City of Phila. v. Wells Fargo & Co., CIVIL ACTION No. 17-2203
| Decision Date | 16 January 2018 |
| Docket Number | CIVIL ACTION No. 17-2203 |
| Court | U.S. District Court — Eastern District of Pennsylvania |
| Parties | CITY OF PHILADELPHIA, Plaintiff, v. WELLS FARGO & CO., and WELLS FARGO BANK, N.A., Defendants. |
MEMORANDUM
On May 15, 2017, Plaintiff City of Philadelphia ("the City") filed its 52-page Complaint alleging one claim against Defendants Wells Fargo & Co., Inc. and Wells Fargo Bank, N.A. (collectively "Wells Fargo") for violating the Fair Housing Act, 42 U.S.C. §§ 36-1, et seq. The Complaint accuses Wells Fargo of engaging in discriminatory mortgage-lending practices against African-American and Latino residents of Philadelphia. Wells Fargo's alleged practices constitute "reverse redlining," which involves targeting minorities and minority communities with exploitive loan products that have higher costs and worse terms than those offered to similarly situated white borrowers. Compl. ¶ 7.
Publicly available loan data has been analyzed by the City to indicate the existence of "at least 1,067 discriminatory high-cost or high-risk loans issued to minority borrowers by Wells Fargo in Philadelphia between 2004 and 2014 that resulted in foreclosure." Compl. ¶ 9. These loans are concentrated in areas of the city that have high rates of poverty and significant African-American and Latino populations. Id. According to the City, this practice has "continue[d] through the present and has not terminated." Id. at ¶ 5.
The City alleges disparate treatment and disparate impact as theories for its FHA claim, Compl. ¶ 4, and based on those theories, the City alleges two types of injuries: non-economic and economic, id. at ¶ 100. For its non-economic injuries, the City alleges that Wells Fargo's conduct negatively impacts the ability of minority residents to own homes in Philadelphia, which injures the City's "longstanding and active interest in promoting fair housing and securing the benefits of an integrated community." Id. at ¶¶ 103-04. The City alleges that it expends resources combating housing discrimination and that Wells Fargo's actions have interfered with those efforts. See id. at ¶¶ 103-106. For its economic injuries, the City alleges that the discriminatory loans issued by Wells Fargo cause increases in foreclosures that diminish the City's tax revenues and increase its spending on municipal services. Id. at ¶ 106. To remedy its injuries, the City seeks injunctive relief and damages. Id. at ¶ 2.
On July 21, 2017, Wells Fargo filed a motion to dismiss and a motion to strike. ECF Nos. 25 & 26. On November 3, 2017, Wells Fargo filed a motion to stay and/or limit discovery. ECF No. 53.
I will deny all motions. The motion to dismiss and motion to stay and/or limit discovery are discussed below, and the motion to strike will be addressed in a separate order.
In deciding a motion to dismiss under Rule 12(b)(6), a court must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)).
To survive dismissal, a complaint must allege facts sufficient to "raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). "Threadbare 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). In order to determine the sufficiency of a complaint under Twombly and Iqbal, a court must engage in the following analysis:
First, the court must take note of the elements a plaintiff must plead to state a claim. Second, the court should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth. Finally, where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.
Connelly v. Steel Valley Sch. Dist., 706 F.3d 209, 212 (3d Cir. 2013), as amended (May 10, 2013) (quoting Burtch v. Milberg Factors, Inc., 662 F.3d 212, 221 (3d Cir. 2011).
In its 12(b)(6) motion, Wells Fargo argues for dismissal because the City's claim (1) is precluded by res judicata; (2) is time barred by the statute of limitations; (3) improperly alleges the disparate impact theory; and (4) lacks proximate cause.1
Wells Fargo asserts that the City is barred from bringing its FHA claim by res judicata because its claim is duplicative of those resolved by a settlement between Wells Fargo and the Pennsylvania Human Relations Commission ("PHRC"), which was part of a 2012 Department of Justice Consent Decree ("2012 DOJ Consent Decree"). Def.'s Mem. 4, ECF No. 25-1.
For res judicata to apply under Pennsylvania law,2 the current action and a prior litigation must share each of the following: (1) identity of issues; (2) identity in the cause of action; (3) identity of persons and parties to the action; and (4) identity of the capacity of the parties suing or being sued. Daley v. A.W. Chesterton, Inc., 37 A.3d 1175, 1189-90 (Pa. 2012).3 "The doctrine of res judicata applies to and is binding, not only on actual parties to the litigation, but also to those who are in privity with them." Stevenson v. Silverman, 208 A.2d 786, 788 (Pa. 1965).
Wells Fargo argues that the PHRC acted in the City's interest in bringing its claims, and therefore, the City was in privity with the PHRC and is precluded by the settlement from bringing its current claim. Wells Fargo's res judicata argument fails at a motion to dismiss, because it cannot meet its burden of establishing privity between the City and the PHRC.
For purposes of res judicata, privity applies when different parties would be "vicariously responsible for the conduct of another, such as principal and agent or master and servant."Turner v. Crawford Square Apartments III, L.P., 449 F.3d 542, 549 n.11 (3d Cir. 2006) (applying Pennsylvania law) (quoting Day v. Volkswagenwerk Aktiengesellschaft, 464 A.2d 1313, 1317 (Pa. Super. Ct. 1983)). However, there is "no prevailing definition of 'privity' which can be applied automatically to all cases." Day, 464 A.2d at 1317. "[P]rivity 'is merely a word used to say that the relationship between one who is a party on the record and another is close enough to include the other within the res judicata.'" Myers v. Kim, 55 Pa. D. & C.4th 93, 100 (Com. Pl. 2001) (quoting EEOC. v. United States Steel Corp., 921 F.2d 489, 493 (3d Cir. 1990)). Without identity of parties or privity, res judicata will not apply.
Here, Wells Fargo cannot meet its burden of proving the elements of res judicata because neither the Complaint nor public records establish identity of parties in the actions or privity between the City and the PHRC. The City mentions the 2012 DOJ Consent Decree with Wells Fargo in its Complaint and states that it was based on allegations of discrimination that took place in "metro areas including Philadelphia." Compl. ¶ 56. The PHRC settlement is attached to Wells Fargo's Motion to Dismiss as an exhibit. See Def.'s Mem. Ex. E, ECF No. 25-6. However, the mention of the settlement in the Complaint and the mere existence of the settlement itself fail to show privity because neither necessarily indicates a close relationship between the City and the PHRC.4 Thus, Wells Fargo cannot meet its burden of proving res judicata at this stage of the litigation.
Wells Fargo claims that the City is time barred from bringing its claims because it fails to properly allege a discriminatory loan within the statute of limitations period.
For a defendant to prevail on a statute of limitations argument at the motion to dismiss stage "the plaintiff's tardiness in bringing the action must be apparent from the face of the complaint." W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 105 n.13 (3d Cir. 2010) (citing Robinson v. Johnson, 313 F.3d 128, 135 & n. 3 (3d Cir. 2002)).
The FHA requires that a civil enforcement action must be filed "not later than 2 years after the occurrence or the termination of an alleged discriminatory housing practice." 42 U.S.C. § 3613(a)(1)(A) (emphasis added). The phrase "or the termination of" codifies the continuing violation doctrine; allowing a plaintiff to bring an FHA claim to challenge conduct outside of the two year period so long as one incident of that conduct occurred within the limitations period. See Havens Realty Corp. v. Coleman, 455 U.S. 363, 380-81 (1982).
Therefore, for Wells Fargo to succeed in its statute of limitations argument, it must show that the City fails to allege any violative conduct after September 23, 2014.5 The City does, in fact, allege six discriminatory loans after that date, Compl. ¶¶ 134-35, and there is nothing on the face of the complaint to indicate the City's claims are time barred. Therefore, the City properly alleges a continuing violation, and Wells Fargo's statute of limitation argument fails at this stage.
Wells Fargo argues that the City fails to properly allege disparate impact because it does not allege a specific, race-neutral policy causally connected to the alleged disparity in lending. To properly allege a disparate impact FHA claim, the plaintiff must identify a specific policy implemented by the defendant that causes a racial disparity. See Texas Dep't of Hous. & Cmty.Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507, 2523 (2015). The requisite racial disparity can be shown through facts or statistical proof. See id.
Here, the City plausibly alleges disparate impact under the FHA. The City identifies at least seven specific policies—derived from Confidential Witness statements—that led to disparate...
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