Wells Fargo Must Face Oakland’s Lending Suit

     SAN FRANCISCO (CN) - A federal judge Thursday refused to dismiss Oakland's lawsuit claiming Wells Fargo's discriminatory lending spurred hundreds of foreclosures and cost the city millions in lost tax revenue.

Oakland sued Wells Fargo in September 2015, claiming the nation's third-largest bank targeted minority homeowners for predatory loans, causing at least 982 foreclosures and eviscerating the values of nearby homes.

Wells Fargo attorneys told U.S. District Judge Edward Chen in a hearing Thursday that the city cannot sue the bank for alleged violations of the Fair Housing Act because Oakland itself suffered no discriminatory injury.

Representing Oakland, Robert Peck replied by citing a 1979 Supreme Court ruling, Gladstone, Realtors v. Village of Bellwood, which held that indirect victims of housing bias do have standing to sue.

But unlike in the Gladstone case, Wells Fargo attorney Terry Sanchez said, Oakland has not claimed that the bank's lending practices "changed the racial makeup of the city."

"What's different here is there's no discriminatory injury alleged whatsoever," Sanchez said. "It's all economic injury."

Peck countered by citing a more recent 11th Circuit ruling that overturned dismissal of a lawsuit in which Miami claimed Wells Fargo, Citigroup and Bank of America's racist lending practices harmed the city.

"They're getting these types of loans that are more costly and more risky at a rate of three times more than non-minority borrowers," Peck said. "The 11th Circuit recognized all that was sufficient to be pled."

Wells Fargo also argued that the claims of FHA violations from 2004 to 2013 are untimely due to the two-year statute of limitations.

The only higher-cost loans Wells Fargo purportedly thrust upon minority borrowers in the past two years were insured by the FHA and the Department of Veterans Affairs, the bank's co-counsel Bart Williams said.

"The fees that caused those loans to be more expensive are set by the government for insurance," Williams said. "The fees go to the government, not Wells Fargo."

Peck replied that under the bank's theory of timeliness, a loan would have to be opened, closed, property taxes collected and city revenue lost all within two years, a near-impossible feat.

The city claims the bank has engaged in continuing violations over the past decade, which makes the two-year limitations period moot.

Oakland claims the bank continues to steer minority borrowers into higher-cost loans today.

Chen refused to dismiss for untimeliness, finding the city provided specific examples to support its theory of continuing violation, which is enough to survive a motion to dismiss for now.

"Maybe those examples don't pan out," Chen said. "They have to prove a violation occurred within the limitations period."

Sanchez urged Chen to dismiss the city's unjust enrichment claim, saying the bank did not unfairly benefit from the city's deploying additional resources to deal with foreclosed homes.

"They claim additional fire and police protection and city services," Sanchez said. "The city chose to provide those services to all residents, or it's obligated to do so. Therefore, the city has incidentally benefited Wells Fargo, just as it has benefited every resident of Oakland."

Sanchez cited a 1997 Northern District of California ruling, San Francisco v. Phillip Morris, which found the city could not sue the tobacco giant to recoup costs of providing healthcare to people harmed by smoking cigarettes.

Chen said he would dismiss the unjust enrichment claim but leave the rest of the lawsuit intact.

In July 2015, a federal judge ruled in favor of Wells Fargo in the city of Los Angeles' lawsuit alleging discriminatory and predatory lending practices. That ruling has been appealed to the Ninth Circuit.

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