Nat'l Fair Hous. Alliance v. Fed. Nat'l Mortg. Ass'n
Nat'l Fair Hous. Alliance v. Fed. Nat'l Mortg. Ass'n
Opinion of the Court
*943Now before the Court is the motion to dismiss filed by Defendant Federal National Mortgage Association ("Fannie Mae"). Having considered the parties' arguments, relevant legal authority, the Court hereby DENIES IN PART and GRANTS IN PART Fannie Mae's motion to dismiss.
BACKGROUND
Plaintiffs National Fair Housing Alliance, Inc., Fair Housing Advocates of Northern California, Connecticut Fair Housing Center, Denver Metro Fair Housing Center, Fair Housing Center of Central Indiana, Fair Housing Center of the Greater Palm Beaches, Fair Housing Center of West Michigan, Fair Housing Continuum, Inc., Greater New Orleans Fair Housing Action Center, HOPE Fair Housing Center, Housing Opportunities Made Equal of Virginia, Housing & Research Advocacy Center, Miami Valley Fair Housing Center, Metro Fair Housing Services, Inc., Metropolitan Milwaukee Fair Housing Council, North Texas Fair Housing Center, Open Communities, South Suburban Housing Center, and Toledo Fair Housing Center (collectively "Plaintiffs") here allege that, after the housing crisis in 2008, in violation of the Fair Housing Act, Fannie Mae failed to perform basic maintenance on foreclosed properties it suddenly owned in minority neighborhoods around the country, even while it did perform routine maintenance on properties it came to own in predominantly white neighborhoods.
When a home mortgage owned by Fannie Mae goes into default and foreclosure, Fannie Mae obtains the title to the home and, after a completed foreclosure sale, the home is referred to as "Real Estate Owned" or "REO." (Complaint ¶ 4.) As a result of the housing crisis, Fannie Mae obtained title to a "significant number of REO dwellings covered by the Fair Housing Act." (Id. ) Once an REO property, Fannie Mae "assumes all duties and responsibilities of ownership, including ordinary maintenance, while it markets the dwelling for sale to the general public." (Id. ¶ 5.) Fannie Mae's stated strategy is to "maintain each property in [its] inventory at a level of market-readiness both inside and outside of the property, supporting neighborhood stabilization." (Id. ) The stated mission of the maintenance team is "to ensure the quality of our REO property maintenance services, consistently producing best-in-class, market-ready properties and maintaining them until removal from our inventory." (Id. )
Plaintiffs allege that Fannie Mae is required, under the Fair Housing Act, to maintain all REO properties, regardless of their location, "without regard to race, color, ... or national origin." (Id. ¶ 7.) Between July 2011 and October 2015, Plaintiffs allege that they "conducted a comprehensive investigation of [Fannie Mae]'s real estate related activities in communities of color, including predominantly African-American and Latino neighborhoods, and predominantly white neighborhoods in 38 metropolitan areas throughout the United States." (Id. ¶ 3.) Plaintiffs allege that over the course of four years, they investigated over 2,300 properties owned and maintained by Fannie *944Mae, and accumulated over 49,000 photographs. (Id. ¶ 7.) Plaintiffs allege that their investigation revealed that "Fannie Mae has failed to conduct routine exterior maintenance and marketing of REO properties in communities of color, thereby leaving those REOs in a state of neglect, while satisfactorily conducting routine exterior maintenance and marketing of its REO properties in predominantly white neighborhoods, therefore leaving those REOs in a materially better condition." (Id. ¶ 8.)
Although Plaintiffs alerted Fannie Mae regarding the findings of their investigation in order to secure voluntary compliance with the Fair Housing Act, Plaintiffs allege that Fannie Mae "did not change its behavior. With deliberate indifference to the purpose and effects of its discriminatory policies and practices, Fannie Mae continued to maintain its REO properties differently based on the predominant race and national origin of neighborhoods." (Id. ¶ 19.) As a result of these practices, Plaintiffs allege that "Fannie Mae stigmatizes communities of color as less desirable than predominantly white neighborhoods. The prospects for integration in the affected neighborhoods are reduced because white buyers are deterred from purchasing homes in neighborhoods with poorly maintained REO properties, leaving the existing segregated racial composition of these neighborhoods unchanged." (Id. ¶ 23.)
Plaintiffs, a collection of twenty-one fair housing community organizations, allege that they have expended considerable resources and time away from their other projects and programs and have forgone other opportunities in an effort to address the effects of Fannie Mae's conduct. Plaintiffs set out in detail the frustration of their mission and purpose in the diversion of resources to address Fannie Mae's alleged conduct and remediation. (Id. ¶¶ 142-150, 152-247.) In addition, Plaintiffs further allege that the "discriminatory conduct extends beyond Plaintiffs, also harming the communities Plaintiffs serve. Defendant's failure to maintain REO properties in communities of color has created deteriorating eye sores and depressed property values in communities of color, undermining neighborhood stabilization, and curtailing economic recovery." (Id. ¶ 248.)
Plaintiffs filed suit to allege violation of the Fair Housing Act which makes it unlawful to discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race or national origin. (Id. ¶ 261, citing
The complaint is replete with allegations that the maintenance decisions were delegated to low-level employees and agents to decide when and how maintenance tasks would be undertaken. Plaintiffs allege that *945Fannie Mae did not specify when exterior REO maintenance should be performed, where in contrast, "Fannie Mae provided detailed instructions to its agents with regard to other REO services, including directing them to perform tasks on a monthly basis." (Id. ¶ 129.) The complaint details Fannie Mae's practices which allowed for little or any knowledge of whether properties actually required exterior maintenance and their failure to perform independent quality control on the majority of the properties. (Id. ¶ 130.) Plaintiffs also detail how, after a report by the Office of the Inspector General of the Fair Housing Finance Agency criticized Fannie Mae's quality control protocol, "noting that there was 'significant risk' that it would be insufficient to assess the quality of REO maintenance activities over a sustained period of time," Fannie Mae still did not alter its practices. (Id. )
Plaintiffs further allege that the data from their investigation establishes that "the exterior maintenance of REO properties under Fannie Mae's maintenance practices and policies varied based on the age and/or the value of the properties." (Id. ¶ 132.) Plaintiffs allege that "Fannie Mae's maintenance policies and practices are the direct and proximate cause of the statistical disparities in the maintenance of properties in the neighborhoods with different racial and ethnic compositions as alleged [in the complaint] and revealed by Plaintiffs' investigation." (Id. ¶ 76.)
After a temporary stay of the case, Fannie Mae moved to dismiss all claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim and pursuant to Rule 12(b)(1) for failure of Plaintiffs to establish standing. The Court shall address other specific facts as necessary in the remainder of its order.
ANALYSIS
A. Applicable Legal Standard on Motion to Dismiss.
A motion to dismiss is proper under Rule 12(b)(6) where the pleadings fail to state a claim upon which relief can be granted. The complaint is construed in the light most favorable to the non-moving party and all material allegations in the complaint are taken to be true. Sanders v. Kennedy,
Pursuant to Twombly , a plaintiff must not merely allege conduct that is conceivable but must instead allege "enough facts to state a claim to relief that is plausible on its face." Id. at 570,
B. Organizational Standing.
Fannie Mae seeks dismissal of Plaintiffs' complaint for lack of organizational standing. For purposes of ruling on a motion to dismiss for lack of standing, the Court must accept as true all material allegations of the complaint and must construe the complaint in favor of the complaining party. Maya v. Centex Corp. ,
In order to allege organizational standing under Article III, plaintiffs must demonstrate "(1) frustration of its organizational mission; and (2) diversion of its resources to combat" defendant's alleged wrongful conduct. See Smith v. Pacific Properties & Dev. Corp. ,
Here, Plaintiffs adequately allege diversion of their resources and frustration of their mission. (See Complaint ¶¶ 142-150, 152-247.) Accordingly, at the pleading stage, Plaintiffs' allegations are sufficient to establish organizational standing.
C. Fair Housing Act Claim.
The Fair Housing Act was enacted in response to the 1960s period of "considerable social unrest" and to respond to "both open and covert racial discrimination prevent[ing] black families from obtaining better housing and moving to integrated communities." Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. , --- U.S. ----,
Section 804 of the Fair Housing Act makes it unlawful to "otherwise make unavailable or deny, a dwelling to any person because of race [or] national origin."
Disparate impact liability under the Fair Housing Act "can be proven under a burden-shifting framework analogous to that used in employment discrimination cases: the plaintiff must plead a prima facie case of discrimination, the defendant may rebut by presenting non-discriminatory reasons for the challenged policy, and the plaintiff bears the ultimate burden of persuasion." Nat'l Fair Housing Alliance v. Travelers Indem. Co. ,
Fannie Mae argues that Plaintiffs fail to make out a prima facie case of disparate impact because they have failed to identify a cognizable policy or practice that they allege causes the discrimination *948in housing. Fannie Mae contends that the policy identified by Plaintiffs-delegation of discretion or failure to supervise and differential maintenance based on the properties' age and value-is insufficient as a matter of law. Fannie Mae argues that the mere delegation of authority over decisions regarding maintenance is insufficient as a policy to withstand dismissal. However, the Court finds this argument unpersuasive. See, e.g, McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc. ,
Second, Fannie Mae contends that, regardless of the policy stated, Plaintiffs have failed to pled sufficient facts tending to show causation. The Court finds, however, that Plaintiffs have sufficiently alleged statistical evidence demonstrating a causal connection between the delegation of duties and the differential maintenance. Ultimately, "the question of causation-to what extent the discrepancy is explainable by objective data or race-is premature. It seems clear that Plaintiff's complaint gives rise to a fair inference of causation; the question of proof will become an issue at later stages in the proceedings." Miller v. Countrywide Bank, N.A. ,
Third, Fannie Mae argues that Plaintiffs have alleged facts that would fall outside the statute of limitations time period-earlier than May 12, 2013-two years before Plaintiffs filed their administrative claim before the Department of Housing and Urban Development. See
Lastly, in its motion to dismiss on other grounds, Fannie Mae essentially assumes that Plaintiffs did not intend to allege a disparate treatment claim. (Motion at 19 n.3.) However, in response, Plaintiffs contends that the complaint repeatedly alleges that Fannie Mae intentionally discriminates based on race. In order to show disparate treatment based on race, "a plaintiff must establish that the defendant was motivated to discriminate against the plaintiff on the basis of race." Garcia v. Country Wide Financial Corp. ,
In response, Plaintiffs indicate that there are multiple allegations in the complaint regarding their observations of "differing treatment" and "differing maintenance" throughout the various neighborhoods. (See Complaint ¶¶ 9, 11, 13, 14, 62, 67, 73, 75, 77, 78, 89.) However, the allegation of differing treatment, while providing support for a disparate impact claim, does not necessarily indicate a discriminatory motive. See, e.g., Thomas v. San Francisco Housing Authority ,
CONCLUSION
For the foregoing reasons, the Court DENIES IN PART and GRANTS IN PART the City's motion to dismiss the Complaint. Although the Court finds that the allegations regarding a disparate treatment claim are insufficient to state a claim, the Court grants Plaintiffs leave to amend. See, e.g., Reddy ,
IT IS SO ORDERED.
Reference
- Full Case Name
- NATIONAL FAIR HOUSING ALLIANCE v. FEDERAL NATIONAL MORTGAGE ASSOCIATION (\FANNIE MAE\")"
- Cited By
- 8 cases
- Status
- Published