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Prince George's County v. Wells Fargo & Co.

United States District Court, D. Maryland

August 9, 2019

PRINCE GEORGE'S COUNTY, MARYLAND, et al., Plaintiffs,
v.
WELLS FARGO & CO., et al., Defendants

          MEMORANDUM OPINION

          PETER J. MESSITTE UNITED STATES DISTRICT JUDGE

         Prince George's County, Maryland, and Montgomery County, Maryland (collectively “the Counties”) bring this suit against Wells Fargo & Company and related entities[1] 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.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         The 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.

         The 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”[2] 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.

         The 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.

         The 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 ¶¶ 402-07.

         On 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).[3] 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.

         II. DISCUSSION

         a. Motion to Dismiss Standard

         A 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).

         b. Arguments in Support of Defendants' Motion to Dismiss

         Defendants 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.

         c. The Objective of the Fair Housing Act

         The 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 Miami).

         d. Proximate Cause

         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.

         Defendants 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.

         Since 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”).

         The 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).

         i. Proximate Cause in Municipal Suits Under the FHA

         In 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.[4]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.'[5]

         This 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 ...

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