* Plaintiffs were black homeowners in Detroit
* Say Morgan Stanley helped keep subprime lender in business
* Judge: Plaintiffs “adequately pled injury”
By Bernard Vaughan
NEW YORK, July 25 (Reuters) – A federal judge on Thursday
approved a lawsuit accusing Morgan Stanley of
discrimination for encouraging a subprime mortgage lender to
target black homeowners in Detroit.
In the ruling, U.S. District Judge Harold Baer in New York
made a connection between predatory lending in the run-up to the
financial crisis in 2008 and Detroit’s bankruptcy petition last
week.
“Detroit’s recent bankruptcy filing only emphasizes the
broader consequences of predatory lending and the foreclosures
that inevitably result,” Baer wrote in a 13-page opinion. “It is
not difficult to conclude that Detroit’s current predicament, at
least in part, is an outgrowth of the predatory lending at issue
here.”
The plaintiffs include five black homeowners in Detroit who
accuse the bank of discrimination for giving New Century
Mortgage Company incentives to issue loans, including loans with
balloon payments, that were likely to fail.
The bank did this by routinely purchasing loans unlikely to
be repaid and packaging them in securities that were then sold,
providing funding that helped New Century stay in business until
it filed for bankruptcy in 2007, according to the plaintiffs.
“These high-risk loans as opposed to better loans or even no
loan at all caused Plaintiffs a concrete injury,” Baer wrote in
his ruling on Thursday. “Thus, Plaintiffs have adequately pled
injury in fact.”
The ruling allowed the plaintiffs to move ahead with their
claims under the Fair Housing Act.
However, Baer dismissed claims they had brought under the
Equal Credit Opportunity Act and Michigan’s Elliot-Larsen Civil
Rights Act.
The plaintiffs brought the proposed class-action lawsuit
with assistance from the American Civil Liberties Union in
October 2012.
Laurence Schwartztol, a staff attorney in the ACLU’s racial
justice program, said Thursday that he was pleased with the
decision.
“The decision today vindicates our clients’ ability to
pursue their civil rights claims,” Schwartztol told Reuters.
“What the decision today does is affirm a crucial principle,
which is that when a Wall Street investment bank like Morgan
Stanley uses policies that have a discriminatory effect, the
people who are harmed by that discrimination will have a
meaningful way to assert rights under the federal
anti-discrimination laws.”
Wesley McDade, a spokesman for Morgan Stanley, declined to
comment.
The case is Adkins et al v. Morgan Stanley et al, U.S.
District Court, Southern District of New York, No. 12-cv-07667.
