Montgomery Cnty. v. Bank of Am. Corp.

• Decision Date: 30 September 2019
• Docket Number: Case No.: PWG-18-3575
• Parties: MONTGOMERY COUNTY, MARYLAND, et al., Plaintiffs, v. BANK OF AMERICA CORP., et al., Defendants.
• Court: U.S. District Court — District of Maryland

421 F.Supp.3d 170

MONTGOMERY COUNTY, MARYLAND, et al., Plaintiffs,

v.BANK OF AMERICA CORP., et al., Defendants.

Case No.: PWG-18-3575

United States District Court, D. Maryland, Southern Division.

Filed September 30, 2019

Andrew David Freeman, Jean Mary Zachariasiewicz, Brown, Goldstein & Levy, LLP, Baltimore, MD, David J. Worley, Pro Hac Vice, James M. Evangelista, Pro Hac Vice, Kristi Stahnke McGregor, Pro Hac Vice, Evangelista Worley LLC, Atlanta, GA, Ezra Salami, Pro Hac Vice, J. Birt Reynolds, Pro Hac Vice, Roy Shimon, Pro Hac Vice, Sanford Paul Dumain, Pro Hac Vice, Jennifer Sarah Czeisler, Milberg Tadler Philips Grossman LLP, Melissa Ryan Clark, Tadler law LLP, New York, NY, for Plaintiff.

Matthew S Sheldon, Pro Hac Vice, Andrew Kim, Pro Hac Vice, Thomas M. Hefferon, Sabrina Marie Rose-Smith, Goodwin Procter LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION AND ORDER

Paul W. Grimm, United States District Judge On November 20, 2018, Plaintiffs Montgomery County, Maryland and Prince George's County, Maryland (the "Counties") filed two lawsuits in this Court pursuant to the Fair Housing Act ("FHA"), 42 U.S.C. § 3601 et seq. : one before Judge Messitte, Prince George's County v. Wells Fargo & Co. , No. PJM-18-3576 (the "Wells Fargo case"), and the one that is pending before me, Compl., ECF No. 1. In the Wells Fargo case, the Counties brought claims for disparate impact and disparate treatment against Wells Fargo & Co. and related entities ("Wells Fargo"), alleging that the defendants "engaged in predatory lending practices relative to FHA-protected minority communities"; they claimed that the defendants' practices amounted to an " ‘equity-stripping’ scheme"¹ that "contributed to the recent financial crisis characterized by mortgage loan delinquencies, mortgage loan defaults, foreclosures, and home vacancies across the country and more specifically in Plaintiff Counties, particularly in communities with high concentrations of FHA-protected minority residents." Prince George's County v. Wells Fargo & Co. ("Wells Fargo "), 397 F. Supp. 3d 752, 755-56 (D. Md. 2019). The first disparate impact claim arises from the effects of the "equity-stripping" scheme throughout the life of the loan, "beginning with loan origination and continuing through servicing and mortgage foreclosure," while the second is "based solely on Wells Fargo's mortgage servicing and foreclosure practices." Id. The third count is for "intentional disparate treatment throughout the entire equity-stripping scheme." Id.

Here, the defendants are different, but the claims are the same. Defendants are Bank of America Corp.; Bank of America, N.A.; and BAC Home Loans Servicing, LP (collectively, "Bank of America"); Countrywide Financial Corp.; Countrywide Home Loans, Inc.; Countrywide Bank, FSB; and Countrywide Warehouse Lending, LLC (collectively, "Countrywide"); and Merrill Lynch & Co.; Merrill Lynch Mortgage Capital, Inc.; and Merrill Lynch Mortgage Lending Inc. (collectively, "Merrill" and, along with Bank of America and Countrywide, the "Banks"). Compl. "The Complaint alleges that Defendants are engaging in a nationwide equity stripping scheme involving a pattern and practice of discrimination that begins with steering minorities into non-prime loans, continues through servicing, and ends with foreclosure or vacancy." Pls.' Opp'n 2; see id. at 3 (citing Compl. ¶¶ 4, 6-8, 92-93, 140-41, 187-96, 329-34, 345-48, 361-64); Defs.' Mem. 1. As in the Wells Fargo case, the Counties claim disparate impact on minorities based on the Banks' loan origination, mortgage servicing, and foreclosure practices; disparate impact on minorities based on the Banks' mortgage servicing and foreclosure practices alone; and intentional disparate treatment of minorities based on the entirety of the alleged equity-stripping scheme. Compl. ¶¶ 125, 133, 137. In both cases, "[t]he Counties sue as individual aggrieved persons under 42 U.S.C. § 3602(i), not in their parens patriae capacities." Wells Fargo , 397 F. Supp. 3d at 755-56 ; Compl. ¶¶ 16–17.

Wells Fargo and the Defendants in the case before me both filed motions to dismiss. Defs.' Mot., ECF No. 48; ECF No. 24 in Wells Fargo . Wells Fargo argued, inter alia , that the Counties' claims were untimely, failed to state a claim, and the Counties could not "meet the rigorous requirement of pleading direct proximate cause recognized by the United States Supreme Court on a review of FHA allegations parallel to those made by the Counties in Bank of America Corp. v. City of Miami , ––– U.S. ––––, 137 S. Ct. 1296, 197 L.Ed.2d 678 (2017)," because the alleged injures "are too remote to satisfy the ‘close connection that proximate cause requires.’ " Wells Fargo Mot. 1–2. The Banks raise the same arguments. Defs.' Mot. 2.

Recently, Judge Messitte issued a well-reasoned Memorandum Opinion in which he rejected both the statute of limitations argument and also Wells Fargo's argument that the Counties failed to allege disparate impact or disparate treatment sufficiently. Wells Fargo , 397 F. Supp. 3d at 764-65, 765-67. He concluded that "the ‘some direct relation’ standard" from City of Miami , 137 S. Ct. at 1306, was "well pled in regard to [a subset of the] claimed injuries": the expenses the Counties incurred "processing foreclosures occasioned by Defendants' purported violations, including costs for foreclosure notices, court proceedings, Sheriffs' auctions, Sheriffs' evictions, and registration, monitoring, and maintenance of empty properties." Wells Fargo , 397 F. Supp. 3d at 759-60. As for "damages based on the cost of having to provide municipal services on foreclosed properties, such as fire and police, as well as social services that were needed to assist evicted or foreclosed borrowers"; "tax base injuries"; and "lost revenue from certain utility operations and lost recording fees," Judge Messitte found that they were "further removed from Defendants' alleged equity-stripping practices than are the costs associated with processing foreclosures" and "allow[ed] the Counties time to amend their complaint to include more detail in respect of the claims, if indeed they are able to do so"; he also noted that limited discovery on these issues prior to amendment may be warranted. Id. at 760-62, 762–64. The claims for non-economic damages, however, Judge Messitte concluded were "a bridge too far," and he dismissed them, while allowing the Counties' claims for "injunctive and declaratory relief against Defendants' alleged equity-stripping practices" to proceed. Id. at 764-65.

The Banks' Motion to Dismiss is fully briefed and pending. See ECF Nos. 48-1, 50, 51; see also Pls.' Notice of Supp. Auth., ECF No. 53 (attaching copy of City of Miami v. Wells Fargo & Co. , 923 F.3d 1260 (11th Cir. 2019), ECF No. 53-1); Defs.' Resp., ECF No. 54. A hearing is not necessary. See Loc. R. 105.6. Informed by this Court's opinion in Wells Fargo , 397 F. Supp. 3d 752, the Supreme Court's and Eleventh Circuit's opinions in City of Miami , 127 S. Ct. 1296, and City of Miami , 923 F.3d 1260, and opinions from other courts in similar FHA litigation against banks that allegedly engaged in the same type of equity-stripping schemes that injured the municipal plaintiffs, and considering the allegations in the 170-page, 560-paragraph Complaint before me, I will deny the motion as to some of the Counties' claims, grant it as to the remainder of the claims, and allow the Counties to file an amended complaint to bolster their allegations in their insufficiently pled claims, insofar as they have a good faith basis for doing so.

Background ²

The FHA, which has a "broad remedial purpose" is a " ‘far-reaching’ statute that ‘takes aim at discrimination that might be found throughout the real estate market and throughout the process of buying, maintaining, or selling a home.’ " Wells Fargo , 397 F. Supp. 3d at 757-58 (quoting City of Miami , 923 F.3d at 1278, 1279 ). Pursuant to the Fair Housing Act, it is unlawful for "any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin." 42 U.S.C. § 3605(a). Any " ‘aggrieved person,’ " that is, " ‘any person who ... claims to have been injured by a discriminatory housing practice,’ " may "file a civil action seeking damages for a violation of the statute." City of Miami , 137 S. Ct. at 1300 (quoting 42 U.S.C. §§ 3602(i), 3613(a)(1)(A), (c)(1) ).

The Counties claim that the Banks engaged in "residential mortgage lending and servicing activities" that amounted to "intentional, predatory," and discriminatory "equity-stripping schemes." Compl. ¶¶ 3–4. The equity-stripping scheme included "targeted marketing practices, discretionary pricing policies, credit score override practices, underwriting policies, wholesale mortgage funding and mortgage securitization operations, compensation policies and mortgage servicing operations" that "each individually, or in combination with each other, authorized, approved, or otherwise encouraged the origination and funding of first and second lien residential mortgage loans with different terms and conditions to similarly financially situated borrowers on the improper basis of race, color, ethnicity, sex and age." Id. ¶ 6. Specifically,

Defendants' various mortgage origination, securitization and servicing policies and practices allowed or encouraged: (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

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