City of Sacramento v. Wells Fargo & Co.

[7] 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA [10] 11 CITY OF SACRAMENTO, No. 2:18-cv-00416-KJM-AC 12 Plaintiff, 13 v. ORDER 14 WELLS FARGO & CO., and WELLS FARGO BANK, N.A., [15] Defendants. [17] 18 Defendants Wells Fargo & Co. and Wells Fargo Bank N.A. (“collectively “Wells 19 Fargo”) move to phase discovery. Mot., ECF No. 52. The City of Sacramento opposes. Opp’n, 20 ECF No. 56. Wells Fargo has replied. Reply, ECF No. 58. The court heard oral argument from 21 the parties on March 6, 2020. At the hearing, Robert Peck and Yosef Peretz appeared for the City 22 of Sacramento; Olivia Kelman, Paul Hancock and Edward Sangster appeared for Wells Fargo. 23 The novel coronavirus pandemic has intervened since hearing, but the court now resolves the 24 motion and DENIES it as explained below. 25 I. BACKGROUND 26 Plaintiff City of Sacramento (“City”) sues Wells Fargo for violations of the federal 27 Fair Housing Act (FHA) and California’s Fair Employment and Housing Act (FEHA). Plaintiff 28 alleges that since at least 2004, Wells Fargo maintained a pattern and practice of discriminatory 1 lending in Sacramento that constitutes redlining and reverse redlining.1 Compl., ECF No. 1, 2 ¶¶ 9–11. The City alleges Wells Fargo’s conduct amounts to intentional discrimination and 3 disparate impact discrimination and that both redlining and reverse redlining violate the FHA, [4] 42 U.S.C. §§ 3601 , et seq. Id. ¶¶ 8, 11 ; see 42 U.S.C. §§ 3604 (b), 3605(a). 5 The FHA has a two-year statute of limitations; claims must be brought “not later 6 than 2 years after the occurrence or the termination of an allegedly discriminatory housing 7 practice[.]” 42 U.S.C. § 3613 (a)(1)(A). The parties agree claims predicated on a “continuing 8 violation,” i.e., a discriminatory pattern, practice or policy consisting of multiple loans, are timely 9 when at least one violation illustrative of the practice occurred within the limitations period. 10 Mot. at 4–5; Opp’n at 6; see also Havens Realty Corp. v. Coleman, 455 U.S. 363 , 380–81 (1982). 11 Wells Fargo moved to dismiss the City’s FHA claim for failure to allege facts 12 plausibly showing violations extending into the limitations period. Mot. to Dismiss (“MTD”), 13 ECF No. 16 at 19–20. Plaintiff’s complaint alleges Wells Fargo originated at least four 14 discriminatory loans to minority borrowers in the limitations period. Compl. ¶ 155. The court 15 previously denied defendants’ motion as to the statute of limitations argument. Order on MTD, 16 ECF No. 36 at 22. 17 Now, Wells Fargo has moved to bifurcate discovery into two phases. In Wells 18 Fargo’s proposed initial phase, discovery would be limited to facts relating to loans originating in 19 the two-year limitations period, which is between February 23, 2016 and February 23, 2018. 20 Mot. at 4. Fact discovery in the initial phase would close four months after the court issues an 21 order phasing discovery and expert discovery would close approximately four months after the 22 close of fact discovery. Joint Status Report, ECF No. 50 at 10. The parties would have a 23 deadline to file summary judgment motions of eight months after the proposed phasing order 24 issues. Id. 25 / / / / / 26 / / / / / [27] 1 These terms are explained in more detail in the court’s order on defendants’ motion to dismiss, 28 ECF No. 36. 1 II. LEGAL STANDARD 2 Under the Federal Rules of Civil Procedure, the scope of discovery must be [3] relevant to any party’s claim or defense and proportional to the 4 needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access 5 to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense 6 of the proposed discovery outweighs its likely benefit. 7 Fed. R. Civ. P. 26(b)(1). The parties have a duty to state in their discovery plan “whether 8 discovery should be conducted in phases or be limited to or focused on particular issues[.]” 9 Fed. R. Civ. P. 26(f)(3)(B). At all times, the court’s application of the rules in the administration 10 of discovery matters should be guided by the aspirational mandate of Rule 1,“to secure the just, 11 speedy, and inexpensive determination of every action and proceeding.” Fed. R. Civ. P. 1. 12 To that end, the district court has wide latitude in controlling discovery; its rulings 13 will not be overturned unless they are an abuse of discretion. State of Cal., on Behalf of Cal. 14 Dept. of Toxic Substances Control v. Campbell, 138 F.3d 772, 779 (9th Cir. 1998); Little v. City 15 of Seattle, 863 F.2d 681, 685 (9th Cir. 1988). The power to issue discovery orders is part of the 16 “power inherent in every court to control the disposition of causes on its docket with economy of 17 time and effort for itself, for counsel, and for litigants. How this can best be done calls for the 18 exercise of judgment, which must weigh competing interests and maintain an even balance.” 19 Landis v. N. Am. Co., 299 U.S. 248 , 254–55 (1936) (citations omitted). 20 Parties requesting bifurcation of discovery have the burden of proving the 21 bifurcation will promote judicial economy and avoid inconvenience or prejudice to the parties. 22 Matsushita Elec. Indus. Co., Ltd. v. CMC Magnetics Corp., No. C 06-04538 WHA, 2007 WL 23 219779, at *2 (N.D. Cal. Jan. 29, 2007) (citing Spectra-Physics Lasers, Inc. v. Uniphase Corp., [24] 144 F.R.D. 99, 101 (N.D. Cal. 1992)). A court must limit the extent of discovery if “the burden 25 or expense of the proposed discovery outweighs its likely benefit[.]” Fed. R. Civ. P. 26 26(b)(2)(C)(iii) (referencing Fed. R. Civ. P. 26(b)(1)). In so doing, the court “should consider the 27 totality of the circumstances, weighing the value of the material sought against the burden of [28] 1 providing it, and taking into account society’s interest in furthering the truth-seeking function in 2 the particular case before the court.” U.S. E.E.O.C. v. Caesars Ent., Inc., 237 F.R.D. 428 , 431–32 3 (D. Nev. 2006) (citations omitted). 4 III. DISCUSSION 5 It is axiomatic that claims must be timely under the applicable statute of 6 limitations for those claims to proceed. A plaintiff must bring a claim under the FHA within two 7 years of “the occurrence or termination of an alleged discriminatory housing practice.” 42 U.S.C. 8 § 3613(a)(1)(A). Where plaintiffs allege defendants engaged in a “continuing pattern, practice, 9 and policy” causing a series of discriminatory acts, the claim is timely if at least one of the acts 10 resulting from this “continuing violation” was within the limitations period. Havens Realty 11 Corp., 455 U.S. at 380–81. Plaintiffs “can meld untimely and timely acts into a single timely 12 claim only if, at a minimum, the timely acts injure the same FHA–protected rights as the untimely 13 acts.” Alpha III, Inc. v. City of San Diego, 187 F. App’x 709 , 710–11 (9th Cir. 2006). 14 Here, because the complaint alleges only four discriminatory loans originating 15 during the limitations period, Wells Fargo proposes a first phase of limited discovery to determine 16 whether the City can support the existence of these claims as anchoring its continuing violation 17 theory. After this first phase, Wells Fargo proposes a cutoff for dispositive motions addressed to 18 the limitations issue. The Wells Fargo defendants assert such an approach could lead to a “quick 19 and efficient end” to the suit as in similar suits where phasing has been granted. Mot. at 6. 20 The City alleges both disparate treatment and disparate impact discrimination 21 under the FHA. Compl. ¶ 8. To succeed on its disparate treatment claim, the City must establish 22 Wells Fargo had a discriminatory intent or motive. Ricci v. DeStefano, 557 U.S. 557, 577 (2009) 23 (citing Watson v. Fort Worth Bank & Trust, 487 U.S. 977 , 985–86 (1988)). By contrast, no 24 discriminatory motive is necessary to prove a disparate impact claim; the City must show Wells 25 Fargo’s facially neutral practices caused a significantly adverse or disproportionate impact on 26 persons of a particular class. Comm. Concerning Cmty. Improvement v. City of Modesto, [27] 583 F.3d 690, 711 (9th Cir. 2009). The disparate impact analysis is subject to a burden-shifting 28 test not relevant here. What is relevant is the disproportionately adverse impact, which is 1 generally proven by statistical analysis. See Texas Dept. of Housing and Cmty. Affairs v. 2 Inclusive Communities Proj., Inc., 576 U.S. 519 , 543 (2015) (“A plaintiff who fails to . . . produce 3 statistical evidence demonstrating a causal connection cannot make out a prima facie case of 4 disparate impact.”). 5 As a result, if the City ultimately must defend a motion for summary judgment on 6 its disparate impact claim with access to information about only the small proportion of the 7 underlying facts that would be allowed by Wells Fargo’s proposed phasing plan, the City may not 8 be able to muster sufficient evidence to show statistically significant causation. If the claim rests 9 on Wells Fargo’s conduct stretching back to 2004, the determination of whether there is such a 10 statistical connection should rely on evidence back to that time. Although the court could, and 11 likely should, defer ruling on a motion for summary judgment in such circumstances, it begs the 12 question why the court would put a litigant in that position in the first place. See Fed. R. Civ. P. 13 56(d) (authority for court to defer ruling on motion for summary judgment where opposing party 14 has had insufficient access to facts to oppose). 15 The case of City of Los Angeles v. Wells Fargo, No. 2:13-cv-09007-ODW(RZx), [16] 2015 WL 4398858 (C.D. Cal. July 17, 2015), is instructive on this issue. In that case, the City of 17 Los Angeles brought a “continuing violations” FHA claim and the parties stipulated to phased 18 discovery as proposed here. Id. at *2 . The evidence adduced at the limitations-phase motion for 19 summary judgment showed a small disparity between twelve high-cost loans issued to minority 20 borrowers and four issued to Caucasian borrowers in the limitations period, out of 4,260 loans 21 total. Id. at *7 . However, the City’s expert conceded “‘[b]ecause of the small number of owner22 occupied High-Cost Loans in the data … these disparities are not statistically significant.’” Id. 23 The court then granted summary judgment for failure to produce evidence of a “significantly 24 adverse” disparity. Id. at *7 (citing Budnick v. Town of Carefree, 518 F.3d 1109, 1118 (9th Cir. 25 2008)). The Ninth Circuit upheld the district court’s ruling on summary judgment, agreeing the 26 City had failed to make out a “robust” causal connection. City of Los Angeles v. Wells Fargo & 27 Co., 691 F. App’x 453, 454 (9th Cir. 2017). 28 / / / / / / 1 While nothing indicates the result in City of Los Angeles was driven solely by the 2 trial court’s decision to limit discovery to two years prior to the limitations period, this court 3 declines in its discretion to endorse a similar approach. The certainty of the result in that case, 4 was, in this court’s view, undermined by the City’s expert’s conclusion that the sample size was 5 too small to make the disparity between minority and white borrowers statistically significant. In 6 a claim predicated on statistical analysis, the reliability of any analytical conclusion, whether 7 showing a significant disparity or not, is dependent on the data on which it rests. 8 A disparate impact continuing violation claim is a single claim. To prove one, 9 plaintiffs must show a statistically significant disparate impact. As the city correctly points out, 10 showing a statistical disparity “requires a sufficiently large sample of loans” to avoid evaluating 11 the claim on “a statistically insignificant single or limited set of instances.” Opp’n at 6. An 12 analysis of the whole dataset is necessary to determine whether the loans originated during the 13 limitations period are a product of a policy causing a statistically significant disparity. To restrict 14 the City’s analysis over its objection now would be akin to asking the City to sketch an elephant 15 viewed through a keyhole, regardless of the elephant’s precise defining features. 16 Moreover, it is not clear a phasing order would save judicial resources. As another 17 district court noted in a different kind of case, “drawing the line between one discovery ‘phase’ 18 and another is necessarily imprecise, and invites additional discovery disputes.” CRS, LLC v. 19 Valve Corp., No. C08-0361, 2008 WL 11343649 , at *1 (W.D. Wash. Aug. 1, 2008) (denying 20 proposal to phase liability and damages discovery in patent case). This court is similarly 21 “reluctant to encourage the parties to expend resources arguing over whether the discovery one 22 party seeks belongs in one phase of discovery rather than another.” Id. Even in situations in 23 which phasing is common, such as class actions, line-drawing may remain a challenge, and it can 24 be most efficient to allow some overlap between certification and merits discovery. Cf. Luna v. 25 Universal City Studios, LLC¸ No. 12-9286, 2015 WL 13655668 , at *3 (C.D. Cal. Feb. 10, 2015) 26 (“[B]ecause certification issues often cannot be meaningfully developed without inquiry into 27 basic issues of the litigation, class certification discovery is closely enmeshed with merits 28 discovery.” (internal quotation marks and citation omitted)). 1 While phasing could dispose of the case expeditiously, it could just as easily 2 invite piecemeal and duplicative motion practice. See, e.g., Kennis v. Metropolitan West Asset 3 Mgmt., LLC, No. 15-8162, 2016 WL 11507034 (C.D. Cal. Sept. 8, 2016) (motion practice over 4 scope of first phase discovery in securities litigation); see also Kelly v. Provident Life & Acc. Ins. 5 Co., No. 04-807, 2011 WL 2448276 , at *3–4 (S.D. Cal. June 20, 2011) (dispute over whether 6 plaintiff waived right to take discovery in later phase by failing to take it in earlier phase). 7 Likewise, it is not difficult to foresee disputes over the proposed scope of any phase-one motion 8 for summary judgment. 9 At hearing, Wells Fargo argued if the court was inclined to allow discovery 10 beyond the limitations period, the court should allow a “look-back” akin to what is available in 11 Title VII continuing violations cases. Such Title VII continuing violations cases have often 12 settled on approximately five years prior to the beginning of the limitations period. See, e.g., 13 Miller v. Hygrade Food Prods., 89 F. Supp. 2d 643, 657 (E.D. Pa. 2000) (collecting cases). In 14 the alternative, Wells Fargo asserts the look-back should go no further than 2009, when it asserts 15 its lending practices changed in response to the 2008 financial crisis. As plaintiff’s counsel 16 pointed out at hearing, however, no evidence in the record at this time supports this bare 17 assertion. The court in Miller and similar cases engaged in the discovery balancing test of 18 weighing relevance against the burden of furnishing the information. Id. (“In setting time limits, 19 courts generally consider relevancy and the burdensomeness of furnishing the information 20 requested by the plaintiff.”) (citation omitted). Moreover, it remains Wells Fargo’s burden to 21 show that harm or prejudice will result from the discovery plaintiff seeks. Matsushita, 2007 WL 22 219779, at *2; cf. Rivera v. NIBCO, Inc., 364 F.3d 1057, 1063 (9th Cir. 2004) (citing Phillips ex 23 rel. Estates of Byrd v. Gen. Motors Corp., 307 F.3d 1206 , 1210–11 (9th Cir. 2002)) (moving 24 party has burden to demonstrate harm or prejudice from disclosure to obtain protective order). 25 Here, Wells Fargo offers only the unsubstantiated claim that its practices changed in 2009 as 26 support for limiting first-phase discovery to 2009 and later. This is not sufficient to meet Wells 27 Fargo’s burden. 28 / / / / / / 1 IV. CONCLUSION 2 For all the foregoing reasons, the court DENIES defendants’ motion to phase 3 discovery. The parties agreed to defer a scheduling conference until the resolution of this motion. 4 Joint Status Report, ECF No. 50 at 11. The court now ORDERS the parties to meet and confer to 5 file a new Joint Status Report with a proposed schedule on which the case may now proceed. The 6 parties shall file the Joint Statement no later than twenty-one (21) days after the filing of this 7 order. This order resolves ECF No. 52. 8 IT IS SO ORDERED 9 DATED: October 8, 2020.