JP Morgan Scores Win in Predatory Lending Case but Los Angeles Survives Dismissal
LOS ANGELES (CN) - Los Angeles' claim that JP Morgan Chase's predatory mortgage lending damaged the city has been rejected by a federal judge, who left the door open for the city to revise its lawsuit against the bank.
Los Angeles City Attorney Mike Feuer sued JP Morgan Chase in May, claiming the bank's predatory lending in poor, minority communities damaged city property tax revenue and left taxpayers on the hook for repairs and maintenance of foreclosed homes.
Feuer filed similar actions against Wells Fargo, Citigroup, and Bank of America in December 2103, claiming the banks saddled minorities with loans they could not afford.
But in an Aug. 5 order, U.S. District Judge Otis Wright granted JP Morgan Chase and its affiliates JPMorgan Chase Bank and Chase Manhattan Bank's motion to dismiss L.A.'s complaint, finding that the city's claims are barred under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).
Enacted in 1989 after the saving and loans crisis, to expedite the process for dealing with troubled financial institutions, the law strips courts of claims unless they are first adjudicated by the Federal Deposit Insurance Corporation (FDIC).
Feuer sought to hold JP Morgan Chase liable for the discriminatory lending practices of Washington Mutual Bank, which the FDIC transferred to JP Morgan Chase for $1.9 billion after WaMu failed in September 2008.
Judge Wright granted the motion to dismiss L.A.'s claims, finding the city did not make clear if the claims relating to Washington Mutual had been exhausted through the FDIC.
Noting that Chase "raises a new issue based on WaMu's failure, the FDIC's receivership, and Chase's subsequent purchase of WaMu's assets," Wright found that Chase had not assumed liability for loans originated by Washington Mutual before 2008.
Along with allegations that Chase engaged in predatory lending, Feuer intertwined information about Washington Mutual's lending practices between 2004 and 2008, before Chase bought it.
"The court finds that the city has brought claims related to WaMu's acts or omissions," Wright wrote in his 14-page order. "Since the claims are based, at least in part, on a failed institution's conduct, FIRREA's jurisdictional bar is implicated."
Wright, however, gave the city another bite at the apple, granting the city leave to amend the complaint and "excise any allegations related to WaMu's lending practices."
Feuer's four lawsuits claim that the city was damaged by $1 billion after properties went underwater.
Alleging violations of federal housing laws, Feuer claimed that banks still offer inferior loans to people in minority neighborhoods.
"It is axiomatic that banks should not make discriminatory loans. Banks must extend credit to minorities on equal terms as they do to other similarly situated borrowers," the city's May 30 lawsuit against JP Morgan Chase states.
"Banks should not target minority neighborhoods for loans that discriminate nor make loans to minorities on terms that are worse than those offered to whites with similar credit characteristics."
Motions to dismiss in the other three lawsuits have been denied.
JP Morgan Chase spokesman Jason Lobo told Courthouse News: "We are pleased with this decision, and we will continue to carry out our strong commitment to Los Angeles residents."
City representative Frank Mateljan said that the city is "exploring our options."
"We respectfully disagree with the court's ruling as to the loans made by Washington Mutual, and are exploring our options regarding that decision," Mateljan wrote in an email. "In the meantime, we are aggressively pursuing our case against JP Morgan Chase."
The city has until Aug. 26 to file an amended complaint.