April 03, 2019

Jenner & Block again won a significant victory in the California Court of Appeal on behalf of three groups that assist low-income and minority homeowners.

Today, the California Court of Appeal, Third Appellate District, upheld its original decision, issued in July 2018, in favor of the National Asian American Coalition, COR Community Development Corporation and the National Hispanic Christian Leadership Conference.

The Court of Appeal justices remanded the plaintiffs’ case back to the trial court with directions to the court to issue a writ of mandate requiring California Governor Gavin Newsom (as successor to former Governor Jerry Brown) to transfer more than $331 million from the State’s general fund to a settlement fund established to provide aid to financially distressed homeowners following the subprime mortgage crisis. 

After California received these funds in 2012, then-Governor Jerry Brown diverted the money to instead plug holes in California’s budget, despite a federal judge’s consent order directing the use of the funds specifically to help struggling homeowners.

In 2014, the firm filed a lawsuit on behalf of the three groups challenging Governor Brown’s diversions of funds that had been designated to help homeowners from the National Mortgage Special Deposit Fund (NMSDF) to the State’s general fund.  In June 2015 after a one-day trial, the trial court agreed with the firm’s position, declaring “that $331,044,084 in offsets were unlawfully diverted from the NMSDF” and that California “is obligated to restore/return those funds to the NMSDF.”  However, the court believed that separation-of-powers considerations precluded the court from issuing a writ of mandate requiring the transfer of the funds back to the NMSDF and therefore simply enjoined California “to restore/return those funds to the NMSDF as soon as there is a sufficient appropriation ‘reasonably’ and ‘generally’ available for such purpose.”  The trial court ended its ruling by calling on the Legislature and the Governor to “take whatever steps are necessary and appropriate to meet this obligation.”

The State appealed.  Following oral argument in Sacramento, the three-judge appellate court delivered a full victory to the firm’s clients.  The appellate court not only agreed with the trial court’s ruling that the funds were unlawfully appropriated, but also went further than the trial court in ordering the full remedy the firm’s clients had requested.  The appellate court “remand[ed] the matter to the trial court with directions to issue a writ of mandate directing the immediate retransfer from the General Fund to the NMS Deposit Fund the sum of $331,044,084.”

After the Court of Appeal issued its July 2018 decision, Governor Brown appealed it to the California Supreme Court, which remanded the case back to the Court of Appeal in light of a new bill the governor signed into law in September 2018 aimed at circumventing the appellate decision and allowing the $331 million to be spent for general purposes and not in the aid of the struggling homeowners who were supposed to benefit from those funds.

In its latest ruling, the Court of Appeal said that although it gave the new law “all due consideration,” it remained unpersuaded by the defendants’ arguments and confirmed the conclusions reached in the original opinion in support of its order directing the trial court to issue the writ.

Several media outlets covered the decision, including San Francisco Chronicle, The Recorder (subscription required), Daily Journal (subscription required), Courthouse News Service, KNX 1070 News Radio and News Radio KFBK. Please click here to listen to KFBK’s analysis of the decision.

The Jenner & Block team, led by Partner Neil M. Barofsky, included Partners Rick Richmond, Jessica Ring Amunson and Jeffrey A. Atteberry, and Associates Alexander M. Smith, Benjamin Eidelson and Ava U. McAlpin.