Overview
In an opinion today, Judge Baer denied Morgan Stanley’s motion to dismiss a class action alleging that Morgan Stanley, by purchasing loans from “notoriously predatory” subprime lender New Century, “create[ed] the conditions under which New Century originated toxic loans” to Detroit residents, and thereby “caused African-American borrowers to fall prey to those loans at a disproportionate rate”:
[T]he terms and conditions governing Morgan Stanley’s loan purchases directly resulted in a disparate impact when they caused New Century to issue toxic loans to Plaintiffs. While Morgan Stanley disputes whether it could have caused New Century to issue these loans, that factual inquiry is appropriately reserved for a later stage of this litigation. At this stage, . . ., Plaintiffs’ allegations that Morgan Stanley “required” New Century to issue discriminatory loans are more than sufficient to make Plaintiffs’ claims plausible. Further, whether Morgan Stanley ultimately purchased all of the toxic loans that New Century issued is not relevant at the pleading stage. Instead, Plaintiffs allege a simpler theory: Morgan Stanley’s policies were the cause of all the toxic loans that New Century issued. Nothing more is needed to support Plaintiffs’ claims at this stage.
