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City of Los Angeles v. Wells Fargo & Co.

United States District Court, C.D. California

May 28, 2014

CITY OF LOS ANGELES, Plaintiff,
v.
WELLS FARGO & CO. and WELLS FARGO BANK, N.A., Defendants

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For City of Los Angeles, a municipal corporation, Plaintiff: Clifton W Albright, LEAD ATTORNEY, Albright Yee and Schmit LLP, Los Angeles, CA; Elaine T Byszewski, Lee M Gordon, LEAD ATTORNEYS, Hagens Berman Sobol Shapiro LLP, Pasadena, CA; Howard S Liberson, Joel Keith Liberson, LEAD ATTORNEYS, Trial and Appellate Resources PC, El Segundo, CA; Michael Nelson Feuer, LEAD ATTORNEY, Los Angeles City Attorney's Office, City Hall East, Los Angeles, CA; Robert S Peck, LEAD ATTORNEY, PRO HAC VICE, Washington, DC; Steve W Berman, PRO HAC VICE, Hagens Berman Sobol Shapiro LLP, Seattle, WA.

For Wells Fargo & Co, Wells Fargo Bank N.A., Defendants: Daniel Paul Collins, Bart H Williams, Munger Tolles & Olson LLP, Los Angeles, CA.

OPINION

OTIS D. WRIGHT, II, UNITED STATES DISTRICT JUDGE.

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ORDER DENYING DEFENDANTS' MOTION TO DISMISS [21] AND DENYING DEFENDANTS' MOTION TO STRIKE [22]

I. INTRODUCTION

This action arises from Defendants Wells Fargo & Co. and Wells Fargo Bank, N.A.'s alleged discriminatory lending practices. However, unlike many of the home-mortgage cases before this Court, Plaintiff in this action is not a mortgagor but rather the City of Los Angeles (" the City" ). The City is seeking damages in the form of lost property tax revenue and increased municipal services stemming from foreclosures that were allegedly a result of Defendants' discriminatory lending practices.

Before the Court is Defendants' Motion to Dismiss the Complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). (ECF No. 21.) The Motion is based on several grounds including lack of Article III and statutory standing, expiration of the statute of limitations, and failure to state a claim. Also before the Court is Defendants' Motion to Strike Portions of Plaintiff's Complaint. (ECF No. 22.) For the reasons discussed below, the Court DENIES both Motions.

II. FACTUAL BACKGROUND

The City filed the Complaint on December 5, 2013, asserting two claims for (1) violating the federal Fair Housing Act (" FHA" ), 42 U.S.C. § § 3601-19, and (2) common-law restitution. (ECF No. 1.)

According to the City, Defendants have engaged in discriminatory lending practices that have resulted in a disparate number of foreclosures in minority areas of Los Angeles. ( See Compl. ¶ 2.) Specifically, the City alleges that Defendants have engaged in " redlining" and " reverse redlining." ( Id. ¶ 4.) Redlining is the practice of denying credit to particular neighborhoods based on race. ( Id. ¶ 4 n.2.) Reverse redlining is the practice of flooding a minority neighborhood with exploitative loan products. ( Id. ¶ 4 n.3.) The 69-page, 209-paragraph Complaint includes a regression analysis based on Wells Fargo loans issued in Los Angeles. ( See, e.g., id. ¶ ¶ 152-56.) The City alleges numerous statistics based on this regression analysis. One example is that from 2004 to 2011, an African-American borrower was more than twice as likely to receive a " predatory loan" as a white borrower with similar underwriting and borrower characteristics. ( Id. ¶ 152.) Also in the Complaint are confidential witness statements from former employees of Defendants who describe how allegedly predatory loans were specifically marketed to minorities and minority communities in Los Angeles. ( See, e.g., Id. ¶ ¶ 101-126.)

Based on publically available loan data, the City alleges that it has identified 1,447 " discriminatory loans" issued by Defendants in Los Angeles that resulted in foreclosure. ( Id. ¶ 196.) The City expects that number to rise during the course of discovery. ( Id. ¶ 196 n.41.) According to the City, these discriminatory loans were more likely to result in foreclosure, which in turn diminished the City's tax base and led to blight. ( Id. ¶ ¶ 166-72.) The City is seeking to recover lost property-tax revenue as well as expenses incurred for increased municipal services. ( Id. ¶ ¶ 173-95.)

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On March 3, 2014, Defendants filed the instant Motions. (ECF Nos. 21, 22.) Due to the complexity of the Motion to Dismiss and the numerous grounds upon which it is based, the Court granted the parties' request for an extended briefing schedule. (ECF No. 16.) On May 8, 2014, the Court ordered supplemental briefing on the limited issue of statutory standing in light of the Supreme Court decision in Lexmark International, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377, 188 L.Ed.2d 392 (decided Mar. 25, 2014). The Court held a hearing on both Motions on May 27, 2014.

III. LEGAL STANDARD

A. Rule 12(b)(1)

Federal Rule of Civil Procedure 12(b)(1) provides for dismissal of a complaint for lack of subject-matter jurisdiction. The Article III case or controversy requirement limits a federal court's subject-matter jurisdiction, which includes the requirement that plaintiffs have standing to bring their claims. Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1121-22 (9th Cir. 2010). When a motion to dismiss attacks subject-matter jurisdiction under Rule 12(b)(1) on the face of the complaint, the court assumes the factual allegations in the complaint are true and draws all reasonable inferences in the plaintiff's favor. Doe v. Holy See, 557 F.3d 1066, 1073 (9th Cir. 2009). Moreover, the standards set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) apply in equal force to Article III standing when it is being challenged on the face of the complaint. See Perez v. Nidek Co., 711 F.3d 1109, 1113 (9th Cir. 2013); Terenkian v. Republic of Iraq, 694 F.3d 1122, 1131 (9th Cir. 2012). Thus, in terms of Article III standing, the complaint must allege " sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570).

B. Rule 12(b)(6)

Under Rule 12(b)(6), a court may dismiss a complaint for lack of a cognizable legal theory or insufficient facts pleaded to support an otherwise cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). To survive a dismissal motion, a complaint need only satisfy the minimal notice pleading requirements of Rule 8(a)(2)--a short and plain statement of the claim. Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). The factual " allegations must be enough to raise a right to relief above the speculative level" and a claim for relief must be " plausible on its face." Twombly, 550 U.S. at 555, 570.

The determination whether a complaint satisfies the plausibility standard is a " context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679. A court is generally limited to the pleadings and must construe all " factual allegations set forth in the complaint . . . as true and . . . in the light most favorable" to the plaintiff. Lee v. City of L.A., 250 F.3d 668, 688 (9th Cir. 2001). But a court need not blindly accept conclusory allegations, unwarranted deductions of fact, and unreasonable inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

C. Rule 12(f)

Under Rule 12(f), a court " may order stricken from any pleading . . . any redundant, immaterial, impertinent, or scandalous matter." The essential function of a

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Rule 12(f) motion is to " avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial." Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, 510 U.S. 517, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994). Rule 12(f) motions to strike are generally disfavored. Bureerong v. Uvawas, 922 F.Supp. 1450, 1478 (C.D. Cal. 1996); see also Stanbury Law Firm v. I.R.S., 221 F.3d 1059, 1063 (8th Cir. 2000).

IV. DISCUSSION

Defendants move to dismiss the Complaint on a number of grounds--all of which address the sufficiency of the City's allegations with respect to standing, the statute of limitations, and overall ability to state a claim. As an alternative to dismissal of the entire Complaint, Defendants also move to strike certain paragraphs as impertinent or immaterial. The ...


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