Cnty. of Cook v. Bank of Am. Corp.

• Decision Date: 19 March 2015
• Docket Number: No. 14 C 2280,14 C 2280
• Citation: 181 F.Supp.3d 513
• Parties: County of Cook, Plaintiff, v. Bank of America Corporation, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

181 F.Supp.3d 513

County of Cook, Plaintiff,

v.Bank of America Corporation, et al., Defendants.

No. 14 C 2280

United States District Court, N.D. Illinois, Eastern Division.

Signed March 19, 2015

Daniel A. Dailey, James D. Montgomery, Sr., James Douglas Montgomery, Jr., John K. Kennedy, Michelle M. Montgomery, James D. Montgomery and Associates, Ltd., Chicago, IL, Darren Penn, David J. Worley, James M. Evangelista, Jeffrey Harris, Harris Penn Lowry Delcampo, LLP, Atlanta, GA, for Plaintiff.

Thomas M. Hefferon, Matthew S. Sheldon, Goodwin & Procter LLP, Washington, DC, James W. McGarry, Goodwin Procter LLP, Boston, MA, Joel Erik Connolly, Ryan Marc Dunigan, Winston & Strawn LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

Elaine E. Bucklo, United States District Judge

Cook County ("the County") alleges that Defendants-collectively referred to as "Bank of America" or "BOA" for purposes of this opinion—discriminated against African American and Hispanic borrowers in violation of the Fair Housing Act of 1968 ("FHA"), 42 U.S.C. § 3601 et seq.

BOA has moved to dismiss the County's complaint on the grounds that it lacks Article III and statutory standing; is attempting to bring time-barred claims; and has failed to state any FHA claims upon which relief may plausibly be granted. I deny BOA's motion to dismiss for the reasons stated below.

I.

At the motion to dismiss stage, I must accept the County's factual allegations as true and draw all reasonable inferences in its favor. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

The County alleges that Defendants targeted minority borrowers and made approximately 95,000 home loans with less favorable terms and conditions than loans made to similarly situated white borrowers.See Dkt. No. 9 ("Compl.") at ¶¶ 6, 431. The intentional targeting of minority borrowers for the extension of credit on unfavorable terms is known as "reverse redlining." Id. at ¶ 325; see also United Companies Lending Corp. v. Sargeant, 20 F.Supp.2d 192, 203 n. 5 (D.Mass.1998) ("Redlining is the practice of denying the extension of credit to specific geographic areas due to the income, race, or ethnicity of its residents ... Reverse redlining is the practice of extending credit on unfair terms to those same communities."). Approximately sixty (60) percent of the 95,000 discriminatory loans identified in the complaint "already have or can be expected to become delinquent, default and eventually be foreclosed upon." Id. at ¶ 431.

Defendants allegedly structured home loans to strip equity from minority homeowners while home prices were at historic highs using the following practices:

(a) unchecked or improper credit approval decisions for minority borrowers, resulting in borrowers being approved for and receiving refinance and home equity loans they could not afford and consequently were likely to become delinquent and/or default on;

(b) subjective surcharges on minority borrowers of additional points, fees and other credit and servicing costs over and above an otherwise objective risk-based financing rate for such loan products, increasing the likelihood of delinquencies and/or defaults on such loans;

(c) ... steer[ing] [minority borrowers] into higher cost loan products, also increasing the likelihood of delinquencies and/or defaults on such loans; and

(d) undisclosed inflation of appraisal values of minority residences in order to support loan amounts to minority borrowers, further increasing the likelihood of delinquencies and/or defaults on such loans.

Id. at ¶ 7; see also id. at ¶ 103 (alleging additional discriminatory terms and conditions such as pre-payment penalties); ¶ 299 (same). These discriminatory terms and conditions allegedly continued into the servicing period of each loan as minority borrowers were required to make higher monthly mortgage payments on higher loan balances than similarly situated white borrowers and incurred a disproportionate share of loan delinquencies, defaults, foreclosures, and home vacancies. Id. at ¶¶ 8, 80.

In support of its claims, the County cites statistical evidence that African American and Hispanic borrowers (1) were more likely to receive higher interest rate loans that similarly situated white borrowers at the national level between 2003 and 2007, id. at ¶¶ 36–45; (2) accounted for a disproportionate share of completed foreclosures and seriously delinquent loans in the Chicago metropolitan area between 2004 and 2008, id. at ¶ 82; and (3) received a disproportionate share of high cost mortgage loans made in Cook County between 2004 and 2007, id. at ¶¶ 318–24, 332, 334–38. The County also asserts there is a direct relationship between the concentration of minority homeowners in a particular neighborhood and the foreclosure rate between 2004 and 2006. Id. at ¶ 332.

The County allegedly sustained numerous injuries because of Defendants' discriminatory practices, including:

[1] out-of-pocket costs in providing governmental services (e.g., necessary building code inspections and repairs, police, and significant administrative, court and legal costs) related to various affected properties and neighborhoods; [2] reduced property values on foreclosed properties and surrounding properties; [3] lost property tax revenue on vacant or abandoned properties, and on foreclosed and surrounding properties as a result of lower home values; [4] lost other tax revenues; [5] lost recording fees as a result of the use of [the Mortgage Electronic Registration System] to avoid such fees; and [6] various other injuries resulting from the deterioration and blight to the hardest hit neighborhoods and communities.

Id. at ¶ 408. With respect to each foreclosure, the County allegedly incurred $19,000 in costs plus additional damages for declining property values and intangible harm to the community fabric. Id. at ¶ 431.

II.

Defendants have moved to dismiss the County's claims under the Fair Housing Act on three grounds: (1) the County lacks standing; (2) the County's claims are time-barred; and (3) the County has failed to state plausible disparate treatment or disparate impact claims.

These arguments come from a familiar and largely unsuccessful playbook utilized by financial institutions in similar FHA cases filed by counties and municipalities across the country.¹ Defendants' standing argument has achieved a measure of success on only three occasions.² Their statute of limitations argument has prevailed only once as an alternative holding. See City of Miami, 2014 WL 3362348, at *6. And Defendants have not cited a single reverse redlining case that was dismissed for failure to state a plausible claim. I review Defendants' arguments for dismissal against this backdrop of district court decisions.

A.

Defendants first argue that the County (1) lacks Article III standing to sue for the alleged FHA violations and (2) does not fall with the statute's zone of interests.

1.

"To establish Article III standing, a plaintiff must show (1) an ‘injury in fact,’ (2) a sufficient ‘causal connection between the injury and the conduct complained of,’ and (3) a ‘likelihood’ that the injury ‘will be redressed by a favorable decision.’ " Susan B. Anthony List v. Dreihaus, ––– U.S. ––––, 134 S.Ct. 2334, 2341, 189 L.Ed.2d 246 (2014) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) ). "At the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice, for on a motion to dismiss we ‘presum[e] that general allegations embrace those specific facts that are necessary to support the claim.’ " Defenders of Wildlife, 504 U.S. at 561, 112 S.Ct. 2130 (quoting Lujan v. Nat'l Wildlife Fed., 497 U.S. 871, 889, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990) ).

Defendants challenge only the first two elements of Article III standing; that is, they argue that the County has not alleged a "concrete and particularized injury in fact that is fairly traceable to the challenged action of the [D]efendant[s]." Lexmark Int'l, Inc. v. Static Control Components, Inc., ––– U.S. ––––, 134 S.Ct. 1377, 1386, 188 L.Ed.2d 392 (2014) (internal quotation omitted).

The County responds that it has alleged several distinct injuries arising from Defendants' alleged discriminatory practices: (1) an eroding tax base; (2) declining property tax revenues; (3) the cost of providing government services associated with foreclosed and/or vacant properties; (4) lost recording fee income; and (5) intangible injuries to the fabric of its communities. See Compl. at ¶ 408. Only one of these theories needs to be plausible in order to support Article III standing. See Defenders of Wildlife, 504 U.S. at 563–67, 112 S.Ct. 2130 (analyzing each of plaintiff's asserted injuries, none of which was sufficient to support standing).

The County's asserted injuries to its tax base and property tax revenues satisfy Article III's injury-in-fact requirement. The Supreme Court has held that "[a] significant reduction in property values directly injures a municipality by diminishing its tax base, thus threatening its ability to bear the costs of local government and to provide services." Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 110–11, 99 S.Ct. 1601, 60 L.Ed.2d 66 (1979) ; see also City of Chicago v. Matchmaker Real Estate Sales Center, Inc., 982 F.2d 1086, 1095 (7th Cir.1992) (same). Numerous district courts, relying on Gladstone, have held that counties and municipalities have standing to sue for alleged FHA violations based on asserted injuries to their tax base and revenues. See City of Los Angeles v. Bank of Am. Corp., 2014 WL 2770083, at *5 ; City of Los Angeles v. Citigroup, Inc., 24 F.Supp.3d at 947–48 ; DeKalb County, 2013 WL 7874104, at *4 ; City of Birmingham, 2009 WL 8652915, at *3. Defendants have not distinguished Gladstone or offered a persuasive reason to depart from the unbroken line of district court cases cited above.

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