Saint-Jean v. Emigrant Mortg. Co.

• Decision Date: 25 September 2014
• Docket Number: No. 11 CV 2122SJ.,11 CV 2122SJ.
• Citation: 50 F.Supp.3d 300
• Parties: Jean Robert SAINT–JEAN, et al., Plaintiff, v. EMIGRANT MORTGAGE COMPANY, et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

50 F.Supp.3d 300

Jean Robert SAINT–JEAN, et al., Plaintiff

v.EMIGRANT MORTGAGE COMPANY, et al., Defendants.

No. 11 CV 2122SJ.

United States District Court, E.D. New York.

Signed Sept. 25, 2014.

South Brooklyn Legal Services, Foreclosure Prevention Project, by:

Sara Linda Manaugh, Jennifer Sinton, Meghan Faux, Rachel Geballe, Brooklyn, NY, Relman & Dane, PLLC, by: John P. Relman, Glenn Schlactus, Tara Ramchandani, Timothy Smyth, Center for Responsible Lending, by: Michael D. Calhoun, Washington, DC, for Plaintiffs.

Proskauer Rose LLP, Eleven Times Square, by: Bettina B. Plevan, Evandro Cristiano Gigante, Keisha–Ann G. Gray, Dorsey & Whitney LLP, by: David A. Scheffel, Eric B. Epstein, Gina Susan Spiegelman, New York, NY, for Defendants.

MEMORANDUM AND ORDER

JOHNSON, Senior District Judge:

This case comes before the Court on a motion to amend the complaint and on the defendant's motion to dismiss. Jean–Robert and Edith Saint–Jean, Felix and Yantil Saintil, Linda Commodore, Felipe Howell, and Jean and Beverly Small, (the “Plaintiffs”), homeowners and former homeowners who refinanced mortgages, received financing, or had related financial dealings with Emigrant Mortgage Company, Inc., Emigrant Savings–Bank Manhattan, Emigrant Bancorp, Inc., or Emigrant Bank (collectively “Defendant” or “Emigrant”), claim Emigrant engaged in a predatory practice of originating discriminatory and abusive mortgage refinance instruments through an equity-stripping “No Income, No Assets” (“NINA”) loan program until 2009. In short, the plaintiffs allege that Emigrant originated loans to individuals with significant home equity and very low credit scores, disregarding their ability to make payments and ensuring a stake in homeowner equity with very high interest rates triggered upon the inevitable default on these loans. Plaintiffs claim this program, even where facially neutral, disproportionately saddled minority homeowners in New York City with exorbitant, unaffordable mortgages that were expected and intended to fail at origination.

In 2011, Plaintiffs brought the present action, filing a complaint (“Complaint”) alleging violations of the Fair Housing Act (“FHA”), 42 U.S.C. §§ 3604, 3605 ; the Equal Credit Opportunity Act (“ECOA”), 15 U.S.C, § 1691 et seq.; New York State Human Rights Law, N.Y. Exec. Law § 296–a ; New York City Administrative Code § 8–502 ; and the Truth in Lending Act (“TILA”), 15 U.S.C. § 1691 et seq. (See Original Complaint ¶¶ 227–78.) On January 31, 2014, Plaintiffs moved to amend their complaint, attaching the proposed Second Amended Complaint (“SAC”). On March 31, 2014, Magistrate Judge James Orenstein, at this Court's request, issued a Report and Recommendations (“the Report”) with respect to Emigrant's pending motion to dismiss and Plaintiffs' pending motion to amend. This Court reviews those recommendations, and the objections thereto, herein.

BACKGROUND

A. The Report and Recommendation

This Court referred Defendant's motion to dismiss to the assigned magistrate judge in this case, Magistrate Judge James Orenstein, for a Report and Recommendation on July 29, 2013. A district court judge may designate a magistrate judge to hear and determine certain motions pending before the Court and to submit to the Court proposed findings of fact and a recommendation as to the disposition of the motion. See 28 U.S.C. § 636(b)(1). Within fourteen days of service of the recommendation, any party may file written objections to the magistrate's report. See id. Upon de novo review of those portions of the record to which objections were made, the district court judge may affirm or reject the recommendations.

See id. The Court is not required to review, under a de novo or any other standard, the factual or legal conclusions of the magistrate judge as to those portions of the report and recommendation to which no objections are addressed. See Thomas v. Arn, 474 U.S. 140, 150, 106 S.Ct. 466, 88 L.Ed.2d 435(1985).

Presently before the Court is the Report and Recommendation (“Report”) prepared by Magistrate Judge James Orenstein. Judge Orenstein issued the Report on March 31, 2014, recommending that this Court grant Emigrant's motion to dismiss Plaintiffs' claims under state and municipal law, deny Emigrant's motion to dismiss under federal law, deny Plaintiffs' leave to add new claims under state and municipal law, and grant Plaintiffs leave to add new plaintiffs, defendants, and federal claims.See March 31, 2014 Report and Recommendation of Magistrate Judge James Orenstein, Docket No. 206 at 1 (the “Report”). All parties filed limited objections to the Report and Recommendation on April 17, 2014 and Plaintiffs responded to Defendant's objections to the Report on May 1, 2014. Upon review of the recommendations, objections, and responses thereto, and for the reasons stated herein, the conclusions in the Report are adopted in part and set aside in part, and the Court adopts and affirms the recommendations that Plaintiffs' motion to amend the complaint should be granted and Defendant's motion to dismiss is denied.

B. Brief Historical Overview

Separate from this Court's analysis of the specific issues raised here, the Plaintiffs have situated their claims in an arena of historical significance. Although this Court's analysis is limited to the sufficiency of the complaint, as is proper on a motion to dismiss, Plaintiffs claim discrimination in lending and cite decades of precedent in housing and lending discrimination in assuring this Court that their present claims in their original and amended complaints are not merely “speculative” or “bald assertions.” While a general historical overview is entirely separate from this Court's substantive and procedural analysis of the specific claims in this case in the sections that follow, the Court sees merit in discussing the milieu in which these claims exist. Therefore, a brief review of the historical context appears warranted.

Historically, racial discrimination in lending barred Blacks and Latinos from home mortgages and financial products, a process known as “redlining.” Redlining involved the widespread practice of delineating Black and Latino neighborhoods in red to indicate undesirable investment locations (another narrative locates this term in the drawing of red lines through certain zip codes),¹ in addition to other actions excluding minority neighborhoods from territories where banks would invest or offer financial products.² Even where these putative minority homeowners were well-qualified for the home loans or housing they sought, their applications were not considered.

The concept of redlining involved ongoing and detailed schemes whereby Black and Latino putative borrowers in minority neighborhoods would be denied opportunities for credit and home ownership.³ Additional factors at play sometimes clouded or complicated recognition of the racialized aspects of redlining practices.

Redlining is a broader concept than discrimination and encompasses issues of class, region, and sector disinvestment ... in addition to the problems of the inner city. To the extent, however, that there is a significant racial pattern of differential credit grants and high geographical concentration of African–Americans, there is tremendous overlap between redlining and lending discrimination.

See Taibi, supra, at 1486. After the Supreme Court struck down racially restrictive covenants in Shelley v. Kraemer, 334 U.S. 1, 68 S.Ct. 836, 92 L.Ed. 1161 (1948), racial discrimination continued in housing and lending through increasingly hidden and insidious redlining practices. The pervasiveness of redlining practices fueled the development of a civil rights litigation and associated social reforms.

A modern iteration of this discriminatory practice, often termed “reverse redlining,” discriminates by erecting barriers to favorable credit treatment, even where qualified, in extending credit to minority neighborhoods on unfair terms.⁴ See e.g., Linda E. Fisher, Target Marketing Of Subprime Loans: Racialized Consumer Fraud & Reverse Redlining, 18 J.L. & Pol'y 121, 125–27 (2009) (the strong correlation between race and subprime lending suggests “African–Americans and Latinos were either intentionally singled out for the worst loans or have suffered disproportionately from the effects of facially neutral lending policies”). The practice involved targeting neighborhoods, overwhelmingly Black and Latino, with inflated credit, subprime loans, and other predatory lending practices although consumers might be eligible for preferable credit or loans. The same communities which faced redlining previously now received credit on grossly unfair terms in reverse redlining schemes.⁵ Reverse redlining has become a target of civil rights litigation and has been found cognizable as a claim in the federal courts. See e.g., Justin Steil, Innovative Responses To Foreclosures: Paths To Neighborhood Stability And Housing Opportunity, 1 Colum. J. Race & L. 63 (2011) (citing Hargraves v. Capital City Mortg. Corp., 140 F.Supp.2d 7 (D.D.C.2000) ; Matthews v. New Century Mortg. Corp., 185 F.Supp.2d 874 (S.D.Ohio 2002) ; Barkley v. Olympia Mortg. Co., No. 04–cv–875, 2010 WL 3709278 (E.D.N.Y. Sep. 13, 2010) ).

Factual Background⁶

Plaintiffs in this case allege that Defendant Emigrant Mortgage Company aggressively marketed and originated high-cost mortgage refinance products to Black and Latino homeowners in majority-minority census tracts in New York City from 2004 through 2009.⁷ (SAC ¶¶ 1–2.) Marketed to people with low credit scores and high likelihood of default, Plaintiffs allege that the default 18% interest rate imposed was predatory, targeted toward minority homeowners, and functioned, effectively, as an equity-stripping scheme against Black and Latino homeowners. Id. In addition, Emigrant did not encounter Black and Latino borrowers innocuously in their NINA lending program. Instead, racially explicit analyses of Emigrant's own lending histories...