City of L.A. v. Wells Fargo & Co.
| Decision Date | 28 May 2014 |
| Docket Number | Case No. 2:13–cv–9007–ODWRZx. |
| Citation | 22 F.Supp.3d 1047 |
| Court | U.S. District Court — Central District of California |
| Parties | CITY OF LOS ANGELES, Plaintiff, v. WELLS FARGO & CO. and Wells Fargo Bank, N.A., Defendants. |
Clifton W. Albright, Albright Yee and Schmit LLP, Michael Nelson Feuer, Los Angeles City Attorney's Office, Los Angeles, CA, Elaine T. Byszewski, Lee M. Gordon, Hagens Berman Sobol Shapiro LLP, Pasadena, CA, Howard S. Liberson, Joel Keith Liberson, Trial And Appellate Resources PC, El Segundo, CA, Robert S. Peck, Washington, DC, Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA, for Plaintiff.
Daniel Paul Collins, Bart H. Williams, Munger Tolles & Olson LLP, Los Angeles, CA, for Defendants.
ORDER DENYING DEFENDANTS' MOTION TO DISMISS [21] AND DENYING DEFENDANTS' MOTION TO STRIKE [22]
This action arises from Defendants Wells Fargo & Co. and Wells Fargo Bank, N.A.'s alleged discriminatory lending practices. However, unlike many of the home-mortgage cases before this Court, Plaintiff in this action is not a mortgagor but rather the City of Los Angeles (“the City”). The City is seeking damages in the form of lost property tax revenue and increased municipal services stemming from foreclosures that were allegedly a result of Defendants' discriminatory lending practices.
Before the Court is Defendants' Motion to Dismiss the Complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). (ECF No. 21.) The Motion is based on several grounds including lack of Article III and statutory standing, expiration of the statute of limitations, and failure to state a claim. Also before the Court is Defendants' Motion to Strike Portions of Plaintiff's Complaint. (ECF No. 22.) For the reasons discussed below, the Court DENIES both Motions.
The City filed the Complaint on December 5, 2013, asserting two claims for (1) violating the federal Fair Housing Act (“FHA”), 42 U.S.C. §§ 3601 –19, and (2) common-law restitution. (ECF No. 1.)
According to the City, Defendants have engaged in discriminatory lending practices that have resulted in a disparate number of foreclosures in minority areas of Los Angeles. (See Compl. ¶ 2.) Specifically, the City alleges that Defendants have engaged in “redlining” and “reverse redlining.” (Id. ¶ 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 69–page, 209–paragraph Complaint includes a regression analysis based on Wells Fargo loans issued in Los Angeles. (See, e.g., id. ¶¶ 152–56.) The City alleges numerous statistics based on this regression analysis. One example is that from 2004 to 2011, an African–American borrower was more than twice as likely to receive a “predatory loan” as a white borrower with similar underwriting and borrower characteristics. (Id. ¶ 152.) Also in the Complaint are confidential witness statements from former employees of Defendants who describe how allegedly predatory loans were specifically marketed to minorities and minority communities in Los Angeles. (See, e.g., Id. ¶¶ 101–126.)
Based on publically available loan data, the City alleges that it has identified 1,447 “discriminatory loans” issued by Defendants in Los Angeles that resulted in foreclosure. (Id. ¶ 196.) The City expects that number to rise during the course of discovery. (Id. ¶ 196 n. 41.) According to the City, these discriminatory loans were more likely to result in foreclosure, which in turn diminished the City's tax base and led to blight. (Id. ¶¶ 166–72.) The City is seeking to recover lost property-tax revenue as well as expenses incurred for increased municipal services. (Id. ¶¶ 173–95.)
On March 3, 2014, Defendants filed the instant Motions. (ECF Nos. 21, 22.) Due to the complexity of the Motion to Dismiss and the numerous grounds upon which it is based, the Court granted the parties' request for an extended briefing schedule. (ECF No. 16.) On May 8, 2014, the Court ordered supplemental briefing on the limited issue of statutory standing in light of the Supreme Court decision in Lexmark International, Inc. v. Static Control Components, Inc., ––– U.S. ––––, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014). The Court held a hearing on both Motions on May 27, 2014.
Federal Rule of Civil Procedure 12(b)(1) provides for dismissal of a complaint for lack of subject-matter jurisdiction. The Article III case or controversy requirement limits a federal court's subject-matter jurisdiction, which includes the requirement that plaintiffs have standing to bring their claims. Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1121–22 (9th Cir.2010). When a motion to dismiss attacks subject-matter jurisdiction under Rule 12(b)(1) 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.3d 1066, 1073 (9th Cir.2009). Moreover, the standards set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) apply in equal force to Article III standing when it is being challenged on the face of the complaint. 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, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ).
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, 127 S.Ct. 1955.
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, 129 S.Ct. 1937. 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).
Under Rule 12(f), a court “may order stricken from any pleading ... any redundant, immaterial, impertinent, or scandalous matter.” The essential function of a Rule 12(f) motion is to “avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial.” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir.1993), rev'd on other grounds, 510 U.S. 517, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994). Rule 12(f) motions to strike are generally disfavored. Bureerong v. Uvawas, 922 F.Supp. 1450, 1478 (C.D.Cal.1996) ; see also Stanbury Law Firm v. I.R.S., 221 F.3d 1059, 1063 (8th Cir.2000).
Defendants move to dismiss the Complaint on a number of grounds—all of which address the sufficiency of the City's allegations with respect to standing, the statute of limitations, and overall ability to state a claim. As an alternative to dismissal of the entire Complaint, Defendants also move to strike certain paragraphs as impertinent or immaterial. The Court addresses each of Defendants' grounds for dismissal and then turns to the Motion to Strike.
Article III standing requires a plaintiff to plead three elements. First, a plaintiff must plead an injury in fact, which must be “concrete and particularized” and “actual or imminent.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). Second, there must be a “causal connection between the injury and the conduct complained of”—that is the injury must be “fairly traceable” to the challenged conduct. Id. (internal quotations omitted). Third, it must be likely that plaintiff's injury will be “redressed by a favorable decision.”
Here, Defendants claim that the City has failed to plead the second requirement for Article III standing—causation—thus necessitating dismissal of the Complaint for lack of subject-matter jurisdiction under Rule 12(b)(1). (MTD 9:15–23.) According to Defendants, the causal chain between the City's alleged injury and Defendants' alleged conduct is too attenuated because there are “too many links” in the causal chain and the City's causation theory relies on too many independent parties over too long a period of time. (Id. at 9:25–14:7.) On the other hand, the City contends that Defendants' description of the causal chain is too long. The City articulates the causal chain as having only three parts: (1) Defendants engaged in discriminatory lending practices, (2) that resulted in foreclosures, (3) which in turn caused a reduction in property values that diminished the tax base and increased the need for city services. (MTD Opp'n 4:19–22.) The City then points to specific examples in the Complaint that support its theory of causation. (Id. at 4:19–6:4.)
The Court finds that the City has adequately pleaded causation for...
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