RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 10a0222p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
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CITY OF CLEVELAND,
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Plaintiff-Appellant,
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v.
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No. 09-3608
,
AMERIQUEST MORTGAGE SECURITIES, INC.; >
BEAR STEARNS & CO., INC.; CITIGROUP -
-
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GLOBAL MARKETS, INC.; COUNTRYWIDE
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SECURITIES CORPORATION; CREDIT SUISSE
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FIRST BOSTON LLC; CREDIT SUISSE (USA),
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INC.; GOLDMAN SACHS & CO.; DEUTSCHE BANK
SECURITIES, INC.; GREENWICH CAPITAL -
-
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MARKETS, INC.; GMAC-RFC; HSBC
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SECURITIES (USA), INC.; JP MORGAN
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ACQUISITION CORP.; MERRILL LYNCH, PIERCE,
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FENNER & SMITH, INCORPORATED; MORGAN
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STANLEY & CO., INC.; NOVASTAR MORTGAGE,
INC.; OPTION ONE MORTGAGE CORPORATION; -
-
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WASHINGTON MUTUAL BANK; WELLS FARGO
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BANK, N.A.; WELLS FARGO ASSET SECURITIES
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CORPORATION; CITIBANK, N.A.; CHASE BANK
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USA, N.A.; BANK OF AMERICA, N.A.,
Defendants-Appellees. N
Appeal from the United States District Court
for the Northern District of Ohio at Cleveland.
No. 08-00139—Sara E. Lioi, District Judge.
Argued: April 27, 2010
Decided and Filed: July 27, 2010
Before: SUHRHEINRICH, McKEAGUE, and GRIFFIN, Circuit Judges.
_________________
COUNSEL
ARGUED: Joshua R. Cohen, COHEN ROSENTHAL & KRAMER LLP, Cleveland, Ohio,
for Appellant. David F. Adler, JONES DAY, Cleveland, Ohio, for Appellees. ON BRIEF:
Joshua R. Cohen, Jason R. Bristol, COHEN ROSENTHAL & KRAMER LLP, Cleveland,
Ohio, Robert J. Triozzi, Gary S. Singletary, Michael F. Cosgrove, CITY OF CLEVELAND
LAW DEPARTMENT, Cleveland, Ohio, for Appellant. David F. Adler, Andrew G.
Fiorella, JONES DAY, Cleveland, Ohio, Louis A. Chaiten, Eric E. Murphy, JONES DAY,
1
No. 09-3608 City of Cleveland v. Ameriquest Mortgage Page 2
Securities, et al.
Columbus, Ohio, Robert D. Kehoe, Joseph J. Jerse, KEHOE & ASSOCIATES, Cleveland,
Ohio, Joanne N. Davies, BUCHALTER NEMER, Irvine, California, Bernard LeSage,
Shannon Keast, BUCHALTER NEMER, Los Angeles, California, Michael N. Ungar, Isaac
Schulz, Richik Sarkar, ULMER & BERNE, Cleveland, Ohio, Brian D. Boyle, Christopher
D. Catalano, O’MELVENY & MYERS LLP, Washington, D.C., William H. Falin,
MOSCARINO & TREU, Cleveland, Ohio, Charles E. Davidow, PAUL WEISS RIFKIND
WHARTON & GARRISON, Washington, D.C., Gabrielle E. Tenzer, PAUL WEISS
RIFKIND WHARTON & GARRISON, New York, New York, William W. Jacobs, Kip
Thomas Bollin, Robin M. Wilson, THOMPSON HINE, Cleveland, Ohio, Jeffrey Q. Smith,
Scott E. Eckas, BINGHAM McCUTCHEN LLP, New York, New York, Richard H.
Klapper, Michael T. Tomaino, Jr., SULLIVAN & CROMWELL LLP, New York, New
York, W. Stuart Dornette, TAFT STETTINIUS & HOLLISTER LLP, Cincinnati, Ohio,
Stephen M. O’Bryan, TAFT STETTINIUS & HOLLISTER LLP, Cleveland, Ohio, Thomas
Robert Lucchesi, BAKER & HOSTETLER LLP, Cleveland, Ohio, Benjamin Klubes,
BUCKLEY SANDLER LLP, Washington, D.C., David H. Kistenbroker, Theresa L. Davis,
KATTEN MUCHIN ROSENMAN LLP, Chicago, Illinois, Robert B. Casarona, ROETZEL
& ANDRESS, LPA, Cleveland, Ohio, Robert N. Rapp, CALFEE, HALTER & GRISWOLD
LLP, Cleveland, Ohio, Jay B. Kasner, SKADDEN, ARPS, SLATE, MEAGHER & FLOM,
New York, New York, Joseph L. Barloon, SKADDEN, ARPS, SLATE, MEAGHER &
FLOM, Washington, D.C., John F. Marsh, HAHN LOESER & PARKS, Columbus, Ohio,
Brian Brooks, O’MELVENY & MEYERS, Washington, D.C., Elizabeth McKeen,
O’MELVENY & MEYERS, Newport Beach, California, Joseph T. Dattilo, BROUSE
McDOWELL, Cleveland, Ohio, Patrick M. McLaughlin, McLAUGHLIN & McCAFFREY,
LLP, Cleveland, Ohio, Robert D. Wick, Keith A. Noreika, COVINGTON & BURLING
LLP, Washington, D.C., for Appellees. Linda I. Cook, OHIO POVERTY LAW CENTER,
Columbus, Ohio, Eugene L. Hollins, Dale D. Cook, WILES, BOYLE, BURKHOLDER &
BRINGARDNER CO., L.P.A., Columbus, Ohio, for Amici Curiae.
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OPINION
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SUHRHEINRICH, Circuit Judge. In this diversity case, the city of Cleveland, Ohio
(“Cleveland”), brings a public nuisance suit against twenty-two financial entities
(“Defendants”) that it claims are responsible for a large portion of the subprime lending
1
market in Cleveland and nationally. Cleveland argues that the Defendants’ financing of
subprime mortgages, the alleged public nuisance, led to a foreclosure crisis in Cleveland
that devastated its neighborhoods and economy. On appeal, Cleveland initially contends
1
In Ohio, a public nuisance is defined as “an unreasonable interference with a right common to
the general public.” Cincinnati v. Beretta U.S.A. Corp., 768 N.E.2d 1136, 1142 (Ohio 2002) (quoting
Restatement (Second) of Torts § 821B(1)).
No. 09-3608 City of Cleveland v. Ameriquest Mortgage Page 3
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that the district court erred when it refused to remand this suit to Ohio state court. It also
appeals, on the merits, the district court’s four independent reasons for dismissing this
suit pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure: (1) preemption,
(2) the economic loss rule, (3) unreasonable interference of a public right, and
(4) proximate cause. The district court considered each reason to be dispositive in favor
of all Defendants. For the reasons that follow, we AFFIRM.
I. Background
A. Factual Background
In its complaint, Cleveland acknowledges that, for the most part, the Defendants
did not originate the subprime mortgages at issue in this appeal. Nevertheless, it alleges
that the Defendants’ financing, purchasing, and pooling of vast amounts of these loans,
to create mortgage-backed securities to sell to their customers, constituted a public
nuisance. Cleveland puts forward the following factual pattern to support its claim:
(1) Wall Street made cash available to subprime lenders, which (2) used
the funds to make subprime loans to consumers, then (3) sold the related
mortgages back to the same cadre of Wall Street, which (4) packaged
them and sold the income they generated to investors in the form of
mortgage-backed securities, and (5) used the proceeds to repeat the
process.
Cleveland maintains that, beginning in 2003, the Defendants became more
brazen in their lending activities and began to direct lenders on the types of loans to issue
to meet the Defendants’ securitization needs. These pressures “subverted the normal
operation of the mortgage market and inevitably led to the abandonment of meaningful
underwriting standards.” Because of growth in the real-estate market, the Defendants
ignored these issues and turned a blind-eye even when loans made no economic sense.
The complaint concludes that these “securitizers” were principally responsible for the
financial crisis.
Cleveland alleges that the factors that led to the housing bubble never
materialized in Cleveland because of its high rate of poverty, sluggish job market,
No. 09-3608 City of Cleveland v. Ameriquest Mortgage Page 4
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struggling Rust-Belt economy, declining manufacturing sector, sparse housing demand,
and difficulty fostering new industries. Cleveland’s unique economic plight and its
stagnant housing market made mass foreclosures the foreseeable and inevitable result
of the subprime financing provided by the Defendants. The Defendants knew about
these unique issues but nevertheless continued to finance subprime mortgages in
Cleveland. These activities led to thousands of foreclosed homes in neighborhoods
throughout Cleveland that became “eyesores, fire hazards, and easy prey for looters and
drug dealers in search of a place to conduct their business.”
Cleveland claims that each foreclosure creates tangible costs for the city,
including increased expenditures for fire and police protection and maintenance and
demolition costs. Tax revenues also plummeted because of the decline in housing values
due to the foreclosed homes. Cleveland seeks to recover millions in municipal
expenditures and diminished tax revenues as damages.
B. Procedural Background
Cleveland filed suit on January 10, 2008, in the Court of Common Pleas for
Cuyahoga County, Ohio. It brought a single claim of public nuisance against twenty-one
defendants—some of which are current Defendants. Asserting diversity of citizenship,
Lehman Brothers Holdings, Inc. (“Lehman Brothers”),2 removed the suit to the Northern
District of Ohio on January 16, 2008. Cleveland moved the next day to remand the case
to state court. It argued that Lehman Brothers’s removal was improper because Lehman
Brothers was required to either obtain the unanimous consent of all of the defendants
before removing the case or explain in its Notice of Removal why it did not pursue this
course of action. All of the defendants joined a motion opposing the motion to remand
shortly thereafter. After supplemental briefing and oral argument, the district court
denied Cleveland’s motion to remand on August 8, 2008. City of Cleveland v. Deutsche
Bank Trust Co., 571 F. Supp. 2d 807 (N.D. Ohio 2008).
2
Lehman Brothers is no longer a Defendant.
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Subsequently, Cleveland filed a new public nuisance claim in state court. It
made allegations similar to those found in the original complaint but brought the suit
against some new defendants and some affiliates of the original defendants. For
example, Countrywide Financial Corp. was a defendant in the original suit, but
Cleveland sued Countrywide Home Loans, Inc. and Countrywide Securities Corp. in its
new state court suit. A Joint Motion for Entry of Agreed Order Regarding Plaintiff’s
Motion for Leave to Amend (“Joint Motion”) was then agreed to,3 which the district
court approved. The Joint Motion was intended “to resolve the disagreement that has
arisen between the parties and to avoid protracted litigation . . . .” City of Cleveland v.
Deutsche Bank Trust Co., No. 1:08-CV-00139 (N.D. Ohio September 29, 2008) (order
approving Joint Motion). Among other things, it limited which defendants Cleveland
could sue. Afterwards, Cleveland filed its Second Amended complaint in federal
court—the complaint at issue in this appeal—against the current Defendants.
Defendants filed eight separate motions to dismiss—some individually and some
collectively. The district court dismissed the complaint pursuant to Rule 12(b)(6) on
May 15, 2009, for four independent reasons. City of Cleveland v. Ameriquest Mortg.
Sec., Inc., 621 F. Supp. 2d 513 (N.D. Ohio 2009). First, the court held that Ohio Rev.
Code § 1.63, an Ohio state law that forbids municipalities from engaging in mortgage
regulation, preempted Cleveland’s public nuisance claim. Id. at 520. Second, the court
held that Ohio’s economic loss rule barred Cleveland’s claim. Id. at 526. Third, the
court held that subprime lending cannot form the basis of a public nuisance claim
because it is legal, and that, by extension, funding subprime lending also cannot be a
public nuisance. Id. at 531. Fourth, the court held that the assertions in Cleveland’s
complaint were insufficient to satisfy the directness requirement of proximate cause
because its allegations did not “demonstrate any direct relationship between its alleged
injury and [the] Defendants’ conduct.” Id. at 533. The court declined to rule on the
3
Cleveland entered into a separate agreement with Wells Fargo Bank, N.A. and Wells Fargo
Asset Securities Corporation, where it also agreed to pursue all claims “in federal court in the federal
nuisance action.” GMAC-RFC was not a party to the Joint Motion.
No. 09-3608 City of Cleveland v. Ameriquest Mortgage Page 6
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other four motions because it found its rulings on the four issues it considered to be
dispositive for all of the Defendants. Id. at 516. Cleveland appeals.
II. Analysis
A. Motion to Remand
Cleveland argues that the district court should have remanded this case to Ohio
court because the Defendants’ removal was defective. However, Cleveland waived its
right to pursue this issue on appeal because the Joint Motion contained a clause that
stated: “Plaintiff shall prosecute the public nuisance claim against the Eliminated
Defendants and the Amended Defendants, if at all, exclusively in this Court and as part
of this case . . . .”4 It is well-established that the waiver of a party’s right to removal
must be clear and unequivocal. See, e.g., Cadle Co. v. Reiner, Reiner & Bendett, P.C.,
307 F. App’x 884, 886 (6th Cir. 2009). Further, “[g]eneral principles of contract
interpretation apply when determining whether a clause explicitly waives the right of
removal.” Id. (citing In re Delta Am. Re Ins. Co., 900 F.2d 890, 892 (6th Cir. 1990)).
Here, there is no plausible way to read this language as anything other than a
clear and unequivocal waiver of Cleveland’s right to further pursue its motion to remand
on appeal, and Cleveland neither contests the validity of the Joint Motion nor suggests
an alternative reading of this clause.5 Instead, Cleveland contends that, despite the
express language in the Joint Motion, it did not waive its right to appeal this ruling
because it made a tactical decision based on time and money to enter into the agreement.
These reasons are inadequate to void the agreement under the general principles of
contract law. Therefore, the Joint Motion precludes Cleveland from now arguing that
4
All of the current Defendants were parties in the Joint Motion and were listed as either Amended
Defendants or Eliminated Defendants, except for GMAC-RFC. GMAC-RFC was not a party to the Joint
Motion, and was neither an Amended Defendant nor an Eliminated Defendant.
5
Cleveland could have contested the effect of the Joint Motion on its claim against GMAC-RFC.
However, Cleveland has not made this argument in its briefs or at oral argument, so it is waived. See Farm
Labor Org. Comm. v. Ohio State Highway Patrol, 308 F.3d 523, 544 n.8 (6th Cir. 2002) (“It is well
established that an issue not raised in a party’s briefs on appeal may be deemed waived.”).
No. 09-3608 City of Cleveland v. Ameriquest Mortgage Page 7
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the district court should have remanded this suit, and the district court properly permitted
this case to proceed in federal court.
Furthermore, even if we ignore the Joint Motion, the district court still properly
declined to remand this case. We review a district court’s refusal to remand de novo.
Harper v. AutoAlliance Int’l, Inc., 392 F.3d 195, 200 (6th Cir. 2004). Cleveland argues
that the district court’s ruling did not conform with the rule of unanimity. The “rule of
unanimity demands that all defendants must join in a petition to remove a state case to
federal court.” Loftis v. United Parcel Serv., Inc., 342 F.3d 509, 516 (6th Cir. 2003).
This circuit has identified at least three ways to satisfy this rule: all parties that have
been served or otherwise properly joined may (1) join in the removal, (2) file a written
consent to removal, or (3) oppose a motion to remand. Brierly v. Alusuisse Flexible
Packaging, Inc., 184 F.3d 527, 533 n.3 (6th Cir. 1999) (the first two options); Harper,
392 F.3d at 202 (the third option). The Defendants met two of these conditions. First,
after Lehman Brothers filed its notice of removal on January 16, 2008, each Defendant
filed a consent to removal, the last of which was filed February 1, 2008, within the thirty
day period. Second, after Cleveland filed its motion to remand on January 17, 2008, all
of the Defendants opposed Cleveland’s motion to remand on February 1, 2008, also
within the thirty day period.
We note that Cleveland has waived its argument that the rule of unanimity was
violated because Bear Stearns’s consent to removal was invalid. At oral argument,
Cleveland conceded that it had purposefully waited to raise this argument until oral
argument for its motion to remand, while believing that its general motion for remand
would allow it to challenge Bear Stearns’s consent after thirty days. Cleveland
employed this suspect approach despite indicating in its Reply Brief in Support of
Motion for Remand, filed on February 8, 2008, that “[a]ll of the defendants did
eventually give their consent to removal.” Because the argument raised by Cleveland
at oral argument is inconsistent with the arguments it made during the thirty day period,
it has waived its objection to Bear Stearns’s consent. See Mellon v. Int’l Shoe Co., 32
F.2d 390, 391 (D. Mass. 1929) (“This action was entirely inconsistent with the position
No. 09-3608 City of Cleveland v. Ameriquest Mortgage Page 8
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taken in the motion to remand, and, having been done without any reservation of rights
under the motion, had the effect of waiving the motion.”). In any case, Bear Stearns also
joined the opposition to remand, as did all of the Defendants, and this action alone was
sufficient to satisfy the rule of unanimity.
Thus, we now turn to the district court’s dismissal of this suit pursuant to Rule
12(b)(6). For the sake of judicial efficiency, we begin, and end, our analysis with the
district court’s proximate cause ruling.
B. Standard of Review
We review de novo the district court’s dismissal pursuant to Rule 12(b)(6).
Mezibov v. Allen, 411 F.3d 712, 716 (6th Cir. 2005). We construe the complaint in a
light most favorable to the nonmoving party and accept all plausible well-pled factual
allegations as true. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007), and
Commercial Money Ctr., Inc. v. Ill. Union Ins. Co., 508 F.3d 327, 336 (6th Cir. 2007).
“To state a valid claim, a complaint must contain direct or inferential allegations
respecting all the material elements under some viable legal theory.” Id. at 336-37
(citing Mezibov, 411 F.3d at 716).
C. Applicable Law
Because this suit is before us pursuant to our diversity jurisdiction, we apply the
substantive law of Ohio and federal procedural law. Biegas v. Quickway Carriers, Inc.,
573 F.3d 365, 374 (6th Cir. 2009). When applying the substantive law of Ohio, we must
“follow the decisions of the state’s highest court when that court has addressed the
relevant issue.” Savedoff v. Access Group, Inc., 524 F.3d 754, 762 (6th Cir. 2008)
(quoting Talley v. State Farm Fire & Cas. Co., 223 F.3d 323, 326 (6th Cir. 2000)). “If
the issue has not been directly addressed, we must ‘anticipate how the relevant state’s
highest court would rule in the case and are bound by controlling decisions of that
court.” Id. (quoting In re Dow Corning Corp., 419 F.3d 543, 549 (6th Cir. 2005)).
No. 09-3608 City of Cleveland v. Ameriquest Mortgage Page 9
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D. Proximate Cause
Cleveland argues that its complaint alleged facts sufficient to satisfy the
directness requirement. The directness requirement “requires some direct relation
between the injury asserted and the injurious conduct alleged.” Holmes v. Sec. Investor
Prot. Corp., 503 U.S. 258, 268 (1992). Although not the sole element, the requirement
of a direct injury is a “central element” of proximate cause. Perry v. Am. Tobacco Co.,
324 F.3d 845, 848 (6th Cir. 2003). Notably, this requirement is distinct from
foreseeability and applies even if the Defendants intentionally caused the alleged course
of events. Id. at 850. Accordingly, although Cleveland asserts that the Defendants knew
about the consequences of subprime lending, this allegation is not relevant to our
directness requirement analysis.
Holmes is the seminal United States Supreme Court decision that discusses the
directness requirement, and the Ohio Supreme Court has adopted the Holmes Court’s
proximate cause analysis. Cincinnati v. Beretta U.S.A. Corp., 768 N.E.2d 1136, 1148-49
(Ohio 2002). Holmes is therefore the focus of our directness requirement analysis. In
Holmes, the plaintiff, Securities Investor Protection Corporation (“SIPC”), brought suit
against several defendants under the Racketeer Influenced and Corrupt Organizations
Act (“RICO”). Holmes, 503 U.S. at 262. SIPC alleged that these defendants conspired
to fraudulently manipulate stocks, which led to the insolvency of two securities broker-
dealers. Id. at 261. As a result, the broker-dealers failed to satisfy their financial
obligations to their customers, and SIPC, a provider of insurance to bankrupt broker-
dealers that could no longer pay their customers, was forced to cover the broker-dealers’
debts. Id. at 262-63. SIPC sued for reimbursement, but the Court declined to find
liability because “the link [was] too remote between the stock manipulation alleged and
the customers’ harm, being purely contingent on the harm suffered by the broker-
dealers.” Id. at 271.
In Beretta, the Ohio Supreme Court summarized the three reasons given in
Holmes for a directness requirement:
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(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, 768 N.E.2d at 1148 (citing Holmes, 503 U.S. at 269-70). The United States
Supreme Court has since noted that these factors in Holmes are relevant to determine
whether a plaintiff has sufficiently pleaded proximate cause, but all three factors do not
need to be present for remoteness to bar recovery. Anza v. Ideal Steel Supply Corp., 547
U.S. 451, 459 (2006) (noting that the second factor was not implicated yet still holding
that the plaintiff had failed to sufficiently allege proximate cause).
As an initial matter, Cleveland contends that the district court’s proximate cause
analysis at the motion to dismiss stage was premature. As support, it cites this court’s
decision in Trollinger v. Tyson Foods, Inc., 370 F.3d 602 (6th Cir. 2004). In that case,
former employees of a poultry plant sued under RICO, and alleged that the defendant,
the poultry plant owner, schemed with employment agencies to depress wages by hiring
illegal immigrants. Id. We refrained from engaging in a proximate cause analysis at the
pleadings stage because we perceived that the analysis would be too speculative. Id. at
619. However, contrary to Cleveland’s suggestions otherwise, there is no per se rule
against dismissing a complaint for failure to adequately plead proximate cause. In fact,
subsequent to Trollinger, the Supreme Court dismissed the complaint in Anza at the
motion to dismiss stage for failure to plead proximate cause. See Anza, 547 U.S. at 453.
Cleveland still has an obligation to file a complaint that is “plausible on its face.” Bell,
550 U.S. at 556. Accordingly, we, just as the Supreme Court in Anza, proceed to the
question of whether the complaint sufficiently pleaded proximate cause and, specifically,
whether the allegations in the complaint satisfy the directness requirement.
For the purposes of answering this question, the Supreme Court’s application of
Holmes in its subsequent decision Anza is instructive and consistent with how we believe
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the Ohio Supreme Court would consider this matter because the Ohio Supreme Court has
previously adopted the directness requirement precedent of the United States Supreme
Court. See Savedoff, 524 F.3d at 762 (when a state’s highest court has not addressed an
issue, we anticipate how that court would rule). In Anza, the United States Supreme
Court considered the private RICO claim of the plaintiff, Ideal, which alleged that the
defendant, National, engaged in mail and wire fraud that led to lost sales at the plaintiff’s
business. Anza, 547 U.S. at 453. Specifically, the plaintiff alleged that the defendant
defrauded the New York tax authority and used the proceeds from this fraud to offer
lower prices to its customers, which led to the plaintiff’s lower sales because Ideal and
National were competitors. Id. at 457-58. The Court held that the complaint did not
satisfy the directness requirement because the alleged violation did not lead directly to
the plaintiff’s injuries. Id. at 461. It reasoned: “The cause of Ideal’s asserted harms . . .
is a set of actions (offering lower prices) entirely distinct from the alleged RICO
violation (defrauding the State).” Id. at 458.
Similarly, here, the cause of the alleged harms is a set of actions (neglect of
property, starting fires, looting, and dealing drugs) that is completely distinct from the
asserted misconduct (financing subprime loans). See id.; see also Canyon County v.
Syngenta Seeds, Inc., 519 F.3d 969, 982 (9th Cir. 2008) (“Here, just as in Anza, the cause
of the plaintiff’s asserted harms is a set of actions (increased demand by people within
Canyon County for public health care and law enforcement services) entirely distinct
from the alleged RICO violation (the defendants’ knowing hiring of undocumented
workers).”). This lack of directness exposes “the difficulty that can arise when a court
attempts to ascertain the damages caused by some remote action.” Id. (citing Holmes,
503 U.S. at 269 (“[T]he less direct an injury is, the more difficult it becomes to ascertain
the amount of a plaintiff’s damages attributable to the violation, as distinct from other,
independent, factors.”)).
Just as in Anza, “[t]his conclusion is confirmed by considering the directness
requirement’s underlying premises.” Id. Of the three Holmes factors, the first and third
factors are squarely implicated by the facts alleged in the complaint. We begin with an
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analysis of the first factor, which states that indirectness adds to the difficulty of
determining which damages can be attributed to the defendant’s misconduct. See
Beretta, 768 N.E.2d at 1148 (summarizing the first Holmes factor). Again, Anza
provides a useful comparison. In Anza, the Court noted that “[t]he injury Ideal alleges
is its own loss of sales resulting from National’s decreased prices for cash-paying
customers. National, however, could have lowered its prices for any number of reasons
unconnected to the asserted pattern of fraud.” Anza, 547 U.S. at 458-59 (emphasis
added).
Likewise, in this case, the injuries that Cleveland alleges could have been caused
by many other factors unconnected to the Defendants’ conduct. Companies that sold
mortgages to home buyers decided which loans should be made and on what conditions.
Although the complaint alleges that the Defendants sometimes dictated which types of
loans to make, these companies ultimately made the decisions regarding where they
would seek financing, which types of loans they would market and sell, and, once the
mortgagee, whether to keep the mortgage or sell it to another buyer, such as one of the
Defendants. Moreover, home buyers chose to enter into a subprime mortgage and to
default on their loans. And, once the mortgagor defaulted, the mortgagee or his assigns
chose to begin the foreclosure process. These voluntary choices were made for a variety
of reasons unrelated to the Defendants.
The alleged damages that subsequently occurred—eyesores, fires, drug deals, and
looting—were also not directly caused by the Defendants. Homeowners, whether the
initial buyers or mortgagees that later took possession of a home, were responsible for
maintaining their properties. Fires were likely started by negligent or malicious
individuals or occurred because a home was poorly built. Drug dealers and looters made
independent decisions to engage in that criminal conduct. Additionally, other companies
not listed in the complaint financed subprime loans and properties not subject to a
subprime loan nevertheless entered into foreclosure. Similar to Holmes and Anza,
Cleveland has not stated a viable claim when these actions could have occurred for “any
number of reasons unconnected to the asserted pattern of [misconduct].” Id. at 458.
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The involvement of so many independent actors also reveals why Cleveland’s
reliance on Beretta is misplaced. In that case, the Ohio Supreme Court allowed a lawsuit
against handgun manufacturers, brought under numerous theories of liability including
public nuisance, to proceed past the motion to dismiss stage. Beretta, 768 N.E.2d at
1140. But, in Beretta, the plaintiffs accused the defendants of creating and supplying
an illegal firearms market in Cincinnati through their marketing, distribution, and selling
of firearms. Id. at 1143. By contrast, the complaint concedes that, for the most part, the
Defendants did not directly make subprime loans to the homeowners of Cleveland. The
Defendants are instead accused of financing a legal market for these loans. Thus, for
Beretta to be analogous to the instant case, the Ohio Supreme Court would have had to
allow a suit against the banks that provided financing to the gun manufacturers that
allegedly created the illegal secondary market. Because there is another set of
independent actors between the alleged misconduct and the alleged injury, the proximate
cause holding in that case does not logically extend to this one.6
Another similar reason that the complaint does not satisfy the directness
requirement, which also touches on the concerns implicated by the first Holmes factor,
is that the remote connection between the alleged misconduct and the alleged injury
makes it impossible “to ascertain the amount of [Cleveland’s] damages attributable to
the violation.” See Holmes, 503 U.S. at 269. The Court’s reasoning in Anza is once
more instructive:
There is, in addition, a second discontinuity between the RICO
violation and the asserted injury. Ideal’s lost sales could have resulted
from factors other than petitioners’ alleged acts of fraud. Businesses lose
and gain customers for many reasons, and it would require a complex
assessment to establish what portion of Ideal’s lost sales were the product
of National’s decreased prices. . . . The attenuated connection between
Ideal’s injury and the Anzas’ injurious conduct thus implicates
fundamental concerns expressed in Holmes.
6
Although not relevant to the directness requirement, there is at least one other critical difference
between this case and Beretta. The complaint in Beretta accused the defendants of financing an illegal
market for guns, whereas, here, the Defendants allegedly financed a legal subprime mortgage market.
No. 09-3608 City of Cleveland v. Ameriquest Mortgage Page 14
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Anza, 547 U.S. at 459 (internal citations omitted).
Just as in Anza, this case “implicates fundamental concerns expressed in
Holmes.” Id. A “complex assessment” would be needed to determine which municipal
expenditures increased and tax revenues decreased because of the ills caused by
foreclosed homes rather than, inter alia, job losses due to the decline in manufacturing,
fickle consumer tastes, deteriorating schools, a national recession, or increases in crime
not related to foreclosures. Id. Cleveland points to many of these factors in its brief to
demonstrate why the Defendants should have known to avoid financing subprime loans
in Cleveland, but these same reasons make it impossible for Cleveland to plead
proximate cause under Ohio law. See id. (“Further illustrating this point is the
speculative nature of the proceedings that would follow if Ideal were permitted to
maintain its claim.”); see also Canyon County, 519 F.3d at 983 (“The causal chain would
also be difficult to ascertain because there are numerous alternative causes that might be
the actual source or sources of the County’s alleged harm.”).
Finally, Cleveland’s claim fails because, in accordance with Holmes’s third
factor, more immediate victims can sue to the extent that the Defendants violated any
laws. See Anza, 547 U.S. at 460 (“The requirement of a direct causal connection is
especially warranted where the immediate victims . . . can be expected to vindicate the
laws by pursuing their own claims.”). The Supreme Court explained in Anza that when
the adjudication of another party’s claim would be “relatively straightforward” and
“considerably easier,” “[t]here is no need to broaden the universe of actionable harms
to permit . . . suits by parties who have been injured only indirectly.” Id. Here, a suit
brought by a mortgagor whose home has been foreclosed on would be “relatively
straighforward” and damages would be “considerably easier” to calculate because the
mortgagor could limit his suit to the the specific Defendants that financed his subprime
loan or loans. Additionally, other home owners who were injured because their
neighborhood declined due to foreclosed homes, while not necessarily immediate
victims, are closer in the alleged chain of causation than Cleveland. It would be easier
to calculate the damages suffered by property owners in a specific neighborhood, where
No. 09-3608 City of Cleveland v. Ameriquest Mortgage Page 15
Securities, et al.
the court could more readily ascertain how many foreclosures occurred and what caused
them, than to calculate the damages to the whole city of Cleveland. And, to the extent
that misconduct occurred when the Defendants sold mortgages to create mortgage-
backed securities, the buyers of these securities can bring their own causes of action.
These other potential claims obviate the need for this court to allow Cleveland’s claim
to proceed.
In sum, even when viewing the assertions in the complaint in a light most
favorable to Cleveland, the connection between the alleged harm and the alleged
misconduct is too indirect to warrant recovery. Although the facts are different than
those before the Supreme Court in Holmes and Anza, the same directness concerns are
implicated.
III. Conclusion
Our proximate cause holding clearly resolves this case, and we therefore do not
need to address the district court’s remaining reasons for dismissing the complaint.
Accordingly, we AFFIRM.