United States v. Wells Fargo Bank, N.A. , 891 F. Supp. 2d 143 ( 2012 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
Plaintiff,
v. Civil No. 12-1150 (JDB)
WELLS FARGO BANK, NA,
Defendant.
MEMORANDUM OPINION & ORDER
Plaintiff United States of America and Defendant Wells Fargo Bank, NA (“Wells Fargo”)
request that the Court enter a consent order to resolve the United States’ civil action brought to
enforce the Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691-1691f, and the Fair
Housing Act (FHA), 42 U.S.C. §§ 3601-3619 [Docket Entry 2]. For the reasons set forth below,
the Court will grant the joint motion.
BACKGROUND
On July 12, 2012, the United States filed a complaint against Wells Fargo, alleging that it
discriminated against more than 34,000 African American and Hispanic borrowers in its
residential mortgage lending operation. Compl. ¶ 1 [Docket Entry 1]. The complaint alleges that
some African American and Hispanic borrowers received subprime, rather than prime, loans and
that some paid higher fees and costs because of their race or national origin. Compl. ¶¶ 2, 3, 23,
51. It further alleges that Wells Fargo’s policies in effect between 2004 and 2009 allowed
employees to make decisions about the type of loan product offered and the loan price in a
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manner disconnected from objective criteria like credit risk, that these policies set up financial
incentives for employees and mortgage brokers to impose unfavorable terms, and that the
policies lacked safeguards to prevent and remedy racial and ethnic disparities. Compl. ¶¶ 5, 27-
29, 76.
Also on July 12, 2012, the parties filed with the Court a proposed consent order. In
agreeing to the consent order, Wells Fargo does not admit any of the allegations in the complaint.
Rather, in recognition of the risks inherent to litigation, both sides agree to a set of terms while
maintaining that each would have prevailed in litigation. Briefly, Wells Fargo will pay at least
$125 million to compensate borrowers who were allegedly aggrieved. Consent Order ¶ 17. Wells
Fargo also agrees to expend $50 million to provide down-payment assistance to low-income
borrowers in metro areas hardest hit by the subprime loan foreclosure crisis. Consent Order ¶ 30.
Under the consent order, Wells Fargo will maintain its policies (implemented after the events
alleged in the complaint) that disconnect compensation from a loan’s terms and conditions.
Consent Order ¶¶ 4-11. The consent order also has various provisions to assure compliance,
including regular reporting requirements. Consent Order ¶¶ 10-11, 38-40. 1
STANDARD OF REVIEW
“[P]rior to approving a consent decree a court must satisfy itself of the settlement’s
overall fairness to beneficiaries and consistency with the public interest.” Citizens for a Better
Env’t v. Gorsuch, 718 F.2d 1117, 1126 (D.C. Cir. 1983) (internal quotation marks omitted). The
Court’s function is not to “inquire into the precise legal rights of the parties nor reach and resolve
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In a telephone conference with the parties on July 27, 2012, the Court requested further justification for entering
the consent order, which the parties provided on August 10, 2012. On August 23, 2012, the parties asked for a brief
delay in the Court’s ruling while they resolved a technical issue with the proposed agreement. On September 4,
2012, they advised the Court that the issue was resolved and consideration of the consent order could proceed.
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the merits of the claims or controversy,” but “only [to] determine that the settlement is fair,
adequate, reasonable and appropriate under the particular facts and that there has been valid
consent by the concerned parties.” Id. (internal quotation marks omitted); see also United States
v. District of Columbia, 933 F. Supp. 42, 46-47 (D.D.C. 1996).
Approving a consent decree “is a judicial act,” and the Court undertakes it with care. See
United States v. Microsoft Corp., 56 F.3d 1448, 1462 (D.C. Cir. 1995). But, short of a decree
that “make[s] a mockery of judicial power,” the Court should accept an agreement between the
parties. Id. As this circuit has recognized, “voluntary settlement of civil controversies is in high
judicial favor.” Citizens for a Better Env’t, 718 F.2d at 1126 (alteration and internal quotation
marks omitted); see also id. at 1127 n.11 (“It would be especially unfortunate if a lack of judicial
restraint stifled the evolution of less adversarial approaches to developing regulations.”).
ANALYSIS
Against this backdrop, the Court reviews whether the agreement was validly consented to
and is fair, reasonable, and consistent with the public interest.
Consent: Both parties represent that the settlement is a product of good-faith, arms-
length negotiation. Supplemental Br. in Supp. of Joint Mot. (Aug. 10, 2012) [Docket Entry 7] at
2 (“Supp. Br.”). The content of the consent order supports this representation, for it provides
benefits to both sides and carefully limits and defines the agreement’s requirements, reflecting
extensive negotiation. Finally, the parties’ status—Wells Fargo is a private, sophisticated,
counseled litigant, and the plaintiff is the United States government itself—strongly supports a
finding of valid consent.
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Fairness: Valid consent that resulted from good faith bargaining itself indicates that the
agreement is procedurally fair. Moreover, the possibility of a conflict of interest is particularly
low in this suit: unlike a class action settlement where the possibility of collusion between the
defendant and class counsel demands significant judicial scrutiny, a suit brought by the United
States under the ECOA and FHA does not pose such potential conflicts of interest. See United
States v. City of Miami, 614 F.2d 1322, 1332 n.18 (5th Cir. 1980).
Next, the Court finds the agreement substantively fair. Both parties “believe that they
would have prevailed at trial,” but “both acknowledge the significant risk inherent in engaging in
further litigation.” Supp. Br. at 2. The agreement reflects a compromise that addresses many of
the United States’ concerns and does so through terms Wells Fargo finds acceptable. The Court
notes that Wells Fargo’s denial of the allegations in the complaint poses no barrier to approving
the consent order. See Microsoft Corp., 56 F.3d at 1461 (“criticism of Microsoft for declining to
admit that the practices charged in the complaint actually violated the antitrust laws was . . .
unjustified”); see also SEC v. Citigroup Global Mkts. Inc., 673 F.3d 158, 165 (2d Cir. 2012) (per
curiam) (“Finally, we question the district court’s apparent view that the public interest is
disserved by an agency settlement that does not require the defendant's admission of liability.
Requiring such an admission would in most cases undermine any chance for compromise.”).
Reasonableness: In examining the remedies the parties consent to, it is
inappropriate for the judge to measure the remedies in the decree as if they were
fashioned after trial. Remedies which appear less than vigorous may well reflect an
underlying weakness in the government’s case, and for the district judge to assume that
the allegations in the complaint have been formally made out is quite unwarranted.
Microsoft Corp., 56 F.3d at 1461. This agreement is eminently reasonable, and easily survives
the limited scrutiny appropriate for the Court to undertake.
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The consent order is carefully tailored to ending the policies and practices that allegedly
led to discrimination, and to assuring that no discrimination occurs in the future. It details
specific policies that address the allegations the United States made in its complaint and provides
for extensive review and reporting to assure any future problems are promptly discovered and
averted.
In addition to its prospective reach, the consent order has a significant compensatory
component, with Wells Fargo agreeing to pay at least $125 million to compensate allegedly
aggrieved borrowers. The United States has identified thousands of individuals who will be
eligible to receive up to $140,000 of compensation, and, if they choose to participate, will
receive these payments much sooner than they would have had the case gone to trial. Wells
Fargo will also expend an additional $50 million to provide down-payment assistance to low-
income borrowers, a program the parties expect to benefit at least 3,000 families. The agreement
thus offers a significant benefit to the United States. At the same time, it is fair to Wells Fargo:
despite denying that any compensation is warranted, Wells Fargo finds the requirement that it
make these payments fair because it “adequately reflects its litigation risk,” Supp. Br. at 8. The
Court trusts this well-counseled assessment of the agreement’s fairness towards Wells Fargo.
Public Interest: Finally, the Court must ensure that the agreement is “consisten[t] with
the public interest,” Citizens for a Better Env’t, 718 F.2d at 1126 (internal quotation marks
omitted); in other words, that the agreement is “not unlawful, unreasonable, or against public
policy,” District of Columbia, 933 F. Supp. at 47.
Entry of this consent order will not automatically affect the rights of third parties. Rather,
those borrowers the United States identifies as allegedly aggrieved persons have the option of
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signing a release in exchange for receiving payments from the settlement fund. Those who
decline to do so will be in precisely the same position as they are at present. Nor does the
agreement harm public interest more generally, say by permitting certain discriminatory
practices in violation of the ECOA or the FHA. On the contrary, the consent order focuses
heavily on eradicating the possibility of discrimination in the future. The agreement hence does
not harm the public interest in any way. The Court must give the government “rather broad
discretion to settle with the defendant within the reaches of the public interest,” Microsoft Corp.,
56 F.3d at 1461, and this agreement falls squarely within the range of permissible discretion.
CONCLUSION
The Court finds that both parties validly consented to the agreement, and it is fair,
reasonable, and consistent with the public interest.
For the reasons stated above, it is hereby
ORDERED that [2] the joint motion for entry of consent order is GRANTED; and it is
further
ORDERED that [2-1] the consent order is ENTERED.
SO ORDERED.
/s/
JOHN D. BATES
United States District Judge
Dated: September 20, 2012
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