On October 15, 2012, five black Detroit residents and Michigan Legal Services filed this class-action lawsuit in the U.S. District Court for the Southern District of New York against Morgan Stanley under the Fair Housing Act (FHA), 42 U.S.C. §§ 3601 et seq., the Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 1691, and state law.
The plaintiffs, represented by the ACLU, the National Consumer Law Center, and private counsel, asked the court
for injunctive relief, declaratory relief, damages, and disgorgement, claiming that Morgan Stanley discriminated against black homeowners in the secondary mortgage market. Specifically, the plaintiffs alleged that Morgan Stanley encouraged originating subprime lender New Century to issue large volumes of high-cost and high-risk residential mortgage loans. Morgan Stanley then packaged these loans for investors through securitization. Morgan Stanley's aggressive development of these loan pools, the suit alleged, disparately impacted African American borrowers, who were more likely to receive these harmful loans than white borrowers because New Century targeted communities of color.
In December 2012, Morgan Stanley filed a motion to dismiss, which the District Court (Judge Harold Baer) granted in part and denied in part
on July 25, 2013. The District Court dismissed the plaintiffs' ECOA and state law claims as untimely. However, the court allowed the plaintiffs' FHA claim to proceed, reasoning that the statute of limitations did not begin to run until the plaintiffs first consulted with attorneys in 2012, rather than when New Century stopped originating loans in 2007. The court also found that the plaintiffs had successfully alleged a disparate impact discrimination claim under the FHA. Morgan Stanley sought immediate review of this decision by the Second Circuit, but the District Court denied their motion to certify for immediate appeal.
On June 10, 2014, this case was reassigned to Judge Valerie E. Caproni, following the death of Judge Harold Baer.
On May 14, 2015, the District Court (Judge Caproni) denied
the plaintiffs' motion for certification of a class of all African Americans residing in Detroit between 2004 and 2007 who received a loan from New Century. In a 50-page opinion, the court deemed the class to be unworkable, concluding that there existed too much variation within the proposed class.
As of June 29, 2015, the case is ongoing. Robert Lake - 06/29/2015