Case 2:14-cv-04168 Document 1 Filed 05/30/14 Page 1 of 56 Page ID #:1

1 MICHAEL FEUER (SBN 111529) CITY ATTORNEY
2 JAMES P. CLARK (SBN 64780) CHIEF DEPUTY CITY ATTORNEY
3 CITY OF LOS ANGELES 200 N. Main Street, Room 800
4 Los Angeles, CA 90012 Telephone: (213) 978-8100
5 Email: Mike.feuer@lacity.org Email: James.p.clark@lacity.org
6
7 SHTAEGVEENWS .BBEERRMMAANNS(OpBroOhLacSHviAcePpIRenOdiLnLg)P 1918 8th Avenue, Suite 3300
8 Seattle, WA 98101 Telephone: (206) 623-7292
9 Email: steve@hbsslaw.com

10 ELAINE T. BYSZEWSKI (SBN 222304) LEE M. GORDON (SBN 174168)
11 HAGENS BERMAN SOBOL SHAPIRO LLP 301 North Lake Avenue, Suite 203
12 Pasadena, CA 91101 Telephone: (213) 330-7150
13 Email: elaine@hbsslaw.com Email: lee@hbsslaw.com
14
[Additional Counsel Listed on Signature Page]
15
16 Attorneys for Plaintiff the City of Los Angeles

17

UNITED STATES DISTRICT COURT

18

CENTRAL DISTRICT OF CALIFORNIA

19

CITY OF LOS ANGELES, a municipal ) No. 14-4168

20 corporation,

)

)

21 22 23

Plaintiff, )

)

v.

)

)

JPMORGAN CHASE & CO.;

)

COMPLAINT FOR VIOLATION OF THE FEDERAL FAIR HOUSING ACT

JPMORGAN CHASE BANK, N.A.; and )

24 CHASE MANHATTAN BANK USA, ) DEMAND FOR JURY TRIAL

N.A.,

)

25

)

Defendants. )

26

)

27

28
COMPLAINT FOR VIOLATION OF THE FEDERAL FAIR HOUSING ACT
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1

TABLE OF CONTENTS

2

Page

3 I. NATURE OF THE ACTION............................................................................ 1

4

A. JPMorgan Has Engaged in a Continuing Pattern of

5

Discriminatory Mortgage Lending Practices in Los Angeles Resulting in Foreclosures.......................................................... 1

6 II. PARTIES ......................................................................................................... 11

7 III. JURISDICTION AND VENUE...................................................................... 14

8 IV. FACTUAL BACKGROUND ......................................................................... 15

9

A. Background Regarding Discriminatory Loan Practices,

10

Reverse Redlining, and Redlining ........................................................ 15

11

V. JPMORGAN ENGAGED IN DISCRIMINATORY LENDING PRACTICES.................................................................................................... 18

12

A. JPMorgan’s Conduct Had a Disparate Impact on Minority

13

Borrowers in Violation of the Fair Housing Act .................................. 18

14

1. Discriminatory lending results in a disproportionate number of foreclosures in minority areas. .................................. 18

15

2. Minority neighborhoods are disproportionate

16

recipients of predatory loans....................................................... 20

17

B. JPMorgan Intentionally Discriminated Against Minority Borrowers in Violation of the Fair Housing Act, as

18

Demonstrated by Former Bank Employees .......................................... 25

19

1. JPMorgan targets minorities for predatory loan terms (and pays its employees more for doing so). .................... 26

20

2. JPMorgan underwrites adjustable rate loans that

21

borrowers cannot afford.............................................................. 27

22

3. JPMorgan tends to require prepayment penalties more from minority borrowers. .................................................. 28

23

4. JPMorgan induced foreclosures by failing to offer

24

refinancing or loan modifications to minority customers on fair terms, and otherwise limiting

25

equal access to fair credit............................................................ 28

26

5. JPMorgan engages in other abusive lending practices. ..................................................................................... 31

27

C. Minorities in Fact Receive Predatory Loan Terms from

28

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1

JPMorgan .............................................................................................. 32

2

D. Minorities in Los Angeles Receive Such Predatory Loan

Terms from JPMorgan Regardless of Creditworthiness....................... 33

3

E. JPMorgan’s Targeting of Minorities who in Fact Receive

4

Predatory Loan Terms Regardless of Creditworthiness

Causes Foreclosures .............................................................................. 36

5

1. Data shows that JPMorgan’s foreclosures are

6

disproportionately located in minority

neighborhoods in Los Angeles. .................................................. 36

7

2. Data shows that JPMorgan’s loans to minorities

8

result in especially quick foreclosures........................................ 38

9

3. Data shows that the discriminatory loan terms cause

the foreclosures. .......................................................................... 39

10

VI. INJURY TO LOS ANGELES CAUSED BY JPMORGAN’S

11

DISCRIMINATORY LOAN PRACTICES.................................................... 42

12

A. Los Angeles has been Injured by a Reduction in Property

Tax Revenues from Foreclosures Caused by

13

Discriminatory Loans Issued by JPMorgan .......................................... 42

14

1. The decreased value of the properties foreclosed by

JPMorgan result in reduced property tax revenues. ................... 43

15

2. The decreased value of properties in the

16

neighborhoods surrounding foreclosed properties

results in reduced property tax revenues. ................................... 43

17

B. Los Angeles Is Injured Because It Still Must Provide

18

Costly Municipal Services for Properties in Minority

Neighborhoods that Have Become Vacant as a Direct

19

Result of Discriminatory Loans Originated or Purchased

by JPMorgan ......................................................................................... 46

20

VII. SAMPLE FORECLOSURE PROPERTIES IN THE CITY OF

21

LOS ANGELES .............................................................................................. 47

22 VIII. STATUTE OF LIMITATIONS AND CONTINUING

VIOLATIONS DOCTRINE............................................................................ 48

23

IX. CLAIMS FOR RELIEF................................................................................... 48

24

FIRST CLAIM FOR RELIEF (Violation of the Federal Fair Housing

25

Act, 42 U.S.C. §§ 3601, et seq.) ...................................................................... 48

26 SECOND CLAIM FOR RELIEF (Common Law Claim For Restitution Based On California Law) ............................................................ 51
27

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1

I. NATURE OF THE ACTION

2

1. It is axiomatic that banks should not make discriminatory loans. Banks

3 must extend credit to minorities on equal terms as they do to other similarly situated

4 borrowers. Banks should not target minority neighborhoods for loans that

5 discriminate nor make loans to minorities on terms that are worse than those offered to

6 whites with similar credit characteristics. When banks engage in such discriminatory

7 conduct, the misconduct has profound financial consequences for the cities in which

8 mortgaged properties exist, and banks should be responsible for those financial

9 consequences. Banks should reimburse the City for lost tax revenues due to

10 discriminatory lending. And banks should pay the costs of repairing and maintaining

11 properties that go into foreclosure due to discriminatory lending. This lawsuit arises

12 because JPMorgan breached these legally mandated obligations and foreseeably

13 injured the City of Los Angeles.

14 A. JPMorgan Has Engaged in a Continuing Pattern of Discriminatory Mortgage Lending Practices in Los Angeles Resulting in Foreclosures
15
2. This suit is brought pursuant to the Fair Housing Act of 1968 (“FHA”), as
16
17 amended, 42 U.S.C. §§ 3601, et seq., by the City of Los Angeles (“Los Angeles” or “City”) to seek redress for injuries caused by JPMorgan’s1 (“JPMorgan” or “the
18
Bank”) pattern or practice of illegal and discriminatory mortgage lending.
19
Specifically, Los Angeles seeks injunctive relief and damages for the injuries caused
20
by foreclosures on JPMorgan’s loans in minority neighborhoods and to minority
21

22

1 Defendants collectively are referred to as “JPMorgan,” including: JPMorgan

23

Chase & Co., JPMorgan Chase Bank, N.A., JPMorgan Chase, and Chase Manhattan Bank USA, N.A. JPMorgan Chase & Co. is the result of the combination of several

24

large U.S. banking companies over the last decade including JPMorgan Manhattan Bank, J.P. Morgan & Co., Bank One, Bear Stearns and Washington Mutual.

25

Accordingly, Plaintiff alleges that Defendants are also liable for residential home loans and lending operations acquired from, and/or sold by or through, Washington Mutual

26

Bank, Washington Mutual Bank F.A., Bear Stearns Residential Mortgage, Chase Manhattan Mortgage Corporation, Encore Credit Corporation, Long Beach Mortgage

27

Company, Performance Credit Corporation, JPE Home Finance LLC, and Bravo Credit Corp.

28

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1 borrowers that are the result of JPMorgan’s unlawful and discriminatory lending

2 practices. The unlawful conduct alleged herein consists of both intentional

3 discrimination and disparate impact discrimination.

4

3. JPMorgan has engaged in a continuous pattern and practice of mortgage

5 discrimination in Los Angeles since at least 2004 by imposing different terms or

6 conditions on a discriminatory and legally prohibited basis. In order to maximize

7 profits at the expense of the City of Los Angeles and minority borrowers, JPMorgan

8 adapted its unlawful discrimination to changing market conditions. This unlawful

9 pattern and practice is continuing through the present and has not terminated.

10 Therefore, the operative statute of limitations governing actions brought pursuant to

11 the Federal Fair Housing Act has not commenced to run.

12

4. The pattern and practice of lending discrimination engaged in by

13 JPMorgan consists of traditional redlining2 and reverse redlining,3 both of which have

14 been deemed to violate the FHA by federal courts throughout the country. JPMorgan

15 engaged in redlining, and continues to engage in said conduct, by refusing to extend

16 mortgage credit to minority borrowers in Los Angeles on equal terms as offered to

17 non-minority borrowers. JPMorgan engaged in reverse redlining, and continues to

18 engage in said conduct, by extending mortgage credit on predatory terms to minority

19 borrowers in minority neighborhoods in Los Angeles on the basis of the race or

20 ethnicity of its residents. Federal Reserve Chairman Ben Bernanke recently

21 acknowledged these twin evils of mortgage discrimination and explained that both

22

23

24

25

26

2 Redlining is the practice of denying credit to particular neighborhoods based on race.

27

3 Reverse redlining is the practice of flooding a minority community with exploitative loan products.

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1 types of mortgage discrimination “continue to have particular significance to mortgage

2 markets.”4

3

5. Major banks such as JPMorgan have a long history of engaging in

4 redlining throughout Los Angeles. That practice began to change in the late 1990s,

5 when JPMorgan adapted to changing market conditions and began to flood historically

6 underserved minority communities with mortgage loans that consisted of a variety of

7 high cost and abusive mortgage loan products with predatory terms as compared to the

8 mortgage loans issued to white borrowers (reverse redlining).

9

6. JPMorgan’s discriminatory lending practices have the purpose and effect

10 of placing vulnerable, underserved borrowers in loans they cannot afford. Reverse

11 redlining maximizes JPMorgan’s profit without regard to the borrower’s best interest,

12 the borrower’s ability to repay, or the financial health of underserved minority

13 neighborhoods. Moreover, JPMorgan has averted any significant risk to itself by

14 selling the vast majority of mortgage loans it originates or purchases on the secondary

15 market (collectively “JPMorgan Loans”).

16

7. Between 1996-2006, one category of discriminatory loan products –

17 subprime loans – grew throughout the country from $97 billion to $640 billion. These

18 loans were frequently targeted to minorities. Upon information and belief, the lack of

19 accessible credit resulting from JPMorgan’s previous pattern and practice of redlining

20 in the minority communities in Los Angeles created conditions whereby the Bank could

21 easily target and exploit the underserved minority communities who due to traditional

22 redlining had been denied credit.

23

8. Thereafter, following several years of issuing abusive, subprime

24 mortgage loans throughout the minority communities of Los Angeles, commencing in

25 or around 2007, JPMorgan once again adapted to changing market conditions while

26

4 Remarks by Federal Reserve Chairman Ben Bernanke at the Operation HOPE

27

Global Financial Dignity Summit, Atlanta, Georgia at pg. 10 (November 15, 2012) available at www.federalreserve.gov/newsevents/speech/bernanke20121115a.htm.

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1 continuing its pattern and practice of issuing a variety of discriminatory loan products.

2 Simultaneously, JPMorgan also decided to curtail the issuance of mortgage credit to

3 minority borrowers in Los Angeles.5 In other words, JPMorgan not only refused to

4 extend credit to minority borrowers when compared to white borrowers, but when the

5 Bank did extend credit, it did so on predatory terms. This combination of reverse

6 redlining and redlining represents a continuing and unbroken pattern and practice of

7 mortgage lending discrimination in Los Angeles that still exists today.

8

9. JPMorgan’s pattern and practice of reverse redlining has caused an

9 excessive and disproportionately high number of foreclosures on the JPMorgan Loans

10 it has made in the minority neighborhoods of Los Angeles. Foreclosures on loans

11 originated by JPMorgan are concentrated in these neighborhoods even though the bulk

12 of JPMorgan’s lending in Los Angeles is in white neighborhoods. A loan in a

13 predominantly minority neighborhood is 2.190 times more likely to result in

14 foreclosure than is a loan in a predominantly white neighborhood.

15

10. JPMorgan’s pattern and practice of traditional redlining has also caused

16 an excessive and disproportionately high number of foreclosures in the minority

17 neighborhoods of Los Angeles. These foreclosures often occur when a minority

18 borrower who previously received a predatory loan sought to refinance the loan, only

19 to discover that JPMorgan refused to extend credit at all, or on equal terms as when

20 refinancing similar loans issued to white borrowers. The inevitable result of the

21 combination of issuing a predatory loan, and then refusing to refinance the loan, was

22 foreclosure.

23

11. JPMorgan would have had comparable foreclosure rates in minority and

24 white communities if it had properly and uniformly applied responsible underwriting

25 practices in both areas. JPMorgan possesses sophisticated underwriting technology

26 27

4we(aa5vlCtahai.lloairfbgol/refniailaetshR/dtetopinw:/v/nwelsowtamwdes.n/crtoemCpoomratul-isnttiieotyinn-,-wFgewraoylmtnhn.Fo.porgdr/efs)ci.ltoess/ucrleontoe.Rcoem-Rmedulninitiyn-g (2010), at

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1 and data that allows it to predict with precision the likelihood of delinquency, default,

2 or foreclosure. The fact that JPMorgan’s foreclosures are so disproportionately

3 concentrated in minority neighborhoods is not the product of random events. To the

4 contrary, it reflects and is fully consistent with JPMorgan’s practice of targeting

5 minority neighborhoods and customers for discriminatory practices and predatory

6 pricing and products. It also reflects and is consistent with JPMorgan’s practice of

7 failing to underwrite minority borrowers’ applications properly, and of putting these

8 borrowers into loans which (1) have more onerous terms than loans given to similarly

9 situated white borrowers, and (2) the borrowers cannot afford, leading to foreclosures.

10

12. The Bank’s discriminatory lending practices are evidenced by

11 information from confidential witness statements provided by former employees of

12 JPMorgan (discussed further herein). For example:

13

a) “If you wanted to target the Hispanic community you

had to have certain words in there that you’d want to

14

use to attract [the borrowers].” Certain mortgage loan

products, like negative amortization loans, were

15

“tailored for minorities, but it was not specifically just

for them . . . It was easy to throw them into that

16

[negative amortization] program and get them

approved for that program at the one percent rate.”

17

Loan officers did not always explain the

repercussions: “That’s where a lot of clients were

18

misled. They thought it was a 1 percent fixed [rate].”

“The [initial monthly] cost was bare minimum. But

19

the possibilities were there that it could turn out to be

the worst case [scenario] for the borrowers, and that’s

20

exactly what happened.”

21

b) “The loans just weren’t going through in that

[minority neighborhood]. It wasn’t worth it [to the

22

Bank] to have someone there.”

23

c) “The purpose of the [HAMP] program was to get

people out of these bad loans, and the banks refused to

24

do it. To find out “how they are discriminating, look

at the position of the branches. That’s going to show

25

you.” JPMorgan is opening “huge numbers” of

branches across California, “but none of this is

26

happening in minority neighborhoods. That, in itself,

is the biggest indication of discrimination that you can

27

find.” “The redlining and stuff like that, that still goes

on.”

28

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1

d) “The people who didn’t understand English and stuff

2

like that” tended to face higher interest rates. “There

were a lot of things with which I didn’t agree” at the

3

Bank. “A lot of times there was no mercy,” pushing

borrowers into foreclosure while loan modifications

4

were pending.

5

13. The reports of these witnesses are confirmed when Los Angeles data on

6 JPMorgan loans is examined. Such an examination reveals a widespread practice of

7 discrimination. For example, a regression analysis that controls for credit history and

8 other factors demonstrates that an African-American JPMorgan borrower was 1.795

9 times more likely to receive a predatory loan than a white borrower, and a Latino

10 borrower 1.576 times more likely. The regression analysis confirms that African-

11 Americans with FICO scores over 660 are 2.026 times more likely to receive a

12 predatory JPMorgan loan than a white borrower, and a Latino borrower 1.796 times

13 more likely.

14

14. The Office of the Comptroller of the Currency and the Board of

15 Governors of the Federal Reserve System brought an action alleging that certain large

16 banks, including JPMorgan, engaged in mortgage lending related misconduct that

17 induced a national foreclosure crisis. In connection with that action, JPMorgan

18 entered into a settlement agreement with the government pursuant to which JPMorgan

19 will: (a) make a cash payment of $753 million into a settlement fund for distribution

20 to qualified borrowers; and (b) provide an additional $1.2 billion to foreclosure

21 prevention actions.

22

15. In 2012, JPMorgan Chase and four other large mortgage servicers agreed

23 to a global settlement with the U.S. Department of Justice, the U.S. Department of

24 Housing and Urban Development, the Consumer Financial Protection Bureau, and the

25 state attorneys general. The settlement relates to unethical mortgage origination and

26 servicing activities similar to the activities alleged herein. Under the settlement,

27 JPMorgan will make cash payments of approximately $1.1 billion to 50 states (with a

28
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1 set aside to certain borrowers); offer approximately $500 million of refinancing to

2 certain borrowers; and provide approximately $3.7 billion of additional payments for

3 certain borrowers.

4

16. The past several years have been highly profitable for JPMorgan.

5 According to recent press releases, the Bank generated a record amount of (i) net

6 income ($19.9 billion) and (ii) diluted earnings per share ($5.22). The following charts

7 illustrate these results.

8

9

Net Income (millions)

10

$20,000

11
$18,000

12
$16,000
13
$14,000
14

$12,000
15

16

$10,000

17

$8,000

18

$6,000

2009

2010

2011

2012

19

20

21

22

23

24

25

26

27

28
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1

2

Earnings per share

3
$6.00
4

5

$5.00

6

$4.00

7

$3.00

8
$2.00
9

10

$1.00

11

$0.00

2009

2010

2011

2012

12

13

17. At the same time that JPMorgan achieved record financial success, the

14

Bank’s discriminatory practices and resulting foreclosures in the City’s minority

15
neighborhoods have inflicted significant, direct, and continuing financial harm to the

16

City. Since 2008, banks have foreclosed on approximately 1.7 million homes in

17

California, and JPMorgan is responsible for a significant number of these foreclosures.

18
18. In addition to reverse redlining, JPMorgan has induced foreclosures since

19

2009 by failing to extend branch support to minority neighborhoods, pulling existing

20

Bank support from minority neighborhoods, declining to offer refinancings or loan

21
modifications to minority customers on fair terms, and otherwise denying minority

22

borrowers equal access to fair credit.

23

19. One report6 has estimated the impact that the City of Los Angeles has

24
suffered due to discriminatory lending practices by all lenders as follows:

25

26

6 Alliance of Californians for Community Empowerment and the California

27 RCeoisntivnegstLmoesnAt nCgoealleistioNne,igThhbeoWrhaolol dSstr(eSeetpWtermecbkeirn2g0B1a1l)l.: What Foreclosures are

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1

 Overall, Los Angeles homeowners are estimated to have

2

lost $78.8 billion in home values as a direct result of the 200,000 foreclosures for 2008-2012 alone.

3

4

 Property tax revenue losses are estimated to be $481 million in the wake of the foreclosure crisis.

5

 The typical foreclosure costs local governments more

6

than $19,000 for increased costs of safety inspections,

7

police and fire calls, trash removal, and property

maintenance. In Los Angeles, these costs are estimated

8

to be $1.2 billion.

9

 Los Angeles has 79,029 homeowners underwater totaling

10

$7.3 billion in loan value. If banks wrote down those

11

mortgages, it could pump $780 million into the local economy and create 11,353 jobs.

12

13

20. In this action the City seeks damages for reduced property tax revenues

14 based on (a) the decreased value of the foreclosed properties themselves, and (b) the

15 decreased value of properties surrounding the foreclosed properties. In addition, the

16 City seeks damages based on the expenditure of municipal services that will be

17 required to remedy the blight and unsafe and dangerous conditions which exist at

18 vacant properties that were foreclosed as a result of JPMorgan’s illegal lending

19 practices.

20

21. Because of the multitude of analytic tools available to JPMorgan to

21 determine the likelihood that a particular mortgage loan would result in default by the

22 borrower, as well as the existence of various studies, reports, and other pertinent

23 literature specifically addressing the connection between mortgage loans and

24 foreclosures, it was foreseeable that JPMorgan knew, or should have known, that a

25 predatory or high risk loan issued to an African-American or Hispanic in certain

26 neighborhoods in Los Angeles would result in default and subsequent foreclosure.

27 Moreover, because JPMorgan maintains numerous branch offices throughout Los

28
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1 Angeles, and has knowledge of the specific address for each loan it issued, it was

2 foreseeable that JPMorgan knew, or should have known, of the condition of foreclosed

3 properties corresponding to loans that it issued in Los Angeles regardless of whether it

4 serviced the loan or subsequently sold the servicing rights to a third party.

5

22. According to Federal Reserve Chairman Bernanke, “foreclosures can

6 inflict economic damage beyond the personal suffering and dislocation that

7 accompany them. Foreclosed properties that sit vacant for months (or years) often

8 deteriorate from neglect, adversely affecting not only the value of the individual

9 property but the values of nearby homes as well. Concentrations of foreclosures have

10 been shown to do serious damage to neighborhoods and communities, reducing tax

11 bases and leading to increased vandalism and crime. Thus, the overall effect of the

12 foreclosure wave, especially when concentrated in lower-income and minority areas,

13 is broader than its effects on individual homeowners.”7

14

23. The discriminatory lending practices at issue herein have resulted in what

15 many leading commentators describe as the “greatest loss of wealth for people of color

16 in modern US history.” It is well-established that poverty and unemployment rates for

17 minorities exceed those of whites, and therefore, home equity represents a

18 disproportionately high percentage of the overall wealth for minorities.8 Indeed,

19 between 2005-2009, the median wealth of Latino households decreased by 66 percent,

20 and the median wealth of African-American households decreased by 53 percent,

21 while the median wealth of white households decreased just 16 percent.9 As Federal

22 Reserve Chairman Bernanke recently explained, as a result of the housing crisis,

23

24

7 Bernanke, supra n.4 at pg. 4.

25 26 27

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9 Alliance of Californians for Community Empowerment, Hpgo.w6 WaveallislaFbalergaot ’ws wFowr.eccalloosrugraeniPzeip.oerlign.e is Damaging Local

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1 “most or all of the hard-won gains in homeownership made by low-income and

2 minority communities in the past 15 years or so have been reversed.”10 The resulting

3 impact of these practices represents “nothing short of the preeminent civil rights issue

4 of our time, erasing, as it has, a generation of hard fought wealth accumulation among

5 African Americans.”11

6

II. PARTIES

7

24. Plaintiff City of Los Angeles is a municipal corporation, organized

8 pursuant to Article XI of the California Constitution. The City is authorized by the

9 City Council to institute suit to recover damages suffered by the City as described

10 herein.

11

25. Defendant JPMorgan Chase & Co. (“JPMorgan & Co.”), headquartered

12 in New York, New York, operates under two brand names: JPMorgan and

13 J.P.Morgan. The U.S. consumer and commercial banking businesses operate under

14 the JPMorgan brand, and include its home finance and home equity loan business.

15 JPMorgan & Co., in its current structure, is the result of the combination of several

16 large U.S. banking companies over the last decade including JPMorgan Manhattan

17 Bank, J.P. Morgan & Co., Bank One, Bear Stearns and Washington Mutual. Upon

18 information and belief, Plaintiff alleges that JPMorgan & Co. owns and/or operates

19 JPMorgan Chase Bank, N.A. and JPMorgan Manhattan Bank USA, N.A. JPMorgan

20 & Co.’s operates a Consumer & Community Banking segment, which includes a

21 mortgage banking business (i.e., mortgage production, servicing, and real estate

22 portfolios).

23

26. On September 25, 2008, the Office of Thrift Supervision seized

24 Washington Mutual’s (“WaMu”) assets and operations and placed them into

25

26

10 Bernanke, supra n.2 at pg. 3. 11 Charles Nier III and Maureen St. Cyr, A Racial Financial Crisis: Rethinking the

27 TAhcte,o8r3y TofERMePvLeErsLeARWedRlEinVi.n9g4t1o, C94o2m(b2a0t1P1r)e.datory Lending Under the Fair Housing

28

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1 receivership with the Federal Deposit Insurance Corporation (“FDIC”). Pursuant to a

2 Purchase and Assumption Agreement (“Agreement”), the FDIC later sold

3 substantially all of WaMu’s assets and a significant amount of its liabilities to

4 JPMorgan & Co for $1.9 billion. The liabilities assumed by JPMorgan & Co. include

5 the claims alleged by Los Angeles herein.

6

27. Section 2.1 of the Agreement titled “Liabilities Assumed by Assuming

7 Bank” provides as follows:

8

Subject to Sections 2.5 and 4.8 the Assuming Bank [JPMorgan & Co.]

9

Chase] expressly assumes at Book Value (subject to adjustment pursuant to Article VIII) and agrees to pay, perform, and discharge, all of the

10

liabilities of the Failed Bank [WaMu] which are reflected on the Books

11

and Records of [WaMu] as of Bank Closing [September 25, 2008], including the Assumed Deposits and all liabilities associated with any and

12

all employee benefit plans, except as listed on the attached Schedule 2.1,

13

and as otherwise provided in this Agreement (such liabilities referred to as “Liabilities Assumed”). Notwithstanding Section 4.8, [JPMorgan &

14

Co.] specifically assumes all mortgage servicing rights and obligations of

15

[WaMu].

16

28. Section 2.5 of the Agreement titled “Borrower Claims” provides as

17 follows:

18

Notwithstanding anything to the contrary in this Agreement, any

19

liability associated with borrower claims for payment of or liability to any borrower for monetary relief, or that provide for any other

20

form of relief to any borrower, whether or not such liability is

21

reduced to judgment, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, legal or equitable,

22

judicial or extra-judicial, secured or unsecured, whether asserted

23

affirmatively or defensively, related in any way to any loan or

commitment to lend made by the Failed Bank [WaMu] prior to

24

failure, or to any loan made by a third party in connection with a

25

loan which is or was held by [WaMu], or otherwise arising in

connection with [WaMu’s] lending or loan purchase activities are

26

specifically not assumed by the Assuming Bank [JPMorgan & Co.].

27

(emphasis added).

28
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1

29. Los Angeles is not a borrower, it is not pursuing a derivative claim on

2 behalf of any borrower, and is not seeking damages on behalf of any borrower.

3 Therefore, the exclusion for borrower claims set forth in Section 2.5 of the Agreement

4 does not enable JPMorgan & Co. to avoid liability corresponding to claims pertaining

5 to WaMu’s mortgage originations at issue herein. Rather, in accordance with Section

6 2.1, JPMorgan & Co. is liable for these mortgage originations.

7

30. According to JPMorgan’s 2012 10-K, “Mortgage Banking includes

8 mortgage origination and servicing activities, as well as portfolios comprised of

9 residential mortgages and home equity loans, including the purchased credit impaired

10 (“PCI”) portfolio acquired in the Washington Mutual transaction.”

11

31. Defendant JPMorgan Chase Bank, N.A. (“JPMorgan Bank”) is organized

12 as a national banking association under the laws of the United States. Upon

13 information and belief, its corporate headquarters are located in New York, New York.

14 It maintains multiple offices in the State of California and specifically in the City of

15 Los Angeles, for the purposes of soliciting applications for and making residential

16 mortgage loans and engaging in other business activities. JPMorgan Bank also

17 acquired JPMorgan Manhattan Bank USA, N.A. (“JPMorgan Manhattan”).

18

32. Defendant Chase Manhattan Bank USA, N.A. is headquartered in New

19 York, New York. Upon information and belief, Plaintiffs allege that JPMorgan

20 Manhattan engaged in residential mortgage lending in California and other states

21 throughout the country.

22

33. The Defendants in this action are, or were at all relevant times, subject to

23 Federal laws governing fair lending, including the FHA and the regulations

24 promulgated under each of those laws. The FHA prohibits financial institutions from

25 discriminating on the basis of, inter alia, race, color, or national origin in their 26 residential real estate-related lending transactions.

27

28
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1

34. The Defendants in this action are or were businesses that engage in

2 residential real estate-related transactions in the City of Los Angeles within the

3 meaning of the FHA, 42 U.S.C. § 3605.

4

35. Based on information reported pursuant to the Home Mortgage

5 Disclosure Act, in addition to loans that JPMorgan originated directly, Defendants are

6 responsible for residential home loans acquired from, and/or sold by or through,

7 WaMu, JPE Home Finance LLC, Long Beach Mortgage Co., Encore Credit Corp.,

8 Bear Stearns Residential Mortgage, Performance Credit Corp., and Bravo Credit

9 Corp.

10

36. Upon information and belief, Plaintiff alleges that each of the Defendants

11 was and is an agent of the other Defendants. Each Defendant, in acting or omitting to

12 act as alleged in this Complaint, was acting in the course and scope of its actual or

13 apparent authority pursuant to such agencies, and/or the alleged acts or omissions of

14 each Defendant as agent were subsequently ratified and adopted by each agent as

15 principal. Each Defendant, in acting or omitting to act as alleged in this Complaint,

16 was acting through its agents, and is liable on the basis of the acts and omissions of its

17 agents.

18

III. JURISDICTION AND VENUE

19

37. This Court has jurisdiction over this matter pursuant to 42 U.S.C. § 3613

20 and 28 U.S.C. §§ 1331, 1343, because the claims alleged herein arise under the laws

21 of the United States.

22

38. Venue is proper in this district under 28 U.S.C. § 1391(b) because

23 JPMorgan conducts business in this district and a substantial part of the events and

24 omissions giving rise to the claims occurred in this district.

25

26

27

28
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1

IV. FACTUAL BACKGROUND

2 A. Background Regarding Discriminatory Loan Practices, Reverse Redlining,

3

and Redlining

39. Prior to the emergence of subprime lending, most mortgage lenders made

4

only “prime” loans. Prime lending offered uniformly priced loans to borrowers with

5

good credit, but individuals with lower credit were not eligible for prime loans.

6

40. Subprime lending developed and began growing rapidly in the mid-1990s

7

as a result of technological innovations in risk-based pricing and in response to the

8

demand for credit by borrowers who were denied prime credit by traditional lenders.

9

Advances in automated underwriting allowed lenders to predict with improved

10

accuracy the likelihood that a borrower with lower credit will successfully repay a

11

loan. These innovations gave lenders the ability to adjust the price of loans to match

12

the different risks presented by borrowers whose credit records did not meet prime

13

standards. Lenders found that they could now accurately price loans to reflect the

14

risks presented by a particular borrower. When done responsibly, this made credit

15

available much more broadly than had been the case with prime lending.

16

41. Responsible subprime lending has opened the door to homeownership to

17

many people, especially low- to moderate-income and minority consumers, who

18

otherwise would have been denied mortgages. At the same time, however, subprime

19

lending has created opportunities for unscrupulous lenders to target minorities and

20

engage in discriminatory, irresponsible lending practices that result in loans that

21

borrowers cannot afford. This, in turn, leads directly to defaults and foreclosures.

22

42. Enticed by the prospect of profits resulting from exorbitant origination

23

fees, points, and related pricing schemes, some irresponsible subprime lenders took

24

advantage of a rapidly rising real estate market to convince borrowers to enter into

25

discriminatory loans that had unfair terms that they could not afford. Often this was

26

accomplished with the help of deceptive practices and promises to refinance at a later

27

28
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1 date. These abusive subprime lenders did not worry about the consequences of default

2 or foreclosure to their business because, once made, a significant number of the loans

3 were sold on the secondary market.

4

43. As the subprime market grew, the opportunities for abusive practices

5 grew with it. As a consequence, the federal government has found that abusive and 6 predatory practices “are concentrated in the subprime mortgage market.”12 These

7 practices, which in recent years have become the target of prosecutors, legislators, and

8 regulators, include the following:

9

a. Placing borrowers in subprime loans even though they qualify for

10 loans on better terms.

11

b. Failing to prudently underwrite hybrid adjustable rate mortgages

12 (ARMs), such as 2/28s and 3/27s.13 After the borrower pays a low “teaser rate” for the

13 first two or three years, the interest rate on these loans resets to a much higher rate that

14 can continue to rise based on market conditions. Subprime lenders often underwrite

15 these loans based only on consideration of whether the borrower can make payments

16 during the initial teaser rate period, without regard to the sharply higher payments that

17 will be required for the remainder of a loan’s 30-year term. Irresponsible lenders

18 aggressively market the low monthly payment that the borrower will pay during the

19 teaser rate period, misleading borrowers into believing that they can afford that same

20 low monthly payment for the entire 30-year term of the loan, or that they can refinance

21 their loan before the teaser rate period expires.

22

23

24

12 United States Department of Housing & Urban Development and United States Department of the Treasury, Curbing Predatory Home Mortgage Lending (2000), at 1

25 (Raevpaoilrat”b)l.e at http://www.huduser.org/Publications/pdf/treasrpt.pdf) (“HUD/Treasury

26

13 In a 2/28 ARM, the “2” represents the number of years the mortgage will be fixed over the term of the loan, while the “28” represents the number of years the interest

27

rate paid on the mortgage will be variable. Similarly, in a 3/27 ARM, the interest rate is fixed for three years and variable for the remaining 27-year amortization.

28

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1

c. Failing to prudently underwrite refinance loans, where borrowers

2 substitute unaffordable mortgage loans for existing mortgages that they are well-suited

3 for and that allow them to build equity. Such refinanced loans strip much or even all

4 of that equity by charging substantial new fees, often hiding the fact that the high

5 settlement costs of the new loan are also being financed. Lenders that aggressively

6 market the ability of the borrower to pay off existing credit card and other debts by

7 refinancing all of their debt into one mortgage loan mislead borrowers into believing

8 that there is a benefit to debt consolidation, while obscuring the predictable fact that

9 the borrower will not be able to repay the new loan. The refinanced loans are

10 themselves often refinanced repeatedly with ever-increasing fees and higher interest

11 rates, and with ever-decreasing equity, as borrowers seek to stave off foreclosure.

12

d. Allowing mortgage brokers to charge “yield spread premiums” for

13 qualifying a borrower for an interest rate that is higher than the rate the borrower

14 qualifies for and can actually afford.

15

e. Failing to underwrite loans based on traditional underwriting

16 criteria such as debt-to-income ratio, loan-to-value ratio, FICO score, and work

17 history. Properly applying these criteria ensure that a borrower is obtaining a loan that

18 he or she has the resources and assets to repay, and ignoring them results in many

19 loans that bear no relation to borrowers’ ability to repay them. This allows the lender

20 to make a quick profit from the origination, but sets the borrower up for default and

21 foreclosure.

22

f. Requiring substantial prepayment penalties that prevent borrowers

23 whose credit has improved from refinancing their subprime loan to a prime loan.

24 Prepayment penalties not only preclude borrowers from refinancing to a more

25 affordable loan, but reduce the borrowers’ equity when a subprime lender convinces

26 borrowers to needlessly refinance one subprime loan with another.

27

28
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1

g. Charging excessive points and fees that are not associated with any

2 increased benefits for the borrower.

3

44. The problem of predatory practices in mortgage lending is particularly

4 acute in minority communities because of “reverse redlining.” As used by Congress

5 and the courts, the term “reverse redlining” refers to the practice of targeting residents

6 in certain geographic areas for credit on unfair terms due to the racial or ethnic

7 composition of the area. This is in contrast to “redlining,” which is the practice of

8 denying equal access to credit to specific geographic areas because of the racial or

9 ethnic composition of the area. Both practices have repeatedly been held to violate the

10 Federal Fair Housing Act.

11

45. Following the onset of the subprime mortgage crisis, and after years of

12 issuing abusive home loans in minority neighborhoods, the big bank lenders began to

13 limit the issuance of mortgage credit to minority borrowers (i.e., refusing to refinance 14 predatory loans). At the same time, when the big banks did extend credit, they

15 continued to do so on predatory terms.

16

V. JPMORGAN ENGAGED IN DISCRIMINATORY LENDING

17

PRACTICES

18

A. JPMorgan’s Conduct Had a Disparate Impact on Minority Borrowers in Violation of the Fair Housing Act

19

1. Discriminatory lending results in a disproportionate number of

20

foreclosures in minority areas.

46. Foreclosures are on the rise in many of the nation’s most vulnerable

21

neighborhoods, particularly those with substantial concentrations of minority

22

households. The increase appears to stem from the growing presence of (1) non-

23

conventional lending in these communities and (2) continuing discriminatory lending

24

25 practices (e.g., steering minorities into loan products with more onerous terms – which

happen to be more profitable for JPMorgan).

26

27

28
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1

47. A seminal report on foreclosure activity by Mark Duda and William

2 Apgar documents the negative impact that rising foreclosures have on low-income and

3 low-wealth minority communities, using Chicago as a case study. Mr. Apgar is a

4 Senior Scholar at the Joint Center for Housing Studies of Harvard University, and a

5 Lecturer on Public Policy at Harvard’s John F. Kennedy School of Government. He

6 previously served as the Assistant Secretary for Housing/Federal Housing

7 Commissioner at the U.S. Department of Housing and Urban Development, and also

8 Chaired the Federal Housing Finance Board. Mr. Apgar holds a Ph.D. in Economics

9 from Harvard University. Mr. Duda is a Research Fellow at the Joint Center for

10 Housing Studies. The Apgar-Duda report has continually been cited by subsequent

11 governmental, public sector, and private sector reports due to its clarity and

12 thoroughness with respect to the negative impact foreclosures have on lower-income

13 and minority neighborhoods.14

14

48. This significant report highlights the foreseeability of foreclosures arising

15 from predatory lending practices and their attendant harm, demonstrating that such

16 foreclosures impose significant and predictable costs on borrowers, municipal

17 governments, and neighboring homeowners.

18

49. Another report, by the Center for Responsible Lending, uses a national

19 dataset to show that the foreclosure rate for low- and moderate-income African-

20 Americans is approximately 1.8 times higher than it is for low- and moderate-income

21 non-Hispanic whites. The gap is smaller for Latinos, especially among low-income

22 households, but even among low-income Latinos the foreclosure rate is 1.2 times that

23 of low-income whites. Racial and ethnic disparities in foreclosure rates cannot be

24 explained by income, since disparities persist even among higher-income groups. For

25

26 27

Chthtpi1c:4/a/SgweoweCWwa..nseAwSp.otguragdr/y,nM(e2tw.0D0o5ruk)d/(anae&viagiRhlab. boGlreowraoetryk,sTPhreogMs/ufnoirceicploasl uCroessotsluotfioFnosr/edcolcousmureenst:s/A2005 Apgar-DudaStudy- FullVersion.pdf).

28

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1 example: approximately 10 percent of higher-income African-American borrowers

2 and 15 percent of higher-income Latino borrowers have lost their home to foreclosure,

3 compared with 4.6 percent of higher income non-Hispanic white borrowers. Overall,

4 low- and moderate-income African-Americans and middle- and higher-income 5 Latinos have experienced the highest foreclosure rates.15

6

50. Nearly 20 percent of loans in high-minority neighborhoods have been

7 foreclosed upon or are seriously delinquent, with significant implications for the long8 term economic viability of these communities.16

9

2. Minority neighborhoods are disproportionate recipients of predatory

loans.

10

51. There is a substantial body of empirical evidence demonstrating the

11

prevalence of reverse redlining in the subprime mortgage market. These studies show

12

that, even after controlling for creditworthiness and other legitimate underwriting

13

factors, subprime loans and the predatory practices often associated with subprime

14

lending are disproportionately targeted at minority neighborhoods.17

15

16

17 18

mLeonr1dt5giCnaggenea-tnelerdnfFdoiornrRge/ecrsleopssoeuanrrsecibshl-(ea2n0La1el1ny)dsii(sna/gLv,aoLisltoa-sbGtlreGoarutonwudn-w2dw0, 12.r10e.1sp1pd:of)nD.siisbplaelreitnidesinign.oMrgo/r-tgage

19

16 Id.

20 21 22 23

rhCtC2het0eeset1pnnp1P1:7tto/er:r/nSarwiseclDfiweeoCbirAlwsoieptRfybl.areSeteNrnusAsidpetbpiisoipeongsnsrngohissi.cmbionibiobaerlMrglteeMhe/lomsLoeo,roenotrUdngdrtgstdsaigniaig(nnag2geggg.0eoeL,s0Cr-Ueg8l(rne2/)nemnd;0dfdiaC0ioniti6erngrSt)nggLcat(/aeoenragernrdvesedfae-FsoiilanlreotarognrRcb:edhAelciTe-snnlahpoaganeost/laurynElezryssfeeisfebseiHaslc(er/it2LcgL0ohoh1fe-s-an1tRC-nd)Gaoai(cnslrayetogvsLu,aaisneLni/lnddoradr-sbE02itln10teGhg11anr-1iotin.cpuwidntwyfd,w)o;n.Unfair_Lending-0506.pdf); Finance and Economics Discussion Series Divisions of

24 25

Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C, Shtutbpp:/r/iwmwewM.nobrtegr.aogregs/:paWpherast/,wW1h4e0r8e3,.apnddf?tnoeWw_hwomin?do(2w0=018));(aCv.aRileaibdleanadt E. Laderman, Federal Reserve Bank of San Francisco, The Untold Costs of Subprime Lending:

26 27

EChtxataplim:f/o/iirnanisnipag.,btPrharenesdLeeinnistke.seddaaumt/poBdnrfgasn/HAdieugitshheUorr-n/Prievrieidcr-esidtyL(e2n0d0in9g) ,(aFvoarielcalbolseuaret s and Race in carolin/The%20Untold%20Costs%20of%20Subprime%20Lending%203.pdf ).

28

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1

52. In general, as recently observed by the Federal Reserve in December

2 2012, both African-American and Hispanic borrowers were far more likely (in fact,

3 nearly twice as likely) to obtain higher-priced loans than were white borrowers. These

4 relationships hold both for home-purchase and refinance lending and for non-

5 conventional loans. These differences are reduced, but not eliminated, after

6 controlling for lender and borrower characteristics. “Over the years, analyses of

7 HMDA data have consistently found substantial differences in the incidence of higher-

8 priced lending [] across racial and ethnic lines, differences that cannot be fully 9 explained by factors included in the HMDA data.”18

10

53. African-Americans and Hispanics were much more likely to receive

11 subprime loans and loans with features that are associated with higher foreclosures,

12 specifically prepayment penalties and hybrid or option ARMs. These disparities were

13 evident even comparing borrowers within the same credit score ranges. In fact, the

14 disparities were especially pronounced for borrowers with higher credit scores. For

15 example, among borrowers with a FICO score of over 660 (indicating good credit),

16 African-Americans and Latinos received a high interest rate loan more than three 17 times as often as white borrowers.19

18

54. In addition to receiving a higher proportion of higher-rate loans, African-

19 Americans and Latinos also were much more likely to receive loans with other risky

20 features, such as hybrid and option ARMs and prepayment penalties. Disparities in 21 the incidence of these features are evident across all segments of the credit spectrum.20

22

23

24 25

Dhtatpt1a:8//FRweewdpeowrra.tfleedRdeeursnaedlrreveresetBhrveuelHl.egotoimnv,e/pTMuhbeosrM/tbguoalrglteegtaiDng/ie2sc0Ml1oa2sr/uPkreDet FAin/c2t20(01D111e_c:H.HM2i0gD1h2Ali)g.p(hadtvsfa)fir.loamblethaet

26 27

mLeonr1dt9giCnaggenea-tnelerdnfFdoiornrRge/ecrsleopssoeuanrrsecibshl-(ea2n0La1el1ny)dsii(sna/gLv,aoLisltoa-sbGtlreGoarutonwudn-w2dw0, 12.r10e.1sp1pd:of)nD.siisbplaelreitnidesinign.oMrgo/r-tgage 20 Id.

28

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1

55. A 2010 Report from the California Reinvestment Coalition finds: “[The]

2 hardest-hit communities are racially concentrated, low to moderate income areas of

3 African-Americans and Latinos that were saturated with high-cost, subprime lending

4 since 2000. Neighborhoods once redlined – where lenders refused to lend in

5 neighborhoods of color without regard to the actual financial qualifications of

6 residents – were flooded in the past decade with high-cost subprime loans and abusive

7 option ARM loans. These loans were often unaffordable and unsustainable for

8 working class families, and inevitably led to large scale foreclosures. In the past two

9 years, borrowers and communities struggling to preserve their primary asset – their

10 home – have found that banks are not willing to work with them to restructure their 11 mortgages or to offer new loans.”21 Key findings from the 2010 Report include:

12

(a) In 2008, minority neighborhoods contained roughly

63% of the housing in Los Angeles, but suffered over

13

90% of the City’s foreclosures.

14

(b) While predatory and fraudulent lending helped

precipitate the foreclosure crisis, a wave of a resetting

15

option ARM loans threatens to keep California

immobilized by foreclosure beyond 2010.

16

(c) California cities are more likely than the national

17

average to be saturated with low documentation loans

18

(aell.glo.,asntastiendtihnecosammeplloeawnse)r.e

In Los Angeles, 74% made with limited

of

documentation, as compared to only 56% for all loans

19

in the sample.

20

(d) Minority neighborhoods saw a dramatic decrease in

lower cost prime loans in 2008. The drop off from

21

210/30rd6

to as

2008 many

was stunning. In prime loans were

Los Angeles, less than made available by big

22

bank lenders in minority neighborhoods in 2008, as

compared to 2006.

23

(e) In 2008, nearly one out of two African-Americans and

24

Latinos seeking a home loan or refinance were denied,

as compared to only about one in four whites.

25

26 27

w(aevaa21litlhCa.baollriegfo/afrtinlheiatst/pRd:oe//wiwnnvwleowsat.dmcsoe/mrnetmpCouornta-ilstiyttei-oiwnne-,gaFwltrhyo.nomnrg.Fp/osdirftee)cs.l/oclsounree.ctoomRem-Runeidtlyi-ning (2010)

28

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1

(f) Even though high-cost lending began to decrease

significantly by 2008, when it occurred, it was still

2

more likely to occur in minority neighborhoods as

compared to white neighborhoods. The big bank

3

lenders still were more than twice as likely to sell

subprime loans in minority neighborhoods in Los

4

Angeles, as compared to white neighborhoods.

5

(g) In many cases, minority borrowers were overburdened

not only by subprime lending but by other onerous

6

loan terms, such as prepayment penalties, yield spread

premiums, option ARMs, and HELOCs, all of which

7

have been conducive to foreclosures.

8

(h) In a March 2009 survey, two-thirds of housing

counselors reported that they believed borrowers of

9

color were receiving worse foreclosure prevention

outcomes than white borrowers.

10

(i) In the wake of the subprime meltdown, as

11

underwriting tightened for all loans, higher cost FHA

mortgage loans were the “only game in town” left for

12

many new homebuyers.

13

56. Since 2008, as the data discussed below makes clear, there has been a

14 shift in the types of loans issued – and not issued – by the Bank. For example, the

15 Bank shifted from offering new subprime loans toward issuing more Home Equity

16 Lines of Credit (“HELOCs”) and higher cost FHA/VA loans.22 FHA and VA

17 government loans are characterized as higher risk loans because (1) they are typically

18 more expensive for a borrower than conventional loans and include fees and costs not

19 associated with conventional loans, and (2) several of the government loan programs 20 permit negative amortization.23 At the same time, in the last several years, the Bank

21 tightened lending requirements in a manner that drastically limited the ability of

22

23

24

22 While FHA/VA loans are not inherently predatory, these loans have higher risk features such as higher fees and higher interest rates. When banks target minorities for

25

FHA/VA loans and issue more of them to minorities, they are acting in a discriminatory manner.

26

23 California Reinvestment Coalition, et al., Paying More for the American Dream

27

VI, Racial Disparities in FHA/VA Lending (July 2012); www.fha.com/fha_loan_types; www.benefits.va.gov/homeloans.

28

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1 minority borrowers to refinance or otherwise modify the subprime loans previously

2 issued by the Bank.

3

57. A 2011 Report from the California Reinvestment Coalition found that,

4 between 2008 and 2009, in Los Angeles, the number of conventional refinance loans

5 made in predominantly white neighborhoods more than doubled (increasing by about

6 200%), while conventional refinance loans declined in the City’s minority

7 neighborhoods, where such refinancing was most desperately needed.24

8

58. At the same time that conventional credit has contracted over the past five

9 years, FHA lending has expanded dramatically. During the subprime boom, FHA

10 lending fell as subprime lenders targeted minority communities. Now, with little or no

11 subprime lending, and conventional credit restricted, FHA lending has shot up.

12 Overall, the share of loans with government backing went from 5% in 2005 to 26.6%

13 in 2010.25

14

59. For African-Americans, the share of mortgages used to purchase a home

15 and backed by a government program increased to almost 80% in 2010; for Latinos

16 the share increased to 73%. But for whites, the share increased to only 49%. At

17 present, most minority borrowers cannot gain access to the conventional mortgage

18 market, and instead, are relegated to more expensive FHA loans.26

19

60. A 2012 Report from the California Reinvestment Coalition “shows that

20 black and Latino borrowers and borrowers in communities of color received

21 government-backed loans – insured by the Federal Housing Administration (FHA) or

22 23

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24 wealth.org/files/downloads/report-crc-et-al.pdf).

25 26 27

olenndU25i.nCSg.e/HSnttoeaurtesf-eoohrfo-RLldeessnp(do2in0ns1gi2-br)lee(paLovreatn-i1lda.ipbndlgef,)aT. thhettSpt:a/t/ewowfwL.ernedspinognsiinbAlemleenrdicinag&.origts/sItmatpea-ocftolenndU26i.nCSg.e/HSnttoeaurtesf-eoohrfo-RLldeessnp(do2in0ns1gi2-br)lee(paLovreatn-i1lda.ipbndlgef,)aT. thhettSpt:a/t/ewowfwL.ernedspinognsiinbAlemleenrdicinag&.origts/sItmatpea-ocft-

28

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1 guaranteed by the Department of Veterans Affairs (VA) – significantly more often

2 than did white borrowers. The findings indicate persistent mortgage redlining and

3 raise serious concerns about illegal and discriminatory loan steering.… [T]he report

4 shows a pattern of two-tiered lending, in which borrowers and communities of color

5 received disproportionately fewer conventional mortgages and disproportionately

6 more government-backed loans than did white borrowers and communities…. [T]he

7 disproportionate prevalence of FHA loans in communities of color raises fair lending

8 flags.” In particular, the 2012 Report observes that: “In Los Angeles, homebuyers in

9 neighborhoods of color received government-backed loans five times more often than

10 did those in predominantly white neighborhoods…. [H]omeowners in communities of

11 color received FHA or VA refinance loans 6.5 times more often than did homeowners

12 in predominantly white neighborhoods.”27

13 B. JPMorgan Intentionally Discriminated Against Minority Borrowers in

14

Violation of the Fair Housing Act, as Demonstrated by Former Bank Employees

15

61. Confidential Witnesses (“CWs”) are former employees of JPMorgan and

16 WaMu. The CWs were responsible for making, processing, and/or underwriting loans

17 in the greater Los Angeles region. CWs describe how JPMorgan and WaMu targeted

18 minorities and residents of minority neighborhoods in and around Los Angeles for

19 predatory lending practices.

20

62. CW1 worked for JPMorgan in two branches in Los Angeles County as a

21 mortgage loan officer. CW1 worked for JPMorgan for approximately two years in the

22 2008-2010 timeframe. She was previously employed as a mortgage loan officer at

23 WaMu for about a year before JPMorgan purchased WaMu. She worked almost

24

25 26

Rhtatpc2i:7a/C/lcaaDllirifseopirnanvrieiatsiRte.soeriingnv/sFeyHssttmAe/meVn/AtreCLsooenauldricitnieosgn/W(,2P10as1yi2Zi)nigI(saIMvjaIowirlaMebfTloeIrvatMtheDAcmvMerTicgavnMDTrZeafMm zVVI:fMj

27

NfMV9wYXlpbmdtb3JlVklfbXVsdGlzdGF0ZV9qdWx5MjAxMl9GSU5BTC5wZGY iXV0/payingmoreVI_multistate_july2012-%20FINAL.pdf).

28

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1 entirely with minority (largely Hispanic) customers, almost all of whom sought

2 refinancing or loan modifications.

3

63. CW2 worked in the mortgage industry for about eight years; he worked

4 for JPMorgan at multiple branch locations in the greater Los Angeles region as a

5 mortgage loan originator in the 2011-2012 timeframe.

6

64. CW3 worked as an underwriter at the Bank’s corporate office in Los

7 Angeles during the 2009-2011 timeframe. She was previously employed at WaMu,

8 where she was hired in 2002. She worked at WaMu through the period when

9 JPMorgan purchased it in 2009, and then she became a JPMorgan employee. She

10 worked as a loan modification underwriter with customers who were behind on their

11 mortgage payments.

12

65. CW4 worked as a loss mitigation negotiator and underwriter at a

13 JPMorgan branch in Los Angeles during the 2009-2010 timeframe. He worked with

14 customers who had missed mortgage payments, and he was responsible for making

15 loan modifications for customers in the default process.

16

66. CW5 worked as a senior loan officer for WaMu in the 2003 to 2007 time

17 frame, originating loans throughout the Los Angeles area. During the course of his

18 work, CW5 observed that WaMu targeted marketing materials and high-cost loan

19 products for low-income minorities, and WaMu incentivized the sales force to make

20 high-cost loans.

21

67. The CWs confirm that JPMorgan has engaged in predatory and otherwise

22 discriminatory lending practices directly and through acquired lenders (including

23 WaMu).

24

1. JPMorgan targets minorities for predatory loan terms (and pays its

25

employees more for doing so).

68. CW5 observed that WaMu tailored marketing materials for certain

26

minorities. “If you wanted to target the Hispanic community you had to have certain

27

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1 words in there that you’d want to use to attract (the borrowers),” he said. CW5

2 understood that certain mortgage loan products, like negative amortization loans, were

3 tailored toward low-income minorities. “It was tailored for minorities, but it was not

4 specifically just for them,” he added.

5

69. According to CW5, WaMu incentivized salespeople through

6 commissions and bonuses to push applicants into negative amortization and other non-

7 conventional loans.

8

2. JPMorgan underwrites adjustable rate loans that borrowers cannot

9

afford.

70. CW3, who worked with customers who were behind on their mortgage

10

payments, explained that most of these customers had received variable-rate loans that

11

they could no longer afford after the rates adjusted upward.

12

71. According to CW5, “a lot of [minorities] hold onto their cash instead of

13

putting it in the bank. That’s the client; we had a program for them. We would take

14

non-traditional credit.” WaMu would qualify these minority borrowers for much more

15

expensive subprime loans and large negative amortization loans with extremely low

16

introductory monthly payments. “At one point WaMu did not have a credit score

17

requirement,” he said. “It was easy to throw them into that program and get them

18

approved for that program at the one percent rate” – and loan officers and underwriters

19

only had to qualify the borrowers for the lowest monthly payment required during the

20

introductory period. CW5 explained that loan officers did not always fully explain the

21

onerous repercussions of such loans. “That’s where a lot of clients were misled,” he

22

said. “They thought it was a 1 percent fixed (rate).”

23

72. In CW5’s experience, loan officers tended to push negative amortization

24

loans on low-income minorities. He observed that many borrowers got into deep

25

financial trouble after taking out these types of loans. “The (initial monthly) cost was

26

bare minimum” for the borrower, he said. “But the possibilities were there that it could

27

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1 turn out to be the worst case (scenario) for the borrowers, and that’s exactly what

2 happened.”

3

73. JPMorgan (directly and through acquired lenders) does not properly

4 underwrite these loans when made to minorities and in minority neighborhoods.

5 JPMorgan does not adequately consider the borrowers’ ability to repay these loans,

6 especially after the teaser rate expires and the interest rate increases. The fact that

7 these loans would result in delinquency, default, and foreclosure for many borrowers

8 was, or should have been, clearly foreseeable to JPMorgan at the time the loans were

9 made.

10

3. JPMorgan tends to require prepayment penalties more often from

11

minority borrowers.

74. Prepayment penalties typically make it more difficult for borrowers to
12

refinance into new and better loans.
13

75. CW3 observed that JPMorgan tended to require prepayment penalties
14

more often from minority borrowers.
15

76. CW5 explained that WaMu incentivized sales people with big bonuses
16

for locking borrowers into loans with prepayment penalties.
17

18

4. JPMorgan induced foreclosures by failing to offer refinancing or loan modifications to minority customers on fair terms, and

19

otherwise limiting equal access to fair credit.

77. The CW statements show that JPMorgan induced foreclosures by failing
20

to offer refinancing or loan modifications to minority customers on fair terms – which
21

constitutes a particularly egregious form of redlining, given that minority borrowers
22

sought refinancing or loan modifications with respect to bad loans that the Bank
23

previously made to them.
24

78. CW1 believes that JPMorgan adopted overly-stringent loan qualification
25

requirements that resulted in an unnecessarily high rate of refinancing rejections for
26

minority borrowers. She encountered months-long delays and very few successes
27

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1 when attempting to refinance minority customers. She estimates that 90% of the

2 minority borrowers who came to her branches desperate for refinancing would not

3 qualify. They usually did not have enough income or enough equity in their homes,

4 she said.

5

79. CW1 explained that many minority borrowers who had previously

6 received “no doc” loans were now asked to provide documentation of income and

7 other assets, and could not. She described seeing customers who only owed “$50,000

8 to $60,000” on a property worth $250,000 who could not refinance because they either

9 didn’t have a job or did have a job but had insufficient documentation. Many others

10 had income but too little equity in their homes because of falling real estate values.

11

80. CW1 said some of these customers were rejected even though she

12 believed they should not have been rejected. According to CW1, JPMorgan’s

13 refinancing qualification guidelines became “much more conservative” than those set

14 by federal guidelines. “That was really heartbreaking,” she said. “Seeing people

15 sitting there crying. … Those were kind of hard.”

16

81. According to CW1, borrowers who did not qualify for refinancing, and

17 thus sought loan modifications, were essentially encouraged not to make payments on

18 their homes at all. She said the Bank informed them that a prerequisite for loan

19 modification was missing payments. This created more problems, she explained,

20 because some of these same borrowers would follow the guidance, skip payments, but

21 then not receive loan modifications. After that, “they were just waiting for the sheriff

22 to come around” and foreclose, she said.

23

82. CW1 said that, when refinancing did take place in her minority

24 neighborhood branches, it usually came with higher-than-usual interest rates that

25 corresponded with rising LTV ratios.

26

83. During CW1’s employment, JPMorgan withdrew mortgage officers from

27 both minority neighborhood branches where she worked because “it just wasn’t

28
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1 feasible to have a loan officer there,” she said. “The loans just weren’t going through

2 in that area,” she said. “It wasn’t worth it to have someone there.”

3

84. CW2 said that JPMorgan has tightened its lending requirements since

4 2008, making almost all loans “fully-doc’d” loans, setting higher standards

5 (“overlays”) for refinancing than those established under HAMP. “The banks said,

6 ‘we’re not going to refinance you,’” he said. “The purpose of the [HAMP] program

7 was to get people out of these bad loans, and the banks refused to do it. And this is

8 still going on today.”

9

85. The Bank operated few, if any, branches in minority neighborhoods of

10 Los Angeles; CW2 strongly believes that this evidenced an intentional form of

11 minority “discrimination.” In the last few years, it became increasingly difficult to

12 serve minority customers given where the Bank chose to locate its branches, he

13 explained. To find out “how they are discriminating, look at the position of the

14 branches,” he said. “That’s going to show you.”

15

86. JPMorgan is opening “huge numbers” of branches all across California,

16 none of which are located in the inner city, according to CW2. In the upper-middle-

17 class neighborhood where he lives, JPMorgan is opening what he said appeared to be

18 as many as seven branches, maybe more. Another 300 are slated to open in Southern

19 California, part of 2,000 that will be opening across the state, he said. “But none of

20 this is happening in minority neighborhoods,” he added. “That, in itself, is the biggest

21 indication of discrimination that you can find.”

22

87. CW2 confirmed that JPMorgan recorded minority status information in

23 the loan application process. CW2 believed that some of the minority borrowers he

24 saw at JPMorgan should have qualified for refinancing, but they did not qualify for

25 reasons that were unclear to him. He suspected that minority status played a role in

26 decision-making by JPMorgan on who to finance. “The redlining and stuff like that,

27 that still goes on.”

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1

88. CW2 explained that JPMorgan might offer some minority borrowers

2 “subprime” refinancing, if they were ineligible for HAMP loan modifications. Such

3 loans typically offered interest rates that gradually increased over several years.

4

89. CW3 said: “There were a lot of things with which I didn’t agree” at

5 JPMorgan. She said there were generally “a lot of policy changes … things that

6 would happen that the customer wouldn’t know about.” For example, she noted:

7 “Customers would send in their information and we would get it,” then documents

8 would go missing. “Everything was messy,” she said, due to the Bank’s “bad

9 managers.” As a result, she said, borrowers fell deeper behind on payments and into

10 foreclosure. “A lot of times there was no mercy,” she said, referring to the Bank’s

11 practices of putting people into foreclosure while loan modifications were pending.

12

90. CW4 observed that JPMorgan denied minority borrowers loan

13 modifications in large percentages in the City of Los Angeles because many who were

14 in foreclosure under old stated-income mortgages were unable to get approved under

15 the Bank’s new document-based income guidelines.

16

5. JPMorgan engages in other abusive lending practices.

17

91. The CW statements further demonstrate that the Bank increased the

18 costliness of non-conventional loans at the expense of minority borrowers.

19

92. CW3 estimated that about 35% of the borrowers she dealt with had been

20 victims of unethical lending practices by JPMorgan. CW3 also observed that minority

21 borrowers tended to receive higher interest rates. Addressing the type of minority

22 borrowers that tended to face higher interest rates at JPMorgan, she said, “the people

23 who didn’t understand English and stuff like that.”

24

93. CW3 also observed that smaller home loans at JPMorgan – somewhere

25 between $75,000 and $100,000 and below – tended to come with much higher interest

26 rates (e.g., 3%-4% higher), which inevitably impacted minority borrowers more than

27 non-minority borrowers.

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1 C. Minorities in Fact Receive Predatory Loan Terms from JPMorgan

2

94. As discussed herein, JPMorgan’s predatory loans include: high-cost

3 loans (i.e., loans with an interest rate that was at least three percentage points above a

4 federally-established benchmark), subprime loans, interest-only loans, balloon

5 payment loans, loans with prepayment penalties, negative amortization loans, no

6 documentation loans, and/or ARM loans with teaser rates (i.e., lifetime maximum rate 7 > initial rate + 6%).

8

95. Data reported by the Bank and available through public databases shows

9 that in 2004-2011, 26.3% of loans made by JPMorgan to African-American and

10 Latino customers in Los Angeles were high cost, but only 7.4% of loans made to white

11 customers in Los Angeles were high cost. This data demonstrates a pattern of 12 statistically significant28 differences in the product placement for high cost loans

13 between minority and white borrowers.

14

96. The following map of JPMorgan predatory loans originated in Los

15 Angeles between 2004-2011 illustrates the geographic distribution of predatory loans

16 in African-American and Latino neighborhoods and white neighborhoods in Los

17 Angeles. This map demonstrates that JPMorgan’s predatory loans are

18 disproportionately located in minority neighborhoods.

19

20

21

22

23

24

25

26

28 Statistical significance is a measure of probability that an observed outcome would not have occurred by chance. As used in this Complaint, an outcome is

27

statistically significant if the probability that it could have occurred by chance is less than 5%.

28

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1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

97. The fact that predatory loans involving all of JPMorgan’s loan products

17 are more heavily concentrated in minority neighborhoods in Los Angeles is consistent

18 with the practice of reverse redlining and, upon information and belief, has contributed

19 significantly to the disproportionately high rates of foreclosure in minority

20 communities in Los Angeles.

21 D. Minorities in Los Angeles Receive Such Predatory Loan Terms from

22

JPMorgan Regardless of Creditworthiness

23

98. According to Discretionary Pricing, Mortgage Discrimination, and the

24 Fair Housing Act, 45 HARVARD CIVIL RIGHTS-CIVIL LIBERTIES LAW REV. 375, 398

25 (2010), several studies dating back to 2000 have established that minority borrowers

26 were charged higher interest rates/fees than similar creditworthy white borrowers.

27

28
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1

99. Likewise, according to A Racial Financial Crisis, 83 TEMPLE LAW REV.

2 941, 947, 949 (2011), one study concluded that “even after controlling for

3 underwriting variables, African-American borrowers were 6.1% to 34.3% more likely

4 than whites to receive a higher rate subprime mortgage during the subprime boom.”

5 And another study found that significant loan pricing disparity exists among low risk

6 borrowers – African-American borrowers were 65% more likely to receive a subprime

7 home purchase loan than similar creditworthy white borrowers, and 124% more likely

8 to receive a subprime refinance loan.

9

100. Similarly, the Center for Responsible Lending’s November 2011 Report,

10 Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures, stated that

11 “racial and ethnic differences in foreclosure rates persist even after accounting for

12 differences in borrower incomes.” Further, the Center stated it is “particularly

13 troublesome” that minorities received riskier loans “even within [similar] credit

14 ranges.” For example, among borrowers having FICO scores above 660, the incidence

15 of higher rate loans among various groups was as follows: whites – 6.2%; African-

16 American – 21.4%; and Latino – 19.3%.

17

101. Moreover, data reported by the Bank and available through public

18 databases shows that minorities in Los Angeles received predatory loan terms from

19 JPMorgan more frequently than white borrowers, regardless of creditworthiness.

20

102. A regression analysis of this data controlling for borrower race and

21 objective risk characteristics such as credit history, loan to value ratio, and the ratio of

22 loan amount to income demonstrates that, from 2004-2011, an African-American

23 borrower in Los Angeles was 1.795 times more likely to receive a predatory loan than

24 was a white borrower possessing similar underwriting and borrower characteristics.

25 The regression analysis further demonstrates that the odds that a Latino borrower in

26 Los Angeles would receive a predatory loan were 1.576 times the odds that a white

27 borrower possessing similar underwriting and borrower characteristics would receive a

28
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1 predatory loan. These odds ratios demonstrate a pattern of statistically significant

2 differences between African-American and white borrowers and between Latino and

3 white borrowers.29

4

103. The regression analysis also shows that these disparities persist when

5 comparing only Los Angeles-based borrowers with FICO scores above 660. An

6 African-American borrower with a FICO score above 660 was 2.026 times more likely

7 to receive a predatory loan than was a white borrower with similar underwriting and

8 borrower characteristics. A Latino borrower with a FICO score above 660 was 1.796

9 times more likely to receive a predatory loan than was a white borrower with similar

10 underwriting and borrower characteristics. These odds ratios demonstrate a pattern of

11 statistically significant differences between African-American and white borrowers

12 and between Latino and white borrowers.

13

104. A similar regression analysis taking into account the racial makeup of the

14 borrower’s neighborhood rather than the individual borrower’s race shows that

15 borrowers in heavily minority neighborhoods in Los Angeles were more likely to

16 receive predatory loans than borrowers in heavily white neighborhoods. For example,

17 a borrower in a heavily minority census tract (census tract consisting of at least 80%

18 African-American or Latino households) was 2.261 times more likely than was a

19 borrower with similar characteristics in a heavily white neighborhood (census tract

20 with at least 80% white households) to receive a predatory loan. These odds ratios

21 demonstrate a pattern of statistically significant differences between African-

22 American and white borrowers and between Latino and white borrowers.

23

105. This data also establishes that JPMorgan disproportionately issued

24 government loans with higher risk features (FHA/VA) to African-American and

25 Latino borrowers in Los Angeles from 2009-2011. A regression analysis controlling

26

27

29 As alleged throughout the Complaint, all references to the date range 2004-2011 are intended to include the time period up to and including December 31, 2011.

28

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1 for borrower race and objective risk characteristics such as ratio of loan amount to

2 income demonstrates that an African-American borrower was 2.660 times more likely

3 to receive a higher risk government loan than was a white borrower possessing similar

4 borrower and underwriting characteristics. The regression analysis further

5 demonstrates that a Latino borrower was 2.857 times more likely to receive a higher

6 risk government loan than was a white borrower possessing similar borrower and

7 underwriting characteristics. These odds ratios demonstrate a pattern of statistically

8 significant differences between African-American and white borrowers and between

9 Latino and white borrowers in the City.

10

106. Thus, the disparities are not the result of, or otherwise explained by,

11 legitimate non-racial underwriting criteria.

12 E. JPMorgan’s Targeting of Minorities who in Fact Receive Predatory Loan

13

Terms Regardless of Creditworthiness Causes Foreclosures

14

1. Data shows that JPMorgan’s foreclosures are disproportionately located in minority neighborhoods in Los Angeles.

15

107. JPMorgan has intentionally targeted predatory practices at African-

16 American and Latino neighborhoods and residents. Far from being a responsible

17 provider of much-needed credit in minority communities, JPMorgan is a leading cause

18 of stagnation and decline in African-American and Latino neighborhoods where its

19 foreclosures are concentrated. Specifically, since at least 2000, its foreclosures have

20 been concentrated in neighborhoods with African-American or Latino populations

21 exceeding 80%.

22

108. Although only 20.4% of JPMorgan’s loan originations in Los Angeles

23 from 2004 to 2011 were in census tracts that are at least 80% African-American or

24 Latino, 24.5% of loan originations that had entered foreclosure by February 2013 were

25 in those census tracts. Similarly, while only 36.0% of JPMorgan’s loan originations in

26 Los Angeles from 2004 to 2011 occurred in census tracts that are at least 50%

27 African-American or Latino, 43.3% of JPMorgan’s loan originations that had entered

28
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1 foreclosure by February 2013 were in those census tracts. Moreover, while 39.4% of

2 JPMorgan’s loan originations in Los Angeles from 2004 to 2011 occurred in census

3 tracts that were less than 20% African-American or Latino, only 30.2% of JPMorgan’s

4 loan originations that had entered foreclosure by February 2013 were in those census

5 tracts. This data demonstrates a pattern of statistically significant differences between

6 African-American and white borrowers and between Latino and white borrowers.

7

109. The following map represents the concentration of JPMorgan’s loan

8 originations from 2004 through 2011 that had entered foreclosure by February 2013 in

9 African-American and Latino neighborhoods. In addition to the disproportionate

10 distribution of JPMorgan foreclosures in African-American and Latino neighborhoods,

11 disparate rates of foreclosure based on race further demonstrate JPMorgan’s failure to

12 follow responsible underwriting practices in minority neighborhoods. While 19.2% of

13 JPMorgan’s loans in predominantly (greater than 80%) African-American or Latino

14 neighborhoods result in foreclosure, the same is true for only 9.8% of its loans in

15 predominantly (greater than 80%) white neighborhoods. In other words, a JPMorgan

16 loan in a predominantly African-American or Latino neighborhood is 2.190 times

17 more likely to result in foreclosure as is a JPMorgan loan in a predominantly white

18 neighborhood. These odds ratios demonstrate a pattern of statistically significant

19 differences between African-American and white borrowers and between Latino and

20 white borrowers.

21

22

23

24

25

26

27

28
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1

2

3

4

5

6

7

8

9

10

11

12

13

14

110. Thus, JPMorgan’s discretionary lending policies and pattern or practice

15 of targeting of minorities, who in fact receive predatory loan terms regardless of

16 creditworthiness, have caused and continue to cause foreclosures in Los Angeles.

17
2. Data shows that JPMorgan’s loans to minorities result in especially

18

quick foreclosures.

19

111. A comparison of the time from origination to foreclosure of JPMorgan’s

20 loans originated in Los Angeles shows a marked disparity with respect to the speed

21 with which loans to African-Americans and Latinos and whites move into foreclosure.

22 The average time to foreclosure for African-American borrowers is 2.906 years, and

23 for Latino borrowers is 2.739 years. By comparison, the average time to foreclosure

24 for white borrowers is 3.250 years. These statistically significant disparities

25 demonstrate that JPMorgan aggressively moved minority borrowers into foreclosure

26 as compared with how the Bank handled foreclosures for white borrowers.

27

28
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1

112. This disparity in time to foreclosure is further evidence that JPMorgan is

2 engaged in lending practices consistent with reverse redlining. The disparity in time

3 to foreclosure demonstrates that JPMorgan is engaged in irresponsible underwriting in

4 African-American and Latino communities that does not serve the best interests of

5 borrowers. If JPMorgan were applying the same underwriting practices in African-

6 American and Latino neighborhoods and white neighborhoods in Los Angeles, there

7 would not be a significant difference in time to foreclosure. Were JPMorgan

8 underwriting borrowers in both communities with equal care and attention to proper

9 underwriting practices, borrowers in African-American and Latino communities

10 would not find themselves in financial straits significantly sooner during the lives of

11 their loans than borrowers in white communities. The faster time to foreclosure in

12 African-American and Latino neighborhoods is consistent with underwriting practices

13 in minority communities that are less concerned with determining a borrower’s ability

14 to pay and qualifications for the loan than they are in maximizing short-term profit.

15

113. The HUD/Treasury Report confirms that time to foreclosure is an

16 important indicator of predatory practices: “[t]he speed with which the subprime

17 loans in these communities have gone to foreclosure suggests that some lenders may

18 be making mortgage loans to borrowers who did not have the ability to repay those

19 loans at the time of origination.”30

20

3. Data shows that the discriminatory loan terms cause the foreclosures.

21

114. JPMorgan’s discriminatory lending practices cause foreclosures and

22 vacancies in minority communities in Los Angeles.

23

115. Steering borrowers into loans that are less advantageous than loans for

24 which they qualify, including steering borrowers who qualify for prime loans into

25 subprime loans, can cause foreclosures because the borrowers are required to make

26 higher loan payments. The difference between what a borrower who is steered in this

27

30 HUD/Treasury Report at 25.

28

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1 manner must pay and the lower amount for which the borrower qualified can cause the

2 borrower to be unable to make payments on the mortgage. In such instances, the

3 borrower would have continued to make payments on the mortgage and remained in

4 possession of the premises had JPMorgan made the loan without improperly steering

5 the borrower into a subprime, or less advantageous loan. Steering borrowers in this

6 manner, therefore, causes foreclosures and vacancies.

7

116. Giving a loan to an applicant who does not qualify for the loan, especially

8 a refinance or home equity loan, can also cause foreclosures and vacancies. Some

9 homeowners live in properties that they own subject to no mortgage. Other

10 homeowners live in properties with modest mortgages that they can comfortably

11 afford to pay. Where a lender, such as JPMorgan, solicits such a homeowner to take

12 out a home equity loan on his or her property, or alternatively, to refinance his or her

13 existing loan into a larger loan without proper underwriting to assure that the borrower

14 can make the monthly payments for the new, larger loan, the result is likely to be that

15 the borrower will be unable to make payments on the mortgage. This is particularly

16 true where the borrower is refinanced from a fixed-rate loan into an adjustable rate

17 loan that the lender knows the borrower cannot afford should interest rates rise. In

18 some instances, the lender may refinance the borrower into a new loan that the lender

19 knows the borrower cannot sustain, given the borrower’s present debt obligations and

20 financial resources. In such circumstances, the likely result of such practices is to

21 cause homeowners who are otherwise occupying properties without a mortgage, or

22 comfortably making payments on a modest existing mortgage, to be unable to make

23 payment on a new, unaffordable loan. This, in turn, causes foreclosures and

24 vacancies. If these unaffordable refinance and home equity loans had not been made,

25 the subject properties would not have become vacant.

26

117. A regression analysis of loans issued by JPMorgan in Los Angeles from

27 2004-2011, controlling for objective risk characteristics such as credit history, loan to

28
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1 value ratio, and the ratio of loan amount to income demonstrates that a predatory loan

2 is 1.726 times more likely to result in foreclosure than is a non-predatory loan.

3

118. The regression analysis further demonstrates that a predatory loan in a

4 heavily minority neighborhood (census tract consisting of at least 80% African-

5 American and Latino households) is 2.946 times more likely to result in foreclosure as

6 is a non-predatory loan with similar risk characteristics in a heavily white

7 neighborhood (census tract with at least 80% white households). These odds ratios

8 demonstrate a pattern of statistically significant differences between African-

9 American and white borrowers and between Latino and white borrowers.

10

119. The regression analysis also demonstrates that a predatory loan made to

11 an African-American borrower was 1.657 times more likely to result in foreclosure as

12 was a non-predatory loan made to a white borrower with similar borrower and

13 underwriting characteristics. A predatory loan made to a Latino borrower was 2.232

14 times as likely to result in foreclosure as was a non-predatory loan made to a white

15 borrower with similar risk characteristics. These odds ratios demonstrate a pattern of

16 statistically significant differences between African-American and white borrowers,

17 and between Latino and white borrowers.

18

120. A regression analysis of government loans (FHA/VA) issued by

19 JPMorgan in Los Angeles from 2009-2011, controlling for borrower race and

20 objective risk characteristics such as ratio of loan amount to income, demonstrates that

21 a government loan is 5.559 times more likely to result in foreclosure as is a non-

22 government loan. These odds ratios demonstrate a pattern of statistically significant

23 differences between African-American and white borrowers and between Latino and

24 white borrowers.

25

26

27

28
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1

VI. INJURY TO LOS ANGELES CAUSED BY JPMORGAN’S

2

DISCRIMINATORY LOAN PRACTICES

121. Los Angeles has suffered financial injuries as a direct result of
3

JPMorgan’s pattern or practice of reverse redlining and the resulting
4

disproportionately high rate of foreclosure on JPMorgan loans to African-Americans
5

and Latinos in minority neighborhoods in Los Angeles. Los Angeles seeks redress for
6

these injuries. The City does not seek redress in this action for injuries resulting from
7

foreclosures on mortgages originated by lenders other than JPMorgan.
8

122. JPMorgan continues to engage in the discriminatory pattern or practice
9

described herein with similar and continuing deleterious consequences to the City.
10

123. The City seeks damages based on reduced property tax revenues based on
11

(a) the decreased value of the foreclosed properties themselves, and (b) the decreased
12

value of properties surrounding the foreclosed properties. In addition, the City seeks
13

damages based on municipal services that it still must provide to remedy blight and
14

unsafe and dangerous conditions which exist at vacant properties that entered
15

foreclosure as a result of JPMorgan’s illegal lending practices.
16

17

A. Los Angeles has been Injured by a Reduction in Property Tax Revenues from Foreclosures Caused by Discriminatory Loans Issued by JPMorgan

18

124. As stated in a September 2011 Report by the Alliance of Californians for

19 Community Empowerment and the California Reinvestment Coalition, entitled The 20 Wall Street Wrecking Ball: What Foreclosures are Costing Los Angeles 21 Neighborhoods (“Cost to Los Angeles Report”), “[w]hen a home falls into foreclosure, 22 it affects the property value of the foreclosed home as well as the values of other

23 homes in the neighborhood.” These decreased property values in turn reduce property

24 tax revenues to the City.

25

125. “As property values drop an estimated $78.8 billion, Los Angeles

26 communities could lose as much as $481 million in property tax revenue” from the

27

28
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1 decreased value of the foreclosed homes themselves and those in the surrounding

2 neighborhoods.31

3

126. To be clear, vacancies and short sales even prior to completion of

4 foreclosure also result in diminished home values. Indeed, “[i]n 12 states, including

5 California, Florida, Arizona, New York and New Jersey, pre-foreclosure sales actually

6 outnumbered REO sales.”32 Such distressed sales reduce property values.33

7

1. The decreased value of the properties foreclosed by JPMorgan result

8

in reduced property tax revenues.

9

127. The Cost to Los Angeles Report states that “[i]t is estimated that homes in

foreclosure experience a 22% decline in value.”34

10

128. For example, “[t]hat means the impact of the 200,000 foreclosures
11

estimated for the period 2008 through 2011 will be more than $26 billion in lost home
12
value in communities across Los Angeles.”35 A portion of this lost home value is
13

attributable to homes foreclosed as a result of JPMorgan’s discriminatory loan
14

practices.
15

129. The decreased property values of foreclosed homes in turn reduce
16

property tax revenues to the City and constitute damages suffered by Los Angeles.
17

18

2. The decreased value of properties in the neighborhoods surrounding foreclosed properties results in reduced property tax revenues.

19

130. JPMorgan foreclosure properties and the problems associated with them

20 likewise cause especially significant declines in surrounding property values because

21 the neighborhoods become less desirable. This in turn reduces the property tax

22 revenues collected by Los Angeles.

23

31 Cost to Los Angeles Report at 3.

24 25 26

in-2320S1e2e--hshttopr:t/-/wsawlew-p.rroeacletsyst-r-a-c-.rceoamlty/ctroanct-e7n2t0/n4e.ws-and-opinion/short-sales-increasingsale3s3 -Saenedh-sthtpo:r/t/-wsawlews.-rreeaplotyrtt-rqac1.-c2o0m13/c-o7n7t3e2n.t/foreclosure-market-report/us-foreclosure-

27

34 Id. 35 Id.

28

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1

131. Property tax losses suffered by Los Angeles as a result of JPMorgan’s

2 foreclosures are fully capable of empirical quantification.

3

132. Routinely maintained property tax and other data allow for the precise

4 calculation of the property tax revenues lost by the City as a direct result of particular

5 JPMorgan foreclosures. Using a well-established statistical regression technique that

6 focuses on effects on neighboring properties, the City can isolate the lost property

7 value attributable to JPMorgan foreclosures from losses attributable to other causes,

8 such as neighborhood conditions. This technique, known as hedonic regression, when

9 applied to housing markets, isolates the factors that contribute to the value of a

10 property by studying thousands of housing transactions. Those factors include the size

11 of a home, the number of bedrooms and bathrooms, whether the neighborhood is safe,

12 whether neighboring properties are well-maintained, and more. Hedonic analysis

13 determines the contribution of each of these house and neighborhood characteristics to

14 the value of a home.

15

133. The number of foreclosures in a neighborhood is one of the neighborhood

16 traits that hedonic analysis can examine. Hedonic analysis allows for the calculation

17 of the impact on a property’s value of the first foreclosure in close proximity (e.g., ⅛ 18 or ¼ of a mile), the average impact of subsequent foreclosures, and the impact of the

19 last foreclosure.

20

134. Foreclosures attributable to JPMorgan in minority neighborhoods in Los

21 Angeles can be analyzed through hedonic regression to calculate the resulting loss in

22 the property values of nearby homes. This loss can be distinguished from any loss

23 attributable to non-JPMorgan foreclosures or other causes. The loss in property value

24 in minority neighborhoods in Los Angeles attributable to JPMorgan’s unlawful acts

25 and consequent foreclosures can be used to calculate the City’s corresponding loss in

26 property tax revenues.

27

28
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1

135. Various studies establish that hedonic regression can be used for this

2 purpose. A study published by the Fannie Mae Foundation, using Chicago as an

3 example, determined that each foreclosure is responsible for an average decline of

4 approximately 1.1% in the value of each single-family home within an eighth of a 5 mile.36

6

136. Other studies have focused on the impact of abandoned homes on

7 surrounding property values. A study in Philadelphia, for example, found that each

8 home within 150 feet of an abandoned home declined in value by an average of

9 $7,627; homes within 150 to 299 feet declined in value by $6,810; and homes within 10 300 to 449 feet declined in value by $3,542.37

11

137. These studies highlight the foreseeability of tax related harm to the City

12 as the result of foreclosures arising from discriminatory loans.

13

138. And most recently, the Cost to Los Angeles Report stated, “[i]t is

14 conservatively estimated that each foreclosed property will cause the value of

15 neighboring homes within an eighth of a mile to drop 0.9%.” Thus, “[i]n Los Angeles,

16 impacted homeowners could experience property devaluation of $53 billion.” This

17 decreased property value of neighboring homes in turn reduces property tax revenues

18 to the City.

19

139. Application of such Hedonic regression methodology to data regularly

20 maintained by Los Angeles can be used to quantify precisely the property tax injury to

21 the City caused by JPMorgan’s discriminatory lending practices and resulting

22 foreclosures in minority neighborhoods.

23

24

25 26

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27 Com37mSueneiAtynOnergBa.nSizhinlagya&ndGRoersdeoanrcWhhtoitmLeavne,rRaegseeaBrlcighhftoProDliecmy,oactra2c1y(:2L0i0n4k)i.ng

28

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1 B. Los Angeles Is Injured Because It Still Must Provide Costly Municipal

Services for Properties in Minority Neighborhoods that Have Become

2

Vacant as a Direct Result of Discriminatory Loans Originated or

Purchased by JPMorgan

3

140. Vacant JPMorgan foreclosure properties cause direct costs to the City

4

because the City is required to provide increased municipal services at these

5

properties. Even prior to completion of the foreclosure process, data shows that 20%

6

of homes are vacated.38 These increased municipal services would not have been

7

necessary if the properties were occupied.

8

141. For example, the City’s Police Department must send personnel and

9

police vehicles to vacant JPMorgan foreclosure properties to respond to public health

10

and safety threats that arise at these properties because the properties are vacant.

11

Because violent crime has been found to increase 2.33% for every 1% increase in

12

foreclosures, among other services, LAPD must respond to calls reporting suspicious

13

activity at vacant properties, perform ongoing investigations involving criminal

14

activity, including gang activity, at vacant properties.

15

142. Likewise, the Code Enforcement Bureau of the Los Angeles Building and

16

Safety Department (“Building and Safety Department”) must devote personnel time

17

and out-of-pocket funds to inspect vacant properties and issue orders for violations of

18

the municipal code to be fixed. When the municipal code violations are not fixed, the

19

Building and Safety Department is required to perform certain services, including, but

20

not limited to, removing excess vegetation at vacant properties, hauling away trash

21

and debris at vacant properties, boarding vacant property from casual entry, putting up

22

fencing to secure vacant properties, putting up fencing to prevent access to swimming

23

pools by young children at vacant properties, coordinating with the Los Angeles

24

County Health Department to chemically treat the pools at vacant properties to prevent

25

mosquitos from breeding, painting and removing graffiti at vacant properties,

26

27 fore38clSoeseuhrett-pu:p//dwatwe-w7.7r7ea1l.tytrac.com/content/foreclosure-market-report/owner-vacated-
28

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1 condemning and demolishing vacant structures deemed an imminent hazard to public

2 safety, and having vacant properties frequented by gangs declared a public nuisance

3 and demolished on that basis.

4

143. As stated by the Cost to Los Angeles Report, “[l]ocal government

5 agencies have to spend money and staff time on blighted foreclosed properties,

6 providing maintenance, inspections, trash removal, increased public safety calls, and

7 other code enforcement services …. Responding to these needs is a gargantuan task 8 that involves multiple agencies and multiple levels of local government.”39

9

144. Moreover, as discussed above, the Apgar-Duda report underscores the

10 foreseeability of municipal costs as the result of foreclosures arising from

11 discriminatory loans.

12

VII. SAMPLE FORECLOSURE PROPERTIES IN THE CITY OF LOS

ANGELES

13

145. Plaintiff has already identified two thousand five hundred and sixty-four

14

(2,564) discriminatory loans issued by JPMorgan in Los Angeles between 2004-2011

15

that resulted in commencement of foreclosure proceedings.40 The City has already

16

incurred, or will incur in the future, damages corresponding to each of these

17

properties. A sample of property addresses corresponding to these foreclosures is set

18

forth below:

19

2814 Altura St., 90031

20

21

7411 S. Hoover St., 90044

22

3905 Wisconsin St., 90037

23

24

39 Id. at 3.

25

40 Plaintiff anticipates that it will be able to identify significantly more foreclosures resulting from the issuance of discriminatory loans during this time period with the

26

benefit of discovery. This conclusion derives from the fact that, because of certain reporting limitations, the publicly available mortgage loan databases utilized by

27

Plaintiff are not as comprehensive as the mortgage loan databases maintained by and in the possession of an issuing bank.

28

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1

1451 E. 54th St. 90011

2

5107 Alhambra Ave., 90032

3

4

238 E. Century Blvd., 90003

5

4965 Westhaven St., 90016

6

15413 S. Orchard Ave., 90247

7

8

1217 Bay View Ave., 90744

9

2016 E. 112th St., 90059

10

VIII. STATUTE OF LIMITATIONS AND CONTINUING VIOLATIONS

11

DOCTRINE

12

146. As alleged herein, Defendant JPMorgan has engaged in a continuous

13 pattern and practice of mortgage discrimination in Los Angeles since at least 2004 by

14 imposing different terms or conditions on a discriminatory and legally prohibited

15 basis. In order to maximize profits at the expense of the City of Los Angeles and

16 minority borrowers, JPMorgan adapted its unlawful discrimination to changing market

17 conditions. This unlawful pattern and practice conduct is continuing through the

18 present and has not terminated. Therefore, the operative statute of limitations 19 governing actions brought pursuant to the Federal Fair Housing Act has not 20 commenced to run.

21

IX. CLAIMS FOR RELIEF

22

FIRST CLAIM FOR RELIEF

23

(Violation of the Federal Fair Housing Act, 42 U.S.C. §§ 3601, et seq.)

24

147. Plaintiff repeats and incorporates by reference all allegations contained in

25 the preceding paragraphs as if fully set forth herein.

26

148. The Fair Housing Act’s stated purpose is to provide, “within

27 constitutional limitations, for fair housing throughout the United States.”

28
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1

149. In contravention of that purpose, JPMorgan’s acts, policies, and practices

2 as described constitute intentional lending discrimination on the basis of race.

3 JPMorgan has intentionally targeted residents of predominantly African-American and

4 Latino neighborhoods in Los Angeles for different treatment than residents of

5 predominantly white neighborhoods in Los Angeles with respect to mortgage lending.

6 JPMorgan has intentionally targeted residents of these neighborhoods for high-cost

7 loans without regard to their credit qualifications and without regard to whether they

8 qualify for more advantageous loans, including prime loans. JPMorgan has

9 intentionally targeted residents of these neighborhoods for increased interest rates,

10 points, and fees, and for other disadvantageous loan terms including, but not limited

11 to, adjustable rates, prepayment penalties, and balloon payments. JPMorgan has

12 intentionally targeted residents of these neighborhoods for unfair and deceptive

13 lending practices in connection with marketing and underwriting mortgage loans.

14

150. JPMorgan’s acts, policies, and practices have had an adverse and

15 disproportionate impact on African-Americans and Latinos and residents of

16 predominantly African-American and Latino neighborhoods in Los Angeles as

17 compared to similarly situated whites and residents of predominantly white

18 neighborhoods in Los Angeles. This adverse and disproportionate impact is the direct

19 result of JPMorgan’s policies of providing discretion to loan officers and others

20 responsible for mortgage lending; failing to monitor this discretion to ensure that

21 borrowers were being placed in loan products on a nondiscriminatory basis when

22 JPMorgan had notice of widespread product placement disparities based on race and

23 national origin; giving loan officers and others responsible for mortgage lending large

24 financial incentives to issue loans to African-Americans and Latinos that are costlier

25 than better loans for which they qualify; otherwise encouraging and directing loan

26 officers and others responsible for mortgage lending to steer borrowers into high-cost

27 loans or loans with adjustable rates, prepayment penalties, or balloon payments

28
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1 without regard for whether they qualify for better loans; and setting interest rate caps.

2 These policies have caused African-Americans and Latinos and residents of

3 predominantly African-American and Latino neighborhoods in Los Angeles to receive

4 mortgage loans from JPMorgan that have materially less favorable terms than

5 mortgage loans given by JPMorgan to similarly situated whites and residents of

6 predominantly white neighborhoods in Los Angeles, and that are materially more

7 likely to result in foreclosure.

8

151. JPMorgan’s residential lending-related acts, policies, and practices

9 constitute reverse redlining and violate the Fair Housing Act as:

10

(a) Discrimination on the basis of race and national origin in making

11 available, or in the terms and conditions of, residential real estate-related transactions,

12 in violation of 42 U.S.C. § 3605(a); and

13

(b) Discrimination on the basis of race and national origin in the terms,

14 conditions, or privileges of sale of a dwelling, in violation of 42 U.S.C. § 3604(b).

15

152. JPMorgan’s policies or practices are not justified by business necessity or

16 legitimate business interests.

17

153. JPMorgan’s policies and practices are continuing.

18

154. The City is an “aggrieved person” as defined by 42 U.S.C. § 3602(i) and

19 has suffered damages as a result of JPMorgan’s conduct.

20

155. The City’s damages include lost tax revenues and the need to provide

21 increased municipal services. The loss of tax revenues at specific foreclosure sites and

22 at closely neighboring properties in predominantly minority neighborhoods of the City

23 was a foreseeable consequence that was fairly traceable to JPMorgan’s discriminatory

24 lending. Likewise, the need to provide increased municipal services at blighted

25 foreclosure sites in predominantly minority neighborhoods of the City was a

26 foreseeable consequence that was fairly traceable to JPMorgan’s discriminatory

27 lending.

28
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1

156. JPMorgan’s policies and practices, as described herein, have and has had

2 the purpose and effect of discriminating on the basis of race or national origin. These

3 policies and practices were intentional, willful, or implemented with reckless disregard

4 for the rights of African-American and Latino borrowers.

5

157. The City has a substantial interest in preventing discriminatory lending

6 that causes disproportionately minority home foreclosures within its boundaries, in

7 preventing segregated areas where minority loans are more likely to foreclose, and in

8 holding banks accountable for damages arising from that discriminatory lending.

9 Accordingly, the City’s interests in obtaining injunctive relief to prevent such

10 discrimination and in remedying the blight and recovering the lost property taxes

11 resulting from the disproportionately minority home foreclosures in Los Angeles are

12 directly related to ensuring “fair housing throughout the United States.”

13

SECOND CLAIM FOR RELIEF

14

(Common Law Claim For Restitution Based On California Law)

15

158. Plaintiff repeats and incorporates by reference all allegations contained in

16 the preceding paragraphs as if fully set forth herein.

17

159. As a direct and proximate result of Defendants’ predatory lending

18 practices, Defendant has been enriched at Plaintiff’s expense. Defendants have failed

19 to remit those wrongfully obtained benefits or reimburse the City for their costs

20 improperly caused by Defendants, and retention of the benefits by Defendants would

21 be unjust without payment.

22

160. In addition, to its detriment the City has paid for the Defendants’

23 externalities, or Defendants’ costs of harm caused by its mortgage lending

24 discrimination, in circumstances where Defendants are and have been aware of this

25 obvious benefit and retention of such benefit would be unjust.

26

161. Accordingly, the Court should order restitution, disgorgement of profits,

27 and/or any other equitable relief deemed appropriate by the Court.

28
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1

DEMAND FOR JURY TRIAL

2

Pursuant to Fed. R. Civ. P. 38(b), the City demands a trial by jury on all issues

3 so triable.

4

PRAYER FOR RELIEF

5

WHEREFORE, the City respectfully prays that the Court grant it the following

6 relief:

7

A. Enter a declaratory judgment that the foregoing acts, policies, and

8 practices of JPMorgan violate 42 U.S.C. §§ 3604 and 3605;

9

B. Enter a permanent injunction enjoining JPMorgan and its directors,

10 officers, agents, and employees from continuing the discriminatory conduct described

11 herein, and directing JPMorgan and its directors, officers, agents, and employees to

12 take all affirmative steps necessary to remedy the effects of the discriminatory conduct

13 described herein, and to prevent additional instances of such conduct or similar

14 conduct from occurring in the future, pursuant to 42 U.S.C. § 3613(c)(1);

15

C. Award compensatory damages to the City in an amount to be determined

16 by the jury that would fully compensate the City of Los Angeles for its injuries caused

17 by the conduct of JPMorgan alleged herein, pursuant to 42 U.S.C. § 3613(c)(1);

18

D. Order JPMorgan to disgorge its wrongfully obtained profits and to

19 provide restitution to the City as alleged herein;

20

E. Award punitive damages to the City in an amount to be determined by the

21 jury that would punish JPMorgan for the willful, wanton, and reckless conduct alleged

22 herein, and that would effectively deter similar conduct in the future, pursuant to 42

23 U.S.C. § 3613(c)(1);

24

F. Award the City its reasonable attorneys’ fees and costs, pursuant to 42

25 U.S.C. § 3613(c)(2);

26

G. Require payment of pre-judgment interest on monetary damages; and

27

H. Order such other relief as this Court deems just and equitable.

28
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1 DATED: May 30, 2014
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
COMPLAINT FOR VIOLATION OF THE FEDERAL FAIR HOUSING ACT
010346-11 691167 V1

By /s/ Michael Feuer Michael Feuer (SBN 111529)
City Attorney James P. Clark (SBN 64780) Chief Deputy City Attorney CITY OF LOS ANGELES 200 N. Main Street, Room 800 Los Angeles, CA 90012 Phone: (213) 978-8100 Mike.feuer@lacity.org James.p.clark@lacity.org

Steve W. Berman HAGENS BERMAN SOBOL SHAPIRO LLP 1918 Eighth Avenue, Suite 3300 Seattle, WA 98101 Telephone: (206) 623-7292 steve@hbsslaw.com

Elaine T. Byszewski (SBN 222304) Lee M. Gordon (SBN 174168) HAGENS BERMAN SOBOL SHAPIRO LLP 301 North Lake Avenue, Suite 203 Pasadena, CA 91101 Telephone: (213) 330-7150 elaine@hbsslaw.com lee@hbsslaw.com

Joel Liberson (SBN 164857) Howard Liberson (SBN 183269) T40R0IACLon&tinAenPtPaEl BLLlvAdT., E6thRFElSoOorURCES, P.C. El Segundo, CA 90245 Telephone: (310) 426-2361 joel@taresources.com howard@taresources.com

Robert Peck CENTER FOR CONSTITUTIONAL L77IT7I6GthASTtrIeOetNNW, Suite 520 Washington, DC 20001 Telephone: (202) 944-2803 Robert.peck@cclfirm.com

Clifton Albright (SBN 100020)

A88L8BWRIeGstH6Tth

YEE & SCHMIT Street, Suite 1400

Los Angeles, CA 90017

Telephone: (213) 833-1700

clifton.albright@ayslaw.com

Attorneys for Plaintiff the City of Los Angeles

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 1

O

2

3

4

5

6

7

8

United States District Court

9

Central District of California

10

11 CITY OF LOS ANGELES,

Case No. 2:14-cv-04168-ODW(RZx)

12

Plaintiff,

13 v.

ORDER GRANTING

14 JPMORGAN CHASE & CO.;

DEFENDANTS’ MOTION TO

15 JPMORGAN CHASE BANK, N.A.; and DISMISS WITH LEAVE TO AMEND

16 CHASE MANHATTAN BANK USA,

[28]

17 N.A.,

18

Defendants.

19

I. INTRODUCTION

20

This action is the fourth installment of the discriminatory lending suits brought

21 by Plainti ff City of Los Angeles (“the City ”) against large lending insti tutions.

22 Defendants in this action are JPMorgan Ch ase & Co.; JPMorgan Chase Bank, N.A.;

23 and Chase Manhattan Bank USA, N.A. (collectively, “Chase”). The City is seeking to

24 recover damages under the federal Fair Housing Act (“FHA”), 42 U.S.C. §§ 3601–19,

25 for lost property-tax revenue and increas ed mu nicipal services stemming fro m

26 foreclosures that are allegedly the result of discriminatory lending practices.

27

But unlike the previous install ments—where m otions to dism iss have been

28 denied—Chase raises a new ground for di smissal in its Motion to Dism iss, unique t o

1 Chase, which the Court finds warrants a diffe rent result. For th e reasons discussed

2 below, the Court GRANTS Defendan ts’ Motion to Dism iss WITH LEAVE TO 3 AMEND.1 (ECF No. 28.)

4

II. FACTUAL BACKGROUND

5

The City filed the Co mplaint on May 30, 2014 , asserting two claims for

6 (1) violating the FH A, and (2) co mmon-law restitution. (ECF No. 1.) According to

7 the City, Chase has engaged in discriminatory lending practices that have resulted in a

8 disparate number of foreclosures in minority areas of Los Angeles. ( See Compl. ¶ 2.)

9 The City is seeking t o recover lost propert y-tax revenue as well as expenses incurred

10 for increased municipal services as a result of these foreclosures. ( See id. ¶ 155. )

11

There are three related cases in the Central District of California where the City

12 has brought identical claim s against othe r large lending institu tions. Motions to

13 dismiss have already been denied in each of the related cases. ( City of L.A. v. Wells

14 Fargo, No. 2:13-cv-9007-ODW(RZx), ECF No. 37; City of L.A. v. Citigroup Inc. ,

15 No. 2:13-cv-9009-ODW(RZx), ECF No. 47; City of L.A. v. Bank of Am.Corp., No.

16 2:13-cv-9046-PA(AGRx), ECF No. 50.)

17

As in the related cases, the City a lleges here that Chase has engaged in

18 “redlining” and “reverse redlining.” (C ompl. ¶ 4.) Red lining is the practice of

19 denying c redit to particular ne ighborhoods based on race. ( Id. ¶ 4 n.2.) Reverse

20 redlining is the practice of flooding a m inority neighborhood with exploitative loan

21 products. ( Id. ¶ 4 n. 3.) The lengthy Com plaint also includes a regression analysis of

22 loans allegedly issued by Chase in Los Ange les, and alleges numerous statistics based

23 on thi s analysis. ( See, e.g. , id. ¶¶ 101–06.) In addition, the Com plaint includes

24 confidential witness statements from former employees who de scribe how m inorities

25 were allegedly steered toward predatory loans. (Id. ¶¶ 61–93.)

26 / / /

27
28 1 After carefully considering the papers filed in support of and in opposition to the Motion, the Court deems the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15.

2

1

But unique to this case is the rela tionship between Chase and Washington

2 Mutual Bank (“WaMu”). Th e City seeks to hold Chase liable, in part, based on the

3 discriminatory loans issued by WaMu. (Id. ¶ 2 n.1, ¶ 29.) WaMu failed in 2008 when

4 the Office of Thrift Supervision seized WaMu’s assets and operations, placing them

5 into recei vership with the Federal Depos it Insurance Corporation (“FDIC”). ( Id.

6 ¶ 26); see also Benson v. JPMorgan Chase Bank, N.A. , 673 F.3d 1207, 1210 (9th

7 Cir. 2012). The FDIC then transferred cer tain WaMu assets a nd liabilities to C hase

8 under a Purchase and Assum ption Agreement. (Com pl. ¶¶ 26–29); see also Benson , 9 673 F.3d at 1210.2 In the Complaint, the City alleges that “[t]he liabilities assumed by

10 JPMorgan & Co. include the clai ms alleged by Los Angeles herein.” (Com pl. ¶ 26.)

11 Throughout the remainder of the Com plaint, the City does not disti nguish bet ween

12 loans originating from WaMu and loans originating from Chase. (See id. ¶ 2 n.1.)

13

On June 25, 2014, Chase filed the pres ent Motion to Dism iss. (ECF No. 28.)

14 Chase rais es the same grounds for dismissal that were addres sed in the three relat ed

15 cases. But Chase also rais es a new issue based on WaMu’s failure , the FDIC’s

16 receivership, and Chase’s subsequent purchas e of WaMu’s assets. Th e City ti mely

17 opposed the Motion (ECF No. 32), and Chase filed a timely Reply (ECF No. 35.) The

18 Court took the matter under submission on July 28, 2014.

19

III. LEGAL STANDARD

20 A. Rule 12(b)(1)

21

Federal Rule of Civil Procedure 12(b)(1 ) provides for dism issal of a com plaint

22 for lack of subject-matter jurisdiction. Rule 12(b)(1) jurisdictional attacks can be

23 either facial or factual. White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000).

24

When a motion to dismiss att acks subject-matter jurisdiction on the face of the

25 complaint, the court assu mes the factual a llegations in the co mplaint are true an d

26 draws all reasonable inferences in the plaintiff’s favor. Doe v. Holy S ee, 557 F.3d

27

28 2 The entire Purchase and Assumption Agreem

ent is available o n the FDIC’s website at

www.fdic.gov/about/freedom/Washington_Mutual_P_and_A.pdf.

3

1 1066, 1073 (9th Cir. 2009). Moreover, the standards set forth in Bell Atlantic Corp. v.

2 Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iq bal, 556 U.S. 662 (2009), apply in

3 equal force to facial challenges of subject-matter jurisdiction. See Perez v. Nidek Co. ,

4 711 F.3d 1109, 1113 (9th Cir. 2013); Terenkian v. Republic of Iraq , 694 F.3d 1122,

5 1131 (9th Cir. 2012). Thus, in terms of Article III standing, the complaint must allege

6 “sufficient factual matter, accep ted as true, to ‘state a clai m to relief that is plausible

7 on its face.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570).

8

On the other hand, with a factual Rule 12(b)(1) attack, a court may look beyond

9 the complaint. See White, 227 F.3d at 1242–43 (affirming judicial notice of matters of

10 public record in Rul e 12( b)(1) factual at tack); see also Augustine v. U.S. , 704 F.2d

11 1074, 1077 (9th Cir. 1983) (holding that a district court is free to hear evidence

12 regarding jurisdiction). In a factual attack , a court need not presum e the truthful ness

13 of the allegations in the com plaint. White, 227 F.3d at 1242. But courts should

14 refrain from resolving factual issues where “the jurisdictional issue and substa ntive

15 issues are so intertwined that the question of jurisdiction is dependent on resolution of

16 the factual issues going to the merits.” Augustine, 704 F.2d at 1077 (hol ding that

17 resolution of factual issues go ing to the merits requires a court to employ the standard

18 applicable to a motion for summary judgment).

19 B. Rule 12(b)(6)

20

Under Rule 12(b)(6), a court may dism iss a com plaint for lack of a cognizable

21 legal theory or insufficient facts pleaded to support an ot herwise cognizable legal

22 theory. Balistreri v. Pacifica Police Dep’t , 901 F.2d 696, 699 (9th Ci r. 1990). To

23 survive a dismissal motion, a complaint need only satisfy the m inimal notice pleading

24 requirements of Rul e 8(a)(2)—a short and plain statement of the claim. Porter v.

25 Jones, 319 F.3d 483, 494 (9th Cir. 2003). The f actual “allegations must be enough to

26 raise a right to relief above the speculativ e level” and a claim for relief m ust be

27 “plausible on its face.” Twombly, 550 U.S. at 555, 570.

28 / / /

4

1

The determ ination whether a com plaint sa tisfies the plausibility standard is a

2 “context-specific task that requires the re viewing court t o draw on its judi cial

3 experience and comm on sense.” Iqbal, 556 U.S at 679. A court is generally lim ited

4 to the pleadings and m ust constr ue all “factual allegations set forth in the co mplaint

5 . . . as true and . . . in the light most favorable” to the plaintiff. Lee v. City of L.A., 250

6 F.3d 668, 688 (9th Cir. 2001). But a c ourt need not blindl y accept conclusory

7 allegations, unwarranted deductions of fact, and unre asonable inferences. Sprewell v.

8 Golden St ate Warriors , 266 F.3d 979, 988 (9t h Cir. 2001 ). Moreover, a court may

9 take judicial notice of matters of public r ecord without converting the motion into one

10 for summary judgm ent. E.g., Skilstaf, Inc. v. CVS Caremark Corp. , 669 F.3d 1005,

11 1016 n.9 (9th Cir. 2012).

12

As a general rule, a court should freely give leave to amend a complaint that has

13 been dismissed. Fed. R. Civ. P. 15(a). But a court may den y leave to amend when

14 “the court determines that t he allegation of other fa cts consistent with t he challenged

15 pleading could not possibl y cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well

16 Furniture Co. , 806 F.2d 1393, 1401 (9t h Cir.1986); see Lopez v. Smith , 203 F.3d

17 1122, 1127 (9th Cir. 2000).

18

IV. DISCUSSION

19

Chase m oves to dism iss the Co mplaint on several fam iliar grounds. Chase

20 contends that the City’s claims are barred by the statute of limitations and that the City

21 lacks Article III and statutory standing. In addition, Chase argue s that the City has

22 failed to state a claim for e ither disparate treatment or dispa rate im pact under t he

23 FHA, and that the City’s restit ution claim fails because no benefit has been conferred.

24 But unlike the m otions to dismiss in the re lated cas es, Chas e brings a new basis for

25 dismissal, unique to this action: the jurisd ictional bar in the Fi nancial Instit utions

26 Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), 12 U.S.C. § 1821.

27 For the reasons disc ussed below, the Cour t finds that Chase’ s FIRREA argument has

28 merit, and it need not reach the remainder of Chase’s arguments in the Motion.

5

1 A. FIRREA’S Jurisdictional Bar

2

Chase argues that, under FIRREA, the Cour t lacks subject-matter jurisdiction to

3 adjudicate the City’s clai ms that relate to WaMu’s origination of discriminatory loans

4 before the bank’s fai lure in 2008. (Mot. 3:25–6:2.) Moreover, since the City makes

5 no distinction between WaMu and Chase in the Complaint, the entire Complaint must

6 be dism issed. ( Id. at 8:15–12:13.) But the City contends that Chase interprets

7 FIRREA’s jurisdictional bar too broadly and that Chase assum ed liability for the

8 City’s claims in the Purchase and Assumption Agreement. (Opp’n 3:18–11:11.)

9

Congress’s purpose in enacting FIRREA in the late 1980s was “to enable the

10 federal government to respon d swiftly and effectively to the declining financial

11 condition of the nati on’s banks and saving s institutions.” Henderson v. Bank of New

12 England, 986 F.2d 319, 320 (9th Cir. 1993). The statute grants “the FDIC authority to

13 act as receiver or conservator of a failed institution for the protection of depositors and

14 creditors.” Benson, 673 F.3d at 1211 (internal quotati ons and citations om itted). The

15 FDIC’s authority i ncludes de tailed procedures for consid ering clai ms ag ainst the

16 receivership “to ensure that the assets of a failed institution are distributed fairly and

17 promptly among those with valid claim s agai nst the institution, and to expeditiously

18 wind up t he affairs of failed banks.” McCarthy v. FDIC , 348 F.3d 1073, 1079 (9th

19 Cir. 2003) (i nternal quotatio ns and citations om itted); see also 12 U.S.C. §

20 1821(d)(3)–(10).

21

In addition, FIRREA strips courts of j urisdiction over claims that have not been

22 exhausted through the FDIC’s claims process:

23

Except as otherwise provi ded in thi s subsection, no court shall have

24

jurisdiction over—

25

(i) any clai m or action for pay ment from , or any action seeking a

26

determination of rights with respect to, the assets of any depository

27

institution for which the [FDIC] has been appoint ed receiver, including

28

assets which the [FDIC] may acquire from itself as such receiver; or

6

1

(ii) any claim relating to any act or omission of such institution or the

2

[FDIC] as receiver.

3 12 U.S.C. § 1821(d)(13)(D).

4

According to Chase, § 1821(d)(13)(D)(ii) bars the City’s clai ms here to the

5 extent that they include the allegedly disc riminatory lending practices of WaMu. The

6 Court agrees. The Ninth Circuit has interp reted FIRREA’s jurisdictional bar broadly,

7 holding that “§ 1821(d) extends to all claim s and actions against, and actions seeki ng

8 determination of rights with respect to, th e assets of failed fina ncial institutions for

9 which the FDIC ser ves as receiver . . . .” McCarthy, 348 F.3d at 1079; see also

10 Rundgren v. Wash. Mut. Bank, FA , No. 12-15368, --- F.3d - --, 2014 WL 3720238,

11 at *3 (9th Cir. July 29, 201 4) (holding that § 1821(d)(13)(D) “is dr afted broadly” to

12 “preclude federal courts from exercising jurisdiction over non- exhausted claim s by

13 any claimant”).

14

Moreover, FIRREA does not distinguish claims based on the identit y of the

15 defendant, but rather on the f actual bases of the clai ms. Benson, 673 F.3d at 1212.

16 Thus, courts are divested of jurisdiction over claims against a purchasing bank—like

17 Chase—when the claim s are “based on t he conduct of a failed inst itution” such t hat

18 the claims are “functionally, albeit not formally against a failed bank.” Id. at 1214–15

19 (internal quotations omitted).

20

Here, the City explicitly seeks to ho ld Chase liable for WaMu’s lending

21 practices in the Complaint. (See Compl. ¶ 2 n.1, ¶ 29.) The City’s regression analysis

22 includes loans that were originated betw een 2004 and 2008, when WaMu was still in

23 operation. ( See id . ¶¶ 101–02.) In addition, some of the confidential witness

24 statements in the Compl aint are from former WaM u employees ( id. ¶ 61), and Chase

25 has supplied judicially noticeable evidence that a num ber of the “sam ple foreclosure

26 properties” listed in the Complaint were issued by WaMu. (Id. ¶ 145; ECF No. 30

27 / / /

28 / / /

7

1 (“RJN”), Exs. 1–8.) 3 The Court finds that the City has brought claim s related to

2 WaMu’s acts or omi ssions. Since the cl aims are b ased, at least in part, on a fail ed

3 institution’s conduct , FIRREA’s jurisdictional bar is im plicated. See Benson , 673

4 F.3d at 1214–15.

5

In its Opposition, the City attem pts to steer the Court away from the Ninth

6 Circuit’s holdi ng i n Benson, pointing to out-of-circuit case law an d subsequent

7 unpublished decisions to m aintain its claim s against Chase that relate to WaMu’s

8 lending activities. (Opp’n 4:3–7:21.) But th e Court finds no reason to stray from the

9 unambiguous holdi ng i n Benson—despite its breadth—partic ularly in light of the

10 Ninth Circuit’s most recent FIRREA opinion. See Rundgren , 2014 WL 3720238,

11 at *7 (“A claim ant cannot circum vent the exhaustion requirement by suing the

12 purchasing bank based on the conduct of the failed institution.”).

13

The City also argues that the holding in Benson omits a necessary step in the

14 analysis here—whether Chase assumed liability for the claims at issue in the Purchase

15 and Assum ption Agreement. (Opp’n 8:3–11: 11.) The Ci ty contends that Chase

16 assumed liability for WaMu’s c onduct alleged in the Com plaint, so the claim s are not

17 “susceptible of resol ution” under FI RREA’s admin istrative procedure. ( Id.; No t. of

18 Supp. Auth. at 1.) However, the Court disagrees.

19

First, the Court is not convinced th at interpretation of the Purchase an d

20 Assumption Agreement is necessary to dete rmine whether the clai ms are “susceptible

21 of resolution” through the adm inistrative claims procedure. See McCarthy, 348 F. 3d

22 at 1081 (“FIRREA’s exhaustion requirement applies to any claim or action respecting

23 the assets of a failed institution for which the FDIC is receiver.”). Neither Benson nor

24 Rundgren rely on interpretations of the Pu rchase and Assum ption Agreement in

25

26 3 The documents in Chase’s Request for Judicial No tice are d eeds of trust for eight of the “sam ple

27

foreclosure properties” listed in the Complaint. The deeds of trust have all been recorded in the Los Angeles County Recorder’s Office a nd list W aMu or a W aMu subsidiary as the len der. The Court

28 finds that they are not subject to reasonable di spute as they are m atter of public record and

GRANTS the Request for Judicial Notice. (ECF No. 30); Fed. R. Evid. 201(b).

8

1 holding that FIRREA barred t he plaintiffs’ claims in district court. 4 In fact, the co urt

2 in Rundgren explicitly held that § 1821(d)(13)(D) “preclude s courts from exercising

3 jurisdiction over ‘any claim relating to any act or om ission’ of a failed bank, without

4 respect to the identity of the claimant.” 2014 WL 3720238, at *3 (emphasis added).

5

But the Court acknowledges that bot h Benson and Rundgren involved

6 borrowers, which distinguishes them from the Cit y’s claims here. ( See Compl. ¶ 29

7 (“Los Angeles is not a borrower, it is not pursuing a derivative claim on behalf of any

8 borrower, and is not seeking damages on behalf of any borrower.”).) However, even

9 under the Purchase and Assum ption Agreemen t, the Court finds t hat Chase did not 10 assume liability for the City’s claim s relating to WaMu. 5 Thus, dism issal of the

11 WaMu allegations would still be proper.

12

Section 2.1 of the Purchase and Assumption Agreement titled “Liabilities

13 Assumed by Assuming Bank” provides:

14

Subject to Sections 2.5 and 4. 8, the Assum ing Bank [Chase] expressly

15

assumes at Book Value (subject to ad justment pursuant to Article VIII)

16

and agrees to pay, perform , and disc harge, all of the liabilities of the

17

Failed Bank [WaMu] which are reflect ed on the Books and Records of

18

the Failed Bank as of Bank Closing, including the Assumed Deposits and

19

all liabilities associated with an y and all em ployee benefit plans, except

20

as listed on the attached Schedule 2.1, and as otherwise provi ded in this

21

Agreement (such liabilities referred to as “Liabilities Assumed”).

22

Nothwithstanding Section 4.8, the Assuming Bank specificall y assumes

23

all mortgage servicing rights and obligations of the Failed Bank.

24

25 4 The court in Rundgren did include Section 2.5 of the Purc hase and Assum ption Agreem ent in a

footnote in its factual bac kground. 2014 W L 3720238, at *1. But th e court never addressed the

26 Purchase and Assumption Agreement in its later analysis.

27

5 The City specifically in corporates relevant sections of the Purchase and Assum ption Agreement in the Complaint. (Compl. ¶¶ 27–28.) The Court may take judicial notice of the entire document since

28 the Com plaint necessa rily relie s on it, its au thenticity is not contes ted, a nd it is par t of the public

record as the FDIC is a party to the Agreement. Lee v. City of L.A., 250 F.3d at 688–89.

9

1 Section 2.5 of the Purchase and Assum ption Agreement relates specifically to loans

2 issued by WaMu and reads as follows:

3

Notwithstanding anything to the contra ry in this A greement, any liability

4

associated with borrower claim s for pay ment of or liability to any

5

borrower for m onetary relief, or that provide for any other form of relief

6

to any borrower, whether or not such liability is reduced to judgm ent,

7

liquidated or unliquidated, fixed or cont ingent, matured or unm atured,

8

disputed or undi sputed, legal or equit able, judicial or extra-judicial,

9

secured or unsecured, whether assert ed affirm atively or defensively,

10

related in any way to any loan or co mmitment to lend made by the Failed

11

Bank [WaMu ] prior to failure, or to any loan m ade by a third part y i n

12

connection with a loan which is or was held by the Fail ed Bank, or

13

otherwise arising in connection with the Failed Bank’s lending or l oan

14

purchase activities are specifically not assumed by the Assum ing Bank

15

[Chase].

16

According to the City, these two sections read together demonstrate that Chas e

17 assumed liability for the City’s claim s re lating to WaMu’s lending activities. The

18 City contends that Section 2.5 only appli es to borrower claims, and the City is not a

19 borrower. (Opp’n 10:3–11:11; Com pl. ¶ 29. ) The City then argues that Ch ase has

20 only mounted a facial attack under Rule 12(b )(1), so the City’s allegations that Chase

21 assumed liability under the Purchase and Assumption Agreement per Section 2.1 must

22 be accepted as true . (Opp’n 9:6–10:2; Compl. ¶ 26 (“The liabilities assum ed by

23 JPMorgan & Co. include the clai ms alle ged by Los Angeles he rein.”).) Thus,

24 according to the City, the claims are not “susceptible of resolution” through the

25 FDIC’s claims procedure and are properly brought against Chase.

26

However, the Court interprets the plain language of the Purchase and

27 Assumption Agreement differently. As Chase points out, Section 2.1 lim its the

28 liabilities assumed in terms of where and when they must be listed—on the Books and

10

1 Records of WaMU as of Septem ber 25, 2008, when WaMU’s assets were seized.

2 (Reply 6:9–16.) The City ca nnot allege that the liabilitie s at issue here were on

3 WaMu’s Books and Records in 2008, because the City did not file this lawsuit until

4 more than five years after WaMu’s failure. Moreover, little weight should be given to

5 the last sentence of Section 2.1 regarding the assumption of mortgage servicing rights

6 and obligations. This sentence does not use the word “liabilities,” but rather states

7 that Chase assumes t he “rights” and “obliga tions” of m ortgage servicing. The Court

8 finds that this sent ence merely require s Chase to conti nue performance under

9 mortgage contracts issued by WaMu. “Ri ghts” and “obl igations” are not synonyms

10 for “liability” in the Purcha se and Assumption Agreement. Furthermore, as discussed

11 below, Chase expressly disclaims any liability associated with loans issued by WaMu.

12

With respect to S ection 2.5, the City focuses on the word “borrower.” But the

13 Court finds that Section 2.5 i s not lim ited to borrower claims. 6 The section’s plain

14 language disclaims liability under four circum stances, all separated by the word “or”:

15 (1) borrower claims for m onetary relief; (2 ) borrower clai ms fo r any other form of

16 relief; (3) clai ms as sociated with loans made by third pa rties in connection with a

17 WaMu lo an; and (4) “any liability associated with borrower claim s . . . otherwise

18 arising in connection with [WaMu’s] lendi ng or loan activities . . . .” The last

19 circumstance is a catch-all provisi on which anticipates non-borrower claim s such as

20 the claims brought by the City in this action. This is the only interpretation that makes

21 sense without producing absurd results. Under the City’s interpretation of Section 2.5,

22 Chase would be free of all clai ms for di scriminatory lending brought by borrow ers,

23 but could still be liable to the City for the same discriminatory lending practices.

24

The policy behind FIRREA’s provisions al so support the Court’s interpretation

25 of the Purchase and Assum ption Agreement. “ [FIRREA’s] design facilitates the sale

26

27

6 The Court notes that Section 2.5’s heading read s “Borrower Claim s.” But Section 13.2 of t he Purchase and Assum ption Agreem ent states that headings “are inserted for convenience only and

28 shall not affect the meaning or interpretation of this Agreement or any provision hereof.” Thus, the

Court declines to narrow Section 2.5’s scope to only borrower claims based on the section’s heading.

11

1 of a failed institution’s assets (and thus he lps to m inimize the governm ent’s financial

2 exposure) by allowing the [receiver] to ab sorb liabilities itself and guarantee potential

3 purchasers that the assets they buy are not encum bered by additional financial

4 obligations.” Payne v. Sec. Sav . & Loan Ass’n F.A. , 924 F.2d 109, 111 (7th Cir.

5 1991) (holding that FIRREA directs that the receiver “is the proper successor to the

6 liability” absent an express tra nsfer and assum ption of liability); see also William s v.

7 FDIC, No. CIV 2:07-2418 W BS GGH, 2009 WL 5199237, at *5 (E.D. Cal. 2009)

8 (“[A]n assuming bank would rarely be inclin ed to enter a P & A agreement with the

9 FDIC knowing tha t it could be taking on unidentified liab ilities of undefined

10 dimensions that could arise at some uncertain date in the future.”).

11

Finally, the Court turns to the City’s contention that Chase has m ounted only a

12 facial attack under Rule 12(b)(1), requi ring this Court to accept as true the City’s

13 allegation that Chase assu med liability for the claims at issue. The City’s argumen t

14 fails for two reasons. First, the Court is not required to accept conclusory allegations

15 as true. Sprewell, 266 F.3d at 988. Second, the Cour t is merely interpreting the plain

16 language of the Purchase and Assum ption Agreement that the City explicitly

17 incorporates into the Complaint. ( See Compl. ¶¶ 27–28.) The Court’s analysis here

18 does not extend beyond t he pleadings. Theref ore, whether Chase is facially or

19 factually attacking jurisdiction, or both, is irrelevant because the Court’s lim its its

20 analysis to a facial attack on the Complaint.

21

For the reasons disc ussed above, the Court fi nds that FIRREA bars this Court

22 from hear ing the City’s claims as they relate to WaMu ’s discrim inatory lending

23 practices. The City was requi red to exhaust its claim s relating to WaMu with FDIC,

24 which the City has not allege d. Accordingl y, the City’s allegations against Chase

25 relating to WaMu’s conduct are DISMISSED.

26 B. Leave to Amend

27

The Court’s analysis up to this point ha s focused on the City’s allegatio ns with

28 respect to the conduct of WaMu. But the Complaint’s allegations are not lim ited to

12

1 WaMu’s discrim inatory lending. The Com plaint also includes a llegations related to

2 Chase’s own lending practices, duri ng and after the purchase of WaMu’s assets.

3 Therefore, the Court must de termine wh ether the City has adequately stated a claim

4 against Chase after excising all of the a llegations related to WaMu’s conduct. See

5 Benson, 673 F.3d at 1216 (holding that when a plaintiff includes allegations of both a

6 failed bank and a purc hasing bank, courts “frequently dism iss those portions of a

7 claim that are barred while perm itting the remaining portion of a claim to go

8 forward.”)

9

The probl em here is that the Court ca nnot excise the allegations re lated to

10 WaMu from the remainder of the allegati ons. The City’s claim s are based on a

11 detailed regression analysis t hat lum ps loans issued by both Chase and WaMu

12 together. ( See Compl. ¶¶ 101–06.) Consequently, the statistics resulting from that

13 analysis take into account WaMu conduct ove r which thi s Court lacks jurisdicti on.

14 Moreover, the City also relies on five conf idential witness statements, but three of

15 those confidential witnesses worked for Wa Mu, and two of those three worked for

16 both Wa Mu and Chase. (Com pl. ¶¶ 61–93. ) The City also i ncludes “sam ple

17 foreclosure properti es” in the Com plaint—eight of which invol ved loans issued by

18 WaMu. (Compl. ¶ 145; RJN Exs. 1–8.)

19

The aggregation of t he regression analysis, the confidential witness statements,

20 and even the sample foreclosure properties is integral to this Court’s analysis of the

21 remainder of Chase’s gr ounds for dism issal. See City of L.A. v. Citigroup, Inc. , No.

22 2:13-cv-9009-ODW(RZx), 2014 WL 257155 8 (C.D. Cal. June 9, 2014); City of L.A.

23 v. Wells Fargo & Co. , No. 2:13-cv-9007-ODW(RZx), 2014 WL 2206368 (C.D. Cal.

24 May 28, 2014). But these key aspects of the Complaint are tainted with allegations of

25 conduct related to WaMu’s lending ac tivities. Accordingly, the Court DISMISSES

26 the Co mplaint in its entirety, but GRANTS LEAVE TO AMEND so that the City

27 may attempt to excise any allegations related to WaMu’s lending practices.

28 / / /

13

1

V. CONCLUSION

2

For the reasons discussed above, the Court GRANTS Defendants’ Motion to

3 Dismiss WITH LEAVE TO AM END. (ECF No. 28.) The Cit y shall file an

4 amended complaint no later than 21 days from the date of this Order.

5

IT IS SO ORDERED.

6

7

August 5, 2014

8

9

____________________________________

10

OTIS D. WRIGHT, II

UNITED STATES DISTRICT JUDGE

11

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 Case 2:14-cv-04168-ODW-RZ Document 41 Filed 08/26/14 Page 1 of 53 Page ID #:346

1 MICHAEL FEUER (SBN 111529) CITY ATTORNEY
2 mike.feuer@lacity.org JAMES P. CLARK (SBN 64780)
3 CHIEF DEPUTY CITY ATTORNEY james.p.clark@lacity.org
4 CITY OF LOS ANGELES 200 N. Main Street, Room 800
5 Los Angeles, CA 90012 Telephone: (213) 978-8100
6
STEVE W. BERMAN (pro hac vice) 7 steve@hbsslaw.com
HAGENS BERMAN SOBOL SHAPIRO LLP 8 1918 8th Avenue, Suite 3300
Seattle, WA 98101 9 Telephone: (206) 623-7292
Facsimile: (206) 623-0594
10
ELAINE T. BYSZEWSKI (SBN 222304) 11 elaine@hbsslaw.com
LEE M. GORDON (SBN 174168) 12 lee@hbsslaw.com
HAGENS BERMAN SOBOL SHAPIRO LLP 13 301 North Lake Avenue, Suite 203
Pasadena, CA 91101 14 Telephone: (213) 330-7150
Facsimile: (213) 330-7152
15
[Additional Counsel Listed on Signature Page]
16
Attorneys for Plaintiff the City of Los Angeles
17

18

UNITED STATES DISTRICT COURT

19

CENTRAL DISTRICT OF CALIFORNIA

20

CITY OF LOS ANGELES, a municipal ) No. 2:14-cv-04168-ODW-RZ

21 corporation,

)

)

22

Plaintiff, ) FIRST AMENDED

) COMPLAINT FOR

23

v.

) VIOLATION OF THE

) FEDERAL FAIR HOUSING

24 JPMORGAN CHASE & CO.;

) ACT

JPMORGAN CHASE BANK, N.A.; and )

25 CHASE MANHATTAN BANK USA, )

N.A.,

) DEMAND FOR JURY TRIAL

26

)

Defendants. )

27

)

28
FIRST AMEDNED COMPLAINT FOR VIOLATION OF THE FHA
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1

TABLE OF CONTENTS

2

Page

3 I. NATURE OF THE ACTION............................................................................... 1

4

A. JPMorgan Has Engaged in a Continuing Pattern of Discriminatory

5

Mortgage Lending Practices in Los Angeles Resulting in Foreclosures... 1

6 II. PARTIES ............................................................................................................ 10

7 III. JURISDICTION AND VENUE......................................................................... 12

8 IV. FACTUAL BACKGROUND ............................................................................ 13

9

A. Background Regarding Discriminatory Loan Practices, Reverse Redlining, and Redlining ......................................................................... 13

10 V. JPMORGAN ENGAGED IN DISCRIMINATORY LENDING

11

PRACTICES....................................................................................................... 16

12

A. JPMorgan’s Conduct Had a Disparate Impact on Minority Borrowers in Violation of the Fair Housing Act ........................................................... 16

13

1. Discriminatory lending results in a disproportionate number of

14

foreclosures in minority areas........................................................ 16

15

2. Minority neighborhoods are disproportionate recipients of predatory loans............................................................................... 18

16

B. JPMorgan Intentionally Discriminated Against Minority Borrowers in

17

Violation of the Fair Housing Act, as Demonstrated by Former Bank Employees ................................................................................................ 23

18

C. Minorities in Fact Receive Predatory Loan Terms from JPMorgan........ 28

19

D. Minorities in Los Angeles Receive Such Predatory Loan Terms from

20

JPMorgan Regardless of Creditworthiness .............................................. 29

21

E. JPMorgan’s Targeting of Minorities who in Fact Receive Predatory Loan Terms Regardless of Creditworthiness Causes Foreclosures ......... 32

22

1. Data shows that JPMorgan’s foreclosures are disproportionately

23

located in minority neighborhoods in Los Angeles....................... 32

24

2. Data shows that JPMorgan’s loans to minorities result in especially quick foreclosures. ........................................................ 34

25

3. Data shows that the discriminatory loan terms cause the

26

foreclosures. ................................................................................... 35

27

VI. INJURY TO LOS ANGELES CAUSED BY JPMORGAN’S DISCRIMINATORY LOAN PRACTICES....................................................... 38

28

FIRST AMENDED COMPLAINT

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FOR VIOLATION FO THE FHA

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1

A. Los Angeles has been Injured by a Reduction in Property Tax Revenues

from Foreclosures Caused by Discriminatory Loans Issued by

2

JPMorgan ................................................................................................. 38

3

1. The decreased value of the properties foreclosed by JPMorgan

result in reduced property tax revenues. ........................................ 39

4

2. The decreased value of properties in the neighborhoods

5

surrounding foreclosed properties results in reduced property tax

revenues. ........................................................................................ 39

6

B. Los Angeles Is Injured Because It Still Must Provide Costly Municipal

7

Services for Properties in Minority Neighborhoods that Have Become

Vacant as a Direct Result of Discriminatory Loans Originated or

8

Purchased by JPMorgan........................................................................... 42

9 VII. SAMPLE FORECLOSURE PROPERTIES IN THE CITY OF

LOS ANGELES ................................................................................................. 43

10

VIII. STATUTE OF LIMITATIONS AND CONTINUING

11

VIOLATIONS DOCTRINE............................................................................... 44

12 IX. CLAIMS FOR RELIEF...................................................................................... 44

13 FIRST CLAIM FOR RELIEF (Violation of the Federal Fair Housing

Act, 42 U.S.C. §§ 3601, et seq.) ......................................................................... 44

14

SECOND CLAIM FOR RELIEF (Common Law Claim For

15

Restitution Based On California Law) ............................................................... 47

16 DEMAND FOR JURY TRIAL ................................................................................... 48

17 PRAYER FOR RELIEF .............................................................................................. 48

18

19

20

21

22

23

24

25

26

27

28
FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FHA
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1

I. NATURE OF THE ACTION

2

1. It is axiomatic that banks should not make discriminatory loans. Banks

3 must extend credit to minorities on equal terms as they do to other similarly situated

4 borrowers. Banks should not target minority neighborhoods for loans that

5 discriminate nor make loans to minorities on terms that are worse than those offered to

6 whites with similar credit characteristics. When banks engage in such discriminatory

7 conduct, the misconduct has profound financial consequences for the cities in which

8 mortgaged properties exist, and banks should be responsible for those financial

9 consequences. Banks should reimburse the City for lost tax revenues due to

10 discriminatory lending. And banks should pay the costs of repairing and maintaining

11 properties that go into foreclosure due to discriminatory lending. This lawsuit arises

12 because JPMorgan breached these legally mandated obligations and foreseeably

13 injured the City of Los Angeles.

14 A. JPMorgan Has Engaged in a Continuing Pattern of Discriminatory Mortgage Lending Practices in Los Angeles Resulting in Foreclosures
15
2. This suit is brought pursuant to the Fair Housing Act of 1968 (“FHA”), as
16
17 amended, 42 U.S.C. §§ 3601, et seq., by the City of Los Angeles (“Los Angeles” or “City”) to seek redress for injuries caused by JPMorgan’s1 (“JPMorgan” or “the
18
Bank”) pattern or practice of illegal and discriminatory mortgage lending.
19
Specifically, Los Angeles seeks injunctive relief and damages for the injuries caused
20
by foreclosures on JPMorgan’s loans in minority neighborhoods and to minority
21
borrowers that are the result of JPMorgan’s unlawful and discriminatory lending
22

23

1 Defendants collectively are referred to as “JPMorgan,” including: JPMorgan

24

Chase & Co., JPMorgan Chase Bank, N.A., JPMorgan Chase, and Chase Manhattan Bank USA, N.A. JPMorgan Chase & Co. is the result of the combination of several

25

large U.S. banking companies over the last decade including JPMorgan Manhattan Bank, J.P. Morgan & Co., Bank One, Bear Stearns and Washington Mutual.

26

Accordingly, Plaintiff alleges that Defendants are also liable for residential home loans and lending operations acquired from, and/or sold by or through, Bear Stearns

27

Residential Mortgage, Chase Manhattan Mortgage Corporation, Encore Credit Corporation, Performance Credit Corporation, JPE Home Finance LLC, and Bravo

28 Credit Corp.

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1 practices. The unlawful conduct alleged herein consists of both intentional

2 discrimination and disparate impact discrimination.

3

3. JPMorgan has engaged in a continuous pattern and practice of mortgage

4 discrimination in Los Angeles since at least 2004 by imposing different terms or

5 conditions on a discriminatory and legally prohibited basis. In order to maximize

6 profits at the expense of the City of Los Angeles and minority borrowers, JPMorgan

7 adapted its unlawful discrimination to changing market conditions. This unlawful

8 pattern and practice is continuing through the present and has not terminated.

9 Therefore, the operative statute of limitations governing actions brought pursuant to

10 the Federal Fair Housing Act has not commenced to run.

11

4. The pattern and practice of lending discrimination engaged in by

12 JPMorgan consists of traditional redlining2 and reverse redlining,3 both of which have

13 been deemed to violate the FHA by federal courts throughout the country. JPMorgan

14 engaged in redlining, and continues to engage in said conduct, by refusing to extend

15 mortgage credit to minority borrowers in Los Angeles on equal terms as offered to

16 non-minority borrowers. JPMorgan engaged in reverse redlining, and continues to

17 engage in said conduct, by extending mortgage credit on predatory terms to minority

18 borrowers in minority neighborhoods in Los Angeles on the basis of the race or

19 ethnicity of its residents. Federal Reserve Chairman Ben Bernanke recently

20 acknowledged these twin evils of mortgage discrimination and explained that both

21 types of mortgage discrimination “continue to have particular significance to mortgage 22 markets.”4

23

24

2 Redlining is the practice of denying credit to particular neighborhoods based on

25

race. 3 Reverse redlining is the practice of flooding a minority community with

26 exploitative loan products.

27

4 Remarks by Federal Reserve Chairman Ben Bernanke at the Operation HOPE Global Financial Dignity Summit, Atlanta, Georgia at pg. 10 (November 15, 2012)

28 available at www.federalreserve.gov/newsevents/speech/bernanke20121115a.htm.

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1

5. Major banks such as JPMorgan have a long history of engaging in

2 redlining throughout Los Angeles. That practice began to change in the late 1990s,

3 when JPMorgan adapted to changing market conditions and began to flood historically

4 underserved minority communities with mortgage loans that consisted of a variety of

5 high cost and abusive mortgage loan products with predatory terms as compared to the

6 mortgage loans issued to white borrowers (reverse redlining).

7

6. JPMorgan’s discriminatory lending practices have the purpose and effect

8 of placing vulnerable, underserved borrowers in loans they cannot afford. Reverse

9 redlining maximizes JPMorgan’s profit without regard to the borrower’s best interest,

10 the borrower’s ability to repay, or the financial health of underserved minority

11 neighborhoods. Moreover, JPMorgan has averted any significant risk to itself by

12 selling the vast majority of mortgage loans it originates or purchases on the secondary

13 market (collectively “JPMorgan Loans”).

14

7. Between 1996-2006, one category of discriminatory loan products –

15 subprime loans – grew throughout the country from $97 billion to $640 billion. These

16 loans were frequently targeted to minorities. Upon information and belief, the lack of

17 accessible credit resulting from JPMorgan’s previous pattern and practice of redlining

18 in the minority communities in Los Angeles created conditions whereby the Bank could

19 easily target and exploit the underserved minority communities who due to traditional

20 redlining had been denied credit.

21

8. Thereafter, following several years of issuing abusive, subprime

22 mortgage loans throughout the minority communities of Los Angeles, commencing in

23 or around 2007, JPMorgan once again adapted to changing market conditions while

24 continuing its pattern and practice of issuing a variety of discriminatory loan products.

25 Simultaneously, JPMorgan also decided to curtail the issuance of mortgage credit to

26

27

28
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1 minority borrowers in Los Angeles.5 In other words, JPMorgan not only refused to

2 extend credit to minority borrowers when compared to white borrowers, but when the

3 Bank did extend credit, it did so on predatory terms. This combination of reverse

4 redlining and redlining represents a continuing and unbroken pattern and practice of

5 mortgage lending discrimination in Los Angeles that still exists today.

6

9. JPMorgan’s pattern and practice of reverse redlining has caused an

7 excessive and disproportionately high number of foreclosures on the JPMorgan Loans

8 it has made in the minority neighborhoods of Los Angeles. Foreclosures on loans

9 originated by JPMorgan are concentrated in these neighborhoods even though the bulk

10 of JPMorgan’s lending in Los Angeles is in white neighborhoods. A loan in a

11 predominantly minority neighborhood is 5.174 times more likely to result in

12 foreclosure than is a loan in a predominantly white neighborhood.

13

10. JPMorgan’s pattern and practice of traditional redlining has also caused

14 an excessive and disproportionately high number of foreclosures in the minority

15 neighborhoods of Los Angeles. These foreclosures often occur when a minority

16 borrower who previously received a predatory loan sought to refinance the loan, only

17 to discover that JPMorgan refused to extend credit at all, or on equal terms as when

18 refinancing similar loans issued to white borrowers. The inevitable result of the

19 combination of issuing a predatory loan, and then refusing to refinance the loan, was

20 foreclosure.

21

11. JPMorgan would have had comparable foreclosure rates in minority and

22 white communities if it had properly and uniformly applied responsible underwriting

23 practices in both areas. JPMorgan possesses sophisticated underwriting technology

24 and data that allows it to predict with precision the likelihood of delinquency, default,

25 or foreclosure. The fact that JPMorgan’s foreclosures are so disproportionately

26

27

5 California Reinvestment Coalition, From Foreclosure to Re-Redlining (2010), at 4 (available at http://www.community-wealth.org/sites/clone.community-

28 wealth.org/files/downloads/report-stein-gwynn.pdf).

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1 concentrated in minority neighborhoods is not the product of random events. To the

2 contrary, it reflects and is fully consistent with JPMorgan’s practice of targeting

3 minority neighborhoods and customers for discriminatory practices and predatory

4 pricing and products. It also reflects and is consistent with JPMorgan’s practice of

5 failing to underwrite minority borrowers’ applications properly, and of putting these

6 borrowers into loans which (1) have more onerous terms than loans given to similarly

7 situated white borrowers, and (2) the borrowers cannot afford, leading to foreclosures.

8

12. The Bank’s discriminatory lending practices are evidenced by

9 information from confidential witness statements provided by former employees of

10 JPMorgan (discussed further herein). For example:

11

a) “The loans just weren’t going through in that

12

[minority neighborhood]. It wasn’t worth it [to the

Bank] to have someone there.”

13

b) “The purpose of the [HAMP] program was to get

14

people out of these bad loans, and the banks refused to

do it. To find out “how they are discriminating, look

15

at the position of the branches. That’s going to show

you.” JPMorgan is opening “huge numbers” of

16

branches across California, “but none of this is

happening in minority neighborhoods. That, in itself,

17

is the biggest indication of discrimination that you can

find.” “The redlining and stuff like that, that still goes

18

on.”

19

c) “The people who didn’t understand English and stuff

like that” tended to face higher interest rates. “There

20

were a lot of things with which I didn’t agree” at the

Bank. “A lot of times there was no mercy,” pushing

21

borrowers into foreclosure while loan modifications

were pending.

22

13. The reports of these witnesses are confirmed when Los Angeles data on

23

JPMorgan loans is examined. Such an examination reveals a widespread practice of

24

discrimination. For example, a regression analysis that controls for credit history and

25

other factors demonstrates that an African-American JPMorgan borrower was 2.783

26

times more likely to receive a predatory loan than a white borrower, and a Latino

27

borrower 2.656 times more likely. The regression analysis confirms that African-

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FHA
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1 Americans with FICO scores over 660 are 2.389 times more likely to receive a

2 predatory JPMorgan loan than a white borrower, and a Latino borrower 2.423 times

3 more likely.

4

14. The Office of the Comptroller of the Currency and the Board of

5 Governors of the Federal Reserve System brought an action alleging that certain large

6 banks, including JPMorgan, engaged in mortgage lending related misconduct that

7 induced a national foreclosure crisis. In connection with that action, JPMorgan

8 entered into a settlement agreement with the government pursuant to which JPMorgan

9 will: (a) make a cash payment of $753 million into a settlement fund for distribution

10 to qualified borrowers; and (b) provide an additional $1.2 billion to foreclosure

11 prevention actions.

12

15. In 2012, JPMorgan Chase and four other large mortgage servicers agreed

13 to a global settlement with the U.S. Department of Justice, the U.S. Department of

14 Housing and Urban Development, the Consumer Financial Protection Bureau, and the

15 state attorneys general. The settlement relates to unethical mortgage origination and

16 servicing activities similar to the activities alleged herein. Under the settlement,

17 JPMorgan will make cash payments of approximately $1.1 billion to 50 states (with a

18 set aside to certain borrowers); offer approximately $500 million of refinancing to

19 certain borrowers; and provide approximately $3.7 billion of additional payments for

20 certain borrowers.

21

16. The past several years have been highly profitable for JPMorgan.

22 According to recent press releases, the Bank generated a record amount of (i) net

23 income ($19.9 billion) and (ii) diluted earnings per share ($5.22). The following charts

24 illustrate these results.

25

26

27

28
FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FHA
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1

Net Income (millions)

2

$20,000

3
$18,000

4
$16,000
5
$14,000
6

$12,000
7

8

$10,000

9

$8,000

10

$6,000

2009

2010

2011

2012

11

12

13

Earnings per share

14

$6.00

15

$5.00

16
$4.00

17

18

$3.00

19

$2.00

20

$1.00

21
$0.00

22

2009

2010

2011

2012

23

24

17. At the same time that JPMorgan achieved record financial success, the

25 Bank’s discriminatory practices and resulting foreclosures in the City’s minority

26 neighborhoods have inflicted significant, direct, and continuing financial harm to the

27

28
FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FHA
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1 City. Since 2008, banks have foreclosed on approximately 1.7 million homes in

2 California, and JPMorgan is responsible for a significant number of these foreclosures.

3

18. In addition to reverse redlining, JPMorgan has induced foreclosures since

4 2009 by failing to extend branch support to minority neighborhoods, pulling existing

5 Bank support from minority neighborhoods, declining to offer refinancings or loan

6 modifications to minority customers on fair terms, and otherwise denying minority

7 borrowers equal access to fair credit.

8

19. One report6 has estimated the impact that the City of Los Angeles has

9 suffered due to discriminatory lending practices by all lenders as follows:

10

 Overall, Los Angeles homeowners are estimated to have

11

lost $78.8 billion in home values as a direct result of the 200,000 foreclosures for 2008-2012 alone.

12

13

 Property tax revenue losses are estimated to be $481 million in the wake of the foreclosure crisis.

14

 The typical foreclosure costs local governments more

15

than $19,000 for increased costs of safety inspections,

16

police and fire calls, trash removal, and property

maintenance. In Los Angeles, these costs are estimated

17

to be $1.2 billion.

18

 Los Angeles has 79,029 homeowners underwater totaling

19

$7.3 billion in loan value. If banks wrote down those

20

mortgages, it could pump $780 million into the local economy and create 11,353 jobs.

21

22

20. In this action the City seeks damages for reduced property tax revenues

23 based on (a) the decreased value of the foreclosed properties themselves, and (b) the

24 decreased value of properties surrounding the foreclosed properties. In addition, the

25 City seeks damages based on the expenditure of municipal services that will be

26

27

6 Alliance of Californians for Community Empowerment and the California Reinvestment Coalition, The Wall Street Wrecking Ball: What Foreclosures are

28 Costing Los Angeles Neighborhoods (September 2011).

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1 required to remedy the blight and unsafe and dangerous conditions which exist at

2 vacant properties that were foreclosed as a result of JPMorgan’s illegal lending

3 practices.

4

21. Because of the multitude of analytic tools available to JPMorgan to

5 determine the likelihood that a particular mortgage loan would result in default by the

6 borrower, as well as the existence of various studies, reports, and other pertinent

7 literature specifically addressing the connection between mortgage loans and

8 foreclosures, it was foreseeable that JPMorgan knew, or should have known, that a

9 predatory or high risk loan issued to an African-American or Hispanic in certain

10 neighborhoods in Los Angeles would result in default and subsequent foreclosure.

11 Moreover, because JPMorgan maintains numerous branch offices throughout Los

12 Angeles, and has knowledge of the specific address for each loan it issued, it was

13 foreseeable that JPMorgan knew, or should have known, of the condition of foreclosed

14 properties corresponding to loans that it issued in Los Angeles regardless of whether it

15 serviced the loan or subsequently sold the servicing rights to a third party.

16

22. According to Federal Reserve Chairman Bernanke, “foreclosures can

17 inflict economic damage beyond the personal suffering and dislocation that

18 accompany them. Foreclosed properties that sit vacant for months (or years) often

19 deteriorate from neglect, adversely affecting not only the value of the individual

20 property but the values of nearby homes as well. Concentrations of foreclosures have

21 been shown to do serious damage to neighborhoods and communities, reducing tax

22 bases and leading to increased vandalism and crime. Thus, the overall effect of the

23 foreclosure wave, especially when concentrated in lower-income and minority areas,

24 is broader than its effects on individual homeowners.”7

25

23. The discriminatory lending practices at issue herein have resulted in what

26 many leading commentators describe as the “greatest loss of wealth for people of color

27

28

7 Bernanke, supra n.4 at pg. 4.

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1 in modern US history.” It is well-established that poverty and unemployment rates for

2 minorities exceed those of whites, and therefore, home equity represents a

3 disproportionately high percentage of the overall wealth for minorities.8 Indeed,

4 between 2005-2009, the median wealth of Latino households decreased by 66 percent,

5 and the median wealth of African-American households decreased by 53 percent,

6 while the median wealth of white households decreased just 16 percent.9 As Federal

7 Reserve Chairman Bernanke recently explained, as a result of the housing crisis,

8 “most or all of the hard-won gains in homeownership made by low-income and

9 minority communities in the past 15 years or so have been reversed.”10 The resulting

10 impact of these practices represents “nothing short of the preeminent civil rights issue

11 of our time, erasing, as it has, a generation of hard fought wealth accumulation among

12 African Americans.”11

13

II. PARTIES

14

24. Plaintiff City of Los Angeles is a municipal corporation, organized

15 pursuant to Article XI of the California Constitution. The City is authorized by the

16 City Council to institute suit to recover damages suffered by the City as described

17 herein.

18

25. Defendant JPMorgan Chase & Co. (“JPMorgan & Co.”), headquartered

19 in New York, New York, operates under two brand names: JPMorgan and

20 J.P.Morgan. The U.S. consumer and commercial banking businesses operate under

21 the JPMorgan brand, and include its home finance and home equity loan business.

22

8 Robert Schwemm and Jeffrey Taren, Discretionary Pricing, Mortgage

23 LDIiBscErRiTmIEinSaLtiAoWn,RaEnVd.th3e75F,a3i8r2H(o2u0s1i0n)g. Act, 45 HARVARD CIVIL RIGHTS-CIVIL

24

9 Alliance of Californians for Community Empowerment, California in Crisis:

25 Hpgo.w6 WaveallislaFbalergaot ’ws wFowr.eccalloosrugraeniPziep.oerlign.e is Damaging Local Communities (2013)

26

10 Bernanke, supra n.2 at pg. 3.

27

11 Charles Nier III and Maureen St. Cyr, A Racial Financial Crisis: Rethinking the Theory of Reverse Redlining to Combat Predatory Lending Under the Fair Housing

28 Act, 83 TEMPLE LAW REV. 941, 942 (2011).

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1 JPMorgan & Co., in its current structure, is the result of the combination of several

2 large U.S. banking companies over the last decade including JPMorgan Manhattan

3 Bank, J.P. Morgan & Co., Bank One, Bear Stearns and Washington Mutual. Upon

4 information and belief, Plaintiff alleges that JPMorgan & Co. owns and/or operates

5 JPMorgan Chase Bank, N.A. and JPMorgan Manhattan Bank USA, N.A. JPMorgan

6 & Co.’s operates a Consumer & Community Banking segment, which includes a

7 mortgage banking business (i.e., mortgage production, servicing, and real estate

8 portfolios).

9

26. According to JPMorgan’s 2012 10-K, “Mortgage Banking includes

10 mortgage origination and servicing activities, as well as portfolios comprised of

11 residential mortgages and home equity loans.

12

27. Defendant JPMorgan Chase Bank, N.A. (“JPMorgan Bank”) is organized

13 as a national banking association under the laws of the United States. Upon

14 information and belief, its corporate headquarters are located in New York, New York.

15 It maintains multiple offices in the State of California and specifically in the City of

16 Los Angeles, for the purposes of soliciting applications for and making residential

17 mortgage loans and engaging in other business activities. JPMorgan Bank also

18 acquired JPMorgan Manhattan Bank USA, N.A. (“JPMorgan Manhattan”).

19

28. Defendant Chase Manhattan Bank USA, N.A. is headquartered in New

20 York, New York. Upon information and belief, Plaintiffs allege that JPMorgan

21 Manhattan engaged in residential mortgage lending in California and other states

22 throughout the country.

23

29. The Defendants in this action are, or were at all relevant times, subject to

24 Federal laws governing fair lending, including the FHA and the regulations

25 promulgated under each of those laws. The FHA prohibits financial institutions from

26 discriminating on the basis of, inter alia, race, color, or national origin in their

27 residential real estate-related lending transactions.

28
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1

30. The Defendants in this action are or were businesses that engage in

2 residential real estate-related transactions in the City of Los Angeles within the

3 meaning of the FHA, 42 U.S.C. § 3605.

4

31. Based on information reported pursuant to the Home Mortgage

5 Disclosure Act, in addition to loans that JPMorgan originated directly, Defendants are

6 responsible for residential home loans acquired from, and/or sold by or through, JPE

7 Home Finance LLC, , Encore Credit Corp., Bear Stearns Residential Mortgage,

8 Performance Credit Corp., and Bravo Credit Corp.

9

32. Upon information and belief, Plaintiff alleges that each of the Defendants

10 was and is an agent of the other Defendants. Each Defendant, in acting or omitting to

11 act as alleged in this Complaint, was acting in the course and scope of its actual or

12 apparent authority pursuant to such agencies, and/or the alleged acts or omissions of

13 each Defendant as agent were subsequently ratified and adopted by each agent as

14 principal. Each Defendant, in acting or omitting to act as alleged in this Complaint,

15 was acting through its agents, and is liable on the basis of the acts and omissions of its

16 agents.

17

III. JURISDICTION AND VENUE

18

33. This Court has jurisdiction over this matter pursuant to 42 U.S.C. § 3613

19 and 28 U.S.C. §§ 1331, 1343, because the claims alleged herein arise under the laws

20 of the United States.

21

34. Venue is proper in this district under 28 U.S.C. § 1391(b) because

22 JPMorgan conducts business in this district and a substantial part of the events and

23 omissions giving rise to the claims occurred in this district.

24

25

26

27

28
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1

IV. FACTUAL BACKGROUND

2 A. Background Regarding Discriminatory Loan Practices, Reverse Redlining, and Redlining
3
35. Prior to the emergence of subprime lending, most mortgage lenders made
4
only “prime” loans. Prime lending offered uniformly priced loans to borrowers with
5
good credit, but individuals with lower credit were not eligible for prime loans.
6
36. Subprime lending developed and began growing rapidly in the mid-1990s
7
as a result of technological innovations in risk-based pricing and in response to the
8
demand for credit by borrowers who were denied prime credit by traditional lenders.
9
Advances in automated underwriting allowed lenders to predict with improved
10
accuracy the likelihood that a borrower with lower credit will successfully repay a
11
loan. These innovations gave lenders the ability to adjust the price of loans to match
12
the different risks presented by borrowers whose credit records did not meet prime
13
standards. Lenders found that they could now accurately price loans to reflect the
14
risks presented by a particular borrower. When done responsibly, this made credit
15
available much more broadly than had been the case with prime lending.
16
37. Responsible subprime lending has opened the door to homeownership to
17
many people, especially low- to moderate-income and minority consumers, who
18
otherwise would have been denied mortgages. At the same time, however, subprime
19
lending has created opportunities for unscrupulous lenders to target minorities and
20
engage in discriminatory, irresponsible lending practices that result in loans that
21
borrowers cannot afford. This, in turn, leads directly to defaults and foreclosures.
22
38. Enticed by the prospect of profits resulting from exorbitant origination
23
fees, points, and related pricing schemes, some irresponsible subprime lenders took
24
advantage of a rapidly rising real estate market to convince borrowers to enter into
25
discriminatory loans that had unfair terms that they could not afford. Often this was
26
accomplished with the help of deceptive practices and promises to refinance at a later
27
date. These abusive subprime lenders did not worry about the consequences of default
28

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1 or foreclosure to their business because, once made, a significant number of the loans

2 were sold on the secondary market.

3

39. As the subprime market grew, the opportunities for abusive practices

4 grew with it. As a consequence, the federal government has found that abusive and

5 predatory practices “are concentrated in the subprime mortgage market.”12 These

6 practices, which in recent years have become the target of prosecutors, legislators, and

7 regulators, include the following:

8

a. Placing borrowers in subprime loans even though they qualify for

9 loans on better terms.

10

b. Failing to prudently underwrite hybrid adjustable rate mortgages

11 (ARMs), such as 2/28s and 3/27s.13 After the borrower pays a low “teaser rate” for the

12 first two or three years, the interest rate on these loans resets to a much higher rate that

13 can continue to rise based on market conditions. Subprime lenders often underwrite

14 these loans based only on consideration of whether the borrower can make payments

15 during the initial teaser rate period, without regard to the sharply higher payments that

16 will be required for the remainder of a loan’s 30-year term. Irresponsible lenders

17 aggressively market the low monthly payment that the borrower will pay during the

18 teaser rate period, misleading borrowers into believing that they can afford that same

19 low monthly payment for the entire 30-year term of the loan, or that they can refinance

20 their loan before the teaser rate period expires.

21

c. Failing to prudently underwrite refinance loans, where borrowers

22 substitute unaffordable mortgage loans for existing mortgages that they are well-suited

23

24

12 United States Department of Housing & Urban Development and United States Department of the Treasury, Curbing Predatory Home Mortgage Lending (2000), at 1

25 (Raevpaoilrat”b)l.e at http://www.huduser.org/Publications/pdf/treasrpt.pdf) (“HUD/Treasury

26

13 In a 2/28 ARM, the “2” represents the number of years the mortgage will be fixed

27

over the term of the loan, while the “28” represents the number of years the interest rate paid on the mortgage will be variable. Similarly, in a 3/27 ARM, the interest rate

28 is fixed for three years and variable for the remaining 27-year amortization.

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1 for and that allow them to build equity. Such refinanced loans strip much or even all

2 of that equity by charging substantial new fees, often hiding the fact that the high

3 settlement costs of the new loan are also being financed. Lenders that aggressively

4 market the ability of the borrower to pay off existing credit card and other debts by

5 refinancing all of their debt into one mortgage loan mislead borrowers into believing

6 that there is a benefit to debt consolidation, while obscuring the predictable fact that

7 the borrower will not be able to repay the new loan. The refinanced loans are

8 themselves often refinanced repeatedly with ever-increasing fees and higher interest

9 rates, and with ever-decreasing equity, as borrowers seek to stave off foreclosure.

10

d. Allowing mortgage brokers to charge “yield spread premiums” for

11 qualifying a borrower for an interest rate that is higher than the rate the borrower

12 qualifies for and can actually afford.

13

e. Failing to underwrite loans based on traditional underwriting

14 criteria such as debt-to-income ratio, loan-to-value ratio, FICO score, and work

15 history. Properly applying these criteria ensure that a borrower is obtaining a loan that

16 he or she has the resources and assets to repay, and ignoring them results in many

17 loans that bear no relation to borrowers’ ability to repay them. This allows the lender

18 to make a quick profit from the origination, but sets the borrower up for default and

19 foreclosure.

20

f. Requiring substantial prepayment penalties that prevent borrowers

21 whose credit has improved from refinancing their subprime loan to a prime loan.

22 Prepayment penalties not only preclude borrowers from refinancing to a more

23 affordable loan, but reduce the borrowers’ equity when a subprime lender convinces

24 borrowers to needlessly refinance one subprime loan with another.

25

g. Charging excessive points and fees that are not associated with any

26 increased benefits for the borrower.

27

28
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1

40. The problem of predatory practices in mortgage lending is particularly

2 acute in minority communities because of “reverse redlining.” As used by Congress

3 and the courts, the term “reverse redlining” refers to the practice of targeting residents

4 in certain geographic areas for credit on unfair terms due to the racial or ethnic

5 composition of the area. This is in contrast to “redlining,” which is the practice of

6 denying equal access to credit to specific geographic areas because of the racial or

7 ethnic composition of the area. Both practices have repeatedly been held to violate the

8 Federal Fair Housing Act.

9

41. Following the onset of the subprime mortgage crisis, and after years of

10 issuing abusive home loans in minority neighborhoods, the big bank lenders began to

11 limit the issuance of mortgage credit to minority borrowers (i.e., refusing to refinance

12 predatory loans). At the same time, when the big banks did extend credit, they

13 continued to do so on predatory terms.

14

V. JPMORGAN ENGAGED IN DISCRIMINATORY LENDING

PRACTICES
15

A. JPMorgan’s Conduct Had a Disparate Impact on Minority Borrowers in

16

Violation of the Fair Housing Act

17

1. Discriminatory lending results in a disproportionate number of

foreclosures in minority areas.

18

42. Foreclosures are on the rise in many of the nation’s most vulnerable

19

neighborhoods, particularly those with substantial concentrations of minority

20

households. The increase appears to stem from the growing presence of (1) non-

21

conventional lending in these communities and (2) continuing discriminatory lending

22

23 practices (e.g., steering minorities into loan products with more onerous terms – which

happen to be more profitable for JPMorgan).

24

43. A seminal report on foreclosure activity by Mark Duda and William

25

Apgar documents the negative impact that rising foreclosures have on low-income and

26

low-wealth minority communities, using Chicago as a case study. Mr. Apgar is a

27

Senior Scholar at the Joint Center for Housing Studies of Harvard University, and a

28

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1 Lecturer on Public Policy at Harvard’s John F. Kennedy School of Government. He

2 previously served as the Assistant Secretary for Housing/Federal Housing

3 Commissioner at the U.S. Department of Housing and Urban Development, and also

4 Chaired the Federal Housing Finance Board. Mr. Apgar holds a Ph.D. in Economics

5 from Harvard University. Mr. Duda is a Research Fellow at the Joint Center for

6 Housing Studies. The Apgar-Duda report has continually been cited by subsequent

7 governmental, public sector, and private sector reports due to its clarity and

8 thoroughness with respect to the negative impact foreclosures have on lower-income 9 and minority neighborhoods.14

10

44. This significant report highlights the foreseeability of foreclosures arising

11 from predatory lending practices and their attendant harm, demonstrating that such

12 foreclosures impose significant and predictable costs on borrowers, municipal

13 governments, and neighboring homeowners.

14

45. Another report, by the Center for Responsible Lending, uses a national

15 dataset to show that the foreclosure rate for low- and moderate-income African-

16 Americans is approximately 1.8 times higher than it is for low- and moderate-income

17 non-Hispanic whites. The gap is smaller for Latinos, especially among low-income

18 households, but even among low-income Latinos the foreclosure rate is 1.2 times that

19 of low-income whites. Racial and ethnic disparities in foreclosure rates cannot be

20 explained by income, since disparities persist even among higher-income groups. For

21 example: approximately 10 percent of higher-income African-American borrowers

22 and 15 percent of higher-income Latino borrowers have lost their home to foreclosure,

23 compared with 4.6 percent of higher income non-Hispanic white borrowers. Overall,

24

25

26

14 See W. Apgar, M. Duda & R. Gorey, The Municipal Costs of Foreclosures: A

27 Chthtpic:/a/gwowCwa.snewS.oturgd/yn(e2tw00o5rk) /(naeviagihlabbolrewaotrksProgs/foreclosuresolutions/documents/2005

28 Apgar-DudaStudy- FullVersion.pdf).

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1 low- and moderate-income African-Americans and middle- and higher-income 2 Latinos have experienced the highest foreclosure rates.15

3

46. Nearly 20 percent of loans in high-minority neighborhoods have been

4 foreclosed upon or are seriously delinquent, with significant implications for the long5 term economic viability of these communities.16

6

2. Minority neighborhoods are disproportionate recipients of predatory

loans.

7

47. There is a substantial body of empirical evidence demonstrating the

8

prevalence of reverse redlining in the subprime mortgage market. These studies show

9

that, even after controlling for creditworthiness and other legitimate underwriting

10

factors, subprime loans and the predatory practices often associated with subprime

11

lending are disproportionately targeted at minority neighborhoods.17

12

48. In general, as recently observed by the Federal Reserve in December

13

2012, both African-American and Hispanic borrowers were far more likely (in fact,

14

nearly twice as likely) to obtain higher-priced loans than were white borrowers. These

15

relationships hold both for home-purchase and refinance lending and for non-

16

17

18

15 Center for Responsible Lending, Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures (2011) (available at www.responsiblelending.org/-

19

mortgage-lending/research-analysis/Lost-Ground-2011.pdf). 16 Id.

20

17 See Abt Associates, Using Credit Scores to Analyze High-Cost Lending in

21 C20e1n1tr:alDCisiptyaNrietiiegshibnoMrhoorotdgsag(2e0L0e8n)d; iCnegnatenrdfFororReecslpoosunrseibsl(e2L01en1d) i(nagv,aLiloasbtleGarot uwnwd,w.-

22

rCeesnptoenrsfiobrleRleensdpionngs.iobrlge/mLeonrdtginagge, -UlennfdaiinrgL/erensdeianrgc:hT-ahneaElyfsfeisc/tLoofstR-Gacreouanndd-E20th1n1i.cpidtyf

); on

23

the Price of Subprime Mortgages (2006) (available at http://www.responsiblelending.org/mortgage-lending/research-analysis/rr011-

24

Unfair_Lending-0506.pdf); Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C,

25 hStutbpp:/r/iwmwewM.nobrtegra.ogregs/:paWphearst/,wW1h4e0r8e3,.apnddf?tnoeWw_hwomin?do(2w0=018));(aCv.aRileaibdleanadt E. Laderman,

26 27

Federal Reserve Bank of San Francisco, The Untold Costs of Subprime Lending: EChtxataplim:f/o/iirnanisnipag.,btPrharenesdLeeinnistke.seddaaumt/poBdnrfgasn/HAdieugitshheUorr-n/Prievrieidcr-esidtyL(e2n0d0in9g) ,(aFvoarielcalbolseuaret s and Race in

28 carolin/The%20Untold%20Costs%20of%20Subprime%20Lending%203.pdf ).

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1 conventional loans. These differences are reduced, but not eliminated, after

2 controlling for lender and borrower characteristics. “Over the years, analyses of

3 HMDA data have consistently found substantial differences in the incidence of higher-

4 priced lending [] across racial and ethnic lines, differences that cannot be fully 5 explained by factors included in the HMDA data.”18

6

49. African-Americans and Hispanics were much more likely to receive

7 subprime loans and loans with features that are associated with higher foreclosures,

8 specifically prepayment penalties and hybrid or option ARMs. These disparities were

9 evident even comparing borrowers within the same credit score ranges. In fact, the

10 disparities were especially pronounced for borrowers with higher credit scores. For

11 example, among borrowers with a FICO score of over 660 (indicating good credit),

12 African-Americans and Latinos received a high interest rate loan more than three 13 times as often as white borrowers.19

14

50. In addition to receiving a higher proportion of higher-rate loans, African-

15 Americans and Latinos also were much more likely to receive loans with other risky

16 features, such as hybrid and option ARMs and prepayment penalties. Disparities in 17 the incidence of these features are evident across all segments of the credit spectrum.20

18

51. A 2010 Report from the California Reinvestment Coalition finds: “[The]

19 hardest-hit communities are racially concentrated, low to moderate income areas of

20 African-Americans and Latinos that were saturated with high-cost, subprime lending

21 since 2000. Neighborhoods once redlined – where lenders refused to lend in

22 neighborhoods of color without regard to the actual financial qualifications of

23

24

18 Federal Reserve Bulletin, The Mortgage Market in 2011: Highlights from the

25 Dhtatpta://Rwewpowr.tfeeddeurnadlreerstehreveH.goomve/pMubosr/tbgualgleetiDn/i2sc0l1o2s/uPrDe FA/c2t0(1D1e_cH. M20D12A).p(advfa)i.lable at

26

19 Center for Responsible Lending, Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures (2011) (available at www.responsiblelending.org/-

27 mortgage-lending/research-analysis/Lost-Ground-2011.pdf).

28

20 Id.

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1 residents – were flooded in the past decade with high-cost subprime loans and abusive

2 option ARM loans. These loans were often unaffordable and unsustainable for

3 working class families, and inevitably led to large scale foreclosures. In the past two

4 years, borrowers and communities struggling to preserve their primary asset – their

5 home – have found that banks are not willing to work with them to restructure their

6 mortgages or to offer new loans.”21 Key findings from the 2010 Report include:

7

(a) In 2008, minority neighborhoods contained roughly

63% of the housing in Los Angeles, but suffered over

8

90% of the City’s foreclosures.

9

(b) While predatory and fraudulent lending helped

precipitate the foreclosure crisis, a wave of a resetting

10

option ARM loans threatens to keep California

immobilized by foreclosure beyond 2010.

11

(c) California cities are more likely than the national

12

average to be saturated with low documentation loans

(e.g., stated income loans). In Los Angeles, 74% of

13

all loans in the sample were made with limited

documentation, as compared to only 56% for all loans

14

in the sample.

15

(d) Minority neighborhoods saw a dramatic decrease in

lower cost prime loans in 2008. The drop off from

16

210/30rd6

to as

2008 many

was stunning. In prime loans were

Los Angeles, less than made available by big

17

bank lenders in minority neighborhoods in 2008, as

compared to 2006.

18

(e) In 2008, nearly one out of two African-Americans and

19

Latinos seeking a home loan or refinance were denied,

as compared to only about one in four whites.

20

(f) Even though high-cost lending began to decrease

21

significantly by 2008, when it occurred, it was still

more likely to occur in minority neighborhoods as

22

compared to white neighborhoods. The big bank

lenders still were more than twice as likely to sell

23

subprime loans in minority neighborhoods in Los

Angeles, as compared to white neighborhoods.

24

(g) In many cases, minority borrowers were overburdened

25

not only by subprime lending but by other onerous

loan terms, such as prepayment penalties, yield spread

26

27

21 California Reinvestment Coalition, From Foreclosure to Re-Redlining (2010) (available at http://www.community-wealth.org/sites/clone.community-

28 wealth.org/files/downloads/report-stein-gwynn.pdf ).

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1

premiums, option ARMs, and HELOCs, all of which

have been conducive to foreclosures.

2

(h) In a March 2009 survey, two-thirds of housing

3

counselors reported that they believed borrowers of

color were receiving worse foreclosure prevention

4

outcomes than white borrowers.

5

(i) In the wake of the subprime meltdown, as

underwriting tightened for all loans, higher cost FHA

6

mortgage loans were the “only game in town” left for

many new homebuyers.

7

52. Since 2008, as the data discussed below makes clear, there has been a

8

shift in the types of loans issued – and not issued – by the Bank. For example, the

9

Bank shifted from offering new subprime loans toward issuing more Home Equity

10

Lines of Credit (“HELOCs”) and higher cost FHA/VA loans.22 FHA and VA

11

government loans are characterized as higher risk loans because they are typically

12

more expensive for a borrower than conventional loans and include fees and costs not

13

associated with conventional loans.23 Additionally, this fact is further corroborated by

14

the FHA/VA Mortgage Programs webpage for one of the defendant banks in the

15

City’s predatory lending cases – Wells Fargo. According to Wells Fargo’s website:

16

(a) “In many instances, you may find FHA to be a more expensive financing option

17

and should be considered after thoroughly evaluating all other product options that

18

meet your credit qualifying and financial needs;” (b) “You typically have to pay

19

upfront and monthly FHA mortgage insurance premiums;” and (c) “You typically

20

have to pay a one-time VA funding fee that can be financed into the loan amount.”24.

21

22
22 While FHA/VA loans are not inherently predatory, these loans have higher risk 23 features such as higher fees and higher interest rates. When banks target minorities for
FHA/VA loans and issue more of them to minorities, they are acting in a 24 discriminatory manner.

25

23 California Reinvestment Coalition, et al., Paying More for the American Dream VI, Racial Disparities in FHA/VA Lending (July 2012); www.fha.com/fha_loan_types;

26 www.benefits.va.gov/homeloans.

27

24 https://www.wellsfargo.com/mortgage/loan-programs/fha-va-loans.

28

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1

53. At the same time, in the last several years, the Bank tightened lending

2 requirements in a manner that drastically limited the ability of minority borrowers to

3 refinance or otherwise modify the subprime loans previously issued by the Bank.

4

54. A 2011 Report from the California Reinvestment Coalition found that,

5 between 2008 and 2009, in Los Angeles, the number of conventional refinance loans

6 made in predominantly white neighborhoods more than doubled (increasing by about

7 200%), while conventional refinance loans declined in the City’s minority

8 neighborhoods, where such refinancing was most desperately needed.25

9

55. While at the same time that conventional credit has contracted over the

10 past five years, FHA lending has expanded dramatically. During the subprime boom,

11 FHA lending fell as subprime lenders targeted minority communities. Now, with little

12 or no subprime lending, and conventional credit restricted, FHA lending has shot up.

13 Overall, the share of loans with government backing went from 5% in 2005 to 26.6%

14 in 2010.26

15

56. For African-Americans, the share of mortgages used to purchase a home

16 and backed by a government program increased to almost 80% in 2010; for Latinos

17 the share increased to 73%. But for whites, the share increased to only 49%. At

18 present, most minority borrowers cannot gain access to the conventional mortgage

19 market, and instead, are relegated to more expensive FHA loans.27

20

57. A 2012 Report from the California Reinvestment Coalition “shows that

21 black and Latino borrowers and borrowers in communities of color received

22

23

25 California Reinvestment Coalition, et al., Paying More for the American Dream V: The Persistence and Evolution of the Dual Market (2011) (available at

24

http://www.community-wealth.org/sites/clone.communitywealth.org/files/downloads/report-crc-et-al.pdf).

25

26 Center for Responsible Lending, The State of Lending in America & its Impact on U.S. Households (2012) (available at http://www.responsiblelending.org/state-of-

26 lending/State-of-Lending-report-1.pdf).

27

27 Center for Responsible Lending, The State of Lending in America & its Impact on U.S. Households (2012) (available at http://www.responsiblelending.org/state-of-

28 lending/State-of-Lending-report-1.pdf).

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1 government-backed loans – insured by the Federal Housing Administration (FHA) or

2 guaranteed by the Department of Veterans Affairs (VA) – significantly more often

3 than did white borrowers. The findings indicate persistent mortgage redlining and

4 raise serious concerns about illegal and discriminatory loan steering.… [T]he report

5 shows a pattern of two-tiered lending, in which borrowers and communities of color

6 received disproportionately fewer conventional mortgages and disproportionately

7 more government-backed loans than did white borrowers and communities…. [T]he

8 disproportionate prevalence of FHA loans in communities of color raises fair lending

9 flags.” In particular, the 2012 Report observes that: “In Los Angeles, homebuyers in

10 neighborhoods of color received government-backed loans five times more often than

11 did those in predominantly white neighborhoods…. [H]omeowners in communities of

12 color received FHA or VA refinance loans 6.5 times more often than did homeowners

13 in predominantly white neighborhoods.”28

14 B. JPMorgan Intentionally Discriminated Against Minority Borrowers in

Violation of the Fair Housing Act, as Demonstrated by Former Bank

15

Employees

16

58. Confidential Witnesses (“CWs”) are former employees of JPMorgan. The

17 CWs were responsible for making, processing, and/or underwriting loans in the greater

18 Los Angeles region. CWs describe how JPMorgan targeted minorities and residents

19 of minority neighborhoods in and around Los Angeles for predatory lending

20 practices.29

21

59. CW1 worked for JPMorgan in two branches in Los Angeles County as a

22 mortgage loan officer. CW1 worked for JPMorgan for approximately two years in the

23 2008-2010 timeframe. She was previously employed as a mortgage loan officer at

24

28 California Reinvestment Coalition, Paying More for the American Dream VI:

25 hRtatpci:a//lcaDlrisepinavreitsite.sorign/FsyHstAe/mV/AreLsoenudrcinesg/W(210s1i2Z)iI(saIvjaIwilaMbTleIvaMt DcvMTgvMTZfMzVfMj

26

NfMV9wYXlpbmdtb3JlVklfbXVsdGlzdGF0ZV9qdWx5MjAxMl9GSU5BTC5wZGY iXV0/payingmoreVI_multistate_july2012-%20FINAL.pdf).

27

29 The CW statements do not pertain to conduct involving Washington Mutual

28 Bank or Long Beach Mortgage Company.

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1 WaMu for about a year before JPMorgan purchased WaMu. She worked almost

2 entirely with minority (largely Hispanic) customers, almost all of whom sought

3 refinancing or loan modifications.

4

60. CW2 worked in the mortgage industry for about eight years; he worked

5 for JPMorgan at multiple branch locations in the greater Los Angeles region as a

6 mortgage loan originator in the 2011-2012 timeframe.

7

61. CW3 worked as an underwriter at the Bank’s corporate office in Los

8 Angeles during the 2009-2011 timeframe. She was previously employed at WaMu,

9 where she was hired in 2002. She worked at WaMu through the period when

10 JPMorgan purchased it in 2009, and then she became a JPMorgan employee. She

11 worked as a loan modification underwriter with customers who were behind on their

12 mortgage payments.

13

62. CW4 worked as a loss mitigation negotiator and underwriter at a

14 JPMorgan branch in Los Angeles during the 2009-2010 timeframe. He worked with

15 customers who had missed mortgage payments, and he was responsible for making

16 loan modifications for customers in the default process.

17

63. The CWs confirm that JPMorgan has engaged in predatory and otherwise

18 discriminatory lending practices.

19

64. CW3, who worked with customers who were behind on their mortgage

20 payments, explained that most of these customers had received variable-rate loans that

21 they could no longer afford after the rates adjusted upward.

22

65. CW3 also observed that JPMorgan tended to require prepayment

23 penalties more often from minority borrowers.

24

66. The CW statements show that JPMorgan induced foreclosures by failing

25 to offer refinancing or loan modifications to minority customers on fair terms – which

26 constitutes a particularly egregious form of redlining, given that minority borrowers

27

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1 sought refinancing or loan modifications with respect to bad loans that the Bank

2 previously made to them.

3

67. CW1 believes that JPMorgan adopted overly-stringent loan qualification

4 requirements that resulted in an unnecessarily high rate of refinancing rejections for

5 minority borrowers. She encountered months-long delays and very few successes

6 when attempting to refinance minority customers. She estimates that 90% of the

7 minority borrowers who came to her branches desperate for refinancing would not

8 qualify. They usually did not have enough income or enough equity in their homes,

9 she said.

10

68. CW1 explained that many minority borrowers who had previously

11 received “no doc” loans were now asked to provide documentation of income and

12 other assets, and could not. She described seeing customers who only owed “$50,000

13 to $60,000” on a property worth $250,000 who could not refinance because they either

14 didn’t have a job or did have a job but had insufficient documentation. Many others

15 had income but too little equity in their homes because of falling real estate values.

16

69. CW1 said some of these customers were rejected even though she

17 believed they should not have been rejected. According to CW1, JPMorgan’s

18 refinancing qualification guidelines became “much more conservative” than those set

19 by federal guidelines. “That was really heartbreaking,” she said. “Seeing people

20 sitting there crying. … Those were kind of hard.”

21

70. According to CW1, borrowers who did not qualify for refinancing, and

22 thus sought loan modifications, were essentially encouraged not to make payments on

23 their homes at all. She said the Bank informed them that a prerequisite for loan

24 modification was missing payments. This created more problems, she explained,

25 because some of these same borrowers would follow the guidance, skip payments, but

26 then not receive loan modifications. After that, “they were just waiting for the sheriff

27 to come around” and foreclose, she said.

28
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1

71. CW1 said that, when refinancing did take place in her minority

2 neighborhood branches, it usually came with higher-than-usual interest rates that

3 corresponded with rising LTV ratios.

4

72. During CW1’s employment, JPMorgan withdrew mortgage officers from

5 both minority neighborhood branches where she worked because “it just wasn’t

6 feasible to have a loan officer there,” she said. “The loans just weren’t going through

7 in that area,” she said. “It wasn’t worth it to have someone there.”

8

73. CW2 said that JPMorgan has tightened its lending requirements since

9 2008, making almost all loans “fully-doc’d” loans, setting higher standards

10 (“overlays”) for refinancing than those established under HAMP. “The banks said,

11 ‘we’re not going to refinance you,’” he said. “The purpose of the [HAMP] program

12 was to get people out of these bad loans, and the banks refused to do it. And this is

13 still going on today.”

14

74. The Bank operated few, if any, branches in minority neighborhoods of

15 Los Angeles; CW2 strongly believes that this evidenced an intentional form of

16 minority “discrimination.” In the last few years, it became increasingly difficult to

17 serve minority customers given where the Bank chose to locate its branches, he

18 explained. To find out “how they are discriminating, look at the position of the

19 branches,” he said. “That’s going to show you.”

20

75. JPMorgan is opening “huge numbers” of branches all across California,

21 none of which are located in the inner city, according to CW2. In the upper-middle-

22 class neighborhood where he lives, JPMorgan is opening what he said appeared to be

23 as many as seven branches, maybe more. Another 300 are slated to open in Southern

24 California, part of 2,000 that will be opening across the state, he said. “But none of

25 this is happening in minority neighborhoods,” he added. “That, in itself, is the biggest

26 indication of discrimination that you can find.”

27

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1

76. CW2 confirmed that JPMorgan recorded minority status information in

2 the loan application process. CW2 believed that some of the minority borrowers he

3 saw at JPMorgan should have qualified for refinancing, but they did not qualify for

4 reasons that were unclear to him. He suspected that minority status played a role in

5 decision-making by JPMorgan on who to finance. “The redlining and stuff like that,

6 that still goes on.”

7

77. CW2 explained that JPMorgan might offer some minority borrowers

8 “subprime” refinancing, if they were ineligible for HAMP loan modifications. Such

9 loans typically offered interest rates that gradually increased over several years.

10

78. CW3 said: “There were a lot of things with which I didn’t agree” at

11 JPMorgan. She said there were generally “a lot of policy changes … things that

12 would happen that the customer wouldn’t know about.” For example, she noted:

13 “Customers would send in their information and we would get it,” then documents

14 would go missing. “Everything was messy,” she said, due to the Bank’s “bad

15 managers.” As a result, she said, borrowers fell deeper behind on payments and into

16 foreclosure. “A lot of times there was no mercy,” she said, referring to the Bank’s

17 practices of putting people into foreclosure while loan modifications were pending.

18

79. CW4 observed that JPMorgan denied minority borrowers loan

19 modifications in large percentages in the City of Los Angeles because many who were

20 in foreclosure under old stated-income mortgages were unable to get approved under

21 the Bank’s new document-based income guidelines.

22

80. The CW statements further demonstrate that the Bank increased the

23 costliness of non-conventional loans at the expense of minority borrowers.

24

81. CW3 estimated that about 35% of the borrowers she dealt with had been

25 victims of unethical lending practices by JPMorgan. CW3 also observed that minority

26 borrowers tended to receive higher interest rates. Addressing the type of minority

27

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1 borrowers that tended to face higher interest rates at JPMorgan, she said, “the people

2 who didn’t understand English and stuff like that.”

3

82. CW3 also observed that smaller home loans at JPMorgan – somewhere

4 between $75,000 and $100,000 and below – tended to come with much higher interest

5 rates (e.g., 3%-4% higher), which inevitably impacted minority borrowers more than

6 non-minority borrowers.

7 C. Minorities in Fact Receive Predatory Loan Terms from JPMorgan

8

83. As discussed herein, JPMorgan’s predatory loans include: high-cost

9 loans (i.e., loans with an interest rate that was at least three percentage points above a

10 federally-established benchmark), subprime loans, interest-only loans, balloon

11 payment loans, loans with prepayment penalties, negative amortization loans, no

12 documentation loans, and/or ARM loans with teaser rates (i.e., lifetime maximum rate

13 > initial rate + 6%).

14

84. Data reported by the Bank and available through public databases shows

15 that in 2004-2011, 31.5% of loans made by JPMorgan to African-American and

16 Latino customers in Los Angeles were high cost, but only 8.1% of loans made to white

17 customers in Los Angeles were high cost. This data demonstrates a pattern of 18 statistically significant30 differences in the product placement for high cost loans

19 between minority and white borrowers.

20

85. The following map of JPMorgan predatory loans originated in Los

21 Angeles between 2004-2011 illustrates the geographic distribution of predatory loans

22 in African-American and Latino neighborhoods and white neighborhoods in Los

23 Angeles. This map demonstrates that JPMorgan’s predatory loans are

24 disproportionately located in minority neighborhoods.

25

26

30 Statistical significance is a measure of probability that an observed outcome

27

would not have occurred by chance. As used in this Complaint, an outcome is statistically significant if the probability that it could have occurred by chance is less

28 than 5%.

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1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

86. The fact that predatory loans involving all of JPMorgan’s loan products

18 are more heavily concentrated in minority neighborhoods in Los Angeles is consistent

19 with the practice of reverse redlining and, upon information and belief, has contributed

20 significantly to the disproportionately high rates of foreclosure in minority

21 communities in Los Angeles.

22
D. Minorities in Los Angeles Receive Such Predatory Loan Terms from

23

JPMorgan Regardless of Creditworthiness

24

87. According to Discretionary Pricing, Mortgage Discrimination, and the

25 Fair Housing Act, 45 HARVARD CIVIL RIGHTS-CIVIL LIBERTIES LAW REV. 375, 398

26 (2010), several studies dating back to 2000 have established that minority borrowers

27 were charged higher interest rates/fees than similar creditworthy white borrowers.

28
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1

88. Likewise, according to A Racial Financial Crisis, 83 TEMPLE LAW REV.

2 941, 947, 949 (2011), one study concluded that “even after controlling for

3 underwriting variables, African-American borrowers were 6.1% to 34.3% more likely

4 than whites to receive a higher rate subprime mortgage during the subprime boom.”

5 And another study found that significant loan pricing disparity exists among low risk

6 borrowers – African-American borrowers were 65% more likely to receive a subprime

7 home purchase loan than similar creditworthy white borrowers, and 124% more likely

8 to receive a subprime refinance loan.

9

89. Similarly, the Center for Responsible Lending’s November 2011 Report,

10 Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures, stated that

11 “racial and ethnic differences in foreclosure rates persist even after accounting for

12 differences in borrower incomes.” Further, the Center stated it is “particularly

13 troublesome” that minorities received riskier loans “even within [similar] credit

14 ranges.” For example, among borrowers having FICO scores above 660, the incidence

15 of higher rate loans among various groups was as follows: whites – 6.2%; African-

16 American – 21.4%; and Latino – 19.3%.

17

90. Moreover, data reported by the Bank and available through public

18 databases shows that minorities in Los Angeles received predatory loan terms from

19 JPMorgan more frequently than white borrowers, regardless of creditworthiness.

20

91. A regression analysis of this data controlling for borrower race and

21 objective risk characteristics such as credit history, loan to value ratio, and the ratio of

22 loan amount to income demonstrates that, from 2004-2011, an African-American

23 borrower in Los Angeles was 2.783 times more likely to receive a predatory loan than

24 was a white borrower possessing similar underwriting and borrower characteristics.

25 The regression analysis further demonstrates that the odds that a Latino borrower in

26 Los Angeles would receive a predatory loan were 2.656 times the odds that a white

27 borrower possessing similar underwriting and borrower characteristics would receive a

28
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1 predatory loan. These odds ratios demonstrate a pattern of statistically significant

2 differences between African-American and white borrowers and between Latino and 3 white borrowers.31

4

92. The regression analysis also shows that these disparities persist when

5 comparing only Los Angeles-based borrowers with FICO scores above 660. An

6 African-American borrower with a FICO score above 660 was 2.389 times more likely

7 to receive a predatory loan than was a white borrower with similar underwriting and

8 borrower characteristics. A Latino borrower with a FICO score above 660 was 2.423

9 times more likely to receive a predatory loan than was a white borrower with similar

10 underwriting and borrower characteristics. These odds ratios demonstrate a pattern of

11 statistically significant differences between African-American and white borrowers

12 and between Latino and white borrowers.

13

93. A similar regression analysis taking into account the racial makeup of the

14 borrower’s neighborhood rather than the individual borrower’s race shows that

15 borrowers in heavily minority neighborhoods in Los Angeles were more likely to

16 receive predatory loans than borrowers in heavily white neighborhoods. For example,

17 a borrower in a heavily minority census tract (census tract consisting of at least 80%

18 African-American or Latino households) was 4.098 times more likely than was a

19 borrower with similar characteristics in a heavily white neighborhood (census tract

20 with at least 80% white households) to receive a predatory loan. These odds ratios

21 demonstrate a pattern of statistically significant differences between African-

22 American and white borrowers and between Latino and white borrowers.

23

94. This data also establishes that JPMorgan disproportionately issued

24 government loans with higher risk features (FHA/VA) to African-American and

25

26

31 As alleged throughout the Complaint, all references to the date range 2004-2011

27

are intended to include the time period up to and including December 31, 2011. The data analysis does not include loans pertaining to Washington Mutual Bank or Long

28 Beach Mortgage Company.

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1 Latino borrowers in Los Angeles from 2009-2011. A regression analysis controlling

2 for borrower race and objective risk characteristics such as ratio of loan amount to

3 income demonstrates that an African-American borrower was 2.660 times more likely

4 to receive a higher risk government loan than was a white borrower possessing similar

5 borrower and underwriting characteristics. The regression analysis further

6 demonstrates that a Latino borrower was 2.857 times more likely to receive a higher

7 risk government loan than was a white borrower possessing similar borrower and

8 underwriting characteristics. These odds ratios demonstrate a pattern of statistically

9 significant differences between African-American and white borrowers and between

10 Latino and white borrowers in the City.

11

95. Thus, the disparities are not the result of, or otherwise explained by,

12 legitimate non-racial underwriting criteria.

13 E. JPMorgan’s Targeting of Minorities who in Fact Receive Predatory Loan

Terms Regardless of Creditworthiness Causes Foreclosures
14

1. Data shows that JPMorgan’s foreclosures are disproportionately

15

located in minority neighborhoods in Los Angeles.

16

96. JPMorgan has intentionally targeted predatory practices at African-

17 American and Latino neighborhoods and residents. Far from being a responsible

18 provider of much-needed credit in minority communities, JPMorgan is a leading cause

19 of stagnation and decline in African-American and Latino neighborhoods where its

20 foreclosures are concentrated. Specifically, since at least 2000, its foreclosures have

21 been concentrated in neighborhoods with African-American or Latino populations

22 exceeding 80%.

23

97. Although only 34.7% of JPMorgan’s loan originations in Los Angeles

24 from 2004 to 2011 occurred in census tracts that are at least 50% African-American or

25 Latino, 51.0% of JPMorgan’s loan originations that had entered foreclosure by

26 February 2013 were in those census tracts. Moreover, while 39.1% of JPMorgan’s

27 loan originations in Los Angeles from 2004 to 2011 occurred in census tracts that

28
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1 were less than 20% African-American or Latino, only 29.5% of JPMorgan’s loan

2 originations that had entered foreclosure by February 2013 were in those census tracts.

3 This data demonstrates a pattern of statistically significant differences between

4 African-American and white borrowers and between Latino and white borrowers.

5

98. The following map represents the concentration of JPMorgan’s loan

6 originations from 2004 through 2011 that had entered foreclosure by February 2013 in

7 African-American and Latino neighborhoods. In addition to the disproportionate

8 distribution of JPMorgan foreclosures in African-American and Latino neighborhoods,

9 disparate rates of foreclosure based on race further demonstrate JPMorgan’s failure to

10 follow responsible underwriting practices in minority neighborhoods. While 18.1% of

11 JPMorgan’s loans in predominantly (greater than 80%) African-American or Latino

12 neighborhoods result in foreclosure, the same is true for only 4.1% of its loans in

13 predominantly (greater than 80%) white neighborhoods. In other words, a JPMorgan

14 loan in a predominantly African-American or Latino neighborhood is 5.174 times

15 more likely to result in foreclosure as is a JPMorgan loan in a predominantly white

16 neighborhood. These odds ratios demonstrate a pattern of statistically significant

17 differences between African-American and white borrowers and between Latino and

18 white borrowers.

19

20

21

22

23

24

25

26

27

28
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1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

99. Thus, JPMorgan’s discretionary lending policies and pattern or practice

18 of targeting of minorities, who in fact receive predatory loan terms regardless of

19 creditworthiness, have caused and continue to cause foreclosures in Los Angeles.

20
2. Data shows that JPMorgan’s loans to minorities result in especially

21

quick foreclosures.

22

100. A comparison of the time from origination to foreclosure of JPMorgan’s

23 loans originated in Los Angeles shows a marked disparity with respect to the speed

24 with which loans to African-Americans and Latinos and whites move into foreclosure.

25 The average time to foreclosure for African-American borrowers is 2.640 years, and

26 for Latino borrowers is 2.553 years. By comparison, the average time to foreclosure

27 for white borrowers is 3.051 years. These statistically significant disparities

28
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1 demonstrate that JPMorgan aggressively moved minority borrowers into foreclosure

2 as compared with how the Bank handled foreclosures for white borrowers.

3

101. This disparity in time to foreclosure is further evidence that JPMorgan is

4 engaged in lending practices consistent with reverse redlining. The disparity in time

5 to foreclosure demonstrates that JPMorgan is engaged in irresponsible underwriting in

6 African-American and Latino communities that does not serve the best interests of

7 borrowers. If JPMorgan were applying the same underwriting practices in African-

8 American and Latino neighborhoods and white neighborhoods in Los Angeles, there

9 would not be a significant difference in time to foreclosure. Were JPMorgan

10 underwriting borrowers in both communities with equal care and attention to proper

11 underwriting practices, borrowers in African-American and Latino communities

12 would not find themselves in financial straits significantly sooner during the lives of

13 their loans than borrowers in white communities. The faster time to foreclosure in

14 African-American and Latino neighborhoods is consistent with underwriting practices

15 in minority communities that are less concerned with determining a borrower’s ability

16 to pay and qualifications for the loan than they are in maximizing short-term profit.

17

102. The HUD/Treasury Report confirms that time to foreclosure is an

18 important indicator of predatory practices: “[t]he speed with which the subprime

19 loans in these communities have gone to foreclosure suggests that some lenders may

20 be making mortgage loans to borrowers who did not have the ability to repay those

21 loans at the time of origination.”32

22

3. Data shows that the discriminatory loan terms cause the foreclosures.

23

103. JPMorgan’s discriminatory lending practices cause foreclosures and

24 vacancies in minority communities in Los Angeles.

25

104. Steering borrowers into loans that are less advantageous than loans for

26 which they qualify, including steering borrowers who qualify for prime loans into

27

28

32 HUD/Treasury Report at 25.

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1 subprime loans, can cause foreclosures because the borrowers are required to make

2 higher loan payments. The difference between what a borrower who is steered in this

3 manner must pay and the lower amount for which the borrower qualified can cause the

4 borrower to be unable to make payments on the mortgage. In such instances, the

5 borrower would have continued to make payments on the mortgage and remained in

6 possession of the premises had JPMorgan made the loan without improperly steering

7 the borrower into a subprime, or less advantageous loan. Steering borrowers in this

8 manner, therefore, causes foreclosures and vacancies.

9

105. Giving a loan to an applicant who does not qualify for the loan, especially

10 a refinance or home equity loan, can also cause foreclosures and vacancies. Some

11 homeowners live in properties that they own subject to no mortgage. Other

12 homeowners live in properties with modest mortgages that they can comfortably

13 afford to pay. Where a lender, such as JPMorgan, solicits such a homeowner to take

14 out a home equity loan on his or her property, or alternatively, to refinance his or her

15 existing loan into a larger loan without proper underwriting to assure that the borrower

16 can make the monthly payments for the new, larger loan, the result is likely to be that

17 the borrower will be unable to make payments on the mortgage. This is particularly

18 true where the borrower is refinanced from a fixed-rate loan into an adjustable rate

19 loan that the lender knows the borrower cannot afford should interest rates rise. In

20 some instances, the lender may refinance the borrower into a new loan that the lender

21 knows the borrower cannot sustain, given the borrower’s present debt obligations and

22 financial resources. In such circumstances, the likely result of such practices is to

23 cause homeowners who are otherwise occupying properties without a mortgage, or

24 comfortably making payments on a modest existing mortgage, to be unable to make

25 payment on a new, unaffordable loan. This, in turn, causes foreclosures and

26 vacancies. If these unaffordable refinance and home equity loans had not been made,

27 the subject properties would not have become vacant.

28
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1

106. A regression analysis of loans issued by JPMorgan in Los Angeles from

2 2004-2011, controlling for objective risk characteristics such as credit history, loan to

3 value ratio, and the ratio of loan amount to income demonstrates that a predatory loan

4 is 2.473 times more likely to result in foreclosure than is a non-predatory loan.

5

107. The regression analysis further demonstrates that a predatory loan in a

6 heavily minority neighborhood (census tract consisting of at least 80% African-

7 American and Latino households) is 8.938 times more likely to result in foreclosure as

8 is a non-predatory loan with similar risk characteristics in a heavily white

9 neighborhood (census tract with at least 80% white households). These odds ratios

10 demonstrate a pattern of statistically significant differences between African-

11 American and white borrowers and between Latino and white borrowers.

12

108. The regression analysis also demonstrates that a predatory loan made to

13 an African-American borrower was 4.064 times more likely to result in foreclosure as

14 was a non-predatory loan made to a white borrower with similar borrower and

15 underwriting characteristics. A predatory loan made to a Latino borrower was 4.339

16 times as likely to result in foreclosure as was a non-predatory loan made to a white

17 borrower with similar risk characteristics. These odds ratios demonstrate a pattern of

18 statistically significant differences between African-American and white borrowers,

19 and between Latino and white borrowers.

20

109. A regression analysis of government loans (FHA/VA) issued by

21 JPMorgan in Los Angeles from 2009-2011, controlling for borrower race and

22 objective risk characteristics such as ratio of loan amount to income, demonstrates that

23 a government loan is 5.559 times more likely to result in foreclosure as is a non-

24 government loan. These odds ratios demonstrate a pattern of statistically significant

25 differences between African-American and white borrowers and between Latino and

26 white borrowers.

27

28
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1

VI. INJURY TO LOS ANGELES CAUSED BY JPMORGAN’S

DISCRIMINATORY LOAN PRACTICES
2

110. Los Angeles has suffered financial injuries as a direct result of
3

JPMorgan’s pattern or practice of reverse redlining and the resulting
4

disproportionately high rate of foreclosure on JPMorgan loans to African-Americans
5

and Latinos in minority neighborhoods in Los Angeles. Los Angeles seeks redress for
6

these injuries. The City does not seek redress in this action for injuries resulting from
7

foreclosures on mortgages originated by lenders other than JPMorgan.
8

111. JPMorgan continues to engage in the discriminatory pattern or practice
9

described herein with similar and continuing deleterious consequences to the City.
10

112. The City seeks damages based on reduced property tax revenues based on
11

(a) the decreased value of the foreclosed properties themselves, and (b) the decreased
12

value of properties surrounding the foreclosed properties. In addition, the City seeks
13

damages based on municipal services that it still must provide to remedy blight and
14

unsafe and dangerous conditions which exist at vacant properties that entered
15

foreclosure as a result of JPMorgan’s illegal lending practices.
16

A. Los Angeles has been Injured by a Reduction in Property Tax Revenues

17

from Foreclosures Caused by Discriminatory Loans Issued by JPMorgan

18

113. As stated in a September 2011 Report by the Alliance of Californians for

19 Community Empowerment and the California Reinvestment Coalition, entitled The

20 Wall Street Wrecking Ball: What Foreclosures are Costing Los Angeles

21 Neighborhoods (“Cost to Los Angeles Report”), “[w]hen a home falls into foreclosure,

22 it affects the property value of the foreclosed home as well as the values of other

23 homes in the neighborhood.” These decreased property values in turn reduce property

24 tax revenues to the City.

25

114. “As property values drop an estimated $78.8 billion, Los Angeles

26 communities could lose as much as $481 million in property tax revenue” from the

27

28
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1 decreased value of the foreclosed homes themselves and those in the surrounding

2 neighborhoods.33

3

115. To be clear, vacancies and short sales even prior to completion of

4 foreclosure also result in diminished home values. Indeed, “[i]n 12 states, including

5 California, Florida, Arizona, New York and New Jersey, pre-foreclosure sales actually

6 outnumbered REO sales.”34 Such distressed sales reduce property values.35

7

1. The decreased value of the properties foreclosed by JPMorgan result

in reduced property tax revenues.
8

9

116. The Cost to Los Angeles Report states that “[i]t is estimated that homes in

foreclosure experience a 22% decline in value.”36

10

117. For example, “[t]hat means the impact of the 200,000 foreclosures
11

estimated for the period 2008 through 2011 will be more than $26 billion in lost home
12
value in communities across Los Angeles.”37 A portion of this lost home value is
13

attributable to homes foreclosed as a result of JPMorgan’s discriminatory loan
14

practices.
15

118. The decreased property values of foreclosed homes in turn reduce
16

property tax revenues to the City and constitute damages suffered by Los Angeles.
17

2. The decreased value of properties in the neighborhoods surrounding

18

foreclosed properties results in reduced property tax revenues.

19

119. JPMorgan foreclosure properties and the problems associated with them

20 likewise cause especially significant declines in surrounding property values because

21 the neighborhoods become less desirable. This in turn reduces the property tax

22 revenues collected by Los Angeles.

23

24

33 Cost to Los Angeles Report at 3. 34 See http://www.realtytrac.com/content/news-and-opinion/short-sales-increasing-

25 in-2012--short-sale-process----realtytrac-7204.

26

35 See http://www.realtytrac.com/content/foreclosure-market-report/us-foreclosuresales-and-short-sales-report-q1-2013-7732.

27

36 Id.

28

37 Id.

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1

120. Property tax losses suffered by Los Angeles as a result of JPMorgan’s

2 foreclosures are fully capable of empirical quantification.

3

121. Routinely maintained property tax and other data allow for the precise

4 calculation of the property tax revenues lost by the City as a direct result of particular

5 JPMorgan foreclosures. Using a well-established statistical regression technique that

6 focuses on effects on neighboring properties, the City can isolate the lost property

7 value attributable to JPMorgan foreclosures from losses attributable to other causes,

8 such as neighborhood conditions. This technique, known as hedonic regression, when

9 applied to housing markets, isolates the factors that contribute to the value of a

10 property by studying thousands of housing transactions. Those factors include the size

11 of a home, the number of bedrooms and bathrooms, whether the neighborhood is safe,

12 whether neighboring properties are well-maintained, and more. Hedonic analysis

13 determines the contribution of each of these house and neighborhood characteristics to

14 the value of a home.

15

122. The number of foreclosures in a neighborhood is one of the neighborhood

16 traits that hedonic analysis can examine. Hedonic analysis allows for the calculation

17 of the impact on a property’s value of the first foreclosure in close proximity (e.g., ⅛

18 or ¼ of a mile), the average impact of subsequent foreclosures, and the impact of the

19 last foreclosure.

20

123. Foreclosures attributable to JPMorgan in minority neighborhoods in Los

21 Angeles can be analyzed through hedonic regression to calculate the resulting loss in

22 the property values of nearby homes. This loss can be distinguished from any loss

23 attributable to non-JPMorgan foreclosures or other causes. The loss in property value

24 in minority neighborhoods in Los Angeles attributable to JPMorgan’s unlawful acts

25 and consequent foreclosures can be used to calculate the City’s corresponding loss in

26 property tax revenues.

27

28
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1

124. Various studies establish that hedonic regression can be used for this

2 purpose. A study published by the Fannie Mae Foundation, using Chicago as an

3 example, determined that each foreclosure is responsible for an average decline of

4 approximately 1.1% in the value of each single-family home within an eighth of a 5 mile.38

6

125. Other studies have focused on the impact of abandoned homes on

7 surrounding property values. A study in Philadelphia, for example, found that each

8 home within 150 feet of an abandoned home declined in value by an average of

9 $7,627; homes within 150 to 299 feet declined in value by $6,810; and homes within 10 300 to 449 feet declined in value by $3,542.39

11

126. These studies highlight the foreseeability of tax related harm to the City

12 as the result of foreclosures arising from discriminatory loans.

13

127. And most recently, the Cost to Los Angeles Report stated, “[i]t is

14 conservatively estimated that each foreclosed property will cause the value of

15 neighboring homes within an eighth of a mile to drop 0.9%.” Thus, “[i]n Los Angeles,

16 impacted homeowners could experience property devaluation of $53 billion.” This

17 decreased property value of neighboring homes in turn reduces property tax revenues

18 to the City.

19

128. Application of such Hedonic regression methodology to data regularly

20 maintained by Los Angeles can be used to quantify precisely the property tax injury to

21 the City caused by JPMorgan’s discriminatory lending practices and resulting

22 foreclosures in minority neighborhoods.

23

24

25

38 See Dan Immergluck & Geoff Smith, The External Costs of Foreclosure: The

26 IPmOpLaICcYt oDfESBinAgTlEe-5F7a(m2i0l0y6M) oatrt6g9a.ge Foreclosures on Property Values, 17 HOUSING

27

39 See Anne B. Shlay & Gordon Whitman, Research for Democracy: Linking

28 Community Organizing and Research to Leverage Blight Policy, at 21 (2004).

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1 B. Los Angeles Is Injured Because It Still Must Provide Costly Municipal

Services for Properties in Minority Neighborhoods that Have Become

2

Vacant as a Direct Result of Discriminatory Loans Originated or

Purchased by JPMorgan

3

129. Vacant JPMorgan foreclosure properties cause direct costs to the City

4

because the City is required to provide increased municipal services at these

5

properties. Even prior to completion of the foreclosure process, data shows that 20%

6

of homes are vacated.40 These increased municipal services would not have been

7

necessary if the properties were occupied.

8

130. For example, the City’s Police Department must send personnel and

9

police vehicles to vacant JPMorgan foreclosure properties to respond to public health

10

and safety threats that arise at these properties because the properties are vacant.

11

Because violent crime has been found to increase 2.33% for every 1% increase in

12

foreclosures, among other services, LAPD must respond to calls reporting suspicious

13

activity at vacant properties, perform ongoing investigations involving criminal

14

activity, including gang activity, at vacant properties.

15

131. Likewise, the Code Enforcement Bureau of the Los Angeles Building and

16

Safety Department (“Building and Safety Department”) must devote personnel time

17

and out-of-pocket funds to inspect vacant properties and issue orders for violations of

18

the municipal code to be fixed. When the municipal code violations are not fixed, the

19

Building and Safety Department is required to perform certain services, including, but

20

not limited to, removing excess vegetation at vacant properties, hauling away trash

21

and debris at vacant properties, boarding vacant property from casual entry, putting up

22

fencing to secure vacant properties, putting up fencing to prevent access to swimming

23

pools by young children at vacant properties, coordinating with the Los Angeles

24

County Health Department to chemically treat the pools at vacant properties to prevent

25

mosquitos from breeding, painting and removing graffiti at vacant properties,

26

27

40 See http://www.realtytrac.com/content/foreclosure-market-report/owner-vacated-

28 foreclosure-update-7771.

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1 condemning and demolishing vacant structures deemed an imminent hazard to public

2 safety, and having vacant properties frequented by gangs declared a public nuisance

3 and demolished on that basis.

4

132. As stated by the Cost to Los Angeles Report, “[l]ocal government

5 agencies have to spend money and staff time on blighted foreclosed properties,

6 providing maintenance, inspections, trash removal, increased public safety calls, and

7 other code enforcement services …. Responding to these needs is a gargantuan task 8 that involves multiple agencies and multiple levels of local government.”41

9

133. Moreover, as discussed above, the Apgar-Duda report underscores the

10 foreseeability of municipal costs as the result of foreclosures arising from

11 discriminatory loans.

12

VII. SAMPLE FORECLOSURE PROPERTIES IN THE CITY OF LOS

ANGELES

13

134. Plaintiff has already identified nine hundred and forty-seven (947)

14

discriminatory loans issued by JPMorgan in Los Angeles between 2004-2011 that

15

resulted in commencement of foreclosure proceedings.42 The City has already

16

incurred, or will incur in the future, damages corresponding to each of these

17

properties. A sample of property addresses corresponding to these foreclosures is set

18

forth below:

19

15019 Oswald St., 91342

20

21

7360 Capps Ave., 91335

22

11435 Calvert St., 91606

23

24

41 Id. at 3.

25

42 Plaintiff anticipates that it will be able to identify significantly more foreclosures

26

resulting from the issuance of discriminatory loans during this time period with the benefit of discovery. This conclusion derives from the fact that, because of certain

27

reporting limitations, the publicly available mortgage loan databases utilized by Plaintiff are not as comprehensive as the mortgage loan databases maintained by and

28 in the possession of an issuing bank.

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1

1617 S. Mansfield Ave., 90019

2

827 Waterloo St., 90026

3

4

1929 W. Vernon Ave., 90062

5

19918 Sherman Way, 91306

6

5107 Alhambra Ave., 90032

7

8

4965 Westhaven St., 90016

9

5416 Fulton Ave., 91401

10

VIII. STATUTE OF LIMITATIONS AND CONTINUING VIOLATIONS

11

DOCTRINE

12

135. As alleged herein, Defendant JPMorgan has engaged in a continuous

13 pattern and practice of mortgage discrimination in Los Angeles since at least 2004 by

14 imposing different terms or conditions on a discriminatory and legally prohibited

15 basis. In order to maximize profits at the expense of the City of Los Angeles and

16 minority borrowers, JPMorgan adapted its unlawful discrimination to changing market

17 conditions. This unlawful pattern and practice conduct is continuing through the

18 present and has not terminated. Therefore, the operative statute of limitations 19 governing actions brought pursuant to the Federal Fair Housing Act has not 20 commenced to run.

21

IX. CLAIMS FOR RELIEF

22

FIRST CLAIM FOR RELIEF

23

(Violation of the Federal Fair Housing Act, 42 U.S.C. §§ 3601, et seq.)

24

136. Plaintiff repeats and incorporates by reference all allegations contained in

25 the preceding paragraphs as if fully set forth herein.

26

137. The Fair Housing Act’s stated purpose is to provide, “within

27 constitutional limitations, for fair housing throughout the United States.”

28
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1

138. In contravention of that purpose, JPMorgan’s acts, policies, and practices

2 as described constitute intentional lending discrimination on the basis of race.

3 JPMorgan has intentionally targeted residents of predominantly African-American and

4 Latino neighborhoods in Los Angeles for different treatment than residents of

5 predominantly white neighborhoods in Los Angeles with respect to mortgage lending.

6 JPMorgan has intentionally targeted residents of these neighborhoods for high-cost

7 loans without regard to their credit qualifications and without regard to whether they

8 qualify for more advantageous loans, including prime loans. JPMorgan has

9 intentionally targeted residents of these neighborhoods for increased interest rates,

10 points, and fees, and for other disadvantageous loan terms including, but not limited

11 to, adjustable rates, prepayment penalties, and balloon payments. JPMorgan has

12 intentionally targeted residents of these neighborhoods for unfair and deceptive

13 lending practices in connection with marketing and underwriting mortgage loans.

14

139. JPMorgan’s acts, policies, and practices have had an adverse and

15 disproportionate impact on African-Americans and Latinos and residents of

16 predominantly African-American and Latino neighborhoods in Los Angeles as

17 compared to similarly situated whites and residents of predominantly white

18 neighborhoods in Los Angeles. This adverse and disproportionate impact is the direct

19 result of JPMorgan’s policies of providing discretion to loan officers and others

20 responsible for mortgage lending; failing to monitor this discretion to ensure that

21 borrowers were being placed in loan products on a nondiscriminatory basis when

22 JPMorgan had notice of widespread product placement disparities based on race and

23 national origin; giving loan officers and others responsible for mortgage lending large

24 financial incentives to issue loans to African-Americans and Latinos that are costlier

25 than better loans for which they qualify; otherwise encouraging and directing loan

26 officers and others responsible for mortgage lending to steer borrowers into high-cost

27 loans or loans with adjustable rates, prepayment penalties, or balloon payments

28
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1 without regard for whether they qualify for better loans; and setting interest rate caps.

2 These policies have caused African-Americans and Latinos and residents of

3 predominantly African-American and Latino neighborhoods in Los Angeles to receive

4 mortgage loans from JPMorgan that have materially less favorable terms than

5 mortgage loans given by JPMorgan to similarly situated whites and residents of

6 predominantly white neighborhoods in Los Angeles, and that are materially more

7 likely to result in foreclosure.

8

140. JPMorgan’s residential lending-related acts, policies, and practices

9 constitute reverse redlining and violate the Fair Housing Act as:

10

(a) Discrimination on the basis of race and national origin in making

11 available, or in the terms and conditions of, residential real estate-related transactions,

12 in violation of 42 U.S.C. § 3605(a); and

13

(b) Discrimination on the basis of race and national origin in the terms,

14 conditions, or privileges of sale of a dwelling, in violation of 42 U.S.C. § 3604(b).

15

141. JPMorgan’s policies or practices are not justified by business necessity or

16 legitimate business interests.

17

142. JPMorgan’s policies and practices are continuing.

18

143. The City is an “aggrieved person” as defined by 42 U.S.C. § 3602(i) and

19 has suffered damages as a result of JPMorgan’s conduct.

20

144. The City’s damages include lost tax revenues and the need to provide

21 increased municipal services. The loss of tax revenues at specific foreclosure sites and

22 at closely neighboring properties in predominantly minority neighborhoods of the City

23 was a foreseeable consequence that was fairly traceable to JPMorgan’s discriminatory

24 lending. Likewise, the need to provide increased municipal services at blighted

25 foreclosure sites in predominantly minority neighborhoods of the City was a

26 foreseeable consequence that was fairly traceable to JPMorgan’s discriminatory

27 lending.

28
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1

145. JPMorgan’s policies and practices, as described herein, have and has had

2 the purpose and effect of discriminating on the basis of race or national origin. These

3 policies and practices were intentional, willful, or implemented with reckless disregard

4 for the rights of African-American and Latino borrowers.

5

146. The City has a substantial interest in preventing discriminatory lending

6 that causes disproportionately minority home foreclosures within its boundaries, in

7 preventing segregated areas where minority loans are more likely to foreclose, and in

8 holding banks accountable for damages arising from that discriminatory lending.

9 Accordingly, the City’s interests in obtaining injunctive relief to prevent such

10 discrimination and in remedying the blight and recovering the lost property taxes

11 resulting from the disproportionately minority home foreclosures in Los Angeles are

12 directly related to ensuring “fair housing throughout the United States.”

13

SECOND CLAIM FOR RELIEF

14

(Common Law Claim For Restitution Based On California Law)

15

147. Plaintiff repeats and incorporates by reference all allegations contained in

16 the preceding paragraphs as if fully set forth herein.

17

148. As a direct and proximate result of Defendants’ predatory lending

18 practices, Defendant has been enriched at Plaintiff’s expense. Defendants have failed

19 to remit those wrongfully obtained benefits or reimburse the City for their costs

20 improperly caused by Defendants, and retention of the benefits by Defendants would

21 be unjust without payment.

22

149. In addition, to its detriment the City has paid for the Defendants’

23 externalities, or Defendants’ costs of harm caused by its mortgage lending

24 discrimination, in circumstances where Defendants are and have been aware of this

25 obvious benefit and retention of such benefit would be unjust.

26

150. Accordingly, the Court should order restitution, disgorgement of profits,

27 and/or any other equitable relief deemed appropriate by the Court.

28
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1

DEMAND FOR JURY TRIAL

2

Pursuant to Fed. R. Civ. P. 38(b), the City demands a trial by jury on all issues

3 so triable.

4

PRAYER FOR RELIEF

5

WHEREFORE, the City respectfully prays that the Court grant it the following

6 relief:

7

A. Enter a declaratory judgment that the foregoing acts, policies, and

8 practices of JPMorgan violate 42 U.S.C. §§ 3604 and 3605;

9

B. Enter a permanent injunction enjoining JPMorgan and its directors,

10 officers, agents, and employees from continuing the discriminatory conduct described

11 herein, and directing JPMorgan and its directors, officers, agents, and employees to

12 take all affirmative steps necessary to remedy the effects of the discriminatory conduct

13 described herein, and to prevent additional instances of such conduct or similar

14 conduct from occurring in the future, pursuant to 42 U.S.C. § 3613(c)(1);

15

C. Award compensatory damages to the City in an amount to be determined

16 by the jury that would fully compensate the City of Los Angeles for its injuries caused

17 by the conduct of JPMorgan alleged herein, pursuant to 42 U.S.C. § 3613(c)(1);

18

D. Order JPMorgan to disgorge its wrongfully obtained profits and to

19 provide restitution to the City as alleged herein;

20

E. Award punitive damages to the City in an amount to be determined by the

21 jury that would punish JPMorgan for the willful, wanton, and reckless conduct alleged

22 herein, and that would effectively deter similar conduct in the future, pursuant to 42

23 U.S.C. § 3613(c)(1);

24

F. Award the City its reasonable attorneys’ fees and costs, pursuant to 42

25 U.S.C. § 3613(c)(2);

26

G. Require payment of pre-judgment interest on monetary damages; and

27

H. Order such other relief as this Court deems just and equitable.

28
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1 DATED: August 26, 2014
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FHA
010346-13 714484 V1

By: /s/ Michael Feuer Michael Feuer (SBN 111529) CITY ATTORNEY mJaimkee.sfePu.eCr@lalrakc(iStyB.oNrg64780) CHIEF DEPUTY CITY ATTORNEY jCaImTeYs.pO.FclaLrOk@S AlaNciGtyE.oLrEgS 200 N. Main Street, Room 800 Los Angeles, CA 90012 Phone: (213) 978-8100 Steve W. Berman (pro hac vice) sHteAvGe@ENhbSsBslEawR.McoAmN SOBOL SHAPIRO LLP 1918 Eighth Avenue, Suite 3300 Seattle, WA 98101 Telephone: (206) 623-7292 Elaine T. Byszewski (SBN 222304) elaine@hbsslaw.com Lee M. Gordon (SBN 174168) lHeAe@GhEbNssSlaBwE.cRoMmAN SOBOL SHAPIRO LLP 301 North Lake Avenue, Suite 203 Pasadena, CA 91101 Telephone: (213) 330-7150 Joel Liberson (SBN 164857) jHooewl@artadrLesiboeurrscoens.(cSoBmN 183269) howard@taresources.com T40R0IACLon&tinAenPtPaEl BLLlvAdT., E6thRFElSoOorURCES, P.C. El Segundo, CA 90245 Telephone: (310) 426-2361 Robert Peck (pro hac vice) robert.peck@cclfirm.com CENTER FOR CONSTITUTIONAL LITIGATION 777 Sixth Street NW, Suite 520 Washington, DC 20001 Telephone: (202) 944-2803 Clifton Albright (SBN 100020) cAlLiftBoRn.IaGlbHrTighYtE@Eay&slSawC.HcoMmIT 888 West Sixth Street, Suite 1400 Los Angeles, CA 90017 Telephone: (213) 833-1700 Attorneys for Plaintiff the City of Los Angeles
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1

CERTIFICATE OF SERVICE

2

I hereby certify that on August 26, 2014, I electronically filed the foregoing

3 document using the CM/ECF system which will send notification of such filing to the

4 e-mail addresses registered in the CM/ECF system, as denoted on the Electronic Mail

5 Notice List.

6

7

/s/ Andy Katz

8

Andy Katz

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28
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 Case 2:14-cv-04168-ODW-RZ Document 49 Filed 11/14/14 Page 1 of 18 Page ID #:584

1

O

2

3

4

5

6

7

8

9

United States District Court

10

Central District of California

11

12 CITY OF LOS ANGELES,

13

Plaintiff,

Case № 2:14-cv-04168-ODW(RZx)

14

v.

ORDER DENYING DEFENDANTS’

15 JPMORGAN CHASE & CO.;

MOTION TO DISMISS

16 JPMORGAN CHASE BANK, N.A.;

PLAINTIFF’S FIRST AMENDED

17 CHASE MANHATTAN BANK USA,

COMPLAINT [43]

18 N.A.,

19

Defendants.

20

I. INTRODUCTION

21

Before the Court is Defendants JPMorgan Chase & Co.; JPMorgan Chase Bank,

22 N.A; and Chase Manhattan Bank USA, N.A’s (collectively, “Chase”) Motion to

23 Dismiss Plaintiff’s First Amended Complaint. (ECF No. 43.) This action is one of

24 four cases brought by Plaintiff the City of Los Angeles (“the City”) against large

25 lending institutions. The City is seeking damages under the federal Fair Housing Act

26 (“FHA”), 42 U.S.C. §§ 3601–19, for lost property-tax revenue and increased

27 municipal services stemming from foreclosures that are allegedly the result of

28 discriminatory lending practices. The present Motion largely mirrors similar motions

Case 2:14-cv-04168-ODW-RZ Document 49 Filed 11/14/14 Page 2 of 18 Page ID #:585

1 to dismiss brought in related cases. The Court finds no reason to deviate from the

2 rulings in the related cases. Accordingly, for the reasons discussed below, the Court 3 DENIES Defendants’ Motion to Dismiss.1 (ECF No. 43.)

4

II. FACTUAL BACKGROUND

5

The City filed suit against Chase on May 30, 2014, asserting two claims for

6 (1) violating the FHA, and (2) common-law restitution. (ECF No. 1.) This action is

7 one of four related cases brought by the City against large lending institutions,

8 alleging identical claims. (City of L.A. v. Wells Fargo, No. 2:13-cv-9007-ODW(RZx);

9 City of L.A. v. Citigroup Inc., No. 2:13-cv-9009-ODW(RZx); City of L.A. v. Bank of

10 Am. Corp., No. 2:13-cv-9046-PA(AGRx).)

11

Chase moved to dismiss the original Complaint, and the Court granted the

12 motion on August 5, 2014, finding that Chase is not liable for the conduct of the now-

13 defunct Washington Mutual under the Federal Institutional Reform, Recovery, and

14 Enforcement Act of 1989 (“FIRREA”), 12 U.S.C. § 1821. (ECF No. 40.) The City

15 was given leave to amend to excise the allegations relating to Washington Mutual, and

16 the First Amended Complaint (“FAC”) was filed on August 26, 2014. (ECF No. 41.)

17

In the FAC, the City alleges that Chase has engaged in discriminatory lending

18 practices that have resulted in a disparate number of foreclosures in minority areas of

19 Los Angeles. (See FAC ¶¶ 2–3.) Specifically, the City alleges that Defendants have

20 engaged in “redlining” and “reverse redlining.” (Id. ¶ 4.) Redlining is the practice of

21 denying credit to particular neighborhoods based on race. (Id. ¶ 4 n.2.) Reverse

22 redlining is the practice of flooding a minority neighborhood with exploitative loan

23 products. (Id. ¶ 4 n.3.) The lengthy FAC includes a regression analysis based on

24 Chase loans issued in Los Angeles. (See id. ¶¶ 90–95.) The City alleges numerous

25 statistics based on this regression analysis. One example is that from 2004 to 2011, an

26 African-American borrower was 2.783 times more likely to receive a “predatory loan”

27 28 1 After carefully considering the papers filed in support of and in opposition to the Motion, the Court
deems the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15.

2

Case 2:14-cv-04168-ODW-RZ Document 49 Filed 11/14/14 Page 3 of 18 Page ID #:586

1 as a white borrower with similar underwriting and borrower characteristics. (Id. ¶ 91.) 2 Also in the FAC are confidential witness statements from former employees of Chase

3 who describe how minority borrowers were treated differently than white borrowers in

4 the loan process. (See id. ¶¶ 58–82.)

5

Based on publically available loan data, the City alleges that it has identified

6 947 discriminatory loans issued by Chase in Los Angeles that resulted in the start of

7 foreclosure proceedings. (Id. ¶ 134.) The City expects that number to rise during the

8 course of discovery. (Id. ¶ 134 n.42.) According to the City, the discriminatory loans 9 issued by Chase were more likely to result in foreclosure, which in turn diminished

10 the City’s tax base and led to blight. (Id. ¶¶ 119–33.) The City is seeking to recover 11 lost property-tax revenue as well as expenses incurred for increased municipal

12 services as a result of these foreclosures. (Id.)

13

Chase filed the present Motion to Dismiss the FAC on September 12, 2014.

14 (ECF No. 43.) The Motion is similar, if not identical, to motions to dismiss that have

15 already been denied in the three related cases. (Wells Fargo, No. 2:13-cv-9007-

16 ODW(RZx), ECF No. 37; Citigroup, No. 2:13-cv-9009-ODW(RZx), ECF No. 47;

17 Bank of Am., No. 2:13-cv-9046-PA(AGRx), ECF No. 50.) Chase’s Motion is now

18 before the Court for decision.

19

III. LEGAL STANDARD

20 A. Rule 12(b)(1)

21

Federal Rule of Civil Procedure 12(b)(1) provides for dismissal of a complaint

22 for lack of subject-matter jurisdiction. The Article III case or controversy requirement

23 limits a federal court’s subject-matter jurisdiction, which includes the requirement that

24 plaintiffs have standing to bring their claims. Chandler v. State Farm Mut. Auto. Ins. 25 Co., 598 F.3d 1115, 1121–22 (9th Cir. 2010). When a motion to dismiss attacks 26 subject-matter jurisdiction under Rule 12(b)(1) on the face of the complaint, the court

27 assumes the factual allegations in the complaint are true and draws all reasonable

28 inferences in the plaintiff’s favor. Doe v. Holy See, 557 F.3d 1066, 1073 (9th

3

Case 2:14-cv-04168-ODW-RZ Document 49 Filed 11/14/14 Page 4 of 18 Page ID #:587

1 Cir. 2009). Moreover, the standards set forth in Bell Atlantic Corp. v. Twombly,

2 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009) apply in equal force

3 to Article III standing when it is being challenged on the face of the complaint. See

4 Perez v. Nidek Co., 711 F.3d 1109, 1113 (9th Cir. 2013); Terenkian v. Republic of

5 Iraq, 694 F.3d 1122, 1131 (9th Cir. 2012). Thus, in terms of Article III standing, the

6 complaint must allege “sufficient factual matter, accepted as true, to ‘state a claim to

7 relief that is plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550

8 U.S. at 570).

9 B. Rule 12(b)(6)

10

Under Rule 12(b)(6), a court may dismiss a complaint for lack of a cognizable

11 legal theory or insufficient facts pleaded to support an otherwise cognizable legal

12 theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). To

13 survive a dismissal motion, a complaint need only satisfy the minimal notice pleading

14 requirements of Rule 8(a)(2)—a short and plain statement of the claim. Porter v.

15 Jones, 319 F.3d 483, 494 (9th Cir. 2003). The factual “allegations must be enough to

16 raise a right to relief above the speculative level” and a claim for relief must be

17 “plausible on its face.” Twombly, 550 U.S. at 555, 570.

18

The determination whether a complaint satisfies the plausibility standard is a

19 “context-specific task that requires the reviewing court to draw on its judicial

20 experience and common sense.” Iqbal, 556 U.S at 679. A court is generally limited

21 to the pleadings and must construe all “factual allegations set forth in the complaint

22 . . . as true and . . . in the light most favorable” to the plaintiff. Lee v. City of L.A., 250

23 F.3d 668, 688 (9th Cir. 2001). But a court need not blindly accept conclusory

24 allegations, unwarranted deductions of fact, and unreasonable inferences. Sprewell v.

25 Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

26

IV. DISCUSSION

27

Chase moves to dismiss the FAC for lack of statutory standing, failure to

28 adequately allege causation, expiration of the statute of limitations, and overall failure

4

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1 to state a claim. All of Chase’s grounds for dismissal are familiar to the Court, having

2 ruled on similar motions in the related cases. While Chase has raised some new

3 arguments, the Court once again finds the City’s allegations sufficient to survive the 4 pleadings stage of this litigation.2

5 A. Causation

6

The Court turns first to the issue of causation. Chase argues that the City’s

7 FHA claim should be dismissed because the City has failed to adequately allege that

8 its harm—lost property-tax revenue and increased municipal services—was caused by

9 Chase’s discriminatory lending practices. (Mot. 18:3–22:17.) The thrust of Chase’s

10 causation argument is that the connection between the allegedly discriminatory

11 lending practices and the City’s alleged harm is too attenuated, requiring a series of

12 speculative inferences. (Id.) This argument is nearly identical to those made in the

13 related cases where this Court found that the City had adequately alleged causation for

14 the purposes of Article III standing as well as proximate causation. See Wells Fargo,

15 No. 13-cv-9007-ODW(RZx), ECF No. 37; Citigroup, No. 13-cv-9009-ODW(RZx),

16 ECF No. 47.

17

While Chase does not explicitly refer to Article III standing in its Motion, its

18 causation arguments invoke principles of Article III standing. A requirement for

19 constitutional standing is that plaintiffs “establish a ‘line of causation’ between

20 defendants’ action and their alleged harm that is more than ‘attenuated.’” Maya v.

21 Centex Corp., 658 F.3d 1060, 1070 (9th Cir. 2011) (citing Allen v. Wright, 468 U.S.

22 737, 758 (1984)). But a causal chain “does not fail simply because it has several

23 ‘links,’ provided those links are ‘not hypothetical or tenuous’ and remain ‘plausible.’”

24 Id. (quoting Nat’l Audubon Soc’y, Inc. v. Davis, 307 F.3d 835, 849 (9th Cir. 2002)).

25

In addition, to survive the instant Motion to Dismiss, the City must also have

26 adequately alleged proximate causation. See Lexmark Int’l, Inc. v. Static Control

27 2 Chase filed a Request for Judicial Notice (“RJN”) in support of the instant Motion. (ECF No. 44.) 28 The Court DENIES the RJN since it does not rely on any of the documents in its analysis. Notably,
neither does Chase since there is no reference or citation to the RJN in the Motion.

5

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1 Components, Inc., 134 S. Ct. 1377, 1390 (Mar. 25, 2014). A “damages action under

2 the FHA sounds basically in tort—the statute merely defines a new legal duty, and

3 authorizes the courts to compensate a plaintiff for the injury caused by the defendant’s

4 wrongful breach.” Garcia v. Brockway, 526 F.3d 456, 464 (9th Cir. 2008) (en banc).

5 Accordingly, the City must allege that Chase’s “wrongful conduct was a substantial

6 factor in bringing about the harm in question.” Pac. Shores Props., LLC v. City of

7 Newport Beach, 730 F.3d 1142, 1167–68 (9th Cir. 2013).

8

First, with respect to Article III, the Court finds that the City’s causation

9 allegations are sufficient. The City relies on a regression analysis in its lengthy FAC

10 to support its claims and theory of causation. The regression analysis is based on

11 publicly available loan data. (FAC ¶ 90.) Supporting the first “link” in the City’s

12 causal chain—Chase’s discriminatory lending practices—are statistics such as from

13 2004 to 2011 an African-American borrower was 2.783 times more likely to receive a

14 predatory loan from Chase as a white borrower with similar underwriting and

15 borrower characteristics. (Id. ¶ 91.) As for the second “link”—discriminatory loans

16 resulted in foreclosures—the City alleges, for example, that “a [Chase] loan in a

17 predominantly African-American or Latino neighborhood is 5.174 times more likely

18 to result in foreclosure as is a [Chase] loan in a predominantly white neighborhood.”

19 (Id. ¶ 98.) Also, a predatory loan made to a Latino borrower was 4.339 times as likely

20 to result in foreclosure as a non-predatory loan to a white borrower. (Id. ¶ 108.)

21 These foreclosures are then alleged to have caused a reduction in property values that

22 diminished the tax base (Id. ¶¶ 113–28) and created an increased need for city services

23 (Id. ¶¶ 129–33), which demonstrate the final links in the City’s causal chain. Cf.

24 Gladstone Realtors v. Vill. of Bellwood, 441 U.S. 91, 110–11 (1979) (“A significant

25 reduction in property values directly injures a municipality by diminishing its tax

26 base, thus threatening its ability to bear the costs of local government and provide

27 services.”).

28 / / /

6

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1

In support of its causation arguments, Chase references several district-court

2 decisions in similar cases across the country. (Mot. 18–20.) The Court has analyzed

3 these cases at length in ruling on the motions to dismiss in Wells Fargo and Citigroup.

4 The Court refers to and incorporates that analysis here. See Wells Fargo, No. 13-cv-

5 9007-ODW(RZx), ECF No. 37 at 7–9; Citigroup, No. 13-cv-9009-ODW(RZx), ECF

6 No. 47 at 10–12.

7

Next, with respect to proximate cause, the Court also finds the City’s

8 allegations sufficient to meet the minimum pleading standards. The Ninth Circuit

9 uses the following three-factor “remoteness” test to assess proximate causation:

10

(1) whether there are more direct victims of the alleged wrongful conduct

11

who can be counted on to vindicate the law as private attorneys general;

12

(2) whether it will be difficult to ascertain the amount of the plaintiff’s

13

damages attributable to defendant’s wrongful conduct; and (3) whether

14

the courts will have to adopt complicated rules apportioning damages to

15

obviate the risk of multiple recoveries.

16 Oregon Laborers-Employers Health & Welfare Trust Fund v. Philip Morris, Inc.,

17 185 F.3d 957, 963 (9th Cir. 1999).

18

Turning to the first factor of Oregon Laborers, the Court finds that while

19 mortgagors would certainly be more direct victims of Chase’s alleged conduct, the

20 City’s injuries are separate and distinct from the injuries of the mortgagors.

21 Moreover, the City alleges in the FAC that its injuries—just like the injuries suffered

22 by the mortgagors—were a direct and foreseeable result of predatory lending

23 practices. (See, e.g., FAC ¶¶ 43–45, 106–07.) Also, the City alleges in the FAC that

24 Chase’s contribution to the City’s harm—lost property-tax revenue and increased

25 municipal services—can be calculated through Hedonic regression analysis, which

26 distinguishes Chase’s conduct from other causes. (See id. ¶¶ 123–28.) This favors the

27 City under the second factor of Oregon Laborers. Furthermore, the Court also finds

28 no danger of multiple recoveries—the third factor of Oregon Laborers. This issue is

7

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1 not addressed in Chase’s Motion, but since the City’s harm is separate and distinct

2 from the mortgagors, the Court sees no danger of multiple recoveries at this time.

3

Since the Court’s rulings on the motions to dismiss in Wells Fargo and

4 Citigroup, a district court in the Southern District of Florida has reached the opposite

5 conclusion on proximate causation in similar actions brought by the City of Miami.

6 See City of Miami v. Bank of Am. Corp., No. 1:13-cv-24506-WPD, 2014 WL 3362348

7 (S.D. Fla. July 9, 2014). Chase relies heavily on the City of Miami decision in its

8 Motion. But to the extent that this Court’s findings are inconsistent with City of

9 Miami—which applied Eleventh Circuit case law—this Court expressly disagrees

10 with that decision.

11

Lastly, with respect to causation, the Court finds that a large portion of Chase’s

12 arguments delve too deeply into the merits of the case. Pac. Shores, 730 F.3d at 1168

13 (“Causation is an intensely factual question that should typically be resolved by a

14 jury.”) For example, Chase disputes the City’s regression analysis and statistics, but

15 these arguments are more appropriate for summary judgment or trial, with the benefit

16 of expert opinion. Chase is free to challenge causation throughout this litigation, and

17 the Court expects it, but the City is not required to actually prove its claims at the

18 motion-to-dismiss stage.

19

For these reasons, the Court finds that the allegations in the FAC meet the

20 minimum pleading standards for the purposes of causation under Article III as well as

21 proximate causation under the FHA.

22 B. Zone of Interests

23

Chase argues that the City’s FHA claim must also be dismissed because the

24 City lacks statutory standing. Statutory standing looks at whether Congress intended

25 to allow the City to recover for its alleged harm under the FHA. See Lexmark, 134 S.

26 Ct. at 1388. It is “presume[d] that a statutory cause of action extends only to plaintiffs

27 whose interests ‘fall within the zone of interests protected by the law invoked.’” Id.

28 (quoting Allen, 468 U.S. at 751). The zone-of-interests test for statutory standing is

8

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1 “not especially demanding” and the benefit of the doubt goes to the plaintiff. Id.

2 at 1389 (internal quotations and citations omitted). “[T]he test ‘forecloses suit only

3 when a plaintiff’s interests are so marginally related to or inconsistent with the

4 purposes implicit in the statute that it cannot reasonably be assumed that” Congress

5 authorized the plaintiff to sue. Id. (quoting Match-E-Be-Nash-She-Wish Band of

6 Pottawatomi Indians v. Patchak, 132 S. Ct. 2119, 2210 (2012)). Unlike Article III

7 standing, statutory standing is an inquiry resolved under Rule 12(b)(6). See Canyon

8 Cnty. v. Syngenta Seeds, Inc., 519 F.3d 969, 974 n.7 (9th Cir. 2008); Cetacean Comm.

9 v. Bush, 386 F.3d 1169, 1175 (9th Cir. 2004).

10

Here, Chase relies on Thompson v. North American Stainless, L.P., 131 S. Ct.

11 863 (2011) to argue that the City falls outside of the FHA’s zone of interests.

12 According to Chase, the FHA’s purpose is only to provide redress to victims of

13 housing discrimination and the City itself has not suffered discrimination. (Mot. 4–6.)

14 Chase’s arguments are largely identical to the zone-of-interests arguments made by

15 the defendants in the related cases, which this Court has already rejected. See Wells

16 Fargo, No. 13-cv-9007-ODW(RZx), ECF No. 37.

17

As in Wells Fargo, this Court relies on Supreme Court precedent holding that

18 Congress intended standing under the FHA to be as broad as Article III standing. See

19 Havens Realty Corp. v. Coleman, 455 U.S. 363, 372 (1982) (finding that statutory

20 standing under the FHA is coextensive with Article III standing); Gladstone, 441 U.S.

21 at 110 (holding that a municipality has standing under the FHA); Trafficante v. Metro

22 Life Ins. Co., 409 U.S. 205, 209 (1972) (stating that the language of the FHA is “broad

23 and inclusive” and that Congress intended to define standing as broadly as permitted

24 by Article III). This result is consistent with Lexmark, which does not require

25 statutory standing to be narrower than Article III standing. See Lexmark, 134 S. Ct. at

26 1387–89. Instead, the Supreme Court merely held that statutory standing is a separate

27 inquiry that requires courts to consider congressional intent. Id. This Court finds that

28 / / /

9

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1 Havens Realty, Gladstone, and Trafficante considered congressional intent in holding

2 that statutory standing under the FHA is coextensive with Article III standing.

3

While Chase emphasizes the recent Supreme Court decision in Thompson, the

4 case involves Title VII and not Title VIII, which encompasses the FHA. Under the

5 FHA, an “aggrieved person” is defined as “any person who claims to have been

6 injured by a discriminatory housing practice; or believes that such person will be

7 injured by a discriminatory housing practice that is about to occur.” 42 U.S.C.

8 § 3602(i). In Thompson, the Supreme Court interpreted the same “aggrieved person”

9 language in the context of an employment-discrimination suit under Title VII to limit

10 statutory standing by only allowing suit to be brought by employees. 131 S. Ct.

11 at 870. Thus, Chase argues that Thompson alters the holdings in Havens Realty,

12 Gladstone, and Trafficante. But the Supreme Court explicitly stated otherwise.

13 Thompson, 131 S. Ct. at 869 (“[I]t is Title VII rather than Title VIII that is before us

14 here . . . .”). The Court in Thompson also found that the holding in Gladstone

15 remained consistent with its analysis of the “zone of interests” limitation. Id.

16 Therefore, the Court relies on Havens Realty, Gladstone, and Trafficante to find that

17 the City’s claims fall within the FHA’s “zone of interests.”

18

The City of Miami decision discussed above reached a different result on the

19 zone-of-interest inquiry under the FHA as well. See No. 1:13-cv-24506-WPD, 2014

20 WL 3362348, at *3–4. But the Court is once again unpersuaded by City of Miami,

21 which relied exclusively on Eleventh Circuit precedent in Nasser v. City of

22 Homewood, 671 F.2d 432 (11th Cir. 1982). The court in City of Miami acknowledged

23 that Nasser was the basis for its divergence from the City’s cases here. See City of

24 Miami, 2014 WL 3362348, at *3–4 n.2 (“Unlike the district court in City of Los

25 Angeles, this Court is in the Eleventh Circuit so it is bound by the Eleventh Circuit’s

26 opinion [Nasser] . . . . If it turns out that the zone of interests for the purposes of

27 standing under the FHA is as broad as Article III standing, this court’s ruling may

28 very well be different as to the zone of interests analysis . . . .”). This Court is located

10

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1 in the Ninth Circuit and is in no way bound by Eleventh Circuit precedent. Instead,

2 this Court relies on precedent from the highest legal authority—the Supreme Court— 3 to find that the zone of interests under the FHA is as broad as Article III standing.3

4 See Trafficante, 409 U.S. at 210 (discussing the FHA’s legislative history and holding

5 that “[w]hile members of minority groups were damaged the most from discrimination

6 in housing practices, the proponents of the legislation emphasized that those who were

7 not direct objects of discrimination had an interest in ensuring fair housing, as they too

8 suffered”).

9

In its Reply, Chase also brings up the Ninth Circuit’s recent decision in El

10 Dorado Estates v. City of Fillmore, 765 F.3d 1118, 1122 (9th Cir. Sept. 2, 2014).

11 Chase argues that the Ninth Circuit in El Dorado held “that statutory standing under

12 the FHA is not coextensive with Article III standing.” (Reply 2:11–14.) But this is a

13 mischaracterization of the El Dorado decision. The Ninth Circuit never reached that 14 question because it was not raised in the first instance at the district-court level.4 El

15 Dorado, 786 F.3d at 1122.

16

Since the Court finds that the City has Article III standing,5 the Court finds that

17 the City also has statutory standing under the FHA.

18 C. Statute of Limitations

19

Chase also argues that the City’s FHA claim should be dismissed because it is

20 barred by the statute of limitations. (Mot. 22:20–23:14.) Under the FHA, claims must

21 3 This Court also notes that the Supreme Court’s decision in Thompson—which expressly declined

22 to limit the FHA’s zones of interests—was decided decades after the Eleventh Circuit decision in Nasser. See Thompson, 134 S. Ct. at 1388–89.
23 4 In its Reply, Chase suggests that El Dorado at least warrants certification of the issue for

24

interlocutory appeal. But the Court disagrees because there is no substantial ground for difference of opinion. See 28 U.S.C. § 1292(b). The Ninth Circuit never weighed in on statutory standing in El

25 Dorado, and inconsistent out-of-circuit, out-of-district decisions do not create a substantial ground

for difference of opinion. See In re Thinkfilm, LLC, No. 12-cv-9795-PSG, 2013 WL 654010, at *2 26 (C.D. Cal. Feb. 21, 2013); Natural Res. Def. Council v. Cnty. of L.A., No. 08-cv-1467-AHM(PLAx),

27

2011 WL 318543, at *1 (C.D. Cal. Jan. 27, 2011). 5 The Court interprets Chase’s Motion as disputing only causation for the purposes of Article III

28 standing. But the Court finds the allegations in the FAC sufficient to establish injury and

redressability as well.

11

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1 be filed “not later than 2 years after the occurrence or termination of an alleged

2 discriminatory housing practice . . . .” 42 U.S.C. § 3613(a)(1)(A).

3

Pursuant to a tolling agreement between the parties, the two-year limitations

4 period in this case runs from November 25, 2011, to November 25, 2013. (Mot. 23

5 n.6.) According to Chase, the statute of limitations has run on the City’s FHA claim

6 because the City has failed to allege any specific predatory lending activity within this

7 limitations period. (Mot. 22:20–23:14.) But the City argues that the “continuing

8 violations doctrine” applies because it has alleged an unbroken, eight-year pattern and

9 practice of discrimination with respect to Chase’s discriminatory lending.

10 (Opp’n 14:18–17:6.)

11

The Court finds that the allegations in the FAC do not run afoul of the statute of

12 limitations. Where a plaintiff challenges not merely a single incident of conduct that

13 violates the FHA, but rather a pattern or practice of discrimination, the statute of

14 limitations runs from the last asserted occurrence. See Havens Realty, 455 U.S.

15 at 380–81. This is known as the “continuing violations doctrine.” Id. at 380. Here,

16 the City repeatedly alleges that Chase has engaged in an “unlawful pattern and

17 practice” of mortgage discrimination and that Chase has “adapted to changing market

18 conditions” while continuing to discriminate against minority borrowers in Los

19 Angeles. (See, e.g., FAC ¶¶ 3–4, 8–9, 136.) Moreover, at least one of the City’s

20 confidential witnesses, who alleges discriminatory conduct by Chase, worked at the

21 bank from 2011 to 2012, which is within the limitations period. (See id. ¶ 60.)

22

Chase disputes the application of the continuing violations doctrine because the

23 types of loans issued to minority borrowers changed over time. (Mot. 23.) Chase

24 stopped issuing subprime loans by the time the limitations period began to run, and

25 new loans issued during the limitations period—such as FHA and VA loans—are not

26 “inherently predatory” like the previous loans. (Id. (citing FAC ¶ 52 n.22).) But the

27 Court finds that while the exact type of loan issued to minority borrowers may have

28 changed over time, the City alleges that the loans issued within the relevant time

12

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1 period remained high-risk and discriminatory. (See, e.g., FAC ¶¶ 52 (“FHA and VA

2 government loans are characterized as higher risk loans because they are typically

3 more expensive for a borrower than conventional loans and include fees and costs not

4 associated with conventional loans.”).) The City’s allegations of discrimination under

5 the FHA relate to Chase’s lending practices overall, not a specific type of loan issued. 6 The Court finds the allegations sufficient to apply the continuing violations doctrine.6

7 See O’Loghlin v. Cnty. of Orange, 229 F.3d 871, 875 (“[I]f a discriminatory act takes

8 place within the limitations period and that act is related and similar to acts that took

9 place outside the limitations period, all the related acts—including the earlier acts—

10 are actionable as part of a continuing violation.”).

11 D. Failure to State a Claim Under the FHA

12

Chase uses up considerable space in its Motion arguing that the FHA claim

13 should also be dismissed because the City has failed to properly allege a pattern or

14 practice of discrimination. Chase argues that the City’s allegations are insufficient to

15 recover under a theory of disparate treatment and a disparate-impact theory of liability

16 is not available under the FHA.

17

1. Disparate Treatment

18

Discriminatory intent or motive is a necessary element of any disparate

19 treatment claim under the FHA. See Wood v. City of San Diego, 678 F.3d 1075, 1081

20 (9th Cir. 2012) (requiring allegations of discriminatory intent in a disparate treatment

21 claim under Title VII); Gamble v. City of Escondido, 104 F.3d 300, 304–05 (9th

22 Cir. 1997) (holding that the elements of Title VII discrimination claims, including

23 / / /

24

25 6 Chase makes an additional argument with respect to loans issued by Bear Stearns. The City is

seeking to hold Chase liable for loans issued by Bear Stearns at a time when Chase contends that 26 Bear Stearns was a separate entity, and even a competitor. Chase argues that these loans should not

27

be considered as part of the eight-year “unlawful pattern and practice” of mortgage discrimination for the purposes of the continuing violations doctrine. (Mot. 23:15–24:5.) But Chase provides no

28 evidentiary support with respect to successor liability, or lack thereof. This issue is more appropriate

for an early summary-judgment motion.

13

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1 allegations of discriminatory treatment, are the same as the elements for FHA

2 discrimination under Title VIII).

3

According to Chase, the FAC is devoid of allegations that Chase’s

4 discriminatory lending practices were intentional or racially motivated. (See

5 Mot. 7–14.) But the Court finds no fault with the City’s ample allegations in the FAC

6 under a theory of disparate treatment. The FAC is rife with allegations that Chase

7 targeted minority borrowers by offering unfair loan terms based on race or national

8 origin. (See, e.g., FAC ¶¶ 11, 66, 72, 74–76, 81.) Moreover, a discriminatory pattern

9 can be probative of motive, and the FAC contains sufficient allegations of statistical

10 patterns of discrimination. See Lowe v. City of Monrovia, 775 F.2d 998, 1008 (9th

11 Cir. 1985) (stating that statistical evidence may be probative of motive).

12

While Chase attacks the confidential witness statements, statistics,7 and the

13 predatory nature of the loans themselves, the Court finds that these arguments go to

14 the weight of the evidence and not the sufficiency of the City’s pleading. (See id.

15 at 9:22–13:28.) The City will be put proof as this litigation progresses, but it is not

16 required to prove its claims at this stage. Accordingly, the Court finds that the City’s

17 FHA claim under a theory of disparate treatment is sufficient at the motion-to-dismiss

18 stage.

19

2. Disparate Impact

20

Next, Chase argues that the Court should find that disparate impact is not a

21 viable legal theory under the FHA. (Mot. 14:26–17:27.) Chase also argues that the

22 City has not alleged a facially neutral policy, as required for a disparate-impact theory

23 of liability. (Id.)

24

25 7 Chase once again takes issue with the allegations surrounding the conduct of Bear Stearns.

According to Chase, Bear Stearns operated independently during much of the relevant time period 26 and any intentional discrimination on the part of Bear Stearns, while it operated independently from

27

Chase, should not be imputed. (Mot. 11:23–12:12 n.3.) But, as stated above with respect to the continuing violations doctrine, Chase offers no evidentiary support and the Court must accept the

28 allegations in the City’s FAC as true. Chase can, and perhaps should, raise the issue at the

summary-judgment stage.

14

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1

As discussed in the orders denying motions to dismiss in Wells Fargo and

2 Citigroup, the Court finds the plurality opinion in Smith v. City of Jackson,

3 Mississippi, 544 U.S. 228 (2005), unpersuasive on the disparate-impact issue. The

4 justices in Smith were squarely divided on the availability of a disparate-impact theory

5 of liability. Moreover, the case involved an Age Discrimination in Employment Act

6 claim under Title VII, as opposed to an FHA claim under Title VIII. The Ninth

7 Circuit has also explicitly recognized disparate-impact claims under the FHA

8 subsequent to the Smith decision along with other circuits. Ojo v. Farmers Grp., Inc.,

9 600 F.3d 1205, 1208 (9th Cir. 2010); see also Graoch Assoc. #33, L.P. v.

10 Louisville/Jefferson Cnty. Metro Human Relations Comm’n, 508 F.3d 366, 392 (6th

11 Cir. 2007); Reinhart v. Lincoln Cnty., 482 F.3d 1225, 1229 (10th Cir. 2007).

12

After this Motion was taken under submission, Chase filed a Notice of

13 Supplemental Authority. (ECF No. 48.) In the Notice, Chase points out that the

14 United States District Court for the District of Columbia very recently vacated a

15 regulation from the Department of Housing and Urban Development that provided for

16 disparate-impact liability under the FHA. See Am. Ins. Assoc. v. U.S. Dep’t of Hous.

17 & Urban Dev., No. 1:13-cv-00966-RJL, 2014 WL 5802283 (D.D.C. Nov. 7, 2014).

18 Moreover, the Court recognizes that the Supreme Court has granted certiorari on the

19 availability of a disparate-impact theory of liability under the FHA. See Texas Dep’t

20 of Hous. & Cmty. Affairs v. The Inslusive Cmtys. Project, Inc., 134 S. Ct. 46

21 (Oct. 2, 2014). But neither of these cases dictates a different result on disparate

22 impact here. This Court is bound by Ninth Circuit precedent on the availability of a

23 disparate-impact theory of liability under the FHA. See Ojo, 500 F.3d at 1208. A

24 district-court decision in another circuit does not alter the analysis. The Supreme

25 Court’s decision to take up the disparate-impact question in Texas Department of

26 / / /

27 / / /

28 / / /

15

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1 Housing also holds no sway over the FHA claim here, unless and until it holds that 2 disparate-impact is not an available theory under the FHA.8

3

Chase also argues that a disparate-impact theory of liability requires the City to

4 allege a facially neutral policy, which the City has failed to do in the FAC. See

5 Stockwell v. City & Cnty. of S.F., 749 F.3d 1107, 1114 (9th Cir. Apr. 24, 2014);

6 Johnson v. United Continental Holdings, Inc., No. C-12-2730 MMC, 2013 WL

7 1758760, at *11 (N.D. Cal. Apr. 24, 2013). But the Court finds that the City has

8 alleged several facially neutral policies. For example, the City alleges that Chase

9 targeted high-risk loans in neighborhoods with disproportionate minority populations

10 and gave discretion to loan officers while incentivizing the issuance of high-risk loans.

11 (FAC ¶¶ 4–9, 11, 86, 96, 99, 139.) The City also alleges that Chase abandoned

12 meaningful underwriting review and failed to extend or maintain branch support in

13 certain neighborhoods with disproportionate minority populations. (Id. ¶¶ 4, 8, 11, 18,

14 66–76, 98, 101, 105.) These alleged policies are sufficient at this stage of the

15 litigation. See NAACP v. Ameriquest Mortg. Co., 635 F. Supp. 2d 1096, 1104 (C.D.

16 Cal. Jan. 12, 2009) (finding that the marketing of subprime loans, deployment of

17 financial incentives, and lack of meaningful review of loan applications were

18 sufficient policies for a disparate-impact claim).

19

Overall, the Court finds that the City has adequately alleged its FHA claim

20 under a disparate-impact theory.

21 E. Restitution

22

Turning to the City’s second claim for restitution, Chase argues that the claim

23 should be dismissed because the City has not conferred a benefit on Chase.

24 (Mot. 24:6–25:19.) Chase urges the Court to reject the “externalities” approach that it

25

26 8 Chase suggests that American Insurance and Texas Department of Housing at least warrant

27

interlocutory review. (Not. of Supp. Auth. 2:13–20.) But the Court disagrees because the City has sufficiently alleged a disparate-treatment claim under the FHA; thus, an appeal of the City’s

28 disparate-impact claim will not “materially advance the ultimate termination of the litigation.” See

28 U.S.C. § 1292(b).

16

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1 has taken in denying the motions to dismiss in Wells Fargo and Citigroup. (Id.)

2 However, the Court finds no reason to diverge from its previous rulings on this issue.

3

To seek restitution, the City must allege that Chase was unjustly enriched at the

4 City’s expense. See McBride v. Boughton, 123 Cal. App. 4th 379, 389 (2004).

5

Under the law of restitution, an individual is required to make restitution

6

if he or she is unjustly enriched at the expense of another. A person is

7

enriched if the person receives a benefit at another’s expense. However,

8

the fact that one person benefits another is not, by itself, sufficient to

9

require restitution. The person receiving the benefit is required to make

10

restitution only if the circumstances are such that, as between the two

11

individuals, it is unjust for the person to retain it.

12 Id. (internal citations and quotations omitted); see also Durell v. Sharp Healthcare,

13 183 Cal. App. 4th 1350, 1370 (2010) (quoting McBride).

14

Here, the City contends that the benefits it conferred upon Chase are the so-

15 called “externalities”—the costs of harm caused by Chase’s discriminatory lending

16 that the City has had to shoulder. (Opp’n 17:19–19:8; FAC ¶¶ 129–33, 149.) “Unjust

17 enrichment arises not only where an expenditure by one party adds to the property of

18 another, but also where the expenditure saves the other from expense or loss.” White

19 v. Smith & Wesson Corp., 97 F. Supp. 2d 816, 829 (N.D. Ohio Mar. 14, 2000). This

20 Court, in line with similar decisions from trial courts across the country, finds that the

21 City has properly alleged a benefit to state a theory of recovery for restitution. See id.

22 (allowing unjust-enrichment claim where city sued gun manufacturer for failing to

23 incorporate safety devices into handguns and negligent marketing practices); City of

24 Boston v. Smith & Wesson Corp., No. 199902590, 2000 WL 1473568, at *18 (Mass.

25 Super. Ct. July 13, 2000) (sustaining unjust-enrichment claim at pleadings stage based

26 on “externalities” that the city covered due to gun manufacturer’s actions); City of

27 N.Y. v. Lead Indus. Ass’n, Inc., 190 A.D. 2d 173, 177 (N.Y. App. Div., May 13, 1993)

28 / / /

17

Case 2:14-cv-04168-ODW-RZ Document 49 Filed 11/14/14 Page 18 of 18 Page ID #:601

1 (allowing restitution claim for “reasonable costs of [lead] abatement” to survive

2 motion to dismiss).

3

V. CONCLUSION

4

For the reasons discussed above, the Court DENIES Chase’s Motion to

5 Dismiss. (ECF No. 43.) Chase shall answer the FAC within 14 days.

6

Chase is also ORDERED to meet and confer with the City and the parties in

7 the related cases regarding discovery as well as pretrial and trial dates. The parties in

8 the related cases before this Court have been ordered to meet and confer on Monday,

9 December 8, 2014. The Court expects Chase to formally participate in that 10 conference.9 As previously ordered, the City shall file a written status report no later

11 than close of business Wednesday, December 10, 2014.

12

IT IS SO ORDERED.

13

14

November 14, 2014

15

16

____________________________________

17

OTIS D. WRIGHT, II

UNITED STATES DISTRICT JUDGE

18

19

20

21

22

23

24

25

26

27 28 9 Up until this point, Chase has participated informally in joint scheduling conferences in the related
cases before the Court.

18

 
 1 MICHAEL FEUER (SBN 111529) CITY ATTORNEY
2 mike.feuer@lacity.org JAMES P. CLARK (SBN 64780)
3 CHIEF DEPUTY CITY ATTORNEY james.p.clark@lacity.org
4 CITY OF LOS ANGELES 200 N. Main Street, Room 800
5 Los Angeles, CA 90012 Telephone: (213) 978-8100
6
Attorneys for Plaintiff the City of Los Angeles
7
STEVEN J. OLSON (SBN 182240) 8 solson@omm.com
ELIZABETH L. MCKEEN (SBN 216690) 9 emckeen@omm.com
ROBERT M. SWERDLOW (SBN 200266) 10 rswerdlow@omm.com
O’MELVENY & MYERS LLP 11 400 South Hope Street
Los Angeles, CA 90071 12 Telephone: (213) 430-6000

13 Attorneys for Defendants JPMorgan Chase & Co.; JPMorgan Chase Bank, N.A.; and Chase Manhattan
14 Bank USA, N.A.

15 [ADDITIONAL COUNSEL LISTED ON SIGNATURE PAGE]

16
UNITED STATES DISTRICT COURT
17
CENTRAL DISTRICT OF CALIFORNIA
18

19 CITY OF LOS ANGELES, a municipal ) No. 2:14-CV-04168-ODW (RZx)

corporation,

)

20

) [PROPOSED] PROTECTIVE

Plaintiff, ) ORDER ON STIPULATION

21

) REGARDING CONFIDENTIAL

v.

) INFORMATION

22

)

JPMORGAN CHASE & CO.;

)

23 JPMORGAN CHASE BANK, N.A.; and ) DISCOVERY MATTER

CHASE MANHATTAN BANK USA, )

24 N.A.,

)

)

25

Defendants. )

)

26

)

27

28

[PROPOSED] PROTECTIVE ORDER ON STIPULATION REGARDING CONFIDENTIAL INFORMATION

1

The following terms of the Stipulation Regarding Confidential Information

2 submitted by Plaintiff City of Los Angeles and Defendants JPMorgan Chase & Co.,

3 JPMorgan Chase Bank, N.A., and Chase Manhattan Bank USA, N.A., meet with the

4 approval of the court.

5

IT IS HEREBY ORDERED THAT:

6

PURPOSES AND SCOPE

7

1. Disclosure and discovery activity in this Litigation are likely to involve

8 production of confidential, proprietary, or private information of the parties and

9 third-parties for which special protection from public disclosure and from use for any

10 purpose other than prosecuting this Litigation is warranted. The unrestricted

11 disclosure of such information would cause undue damage to the parties, their

12 businesses, and third-parties. Accordingly, the parties in this action hereby stipulate

13 to and petition the Court to enter the following Protective Order. The parties

14 acknowledge that this Order does not confer blanket protections on all disclosures or

15 responses to discovery, and that the protections outlined herein extend only to the

16 limited information or items that are entitled to treatment as confidential under

17 applicable legal principles.

18

2. The parties further acknowledge, as set forth in paragraph 16, that this

19 Protective Order creates no entitlement to file Confidential Information, as defined in

20 paragraph 4, under seal. Local 79-5.1 and the Pilot Project for the Electronic

21 Submission and Filing of Under Seal Documents for the Central District of

22 California, where applicable, set forth the procedures that must be followed, and

23 reflect the standards that will be applied, when a party seeks permission from the

24 Court to file material under seal.

25

3. This Order shall govern all materials produced as part of a party’s Initial

26 Disclosures under Federal Rule of Civil Procedure 26(a)(1), produced in connection

27 with this Litigation, or produced in response to any discovery request in the

28
- 1 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1 Litigation (including, but not limited to, documents, deposition transcripts,

2 interrogatory responses, and responses to requests for admission) to any party or

3 non-party subpoena; all information contained in those materials; and all copies,

4 excerpts, or summaries of those materials (collectively, “Discovery Materials”).

5

DESIGNATING CONFIDENTIAL MATERIAL

6

4. Any party or non-party may designate as confidential (by stamping the

7 relevant page “Confidential” or as otherwise set forth herein) any Discovery

8 Materials which that party or non-party (“Designating Party”) considers in good faith

9 are confidential because they include any of the following: (a) individual personal

10 information that is protected from disclosure under state or federal law (including

11 identifying personal financial information); (b) trade secrets; (c) confidential

12 financial information that, if disclosed to the general public or competitors of the

13 Designating Party, could reasonably be expected to cause identifiable, significant

14 harm to the Designating Party; (d) confidential underwriting and pricing models or

15 criteria; (e) competitive compensation structures or information regarding individual

16 employee compensation; or (f) information that the Designating Party has a duty to a

17 third-party or to the court to maintain as confidential (collectively, “Confidential

18 Information”). The parties respectfully submit that good cause exists to protect these

19 narrow categories of information as confidential. See, e.g., Foltz v. State Farm Mut.

20 Auto. Ins. Co., 331 F.3d 1122, 1134 (9th Cir. 2003) (protective order appropriate to

21 protect “trade secrets, financial information, and third-party medical or personnel

22 information”); Humboldt Baykeeper v. Union Pac. R. Co., 244 F.R.D. 560, 563

23 (N.D. Cal. 2007) (protective order appropriate where “disclosure … would cause an

24 identifiable, significant harm”); Duling v. Gristede’s Operating Corp., 266 F.R.D.

25 66, 73 (S.D.N.Y. 2010) (protective order appropriate to protect individuals’ personal

26 information); Star Scientific, Inc. v. Carter, 204 F.R.D. 410, 415-16 (S.D. Ind. 2001)

27 (protective order appropriate to protect “trade secrets and confidential information”

28
- 2 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1 the “public dissemination” of which would cause “great economic harm”). The

2 parties also respectfully note that this showing of good cause is identical to that in

3 the entered protective order in the related lawsuit, City of Los Angeles v. Wells Fargo

4 & Co. and Wells Fargo Bank, N.A., No. 13-cv-09007-ODW (RZx), in the Central

5 District of California.

6

5. Where a document or response consists of more than one page, the first

7 page and each page on which Confidential Information appears shall be so

8 designated. The parties agree, however, that confidentiality designations initially

9 may be made at the document level, not the page level (each page of any documents

10 so designated shall still be stamped “Confidential”). If a party challenges all or any

11 part of the confidentiality designation with respect to any Discovery Materials, or if a

12 party provides notice that it intends to file any Discovery Materials, the Designating

13 Party shall re-designate such Discovery Materials, as appropriate to address the non-

14 disclosing party’s challenge or notice, on a page-by-page basis with respect to any

15 portion to be designated “Confidential.” If the Designating Party does not re-

16 designate such Discovery Materials on a page-by-page basis within 15 business days

17 of receiving the non-disclosing party’s challenge or notice of intent to file, then the

18 confidentiality designation shall be deemed withdrawn. If a party is producing a

19 large volume of multi-page consumer loans documents likely to contain Confidential

20 Information, in circumstances in which it may impose an undue burden to conduct a

21 page-by-page or document-by-document review for Confidential Information, the

22 Designating Party may designate all such documents as Confidential, subject to

23 challenge and notice as set forth herein.

24

6. The Designating Party may designate information disclosed by it during

25 a deposition or in response to written discovery as “Confidential” by so indicating in

26 said responses or on the record at the deposition. Additionally the Designating Party

27 may designate in writing, within 30 days after service of said responses or receipt of

28
- 3 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1 the deposition transcript for which the designation is proposed, that specific pages of

2 the transcript and/or specific responses be treated as Confidential Information. Any

3 other party may object to such proposal, in writing or on the record. Deposition

4 transcripts shall be treated in their entirety as Confidential Information for 30 days

5 after receipt, unless a motion is due to be filed, in which case the 30-day period

6 expires five days prior to the motion filing deadline. If a transcript is received within

7 five days prior to a motion filing deadline, the transcript shall be treated as

8 Confidential Information until two court days prior to the motion filing deadline. All

9 parties shall affix the Confidential legend required by paragraph 4 on each page of

10 the deposition transcript designated Confidential Information at the deposition or by

11 subsequent written notice.

12

7. In the event that a party believes that any Discovery Materials produced

13 by a Designating Party contain its own Confidential information, such party (the

14 “Designating Party”) may request, by notice in writing to the parties, that such

15 documents be considered Confidential under the terms of this Protective Order.

16 Absent any challenges to said request, such documents shall be considered so

17 designated. Any challenges to such designation shall follow the procedure outlined

18 below and shall in all respects be considered as if the Designating Party produced the

19 material in the first instance with the designation.

20

8. To the extent that information stored or recorded in the form of

21 electronic or magnetic media (including information, files, databases, or programs

22 stored on any digital or analog machine-readable device, computers, discs, networks

23 or tapes) (“computerized material”) is produced in a native or other form such that it

24 cannot be stamped as described in the preceding paragraphs, the Designating Party

25 may designate such matter as Confidential by cover letter referring generally to such

26 matter and by labeling such media accordingly.

27

28
- 4 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1

9. If it comes to a Designating Party’s attention that information or items

2 that it designated for protection do not qualify for protection at all, the Designating

3 Party must promptly notify all other parties that it is withdrawing the mistaken

4 designation.

5

10. A party or non-party’s inadvertent failure to timely designate any

6 Discovery Materials as Confidential Information does not waive a party’s right to

7 secure protection under this Order for such material. At any time, the Designating

8 Party may designate Discovery Materials as Confidential Information by providing

9 written notice to the receiving party. Upon receiving notification of the designation,

10 the receiving party must make reasonable efforts to assure that the Confidential

11 Information is treated in accordance with the provisions of this Order going forward.

12

11. A party or non-party’s failure to designate Discovery Materials as

13 Confidential Information does not constitute forfeiture of a claim of confidentiality

14 as to any other Discovery Materials.

15

NONDISCLOSURE OF CONFIDENTIAL INFORMATION

16

12. Except with the prior written consent of the Designating Party, or as

17 otherwise permitted pursuant to this Protective Order, Discovery Materials

18 designated Confidential Information shall only be used for the purpose of this

19 Litigation, the related lawsuit brought against Defendants in the Central District of

20 California by the Los Angeles Unified School District (No. 14-cv-7369), and any

21 lawsuit that the Court formally relates to this action (“Related Litigation”), including

22 any direct appeals from such lawsuits, and not for any other present or future

23 disputes, proceedings or litigation, or any other business, commercial, competitive,

24 personal, private, public, or other purpose whatsoever. Should additional litigation

25 be filed against Defendants that a party believes should also be designated as related

26 litigation in which Confidential Information may be used, the parties will meet and

27 confer in good faith regarding the issue.

28
- 5 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1

PERMISSIBLE DISCLOSURES

2

13. Discovery Materials designated Confidential Information in accordance

3 with the terms of this Protective Order shall not be disclosed to any person other than

4 the following, and only to the extent necessary in connection with this Litigation or

5 Related Litigation, as defined in paragraph 12:

6

a. counsel for the parties to this Litigation or Related Litigation,

7 including in-house counsel, co-counsel, and their associated attorneys, paralegals,

8 and other professional personnel provided they are assisting such counsel with this

9 Litigation or Related Litigation, are under the supervision or control of such counsel,

10 and who have been advised by such counsel of their obligations hereunder;

11

b. persons or entities that provide litigation support services (e.g.,

12 photocopying; e-discovery processing and hosting vendors; videotaping; translating;

13 preparing exhibits or demonstrations; organizing, storing, or retrieving data in any

14 form or medium; etc.) and their employees and subcontractors, provided they are

15 assisting with this Litigation or Related Litigation, and have been advised by such

16 counsel of their obligation hereunder;

17

c. any officer, employee, or contractor of a party, to the extent

18 deemed necessary by counsel for the prosecution or defense of this Litigation or

19 Related Litigation;

20

d. outside consultants or expert witnesses retained or consulted in

21 connection with this Litigation or Related Litigation and individuals employed or

22 engaged by them, provided that each such person shall execute a copy of the

23 certification annexed to this Protective Order as Exhibit A before being shown or

24 given any Confidential Information;

25

e. other witnesses who may testify at a deposition, hearing, or at

26 trial, provided that such witnesses shall execute a copy of the certification annexed to

27

28
- 6 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1 this Protective Order as Exhibit A before being shown or given any Confidential

2 Information;

3

f. an officer before whom a deposition is taken, including

4 stenographic reports and any necessary secretarial, clerical, or other personnel of

5 such officer;

6

g. the original authors or recipients of the Confidential Information;

7

h. the Court, court personnel, and court reporters; and

8

i. any other person provided that (i) the Designating Party has

9 consented in writing to disclosure to such other person(s) and (ii) such person(s)

10 shall execute a copy of the certification annexed to this Protective Order as Exhibit A

11 before being shown or given any Confidential Information.

12

RESOLVING DISPUTED CLASSIFICATIONS

13

14. Should a party wish to object to a confidential designation of any

14 Discovery Materials (the “Objecting Party”), the Objecting Party shall notify the

15 Designating Party in writing of the basis for the dispute (the “Designation

16 Objection”). In its Designation Objection, the Objecting Party shall particularly

17 identify the specific Discovery Materials as to which the designation is disputed (i.e.,

18 by document bates numbers, deposition transcript page and line reference, or other

19 means sufficient to locate such materials).

20

a) Within 10 business days of receiving the Designation Objection,

21 the Designating Party and the Objecting Party shall meet and confer in good faith to

22 attempt to resolve the dispute without involvement of the Court.

23

b) If no resolution is reached, this Order shall be without prejudice

24 to the right of the parties (i) to bring before the Court through a jointly filed

25 stipulation, pursuant to Local Rules 37-1 and 37-2 governing discovery disputes, at

26 any time the question of whether any particular document or information is

27 confidential or whether its use should be restricted or (ii) to present a motion to the

28
- 7 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1 Court under Fed. R. Civ. P. 26(c) for a separate protective order as to any particular

2 document or information, including restrictions differing from those as specified

3 herein. This Order shall not be deemed to prejudice the parties in any way in any

4 future application for modification of this Order.

5

c) Pending a ruling by the Court, the disputed designation shall

6 continue to be treated as Confidential Information under the terms of this Protective

7 Order. Nothing in this Protective Order shall be deemed to prevent the Designating

8 Party from arguing during the determination process for limits on the use or manner

9 of dissemination of Discovery Materials that is found to no longer constitute

10 Confidential Information.

11

SUBPOENA BY OTHER COURTS OR AGENCIES

12

15. If at any time any Confidential Information is subpoenaed by a court,

13 administrative or legislative body, or by any other person or entity purporting to have

14 authority to require the production of such information, the person to whom the

15 subpoena is directed shall give written notice thereof to the Designating Party within

16 five business days. After receipt of the notice specified under this paragraph, the

17 person seeking to maintain confidentiality shall have the sole responsibility for

18 obtaining any order it believes necessary to prevent disclosure of the Confidential

19 Information that has been subpoenaed. If the person seeking to maintain

20 confidentiality does not move for a protective order or other legal intervention within

21 the time allowed for production by the subpoena (or within such time as a court may

22 direct or as may be agreed upon between the designating person and the subpoenaing

23 party) and give written notice of such action to the subpoenaing party and the person

24 to whom the subpoena is directed, the person to whom the subpoena or other request

25 is directed may commence production in response thereto.

26

27

28
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[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1

FILING DOCUMENTS UNDER SEAL

2

16. No Confidential Information shall be filed in the public record without

3 the written permission of the Designating Party, or a court’s order. The parties shall

4 comply with L.R. 79-5.1 and the Pilot Project for the Electronic Submission and

5 Filing of Under Seal Documents for the Central District of California, where

6 applicable.

7

17. Copies of any pleading, brief, or other Discovery Materials containing

8 Confidential Information which are served on opposing counsel shall be delivered in

9 a sealed envelope stamped:

10

CONFIDENTIAL PURSUANT TO PROTECTIVE ORDER

11 and shall be treated in accordance with the provisions of this Protective Order.

12

CONFIDENTIAL INFORMATION AT TRIAL OR HEARINGS

13

18. The restrictions, if any, that will govern the use of Confidential Material

14 at trial or hearings, will be determined at a later date by the Court, in consultation

15 with the parties.

16

INADVERTENT DISCLOSURE OF CONFIDENTIAL INFORMATION

17

19. If a party or its counsel inadvertently discloses Confidential Information

18 to persons who are not authorized, pursuant to this Order, to use or possess the

19 Confidential Information, the party who inadvertently disclosed the Confidential

20 Information shall (i) provide prompt written notice of the disclosure to the

21 Designating Party upon learning of its inadvertent disclosure; and (ii) seek the

22 immediate return of the Confidential Information from the unauthorized party in

23 possession of the Confidential Information or secure their agreement to abide by the

24 protections of this Order.

25

26

27

28
- 9 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1 ACTIONS TO PROTECT AGAINST UNAUTHORIZED DISCLOSURE OF

2

PERSONALLY IDENTIFIABLE INFORMATION

3

20. In the event that the Court determines that there is an actual or

4 threatened breach of this Order by a party who received Confidential Information

5 that contains personally identifiable information (e.g., private contact information,

6 personally identifiable financial information, etc.), the parties agree that the

7 Designating Party would not have an adequate remedy at law regarding the

8 unauthorized disclosure of such personally identifiable information and would be

9 entitled to specific performance, and/or injunctive relief, to enforce the terms of this

10 Order, in addition to any other remedy the party may be entitled at law or in equity.

11

NON-TERMINATION

12

21. All provisions of this Protective Order restricting the communication or

13 use of Confidential Information shall continue to be binding after the conclusion of

14 this Litigation. Upon the conclusion of the Litigation, including any appeals, a party

15 in the possession of Confidential Information, other than that which is contained in

16 pleadings, correspondence, work product, and deposition transcripts, shall either (a)

17 return such documents no later than 60 days after conclusion of this action to counsel

18 for the Designating Party, or (b) destroy such documents within 60 days, and certify

19 in writing to the Designating Party that the documents have been destroyed.

20 Notwithstanding this provision, counsel are entitled to retain an archival copy of all

21 pleadings, motion papers, transcripts, legal memoranda, correspondence, or attorney

22 work product, even if such materials contain Confidential Information. Any such

23 archival copies that contain or constitute Confidential Information remain subject to

24 this Order for so long as the copies are maintained. If any Confidential Information

25 has been furnished under this Order to any expert or other third-party, counsel for the

26 party furnishing the Confidential Information shall request in writing that all such

27 Confidential Information, other than that which is contained in pleadings,

28
- 10 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1 correspondence, work product, and deposition transcripts, be returned to counsel or

2 destroyed.

3

MODIFICATION PERMITTED

4

22. Nothing in this Protective Order shall prevent any party or other person

5 from seeking modification of this Protective Order.

6

NO WAIVER OF OBJECTIONS

7

23. Nothing in this Protective Order shall constitute a waiver of a party’s

8 right to object to any Discovery Materials on any grounds or to object to the

9 admission in evidence of Discovery Materials at any motion hearing or trial.

10 Nothing in this Protective Order shall be deemed to expand or limit the permissible

11 scope of discovery in this Litigation.

12

RESPONSIBILITY OF ATTORNEYS

13

24. The counsel for the parties are responsible for employing reasonable

14 measures, consistent with this Protective Order, to control duplication of, access to,

15 and distribution of copies of Confidential Information.

16

25. The counsel for the parties are responsible for administering and

17 keeping the executed original copy of Exhibit A pursuant to ¶¶ 10(d), (e), (f), and (i)

18 above.

19

SHIPPING PROTECTED MATERIAL

20

26. When any party physically ships any Discovery Materials containing

21 personally identifiable information to others designated in this Order as authorized to

22 receive such Discovery Materials, the receiving party will encrypt such electronic

23 data (if the Discovery Materials are in that format) and supply the password in

24 separate correspondence to the recipient. If the Discovery Materials containing

25 personally identifiable information are in hard copy/paper form, the receiving party

26 will ship the Discovery Materials using secure packaging and a tracking number. If

27 the receiving party learns at any time that such Discovery Materials may have been

28
- 11 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1 improperly viewed by unauthorized parties during shipment, it will promptly notify

2 the Designating Party and take reasonable measures to retrieve the improperly

3 disclosed Discovery Materials. This Paragraph does not apply to the exchange of

4 Discovery Materials via e-mail or other electronic transmission.

5

NO WAIVER

6

27. Nothing herein shall be deemed to waive any applicable privilege, work

7 product protection, or other legal or statutory protection from or prohibition of

8 disclosure, or to affect the ability of a party to seek relief for an inadvertent or

9 unintentional disclosure of Discovery Materials protected by any privilege, work

10 product protection, or other law or statute. Pursuant to the Court’s authority under

11 Federal Rule of Evidence 502 and any other applicable law, rule, or legal principal,

12 the inadvertent or unintentional production of Discovery Materials subject to the

13 attorney-client privilege or work-product immunity shall not waive the privilege or

14 immunity in this proceeding or any other federal or state proceeding, either as to

15 specific information in the Discovery Materials or as to any other Confidential

16 Information relating thereto or on the same or related subject matters, if a written

17 request for the return of such documents or information (the “Identified Materials”)

18 is made promptly after the producing party or the Designating Party learns of its

19 inadvertent or unintentional production. Upon such a written request, the receiving

20 party shall return to the Designating Party the Identified Materials. The contents of

21 the Identified Materials shall not be disclosed to anyone who was not already aware

22 of the contents of them before the notice was made.

23

28. Nothing contained in this Protective Order and no action taken pursuant

24 to it shall prejudice the right of any party to contest the alleged relevancy,

25 admissibility, or discoverability of Discovery Materials, whether designated

26 Confidential Information or not.

27

28
- 12 -
[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1 IT IS SO ORDERED.

2

3 DATED: February 18, 2015 By: ____________________________________

4

HONORABLE RALPH ZAREFSKY

UNITED STATES MAGISTRATE JUDGE
5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

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[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1

EXHIBIT A

2

ACKNOWLEDGMENT AND AGREEMENT TO BE BOUND

3

I, __________________________ declare under penalty of perjury that

4
I have read in its entirety and understand the Stipulated Protective Order that was
5
6 issued by the United States District Court for the Central District of California in the

7 case of City of Los Angeles v. JPMorgan Chase & Co., et al., Case No. 14-CV-

8
04168. I agree to comply with and to be bound by all the terms of this Stipulated
9
10 Protective Order and I understand and acknowledge that failure to so comply could

11 expose me to sanctions and punishment in the nature of contempt. I solemnly
12
promise that I will not disclose in any matter any information or item that is subject
13
14 to this Stipulated Protective Order to any person or entity except in strict compliance

15 with the provisions of this Order. I further agree to submit to the jurisdiction of the
16
United States District Court for the Central District of California for the purpose of
17
18 enforcing the terms of this Stipulated Protective Order.

19
Date:
20

21 City and State:
22

23 Printed name:

24
Signature:
25

26

27

28
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[PROPOSED] PROTECTIVE ORDER ON STPIULATION REGARDING CONFIDENTIAL INFORMATION

1

CERTIFICATE OF SERVICE

2

I hereby certify that on February 2, 2015, I electronically filed the foregoing

3 document using the CM/ECF system which will send notification of such filing to the

4 e-mail addresses registered in the CM/ECF system, as denoted on the Electronic Mail

5 Notice List.

6

/s/ Andy Katz

7

Andy Katz

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

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- 1 -

 
 Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 1 of 12 Page ID #:773

1 MICHAEL FEUER (SBN 111529) CITY ATTORNEY
2 mike.feuer@lacity.org JAMES P. CLARK (SBN 64780)
3 CHIEF DEPUTY CITY ATTORNEY james.p.clark@lacity.org
4 CITY OF LOS ANGELES 200 N. Main Street, Room 800
5 Los Angeles, CA 90012 Telephone: (213) 978-8100
6
Attorneys for Plaintiff the City of Los Angeles
7
STEVEN J. OLSON (SBN 182240) 8 solson@omm.com
ELIZABETH L. MCKEEN (SBN 216690) 9 emckeen@omm.com
ROBERT M. SWERDLOW (SBN 200266) 10 rswerdlow@omm.com
O’MELVENY & MYERS LLP 11 400 South Hope Street
Los Angeles, CA 90071 12 Telephone: (213) 430-6000

13 Attorneys for Defendants JPMorgan Chase & Co.; JPMorgan Chase Bank, N.A.; and Chase Manhattan
14 Bank USA, N.A.

15 [ADDITIONAL COUNSEL LISTED ON SIGNATURE PAGE]

16
UNITED STATES DISTRICT COURT
17
CENTRAL DISTRICT OF CALIFORNIA
18

19 CITY OF LOS ANGELES, a municipal ) No. 2:14-CV-04168-ODW (RZx)

corporation,

) DISCOVERY MATTER

20

)

Plaintiff, )

21

)

v.

) [PROPOSED] ORDER ON

22

) STIPULATION REGARDING

JPMORGAN CHASE & CO.;

) ESI DISCOVERY PROTOCOL

23 JPMORGAN CHASE BANK, N.A.; and )

CHASE MANHATTAN BANK USA, )

24 N.A.,

)

)

25

Defendants. )

)

26

)

27

28

[PROPOSED] ORDER ON STIPULATION REGARDING ESI DISCOVERY PROTOCOL

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 2 of 12 Page ID #:774

1

The following terms of the Stipulation Regarding ESI Discovery Protocol

2 submitted by Plaintiff City of Los Angeles and Defendants JPMorgan Chase & Co.,

3 JPMorgan Chase Bank, N.A., and Chase Manhattan Bank USA, N.A., meet with the

4 approval of the court.

5

IT IS HEREBY ORDERED THAT:

6

This Order Regarding ESI Discovery Protocol shall govern the parties’

7 document productions in the above-captioned case. To the extent any party identifies

8 issues that it contends make compliance with any of the provisions of this Order

9 impossible or overly burdensome, the parties shall meet and confer regarding an

10 appropriate and reasonable alternative.

11

12 I. DEFINITIONS

13

A. “Electronically stored information” or “ESI,” as used herein, means

14 and refers to computer generated information or data of any kind.

15

B. “Native data format” means the file in its original creating application,

16 i.e., including the format(s) in which the producing party has maintained ESI in the

17 ordinary course of business.

18

C. “Metadata” means and refers to information or data about data, and

19 includes without limitation (i) information embedded in or associated with a native file

20 that is not ordinarily viewable or printable from the application that generated, edited,

21 or modified such native file which describes the characteristics, origins, and/or usage

22 of the electronic file and/or (ii) information generated automatically by the operation

23 of a computer or other information technology system when a native file is created,

24 modified, transmitted, deleted or otherwise manipulated by a user of such system.

25

D. “Static Image” means or refers to a representation of ESI produced by

26 converting a native file into a standard image format capable of being viewed and

27 printed on standard computer systems.

28

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 3 of 12 Page ID #:775

1

E. “Documents” includes writings, drawings, graphs, charts, photographs,

2 sound recordings, images, and other data, data records or data compilations — stored

3 in any medium from which information can be obtained.

4

F. “Media” means an object or device, real or virtualized, including but not

5 limited to a disc, tape, computer or other device, on which data is or was stored.

6 II. FORMAT OF PRODUCTION

7

A. TIFF Image Files. The Parties agree that all ESI will be produced as

8 single-page, black-and-white Group IV TIFF image files of at least 300 dpi resolution,

9 except as provided in section II.H. Each image file shall be of the form: <Bates

10 num>.tif where <Bates num> is the BATES number of the page. Original document

11 orientation as displayed in the native file should be maintained in the TIFF image

12 (e.g., portrait to portrait and landscape to landscape).

13

B. Text Files. Accompanying these TIFF files shall be a multipage text

14 (.TXT) file containing searchable text from the native file for nonredacted documents

15 and OCR text for documents that have been redacted. Each filename shall be of the

16 form: <Bates num>.txt where <Bates num> is the BATES number of the first page of

17 the document. Text shall be encoded in UTF-8. Load files of the static images should

18 be created and produced together with their associated static images to facilitate the

19 use of the produced images by a document management or litigation support database

20 system (e.g., Opticon OPT or iPRO LFP image load files). The parties shall meet and

21 confer to the extent reasonably necessary to facilitate the import and use of the

22 produced materials with commercially available document management or litigation

23 support software.

24

C. Production of Structured Data. To the extent a response to discovery

25 requires production of discoverable electronic information contained in a database, in

26 lieu of producing the database, the parties shall meet and confer to, with an

27 understanding of which fields are relevant, agree upon a set of queries to be made for

28

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 4 of 12 Page ID #:776

1 discoverable information and generate a report in a reasonably usable and exportable

2 electronic file (e.g., Excel or CSV format) for review by the requesting party or

3 counsel. Upon review of the report(s), the requesting party may make reasonable

4 requests for additional information to explain the database schema, codes,

5 abbreviations, and different report formats or to request specific data from identified

6 fields.

7

D. Production of Physical Documents. Documents or records that either

8 were originally generated as ESI but now only exist in physical hard-copy format, and

9 documents or records that were originally generated in hard-copy format, shall be

10 converted to a single page .TIFF file and produced following the same protocols set

11 forth herein or otherwise agreed to by the parties. OCR will be provided for such

12 documents. If, however, the Disclosing Party identifies documents or records for

13 which OCR would be overly burdensome, the parties shall meet and confer regarding

14 an appropriate and reasonable alternative.

15

E. Native Files. In accordance with section II.A, the parties agree that

16 Documents shall be produced as TIFF images. The exception to this rule shall be

17 presentation-application files (e.g., MS PowerPoint), spreadsheet-application files

18 (e.g., MS Excel), multimedia audio/visual files such as voice and video recordings

19 (e.g., .wav, .mpeg, and .avi files), and other files that are not convertible to a static

20 image for which all ESI items shall be produced in native format. Each native file

21 shall be of the form: <Bates num>.ext where <Bates num> is the BATES number of

22 the document and .ext is the original native file extension. In the event a Document

23 subject to this paragraph requires redaction, it shall be produced in TIFF in accordance

24 with paragraph II.I below. If upon review the receiving party believes the production

25 of such files is inadequate, it shall meet and confer with the producing party regarding

26 whether an alternate method of redaction would be appropriate.

27

F. Document Unitization. All productions will include data load files and

28

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 5 of 12 Page ID #:777

1 image load files as detailed in Section II.L below. Each party will designate its

2 preferred format for receiving production documents. The parties shall meet and

3 confer if either believes the other’s preferred format is overly burdensome,

4 technologically unfeasible, or cost prohibitive. The image load file shall reference

5 each TIFF file in the corresponding production, and the total number of TIFF files

6 referenced in the load file shall match the total number of image files in the

7 production. The total number of documents referenced in a production’s data load file

8 should match the total number of designated document breaks in the corresponding

9 image load file for that production.

10

Format for both plaintiff and defendant productions:

11

OCR and Extracted Text Files (.TXT Files):

12

 Single text file per document containing all the document's pages

13

 Filenames should be of the form:

14

<Bates num>.txt

15

Where <Bates num> is the BATES number of the first page in the

16

document.

17

 Text must be encoded in UTF-8.

18

Images Files:

19

 Single page per image

20

 Single image per file

21

 TIFF is default FORMAT unless the file is produced in native format per

22

Section II.E or produced as color JPG or PNG per Section II.H.

23

 Filenames should be of the form:

24

<Bates num>.<ext>

25

Where <Bates num> is the BATES number of the page, and <ext> is the

26

appropriate extension for the image format (.jpg, .tif, .png, etc.)

27

Index Files:

28

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 6 of 12 Page ID #:778

1

 .DAT files (separated by standard Concordance delimiters)

2

 First line must contain the column/field names (set forth in Section II.L

3

herein)

4

 Every row must have the same number of columns/fields (empty values

5

are acceptable)

6

 Text must be encoded in UTF-8

7

 Values must be enclosed by Concordance standard delimiters

8



9

G. Duplicates. Removal of duplicate documents shall be performed but

10 shall only be done on exact duplicate documents on either a custodian basis or a global

11 basis (based on MD5 or SHA-1 hash values at the document level). Duplicate

12 documents will not be removed if they are attached to unique family members (e.g.,

13 where two different e-mails are attached to the same document, the MD5 Hash

14 duplicate attachment will not be removed, as it is attached to different cover e-mails).

15 The producing party shall inform the receiving party whether de-duplication was

16 performed on a custodian basis or on a global basis. In addition, the producing party

17 shall provide a “duplicate custodian” field for each document produced—i.e., a list of

18 every custodian of the Party who had that document.

19

H. Color. For files not produced in their native format, if an original

20 document contains color, the producing party may produce black and white image(s).

21 At the request of the receiving party, the parties shall meet and confer to discuss

22 production of color image(s) for specific documents.

23

I. Bates Numbering and Other Unique Identifiers. For documents not

24 produced in their native format, each page of a produced document shall have a

25 legible, unique page identifier (“Bates Number”) electronically affixed to the bottom

26 right hand corner of the TIFF image in such a manner that information from the source

27 document is not obliterated, concealed, or interfered with. There shall be no other

28

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 7 of 12 Page ID #:779

1 legend or stamp placed on the document image unless a document qualifies for

2 confidential treatment pursuant to the terms of any Protective Order entered by this

3 Court in this litigation, or has been redacted in accordance with applicable law or

4 Court order. In the case of confidential materials as defined in a Protective Order, or

5 materials redacted in accordance with applicable law or Court order, a designation

6 may be “affixed” onto the document’s image at the bottom left hand corner of the page

7 or on top of the redacted text. Each party should use a different production prefix.

8

For any ESI produced in native data format, the producing party shall produce a

9 single-page TIFF slipsheet indicating that a native item was produced and reflecting

10 the production Bates number, any confidential designation and text stating “Document

11 Produced in Native Format.” .

12

In cases where documents to be provided in native format are to be redacted and

13 cannot be imaged in a readable manner (e.g., Excel spreadsheets), the producing party

14 may redact the information from the native version of the document (but keeping a

15 pristine non-redacted image intact and preserved) by replacing the redacted text in the

16 appropriate columns, cells, or locations with a black box. If a party performs

17 redactions on native copies of documents, it will notify the receiving party of the Bates

18 numbers of the documents redacted in this manner in accordance with section II.L.

19

J. Production Media. Documents shall be produced on CD-ROM, DVD,

20 external hard drive (with standard PC compatible interface), or such other readily

21 accessible computer or electronic media as the parties may hereafter agree upon (the

22 “Production Media”). Each item of Production Media shall include: (1) text

23 referencing that it was produced in this lawsuit (2) the production date, (3) the

24 production volume for the party; and (4) the Bates number range of the materials

25 contained on such Production Media item. As an alternative, documents may be

26 produced electronically using secured file transport protocols (e.g., SFTP or SSL/TLS

27 over HTTPS).

28

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 8 of 12 Page ID #:780

1

K. Electronic Text Files. Text files for nonredacted produced documents

2 shall be produced reflecting the full text that has been electronically extracted from the

3 original, native electronic files (“Extracted Text”). The Extracted Text shall be

4 provided in UTF-8 text format and shall be labeled and produced on Production Media

5 in accordance with the provisions of paragraph II.J above, “Production Media”. The

6 text files will be named with the unique Bates number of the first page of the

7 corresponding document followed by the extension “.txt.” with the relative pathing to

8 these text files included in the “index file” on the production media.

9

L. Metadata. The production of Metadata produced will be provided in

10 connection with native data format ESI requested, and includes without limitation,

11 file, application and system metadata, to the extent reasonably available. The

12 Metadata fields identified below will be extracted and produced (to the extent

13 reasonably available) in a flat delimited text file or .dat format with values enclosed by

14 Concordance standard delimiters:

15

 Application Name;

16

 AttachCount (number of attachments);  Beginning Bates Document Number;

17

 Ending Bates Document Number;

18

 BegAttach (the Beginning Bates Document Number of the parent

document);

19

 EndAttach (the Ending Bates Document Number of the last

20

attachment);  Conversation Index;

21

 Custodian;

22

 Confidentiality designation;  Redacted (populated “Yes” if document has been redacted);

23

 FileExt (the extension of the filename, e.g., “DOC” for an MS

24

Word document);  Filename (the original filename);

25

 Folderpath;

26

 FileSize (in KB);  Date and Time Created (“operating-system”-level metadata is

27

volatile and may not reflect actual document creation date/time));

28

 Date and Time Last Modified;

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 9 of 12 Page ID #:781

1

 Author;

2

 To/From/Cc/Bcc fields;  Date and Time Sent;

3

 Date and Time Received;

4

 Time Zone Processed (time zone set during data processing);  Email Subject;

5

 MD5 Hash;

6

 MessageID (message ID of the email header);  Page Count;

7

 Path to Extracted Text files;

8

 Path to Native files;  Volume (indicative of production volume); and

9

10 The parties are not obligated to populate manually any of these fields if such fields

11 cannot be extracted from a document, with the exception that CUSTODIAN shall be

12 populated by the producing party to the extent that a custodian can be identified.

13

M. Attachments. Email attachments and embedded files or links must be

14 mapped to their parent by the inclusion of the BegAttach and End Attach fields. The

15 BegAttach field should list the first page of the parent document and the End Attach

16 filed should list the last page of the last attachment.

17

N. Compressed Files. Compression file types (i.e., .CAB, .GZ, .TAR, .Z,

18 .ZIP) shall be decompressed in a reiterative manner to ensure that a zip within a zip is

19 decompressed into the lowest possible compression resulting in individual folders

20 and/or files.

21 III. OBJECTIONS TO ESI PRODUCTION

22

A. For responsive files not produced in their native format, documents that

23 present imaging or format production problems shall be promptly identified and

24 disclosed to the requesting party; the parties shall then meet and confer to attempt to

25 resolve the problems.

26

B. If either party objects to producing the requested information on the

27 grounds that such information is not reasonably accessible because of undue burden or

28 cost, or because production in the requested format is asserted to be not reasonably

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 10 of 12 Page ID #:782

1 accessible because of undue burden or cost, before asserting such an objection, the

2 responding party will inform the requesting party of the format in which it is willing to

3 produce it, the nature and location of the information claimed to not be reasonably

4 accessible, and/or the reason(s) why the requested form of production would impose

5 an undue burden or is unreasonably costly, and afford the requesting party opportunity

6 to propose an alternative means of compliance with the request. Such proposal may

7 include alternative cost estimates for ESI discovery production, may offer a proposal

8 for ESI discovery cost allocation, or both. Notwithstanding anything contained herein

9 to the contrary, a producing party shall not produce ESI in a format not requested or

10 designated by the requesting party unless (i) the parties have met and conferred, and,

11 having been unable to resolve such format production conflict at such meet and confer

12 session, (ii) prior to referral to and resolution of such issue by the court.

13

C. ESI of Limited Accessibility. If a Producing Party contends that any

14 responsive ESI, excluding back-up tapes or other long-term storage media that were

15 created for use as a disaster recovery mechanism, is not reasonably accessible within

16 the meaning of Fed. R. Civ. P. 26(b)(2)(B), that Party shall timely identify such ESI

17 with reasonable particularity and shall provide the Requesting Party with the basis for

18 declining to produce such ESI, including but not limited to information about the

19 nature of any limitations on access, an estimate of the likely costs that might be

20 incurred in producing such ESI, the method used for storage of ESI (for example, the

21 type of system used to store the ESI), and/or where such ESI is kept. The parties agree

22 that back-up tapes or other long-term storage media that were created for use as a

23 disaster recovery mechanism are presumed not to be reasonably accessible within the

24 meaning of Fed. R. Civ. P. 26(b)(2)(B) and, absent a particular discovery dispute

25 concerning such materials, do not need to be identified as described above. The

26 parties shall negotiate in good faith concerning the production of any such ESI. If the

27 Parties are unable to reach agreement, the Parties shall submit any dispute to the

28

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 11 of 12 Page ID #:783

1 Court, who shall determine what burden may be imposed upon the Producing or

2 Requesting Parties to resolve the dispute and whether or to what extent the costs of

3 such production shall be borne by the Producing or Requesting Parties.

4 IV. CATEGORIES OF ESI DISCOVERABLE ONLY UPON A SHOWING

5

OF GOOD CAUSE

6

The following categories of ESI are discoverable only upon a showing of good

7 cause: (1) “deleted,” “slack,” “fragmented,” or “unallocated” data on hard drives; (2)

8 random access memory (RAM) or other ephemeral data; (3) on-line access data such

9 as temporary internet files, history, cache, cookies, etc.; (4) data in metadata fields that

10 are frequently updated automatically, such as last-opened dates; (5) e-mails and

11 structured data on systems no longer regularly in use by the Party in the normal course

12 of their business, provided that such data is not reasonably accessible within the

13 meaning of Fed. R. Civ. P. 26(b)(2)(B); and (6) data on backup tapes.

14 V. MISCELLANEOUS

15

A. Nothing herein shall be construed to affect the discoverability or

16 admissibility of any Document or data. All objections to the discoverability or

17 admissibility of any Document or data are preserved and may be asserted at any time.

18

B. The enumeration of a protocol for the production, processing, or

19 treatment of ESI in any particular format or from any particular source of ESI shall not

20 be construed as a concession that such formats or sources of ESI contain reasonably

21 retrievable or relevant data or that they must be searched in response to the document

22 requests or in response to any particular document request.

23

C. This Stipulated Order is not intended to govern any protections or

24 restrictions related to the production of privileged litigation material. The Parties have

25 separately addressed the process for handling the production of privileged litigation

26 materials in the Stipulated Protective Order.

27

D. Limited 28 U.S.C. § 1920 Waiver. While neither party is taking a

28 position in this document that e-discovery costs under 18 U.S.C. § 1920 are taxable or

Case 2:14-cv-04168-ODW-RZ Document 62 Filed 03/24/15 Page 12 of 12 Page ID #:784

1 not, the parties agree that if a party seeks e-discovery costs under 18 U.S.C. § 1920,

2 that party will not seek the reimbursement of any costs relating to the production,

3 storage, and maintenance of the ESI produced by that party in TIFF format over native

4 format.

5

IT IS SO ORDERED.

6

7 DATED: 3/24/15

By: ____________________________________

8

HONORABLE RALPH ZAREFSKY

UNITED STATES MAGISTRATE JUDGE
9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 
 Case 2:14-cv-04168-ODW-RZ Document 63 Filed 03/27/15 Page 1 of 2 Page ID #:785

1

O

2

3

4

5

6

7

United States District Court

8

Central District of California

9

10 CITY OF LOS ANGELES,

Case No. 2:14-cv-04168-ODW(RZx)

11

Plaintiff,

12

v.

ORDER AMENDING CASE

13 JPMORGAN CHASE & CO.;

MANAGEMENT SCHEDULE

14 JPMORGAN CHASE BANK, N.A.; and

15 CHASE MANHATTAN BANK USA,

16 N.A.,

17

Defendants.

18

Upon consideration of Plaintiff’s Unopposed Application to Amend Scheduling

19 Order and the Declaration of Elaine T. Byszewski filed in support thereof, and good

20 cause appearing, it is hereby ORDERED that the Trial Date in this matter be

21 continued from November 3, 2015 to March 1, 2016 with the corresponding deadline

22 adjustments as set forth below:

23

24

25

26

27

28

Case 2:14-cv-04168-ODW-RZ Document 63 Filed 03/27/15 Page 2 of 2 Page ID #:786

1

2 Current Proposed

3 Date

New Date

4
08/03/15
5
09/07/15
6
7 09/14/15 8 10/09/15
9
10
11
12
13 10/19/15
14
15
16 10/26/15 17 10/29/15
18 11/03/15

12/01/15 01/11/16 01/18/16 01/29/16
02/08/16
02/22/16 02/25/16 03/01/16

Discovery Cut-Off for All Discovery
Last Date to Conduct Settlement Conference
Last Day for Hearing Motions
Lodge Pretrial Conference Order & Pretrial Exhibit Stipulation File Trial briefs File Contentions of Fact & Law Exhibit & Witness Lists File Status Report Regarding Settlement File Agreed Upon Set of Instructions & Verdict Forms File Joint Statement Regarding Disputed Instructions, Verdicts, etc. Final Pretrial Conference at 1:30 p.m. Motions in Limine to be Filed Proposed Voir Dire Questions & Agreed-to Statement of Case Hearing on Motions in Limine at 1:30 p.m.
File Final Trial Exhibit Stipulation
Trial at 9:00 a.m.

19

20

March 27, 2015

21

22

____________________________________

23

OTIS D. WRIGHT, II

UNITED STATES DISTRICT JUDGE

24

25

26

27

28

2

 
 Case 2:14-cv-04168-ODW-RZ Document 66 Filed 08/06/15 Page 1 of 7 Page ID #:791

1 MICHAEL FEUER (SBN 111529) CITY ATTORNEY
2 mike.feuer@lacity.org JAMES P. CLARK (SBN 64780)
3 CHIEF DEPUTY CITY ATTORNEY james.p.clark@lacity.org
4 CITY OF LOS ANGELES 200 N. Main Street, Room 800
5 Los Angeles, CA 90012 Telephone: (213) 978-8100
6
STEVE W. BERMAN (pro hac vice) 7 steve@hbsslaw.com
HAGENS BERMAN SOBOL SHAPIRO LLP 8 1918 8th Avenue, Suite 3300
Seattle, WA 98101 9 Telephone: (206) 623-7292

10 ELAINE T. BYSZEWSKI (SBN 222304) elaine@hbsslaw.com
11 LEE M. GORDON (SBN 174168) lee@hbsslaw.com
12 HAGENS BERMAN SOBOL SHAPIRO LLP 301 North Lake Avenue, Suite 203
13 Pasadena, CA 91101 Telephone: (213) 330-7150
14
[Additional Counsel Listed on Signature Page]
15
Attorneys for Plaintiff the City of Los Angeles
16

17

UNITED STATES DISTRICT COURT

18

CENTRAL DISTRICT OF CALIFORNIA

19

CITY OF LOS ANGELES, a municipal ) No. 2:14-cv-04168-ODW-RZ

20 corporation,

)

)

21

Plaintiff, ) PLAINTIFF’S EX PARTE

) APPLICATION TO STAY CASE

22

v.

) PENDING APPEAL OF

) RELATED ACTION

23 JPMORGAN CHASE & CO.;

)

JPMORGAN CHASE BANK, N.A.; and ) Judge: Hon. Hon. Otis D. Wright II

24

CHASE MANHATTAN BANK USA, N.A.,

) )

Trial Date: March 1, 2016

25

) Defendants. )

Complaint filed: December 5, 2013

26

)

)

27

)

28
PLAINTIFF’S EX PARTE APPLICATION TO STAY CASE PENDING APPEAL OF RELATED ACTION
010346-13 799578 V1

Case 2:14-cv-04168-ODW-RZ Document 66 Filed 08/06/15 Page 2 of 7 Page ID #:792

1

Plaintiff City of Los Angeles (“the City”) requests ex parte relief to stay this

2 case pending the City’s appeal of the related Wells Fargo action, in order to avoid

3 duplicative litigation both in the trial court and on appeal. In accordance with Local

4 Rule 7-19.1, the City conferred with Robert M. Swerdlow, counsel for JPMorgan

5 Chase & Co.; JPMorgan Chase Bank, N.A.; and Chase Manhattan Bank USA, N.A.,

6 (“JPMorgan”) on August 5, 2015, via telephone and provided notice of the City’s

7 intent to seek ex parte relief. See Declaration of Elaine Byszewski in support of

8 Plaintiff’s Ex Parte Application to Stay Case Pending Appeal of Related Action

9 (“Byszewski Decl.”), ¶ 10. Mr. Swerdlow’s contact information is as follows: Robert

10 M. Swerdlow, O’Melveny & Myers LLP, 400 South Hope Street, Los Angeles, CA

11 90071, and Telephone: (213) 430-6482, Email: RSwerdlow@omm.com.

12 Mr. Swerdlow informed the City that JPMorgan will oppose the City’s request. Id.

13

Three related actions brought by the City have been pending before this Court:

14 City of Los Angeles v. Wells Fargo & Company, et al., No. 2:13-cv-09007-ODW

15 (RZx) (“the Wells Fargo action”); City of Los Angeles v. JPMorgan Chase & Co., et

16 al., No. 2:14-cv-04168-ODW (RZx) (“the JPMorgan action”); and City of Los 17 Angeles v. Citigroup, Inc., et al., No. 2:13-cv-09009-ODW (RZx) (“the Citi action”).1

18 On July 17, 2015, this Court entered summary judgment against the City in the Wells

19 Fargo action. See ECF Dkt. No. 116.

20

On July 20, 2015, JPMorgan requested that the City dismiss the case against it,

21 because JPMorgan wanted to avoid the expense of filing a summary judgment motion

22 similar to the one filed in the Wells Fargo action – a “me-too” motion, as counsel for

23 the bank put it. Byszewski Decl., ¶ 2. JPMorgan also threatened to seek attorneys’

24 fees if the City did not dismiss its case outright and give up its appellate interests. Id.,

25

26

1 In addition to the three related cases before this Court, an additional related case entitled City of

27 Los Angeles v. Bank of America Corporation, et al., No. 12:13-cv-09046-PA-AGR (“the Bank of America action”) was pending in the Central District before Judge Percy Anderson, and the City is

28 now appealing the entry of summary judgment against it based on inadequate Article III standing.

-1-
PLAINTIFF’S EX PARTE APPLICATION TO STAY CASE PENDING APPEAL OF RELATED ACTION

Case 2:14-cv-04168-ODW-RZ Document 66 Filed 08/06/15 Page 3 of 7 Page ID #:793

1 ¶ 3. On July 29, 2015, the City filed an appeal of the Wells Fargo action to the Ninth

2 Circuit. See ECF Dkt. No. 117.

3

On July 30, 2015, the City declined JPMorgan’s proposal that the City dismiss

4 the JPMorgan action; instead, the City proposed to JPMorgan that the parties stipulate

5 to a stay of the JPMorgan action pending the City’s appeal of the Wells Fargo action.

6 Byszewski Decl., ¶ 4. The City agrees that issues decided by this Court in the Wells

7 Fargo action may very well dispose of the JPMorgan action. Id., ¶ 5. And the City

8 shares JPMorgan’s interest in avoiding the inefficiency and wasted time and expense

9 of a me-too summary judgment motion, but wants to preserve its appellate interests.

10 Id., ¶ 6. On July 30, 2015, JPMorgan declined to enter into the stipulation, instead

11 stating that it will seek summary judgment on grounds “substantially similar” to those

12 argued in the Wells Fargo action and the Bank of America action. Id., ¶ 7.

13

Thus, to avoid wasting the resources of the Court and the parties in re-litigating

14 issues already decided in the Wells Fargo action, the City respectfully requests that the

15 Court stay the JPMorgan action pending the outcome of the City’s appeal of the Wells

16 Fargo action. “[T]he power to stay proceedings is incidental to the power inherent in

17 every court to control the disposition of the causes on its docket with economy of time

18 and effort for itself, for counsel, and for litigants.” Landis v. N. Am. Co., 299 U.S.

19 248, 254 (1936). “In determining whether to stay proceedings, the district court

20 should consider three factors: (1) conserving judicial resources and avoiding dupli-

21 cative litigation; (2) hardship and inequity to the moving party if the action is not

22 stayed; and (3) potential prejudice to the non-moving party if the action is stayed.”

23 Blalock v. DePuy Orthopaedics, Inc., 2011 WL 6217540, at *1 (N.D. Cal. Dec. 14, 24 2011) (citing Rivers v. Walt Disney Co., 980 F. Supp. 1358, 1360 (C.D. Cal. 1997)).2

25 All of these factors weigh in favor of a stay here.

26

27

2 In City of Miami v. JPMorgan, No. 1:14-CV-22205-WPD (S.D. Fla.), the district court granted

a stay of Miami’s action against JPMorgan pending appeal of related actions brought against other 28 banks, over JPMorgan’s objection, because “a stay can avoid wasting the time and energy of the parties

-2-
PLAINTIFF’S EX PARTE APPLICATION TO STAY CASE PENDING APPEAL OF RELATED ACTION

Case 2:14-cv-04168-ODW-RZ Document 66 Filed 08/06/15 Page 4 of 7 Page ID #:794

1

Moreover, the City seeks this relief on an ex parte basis, because JPMorgan

2 intends to file its me-too motion for summary judgment on August 14, 2015, which

3 means the parties will already be briefing that motion before this request for a stay – if

4 now brought as a noticed motion – would be heard in the normal course. Byszewski

5 Decl., ¶¶ 9, 12. If a noticed motion were filed today, it would not be heard until 6 September 14, 2015, within days of the City’s opposition being due on September 18.3

7 Id., ¶ 13. And much like opposing the summary judgment motion brought in the Wells

8 Fargo action, preparing the summary judgment opposition papers in the JPMorgan

9 action is likely to take over a hundred hours of attorney time and considerable expert

10 expense, to create a record for purposes of appeal that is substantially similar to the

11 record in the Wells Fargo action. Id., ¶ 14. Thus, the avoidance of both “duplicative

12 litigation” and “hardship and inequity” to the City in unnecessarily opposing the me-

13 too motion warrants entry of a stay at this time. Rivers, 980 F. Supp. at 1360.

14

And ex parte relief is particularly important here because JPMorgan has

15 indicated that it will seek attorneys’ fees from the City in bringing its me-too summary

16 judgment motion – although the City is willing to stay the JPMorgan action pending

17 appeal of the Wells Fargo action – because the City did not agree to dismiss its case

18 against JPMorgan. Byszewski Decl., ¶¶ 9, 15. But the City should not be expected to

19 waive application in the JPMorgan action of any favorable Ninth Circuit ruling the

20 City may obtain from appeal of the Wells Fargo action. And JPMorgan may have

21 already begun to incur such attorneys’ fees in preparing for its August 14 filing.

22

JPMorgan opposes the stay because it does not want to wait for appeal of the

23 Wells Fargo action for the case against it to be resolved, id., ¶ 9, but it will have to

24 wait for an appeal, whether of the Wells Fargo action or its own. So JPMorgan will

25

26 and the court, since determinations by the Eleventh Circuit could alter the course of this action or confirm

that dismissal is warranted without further litigation.” See ECF No. 38 (Oct. 9, 2014).

27

3 The City has proposed to JPMorgan that its opposition be due this day; JPMorgan proposed

28 September 4, and the parties continue to negotiate a briefing schedule.

-3-
PLAINTIFF’S EX PARTE APPLICATION TO STAY CASE PENDING APPEAL OF RELATED ACTION

Case 2:14-cv-04168-ODW-RZ Document 66 Filed 08/06/15 Page 5 of 7 Page ID #:795

1 suffer no prejudice based on the time for appeal of the Wells Fargo action. Id., ¶ 16.

2 And a me-too appeal would waste the resources of the parties and the judicial system,

3 just as a me-too summary judgment motion would waste such resources. Id.

4

For these reasons, the City respectfully requests that the Court stay the

5 JPMorgan action pending the Ninth Circuit’s resolution of the City’s appeal of the

6 Wells Fargo action.

7 DATED: August 6, 2015
8 9 10 11 12

By: /s/ Elaine T. Byszewski Elaine T. Byszewski (SBN 222304) elaine@hbsslaw.com Lee M. Gordon (SBN 174168) lee@hbsslaw.com HAGENS BERMAN SOBOL SHAPIRO LLP 301 North Lake Avenue, Suite 203 Pasadena, CA 91101 Telephone: (213) 330-7150

13

Steve W. Berman (pro hac vice)

steve@hbsslaw.com

14

HAGENS BERMAN SOBOL SHAPIRO LLP

1918 Eighth Avenue, Suite 3300

15

Seattle, WA 98101

Telephone: (206) 623-7292

16

Michael Feuer (SBN 111529)

17

mike.feuer@lacity.org

City Attorney

18

James P. Clark (SBN 64780)

James.p.clark@lacity.org

19

Chief Deputy City Attorney

CITY OF LOS ANGELES

20

200 N. Main Street, Room 800

Los Angeles, CA 90012

21

Phone: (213) 978-8100

22

Joel Liberson (SBN 164857)

joel@taresources.com

23

Howard Liberson (SBN 183269)

howard@taresources.com

24

TRIAL & APPELLATE RESOURCES, P.C.

400 Continental Blvd., Sixth Floor

25

El Segundo, CA 90245

Telephone: (310) 426-2361

26

Robert Peck (pro hac vice)

27

robert.peck@cclfirm.com

CENTER FOR CONSTITUTIONAL

28

LITIGATION

-4-
PLAINTIFF’S EX PARTE APPLICATION TO STAY CASE PENDING APPEAL OF RELATED ACTION

Case 2:14-cv-04168-ODW-RZ Document 66 Filed 08/06/15 Page 6 of 7 Page ID #:796

1

777 Sixth Street NW, Suite 520

Washington, DC 20001

2

Telephone: (202) 944-2803

3

Clifton Albright (SBN 100020)

clifton.albright@ayslaw.com

4

ALBRIGHT YEE & SCHMIT

888 West Sixth Street, Suite 1400

5

Los Angeles, CA 90017

Telephone: (213) 833-1700

6

Attorneys for Plaintiff the City of Los Angeles

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PLAINTIFF’S EX PARTE APPLICATION TO STAY CASE PENDING APPEAL OF RELATED ACTION

Case 2:14-cv-04168-ODW-RZ Document 66 Filed 08/06/15 Page 7 of 7 Page ID #:797

1

CERTIFICATE OF SERVICE

2

I hereby certify that on August 6, 2015, I electronically filed the foregoing

3 document using the CM/ECF system which will send notification of such filing to the

4 e-mail addresses registered in the CM/ECF system, as denoted on the Electronic Mail

5 Notice List.

6

/s/ Elaine T. Byszewski

7

Elaine T. Byszewski

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PLAINTIFF’S EX PARTE APPLICATION TO STAY CASE PENDING APPEAL OF RELATED ACTION

 
 Case 2:14-cv-04168-ODW-RZ Document 70 Filed 09/02/15 Page 1 of 2 Page ID #:831

1

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JS-6

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UNITED STATES DISTRICT COURT

12

CENTRAL DISTRICT OF CALIFORNIA

13

14
CITY OF LOS ANGELES, a municipal 15 corporation,

16

Plaintiff,

17

v.

18 JPMORGAN CHASE & CO.; JPMORGAN CHASE BANK, N.A.; and
19 CHASE MANHATTAN BANK USA, N.A.,
20
Defendants.
21

Case No. 14-CV-4168- ODW (RZx)

ORDER DISMISSING ALL CLAIMS WITH PREJUDICE

Judge:

Hon. Otis D. Wright II

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[PROPOSED] ORDER GRANTING DISMISSAL WITH PREJUDICE

Case 2:14-cv-04168-ODW-RZ Document 70 Filed 09/02/15 Page 2 of 2 Page ID #:832

1

ORDER

2

3

Based on the parties’ agreement and Stipulation of Dismissal, this Court

4 finds good cause to dismiss this action with prejudice pursuant to Federal Rule of

5 Civil Procedure 41(A)(1)(A)(ii).

6

IT IS HEREBY ORDERED THAT:

7

1. All of Plaintiff’s claims in this action are dismissed with prejudice;

8

on the terms and conditions agreed to in the Stipulation, and

9

2. Each party shall bear its own costs, expenses, and attorneys’ fees.

10

11

12

13 Date: _September 2, 2015

____________________________

14

The Honorable Hon. Otis D. Wright II

15

United States District Judge

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[PROPOSED] ORDER GRANTING DISMISSAL WITH PREJUDICE

 
 Case: 2:14-cv-4168 As of: 11/20/2015 01:33 PM PST 1 of 9
ACCO,(RZx),CLOSED,DISCOVERY,MANADR,PROTORD,RELATED−G
UNITED STATES DISTRICT COURT for the CENTRAL DISTRICT OF CALIFORNIA (Western Division − Los Angeles)
CIVIL DOCKET FOR CASE #: 2:14−cv−04168−ODW−RZ

City of Los Angeles v. JPMorgan Chase & Co. et al Assigned to: Judge Otis D. Wright, II Referred to: Magistrate Judge Ralph Zarefsky Related Case: 2:13−cv−09007−ODW−RZ Cause: 42:405 Fair Housing Act
Plaintiff

Date Filed: 05/30/2014 Date Terminated: 09/02/2015 Jury Demand: Both Nature of Suit: 443 Civil Rights: Accommodations Jurisdiction: Federal Question

City of Los Angeles a municipal corporation

represented by Christopher Pitoun Hagens Berman Sobol Shapiro LLP 301 North Lake Avenue Suite 203 Pasadena, CA 91101 213−330−7150 Fax: 213−330−7152 Email: christopherp@hbsslaw.com LEAD ATTORNEY ATTORNEY TO BE NOTICED

Clifton W Albright Albright Yee and Schmit LLP 888 West 6th Street 14th Floor Los Angeles, CA 90017 213−833−1700 Fax: 213−833−1710 Email: clifton.albright@ayslaw.com LEAD ATTORNEY ATTORNEY TO BE NOTICED

Howard S Liberson Trial and Appeallate Resources PC 400 Continental Boulevard 6th Floor El Segundo, CA 90245 310−426−2361 Email: howard@taresources.com LEAD ATTORNEY ATTORNEY TO BE NOTICED

James Patrick Clark City of Los Angeles 200 N Main Street Room 800 Los Angeles, CA 90012 213−978−8100 Email: james.p.clark@lacity.org LEAD ATTORNEY ATTORNEY TO BE NOTICED

Joel Keith Liberson Trial and Appellate Resources PC 400 Continental Boulevard 6th Floor El Segundo, CA 90245 310−426−2361 Email: joel@taresources.com LEAD ATTORNEY ATTORNEY TO BE NOTICED

Lee M Gordon Hagens Berman Sobol Shapiro LLP

Case: 2:14-cv-4168 As of: 11/20/2015 01:33 PM PST 2 of 9
301 North Lake Avenue Suite 203 Pasadena, CA 91101 213−330−7150 Email: lee@hbsslaw.com LEAD ATTORNEY ATTORNEY TO BE NOTICED
Michael Nelson Feuer Los Angeles City Attorney's Office City Hall East 200 North Main Street Room 800 Los Angeles, CA 90012 213−978−7025 Fax: 213−978−8785 Email: mike.feuer@lacity.org LEAD ATTORNEY ATTORNEY TO BE NOTICED
Robert S Peck Center for Constitutional Litigation PC 777 Sixth Street NW Suite 520 Washington, DC 20001 202−944−2803 Fax: 202−965−0920 Email: Robert.peck@cclfirm.com PRO HAC VICE ATTORNEY TO BE NOTICED
Steve W Berman Hagens Berman Sobol Shapiro LLP 1918 Eighth Avenue Suite 3300 Seattle, WA 98101 206−623−7292 Fax: 206−623−0594 Email: steve@hbsslaw.com PRO HAC VICE ATTORNEY TO BE NOTICED
Elaine T Byszewski Hagens Berman Sobol Shapiro LLP 301 North Lake Avenue Suite 203 Pasadena, CA 91101 213−330−7150 Fax: 213−330−7152 Email: elaine@hbsslaw.com ATTORNEY TO BE NOTICED

V. Defendant JPMorgan Chase & Co.

represented by Elizabeth Lemond McKeen OMelveny and Myers LLP 610 Newport Center Drive 17th Floor Newport Beach, CA 92660−6429 949−823−6900 Fax: 949−823−6994 Email: emckeen@omm.com LEAD ATTORNEY ATTORNEY TO BE NOTICED
Steven J Olson O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071−2899

Case: 2:14-cv-4168 As of: 11/20/2015 01:33 PM PST 3 of 9

213−430−6000 Fax: 213−430−6407 Email: solson@omm.com LEAD ATTORNEY ATTORNEY TO BE NOTICED

Ashley M Pavel O'Melveny and Myers LLP 610 Newport Center Drive 17th Floor Newport Beach, CA 92660−6429 949−823−7138 Fax: 949−823−6964 Email: apavel@omm.com ATTORNEY TO BE NOTICED

Robert M Swerdlow O'Melveny and Myers LLP 400 South Hope Street 15th Floor Los Angeles, CA 90071−2899 213−430−6000 Fax: 213−430−6407 Email: rswerdlow@omm.com ATTORNEY TO BE NOTICED

Defendant JPMorgan Chase Bank, N.A.

represented by Elizabeth Lemond McKeen (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

Steven J Olson (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

Ashley M Pavel (See above for address) ATTORNEY TO BE NOTICED

Robert M Swerdlow (See above for address) ATTORNEY TO BE NOTICED

Defendant
Chase Manhattan Bank USA, N.A. other Chase Bank USA, NA

represented by Steven J Olson (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

Date Filed 05/30/2014
05/30/2014 05/30/2014 05/30/2014

# Docket Text
1 COMPLAINT Receipt No: 0973−13887328 − Fee: $400, filed by Plaintiff City of Los Angeles. (Attorney Elaine T Byszewski added to party City of Los Angeles(pty:pla))(Byszewski, Elaine) (Entered: 05/30/2014)
2 CIVIL COVER SHEET filed by Plaintiff City of Los Angeles. (Byszewski, Elaine) (Entered: 05/30/2014)
3 Request for Clerk to Issue Summons on Complaint (Attorney Civil Case Opening) 1 filed by Plaintiff City of Los Angeles. (Byszewski, Elaine) (Entered: 05/30/2014)
4 NOTICE of Interested Parties filed by Plaintiff City of Los Angeles, identifying City of Los Angeles; JPMorgan Chase & Co.; JPMorgan Chase Bank, N.A.; and Chase

Case: 2:14-cv-4168 As of: 11/20/2015 01:33 PM PST 4 of 9

05/30/2014 06/02/2014 06/02/2014 06/02/2014 06/02/2014
06/02/2014
06/05/2014 06/05/2014 06/05/2014 06/05/2014 06/05/2014 06/05/2014 06/05/2014

Manhattan Bank USA, N.A.. (Byszewski, Elaine) (Entered: 05/30/2014)
5 NOTICE of Related Case(s) filed by Plaintiff City of Los Angeles. Related Case(s): 2:13−cv−09007−ODW(RZx); 2:13−cv−09009−ODW(RZx); and 2:13−cv−09046−PA(AGRx) (Byszewski, Elaine) (Entered: 05/30/2014)
6 NOTICE OF ASSIGNMENT to District Judge Dolly M. Gee and Magistrate Judge Michael R. Wilner. (esa) (Entered: 06/02/2014)
7 NOTICE TO PARTIES OF COURT−DIRECTED ADR PROGRAM filed. (esa) (Entered: 06/02/2014)
8 21 DAY Summons issued re Complaint 1 as to defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. (esa) (Entered: 06/02/2014)
9 NOTICE OF FILING FEE DUE on Pro Hac Vice Application mailed to attorney Steve W. Berman for Plaintiff City of Los Angeles. Pro Hac Vice application has not been received by the court. Please return your completed Application of Non−Resident Attorney to Appear in a Specific Case, form G−64, or a copy of the Notice of Electronic Filing of your application and the $325.00 fee and this notice immediately. Out−of−state federal government attorneys who are not employed by the U.S. Department of Justice are required to file a Pro Hac Vice application;no filing fee is required. You have been removed as counsel of record from this case for failure to submit this filing fee. (esa) (Entered: 06/02/2014)
10 NOTICE OF FILING FEE DUE on Pro Hac Vice Application mailed to attorney Robert S Peck for Plaintiff City of Los Angeles. Pro Hac Vice application has not been received by the court. Please return your completed Application of Non−Resident Attorney to Appear in a Specific Case, form G−64, or a copy of the Notice of Electronic Filing of your application and the $325.00 fee and this notice immediately. Out−of−state federal government attorneys who are not employed by the U.S. Department of Justice are required to file a Pro Hac Vice application;no filing fee is required. You have been removed as counsel of record from this case for failure to submit this filing fee. (esa) (Entered: 06/02/2014)
11 NOTICE of Appearance filed by attorney Steven J Olson on behalf of Defendants JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. (Attorney Steven J Olson added to party JPMorgan Chase & Co.(pty:dft), Attorney Steven J Olson added to party JPMorgan Chase Bank, N.A.(pty:dft))(Olson, Steven) (Entered: 06/05/2014)
12 NOTICE of Appearance filed by attorney Elizabeth Lemond McKeen on behalf of Defendants JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. (Attorney Elizabeth Lemond McKeen added to party JPMorgan Chase & Co.(pty:dft), Attorney Elizabeth Lemond McKeen added to party JPMorgan Chase Bank, N.A.(pty:dft))(McKeen, Elizabeth) (Entered: 06/05/2014)
13 NOTICE of Appearance filed by attorney Robert M Swerdlow on behalf of Defendants JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. (Attorney Robert M Swerdlow added to party JPMorgan Chase & Co.(pty:dft), Attorney Robert M Swerdlow added to party JPMorgan Chase Bank, N.A.(pty:dft))(Swerdlow, Robert) (Entered: 06/05/2014)
14 NOTICE of Appearance filed by attorney Ashley M Pavel on behalf of Defendants JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. (Attorney Ashley M Pavel added to party JPMorgan Chase & Co.(pty:dft), Attorney Ashley M Pavel added to party JPMorgan Chase Bank, N.A.(pty:dft))(Pavel, Ashley) (Entered: 06/05/2014)
15 RESPONSE filed by Defendants JPMorgan Chase & Co., JPMorgan Chase Bank, N.A.to Notice of Related Case(s) 5 (Olson, Steven) (Entered: 06/05/2014)
16 CERTIFICATION and NOTICE of Interested Parties filed by Defendants JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., (Olson, Steven) (Entered: 06/05/2014)
17 ORDER RE TRANSFER PURSUANT TO GENERAL ORDER 14−03 −Related Case− filed. Related Case No: CV 13−09007 ODW(RZx). Case transferred from Judge Dolly M. Gee and Magistrate Judge Michael R. Wilner to Judge Otis D. Wright, II and Magistrate Judge Ralph Zarefsky for all further proceedings. The case number

Case: 2:14-cv-4168 As of: 11/20/2015 01:33 PM PST 5 of 9

06/06/2014
06/09/2014 06/09/2014 06/09/2014 06/09/2014 06/17/2014
06/19/2014
06/19/2014
06/19/2014 06/19/2014 06/25/2014
06/25/2014

will now reflect the initials of the transferee Judge CV 14−04168 ODW(RZx). Signed by Judge Otis D. Wright, II (rn) (Entered: 06/05/2014)
18 MINUTE ORDER IN CHAMBERS by Judge Otis D Wright, II: This action has been assigned to the calendar of Judge Otis D. Wright II. Counsel are encouraged to review the Central Districts website for additional information. ( SEE DOCUMENT FOR SPECIFIC FILING REQUIREMENTS AND INFORMATION; AND REFER TO JUDGES PROCEDURES AND SCHEDULES FOR DETAILED INSTRUCTIONS RE SUBMISSION OF SEALED DOCUMENTS, EXCLUDING THOSE SUBMITTED BY PRO SE PARTIES AND IN CAMERA FILINGS ). (lc) (Entered: 06/06/2014)
19 PROOF OF SERVICE Executed by Plaintiff City of Los Angeles, upon Defendant JPMorgan Chase Bank, N.A. served on 6/4/2014, answer due 6/25/2014. Service of the Summons and Complaint were executed upon Jan Lapinid, Process Specialist at CT Corporation in compliance with Federal Rules of Civil Procedure by personal service. Original Summons returned. (Byszewski, Elaine) (Entered: 06/09/2014)
20 NOTICE of Appearance by James P. Clark filed by Plaintiff City of Los Angeles. (Byszewski, Elaine) (Entered: 06/09/2014)
21 NOTICE of Appearance by Howard Liberson filed by Plaintiff City of Los Angeles. (Byszewski, Elaine) (Entered: 06/09/2014)
22 NOTICE of Appearance by Joel Liberson filed by Plaintiff City of Los Angeles. (Byszewski, Elaine) (Entered: 06/09/2014)
23 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: Notice (Other) 20 , Notice (Other) 22 , Notice (Other) 21 . The following error(s) was found: Incorrect event selected. In response to this notice the court may order (1) an amended or correct document to be filed (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (ak) (Entered: 06/17/2014)
24 PROOF OF SERVICE Executed by Plaintiff City of Los Angeles, upon Defendant JPMorgan Chase & Co. served on 6/4/2014, answer due 6/25/2014. Service of the Summons and Complaint were executed upon Nora Dindyal, Process Specialist at CT Corporation, Agent for Service of Process in compliance with Federal Rules of Civil Procedure by personal service. Original Summons returned. (Byszewski, Elaine) (Entered: 06/19/2014)
25 PROOF OF SERVICE Executed by Plaintiff City of Los Angeles, upon Defendant Chase Manhattan Bank USA, N.A. served on 6/4/2014, answer due 6/25/2014. Service of the Summons and Complaint were executed upon Nora Dindyal, Process Specialist for CT Corporation, Agent for Service of Process in compliance with Federal Rules of Civil Procedure by personal service. Original Summons returned. (Byszewski, Elaine) (Entered: 06/19/2014)
26 NOTICE OF ERRATA filed by Plaintiff City of Los Angeles. correcting Service of Summons and Complaint Returned Executed (21 days), 24 (Attachments: # 1 Exhibit Proof of Service of Summons − JPMorgan Chase & Co.)(Byszewski, Elaine) (Entered: 06/19/2014)
27 NOTICE OF ERRATA filed by Plaintiff City of Los Angeles. correcting Service of Summons and Complaint Returned Executed (21 days), 25 (Attachments: # 1 Exhibit Proof of Service of Summons − Chase Manhattan Bank USA, N.A.)(Byszewski, Elaine) (Entered: 06/19/2014)
28 NOTICE OF MOTION AND MOTION to Dismiss Case filed by Defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A.. Motion set for hearing on 8/4/2014 at 01:30 PM before Judge Otis D. Wright II. (Attachments: # 1 Memorandum of Points and Authorities, # 2 Declaration of Petru Stoianovici, # 3 Proposed Order)(Attorney Steven J Olson added to party Chase Manhattan Bank USA, N.A.(pty:dft))(Olson, Steven) (Entered: 06/25/2014)
29 NOTICE of Interested Parties filed by Defendant Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., (Olson, Steven) (Entered: 06/25/2014)

Case: 2:14-cv-4168 As of: 11/20/2015 01:33 PM PST 6 of 9

06/25/2014 06/26/2014 07/14/2014
07/15/2014 07/18/2014 07/21/2014 07/21/2014 07/28/2014
07/30/2014 07/31/2014 08/05/2014
08/26/2014 09/03/2014

30 REQUEST FOR JUDICIAL NOTICE re MOTION to Dismiss Case 28 filed by Defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A.. (Olson, Steven) (Entered: 06/25/2014)
31 APPLICATION for attorney Steve W. Berman to Appear Pro Hac Vice(PHV Fee of $325 receipt number 0973−14030951 paid.) filed by Plaintiff City of Los Angeles. (Attachments: # 1 Proposed Order)(Byszewski, Elaine) (Entered: 06/26/2014)
32 Opposition re: MOTION to Dismiss Case 28 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS filed by Plaintiff City of Los Angeles. (Attachments: # 1 Declaration of Elaine T. Byszewski in Support of Plaintiff's Opposition to Defendants' Motion to Dismiss, # 2 Exhibit A)(Byszewski, Elaine) (Entered: 07/14/2014)
33 ORDER by Judge Otis D. Wright, II: granting 31 Application to Appear Pro Hac Vice by Attorney Steve W. Berman on behalf of Plaintiff, designating Elaine T. Byszewski as local counsel. (lt) (Entered: 07/16/2014)
34 APPLICATION for attorney Robert S. Peck to Appear Pro Hac Vice(PHV Fee of $325 receipt number 0973−14138423 paid.) filed by plaintiff City of Los Angeles. (Attachments: # 1 Proposed Order)(Byszewski, Elaine) (Entered: 07/18/2014)
35 REPLY in support of MOTION to Dismiss Case 28 filed by Defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A.. (Olson, Steven) (Entered: 07/21/2014)
36 ORDER by Judge Otis D. Wright, II: granting 34 Application to Appear Pro Hac Vice by Attorney Robert S. Peck on behalf of City of Los Angeles, designating Elaine T. Byszewski as local counsel. (lt) (Entered: 07/22/2014)
37 MINUTES (IN CHAMBERS): Order Vacating Hearing on Motion to Dismiss Case 28 by Judge Otis D. Wright, II: The hearing on the above−referenced motion, scheduled for August 4, 2014 at 1:30 P.M., is hereby VACATED and taken off calendar. No appearances are necessary. The matter stands, submitted, and will be decided upon without oral argument. An order will issue. (bp) (Entered: 07/29/2014)
38 NOTICE of Supplemental Authority filed by Plaintiff City of Los Angeles. NOTICE OF SUPPLEMENTAL AUTHORITY IN SUPPORT OF PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS (Attachments: # 1 Exhibit A)(Byszewski, Elaine) (Entered: 07/30/2014)
39 RESPONSE filed by Defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A.to Notice (Other) 38 /Response to Plaintiff's Notice of Supplemental Authority (Olson, Steven) (Entered: 07/31/2014)
40 ORDER GRANTING DEFENDANTS' MOTION TO DISMISS WITH LEAVE TO AMEND 28 by Judge Otis D. Wright, II: The Court finds the FIRREA bars this Court from hearing the City's claims as they relate to WaMu's discriminitory lending practices. The City was required to exhaust its claims relating to WaMu with FDIC, which the City has not alleged. Accordingly, the City's allegations against Chase relating to WaMu's conduct are DISMISSED. The City shall file an amended complaint no later than 21 days from the date of this Order (bp) . (Entered: 08/06/2014)
41 FIRST AMENDED COMPLAINT against Defendant Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. amending Complaint (Attorney Civil Case Opening) 1 , filed by plaintiff City of Los Angeles (Byszewski, Elaine) (Entered: 08/26/2014)
42 NOTICE OF SCHEDULING CONFERENCE IN RELATED CASES by Judge Otis D. Wright, II: The Court notifies all parties to this action of the joint scheduling conferenceon Monday, September 22, 2014, at 1:30 p.m. in the related cases City of LosAngeles v. Wells Fargo & Co., No. 13−cv−9007−ODW(RZx), and City of Los Angeles v.Citigroup Inc., No. 13−cv−9009−ODW(RZx). Although this action remains in thepleading stages, the parties may attend this joint scheduling conference informally. (lc) (Entered: 09/03/2014)

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43 NOTICE OF MOTION AND MOTION to Dismiss Case filed by Defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A.. Motion set for hearing on 10/27/2014 at 01:30 PM before Judge Otis D. Wright II. (Attachments: # 1 Memorandum of Points and Authorities, # 2 Proposed Order)(Olson, Steven) (Entered: 09/12/2014)
44 REQUEST FOR JUDICIAL NOTICE re MOTION to Dismiss Case 43 filed by Defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A.. (Attachments: # 1 Exhibit 1−10)(Olson, Steven) (Entered: 09/12/2014)
45 OPPOSITION to MOTION to Dismiss Case 43 filed by Plaintiff City of Los Angeles. (Byszewski, Elaine) (Entered: 10/03/2014)
46 REPLY In Support Of MOTION to Dismiss Case 43 (DISMISS PLAINTIFF'S FIRST AMENDED COMPLAINT) filed by Defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A.. (Olson, Steven) (Entered: 10/10/2014)
47 MINUTES (IN CHAMBERS) by Judge Otis D. Wright, II: Hearing on MOTION to Dismiss Case 43 scheduled for October 27, 2014 at 1:30 P.M., is hereby VACATED and taken off calendar. No appearances are necessary. The matter stands submitted, and will be decided upon without oral argument. An order will issue. (lc) (Entered: 10/20/2014)
48 NOTICE of Supplemental Authority in Support of Motion to Dismiss Plaintiff's First Amended Complaint filed by defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A.. (Attachments: # 1 Exhibit A)(Olson, Steven) (Entered: 11/04/2014)
49 ORDER DENYING DEFENDANTS MOTION TO DISMISS PLAINTIFFS FIRST AMENDED COMPLAINT 43 by Judge Otis D. Wright, II: Chase shall answer the FAC within 14 days. Chase is also ORDERED to meet and confer with the City and the parties in the related cases regarding discovery as well as pretrial and trial dates. The parties in the related cases before this Court have been ordered to meet and confer on Monday, December 8, 2014. The Court expects Chase to formally participate in that conference. As previously ordered, the City shall file a written status report no later than close of business Wednesday, December 10, 2014. (lc). Modified on 11/17/2014 .(lc). (Entered: 11/17/2014)
50 Notice of Appearance or Withdrawal of Counsel: for attorney Christopher Pitoun counsel for Plaintiff City of Los Angeles. Filed by Plaintiff City of Los Angeles. (Attorney Christopher Pitoun added to party City of Los Angeles(pty:pla))(Pitoun, Christopher) (Entered: 11/25/2014)
51 ANSWER to Amended Complaint 41 JURY DEMAND. filed by Defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A..(Olson, Steven) (Entered: 11/26/2014)
52 ORDER that the Scheduling Conference is set for 2/9/15 1:30 PM ; compliance with FRCP 16, and 26(f) and filing of joint report; Counsel for plaintiff shall immediately serve this Order on all parties, including any new parties to the action by Judge Otis D Wright, II. (lc) (Entered: 12/01/2014)
53 COUNSEL ARE NOTIFIED, THE ORDER SETTING SCHEDULING CONFERENCE 52 IS HEREBY VACATED AND OFF CALENDAR. THERE IS NO PDF DOCUMENT ASSOCIATED WITH THIS ENTRY. (sce) TEXT ONLY ENTRY (Entered: 12/01/2014)
54 STATUS REPORT filed by Plaintiff City of Los Angeles. (Byszewski, Elaine) (Entered: 12/10/2014)
55 ORDER RE SCHEDULING AND CASE MANAGEMENT in the three related cases as captioned. A separate scheduling order in these cases is being issued concurrently with this Order by Judge Otis D. Wright, II (lc) (Entered: 12/12/2014)
56 SCHEDULING AND CASE MANAGEMENT ORDER by Judge Otis D Wright II: THE SCHEDULING CONFERENCE IS VACATED. SEE THE LAST PAGE OF

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THIS ORDER FOR THE SPECIFIED DATES. Jury trial: 11/3/15 9:00 AM; File final trial exhibit stipulation: 10/29/15; hearing on motions in limine: 10/26/15 1:30 PM; Final Pretrial Conference: 10/19/15 1:30 PM; motions in limine, proposed voir dire questions and proposed voir dire questions and agreed to statement of case: 10/19/15; lodged Pretrial conference order and pretrial exhibit stipulation, file contentions of fact and law, exhibit and witness lists, status report regarding settlement, agreed upon set of instructions and verdict forms, joint statement regarding disputed instructions verdicts etc: 10/9/15; last date to conduct settlement conference: 9/7/15; last day for hearing motions: 9/14/15; discovery cutoff: 8/3/15; last date to amend pleadings or add parties: 3/4/15. (lc) (Entered: 12/12/2014)
57 ORDER/REFERRAL to ADR Procedure No 3 by Judge Otis D. Wright, II. Case ordered to a private mediator based upon a stipulation of the parties or by the court order. (lc) (Entered: 12/12/2014)
58 STIPULATION for Protective Order filed by Plaintiff City of Los Angeles. (Attachments: # 1 Proposed Order)(Gordon, Lee) (Entered: 02/02/2015)
59 PROTECTIVE ORDER by Magistrate Judge Ralph Zarefsky re Stipulation for Protective Order 58 (ib) (Entered: 02/18/2015)
60 STIPULATION for Order Regarding ESI Discovery Protocol filed by Plaintiff City of Los Angeles. (Attachments: # 1 Proposed Order)(Gordon, Lee) (Entered: 03/23/2015)
61 APPLICATION to AMEND Scheduling Order,,,, Terminate Hearings,,,, Set/Reset Deadlines/Hearings,,, 56 filed by Plaintiff City of Los Angeles. (Attachments: # 1 Declaration of Elaine T. Byszewski in Support of Unopposed Application to Amend Scheduling Order, # 2 Proposed Order)(Byszewski, Elaine) (Entered: 03/24/2015)
62 ORDER by Magistrate Judge Ralph Zarefsky re Stipulation for Order 60 (ec) (Entered: 03/25/2015)
63 ORDER by Judge Otis D. Wright, II: granting 61 Application Trial Date in this matter be continued from November 3, 2015 to March 1, 2016 with the corresponding deadline adjustments as set forth below: Discovery cutoff: 12/01/15. Last Date to Conduct Settlement Conference: 01/11/16.Lodge Pretrial Conference Order & Pretrial Exhibit Stipulation File Trial briefs,File Contentions of Fact & Law,Exhibit and Witness Lists,File Status Report Regarding Settlement,File Agreed Upon Set of Instructions & Verdict Forms,File Joint Statement Regarding Disputed Instructions,Verdicts, etc: 01/29//16. Final Pretrial Conference at 1:30 p.m. Motions in Limine to be Filed Proposed Voir Dire Questions and Agreed−to Statement of Case.Hearing on Motions in Limine 2/22/16 at 1:30 p.m.File Final Trial Exhibit Stipulation:02/25/16. Trial at 3/1/16 9:00 a.m. (lc) .Modified on 3/30/2015 (lc). (Entered: 03/30/2015)
64 Joint STIPULATION for Order regarding Agreement not to Introduce or Use Certain Evidence filed by Defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A..(Olson, Steven) (Entered: 05/20/2015)
65 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: Stipulation for Order 64 . The following error(s) was found: Incorrect event selected. Proposed Document was not submitted as separate attachment. The correct event is: Incorrect event selected. Correct event to be used is (see re proosed orders). In alternative: 1) Prepare a formal document: Notice of Lodging, to be docketed only under its specific event: Notice of Lodging; to which 2) the separate formal proposed order is submitted as a separate attachment thereto In response to this notice the court may order (1) an amended or correct document to be filed (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (shb) (Entered: 05/21/2015)
66 EX PARTE APPLICATION to Stay Case pending APPEAL OF RELATED ACTION filed by Plaintiff City of Los Angeles. (Attachments: # 1 Declaration DECLARATION OF ELAINE T. BYSZEWSKI IN SUPPORT PLAINTIFF'S EX PARTE APPLICATION TO STAY CASE PENDING APPEAL OF RELATED ACTION, # 2 Exhibit EXHIBIT A, # 3 Exhibit EXHIBIT B, # 4 Exhibit EXHIBIT C, # 5 Proposed Order [PROPOSED] ORDER GRANTING PLAINTIFF'S EX PARTE

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APPLICATION TO STAY CASE PENDING APPEAL OF RELATED ACTION) (Byszewski, Elaine) (Entered: 08/06/2015)
67 OPPOSITION re: EX PARTE APPLICATION to Stay Case pending APPEAL OF RELATED ACTION 66 filed by Defendants Chase Manhattan Bank USA, N.A., JPMorgan Chase & Co., JPMorgan Chase Bank, N.A.. (Olson, Steven) (Entered: 08/07/2015)
68 MINUTES (IN CHAMBERS) by Judge Otis D. Wright, II:Defendants are entitled to timely resolution of the serious allegations made against them by Plaintiff City of Los Angeles. The Court hereby DENIES Plaintiff's Ex Parte Application to Stay Case Pending Appeal of Related Action 66 . (lc) (Entered: 08/11/2015)
69 STIPULATION to Dismiss Case pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii) filed by PLAINTIFF City of Los Angeles. (Attachments: # 1 Proposed Order)(Byszewski, Elaine) (Entered: 09/01/2015)
70 ORDER DISMISSING ALL CLAIMS WITH PREJUDICE 69 by Judge Otis D. Wright, II (lc) (Entered: 09/02/2015)