Cleveland v. JP Morgan Chase Bank, N.A. , 2013 Ohio 1035 ( 2013 )

[Cite as Cleveland v. JP Morgan Chase Bank, N.A., 2013-Ohio-1035.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 98656
CITY OF CLEVELAND
PLAINTIFF-APPELLANT
vs.
JP MORGAN CHASE BANK, N.A.,
ET AL.
DEFENDANTS-APPELLEES
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-668608
BEFORE: Celebrezze, J., Boyle, P.J., and Keough, J.
RELEASED AND JOURNALIZED: March 21, 2013
ATTORNEYS FOR APPELLANT
Joshua R. Cohen
Cohen, Rosenthal & Kramer, L.L.P.
700 West St. Clair Avenue
Suite 400
Cleveland, Ohio 44113
Barbara A. Langhenry
Interim Director of Law
Gary S. Singletary
Assistant Director of Law
City of Cleveland
Department of Law
601 Lakeside Avenue
Room 106
Cleveland, Ohio 44114-1077
Andris G. Nikiforovs
Community Housing Solutions
12114 Larchmere Boulevard
Cleveland, Ohio 44120
Mark A. Stanton
Short, Shepherd & Stanton
1300 Rockefeller Building
614 Superior Avenue, N.W.
Cleveland, Ohio 44113
ATTORNEYS FOR APPELLEES
Michael N. Ungar
Isaac J. Eddington
Richik Sarkar
Isaac Schulz
Ulmer & Berne, L.L.P.
1100 Skylight Office Tower
1660 West 2nd Street
Cleveland, Ohio 44113-1448
FRANK D. CELEBREZZE, JR., J.:
{¶1} Appellant, the city of Cleveland (the “City”), brings this appeal challenging
the dismissal of its complaint, which sought damages from several financial institutions
involved in the creation of mortgage-backed securities using subprime mortgages from
Cleveland, Ohio, real estate. The trial court dismissed the City’s complaint pursuant to
Civ.R. 12(B)(6), finding that the complaint failed to state a claim and citing three reasons.
Here, the City challenges each of those reasons and argues that it has properly pled its
claims for relief. After a thorough review of the record and discordant case law, we
affirm the trial court’s determination.
I. Factual and Procedural History
{¶2} According to the City’s complaint, the Cleveland housing market remained
relatively flat at a time when the rest of the country experienced rapid price growth. The
City alleges that, in an effort to capitalize on this boom in the housing market, several
financial institutions — including appellees JP Morgan Chase Bank, N.A., Bank One,
N.A., and J.P. Morgan Chase Securities, Inc. (collectively “Chase”) — engaged in a
practice of encouraging subprime lending in order to package mortgages together and sell
them to investors in the form of mortgage-backed securities. The City alleges that these
financial institutions were not concerned about the quality of the mortgages backing these
securities because, as long as housing prices continued to rise, even bad loans would be
covered by assets realized in foreclosures.
{¶3} The City’s first complaint alleged that Cleveland was a market where these
types of lending and securitizing practices were inappropriate because Cleveland did not
experience a steady rise in housing prices. The City claims that the activities of the
financial institutions, including Chase, caused a foreclosure crisis in Cleveland that
damaged the City and created a public nuisance. The City asserts that Chase knew or
should have known the disastrous results these actions would have on Cleveland.
Specifically, the City alleges that it has incurred increased costs for fire and safety
services as a result of a glut of vacant and foreclosed homes; that the practices led to
greatly diminished housing prices, which resulted in huge losses in property taxes; and
other costs caused by a foreclosure crisis in Cleveland. The City also brought an Ohio
Corrupt Practices Act (“OCPA”) cause of action alleging that Chase systematically filed
false or misleading paperwork in foreclosure cases indicating that they were entitled to
initiate foreclosure actions when they were not.1
{¶4} The litigation initiated by the City spawned several cases with other financial
institutions removing suits to federal court. See, e.g., Cleveland v. Ameriquest Mtge.
Sec., Inc., 621 F.Supp.2d 513 (N.D.Ohio 2009). The appellees here are all non-diverse
for federal jurisdictional purposes and could not successfully seek removal. See 28
U.S.C. 1332.
The City also sought to be reimbursed for demolition costs from Residential Capital L.L.C.
1
and GMAC Mortgage Corp., in a third cause of action. This cause was later dismissed with
prejudice on July 10, 2012.
{¶5} The City filed an amended complaint incorporating allegations that Chase
failed to properly review or process loan paperwork prior to initiating foreclosure actions
— the so-called “robosigning” scandal. Chase then filed for dismissal premised on
Civ.R. 12(B)(6), citing the same successful arguments raised by other defendants in the
federal cases. See Ameriquest. The trial court allowed extensive briefing on Chase’s
motion to dismiss, and on November 23, 2011, granted the motion citing three reasons
also found by the federal district court for the Northern District of Ohio and affirmed by
the Sixth Circuit Court of Appeals. See Cleveland v. Ameriquest Mtge. Sec., Inc., 615
F.3d 496 (6th Cir.2010). Regarding the public nuisance claim, the trial court found: “(1)
the allegations are insufficient to demonstrate proximate cause, (2) the City’s public
nuisance claim is preempted by state law, and (3) the economic loss doctrine bars the
City’s claim.” The trial court also held that the OCPA count failed for lack of sufficient
proximate cause. The City then timely filed the instant appeal assigning two errors:
I. The trial court erred in dismissing the City of Cleveland’s claim for
public nuisance.
II. The trial court erred in dismissing the claim alleged by the City of
Cleveland under the Ohio Corrupt Activities Act.
II. Law and Argument
A. Standard of Review
{¶6} The trial court dismissed the City’s complaint pursuant to Civ.R. 12(B)(6).
A motion to dismiss for failure to state a claim on which relief can be granted is
procedural and tests the sufficiency of the complaint. State ex rel. Hanson v. Guernsey
Cty. Bd. of Commrs., 65 Ohio St.3d 545, 1992-Ohio-73, 605 N.E.2d 378. It is well
settled that “when a party files a motion to dismiss for failure to state a claim, all factual
allegations of the complaint must be taken as true and all reasonable inferences must be
drawn in favor of the nonmoving party.” Byrd v. Faber, 57 Ohio St.3d 56, 60, 565 N.E.2d
584 (1991).
{¶7} While the factual allegations of the complaint are taken as true,
“[u]nsupported conclusions of a complaint are not considered admitted * * * and are not
sufficient to withstand a motion to dismiss.” State ex rel. Hickman v. Capots, 45 Ohio
St.3d 324, 324, 544 N.E.2d 639 (1989). In light of these guidelines, for a court to grant a
motion to dismiss for failure to state a claim, it must appear “beyond doubt that the
plaintiff can prove no set of facts in support of his claim which would entitle him to
relief.” O’Brien v. Univ. Community Tenants Union, Inc., 42 Ohio St.2d 242, 245, 327
N.E.2d 753 (1975).
{¶8} Because factual allegations in the complaint are presumed true, only the legal
issues are presented, and an entry of dismissal on the pleadings will be reviewed de novo.
Rocky River v. Lakewood, 8th Dist. No. 90908, 2008-Ohio-6484, ¶ 6. A de novo
standard of review affords no deference to the trial court’s decision, and we
independently review the record. Gilchrist v. Gonsor, 8th Dist. No. 88609,
2007-Ohio-3903, ¶ 16.
B. Public Nuisance
{¶9} The City’s main claim was that Chase knowingly created a public nuisance
through its securitizing activities. The Restatement (Second) of Torts, adopted in Ohio
by Cincinnati v. Beretta U.S.A. Corp., 95 Ohio St.3d 416, 2002-Ohio-2480, 768 N.E.2d
1136, ¶ 8, defines a public nuisance as “an unreasonable interference with a right
common to the general public.” 4 Restatement of the Law 2d, Torts, Section 821B(1)
(1979). The Beretta court went on to define “unreasonable interference” as
those acts that significantly interfere with public health, safety, peace,
comfort, or convenience, conduct that is contrary to a statute, ordinance, or
regulation, or conduct that is of a continuing nature or one which has
produced a permanent or long-lasting effect upon the public right, an effect
of which the actor is aware or should be aware.
Beretta at ¶ 8, quoting 4 Restatement, Section 821B(2). At common law, this tort was
used to vindicate the interference of a general right the public held, often relating to land
use and brought by the state. Faulk Gray, Alchemy in the Courtroom? The
Transmutation of Public Nuisance Litigation, 2007 Mich.St.L.Rev. 941, 953-954 (2007).
Novel public nuisance causes of action have since been attempted against tobacco
companies, asbestos manufacturers, fire arms manufacturers, and environmental polluters
with varying degrees of success. Id. Recently, several plaintiffs have used this tool in
global warming suits. Id.{¶10} This tort is further broken down into two distinct types — absolute and
qualified public nuisance.
With an absolute nuisance, the wrongful act is either intentional or
unlawful, and strict liability attaches notwithstanding the absence of fault
because of the hazards involved (Metzger v. Pennsylvania, Ohio & Detroit
RR. Co., 146 Ohio St. 406, 66 N.E.2d 203 [(1946)], paragraph one of the
syllabus), whereas a qualified nuisance involves a lawful act “so negligently
or carelessly done as to create a potential and unreasonable risk of harm,
which in due course results in injury to another.” Id. at paragraph two of
the syllabus. A qualified nuisance hinges on proof of negligence. Id.Beretta at fn. 4. Because a qualified nuisance requires negligence, a party must show a
duty owed and a breach of that duty that proximately results in cognizable injury. Id. at ¶
18.
i. Proximate Cause
{¶11} The City claims it has adequately pled proximate cause because Ohio law
generally treats it as a question of fact and an inappropriate reason for dismissal at this
stage of the litigation. See Strother v. Hutchison, 67 Ohio St.2d 282, 288, 423 N.E.2d
467 (1981). As the City also points out, proximate cause requires “some reasonable
connection between the act or omission of the defendants and the damage the plaintiff
suffered.” Queen City Terminals v. Gen. Am. Transp. Corp., 73 Ohio St.3d 609, 618,
1995-Ohio-285, 653 N.E.2d 661. However, the tort of public nuisance only reaches so
far. Ohio remains a notice pleading state, 2 but the complaint must still advance a
rational basis for holding a defendant liable. Gallo v. Westfield Natl. Ins. Co., 8th Dist.
Civ.R. 8(A)(1) requires only “a short and plain statement of the claim showing that the party
2
is entitled to relief.”
No. 91893, 2009-Ohio-1094, ¶ 9, citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
Proof of a causal relationship between a defendant’s action and a plaintiff’s
injury is essential in every tort “because the consequences of an act go
endlessly forward in time and its causes stretch back to the dawn of human
history.” Laborers Local 17 Health & Benefit Fund v. Philip Morris, Inc.,
191 F.3d 229, 235 (2d Cir.1999). Thus, the concept of proximate cause
was developed to limit the liability of a wrongdoer to only those harms with
a reasonable connection to the wrongdoer’s actions.
Cook Cty. v. Philip Morris, Inc., 353 Ill.App.3d 55, 60, 817 N.E.2d 1039 (1st Dist.2004).
Where the injury is too remote or tenuous from the alleged breach, no cognizable claim
exists.
Remoteness is not an independent legal doctrine but is instead related to the
issues of proximate causation or standing. White [v. Smith & Wesson, 97 F.
Supp.2d 816,] 823 [(N.D. Ohio 2000)]; Boston v. Smith & Wesson Corp.,
2000 Mass. Super. LEXIS 352, 12 Mass.L.Rptr. 225, 2000 WL 1473568, at
* 4, fn. 20. Thus, a complaint will fail on remoteness grounds if the harm
alleged is the remote consequence of the defendant’s misconduct
(causation) or is wholly derivative of the harm suffered by a third party
(standing).
Beretta, 95 Ohio St.3d 416, at ¶ 35-36.
{¶12} Here, the City alleges that the creation of a federally-encouraged pool of
money to stimulate lending resulted in disastrous harm unique to Cleveland. The City
claims Chase encouraged others to issue subprime loans in order to securitize those loans
for profit. The City argues Chase knew or should have known that Cleveland was an
inappropriate market to engage in this sort of subprime securitization process because
Cleveland did not undergo robust growth in housing prices as experienced in other parts
of the country.
{¶13} However, there are several intervening factors necessary for the harm
suffered by the City to materialize. This leads to the conclusion that the City’s complaint
alleges an injury too remote to assert a justiciable claim.
{¶14} First, mortgage originators and brokers offered high-risk mortgage products
to individuals with questionable credit histories. According to the City’s complaint,
these originators usually charged more for these types of loans, meaning they had an
independent profit motive separate from any actions of the defendants. Next, potential
home buyers were required to apply for, receive, and then fail to repay these home loans.
The mortgage originators would seem to bear more responsibility than the banks
purchasing these loans and constituted an intervening break in the causal chain. The City
argues that Chase directed these originators to offer and acquire subprime loans.
However, as the Sixth Circuit pointed out, directness of injury “is distinct from
foreseeability and applies even if the Defendants intentionally caused the alleged course
of events.” Ameriquest, 615 F.3d 496, 502-503. Further, the directness factors cited by
the Beretta court indicate the rationale for precluding the City’s suit:
(1) indirectness adds to the difficulty in determining which of the plaintiff’s
damages can be attributed to the defendant’s misconduct, (2) recognizing
the claims of the indirectly injured would complicate the apportionment of
damages among plaintiffs to avoid multiple recoveries, and (3) these
complications are unwarranted given the availability of other parties who
are directly injured and who can remedy the harm without these associated
problems.
Beretta, 95 Ohio St.3d 416, at ¶ 37, citing Holmes v. Securities Investor Protection Corp.,
503 U.S. 258, 269-270, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992).
{¶15} The trial court here found these intervening factors meant that the causal
connection between the City’s suffered injury and Chase’s actions were not the traceable
cause under the “direct relation” test set forth in Holmes and adopted in Beretta. The
Beretta court stated that “there must be some direct relation between the injury asserted
and the injurious conduct alleged.” Id. at ¶ 37. The trial court properly applied the
Holmes factors to the present case and arrived at a reasoned conclusion. We agree with
the trial court.
{¶16} The first factor recognized by the Beretta court, difficulty of proof, lands
in favor of dismissal. In this case, some of the damages being asserted, namely increased
police, fire, and property maintenance expenses, are the City’s alone, but those damages
are difficult to calculate. The City claims they are no different than the damages the
Beretta court found sufficiently pled. However, here, there is no way to separate those
damages suffered from Chase’s actions and those suffered as a result of other
foreclosures that would have taken place regardless of those actions. Further, the
reduction in property values and the subsequent loss of tax revenue are more acutely
suffered by those who lost homes through foreclosure and those living in
foreclosure-ravaged neighborhoods. A loss in tax revenue from decreasing property
values is a derivative injury to that suffered by property owners. This implicates the third
factor, “‘the general interest in deterring injurious conduct’ will be better served by
requiring that suit be brought by more directly injured victims.” Beretta at ¶ 42, quoting
Holmes at 269.
{¶17} Similarly, the Rhode Island Supreme Court rejected a jury verdict holding
paint manufacturers liable for lead contamination caused by the sale of lead-based paints.
Rhode Island v. Lead Indus. Assn., Inc., 951 A.2d 428, 2008 R.I. LEXIS 79 (July 1,
2008). That court found the extension of traditional product liability issues to public
nuisance causes of action inappropriate where several intervening factors created a
nuisance for contaminated Rhode Island houses and buildings.
{¶18} The City argues that the trial court erred in applying the “direct relation” test
set forth in Holmes and adopted in Beretta and that this test only applies in RICO causes
because that was the issue in Holmes.3 However, as recognized by the U.S. Supreme
Court, the proximate cause standard applied in federal RICO cases is the common law
proximate cause test. Associated Gen. Contrs. v. Cal. State Council of Carpenters, 459
U.S. 519, 531, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983); Holmes, 503 U.S. at 268-269.
Therefore, this is also true under traditional common law notions of proximate cause.
Herakovic v. Catholic Diocese, 8th Dist. No. 85467, 2005-Ohio-5985, ¶ 31. This is also
the reason that the City’s OCPA claim fails. The same proximate cause requirements
and resultant deficiencies apply to both causes of action.
{¶19} For support, the City points to Beretta and the Ohio Supreme Court’s
holding that claims such as the City’s should survive judgment on the pleadings because
Cincinnati’s claims were held to be well-pled against gun manufacturers. However,
Holmes dealt with Racketeer Influenced and Corrupt Organizations Act (“RICO”)
3
violations, and the OCPA was modeled on the federal RICO statutes. Schlenker Ents., L.P. v. Reese,
3d Dist. Nos. 2-10-16 and 2-10-19, 2010-Ohio-5308, ¶ 31.
Beretta has key differences. Cincinnati’s claim in Beretta was that firearm
manufacturers created or supplied a black market for the illegal sale and distribution of
firearms. It was alleged that, through the direct action of the gun manufacturers, such a
market existed. Here, the role of the manufacturers is played by mortgage originators
and lenders who created the mortgages that would eventually poison Cleveland’s housing
market. The securitizing institutions, such as Chase, are at least one step removed from
this process. Chase provided money to these lending institutions by purchasing or
securitizing these mortgages, but it did not create the cocktail of factors that led to a glut
of foreclosed homes poisoning the Cleveland housing market.
{¶20} While Holmes dealt with standing, and the argument here goes more to
remoteness of injury, the result is the same in that the City has not provided plausible
arguments in its complaint sufficient to justify holding Chase accountable where so many
other factors led to the City’s claimed injury.
ii. Preemption by State Law
{¶21} The trial court also found that the City’s public nuisance claim was
preempted by state law, which prohibits municipalities from regulating lending. The City
argues that it is acting in its proprietary capacity to redress harms it has suffered
individually and that its suit does not constitute an attempt at regulating lending.
{¶22} A nuisance action is not a substitute for regulation and may not supplant
existing regulations for undesirable activity. The mortgage industry is heavily regulated
by state and federal bodies. However, such extensive regulation does not automatically
bar a public nuisance claim. See Beretta. Existing regulations in the sphere of alleged
nuisance is a factor that should be examined to determine if a claim may be brought. In
some instances, regulations may be so encompassing as to preclude a public nuisance
action, but the regulatory scheme must be examined to determine its breadth. The
existence of regulation should not, itself, preclude such a cause of action. This will often
require more evidentiary development than available when ruling on a motion to dismiss.
{¶23} In the present case, R.C. 1.63 provides that
[t]he state solely shall regulate the business of originating, granting,
servicing, and collecting loans and other forms of credit in the state and the
manner in which any such business is conducted, and this regulation shall
be in lieu of all other regulation of such activities by any municipal
corporation or other political subdivision.
{¶24} Therefore, if the City’s action constitutes some form of regulation, then its
suit may be precluded by R.C. 1.63 and the Ohio Supreme Court’s decision in Am. Fin.
Servs. Assn. v. Cleveland, 112 Ohio St.3d 170, 2006-Ohio-6043, 858 N.E.2d 776. In that
case, the court determined that the City’s attempt to regulate subprime lending was
preempted by the “statewide-concern doctrine.”4 The U.S. Supreme Court has also held
that the controlling effect of a money judgment stemming from common-law suits may
constitute regulation in the federal preemption context. Riegel v. Medtronic, Inc., 552
U.S. 312, 324-325, 128 S.Ct. 999, 169 L.Ed.2d 892 (2008). Further, the Court
This doctrine provides that “‘“a municipality may not, in the regulation of local matters,
4
infringe on matters of general and statewide concern.”’” Id. at ¶ 28, quoting Reading v. Pub. Util.
Comm., 109 Ohio St.3d 193, 2006-Ohio-2181,846 N.E.2d 840 ¶ 33, quoting State ex rel. Evans v.
Moore, 69 Ohio St.2d 88, 89-90, 431 N.E.2d 311 (1982).
has recognized that the judicial process can be viewed as the extension of a
government’s regulatory power. As the court explained, “state power may
be exercised as much by a jury’s application of a state rule of law in a civil
lawsuit,” as by regulation or ordinance.
Philadelphia v. Beretta U.S.A., 126 F. Supp.2d 882, 889 (E.D.Pa.2000), quoting BMW of
N. Am. v. Gore, 517 U.S. 559, 572, 116 S.Ct. 1589, 134 L.Ed.2d 809, (1996), fn. 17.
{¶25} Chase successfully argued that the City’s suit constitutes an attempt to
regulate lending activities through the county courts rather than city council. The City
argues for a plain reading of the meaning of the term “regulation” and claims that a
lawsuit initiated by a municipal government in its proprietary capacity does not constitute
regulation. Further, the City argues that the activity alleged, securitization of home
mortgages, is not included in R.C. 1.63.
{¶26} The City is partially correct. The purchase, on the secondary market, of
mortgages to package into securities is not evident in a plain reading of R.C. 1.63 when
viewing the complaint in the City’s favor. However, because the holding above
regarding proximate cause is dispositive, it is of no moment. Even if the trial court erred
in finding that the suit was preempted, the suit still fails to survive.
iii. Economic Loss Rule
{¶27} The City has alleged purely economic damages. Economic losses “are
intangible losses that do not arise from tangible physical harm to persons or property.”
RWP, Inc. v. Fabrizi Trucking & Paving Co., 8th Dist. No. 87382, 2006-Ohio-5014, ¶ 20,
citing Columbia Gas of Ohio v. Crestline Paving & Excavating Co., 6th Dist. No.
L-02-1093, 2003-Ohio-793; Floor Craft Floor Covering, Inc. v. Parma Comm. Gen.
Hosp., 54 Ohio St.3d 1, 3, 560 N.E.2d 206 (1990), citing Keeton, Prosser and Keeton on
Torts, Section 92, at 657 (5th Ed.1984). Because the damages sought were purely
economic in nature, the trial court found that the public nuisance claim was barred by the
economic loss rule.
Under the doctrine of “economic loss,” a party cannot recover purely
economic damages in a tort action against another party based upon the
breach of contractually created duties. Corporex Dev. & Constr. Mgt., Inc.
v. Shook, Inc., 106 Ohio St.3d 412, 2005-Ohio-5409, 835 N.E.2d 701,
syllabus. The reasoning behind the economic loss doctrine is that tort law is
not intended to compensate parties for monetary losses suffered as a result
of duties that are owed to them simply as a result of the contract. Floor
Craft Floor Covering, Inc. v. Parma Community Gen. Hosp. Assn. (1990),
54 Ohio St.3d 1, 7, 560 N.E.2d 206. This is because of the sense that if the
tort law was “allowed to progress too far, contract law would drown in a sea
of tort.” E. River S.S. Corp. v. Transamerica Delaval, Inc. (1986), 476 U.S.
858, 106 S.Ct. 2295, 90 L.Ed.2d 865, citing G. Gilmore (1974), The Death
of Contract 87-94.
Digiknow, Inc. v. PKXL Cards, Inc., 8th Dist. No. 96034, 2011-Ohio-3592, ¶ 2.
{¶28} The doctrine does not present a strong case for application to the City’s suit
where the duty alleged to have been breached is not related to a contractual relationship
and the City has alleged particularized damages associated with decreased tax revenue
and increased costs of safety services. However, a previous decision of this court clearly
indicates the economic loss rule applies to qualified public nuisance claims. Fabrizi at ¶
24-26. Therefore, the City’s speculative economic damages are insufficient to state a
claim for relief in this case.
C. The Ohio Corrupt Practices Act
{¶29} The City also argues that it suffered damages as a result of Chase’s actions
in prosecuting foreclosures where they did not have proper records under the City’s
OCPA claim. The trial court did not err in dismissing this claim because the City’s
injuries are derivative of the injuries suffered by the individuals whose properties were
foreclosed upon.
{¶30} The City asserted a violation of Ohio’s Corrupt Practices Act, R.C.
2923.32(A)(2). The City alleges that Chase obtained an interest in real property, in
violation of R.C. 2923.32(A)(2), by systematically submitting false or misleading
paperwork to courts in foreclosure actions, in violation of R.C. 2921.12(A)(2). R.C.
2923.31(I)(2)(a). The OCPA is modeled on the federal RICO Act, 18 U.S.C. 1961, and
its body of federal law is instructive. Schlenker Ents., L.P. v. Reese, 3d Dist. Nos.
2-10-16 and 2-10-19, 2010-Ohio-5308, ¶ 31.
{¶31} As alluded to above, this cause of action in the City’s amended complaint
does not state a valid claim because it fails to conform its allegations to traditional notions
of proximate cause. However, it also alleges an injury derivative of the injury inflicted
on others.
{¶32} The City’s OCPA claim is premised on Chase engaging in a pattern of
submitting improper, misleading, or fraudulent paperwork in foreclosure actions. In fact,
the City alleges that JP Morgan Chase had questionable title in 41 percent of the
foreclosure actions filed in the Cuyahoga County Common Pleas Court between 2002 and
2007.
{¶33} However, the damages suffered from these questionable foreclosures were
suffered by the individual mortgagors, not the City. The City cannot allege that these
foreclosure actions would not have taken place. In fact, those cases where it was found
that a plaintiff did not properly have an interest in the note and mortgage at the time a
foreclosure action was initiated were dismissed without prejudice in order to give the
plaintiff an opportunity to clear up the ownership issue and refile the foreclosure
complaint. See, e.g., Wells Fargo Bank, N.A. v. Jordan, 8th Dist. No. 91675,
2009-Ohio-1092.
{¶34} While the City alleges that it suffered individual specialized damages from
each foreclosure, as set forth in its public nuisance claim, the same cannot be said of this
claim. The City does not allege that each such foreclosure would not have occurred.
Any injury inflicted on the City would have occurred whether the City’s allegations were
true or not because the mortgagors were in default. The foreclosure process would only
be delayed, not extinguished. Therefore, the injury inflicted by these actions would
befall the mortgagors, not the City. In fact, several large banks have recently entered
into a settlement with the U.S. government specifically addressing these allegations and
have agreed to compensate mortgagors where foreclosure actions were improperly
initiated or maintained. Associated Press Business Staff, 10 Banks Agree to Pay $8.5
Billion for Foreclosure Abuse, Cleveland Plain Dealer (Jan. 7, 2013).5 JP Morgan Chase
was a party to this settlement. Id.Available at http://www.cleveland.com/business/index.ssf/2013/01/10_banks_
5
{¶35} This multiplicity of suit and liability demonstrates why the City could not
recover under its OCPA claim. “‘“[T]he general tendency of the law, in regard to
damages at least, is not to go beyond the first step.”’” Holmes, 503 U.S. 258, 271-272,
quoting Associated Gen. Contrs. of Cal., Inc. v. Carpenters, 459 U.S. 519, 534, 103 S.Ct.
897, 74 L.Ed.2d 723 (1983), quoting S. Pacific Co. v. Darnell-Taenzer Lumber Co., 245
U.S. 531, 533, 38 S.Ct. 186, 61 L.Ed.2d 451 (1918).
{¶36} While the causal connection between the City’s injury and the lending and
securitization activities in its public nuisance claim are less remote and may not be
derivative, the injuries suffered as a result of a pattern of initiating and maintaining
foreclosure actions based on false or misleading paperwork are. The City’s injury of
reduced property value as a result of these improper foreclosure actions is tentative at best
because the foreclosure actions would have been filed anyway given that mortgagors
were in default. These actions have caused no damages to the City individually that would
not have befallen it without any impropriety.
agree_to_pay_85_billi.html (accessed Jan. 14, 2013).
III. Conclusion
{¶37} The City’s attempt to address severe economic conditions it alleges were
created by Chase is novel and laudable, but it ultimately fails to state a valid claim. The
causal connection between the securitizing institutions and the foreclosure crisis is too far
removed under traditional notions of proximate cause. Even under the most lenient of
pleading requirements for public nuisance claims, as set forth in Beretta, the City’s
amended complaint fails to state a valid claim under public nuisance or the OCPA.
Therefore, the decision of the trial court dismissing the City’s amended complaint is
affirmed.
{¶38} Judgment affirmed.
It is ordered that appellees recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into
execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
FRANK D. CELEBREZZE, JR., JUDGE
MARY J. BOYLE, P.J., and
KATHLEEN ANN KEOUGH, J., CONCUR