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Steele v. GE Money Bank

February 17, 2009


The opinion of the court was delivered by: Blanche M. Manning United States District Judge


Plaintiffs Herbert and Doris Steele, Eric Chavez, and Sonia Torres obtained home mortgage loans from defendant WMC Mortgage, LLC ("WMC") by engaging the services of three non-party mortgage brokers (E-Z Home Loans, Apex Mortgage, and U.S. Mutual Bank).*fn1

In turn, plaintiff Alexandra Diaz obtained a home mortgage loan from defendant GE Money Bank ("GEMB") by working with her own non-party mortgage broker (Bridgeline Capital Group). The plaintiffs, all of whom are minorities, contend that GEMB and WMC violated the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691, and the Fair Housing Act ("FHA"), 42 U.S.C. § 3605, by imposing discretionary fees that caused them to pay higher costs for their mortgage loans than comparable non-minority buyers. Their complaint is styled as a class action and seeks relief on behalf of all minority consumers who obtained home mortgage loans in the United States from WMC or GEMB beginning on January 1, 2001 through the present, and thus were subject to the defendants' allegedly discriminatory discretionary pricing policies.

GEMB and WMC filed separate motions to dismiss, arguing that the plaintiffs have failed to state a claim for which relief may be granted. Alternatively, they ask the court to join the four mortgage brokers, to strike certain allegations with respect to the tolling of the statute of limitations, and to disallow the plaintiffs' request for disgorgement and restitution. GEMB and WMC's motions are granted in part and denied in part as detailed below.

I. Background

The following facts are drawn from the plaintiffs' amended class action complaint and are accepted as true for purposes of the motions to dismiss.

A. The Parties

GEMB is a federal savings bank with its principal place of business in Salt Lake City, Utah. GEMB is a wholly owned subsidiary of GE Consumer Finance, Inc., a consumer lending unit of General Electric Company and its holding company, General Electric Capital Corporation. WMC Mortgage LLC is a successor in interest to WMC Mortgage Corporation, and is a mortgage lender based in California. The plaintiffs allege that WMC and its parent company, WMC Finance Co., were acquired by GEMB's parent company, GE Consumer Finance, in 2004; however the plaintiffs further allege that the lending practices in question predate the acquisition.

Plaintiffs Herbert and Doris Steele are African-American homeowners residing in Illinois who refinanced their original mortgage with WMC in 2006. Plaintiff Eric Chavez is a Latino homeowner residing in California who refinanced his home with two separate loans financed by WMC in 2006. Plaintiff Alexandra Diaz is a Latina homeowner residing in California who refinanced her home with GEMB in 2007. Plaintiff Sonia Torres is a Latina homeowner residing in Massachusetts who financed her home with two mortgage loans issued by WMC in 2006.

B. The Plaintiffs' Complaint

The plaintiffs allege that the defendants engaged in a residential mortgage pricing practice that set rates using objective criteria, such as credit scores and debt-to-income ratios, as well as subjective factors based on the borrowers' minority status. According to the plaintiffs, this practice caused them to pay certain "discretionary fees" resulting in higher costs for their mortgage loans compared to the average non-minority borrower. These fees fall into two categories: (1) origination fees, appraisal fees, and processing fees paid by the borrowers directly to their brokers ("Broker Fees"), and (2) a fee paid by the borrowers indirectly to their brokers, such as yield spread premiums.*fn2

Though the plaintiffs secured their residential financing through mortgage brokers, they allege that the defendants set the policies used by the mortgage brokers and the brokers are merely the vehicles through which the defendants' practices are carried out. The plaintiffs also contend that the defendants offer financial incentives to brokers to induce them to steer minorities into loans involving higher fees and rates. Based on these allegations, the plaintiffs filed a two-count complaint, styled as a class action complaint, that seeks relief under the ECOA (Count I) and the FHA (Count II).

II. Discussion

The defendants contend that the plaintiffs' requests for relief under the ECOA and the FHA fail to state a claim for which relief may be granted because it does not state a claim of disparate impact under the FHA or the ECOA. In the alternative, the defendants move to: (1) join the mortgage brokers as necessary parties; (2) strike certain allegations with respect to the tolling of the statute of limitations; and (3) strike the plaintiffs' request for disgorgement and restitution as remedies that are not available as a matter of law. As discussed more fully below, the court finds thatthe brokers are necessary parties, but denies the defendants' remaining motions.

A. Motion to Dismiss

The court will begin by recapping the standard for a Rule 12(b)(6) motion to dismiss. It will then consider the defendants' consolidated motion to dismiss based on grounds applicable to both defendants. Finally, it will address the defendants' separate motions to dismiss.

1. Standard for a Rule 12(b)(6) Motion to Dismiss

A plaintiff's complaint must provide a "short and plain statement of the claim showing that the pleader is entitled to relief" and "fair notice" of the plaintiff's claims and the basis for those claims. Fed. R. Civ. P. 8(a)(2); Bell Atlantic Corp. v. Twombly, - U.S. -, 127 S.Ct. 1955, 1964 (2007). According to the Seventh Circuit, this language imposes two hurdles. First, the complaint must describe the claim in sufficient detail to give the defendant "fair notice of what the . . . claim is and the grounds upon which it rests." E.E.O.C. v. Concentra Health Servs., 496 F.3d 773, 776 (7th Cir. 2007), quoting Bell Atlantic Corp. v. Twombly, 127 S.Ct. at 1964. Second, the factual allegations must "plausibly suggest that the plaintiff has a right to relief, raising that possibility above a 'speculative level'; if they do not, the plaintiff pleads itself out of court." Id.

Meanwhile, the court is neither bound by the plaintiff's legal characterization of the facts, nor required to ignore facts set forth in the complaint that undermine the plaintiff's claims. See Scott v. O'Grady, 975 F.2d 366, 368 (7th Cir. 1992). The court must also assume the truth of all well-pleaded facts, construing the allegations liberally and viewing them in the light most favorable to the plaintiff. See, e.g., McMath v. City of Gary, 976 F.2d 1026, 1031 (7th Cir. 1992).

2. The Plaintiffs' FHA and ECOA Disparate Impact Claims

Under the FHA, it is "unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race ...." 42 U.S.C. § 3605(a). Similarly, under the ECOA, a creditor may not "discriminate against any applicant, with respect to any aspect of a credit transaction-on the basis of race." 15 U.S.C. § 1691(a)(1). The ECOA's definition of "creditor" includes lenders and mortgage brokers. See 15 U.S.C. § 1691a(e) (a "creditor" is "any person who regularly extends, renews, or continues credit" as well as "any person who regularly arranges for the extension, renewal, or continuation of credit").

It is undisputed that the plaintiffs all worked with mortgage brokers when obtaining the loans at issue in this case. In order to proceed directly against the defendant lenders, the plaintiffs thus assert that the defendants had a policy under which mortgage brokers were authorized to impose subjective additional charges and that the mortgage brokers acted as the defendants' agents. The defendants disagree, and also contend that in any event, the plaintiffs have failed to plead a cognizable ECOA or FHA disparate impact claim (Counts I and II, respectively).

To allege a disparate impact claim under both the ECOA and the FHA, a plaintiff must:

(1) identify a specific practice or policy adopted by a defendant; (2) demonstrate a disparate impact on a protected group; and (3) show a causal relationship between the challenged practice and the alleged disparate impact. See Smith v. City of Jackson, 544 U.S. 228, 241 (2005). The defendants argue that the plaintiffs have not satisfied this standard because they failed to: (1) adequately allege a specific practice or policy imposing a pricing scheme that was designed and implemented by either GEMB or WMC; (2) allege any facts demonstrating that they paid more than ...

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