Cnty. of Cook v. Bank of Am. Corp.

584 F.Supp.3d 562

COUNTY OF COOK, Plaintiff,

v.BANK OF AMERICA CORPORATION, et al., Defendants.

No. 14 C 2280

United States District Court, N.D. Illinois, Eastern Division.

Signed February 10, 2022

Alan R. Perry, Jr., Page Perry, David J. Worley, James M. Evangelista, Pro Hac Vice, Kristi Stahnke McGregor, Leslie Toran, Pro Hac Vice, Evangelista Worley, LLC, Atlanta, GA, J. Birt Reynolds, Pro Hac Vice, F. Jennifer Sarah Czeisler, Pro Hac Vice, John David Hughes, Pro Hac Vice, Leigh Smith, Pro Hac Vice, Peggy J. Wedgworth, Sanford P. Dumain, Pro Hac Vice, Milberg Coleman Bryson Phillips Grossman, PLLC, Garden City, NY, Kenneth A. Wexler, Melinda J. Morales, Wexler Boley & Elgersma LLP, Michelle M. Montgomery, James D. Montgomery, Sr., James D. Montgomery & Associates, Ltd., Umar Sattar, Wexler Wallace LLP, Chicago, IL, Mark J. Tamblyn, Pro Hac Vice, Wexler Boley & Elgersma LLP, Sacramento, CA, Roy Shimon, Pro Hac Vice, Milberg Coleman Bryson Phillips Grossman, PLLC, New York, NY, for Plaintiff.

Alicia Rubio, Pro Hac Vice, Catalina E. Azuero, Pro Hac Vice, Benjamin Cox, Pro Hac Vice, Christopher J.C. Herbert, Pro Hac Vice, Courtney L. Hayden, Pro Hac Vice, Henry C. Dinger, Pro Hac Vice, James W. McGarry, Yvonne W. Chan, Goodwin Procter LLP, Boston, MA, Thomas M. Hefferon, Joseph F. Yenouskas, Levi Swank, Pro Hac Vice, Matthew S. Sheldon, Sabrina M. Rose-Smith, Goodwin & Procter LLP, Washington, DC, Joseph Laurence Motto, Winston & Strawn LLP, Chicago, IL, Ryan Marc Dunigan, Corning Incorporated, Corning, NY, for Defendant Bank of America Corporation.

Alicia Rubio, Pro Hac Vice, Catalina E. Azuero, Pro Hac Vice, Benjamin Cox, Pro Hac Vice, Christopher J.C. Herbert, Pro Hac Vice, Courtney L. Hayden, Pro Hac Vice, Henry C. Dinger, Pro Hac Vice, James W. McGarry, Yvonne W. Chan, Goodwin Procter LLP, Boston, MA, Thomas M. Hefferon, Joseph F. Yenouskas, Matthew S. Sheldon, Sabrina M. Rose-Smith, Goodwin & Procter LLP, Washington, DC, Joseph Laurence Motto, Winston & Strawn LLP, Chicago, IL, Ryan Marc Dunigan, Corning Incorporated, Corning, NY, for Defendants Bank of America N.A., Countrywide Financial Corporation, Countrywide Bank FSB, Countrywide Warehouse Lending LLC, BAC Home Loans Servicing LP, Merrill Lynch & Co., Inc., Merrill Lynch Mortgage Captial Inc., Merrill Lynch Mortgage Lending, Inc.

Thomas M. Hefferon, Joseph F. Yenouskas, Matthew S. Sheldon, Sabrina M. Rose-Smith, Goodwin & Procter LLP, Washington, DC, Benjamin Cox, Pro Hac Vice, Christopher J.C. Herbert, Pro Hac Vice, Courtney L. Hayden, Pro Hac Vice, Henry C. Dinger, Pro Hac Vice, James W. McGarry, Yvonne W. Chan, Goodwin Procter LLP, Boston, MA, Joseph Laurence Motto, Winston & Strawn LLP, Chicago, IL, Ryan Marc Dunigan, Corning Incorporated, Corning, NY, for Defendant Countrywide Home Loans Inc.

MEMORANDUM OPINION AND ORDER

Elaine E. Bucklo, United States District Judge Nearly eight years ago, Cook County filed this action under the Fair Housing Act of 1968 ("FHA") to recover for economic and non-economic injuries that it claims to have suffered as a result of defendants’ predatory and discriminatory scheme to strip equity from the homes of African American and Hispanic borrowers in Cook County ("minority borrowers") and to foreclose disproportionately on their homes. The County alleged that defendants identified and targeted minority borrowers "using advanced data mining techniques and predictive analysis methodologies" and engaged in practices that encouraged: (a) unchecked or improper credit approval decisions for minority borrowers, which allowed minority borrowers to receive home loans they could not afford; (b) discretionary application of surcharges on minority borrowers of additional points, fees, and other credit and servicing costs over and above an otherwise objective risk-based financing rate for such loan products; (c) steering minority borrowers into higher cost loan products; and (d) undisclosed inflation of appraisal values of minority residences to support inflated loan amounts to minority borrowers. Compl. ECF 1 at ¶ 7. All of these practices allegedly increased the likelihood of default and foreclosure among minority borrowers. Id. See also id. at ¶ 103 (alleging additional discriminatory terms and conditions); ¶ 299 (same). As a result of the foregoing practices, the County claimed to have suffered injuries that included: (1) out-of-pocket costs to provide governmental services associated with foreclosed and/or vacant properties; (2) lost property tax revenue; (3) lost recording fee income; and (5) intangible injuries to the fabric of its communities. Id. at ¶ 408.

After the County's original complaint survived a motion to dismiss, see Cty. of Cook v. Bank of Am. Corp. , 181 F. Supp. 3d 513 (N.D. Ill. 2015), the Supreme Court's decisions in Bank of Am. Corp. v. City of Miami, Fla. , ––– U.S. ––––, 137 S. Ct. 1296, 197 L.Ed.2d 678 (2017) (" City of Miami "), and Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc. , 576 U.S. 519, 135 S. Ct. 2507, 192 L.Ed.2d 514 (2015) (" Inclusive Communities "), altered the legal landscape of the County's claims. City of Miami confirmed the County's Article III standing to pursue FHA claims for economic injuries but held that the statute's proximate causation requirement limited the scope of its actionable injuries to those the County could prove were the direct result of the discriminatory conduct alleged. 137 S. Ct. at 1305-06. Inclusive Communities confirmed that the County's disparate impact theory of discrimination is cognizable under the FHA but held that claims based on that theory are subject to a "robust causality requirement" that requires the County to do more than offer statistical evidence of racial imbalance; the County must also point to a specific policy and show that it created "artificial, arbitrary, and unnecessary barriers" to equality. 576 U.S. at 543, 135 S.Ct. 2507.

In the wake of these developments in the Court's FHA jurisprudence, the County filed a Second Amended Complaint ("SAC") in July of 2017. Count I of the SAC asserts the theory that defendants carried out an equity stripping scheme designed to enrich themselves at the expense of minority borrowers, who disproportionately suffered default and foreclosure, in violation of the FHA.¹ In Count II, the County specifically challenges defendants’ facially neutral servicing and foreclosure practices, which the County likewise claims had a disparate impact on minority borrowers in violation of the FHA. And in Count III, the County claims that defendants’ equity stripping scheme amounts to intentional discrimination in violation of the FHA because it targeted minority borrowers for higher cost, higher risk loans based on their race and/or color. See SAC, ECF 177 at ¶¶ 403-551.

Defendants moved to dismiss the SAC in its entirety. Although I rejected defendants’ arguments that the County failed to articulate either a plausible claim for any injury proximately caused by defendants’ alleged discrimination or the "robust" causality required to proceed on a disparate impact theory, I held that the majority of the injuries the County claimed—including the alleged erosion of its tax digest and costs associated with the provision of downstream social services—were "too remote in time, and too contingent on later events, to satisfy the "first step" directness requirement of City of Miami . Accordingly, I concluded that only a "narrow category" of the County's alleged damages, namely, "the out-of-pocket costs it claims to have incurred in processing the discriminatory foreclosures," had "a sufficient temporal and practical connection" to the challenged foreclosures to satisfy City of Miami ’s proximate causation standard. I specifically identified "additional funding for the Cook County Sheriff to serve foreclosure notices and for the Circuit Court of Cook County to process the deluge of foreclosures" as examples of such costs, though I expressed skepticism that these losses were worth the cost of pursuing the County's far-reaching claims. Mem. Op. and Order of 03/30/2018, ECF 204 at 19-20. I later clarified, pursuant to a motion by the County, that the County could also seek "out-of-pocket costs in serving eviction notices, conducting judicial and administrative foreclosure proceedings, and registering and inspecting foreclosed properties." Order of 08/17/18, ECF 228 at 1. These decisions, read together, identified a closed set of "out-of-pocket" costs that I concluded the County could attempt to show—using the statistical regression analysis it heralded as capable of isolating the effects of defendants’ conduct from the influence of numerous other factors—were directly caused by defendants’ alleged discrimination.

Discovery followed, punctuated by substantial motion practice, occasionally before me and frequently before the two magistrate judges successively assigned to this case. Defendants then filed a motion for summary judgment, which is now ripe for decision. Also pending are the parties’ respective Daubert motions, which I have considered in conjunction with their summary judgment arguments. For the following reasons, I grant defendants’ summary judgment motion and resolve the Daubert motions as set forth below.

I.

The overarching theme of the SAC is that defendants’ equity stripping scheme and discriminatory servicing and foreclosure practices caused skyrocketing foreclosure rates in Cook County from 2004 to approximately 2008, which disproportionately affected FHA-protected minority borrowers and communities with a high concentration of minorities. This avalanche of foreclosures, in turn, allegedly caused the County to suffer an increase in foreclosure-related expenses that it claims as damages resulting from defendants’ discriminatory lending practices.

Defendants attack this theory on nearly every front. Their primary arguments are: 1) that the County has no evidence that any unified "equity...