Nat'l Fair Hous. All. v. Deutsche Bank Nat'l Tr.
| Decision Date | 13 November 2019 |
| Docket Number | Case No. 18 CV 839 |
| Parties | NATIONAL FAIR HOUSING ALLIANCE, et al., Plaintiffs, v. DEUTSCHE BANK NATIONAL TRUST, as trustee; DEUTSCHE BANK TRUST COMPANY AMERICAS, as trustee; OCWEN LOAN SERVICING, LLC; and ALTISOURCE SOLUTIONS, INC., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
NATIONAL FAIR HOUSING ALLIANCE, et al., Plaintiffs,
v.
DEUTSCHE BANK NATIONAL TRUST, as trustee;
DEUTSCHE BANK TRUST COMPANY AMERICAS, as trustee; OCWEN LOAN SERVICING,
LLC; and ALTISOURCE SOLUTIONS, INC., Defendants.
Case No. 18 CV 839
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
November 13, 2019
Judge Harry D. Leinenweber
MEMORANDUM OPINION AND ORDER
This Fair Housing Act lawsuit alleges discriminatory housing maintenance in communities of color. Defendants Deutsche Bank National Trust, Deutsche Bank Trust Company Americas, Ocwen Loan Servicing, LLC, and Altisource Solutions, Inc., move to dismiss Plaintiffs' Second Amended Complaint. For the reasons stated below, the Motion to Dismiss (Dkt. No. 71) is granted in part and denied in part.
In addition to reciting the relevant pleadings herein, the Court incorporates the facts and holdings from its opinion granting Defendants' prior motion to dismiss this case. See Nat'l Fair Hous.
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All. v. Deutsche Bank, No. 18 C 0839, 2018 WL 6045216 (N.D. Ill. Nov. 19, 2018). The following facts are taken as true for the purpose of Defendants' Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6).
Plaintiffs are national and local fair housing organizations whose mission is to end housing discrimination and promote integration. Defendants Deutsche Bank National Trust and Deutsche Bank Trust Company Americas (collectively, the "Deutsche Bank Defendants") are financial institutions that own mortgages, and consequently, foreclosed homes, across the country. Defendants Ocwen Loan Servicing, LLC ("Ocwen") and Altisource Solutions, Inc. ("Altisource") (collectively, the "Servicer Defendants") provide property preservation, maintenance, and other services for properties that the Deutsche Bank Defendants own.
During the 1990s and early 2000s, many lenders sought to expand markets for "subprime" home mortgage products—that is, mortgages with unfavorable and risky loan terms, often issued to borrowers with low credit ratings. The subprime lending boom collapsed in 2008, leading to a foreclosure crisis in the U.S. When a home mortgage that a bank owns goes into default and foreclosure, the bank obtains title to the home, which is then referred to as "Real Estate Owned" (REO). See Nat'l Fair Hous.
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All. v. Fed. Nat'l Mortg. Ass'n, 294 F. Supp. 3d 940, 943 (N.D. Cal. 2018). Essentially, an REO property is a vacant home possessed by a bank. The large volume of foreclosures beginning in 2008 created many REO properties, which were and are disproportionately located in communities of color (predominately African-American and Hispanic neighborhoods). As a result of the subprime mortgage market collapse, the Deutsche Bank Defendants became owners of a large inventory of REO properties in communities of color.
Beginning in 2011, Plaintiffs undertook an investigation of Defendants' maintenance of the REO properties they owned across the country. Plaintiffs sought to measure the extent to which Defendants maintained REOs in communities of color and in predominately white neighborhoods. Plaintiffs examined 1,141 REO properties owned by the Deutsche Bank Defendants. For each property investigated, Plaintiffs collected evidence on 39 objective aspects of routine exterior maintenance such as graffiti, damage to windows, and overgrown grass. Plaintiffs' investigation revealed "highly significant disparities" in the exterior maintenance and marketing of Deutsche Bank-owned homes in communities of color compared to white communities. (SAC ¶ 5.)
In February 2018, Plaintiffs filed suit against Defendants under the Fair Housing Act of 1968 (FHA), 42 U.S.C. § 3601, et
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seq. Plaintiffs' Complaint centered on Defendants' practices with respect to the REO properties they own in thirty metropolitan areas, including Chicago. Plaintiffs alleged that Defendants violated 42 U.S.C. §§ 3604(a), 3604(b), 3605, 3617, and violated the FHA generally by perpetuating segregation.
Defendants moved to dismiss the Complaint. The Court granted that motion in full and made the following relevant holdings: (1) a significant portion of the dataset Plaintiffs relied on must be removed as it was untimely under the FHA's two-year statute of limitations; (2) Plaintiffs' § 3604 claims must be dismissed because they failed to allege that the REO properties were neglected to such an extent as to dissuade purchasers from buying them; (3) Plaintiffs' § 3605 claims must be dismissed because Plaintiffs failed to allege any specific real-estate transaction impeded by Defendants' conduct; (4) Plaintiffs' perpetuating segregation claim must be dismissed because the Court did not yet have the properly sheared dataset upon which this claim is based; and (5) Plaintiffs failed to state either a disparate impact or discriminatory intent theory of discrimination under the FHA. See Nat'l Fair Hous. All., 2018 WL 6045216.
Plaintiffs filed their Second Amended Complaint (SAC) in May 2019. They dropped their 42 U.S.C. § 3617 claim, but otherwise assert the same claims against Defendants as in their original
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Complaint. Plaintiffs again allege that Defendants' exterior maintenance of REO properties constitutes unlawful racial discrimination, in the form of both disparate impact and disparate treatment, under the FHA. They seek a declaratory judgment that Defendants' conduct violates the FHA, an injunction that prohibits Defendants from violating the FHA, compensatory and punitive damages, and attorneys' fees. Plaintiffs contend that they have added allegations that render the SAC sufficient under Rule 12(b)(6). Defendants again move to dismiss for failure to state a claim.
A motion to dismiss pursuant to Rule 12(b)(6) challenges the sufficiency of a complaint by arguing that it fails to state a claim upon which relief may be granted. FED. R. CIV. P. 12(b)(6); Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). When considering a motion to dismiss, the Court accepts all well-pleaded factual allegations as true and draws all reasonable inferences in favor of the plaintiff. Trujillo v. Rockledge Furniture LLC, 926 F.3d 395, 397 (7th Cir. 2019). However, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss under Rule 12(b)(6), a complaint must provide enough
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factual information to "state a claim to relief that is plausible on its face" and "raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). A complaint is facially plausible when a plaintiff alleges "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678.
Defendants assert four primary arguments in favor of dismissal: (1) Plaintiffs' allegations do not establish proximate cause; (2) the Deutsche Bank Defendants are not liable under the FHA; (3) Plaintiffs fail to plead either a disparate impact or disparate treatment theory of discrimination; and (4) Plaintiffs failed to plead claim-specific elements. The Court will address each argument in turn.
First, the Court examines whether Plaintiffs have alleged proximate cause under the FHA. As the Court noted in its previous opinion, the recent Supreme Court decision Bank of Am. Corp. v. City of Miami, Fla., 137 S. Ct. 1296 (2017), controls this issue. In City of Miami, the Supreme Court considered FHA claims brought by the City of Miami against two banks that allegedly intentionally issued mortgages with less favorable terms to African-American and
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Hispanic borrowers than to similarly situated white borrowers. Id. at 1301. The Court examined what degree of causation is required to state a claim under the FHA. Id. at 1305-06. In all cases of loss, courts must attribute loss to the proximate cause, not to "any remote cause." Id. at 1305. The Court found that a claim for damages under the FHA is "akin to a tort action" and therefore a plaintiff must establish proximate cause in order to recover damages for a violation of the FHA. Id. (internal quotation and citation omitted). Proximate cause analysis is "controlled by the nature of the statutory cause of action," which in turn is governed by an inquiry into whether the harm alleged has a "sufficiently close connection" to the conduct the statute prohibits. Id. at 1305 (citation omitted).
In City of Miami, the city sought damages to account for the loss of property tax revenue and the need to spend more on municipal services, caused by the increase in foreclosures, which were caused by the banks' discriminatory lending practices. The Eleventh Circuit had held that the City's injuries were sufficient to satisfy the proximate cause requirement because they were "foreseeable." City of Miami, 137 S. Ct. at 1305-06. The Supreme Court disagreed and held that to establish proximate cause in an FHA case, a plaintiff must do more than show that its injuries foreseeably flowed from the statutory violation. Id. at 1306. While
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the Court declined to define a standard of proximate cause under the FHA, it did note that proximate cause under the FHA requires "some direct relation between the injury asserted and the injurious conduct alleged." Id. at 1306 (citation omitted). The Court further observed that for statutes with common-law foundations, the "general tendency... in regard to damages at least, is not to go beyond the first step." Id. (citing Hemi Group, LLC v. City of New York, 559 U.S. 1, 10 (2010)). Courts should also consider "what is administratively possible and convenient." City of Miami, 137 S. Ct. at 1306 (citation omitted).
In this case, Plaintiffs' original Complaint asserted the following injuries:...
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