Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

STEVENS v. HOUSING AUTHORITY OF SOUTH BEND (December 1, 2011)

Bridgett Stevens and her two sons moved into public housing in South Bend, Indiana in 2007. The lease she signed with the Housing Authority of South Bend provided that any involvement in criminal activity by Stevens, her household, or guests could result in immediate termination of the lease. In late 2007, two men were involved in a gunfight in the building's parking lot. One man was Stevens' daughter's boyfriend -- the other was the daughter's former boyfriend, the father of her children, and the invited guest of Stevens son. The Authority issued a notice to vacate the apartment by the end of January, 2008. Stevens filed suit alleging that the Authority violated the Fair Housing Act, that it interfered with her right to make a contract, that it breached its contract with HUD, and that it violated her equal protection and due process rights. The Authority filed a counterclaim for immediate possession of Stevens' apartment. Months later, the authority issued another 30-day notice to vacate. The second notice was based on October and November 2008 incidents of domestic abuse. The Authority issued a third notice in November based on yet another incident of domestic abuse. Stevens never challenged the second or third notices. She vacated the apartment in January 2009. Judge Lozano (N.D. Ind.) granted summary judgment to the Authority. Stevens appeals.

In their opinion, Seventh Circuit judges Posner, Kanne, and Rovner affirmed. The Court first addressed the district court's conclusion that her claims based on the first notice were moot as a result of her involuntary departure after the second and third notices. Her claim is moot if she no longer retains an interest in the outcome. First, she is not entitled to injunctive or declaratory relief because of her failure to challenge the later notices. Second, she does not claim any out-of-pocket losses. Third, although she does claim damages for emotional distress, the Court concluded that she did not meet the standard for proving emotional damages when her testimony is the only offered proof. In so concluding, the Court also rejected Stevens’ contention that the first notice was unlawful in that she had no control over the men who fought. The Court concluded that the Authority's notice was lawful. Under Rucker, no fault evictions based on the criminal activity of invited guests are lawful, even if the criminal activity was without the knowledge of the tenant. The Court turned to her Fair Housing Act claim that the Authority's decision on where to locate the apartment was an act of segregation. But Stevens' proof consisted entirely of her unsupported personal observations. The record is devoid of any evidence concerning the demographics of the community today or when the complex was built in 1961.
 

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ESTATE OF DOROTHY DAVIS v. WELLS FARGO BANK (January 12, 2011)

In 1999, Dorothy Davis lived in a single-family home in Kankakee, Illinois. She was a widow, she was elderly, and she was African-American. A man approached her and offered to make some repairs to her home – and get a new home loan to pay for them. She ended up borrowing almost $90,000 from Mortgage Express and paying over $30,000 in settlement charges. She sued Mortgage Express. A jury found (apparently in Mortgage Express’ absence) in her favor. The court entered judgment for over $135,000 – a judgment she has since been unable to collect. Before Mortgage Express went out of business, it transferred her loan. The loan is now held by Wells Fargo Bank and serviced by Litton Loan Servicing. Wells Fargo and Litton have continued their attempts to collect on the loan. They proposed a modification, demanded payment, and pursued a foreclosure action. Davis, and now her estate, sued Wells Fargo and Litton. She asserted fraud and unconscionability claims under state law, race discrimination claims under both the Fair Housing Act and the Equal Credit Opportunity Act, and a claim for violating the Home Ownership and Equity Protection Act. Judge Aspen (N.D. Ill.) dismissed all of the claims except the FHA claim, on which he granted summary judgment to the defendants. The Estate appeals.

In their opinion, Seventh Circuit Judges Evans, Sykes, and Hamilton affirmed. The Estate’s biggest problem lies in the statutes of limitations, which vary from one to five years. There are only three acts that occurred within even the longest of those periods that could support the Estate's claims: Litton's modification proposal, Wells Fargo's failure to tell Davis that it had acquired the mortgage, and Litton's payoff demand. The Court addressed each of the claims in that light. With respect to unconscionability, the allegations must relate to the formation of the contract. None of the allegations within the limitations periods do so -- the claim was properly dismissed. With respect to fraud, a plaintiff must show reliance. The only possible allegation within the limitations period relating to fraud is Wells Fargo's failure to advise Davis of the loan transfer. Assuming that could amount to a fraudulent omission, Davis never alleged that she relied on it -- the claim was properly dismissed. With respect to the Home Ownership and Equity Protection Act, that statute requires lenders to make certain disclosures in connection with a loan. None of the allegations within the limitations period trigger the disclosure requirements -- the claim was properly dismissed. With respect to the Equal Credit Opportunity Act, the Court stated that that Act prohibits race discrimination against an "applicant," which is further defined as a person who receives an "extension of credit." The Court concluded that Litton's offer to modify the loan, which occurred within the limitations period, was an "extension of credit." Davis further alleged that the offer was racially discriminatory. The Court therefore concluded that the claim should have survived a motion to dismiss. The Court nevertheless affirmed the district court. It found that the defendants would have prevailed on summary judgment for the same reason they did on the FHA claim. Davis simply failed to put forth evidence of discrimination. Finally, the Court considered that FHA claim, the only claim that survived a motion to dismiss in the district court. Davis was given the opportunity, on summary judgment, to come forward with evidence that the defendants discriminated against her on the basis of race. Again, she was limited to conduct occurring within the limitations period. That "evidence" consisted of a) two unsigned and undated affidavits, which the court struck because they did not comply with the rules, b) the declarations of two former Wells Fargo employees, which the court struck because Davis never disclosed the declarants during discovery, and c) Davis' testimony that she believed she was the victim of race discrimination. Davis waived any complaint regarding the affidavits or declarations because she failed to raise any meaningful opposition to the district court’s reasoning on appeal. Her unsubstantiated personal beliefs are simply insufficient to support her claim.

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SWANSON v. CITIBANK (July 30, 2010)

Gloria Swanson, an African-American, brought suit against Citibank and its appraiser alleging violations of the Fair Housing Act and common law fraud. She alleged the following facts: She applied for a home equity loan at a local Citibank branch. She became suspicious that the bank was trying to discourage African-American applications when a bank representative told her she had to be accompanied by her husband (a joint owner of the property). She was also told that Citibank's loan standards were stricter than those of a competing bank which had already denied her a loan. Nevertheless, she returned the following day and completed the application process. Based in large part on Swanson's statement that the home was worth $270,000, Citibank conditionally approved a $50,000 loan. However, when an independent appraiser retained by Citibank appraised the home at only $170,000, Citibank rejected the application. Swanson later ordered her own appraisal, which came in at $240,000. Judge Zagel (N.D. Ill.) granted defendants' motions to dismiss. Swanson appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner (dissenting in part) and Wood affirmed in part and reversed in part. The dismissal gave the Court the opportunity to review the pleading standards in light of the recent Supreme Court decisions in Twombly, Erickson, and Iqbal. First, the Court noted that none of the decisions questioned the validity of Rule 8's requirement of a "short and plain statement of the claim." Nevertheless, Twombly and Iqbal referred to a "plausibility" requirement. The Court viewed that requirement as one in which a court asks if whether it could happen, not whether it did happen. Applying those principles to Swanson's allegations against Citibank, the Court concluded that her bare-bone allegations of the type of discrimination, the discriminator, and the setting of the discrimination were sufficient to state a Fair Housing Act claim. Her fraud claim, however, implicated the "state with peculiarity" requirement of Rule 9(b) and an actual damages pleading requirement. Since Swanson did not plead any damages, her fraud claim was properly dismissed. Applying the principles to Swanson's claims against the appraiser, the Court again concluded that her bare-bone allegations that the appraiser understated the value of her home because of her race stated a claim under the Fair Housing Act. The Court affirmed the dismissal of the fraud claims for the same reason as it did those against Citibank.

Judge Posner agreed with the majority's treatment of the fraud claims but dissented from their treatment of the housing discrimination claims. He believed that the complaint set out an "obvious alternative explanation" for the actions of both the bank and the appraiser. With respect to the bank, Judge Posner cited the economic downturn, the fact that Swanson had already been denied a loan by another bank, and the fact that the appraisal suggested any loan would be undersecured. With respect to the appraiser, he noted the inexact nature of the business and the fact that errors are frequently made. Iqbal teaches us that if there is an "obvious alternative" to the invidious discrimination alleged by the plaintiff, the discrimination alternative is not a plausible one.

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BLOCH v. FRISCHHOLZ (November 13, 2009)

The Blochs have owned and occupied several units in the Shoreline Towers condominium building in Chicago for years. The Blochs are Jewish – each of them has, for years, displayed a mezuzah on the doorpost of his or her unit. In 2001, the Board of Managers of the Condo Association enacted a new rule that prohibited the placement of "objects of any sort" outside any unit in the building. For several years, enforcement of the rule was generally limited to the removal of clutter. In 2004, however, the Association begin to interpret the rule to include a mezuzah (as well as wreaths, crucifixes, political posters, etc.). Despite repeated appeals and attempts to educate the Board on the religious significance of a mezuzah, the practice continued. The Blochs filed suit, seeking relief under the Fair Housing Act (FHA) and 42 U.S.C . § 1982. The district court granted summary judgment to the defendants. A panel of the Seventh Circuit affirmed, with one dissent. The Blochs sought rehearing en banc.

In their opinion, Chief Judge Easterbrook and Judges Bauer, Posner, Kanne, Wood, Evans, Sykes and Tinder affirmed in part and reversed and remanded in part. The Blochs asserted three separate FHA theories -- the Court addressed each in turn. Under § 3604(a), it is unlawful to "refuse to sell or rent" or to "refuse to negotiate for the sale or rental" or to "otherwise make unavailable" a dwelling to a person because of religion. Referring to its decision in Halprin, the Court stated that the FHA is generally concerned with access to housing and does not support a claim of discrimination arising after a purchase. Although the Court thought the section might support a constructive eviction claim, it concluded that the Blochs could not maintain such a claim since they never vacated the premises. The Court affirmed with respect to § 3604(a). Section 3604(b) prohibits discrimination based on religion against any person in the terms or conditions of the sale or rental of a dwelling. The Court concluded that one of the terms and conditions of the Blochs' purchase of a condominium unit was their agreement to be governed by the Condo Association and its Board of Managers. Although § 3604(b) does not address isolated discriminatory conduct of neighbors, the Court concluded that it did prohibit the Association from discriminating against the Blochs in its enforcement of its rules. The Blocks could rely on § 3604(b) if they produced sufficient evidence of discrimination. Thirdly, the Court considered § 3617 of the FHA. That section makes it unlawful to "coerce, intimidate, threaten, or interfere" with any person's exercise or enjoyment of any right granted by other sections of the FHA. The Court concluded, effectively overruling part of Halprin, that the interference could occur post-purchase. Like their claim under § 3604(b), the Court concluded that the Blochs could pursue a claim under § 3617 if there were sufficient evidence of discriminatory intent. On the issue of discriminatory intent, the Court concluded that the combination of facts and inferences on the record was sufficient to allow a jury to conclude that the conduct of the Association was intentionally discriminatory toward the Blochs because of their religion.

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