Cobb Cnty. v. Bank of Am. Corp.

• Citation: 183 F.Supp.3d 1332
• Decision Date: 02 May 2016
• Docket Number: CIVIL ACTION NO. 1:15-CV-04081-LMM
• Parties: Cobb County, Dekalb County, and Fulton County, Plaintiffs, v. Bank of America Corporation, Bank of America, N.A., Countrywide Financial Corporation, Countrywide Home Loans, Inc., Countrywide Bank, FSB, Countrywide Warehouse Lending, LLC, BAC Home Loans Servicing, LP, Merrill Lynch & Co., Inc., Merrill Lynch Mortgage Capital Inc., and Merrill Lynch Mortgage Lending, Inc., Defendants.
• Court: U.S. District Court — Northern District of Georgia

183 F.Supp.3d 1332

Cobb County, Dekalb County, and Fulton County, Plaintiffs,

v.Bank of America Corporation, Bank of America, N.A., Countrywide Financial Corporation, Countrywide Home Loans, Inc., Countrywide Bank, FSB, Countrywide Warehouse Lending, LLC, BAC Home Loans Servicing, LP, Merrill Lynch & Co., Inc., Merrill Lynch Mortgage Capital Inc., and Merrill Lynch Mortgage Lending, Inc., Defendants.

CIVIL ACTION NO. 1:15-CV-04081-LMM

United States District Court, N.D. Georgia, Atlanta Division.

Signed May 02, 2016

David James Worley, James M. Evangelista, Harris Penn Lowry LLP, Hezekiah Sistrunk, Jr., The Cochran Firm, Jeffrey Emery Tompkins, Thomas G. Sampson, Thomas Kennedy Sampson & Tompkins, LLP, Shean Decarlos Williams, Cochran, Cherry, Givens, Smith, Sistrunk & Sams, PC, Atlanta, GA, for Plaintiffs.

Edwin Montgomery Cook, William Vance Custer, IV, Bryan Cave, LLP, Atlanta, GA, Matthew S. Sheldon, Thomas M. Hefferon, Goodwin Procter LLP, Washington, DC, for Defendants.

ORDER

LEIGH MARTIN MAY, UNITED STATES DISTRICT JUDGE

This case comes before the Court on Defendants' Motion to Dismiss [21]. After due consideration and a hearing held on March 31, 2016, the Court enters the following Order:

I. BACKGROUND¹

Plaintiffs filed this case on November 20, 2015. Dkt. No. [1]. In their Complaint, Plaintiffs assert a single count under the Fair Housing Act ("FHA"), 42 U.S.C. § 3604 et seq. , alleging that, over the last 15 years, Defendants have engaged in mortgage lending discrimination directed at minority borrowers within the Counties' borders. See generally id. Specifically, Plaintiffs allege that Defendants engaged in, and continue to engage in a discriminatory equity stripping scheme, and/or discriminatory loan servicing and foreclosures in violation of both §§ 3604 and 3605 of the FHA. Id.¶ 3.

Plaintiffs posit that equity stripping occurs when mortgage lenders create expensive mortgage loans with onerous terms that are based on the value of the borrower's home rather than the borrower's ability to repay the loan. Id. Plaintiffs contend that these types of loans were designed to "maximize lender profits through loan pre-payment penalties, higher loan interest rates, increased mortgage servicing charges over the life of the loan and, most importantly, expensive added fees and increased interest rates charged to late-paying or defaulting borrowers."Id. In other words, Plaintiffs allege predatory loan origination coupled with predatory loan servicing and foreclosures.

Plaintiffs contend that this scheme creates both an intentional and disparate impact on minority borrowers, causing foreclosure. Id.¶¶ 9, 60.

Plaintiffs further allege that Defendants' scheme has harmed the Counties. Plaintiffs contend that Defendants' actions have caused and will continue to cause: (1) a reduction in the rate of minority homeownership in Plaintiffs' communities and neighborhoods, robbing those communities of their integrated racial character and injuring Plaintiffs through the segregative effect of Defendants' actions leading to urban blight; (2) organizational harm to Plaintiffs' departments and authorities because Defendants' conduct forced and continues to force reallocation of Plaintiffs' limited financial and human resources to address the harms Defendants' actions have caused; and (3) direct and indirect financial harm to Plaintiffs including the erosion of Plaintiffs' tax base, the loss of property tax revenue, out-of-pocket costs relating to abandoned or vacant properties, the loss of certain intangible property recording fee income, and other financial harm due to urban blight. Id.¶ 11.

Plaintiffs ask for compensatory damages and punitive damages based on Defendants' allegedly "deliberate, egregious and widespread ... predatory and discriminatory mortgage lending and servicing practices and policies." Id.¶ 12. Defendants, however, ask the Court to dismiss Plaintiffs' action for failure to state a claim. Dkt. No. [21].

II. LEGAL STANDARD

Federal Rule of Civil Procedure 8(a)(2) requires that a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). While this pleading standard does not require "detailed factual allegations," the Supreme Court has held that "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).

To withstand a Rule 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Id.(quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ). A complaint is plausible on its face when the plaintiff pleads factual content necessary for the court to draw the reasonable inference that the defendant is liable for the conduct alleged. Id.

At the motion to dismiss stage, "all well-pleaded facts are accepted as true, and the reasonable inferences therefrom are construed in the light most favorable to the plaintiff." Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1273 n. 1 (11th Cir.1999) (citing Hawthorne v. Mac Adjustment, Inc., 140 F.3d 1367, 1370 (11th Cir.1998) ). However, the same does not apply to legal conclusion set forth in the complaint. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

III. DISCUSSION

Defendants make three arguments as to why the Court must dismiss Plaintiffs' claims. The Court will analyze each in turn.

a. Plaintiffs' Right of Action

As an initial matter, Defendants argue that Plaintiffs cannot bring this cause of action because they are not "persons" with a cause of action as defined by the FHA.² The FHA defines "person" as "one or more individuals, corporations, partnerships, associations, labor organizations, legal representatives, mutual companies, joint-stock companies, trusts, unincorporated organizations, trustees, trustees in cases under Title 11, receivers, and fiduciaries." 42 U.S.C. § 3602(d). Defendants conclude that, because counties are not listed in that definition, they cannot bring suit as an aggrieved person.

To bolster that argument, Defendants discuss how counties in Georgia are considered political subdivisions of the State. The FHA defines "state" separately from its definition of "person." Defendants argue that Congress must have intended to limit who could bring suit as an aggrieved person only to those defined as "persons" and certainly not entities defined as "states." If it had intended otherwise, Defendants assert Congress would not have defined state separately and fail to include it in its definition of person.

Defendants contend this interpretation is supported by other civil rights statutes that specifically include "state" in their definition of "persons" capable of bringing suit. For example, in Title VII, Congress specifically amended the statute to include governments, their agencies, and their subdivisions as "persons" under the statute. The Equal Credit Opportunity Act also includes governments and their agencies and subdivisions as "persons" capable of bringing suit.

Defendants then argue that because states are assigned a very specific role under the FHA, Congress intended to limit their role. Under § 3616, qualified state agencies may be referred complaints and the secretary of the Department of Housing and Urban Development ("HUD") is authorized to "cooperate with State and local agencies charged with the administration of State and local fair housing laws." 42 U.S.C. § 3616. According to Defendants, this specific role of working with the HUD secretary and addressing specifically referred complaints means counties, as subdivisions of the state, cannot be considered persons under the statute.

Plaintiffs counter that Congress intended the FHA to have broad reach such that counties, as divisions of the state, can enforce the statute. As support, Plaintiffs rely on an Eleventh Circuit case, City of Miami v. Bank of America, 800 F.3d 1262 (11th Cir.2015).

In that case, the city of Miami attempted to sue Bank of America and several other defendants for alleged FHA violations. Miami, 800 F.3d at 1266. The city alleged that the defendants had engaged in "a decade-long pattern of discriminatory lending in the residential housing market that caused the city economic harm." Id. The lower court granted the defendants' motion to dismiss, finding that the city lacked statutory standing because it fell outside the FHA's "zone of interests."³ Id. at 1269–70.

According to the lower court, the city may have had Article III standing because it experienced some harm from the defendant's alleged actions. However, the lower court found that, to bring a cause of action under the FHA, the claimant must also be an "aggrieved person." Id. See42 U.S.C. § 3613 ("An aggrieved person may commence a civil action ..."). The FHA defines an aggrieved person as "any person who ... (1) claims to have been injured by a discriminatory housing practice; or (2) believes that such person will be injured by a discriminatory housing practice that is about to occur." 42 U.S.C. § 3602.

The lower court held that the city was not an aggrieved person under the statute, and therefore not within the statute's "zone of interest" because it had "merely economic injuries" unaffected by "racial interest." Miami, 800 F.3d at 1270. Consequently, the lower court found that the city lacked so-called "statutory standing."

The Eleventh Circuit rejected this finding and held that under relevant Supreme Court precedent, FHA "statutory standing" is co-extensive with Article III standing. Id. at 1277 (citing Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 98, 99 S.Ct. 1601, 60 L.Ed.2d 66 (1979) ). The city of Miami could be an aggrieved person under the statute even if it only suffered economic harm. Id. at 1278.

Plaintiffs claim Miami shows that the...