United States District Court, D. Maryland
J. MESSITTE UNITED STATES DISTRICT JUDGE
George's County, Maryland, and Montgomery County,
Maryland (collectively “the Counties”) bring this
suit against Wells Fargo & Company and related
entities for what the Counties allege have been
predatory and discriminatory residential mortgage lending,
servicing, and foreclosure practices in violation of the Fair
Housing Act. Defendants have filed a Motion to Dismiss (ECF
NO. 24). The Court has considered the parties' briefs and
oral argument, as well as their supplemental briefing on a
recent relevant court decision, and will
GRANT-IN-PART, DEFER-IN-PART, and
DENY-IN-PART the Motion.
FACTUAL AND PROCEDURAL BACKGROUND
Counties filed a 166-page Complaint in this Court on November
20, 2018, alleging violations of the Fair Housing Act (FHA),
42 U.S.C. §§ 3601, et seq. They assert
that Defendants engaged in predatory lending practices
relative to FHA-protected minority communities, which they
say 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. ECF No. 1 at ¶¶ 3-4. The
Counties sue as individual aggrieved persons under 42 U.S.C.
§ 3602(i), not in their parens patriae
capacities. Id. at ¶¶ 16-17.
Counties proceed under both Disparate Impact and Disparate
Treatment theories, see ECF No. 1 at ¶ 72
et seq., ¶ 318, and allege both economic and
non-economic harms. Their suit consists of three counts. The
first count is for disparate impact resulting from Wells
Fargo's “equity-stripping” scheme, beginning
with loan origination and continuing through servicing and
mortgage foreclosure. Compl. ¶¶ 434-58. The second
count is for disparate impact based solely on Wells
Fargo's mortgage servicing and foreclosure practices.
Compl. ¶¶ 459-73. The third count alleges
intentional disparate treatment throughout the entire
equity-stripping scheme. ¶¶ 474-484.
Counties seek economic damages to cover the costs
associated with foreclosure-related processes, including
those associated with foreclosure notices; the registration
and monitoring of empty properties; the securing and
maintenance of those properties and Sheriffs' evictions;
municipal services (e.g., police, fire, etc.) provided with
respect to those properties; social services rendered to
evicted or foreclosed homeowner-borrowers; reduced property
values; loss of property and concession tax revenue (the
Counties to not define the latter); loss of property tax
revenue not recovered via tax lien sales; lost revenue from
certain utility operations; and lost recording fees.
Id. at ¶ 399.
Counties also seek damages for non-economic injuries
resulting from neighborhood deterioration, blight, and urban
decay, see Id. at ¶¶ 391, 400; the
segregative effect of foreclosures involving minority and
female-led households, see id. at ¶ 392; and
the redirection of resources, see Id. at
January 25, 2019, Defendants filed the pending Motion to
Dismiss. The Court set oral argument on May 14, 2019.
However, following briefing but shortly before oral argument,
the U.S. Court of Appeals for the Eleventh Circuit issued its
opinion in City of Miami v. Wells Fargo & Co.,
923 F.3d 1260 (11th Cir. 2019)
(Miami). Because Counsel had not had the
opportunity to brief the Eleventh Circuit opinion by the May
14 oral argument, the Court granted the parties leave to file
supplemental briefing to address the Eleventh Circuit's
decision, specifically its analysis of proximate cause in the
context of FHA cases. The Counties and Defendants filed
supplemental papers on June 28, 2019, and responses to the
other's supplemental papers on July 15, 2019.
Motion to Dismiss Standard
motion to dismiss under Rule 12(b)(6) tests the sufficiency
of the complaint. Presley v. City of
Charlottesville, 464 F.3d 480, 483 (4th Cir.2006). A
plaintiff's complaint need only satisfy the standard of
Rule 8(a), which requires a “short and plain statement
of the claim showing that the pleader is entitled to
relief.” Fed.R.Civ.P. 8(a)(2). “Rule 8(a)(2)
still requires a ‘showing,' rather than a blanket
assertion, of entitlement to relief, ” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 n. 3 (2007), and a
complaint must “state a claim to relief that is
plausible on its face.” Id. at 570 (2007).
Arguments in Support of Defendants' Motion to
advance four arguments why the Court should dismiss the
Counties' claims: (1) that the Counties have failed to
plead plausible proximate cause; (2) that the statute of
limitations on the alleged FHA violations ran before the case
was filed; (3) that the Counties have failed to plausibly
allege any violation of the FHA under either disparate impact
or disparate treatment theories; and (4) that the Counties
have failed to allege any actionable injuries.
The Objective of the Fair Housing Act
Fair Housing Act 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.”
Miami, 923 F.3d at 1279. It prohibits discrimination
against home buyers or renters “because of race, color,
religion, sex, familial status, or national origin.”
Id. at 1278 (quoting 42 U.S.C. § 3604(a)-(b)).
As many courts have recognized, “the FHA has a broad
remedial purpose.” Miami, 923 F.3d at 1278.
See also, e.g., Cobb County v. Bank of America
Corp., 183 F.Supp.3d 1332, 1340 (N.D.Ga. 2016)
(discussing “the FHA's broad remedial
purpose”), National Fair Housing Alliance, Inc. v.
Prudential Ins. Co. of America, 208 F.Supp.2d 46, 55
(D.D.C. 2002) (“The Supreme Court has indicated that
the FHA should be broadly construed to effectuate its
remedial purpose…”), National Fair Housing
Alliance v. Bank of America, N.A., No. CCB-18-1919, 2019
WL 3241126, at *11 (D. Md. July 18, 2019) (endorsing the
Eleventh Circuit's definition of proximate cause and
description of the FHA's broad remedial purpose in
Bank of America v. City of Miami, the Supreme Court
held that “foreseeability alone is not sufficient to
establish proximate cause under the FHA.” 137 S.Ct.
1296, 1305 (2017). Instead, the Court explained,
“proximate cause under the FHA requires ‘some
direct relation between the injury asserted and the injurious
conduct alleged.'” Id. at 1306 (quoting
Holmes v. Securities Investor Protection
Corporation, 503 U.S. 258, 268 (1992)). Rather than
itself drawing the precise boundaries of what proximate cause
entails under the FHA, the Court directed that “lower
courts should define, in the first instance, the contours of
proximate cause under the FHA and decide how that standard
applies to the City's claims for lost property-tax
revenue and increased municipal expenses.” Id.
argue that in undertaking this exercise the Court should
consider four “directness principles, ” drawn
from Holmes v. Securities Investor Protection
Corporation, 503 U.S. 258 (1992), which they believe
weigh in their favor: the numerosity of the links in the
chain of causation between the purported violation and the
injury; whether the purported harm is derivative of
another's injury such that a different party would be
better positioned to recover for the injury; whether the
purported harm is firmly attributable to the alleged
violation, and whether determining and apportioning damages
would be unduly complicated. ECF No. 24-1 at 10-15.
the Supreme Court's directive as to proximate cause,
several courts have delivered opinions on the matter, which
guide this Court in its present analysis. Those opinions tend
to analyze proximate cause as to each type of injury
municipal plaintiffs have alleged. See City of
Philadelphia v. Wells Fargo & Co., No. 17-2203,
2018 WL 424451 (E. D. Penn. Jan. 16, 2018), City of
Oakland v. Wells Fargo Bank, No. 15-cv-04321, 2018 WL
3008538 (N.D. Cal. June 15, 2018), County of Cook,
Illinois v. Wells Fargo & Co., 314 F.Supp.3d 975
(N.D. Ill. March 26, 2018) (“Cook County (Wells
Fargo)”), County of Cook v. Bank of America
Corporation, No. 14 c 2280, 2018 WL 1561725 (N.D. Ill.
March 30, 2018) (“Cook County (Bank of
America)”), County of Cook v. HSBC North
America Holdings Inc., 314 F.Supp. 950 (N.D. Ill. May
30, 2018) (“Cook County (HSBC)”),
City of Miami v. Wells Fargo & Co, 923 F.3d 1260
(11th Cir. 2019) (“Miami”).
Court will therefore discuss proximate cause as it relates to
the Counties' claimed injuries by identifying five broad
categories of injuries the Counties allege. First,
as to foreclosure processing costs (costs associated with
foreclosure-related processes, including foreclosure notices,
court proceedings, Sheriffs' auctions, Sheriffs'
evictions, and registration, monitoring, and maintenance of
empty properties); Second, as to the increased cost
of municipal services (including municipal services rendered
with respect to foreclosed properties such as fire and
police, and social services rendered to evicted or foreclosed
borrowers); Third, as to economic injuries to the
Counties' tax bases (including reduced property values,
loss of property and concession tax revenue, and loss of
property tax revenue not recovered via tax lien sales);
Fourth, lost municipal income (including lost
revenue from certain utility operations and loss of recording
fees); and Fifth, as to non-economic injuries
(including neighborhood deterioration, blight and urban
decay, the segregative effect of Defendants' alleged
equity-stripping, and the encroachment on the Counties'
missions of supporting diverse and inclusive communities).
Proximate Cause in Municipal Suits Under the FHA
City of Miami v. Wells Fargo & Co., the Eleventh
Circuit, interpreting the Supreme Court's directives in
Bank of America Corp. v City of Miami, 137 S.Ct.
1296 (2017), articulated in considerable detail its view of
proximate cause in the FHA context. 923 F.3d 1260 (11th Cir.
2019). After discussing the FHA's text and legislative
history, the Eleventh Circuit concluded that
“[p]roximate cause asks whether there is a direct,
logical, and identifiable connection between the injury
sustained and its alleged cause. If there is no discontinuity
to call into question whether the alleged misconduct led to
the injury, proximate cause will have been adequately
pled.” Id. at 1264.In reaching its definition of
proximate cause and how it should apply in municipal cases
involving the FHA, the Eleventh Circuit considered the
directness principles Defendants emphasize here, as well as
the text and history of the FHA, and the meaning of the words
‘some direct relation.'
Court is not the first to note that, as Prosser and Keeton,
the torts gurus, aptly commented, “[t]here is perhaps
nothing in the entire field of law which has called forth
more disagreement, or upon which the opinions are in such a
welter of confusion” than the concept of proximate
cause. W. Page Keeton et al., Prosser and Keeton on the Law
of Torts § 41, at 263 (5th ed. 1984). Those authors set
out a framework that is helpful for understanding the Supreme
Court's directive in City of Miami:
“Though there are countless variations of theory in
this area…. One of these theories is that the scope of
liability should ordinarily extend to but not beyond the
scope of the “foreseeable risks”-that is, the
risks by reason of which the actor's conduct is held to
be negligent. The second, contrasting, theory is that the
scope of liability should ordinarily extend to but not beyond
all “direct” (or ...