HomeMy WebLinkAboutSubmittal-Mortgage Litigation DocumentCase 2:09-cv-00467-KOB Document 20 Filed 08/19/2009 Page 1 of 9
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
CITY OF BIRMINGHAM,
Plaintiff,
v.
CIT1GROUP INC.; CITI
MORTGAGE, INC.; CITI
FINANCIAL, INC.; ARGENT
MORTGAGE COMPANY, LLC;
COUNTRYWIDE MORGAGE
VENTURES, LLC; COUNTRYWIDE
KB HOME LOANS; COUNTRYWIDE
FINANCIAL CORPORATION;
FICTITIOUS DEFENDANT NUMBER
ONE,
Defendants.
CV-09-BE-467-S
FILED
2009 Aug-19 PM 02:32
U.S. DISTRICT COURT
N.D. OF ALABAMA
MEMORANDUM OPINION
This case comes before the court on the "Defendants' Motion to Dismiss" (doc. 8). The
parties have fully briefed the motion, and the court has reviewed the filings and the applicable
law. The City of Birmingham brought this suit alleging that the Defendants' lending practices
constituted "reverse redlining" and caused, inter alia, foreclosures on homes in Birmingham,
decreased property values, decreased tax receipts, and increased crime. The Defendants -- Argent
Mortgage Company, LLC; Countrywide Mortgage Ventures, LLC; Countrywide KB Home
Loans; Countrywide Financial Corporation; Citigroup, Inc.; CitiFinancial, Inc.; and
CitiMortgage, Inc. - are financial institutions that the City alleges are in the business of
providing mortgage loans in the City of Binningham. For the reasons stated below, the court will
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GRANT the Defendants' motion (doc. 8), because of the City's lack of standing. Accordingly,
the court will DISMISS the City's Complaint WITHOUT PREJUDICE.
The court will also sua sponte STRIKE pages 31-48 of the City's brief (doc. 14) in
opposition to the Defendants' motion to dismiss, because those additional pages exceed the page
limit without leave of the court.' Appendix II to the court's Uniform Initial Order (doc. 2) set out
the page limits for responsive briefs: "response briefs are limited to thirty pages.- (doc. 2 at 14).
The court will enter a separate order to that effect simultaneously.
FACTS
The City of Birmingham brought these claims against the Defendants for alleged
violations of the Fair Housing Act (FHA). The City also alleges state law claims of negligence,
wantonness, misrepresentation, and outrage. Specifically, the City alleges that the Defendants
engaged in an illegal practice known as "reverse redlining." The City alleges that the Defendants
targeted the City's minority borrowers and marketed subprime mortgage loans to those borrowers
in violation of the FHA.
Procedural History
The City of Birmingham filed a complaint in a proceeding, CV-2008-903691, in the
Circuit Court ofJefferson County on November 17, 2008 (State Action I). In addition to its state
law claims, the City expressly made claims under the FHA in State Action 1, As such, the
defendants to State Action I removed the case to the Northern District of Alabama. Judge Inge
Johnson sua sponte remanded the case to the Circuit Court of Jefferson County on December 18,
'Because the court does not reach the question whether the City failed to state a claim,
the striking of these pages, which discuss the City's argument that it has adequately stated claims
upon which relief can be granted, does not prejudice the City.
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2008. Judge Johnson found that the City was not an "aggrieved person" entitled to sue under the
FHA, and, thus, that the City had "no possibility of stating a valid claim under that statute." As
such, Judge Johnson concluded that federal jurisdiction was wholly lacking in State Action I. On
remand, the City voluntarily dismissed without prejudice all the claims it asserted in State Action
I on December 29, 2008.
The City filed another complaint, CV-2009-900406, in the Circuit Court of Jefferson
County on February 5, 2009 (State Action II). The substantive allegations in State Action 11 are
the same as the allegations contained in State Action I. The City restates its FHA claim and the
state law claims. The only differences between the two cases are the Defendants. Unlike State
Action I, none of the Defendants in State Action 11 is a citizen of Alabama. Accordingly, the
Defendants removed State Action II based on both diversity and federal question jurisdiction.
The removed State Action II is before the court now on the Defendants' motion to dismiss.
Defendants' Motion to Dismiss
In their joint motion to dismiss, the Defendants assert that the City lacks standing to
pursue this action, that the City has failed to state a claim under the FHA, and that the City has
failed to state a claim based upon Alabama state law.
LEGAL STANDARD
"Because standing is jurisdictional, a dismissal for lack of standing has the same effect as
a dismissal for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1)." Cone Corp. v.
Fla. Dep't of Transp., 921 F.2d 1190, 1203 n.42 (11th Cir. 1991). "A defendant can move to
dismiss a complaint under Rule 12(b)(1) for lack of subject matter jurisdiction by either facial or
factual attack." Stalley v. Orlando Ref'l Healthcare Sys., Inc., 524 F.3d 1229, 1232 (1 lth Cir.
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2008). "A facial attack on the complaint requires the court merely to look and see if the plaintiff
has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in [the]
complaint are taken as true for the purposes of the motion." McEltnurray v. Consol. Gov't of
Augusta-Richtnond County., 501 F.3d 1244, 1251 (11th Cir. 2007). "By contrast, a factual attack
on a complaint challenges the existence of subject matter jurisdiction using material extrinsic
from the pleadings, such as affidavits or testimony." Id.
A Rule 12(b)(6) motion to dismiss attacks the legal sufficiency of the complaint.
Generally, the Federal Rules of Civil Procedure require only that the complaint provide —a short
and plain statement of the claim' that will give the defendant fair notice of what the plaintiffs
claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47 (1957)
(quoting Fed. R. Civ. P. 8(a)). A plaintiff must provide the grounds of his entitlement, but Rule
8 generally does not require "detailed factual allegations." Bell All. Corp. v. Twotnbly, 550 U.S.
544, 555 (2007) (quoting Conley, 355 U.S. at 47). "[O]nce a claim has been stated adequately, it
may be supported by showing any set of facts consistent with the allegations in the complaint."
Twombly, 127 S. Ct. at 1969. "[S]tating such a claim requires a complaint with enough factual
matter (taken as true) to suggest" the required elements. Id. at 1965
In evaluating a motion to dismiss, the court assumes that all factual allegations set forth in
the complaint are true, United States v, Gauhert, 499 U.S. 315, 327 (1991), and construes all
factual allegations in the light most favorable to the plaintiff. Brower v. County of Inyo, 489 U.S.
593, 598 (1989). In other words, "[o]n a motion to dismiss, the facts stated in the . . . complaint
and all reasonable inferences therefrom are taken as true." Bickley v. Caremark RX, Inc., 461
F.3d 1325, 1328 (11th Cir. 2006) (citing Stephens v. Dep't of Health & Human Servs., 901 F.2d
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1571, 1573 (11th Cir. 1990)). Nevertheless, on a motion to dismiss, courts "are not bound to
accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S.
265, 286 (1986).
DISCUSSION
1. Standing
The Defendants first assert that the City's complaint is due to be dismissed for lack of
subject matter jurisdiction, because the City lacks standing. To establish standing under Article
III of the U.S. Constitution, a plaintiff must show ( I ) "an injury in fact," (2) "a causal connection
between the injury and the conduct complained of," and (3) that "it [is] likely, as opposed to
merely speculative, that the injury will be redressed by a favorable decision." Lujan v. Defenders
ofWildlife, 504 U.S. 555, 560-61 (1992) (internal quotation marks and citations omitted). The
injury in fact must be "concrete and particularized" and "actual or imminent, not conjectural or
hypothetical." Id. at 560 (internal quotation marks and citations omitted). Also, the causal
connection must be "fairly traceable to the challenged action of the defendant, and not the result
of the independent action of some third party not before the court." Id. (internal quotation marks,
citations, and alterations omitted).
A. Injury in Fact
The Defendants argue that the City has failed to allege any "injury in fact." The City
alleges that it has suffered, inter alia, the following "injuries in fact": reduced property values,
reduced property tax revenues, increased spending on police and fire protection, and increased
spending to secure foreclosed homes that are abandoned. The court finds that, assuming the
factual allegations in the complaint are true, the City's alleged financial injuries constitute
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"injuries in fact" for the purpose of determining standing. See Gladstone Realtors v. Village of
Bellwood, 441 U.S. 91, 110-11 (1979) (finding that falling home prices, if caused by the
defendants' racially imbalanced sales practices, would give the plaintiff community standing to
challenge the legality of those practices).
B. Causation
The Defendants argue that the City has failed to assert that any of its alleged injuries were
caused by the Defendants. To establish standing, the causal connection must be "fairly traceable
to the challenged action of the defendant, and not the result of the independent action of some
third party not before the court." Lujan, 504 U.S. at 560 (internal quotation marks, citations, and
alterations omitted). "The line of causation between the [alleged] illegal conduct and injury"
must not be "too attenuated." Allen v. Wright, 468 U.S. 737, 752 (1984). What constitutes a
"fairly traceable" causal connection that is not "too attenuated" amounts to something like a
moving target that must be plotted on a case -by -case basis. As such, comparison of this case to
previously decided, factually similar cases is instructive.
The most factually analogous case the parties presented, and the court found none more
on -point, is Tingley v. Beazer Homes Corp., No. 3:07-CV- 176, 2008 WL 1902108 (W.D.N.C.
Apr. 25, 2008). The plaintiffs in Tingley, a group of homeowners, asserted that the defendant real
estate agents purposefully sought out low-income persons for home loans and encouraged the
low-income persons to change or falsify information on loan applications that allegedly resulted
in foreclosures on those persons' houses that diminished the value of the plaintiffs' homes in the
area. Id. at *4. The court determined that to make the necessary causal connection between the
diminished property values asserted and the alleged illegal activities of the defendants, the court
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would have to draw a series of speculative inferences. Id. The court stated that lallthough the
Plaintiffs allege that the Defendants defrauded third party home buyers and mortgage assignees,
it does not necessarily follow from this allegation that these third party home buyers subsequently
defaulted on their mortgages due to the Defendants' conduct rather than those buyers having
failed to make their mortgage payments as a result of other factors, such as unemployment, health
problems, a general weakening in the economy, or other financial conditions." Id.
Additionally, the Tingley court noted that on top of the third -party low-income persons'
failures to make mortgage payments, "there is the issue of the intervening decisions by the
mortgage assignees to foreclose the defaulted mortgages rather than to restructure the loans,
which may have been done for reasons totally apart from the alleged fraud." Id. "Further," the
court noted, "it is quite speculative that the depreciation in value of the Plaintiffs' property was
caused by the foreclosures of these third party properties rather than as a result of a myriad of
other factors, such as rising unemployment n the region, changes in the housing market, or other
economic conditions." Id. The Tingley court ultimately determined that the "tenuousness of the
connection between the Defendants' alleged actions and the alleged diminished value in the
Plaintiffs' property becomes greater with each additional link in the chain." Id. The court,
therefore, determined that the Plaintiffs did not have standing. Id. at *5.
Similarly, the City here asserts that the Defendants engaged in the unlawful practice of
"reverse redlining." Specifically, the City alleges that the Defendants targeted minority borrowers
who otherwise would have qualified for prime mortgages, and instead encouraged them to obtain
suhprime mortgages. The City asserts that as a result of the Defendants' allegedly predatory
lending practices, these minority borrowers defaulted on their mortgages. The City alleges that
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the Defendants then foreclosed on the minority borrowers, which caused the property values in
the minority borrowers' neighborhoods within the City to decrease. The City alleges that as a
result of these diminished property values caused by the Defendants' predatory lending and
foreclosures, the City has lost tax revenue and incurred extra costs for crime and fire prevention.
Just as in Tingley, a series of speculative inferences must be drawn to connect the injuries
asserted with the alleged wrongful conduct by the Defendants. Like in that case, the minority
borrowers in this case could have defaulted on their mortgages for a number of reasons, none of
which related to the Defendants' alleged "reverse redlining." Also, the Defendants' decisions to
foreclose on the properties after the borrowers default d could be, as in Tingley, for reasons
totally apart from the alleged "reverse redlining." urthennore, it is quite speculative that the
depreciation in value of the neighboring homes in the City was caused by the foreclosures of
minority borrowers' properties rather than as a result of "a myriad of other factors," which, as the
Tingley court noted, could include "rising unemployment in the region, changes in the housing
market, or other economic conditions." Tingley, 2008 WL 1902108, at *5.
This case goes one step farther than the Tingley case. The City asserts that it has lost tax
revenue and been forced to incur additional costs for crirne and fire prevention, because of the
number of foreclosed upon homes in the City. The loss of tax revenue from property taxes and
the increase in spending, like the depreciation in home values, could have been caused by any
number of factors having nothing to do with the Defendants' alleged "reverse redlining."
The court finds that the alleged injuries to the Cit are too tenuously connected, and so
not fairly traceable, to the Defendants' alleged misconduct in this case. As such, the City does
not have standing to assert the claims against the Defendants. The court, therefore, will grant the
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Defendants' motion to dismiss for lack of standing.
Failure to State a Claim
The Defendants also assert that the City has failed to state any claim upon which relief
can be granted. The City asserts that, not only does it have standing, but it has also stated claims
under the FHA and under Alabama state law.
Because the court has determined that the City does not having standing to pursue any of
these claims against the Defendants, the court need no reach the question whether the City has
stated claims upon which relief may be granted.
CONCLUSION
For the reasons stated above, the court will GRANT the Defendants' motion to dismiss
for lack of standing. Because standing is jurisdictional, the court will DISMISS the City's
Complaint WITHOUT PREJUDICE.
The court will also sua sponte STRIKE pages 31-48 of the City's brief (doc. 14) in
opposition to the Defendants' motion to dismiss, because those additional pages exceed the page
limit without leave of the court.
The court will enter a separate order to that effect simultaneously.
DATED this 19th day of August, 2009.
KARON OWEN BOWDRE
UNITED STATES DISTRICT JUDGE
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