City of Oakland v. Wells Fargo & Co.

Decision Date26 August 2020
Docket NumberNo. 19-15169,19-15169
Citation972 F.3d 1112
Parties CITY OF OAKLAND, A Municipal Corporation, Plaintiff-Appellee, v. WELLS FARGO & COMPANY; Wells Fargo Bank, N.A., Defendants-Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

Neal Kumar Katyal (argued), Colleen Roh Sinzdak, Benjamin A. Field, and Sean Marotta, Hogan Lovells US LLP, Washington, D.C.; Paul F. Hancock and Olivia Kelman, K&L Gates LLP, Miami, Florida; Edward P. Sangster and Daniel W. Fox, K&L Gates LLP, San Francisco, California; Terry E. Sanchez, Munger Tolles & Olson LLP, Los Angeles, California; Bart H. Williams and Manuel F. Cachan, Proskauer Rose LLP, Los Angeles, California; for Defendants-Appellants.

Robert S. Peck (argued), Center for Constitutional Litigation P.C., Washington, D.C.; Barbara J. Parker, Oakland City Attorney; Maria Bee, Chief Assistant City Attorney; Office of the City Attorney, Oakland, California; Joel Liberson, Trial & Appellate Resources P.C., Torrance, California; Yosef Peretz and Ruth Israely, Peretz & Associates, San Francisco, California; for Plaintiff-Appellee.

D. Scott Change, Housing Rights Center, Los Angeles, California; Jamie Crook, American Civil Liberties Union Foundation of Northern California, San Francisco, California; David Loy, American Civil Liberties Union of San Diego & Imperial Counties, San Diego, California; Julia Devanthéry, American Civil Liberties Union of Southern California, Los Angeles, California; Sandra S. Park and Alejandro Ortiz, American Civil Liberties Union Foundation, New York, New York; Morgan Williams, National Fair Housing Alliance, Washington, D.C.; Ajmel Quereshi, NAACP Legal Defense & Education Fund Inc., Washington, D.C.; for Amici Curiae American Civil Liberties Union Foundation, American Civil Liberties Union Foundation of Northern California, American Civil Liberties Union Foundation of Southern California, American Civil Liberties Union of San Diego & Imperial Counties, AARP, NAACP Legal Defense & Educational Fund Inc., National Fair Housing Alliance Inc., Poverty & Race Research Action Council, and Twelve Local Fair Housing Centers in the Ninth Circuit.

Dennis J. Herrera, City Attorney; Aileen M. McGrath, Co-Chief of Appellate Litigation; City Attorney's Office, San Francisco, California; for Amicus Curiae City and County of San Francisco.

Xavier Becerra, Attorney General; Michael L. Newman, Senior Assistant Attorney General; Christine Chuang, Supervising Deputy Attorney General; Shubhra Shivpuri and Srividya Panchalam; California Department of Justice, Oakland, California; for Amicus Curiae State of California.

Before: R. Guy Cole, Jr.,* Ronald M. Gould, and Mary H. Murguia, Circuit Judges.

MURGUIA, Circuit Judge:

Throughout our nation's history, racial and ethnic minorities—especially Black Americans—have been systematically denied one of the keys to the American dream: the opportunity to own a home. In 1967, during a pivotal period of civil unrest and reckoning with our country's history of segregation and racial injustice, President Lyndon B. Johnson established the National Advisory Commission on Civil Disorders (commonly known as the "Kerner Commission"). The Kerner Commission found that several government-sanctioned practices disadvantaged racial and ethnic minorities’ fair access to housing, including rapid urbanization, the flight of White families to suburban neighborhoods, racially restrictive covenants, real estate agents who steered homebuyers into racially homogenous areas, and discriminatory lending practices like redlining and reverse redlining. See Report of the National Advisory Commission on Civil Disorders 91 (1968) ("Kerner Commission Report"). To address housing segregation, the Kerner Commission recommended enactment of "a comprehensive and enforceable open-occupancy law making it an offense to discriminate in the sale or rental of any housing ... on the basis of race, creed, color, or national origin." Kerner Commission Report at 263. After the assassination of Dr. Martin Luther King Jr., Congress heeded the Kerner Commission's recommendation and passed the Fair Housing Act of 1968 ("FHA" or the "Act") to ensure fair access to housing for racial minorities and other historically disadvantaged groups. The FHA has since been rightfully lauded as one of the greatest achievements of the civil rights movement.

Fifty years later, cities across our country began filing lawsuits under the FHA accusing the nation's largest banks of some of the same discriminatory lending practices that motivated Congress to pass the FHA in the first place. In the instant case, the City of Oakland ("Oakland" or the "City") alleges that Wells Fargo & Company and Wells Fargo Bank, N.A. (collectively, "Wells Fargo" or the "Bank") engaged in discriminatory lending practices by issuing predatory loans to its Black and Latino1 residents, in violation of the FHA, 42 U.S.C. §§ 3604, 3605. According to Oakland, the predatory loans caused widespread foreclosures that reduced the City's property-tax revenues and increased its municipal expenses.

Wells Fargo appeals the district court's partial denial of its motion to dismiss the City's complaint under Federal Rule of Civil Procedure 12(b)(6). We have jurisdiction pursuant to 28 U.S.C. § 1292(b), and we affirm in part and reverse in part. We affirm the district court's denial of Wells Fargo's motion to dismiss as to Oakland's claims for lost property-tax revenues and the district court's grant of Wells Fargo's motion to dismiss as to Oakland's claims for increased municipal expenses. We reverse, however, the district court's denial of Wells Fargo's motion to dismiss as to Oakland's claims seeking injunctive and declaratory relief and we remand for further proceedings consistent with this opinion.

I. Statutory Background.

The FHA makes it unlawful to "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." 42 U.S.C. § 3604(b). More broadly, it makes it unlawful for "any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race[.]" Id. § 3605(a).

The FHA established a private right of action for damages and injunctive relief. Id. § 3613(c)(1). The statute provides that an "aggrieved person may commence a civil action in an appropriate United States district court or State court ... to obtain appropriate relief with respect to [a] discriminatory housing practice[.]" Id. § 3613(a)(1)(A). The Act in turn defines "aggrieved person" as any person who "claims to have been injured by a discriminatory housing practice; or believes that such person will be injured by a discriminatory housing practice that is about to occur." Id. §§ 3602(i)(1)(2). It is well established that the term "aggrieved person" under the FHA includes cities. Bank of Am. Corp. v. City of Miami (Miami I ), ––– U.S. ––––, 137 S. Ct. 1296, 1306, 197 L.Ed.2d 678 (2017) ("[T]he City is an ‘aggrieved person’ able to bring suit under the statute.").

II. Factual background.2

According to Oakland, Wells Fargo engages in longstanding and ongoing discriminatory home lending practices3 throughout the City, which result in redlining and reverse redlining. Redlining is the practice of denying home loans to residents of minority neighborhoods. Reverse redlining, by contrast, is the practice of issuing home loans to minority borrowers with significantly higher costs and more onerous terms than those offered to similarly situated White borrowers—also known as "predatory loans." Predatory loans include, for example, subprime loans,4 negative amortization loans,5 "No-Doc" loans that require no supporting evidence of a borrower's income, loans with balloon payments, and "interest only" loans that carry a prepayment penalty. According to Oakland, Wells Fargo not only issues predatory loans to its Black and Latino residents, but also refuses to refinance those loans even though it is willing to refinance the loans of similarly situated White residents.

Using Wells Fargo's own data,6 Oakland employs a number of regression analyses7 to show that its Black and Latino residents are more likely to receive predatory loans from Wells Fargo; that those predatory loans cause foreclosures; and that those foreclosures reduce property values and consequently diminish the City's property-tax revenues. The City also alleges, albeit without statistical backing, that Wells Fargo's predatory loans increase its municipal expenses, forcing it to reduce its spending in fair-housing programs aimed at guaranteeing that all of its residents have equal access to safe and affordable housing.

A. Black and Latino borrowers in Oakland are more likely to receive predatory loans from Wells Fargo.

The City's first set of regression analyses support its allegation that Wells Fargo issues predatory home loans to Black and Latino borrowers. According to these studies, a Black Wells Fargo borrower is 2.403 times more likely to receive a predatory loan than a similarly situated White borrower. A Latino Wells Fargo borrower is 2.520 times more likely to receive such a loan than a similarly situated White borrower. Importantly, the first regression analysis controls for independent variables such as objective characteristics like credit history, loan-to-value ratio, and loan-to-income ratio that might contribute to a borrower receiving a predatory loan. In fact, this discrepancy holds true even for more credit-worthy borrowers—Black and Latino borrowers with FICO scores above 660 are, respectively, 2.261 and 2.366 times more likely to receive predatory loans from Wells Fargo than similarly situated White borrowers. Furthermore, borrowers in minority...

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