City of Los Angeles v. Wells Fargo & Co.
22 F. Supp. 3d 1047
C.D. Cal.2014Background
- The City of Los Angeles sued Wells Fargo & Co. and Wells Fargo Bank, N.A., alleging racially discriminatory lending (redlining/reverse-redlining) that produced disproportionately high foreclosures in minority neighborhoods and caused lost property-tax revenue and increased municipal service costs.
- Complaint relies on lender-specific statistical/regression analyses and confidential witness statements, identifying 1,447 Wells Fargo loans in LA that resulted in foreclosure and alleging the number will grow with discovery.
- Plaintiff asserted claims under the Fair Housing Act (FHA) and for common-law restitution.
- Defendants moved to dismiss for lack of Article III and statutory standing, statute of limitations, failure to state an FHA claim (disparate treatment and impact), improper restitution claim, insufficient allegations against parent company, and moved to strike portions of the complaint.
- The court held oral argument, ordered supplemental briefing on statutory standing (Lexmark), and denied both the motion to dismiss and the motion to strike, allowing discovery to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Article III standing — causation | Wells Fargo’s discriminatory lending led to foreclosures → reduced property values → City tax/service losses; allegations and regression analysis plausibly trace harm to defendants | Chain too attenuated; too many independent intervening actors and links break traceability | City pleaded sufficient, non-attenuated causal chain at pleading stage; standing adequate to survive 12(b)(1) |
| Statutory standing — zone of interests | City’s injuries fall within FHA’s zone; FHA historically grants broad standing to municipalities (Gladstone, Havens) | FHA protects only direct victims of housing discrimination, so City falls outside zone | City’s injuries fall within FHA zone-of-interests; Thompson (Title VII) does not narrow FHA standing here |
| Statutory standing — proximate cause | Defendants’ actions were a substantial factor; Hedonic regression can apportion defendant-specific contribution | Injuries are derivative of mortgagors’ harms; too remote, difficult to apportion, risk of multiple recoveries | Proximate cause adequately alleged under Ninth Circuit three-factor test (Oregon Laborers); survive 12(b)(6) at pleadings stage |
| Statute of limitations | Alleged continuing pattern/practice of discriminatory lending through the limitations period; type of loan changed but discriminatory effects persisted | Discriminatory practices terminated earlier (2007–2009); claims time-barred; City improperly mixes loan types to invoke continuing violation | Continuing-violation doctrine plausibly alleged (pattern/practice, confidential witnesses through 2012); FHA claim not time-barred at pleading stage |
| Failure to state FHA claim — disparate treatment and impact | Complaint alleges targeted, race-based steering and statistical patterns; also alleges disparate-impact via specific lender practices and statistics | Insufficient intent plead for disparate treatment; disparate impact unavailable or too unspecific | Both disparate-treatment and disparate-impact theories sufficiently pleaded to survive motion-to-dismiss; factual disputes reserved for later stages |
| Restitution (unjust enrichment) | City paid externalities (abatement, services) and seeks restitution as defendant unjustly benefited at City’s expense | No freestanding restitution cause of action in CA; allegations too formulaic and disconnected from any benefit to defendants | Complaint alleges benefit/externalities sufficient to state quasi-contractual restitution theory at pleadings stage; claim survives |
| Allegations vs. parent company (Wells Fargo & Co.) | Parent liable for its own acts, agency, and successor liability for acquired lenders; pleading meets Rule 8 notice | Parent not liable for subsidiary acts without specific agency/successor facts; corporate separateness bars claim | General agency and successor-liability allegations meet Rule 8’s liberal notice standard and survive dismissal |
| Motion to strike | N/A | Many paragraphs are immaterial or impertinent | Court declined to strike; paragraphs relate to lending practices or provide proper context; evidentiary objections more appropriate later |
Key Cases Cited
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (standing requires injury-in-fact, causation, redressability)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (plausibility and pleading principles)
- Maya v. Centex Corp., 658 F.3d 1060 (9th Cir.) (attenuation/causation in municipal foreclosure contexts)
- Allen v. Wright, 468 U.S. 737 (limitations on standing where injury results from third-party actions)
- Bennett v. Spear, 520 U.S. 154 (when third-party actions are the foreseeable effect of defendant conduct)
- Gladstone Realtors v. Vill. of Bellwood, 441 U.S. 91 (municipal injury from reduced property values and tax base under FHA)
- Lexmark Int'l v. Static Control Components, 134 S. Ct. 1377 (statutory standing: zone of interests and proximate causation)
- Havens Realty Corp. v. Coleman, 455 U.S. 363 (statutory standing under FHA coextensive with Article III in scope)
- Oregon Laborers-Employers Health & Welfare Trust Fund v. Philip Morris, 185 F.3d 957 (9th Cir.) (three-factor test for proximate causation/remoteness)