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County of Cook v. Bank of America Corp.

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

March 30, 2018

COUNTY OF COOK, Plaintiff,



         In this action, Cook County alleges that it suffered economic and non-economic injuries as a result of defendants' multitudinous violations of the Fair Housing Act of 1968 (“FHA”) beginning in or around 2003. The County's 180-page complaint paints a detailed picture, illustrated with statistical analysis, evidence, and commentary drawn from academic, industry, governmental, and eyewitness sources, of defendants' discriminatory housing practices. I summarized the County's factual allegations in my decision of May 19, 2015, which denied defendants' motion to dismiss the County's complaint for lack of standing, untimeliness, and failure to state a cognizable FHA claim. See Cty. of Cook v. Bank of Am. Corp., 181 F.Supp.3d 513 (N.D. Ill. 2015). Following that decision, the parties embarked upon discovery but later agreed to stay the case pending the Supreme Court's decision in Bank of America Corp. v. City of Miami, Fla. ___ U.S. ___, 137 S.Ct. 1296 (2017). That decision prompted plaintiff to file a Second Amended complaint (“SAC”), which defendants have moved to dismiss under Rule 12(b)(6).[1]

         Defendants' present motion reasserts certain arguments I previously rejected, insisting that “the judicial tide has turned” in the wake of City of Miami and Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc., 135 S.Ct. 2507 (2015), another Supreme Court case that was decided after I denied their previous motion. Specifically, defendants claim that the injuries plaintiff alleges do not satisfy the proximate causation standard established in City of Miami, and that Inclusive Communities created “heightened pleading standards” for disparate impact claims under the FHA that the SAC also does not meet. Additionally, defendants argue that the County has pled no recoverable damages. For the reasons that follow, I grant their motion to dismiss in part.


         Assuming familiarity with my previous decision, I summarize the County's copious factual allegations-which I take as true for present purposes, Swanson v. Citibank, N.A., 614 F.3d 400, 402 (7th Cir. 2010)-at a high level of generality. The County alleges that for the past approximately fifteen years, defendants have targeted African-American and Hispanic/Latino home buyers for a predatory, “equity stripping scheme” that involves, among other elements: disproportionately steering minority borrowers towards “subprime, ” higher cost loans, even when they qualified for prime loans; relaxing or departing from underwriting guidelines to approve loans to high-risk borrowers likely to default; including in the loan terms pre-payment penalties that inhibited the borrowers' ability to refinance; servicing predatory loans in a manner designed to maximize defendants' profit while increasing the likelihood of default, such as by securitizing high-risk loans, denying borrower requests for loan modification under the Home Affordable Modification Program (“HAMP”) even when the borrowers qualified for HAMP modifications, and forcing them instead into more expensive, proprietary loan modifications or declining to modify the loans in a timely manner or at all; and foreclosing on loans to minority borrowers at a significantly higher rate than they foreclose on loans to non-minorities.

         The County backs these allegations up with facially compelling evidence drawn from a variety of sources. For example, the County cites SEC reports that reflect defendants' ballooning profits attributable to their mortgage lending and servicing operations (accompanied by spectacular increases in their highest executives' compensation), even as significant numbers of the predatory loans they originated, securities, and serviced entered delinquency. See, e.g., SAC at ¶¶ 156-157, 162-163, 181-182, 364. The County also cites allegations of the relator in a qui tam action against defendants who claims to have observed fraud and other misconduct in defendants' processing of requests for HAMP modifications, e.g., id. at ¶ 365, as well as statements of confidential witnesses involved in defendants' lending process, which suggest, for example, that defendants intentionally targeted minority borrowers for predatory loans, e.g. id. at 461-463, 466; encouraged loan officers to approve loans even when borrowers did not meet underwriting criteria, e.g., id. at ¶ 249-250; and failed to take adequate steps to ensure compliance with fair housing and lending policies and practices, e.g., id. at 211-212.

         The County claims that defendants' treatment of African-American and Hispanic/Latino borrowers amounts to intentional discrimination and also claims that certain of its policies and practices, while facially neutral, had a disparate impact on these minorities. To illustrate the impact on the County, the SAC offers statistical evidence showing a drastic increase in foreclosure rates beginning in 2004 as compared with historical averages as well as comparatively higher foreclosure rates in predominantly minority neighborhoods. SAC at ¶ 325. The County also alleges, and offers statistics to suggest, that minorities received a disproportionate percentage of the loans defendants originated within areas the U.S. Department of Housing and Urban Development had designated as “high foreclosure risk” areas. See Id. at 319-331. Unsurprisingly, these areas have seen “tremendously higher foreclosure rates.” Id. at 419.

         The County alleges that it has been, and will continue to be, directly injured by defendants' practices in several ways. First, it claims to have incurred several categories of out-of-pocket costs, including costs associated with eviction and foreclosure proceedings, as well as costs arising out of the registration, inspection, maintenance, and/or demolition of vacant or abandoned properties. In addition, the County points to the cost of providing social services to evicted or foreclosed homeowners, as well as police patrol services. The County also claims to have lost “various income relating to abandoned or foreclosed properties, ” as well as “certain intangible property recording and transfer fee income.” SAC at ¶ 9. In addition to these economic injuries, the County claims “injuries to the fabric of [its] communities and residents arising from the resulting urban blight.” Ibid. In short, the County seeks to recover damages for tax losses and for the cost of county services it has provided in the course, and in the wake, of the discriminatory foreclosures. The County also claims non-economic injuries to its neighborhoods and seeks an injunction prohibiting further discriminatory conduct and mandating affirmative steps to remedy the effects of its past discrimination.

         Defendants argue that the County's claimed injuries are too remote from the alleged discrimination to satisfy the requirements of proximate cause under the framework the Court announced in City of Miami. They underscore that City of Miami requires “some direct relation between the injury asserted and the injurious conduct alleged” and limits recovery under the FHA to damages flowing from the “first step” of causation. 137 S.Ct. at 1306. In defendants' view, the injuries the County asserts do not fit this bill because they are “many years and many steps removed” from the alleged discrimination. Defendants argue that the County's claims rely on a chain of causation that is too lengthy, and whose individual links are too contingent upon external conditions and events, to satisfy City of Miami's directness requirement. Defendants characterize the County's claims as derivative of the minority borrowers' claims and argue that as “secondary victims” of the alleged FHA violations, the County cannot show that its injuries were proximately caused by defendants' discrimination.

         The County, for its part, insists that City of Miami does not disturb my previous conclusion that the County has alleged a plausible causal connection between its injuries and defendants' conduct. The County underscores that the Court expressly reserved ruling on whether the City of Miami's allegations of economic injury-which are, on the whole, materially indistinguishable from the County's claimed economic injury[2]-are sufficient to plead proximate cause. The County rejects defendants' view that City of Miami reduces the proximate cause analysis to a “single causal link, ” although it goes on to argue that even if that analysis were correct, its allegations would satisfy it. The County characterizes its complaint as asserting a “direct, single-link causal chain, ” described as follows: “1) Defendants' foreclosures were discriminatory in violation of the FHA…and 2) those foreclosures directly cost the County money in the form of foreclosure-related proceedings, maintenance of foreclosed properties, and services to foreclosed-upon homeowners, inter alia[.]” Resp. at 5-6.

         The County's response to defendants' proximate cause argument thus shifts the focus away from its allegations concerning defendants' predatory lending and inequitable servicing practices-though these make up the bulk of its complaint-and towards its discriminatory foreclosures, which the County characterizes alternatively as “stand-alone” causal events triggering the County's injuries, or as the culmination of an integrated, discriminatory equity-stripping scheme that began with predatory lending and ended in the foreclosures that directly caused its injuries. The County objects to defendants' analysis as “breaking down and disjoining the various components of the single equity stripping scheme, improperly treating each component as a distinct step in the causal chain of a foreclosure…and ignoring the core scheme allegation that loan defaults and foreclosures were the intended result” of the discriminatory scheme. Resp. at 7.

         Viewed in this light, the County insists, there are “no intervening forces creating an untenable ‘discontinuity' between the injury and [defendants'] conduct.” Id. at 15. In the County's view, defendants' argument wrongly conflates two questions: who is the direct target of the discrimination, and who suffers direct injuries as a result. The County insists that I need only consider the latter question and that its allegations sufficiently plead its direct injuries resulting from defendants' discrimination.


         I begin with the relevant principles from City of Miami. Like the County, the City of Miami alleged that Bank of America (and Wells Fargo) “imposed more onerous, and indeed ‘predatory, ' conditions on loans made to minority borrowers than to similarly situated borrowers” and serviced those loans in a discriminatory manner, leading to “default and foreclosure rates among minority borrowers [that] were higher than among otherwise similar white borrowers and were concentrated in minority neighborhoods.” City of Miami, 137 S.Ct. at 1301. These practices allegedly visited a constellation of economic harms on the City, including “diminished property-tax revenue, ” and “increased demand for municipal services…needed ‘to remedy blight and unsafe and dangerous conditions' that the foreclosures and vacancies generate.” Id. at 1302. The district court dismissed the case, concluding that the city's injuries were outside the FHA's zone of interests and that it had not alleged a sufficient causal connection between those injuries and the banks' discrimination. Ibid. The Eleventh Circuit reversed, holding that the “zone of interests” test was satisfied, and that the city's claimed injuries were foreseeable results of the defendant's alleged FHA violations.

         The Supreme Court granted certiorari to examine both of these holdings. It began by affirming the Eleventh Circuit's conclusion that the city's alleged economic injuries fell within the FHA's zone of interests. The Court reiterated its previous observation that the text of the FHA “reflects a congressional intent to confer standing broadly, ” citing several cases in which it had held that that individuals and entities not themselves the targets of discrimination were nevertheless “aggrieved persons” entitled to assert violations of the statute. Id. at 1303-04 (citing Havens Realty Corp. v. Coleman, 455 U.S. 363 (1982) (non-profit working to oppose housing discrimination can assert FHA claims); Gladstone Realtors v. Village of Bellwood, 441 U.S. 91 (1979) (village can assert FHA claim for lost tax revenue caused by racial steering); Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205, 211 (1972) (white tenants deprived benefits of interracial associations can assert FHA claim for discrimination against minorities). Noting that Congress's intervening amendments to the FHA ‚Äúretained without significant change the definition of ...

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