Judge hears Wells Fargo’s motion to dismiss ‘reverse redlining’ suit 

Posted: 7:47 pm Mon, December 14, 2009
By Brendan Kearney
Daily Record Legal Affairs Writer

U.S. District Judge J. Frederick Motz may hope to leave the bench soon, but presiding over the latest hearing in Baltimore’s “reverse-redlining” case against banking giant Wells Fargo Monday morning, Motz made it clear that he is no lame duck.

Hearing Wells Fargo’s second motion to dismiss the first-of-its-kind case, Motz was loudly skeptical of the city’s claims and not bashful in providing his take on the city’s social problems, at one point comparing a section of West Baltimore to “bombed-out Beirut.”

The judge seemed particularly skeptical of the city’s claims that, through regression analysis, it could isolate the effect of any given foreclosed property on public expenditures and lost tax revenue.

“That’s just silly, whether an expert says it or not,” Motz said at one point. “That doesn’t make any sense.”

The suit alleges that Wells Fargo targeted Baltimore’s black neighborhoods for unfavorable home loans, and that when borrowers defaulted and were forced to vacate the properties, the city incurred tens of millions of dollars in fire, police and other public services.

Motz, who took over the case from Chief U.S. District Judge Benson E. Legg in August, did not set any timetable for ruling but more than once hinted that he might whittle the city’s lawsuit — unlike Legg, who let it proceed after conducting four in-depth hearings.

“If the case should be cut down, I’m going to cut it down,” Motz said toward the end of the hour-and-a-half proceeding.

In the hallway outside the fifth-floor courtroom, City Solicitor George A. Nilson agreed Motz “put people through their paces” but said he felt better at the end of the hearing than at the beginning and is “not concerned” about the ultimate ruling.

Benjamin B. Klubes, a member of the San Francisco-based bank’s legal team at BuckleySandler LLP, reiterated Wells Fargo’s position that it has “a strong legal argument that the city has no standing” to bring suit under the Fair Housing Act.

Going forward

Earlier in the downtown courtroom, Motz wasted no time getting to the heart of the matter, asking John P. Relman, a private attorney from Washington, D.C. representing the city, whether the properties in question would have been foreclosed-upon or vacant regardless of the allegedly predatory Wells Fargo loans.

When Relman mentioned Judge Legg, Motz cut him off.

“We’re before me now, and I’ve had a chance to review the papers, so forget Judge Legg,” Motz said.

Relman recovered, going on to distinguish the city’s suit from cases brought by the cities of Cleveland and Birmingham, Ala., which were dismissed by other federal judges this year.

Unlike those actions, Baltimore’s suit is against only one originating lender — an “outlier,” Relman said — and is supported by ex-Wells Fargo employees’ testimony and expert statistical analysis.

Per Motz’s instructions this summer, the parties have been exchanging documents as part of a limited discovery process, and Relman argued that should continue.

“The law says we’re entitled to go forward,” Relman said, referring to Supreme Court precedent, not the recent adverse district court decisions in Alabama and Ohio.

‘Blighted core’

While Motz eventually accepted some of Relman’s responses, the judge openly questioned how one lender could be held responsible for Baltimore’s well-known poverty and crime.

“What’s happening in the inner city is despicable,” Motz said, referring to the wayward street kids who come before him accused of violent crimes. Alluding to a 25th anniversary memorial service for a slain city police detective he attended in West Baltimore earlier this month, Motz said “the place was vacant all over the place. It looked like bombed-out Beirut.”

To say that the “bad conduct” of bank executives and Wall Street schemers caused his hometown’s pervasive social ills “doesn’t follow as the day does the night,” Motz said.

Andrew L. Sandler, the defendant bank’s lead lawyer who has squared off against Relman in other consumer lending cases, picked up that theme, noting Baltimore has as many as 30,000 vacant homes. (For the period of 2005-2008, the bank contends 143 of those are relevant to the city’s suit; the city claims the number is more than 200.)

“That problem exists without Wells Fargo,” Sandler said of what he called Baltimore’s “blighted urban core.”

Sandler asked Motz to consider the implications of allowing the city to proceed with its “fanciful regression analyses” and its “grandiose damages claims” at “staggering” litigation cost.

“If this is the standard, where do we stop?” he asked, warning that a large company found to have discriminately fired employees could then be sued by its host city for collateral damage like vacant houses.

Motz had pointed questions for Sandler as well, asking him why, if the city’s neighborhoods are so hopeless, the bank made the controversial loans at all.

“Your honor, I would tell you if I could,” Sandler said.

“But you can’t,” Motz said.

“Your honor, it’s one of the great imponderables,” Sandler said.

Under scrutiny

In a letter made public Friday, Motz advised President Barack Obama that he will take senior status as soon as his successor is confirmed. A source familiar with the process said Maryland Sens. Barbara Mikulski and Ben Cardin, both Democrats, last week suggested that the president name U.S. Magistrate Judge James K. Bredar to the post.

The city has come under scrutiny for pursuing a case that might not end up being as justifiable, wide-ranging or valuable as originally advertised. Asked after the hearing about the costs of bringing the suit compared to a possible jury award, Nilson said he would not have consented to bringing the case if those figures were out of balance. But there are other considerations, too, Nilson said.

“Hopefully, you get the lending community to follow the law, for example,” he said.