A federal judge has halted, for now, a lawsuit in which fair housing advocates accused Deutsche Bank of trying to lower property values in minority neighborhoods.
In a complaint filed Feb. 1 in federal court in Chicago, nearly 20 private organizations said Deutsche Bank did less exterior maintenance and marketing of properties it acquired through foreclosure in predominantly minority neighborhoods in 30 metropolitan areas. In addition to Deutsche Bank, named defendants include Ocwen Financial Corp. and Altisource Portfolio Solutions, Inc., which do home preservation and maintenance work for bank-owned properties.
The companies moved to dismiss the complaint for failure to state a claim, while Ocwen filed its own motion to be dismissed for lack of personal jurisdiction. In a motion filed Nov. 19, Judge Harry Leinenweber granted both motions while giving the plaintiffs 45 days to amend their complaint.
Ocwen argued only its subsidiaries conducted property maintenance in the court’s jurisdiction, and the plaintiffs agreed to amend their complaint by replacing Ocwen with the “appropriate Ocwen operating subsidy.” Likewise, the plaintiffs will replace Deutsche Bank AG, which doesn’t serve as a trustee of any of the properties, leaving Deutsche Bank National Trust and Deutsche Bank Trust Company Americas.
Leinenweber focused on the Fair Housing Act’s statutory limitation calling for civil enforcement actions to be filed within two years of an incident or the termination of an alleged discriminatory practice. While the plaintiffs maintained the complaint alleges an ongoing discriminatory policy, keeping the clock running, Leinenweber noted the plaintiffs called a national news conference in 2011 to release a report about the alleged conduct. That event, he reasoned, demonstrates plaintiffs’ clear knowledge their FHA rights were being violated and deprives them of access to the continuing violation doctrine.
The judge also considered the timeline in light of the plaintiffs’ ongoing complaints through the U.S. Department of Housing and Urban Development’s Fair House and Equal Opportunity Office, finding the timing of those actions further limit their federal court allegations.
“This ruling shears off a significant part of the dataset from which plaintiffs draw their statistics,” he wrote. And since “those statistics are presented, at present, only in the form of conclusions predicated on the aggregate data,” an amended complaint will need new statistical findings based on an acceptable dataset.
Another issue is whether the bank defendants are liable for FHA violations or if only servicer companies that preserve and manage properties qualify. Leinenweber looked to a pooling and servicing agreement — which allocates responsibilities after an investment bank buys thousands of mortgages and pools them into a security — and said the arrangement is either an “impermissible delegation of legal duties” or a legal “escape hatch” for the bank as it held titles as an indenture trustee.
Leinenweber cited a recent HUD determination involving US Bank that bolsters Deutsche Bank’s position here, as it found “it is the servicers, not the trustee, who controls properties within the trust.” Still, there are multiple PSAs involved, and Leinenweber determined the bank defendants can remain, provided plaintiffs amend the filing to name them in their trustee capacities only.
The underlying claim also failed, Leinenweber said, because the plaintiffs didn’t specifically allege property neglect dissuaded buyers by showing impeded transactions. Neither did they offer evidence the “defendants had a discriminatory intent or motive,” the judge said.
The housing organizations are represented by Soule, Bradtke & Lambert, of Elmhurst; Relman, Dane & Colfax PLLC, of Washington, D.C.; and the National Fair Housing Alliance, also of Washington, D.C.
Deutsche Bank is represented by the firm of Morgan, Lewis & Bockius LLP, of San Francisco and Chicago.
Altisource is defended by Dentons US LLP, of Atlanta and Chicago.
Ocwen is represented by Mayer Brown LLP, of Chicago.