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County of Cook v. Wells Fargo & Co.

United States District Court, N.D. Illinois, Eastern Division

July 17, 2015

COUNTY OF COOK, ILLINIOIS, Plaintiff,
v.
WELLS FARGO & CO., WELLS FARGO FINANCIAL, INC., WELLS FARGO BANK, N.A., and WELLS FARGO " JOHN DOE" CORPS. 1-375, Defendants

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For County of Cook, Plaintiff: David J. Worley, LEAD ATTORNEY, Harris Penn Lowry DelCampo, LLP, Atlanta, GA; James M. Evangelista, Jeffrey R Harris, LEAD ATTORNEYS, PRO HAC VICE, Harris Penn Lowry LLP, Atlanta, GA; James D. Montgomery, Sr., LEAD ATTORNEY, James Douglas Montgomery, Jr., John K. Kennedy, James D. Montgomery & Associates, Ltd., Chicago, IL; Daniel A Dailey, James D. Montogmery & Associates, Chicago, IL; Darren Penn, Jeffrey Harris, PRO HAC VICE, Harris Penn Lowry LLP, Atlanta, GA.

For Wells Fargo & Co., Wells Fargo Financial, Inc., Wells Fargo Bank, N.A., Wells Fargo Corps., John Doe 1-375, Defendants: Sheldon Toby Zenner, LEAD ATTORNEY, Katten Muchin Rosenman LLP, Chicago, IL; David C. Bohan, Katten Muchin Rosenman, LLP, Chicago, IL; John Thomas Roache, K& L Gates LLP, Chicago, IL; Paul F. Hancock, K& L Gates LLP, Miami, FL; Peter Ginewicz Wilson, Katten Muchin Rosenman LLP, Chicago, IL.

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MEMORANDUM OPINION AND ORDER

Gary Scott Feinerman, United States District Judge.

County of Cook, Illinois, alleges in this lawsuit that Wells Fargo & Co., Wells Fargo Financial, Inc., Wells Fargo Bank, N.A., and 375 unnamed Wells Fargo entities (collectively, " Wells Fargo" ) issued predatory subprime mortgage loans that over the years went into default and drove the mortgaged properties into foreclosure. According to Cook County, because the resulting urban blight and reduced property tax base was concentrated in the county's heavily minority neighborhoods, Wells Fargo's practices violated Title VIII of the Civil Rights Act of 1968, 42 U.S.C. § 3601 et seq., more commonly known as the Fair Housing Act (" FHA" ). Doc. 1. Wells Fargo has moved to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Doc. 35. The Rule 12(b)(1) motion is denied, but the Rule 12(b)(6) motion is granted on the ground that Cook County is not within the FHA's " zone of interests" as that term is understood by the Supreme Court and the Seventh Circuit.

Background

Wells Fargo's challenge to Cook County's Article III standing accepts as true the facts alleged in the complaint, Doc. 36 at 23-26, so that challenge is facial rather than factual. See Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443-44 (7th Cir. 2009). On a facial challenge to subject matter jurisdiction under Rule 12(b)(1), as on a Rule 12(b)(6) motion to dismiss, the court must accept the complaint's well-pleaded factual allegations, with all reasonable inferences drawn in Cook County's favor, but not its legal conclusions. See Smoke Shop, LLC v. United States, 761 F.3d 779, 785 (7th Cir. 2014). The court must also consider " documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice," along with additional facts set forth in Cook County's brief opposing dismissal, so long as those additional facts " are consistent with the pleadings." Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1020 (7th Cir. 2013) (internal quotation marks omitted). The facts are set forth as favorably to Cook County as those materials permit. See Meade v. Moraine Valley Cmty. Coll., 770 F.3d 680, 682 (7th Cir. 2014).

Wells Fargo is one of the country's largest residential mortgage loan originators and servicers. Doc. 1 at ¶ 20. From 2004 to 2007, Wells Fargo originated more than 61,000 mortgage loans in Cook County, more than 25,000 (41%) of which were made to minorities. Id. at ¶ 291. At least 10,000 of the loans were " high cost" loans,

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of which more than 6,500 (65%) were made to minorities. Id. at ¶ 292. And nearly 40,000 of the loans were made to borrowers living within a census tract designated by the Department of Housing and Urban Development as having the highest foreclosure risk--a proxy for the likelihood that the loan was predatory and subprime--more than half of which were made to minorities. Id. at ¶ ¶ 312-315. Yet minorities represented just 22% of Cook County homeowners during this time period. Id. at ¶ ¶ 291-292. Nationwide, from 2004 to 2008, African-American borrowers were nearly three times more likely than similarly situated white borrowers to receive a subprime rather than a prime loan from Wells Fargo. Id. at ¶ 306. Steering minorities into more expensive loans, as opposed to simply denying them loans, is called " reverse redlining."

Wells Fargo's profligate issuance of predatory subprime loans, claims Cook County, predictably led to high foreclosure rates, which due to reverse redlining were disproportionately concentrated in the county's heavily minority areas. Id. at ¶ ¶ 329-333. Urban blight followed, forcing the county to divert its limited financial and human resources to caring for abandoned or vacant properties, and resulting in a loss of property tax revenue as the blighted areas dragged down neighboring property values. Id. at ¶ 11. Indeed, the " high cost" predatory loans and the eventual foreclosures were all part of what Cook County alleges was Wells Fargo's " equity stripping" scheme--a scheme that targeted and had a disparate impact on minorities. Id. at ¶ 7; see Tex. Dep't of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 576 U.S. __, 135 S.Ct. 2507, 192 L.Ed.2d 514, 2015 WL 2473449, at *16 (June 25, 2015) (holding " that disparate-impact claims are cognizable under the Fair Housing Act" ); 192 L.Ed.2d 514, Id. at *24 (Alito, J., dissenting) (" Everyone agrees that the FHA punishes intentional discrimination. ... It is obvious that Congress intended the FHA to cover disparate treatment." ); Bloch v. Frischholz, 587 F.3d 771, 784 (7th Cir. 2009) (en banc) (" Generally, plaintiffs can prove discrimination under § 3604 in two ways. Of course, one method requires proof of discriminatory intent. ... In addition, we have held that, in certain circumstances, plaintiffs can sustain a § 3604 claim on a modified disparate impact theory." ).

The United States Department of Justice (" DOJ" ) sued Wells Fargo over precisely these alleged practices under the FHA, as did the Attorney General of Illinois under parallel provisions of the Illinois Human Rights Act, 775 ILCS 5/1 et seq. ; both cases were resolved in 2012 with consent decrees. Id. at ¶ ¶ 13-14, 147, 182; see United States v. Wells Fargo Bank, NA, 891 F.Supp.2d 143 (D.D.C. 2012) (granting motion to enter a consent order); United States v. Wells Fargo Bank, NA, Consent Order (D.D.C. July 12, 2012) (reproduced at Doc. 36-4); People of the State of Illinois v. Wells Fargo & Co., Final Judgment and Consent Order, No. 09 CH 26434 (Cir. Ct. of Cook Cnty. July 12, 2012) (reproduced at Doc. 36-3); U.S. Dep't of Justice, " Wells Fargo-DOJ Consent Order," www.wellsfargodojconsentorder.com (" The settlement established a $184.3 million fund to pay African-American and Hispanic borrowers identified as eligible borrowers by the DOJ." ) (visited July 9, 2015). The Illinois case, filed in 2009, was " brought for and on behalf of the People of the State of Illinois, by Lisa Madigan, Attorney General of the State of Illinois, acting in the public interest." Doc. 36-3 at 3 (capitalization normalized). Along with some injunctive relief, the Illinois consent decree required Wells Fargo to distribute at least $8 million to " allegedly aggrieved persons who lived in Illinois at the time of their loan origination." Id. at 5-6. 2013 U.S. Census data reveals

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that more than 40% of Illinoisans--and nearly 65% of African-American and Hispanic Illinoisans--reside in Cook County. See United States Census Bureau, State and County QuickFacts, http://quickfacts.census.gov/qfd/states/17000.html (Illinois data); http://quickfacts.census.gov/qfd/states/17/17031.html (Cook County data) (visited July 9, 2015). As described in the DOJ consent order, Wells Fargo was also required to identify all " African-American and/or Hispanic borrowers who received nonprime Wells Fargo loans ... [who] arguably might have qualified for prime loans," to " provide a list of any such borrowers" to the government, and to " provide cash rebates to such borrowers" --this in excess of the $8 million fund. Doc. 36-4 at 22-23 (DOJ consent order); Doc. 36-3 at 6 (Illinois consent order incorporating the same requirement).

Its residents already having been directly compensated for their injuries, Cook County filed this federal suit in November 2014 seeking compensation only for its ...


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