Change Lending LLC v. Federal Home Loan Bank of San Francisco

Background

Change Lending LLC, formerly known as Commerce Home Mortgage, LLC, alleged that it sought membership in the Federal Home Loan Bank of San Francisco (FHLB-SF). FHLB-SF initially approved Change’s application in December 2018, later rescinded that approval in September 2019 based on the bank’s determination that Change had not met an operating-liquidity requirement, and denied Change’s second application in May 2020. The Federal Housing Finance Agency (FHFA) denied Change’s administrative appeal. Change later submitted a third application, which FHLB-SF had not decided when Change filed its Third Amended Complaint.

FHLB-SF Motion

The First Count alleged fraud based on statements that Change would receive access to FHLB-SF credit facilities. The court held that Change had not pleaded facts sufficient to show that FHLB-SF’s statements were false when made or to support the required fraudulent intent. The allegations also did not meet Federal Rule of Civil Procedure 9(b), which requires fraud to be pleaded with particularity. The court therefore dismissed the First Count.

The Second Count alleged fraudulent business practices under California Business and Professions Code § 17200. The court dismissed that count for the same reasons: Change had not adequately pleaded a required element of fraud and had not complied with Rule 9(b).

The Fourth Count sought a declaration that FHLB-SF violated the Federal Home Loan Bank Act and its regulations when it rescinded Change’s membership. The Fifth Count sought a declaration that FHLB-SF violated a regulation by failing to decide Change’s third application. The court concluded that the Federal Home Loan Bank Act does not provide a private right of action and that the Declaratory Judgment Act cannot create a cause of action where the underlying statute provides none. The court dismissed both counts.

FHFA Defendants’ Motion

The Third Count alleged that FHFA violated the Administrative Procedure Act (APA) by authorizing FHLB-SF to rescind Change’s membership. The court found that Change had standing because it clarified that it sought to return to the status quo before the rescission, after which the defendants could take appropriate action, including possibly terminating the membership. The court also concluded that Change was not required to submit a complaint to FHFA’s Office of the Ombudsman before filing suit, and that the rescission was a final agency action because it ended FHFA’s consideration of Change’s initial application and caused the loss of Change’s membership rights.

The court declined to decide at the pleading stage whether FHFA’s actions violated the APA. It identified unresolved questions about whether FHFA could retroactively apply a new regulatory interpretation to an existing member and whether Change was entitled to an opportunity to address its alleged failure to meet the operating-liquidity requirement. The court therefore denied dismissal of the Third Count.

The Sixth Count also challenged FHFA’s authorization of FHLB-SF’s conduct under the APA. For the reasons given for the Third Count, the court denied dismissal of the Sixth Count.

The Seventh Count alleged that the Director violated the APA by failing to stop FHLB-SF from subjecting Change to allegedly racially motivated and unprecedented scrutiny. The court applied the presumption that an agency’s refusal to take enforcement action is not subject to judicial review unless the governing statute provides guidelines for the agency to follow. Because Change had not shown that the cited statute supplied such guidelines, the court dismissed the Seventh Count.

The Eighth Count alleged that the FHFA Defendants violated the APA by allowing FHLB-SF to act unlawfully and with racial animus. The court treated this as another challenge to an alleged failure to take enforcement action and dismissed the count for the same reasons as the Seventh Count.

Disposition

The court granted FHLB-SF’s motion to dismiss. The First, Second, Fourth, and Fifth Counts were dismissed without further leave to amend. The court granted in part and denied in part the FHFA Defendants’ motion to dismiss: it granted the motion as to the Seventh and Eighth Counts, which were dismissed without further leave to amend, and denied the motion as to the Third and Sixth Counts.