Tuesday, May 30, 2017
City of Los Angeles Loses Two Appeals in FHA Cases
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals on Friday affirmed the rejection of the City of Los Angeles’s action against Bank of America and Countrywide for lending practices that allegedly discriminate against minorities, and, in a separate opinion upheld a decision in favor of Wells Fargo is a similar case.
Both appeals were decided in memorandum opinions. The cases were argued May 17 in Seattle before Circuit Judges Richard Paez, Michael Daly Hawkins, and Ronald Murray Gould.
The opinion in favor of Bank of America and Countrywide affirms a decision by Judge Percy Anderson of the Central District of California, who in 2015 granted summary judgment to the defendants—but notes that its reasons are ones “not relied upon by the district court.” The opinion favoring Wells Fargo also upholds a summary judgment, that one issued by Judge Otis D. Wright II, of the same district.
The opinions declare that the city failed to show a link between the practices complained of and the harm that was alleged.
Los Angeles brought both actions in December, 2013, alleging that home loans at predatory rates were being made in minority communities, resulting in a wave of foreclosures, thus denying the city property tax monies. At the time, City Attorney Mike Feuer declared:
“Today we begin to address the devastating consequences of the foreclosure crisis in America’s second largest city. These lawsuits send the firm message that we will use every tool at our disposal to fight for all Los Angeles taxpayers and neighborhoods.”
Allegations of Complaint
The complaints were brought under a provision of the Fair Housing Act of 1968 that renders it unlawful for financial institutions “to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race [or] color.”
The complaint against Bank of America and Countrywide—which referred to the defendants collectively as “BOA”—said:
“Specifically, Los Angeles seeks injunctive relief and damages for the injuries caused by foreclosures on BOA’s loans in minority neighborhoods and to minority borrowers that are the result of the Bank’s unlawful and discriminatory lending practices. The unlawful conduct alleged herein consists of both intentional discrimination and disparate impact discrimination.”
The complaint went on to allege:
“BOA has engaged in a continuous pattern and practice of mortgage discrimination in Los Angeles since at least 2004 by imposing different terms or conditions on a discriminatory and legally prohibited basis. In order to maximize profits at the expense of the City of Los Angeles and minority borrowers, BOA adapted its unlawful discrimination to changing market conditions. This unlawful pattern and practice conduct is continuing through the present and has not terminated. Therefore, the operative statute of limitations governing actions brought pursuant to the Federal Fair Housing Act has not commenced to run.
“The pattern and practice of lending discrimination engaged in by BOA consists of traditional redlining, and reverse redlining, both of which have been deemed to violate the FHA by federal courts throughout the country. BOA engaged in redlining, and continues to engage in said conduct, by refusing to extend mortgage credit to minority borrowers in Los Angeles on equal terms as offered to non- minority borrowers. BOA engaged in reverse redlining, and continues to engage in said conduct, by extending mortgage credit on predatory terms to minority borrowers in minority neighborhoods in Los Angeles on the basis of the race or ethnicity of its residents.”
Statute of Limitations
Both Anderson and Wright found that the actions were barred by a two-year statute of limitations, rejecting the city’s contention that the “continuing violations doctrine” applied, and that the statute had not begun to run. The appeals judges did not discuss that issue in their opinion in the Bank of America case. By contrast, in the Wells Fargo case, they said:
“The district court did not err in granting summary judgment to Wells Fargo because the City did not show a discriminatory loan during the limitations period.”
Both opinions declared:
“To make out a prima facie case of disparate impact under the FHA, the City must show both a statistical disparity and a policy or policies that caused the disparity….The causal link between the policy and disparity must be ‘robust.’ ”
In the case against Bank of America, the city produced expert testimony by Yale Law School Professor Ian Ayres, who is an economist, that minority borrowers were two to three times more apt to wind up with high-cost loans that similarly situated white borrowers. That evidence, the opinion said, “fell short” of what was needed “to show a ‘robust’ connection between this disparity and any BOA or Countrywide facially-neutral policy.”
In both cases, the judges said the city’s evidence that loan officers were encouraged to issue high-cost loans and that defendants’ marketing targeted low-income borrowers were insufficient to show the necessary link. The defendants’ alleged failure to monitor loans to spot disparities, they added, “is not a policy at all.”
Also rejected, in both cases, was the city’s contention that it was entitled to damages under an unjust enrichment theory. The judges said:
“The City’s injuries—lost tax revenue and increased spending on services—did not confer a benefit upon BOA and Countrywide, and accordingly the City did not show a genuine issue of triable fact as to unjust enrichment.”
The cases are City of Los Angeles v. Bank of America Corporation, No. 15-55897, and City of Los Angeles v. Wells Fargo & Co., No. 15-56157.
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