For the second time in the past month, JPMorgan Chase & Co. has prevailed in litigation because of provisions in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
Chase was sued in May by the city of Los Angeles over alleged redlining and reverse redlining. The city sought damages for lost property taxes and the increased cost of city services resulting from foreclosures.
Los Angeles was emboldened by a decision just two days earlier by U.S. District Judge Otis Wright II denying a motion to dismiss by Wells Fargo & Co. in a separate, similar lawsuit filed by the city.
The complaint against Wells Fargo, as well as similar lawsuits against Bank of America Corp. and Citigroup Inc., was filed in December.
Los Angeles claims that the defendants engaged in discriminatory lending practices that resulted in a disparate number of foreclosures in minority areas. It allegedly lost property tax revenues and incurred expenses for municipal services on the real-estate-owned properties.
But while Wright denied motions to dismiss by the defendants in the other three lawsuits, he found that Chase raised a new ground for dismissal that was unique to Chase.
The City of Angels seeks to hold Chase liable for alleged discriminatory loan originations by Washington Mutual Bank — which failed in 2008 and was seized by the Office of Thrift Supervision.
The OTS, which has since been merged into the Office of the Comptroller of the Currency, appointed the Federal Deposit Insurance Corp. as receiver of WaMu, and Chase acquired some of its assets.
Chase filed a motion to dismiss Los Angeles’ lawsuit in June. While many of its contentions were similar to those in dismissal requests in the other lawsuits, it additionally contended that a dismissal was supported by the jurisdictional bar in FIRREA.
“Chase argues that, under FIRREA, the court lacks subject-matter jurisdiction to adjudicate the city’s claims that relate to WaMu’s origination of discriminatory loans before the bank’s failure in 2008. (Mot. 3:25–6:2.),” a decision from Wright states. “Moreover, since the city makes no distinction between WaMu and Chase in the complaint, the entire complaint must be dismissed.”
But the city claims that Chase’s interpretation of FIRREA’s jurisdictional bar was too broad. It claims that the New York-based company assumed liability for its claims in its purchase and assumption agreement with the FDIC.
However, the judge found merit in Chase’s argument and granted the motion to dismiss on Tuesday, noting that FIRREA strips courts of jurisdiction over claims that haven’t been exhausted through the FDIC’s claims process.
“For the reasons discussed above, the court finds that FIRREA bars this court from hearing the city’s claims as they relate to WaMu’s discriminatory lending practices,” the judge wrote in his decision. “The city was required to exhaust its claims relating to WaMu with FDIC, which the city has not alleged.
“Accordingly, the city’s allegations against Chase relating to WaMu’s conduct are dismissed.”
But Wright granted Los Angeles leave to amend so that it could attempt to excise any allegations related to WaMu’s lending practices.
Just last month, a federal appeals court upheld the dismissal of a lawsuit filed by classic rock musician Todd Rundgren against Chase. That case involved a foreclosed loan that Rundgren took out with WaMu.
The Ninth Circuit upheld a district court decision that the borrowers hadn’t exhausted their claims under FIRREA, which stripped the district court of jurisdiction to consider the complaint.
