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Anderson v. Wachovia Mortgage Corp.

September 13, 2010

TOLANO ANDERSON; CATHY ANDERSON; RICHARD WILKINS; BRENDA WILKINS; LLOYD WHEATLEY; AUDRIA WHEATLEY, APPELLANTS
v.
WACHOVIA MORTGAGE CORPORATION; WACHOVIA CORPORATION, APPELLANTS



Appeals from the United States District Court for the District of Delaware (D.C. Civil No. 06-cv-00567) District Judge: Honorable Sue L. Robinson.

The opinion of the court was delivered by: Rendell, Circuit Judge.

PRECEDENTIAL

Argued January 25, 2010

Before: RENDELL and JORDAN, Circuit Judges, and PADOVA, District Judge*fn1.

OPINION OF THE COURT

This case is brought by three African-American couples who, in 2004, purchased adjacent houses in a Dover, Delaware, community known as "Silver Lake." Plaintiffs received mortgages from Wachovia Mortgage Corporation, but only after Wachovia imposed several conditions on the approvals of these mortgages. Plaintiffs allege that these conditions were racially motivated, and brought suit against Wachovia under 42 U.S.C. § 1981 and various state law causes of action.

This appeal requires us to identify, as a matter of first impression, the elements of a prima facie case of lending discrimination under § 1981. Whether plaintiffs have made out a prima facie case of discrimination is a close call, but even if they have, they have not undermined Wachovia's legitimate reasons for imposing the conditions it did. Thus, we conclude that they have not shown that the mortgage conditions were imposed for discriminatory reasons. The District Court therefore properly granted summary judgment to Wachovia on the § 1981 claim. We also conclude that the District Court correctly granted summary judgment on plaintiffs' breach of contract and tortious interference claims, and that it acted within its discretion in denying plaintiffs' motion to compel certain discovery. Finally, we find that the District Court acted within its discretion in remanding plaintiffs' good faith and fair dealing claim to Delaware state court. We will therefore affirm the District Court's orders and judgment.

I.

A.

Plaintiffs Tolano and Cathy Anderson, Richard and Brenda Wilkins, and Lloyd and Audria Wheatley purchased adjacent houses in the Silver Lake community from an individual named Peter Aigner. On June 18, 2004, plaintiffs agreed to go to settlement on August 6, and agreed that if the houses were not purchased by that date they would forfeit their joint deposit of $40,000 on the total purchase price for all three homes of $800,000. After reaching this agreement, plaintiffs contacted Wachovia to arrange financing.

Several individuals at Wachovia were involved with plaintiffs' loans. J.D. Hogsten was assigned as plaintiffs' loan officer, and appears to have had the most contact with them. Colleen Fazzino acted as the underwriter for the Anderson and Wheatley loans, George Akerley acted as the underwriter for the Wilkins loan, and Terri Hamm acted as an "exception officer" to address issues specific to the Wheatley loan.

Each of the couples' loans was subject to a unique set of conditions. With respect to the Anderson loan, plaintiffs claim that Wachovia mandated extensive, pre-sale repairs to the house's drywall, insulation, and plumbing, after an independent appraiser informed Hogsten that the property could not be appraised without such repairs. The Andersons contend that these repairs were especially challenging both because of the accelerated timetable and because they needed to obtain permission from Aigner to make repairs before purchasing the house. Nonetheless, the repairs were completed, and the sale closed on schedule.

Wachovia imposed several conditions on the Wheatley loan. It initially denied his application for a non-income-verification loan, which would have required a 15% down payment, because Mr. Wheatley's credit score was too low for that type of loan.*fn2 The Wheatleys then changed their application to a "stated income loan," JA488, for which the credit score was sufficient, and which would have required a 10% down payment.*fn3 Wachovia, however, then found the property's condition to be inadequate and required repairs to the house's roof, heating system, pipes, and floors. After those repairs were completed and an appraiser submitted a completion certificate, Wachovia required the Wheatleys to submit an additional completion certificate from a roofing specialist showing that the necessary repairs to the roof had been completed. The Wheatleys were not told of this new requirement until the day of closing, preventing the closing from occurring on schedule. (Aigner granted an extension of the sale deadline, however, and the Wheatley sale closed on August 13.) In addition, after conditionally approving the Wheatleys for the loan requiring only a 10% down payment, Wachovia reclassified the loan as an "exception loan" and required them to provide a 20% down payment. When the Wheatleys attempted to use funds from their small business toward the down payment, Wachovia required them to have an accountant verify details of the business's tax filings.

Finally, Wachovia challenged the Wilkinses' use of a convenience check issued by their credit card company to pay their earnest money deposit to Aigner. However, once the underwriter learned that Mr. Wilkins had obtained a secured loan and used its proceeds to pay the balance due on his credit card, he determined that this issue had been resolved.

B.

Plaintiffs attempt to support their claims that Wachovia imposed discriminatory conditions on their loans with the following three types of evidence.

First, plaintiffs provide anecdotal evidence of the racial makeup of the Silver Lake community to support their contention that Wachovia imposed the mortgage conditions to prevent them, as African-Americans, from moving into a predominantly Caucasian neighborhood. They testified that the Silver Lake community is "almost exclusively . . . white," and that they believed that the community "desired that it remain that way." JA369. They also presented an affidavit from a Dover insurance agent stating that it was common knowledge that the homes in Silver Lake "were almost all owned by white families." JA191. Mr. Anderson testified that Deanne Wicks, a Wachovia employee who was not involved in these transactions, told him that "'[t]here are a lot of people that are not happy with you all purchasing homes on Silver Lake,'" and that "'Silver Lake is an exclusive lily white community and now here you guys come.'" JA384-85.

Second, plaintiffs offer comparative evidence based on their experiences. They claim that the banks in their prior real estate transactions, which involved purchases of property in minority neighborhoods, did not impose such stringent conditions. Mr. Anderson testified that Wachovia itself had not imposed similar requirements when it financed his prior purchases of several investment properties and an unimproved lot. Mr. Wheatley testified that he had not experienced difficulties in real estate transactions involving other banks. Mr. Wilkins testified that he had never been questioned about the source of his earnest money deposits in prior real estate transactions, although he conceded that he had never used a credit card convenience check for such a purpose before.

Third, plaintiffs testified to a number of comments made by Hogsten that they believe demonstrated discriminatory animus. According to Mr. Anderson, Hogsten said to him, "'you people don't understand how the process works,'" which Anderson believed indicated racial prejudice. JA387. Mr. Wheatley also testified that Hogsten said to him that "you people don't understand the loan process"; Wheatley "infer[red]" that this was a reference to "the Afrocentric race." JA448. Mr. Anderson further testified that Hogsten said, "'I'm getting a lot of pressure on this transaction'" and "'a lot of heat.'" JA398. Although Hogsten did not identify who was pressuring him, Anderson construed his comments to mean that "people did not want this deal to go through and he was being pressured to cause it to collapse." JA398. Mr. Wheatley also testified that Hogsten said "that I'm getting a lot of pressure and there are people who do not want you all to buy these properties." JA442. According to Mr. Wilkins, Hogsten had "a nasty attitude" and was "unprofessional." JA520-21.*fn4

C.

This case was initially filed in Delaware state court, and was removed by Wachovia to federal court. Plaintiffs then amended their complaint, asserting that Wachovia had violated 42 U.S.C. § 1981, had breached a contract with plaintiffs, had breached the covenant of good faith and fair dealing, and had tortiously interfered with plaintiffs' contracts with Aigner. Wachovia moved to dismiss the amended complaint. The District Court granted the motion with respect to the breach of contract and tortious interference claims but denied it with respect to plaintiffs' § 1981 and good faith and fair dealing claims. Anderson v. Wachovia Mortg. Corp. ("Anderson I"), 497 F. Supp. 2d 572 (D. Del. 2007).

After discovery was nearly complete, plaintiffs filed a second amended complaint, which asserted essentially the same legal claims as in the first amended complaint but slightly adjusted the supporting factual allegations.*fn5 Wachovia moved for summary judgment, and the District Court granted summary judgment on the § 1981, breach of contract, and tortious interference claims. However, the Court remanded the case to state court for consideration of the good faith and fair dealing claim. Anderson v. Wachovia Mortg. Corp. ("Anderson II"), 609 F. Supp. 2d 360 (D. Del. 2009). Plaintiffs now appeal the grant of summary judgment, as well as an earlier order denying plaintiffs' motion to compel certain discovery. Wachovia cross-appeals the remand of the good faith and fair dealing claim.

The District Court had jurisdiction over plaintiffs' claims under 28 U.S.C. §§ 1331 and 1367. We have jurisdiction over the appeal and cross-appeal under 28 U.S.C. § 1291.

II.

We exercise plenary review of a District Court's grant of summary judgment, using the same standard applied by the district courts. Fuentes v. Perskie, 32 F.3d 759, 763 (3d Cir. 1994). Under this standard, the movant must demonstrate that "there is no genuine issue as to any material fact and that [it] is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c)(2). "In reviewing the grant of a motion for summary judgment, we (i) resolve conflicting evidence in favor of the non-movant, (ii) do not engage in credibility determinations, and (iii) draw all reasonable inferences in favor of the non-movant." Fuentes, 32 F.3d at 762 n.1.

Plaintiffs' discrimination claims are brought under 42 U.S.C. § 1981, which provides, as relevant here, that "[a]ll persons . . . shall have the same right in every State and Territory to make and enforce contracts." § 1981(a). "The term 'make and enforce contracts' includes the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship." § 1981(b).

We have previously applied the tests used to evaluate employment discrimination claims brought under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., to employment discrimination claims brought under § 1981, since "the substantive elements of a claim under section 1981 are generally identical to the elements of an employment discrimination claim under Title VII." Brown v. J. Kaz, Inc., 581 F.3d 175, 181-82 (3d Cir. 2009). Thus, both the direct evidence test introduced by Price Waterhouse v. Hopkins, 490 U.S. 228 (1989), and the burden-shifting framework introduced by McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), may be used to determine whether an employer has discriminated against a plaintiff in violation of § 1981. See Brown, 581 F.3d at 182; Weldon v. Kraft, Inc., 896 F.2d 793, 796-97 (3d Cir. 1990). This too is a case brought under § 1981, and we deem it best to employ the same frameworks in the context of claims of discriminatory lending under § 1981. We thus hold that the direct evidence and McDonnell Douglas tests should be applied to lending discrimination claims brought under § 1981.*fn6

In doing so, we part ways with the Court of Appeals for the Seventh Circuit, which opined in Latimore v. Citibank Federal Savings Bank, 151 F.3d 712 (7th Cir. 1998), that McDonnell Douglas should be applied only where there is a "basis for comparing the defendant's treatment of the plaintiff with the defendant's treatment of other, similarly situated persons," and thus not in lending discrimination cases, which typically do not involve a "competitive situation" between different borrowers. Id. at 714. In Latimore, the court indicated that a plaintiff can still "try to show in a conventional way, without relying on any special doctrines of burden-shifting, that there is enough evidence, direct or circumstantial, of discrimination to create a triable issue." Id. at 715. We disagree with this approach, as the McDonnell Douglas burden-shifting framework has generally been used in § 1981 discrimination cases and it would be a significant departure, we think, from litigants' settled expectations about the applicable law to single out cases involving alleged discriminatory lending practices for different treatment. We will apply a variation of the McDonnell Douglas test that requires plaintiffs to show "additional evidence" under the fourth prong of the test for establishing a prima facie case.

As addressed in greater detail below, we do not agree that McDonnell Douglas is limited to cases where a plaintiff can produce evidence of a defendant's treatment of directly comparable individuals. The burden of a § 1981 plaintiff is to "prove purposeful discrimination," and the McDonnell Douglas framework assists in this endeavor by structuring the evidence on the issue of "whether the defendant intentionally discriminated against the plaintiff." Patterson v. McLean Credit Union, 491 U.S. 164, 186 (1989), superseded in part by 42 U.S.C. § 1981(b). Although comparative evidence is often highly probative of discrimination, it is not an essential element of a plaintiff's case. Pivirotto v. Innovative Sys., Inc., 191 F.3d 344, 353 (3d Cir. 1999). ...


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