National Fair Housing Alliance et al v. Deutsche Bank et al

Filing 97

MEMORANDUM Opinion and Order. For the reasons stated herein, Defendants' Motion to Dismiss 71 is granted in part and denied in part. Plaintiffs cannot recover damages corresponding to the lost economic value and impact of their community investments, or for harms to minority neighborhoods. Otherwise, the Second Amended Complaint survives the Motion to Dismiss. Status hearing set for 12/3/19 at 1:00 p.m. Signed by the Honorable Harry D. Leinenweber on Mailed notice(maf)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
NATIONAL FAIR HOUSING
ALLIANCE, et al.,
Plaintiffs,
v.
DEUTSCHE BANK NATIONAL TRUST,
as trustee; DEUTSCHE BANK
TRUST COMPANY AMERICAS, as
trustee; OCWEN LOAN
SERVICING, LLC; and
ALTISOURCE SOLUTIONS, INC.,

Case No. 18 CV 839
Judge Harry D. Leinenweber

Defendants.
MEMORANDUM OPINION AND ORDER
This Fair Housing Act lawsuit alleges discriminatory housing
maintenance in communities of color. Defendants Deutsche Bank
National Trust, Deutsche Bank Trust Company Americas, Ocwen Loan
Servicing, LLC, and Altisource Solutions, Inc., move to dismiss
Plaintiffs’

Second

Amended

Complaint.

For

the

reasons

stated

below, the Motion to Dismiss (Dkt. No. 71) is granted in part and
denied in part.
I.

BACKGROUND

In addition to reciting the relevant pleadings herein, the
Court incorporates the facts and holdings from its opinion granting
Defendants’ prior motion to dismiss this case. See Nat’l Fair Hous.

All. v. Deutsche Bank, No. 18 C 0839, 2018 WL 6045216 (N.D. Ill.
Nov. 19, 2018). The following facts are taken as true for the
purpose of Defendants’ Motion to Dismiss under Federal Rule of
Civil Procedure 12(b)(6).
A.

Facts

Plaintiffs are national and local fair housing organizations
whose

mission

is

to

end

housing

discrimination

and

promote

integration. Defendants Deutsche Bank National Trust and Deutsche
Bank Trust Company Americas (collectively, the “Deutsche Bank
Defendants”) are financial institutions that own mortgages, and
consequently, foreclosed homes, across the country. Defendants
Ocwen Loan Servicing, LLC (“Ocwen”) and Altisource Solutions, Inc.
(“Altisource”) (collectively, the “Servicer Defendants”) provide
property

preservation,

maintenance,

and

other

services

for

properties that the Deutsche Bank Defendants own.
During the 1990s and early 2000s, many lenders sought to
expand markets for “subprime” home mortgage products—that is,
mortgages with unfavorable and risky loan terms, often issued to
borrowers with low credit ratings. The subprime lending boom
collapsed in 2008, leading to a foreclosure crisis in the U.S.
When a home mortgage that a bank owns goes into default and
foreclosure, the bank obtains title to the home, which is then
referred to as “Real Estate Owned” (REO). See Nat’l Fair Hous.

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All. v. Fed. Nat’l Mortg. Ass’n, 294 F. Supp. 3d 940, 943 (N.D.
Cal. 2018). Essentially, an REO property is a vacant home possessed
by a bank. The large volume of foreclosures beginning in 2008
created many REO properties, which were and are disproportionately
located in communities of color (predominately African-American
and Hispanic neighborhoods). As a result of the subprime mortgage
market collapse, the Deutsche Bank Defendants became owners of a
large inventory of REO properties in communities of color.
Beginning in 2011, Plaintiffs undertook an investigation of
Defendants’ maintenance of the REO properties they owned across
the country. Plaintiffs sought to measure the extent to which
Defendants

maintained

REOs

in

communities

of

color

and

in

predominately white neighborhoods. Plaintiffs examined 1,141 REO
properties owned by the Deutsche Bank Defendants. For each property
investigated,

Plaintiffs

collected

evidence

on

39

objective

aspects of routine exterior maintenance such as graffiti, damage
to

windows,

revealed

and

“highly

maintenance

and

overgrown

grass.

significant
marketing

of

Plaintiffs’

disparities”
Deutsche

in

investigation
the

Bank-owned

exterior
homes

in

communities of color compared to white communities. (SAC ¶ 5.)
B.

Procedural History

In February 2018, Plaintiffs filed suit against Defendants
under the Fair Housing Act of 1968 (FHA), 42 U.S.C. § 3601, et

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seq. Plaintiffs’ Complaint centered on Defendants’ practices with
respect to the REO properties they own in thirty metropolitan
areas,

including

Chicago.

Plaintiffs

alleged

that

Defendants

violated 42 U.S.C. §§ 3604(a), 3604(b), 3605, 3617, and violated
the FHA generally by perpetuating segregation.
Defendants moved to dismiss the Complaint. The Court granted
that motion in full and made the following relevant holdings: (1)
a significant portion of the dataset Plaintiffs relied on must be
removed as it was untimely under the FHA’s two-year statute of
limitations;
because

(2)

they

Plaintiffs’

failed

to

§ 3604

allege

claims

that

the

must

REO

be

dismissed

properties

were

neglected to such an extent as to dissuade purchasers from buying
them; (3) Plaintiffs’ § 3605 claims must be dismissed because
Plaintiffs failed to allege any specific real-estate transaction
impeded

by

Defendants’

conduct;

(4)

Plaintiffs’

perpetuating

segregation claim must be dismissed because the Court did not yet
have the properly sheared dataset upon which this claim is based;
and (5) Plaintiffs failed to state either a disparate impact or
discriminatory intent theory of discrimination under the FHA. See
Nat’l Fair Hous. All., 2018 WL 6045216.
Plaintiffs filed their Second Amended Complaint (SAC) in May
2019. They dropped their 42 U.S.C. § 3617 claim, but otherwise
assert the same claims against Defendants as in their original

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Complaint.
maintenance

Plaintiffs
of

REO

again

allege

properties

that

Defendants’

constitutes

exterior

unlawful

racial

discrimination, in the form of both disparate impact and disparate
treatment, under the FHA. They seek a declaratory judgment that
Defendants’ conduct violates the FHA, an injunction that prohibits
Defendants

from

violating

the

FHA,

compensatory

and

punitive

damages, and attorneys’ fees. Plaintiffs contend that they have
added

allegations

that

render

the

SAC

sufficient

under

Rule 12(b)(6). Defendants again move to dismiss for failure to
state a claim.
II.

LEGAL STANDARD

A motion to dismiss pursuant to Rule 12(b)(6) challenges the
sufficiency of a complaint by arguing that it fails to state a
claim

upon

which

relief

may

be

granted.

FED.

R.

CIV.

P. 12(b)(6); Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d
732, 736 (7th Cir. 2014). When considering a motion to dismiss,
the Court accepts all well-pleaded factual allegations as true and
draws all reasonable inferences in favor of the plaintiff. Trujillo
v. Rockledge Furniture LLC, 926 F.3d 395, 397 (7th Cir. 2019).
However, “[t]hreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion
to dismiss under Rule 12(b)(6), a complaint must provide enough

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factual information to “state a claim to relief that is plausible
on its face” and “raise a right to relief above the speculative
level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007).
A complaint is facially plausible when a plaintiff alleges “factual
content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Iqbal,
556 U.S. at 678.
III.
Defendants

assert

four

DISCUSSION
primary

arguments

in

favor

of

dismissal: (1) Plaintiffs’ allegations do not establish proximate
cause; (2) the Deutsche Bank Defendants are not liable under the
FHA; (3) Plaintiffs fail to plead either a disparate impact or
disparate treatment theory of discrimination; and (4) Plaintiffs
failed to plead claim-specific elements. The Court will address
each argument in turn.
A.

Proximate Causation

First, the Court examines whether Plaintiffs have alleged
proximate cause under the FHA. As the Court noted in its previous
opinion, the recent Supreme Court decision Bank of Am. Corp. v.
City of Miami, Fla., 137 S. Ct. 1296 (2017), controls this issue.
In City of Miami, the Supreme Court considered FHA claims brought
by the City of Miami against two banks that allegedly intentionally
issued mortgages with less favorable terms to African-American and
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Hispanic borrowers than to similarly situated white borrowers. Id.
at 1301. The Court examined what degree of causation is required
to state a claim under the FHA. Id. at 1305-06. In all cases of
loss, courts must attribute loss to the proximate cause, not to
“any remote cause.” Id. at 1305. The Court found that a claim for
damages under the FHA is “akin to a tort action” and therefore a
plaintiff must establish proximate cause in order to recover
damages for a violation of the FHA. Id. (internal quotation and
citation omitted). Proximate cause analysis is “controlled by the
nature of the statutory cause of action,” which in turn is governed
by an inquiry into whether the harm alleged has a “sufficiently
close connection” to the conduct the statute prohibits. Id. at
1305 (citation omitted).
In City of Miami, the city sought damages to account for the
loss of property tax revenue and the need to spend more on
municipal services, caused by the increase in foreclosures, which
were caused by the banks’ discriminatory lending practices. The
Eleventh Circuit had held that the City’s injuries were sufficient
to satisfy the proximate cause requirement because they were
“foreseeable.” City of Miami, 137 S. Ct. at 1305-06. The Supreme
Court disagreed and held that to establish proximate cause in an
FHA case, a plaintiff must do more than show that its injuries
foreseeably flowed from the statutory violation. Id. at 1306. While

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the Court declined to define a standard of proximate cause under
the FHA, it did note that proximate cause under the FHA requires
“some direct relation between the injury asserted and the injurious
conduct alleged.” Id. at 1306 (citation omitted). The Court further
observed

that

for

statutes

with

common-law

foundations,

the

“general tendency… in regard to damages at least, is not to go
beyond the first step.” Id. (citing Hemi Group, LLC v. City of New
York, 559 U.S. 1, 10 (2010)). Courts should also consider “what is
administratively possible and convenient.” City of Miami, 137 S.
Ct. at 1306 (citation omitted).
In this case, Plaintiffs’ original Complaint asserted the
following

injuries:

Defendants’

conduct

had

undermined

their

education and advocacy programs, diverted their scarce resources,
and

damaged

their

community

investments.

When

this

Court

considered proximate cause in its dismissal opinion, it found that
Plaintiffs’ injuries did not “result[] directly from” Defendants’
actions and thus ran afoul of City of Miami’s warning about
proximate cause. See Nat’l Fair Hous. All., 2018 WL 6045216, at
*13. The Court found that, fatal to proximate cause, Plaintiffs’
harm only materialized after “intermediate steps”:
[Plaintiffs’] 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
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combat those effects. Climbing this chain requires more
steps than the FHA permits.
Id.
Plaintiffs now allege that Defendants’ failure to maintain
REO

properties

in

communities

of

color

injured

them

in

the

following ways: (1) it required them to divert resources away from
their

usual

activities;

(2)

frustrated

their

mission

of

eradicating housing discrimination; (3) required them to spend
money on counteractive measures; (4) undermined the economic value
and impact of Plaintiffs’ community investments; and (5) harmed
minority neighborhoods that Plaintiffs serve. Defendants again
argue that Plaintiffs have failed to allege a “direct relation”
between their injury and Defendants’ conduct.
However, this Court has reason to reconsider its earlier
analysis on this issue. In City of Miami, the Supreme Court
emphasized that it would not “draw the precise boundaries of
proximate cause under the FHA,” and instructed that lower courts
“should define, in the first instance, the contours of proximate
cause under the FHA.”

City of Miami, 137 S. Ct. at 1306. This

Court now has the benefit of Seventh and Eleventh Circuit opinions
applying City of Miami and will reconsider the proximate cause
issue with this binding and persuasive precedent in mind.
After the Court issued its first dismissal opinion in this
case, the Seventh Circuit published Kemper v. Deutsche Bank AG,
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911 F.3d 383 (7th Cir. 2018), a decision that clarified the Seventh
Circuit’s thinking about proximate cause post-City of Miami. In
Kemper, the mother of a U.S. servicemember who was killed in Iraq
sued Deutsche Bank for providing material support to terrorism, in
violation of the Anti-Terrorism Act. Kemper, 911 F.3d at 392-93.
The plaintiff claimed that the Bank provided financial services to
Iranian businesses, those Iranian entities went on to provide
services to terrorist groups, and Iran was ultimately responsible
for the terrorist attack in Iraq that killed her son. Id. at 386.
Citing City of Miami, the Seventh Circuit held that the AntiTerrorism Act requires proximate cause for liability. Kemper, 911
F.3d at 391. The court observed that “simply stating that the ATA
requires proof of ‘proximate cause’ does not help much. A firm
definition for the term ‘proximate cause’ has escaped judges,
lawyers, and legal scholars for centuries.” Id. The Seventh Circuit
noted that there is no precise formula for proximate cause; rather,
it is a “flexible concept that does not lend itself to a blackletter rule that will dictate the result in every case.” Id. at
392 (citing Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 654
(2008)). Several factors are relevant to the proximate cause
inquiry, which the court referred to as a “catch-all approach”:
foreseeability, directness, whether the defendant’s actions were
a “substantial factor in the sequence of events” leading to the

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plaintiff’s injuries, and other established principles of tort
causation. Id. at 392.
The Kemper court held that the plaintiff failed to plead facts
that indicated Deutsche Bank’s actions were the proximate cause of
her son’s death. Id. at 393-94. The Seventh Circuit found several
important facts key to its decision: plaintiff did not allege that
Deutsche Bank ever serviced a terrorist group directly; plaintiff
could not show that the money Deutsche Bank facilitated into Iran
was used specifically to fund terrorism; one of the links in the
“causal chain” was Iran, a sovereign state with many legitimate
operations and programs to fund; and plaintiff could not overcome
the traditional tort doctrine of superseding cause—in that case,
the numerous criminal intervening acts that separated Deutsche
Bank

from

the

terrorist

attack.

Id.

at

392-93.

Post-Kemper,

district courts in the Seventh Circuit should not follow a strict
“first step” test for proximate cause, but rather assess a variety
of factors.
Additionally, the Court now has the benefit of the Eleventh
Circuit’s decision on remand in City of Miami. See City of Miami
v. Wells Fargo & Co., 923 F.3d 1260 (11th Cir. 2019). Taking up
the Supreme Court’s instruction to define the contours of proximate
cause under the FHA, the Eleventh Circuit held that “proximate
cause does not always cut off at the first step after a violative

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act.” Id. at 1273. That court noted that “Supreme Court precedent
makes crystal clear that an intervening step does not necessarily
mean proximate cause has not been plausibly alleged.” Id. (citing
Lexmark International, Inc. v. Static Control Components, Inc.,
572 U.S. 118, 134 (2014)). More important is “the certainty with
which we can say the injury is fairly attributable to the statutory
violation.” Id. The Eleventh Circuit emphasized that the Supreme
Court’s

statement

relation”

is

that

distinct

proximate
from

a

cause

requires

requirement

of

“some

direct

“some

direct

causation.” Id. at 1272 (emphasis added). Indeed, the court noted
that if there were a “hard and fast ‘only the first step’ rule”
limiting liability:
[A] plaintiff homeowner who was forced into foreclosure
on account of a predatory bank loan that violated the
Fair Housing Act would never be able to plausibly allege
that the foreclosure was proximately caused by the
bank's predation. By [defendant’s] lights, there are two
critical steps in the chain of causation between the act
of redlining and foreclosure: the middle and distinct
step being a homeowner’s default. So inexorable a rule
would even bar the homeowner from seeking redress for
the foreclosure under the FHA, since the foreclosure
only occurs after the homeowner takes the independent
step of failing to make payments on the predatory loan.
Id. at 1276. Ultimately, the Eleventh Circuit found that the City
of Miami had adequately pled proximate cause relating to its taxbase injury because the Bank’s redlining practices “bear some
direct relation to the City’s fiscal injuries.” Id. at 1294.
However, the Eleventh Circuit found that the City’s increased
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municipal expenditures injury did not directly result from the
Bank’s conduct—there was “too much opportunity in the causal chain
between foreclosure and increased expenditures for intervening
actors and causes to play a role, and there has been no explanation
by

the

City

of

how

we

might

attributable

to

the

Banks.”

conceivably
Id.

Thus,

isolate

the

the

Eleventh

injury
Circuit

emphasized that whether a court can practically determine damages
is an important consideration in a proximate cause determination.
So too did the Supreme Court in City of Miami emphasize that
when assessing proximate cause under the FHA, courts must consider
“what is administratively possible and convenient.” City of Miami,
137 S. Ct. at 1306 (citing Holmes v. Sec. Inv’r Prot. Corp., 503
U.S. 258, 268 (1992)). Administrative feasibility is “most closely
connected to the policy judgments upon which proximate cause
standards necessarily depend.” City of Miami v. Wells Fargo & Co.,
923 F.3d 1260, 1281 (11th Cir. 2019); see also Holmes, 503 U.S. at
268 (“[P]roximate cause reflects ideas of what justice demands, or
of what is administratively possible and convenient.”). For this
reason, the Eleventh Circuit on remand in City of Miami found “in
no small part” that the City plausibly plead proximate cause
because it was “entirely practicable and not unduly inconvenient”
for a court to “handle damages like the City’s tax revenue injury.”
City of Miami, 923 F.3d at 1281.

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Thus, the Court should consider the policy implications at
hand in this case. Apart from municipalities themselves, a fair
housing organization is likely in the “best position to allege and
litigate this peculiar type of injury, to deter future violations,
and, theoretically, to actually remedy its distinctive injury.”
See City of Miami, 923 F.3d at 1281. This is because:
[I]n the fair housing context the initial victims, such
as home-seekers or borrowers, may be less aware of the
harm and less able to remedy it than entities such as a
housing counseling organization or a municipal economic
development office. These are entities that can identify
a pattern of discrimination invisible to any individual
victim and that also suffer a distinct, additional harm
in the diversion of their resources and the frustration
of their missions… [I]ndividuals who have been directly
discriminated against cannot be counted on to vindicate
their rights in the same way because: (1) any one
individual’s damages may be minimal; (2) home-seekers
turned away may decide it is not worth the effort to
vindicate a right to live among those who seek to exclude
them; and, most fundamentally, (3) they may not know
that they were victims of discrimination.
Justin P. Steil & Dan Traficonte, A Flood—Not A Ripple—of Harm:
Proximate Cause Under the Fair Housing Act, 40 Cardozo L. Rev.
1237, 1256, 1267 (2019).
Defendants

maintain

that

Plaintiffs’

injuries

are

impermissibly “indirect.” They characterize Plaintiffs’ causal
theory as a many-linked chain, as follows: the Deutsche Bank
Defendants decided they were not responsible for maintaining the
exterior of their REO properties; the Deutsche Bank Defendants
then

retained

servicers

(Altisource
- 14 -

and

Ocwen)

who

were

unqualified

and

disincentivized

to

properly

maintain

the

REO

properties; the Servicers then maintained the properties in a
discriminatory manner; that lack of maintenance caused a decrease
in

property

value,

increased

crime,

and

other

neighborhood

problems; and finally, Plaintiffs were injured by their need to
divert resources into investigating and redressing this matter.
However, the Seventh and Eleventh Circuit both rejected this method
of counting “steps” between an action and an injury. See Kemper,
911 F.3d at 392; City of Miami, 923 F.3d at 1277-78. As the Eleventh
Circuit

explained,

the

defendant’s

“step-counting

is

self-

evidently conducted so as to identify as many steps as possible…
the ease with which we can count far fewer steps reinforces our
view that step-counting is of limited value and cannot alone settle
the challenging questions of proximate cause here.” City of Miami,
923 F.3d at 1277–78. So too can this Court, by less thinly slicing
the “steps” between Defendant’s conduct and Plaintiffs’ injuries,
view

a

more

direct

causal

relationship,

e.g.:

Defendants

discriminatorily failed to maintain REO in minority neighborhoods;
Plaintiffs then had to spend time and money investigating and
combatting the problems created by the REO properties in disrepair.
Accordingly, the Court turns to its assessment of whether
Defendants’ conduct was the proximate cause of each category of
injuries

Plaintiffs

allege—holistically

- 15 -

and

considering

tort

principles, as the Seventh Circuit instructs. See Kemper, 911 F.3d
at 392.
1.

Diversion of Resources

First, Plaintiffs assert that they have suffered damages by
their need to divert resources away from existing programs to
address Defendants’ discriminatory conduct. (See SAC ¶ 185.) For
example, Plaintiff National Fair Housing Alliance (NFHA) had to
forgo its usual investigations into housing sales discrimination
so that its staff could address the Defendant-owned and serviced
REO properties that were falling into disrepair in communities of
color. This Court originally found that Defendants were not the
proximate cause of these injuries, based on the assessment that
Plaintiffs’ harms were not connected at the “first step” in a
causal chain. As the Court outlined above, the Seventh Circuit has
clarified that this is not the appropriate test in a proximate
cause analysis.
The Court now finds that the damages Plaintiffs incurred in
the form of diversion of resources meet the three foremost factors
in a proximate cause analysis: foreseeability, directness, and
substantiality. See Kemper, 911 F.3d at 392. The variety of factors
that a court might worry would independently explain a housing
rights organization’s damages are not present here. Here, there is
a “clear, direct and immediate” path between Defendants’ alleged

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discriminatory lack of maintenance and Plaintiffs’ response to
that lack of maintenance through investigations, reporting, and
advocacy. See City of Miami, 923 F.3d at 1277 (finding proximate
cause when “we can discern no obvious intervening roadblocks”).
In this way, the injuries that Plaintiffs incurred responding
to Defendants’ failure to maintain their REO properties differ
materially from those in City of Miami, where the City relied
solely on the defendant bank’s initial loan origination practices.
See Cty. of Cook v. HSBC N. Am. Holdings Inc., 314 F. Supp. 3d
950, 961 (N.D. Ill. 2018). That left open the possibility that
“the foreclosures in Miami could have been caused by a wide array
of factors outside of the lenders’ control.” Id. at 962. In
contrast,

here,

Plaintiffs

point

to

Defendants’

allegedly

discriminatory REO property maintenance, which is directly linked
to

losses

Plaintiffs

discriminatory

have

suffered

maintenance.

See

trying
These

id.

to

rectify

injuries

that

bear

a

sufficiently direct relationship to the alleged wrongs to survive
Defendants’ Motion to Dismiss.
2.

Costs of Counteractive Measures

Next, Plaintiffs seek damages for the expenses they incurred
in

implementing

discrimination.

measures
Plaintiffs

to

counteract

developed

and

Defendants’
implemented

alleged
programs

designed to ameliorate the effects of Defendants’ failure to

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maintain REO properties in communities of color. (SAC ¶ 184.) For
the same reasons as diversion of resources—indeed, it appears that
this “category” of damages is not meaningfully distinguishable
from the diversion of resources category—this is sufficient to
plead

proximate

cause.

Assuming

the

truth

of

Plaintiffs’

allegations, the relationship between Defendants’ discriminatory
actions

and

the

additional

costs

to

Plaintiffs

is

clear:

Defendants’ discriminatory conduct left more REO properties in
minority neighborhoods in disrepair, causing Plaintiffs to incur
more costs responding to this problem than they otherwise would
have. HSBC N. Am. Holdings, 314 F. Supp. 3d at 962.
3.

Frustration of Mission

Plaintiffs

also

seek

the

costs

of

Defendants

having

“frustrated” their organizational mission of eradicating housing
discrimination and segregation. Plaintiffs assert that by creating
“conditions antithetical to [their] mission,” Defendants impeded
Plaintiffs’ organizational goals and effects. (SAC ¶ 180.) Again,
this category closely resembles “diversion of resources”—to the
extent it differs, it is because it would be more difficult to
measure the amount of damages Plaintiffs incurred in their mission
and programs being “frustrated” and “undermined.” (SAC ¶ 181.)
As the Supreme Court counseled in City of Miami, whether an
injury satisfies proximate cause depends in large part on (1) the

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nature

of

the

statutory

cause

of

action;

and

(2)

what

is

administratively possible and convenient. City of Miami, 137 S.
Ct. at 1299. The Court is satisfied that the first factor is met.
The

Supreme

Court

construes

the

FHA

as

defining

potential

plaintiffs “broadly.” Id. at 1303 (noting that the definition of
“person aggrieved” in the original version of the FHA “showed a
congressional

intention

to

define

standing

as

broadly

as

is

permitted by Article III of the Constitution”); Trafficante v.
Metro. Life Ins. Co., 409 U.S. 205, 209 (1972) (“The language of
the [FHA] is broad and inclusive.”). The FHA has a “broad remedial
purpose[,]

written

in

decidedly

far-reaching

terms,”

and

“prohibits a wide range of conduct.” City of Miami v. Wells Fargo
& Co., 923 F.3d 1260, 1278 (11th Cir. 2019). Defendants do not
dispute that Plaintiffs are “aggrieved persons” within the meaning
of the FHA. See 42 U.S.C. §§ 3602, 3612, 3613. The text and history
of the FHA indicate that the Act is capable of accommodating the
type of causal connection that Plaintiffs have identified between
the Defendants’ misconduct and damage to Plaintiffs’ mission of
furthering

fair

housing.

The

second

factor

is

more

tenuous.

Plaintiffs have not identified how they would quantify the damages
caused by “frustration” of their mission. This type of injury seems
likely to present difficulty in assessing and attributing damages—
and again, may be an unnecessary extension of the “diversion of

- 19 -

resources”

category.

Ultimately,

Plaintiffs’

allegations

are

sufficient to survive the pleading stage. But Plaintiffs will have
to specify how they intend to measure damages (without using the
two excluded categories below) before the Court will award them.
4. Loss of Economic Value and Impact of Community
Investments
Plaintiffs seek damages for the loss of economic value and
impact of their community investments. Plaintiffs have invested
millions of dollars in neighborhoods “affected by REO blight” in
the form of down payments, matching funds, closing cost assistance,
property rehabilitation assistance, rent assistance, and community
revitalization. (SAC ¶ 174.) Plaintiffs assert that their various
financial investments in minority communities are undermined by
deteriorating

and

poorly

maintained

Deutsche

Bank-owned

REO

properties.
The Court must adhere to its earlier conclusion on this
matter. Even under a broader understanding of proximate cause that
looks beyond simple “step counting,” the line from Defendants’
alleged discriminatory conduct to the “undermining” of Plaintiffs’
investments winds through too many other potential causes. See
HSBC N. Am. Holdings, 314 F. Supp. 3d at 964. Here, only two of
the three factors the Seventh Circuit has held most important in
a proximate cause analysis are satisfied. See Kemper, 911 F.3d at
392

(foreseeability,

directness,

and

- 20 -

whether

the

defendant’s

actions were a “substantial factors in the sequence of events”
leading to a plaintiff’s injuries). This type of injury was surely
foreseeable

from

discrimination
injuries.

the

was

But

type

also

a

directness

of

discrimination

substantial
is

factor

lacking.

And

alleged,
in

which

Plaintiffs’

it

would

be

administratively difficult to measure and apportion these damages.
HSBC N. Am. Holdings, 314 F. Supp. 3d at 964 (a municipality cannot
allege proximate cause under the FHA for the diminution of property
values of the homes surrounding the homes defendant allegedly led
into

foreclosure

because

the

plaintiff’s

“injuries

would

be

derivative of any number of external factors as well as the conduct
of other homeowners and lenders”). Therefore, Defendants’ Motion
to Dismiss this claim of injury is granted.
5.

Harms to Minority Neighborhoods

Finally, Plaintiffs seek to recover damages for harms to
minority neighborhoods that Plaintiffs serve. Such harms include:
diminished

properly

values,

safety,

habitability,

housing

opportunities, lending opportunities, and community redevelopment.
(See SAC ¶ 189.) This collection of harms is not sufficiently
directly related to Defendants’ conduct to satisfy proximate cause
under the FHA. These harms are precisely the “ripples” that City
of Miami cautions “flow far beyond [a] defendant’s misconduct,”
which risk massive and complex damages litigation, and involve too

- 21 -

many intricate, uncertain inquiries to establish proximate cause.
Cty. of Cook, Illinois v. Wells Fargo & Co., 314 F. Supp. 3d 975,
988 (N.D. Ill. 2018) (citing City of Miami, 137 S. Ct. at 1306);
Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 458 (2006) (noting
that proximate cause’s “motivating principle” is “the difficulty
that can arise when a court attempts to ascertain the damages
caused by some remote action”).
Additionally,

this

type

of

injury

raises

issues

of

duplicative recovery and other possible plaintiffs. Courts often
find proximate cause when the court is satisfied that the injuries
alleged are “not shared by any other possible plaintiff.” See City
of Miami, 923 F.3d at 1287. It may be that the injuries inflicted
on neighborhood residents are also inflicted on Plaintiffs. See
id. at 1277 (“[I]f the Banks’ predatory lending practices injured
homeowners and led to foreclosures on a massive scale, these
injuries inflicted on multiple homeowners in the same city must
almost surely have injured the City as well.”). However, it would
be exceedingly difficult for the Court to apportion damages for
the widespread economic harms inflicted on minority neighborhoods
as

between

Plaintiffs

and

the

actual

residents

of

those

neighborhoods. Thus, Defendants’ motion to dismiss this claim of
injury is granted. The Court turns to the liability of the Deutsche
Bank Defendants.

- 22 -

B.

Deutsche Bank Defendants’ FHA Liability

The Deutsche Bank Defendants own the REO properties at issue
as trustees. As the Court explained in its prior opinion, the REO
properties at issue here all have mortgages that were pooled
together to form residential mortgage-backed securities (RMBS).
Upon the creation of an RMBS, a document called a Pooling and
Servicing Agreement (PSA) is used to allocate responsibilities
related to the security among certain parties. The PSA designates
a trustee to hold title to the real estate securing the RMBS, and
designates a servicer to preserve and manage the property. In this
case,

the

Deutsche

Bank

Defendants

are

the

PSA-designated

trustees; Ocwen and Altisource are the servicers. The Court has
taken judicial notice of one of the many PSAs between the Deutsche
Bank Defendants and the Servicers. Nat’l Fair Hous. All., 2018 WL
6045216, at *6. Citations in this opinion to “the PSA” correspond
to that example PSA. (See PSA, Ex. F to Defs.’ Reply, Dkt. No. 477.)
In their prior and current Motions to Dismiss, the Deutsche
Bank Defendants contend that they cannot be liable under the FHA
because

they

contractually

delegated

all

responsibility

for

maintaining the REO properties to the Servicers. Plaintiffs argue
that, despite the fact that the Deutsche Bank Defendants hold the
REO properties in trust, they are still legally responsible for

- 23 -

the discriminatory acts of the Servicers in maintaining those
properties.
The Court ruled in its last dismissal opinion that in order
for the Deutsche Bank Defendants to succeed in this argument, they
must establish via judicially-noticeable documentation that the
allegations concerning their property maintenance responsibilities
are inaccurate. Nat’l Fair Hous. All., 2018 WL 6045216, at *7.
Specifically, the Court held that “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.” Id. at *6. The Court also discussed the Deutsche Bank
Defendants’ argument that they held title to the REO properties as
indenture trustees, a particular type of property ownership that
Defendants contend affects liability under the FHA.

Plaintiffs

now argue that the Court should reconsider its ruling for two
reasons: (1) the type of trust in which Deutsche Bank Defendants
hold the REO properties is irrelevant to whether they are liable
under the FHA; and (2) a recent Seventh Circuit case counsels that
no agency relationship is required for FHA liability.
1.

Indenture Trustees

In its earlier opinion, the Court noted the difference between
ordinary and indenture trustees. An indenture trustee’s fiduciary
duties are more limited in scope than the duties of an ordinary

- 24 -

trustee, and the duties of an indenture trustee are generally
“strictly defined and limited to the terms of the indenture.”
Williams v. Cont’l Stock Transfer & Tr. Co., 1 F. Supp. 2d 836,
840 (N.D. Ill. 1998) (citing Elliott Assocs. v. J. Henry Schroder
Bank & Trust Co., 838 F.2d 66, 71 (2d Cir. 1988)). While the Court
acknowledged the difference between ordinary and indenture trusts,
it did not hold that indenture trustees are excluded from FHA
liability. Nor could it. The FHA does not distinguish between
different types of trusts. See 42 U.S.C. § 3602(d) (defining
“person” to include “trusts,” “trustees, “trustees in cases under
Title

11,”

“receivers,”

and

“fiduciaries”).

The

FHA’s

broad

language has been held to include entities that can be reasonably
interpreted as coming within its scope. See Vill. of Bellwood v.
Gladstone Realtors, 569 F.2d 1013, 1020 n.8 (7th Cir. 1978), aff'd
in part, 441 U.S. 91 (1979), and abrogated by Vill. of Bellwood v.
Dwivedi, 895 F.2d 1521 (7th Cir. 1990) (interpreting the FHA as
covering “municipal corporations” though only “corporations” are
covered

in

Section

3602(d)).

Simply

put,

nothing

in

the

FHA

indicates that indenture trustees are immune from liability.
2.

Agency and Control

Regardless of whether a governing agreement is an indenture
trust, ordinary trust, or a “PSA,” what governs the Deutsche Bank

- 25 -

Defendants’ liability under the FHA is the extent to which they
had control and/or influence over the Servicers.
a.
The

FHA

Agency and Disparate Treatment Discrimination
permits

both

indirect

and

direct

liability.

Principals can be liable for discrimination of their agents under
the FHA. Meyer v. Holley, 537 U.S. 280, 285 (2003) (“[I]t is well
established that the Act provides for vicarious liability” and
“traditional vicarious liability rules ordinarily make principals…
vicariously liable for acts of their agents… in the scope of their
authority[.]”) In Wetzel v. Glen St. Andrew Living Cmty., LLC, 901
F.3d 856 (7th Cir. 2018), cert. dismissed sub nom. Glen St. Andrew
Living Com. v. Wetzel, 139 S. Ct. 1249 (2019), the Seventh Circuit
held, in the context of intentional discrimination FHA claim, that
a court need not find a strict principal-agent relationship in
order to find liability under the FHA. In Wetzel, the plaintiff
alleged
harassed

that
and

her

landlord,

retaliated

the

against

defendant,

discriminatorily

her

on

based

her

sexual

orientation. The plaintiff contended that the landlord was aware
that other tenants in the building were harassing her on the basis
of her sexual orientation yet did nothing to curb the harassment.
The defendant argued that a landlord cannot be liable under the
FHA for the actions of its tenants, because there is “no agency or

- 26 -

custodial relationship between a landlord and tenant.” Wetzel, 901
F.3d at 864. The Seventh Circuit rejected that argument, holding:
[W]e need look only to the management defendants
themselves, asking whether they had actual knowledge of
the severe harassment [plaintiff] was enduring and
whether they were deliberately indifferent to it. If so,
they subjected [plaintiff] to conduct that the FHA
forbids… [Defendant] complains that it would be unfair
to hold it liable for actions that it was incapable of
addressing, but we are doing no such thing. We have no
quarrel with the idea that direct liability for inaction
makes sense only if defendants had, but failed to deploy,
available remedial tools. [Defendant] protests that it
can only minimally affect the conduct of its tenants…
Control in the absolute sense, however, is not required
for liability. Liability attaches because a party has
“an arsenal of incentives and sanctions… that can be
applied to affect conduct” but fails to use them.
Id. at 865 (internal citations omitted) (emphasis added).
Thus,

under

Wetzel,

a

plaintiff

need

not

establish

a

principal-agent relationship in order to allege discriminatory
intent via a deliberate indifference theory. If Plaintiffs can
establish that the Deutsche Bank Defendants had knowledge of the
Servicers’ discriminatory REO maintenance, and the ability to
affect that discriminatory conduct, but failed to do so, Plaintiffs
can hold the Deutsche Bank Defendants liable for intentional
discrimination under the FHA.
Defendants argue that the Court should disregard Wetzel, as
Plaintiffs brought this case to the Court’s attention several days
before it issued its earlier ruling. (See Pl.’s Mot. to Suppl.
- 27 -

Authority, Nov. 15, 2018, Dkt. No. 52.) The same day the Court
issued its Opinion, the Court briefly noted that Wetzel “does not
materially change the Court’s perspective on today’s ruling.” (See
Nov. 19, 2018, Docket Entry, Dkt. No. 54.) At the time, the Court
did not have the benefit of full briefing on this case and its
implications. The Court now has had the opportunity to consider
Wetzel fully, and reconsider its ruling accordingly. The Court now
holds that property ownership alone is not a trump card in FHA
suits, but neither is an agency relationship required in all cases.
This brings the Court to the question of whether the Deutsche
Bank Defendants hold incentives and/or sanctions over the Servicer
Defendants that confer the requisite (not absolute) amount of
control to incur liability for deliberate indifference.
To determine whether Deutsche Bank Defendants had available
“incentives and sanctions” that they could have used to “affect
the conduct” of the Servicers, the Court looks to the terms of the
PSA. Wetzel, 901 F.3d at 865. The PSA requires that the Servicers
“actively market” REO properties for sale for the benefit of the
Trust. (PSA § 3.12.) “Pursuant to its efforts to sell the REO
property, the Servicer shall either itself or through an agent
selected by the Servicer protect and conserve the REO Property in
accordance

with

the

Servicing

Standard.”

(Id.)

The

Servicing

Standard requires “that degree of skill and care exercised by the

- 28 -

Servicer with respect to mortgage loans comparable to the Mortgage
Loans serviced by the Servicer for itself or others.” (PSA § 1.01)
In the event of Servicer default, the Deutsche Bank Defendants
“assume all of the rights and obligations” of the Servicer under
the PSA. (PSA § 3.05.) The PSA defines an “event of default” to
include “any failure by the Servicer to observe or perform in any
material respect any… covenants or agreements on the part of the
Servicer contained in this Agreement.” (PSA §7.01.) Vague as the
Servicing Standard may be, any reasonable degree of skill or care
would include not violating federal discrimination laws. Thus, the
Deutsche Bank Defendants could have given notice to the Servicers
that their “protecting and conserving” the REO properties was in
violation of the Servicing Standard, putting them at risk of a
default under the PSA.
The Deutsche Bank Defendants had another “remedial tool” that
they could have deployed. Wetzel, 901 F.3d at 865. They owned the
REO properties at issue. As such, the Deutsche Bank Defendants
maintained a right to possess, control, and exclude others from
their properties. See Byrd v. United States, 138 S. Ct. 1518, 1527
(2018) (“One of the main rights attaching to property is the right
to

exclude

others.”)

The

Deutsche

Bank

Defendants

repeatedly

assert that they hold “bare legal title” to the REO properties to
indicate that they cannot be liable under the FHA. (Defs.’ Suppl.

- 29 -

Mem. at 1, Dkt. No. 63.) But under Wetzel, Deutsche Bank Defendants
apparently had incentives, sanctions, and remedial tools that they
could have used but choose not to. Therefore, at this stage,
Plaintiffs have alleged sufficient facts to indicate that the
Deutsche Bank Defendants can be liable for failure to prevent
recurring discrimination.
However,

Wetzel

only

involved

a

claim

of

intentional

discrimination under the FHA. The Court declines to extend Wetzel
to disparate impact theories of liability under the FHA. Therefore,
to hold the Duetsche Bank Defendants liable under a disparate
impact theory, Plaintiffs still must allege a principal-agent
relationship.
b.

Agency and Disparate Impact Discrimination

Whether an agency relationship exists for purposes of the FHA
is determined by federal law. City of Chicago v. Matchmaker Real
Estate Sales Ctr., Inc., 982 F.2d 1086, 1097 (7th Cir. 1992). The
Seventh Circuit has observed that “the federal common law of
agency, Illinois agency law, and the Restatement of Agency are all
in accord on general agency principles.” NECA-IBEW Rockford Local
Union 364 Health & Welfare Fund v. A & A Drug Co., 736 F.3d 1054,
1058 (7th Cir. 2013). The question of whether a principal-agent
relationship exists is typically a question of fact, and a court
should decide the issue as a matter of law if “only one conclusion

- 30 -

may be drawn from the undisputed facts.” Clarendon Nat. Ins. Co.
v. Medina, 645 F.3d 928, 935 (7th Cir. 2011); see also Chemtool,
Inc. v. Lubrication Techs., Inc., 148 F.3d 742, 743 (7th Cir. 1998)
(in which the district court found no agency relationship between
the parties after a bench trial). Generally, an agency relationship
arises when one person (a principal) manifests assent to another
person (an agent) that the agent shall act on the principal’s
behalf and subject to the principal’s control, and the agent
manifests assent or otherwise consents so to act. Medina, 645 F.3d
at 935 (citing Restatement (Third) of Agency § 1.01 (2006)). A
person manifests such asset or intention through written or spoken
words or other conduct. Restatement (Third) Of Agency § 1.03.
Plaintiffs

allege

that

the

Servicers

are

agents

of

the

Deutsche Bank Defendants. In support of this claim, Plaintiffs
cite to various terms in the PSA that they contend indicate a
principal-agent

relationship.

(SAC

¶¶ 66-78.)

In

return,

the

Deutsche Bank Defendants cite to provisions in the PSA that they
argue prove no such relationship exists. In particular, Defendants
emphasize that the PSA does not designate a Servicer as an “agent”
of any Trustee. However, whether a relationship is characterized
as agency in an agreement between parties or in the context of
industry of popular usage is not controlling. Washington v. Kass
Mgmt. Servs., No. 10 C 4409, 2011 WL 1465581, at *2–3 (N.D. Ill.

- 31 -

Apr. 18, 2011) (citing Restatement (Third) Of Agency § 1.02). The
Court simply does not have enough undisputed facts before it that
indicate whether the Deutsche Bank Defendants had the right to
control the manner and method in which the Servicers carried out
their maintenance work. Presently, it is plausible, not purely
speculative, that an agency relationship exists or existed between
Deutsche Bank Defendants and the Servicers. Of course, the extent
of that agency relationship remains to be determined as this case
moves

forward.

Washington,

2011

WL

1465581,

at

*4.

Because

Plaintiffs have plausibly alleged a theory of liability for both
their

intentional

discrimination

and

disparate

impact

claims

against the Deutsche Bank Defendants, their motion to be dismissed
from this case is denied.
C.

Timeliness

Plaintiffs ask the Court to reconsider its ruling on the
statute of limitations in this case. See Nat’l Fair Hous. All.,
2018 WL 6045216, at *4 (holding that the two-year statute of
limitations

under

the

FHA

starts

Plaintiffs’

actionable

allegations on February 26, 2012, for the Deutsche Bank Defendants
and on February 14, 2015, for the Servicer Defendants). The Court
found that Plaintiffs were on notice in 2011 that the Deutsche
Bank Defendants were violating the FHA, and as such, could not
rely on the continuing violation doctrine to bypass the ordinary

- 32 -

two-year statute of limitations. Id. The continuing violation
doctrine states that when a plaintiff challenges “not just one
incident

of

conduct

violative

of

the

[FHA],

but

an

unlawful

practice that continues into the limitations period, the complaint
is timely when it is filed within [two years] of the last asserted
occurrence of that practice.” Havens Realty Corp. v. Coleman, 455
U.S. 363, 365 (1982). The Seventh Circuit has held that the
doctrine has no application where the time-barred incident put the
plaintiff on notice that his rights were being violated. See
Limestone Dev. Corp. v. Vill. of Lemont, 520 F.3d 797, 801 (7th
Cir. 2008).
The basis for the Court’s holding was Plaintiffs’ allegations
in

their

original

Complaint

that

during

their

“initial

investigation” into maintenance of REO properties throughout the
lending industry, “Plaintiffs observed that many REO properties
exhibiting poor maintenance in communities of color were owned by
Deutsche Bank.” (Compl. ¶ 88, Dkt. No. 1.) As part of Plaintiffs’
investigatory

efforts,

in

2011

NFHA

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.” (Id.) The Court held

- 33 -

that because “Plaintiffs’ own allegations demonstrate their clear
knowledge

of

their

FHA

claims

back

in

2011,

the

continuing

violation doctrine is unavailable to them.” Nat’l Fair Hous. All.,
2018 WL 6045216, at *4.
Plaintiffs now ask the Court to reconsider its holding on
timeliness, arguing that they had “insufficient data” on the
condition of Deutsche Bank’s REO properties in 2011. (Pls.’ Resp.
at 5, Dkt. No. 77.) Plaintiffs place a lot of weight on the notion
that they had not yet accumulated adequate data to say with
“reasonable certainty” that the Deutsche Bank Defendants were
violating the FHA. However, this is not the standard for when
notice of a violation cuts off the availability of the continuing
violation doctrine. As the Court has already explained, 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.” Id. (citing Shanoff v.
Ill. Dep't of Human Servs., 258 F.3d 696, 703 (7th Cir. 2001)).
Plaintiffs

did

not

need

to

have

“thorough[ly]

develop[ed]”

evidence to have perceived the impingement of their rights. (Pl.’s
Resp. at 6.) Thus, this argument fails to satisfy the relevant
standard.

- 34 -

Plaintiffs also now claim that at the time of NFHA’s 2011
Report,

Plaintiffs

had

not

assessed

any

Deutsche

Bank

REO

properties. This will not do. Plaintiffs previously relied on the
allegation

in

their

Complaint

that

during

their

“initial

investigation” of REO properties throughout the lending industry,
they

“observed

that

many

REO

properties

exhibiting

poor

maintenance in communities of color were owned by Deutsche Bank.”
(Compl. ¶ 88 (emphasis added).) Liberally construing Plaintiffs’
Complaint, the Court did not begin the clock at this “observation”
early on in the investigation, but rather allowed the statute of
limitations to begin to run at the time NFHA first published their
report on this matter. Generally, an amended complaint supersedes
the prior pleading, Duda v. Bd. of Educ. of Franklin Park Pub.
Sch. Dist. No. 84, 133 F.3d 1054, 1057 (7th Cir. 1998), and will
not be dismissed based on inconsistencies between it and the
original, Whitehouse v. Piazza, 397 F. Supp. 2d 935, 941 (N.D.
Ill. 2005) (citation omitted). But where the amended allegations
appear

to

flatly

contradict

the

originals,

and

there

is

no

suggestion that the originals were made in error, courts may
consider the different complaints together in the interest of
justice. See, e.g., Aasen v. DRM, Inc., No. 09C50228, 2010 WL
2698296,

at

*2

(N.D.

Ill.

July 8,

2010).

Here,

it

appears

Plaintiffs directly contradict their earlier pleadings to avoid

- 35 -

the Court’s ruling on timeliness. Plaintiffs do not suggest that
their

original

pleadings

were

mistaken.

Therefore,

the

Court

disregards Plaintiffs’ new contention that in 2011 they had no
information about Deutsche Bank-owned REO properties.
Accordingly, the Court’s prior finding that Plaintiffs were
on notice shall stand. The Court notes that while the time-barred
conduct itself is not actionable, Plaintiffs may use Defendants’
activity

outside

discriminatory

the

intent

limitations
for

actions

period
that

as

evidence

occurred

of

the

within

the

limitations period. See Malin v. Hospira, Inc., 762 F.3d 552, 561
(7th Cir. 2014).
D.

Disparate Impact Theory

A plaintiff states a prima facie FHA disparate impact claim
by alleging (1) a statistical disparity and (2) that the defendant
maintained a specific policy that (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)). Defendants
argue that Plaintiffs have failed to allege all of these elements.
The Court will first assess the validity of Plaintiffs’ data before
turning to the causal connection between Defendants’ policies and
the alleged disparity.

- 36 -

1.

Racial Disparity

As before, the Defendants challenge Plaintiffs’ statistics.
Some of the primary conclusions from Plaintiffs’ study of the
Deutsche Bank Defendants’ REO properties during the relevant time
period include: 46.3% of REO properties in minority communities
had 10 or more maintenance or marketing deficiencies, while only
14.1% of REO properties in white communities had 10 or more
deficiencies; 92.1% of REO properties in minority neighborhoods
had five or more deficiencies, while 57% of REO properties in white
communities had five or more deficiencies. (SAC ¶ 98.)
When the Court last considered this issue, it declined to
rule on the merits of any of Defendants’ challenges to Plaintiffs’
statistics because it had just sheared off several years’ worth of
data due to the statute of limitations, and so could not assess
adequately whether the remaining dataset stated a claim. Nat’l
Fair Hous. All., 2018 WL 6045216, at *11. Defendants now assert
that Plaintiffs’ data is fatally flawed in the following ways: (1)
Plaintiffs collected data on each REO property only once; (2)
Plaintiffs failed to account for non-discriminatory explanations
for the disparities; (3) Plaintiffs excluded from their dataset
properties that were occupied or currently undergoing maintenance;
and (4) Plaintiffs present disparities in the aggregate, without
alleging significant disparities in any one city.

- 37 -

The

Court

notes

at

the

outset

that

Plaintiffs

are

not

required, at the pleading stage, to defend every nuance of their
methodology.

Indeed,

Plaintiffs

are

not

strictly

required

to

include statistics to state a disparate impact claim under the
FHA. See Inclusive Cmtys., 135 S. Ct. at 2523 (a plaintiff states
a prima facie case of disparate impact by alleging facts or
producing statistical evidence demonstrating a causal connection).
Thus, the Court will not engage in a wholesale review of the
investigative methodology in this case, but rather briefly examine
each of Defendants’ methodological challenges to see if any renders
the statistical allegations unreliable or implausible.
First, Defendants argue that because Plaintiffs inspected
each

REO

property

improvements

that

only

once,

Defendants

their
may

study

have

made

failed
after

to

capture

Plaintiffs’

visits. Plaintiffs counter that taking a single “snapshot in time”
of a defendant’s behavior is a normal testing methodology. That is
true in the context of employment discrimination. See Movement for
Opportunity & Equal. v. Gen. Motors Corp., 622 F.2d 1235, 1244-45
(7th Cir. 1980). However, Plaintiffs’ method appears not to be a
true “snapshot” of each property at the same stage of its lifetime
as a Deutsche Bank-owned REO property, as Plaintiffs describe their
testing protocol as “collect[ing] evidence that [is]representative
of any given point on the timeline of an REO in Deutsche Bank’s

- 38 -

possession.” (Pls.’ Resp. at 20 n.3.) To establish liability,
Plaintiffs will have to show how their methodology controls for
potential discrepancies caused by the amount of time a property
has been in Defendants’ possession. However, the Court will not
require such a showing at this stage. Access Living of Metro.
Chicago, Inc. v. City of Chicago, 372 F. Supp. 3d 663, 671 (N.D.
Ill. 2019) (Plaintiff investigated a random sample of 300 housing
developments to assess compliance with the FHA and ADA; defendant
moved for 12(b)(6) dismissal on the basis that plaintiff did not
identify when each inspection occurred; the court denied the motion
because “all of the details that the City claims are lacking go to
the substantiation of Plaintiff’s [] methodology, which the City
is free to explore in discovery.”) (internal quotations omitted).
Therefore, for now, this argument fails.
Second, Defendants contend that Plaintiffs’ study is fatally
flawed because they did not consider potential nondiscriminatory
explanations

for

the

disparity

they

found.

For

instance,

Defendants claim, REO properties in majority-white neighborhoods
“may have been in pristine conditions when the borrower left,”
while the homes in minority neighborhoods “may have been left in
disrepair when the property became REO.” (Defs.’ Mem. at 8, Dkt.
No. 72.) However, because Plaintiffs’ investigation was restricted
to routine exterior maintenance that Defendants were required to

- 39 -

perform on all REO properties (such as removing debris, securing
doors and windows, and mowing grass), the initial condition of the
house upon transfer of possession is not as relevant in this case
at it would be in a case that concerned the condition of the house
as a whole.
To support their proposition that Plaintiffs must consider
potential nondiscriminatory reasons for the maintenance disparity,
Defendants cite Rummery v. Illinois Bell Tel. Co., 250 F.3d 553
(7th Cir. 2001). Rummery was a disparate treatment case under the
Age Discrimination in Employment Act (ADEA) and Americans with
Disabilities Act(ADA)—not a disparate impact case. Rummery held
that while an ADEA plaintiff can use statistical evidence to show
that an employer’s proffered reason for discharge is pretextual,
statistics standing alone do not establish a case of individual
disparate treatment. Id. at 559. The court noted that to establish
disparate treatment under the ADEA, statistics must also take into
account

nondiscriminatory

explanations.

Id.

Rummery

does

not

require a plaintiff asserting disparate impact under the FHA to
exclude potential nondiscriminatory reasons before stating a prima
facie claim.
Defendants may have confused Plaintiff’s burden with their
own.

After

a

plaintiff

establishes

a

prima

facie

showing

of

disparate impact, the burden shifts to the defendant to “prove

- 40 -

that

the

challenged

practice

is

necessary

to

achieve…

[a]

legitimate, nondiscriminatory interest[.]” Inclusive Cmtys., 135
S. Ct. at 2514–15. It is not Plaintiffs’ burden at the pleading
stage

to

explain

potential

nondiscriminatory

reasons

for

Defendants’ conduct. Moreover, Plaintiffs’ method accounted for
how

long

the

inspected

REOs

had

been

in

the

Deutsche

Bank

Defendants’ possession in order to avoid assessing REO properties
before Defendants had the opportunity to perform maintenance.
Thus, at the pleading stage, Defendants’ argument fails.
Essentially, the first and second methodological challenges
assert that Defendants may have in fact maintained REO properties
in communities of color to a far better degree than Plaintiffs’
study

captured.

This

is

a

fine

argument

to

make—at

summary

judgment. Defendants are free to rebut Plaintiffs’ data with
evidence

of

the

time

and

resources

they

spent

maintaining

properties in minority neighborhoods and will be free to argue
that such maintenance was appropriate given the condition and value
of the homes at issue. See Nat’l Fair Hous. All. v. Fed. Nat’l
Mortg.

Ass’n,

(“Considering

294
the

F.

Supp.

breadth

3d
and

940,

948

extensive

(N.D.

Cal.

coverage

of

2018)
the

investigation, [defendant’s] contentions regarding whether the
Plaintiffs’ methodology is flawed are best reserved for resolution
at summary judgment. The Court finds the specific contentions about

- 41 -

alleged

deficiencies

in methodology go

to

the

weight

of

the

evidence and are not dispositive of the determination whether
Plaintiffs have adequately pled discrimination at this procedural
stage.”)
Third, Defendants assert that Plaintiffs collected skewed
data by excluding REO properties that appeared to be occupied or
currently undergoing maintenance, as such properties would be more
likely to be in better condition. However, Plaintiffs did not
purport to investigate occupied properties, or to compare the
maintenance

of

occupied

versus

unoccupied

properties.

As

for

Plaintiffs’ exclusion of properties currently undergoing repair—
such properties were excluded from study in both white and minority
neighborhoods, which prevents any obvious skewing of the data.
Fourth, Defendants attack Plaintiffs’ assertion that racial
disparities are statistically significant when measured on an
aggregate basis. Defendants argue that Plaintiffs must present
statistical disparities broken down by each city, because each
city

has

its

own

municipal

codes,

and

some

of

the

criteria

Plaintiffs used to measure exterior maintenance might have treated
differently by local regulations. By way of example, Defendants
Plaintiffs counted boarded windows as a failure to maintain a
property (SAC ¶ 89), but the municipal code of Columbus, Ohio,
requires property owners to board windows in a vacant building.

- 42 -

See

Columbus,

Ohio

Mun.

Code

§ 4707.03.

This

type

of

final

statistical proof is inappropriate on a Rule 12(b)(6) motion to
dismiss. For the time being, it suffices that Plaintiffs have
alleged a national policy, and have supported it with national
statistics.
2.

Servicer-Specific Data

Plaintiffs allege that “Ocwen and/or Altisource” acted as the
primary

servicers

properties.

(SAC

for
¶ 64.)

the

Deutsche

Defendants

Bank
argue

Defendant’s
that

REO

Plaintiffs’

disparate impact claims against Ocwen and Altisource must fail
because Plaintiffs do not offer any statistical data that is
specific to either of the Servicer Defendants.
There “is no ‘group pleading’ doctrine, per se, that either
permits or forbids allegations against defendants collectively.”
Robles v. City of Chicago, 354 F. Supp. 3d 873, 875 (N.D. Ill.
2019). Rule 8(a)(2) requires a pleading to contain “a short and
plain statement of the claim showing that the pleader is entitled
to relief.” FED. R. CIV. P. 8(a)(2). Under the notice pleading
standard, specific facts are not necessary; the statement need
only give the defendant fair notice of what the claim is and the
grounds upon which it rests. Erickson v. Pardus, 551 U.S. 89, 93
(2007). “Group pleading” does not violate Rule 8 so long as the
complaint “provides sufficient detail to put the defendants on

- 43 -

notice of the claims.” Robles, 354 F. Supp. 3d at 875 (citation
omitted). With respect to the notice required to a particular
defendant, there is no bright line rule; the Seventh Circuit has
simply cautioned that “at some point the factual detail in a
complaint may be so sketchy that the complaint does not provide
the type of notice of the claim to which the defendant is entitled
under Rule 8.” Id. (quoting Airborne Beepers & Video, Inc. v. AT&T
Mobility LLC, 499 F.3d 663, 667 (7th Cir. 2007)).
Moreover, Plaintiffs contend—and Defendants do not dispute—
that

there

is

no

publicly

available

information

about

which

Servicer maintained which REO property. It does not strike the
Court as appropriate, or practical, to immunize two defendants
from liability when a plaintiff cannot determine in advance what
percentage of the conduct is attributable to one defendant or the
other.
Defendants cite City of Los Angeles v. JPMorgan Chase & Co.,
No. 2:14-CV-04168, 2014 WL 3854332, at *7 (C.D. Cal. Aug. 5, 2014)
for the proposition that a statistical study cannot “lump together”
the alleged conduct of two separate defendants. JP Morgan concerned
a city’s attempt to recover damages under the FHA for lost property
tax

revenue

and

increased

municipal

services

stemming

from

foreclosures that resulted from allegedly discriminatory lending
practices by Chase Bank. The court noted that “[u]nique to this

- 44 -

case is the relationship between Chase and Washington Mutual Bank
(‘WaMu’)”—WaMu failed and was placed into receivership, and Chase
assumed some of WaMu’s assets and liabilities. Id. at *1. The
plaintiffs then sued Chase for FHA violations that included loans
that originated from WaMu without distinguishing which bank was
responsible for which loans. Id. The court held that it lacked
subject matter jurisdiction over Chase Bank and dismissed the
disparate

impact

claim

because

the

city’s

statistics,

which

constituted a “key aspect” of its disparate impact claim, were
“based on a detailed regression analysis that lumps loans issued
by both Chase and WaMu together.” Id. at *7. JP Morgan is not
relevant precedent because it concerned a statistical study that
included the conduct of a party over which the court had no
jurisdiction.
Plaintiffs have included more than enough factual detail in
the SAC to put the Servicer Defendants on notice of Plaintiffs’
claims.

The

extent

of

Ocwen

and

Altisource’s

respective

responsibility for the REO properties at issue is a factual matter
to be revealed through discovery.
3.
A

Policy that Caused the Disparities
disparate

impact

claim

that

relies

on

a

statistical

disparity fails if the plaintiff cannot point to a defendant’s

- 45 -

policy or policies that caused the disparity. Inclusive Cmtys.,
135 S. Ct. at 2523.
First, Defendants contend that Plaintiffs failed to identify
a specific policy of the Deutsche Bank Defendants that caused the
disparity. This Court previously held that Plaintiffs’ allegation
of an “abdication” policy whereby the Deutsche Bank Defendants
relinquished and outsourced all responsibility for maintaining the
REO properties to servicers suffices to state a “policy” for a
disparate impact claim. Nat’l Fair Hous. All., 2018 WL 6045216, at
*12 (citing 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.”)).
The Court noted that this policy passes muster only so long as
property

maintenance

was

the

Deutsche

Bank

Defendants’

responsibility to outsource in the first place. Id. Accordingly,
Defendants revive their argument that the Deutsche Bank Defendants
cannot be liable for REO property maintenance or servicing. The
Court has already rejected this argument and need not address it
further. Plaintiffs have alleged a policy by the Deutsche Bank
Defendants sufficient to survive a motion to dismiss.
Plaintiffs have added a disparate impact claim against the
Servicer

Defendants.

Defendants,

like

the

Plaintiffs
Deutsche

- 46 -

allege
Bank

that

the

Defendants,

Servicer
outsource

maintenance
“abdicating”

to

third

their

parties

without

responsibility

appropriate

for

REO

monitoring,

maintenance.

(SAC

¶ 156.) As with the Deutsche Bank Defendants, this suffices to
allege a policy that caused the disparity.
Plaintiffs also allege that Ocwen and Altisource had a policy
of

designating

certain

areas

as

“low

value”

and

particular

properties as “low value assets,” then limiting or completely
disallowing maintenance work on REO properties that receive such
labels. (SAC ¶¶ 156-58.) Areas that Defendants deem “low value”
are typically communities of color, while areas that Defendants
deem “high value” are typically white communities. (Id. ¶ 158.)
(Altisource apparently used the term “hot zones” interchangeably
with

“low

value.”)

Plaintiffs

allege

that

Defendants’

REO

properties in “high value” areas receive better quality and higher
quantity

property

maintenance

than

properties

in

“low

value”

areas.
Defendants’

primary

objection

to

Plaintiffs’

allegations

regarding the low/high value policy is that Plaintiffs did not
sufficiently identify whether the Deutsche Bank Defendants, Ocwen,
or Altisource are responsible for this policy. Defendants contend
that Plaintiffs’ inability to identify from which of the four named
defendants this policy originated necessitates dismissal for lack
of plausibility, per Iqbal, 556 U.S. at 678. Defendants’ concern

- 47 -

is overstated. Despite the fact that Plaintiffs cannot identify
precisely
Defendants

whether

Ocwen,

initiated

the

Altisource,
low/high

or

the

value

Deutsche

system

(as

Bank
this

information is not publicly available), Defendants are still on
notice of Plaintiffs’ disparate impact theory and the grounds upon
which is rests. Iqbal, 556 U.S. at 678. And Plaintiffs have
satisfied the pleading requirements set forth by the Supreme Court
for a disparate impact policy. A policy that causes a disparate
impact must be “artificial, arbitrary, and unnecessary” to violate
the FHA. Plaintiffs have alleged that the low/high value policy is
arbitrary (SAC ¶ 156) and that “there is no business or other
justification” for “failing to undertake basic maintenance of REO
properties in communities of color.” (Id. ¶¶ 110, 154.) Therefore,
the

alleged

abdication

and

low/high

value

policies

are

sufficiently plead at this stage.
Finally,

the

Court

turns

to

the

“robust

causality

requirement” in disparate impact FHA claims, which ensures that
defendants are not held liable for racial disparities they did not
create.

Inclusive

Cmtys.,

135

S.

Ct.

at

2523.

The

“robust

causality” required in a disparate impact claim is distinct from
the proximate cause analysis required of all claims under the FHA
per City of Miami, 137 S. Ct. 1296. See Cty. of Cook, Illinois v.
Wells Fargo & Co., 314 F. Supp. 3d 975, 990, 994 (N.D. Ill. 2018)

- 48 -

(analyzing proximate cause and the robust causality requirement
separately); City of Miami v. Bank of Am. Corp., 171 F. Supp. 3d
1314, 1320 (S.D. Fla. 2016) (making an “adequate showing” of
proximate cause is insufficient to meet the separate “robust
causality requirement” for a disparate impact claim). The former
concerns whether a defendant’s conduct in an FHA suit is properly
pleaded as the proximate cause of a plaintiff’s damages; the latter
involves an examination of whether a defendant’s policies were
properly pleaded as the cause of the discriminatory impact. See
Alston

v.

City

of

853

Madison,

F.3d

901,

907-08

(7th

Cir.

2017), cert. denied sub nom. Alston v. City of Madison, Wis., 138
S.

Ct.

1571

(2018), reh’g

denied, 138

S.

Ct.

2714

(2018)

(“Disparate impact alone is almost always insufficient to prove
discriminatory purpose. … Only in rare cases are statistics alone
enough to prove discriminatory purpose. And even when equipped
with

such

statistics,

a

plaintiff

must

always “point

to

a

defendant’s policy or policies causing that disparity.”) (citing
Inclusive Cmtys., 135 S. Ct. at 2523).
Defendants’

policies

of

abdicating

responsibility,

and

designating areas low/high value, have the requisite robust causal
connection to the statistical disparity Plaintiffs allege. These
policies allegedly pushed REO properties in minority communities
into disrepair, while REO properties in white neighborhoods were

- 49 -

disproportionately likely to receive resources and attention. And
the statistics presented in the SAC raise “a fair inference of
causation.” Nat’l Fair Hous. All. v. Bank of Am., N.A., No. CV 181919, 2019 WL 3241126, at *12 (D. Md. July 18, 2019). Plaintiffs
have stated a prima facie case of disparate impact decimation
against all Defendants. See Nat’l Fair Hous. All. v. Fed. Nat’l
Mortg. Ass’n, 294 F. Supp. 3d 940, 948 (N.D. Cal. 2018) (finding
“robust

cause”

where

plaintiffs

alleged

that

a

policy

of

“delegation of discretion or failure to supervise and differential
maintenance based on the properties’ age and value” caused a
discriminatory impact.”) This is not a case in which Plaintiffs
attempt to hold Defendants liable for a racial imbalance that they
did not create. See Inclusive Cmtys., 135 S. Ct. at 2523. Rather,
Plaintiffs seek to hold Defendants responsible for only that
imbalance that they did cause: the disparity in REO maintenance
between white and minority neighborhoods. The Court turns to
Plaintiffs’ intentional discrimination theory.
E.

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

- 50 -

Bhd. of Teamsters v. United States, 431 U.S. 324, 335 n.15 (1977)
(citation omitted). A disparate treatment claim under the FHA
requires allegations “of intentional discrimination, provable via
either direct or circumstantial evidence.” HSBC N. Am. Holdings,
314 F. Supp. 3d at 966 (citing Daveri Dev. Grp., LLC v. Vill. of
Wheeling, 934 F. Supp. 2d 987, 997 (N.D. Ill. 2013)). Courts
considering discriminatory intent should look at evidence and
pleadings as a whole and ask “whether the evidence would permit a
reasonable factfinder to conclude that the plaintiff’s” protected
characteristic caused the discharge or other adverse employment
action. Ortiz v. Werner Enterprises, Inc., 834 F.3d 760, 765 (7th
Cir. 2016). Ortiz is a Title VII case, but Title VII is a “natural
point of reference” in FHA cases, as Title VII and the FHA have
been described as “functional equivalents” to be given “like
construction

and

application.”

Wetzel,

901

F.3d

at

863.

Additionally, the Seventh Circuit has observed that it “does not
take much to allege discrimination” in an FHA case. Wigginton v.
Bank of Am. Corp., 770 F.3d 521, 522 (7th Cir. 2014) (stating that
an FHA plaintiff must allege that defendant treated protectedstatus individuals differently from others).
The Court previously held that Plaintiffs failed to allege
plausibly that Defendants intentionally discriminated, largely
because Plaintiffs’ dataset had been undermined by timeliness

- 51 -

problems.

Nat’l

Fair

Hous.

All.,

2018

WL

6045216,

at

*14.

Plaintiffs have since amended their complaint to include a dataset
without any time-barred data, which continues to show a stark
statistical disparity. While statistics alone may prove intent “in
some cases,” E.E.O.C. v. O & G Spring & Wire Forms Specialty Co.,
38 F.3d 872, 876 (7th Cir. 1994), the Court is not convinced this
is one such case. However, “statistics combined with other evidence
may be sufficiently probative of discriminatory intent.” Anderson
v. Cornejo, 284 F. Supp. 2d 1008, 1038 (N.D. Ill. 2003). That is
what Plaintiffs have accomplished here. In addition to Plaintiffs’
statistics, they allege that Defendants used terms like “hot zone”
and “low value area” to distinguish between minority and white
neighborhoods,

and

allocated

resources

to

REO

maintenance

accordingly. “Racially charged code words may provide evidence of
discriminatory intent by sending a clear message and carrying the
distinct

tone

of

racial

motivations

and

implications.”

Mhany

Mgmt., Inc. v. Cty. of Nassau, 819 F.3d 581, 609 (2d Cir. 2016);
see also Smith v. Fairview Ridges Hosp., 625 F.3d 1076, 1085 (8th
Cir. 2010); Ave. 6E Investments, LLC v. City of Yuma, Ariz., 818
F.3d 493, 505 (9th Cir. 2016). Moreover, as the Court explained in
its analysis of Wetzel, Plaintiffs have alleged a deliberate
indifference theory of intentional discrimination. (SAC ¶¶ 112124.) Read as a whole, the SAC identifies policies and practices

- 52 -

by which Defendants intentionally favored REO properties in white
neighborhoods

for

exterior

maintenance.

Thus,

Plaintiffs

have

sufficiently plead a disparate treatment theory.
F.

Claim-Specific Elements

Defendants also assert that Plaintiffs have failed to state
a claim under 42 U.S.C. §§ 3604(a), 3604(b), and 3605, and for
perpetuating segregation generally under the FHA. The Court will
consider each in turn.
1.

§ 3604 Claims

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 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).
Plaintiffs contend that Defendants’ discriminatory failure to

maintain

their

REO

properties

constitutes

a

violation

of

§§ 3604(a) and 3604(b). Defendants argue Plaintiffs have failed to
state a claim under § 3604. This is not the first time the Court
has

heard

Defendants’

arguments

regarding

- 53 -

Plaintiffs’

§ 3604

claims. Previously, the Court held that a plaintiff may “indeed
state

an

FHA

claim

if

the

disparate

effects

caused

by

the

defendant’s failures to maintain render the property unavailable.”
Nat’l Fair Hous. All., 2018 WL 6045216, at *9 (citing Nat’l Fair
Hous. All. v. Fed. Nat’l Mortg. Ass’n, 294 F. Supp. 3d 940, 94748 (N.D. Cal. 2018). HUD regulation 24 C.F.R. § 100.65(b)(2) states
that FHA prohibits “[f]ailing or delaying maintenance or repairs
of sale or rental dwellings because of race, color, religion, sex,
handicap, familial status, or national origin.” See also 24 C.F.R.
§ 100.70(a) (“It shall be unlawful, because of race, color, [or]
national origin… to discourage or obstruct choices in a community,
neighborhood or development.”); 24 C.F.R. § 100.70(c)(1) (such
acts include but are not limited to “Discouraging any person from
inspecting, purchasing, or renting a dwelling… because of the race
[or] national origin… of persons in a community, neighborhood or
development.”).
The

Court

dismissed

Plaintiffs’

§ 3604

claims

without

prejudice because they failed to allege that the REO properties
were neglected to such an extent as to dissuade purchasers from
buying them. Id. (citing Bloch v. Frischholz, 587 F.3d 771, 777
(7th Cir. 2009) (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”)). The SAC

- 54 -

now includes allegations that Defendants’ conduct dissuades buyers
from purchasing the REO properties in minority neighborhoods. (SAC
¶¶ 164, 304, 289.) This suffices to cure the Court’s earlier
concerns, and Plaintiffs’ § 3604 claims may proceed.
2.

§ 3605 Claims

Plaintiffs
unlawful:

also

advance

§ 3605

claims,

which

makes

it

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
claims

Court
because

dismissed
they

Plaintiffs’

failed

to

first

allege

attempt

“specific

at

§ 3605

real-estate

transactions impeded by Defendants’ conduct.” Nat’l Fair Hous.
All., 2018 WL 6045216, at *10. Accordingly, Plaintiffs added
allegations of the types of transactions in minority communities
that were impeded by Defendants’ conduct: the ability to draw on
home equity, obtain a purchase loan, and get a strong appraisal.
(See SAC ¶¶ 189, 328, 335-36.) Defendants argue that Plaintiffs
have misconstrued the Court’s opinion, which they read as requiring
allegations about specific occurrences in which a real estate
transaction was impeded (naming the people and homes involved).

- 55 -

Perhaps the Court was unclear; it will clarify its holding and
reasoning now.
As the Court noted previously, the FHA defines “residential
real estate-related transactions” as “[t]he making or purchasing
of

loans

or

residential

providing
real

other

estate

financial

and

“[t]he

assistance” related
selling,

brokering,

to
or

appraising of residential real property.” 42 U.S.C. § 3605(b). The
cases the Court cited for the proposition that Plaintiffs must
allege specific real estate transactions under § 3605 all involved
individual, not organizational, plaintiffs. See Moore v. FDIC,
No. 08 C 596, 2009 WL 4405538, at *5 (N.D. Ill. Nov. 30, 2009)
(married couple sued bank under § 3605 because, after they couple
defaulted on their mortgage, the bank ignored their requests for
loan documentation and made rude comments; court found no specific
real estate-related transaction because allegations all involve
post-default action by the bank); Gaona v. Town & Country Credit,
324 F.3d 1050, 1056-57 (8th Cir. 2003) (deaf married couple sued
bank

under

§ 3605

because

bank

did

not

provide

reasonable

accommodations to disabled borrowers; court found the bank “did
not refuse to transact business” with the plaintiffs because they
were provided all required notices and disclosures); Mich. Prot.
& Advocacy Serv., Inc. v. Babin, 18 F.3d 337, 346 (6th Cir. 1994)
(state agency and individuals with mental disabilities sued a

- 56 -

homeowner for violating § 3605 because the owner did not rent the
house as a group home for mentally disabled adults, but rather
sold the house to a neighbor; court found the defendants were not
a

business

that

engaged

in

residential

real

estate-related

transaction). None of these cases suggest that organizational
plaintiffs must name specific people or properties in order to
plead a § 3605 claim. Such a requirement would extend beyond notice
pleading in a case that involves a broad national practice that
allegedly affects thousands of people.
A district court recently came to a similar conclusion when
assessing whether an organizational plaintiff bringing a disparate
impact claim under the FHA must name a specific tenant that has
been harmed by the defendant’s policy. The court reasoned:
[Defendant] points out that [plaintiff] has not
identified any specific tenant who has been or would be
harmed by [defendant’s] policy. It is true that [the]
complaint does not identify any individual tenant who
has (or is likely to) lose housing due [defendant’s]
policy, nor has [plaintiff] identified any building that
ceased (or will cease) renting to tenants who receive
vouchers. But this has little legal relevance here. …
For the purpose of stating a claim, [defendant] does not
cite any case holding that an organizational plaintiff
must identify a specific tenant harmed by the challenged
policy. To the contrary, both the Supreme Court and lower
courts have permitted organizational plaintiffs to
proceed by identifying the category of persons who will
be harmed by the challenged policy without naming the
specific impacted tenants ([]once standing has been
demonstrated).
- 57 -

Nat’l Fair Hous. All. v. Travelers Indem. Co., 261 F. Supp. 3d 20,
31 (D.D.C. 2017) (citing Gladstone Realtors v. Village of Bellwood,
441 U.S. 91, 97–98, 109-111 (1979)). The Court agrees with this
reasoning and concludes that by alleging specific types of real
estate transactions impeded by Defendants’ conduct, Plaintiffs
have stated a claim under § 3605.
3.

Perpetuating Segregation

Plaintiffs allege Defendants violated the FHA by perpetuating
segregation. Conduct that “perpetuates segregation and thereby
prevents interracial association” violates the FHA “independently
of the extent to which it produces a disparate effect on different
racial groups.” Metro. Hous. Dev. Corp. v. Vill. of Arlington
Heights, 558 F.2d 1283, 1290 (7th Cir. 1977) (permitting claim for
perpetuation of segregation); Wallace v. Chi. Hous. Auth., 321 F.
Supp. 2d 968, 974 (N.D. Ill. 2004); see also 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.”). Plaintiffs must allege segregation
that has been perpetuated as a result of Defendants’ conduct. See
Wallace, 321 F. Supp. 2d at 974.

- 58 -

The Court dismissed Plaintiffs’ first attempt at this claim
because their pleadings depended in large part on a dataset that
mixed time-barred and timely conduct. Now that Plaintiffs have
amended their allegations with the appropriate dataset, their
statistics appropriately support their claim. Plaintiffs assert
that Defendants’ failure to maintain and market REO properties in
minority neighborhoods according to the same standards as REO
properties

in

white

neighborhoods

perpetuates

segregation

in

several ways: it stigmatizes communities of color as less desirable
than white communities; deters buyers from purchasing properties
in communities of color; and diminishes home value for surrounding
homes

in

communities

of

color,

reducing

the

equity

minority

homeowners have in their house and thereby restricting the ability
of

minority

homeowners

to

move

to

integrated

or

white

neighborhoods. (SAC ¶¶ 164-166.) While any one of these theories
will have to be borne out with more definitive evidence before the
Court can find liability on that basis, at this stage, Plaintiffs
have

plausibly

alleged

that

the

effect

of

Defendants’

poor

maintenance of REO properties in minority communities had the
effect of perpetuating segregation. See Arlington Heights, 558
F.2d at 1292-93, n.11.

- 59 -

G.

Disputed REO Properties

Finally, Defendants argue that Plaintiffs’ claims should be
dismissed

as

to

nine

properties

to

which

the

Deutsche

Bank

Defendants do not hold title—and claim Plaintiffs do not dispute
this. Plaintiffs respond that they do dispute this, and ask the
Court to refrain from ruling on a factual dispute until discovery
is complete. The Court is inclined to agree, as Rule 12(b)(6) is
not designed to test the merits of a complaint. Defendants further
seek to dismiss all claims as to two properties for which the SAC
lacks sufficient information to identify the governing agreements.
This too is premature at the pleading stage. The plausibility of
Plaintiffs’ claims, and whether Defendants are sufficiently on
notice of those claims, is not affected by whether a tiny fraction
of REO properties were properly included in the study. See Iqbal,
556 U.S. at 696; FED. R. CIV. P. 8(a). The Court declines to strike
these properties from the SAC.
III.

CONCLUSION

For the reasons stated herein, Defendants’ Motion to Dismiss
(Dkt. No. 71) is granted in part and denied in part. Plaintiffs
cannot recover damages corresponding to the lost economic value
and impact of their community investments, or for harms to minority

- 60 -

neighborhoods. Otherwise, Plaintiffs’ Second Amended Complaint
survives the Motion to Dismiss.
IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
Dated: 11/13/2019

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