City of L. A. v. Jpmorgan Chase & Co.

• Decision Date: 05 August 2014
• Docket Number: Case No. 2:14-cv-04168-ODW(RZx)
• Court: U.S. District Court — Central District of California
• Parties: CITY OF LOS ANGELES, Plaintiff, v. JPMORGAN CHASE & CO.; JPMORGAN CHASE BANK, N.A.; and CHASE MANHATTAN BANK USA, N.A., Defendants.

CITY OF LOS ANGELES, Plaintiff, v. JPMORGAN CHASE & CO.; JPMORGAN CHASE BANK, N.A.;and CHASE MANHATTAN BANK USA, N.A., Defendants.

Case No. 2:14-cv-04168-ODW(RZx)

Unites States District Court Central District of California

August 5, 2014

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS WITH LEAVE TO AMEND [28]

I. INTRODUCTION

This action is the fourth installment of the discriminatory lending suits brought by Plaintiff City of Los Angeles ("the City") against large lending institutions. Defendants in this action are JPMorgan Chase & Co.; JPMorgan Chase Bank, N.A.; and Chase Manhattan Bank USA, N.A. (collectively, "Chase"). The City is seeking to recover damages under the federal Fair Housing Act ("FHA"), 42 U.S.C. §§ 3601-19, for lost property-tax revenue and increased municipal services stemming from foreclosures that are allegedly the result of discriminatory lending practices.

But unlike the previous installments—where motions to dismiss have been denied—Chase raises a new ground for dismissal in its Motion to Dismiss, unique toChase, which the Court finds warrants a different result. For the reasons discussed below, the Court GRANTS Defendants' Motion to Dismiss WITH LEAVE TO AMEND.¹ (ECF No. 28.)

II. FACTUAL BACKGROUND

The City filed the Complaint on May 30, 2014, asserting two claims for (1) violating the FHA, and (2) common-law restitution. (ECF No. 1.) According to the City, Chase has engaged in discriminatory lending practices that have resulted in a disparate number of foreclosures in minority areas of Los Angeles. (See Compl. ¶ 2.) The City is seeking to recover lost property-tax revenue as well as expenses incurred for increased municipal services as a result of these foreclosures. (See id. ¶ 155.)

There are three related cases in the Central District of California where the City has brought identical claims against other large lending institutions. Motions to dismiss have already been denied in each of the related cases. (City of L.A. v. Wells Fargo, No. 2:13-cv-9007-ODW(RZx), ECF No. 37; City of L.A. v. Citigroup Inc., No. 2:13-cv-9009-ODW(RZx), ECF No. 47; City of L.A. v. Bank of Am.Corp., No. 2:13-cv-9046-PA(AGRx), ECF No. 50.)

As in the related cases, the City alleges here that Chase has engaged in "redlining" and "reverse redlining." (Compl. ¶ 4.) Redlining is the practice of denying credit to particular neighborhoods based on race. (Id. ¶ 4 n.2.) Reverse redlining is the practice of flooding a minority neighborhood with exploitative loan products. (Id. ¶ 4 n.3.) The lengthy Complaint also includes a regression analysis of loans allegedly issued by Chase in Los Angeles, and alleges numerous statistics based on this analysis. (See, e.g., id. ¶¶ 101-06.) In addition, the Complaint includes confidential witness statements from former employees who describe how minorities were allegedly steered toward predatory loans. (Id. ¶¶ 61-93.)

But unique to this case is the relationship between Chase and Washington Mutual Bank ("WaMu"). The City seeks to hold Chase liable, in part, based on the discriminatory loans issued by WaMu. (Id. ¶ 2 n.1, ¶ 29.) WaMu failed in 2008 when the Office of Thrift Supervision seized WaMu's assets and operations, placing them into receivership with the Federal Deposit Insurance Corporation ("FDIC"). (Id. ¶ 26); see also Benson v. JPMorgan Chase Bank, N.A., 673 F.3d 1207, 1210 (9th Cir. 2012). The FDIC then transferred certain WaMu assets and liabilities to Chase under a Purchase and Assumption Agreement. (Compl. ¶¶ 26-29); see also Benson, 673 F.3d at 1210.² In the Complaint, the City alleges that "[t]he liabilities assumed by JPMorgan & Co. include the claims alleged by Los Angeles herein." (Compl. ¶ 26.) Throughout the remainder of the Complaint, the City does not distinguish between loans originating from WaMu and loans originating from Chase. (See id. ¶ 2 n.1.)

On June 25, 2014, Chase filed the present Motion to Dismiss. (ECF No. 28.) Chase raises the same grounds for dismissal that were addressed in the three related cases. But Chase also raises a new issue based on WaMu's failure, the FDIC's receivership, and Chase's subsequent purchase of WaMu's assets. The City timely opposed the Motion (ECF No. 32), and Chase filed a timely Reply (ECF No. 35.) The Court took the matter under submission on July 28, 2014.

III. LEGAL STANDARD

A. Rule 12(b)(1)

Federal Rule of Civil Procedure 12(b)(1) provides for dismissal of a complaint for lack of subject-matter jurisdiction. Rule 12(b)(1) jurisdictional attacks can be either facial or factual. White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000).

When a motion to dismiss attacks subject-matter jurisdiction on the face of the complaint, the court assumes the factual allegations in the complaint are true and draws all reasonable inferences in the plaintiff's favor. Doe v. Holy See, 557 F.3d1066, 1073 (9th Cir. 2009). Moreover, the standards set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), apply in equal force to facial challenges of subject-matter jurisdiction. See Perez v. Nidek Co., 711 F.3d 1109, 1113 (9th Cir. 2013); Terenkian v. Republic of Iraq, 694 F.3d 1122, 1131 (9th Cir. 2012). Thus, in terms of Article III standing, the complaint must allege "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570).

On the other hand, with a factual Rule 12(b)(1) attack, a court may look beyond the complaint. See White, 227 F.3d at 1242-43 (affirming judicial notice of matters of public record in Rule 12(b)(1) factual attack); see also Augustine v. U.S., 704 F.2d 1074, 1077 (9th Cir. 1983) (holding that a district court is free to hear evidence regarding jurisdiction). In a factual attack, a court need not presume the truthfulness of the allegations in the complaint. White, 227 F.3d at 1242. But courts should refrain from resolving factual issues where "the jurisdictional issue and substantive issues are so intertwined that the question of jurisdiction is dependent on resolution of the factual issues going to the merits." Augustine, 704 F.2d at 1077 (holding that resolution of factual issues going to the merits requires a court to employ the standard applicable to a motion for summary judgment).

B. Rule 12(b)(6)

Under Rule 12(b)(6), a court may dismiss a complaint for lack of a cognizable legal theory or insufficient facts pleaded to support an otherwise cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). To survive a dismissal motion, a complaint need only satisfy the minimal notice pleading requirements of Rule 8(a)(2)—a short and plain statement of the claim. Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). The factual "allegations must be enough to raise a right to relief above the speculative level" and a claim for relief must be "plausible on its face." Twombly, 550 U.S. at 555, 570.

The determination whether a complaint satisfies the plausibility standard is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S at 679. A court is generally limited to the pleadings and must construe all "factual allegations set forth in the complaint . . . as true and . . . in the light most favorable" to the plaintiff. Lee v. City of L.A., 250 F.3d 668, 688 (9th Cir. 2001). But a court need not blindly accept conclusory allegations, unwarranted deductions of fact, and unreasonable inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). Moreover, a court may take judicial notice of matters of public record without converting the motion into one for summary judgment. E.g., Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1016 n.9 (9th Cir. 2012).

As a general rule, a court should freely give leave to amend a complaint that has been dismissed. Fed. R. Civ. P. 15(a). But a court may deny leave to amend when "the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency." Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir.1986); see Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000).

IV. DISCUSSION

Chase moves to dismiss the Complaint on several familiar grounds. Chase contends that the City's claims are barred by the statute of limitations and that the City lacks Article III and statutory standing. In addition, Chase argues that the City has failed to state a claim for either disparate treatment or disparate impact under the FHA, and that the City's restitution claim fails because no benefit has been conferred. But unlike the motions to dismiss in the related cases, Chase brings a new basis for dismissal, unique to this action: the jurisdictional bar in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1821. For the reasons discussed below, the Court finds that Chase's FIRREA argument has merit, and it need not reach the remainder of Chase's arguments in the Motion.

A. FIRREA'S Jurisdictional Bar

Chase argues that, under FIRREA, the Court lacks subject-matter jurisdiction to adjudicate the City's claims that relate to WaMu's origination of discriminatory loans before the bank's failure in 2008. (Mot. 3:25-6:2.) Moreover, since the City makes no distinction between WaMu and Chase in the Complaint, the entire Complaint must be dismissed. (Id. at 8:15-12:13.) But the City contends that Chase interprets FIRREA's jurisdictional bar too broadly and that Chase assumed liability for the City's claims in the Purchase and Assumption Agreement. (Opp'n 3:18-11:11.)

Congress's purpose in enacting FIRREA in the late 1980s was "to enable the federal government to respond swiftly and effectively to the declining financial condition of the nation's banks and savings institutions." Henderson v. Bank of New England, 986...