CHICAGO — A federal judge won’t grant Wells Fargo’s request to dismiss Cook County’s long-running lawsuit in which it accused the lender of discriminating against minority borrowers and increasing foreclosures, as the judge said it doesn't matter at this point whether the county government made money off the increased foreclosures.
Cook County filed suit against Wells Fargo in 2014, accusing the bank of a practice known as reverse redlining, in which lenders agree to provide home mortgage loans to minority borrowers, but under rates and terms more onerous than those provided to white borrowers with similar financial standing. The county has asserted such practices helped fuel the housing crisis amid the Great Recession in the years immediately following 2008, which slashed home values in predominantly minority neighborhoods and drained the county and other local governments of tax money and resources.
Wells Fargo, however, attempted to flip the county's case on its head, arguing the county shouldn't be allowed to sue because it “earned a profit off of the foreclosure boom” from fees it collected by processing the bank's loan foreclosure cases.
In an opinion issued June 1, U.S. District Judge Gary Feinerman sided with Cook County.
While noting Wells Fargo's contention concerning the county's profits, Feinerman said Wells Fargo didn’t dispute the county properly alleged a financial injury. Among the county’s expenses are the sheriff’s service of eviction and foreclosure notices, emergency response to “vacant properties to respond to public health and safety threats” and an overloading of the judicial system and county clerk’s office.
When Wells Fargo filed its motion for dismissal, factual discovery hadn’t concluded and expert discovery hadn’t started. Feinerman said the county repeatedly indicated it would present its case for damages through expert testimony.
“Wells Fargo does not provide any authority suggesting that the requirement to demonstrate standing with evidence applies before the close of discovery, while evidence is still being collected and produced,” Feinerman wrote. “Nor does Wells Fargo argue that its motion is one for summary judgment based on lack of standing,”
He further said Wells Fargo “fundamentally misconceives the distinction” between a legal injury giving the federal court jurisdiction and the potential damages a plaintiff must be seeking to prove a case on its merits. That Cook County may have experienced increased revenue by processing foreclosures — those tied specifically to the bank’s alleged wrongdoing — doesn’t automatically erase the outlays involved in dealing with the situation.
Ultimately, Feinerman wrote, the debate over whether the county made or lost money on the foreclosures in question makes the case suitable for further court proceedings, not a dismissal for lack of standing. So long as the county plausibly alleged a legal injury, the litigation should continue. If the case proceeds to the point where the county is awarded damages, the award calculation would then account for “the county’s financial gains from those additional foreclosures.”
Feinerman denied the motion to dismiss without prejudice to the bank’s option to pursue summary judgment based on whether the county suffered an actual legal injury or that it is unable to recover any damages.
Wells Fargo is represented in the action by attorney Abram I. Moore and others with the firms of K&L Gates, of Miami and Chicago; and Katten Muchin Rosenman, of Chicago.
Cook County is represented in the case by attorney Leigh Smith and others from the firm of Milberg Phillips Grossman, of New York; attorneys James M. Evangelista, David Worley and others, from the firm of Evangelista Worley, of Atlanta; and Kenneth A Wexler, of Wexler Wallace, of Chicago.