Hoffman v. Option One Mortg. Corp., 07 C 4916.

• Decision Date: 09 December 2008
• Docket Number: No. 07 C 4916.,07 C 4916.
• Citation: 589 F.Supp.2d 1009
• Parties: Betty HOFFMAN, Edward Hoffman, Doris Murray, Joslyn Day and Keisha Chavers, on behalf of themselves and all others similarly situated, Plaintiff, v. OPTION ONE MORTGAGE CORPORATION and H & R Block Mortgage Corp., n/k/a Option One Mortgage Services, Inc., Defendants.
• Court: U.S. District Court — Northern District of Illinois

589 F.Supp.2d 1009

Betty HOFFMAN, Edward Hoffman, Doris Murray, Joslyn Day and Keisha Chavers, on behalf of themselves and all others similarly situated, Plaintiff, v. OPTION ONE MORTGAGE CORPORATION and H & R Block Mortgage Corp., n/k/a Option One Mortgage Services, Inc., Defendants.

No. 07 C 4916.

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

December 9, 2008.

Al Hofeld, Jr., Law Offices of Al Hofeld, Jr., LLC, Chicago, IL, Andrew S. Friedman, Wendy J. Harrison, Bonnett, Fairbourn, Friedman & Balint, P.C., Phoenix, AZ, for Plaintiff.

Betty Hoffman, pro se.

Edward Hoffman, pro se.

Doris Murray, pro se.

Joslyn Day, pro se.

Arthur F. Radke, Richard Eric Gottlieb, Renee Lynn Zipprich, Dykema Gossett PLLC, Dianne E. Rist, Stephen Todd Sipe, Chapman & Cutler, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

ELAINE E. BUCKLO, District Judge.

Plaintiffs' amended and consolidated class action complaint ("complaint") alleges violations of: the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691 et seq. (count I); and the Fair Housing Act ("FHA"), 42 U.S.C. § 3601 et seq. (count II). Defendants Option One Mortgage Corp. ("Option One") and H & R Block Mortgage Corp. ("H & R Block Mortgage") have moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) arguing that: (1) the disparate impact claims are deficient under Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); (2) plaintiffs have failed to allege a specific policy or disparate impact; (3) third-party brokers' intervening superseding acts negate Option One's liability; and (4) disparate impact claims are not cognizable under the FHA or the ECOA. For the following reasons, the motion is denied.

Although defendants save it for last, I must first address the existence of disparate impact claims under the FHA and the ECOA. Defendants argue that Alexander v. Sandoval, 532 U.S. 275, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001) and Smith v. City of Jackson, 544 U.S. 228, 125 S.Ct. 1536, 161 L.Ed.2d 410 (2005) "compel[] the conclusion here that neither ECOA nor the FHA permits disparate impact claims" because they do not contain "the language that authorizes disparate impact claims[.]" (Defs.' Mem. at 20-24.) Neither Alexander nor Smith address the FHA or the ECOA. See Alexander, 532 U.S. at 280-82, 285-86, 293, 121 S.Ct. 1511 (confirming that § 601 of Title VI of Civil Rights Act of 1964 prohibits only intentional discrimination, assuming for purposes of instant case that § 602 may validly proscribe activities that have disparate impact on racial groups even though such activities are permissible under § 601, and holding that no private right of action to enforce regulations promulgated under § 602 exists); Smith, 544 U.S. at 232, 240, 125 S.Ct. 1536 (holding that Age Discrimination in Employment Act ("ADEA") authorizes recovery in disparate impact cases (although scope of disparate impact liability under ADEA is narrower than under Title VII), but concluding petitioners did not set forth valid disparate impact claim). Defendants cite no cases holding that the FHA and the ECOA do not permit disparate impact claims.

The Seventh Circuit has found that "a discriminatory effect, without any discriminatory intent, may" violate the FHA. Gomez v. Chody, 867 F.2d 395, 401-02 (7th Cir.1989) (emphasis in original) (affirming summary judgment for defendants). Moreover, defendants "recognize that a number of district courts have held that disparate impact claims are cognizable under the ECOA and the FHA" post-Smith and Alexander. (Id. at 24 n.13.); see, e.g., Zamudio v. HSBC N. Am. Holdings Inc., No. 07 C 4315, 2008 WL 517138, at *2 (N.D.Ill. Feb. 20, 2008) (Darrah, J.) (concluding that Smith "does not reach so far as to prohibit disparate-impact claims under other statutes that do not contain this same language, nor does it set forth a new test for determining whether a statute supports disparate-impact claims"); Ramirez v. GreenPoint Mortgage Funding, Inc., No. C08-0369 THE, 2008 WL 2051018 at *3-4 (N.D.Cal. May 13, 2008) (same); Beaulialice v. Fed. Home Loan Mortgage Corp., No. 8:04-CV-2316-T-24-EAJ, 2007 WL 744646, at *4 (M.D.Fla. Mar. 6, 2007) (concluding that neither Smith nor Alexander prohibit disparate impact claims, allowing plaintiff to bring disparate impact claim under FHA, and assuming without deciding that plaintiff could bring disparate impact claim under ECOA). I too conclude that Alexander and Smith do not preclude disparate impact claims under the FHA and the ECOA.

Plaintiffs must identify a specific practice or policy responsible for the disparate impact. See Smith, 544 U.S. at 241, 125 S.Ct. 1536 (explaining that it is insufficient to point to general policy, but rather plaintiff must isolate specific practice allegedly responsible for statistical disparities). Defendants argue that plaintiffs have not identified a specific policy, but rather attack defendants' overall loan pricing policies. But the complaint focuses on the subjective charges assessed pursuant to defendants' "Discretionary Pricing Policy" ("Policy")—not the overall pricing process, which also encompasses charges imposed based on "objective risk-related" criteria. (Compl. at ¶¶ 50-67.)

Defendants also contend that plaintiffs have not sufficiently alleged a disparate impact. Defendants challenge plaintiffs' reliance on industry-wide data and studies that do not support allegations that defendants engaged in discriminatory lending practices. The complaint generally relies on data and studies to set forth a history of discrimination in mortgage lending. (See Compl. at ¶¶ 21-46.) Plaintiffs claim that certain of the studies are based in part on defendants' loan data (pls.' resp. at 14) although the complaint contains no such allegations. The complaint alleges that, "Statistical analysis of discretionary charges imposed on minority and white customers of other mortgage companies that use credit pricing systems structured like that of Option One and/or H & R Block Mortgage has revealed that minorities, after controlling for credit risk, are substantially more likely than similarly situated whites to pay such charges." (Compl. at ¶ 63.) Defendants acknowledge, however, that at least one of the studies included H & R Block Mortgage but not Option One "which was responsible for all but one of the loans at issue in this suit." (Defs.' Reply at 6-7.) The complaint alleges that Option One made mortgage loans with H & R Block, Inc.'s ("H & R Block") and H & R Block Mortgage's participation, and H & R Block Mortgage made mortgage loans with H & R Block's and Option One's participation. (Compl. at ¶¶ 48-49.) The complaint further alleges that the subjective charges...