City of Sacramento v. Wells Fargo & Co.
| Decision Date | 22 August 2019 |
| Docket Number | No. 2:18-cv-00416-KJM-GGH,2:18-cv-00416-KJM-GGH |
| Parties | CITY OF SACRAMENTO, Plaintiff, v. WELLS FARGO & CO.; WELLS FARGO BANK, N.A., Defendants. |
| Court | U.S. District Court — Eastern District of California |
The City of Sacramento ("the City") sues Wells Fargo & Co. and Wells Fargo Bank, N.A. (collectively "Wells Fargo"), alleging Wells Fargo has for more than a decade engaged in a pattern or practice of discriminatory mortgage lending in violation of the federal Fair Housing Act and California's Fair Employment and Housing Act. For the following reasons, the court GRANTS in part and DENIES in part Wells Fargo's motion to dismiss.
Against the backdrop of "[m]ajor banks['] . . . long history of engaging in redlining throughout Sacramento[,]" the City alleges that since at least 2004, Wells Fargo has maintained a pattern and practice of discriminatory lending in Sacramento that constitutes redlining and reverse redlining. Compl., ECF No. 1, ¶¶ 9-11 (footnotes omitted). While "[r]edlining is the practice of denying credit to particular neighborhoods based on race," reverse redlining involves "steering minority borrowers . . . into higher cost or more onerous mortgage loans with discriminatory terms when more favorable and less expensive loans were being offered to similarly situated non-minority borrowers." Id. ¶¶ 9, 10 n.5, 11. Further, although Wells Fargo extends credit to white borrowers seeking to refinance, it has a policy of refusing to extend such credit to minority borrowers attempting to refinance their more expensive loans. Id. ¶ 5. The City alleges Wells Fargo's conduct amounts to both intentional discrimination and disparate impact discrimination, and that both redlining and reverse redlining violate the Fair Housing Act, 42 U.S.C. §§ 3601, et seq., ("FHA"). Id. ¶¶ 8, 11; see 42 U.S.C. §§ 3604(b),1 3605(a).2
The City identifies multiple nationwide, facially neutral Wells Fargo business practices and policies and omissions that allegedly created artificial, arbitrary and unnecessary barriers to fair housing opportunities for minority purchasers and owners. Compl. ¶¶ 47-48, 60. The City provides accounts from "Confidential Witnesses," former Wells Fargo employees responsible for making or underwriting Wells Fargo loans in Sacramento, to bolster its allegations regarding Wells Fargo's discriminatory policies and practices. Id. ¶ 34. According to these witnesses, Wells Fargo loan officers "intentionally steered minority borrowers into higher cost loans because of their race or ethnicity," and "used race as a factor in determining which loan products to offer borrowers, what interest rates to charge, and whether to use certain devices and options such as 'lender credits.'" Id. ¶¶ 35, 36. According to one witness, for example, a Wells Fargo sales manager instructed loan officers to provide prospective borrowers with different salespitches depending on the neighborhood where the home was located. Id. ¶ 37. That same manager instructed officers meeting with borrowers in minority neighborhoods to offer lender credits that would increase the cost of a loan but "make the loan go through," without requiring officers to explain the added expense of the credits to the borrowers. Id. ¶¶ 38, 51. Another witness claims his branch manager and loan officers made comments "consistent with racial profiling," and, "if a borrower had a Mexican name, loan officers were likely to exercise their discretion to charge a higher rate and issue a more expensive loan to make up for a discount given to non-minority borrowers." Id. ¶ 40; see id. ¶¶ 47.a., 53 (alleging officers were pressured to use their discretion in ways that resulted in discriminatory loans). A third witness contends that although Wells Fargo provided marketing materials in Spanish to target Spanish-speaking borrowers, it did not provide mortgage disclosures in Spanish, "even when [the borrower] did not read and write in English and the transaction was handled in Spanish." Id. ¶ 43. Because of a shortage of Spanish-speaking employees, Spanish-speaking borrowers were "served by non-Spanish-speaking loan officers 'more often than not'" and entered into loans they did not understand. Id. ¶¶ 42, 45-46.
The City alleges its statistical analysis of Wells Fargo loan data, which controls for borrowers' credit history and other factors, bears out its allegations. Id. ¶¶ 16, 80-81. The City's analysis of loan data from 2004 through 2016 indicates an African American borrower in Sacramento was 2.043 times more likely to receive high cost or high-risk loans than a similarly situated white borrower. Id. ¶ 81. An African American borrower in Sacramento with a FICO score3 over 6604 was 2.820 times more likely than a comparable white borrower to receive a costly or risky loan. Id. ¶ 82. The City's analysis of loans issued to Latino borrowers reveals similar trends: a Latino borrower in Sacramento was 1.444 times more likely than a comparable whiteborrower to receive a high risk or high cost loan, and 1.767 times more likely than a comparable white borrower to receive such a loan despite having a 660+ FICO. Id. ¶¶ 81-82. Of Wells Fargo's loans to African American and Latino borrowers throughout this period, 7.2 percent were high cost loans. Id. ¶ 83. Only 3.8 percent of loans to white borrowers were high cost. Id. When the racial makeup of a borrower's neighborhood rather than the borrower's race is analyzed, borrowers in predominantly minority Sacramento neighborhoods were more likely to receive high risk and high cost loans than borrowers in predominantly white neighborhoods; specifically, borrowers in an area with at least 50 percent African American or Latino households were 1.758 times more likely to receive a discriminatory loan than those residing in non-minority areas. Id. ¶ 82.
The City also contends Wells Fargo's discriminatory lending practices directly cause foreclosures. According to the City's analysis, a discriminatory loan is 1.424 times more likely than a non-discriminatory loan to result in foreclosure, owing to higher costs and risks. Id. ¶¶ 81, 99-101. Although 17.4 percent of Wells Fargo loans in majority African American or Latino neighborhoods in Sacramento end in foreclosure, only 7.2 percent of Wells Fargo loans in majority white neighborhoods do, making foreclosure 2.728 times more likely in minority neighborhoods. Id. ¶¶ 93, 98. Further, Wells Fargo's discriminatory loans allegedly end in foreclosure sooner than its loans to white borrowers do. Id. ¶ 96 (). Because foreclosures reduce property values and make refinancing more difficult and unlikely for the foreclosed properties' neighbors, the City contends Wells Fargo's practices "creat[ed] a downward spiral that magnifies the effects of the discrimination" in particular neighborhoods. Id. ¶ 94. Moreover, the City alleges Wells Fargo refused to extend credit to minority borrowers attempting to refinance their discriminatory loans or agreed to refinance such loans only on terms less favorable than those offered to similarly situated white borrowers. Id. ¶¶ 13, 99-100.
The City seeks relief for its noneconomic and economic injuries under the FHA and the California Fair Employment and Housing Act ("FEHA"), California Government Codesection 12900, et seq. Id. ¶¶ 157-81.5 Among its noneconomic injuries, the City alleges its policy goal of enabling "any person to choose where to live in the City" has been adversely affected, as have the "social and professional benefits of living in an integrated society." Id. ¶ 114. To that end, the City's efforts "to encourage racial and economic integration, fair housing, and the elimination of discrimination," which the City has pursued through its agencies, coordination with local nonprofits, grant programs and commissions, have been harmed. Id. ¶¶ 115-19. The City's alleged economic injuries include (a) the decreased value of foreclosed properties and (b) the decreased value of properties surrounding foreclosed properties, both of which reduce the City's property tax revenues. Id. ¶¶ 120, 122-40; id. Ex. A (sample of foreclosed Sacramento properties secured by allegedly discriminatory Wells Fargo loans with gross assessment over time). Further, the City alleges its costs of remedying blight, unsafe and dangerous conditions at foreclosed properties has injured the City economically and has forced the City to abandon funding for important programs. Compl. ¶¶ 120-21, 141-51. The City seeks declaratory and injunctive relief and damages. Id. at 52 (prayer for relief).
Wells Fargo moves to dismiss, Mot., ECF No. 16, the City opposes, Opp'n, ECF No. 22, and Wells Fargo filed a reply, Reply, ECF No. 23. The court submitted the motion after hearing, ECF No. 28 (hearing minutes), and resolves it here.
A party may move to dismiss for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Although "detailed factual allegations" are not required at the pleading stage, Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), the complaint must contain more than conclusory or formulaic recitations of elements, Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). The complaint must contain "sufficient factual matter" to make the alleged claim at least plausible. Iqbal, 556 U.S. at 678; see Ivey v. Bd. of Regents, 673 F.2d 266, 268 (9th Cir. 1982) (). Aside from external facts properly subject to judicial notice, the court restricts its analysis to the face of the complaint, construing the complaint...
To continue reading
Request your trial