PSA certainly seems to strip the trustee of
the
responsibility
impermissible
for
delegation
property
of
legal
maintenance.
duties,
as
So:
in
Is
this
an
or
an
Hamilton,
indication that because the servicer, alone, held the legal right and
responsibility to maintain the property, it and not the trustee is
liable, as in Hollins?
As Defendants would tell it, the key to this
- 14 -
question is that they held title to the REO properties as indenture
trustees, a role that calls home to a unique place in the law.
True enough, ordinary and indenture trustees are different.
trust
indenture,
performance
of
the
such
trustee
duties
“shall
as
are
not
be
liable
specifically
except
set
out
for
in
In a
the
such
indenture.” 15 U.S.C. § 77ooo(a)(1). As such, the scope of an indenture
trustee’s duties and liabilities is dictated by the express terms of the
indenture agreement.
In re Sunshine Jr. Stores, Inc., 456 F.3d 1291,
1308-09 (11th Cir. 2006) (citing Baker v. Summit Bank, 46 Fed. App’x
689, 690 (3d Cir. 2002) (“It is well settled that under the Trust
Indenture Act, the obligations of the Indenture Trustee are limited to
the terms of the Indenture.”); Elliott Assocs. v. J. Henry Schroder Bank
& Tr., Co., 838 F.2d 66, 71 (2d Cir. 1988) (“[I]t is clear from the
express terms of the [Trust Indenture] Act and its legislative history
that no implicit duties . . . are imposed on the trustee to limit its
pre-default conduct.”); Meckel v. Cont’l Res. Co., 758 F.2d 811, 816 (2d
Cir. 1985) (stating that “[u]nlike the ordinary trustee, who has historic
common-law duties imposed beyond those in the trust agreement, an
indenture trustee is more like a stakeholder whose duties and obligations
are exclusively defined by the terms of the indenture agreement”)). “The
Indenture Trustee is therefore a creature created and governed by
contract.”
In re Sunshine Jr. Stores, 456 F.3d at 1309.
A recent HUD determination backs up this distinction.
In that
proceeding, the complainants alleged—much like here—that U.S. Bank, as
indenture trustee, engaged in an FHA-violative pattern or practice of
discrimination by disparately maintaining REO properties it held in
- 15 -
trust.
In finding no reasonable cause to support those allegations, HUD
noted that the FHA claims could not be asserted against the indenture
(RMBS) trustee. As HUD explained: “it is the servicers, not the trustee,
who controls properties within the trust,” and “[i]n contrast, the
indenture trustee is more like a legal placeholder with ministerial
duties that are defined by the original indenture agreement.”
(HUD
Determination of No Reasonable Cause 2 n.6, 7 n.21, Dkt. No. 29-2.)
To hear Defendants tell it, the servicers were not agents of the
indenture trustees, but rather separately siloed entities which, under
the PSA, carried certain responsibilities for the properties discrete
from
those
carried
by
the
trustees.
Under
that
reasoning,
the
obligations for non-FHA-violative property maintenance fell squarely
upon the servicers; the Deutsche Bank Defendants, as indenture trustees,
neither shared in those obligations nor delegated them, and so said
Defendants cannot be held responsible for failure of those obligations.
But this is a motion to dismiss.
To win dismissal from this case,
the Deutsche Bank Defendants must establish via judicially-noticeable
documentation that the allegations concerning their property-maintenance
responsibilities are inaccurate and thus may be disregarded.
See
Alexander v. Deutsche Bank Nat. Tr. Co., No. 13-CV-407-MMA WVG, 2013 WL
3320455, at *2 (S.D. Cal. July 1, 2013) (“The court may disregard
allegations in a complaint that are contradicted by matters properly
subject
to
judicial
notice.”)
(citation
omitted).
Though
those
Defendants have pointed the Court to the one PSA described above, that
document alone cannot win them the dismissal they seek.
- 16 -
That PSA is just one of many in this case.
As Defendants describe
it, that PSA “[was] selected as an example PSA that governs one of the
trusts that holds a property identified in the Complaint.”
(Supp. Mem.
in Supp. of Mot. 5 n.6, Dkt. No. 33 (emphasis added); accord Kliebard
Declaration ¶ 2, Dkt. 33-1 (describing this PSA as related to the RMBS
trust
holding
properties).)
title
to
one
of
the
thousands
of
complained-of
So, while this particular PSA delegates all property-
maintenance responsibilities to the servicers alone, nothing before the
Court indicates that all of the pertinent PSAs mimic that allocation.
Add to this Plaintiffs’ unrebutted allegation that the trustees act as
“back-up servicer” (Compl. ¶ 54), and Defendants’ hopes that the Court
will kick the Deutsche Bank entities from this suit are quashed.
It is
not clear, in light of the PSA provided, what a “back-up servicer” is,
or when the responsibilities implied by that term vest in the trustee.
But these are issues of fact to be sussed out later.
For now, the Court
takes Plaintiffs’ allegations as true unless flatly controverted by
judicially-noticeable materials.
In summary, as far as the two remaining Deutsche Bank Defendants
are concerned: They may remain in the case for now, but Plaintiffs must
amend the Complaint to name these Defendants in their trustee capacities
only.
D.
§ 3604 Claims (Counts I and II)
Plaintiffs pursue claims under both § 3604(a) and § 3604(b).
Respectively, those provisions make it unlawful:
•
“[T]o refuse to sell or rent after the making of a bona fide
offer, to refuse to negotiate for the sale or rental of, or
- 17 -
otherwise make unavailable or deny, a dwelling to any person
because of race or otherwise make unavailable or deny, a
dwelling to any person because of race, color, religion, sex,
familial status, or national origin.” 42 U.S.C. § 3604(a);
•
“[T]o discriminate against any person in the terms,
conditions, or privileges of sale or rental of a dwelling, or
in the provision of services or facilities in connection
therewith, because of race, color, religion, sex, familial
status, or national origin.” 42 U.S.C. § 3604(b).
Defendants do not levy challenges particular to either § 3604(a) or
§ 3604(b), but instead lump those objections together in their briefing.
Generally, Defendants argue that case law precludes FHA claims for
failing
to
regulation
maintain
property.
confirming
the
Then,
when
availability
of
confronted
such
with
claims,
a
HUD
Defendants
maintain that regulation does not apply to the present case.
As set
forth below, the Court is not persuaded by either of those arguments and
yet still finds Plaintiffs’ § 3604 allegations to be deficient.
Defendants’ central argument for dismissing the § 3604 counts is
that Plaintiffs’ failure-to-maintain allegations fall short of claiming,
as required, that the REO properties were rendered “unavailable.”
42
U.S.C.
§ 3604(a).
Defendants
rely
on
Southend
See
Neighborhood
Improvement Ass’n v. County of St. Clair, 743 F.2d 1207, 1210 (7th Cir.
1984), which Defendants hold out for the proposition that no FHA claim
may lie for a “failure to maintain homes [which] made [those homes]
unavailable.”
Seventh
(Defs.’ Joint Reply 13, Dkt. No. 46.)
Circuit
organizations
and
considered
five
the
individual
FHA
claims
of
homeowners
who
In Southend, the
seven
alleged
non-profit
that
the
defendant county failed to maintain the properties it held by tax deed
in predominately black neighborhoods.
- 18 -
Id. at *1208.
The plaintiffs
alleged that the defendant’s failures “diminished the value of [the
plaintiffs’] properties in these neighborhoods and prevented them from
securing loans and making other contracts related to their properties.”
Id.
The Southend plaintiffs alleged that the county’s failure to
maintain certain properties deflated the value of the neighboring,
plaintiff-owned properties.
This theory did not pass muster with the
court, which observed that § 3604(a) “is designed to ensure that no one
is denied the right to live where they choose for discriminatory reasons,
but it does not protect the intangible interests in the already-owned
property raised by the plaintiffs’ allegations.” Id. at 1210. The Court
remanded with instructions to dismiss the § 3604 claims.
There is a problem with applying Southend to this case.
Since
Southend, HUD has issued new regulations that set forth a more expansive
definition of the conduct prohibited by the FHA.
According to one such
regulation, the FHA prohibits “[f]ailing or delaying maintenance or
repairs of sale or rental dwellings because of race, color, religion,
sex,
handicap,
§ 100.65(b)(2).
a
failure
to
familial
status,
or
national
origin.”
24
C.F.R.
Plaintiffs rely on that regulation in contending that
maintain
effectively unavailable.
can,
when
severe
enough,
render
a
property
(Pls.’ Resp. 20-21, Dkt. No. 41 (arguing that
an REO property is rendered unavailable when, for example, it “suffer[s]
from physical damage that is costly to repair[, which] discourage[es]
buyers from looking at it”); cf. Bloch v. Frischholz, 587 F.3d 771, 777
(7th Cir. 2009) (en banc) (analogizing FHA claims to constructive
eviction and describing that to be rendered “unavailable,” a property
must be “unfit for occupancy”).)
- 19 -
Defendants counter Plaintiffs’ reliance on 24 C.F.R. § 100.65(b)(2)
by claiming that that regulation—and for that matter, § 3604(b) itself—
are inapplicable here because those provisions have no effect until after
the tenant comes into possession of the property.
They cite Committee
Concerning Community Improvement v. City of Modesto, 583 F.3d 690, 71314 (9th Cir. 2009), in support of that proposition.
it backwards.
But Defendants have
City of Modesto wrestled with whether § 3604 reaches
discrimination occurring post-acquisition, not the other way around.
Indeed, that case, as well as the two Seventh Circuit authorities it
cites, all roundly agree that FHA claims lie for pre-acquisition claims.
City of Modesto, 583 F.3d at 712 (citing Bloch v. Frischholz, 533 F.3d
562, 563-64 (7th Cir. 2008), reversed and remanded in unrelated part on
rehearing en banc, Bloch v. Frischholz, 587 F.3d 771, 787 (7th Cir.
2009); Halprin v. Prairie Single Family Homes of Dearborn Park Assoc.,
388 F.3d 327, 329 (7th Cir. 2004)).
Defendants’ abstract challenges to Plaintiffs’ § 3604 claims fail.
A plaintiff may indeed state an FHA claim if the disparate effects caused
by the defendant’s failures to maintain render the property unavailable.
Cf. Nat’l Fair Hous. All. v. Fed. Nat’l Mortg. Ass’n, 294 F. Supp. 3d
940, 947-48 (N.D. Cal. 2018); 24 C.F.R. § 100.65(b)(2).
But Plaintiffs
cannot maintain such a claim here unless they plausibly allege its
components.
Even putting aside the question of whether Plaintiffs have
alleged a disparate effect (see supra at Part III.B (observing that
Plaintiffs’ statistical allegations require amendment)), Plaintiffs have
still failed to allege the REO properties were neglected to such an
extent as to dissuade purchasers from buying them.
- 20 -
Cf. Bloch, 587 F.3d
at
777
(stating
that
FHA
plaintiffs
must
show
“more
than
a
mere
diminution in property values” and “more than just that their properties
would be less desirable to a certain group”).
This disconnect is a
problem, and until it is cured, Plaintiffs’ § 3604 claims cannot proceed.
The § 3604 claims are dismissed without prejudice.
E.
§ 3605 Claims (Count III)
Plaintiffs also pursue claims § 3605, which makes it 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, color, religion, sex, handicap,
familial status, or national origin.
42 U.S.C. § 3605.
The FHA defines “residential real estate-related
transactions” as “[t]he making or purchasing of loans or providing other
financial assistance” related to residential real estate and “[t]he
selling, brokering, or appraising of residential real property.”
U.S.C. § 3605(b).
42
The applicable HUD regulation states that practices
prohibited under this section include: “failing or refusing to provide
. . . information regarding the availability of loans or other financial
assistance” and “providing information which is inaccurate or different
from that provided others, because of race, color, religion, sex,
handicap, familial status, or national origin.”
24 C.F.R. § 100.120(b).
As such, a plaintiff cannot state an actionable claim under § 3605
without alleging that he “attempted to engage in a real estate-related
transaction.”
Moore v. FDIC, No. 08 C 596, 2009 WL 4405538, at *5 (N.D.
Ill. Nov. 30, 2009) (citing Gaona v. Town & Country Credit, 324 F.3d
- 21 -
1050, 1056-57 (8th Cir. 2003) (citing Mich. Prot. & Advocacy Serv., Inc.
v. Babin, 18 F.3d 337, 346 (6th Cir. 1994)).
Plaintiffs have failed that requirement here.
They have not
alleged any specific real-estate transactions impeded by Defendants’
conduct.
Instead, they essentially try to bootstrap their § 3605 claim
into their § 3604 theory—that by failing to maintain the REO properties,
Defendants effectively made those properties unavailable to prospective
purchasers, meaning, in turn, that Defendants prevented any possible
purchases of those properties.
demands
that
Plaintiffs
This is a stretch too far.
allege
a
specific
real
§ 3605
estate-related
transaction, Moore, 2009 WL 4405538, at *5, yet no such allegation
appears in Plaintiffs’ Complaint.
The § 3605 count accordingly cannot
stand and is dismissed without prejudice.
F.
§ 3617 Claims (Count V)
To state a claim under 42 U.S.C. § 3617, a plaintiff must allege
that the defendant “coerced, threatened, intimidated, or interfered with
her on account of her protected activity under the FHA.”
Herndon v.
Hous. Auth. of S. Bend, 670 F. App’x 417, 419 (7th Cir. 2016) (quoting
White v. U.S. Dep’t of Hous. & Urban Dev., 475 F.3d 898, 907 (7th Cir.
2007)).
Here, however, the Complaint leaves to the imagination what the
alleged “protected activity” was that brought about Defendants’ property
mismanagement.
were
felt
property
by
The Complaint explains that the § 3617-relevant harms
(presumably
values
fell
and
racial
minority)
whose
living
community
environments
members
were
whose
rendered
“hostile” by Defendants’ mismanagement. (Compl. ¶¶ 279-84.) But nowhere
does the Complaint explain some predicate, FHA-protected activity these
- 22 -
community members engaged in.
The claim at the heart of this Complaint
is that Defendants caused a racial disparity in property maintenance.
Without
a
retaliatory
element—i.e.,
that
Defendants
acted
discriminatorily “on account of” some FHA-protected activity—there is
no § 3617 claim.
See Godbole v. Ries, No. 15 C 5191, 2017 WL 219506,
at *3 (N.D. Ill. Jan. 19, 2017) (stating that unlawful conduct under
§ 3617 includes “[i]ntimidating or threatening any person because that
person is engaging in activities designed to make other persons aware
of, or encouraging such other persons to exercise, [FHA] rights” or
retaliating
because
the
person
“has
made
a
complaint,
testified,
assisted, or participated in any manner in a [FHA] proceeding” (quoting
24 C.F.R. § 100.400(c)(4)-(5))); cf. Linkletter v. W. & S. Fin. Grp.
Inc., 851 F.3d 632, 638 (6th Cir. 2017) (remarking that § 3617 protects
against “retribution”). The § 3617 claim is dismissed without prejudice.
G.
Perpetuating Segregation (Count IV)
In Count IV, Plaintiffs seek to hold Defendants accountable under
the FHA for perpetuating segregation.
Defendants object that there is
no such claim under the FHA, but they are mistaken.
The Seventh Circuit
has explained that conduct that “perpetuates segregation and thereby
prevents interracial association . . . will be considered invidious
under the Fair Housing Act independently of the extent to which it
produces a disparate effect on different racial groups.”
Wallace v.
Chi. Hous. Auth., 321 F. Supp. 2d 968, 974 (N.D. Ill. 2004) (quoting
Metro. Hous. Dev. Corp. v. Vill. of Arlington Heights, 558 F.2d 1283,
1290 (7th Cir. 1977)) (permitting claim for perpetuation of segregation);
see also Boykin v. Gray, 895 F. Supp. 2d 199, 213 (D.D.C. 2012)
- 23 -
(collecting cases describing that FHA claims may lie for perpetuation
of segregation), aff’d sub nom. Boykin v. Fenty, 650 F. App’x 42 (D.C.
Cir. 2016); cf. 24 C.F.R. § 100.500(a) (“A practice has a discriminatory
effect where it actually or predictably results in a disparate impact
on a group of persons or creates, increases, reinforces, or perpetuates
segregated housing patterns because of race, color, religion, sex,
handicap, familial status, or national origin.” (emphasis added)).
Plaintiffs thus could conceivably pursue a cause of action for
perpetuation of segregation.
But the availability of such a claim does
not mean Plaintiffs have plausibly alleged it here.
To do so, they must
allege segregation that has been perpetuated as a result of Defendants’
conduct.
See Wallace, 321 F. Supp. 2d at 974.
In this case, alleging
such a claim depends in large part on Plaintiffs’ statistics.
But, as
recited above, Plaintiffs’ statistics have been undercut due to their
reliance on barred conduct.
(See supra at Part III.B.)
None of
Plaintiffs’ claims can rely on those statistics until they are adjusted
and the allegations relying upon them are amended.
Accordingly, the
perpetuation of segregation claim is dismissed without prejudice.
H.
Theories of Harm
In contending Defendants violated the FHA, Plaintiffs make use of
both theories of harm available to them: disparate impact and disparate
treatment.
Plaintiffs do not ascribe either theory to any particular
count, but rather pursue both in the abstract. The Court addresses those
theories below.
- 24 -
1.
Disparate Impact Theory
A plaintiff states an FHA disparate impact claim by alleging (1) a
statistical disparity and (2) that the defendant maintained a specific
policy which (3) caused the disparity.
Cty. of Cook v. Wells Fargo &
Co., 314 F. Supp. 3d 975, 990 (N.D. Ill. 2018) (citing Tex. Dep’t of
Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 135 S. Ct. 2507,
2523-24
(2015)).
Unsurprisingly,
Defendants
claim
Plaintiffs
have
failed to allege all of those elements.
a.
Statistical Disparity
Defendants start by challenging Plaintiffs’ statistics.
They
question their accuracy given, among other things, that: (1) Plaintiffs
recite having collected data on each REO property only once—meaning
Plaintiffs never returned to these properties to see, for example,
whether Defendants later serviced them and brought their condition up
to par; (2) Plaintiffs excluded from their dataset those properties that
were currently undergoing maintenance when Plaintiffs happened to visit;
(3) the Plaintiffs’ statistical “findings” are presented only in the
aggregate—meaning
the
averaged
level
of
maintenance
for
all
REO
properties, nationwide, across all years of Plaintiffs’ inquiry, from
2011 to 2017; and (4) those aggregate statistics also fail to break out
which Defendants were responsible for which properties (and thus for
which portion of the disparities alleged).
These objections might be enough individually or all together to
undermine Plaintiffs’ purported statistical findings.
cannot decide that now.
limitations
effectively
But the Court
As described earlier, the FHA’s statute of
shears
off
much
- 25 -
of
Plaintiffs’
allegations
period.
It is limited to February 26, 2012, for the Deutsche Bank
Defendants, and to February 14, 2015, for Ocwen and Altisource.
Given
the opacity of Plaintiffs’ statistics at present, the Court is in no
position to judge whether that shearing-off affects Plaintiffs’ ability
to rely on their statistics in good faith.
The Court must take all
well-pled allegations as true, but, given that the Court just cut down
on Plaintiffs’ dataset with this ruling, Plaintiffs have not alleged
that the newly reduced dataset evinces the same disparate effects as the
original.
Until they do so, the Court cannot and will not presume as
much. For now, that means Plaintiffs have failed to allege a statistical
disparity as required.
If Plaintiffs believe in good faith that the
disparate-effect bottom line is unchanged despite their dataset being
shorn down, they may reallege these claims.
For efficiency’s sake—should Plaintiffs amend the Complaint and
this litigation proceed—the Court also considers the other disparate
impact elements: whether Defendants maintained a “policy” and whether
proximate cause exists between said policy and the alleged disparate
impact.
b.
Plaintiffs
contend
Defendants’ Policy
that
the
Deutsche
Bank
Defendants
had
an
“abrogation” policy whereby they relinquished and outsourced to the
servicers—entities
allegedly
undertrained
and
underexperienced—all
responsibility for maintaining the REO properties.
First, a quibble
over nomenclature: It strikes the Court that the policy alleged here is
not so much a policy of “evading responsibility” (i.e., “abrogating”),
but rather of giving up responsibility all together (i.e., “abdicating”).
- 26 -
“Abdicating” thus seems a more fitting description for Defendants’
alleged conduct, so the Court will refer below to this conduct as such.
Nomenclature aside, the currently pled practice suffices as a
“policy.”
Cf. Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 355 (2011)
(“[G]iving discretion to lower-level supervisors can be the basis of
Title VII liability under a disparate-impact theory.”); Cty. of Cook v.
Wells Fargo & Co., 314 F. Supp. 3d 975, 993 (N.D. Ill. 2018) (finding
substantially same and citing City of Phila. v. Wells Fargo & Co., No.
17-2203, 2018 WL 424451, at *4 (E.D. Pa. Jan. 16, 2018) (“[A] policy
that gives a defendant’s employees discretion can be the basis for a
disparate impact claim.”)).
But this abdication policy passes muster
only so long as property maintenance was the Deutsche Bank Defendants’
responsibility to outsource in the first place.
If, as Defendants
hypothesize and the Court recounts above, the Deutsche Bank Defendants
always acted as indenture trustees upon whom the responsibility for
property maintenance never fell, Plaintiffs’ allegations concerning the
abdication policy might have a problem.
Currently, however, according
to reasonable inferences taken in Plaintiffs’ favor, the Deutsche Bank
Defendants acted as “back-up servicers” and thus were responsible for
some measure of property servicing.
The policy as alleged passes muster
for now.
c.
Proximate Causation
The Supreme Court recently took up the issue of proximate causation
for
FHA
claims,
concluding
that
“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
- 27 -
social life. A violation of the FHA may, therefore, ‘be expected to cause
ripples of harm to flow’ far beyond the defendant’s misconduct.”
Bank
of Am. Corp. v. City of Miami, 137 S. Ct. 1296, 1306 (2017) (quoting
Associated Gen. Contractors of Cal., Inc. v. Carpenters, 459 U.S. 519,
534 (1983)).
Rather, “proximate cause under the FHA requires ‘some
direct relation between the injury asserted and the injurious conduct
alleged.’”
Id. (quoting Holmes v. Securities Investor Prot. Corp., 503
U.S. 258, 268 (1992)).
In weighing whether a complaint satisfactorily
alleges proximate cause, the question is whether the misfeasance charged
and the harms felt are connected at the “first step” in the chain of
reasoning.
Id. (quoting Hemi Grp., LLC v. City of New York, 559 U.S.
1, 10 (2010)).
County of Cook v. Wells Fargo & Co., 314 F. Supp. 3d 975, 978 (N.D.
Ill. 2018), provides a good example of the line-drawing involved here.
There, Cook County challenged Wells Fargo’s equity-stripping practice,
whereby
the
bank
allegedly
steered
minority
mortgages and then foreclosed on them.
borrowers
Id. at 979-80.
to
nonprime
The County
alleged a rash of injuries stemming from that conduct, and the Court
found proximate causation for some, but not others.
Falling within the
first category were the County’s economic harms arising from increased
costs of administration and processing foreclosures, namely “[costs
associated with] the use of the Cook County Sheriff’s Office to post
foreclosure and eviction notices, serve summonses, and evict borrowers,
and the use of the Cook County Circuit Court to process foreclosure
suits[.]”
Id. at 984.
Simply enough, the policy increased the number
of foreclosures, which increased the County’s associated costs.
- 28 -
That
harm manifested at the “first step” of the causal chain, and thus passed
the bar reiterated by City of Miami.
984.
Wells Fargo, 314 F. Supp. 3d at
In contrast, the Wells Fargo court found too attenuated harms
including
“lost
property
tax
revenue,
increased
demand
services, and diminished racial balance and stability.”
for
county
Id. at 988.
Those harms reached the County only after some intermediate step and so
failed the causation requirement (e.g., foreclosed-upon owners no longer
pay property taxes, ergo the County’s revenue decreases).
Here, Plaintiffs charge they were harmed by Defendants’ abdication
policy,
whereby
Defendants
allegedly
foisted
the
responsibility
of
property maintenance onto allegedly undertrained and underqualified
servicers.
Said delegation resulted in racially-disparate property
maintenance, which harmed Plaintiffs by (1) undermining their education,
advocacy, and training programs; (2) requiring them to divert scarce
resources away from their usual activities; and (3) impeding their
community investment programs, which aim to stabilize neighborhoods of
color.
Most charitably, Plaintiffs’ causation argument is that they
spend their money seeking to combat segregation, and Defendants’ policy
(in a roundabout way) buoys it.
Defendants, however, charge that this “chain-link causation” is
too attenuated to pass muster under City of Miami.
(Defs.’ Joint Mem.
in Supp. 18, Dkt. No. 30.) And Plaintiffs, oddly, respond to that charge
with a characterization that affronts City of Miami’s holding. As noted,
City of Miami states clearly that foreseeability alone does not suffice
for proximate cause in FHA cases. Even so, Plaintiffs characterize their
causation argument thusly: “The Complaint alleges that Defendants have
- 29 -
[abdication] policies with regard to the REO properties[, and that] these
policies had foreseeable discriminatory results based on the delegees’
(Pls.’ Resp. 13, Dkt. No. 41 (emphasis added).)
predictable actions.”
Unfortunately
for
Plaintiffs,
the
Court
agrees
with
their
characterization of the complaint.
Plaintiffs have not alleged that their injuries resulted directly
from
Defendants’
allegations
in
practice.
Wells
Fargo,
Instead,
Plaintiffs
(impermissible) intermediate steps.
as
with
the
experience
too-attenuated
harm
only
after
Their theory is that Defendants’
delegation practice resulted in poorly-executed property maintenance,
which led to racially-disparate effects, ergo Plaintiffs had to invest
more heavily (or simply saw less return on their preexisting investments)
to combat those effects.
Climbing this chain requires more steps than
the FHA permits.
Finally, Plaintiffs emphasize that by being forced to divert their
resources to combat the disparate effects of Defendants’ policies,
Plaintiffs have been harmed just like the plaintiffs in Havens Realty
Corp. v. Coleman, 455 U.S. 363, 379 (1982).
get
Plaintiffs
very
far,
however.
When
That comparison does not
Havens
observed
that
the
defendants’ practices allegedly caused a “drain on the [plaintiff’s]
resources,” the Court was weighing a challenge to the injury-in-fact
component of standing.
Id. at 369.
That analysis did not speak to
proximate causation, so Havens does not compel a plaintiff-friendly
result here.
Cf. City of Miami v. Bank of Am. Corp., 800 F.3d 1262,
1281 (11th Cir. 2015) (observing that Havens found injury-in-fact when
the plaintiff alleged “impairment of its organizational mission and a
- 30 -
drain on its resources,” not “direct discrimination”), vacated and
remanded on other grounds sub nom. Bank of Am. Corp. v. City of Miami,
137 S. Ct. 1296 (2017).
Plaintiffs have not met the mark for alleging a direct relation
between their injury and Defendants’ conduct.
If for no other reason,
their disparate impact theory is dismissed without prejudice.
City of
Miami, 137 S. Ct. at 1306.
2.
Disparate Treatment Theory
To state a disparate treatment claim under the FHA, Plaintiffs must
plausibly allege that Defendants had a discriminatory intent or motive.
Ricci v. DeStefano, 557 U.S. 557, 577 (2009) (citation omitted).
“Proof
of discriminatory motive . . . can in some situations be inferred from
the mere fact of differences in treatment.”
Int’l Bhd. of Teamsters v.
United States, 431 U.S. 324, 335 n.15 (1977) (citation omitted).
“Where
a plaintiff challenges a defendant’s policy, the plaintiff must establish
that the defendant implemented the policy ‘because of, and not merely
in spite of,’ its adverse effect on the protected group.”
Nat’l Fair
Hous. All. v. Fed. Nat’l Mortg. Ass’n, 294 F. Supp. 3d 940, 949 (N.D.
Cal. 2018) (quoting Garcia v. Country Wide Fin. Corp., No. EDVC 07-1161VAP (JCRx), 2008 WL 7842104, at *7 (C.D. Cal. Jan. 17, 2008) (citing
Personnel Adm’r of Mass. v. Feeney, 442 U.S. 256, 279, (1979))).
Plaintiffs have fallen short of that mark.
Though Plaintiffs
cobble together discriminatory-intent allegations in their Complaint,
this opinion has stripped away—at least for now—the foundation of those
allegations.
At bottom, Plaintiffs rely on their statistical evidence,
noting that, in some cases, “statistical disparities alone may prove
- 31 -
intent.”
EEOC v. O & G Spring & Wire Forms Specialty Co., 38 F.3d 872,
876 (7th Cir. 1994).
But, once again, Plaintiffs’ statistics have been
undermined and so cannot be relied upon for now.
Plaintiffs also rely
on the Deutsche Bank Defendants’ alleged history of discriminatory
housing practices, but, given the Court’s finding that the bulk of these
years-old allegations is barred by the FHA’s statute of limitations,
this reliance, too, is misplaced.
In
short,
Defendants
Plaintiffs
intentionally
treatment theory.
See 42 U.S.C. § 3613(a)(1)(A).
have
failed
discriminated.
to
allege
That
dooms
plausibly
the
that
disparate
See TBS Grp., LLC v. City of Zion, No. 16-CV-5855,
2017 WL 5129008, at *8 (N.D. Ill. Nov. 6, 2017); see also Nat’l Fair
Hous. All., 294 F. Supp. 3d at 949.
The Court accordingly dismisses
that theory without prejudice.
IV.
CONCLUSION
For the reasons stated herein, Defendants’ Motion (Dkt. No. 29) is
granted
and
Plaintiffs’
Complaint
is
dismissed
without
prejudice.
Plaintiffs shall amend their Complaint within forty-five (45) days and,
as
part
of
that
amendment:
(1)
replace
Defendant
Ocwen
with
an
appropriate Ocwen subsidiary; (2) drop Defendants Deutsche Bank and
Deutsche Bank AG from the case; and (3) edit the caption to reflect suit
against Defendants Deutsche Bank National Trust and Deutsche Bank Trust
Company Americas in their trustee capacities only.
IT IS SO ORDERED.
Dated: 11/19/2018
Harry D. Leinenweber, Judge
United States District Court
- 32 -
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