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Guerra v. GMAC LLC

February 20, 2009


The opinion of the court was delivered by: Legrome D. Davis, J.


AND NOW, this 20th day of February 2009, upon consideration of Defendants' Motion to Dismiss the First Amended Complaint (Doc. No. 31), Plaintiffs' Opposition thereto (Doc. No. 35), Defendants' Reply Brief in Support of the Motion to Dismiss (Doc. No. 40), Plaintiffs' Additional Authority in Surreply thereto (Doc. No. 50), Defendants' Notice of Supplemental Authority (Doc. Nos. 52, 53), and Defendants' Second Notice of Supplemental Authority (Doc. No. 56), it is hereby ORDERED that Defendants' Motion to Dismiss is DENIED.


Plaintiffs Ricardo Guerra, Eric Ochoa, and Gus Richard Davis commenced this proposed class action on behalf of themselves and all others similarly situated*fn1 on March 17, 2008, (Doc. No. 1), and they filed a First Amended Complaint on July 22, 2008, (Doc. No. 23). In the First Amended Complaint, they allege violations of the Fair Housing Act ("FHA"), 42 U.S.C. § 3601 et seq., and the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691 et seq., against Defendants GMAC LLC, GMAC Mortgage, LLC, GMAC Bank, Homecomings Financial, LLC, and Does 1-10. (Am. Compl. ¶ 1.)

The crux of this action can be summarized as follows: Defendants originate and fund mortgage loans, (id. ¶¶ 58, 118), and have collectively established policies for access to their loan products that subject minority financing applicants to a significantly higher likelihood of exposure to high cost loans than similarly situated non-minority applicants, (id. ¶ 63). More specifically, according to Plaintiffs, Defendants have established a credit pricing system, which includes an objective component as well as a subjective component. (Id. ¶¶ 5, 132.) In evaluating loan applicants' credit information, Defendants initially perform an objective analysis of risk-related variables including debt-to-income ratios, loan-to-value ratios, credit bureau histories, bankruptcies, automobile repossessions, prior foreclosures, payment histories, and credit scores. (Id. ¶¶ 5, 132.) Defendants derive a risk-based financing rate from these objective factors. (Id. ¶ 133.) The subjective component of Defendants' credit pricing system, referred to as the Discretionary Pricing Policy, then authorizes the subjective surcharge of additional points, fees and other credit costs to the risk-based financing rate. (Id. ¶¶ 5, 134.) According to Plaintiffs, the Discretionary Pricing Policy by design causes borrowers with identical or similar credit scores to pay differing amounts to obtain credit. (Id. ¶ 137.) In particular, the Discretionary Pricing Policy has a discriminatory impact on minority borrowers. The Discretionary Pricing Policy causes minorities to pay more discretionary finance charges and higher interest rates than similarly situated non-minorities. (Id. ¶ 138.) These additional finance charges and higher interest rates drive up the average cost of mortgage loans made by Defendants to minority borrowers. (Id. ¶ 63.) Further, minority borrowers are substantially more likely than similarly situated non-minorities to be placed into high cost loans. (Id. ¶ 138.) Thus, Plaintiffs claim that Defendants violated the FHA and the ECOA by placing minority borrowers into higher-priced loans because of their race. (Id. ¶ 142.)

Plaintiffs allege that they have each been harmed by Defendants' Discretionary Pricing Policy. Plaintiff Ricardo Guerra is a minority homeowner who obtained a mortgage loan from Defendants on September 22, 2006. (Id. ¶ 14.) Plaintiff Eric Ochoa is a minority who obtained a refinance mortgage loan from Defendants on June 27, 2006. (Id. ¶ 24.) Plaintiff Gus Richard Davis is a minority homeowner who obtained a refinance mortgage loan from Defendants on August 3, 2007.*fn2 (Id. ¶¶ 31-32.) Due to Defendants' discretionary pricing policy, Plaintiffs were all charged higher interest rates and more finance charges than similarly situated non-minorities. (Id. ¶¶ 20, 29, 43.)


When evaluating a motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must accept as true all factual allegations set forth in the complaint. See Fed. R. Civ. P. 12(b)(6); Malia v. Gen. Elec. Co., 23 F.3d 828, 830 (3d Cir. 1994). To survive a motion to dismiss, a plaintiff's "[f]actual allegations must be enough to raise a right to relief above the speculative level," Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007), and a court "need not credit a complaint's 'bald assertions' or 'legal conclusions,'" Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993) (internal quotation marks omitted). "The inquiry is not whether plaintiffs will ultimately prevail on the merits, but whether they should be afforded an opportunity to offer evidence in support fo their claims." In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 215 (3d Cir. 2002). Thus, "'stating . . . a claim requires a complaint with enough factual matter (taken as true) to suggest' the required element." Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 127 S.Ct. at 1965). Therefore, a claim may be dismissed when the facts alleged and the reasonable inferences drawn therefrom are legally insufficient to support the relief sought. See Pennsylvania ex rel. Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 179-80 (3d Cir. 1988).


Defendants move to dismiss Plaintiffs' First Amended Complaint. They argue that the FHA and the ECOA do not authorize disparate impact claims. In addition, even if disparate impact claims are authorized by the FHA and the ECOA, Defendants argue that Plaintiffs have failed to plead the elements of disparate impact liability. Defendants also argue that the claims of certain Plaintiffs are barred by the statute of limitations, and that the First Amended Complaint is in general pled with insufficient specificity. We find Defendants' arguments unconvincing.

A. Disparate Impact Claims Under the FHA and the ECOA

Defendants begin their Motion to Dismiss by arguing that the FHA and the ECOA do not permit liability under a disparate impact theory. (Defs.' Br. Supp. Mot. Dismiss 2 (citing Smith v. City of Jackson, 544 U.S. 228 (2005).) Defendants acknowledge that courts within the Third Circuit have permitted disparate impact claims pursuant to the FHA and the ECOA.*fn3 (Defs.' Br. Supp. Mot. Dismiss 5 n.3.) Defendants, however, contend that this prior precedent is no longer good law in light of the Supreme Court's decision in Smith v. City of Jackson. (Defs.' Br. Supp. Mot. Dismiss 2 (citing Smith, 544 U.S. 228).) No court has applied Smith to find that disparate impact claims are not cognizable under the FHA or the ECOA. To the contrary, numerous courts have squarely rejected the argument set forth by Defendants here. Hoffman v. Option One Mortgage Corp., 589 F. Supp. 2d 1009, 1010-11 (N.D. Ill. 2008) (concluding that Smith does not preclude disparate impact claims under the FHA and the ECOA); Taylor v. Accredited Home Lenders, Inc., 580 F. Supp. 2d 1062, 1067 (C.D. Cal. 2008) (holding that Smith has not overruled prior precedent recognizing the FHA and the ECOA permit disparate impact claims); Nat'l Cmty. Reinvestment Coal. v. Accredited Lenders Holding Co., 573 F. Supp. 2d 70, 79 (D.D.C. 2008) (holding that Smith does not preclude disparate impact claims brought pursuant to the FHA); Payares v. JP Morgan Chase & Co., No. 07-5540, 2008 WL 2485592, at *1 (C.D. Cal. June 17, 2008) (concluding that Smith does not bar disparate impact claims under the FHA and the ECOA); Ramirez v. GreenPoint Mortgage Funding, Inc., No. 08-0369, 2008 WL 2051018, at *4 (N.D. Cal. May 13, 2008) (holding that defendants failed to demonstrate that Smith is "clearly irreconcilable" with Ninth Circuit precedent holding that disparate impact claims are cognizable under the FHA and the ECOA); Zamudio v. HSBC N. Am. Holdings, Inc., No. 07-4315, 2008 WL 517138, at *2 (N.D. Ill. Feb. 20, 2008) (concluding that Smith does not bar disparate impact claims under the FHA and the ECOA); Garcia v. Countrywide Fin. Corp., et al., No 07-1161, Am. Order Granting in Part and Denying in Part Defs.' Mot. Dismiss, at *11 (C.D. Cal. Jan. 17, 2008) (declining to hold that Smith overturned Ninth Circuit precedent recognizing disparate impact claims under the FHA and ECOA) ("Garcia Order"); Beaulialice v. Fed. Home Loan Mortgage Corp., No. 04-2316, 2007 WL 744646, at *4 (M.D. Fla. Mar. 6, 2007) (concluding that Smith does not bar disparate impact claim under the FHA and assuming the same under the ECOA). Like the numerous district courts who have unanimously rejected the argument set forth by Defendants here, we disagree with Defendants' reading of Smith.

In Smith, the Supreme Court ruled that § 4(a)(2) of the Age Discrimination in Employment Act ("ADEA") allows for disparate impact claims. 544 U.S. at 233-40. In so ruling, the Court in part relied on a textual analysis comparing § 4(a)(2) of the ADEA to § 703(a)(2) of Title VII. Id. at 235. The court began by noting that disparate impact claims are cognizable under § 703(a)(2) of Title VII. Id. at 235. Because § 703(a)(2) of Title VII and § 4(a)(2) of the ADEA contain language prohibiting actions that "deprive any individual of employment opportunities or otherwise adversely affect his status as an employee," both provisions focus on the "effects of the action on the employee rather than the motivation for the action of the employer." Id. (internal citations omitted). In a footnote, the Court contrasted § 4(a)(2) of the ADEA with § 4(a)(1) of the ADEA, which does not encompass disparate impact liability, observing that the text of § 4(a)(1) focuses on the employer's action rather than the effect on the employee. Id. at 236 n.6. Based on this portion of the decision, Defendants argue that a "plaintiff may not prove discrimination under a disparate impact theory unless the anti-discrimination statute at issue has specific language permitting a disparate impact claim." (Defs.' Br. Supp. Mot. Dismiss 2.) According to Defendants, the FHA and the ECOA both lack such language and therefore do not support disparate impact claims.*fn4 (Defs.' Br. Supp. Mot. Dismiss 2-5.)

However, the Smith decision was not based merely on the text of the ADEA, but also on the governing regulations, the purposes of the act, and the uniform interpretation of the appellate courts. 544 U.S. at 233-40. Thus, we cannot say that the Smith decision so clearly conflicts with prior precedent that it necessarily requires our departure from that precedent. See United States v. Extreme Assocs., Inc., 431 F.3d 150, 155 (3d Cir. 2005) (lower courts should follow directly applicable precedent when faced with a more recent decision that may weaken prior precedent) (citing Agostini v. Felton, 521 U.S. 203, 237 (1997)). In fact, Defendants set forth an application of the Smith decision that is too broad. "Although the identical language found in the ADEA and Title VII was a basis for comparison in Smith, the Smith decision does not reach so far as to prohibit disparate[]impact claims under other statutes that do not contain this same language; nor does it set forth a new test for determining whether a statute supports disparate[]impact claims." Zamudio, 2008 WL 517138 at *2; see also Garcia Order at 9 (the Smith ...

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